24 April, 2020
9 Min Read
World Bank and IMF
Part of: GS-II- International organisation (PT-MAINS-PERSONALITY TEST)
The World Bank (WB) is an international organization which provides facilities related to “finance, advice and research to developing nations” in order to bolster their economic development. It plays a stellar role in providing financial and technical assistance to developing countries across the globe. It is a unique financial institution that provides partnerships to reduce poverty and support economic development. It is actually composed of two institutions namely the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). However, there are five institutions within the larger World Bank group. They are following:
The World Bank Group consists of five organizations:
1. The International Bank for Reconstruction and Development
The International Bank for Reconstruction and Development (IBRD) lends to governments of middle-income and creditworthy low-income countries.
2. The International Development Association
The International Development Association (IDA) provides interest-free loans — called credits — and grants to governments of the poorest countries. It is called the soft loan window of the World Bank. Together, IBRD and IDA make up the World Bank.
3. The International Finance Corporation
The International Finance Corporation (IFC) is the largest global development institution focused exclusively on the private sector. It helps developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments.
4. The Multilateral Investment Guarantee Agency
The Multilateral Investment Guarantee Agency (MIGA) was created in 1988 to promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives. MIGA fulfils this mandate by offering political risk insurance (guarantees) to investors and lenders.
5. The International Centre for Settlement of Investment Disputes
The International Centre for Settlement of Investment Disputes (ICSID) provides international facilities for conciliation and arbitration of investment disputes.
Purpose and Function of the World Bank
The World Bank provides low-interest loans, interest-free credit and grants. It focuses on improving education, health, and infrastructure. It also uses funds to modernize a country’s financial sector, agriculture, and natural resources management. The Bank’s stated purpose is to “bridge the economic divide between poor and rich countries”. It does this by turning “rich country resources into poor country growth”. It has a long-term vision to “achieve sustainable poverty reduction”.
To achieve this goal, the World Bank focuses on six areas:
The International Monetary Fund (IMF)
The International Monetary Fund (IMF) is an international organization that aims to promote global economic growth and financial stability meant to encourage international trade and reduce poverty. It is working to foster global monetary cooperation, secure financial stability, facilitate international trade, and promote high employment and sustainable economic growth. The primary purpose of the IMF is to ensure the stability of the international system- the system of exchange rates and international payments. Although the IMF is an agency of the United Nations, it has its own charter, structure and financing arrangements. The IMF not only works with its 187 members, it also collaborates with the World Bank, World Trade Organization and agencies of the United Nations. To become a member of the IMF, countries must apply and be accepted by the other members. Because membership of the World Bank is conditional on being a member of the IMF, the World Bank also has 187 members. These members govern the World Bank through a Board of Governors. Apart from working with developing countries on individual projects, the World Bank also works with various international institutions, along with professional and academic bodies.
Similarities between the WB and IMF
Differences between the WB and the IMF
Despite similarities, however, the Bank and the IMF remain distinct. Following differences exist between them:
Criticism of the WB and the IMF
Critical Role of the Bretton Woods Project
It was established in 1995 by the UK-based Bond Development and Environment Group (DEG) to support civil society to monitor the negative developmental impacts of World Bank and IMF policies and activities. The Bretton Woods Project (BWP) envisions a global economic system that operates on the basis of “primary principles of justice, equity, gender equality, human rights and environmental sustainability”. It is supposed to work with “international institutions that are democratic, inclusive, transparent, accountable, and responsive to citizens, especially the poorest and most vulnerable”. The Bretton Woods Project focuses on the World Bank and the International Monetary Fund (IMF) to challenge their power. It is meant to “open space for civil society and social movements to contribute to the development of policies that are gender transformative, equitable, environmentally sustainable and consistent with international human rights norms”.
Many of the criticisms aimed against the WB and IMF are historical and may not hold true in contemporary times. The two institutions are trying to reorient themselves as per the changed geo-economic realities and changing developmental requirements. The internal assessment has also been catalysed by the geopolitical and geo-economic impact of the BRICS bank and the AIIB as a challenge to the Bretton Woods institutions. Hence, the national governments should undertake a calibrated economic liberalization maintaining the due autonomy of their decision-making to have a win-win situation in tune with the sustainable development ethics.
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