The World Bank and the international monetary fund (IMF) are financial institutions within the system of the United Nations. Their main aim is to improve the living standards of the citizens of their member states. The approach used by these institutions in the achievement of their objectives is complementary. The IMF focuses on microeconomic issues while the World Bank focuses on reduction of poverty as well as long term development of the economy. This paper is set to highlight a brief history of the IMF and the World Bank, compare the two international financial institutions as well as highlight their influence in the world economy.
In July 1994 after the World War II, representatives of various countries met in Breton Woods, New Hampshire with an aim of laying down a foundation for international financial order (Nafziger 145). It was believed that such an order would prevent an economic crisis. They feared that another financial and economic crisis would again plunge the world into war. Economic crises such as the Great Depression destabilized the United States as well as Europe contributing to the rise of war and fascism. This resulted to the calling of the United Nations Monetary and Financial Conference (UNMFC) in Bretton Woods (Schaa 81). It led to the creation of the World Bank and the International Monetary Fund (IMF). Their role was to rebuild economies that were shattered by the world war as well as prevention of further economic crisis.
The strategy laid down at the Bretton Woods conference was to address the main causes that led to economic collapse before the war as well as obstacles to global prosperity in the future. The main aim of the IMF was to stabilize national currencies and financial markets worldwide. This was to be done through provision of resources that would assist in the establishment of exchange rate regimes and monetary policies that are secure. The World Bank was to facilitate investment in reconstruction as well as development.
The International Monetary Fund
The IMF has a membership of 187 countries who control the operations of the institution. Each member state has a representative in the Board of Governors (IMF 39). They meet once every year to discuss issues facing the world economy and how they can be tackled. However, there is a managing board of 24 people from world’s major political and economic powers. The executive board manages day to day operations of the institution. The board also has a general manager who is elected after every 5 years. Apart from the board, the institution has an International Monetary and Financial Committee (IMFC) that is composed of representatives of the member states. The IMFC meets twice a year with the main aim of providing financial advice to member countries. The voting power in IMF is based on the size of the economy of a given country. However, the United States is more influential in the decisions and operations of the institution since it is a major shareholder.
In the IMFs Articles of Agreement, the conference highlighted the goals of the institution. These goals have become the main principles guiding the operations of IMF. The roles include; facilitating cooperation between countries on monetary issues to prevent financial crisis, assist countries in stabilizing the exchange rates between them as well as maintaining multilateral relationship to eliminate restrictions on global trade. Surveillance, technical and financial assistance are the main activities the IMF uses to achieve its objectives.
The World Bank
The (IBRD) International Bank for Reconstruction and Development commonly known as the World Bank was founded at the Bretton Woods (Steil 128). With the expansion of the scope of World Bank, five financial organizations emerged forming the World Bank Group. These include; the (MIGA), the International Financial Corporation (IFC), the International Centre for Settlement of Investment Disputes (ICSID), IBRD and the International Development Association. (Fernando 634) The main focus of the IDA and IBRD is the monetary policy of the public sector. They provide loans at low interest rates, grants to less developed counties as well as interest free credit. The other three institutions deal with the private sector.
There are similarities in the governance of the two institutions. A board of governors directs the operations of the bank depending on the size of the economy of respective country. In both the IMF and World Bank group, United States is the major shareholder (Woods 16). It therefore influences majority of the decisions made by the World Bank. The governance of the World Bank is almost identical to that of the IMF. All member states have a representative on the board.
Comparison of the IMF and the World Bank
These institutions generally known as the Brett wood institutions have similarities as well as differences in their aims, structures as well as operations. The main aim of the IMF is to promote international monetary cooperation. It also offers advice to countries on strategies of building and maintaining their economies. Additionally, it helps countries in solving their balance of payment issues through loans. However, the IMF has strict conditions for the loans. Critics of IMF believe that the loans provided by the institutions carry hidden charges resulting into the ‘rescued’ countries paying huge amounts of money that end up destabilizing their economies (Breen 73).
The purpose of the World Bank is to assist member states in reduction of poverty as well as aiding the countries in achieving their long term economic goals. This is accomplished by providing financial and technical support to the countries. The financial assistance provided helps countries in reforming sectors of the economy that are unproductive. The bank finances economic growth in various countries of the world. The IMF is smaller when compared to the World Bank both in terms of subsidiaries and staff. The World Bank has five subsidiaries that collectively form the World Bank group. The World Bank being an investment bank, gets is funding from intermediating between recipients and investors. It borrows from one country and lends to another. The IMF is not a bank but and therefore gets its funding from the subscription of the members.
The IMF and the World Bank were intended to assist member countries in building and maintaining their economies. They performed well in the reconstruction of economies that were affected by the world war. However, in recent financial crisis, the institutions have been blamed for collapse of many economies (Danahe 4). When the IMF institutes economic reforms such as regulations of the labour markets, they affect the local industries thereby affecting the production of these firms. When production is affected, the rate of unemployment goes up. This generally affects the economies that the IMF is to rescue. When the economies are affected, the institutions find their way into the markets eventually controlling the economies of the countries. The IMF and the World Bank are therefore considered to have negatively impacted on the world economy.
Works cited
Breen, M. The Politics of IMF Lending. New York City: Springer Publishers, 2013. Print
Danahe, Kevin. 10 Reasons to Abolish the IMF & World Bank. New York: Seven Stories Press, 2011. Print
Fernando, A.C. Business Environment. New York City: Pearson Education Inc, 2011. Print
Fund, International Monetary. International Monetary Fund Annual Report 2011: Pursuing Equitable and Balanced Growth. Washington D.C: International Monetary Fund, 2011. Print
Nafziger, E. Wayne. Economic Development. Cambridge: Cambridge University Press, 2012. Print
Schaa, Rebecca. Development Organizations. New York: Routledge Publishers, 2013. Primt
Steil, Benn. The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order. New Jersey: Princeton University Press, 2013. Print
Woods, Ngaire. The Globalizers: The IMF, the World Bank, and Their Borrowers. New York: Cornell University Press, 2014. Print
