Role of IMF and World Bank

Introduction

The world’s major international financial institutions represent paradoxical ideals in their quest to satisfy the needs of both developed and developing nations. These institutions are chartered with helping poor nations but are criticized for their neo-colonial policies. Member nations are all considered equal, but contributions make some more equal than others. Mostly, these organizations are managed by rich nations that usurp the autonomy of developing nations in the pursuit of free markets and economic reform.

This paper will examine the roles of the International Monetary Fund and World Bank with parallels to the Asian Development Bank and African Development Bank Group. It will include descriptions of these institutions, an explanation of how they are used in global financing operations and their importance in managing global risk.

What is the Difference Between the IMF and World Bank?

One source describes the differences between the two primary world financial organizations this way: “The IMF keeps account of trade balances between member states, basically who owes whom how much, as an independent auditor. The World Bank on the other hand, gives more long term loans for more general purposes.”

The World Bank is an investment bank mediating between lenders and borrowers. It sells bonds and lends that money to borrowing governments. The IMF was originally founded to oversee the currency exchange market and help stabilize countries’ currencies. The IMF has a pool of funds from which member countries can borrow for up to five years when they need to quickly stabilize their currencies, much like bank overdraft protection.

Interestingly, an unwritten rule dictates that the IMF's managing director must be European and the president of the World Bank from United States. Because voting rights are largely determined by contributions to both organizations, developed countries primarily control the World Bank and the International Monetary Fund while “clients” almost exclusively consist of developing nations. As of November 1, 2004 the United States held 16.4% of total votes, Japan 7.9%, Germany 4.5% and UK and France each held 4.3%. Since major decisions require an 85% super-majority, the U.S. can block any reform in either organization.

What is the International Monetary Fund?

The International Monetary Fund (IMF) is “an organization of 184...

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... less able to mitigate risks and prevent crises from occurring because autonomous governments within member nations will continue to drive their own flawed economic policies. Only when internal policies fail do many member states request help from global financial institutions.

Summary

International financial institutions are fraught with controversy despite their seemingly altruistic objective of providing economic support for ailing member nations. From evolving charters and Western bias to corruption and anti-globalization protests, there is little hope for consensus when dozens of member nations are driven by self-interest. But perhaps, in fact, it is this “invisible hand” of national self-interest makes these institutions work so well.

Sources:

IMF Lending Faces an Uncertain Future

By George Melloan

The Wall Street Journal

June 14, 2005

From Wikipedia, the free encyclopedia http://en.wikipedia.org/wiki/IMF http://en.wikipedia.org/wiki/World_Bank

Web sites: http://www.adb.org/ http://www.adbg.org/ http://www.globalpolicy.org/socecon/bwi-wto/indsisters.htm http://www.imf.org/

http://www.worldbank.org/index.html