The World bank and the International Monetary fund
The prosperity of much of the world today is due to the inter-related missions of the International Monetary Fund and the World Bank.
The two sister organizations of the World Bank and the International Monetary Fund have grabbed headlines in the press as of late. Meetings between both groups have drawn large crowds of demonstrators that protest the role the organizations are playing on the world stage. Activists accuse both the World Bank and the IMF of encouraging poverty, shifting good jobs away from industrialized nations and dictating austere economic policies to world governments. But the two institutions maintain that nothing is further from the truth, and the prosperity of much of the world today is due to the inter-related missions of the Fund and the Bank.
American tourists receiving instant British pounds at their local currency exchange office before jotting off to Great Britain have the International Monetary Fund to thank. Before the Great Depression of the 1930s, the convertibility of foreign money was never guaranteed. Due to their own economic reasons, governments would limit the exchange of their currency. This caused delays for tourists, but it was disastrous for international trade. If a new manufacturing order from Denmark was ready for the French, the French buyers might find that their shipment would be delayed until the Danish government allowed the French to purchase its currency to pay for the goods. The problems worsened as the economy began to slow with the Great Depression. Eager to find willing buyers for their goods, governments would sell their money for less than it was worth making goods artificially cheaper to undermine the competition. But other governments, in order to compete, resorted to the same practices and the true value of money came into question. The situation spiraled downward until supplier and buyers alike had little faith left in money.
A financial crisis ensued, and World War II only complicated matters. To avoid a repeat of the financial tactics responsible for the Great Depression, governments and scholars set about to find a solution. The American scholar Harry Dexter White and the British economist John Maynard Keynes suggested the idea of a voluntary international financial forum, and the International Monetary Fund was created. Understanding that no financial cooperation among nations could exist when most of Europe was in ruins, government leaders also agreed to create the World Bank, which would develop programs to reconstruct Europe. Both institutions were formally adopted by leading world government leaders in 1944 at the Bretton Woods Conference in Bretton Woods, New Hampshire.
The role of the International Monetary Fund has remained fairly steady over its sixty-four year history. The IMF is a financial forum for openly discussing the fiscal policies of its members and to avoid a return to severe exchange restrictions on international currencies. IMF membership is open to any government which conducts foreign policy and accepts that statues under which the IMF is run. Each participating government is also asked to contribute funds to the operation of the organization. Most funds are put into a special account upon which the organization draws if a member-country needs emergency loans to stabilize its economy. Although voting procedures in place at the IMF are weighted in favor of the largest financial contributors, members reach a consensus before loaning money. Recipient governments are encouraged to restructure their economies to promote free trade, but are under little obligation to follow the measures dictated by the Fund. In its publication materials, the IMF describes itself as ‘…neither a development bank, nor a world central bank, nor an agency that can or wishes to coerce its members to do much of anything.” The Fund believes its strength lies in communication between governments and the elimination of monetary surprises in the international marketplace. Today the IMF has nearly 182 members. The IMF headquarters are located in Washington, DC, but IMF sub-offices exist around the world.
If the IMF has maintained a steady course, the World Bank has done quite the opposite. The original purpose of the World Bank was to organize development projects for reconstructing much of Europe. But as Europe recovered, the organization turned its skills and attention to other countries needing development – mainly Latin America and Africa. With its overriding mission to eliminate poverty worldwide, the World Bank has exploded into a developmental powerhouse that supports a myriad of projects in countries all over the world. The World Bank is owned by 182 member countries and divides its responsibilities among five divisions. The main thrust of the Bank’s work comes from the International Bank for Reconstruction and Development (IBRD). The IBRD provides loans and grants to middle to lower income countries. The second division – The International Development Assistance (IDA) – focuses only on the world’s poorest countries that are ineligible to borrow from the IBRD. Technical assistance and interest free loans are used to fight poverty. The International Finance Corporation (IFC) is tasked with promoting growth in developing countries. This arm of the Bank works closely with private business and investors to infuse developing economies with much needed private sector funds. The Multilateral Investment Guarantee Agency (MIGA) is the newest area of the Bank, having been created in 1988. MIGA support s the IFC by creating a security net for investors seeking to invest in high-risk developing countries. Knowing that some of their investment will be guaranteed by MIGA, investors are more willing to venture into these risky, but needy markets. Finally, the International Centre for Settlement of Investment Disputes (ICSID) seeks to negotiate disagreements between foreign investors and developing countries. The ICSID is technically autonomous from the World Bank, must remains closely in tune with their projects.
The World Bank headquarters is in Washington, DC, but offices are present in almost every developing country in the world. In their effort to eliminate poverty, the World Bank has developed programs to attack the roots of poverty from every angle. World Bank employees in DC and abroad direct projects in health care, maternity, scholarization, agriculture, technology, energy, children, women’s rights, sanitation and so many more.
Despite the Bank’s noble mission, many detractors see their work as harmful. Labor unions protest that the IFC’s encouragement of private business to go abroad reduces needed jobs in industrial countries. Human rights workers feel the private sector investment does not help the local people but enslaves them in factory and assembly line jobs. As the IDA grants a poor country money to build a damn that will provide electricity, environment activists complain that river wildlife will die as a result. The competing interests of worldwide organization groups can make project implementation difficult. The IMF has not avoided criticism. Many feel the IMF wastes money to prop up under-achieving economies. Often money loaned to support currencies is diverted to support political parties. When no measures are taken to restructure a failing economy, the loans are never repaid. All member governments of both organizations continue to support the IMF and the World Bank as evidence by their continued contributions. Although public scrutiny has forced the IMF and the Bank to reassess some of their policies, neither appears in danger of dissolving under this minor public pressure.*******
World Bank /IMF Report says Global Economic Crisis Takes Long-Term Toll on Development
23 April 2010
“It’s a very, very clear statement from the World Bank and the IMF that the effects of the global economic crisis really aren’t over in developing countries.”
A new report says, “The global economic crisis has “slowed the pace of poverty reduction in developing countries – and is hampering progress toward other Millennium Development Goals.”
The World Bank and International Monetary Fund Friday released their Global Monitoring Report 2010.
World Bank Lead Economist and report author Delfin Go, says, “The main point…is that although the recovery is underway there will be lasting and permanent impacts on development prospects and outcomes for years to come.”
He says the global economic crisis slowed much of the development-related gains that had been made.
“Prior to the crisis, a lot of progress was being made on some of these… Millennium Development Goals. As a result of the crisis, there will be persistent gaps and some of the poverty numbers will be slowing down. So the reduction of poverty will not be as much as before,” he says.
Go also expects to see delayed progress in child education completion rates, as well as child and maternal mortality rates.
A bright spot
The report says 53 million more people will remain in “extreme poverty by 2015,” when the MDGs are due to be reached. Nevertheless, there is a bright spot in the findings. The report says despite the economic crisis, “the number of extreme poor could total around 920 million five years from now, marking a significant decline from the 1.8 billion people living in extreme poverty in 1990.”
Based on this projection, the World Bank and IMF say it’s still possible for the developing world to achieve at least one MDG – that of halving extreme poverty – from its 1990 level.
In a statement, the financial institutions say the IMF “provided the resources and policy advice to help prevent the crisis from spinning out of control,” while the World bank group and others “sought to protect core development programs and strengthen the private sector.”
Elizabeth Stuart, spokesperson for the International aid agency OXFAM, is reacting to the Global Monitoring Report, calling the findings “shocking news.”
She adds, “It’s a very, very clear statement from the World Bank and the IMF that the effects of the global economic crisis really aren’t over in developing countries.”
Stuart says rich nations are seeing signs of recovery, but “for developing countries, “the worst is yet to come for this crisis.”
Recent OXFAM research finds developing nations are being forced to cut “vital spending” on health care, education and agriculture.
“This means that the poorest people in the poorest countries are going to be feeling the impact of this crisis more and more and more. And remember that this is a crisis that they had nothing to do with. This was caused by the rich world’s bankers,” she says.
Reacting to the long-term projected declline in “extreme poor,” Stuart says, “It does seem to have that silver lining. I think what’s very clear is that all sub-Saharan African countries are going to miss the Millennium Development Goals. We’re just five years away from the deadline.”
The OXFAM spokesperson says, “Just at the time when (developing countries) should be really increasing spending on things like health and education, so they can hire teachers and doctors and nurses, they’re having to cut it because their revenues have been hit so hard.”
At the 2005 G8 summit in Gleneagles, Scotland, leaders made commitments to increase aid to Africa and other developing regions.
“We just in the last couple of weeks have the latest aid figures out and aid is actually falling. So our number one call is of course that the rich world needs to live up to its promises,” she says.
OXFAM is also calling on developing countries themselves to continue “prioritizing spending” on health and education and agriculture, despite the economic crisis. Stuart calls such spending “essential” for them to have a chance of achieving the MDGs on time.
OXFAM also says the IMF needs to change the way it does business.
“At the moment the IMF can only give loans to poor countries. These poor countries risk getting into debt again because they’re trying to deal with a crisis that was caused by rich world bankers,” she says.
Many economists and groups, like OXFAM, have long called for changes in the IMF, saying its structural adjustment polices created more problems than they solved and put many countries deeply in debt. They’re calling on the IMF to provide grants instead of loans.