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Imf world bank
The document discusses the International Monetary Fund (IMF) and the World Bank, and questions around their continuing relevance. It provides background on the history and objectives of both institutions. For the IMF, it describes how nations can request loans in return for implementing structural adjustment programs. It also notes the dominance of the US within the IMF system. For the World Bank, it outlines the various agencies, key areas of operations, how it is funded and governed, and analytical services provided. However, both organizations have also faced significant criticism around issues like lack of transparency, promotion of Western interests, and negative social and environmental impacts of their policies.
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Imf world bank
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- 2. International Monetary Fund âąThe International Monetary Fund (IMF) is an organization of 187 countries, working to: âą Foster global monetary cooperation âą Facilitate international trade âą Promote high employment and sustainable economic growth âą Reduce poverty around the world.
- 3. History âą IMF wasconceived in July 1944 at the Bretton Woods conference âą It came into existence on 29th December 1945. âą Objective - stabilize exchange rates and assist the reconstruction of the world's international payment system.
- 4. IMF-Basis For Lending âąNations with severe budget deficits, rampant inflation, strict price controls, or significantly over-valued or under-valued currencies run the risk of facing balance of payment crises. Such member states may request loans âą In return, countries are usually required to launch certain reforms, which have often been dubbed the "Washington Consensus". âą These reforms are thought to be beneficial to countries with fixed exchange rate policies that may engage in fiscal, monetary, and political practices which may lead to the crisis itself. âą Thus, the structural adjustment programs are at least ostensibly intended to ensure that the IMF is actually helping to prevent financial crises rather than merely funding financial recklessness.
- 5. Uncle Samâs Dominance âąMajor decisions require an 85% supermajority âą The United States has always been the only country able to block a supermajority on its own. âą With a quota of 17.09% the United States can veto any major decision.
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- 10. For ExampleâŠâŠ âą 1991to 1993, Kenya had its worst economic performance since independence : a) GDP stagnated b) Inflation increased â 100% c) Budget deficit reached about 10% of GDP âą The reason for this meltdown was partly due to the Goldenberg crisis â where millions of shillings were siphoned off the country through illegal means. âąThis was again a consequence of Kenya implementing the IMFâs recommendations and opening up its economy to encourage free trade. To renew its economy, it needed funds from the IMF and the World Bank â but they came at a price. The IMF put conditions on Kenyaâs economy in return for the loan â like the lifting of trade barriers on imported agricultural staples among other things.
- 11. End effects âą Thisled to heavy dumping of the US/EU grain surpluses onto the local market spearheading local agricultural producers into bankruptcy. âą Apart from Kenya, Zimbabwe and Malawi were also heavily affected as they were once self-sufficient grain producing countries until 1990 when the IMF ordered dumping of EU/USA grain surpluses, precipitating local farmers to bankruptcy. âą Tightly regulated and controlled by the international agro-business, this oversupply ultimately leads to stagnation of both production and consumption of essential food staples and the impoverishment of farmers throughout the world.
- 13. What happened? 1. Argentinawas pushed into a devastating economic crisis in December 2001/January 2002, when a partial deposit freeze, a partial default on public debt, and an abandonment of the fixed exchange rate led to a major collapse in the output and high levels of unemployment leading to political and social turmoil. 2. This has raised questions regarding the countryâs relationship with the IMF because they happened while its economic policies were under the close scrutiny of an IMF-supported program. 3. Furthermore, the IMF had been almost continuously engaged in Argentina since 1991, when the âConvertibility Planâ fixed the Argentine peso at parity with the U.S. dollar in a currency board-like arrangement. While Argentina experienced strong growth and very low inflation for much of the 1990s.
- 14. What the IMFdid? 1. IMF backed the âConvertibility Planâ of Argentina by providing it with various aids It arranged massive amounts of loans -- including $40 billion a year ago -- to support the Argentine peso. 2. The IMF also provided extensive technical assistance (TA) during the period, dispatching some 50 missions between 1991 and 2002, mainly in the fiscal, monetary and banking areas. 3. Argentina being a member nation of IMF, had to agree to its policy of free trade. With peso at par with the dollar, people could buy virtually everything they could have thought of. Thus, foreign exchange reserve drastically decreased and the local companies and factories couldnât survive the invasion foreign superior goods. All this led to unemployment in Argentina.
- 15. Culmination 1. It becameclear that they could hardly pay back the loans granted by IMF and under such a chaos, government changed its policy from fixed exchange rate to floating exchange rate. The outcome of the change was that the value of peso deteriorated from 1$=1 peso to 1$=3.18peso. 2. Almost every company in Argentina dealt its transaction in dollars. With the loans taken in dollars it had to repay them in dollars. For Example: A company having a debt of 1000$ would have had to pay it back with 1000 peso, but with the new exchange rate it had to pay almost three times as much. 3. With this bleak scenario, Argentina was declared Bankrupt in in December 2001.
- 17. Questions to ponder âąWhy did IMF back the âConvertibility Planâ? âą Why IMF provided Argentina with too much financing without requiring sufficient policy adjustment? In either case, the eventual collapse of the convertibility regime and the associated adverse economic and social consequences for the country has, rightly or wrongly, had a reputational cost for the IMF.
- 18. ïThe World Bankis an international financial institution that provides financial and technical assistance to developing countries for development programs Headquarters: Washington, DC, and more than 100 country offices Established: July 1, 1944, during a conference of 44 countries in Bretton Woods. WB mission is to ïReduce poverty in the globe ïImprove the living standard The World Bank (WB)
- 19. The World Bank(WB) âą WB focuses on achievement of the Millennium Development Goals that call for the elimination of poverty and sustained development. âą Millennium Development Goals based on Five key factors: ïĄ Build capacity ïĄ Infrastructure creation ïĄ Development of Financial Systems ïĄ Combating corruption ïĄ Research, Consultancy and Training.
- 20. Objective and Function âąProvide assistance to developing countries âą Promote the economic development of the world's poorer countries âą Finance the poorest developing countries whose per capita GNP is less than $865 a year special financial assistance through the International Development Association (IDA).
- 21. The Bank offerstwo basic types of loans: ïĄ Investment loans: Support of economic and social development projects ïĄ Development policy loans: Quick disbursing finance to support countries
- 22. World Bank Groupagencies âą the International Bank for Reconstruction and Development (IBRD), established in 1945, which provides debt financing on the basis of sovereign guarantees; âą the International Finance Corporation (IFC), established in 1956, which provides various forms of financing without sovereign guarantees, primarily to the private sector; âą the International Development Association (IDA), established in 1960, which provides concessional financing (interest-free loans or grants), usually with sovereign guarantees; âą the International Centre for Settlement of Investment Disputes (ICSID), established in 1965, which works with governments to reduce investment risk; âą the Multilateral Investment Guarantee Agency (MIGA), established in 1988, which provides insurance against certain types of risk, including political risk, primarily to the private sector.
- 23. Areas of operation ïĄAgriculture and Rural Development ïĄ Conflict and Development ïĄ Development Operations and Activities ïĄ Economic Policy ïĄ Education ïĄ Energy ïĄ Environment ïĄ Financial Sector ïĄ Gender ïĄ Governance ïĄ Health, Nutrition and Population ïĄ Industry ïĄ International Economics and Trade ïĄ Law and Justice ïĄ Macroeconomic and Economic Growth ïĄ Mining ïĄ Poverty Reduction ïĄ Private Sector ïĄ Public Sector Governance ïĄ Rural Development ïĄ Social Development ïĄ Social Protection ïĄ Trade ïĄ Transport ïĄ Urban Development ïĄ Water Resources ïĄ Water Supply and Sanitation ïĄ Labor and Social Protections
- 24. How is WorldBank Run? âą The World Bank is like a cooperative, where its 184 member countries are shareholders. The shareholders are represented by a Board of Governors, who are the ultimate policy makers at the World Bank. âą The governors are member countries' ministers of finance or ministers of development. âą They meet once a year at the Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund. âą Because the governors only meet annually, they delegate specific duties to 24 Executive Directors, who work on-site at the bank.
- 25. How is WorldBank Run? âą The five largest shareholders, France, Germany, Japan, the United Kingdom and the United States appoint an executive director, âą The other member countries are represented by 19 executive directors. âą The President is elected by the Board of Governors for a five- year, renewable term.
- 26. How is WorldBank Run? âą The executive directors make the boards of directors of the world bank. âą They normally meet at least twice a week to oversee the bank's business, âą Including approval of loans and âą Approve guarantees, âą New policies, âą Country assistance strategies and borrowing and financial decisions. âą The world bank operates day-to-day under the leadership and direction of the president, management and senior staff, and the vice presidents in charge of regions, sectors, networks and functions
- 27. WorldBankVotingPowers Rank Country IBRDCountry IFC Country IDA Country MIGA World 2,074,285 World 2,649,955 World 23,804,709 World 218,321 1 United States 332,630 United States 570,178 United States 2,546,503 United States 32,792 2 Japan 166,056 Japan 163,333 Japan 2,044,447 Japan 9,207 3 China 107,206 Germany 129,707 United Kingdom 1,409,037 Germany 9,164 4 Germany 93,113 France 121,814 Germany 1,319,536 France 8,793 5 France 82,904 United Kingdom 121,814 France 908,581 United Kingdom 8,793 6 United Kingdom 82,904 India 103,652 Saudi Arabia 772,020 China 5,758 7 India 62,502 Russia 103,652 India 661,909 Russia 5,756 8 Canada 58,966 Canada 82,141 Canada 623,798 Saudi Arabia 5,756 9 Italy 51,564 Italy 82,141 Italy 573,632 India 5,599 10 Russia 46,443 China 62,392 China 495,213 Canada 5,453 11 Saudi Arabia 46,443 Netherlands 56,930 Poland 474,294 Italy 5,198 12 Spain 42,910 Belgium 51,409 Netherlands 464,187 Netherlands 4,050 13 Netherlands 42,310 Australia 48,128 Sweden 463,538 Belgium 3,805 14 Brazil 34,634 Switzerland 44,862 Brazil 389,780 Australia 3,247 15 Switzerland 33,258 Brazil 40,278 Australia 293,625 Switzerland 2,871 16 Belgium 33,026 Argentina 38,928 Belgium 258,893 Brazil 2,834 17 Iran 32,105 Spain 37,825 Switzerland 253,747 Spain 2,493 18 South Korea 31,574 Indonesia 30,892 Norway 242,552 Argentina 2,438 19 Australia 30,872 Saudi Arabia 30,861 Denmark 218,104 Indonesia 2,077 20 Turkey 26,255 South Korea 28,894 Spain 206,661 Sweden 2,077
- 28. Source of Fundsfor World Bank âą IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in the world's financial markets. âą The greater proportion of its income comes from lending out its own capital. âą This capital consists of reserves built up over the years and money paid in from the bank's 184 member country shareholders. âą IBRDâs income also pays for world bank operating expenses and has contributed to IDA and debt relief.
- 29. Source of Fundsfor World Bank (contd.) âą IDA is the world's largest source of interest-free loans and grant assistance to the poorest countries. âą This source is replenished every three years by 40 donor countries. âą Additional funds are regenerated through repayments of âą loan principal on 35-to-40-year, âą no-interest loans, which are then available for re-lending. âą IDA accounts for nearly 40% of our lending
- 30. Analytical and AdvisoryServices âą WBâs roles is to provide analysis, advice and information to our member countries âą This is done to make sure each country can deliver the lasting economic and social improvements their people need. âą This is done: âą through economic research on broad issues such as the environment, poverty, trade and globalization and âą through country-specific economic and sector work, âą By evaluating a country's economic prospects by examining its banking systems and financial markets, âą By also examining trade, infrastructure, poverty and social safety net issues. 30
- 31. Capacity Building âą Anothercore bank function is to increase the capabilities of: âą It own stuff âą WB partners âą People in developing countries âą This is done to help them to acquire the knowledge and skills: âą they need to provide technical assistance, âą To improve government performance and delivery of services, âą To sustain poverty reduction programs. 31
- 32. Criticism âą It wasstarted to reduce poverty but it support United Statesâ business interests. âą It is deeply implicated in contemporary modes of donor and NGO driven imperialism. âą The President of the Bank is always a citizen of the United States. âą Lack transparency to external publics. âą It is an instrument for the promotion of U.S. or Western interests. âą The decision-making structure is undemocratic. âą It has consistently pushed a âneo-liberalâ agenda , imposing policies on developing countries .
- 33. âą While theWorld Bank represents 186 countries, it is run by a small number of economically powerful countries. âą The World Bank has dual roles that are contradictory: that of a political organization and that of a practical organization. âą Some analysis shows that the World Bank has increased poverty and been detrimental to the environment, public health and cultural diversity. âą It has been criticized for focusing too much âon issuing loans rather than on achieving concrete development results within a finite period of timeâ.
- 34. The World Bank:Still a 20th Century organization?? âą The same outmoded hierarchical bureaucracy that hamstrings big industrial firms and government departments of the US and Europe is pervasive. âą The World Bank still operates for the most part with processes and systems that were designed half a century ago. Each project to be financed is still reviewed by an incredibly heavy governance structure. âą One of the shocks for each incoming president of the World Bank is the discovery of its governance structure. âą Given the number of players involved, any significant change often results in political gridlock. âą The World Bankâs business model is complicated. There are several different institutions (IBRD, IDA, and IFC).
- 35. The confused missionof the World Bank âą The World Bank got off to a confused start when it was created, along with the International Monetary Fund (IMF), at the Bretton Woods Conference in 1944. âą As JM Keynes quipped at the time, the Conference had created something called a bank that was actually a fund, as well as something called a fund, that was actually a bank. âą Itâs an odd combination of a bank, a university and foundation. âą Although it was started for poverty alleviation, it became a lending machine making poor countries highly indebted.
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Editor's Notes
- #9Â The IMF did not hesitate to support dictatorships when they (and other major capitalist powers) found it opportune.