World Bank’s & International Monetary Fund’s Rise

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Table of Contents

Introduction
Analysis
Conclusion
Works Cited

Introduction

The World Bank and the International Monetary Fund (IMF) are two international organizations created in the mid-twentieth century. The goals of these organizations are ultimately similar as both aim at the increase of the well-being of the countries throughout the world, either by reducing poverty and granting financial support in the case of World Bank or the increased financial stability, promotion of international trade, and stable economic growth in the case of IMF. As a result, the organizations have followed similar evolutionary paths, with some notable exceptions such as the structural adjustments conducted by the World Bank in the 1980s.

Analysis

The World Bank was conceived at the Bretton Woods Conference in 1944. The initial goal was to create an organization that would help the countries in need, resulting from the devastating World War II, to cope with the disrupted economy. Initially, the World Bank was focused on European countries. Fiscal conservatism was chosen as the preferred political-economic philosophy, which guaranteed the lower debt and more liberal conditions for loans, but meant stricter conditions had to be met by the countries applying for a loan. This effect was illustrated in three years when the first loan was approved to be issued to France for it to rebuild its infrastructure.

The loan was twice lower than the desired sum, and France had to comply with the strict conditions. First, the French government had to be restructured in order to exclude all the members of the Communist coalition. Besides, France had to demonstrate a solid budget that prioritized debt repayment. To ensure this, the World Bank established offices in France and closely monitored the process throughout its implementation.

The same year, however, the first major change occurred in the organization’s policy. With the emergence of other entities that offered similar services as a result of the Marshall plan, the World Bank had to turn to the non-European countries to deal with growing competition (SUNY 2). This defined its specialization for years to come, starting the very next year with the assistance in building the infrastructure on the Damodar river in India. The resources were provided mostly for building irrigation and power plants, as they guarantee the growing income that would eventually allow the repayment of the loan, a common practice up to the late seventies.

Meanwhile, as the new target group was much less sustainable in economic terms, the organization had to rethink its strict demands for loans. As a result, in 1960 a new institution, the International Development Association, was formed as a member of the World Bank Group. This entity focused on loans to the countries with the lowest gross national income.

The next decade saw several important key events. The World Bank’s capital was substantially increased using the global bond market. This increase allowed the organization to broaden the scope of the loans. Besides building the income-producing infrastructure, the funds now were also directed towards the creation of social services and other fields that focused on granting the developing countries the basic needs of their citizens.

The situation changed sharply in 1980, with a change in management. As the diverse and mild policy of the previous decade has led to the creation of the third world debt, the new structural adjustment programs were implemented to streamline the economies, as according to the new management, the loans did not create new wealth. This new direction chosen by the World Bank throughout the eighties was harshly criticized for undermining the social sector (Schilis-Gallego par. 1).

The final turn was taken in the late 1980s when the Bank decided to issue loans to non-government organizations. The environmental movement was prioritized around the same time, by providing funds to the environmental organizations and implementing environment-friendly policies, known as “Six Strategic Themes.” (“Conflicting Views” par. 4)

The International Monetary Fund was conceived in 1944 at the Bretton Woods Conference and officially became fully operational in 1947. Compared to the World Bank, to which the organization is closely related in terms of philosophy and ultimate goals, it has developed in a similar manner but had fewer radical turns in its policies. This is explained in part by the scope of its function. The main goal set by the IMF is economic stability, which is achieved through establishing the stable currency exchange, standardizing and promoting international trade, and support the countries that experience monetary or economic difficulties based on the current imperfection of the global picture.

In terms of scope, this means higher tangibility and less space for deviation. Thus, since its creation, the IMF was subject to little changes. The structural adjustments were implemented as early as 1952 and remained largely unaltered since. The most visible turning point was the end of the Bretton Woods system in 1971, which resulted in a serious disbalance of the economies worldwide. This has prompted the IMF to create the Trust Fund, the program focused on helping to the poorest countries.

The Trust Fund was succeeded with the Structural Adjustment Facility in 1986, the Enhanced Structural Adjustment Facility in 1987, and the Poverty Reduction and Growth Facility in 1999 (IMF 4). Each new program included stronger orientation at poverty reduction in accordance with criticisms voiced regarding the priorities set by the IMF’s structural adjustment programs. While some experts still believe that IMF favors the market development, trade, and production while ignoring the poor social conditions of the population, there is a clear direction taken by the organization to address these criticisms (WEO par. 1).

Conclusion

In conclusion, both the International Monetary Fund and the World Bank have been exhibiting similar development patterns with one notable difference. The World Bank has attempted a tightening of its policies in the 1980s which slowed down the formation of the third world debt but had an adverse effect on the well-being of many countries (“IMF & World Bank” par. 5). This conflicted with the organization’s primary goals and was overturned in the late 1980s. Otherwise, both entities have incorporated gradually more favorable conditions for developing countries over the course of their development.