Chapter 18, Problem 12P

To determine

The objectives, functions and policy issues of the World Bank and IMF

Concept introduction:

World Bank − The multilateral institution was created in 1944 as the International Bank for Reconstruction and Development (IBRD) as the development bank to reconstruct the World War II damaged European Economies. It is presently headquartered at Washington along with its twin sister IMF headquarters. Presently, the World Bank consists of two organizations-

1. The International Bank for Reconstruction and Development (IBRD)- To develop the middle-income and creditworthy low-income countries to bolster their economic growth and development.
2. The International Development Association (IDA) - To provide credits and grants to the poorest countries. These credits/grants are the interest free loans to provide financial aid to these countries.

World Bank Group- The Group consists of five complementary organizations to streamline and aid its function of reducing the poverty through developmental assistance to developing and emerging economies across the globe. Together they provide loans, guarantees and technical assistance for projects and programs in the member countries with focus on social development, governance and institution building in the developing countries and environmental protection across the globe. Apart from IBRD and IDA, the other organizations in the group are:

1. International Finance Corporation (IFC) − It operates on the principle of development through the private sector. It finances investment in the private firms and businesses, facilitates capital flows across the financial markets of the world and provides advisory services to the private sector in the member countries justifying its role as the largest global development institution for the private sector.
2. Multilateral Investment Guarantee Agency (MIGA) − The organization operating since 1988 works with the objective to promote FDI in the developing countries to promote economic growth and affect social development in these economies. It insulates the investors from risk by providing political risk insurance guarantee.
3. The International Centre for Settlement of Investment Disputes (ICSID) − It provides facilities for the conciliation and arbitration of investment disputes.

International Monetary Fund (IMF) − It is the twin sister multilateral institution of the World Bank with its origin dating back to 1930s, while its structure and operational formalization was done in 1944 along with IBRD. To correct the international chaos triggered by the Second World War, it provides regulatory, financial and consultative functions. These include credit grants to correct the BoP deficits, surveillance over the monetary and exchange rate polices of the member countries for mutual gain and development. It works towards the establishment of the multilateral system of payments and alleviate the disequilibrium in the international balance of payments. Overall it aims at balanced growth across the member countries to increase employment, real income and optimal utilization of the productive resources across the globe