There has been much confusion and difficulty in distinguishing the World Bank from the International Monetary Fund due to the many similar characteristics they both portray. The World Bank and International Monetary Fund originated as a result of the Bretton Woods conference in 1944 with the intention to rebuild world finance post World War 2. The goal of the conference was to establish a more stable and prosperous global economy. The superficial goal to help economically troubled nations causes controversies, however the role and function of both institutions help distinguish the World Bank and International Monetary Fund respectively.
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The World Bank is an internationally supported bank that provides financial and technical assistance to developing countries with the stated goal of reducing poverty and the restoration of economies destroyed or disrupted by war. The World Bank is comprised of two major organizations, which are The International Bank for reconstruction and the International development Association. In addition, there are three other closely associated institutions but are legally and financially separate: The International Finance Corporation, The International Center for Settlement of Investment Disputes and The Multilateral Guarantee Agency. These five closely associated institutions work together to improve the living standards of people in developing countries. The World Bank employs economists, engineers of all sorts, urban planners, statisticians, lawyers, portfolio managers, loan officers and project appraisers to name a few, who all work together to fight poverty. The World Bank is an investment bank; that borrows from investors and lends out to the recipients. The owners are the governments of its 180-member nation with equity shares in the Bank. The World Bank has money available for distribution by selling bonds and notes directly to the governments and central banks. These proceeds are lent to developing countries with affordable rates of interest to help finance projects and policy reform programs for the benefit of the society and economy. Though the World Bank has sufficient funds to supply, not all countries are eligible for low interest rates or any funds at all. The World Bank only lends money to credit worthy governments of developing nations. The World Bank encourages poor countries to develop with the technical assistance and funding for projects and policies they are eligible for. The Bank is helping the poor to gain access to such necessities as clean water, health care, family planning assistance, food, education and housing. Every project funded by the World Bank is in collaboration with national governments, local agencies and multilateral assistance organizations. When the Bank grants loans to developing countries the intention is not to compete with other sources of income. In addition to providing funds for projects, the World Bank carefully studies the economic condition of the borrowing country to determine when the lending should be considered which would formulate appropriate strategies with ease to help the economy grow.
The International Monetary Fund (IMF) is an organization of 188 countries that was created to promote the international monetary cooperation, assist multilateral system of payments, facilitate the expansion and balanced growth of international trade, stabilize exchange rates and oversee the reenactment of the world’s international payment system to members whoever have experiencing in reducing their deficiency of the balance of payments. IMF is the main institution of the international monetary system, which is critical for fostering sustainable economic growth, increasing living standards and reducing poverty. IMF also coordinates its members to achieve greater international cooperation by setting economic policies and giving financial assistance to countries facing balance of payments problems and assists in resolving economic and financial barriers. The IMF is funded by the contributions made by each member on an annual basis. The IMF took three main actions to find a solution in maintaining a fixed exchange rate in the world. The actions were: initiating all members to allow their national currencies to be exchanged without any restrictions, monitoring member’s obligations in a fixed exchange system and providing short and medium term financial assistance to members that run into temporary balance of payment difficulties. The IMF will lend money to subsidize policy reforms. To insure that the funds are being used efficiently, the IMF closely monitors the country’s economic progress during the time period and provides any sort of technical assistance or consultative services when necessary. The IMF is authorized to distribute fiduciary assets called SDR, which will provide its members with additional liquidity. Members can use the SDR as part of their capital or replace the use of national currencies during transactions with other members. To date the IMF has issued over 21.4 billion SDR, which is approximately valued at about $30 billion U.S Dollars.
Since the founding of the World Bank and IMF, there has been much collaboration at many levels to assist countries and work together on several projects. Both organizations contributed funds, technical assistance and services for the stability of the international monetary system and to the nurturing of balanced economics with the exception of political restrictions. The World Bank provides assistance toward projects of economic reform whereas the IMF focuses on structural reform of its member’s economies. The Managing Director of the IMF and the President of the World Bank have visited several regions and countries together and meet regularly to discuss on major issues and how both institutions can work together for economic prosperity. The staffs of the IMF and the World Bank closely work together on country assistance and policy issues that are relevant for both institutions. Both institutions work together to reduce the external debt burdens of the poor countries under the heavily Indebted Poor Countries Initiative. Furthermore, the IMF and World Bank created the Poverty Reduction Strategy Paper (PRSP) in 1999 with the aim of linking national policies among its members, donor support and the development outcomes needed to reduce poverty in low-income countries. There has been much overlapping by both institutions making the cooperation very crucial.
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