The International Monetary Fund and the World Bank

1
The InternationalMonetary Fundand the World
Bank

• Jaclyn Williamson Jessica Phelan

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What is the IMF?

• The International Monetary Fund (IMF)
• International organization that oversees the
  global financial system by following the economic
  policies of its 185 member nations
• Particularly focuses on exchange rates,
  facilitating development, reducing poverty, and
  global cooperation.
• Also offers financial and technical assistance to
  its members using funds deposited with the IMF
  from member nations
• Last resort international lender
• Not without stipulations

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Brief History of the IMF

• Formally created in July 1944 during the United
  Nations Monetary and Financial Conference in
  Bretton Woods, NH
• Finalized on December 27, 1945 when 29 countries
  signed its Articles of Agreement
• Headquarters is in Washington, DC

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Membership

• Currently 185 members
• Any country can apply for membership
• Quotas
• A country can also withdraw from the IMF though
  this is rare
• Ex Venezuela (still a member)

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Special Drawing Rates

• Monetary unit for IMF and World Bank
• After collapse of Bretton Woods System (1973),
  SDR redefined as a basket of four currencies
• Euro, Japanese yen, pound sterling, and U.S.
  dollar.
• Calculated daily on the basis of exchange rates
  quoted at noon each day in the London Market
• Allocations
• General
• Special One-Time SDRs

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Financial Crises and the IMF

• 1976 Great Britain Financial Crisis
• Asian Financial Crisis of 1997
• Current Economic Crisis

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1976 Financial Crisis in Great Britain

• Investors became concerned that the pound was
  overvalued and that the government might devalue
• A large scale sale of sterling ensued, which
  rapidly lost value against the dollar
• Pound suffered from heavy inflation
• IMF issues3.9 Billion
• Stipulations of Loan
• Heavy cuts in public expenditure (around a 20
  cut in the budget deficit)
• Improvement seen starting in 1977

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Asian Financial Crisis of 1997

• Thailand, Indonesia and Korea hit the hardest
• Key Issues
• Foreign investing, US, China, defaulting on debt,
  depreciation, and bankruptcies
• IMF
• Rescue Packages
• US35 Billion from IMF
• US77 Billion raised from other countries
• Temporary credit
• Structural Adjustment Packages (SAPs)
• Criticism

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Current Financial Crisis

• Bankruptcy of Iceland in 2008
• Pakistan approved by IMF for 874 million loan
• Other countries with SBAs from the IMF
• Georgia, Ukraine, Hungary, Iceland, Latvia,
  Pakistan, Serbia, Belarus, and El Salvador
• The SBA is designed to help countries address
  short-term balance of payments problems.
• The length of a SBA is typically 1224 months,
• Repayment is due within 3¼-5 years

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Controversy

• The United States is the biggest shareholder in
  the IMF, holding nearly 18 in shares, and the
  IMF is generally considered a tool of the US
  Treasury.
• Criticism of bailouts
• Conditions added onto loans (SAPs)
• Ex Argentina

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What is the World Bank?

• The World Bank is a bank that provides assistance
  to developing countries with the goal being to
  reducing poverty and aid in their development.
• Provides low-interest loans and interest-free
  credits and grants to developing countries
• Made up of two Development Institutions
• International Bank for Reconstruction and
  Development (IBRD)
• International Development Association (IDA).

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The World Bank

• Formation December 1945
• Institutions International
  Bank for Reconstruction
  and Development
  International Development
  Association

• Membership 185 Countries
• President Robert Zoellick
• Headquarters Washington, D.C.

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World Bank Group

• The World Bank Group is not the same as the World
  Bank
• Same President, Board of Directors, goals
• The WBG includes the two institutions of the
  World Bank, and in addition consists of
• International Finance Corporation (IFC)
• Multilateral Investment Guarantee Agency (MIGA)
• International Centre for Settlement of Investment
  Disputes (ICSID)

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History of the World Bank

• Developed at the 1944 Bretton Woods conference in
  Bretton Woods, NH
• Originally, just the International Bank for
  Reconstruction and Development was formed
• First loans were for reconstruction of Europe
  after World War II
• After, the Bank focused attention on developing
  countries
• Has loaned over 330 billion to developing
  countries since its start

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International Bank for Reconstruction and
Development (IBRD)

• Formed at the Bretton Woods Conference
• Focuses its attention on middle-income and
  creditworthy poorer countries as opposed to
  developing countries
• Loans with low interest rates

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International Development Association (IDA)

• Established in 1960
• Assists the worlds poorest countries
• Interest-free credits and grants
• Serves to complement the IBRD
• Single largest source of donor funds for basic
  social service funds in developing countries

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Membership and Leadership in the World Bank

• There are 185 countries who are members in the
  World Bank
• You must be a member of the IMF to be a member of
  the World Bank
• The World Bank is run by the governments of the
  member countries
• There is one president, and Executive Directors
  and a Board of Directors for each institution

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Major Activities

• Loans, Grants
• Korea
• Millenium Development Goals
• Poverty Reduction Strategies
• Reconstruction after political conflicts
• Most recent operations

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Criticisms of the World Bank

• Structure
• Corporate powers

• Are they really reducing poverty?
• Conditionalities

• Criticisms of former President Paul Wolfowitz

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Sources

• McCallum, Bennett T. International Monetary
  Economics. New York Oxford University Press,
  1996.
• The World Bank homepage www.worldbank.org
• Head of World Bank Fraud Unit Resigns.Steven R.
  Weisman. New York Times. (Late Edition (East
  Coast)). New York, N.Y. Jan 17, 2008. pg. A.14
• A World Bank without U.S. dominance
  Chicagoland Final Edition Kenneth Rogoff.
  Chicago Tribune. Chicago, Ill. Apr 23, 2007. pg.
  17
• http//www.brettonwoodsproject.org/item.shtml?x32
  0869
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  ffer.htm
• http//www.twnside.org.sg/title/louder.htm
• www.imf.org
• http//news.yahoo.com/s/afp/20090330/wl_sthasia_af
  p/financeeconomyimfpakistanlead
• http//www.nytimes.com/2008/10/10/business/worldbu
  siness/10icebank.html
• http//www.normangirvan.info/wp-content/uploads/20
  09/03/imf-crisis-loans-chart-twn-march-2009.doc
• Buira, Ariel. The IMF and the World Bank at
  sixty. London Anthem, 2005