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By: Mary Courtney Finn
What is the IMF?
The IMF, or International Monetary Fund, is an international financial organization under the United Nations. The IMF was founded in 1945 and is headquartered in Washington DC. Currently, the organization has a membership of 189 countries. The IMF was created to foster international monetary cooperation, secure financial stability, promote high employment and sustainable growth, and reduce poverty. The original goal of the IMF was to restructure the international payment system. Previously, when nations needed funding there was no singular payback system, so the IMF was developed to solve that problem. Nowadays, the IMF works to improve economic conditions as well as facilitate trade between nations in hopes of boosting local economies. For example, one of the projects the IMF recently partook was providing funding to expand technological assistance in Liberia and the Democratic Republic of Congo. An important feature of the IMF is its quota system. Each member nation has a specific quota depending on the size of its economy, which directly correlates to the amount of money they give to the IMF pool each year to be dispersed across numerous undertakings. Many economists use IMF quotas to determine a country’s position in the world economy. A country’s quota also determines its voting power and access to financing within the IMF funds.
What is the World Bank?
The World Bank is an international financial institution created in 1944 and is also headquartered in Washington DC. While the World Bank and IMF share a combined goal of reducing poverty, the World Bank’s implementation mechanism is through providing loans and grants to impoverished countries in order to kickstart capital projects. Unlike the IMF, the World Bank is split into two divisions: the International Bank for Reconstruction and Development and the International Development Organization. There are also smaller organizations within these including the International Finance Corporation, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes. All of these smaller organizations make up the larger World Bank and carry out all functions of the parent group. In addition to funding capital projects, the World Bank also provides financing, advice, and research to developing nations regarding their economic development. Once countries become eligible for assistance from the World Bank, they are provided with either a low-interest loan, zero-interest credit, or a grant. While the World Bank also serves 189 countries, its reach is usually considered much larger than the IMF’s due to their financial pool being larger as well as having more people employed to carry out their projects.
What are their differences?
Confusing the IMF and the World Bank is very common considering their similarities in stimulating foreign economies. However, there are a few key differences between the two financial organizations. The most substantial difference between the two is within their missions. The IMF reviews and controls the international monetary system function, or the system created to provide money for an economy, while the World Bank aims to reduce global poverty by providing assistance to low-income families. The IMF is more involved with monetary aspects of the world, such as providing loans, and the World Bank is more focused on economic relief through helping people. This is not to say the IMF does not deal with people based problems, but they do deal more with finances. Additionally, the World Bank does more research into economies to find the best-suited solutions to fix economic problems. While both organizations share countless similarities, it’s important to recognize that the two do have distinct differences that need to be properly recognized.
Discussion Questions:
Should the IMF and the World Bank combine to create a singular international financial institution?
What world economic problem should the World Bank tackle next?
Does the IMF need to restructure quotas to create a more even playing field within the organization?
Should the World Bank create a pay back program for loans to increase their spending pool?
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