IMF and World Bank
The IMF aims to preserve economic stability and to tackle – or ideally prevent – financial crises. Over time, its focus has switched to the developing world.
The World Bank’s predecessor – the International Bank for Reconstruction and Development – was set up to drive post-war recovery. Now, it is the world’s leading development organisation, working for growth and poverty reduction.
Owned by the governments of its 185 member states, the Bank channels loans and grants and advises low and middle-income countries.
The IMF is funded by a charge – known as a “quota” – paid by member nations. The quota is based on a country’s wealth and it determines voting power within the organisation; those making higher contributions have greater voting rights.
The Fund acts as a lender of last resort, disbursing its foreign exchange reserves for short periods to any member in difficulties.
Crisis response
The IMF and World Bank attempt to help countries or regions in economic turmoil.
In October 2008 the IMF activated an emergency funding scheme for countries facing economic distress resulting from the global financial crisis. As of August 2010, it had committed around $200 billion in lending to a number of economies affected by the crisis. The biggest borrowers were Hungary, Romania and Ukraine.
The eurozone crisis of 2010 also triggered extensive IMF intervention, including hefty bail-outs for countries such as Greece and Ireland.
Past interventions by the IMF have included providing funds for countries caught up in the 1997 Asian financial crisis, and loans to help South American countries such as Argentina and Brazil stave off debt default crises.
The IMF can also grant emergency loans following natural disasters; these have included the 2004 Asian tsunami.
Developing countries
The IMF and World Bank set up the Poverty Reduction and Growth Facility in 1999. The scheme grants loans with conditions attached.
A strategy paper – called a Letter of Intent – specifies the elements of a country’s recovery plan. In return, loans are agreed as and when the targets laid down in the letter are met.
The IMF may demand reforms to promote good governance and to tackle corruption. The Fund maintains that a good climate for business is essential for growth and poverty reduction.
The World Bank funds specific infrastructure projects. One of its agencies, the International Development Association, focuses on the world’s poorest nations. The Bank has pledged its support for UN-backed Millenium Development Goals to reduce key indicators of poverty by 2015.
Debt relief
The Highly Indebted Poor Countries Initiative (HIPC), launched by the IMF and the World Bank in 1996, aims to reduce the debt owed by the world’s poorest countries in return for economic reform.
States are eligible if their debt is unsustainable and cannot be tackled by traditional methods. The reforms they have to undertake often include privatisations.
By 2005 nearly 40 countries had started programmes under the HIPC. Debt relief kicks in when a country meets what is called the “decision point”. The end of the process is known as the “completion point”.
By the end of 2010, 32 countries had reached their completion points and were receiving full debt relief from the IMF and other creditors under proposals drawn up in 2005 by the finance ministers of the G8 group.
IMF managing director: Dominique Strauss-Kahn
Dominique Strauss-Kahn became head of the Fund in November 2007, taking over from Spain’s Rodrigo Rato.
Under an unwritten convention, the European Union nominates the head of the IMF, while the US appoints the World Bank head.
Mr Strauss-Kahn served as France’s finance and economy minister between 1997-1999. He is also a former professor of economics at the prestigious Institut d’Etudes Politiques de Paris.
During his time in government, Mr Strauss-Kahn cut the public deficit to qualify France for the euro and took steps that paved the way for the privatisation of a number of state-owned firms. In 2006, he sought the Socialist Party’s nomination for the French presidential election, but was not successful.
He has pledged to pursue reforms to make the IMF more relevant to developing countries.
Day-to-day, the IMF is overseen by a board of 24 executive directors. These are appointed or elected by member governments, or groups of member governments.
The board is headed by the managing director, assisted by three deputies.
World Bank president: Robert Zoellick
The US nominated Robert Zoellick to replace former US deputy defence secretary Paul Wolfowitz, who stepped down in June 2007 after becoming embroiled in a scandal over alleged favouritism.
Mr Zoellick’s previous experience of international finance included a spell as a senior executive at the Wall Street investment bank Goldman Sachs.
He also served as US Trade Representative from 2001 to 2005, in which capacity he completed negotiations to bring China and Taiwan into the World Trade Organisation and also pushed for a Central American Free Trade Agreement.
As Deputy Secretary of State under George W. Bush (2005-6), he was seen as a major architect of the US administration’s policies regarding China.
He also took a strong interest in the conflict in Sudan’s Darfur region, and was involved in negotiating the May 2006 peace accord between the government of Sudan and the Sudan Liberation Movement.
The Fund and the Bank serve as a rallying point for disparate causes – from environmentalists to anarchists – and meetings have occasionally been accompanied by violent street protests.
Protesters and critics are largely united in their distaste for globalisation: broadly speaking, the integration of world economies. They cite the exploitation of the poor and the environment and argue that freer trade threatens the livelihoods of millions of people.
The IMF has admitted that forcing developing countries to open their markets to foreign investors can increase the risk of financial crises.
Its former managing director Horst Koehler said in 2002 that the benefits of globalisation had not been equally shared. But he added that “the objective should not be less globalisation but more and better globalisation.”
Campaigners also argue that loans and long-term agreements can lock countries into aid dependency.
Representation
Developing countries – as well as some of Asia’s rapidly-growing economies – have voiced dissatisfaction with what they say is their lack of influence in the IMF and World Bank.
They have called for changes to the quota system in which votes in the IMF are weighted in line with member nations’ financial contributions.
Under this system, the US has 17% of the vote in the Fund, whereas India, with more than three times the population of the US, has less than one third. And because constitutional changes in the IMF require 85% of the vote, the US has a veto.
Like this:
Like Loading...
The Kap Shui Mun Bridge (KSMB) in 
