The World Bank and International Monetary Fund (IMF)

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What is the World Bank?

The World Bank provides over $20 billion in assistance to developing and transition countries every year. It was originally established in 1945 to support reconstruction in Europe after World War Two. Two years later it issued its first loan: $250 million to France for post-war reconstruction. Its mission has since grown.

Today, the  Bank's mission is to reduce poverty. It has 187 member countries and provides money for activities ranging from agriculture to trade policy, from health and education to energy and mining. The World Bank is not a bank in the common sense of the word . A single person cannot open an account or ask for a loan.

The Bank provides funding for building projects, as well as to promote economic and policy prescriptions it believes will promote economic growth. For example, part of the over $300 million the Bank has provided the West African country of Niger funds health programmes addressing HIV and AIDS, and irrigation.

Some 10,000 development professionals from nearly every country in the world work in the World Bank's Washington DC headquarters or in its 109 country offices.

Where does the World Bank get its money?

What does it do?

The World Bank is a non profit-making institution which grants $9 billion in assistance. The world’s low-income countries generally cannot borrow money in international markets or can only do so at high interest rates. In addition to direct contributions and loans from developed countries, these countries receive grants, interest-free loans, and technical assistance from the World Bank to enable them to provide basic services. In the case of the loans, countries have 35-40 years to repay, with a 10-year grace period.

The World Bank sees the five key factors necessary for economic growth and the creation of an enabling business environment as:

  1. Build capacity – Strengthening governments and educating government officials
  2. Creating infrastructure – implementation of legal and judicial systems for the encouragement of business, the protection of individual and property rights and the honouring of contracts
  3. Development of Financial Systems – the establishment of strong systems capable of supporting endeavors from micro credit to the financing of larger corporate ventures
  4. Combating corruption – Support for countries' efforts at eradicating corruption
  5. Research, Consultancy and Training - the World Bank provides a platform for research on development issues, consultancy and conduct training programmes (web based, on line, video/tele conferencing and class room based) open for those who are interested from academia, students, government and non-governmental organisation (NGO) officers etc.

The World Bank has identified six strategic themes in its development work:

  • The Poorest Countries
    Helping overcome poverty and spur sustainable growth in the poorest countries, especially in Africa
  • Post-conflict and Fragile States
    Addressing the special challenges of countries that are emerging from conflict or seeking to avoid the breakdown of the state.
  • Middle-income Countries
    Building development solutions for middle-income countries, with customised services as well as finance.
  • Global Public Goods
    Playing a more active role in regional and global issues that cross national borders, including climate change, infectious diseases, and trade.
  • The Arab World
    Working with partners to strengthen development and opportunity in the Arab world.
  • Knowledge and Learning
    The World Bank define themselves as a “learning organisation”: to increasingly gather the best global knowledge to support development.

Read more about the six strategic themes for addressing global challenges.

See the World Bank’s project database

How does it work?

The World Bank is like a cooperative, where its 187 member countries are shareholders. The shareholders are represented by a Board of Governors, who are the ultimate policy makers at the World Bank. The United States is by far the single country with the greatest number of shares (as with the International Monetary Fund), and therefore has a huge say in the direction of the organisation. Due to its high number of shares, it is also the only country with a veto. Generally, the governors are member countries' ministers of finance or ministers of development. They meet once a year at the Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund.

Because the governors only meet annually, they delegate specific duties to 24 Executive Directors, who work on-site at the Bank. The five largest shareholders, France, Germany, Japan, the United Kingdom and the United States appoint an executive director, while other member countries are represented by 19 executive directors.

The World Bank Group is actually comprised of five separate arms. Two of those arms - the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) work primarily with governments and together are commonly known as "the World Bank". IBRD focuses on middle income and poor countries, while IDA focuses on the poorest countries in the world.

Two other branches - the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) - directly support private businesses investing in developing countries. The fifth arm is the International Center for Settlement of Investment Disputes (ICSID), which arbitrates disagreements between foreign investors and governments.

Find out more about where the Bank’s funds come from, and how they are used, here

What does it have to do with child rights?

The Bank says that it now has in place positive strategies to address human rights principles, although its human rights record has been much criticised in the past, and continues to attract criticism today (see further down).

According to its website, it has placed a new emphasis on understanding the relationship between human rights and development. It argues that there have been significant advances in the Bank’s thinking on this issue and an increasing understanding of the connection between human rights and development on several levels. Its main arguments are as follows:

  • While the World Bank is not an enforcer of human rights, it may play a facilitative role in helping its members realise their human rights obligations.
  • In addition, research exists linking economic outcomes to respect for human rights. Some research has shown that substantial violations of political and civil rights are related to lower economic growth. Other research has shown respect for civil liberties to be connected with better performance of government projects. There is also research ongoing on the link between governance and human rights.
  • Although its policies, programmes and projects have never been explicitly or deliberately aimed towards the realisation of human rights, the Bank contributes to the promotion of human rights in different areas, e.g., improving poor people’s access to health, education, food and water; promoting the participation of indigenous peoples in decision-making and the accountability of governments to their citizens; supporting justice reforms, fighting corruption and increasing transparency of governments.

 

What is the difference between the World Bank and the International Monetary Fund (IMF)?

The job of the International Monetary Fund is to protect international trade. The World Bank's is to promote economic development. Both institutions were created at an international conference held at Bretton Woods, NH in June 1944. Both are controlled and financed by member nations (more than 180 of them), with larger nations devoting more money and having a greater say in decision-making. The United States is by far the biggest shareholder.

The IMF's primary responsibility is preventing or minimising international trade crises. When a country buys more goods abroad than it sells abroad, it must borrow foreign currency to cover the difference (this is the trade deficit).

Many nations run trade deficits and it's not a crisis. Investors are willing to loan money to healthy countries because they are confident they'll eventually be paid back. It's only a crisis when international investors lose faith and stop lending money. The nation needs the money to repay its loans and to pay for imported goods. It reneges on its loan payments and slashes its imports. The crisis spreads as banks go under, other countries lose export business, they renege.... This is the disaster scenario the IMF is supposed to prevent.

The IMF has a pool of almost $200 billion which it may loan to debtor nations at slightly below market rates. The IMF conditions a loan on reforms intended to enable the debtor to pay off its debts, which means earning more foreign currency than it spends, which means turning the trade deficit into a surplus. In other words, the price of a rescue from the IMF is to stop getting more from the rest of the world than you give, and to start giving more than you get. That is why the IMF is often unpopular.

Meanwhile, as explained above, the World Bank's job is to help less-developed countries become less less-developed.

[Source: http://www.slate.com/id/1001979/]

Criticisms and controversies

Organisations and activists continue to lament the World Bank’s human rights score card.

Many infrastructural projects financed by the World Bank Group have social and environmental implications for the populations in the affected areas and criticism has centred around the ethical issues of funding such projects. For example, World Bank-funded construction of hydroelectric dams in various countries have resulted in the displacement of indigenous peoples of the area. There are also concerns that the World Bank working in partnership with the private sector may undermine the role of the state as the primary provider of essential goods and services, such as healthcare and education, resulting in the shortfall of such services in countries badly in need of them.

In September 2008, The World Bank was indicted on 29 charges of human rights abuses and environmental damages in India, according to a study. A 13-member panel of the Independent People’s Tribunal on the World Bank Group, consisting of prominent Indian and international jurists, economists, scientists, retired government officials, and social and religious leaders found the World Bank guilty of harming the environment and lowering the standard of living for most Indians.

The problem, some feel, is that just because the Bank addresses various human rights violations indirectly, by virtue of its other work, this does not mean its policies are human rights-based. Nor, more importantly, will such an approach sufficiently ensure that human rights are not breached as a result of its policies.

The Bank’s founding charter requires that it does not engage in any political activity, and this will help to explain its reluctance to be drawn into the human rights arena. However, Environmental Economist Korinna Horta argues such a policy would be inconsistent with modern theories of development, and that the Bank cannot continue to argue its purposes are solely economic.

She writes that: “…protecting the environment, promoting social justice and upholding human rights are inextricably linked…the separation of development goals from politics is unrealistic.” (Horta, K. Rhetoric and Reality: Human Rights and the World Bank (2002)).

For more specific project-related human rights concerns see the resources at the website of the Bank Information Center, a NGO that monitors Bank activities, at http://www.bicusa.org/en/Institution.Projects.5.aspx

Experts believe that the Bank’s organisational structure, and lack of accountability, also makes it harder for it to further human rights.

Environmental lawyer Dana L. Clark said. “A significant disjuncture exists between the actual powers of international institutions and the legal and political options to hold them accountable”, she argues, concluding that: “ Effective remedies must exist in situations where World Bank-financed projects have clearly violated international human rights law or the rights of local people as expressed in the Bank’s social and environmental policy framework. (Clark D. The World Bank and Human Rights: The Need for Greater Accountability (2002))

See: UN says World Bank and IMF “bound by international law"

[Source: Bank Information Centre (http://www.bicusa.org]

Broader concerns about both the IMF and World Bank

Critics of the World Bank and the IMF are concerned about the conditions imposed on borrower countries. The World Bank and the IMF often attach loan conditions based on what is termed the 'Washington Consensus', focusing on liberalisation—of trade, investment and the financial sector—, deregulation and privatisation of nationalised industries. Often the conditions are attached without due regard for the borrower countries' individual circumstances and the prescriptive recommendations by the World Bank and IMF fail to resolve the economic problems within the countries.

IMF conditions may additionally result in the loss of a state's authority to govern its own economy as national economic policies are predetermined under the structural adjustment packages. Issues of representation are raised as a consequence of the shift in the regulation of national economies from state governments to a Washington-based financial institution in which most developing countries hold little voting power.

Critics of the World Bank and the IMF are also apprehensive about the role of the Bretton Woods institutions in shaping the development discourse through their research, training and publishing activities. As the World Bank and the IMF are regarded as experts in the field of financial regulation and economic development, their views and prescriptions may undermine or eliminate alternative perspectives on development.

There are also criticisms against the World Bank and IMF governance structures which are dominated by industrialised countries. Decisions are made and policies implemented by leading industrialised countries—the G7—because they represent the largest donors without much consultation with poor and developing countries.

[ Source: http://www.brettonwoodsproject.org/item.shtml?x=320869]

Further information

Countries

    Please note that these reports are hosted by CRIN as a resource for Child Rights campaigners, researchers and other interested parties. Unless otherwise stated, they are not the work of CRIN and their inclusion in our database does not necessarily signify endorsement or agreement with their content by CRIN.