Many people confuse over the working of the International Monetary Funds and the World Bank and of course they could, because of the fact that amazing similarities they exhibit in performing certain roles and duties. The IMF and the World Bank were simultaneously created in Bretton Woods, New Hampshire, U.S. in an international conference which was attended by delegates from various countries. The main reason for constituting these agencies was to ensure stability in the global economy and also to ensure economic cooperation among various countries. The basic ideology of working for both the institutions is same but the areas of specialization differ from each other significantly. Many a times these agencies can also collaborate and work together over certain tasks and assignments.
Since their inception, these institutions have saved many countries from getting into deep economic crisis by providing a series of loans when they needed it the most. While of course the loan do comes with a condition that the counties that are willing to borrow funds from them should make sure that they allow direct market access to various corporations around the world and also tailor the unnecessary spending, if any, on various sectors like health and education. The IMF and the World Bank have a collective portfolio going to the north of $200 Billion; have become the biggest public lenders of the world.
The IMF and the World Bank comprise of their own mandates and each official tries to work in their own way to develop techniques for helping the financial system. One thing to note is that whatever the funds these institutions lend they always attach few conditions to it. Generally the main condition includes allowing foreign corporations to bargain for a reduced fee or relaxation of tax regime for conducting their business in the country.
Now first we will look into the affairs of the International Monetary Funds, the main focus of IMF is making economies of various countries strong and stable, they do so by giving various advise related to the policies and by providing technical know how’s of various components of economy. The other function that IMF does is, it designs loans and policies for various nations which face deep financial crisis and are on verge of defaulting in payments to various banks and nations. IMF generally avoids giving long term loans as its major loan duration periods are of short to medium duration, the funds for loan is obtained by the various member nations that constitute the IMF.
The World Bank on other hand is more towards the long term aspects of economic reforms and developments. One of the missions of World Bank is also to eradicate the poverty from the world. World Bank aims to provide financial support and technical know-how to the countries that need reforms mainly on infrastructure based projects which include opening clinics for health care, buildings for education and also protecting the environment. The funds that are utilized by World Bank for assisting various nations come from its member nations and also from issuing bonds to various institutions and individuals.
As told above many times these two institutions work together so as to achieve a common goal and initiatives. Major high level assistance and coordination is done within two banks. Every year the president of the World Bank and managing director of the IMF meet and discuss the key issues and problems related to the various countries of the world. The major issues that are getting solved by their collaboration include reduction of poverty; the two institutions have released Poverty Reduction Strategy Paper in 1999, which today serves as a guide to understanding the relation among the amount invested in the country to the amount in which the poverty was alleviated.
The two institutions also work as collaboration in reducing the debt burdens of the countries that suffer from severe debt and are on a verge of economic instability, they do so by under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). Finally we can say that these institutions serve as watchdogs for the global economic health and immediately come into action as soon as a county suffers economic crisis.