The International Monetary Fund (IMF) and the World Bank are two of the most influential institutions in the global financial and development landscape. Both were created in 1944 at the Bretton Woods Conference, near the end of World War II, with the goal of stabilising the international economy and promoting economic development.
While their missions overlap in seeking to improve living standards, they focus on different aspects of global economic life. The IMF promotes financial and macroeconomic stability, while the World Bank works on long-term development and poverty reduction.
History Of The World Bank And IMF
The IMF and World Bank, collectively called the Bretton Woods Institutions (BWIs), were largely shaped by the United States, with support from the United Kingdom.
Initially, their role involved managing the fixed exchange rate system established by the Bretton Woods Agreement. When the system collapsed in 1973, they adapted to the world of floating exchange rates.
Over time, their focus evolved. Under World Bank President Robert McNamara (1968-1981), the Bank began targeting poverty and income inequality alongside infrastructure projects. In the 1980s and 1990s, the BWIs became associated with the Washington Consensus, promoting free-market reforms like deregulation, privatisation, and trade liberalisation through Structural Adjustment Programmes (SAPs).
These programmes were often controversial, especially in low-income countries, as they sometimes caused long-term social and economic harm, including weakened public health systems and education services.
The importance and power of the IMF and World Bank have often been questioned, especially after the 2008 global financial crisis. Some experts view China’s rise as a challenge to their dominance, while others say their influence is more complex, shaped by private interests and international cooperation.
Functions And Goals
World Bank Group: The World Bank provides funding, policy advice, and technical assistance to developing countries. It focuses on reducing poverty and promoting shared prosperity, mainly through:
- IBRD and IDA: These two arms provide loans and grants to middle-income countries and the poorest nations, respectively.
- IFC, MIGA, ICSID: These institutions support private sector development through investment, risk insurance, and dispute settlement.
The Bank’s work today is guided by two main goals of eliminating extreme poverty by 2030 and boosting shared prosperity. It does this through infrastructure projects, financial support, and initiatives to encourage private sector investment.
IMF: The IMF monitors the global economy, provides loans to countries facing balance of payments problems, and offers policy advice and technical assistance.
Its mission is to promote international fiscal and monetary cooperation, maintain financial stability, facilitate trade, and encourage sustainable economic growth. By lending and advising countries, the IMF helps prevent crises from spreading regionally or globally.
Criticism And Controversies
Both institutions face longstanding criticisms in three main areas-
democratic governance, human rights, and environmental impact.
Democratic Governance
One major critique is the under-representation of developing countries in decision-making. Voting power is largely based on the size of a country’s economy, giving wealthier nations like the United States, Japan, and European countries disproportionate influence. While reforms in 2016 slightly increased China’s voting share, the imbalance remains significant. The “gentleman’s agreement” that the IMF and World Bank are led by nationals from Europe and the US has persisted.
Another concern is that loans from the IMF and World Bank often come with conditions. Countries must carry out certain economic reforms, like cutting spending, deregulating, or privatising services, to get funding. This can limit governments’ control over their own policies and reduce investment in healthcare, education, or infrastructure. The institutions also influence countries through their research and advice, setting standards for what is seen as “best practice” in managing the economy.
The IMF and World Bank have also faced criticism for making politically biased decisions, like backing controversial loans or governments to serve strategic or shareholder interests. Although they have independent offices (the IEO for the IMF and the IEG for the World Bank) to review their actions and suggest improvements, both institutions often struggle to follow through.
Human Rights
The IMF and World Bank’s economic policies have often been criticised for limiting governments’ ability to protect human rights. Measures like austerity, flexible labour laws, regressive taxes, and privatising social services can reduce access to healthcare, education, and social support, hitting the poor, women, and marginalised groups the hardest.
World Bank-funded projects have sometimes caused forced displacement, labour abuses, and harm to indigenous communities. Although the Bank has introduced safeguards like its Environmental and Social Framework, critics say these rules are often not enough, especially for Development Policy Financing (DPF) projects. The IFC, the Bank’s private sector branch, has also faced criticism for investing in companies that evade taxes or hurt local communities, showing weaknesses in accountability.
Environmental Impact
The IMF and World Bank’s growth-focused development model has major environmental impacts. Focusing on economic growth often increases fossil fuel use, deforestation, and carbon-heavy infrastructure projects. Although some climate policies exist, like the Green Equity Strategy and environmental safeguards, both institutions still fund fossil fuel projects and large infrastructure, raising doubts about their alignment with the Paris Climate Agreement and global sustainability goals.
Large infrastructure projects and the treatment of infrastructure as an investment asset can worsen environmental damage, especially when carbon-intensive construction is involved. Forest protection efforts, such as the Forest Carbon Partnership Facility, have also been criticised for inefficiency and poor outcomes for local communities.