International Monetary Fund (IMF) vs. the World Bank: An Overview
The main difference between the International Monetary Fund(IMF) and the World Bank lies in their respective purposes and functions. The IMF oversees the stability of the world's monetary system, while the World Bank’s goal is to reduce poverty by offering assistance to middle-income and low-income countries.
Both organizations are based in Washington, D.C., and were established as part of the Bretton Woods Agreement in 1945. The Bretton Woods Agreement was a monetary and exchange rate management system that attempted to encourage international financial cooperation through the introduction of a system of convertible currencies atfixed exchange rates, with the dollar trading for gold at $35 per ounce.
Key Takeaways
- The International Monetary Fund (IMF) oversees the stability of the world's monetary system, while the World Bank aims to reduce poverty by offering assistance to middle-income and low-income countries.
- To maintain its mission, the IMF monitors economic activity, offers members policymaking tools and analysis, and also provides loans to member countries.
- The World Bank accomplishes its goals through technical and financial support that enables countries to implement specific projects, such as building health centers or making clean water available.
The International Monetary Fund (IMF)
Comprised of 189 member countries including the United States, the International Monetary Fund has a primary mission to ensure monetary stability around the world. Member countries work together to foster global monetary cooperation, secure financial stability, facilitate international trade, and promote employment and economic growth. It also aims to reduce poverty around the world.
The IMF maintains its mission in three ways. First, it keeps track of the global economy and those of its member countries. The group employs a number of economists who monitor member countries' economic health. Each year, the IMF provides each country with an economic assessment.
Secondly, it gives practical assistance to members by providing policymakers to help plan fiscal policies, coming up with tax and fiscal legislation, along with overseeing the economy through analysis. Finally, the IMF lends money to countries with balance of payments difficulties. It provides this financial assistance as long as the borrowing country implements initiatives suggested by the IMF.
The group's loan program doesn't come without criticism, however. Some countries cannot obtain traditional financing sufficient to meet their international obligations. By providing loans, the IMF helps countries develop policy programs that solve the balance of payments problem.
But these loans are loaded with conditions. A loan provided by the IMF as a form of rescue for countries in serious debt ultimately only stabilizes international trade and eventually results in the country repaying the loan at rather hefty interest rates.
The World Bank
The World Bank's purpose is to aid long-term economic development and reduce poverty in economically developing nations. It accomplishes this by making technical and financial support available. The bank initially focused on rebuilding infrastructure in Western Europe following World War II and then turned its operational focus to underdeveloped countries.
World Bank support helps countries reform inefficient economic sectors and implement specific projects, such as building health centers and schools or making clean water and electricity more widely available.
World Bank Lending by Theme
The World Bank has two goals set for 2030: End poverty by decreasing how many people live on less than $1.90 a day, and promote shared prosperity through income growth for the lowest 40% of each country.
World Bank Organizational Structure
The World Bank president comes from the United States—the group's largest shareholder. Members are represented by a board of governors. Powers are delegated throughout the year to a board of 25 executive directors.
The World Bank consists of five different organizations that all aim to meet the group's mission.
- The International Bank for Reconstruction and Development (IBRD) lends tomiddle-income and creditworthy low-income governments. There are 189 members of this branch of the World Bank.
- The International Development Association (IDA) offers interest-free loans and grants to the world's poorest countries.
- The International Finance Corporation (IFC) finances investment, capital mobilization, and gives advisory services to businesses and governments in economically developing nations.
- The Multilateral Investment Guarantee Agency (MIGA) promotes foreign direct investment in economically developing nations.
- The International Center for Settlement of Investment Disputes (ICSID) provides investment dispute conciliation and arbitration.
World Bank assistance is typically long-term, funded by countries—mainly the world's richest that are members of the bank—through the issuing of bonds. The bank’s loansare not used as a type of bailout, as is the case with theIMF, but as a fund for projects that help develop an underdeveloped or emerging market nation and make it more productive economically.
