Saturday, September 23, 2006

Revitalizing the International Monetary Bank and the World Bank

Turning Grey

The Economist
September 19th, 2006

The article discusses the appropriate role of the key multilateral institutions – the World Bank and the International Monetary Fund. These organizations were initially created with a mandate to repair a world torn apart by war – it was envisaged that the WB and the IMF would act as stabilizing and harmonizing forces in the new world. The Bank’s first job was rebuilding Europe, while the IMF first assisted in the establishment of the Bretton Woods system.

In recent times, the role of these institutions is being questioned. Nations and markets are now working more efficiently. Overall, the world is becoming “richer and more stable.” As far as their developmental mandate, the WB and the IMF are heavily criticized all around. While conservatives argue that the institutions interfere too much in the governance of poor countries, liberals assert that poor countries are not being provided with enough money, and when provided, the money inevitably comes ‘with strings attached.’

However, causes for concern in the international arena remain. Fluctuations in the price of oil have created considerable inflationary pressure and uncertainty in the marketplace. Global imbalances caused especially by America’s widening current account deficit is another problem. In such a setting, the “old couple” sees a role for itself. Both agencies have promised widespread changes to their policies.

While the IMF has guaranteed a complete overhaul of its voting structure in 2008, in the meantime China is being given a greater voice, something that some of the poorer countries are not very happy about. Meanwhile, the once widely accepted Washington Consensus has come under increasing fire, and a replacement is not readily available. The WB has also promised changes in its governance structures. A bigger problem remains the ineffectiveness of its aid – poor countries beset by corruption and poor management are rarely able to efficiently utilize the funds granted to them. Further, the market for loans to middle-income countries, is shrinking.

As the article concludes “both institutions are in dire need of a cure for creaky old age.”


1. Do we need the IMF and the WB in this day and age or can they be consolidated into one agency?

2. Is the world really becoming “richer and more stable,” or is it a case of the rich becoming richer and the poor becoming poorer?

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