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Understanding IMF and the World Bank

Understanding IMF and the World Bank

It’s your world“, the motto of the United Nations (UN) embodies the importance of the unity of the nations to advance peace and prosperity. The death and destruction caused by the World Wars led the global community to sit together and deliberate on the ways to ensure global peace. This paved the way for the establishment of the United Nations Organization in 1945. One of the four objectives of the UN is “Fostering cooperation between nations in order to solve economic, social, cultural, or humanitarian international problems”. This shows that solving economic problems of the member countries is also the joint responsibility if the global community represented in the UN.

Each country has a unique geographic location, geo political situation and available natural resources. As such, every country has its own distinctive economic set up and face different set of economic problems and issues. Due to globalization and international trade, the modern world especially its economies have become interdependent. Economic recession in one country or the region can create financial ripples travelling across the globe economy and can adversely affect the global economic system. To check this adverse economic effect and ensure better global economy, the world community has established various organizations to help and strengthen the struggling economies to minimize the contagious effects of economic meltdowns. IMF and World Bank are the two most important organizations in this regard.

IMF and World Bank are functioning across the world providing help and assistance to all the countries facing financial restraints to come out of economic shambles. However, their role in developing countries has always been suspected and questioned. Moreover, most of the people generally confuse IMF and World Bank being two names for the same organization. The basic purpose of this article is to help the readers understand the difference between IMF and World Bank and to review the criticism these organizations generally face, especially in Pakistan.

Let us start with their globally acknowledged characterizations explained on their respective websites.

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The World Bank is a component of the World Bank Group. The World Bank is an international financial institution that provides loans to countries of the world for capital projects. It comprises two institutions: the International Bank for Reconstruction and Development (IBRD), and the International Development Association (IDA).

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The world is aware of this confusion as to the identification of IMF and World Bank, which is not confined to masses only. Even professionals including its founding member John Maynard Keynes admitted this confusion in the inaugural meeting of the IMF. World Bank and IMF exhibit various commonalities but still they are quite distinct in their overall role assigned by the international community. IMF has explained these differences on its website, which we have tried to summarize in the following lines:

World Bank and the IMF receives a lot of criticism in Pakistan. People think that we have to compromise our sovereignty and economic independence to get loans from IMF. This is true to some extent as to qualify for the loan the borrowing country have to abide by certain policy guidelines given by IMF. Most of these conditions relate to the financial discipline and can be good for the country in the longer run. However, use of the IMF loans by USA as a tool to dictate the borrowing country to alter its policy to suit USA is also not baseless. Despite all criticism and fears, the role of the World Bank and IMF as a tool of development and savior in case of economic muddle is irrefutable. This is the World Bank and IMF that reflects the resolve of the global community to help each other in case of financial crises to avoid economic chaos and disorder.

[box type=”note” align=”” class=”” width=””](The writer is a sales and business specialist based in Islamabad. He can be reached at nadeem_naj@hotmail.com)[/box]

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