The United Nations has a provision for providing financial assistance and monetary relief for member states. These organizations are the World Bank and the International Monetary Fund. Both the World Bank and the International Monetary fund were products of the Bretton Woods Agreement which took place in 1945, approximately around the time the United Nations was created. Initially the purpose of the Bretton Woods Agreement was to raise and distribute funds in order to reconstruct a post WWII war-torn Europe. There are some key differences between the International Monetary Fund and the World Bank and it is important to be able to differentiate between the two. Though they are always grouped together, they each serve certain key purposes.
The World Bank is a financial institution that provides financial and technical assistance to developing nations for programs such as bridges, roads, school, etc. World Bank loans are ultimately meant to reduce poverty in these nations. The World Bank is broken up into two sub-institutions: International Bank for Reconstruction and Development and International Development Association. As previously mentioned, the primary reason for the World Bank at the time of its creation was to help rebuild a devastated Europe, therefore the first loan given out by the World Bank was $250 Million to France to help rebuild their country after WWII. Its duties and purposes have naturally grown over the years to incorporate many other needs.
Currently, the World Bank is directing most of its focus towards achieving the Millennium Development Goals by lending mostly to “middle income nations” with fairly low interest rates. The World Bank recognizes five key factors as necessary additions for economic growth and the creation of a better business environment. These factors are to strengthen government/educate government officials, create infrastructure, develop financial systems, fight corruption, and finally to offer a forum for research, consulting, and training programs.
The purpose of the World Bank is to provide financial assistance; they do this in the form of loans and grants. Loans come in two types: investment loans and developmental policy loans. Investment loans are meant to support economic and social development projects and developmental policy loans provide quick disbursing finance to support countries’ policy and intuitional reforms. The World Bank will also issue grants to enable countries to enact development programs. Grants are typically used for debt relief, improving sanitation and water supply, combating HIV/AIDS, supporting civil society organizations, and help with the reduction of greenhouse gas emissions.
The International Monetary Fund is an institution that oversees the global financial system by following macroeconomic policies of its member countries in regards to topics such as exchange rates and the balance of payments. The International Monetary fund was created in order to stabilize foreign exchange rates and facilitates developments. Like the World Bank, it also offers financial and technical assistance to its members; however the International Monetary Fund is a lender of last resort. The International Monetary Fund’s main goals are to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment, sustainable economic growth, and reduce poverty. To be a member of the International Monetary Fund there are several terms that the member states adhere to such as membership fees and voting rights. The International Monetary Fund will also advise and make recommendations to member countries to improve their economies. During this economic climate, the International Monetary Fund is being called upon more and more for financial assistance.
Both the World Bank and the International Monetary Fund are financial institutions that transcend borders however; there are differences to be noted. World Bank is mostly associated with loans and grants while the International Monetary Fund is the epicenter of the global monetary system.