International Monetary Fund

Origin of IMF:
The origin of the IMF goes back to the days of international chaos of the 1930s. During the Second World
War, plans for the construction of an international institution for the establishment of monetary order were
taken up.

At the Bretton Woods Conference held in July 1944, delegates from 44 non-communist countries
negotiated an agreement on the structure and operation of the international monetary system.

The Articles of Agreement of the IMF provided the basis of the international monetary system. The IMF
commenced financial operations on 1 March 1947, though it came into official existence on 27 December
1945, when 29 countries signed its Articles of Agreement (its charter). Today (May 2012), the IMF has near-
global membership of 188 member countries. Virtually, the entire world belongs to the IMF. India is one of
the founder- members of the Fund.

Objectives:
Article 1 of the Articles of Agreement (AGA) spell out 6 purposes for which the IMF was set up.

These are:
I. To promote international monetary cooperation through a permanent institution which provides the
machinery for consolation and collaboration on international monetary problems.

II. To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the
promotion and maintenance of high levels of employment and real income and to the development of the
productive resources of all members as primary objective of economic policy.

III. To promote exchange stability, to maintain orderly exchange arrangements among members, and to
avoid competitive exchange depreciation.

IV. To assist in the establishment of a multilateral system of payments in respect of current transactions
between members and in the elimination of foreign exchange restrictions which hamper the growth of
world trade.

V. To give confidence to members by making the general resources of the Fund temporarily available to
them under adequate safeguards, thus providing them with the opportunity to correct maladjustments in
their balance of payments, without resorting to measures destructive of national or international
prosperity.

VI. In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the
international balance of payments of members.
All these objectives of the IMF may be summarised:
To promote international cooperation; to facilitate the expansion and balanced growth of international
trade; to promote exchange stability; to assist in the establishment of a multilateral system of payments; to
make its general resources available to its members experiencing balance of payments difficulties under
adequate safeguards; and to shorten the duration and lessen the degree of disequilibrium in the
international balance of payments of members.

Functions of International Monetary Fund

1. Exchange Stability:
The first important function of IMF is to maintain exchange stability and thereby to discourage any
fluctuations in the rate of exchange. The Found ensures such stability by making necessary arrangements
like—enforcing declaration of par value of currency of all members in terms of gold or US dollar, enforcing
devaluation criteria, up to 10 per cent or more by more information or by taking permission from IMF
respectively, forbidding members to go in for multiple exchange rates and also to buy or sell gold at prices
other than declared par value.

2. Eliminating BOP Disequilibrium:

The Fund is helping the member countries in eliminating or minimizing the short-period equilibrium of
balance of payments either by selling or lending foreign currencies to the members. The Fund also helps its
members towards removing the long period disequilibrium in their balance of payments. In case of
fundamental changes in the economies of its members, the Fund can advise its members to change the par
values of its currencies.

3. Determination of Par Value:

IMF enforces the system of determination of par values of the currencies of the members countries. As per
the Original Articles of Agreement of the IMF every member country must declare the par value of its
currency in terms of gold or US dollars. Under the revised Articles, the members are given autonomy to
float or change exchange rates as per demand supply conditions in the exchange market and also at par
with internal price levels.

As per this article, IMF is exercising surveillance to ensure proper working and balance in the international
monetary system, i.e., by avoiding manipulation in the exchange rates and by adopting intervention policy
to counter short-term movements in the exchange value of the currency.
4. Stabilize Economies:
The IMF has an important function to advise the member countries on various economic and monetary
matters and thereby to help stabilize their economies.

5. Credit Facilities:
IMF is maintaining various borrowing and credit facilities so as to help the member countries in correcting
disequilibrium in their balance of payments. These credit facilities include-basic credit facility, extended
fund facility for a period of 3 years, compensatory financing facility, lociffer stock facility for helping the
primary producing countries, supplementary financing facility, special oil facility, trust fund, structural
adjustment facility etc. The Fund also charges interest from the borrowing countries on their credit.

6. Maintaining Balance Between Demand and Supply of Currencies:

IMF is also entrusted with important function to maintain balance between demand and supply of various
currencies. Accordingly the fund can declare a currency as scarce currency which is in great demand and can
increase its supply by borrowing it from the country concerned or by purchasing the same currency in
exchange of gold.

7. Maintenance of Liquidity:
To maintain liquidity of its resources is another important function of IMF. Accordingly, there is provision
for the member countries to borrow from IMF by surrendering their own currencies in exchange. Again for
according accumulation of less demand currencies with the Fund, the borrowing countries are directed to
repurchase their own currencies by repaying its loans in convertible currencies.

8. Technical Assistance:
The IMF is also performing an useful function to provide technical assistance to the member countries. Such
technical assistance in given in two ways, i.e., firstly by granting the members countries the services of its
specialists and experts and secondly by sending the outside experts.

Moreover the Fund has also set up two specialized new departments:
(a) Central Banking Services Department and

(b) Fiscal Affairs Department for sending specialists to member countries so as to manage its central banks
and also on fiscal management.
9. Reducing Tariffs:
The Fund also aims at reducing tariffs and other restrictions imposed on international trade by the member
countries so as to cease restrictions of remittance of funds or to avoid discriminating practices.

10. General Watch:
The IMF is also keeping a general watch on the monetary and fiscal policies followed by the member
countries to ensure no flouting of the provisions of the charter.

World Bank 
The World Bank is an international organization that helps emerging market countries to reduce poverty. Its
first goal is to end extreme poverty. It wants no more than 3% of people to live on $1.90 a day or less by
2030. Its second goal is to promote shared prosperity. It wants to improve the incomes of the bottom 40%
of the population in each country. Since 1947, the World Bank has funded more than 12,000 projects.

The World Bank is not a bank in the conventional sense of the word. Instead, it consists of two
organizations. One is the International Bank for Reconstruction and Development. It provides loans, credit,
and grants.

The second is the International Development Association. It provides low- or no-interest loans to low-
income countries.

The Bank works closely with three other organizations in the World Bank Group:

1. The International Finance Corporation (IFC) provides investment, advice, and asset
management to companies and governments.
2. The Multilateral Investment Guarantee Agency (MIGA) insures lenders and investors against
political risk such as war.
3. The International Centre for the Settlement of Investment Disputes (ICSID). It settles
investment disputes between investors and countries.

The Bank's 189 member countries share ownership.8  The United States has a controlling voting interest.

Origin:
The World Bank (WB) was originally created as the International Bank for Reconstruction and Development
(IBRD) in 1944 along with its twin, the IMF. Together they came to be known as the ‘Bretton Woods’ twin
sisters’. When it was set up it was decided that this international bank would assist in the economic
reconstruction of the World War II-damaged European economies. In early 1946 this international bank
launched its carrier as the multilateral development bank and since then the IBRD came to be known as the
World Bank. Its headquarters is located in Washington, opposite the IMF building, and it lies as the next
door neighbour of the White House.

It was funded through the sale of bonds.Its first loans were to France and other European countries.Since
then, the Bank has worked with developing countries, like India and China, on projects that include rail. orld
Bank lending became controversial. Many countries used their loans to prevent a sovereign debt default.
Their debt was often a result of overspending and extensive borrowing. Even with the World Bank’s help,
many countries devalued their currencies. That caused hyperinflation. 

To combat this, the Bank required austerity measures. The country had to agree to cut back on spending
and support its currency. Unfortunately, this usually caused a recession, making it difficult to repay the
Bank's loans

The purposes and objectives are constantly changing. For instance, in the early years, the Bank’s investment
concentrated on infrastructural build-up like power, transport, communications and irrigation. During the
late 1960s and 1970s, the Bank went on financing agricultural projects more actively—particularly in the
promotion of cash crops. However, in the 1980s, agricultural lending declined drastically.

Meanwhile, the WB decided to put emphasis on the alleviation of poverty in less developed countries in the
late 1960s and 1970s. During Robert McNamara’s Presidency (1968-81), the WB made a radical change in
emphasis—the reduction of rural poverty as well as urban poverty. Since then all the Presidents reiterated
the commitment to fight poverty, enhance growth with sustainability.

It also introduced structural adjustment programmes (SAPs) in developing countries so that not only
macroeconomic stability can be attained but also structural reforms aimed at accelerating growth can be
undertaken. It has shifted its emphasis from the financing on specific projects towards non-project linked
programmes. It works in developing economies with the focus of helping the poorest people and the
poorest countries.