Roles of International Financial Institutions

The original policies and goals created in 1944 by the International Monetary Fund (IMF) differ little from the main focus of the organization at present. The IMF was created to rebuild and stabilize the world economy after World War II. And to this day it continues in its efforts to support and stabilize the economies of its member nations.

Initially the IMF was created to help ward off what was thought to be an imminent post war depression. It was founded at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire in July of 1944. The conference focused on several conditions which member nations would have to comply with. Each would agree to set a par value for its currency. This meant a fixed value would be given to each member’s unit of currency to halt great fluctuations in their prices in relation to each other. An agreement was also made to apply the principle of convertible currencies. Each nation could now freely trade currencies with assurances that it could be bought and sold at a standard, set value. Member nations were also obliged to contribute to the running costs of the International Monetary Fund. The payments would be based on a certain countries’ national income, international trade and international reserve holdings. Countries with larger subscriptions would be allowed more power within the organization through more eligible votes. The IMF was created as an attempt to make trade easier and more accessible, stabilizing economies after the 2nd World War.

The Articles of Agreement, to create the IMF, were signed by 29 countries on December 27, 1945. The head office was to be placed in Washington D.C. It would begin financial operations on March 1, 1947. Since then, 153 more countries have joined the IMF which now totals 182 member nations. In 1971, the United States informed the IMF that it would no longer buy and sell gold to settle international transactions. Par values for currencies could not exist, and this system was abolished. Currencies have since been allowed to float in relation to each other. A system based on economic performance and where the price of a currency is allowed to rise and fall; although, the system is still very flexible and currencies can be converted easily. After the creation of the International Monetary Fund, membership grew and it remains one of the most important financial organizations in the world.

Today, the International Monetary Fund has 3 areas of activity in an attempt provide assistance effectively and efficiently. Financial assistance is endowed to member nations for “balance-of-payment” problems. These problems are mainly based on falling prices of a countries’ currency and a countries’ inability to pay off debt. Considering that a bankrupt economy would be terrible for the world financially, financial assistance is necessity and funds are given out as credit or loans. Secondly, the IMF allots technical assistance to nations providing expertise and support in several different areas.

Policies and in some cases institutions are put in place. The IMF also assists with accounting and the general handling of transactions. The collection and refinement of statistical data is another area where the organization contributes. To provide long term support, officials for member countries are educated at many regional training programs. These new officials will become an integral part of each countries economic success. Thirdly, surveillance of members of the IMF allows for diagnosis of individual problems within the nation’s economy and its exchange rate policies. Each country has consultants and program monitoring, coupled with precautionary measures which prevent financial disasters.

The World Bank

The World Bank is not a “bank” in the common sense; it is an agency made up of 184 member countries. These countries are jointly responsible for how the institution is financed and how money is spent along with the rest of the development of the community. The World Bank supports both developed and developing countries with lending guaranteed analytic and advisory work, debt relief, capacity enhancement, global monitoring and advocacy. Their goals are to eradicate poverty and hunger, achieve universal primary education, promote gender equality, reduce child mortality, combat deadly diseases, ensure environmental sustainability, and develop a global partnership for development. The World Bank’s poverty reduction strategy is based on building the investment climate and investing in poor people. They offer different types of financing projects. These projects include low interest loans, interest free credit, and grants, which are provided by 40 wealthy donor countries that contribute money every 4 years to these developing countries.

The money that is borrowed by the governments has to be used for specific programming in poverty reduction, delivery of social services, environmental protection, or economic growth. There are two types of borrowers: the middle-income countries and the heavily indebted poor countries. The borrower first identifies and prepares a project proposal to the bank for it to be reviewed, then negotiate and agree on the development objectivity, components, outputs, performance, indicators, implementation plan and a schedule disbursing loan funds. The World Bank considers themselves to have achieved success over their program, but they feel there is much more work to be needed in poor countries. Their objective is to eradicate extreme poverty in all nations.

This group has a disclosure policy that allows the public to view what they do because they believe in an anticorruption. The public is allowed to view vast numbers of documents including project related strategies documents, a chairman’s summaries on board discussions, country assistance strategies, and sector strategy papers.

In my opinion The World Bank Group is achieving their purpose to eradicate extreme poverty; they seem to show the public what they do by their vast informative documents they have on their website. They are open to the public about corruption, they ask people to report any fraud if there is any found, and are accessible to locate for further information.

References

Articles of Agreement of the International Monetary Fund. Retrieved April 26, 2004 from the World Wide Web. http://www.imf.org/external/pubs/ft/aa/aa01.htm

What is the International Monetary Fund? Retrieved April 26, 2004 from the
World Wide Web. http://www.imf.org/external/pubs/ft/exrp/what.htm#glance

What is the World Bank? Retrieved April 26, 2004 from the World Wide Web. http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20040558~menuPK:34559~pagePK:34542~piPK:36600~theSitePK:29708,00.html