Understanding the Difference Between IMF and World Bank | Economic & Social Issues

Together known as the Bretton Woods twins, the IMF and World Bank (with its first group institution IBRD) are the two major international multilateral organizations founded at the Bretton Woods Conference in 1944. The Conference was a gathering of delegates from 44 allied nations. They sought to build a framework for economic cooperation to avoid a repetition of the competitive devaluations that had contributed to the Great Depression of the 1930s.

If you also have difficulty distinguishing between the World Bank and International Monetary Fund, you are not alone. Most aspirants get confused between the two!

Difference Between the International Monetary Fund (IMF) and World Bank

The difference between IMF and World Bank lies in their function and purposes. While the International Monetary Fund oversees the stability of the monetary system of the world, the World Bank’s primary goal is to alleviate poverty by offering assistance to middle-income and low-income countries. The headquarters of both these organizations are located at Washington D.C.

Let us look at the functions of each of these:

The World Bank

The World Bank Group consists of five international organizations namely, the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID). Let us now take a look at the primary functions of each of these organizations:

  1. The International Bank for Reconstruction and Development (IBRD) was created in 1944; and is the oldest member in the World Bank Group. The world’s largest development bank, it provides financial products (loans, guarantees, etc.) and policy advice to help middle-income and creditworthy low-income countries reduce poverty and extend the benefits of sustainable growth to all of their people. The areas of focus for IBRD are: agriculture, urban development, healthcare, family welfare, dairy development etc.
  2. The International Development Association (IDA) was established in 1960. It aims at providing loans and grants to the poorest countries that cannot afford to lend money commercially. Its main aim is to further the World Bank’s objective to alleviate poverty by assisting the poorest countries in developing quickly, sustainably, and equitably.
  3. Established in 1956, the function of International Finance Corporation (IFC) is to offer investment, advisory, and asset management services for the development of the private sector of its member countries.
  4. The Multilateral Investment Guarantee Agency (MIGA) was formed in 1988. The primary aim of MIGA to promote foreign direct investment into developing countries to support economic growth, reduce poverty, and improve people’s lives. Towards this end, it offers political risk insurance (guarantees) to investors and lenders.
  5. The International Centre for Settlement of Investment Disputes (ICSID) was formed in 1966 to offer conciliation and arbitration advice for legal dispute resolution between international investors.

International Monetary Fund

The major functions of the International Monetary Fund include:

  1. Facilitating international monetary cooperation;
  2. Promoting exchange rate stability and orderly exchange arrangements;
  3. Providing assistance in the establishment of a multilateral system of payments and the elimination of foreign exchange restrictions;
  4.  Assisting the member countries by temporarily providing financial resources to correct maladjustment in their balance of payments.

The Board of Governors of IMF consists of one governor and one alternate governor from each member country. For India, the Finance Minister serves as the ex-officio governor, while the RBI Governor serves as the ex-officio alternate governor on the board. Hence, as of April 2020, the position of governor is served by Ms. Nirmala Sitharaman and the position of alternate governor is served by Mr. Shaktikanta Das.

The management of the IMF is carried out by the Managing Director or the Chairman of the Board of Executive Directors. Currently, the chairman of IMF is Dr. Kristalina Georgieva. The board of executive directors is represented by 24 directors who are appointed/elected by the member countries. The executive director from India also represents three other countries, namely Bangladesh, Sri Lanka, and Bhutan. Currently, the executive director from India is
Mr. Rakesh Mohan.

This was a brief overview of the functions of the International Monetary Fund and the World Bank. Go through each of them in detail to cover this topic in its entirety. Keep reading current affairs and keep yourself up to date on all the recent developments regarding the release of funds by World Bank and IMF to support any country. Questions from these areas are regularly asked in RBI Grade-B Main exam.

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