What are the World Bank and IMF?

The World Bank and International Monetary Fund pop up in news items often − whether it’s a major protest in Seattle or aid projects in Africa. So what are these two organisations and what do they do?

Basically they’re separate global banks owned and used by the governments of almost every country on earth with an aim to reduce poverty, promote economic growth and maintain financial stability on a worldwide scale – sounds easy.

The World Bank lends money to developing countries at low interest rates for projects promoting better living standards while the IMF lends to both industrial and developing nations unable to pay their international debt.

Both were created at the Bretton Wood Conference in 1944 to help European countries devastated by World War Two and each receives funding from member nations.

The bank was tight on lending until 1967 and released funds mainly for infrastructural and industrial projects that guaranteed economic growth and payback of loans.

However, the focus shifted to the developing world as the European nations became more stable.

Corporate bonds were issued to increase the bank’s capital and large amounts of money were lent to developing countries for education and healthcare projects which lead to a rapid rise in Third World debt in the late 1970s.

A small number of economically powerful countries including the United States hold the majority control of the bank which has immunity waiving all legal liability for actions against any country it deals with.

Bank presidents are always US citizens and the country holds veto power on some decision making.

The late 1970s also saw the introduction of structural adjustment policies - conditions to the loans that were often based around free-market policies that benefited wealthier nations, particularly the bank’s major donors such as the US, United Kingdom and Japan.

Conditions included the privatisation of government assets, reducing trade barriers, currency devaluation and increased resources extraction.

Unfortunately many social programs including education and public healthcare suffered as borrowing governments were forced to cut costs to comply.

Privatisation of water in Bolivia and health systems in Africa caused essential items to become commodities unattainable to the poor. Conditions imposed on Tanzania during an AIDS epidemic caused an increase the price of medicine.

Other policies included the use of fertilisers and pesticides that polluted waterways and harmed not only the drinking supply, but fish life and oceans on a larger scale.

UNICEF reported in the late 1980s that the bank was responsible for reducing the living standards of tens of millions in Asia, Latin America, and Africa. Policies on social spending loosened around this time following criticism by environmental groups and non-government organisations.

The Poverty Reduction Strategy Paper in 1999 encouraged governments of developing countries, local experts and aid organisations to take part in forming the conditions around the loans and identifying priorities and targets for reducing poverty.

Some say it was a dressed up version of the original strategy with neither really addressing the fundamental flaws in the supposed neutral lending conditions that have contributed to economic and social problems within developing countries.

Others argue that conditions are necessary to ensure the loans are paid back and used effectively.

The bank provided $46.9 billion in 2008 to developing countries and its more than 1,800 projects include AIDS-prevention awareness in Guinea, microcredit in Bosnia, female education in Bangladesh, improving healthcare in Mexico and rebuilding East Timor upon independence.

Given the range of results thus far, it is still unknown if developing countries would be better or worse off with the intervention of the World Bank and IMF. However, as the current system for money is set up, they really have little choice.

By Carolyn Thomas