The International Monetary Fund is made up of 186 countries, which together strive for global monetary co-operation, financial stability, the facilitation of international trade, as well as promoting high employment and sustainable economic growth. At the same time, the IMF and the World Bank also aim to reduce poverty around the world. Some task! – especially with the current financial crisis putting strains on even the richest of countries. In its annual meeting on the 2nd October 2009, the ‘rescue’ of more than 12 governments has already been organised by the IMF.
But it is not just countries who are suffering. The World Bank has said that it could run out of money within the next year and the IMF’s Managing Director has also suggested that it will run out of money for its low-income-country loan facility, which loans money to low-income countries at zero interest rates. However, France and Britain have stepped up with a $4 billion allocation to the IMF to help poorer countries, which may lead to other countries doing the same.
Meanwhile, Alistair Darling continues to fight to keep Britain’s seat at the IMF, as some suggest that Europe has too many seats and should give them up to make room for growing economies. This comes at a time when Britain is also facing the prospect of being side-lined from a new group of economic superpowers that would include the US, Japan, China and the Eurozone countries. The following articles consider the role of the IMF and the WB, as the global economy continues to face financial turmoil.
Doubts remain over global power of IMF Financial Times, Alan Beattie (3/10/09)
Pledge for more IMF help for poor BBC News (4/10/09)
World Bank could run out of money ‘within 12 months’ Telegraph, Edmund Conway (2/10/09)
Will tough new G20 measures work? BBC News (26/9/09)
France, UK to loan IMF$4 billion for poor nations Bloomberg, Sandrine Rastello (3/10/09)
Darling rejects call for UK to lose permanent seat on IMF Guardian, Larry Elliot (4/10/09)
Alistair Darling battles to keep UK on the world’s economic top table Telegraph, Edmund Conway(3/10/09)
See also:
IMF Homepage
World Bank Homepage
Questions
- How do the roles of the IMF, the World Bank, the G7 and the G20 differ and overlap? Do we need all of them?
- What are the arguments for less European representation at the IMF? How may this affect decision-making?
- If the G4 does go ahead, with the Eurozone as one of its members, why will the UK be sidelined?
- It is often mentioned that all countries are interdependent, but what do we mean by international policy harmonisation and why is it desirable?
- The BBC News article and the Telegraph article talk about money shortages at the IMF and the WB. What does this mean for the poorer countries and also for the UK and France which have allocated $4 billion to the IMF?
The Mount Washington Hotel in Bretton Woods, New Hampshire was the location for a historically significant meeting in the summer of 1944. John Maynard Keynes was part of the British negotiating team at a meeting to plan the post World War II economic order. As a result of the meeting an adjustable peg system of semi-fixed exchange rates was developed and the International Bank for Reconstruction and Development (IBRD – now part of the World Bank Group) and the International Monetary Fund (IMF) were also born. As a result of this meeting the small rural location of Bretton Woods has moved into the economics lexicon. The institutions born out of this meeting have been subject to considerable criticism in recent years and in the first article linked to below, George Monbiot argues that it is unfair to attach this criticism to Lord Keynes. With a recent meeting of the G20 having been dubbed as Bretton Woods II, the original meeting and its outcomes have been thrown back into the limelight.
Keynes is innocent: the toxic spawn of Bretton Woods was no plan of his Guardian (18/11/08)
How Bretton Woods reshaped the world Guardian (14/11/08)
Shaping the world: Bretton Woods 1944 Guardian (14/11/08)
It takes two Guardian (5/12/08)
Questions
- Write a short paragraph summarising the outcomes of the Bretton Woods conference in 1944.
- Explain the role in the world financial system of (a) the World Bank and (b) the IMF.
- Assess the possible validity of the criticisms that have been levelled at the IMF. See particularly the George Monbiot article.
- Using diagrams as appropriate, explain how the system of semi-fixed exchange rates negotiated at Bretton Woods worked to maintain economic stability.
- Examine the principal reasons for the breakdown of the Bretton Woods system.
The G20 Leaders Summit on Financial Markets and the World Economy took place on November 14–15, 2008, in Washington DC. Many commentators dubbed this meeting ‘Bretton Woods II’. Bretton Woods – Mark I was a meeting in the summer of 1944 that set out the foundations for the post World War II economic order. It set up a system of semi-fixed exchange rates and led to the establishment of the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF). Bretton Woods Mark II was perhaps less historically significant, but the world leaders agreed a plan to boost the world economy through tax cuts, higher public expenditure and lower interest rates; something Lord Keynes, the principal negotiator for the UK at Bretton Woods Mark I, would have wholeheartedly approved of!
G20 to back global tax cuts Times Online (16/11/08)
This week, our leaders have a chance to make the world anew Guardian (9/11/08)
A dangerous free-for-all Guardian (11/11/08)
Bretton Woods II – five key points on the road to a new global financial deal Guardian (14/11/08)
G20 summit: ‘The world economy is broken and they need to reflate’ Guardian (14/11/08) Podcast
Doubts raised over prospects of success for ‘hasty summit’ Guardian (15/11/08)
Our chance for a working regulatory regime Guardian (15/11/08)
Questions
- Write a short paragraph summarising the outcomes of Bretton Woods II.
- Assess the extent to which the fiscal and monetary stimulus agreed by the G20 leaders will be successful at minimising the depth of the global recession.
- Discuss the need for regulatory reform of the world financial system (as considered at Bretton Woods II).
- The G20 “signalled a determination to press on with the completion of the Doha world trade round”. Assess the extent towhich this is likely to be successful.
A recent report from the World Bank has suggested that developing countries need to grow significantly if they are to avoid high levels of poverty. The report suggested that without rapid and sustained growth up to 4 billion people could be living in abject poverty by 2050.
‘Choose growth or accept poverty for billions’ Guardian (22/5/08)
The Doha dilemma The Economist (29/5/08)
Questions
| 1. |
Summarise the main findings of the World Bank report. |
| 2. |
Is rapid economic growth (a) a necessary condition and/or (b) a sufficient condition for alleviating poverty in developing countries. |
| 3. |
Evaluate two policies that a developing country could adopt to raise levels of economic growth. |
The World Bank and the IMF are no strangers to criticism. Both organisations have pursued controversial policies in their attempts to improve the lot of people in developing countries. Recent events at the World Bank have heightened criticism of the organisation and in the first article below Naomi Klein (author of No Logo – nologo.org) argues that the behaviour of Paul Wolfowitz is symptomatic of a wider hypocrisy in the behaviour of the World Bank around the world. In the second article George Monbiot writes a criticism of the behaviour of the IMF and its approach.
Questions
| 1. |
Use the web sites of the IMF and the World Bank to write a summary of their roles. |
| 2. |
Assess the validity of the arguments of (a) George Monbiot with respect to the IMF and (b) Naomi Klein with respect to the World Bank. |
| 3. |
Discuss possible changes in World Bank policies that would help address Naomi Klein’s criticisms. |