Thursday, December 7, 2017

YOUR BUSINESS IS OUR BUSINESS: ‘Choosing’ between the WB and the IMF


By Karl Lyimo

If ‘siblings’ are offspring who’ve one or both parents in common, then the International Monetary Fund (IMF) and the International Reconstruction & Development Bank (IRDB, popular as the ‘World Bank/WB’) are siblings.

That’s basically because both institutions are creatures of the founding fathers who included British economist John Maynard Keynes (1883-1946) whose ideas are generally acknowledged as having fundamentally changed the theory and practice of macroeconomics and the economic policies of governments.

The WB and IMF are collectively known as the ‘Bretton Woods Institutions.’ That’s because they were founded in the remote Bretton Woods village of New Hampshire in the US where delegates from 44 members of the League of Nations (later UN) met in July 1944 to determine the way forward for a world caught between a rock and a hard place!

The ‘rock’ in this case was the Great Depression (1919-39)… With the ‘hard place’ being World War-Two (1939-45).

The IMF and the WB are twin intergovernmental pillars that support the structure of the world’s economic and financial order as per the Bretton Woods Agreement of 1945.

Among IMF’s obligations are overseeing the international monetary system; promoting exchange stability and orderly exchange relations among its members; providing short-to-medium-term credits to members that find themselves in temporary balance-of-payments difficulties, and supplementing the currency reserves of its members through the allocation of special drawing rights (SDRs).

For its part, the World Bank promotes economic development of the world’s poorer countries; assists the countries through long-term financing of development programmes; provides to the poorest developing countries (whose annual per capita GNP is less than $865) special financial assistance through the International Development Association, and encourages private enterprises in developing countries through the International Finance Corporation.

While the IMF draws its financial resources principally from the quota subscriptions of its member countries – it currently has at its disposal fully-paid-in quotas totaling SDR145 billion (about $215 billion) – the World Bank acquires most of its financial resources by borrowing on the international bonds market. It has an authorized capital of $184 billion, of which members pay in about ten per cent.

IMF draws its staff (currently numbering 2,300) from its 182 member-countries – while the World Bank Group draws its 7,000-strong staff from its 180 member-countries!

In view of the foregoing, it’s really silly to ‘choose between the WB and IMF’ – as the headline to this tedious palaver tends to suggest! There’s a world of a difference betwixt the two – the primary difference being in their respective purposes and functions.

While one’s busy stabilizing exchange rates, the other’s busy reducing world poverty… ‘Wapi na wapi!’

While both do extend funding to their member-countries, IMF loans are loaded with ‘conditionalities.’ After all, they’re really ‘rescue packages’ for ‘errant governments’ in the hope they’d have learned a lesson or two, as they struggle to repay the loans at rather hefty interest rates.

[No wonder Mwalimu Julius Nyerere (1922-99) – founder-president of Tanganyika/Tanzania (1962-85) – never saw eye-to-eye with the Fund. In a moment of desperation, Mwalimu distorted its acronym to ‘International Ministry of Finance!’]

On the other hand, WB ‘cooperation’ comes in the forms of technical and financial support for long-term economic development projects such as infrastructure. It also helps countries in reforming inefficient economic sectors.

Although the Bank and IMF are distinct entities, they nonetheless work in close cooperation – the bedrock of their cooperation being the regular interactions of their experts at headquarters and in their member-countries abroad.

Cheers! And long-live the Bretton-Woods babes… [].