The World Bank and the International Monetary Fund

1. The Bretton Woods institutions

At the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, USA, in July 1944, 44 countries agreed to set up two institutions to prevent a return to the depression, competitive devaluations and trade wars of the 1930s: the International Bank for Reconstruction and Development (IBRD, the World Bank) for long-term capital, and the International Monetary Fund for short-term balance of payments support and exchange stability. J.M. Keynes (UK) and Harry Dexter White (USA) drew up the plans. Both are headquartered in Washington, D.C. India was one of the founder members of both.

2. The World Bank

Origin. The IBRD began operations in June 1946. Its first loans were for the reconstruction of post-war Europe; it then turned to development lending to poorer countries.

The World Bank Group has five institutions:

The term “World Bank” strictly means the IBRD and IDA together.

Objectives (Article I of the IBRD Articles of Agreement):

1. to assist in the reconstruction and development of member territories by facilitating investment for productive purposes;
2. to promote private foreign investment by guarantees or participation in loans, and to supplement private investment from its own resources;
3. to promote long-range balanced growth of international trade and equilibrium in balances of payments by encouraging international investment for developing productive resources;
4. to arrange loans so that the more useful and urgent projects are dealt with first; and
5. to conduct its operations with due regard to the effect of international investment on business conditions in member territories.

Its present mission is stated as ending extreme poverty and boosting shared prosperity on a livable planet.

Functions.

• Lending for specific projects (power, irrigation, roads, education, health) and, since the 1980s, programme and policy-based loans (structural adjustment, development policy financing);
• guaranteeing loans by private investors;
• technical assistance and advice in preparing projects;
• research and data: the World Development Report and development indicators;
• training of officials (the World Bank Institute); and
• aid co-ordination among donors.

Structure. A Board of Governors (one per member, usually the Finance Minister), a Board of Executive Directors, and a President, by convention a US national. Voting is weighted by shareholding.

India and the World Bank. India has been among the largest borrowers from the Bank Group. It received large IDA credits for agriculture, irrigation, education and health in the plan period, and graduated from IDA eligibility in 2014, now borrowing from the IBRD. The Bank has financed projects in rural development, power, highways, urban water, education (Sarva Shiksha Abhiyan) and health; the IFC invests in Indian private firms. Its withdrawal from the Sardar Sarovar (Narmada) project in 1993 after an independent review is the best-known controversy.

3. The International Monetary Fund

Origin. The IMF began operations in March 1947.

Objectives (Article I of the IMF Articles):

1. to promote international monetary co-operation;
2. to facilitate the expansion and balanced growth of international trade, and so high levels of employment and income;
3. to promote exchange stability and avoid competitive depreciation;
4. to help establish a multilateral system of payments and eliminate foreign exchange restrictions;
5. to make its resources temporarily available to members to correct balance of payments maladjustments without destructive measures; and
6. to shorten the duration and lessen the degree of disequilibrium in balances of payments.

Functions.

• Surveillance: annual Article IV consultations with each member, and global reports (World Economic Outlook, Global Financial Stability Report).
• Lending to members in balance of payments difficulty, usually with policy conditions: Stand-By Arrangements, the Extended Fund Facility, the Rapid Financing Instrument, and concessional lending through the Poverty Reduction and Growth Trust.
• Special Drawing Rights (SDRs), an international reserve asset created in 1969 and valued against a basket of major currencies.
• Technical assistance on fiscal, monetary and statistical systems.

Quotas. Each member has a quota, based broadly on its size in the world economy, which determines its subscription, its voting power and its access to IMF finance. The USA holds enough votes to veto major decisions, which require an 85 per cent majority.

India and the IMF. India borrowed under an Extended Fund Facility in 1981. In the 1991 crisis India obtained IMF support (a stand-by arrangement and compensatory financing), and the conditions that accompanied it coincided with the reforms: fiscal correction, devaluation, trade and industrial liberalisation. India repaid its IMF borrowings early and has since become a contributor to IMF resources. India accepted current-account convertibility under Article VIII in 1994, and its Executive Director represents a constituency with Bangladesh, Sri Lanka and Bhutan.

4. World Bank and IMF compared

5. Criticisms

• Conditionality: structural adjustment conditions (spending cuts, privatisation, removal of subsidies) were said to hurt the poor.
• Unequal voting: developed countries dominate; quota reforms are slow.
• “One size fits all” policies (the Washington Consensus), criticised by Joseph Stiglitz in Globalization and Its Discontents (2002).
• Environmental and displacement effects of large projects.

How this is examined

January/February 2025: “Explain the objectives and functions of World Bank” (10). June/July 2025 (80 marks): “World Bank” or “International Monetary Fund” (6). June/July 2025 (100 marks): “World Bank” (compulsory short answer). For a 6-mark note: origin, three objectives, four functions, India in two lines.