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The World Bank is a United Nations international financial institution that provides loans to
developing countries for capital programs. The World Bank is a component of the World
Bank Group, and a member of the United Nations Development Group.
The World Bank's official goal is the reduction of poverty. According to its Articles of
Agreement, all its decisions must be guided by a commitment to the promotion of foreign
investment and international trade and to the facilitation of capital investment.

The International Monetary Fund (IMF) is an international organization that was initiated in
1944 at the Bretton Woods Conference and formally created in 1945 by 29 member
countries. The IMF's stated goal was to assist in the reconstruction of the world's
international payment system postWorld War II. Countries contribute funds to a pool
through a quota system from which countries with payment imbalances temporarily can
borrow money and other resources. As of the 14th General Review of Quotas in late 2010
the fund stood at SDR476.8bn, or about US$755.7bn at then-current exchange rates. [1]
Through this fund, and other activities such as surveillance of its members' economies and
the demand for self-correcting policies, the IMF works to improve the economies of its
member countries.
The IMF is a self-described "organization of 188 countries, working to foster global
monetary cooperation, secure financial stability, facilitate international trade, promote high
employment and sustainable economic growth, and reduce poverty around the world. The
organization's objectives are stated in the Articles of Agreement and can be summarized as:
to promote international economic co-operation, international trade, employment, and
exchange rate stability, including by making financial resources available to member
countries to meet balance of payments needs. Its headquarters are in Washington, D.C.,
United States.
The IMF works to foster global growth and economic stability. It provides policy advice and
financing to members in economic difficulties and also works with developing nations to
help them achieve macroeconomic stability and reduce poverty. The rationale for this is that
private international capital markets function imperfectly and many countries have limited
access to financial markets. Such market imperfections, together with balance of payments
financing, provide the justification for official financing, without which many countries could
only correct large external payment imbalances through measures with adverse effects on
both national and international economic prosperity. The IMF can provide other sources of
financing to countries in need that would not be available in the absence of an economic
stabilization program supported by the Fund.

Upon initial IMF formation, its two primary functions were: to oversee the fixed exchange
rate arrangements between countries,[8] thus helping national governments manage their
exchange rates and allowing these governments to priorities economic growth,[9] and to
provide short-term capital to aid balance-of-payments.[8] This assistance was meant to
prevent the spread of international economic crises. The Fund was also intended to help
mend the pieces of the international economy post the Great Depression and World War II.

The IMF's role was fundamentally altered after the floating exchange rates post 1971. It
shifted to examining the economic policies of countries with IMF loan agreements to
determine if a shortage of capital was due to economic fluctuations or economic policy. The
IMF also researched what types of government policy would ensure economic recovery. The
new challenge is to promote and implement policy that reduces the frequency of crises
among the emerging market countries, especially the middle-income countries that are open
to massive capital outflows. [12] Rather than maintaining a position of oversight of only
exchange rates, their function became one of surveillance of the overall macroeconomic
performance of its member countries. Their role became a lot more active because the IMF
now manages economic policy instead of just exchange rates.
In addition, the IMF negotiates conditions on lending and loans under their policy of
conditionality, which was established in the 1950s.[10] Low-income countries can borrow on
concessional terms, which means there is a period of time with no interest rates, through
the Extended Credit Facility (ECF), the Standby Credit Facility (SCF) and the Rapid Credit
Facility (RCF). No concessional loans, which include interest rates, are provided mainly
through Stand-By Arrangements (SBA), the Flexible Credit Line (FCL), the Precautionary and
Liquidity Line (PLL), and the Extended Fund Facility. The IMF provides emergency assistance
via the newly introduced Rapid Financing Instrument (RFI) to all its members facing urgent
balance of payments needs.
Conditionality of loans
IMF conditionality is a set of policies or conditions that the IMF requires in exchange for
financial resources. The IMF does not require collateral from countries for loans but rather
requires the government seeking assistance to correct its macroeconomic imbalances in the
form of policy reform. If the conditions are not met, the funds are withheld. Conditionality is
perhaps the most controversial aspect of IMF policies. The concept of conditionality was
introduced in an Executive Board decision in 1952 and later incorporated in the Articles of

Conditionality is associated with economic theory as well as an enforcement mechanism for
repayment. Stemming primarily from the work of Jacques Polka in the Fund's research
department, the theoretical underpinning of conditionality was the "monetary approach to
the balance of payments."
Some of the conditions for structural adjustment can include:
Cutting expenditures, also known as austerity.
Focusing economic output on direct export and resource extraction,
Devaluation of currencies,
Trade liberalisation, or lifting import and export restrictions,
Increasing the stability of investment (by supplementing foreign direct investment with the
opening of domestic stock markets),
Balancing budgets and not overspending,
Removing price controls and state subsidies,
Privatization, or divestiture of all or part of state-owned enterprises,
Enhancing the rights of foreign investors vis-a-vis national laws,
Improving governance and fighting corruption.
These conditions have also been sometimes labelled as the Washington Consensus.

These loan conditions ensure that the borrowing country will be able to repay the Fund and
that the country won't attempt to solve their balance of payment problems in a way that
would negatively impact the international economy. The incentive problem of moral hazard,
which is the actions of economic agents maximising their own utility to the detriment of
others when they do not bear the full consequences of their actions, is mitigated through
conditions rather than providing collateral; countries in need of IMF loans do not generally
possess internationally valuable collateral anyway.

Conditionality also reassures the IMF that the funds lent to them will be used for the
purposes defined by the Articles of Agreement and provides safeguards that country will be
able to rectify its macroeconomic and structural imbalances. In the judgment of the Fund,
the adoption by the member of certain corrective measures or policies will allow it to repay
the Fund, thereby ensuring that the same resources will be available to support other

As of 2004, borrowing countries have had a very good track record for repaying credit
extended under the Fund's regular lending facilities with full interest over the duration of
the loan. This indicates that Fund lending does not impose a burden on creditor countries, as
lending countries receive market-rate interest on most of their quota subscription, plus any
of their own-currency subscriptions that are loaned out by the Fund, plus all of the reserve
assets that they provide the Fund.

The IMF has been criticized for being 'out of touch' with local economic conditions, cultures,
and environments in the countries they are requiring policy reform. The economic advice the
IMF gives might not always take into consideration the difference between what spending
means on paper and how it is felt by citizens.

For example, some people believe that Jeffrey Sachs' work shows that "the Fund's usual
prescription is 'budgetary belt tightening to countries that are much too poor to own belts.
It has been said that the IMF's role as a generalist institution specializing in macroeconomic
issues needs reform. Conditionality has also been criticized because a country can pledge
collateral of "acceptable assets" to obtain waivers on certain conditions. However, that
assumes that all countries have the capability and choice to provide acceptable collateral.

One view is that conditionality undermines domestic political institutions. The recipient
governments are sacrificing policy autonomy in exchange for funds, which can lead to public
resentment of the local leadership for accepting and enforcing the IMF conditions. Political
instability can result from more leadership turnover as political leaders are replaced in
electoral backlashes. IMF conditions are often criticized for their bias against economic
growth and reduce government services, thus increasing unemployment.

Another criticism is that IMF programs are only designed to address poor governance,
excessive government spending, excessive government intervention in markets, and too
much state ownership. This assumes that this narrow range of issues represents the only
possible problems; everything is standardized and differing contexts are ignored. A country
may also be compelled to accept conditions it would not normally accept had they not been
in a financial crisis in need of assistance.

On top of that, regardless of what methodologies and data sets used, it comes to same
conclusion of exacerbating income inequality. With Gini coefficient, it became clear that
countries with IMF programs face increased income inequality.

It is claimed that conditionalities retard social stability and hence inhibit the stated goals of
the IMF, while Structural Adjustment Programs lead to an increase in poverty in recipient
countries. The IMF sometimes advocates austerity programmes, cutting public spending
and increasing taxes even when the economy is weak, to bring budgets closer to a balance,
thus reducing budget deficits. Countries are often advised to lower their corporate tax rate.
In Globalization and Its Discontents, Joseph E. Stiglitz, former chief economist and senior
vice-president at the World Bank, criticises these policies.He argues that by converting to a
more monetarist approach, the purpose of the fund is no longer valid, as it was designed to
provide funds for countries to carry out Keynesian reflations, and that the IMF "was not
participating in a conspiracy, but it was reflecting the interests and ideology of the Western
financial community.
The IMF, or International Monetary Fund, is an organization of 187 member countries. Their
goal is to work with the Fund to stabilize the global economy by cooperating in practices
which achieve that aim. Ideally, these countries are willing to forfeit some of their sovereign
authority if it is necessary to strengthen the global economy.
In return, the IMF helps its members by:

Surveying global economic conditions.
Advising member countries on methods to improve their economy.
Providing short-term loans to avoid currency instability.
Since the IMF does lend money, it is often confused with the World Bank. The Bank's
purpose is to lend money to developing countries for specific projects that will fight poverty.
The IMF, on the other hand, only provides loans if it will help prevent a global economic
crisis. Its overall goal is to prevent these crises through guidance to, and cooperation
among, its members.
Who Runs the IMF?:

The IMF is governed a Board consisting of the finance minister or central bank leader of each
member countries. They meet annually, in conjunction with the World Bank. Another
committee, the International Monetary and Financial Committee, or the IMFC, meets twice a
year to review the international monetary system and make recommendations. The day-to-
day work of the IMF is carried out by the Executive Board, who appoints the IMF's Managing
Director to a renewable five-year term.
In 2011, the IMF was rocked by a sex scandal involving its Executive Director, Dominique
Strauss-Kahn. He was arrested while visiting New York on allegations he sexually assaulted
a maid in a hotel there. Although the charges were subsequently dropped, he resigned. Many
emerging market IMF members argued that it was time for a representative from one of
their countries be named director. This reflects the growing power of these countries, which
are contributing a larger share of global economic growth. The IMF had just agreed to
transfer 6% of voting power to emerging market countries in 2010.

Many excellent candidates were proposed, including: Singapore Finance Minister Tharman
Shanmugaratnam, former Turkish Economic Minister Kemal Dervis and India's Montek Singh
Ahluwalia, a former IMF director. However, France was allowed to replace Strauss-Kahn
with its highly respected Finance Minister, Christine LaGarde.

Importance of the IMF:

The importance of the IMF has increased since the onset of the 2008 global financial crisis.
In fact, an IMF surveillance report warned about the economic crisis, but was ignored. As a
result, the IMF has been called upon more and more to provide global economic surveillance.
It's in the best position to do so because its requires members to subject their economic
policies to IMF scrutiny. Member countries also committed to pursue policies that are
conducive to reasonable price stability, and avoid manipulating exchange rates for unfair
competitive advantage.
IMF Advises Member Countries:

Since the Mexican peso crisis of 199495 and the Asian crisis of 199798, the IMF has taken
a more active role to help countries prevent financial crises. It develops standards that
countries should follow, such as providing adequate foreign exchange reserves in good times
to help provide for increased spending during recessions. It reports on members countries'
observance of these standards. It also issues member country reports that investors use to
make well-informed decisions, improving the functioning of financial markets, and reducing
potential financial shocks.
IMF Provides Short-term Loans:

The Fund provides loans to help its members tackle balance of payments problems, stabilize
their economies, and restore sustainable growth. Unlike the World Bank and other
development agencies, the IMF does not finance projects.
Traditionally, most IMF borrowers were developing countries which have only limited access
to international capital markets, partly because of their economic difficulties. Since IMF
lending signals that a country's economic policies are on the right track, it reassures
investors and can act as a catalyst for attracting funds from other sources.

This shifted in 2011, when the eurozone crisis prompted the IMF to provide short-term loans
to developed markets to bail out Greece. This was within the IMF's charter, however, since it
prevented an even worse global economic crisis.

History of the IMF:

The International Monetary Fund (IMF), like the World Bank, was conceived at the Bretton
Woods conference that sought to rebuild Europe after World War II. Unlike the Bank, its goal
was to help countries maintain the value of their currencies without resorting to trade
barriers and high interest rates. These were seen as a major cause of the Great Depression.

What Is the WTO?

The purpose of the WTO is to ensure that global trade commences smoothly, freely and
predictably. The WTO creates and embodies the legal ground rules for global trade among
member nations and thus offers a system for international commerce. The WTO aims to
create economic peace and stability in the world through a multilateral system based on
consenting member states (currently there are slightly more than 140 members) that have
ratified the rules of the WTO in their individual countries as well. This means that WTO rules
become a part of a country's domestic legal system. The rules, therefore, apply to local
companies and nationals in the conduct of business in the international arena. If a company
decides to invest in a foreign country, by, for example, setting up an office in that country,
the rules of the WTO (and hence, a country's local laws) will govern how that can be done.
Theoretically, if a country is a member to the WTO, its local laws cannot contradict WTO
rules and regulations, which currently govern approximately 97% of all world trade.

How It Functions
Decisions are made by consensus, though a majority vote may also rule (this is very rare).
Based in Geneva, Switzerland, the Ministerial Committee, which holds meetings at least
every two years, makes the top decisions. There is also a General Council, a Goods Council,
Services Council, and an Intellectual Property Rights Council, which all report to the General
Council. Finally, there are a number of working groups and committees.

If a trade dispute occurs, the WTO works to resolve it. If, for example, a country erects a
trade barrier in the form of a customs duty against a particular country or a particular good,
the WTO may issue trade sanctions against the violating country. The WTO will also work to
resolve the conflict through negotiations.
The WTO is the principal international institution for the management of international trade.
It was created at the Uruguay Round of trade talks in 1994, when it was agreed to transform
the General Agreement on Tariffs and Trade (GATT) into a permanent institution. The
Uruguay Round was a round of GATT negotiations started in Uruguay in 1986 and designed
to promote free trade. It was the origin of the WTO and a range of multilateral agreements.
It currently has 146 Member States. The WTO is responsible for:

Providing a forum for trade negotiations
Handling trade disputes
Monitoring national trade policies.
The WTO also administers WTO agreements, provides technical assistance to developing
countries and cooperates with other international bodies on trade issues.

The WTO is the only organization that can enforce its own rules - which makes it an
extremely powerful organization. The WTO dispute settlement system is used when
countries differ in their interpretation of the WTO agreement. If two or more states have a
dispute over, for example, a health-related trade measure, they have the right to invoke the
WTO dispute settlement process. The WTO cannot itself prosecute a member: it is up to the
countries involved to bring the dispute to the WTO. Only the complainant can argue the case
and only if it relates to WTO agreements or commitments. What makes the WTO unique is
that sanctions can be imposed by the WTO against countries that lose a case in this
procedure. For example, a complainant may be allowed to impose import tariffs on products
from the offending country to a certain value equal to the compensation decided by the
The main pillars of the WTO are the multilateral trade agreements, including the General
Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of
Intellectual Property rights (TRIPS). These agreements do contain some provisions for the
protection of public health and safety but they remain controversial.In theory, all members
have an equal voice in the consensus decision-making process. However, in practice the
wealthier nations dominate. With the acceleration of free trade, many believe it is
imperative that the WTO serves to accelerate world economic activity. However, others are
concerned that this should not be done without reference to the social and cultural
consequences, particularly in terms of the marginalization of vulnerable groups.