The World 1

Running head: THE WORLD BANK AND THE IMF

The World Bank And The IMF

A Case Study of Benefiting Countries Impact and Implications

Tracy Turner, Salena Perry, and Timothy L. Sherman

American Intercontinental University

 The World 2

The World Bank and The IMF

A Case Study of Benefiting Countries Impact and Implications

World War II left many European countries in ruins. The World Bank was

established to provide investment funds for economically undeveloped countries and to

overcome deficits in balancing of payments excessively in imports and exports The

World Bank supports the efforts of developing country governments to build strong

schools and health centers, provide water and electricity, fight disease, and protect the

environment. (Galileo) Another function of the World Bank is the disbursement and

delegation as to how these funds are allocated within the country. As part of the United

Nations, The World Bank is made up of 184 countries which include 10,000

professionals representing nearly early country and the headquarters is located in

Washington, D.C.

The International Bank for Reconstruction and Development (IBRD) and the

International Development Association (IDA) are the names formally use for the World

Bank. These organizations provide low interest loans, credit and grants to developing

countries. Repayment on some of these loans is 15-20 years with a grace period of 3-5

years. The IBRD provided $11 billion in support to 33 countries in 2004.

The International Monetary Fund (IMF) formulation is to lend monetary relief to

countries. These loans are to assist in stabilizing the economy of those countries and

restore economic growth. IMF loans are not given for specific projects. The processes of

obtaining an IMF loan is contingent upon a letter of intend which includes the economic

issues that a country wishes to resolve. This letter is presented to an Executive Board and

once approved the loan is released in installments.

 The World 3

World Bank funds are directed towards education, HIV/AIDS programs, debt relief,

water and electricity and IMF funds are based primarily on the balance of payment owed

by the country.

Objective: To a brief overview of the World Bank and The IMF, and an observation

of it’s’ support to developing countries reference funds provided vs. strategy completion

or achievement.

Hypothesis: Annually the World Bank and IMF award millions of dollars in loans to

developing world counties. It is believed that the funds from the World Bank and IMF

not being used their intended purpose.

 The World 4

India

India gained its independence in 1947 due to the nonviolence movement by

Mohandas Gandhi and Jawaharlal Nehru. In 1971, the county became a separate nation

of Bangladesh. India encounters over population, poverty, disease and many religious

indifferences.

The population is 1,080,264,388. It is estimated that by the end of 2005 the

population will increase by 1.4%. There are various ethnic groups. Indo-Aryan 72%,

Dravidian 25%, Mongoloid and other 3%., Religions are Hindu 81.3%, Muslim 12%,

Christian 2.35, Sikh 1.9% and other groups Buddhist, Jain, Parist 2.5%.

English is the most spoken language in the country. However, Hindu is the national

language and 30% of the people speak this tongue. The government is set up as a federal

republic. India has 28 states and 7 union territories. Numerous religions and militant

chauvinistic organizations exist with the India.

Economically, India’s main cash cows’ are farming, modern agriculture and

handicrafts. The economy has a growth rate of 6.8% and poverty rate has been on the

decline for the past decade. India has capitalized on educated citizens who speak

English.
 The World 5

India is the major exporter of software services and software skilled workers.

Although the economy has strengthened, the World Bank is concerned about the

combined state and federal budget deficit. Currently at 9 % of GDP, India is experiencing

social, economic and environmental difficulties. According to Schiller (2005), India GDP

is at 2,570 per household. A 59.7% federal debt hangs in the balances for India. Exports

are $69 billion with commodities such as textile goods, gems and jewelry, engineering

goods, chemicals and leather manufactures. Their partners are US (20.3%), China 6%,

UK 5.2%, Hong Kong 4.7%, and Germany 4.3.

Imports are $89 billion in crude oil, machinery, gems, fertilizer and chemicals.

India’s import partners are US 6.7%, Belgium 5.9 %, UK 5%, China 4.5%, and

Singapore 4.2%. Although India’s poverty level has gone from one half to one third, its

people are still poor.

The World Bank is currently financing 71 developmental projects worth $14

billion dollars. Some of the funding is used to fight leprosy, tuberculosis and blindness

caused by cataracts. Over population in India has resulted in an increase in demand for

water. However, several World Bank projects have assisted communities to manage

improved irrigation systems in India. These projects have enabled millions of farmers

and families to enhance their lives.

The World Bank assistance has helped to revolutionize the state of the arigculture

system. Crops such as broccoli, Chinese cabbage, Brussels sprouts and celery are being

grown to supply big hotels in Delhi and Agra. Chilies and tomatoes are exported to

Spain and France. Gladiolus, Orchids and Carnations are exported to Australia.
 The World 6

The Country Assistance Stragety for India outlines how the World Bank will

provide funds to assist India in their areas of need. The process is to strengthen the

environment for development and growth while supporting intervention of special

benefits to the poor and disadvantage.

The goal is that one day India could go on to become a hub of globalization for

the region. The reasoning is the spirit of intolerance of laziness exists and the people are

willing to work towards their goals. Each generation is making sacrifices to achieve their

dreams. The country is also gaining confidence in opening itself to the world. India is

willing to take advantage of outside opportunities, use less costly resources, and hire the

best people to face competition. The building of New Delhi Metro to world standards has

allowed India to be recognized. India has the necessary IT, communications, and

financial skills to become a globalization society. The many challenges that India faced

has forced them into competition. For example, when challenged to improve productity,

Indian had inefficiencies in the system, but there was an advantage in sources. China

dominated the motorcycle market at one time; however, Bajaj Auto sells over a million

motorcycles. It is expected to export more before the end of 2005.

The IMF trade index sees India as an 8, thereby making it a restrictive county and

close economy. The fear is India will become a multinational state and become

controlled by other nations.

 The World 7

The country of Kenya is located in Eastern Africa. It borders the Indian Ocean

and its neighboring countries are Somalia, Ethiopia, Sudan and Tanzania. Kenya is about

twice the size as the state of Nevada in the United States. Since this country’s in

dependence from the UK on December 12, 1963, the formally known British East Africa

is now known today as the Republic of Kenya or Kenya. The capital of Kenya is Nairobi

and it has 1 area and 7 provinces which are the Nairobi Area, North Eastern province,

Central province, Coastal province, Eastern province, Nyanza province, Rift Valley

province and the Western province.

The population of Kenya is 33,839,590 and the population growth rate for 2005 is

2.56%. There are 40.13 births per 1,000 populous and there are 14.65 deaths per 1,000

populous. The infant mortality rate for this country is 61.47deaths/1,000 live births. The

infant mortality rate is largely due to a lack of adequate healthcare for all Kenyans. The

life expectancy of females in Kenya is 47.09 years and for males, the life expectancy is

48.87 years.

From the 1980s, Kenya has had low economic and employment growth as well as

a decline in productivity. From 1982 until 2002, the per capita income has declined in

Kenya from $271million in 1990 to $239 million in 2002 (imf.org). As of today, there
 The World 8

are 33,839,590 Kenyans, and over 2 million are unemployed; this equals to

approximately 14.6% of the labor force, with the youth of Kenya accounting for 45% of

that labor force. Agriculture makes up about 75% of the occupational labor force in

Kenya. About 50% of the population of Kenya lives below the poverty line and the

country’s purchasing power in 2004 was -$34.68 billion. The GDP of Kenya in 2004

was only 2.2% while the GDP per capita purchasing parity was -$1,100. Kenya’s public

debt is 74.3% of GDP.

One of the many reasons why Kenya has suffered economically was because of a

corrupt government and political disarray from the early 1980s until around 2002. When

Jomo Kenyatta, Kenya’s leader into independence died in 1978, there was a series of

dysfunctional events that occurred politically in the country. One of the main things that

occurred that hurt the country was a group called the Kenya African National Union

(KANU) made itself the sole legal party in Kenya. This party committed many acts of

fraud, violence and corruption in Kenya. During the 2002 presidential elections in

Kenya the KANU candidate, Uhuru Kenyatta was defeated by a member of the National

Rainbow Coalition, Mwai Kibaki, and Kenya began its journey towards economic

restoration.

According to the IMF, as of April 30, 2005, the country of Kenya has received

assistance two times this year and will receive assistance from the IMF six more times

before the year is over. The total amount that Kenya has received and will receive from

the IMF in 2005 will be $6,188,716.00. The main program that is being implemented

from these funds is the Economic Strategy for Wealth and Employment Creation, which

is also known as the Economic Recovery Strategy or the ERS (IMF.org). Kenya has
 The World 9

developed a 4 year plan ranging from 2003-2007 in order to decrease poverty in the

country and increase wealth and education.

Some of the country’s goals are to improve education, improve access to

healthcare basics for all Kenyans, and improve agricultural techniques in order to

produce more crops, and finally to increase and strengthen its economy through private

sector investments (IMF.org). According to the letter of intent submitted by Kenya to the

IMF, the funds used in the ERS program have helped to cause a turn around for the better

in the Kenyan economy. (IMF.org) They have even managed to stop the increase in

domestic debt. Yet, in the letter of intent, they asked for US$50 million increases in

funds.

According to the World Bank, Kenya currently has 14 active projects in which the

World Bank is using $743 million to fund. (World Bank.org) These funds are distributed

throughout the country through a private sector (3%), a public sector (6%), infrastructure

(36%), human development (20%) and agriculture and environment (15%). (World

Bank.org) These funds from the World Bank will help to make the public sector

management stronger, decrease the cost of doing business as well as increase the cost of

investments which will include restructuring Kenya’s financial business sector and

increasing the promotion of the private sector development. These funds will also be

used to improve Kenya’s infrastructure and reduce the barriers to trade. The funds will

also be allotted for the investment in Kenya’s health sector and the country’s struggle

with HIV/AIDS. The World Bank, as of March 15, 2005, has approved a $20 million

grant in order to aid in the fight for a cure of the HIV/AIDS virus. Kenya was chosen as

one of the six countries to receive this grant. (World Bank.org) Other programs that have
 The World 10

been implemented in Kenya via the World Bank are the Learning and Earning Hawkers

Market which is an $85,000 grant that helps young Kenyan poverty stricken girls to learn

a trade and earn money for their families at the same time. Since most of these children

have lost their parents to HIV/AIDS, they have to take care of themselves at a very young

age. This program helps to keep those girls off the streets and it puts them in a safe

learning environment. This program has been in use for 10 years. (World Bank.org)

Another project implemented in Kenya through the World Bank is the Western

Kenya Integrated Ecosystem Management project. This particular project was introduced

by the World Bank on March 1, 2005. It is an $8.5 million dollar grant which was

partially funded by the Global Environment Facility ($4.1million), the Government of

Kenya ($1.5million) and other donors ($2.9 million). This grant, which will be

distributed over a period of 5 years, will help Kenya to establish an integrated ecosystem

management program to help increase agricultural productivity and preservation. Some

of the benefits of this program are a reduction in land misuse and degradation, a reduction

in green house gas accumulation and a reduction in erosion.

 The World 11

Argentina is the second largest country in South America and the eighth largest

country in the world. In 1816 Argentina declared it’s independence from Spain.

Argentina’s history has been plagued with internal political conflicts and confutations

between civilian and military factions. Democracy was reinstated in 1983, but due to

numerous elections and governmental infighting the democratic process has been greatly

affected. (World Fact book)

Argentina boasts a 39.5 million person population with a population growth rate

of 0.98%. Argentina has a 16.9 birth rate per 1,000 populate. Argentina has one of the

highest infant mortality rates in the world. For every 1,000 live birth’s there are 15.18

deaths. 97% of the population 15 years and over can read and write. (www.imf.org)

The government structure is a mixture of United States and West European legal

systems. The government is broken down into three branches; executive, legislative, and

judicial. The executive branch is comprised of the president (Nestor Kirchner) and vice

president (Daniel Scioli). They are elected on the same ticket for a four year term. The

legislative branch is comprised of 72 Senate (National Congress or Congreso Nacional)

members and 257 Chamber of Deputies members. The Judicial branch or the Supreme
 The World 12

Court (Corte Suprema) is comprised of nine judges who are appointed by the president

with approval by the Senate. (World Fact book)

Argentina has several problems with its economy. The GDP of the country is

$483.5 billion. Argentina’s economy is a system that is diversified between export-

oriented agricultures that gross $33.7 billion in revenues and industrial production.

Argentina has an abundance of natural resources. These natural resources (pampas, lead,

zinc, tin, copper, iron ore, manganese, petroleum, and uranium) make up of 15% of the

GDP. The past decade has seen the Argentina’s economy suffer drastically due to

increased inflation (6.1%), increased unemployment (14.8% unemployment rate), and

increased public debt which represents 118% of the countries GDP. In the year 2000 only

yielded a negative 0.8% in GDP growth. Due to negative growth, domestic and foreign

investors were slow to approve loans out of fear that Argentina would not be able repay

the debts. (www.imf.org)

The effects of 9-11 have taken a drastic toll on an already struggling economy.

The government’s efforts to stabilize the economy proved to be inadequate as consumer

confidence tanked due to zero to minimal consumer and corporate investment, massive

withdrawal from banks, and the redemption of bonds. As of 2004 the unemployment rate

has fallen, yet the inflation rate has remained unchanged. Due to the current economic

state, 44.3% of the population is living below the poverty lever with a $157.7 billon

external deficit.

The slow economy has opened the door for more problems in Argentina. Drug

trafficking has become an increasing problem for officials. Argentina has become a main

transit country for cocaine enroute to the United States and Europe. With the increased
 The World 13

drug trafficking, there has been an increase in money laundering. Urban areas have seen

an increase of domestic drug consumption.

Argentina has been a model country for the efforts of the World Bank. With the

placement of a good standing governmental body recently, Argentina has focused on

following the guidelines of the Country Assistance Strategy (CAS) as set forth by the

World Bank and the IMF. In doing so they have increased their countries net worth and

moved the country to a faster post 9-11 recovery. For Argentina’s efforts, the World

Bank has approved several important loans. Argentina was approved for the following

loan: a US$130 million dollar loan for the improvement of flood protection and a

US$150 million dollar loan for infrastructure upgrades and improves.

(www.worldbank.org) These loans are important for several reasons. Flood protection

improvements will decrease the amount of damage sustained, but most important,

decrease the amount of fatalities. The infrastructure loan will provide the funds needed to

improve and upgrade a road system that is primitive by developed country standards.

Better road systems will improve and increase the movement of goods and personnel.

The IMF Survey, the IMF watchdog states that poverty programs are falling short

of the potentials. This means that monies allocated to fund programs are not being use for

the intended purposes. An Independent Evaluation Office (IEO) released the findings of

the IMF’s World Banks Poverty Reduction Strategy Paper (PRSP).

Ken Rogoff (one of the heads of IMF Research) concluded that the IMF should

not make loans. Ken Rogoff felt the IMF had few resources to deal with global financial

crisis. The IMF stated there is an inability of what benchmarks are used to measure

success of poverty reduction in countries. The report also stated that many countries
 The World 14

think the funds are a means to an end, but do not consider the impact of changes in the

domestic policy. Additionally expectations of poverty reduction may have been set to

high. The IMF contributions vary from one country to another. Policy discussions on

macroeconomics remain unaffected. The PRSP is documentation and has little to no

effect on domestic and policy making.

According to Jakob Christensen, an Economist in the African Department, the

countries that receive loans from the IMF have an investor base that is limited to a few

commercial banks as well as a few foreign investors. As a result of these few investors

and banks, the countries are basically forced to utilize only those resources for funds

(www.imf.org). Also according to Christensen, this issue of domestic funds is further

deepen by the reality that domestic debt is rolled over frequently, meaning that three-

month bills incurred by the country could account for almost 50% of the outstanding debt

(www.imf.org).

Usually, when a country is indebted heavily on an international scale, those funds

or a portion of those funds are forgiven. Conversely, when a country is indebted heavily

on a domestic scale, a forgiveness of funds is rare (www.imf.org). Plus, if a country were

to attempt to pay down its domestic debt, it would mean significantly liquidating

expansion, which might result in a halt in the economy of those particular countries

(www.imf.org). Most countries borrow from the IMF and the World Bank in order to

help pay down international debt and most often domestic debt as well as to create

alternatives borrowing from the few investors who abide in their countries by increasing

productivity and ultimately obtain the interest of more investors from other countries.
 The World 15

Reference

Bradley R. Schindler. (2003). The Economy Today (10th ed. Pp.29, 33, 270 ). New York:

McGraw-Hill.

International Monetary Fund, “Why Globalization Works, Martin Wolf, Economics

Commentator at The Financial Times

India – A Hub Globization, Economic Counselor and Director of the Research

Department, at the Pravasi Bharati Divas Conference, New Delhi, India, January 7, 2005

Argentina, The World Fact Book. Retrieved June 4, 2005 from the World Wide Web:

http://www.odci.gov/cia/publications/factbook/index.html

India, The World Fact Book. Retrieved June 4, 2005 from the World Wide Web:

http://www.odci.gov/cia/publications/factbook/index.html

Kenya, The World Fact Book. Retrieved June 4, 2005 from the World Wide Web:

http://www.odci.gov/cia/publications/factbook/index.html

The World Bank, Retrieved June 4, 2005 from The World Wide Webb:

http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/ARGENTINA

EXTN/0,,menuPK:316050~pagePK:141132~piPK:141109~theSitePK:316024,00.html

IMF Survey, International Monetary Fund, Vol. 23, Number 16, August 23, 2004
 The World 16

Bibliography

Bradley R. Schindler. (2003). The Economy Today. (10th ed.). New York: McGraw-Hill.

International Monetary Fund, “Why Globalization Works, Martin Wolf, Economics

Commentator at The Financial Times

India – A Hub Globization, Economic Counselor and Director of the Research

Department, at the Pravasi Bharati Divas Conference, New Delhi, India, January 7, 2005

Argentina, India, Kenya. The World Fact Book. Retrieved June 4, 2005 from the World

Wide Web: http://www.odci.gov/cia/publications/factbook/index.html

The World Bank, Retrieved June 4, 2005 from The World Wide Webb:

http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/LACEXT/ARGENTINA

EXTN/0,,menuPK:316050~pagePK:141132~piPK:141109~theSitePK:316024,00.html

IMF Survey, International Monetary Fund, Vol. 23, Number 16, August 23, 2004