1.0 Formation of International Monetary Fund and World Bank
World Bank(WB) and International Monetary Fund(IMF) was first formed after a conference held by World Leaders at Bretton Woods, they were both formed in 1944, with the aim of helping with international economy. (World Bank,2007) The driving economic realities that led to the formation of WB and IMF was the Great Depression. The main purpose of the formation of WB and IMF was to help with economic development for countries after the World War. The initial plan for the formation of International Monetary Fund was to monitor and maintain the exchange rate between West Europe and the United States. Whereas WB was initially formed into the purpose of developing economic development in war-torn Europe. (James Raymond Vreeland, 2007) In the 19th century, the amount of gold a country owns is strictly the benchmark to determine the exchange rate between countries, but this was tedious and it limits the economic development of countries. Thus IMF was formed to allow country to go about this limit. Country would be allowed to borrow money from IMF to control exchange rate, though this was still benchmarked by gold held by the country.
2.0 Structure of WB and IMF
The structure of WB is as followed, each member of WB will elect a governor to be part of the Board of Governors. The Board of Directors would report to the Board of Governor, and it would select a president from the members of the country, which traditionally is a US resident. And the Bank Group Management and staff would be under the President. Whereas the structure of IMF would be as followed in descending order, Member Countries, Board of Governor, Executive Board, Managing Director, IMF staff, Government of program country and lastly Citizen of program country.(James Raymond Vreeland, 2007) Though, research has shown by statistical working that although countries like US only owns roughly 17% of the voting power, US has a big influence on what the IMF would do. This research found that countries that has close economic ties with the US or countries that vote together with the US would be more likely to get a loan from the IMF and vice versa. Countries such as Japan, UK, Germany and France are held to hold a powerful influence in the voting as well. Research also shows that private financial institutions are influential in the voting. Though essentially, it can be said that there is no single mechanism of control in the IMF.(James Raymond Vreeland, 2007)
3.0 Purpose of WB and IMF
The main purpose of WB and IMF are basically to loan money to other countries and help with the economic development of other countries. There are several difference between WB and IMF, which are WB focus would be on helping with development of poor countries, whereas the focus of IMF would be on the economic development of other countries that are facing a financial crisis by providing aid for a country’s balance of payment s and international reserve.(World Bank,2007) WB mainly lend to poorer countries, whereas IMF would lend to both rich and poor countries. (World Bank, 2007) IMF focus would be more on the macroeconomics of economies, while WB plan is to help developing country sustain itself. (World Bank, 2007) It can be said that both organization helps countries around the world by loaning money to them, albeit the main difference between both of them would be that WB focus is more towards improving the social state of a country by providing loan to them for developing their country through methods such as building roads, providing education for women and helping a country work towards sustaining itself. Whereas, the focus of IMF would be to provide a short term loan to countries to balance out its balance of payments so that it can overcome its current financial crisis, its goal is to stabilize economy and provide a stepping stone for renewed prosperity. (James Raymond Vreeland, 2007)
