by IMF
The International Monetary Fund (IMF) is an international organization, headquartered in Washington, D.C., consisting of 190 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 while periodically depending on the World Bank for its resources.
Formed in 1944 at the Bretton Woods Conference primarily by the ideas of Harry Dexter White and John Maynard Keynes, it came into formal existence in 1945 with 29 member countries and the goal of reconstructing the international payment system. It now plays a central role in the management of balance of payments difficulties and international financial crises. Countries contribute funds to a pool through a quota system from which countries experiencing balance of payments problems can borrow money. As of 2016, the fund had XDR 477 billion (about US$667 billion).
Through the fund and other activities such as the gathering of statistics and analysis, surveillance of its members’ economies, and the demand for particular policies, the IMF works to improve the economies of its member countries. The organization’s objectives stated in the Articles of Agreement are: to promote international monetary co-operation, international trade, high employment, exchange-rate stability, sustainable economic growth, and making resources available to member countries in financial difficulty. IMF funds come from two major sources: quotas and loans. Quotas, which are pooled funds of member nations, generate most IMF funds. The size of a member’s quota depends on its economic and financial importance in the world. Nations with larger economic importance have larger quotas. The quotas are increased periodically as a means of boosting the IMF’s resources in the form of special drawing rights.
According to the IMF itself, it works to foster global growth and economic stability by providing policy advice and financing the members by working with developing countries 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 economic consequences. The IMF provides alternate sources of financing.
IBRD
The International Bank for Reconstruction and Development (IBRD) is an international financial institution, established in 1944 and headquartered in Washington, D.C., United States, that is the lending arm of World Bank Group. The IBRD offers loans to middle-income developing countries. The IBRD is the first of five member institutions that compose the World Bank Group. The initial mission of the IBRD in 1944, was to finance the reconstruction of European nations devastated by World War II. The IBRD and its concessional lending arm, the International Development Association (IDA), are collectively known as the World Bank as they share the same leadership and staff.
Following the reconstruction of Europe, the Bank’s mandate expanded to advancing worldwide economic development and eradicating poverty. The IBRD provides commercial-grade or concessional financing to sovereign states to fund projects that seek to improve transportation and infrastructure, education, domestic policy, environmental consciousness, energy investments, healthcare, access to food and potable water, and access to improved sanitation.
The IBRD is owned and governed by its 189 member states, with each country represented on the Board of Governors. The IBRD has its own executive leadership and staff which conduct its normal business operations. The Bank’s member governments are shareholders which contribute and have the right to vote on its matters. In addition to contributions from its member nations, the IBRD acquires most of its capital by borrowing on international capital markets through bond issues at a preferred rate because of its AAA credit rating.
IMF Vs. IBRD
- Purpose of Loan:
The main purpose of loan provided by I.M.F. is to promote exchange stability and to make the balance of payments deficits; where-as the I.B.R.D. provides loans to developing countries for reconstruction and development by facilitating the investment of capital for productive purpose mainly to develop the infrastructure for the development.
- Period of Loan:
The International Monetary Fund provides medium-term loans to the developing member countries for a period of ten years; where-as the World Bank offers long-term loans for developing countries for a period of fifty years.
- Terms of the Loan:
I.M.F. as a creditor institution has always insisted upon fulfilment of certain conditions by the debtor countries. Thus, I.M.F. loan is on stringent terms and it insists always on an agreed programme of action to eliminate within a reasonable time all the causes responsible for the dis-equilibrium in the balance of payments. There is no such conditionality clause in I.B.R.D. Loan.
- Levies service charges and high rate of interests:
The IMF advances loans to member countries and levies service charges at 0.5 per cent on purchase of currencies other than purchases from reserve bank tranche. In addition, fund levies charges on balances of member currencies determined every year. Loan from I.B.R.D. bears a high rate of interest. Its rate of interest is 1/2 to 1 per cent above the cost of borrowing during the preceding six months but is below the market rates.
- Parties of the Loan:
I.M.F. provides loans only to the governments of member countries which have subscribed their quota as fixed by the fund; from time to time in terms of S.D.Rs. (Special Drawing Rights) and members over currencies. No other party except the member Government is authorised to borrow from the fund.
The I.B.R.D. (World Bank) on the other hand may advance loans to Governments or to any of their political sub-divisions or even to private business or agricultural enterprises in the territories of members. If it is not a loan to the Government the Bank asks the member Government to guarantee the repayment of loan. But I.B.R.D. meets only the foreign exchange component-of the project.
- Borrowings not from Other Resources:
I.M.F. advances loans to member countries only out of the fund’s own resources. It does not borrow money from other sources. But I.B.R.D. lends fund directly either from its own resources or from the funds it borrows from the market. The I.B.R.D. may guarantee the loans advances by other or it may participate in loans whereas I.M.F. cannot do so.
It neither guarantees nor does it contribute to the capital of private or other institutions. Thus, these two international lending institutions aim at assisting the developing countries. IMF’s. main function is to stabilise the exchange value of currencies and meet the balance of payments problems whereas I.B.R.D. advances loans for the development programmes in member countries mainly to develop infrastructural facilities. It lends to member country Governments or to any private firm on the guarantee of the Government of that country.
