When a country runs out of money or the global economy wobbles, two institutions are usually involved. Here’s what the IMF and World Bank do, how they differ, and why they’re often controversial.
The International Monetary Fund, or IMF, and the World Bank were both created at a conference in Bretton Woods, in the U.S. state of New Hampshire, in 1944, as the Second World War was ending.
The aim was to avoid a repeat of the economic chaos of the 1930s, when the Great Depression, trade wars and currency crises helped lead to war. Both are based in Washington, D.C., and almost every country in the world is a member, including Australia.
The IMF
The IMF’s main job is to keep the global financial system stable.
It monitors the economies of its 191 member countries, and publishes regular forecasts, including the World Economic Outlook every April and October. Its forecasts for global growth are widely reported and can influence markets and governments.
Its best-known role is lending to countries in crisis. When a country can’t pay its debts or is running out of foreign currency, the IMF can provide emergency loans. In return, it usually requires the country to make economic changes, such as cutting spending, raising taxes or reforming its central bank.
Recent large borrowers have included Argentina, Egypt, Pakistan, Ukraine and Sri Lanka.
The World Bank
The World Bank focuses on long-term development rather than crises. It lends money and gives grants to developing countries for projects such as roads, schools, hospitals, clean water, power supply and agriculture, with the aim of reducing poverty.
The World Bank Group also includes an arm that invests in private businesses in developing countries.
Who runs them
Members contribute money and get voting power roughly in line with the size of their economies. The U.S. has the largest share of votes in both institutions.
By tradition, the IMF has been led by a European and the World Bank by an American. Kristalina Georgieva, from Bulgaria, heads the IMF. Ajay Banga, an American business executive, leads the World Bank.
The criticism
Both institutions have long been criticised. The conditions attached to IMF loans have been blamed for forcing harsh spending cuts on struggling countries, worsening hardship. Critics also argue developing countries, such as China and India, have too little say compared with their economic size.
Supporters argue they have helped prevent many crises from becoming worse, and that their loans and advice give countries access to money they couldn’t get anywhere else.
