By MRUNMAYI JOSHI, senior
IN THE FACE of a year marked by acute suffering worldwide due to the explosion of the coronavirus pandemic and the ensuing economic shutdowns, it is easy to forget that before this crisis, the world was still deeply unequal in terms of opportunities and resources for developing nations opportunities are not equal. The International Monetary Fund (IMF) and the World Bank form the two pillars of a global economic partnership meant to promote cooperation between nations and aid developing nations in order to improve the quality of human life; however, the two have received much criticism. Yet, before any discussion of these entities, it is necessary to understand the distinctions between them. The IMF’s mission is primarily to ensure worldwide financial stability and promote employment and economic growth. It can provide policymakers with analysis in addition to lending money to any of its 189 member countries, regardless of their wealth. In contrast, the World Bank’s aim is explicitly to reduce poverty and promote long-term economic development; therefore, it only provides loans and grants to middle- and low-income nations. Additionally, the IMF and World Bank are funded by their members’ contributions. How could these organizations, founded to rebuild Europe and reduce economic nationalism, find themselves in controversy? The accusations are fierce; many allege that the institutions favor wealthy countries while attaching stringent loan conditions. The IMF and World Bank are the best compromises between the desires of wealthy and developing countries. Their operations present the most effective way to achieve prosperity while maintaining accountability.
In a perfect world for developing nations, wealthier countries would provide unlimited financial assistance; however, the funding methods of the IMF and World Bank make this impossible. IMF loans are provided through quota contributions; these are based on the nation’s position in the world economy, according to Forbes. Voting power on the decisions of the IMF is proportional to the funds provided. Therefore, money from nations such as the United States and China provides financial support for developing nations; naturally, they possess more authority. In a scenario where every nation has equal voting power, wealthier nations would have no incentive to fund the IMF, and nations in need would receive no assistance. The true choice in this scenario is between high-interest IMF loans and no loans at all. On an international scale, expecting countries to contribute money to a cause they have no connection to is unrealistic. To ensure that the IMF has the funds to implement its desired policies, this power imbalance is a necessary evil.
Another criticism of the IMF and World Bank is that they only consider free-market approaches. Yet, once again, this is a given. The top ten economies by gross domestic product (GDP) are all free-market economies or approaching free-market status, and contribute the most to these institutions. Additionally, the goal of the IMF and World Bank is to connect the world’s economies. With this aim, the IMF and World Bank seek to lower economic barriers between nations. Even if the nation has a “planned” economy, controlled by the government, the private companies of other countries still sell or buy from these regulated nations, considering that the world’s largest importers and exporters allow private companies to conduct business. Therefore, facilitating international trade relationships relies on free-market values, and that is not under the control of the IMF and World Bank. However, with the authority they possess, the IMF and World Bank routinely take actions to support the economies of developing nations. For example, the IMF’s Rapid Credit facility allows poor nations to rapidly borrow up to 100% of their quota with a 0% interest rate. The World Bank has started COVID-19 response projects in 100 countries, home to 70% of the world’s population, where millions of dollars support sequestered workers. The speed and conditions of their aid make them a key piece of global infrastructure.
Like most governing bodies, the IMF and World Bank are not perfect; they provide little flexibility for the countries receiving assistance. However, the public must remember that these institutions represent the world’s nations, so any dissatisfaction with the initiatives undertaken by the IMF and World Bank is best directed towards the countries possessing the most influence over their decisions. Ameliorating the attitude of one’s own country towards developing nations is the most effective way to pursue a more equitable world for all.