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An Understanding of the International Financial System: The IMF and The World Bank

June 25, 2015
If you were to ask most people in developed countries, such as the United States, about the International Monetary Fund (IMF), the World Bank, or other international financial institutions you would most likely receive a variety of vague, partial, or incorrect answers if any answer were given at all. On the other hand, if you traveled the globe to developing countries all over the world, such as Argentina, Tanzania, or Malaysia, you could approach even a ten year-old child with the same question and s/he would provide you with a comprehensive understanding of the financial institutions and their workings.

By Christopher Daily, C’17

The disparity of insight on the global financial system is due to the amount of exposure to these organizations. Although the US is the largest financer of the IMF and both the IMF and World Bank were established in the US in 1945 after the economic devastation of the Great Depression and WWII, the average citizen is not personally affected by their decisions. On the other hand, citizens of impoverished countries depend heavily on the low-interest loans and funding that the IMF and World Bank give to their governments for housing, education, health care, and other necessities. [1]

The IMF is an organization comprised of 188 countries that work towards reducing global poverty by working for a stable global economy with high employment, open trade, and sustainable growth.[2]In order to accomplish their goals, the IMF provides two primary types of financial assistance to low-income countries: low-interest loans under the Poverty Reduction and Growth Trust (PRGT), and debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative, the Multilateral Debt Relief Initiative (MDRI), and the Catastrophe Containment and Relief (CCR) Trust. [3] This money is used to build social infrastructure for the world’s poorest areas to ensure the needs of the most vulnerable are met.

The World Bank plays a very similar role in aiding developing countries with low-interest loans and grants that support projects to strengthen the country’s economy. They work with governments, multinational institutions, commercial banks, private-sector actors, and other agencies to foster development and growth. The Bank also sponsors organizations that need help planning initiatives to address the needs of third-world countries.[4]

These two organizations control billions of dollars from countries all over the world and set the agenda for some of the most important conferences, such as the G-7 and G-20 summits. I have learned a great deal about the IMF and World Bank from my internship at Jubilee USA Network, a non-profit organization that has alliances with more than 75 US organizations, 400 faith communities and 50 global partners that works to build an economy that serves, protects and promotes participation of the most vulnerable. [5] Jubilee along with many other advocacy organizations takes issue with many of the policies and measures taken by the IMF and World Bank and is concerned for the well being of the people most affected by the institutions’ decisions.

The most striking issue critics stress when discussing the IMF and World Bank’s funding is the harsh conditions and stipulations that the institutions place on the recipient governments. When giving loans or grants, the IMF and World Bank negotiates with government officials how to restructure their budget to best implement the funds and stimulate their economy for long-term benefits. These Structural Adjustment Programs (SAPs) lead to cutting government spending (usually social spending like healthcare, education, and subsidies for essential goods), loss of government jobs in countries where the government is the largest employer, reduced regulation on multinational corporations and imports to where domestic businesses can no longer compete with foreign competition. [6]

Many argue that SAPs is an outlet for the IMF and World Bank, which are dominated by wealthy western nations (especially the US), to influence the economic and monetary policies of developing countries to degree where national sovereignty is taken away. [7] Many in the international community, specifically in the global south, view SAPs as a post-colonial tactic in an attempt to control their economies; however, the IMF and World Bank still claim that these changes are needed for economic strength and security in these indebted countries to ensure repayment is possible in the future.    

However, current IMF and World Bank practices do question how responsible their loans are to some countries. For example, the IMF has been in negotiations with Ukraine to give a $15 billion bailout over 4 years even if it stops paying private debts. If this deal is finalized, Ukraine may not be able to borrow money on the open market and will be dependent on the IMF for future loans and thus the IMF will hold greater power over the Ukrainian government. [8] The financial crisis in Greece is another instance where IMF lending policies has given the institution a great deal of influence over how governments spend their money. The IMF, along with the EU, are withholding €7.2bn (£5.3bn) of bailout funds until Greece complies with their demands for fiscal reform, which may end with higher taxes for the poorest and most vulnerable. [9]

During my internship, I have researched improvements made by the financial groups. The most progressive improvement that Jubilee USA and many other anti-poverty advocates had hoped for was the establishment of the IMF’s Catastrophe Containment and Relief Fund (CCR). After the devastation of the Ebola outbreak in West Africa, many institutions, Jubilee included, turned to the IMF to help the developing countries of Sierra Leone, Liberia, and Guinea that owed millions of dollars towards debt and unable to financially help the people suffering from the disease and lack of supplies and food. The IMF took action and granted $330 million financing package for Ebola-infected countries that included $100 million in IMF debt relief. The CCR is a continuation of the Post Catastrophe Debt Relief Trust (PCDR) and it is emergency relief funds for an indebted country that has been struck with a natural disaster or an epidemic of disease that destabilizes the country’s economy. [10] This is a great stride for developing countries, especially Nepal that has recently suffered a devastating earthquake costing millions in damage and taking thousands of lives. If the IMF honors their newly established fund, Nepal may be granted up to $23 million in debt relief.   

Further reforms are needed for the international financial system in order to ensure that the basic needs of people around the world are met. International financial institutions that have critical impact on impoverished nations need to follow responsible lending and borrowing practices. The IMF and World Bank are called to overcome the temptation of self-interest and corporate corruption to make educated resolutions that have more than bankers and creditors in mind.  

The IMF and World Bank continue to restructure their policies with the help of lobbyists and advocates whose sole purpose is to ameliorate financial instability. They have improved their techniques of surveillance of governments that are given loans and grants to enforce the terms of what programs the funds go towards. Their aim is to keep these governments honest to their people and the international community as well.

Both the IMF and the World Bank have been prominent agencies in working towards an international bankruptcy process for sovereign states. This process would allow governments to declare bankruptcy just as any individual who forecloses on their debt. This is a reform Jubilee has supported since its inception and is glad to have the support of both the financial organizations.  

However, it is time for the average citizen in developed countries to become more aware of issues such as these. True, the policies of international organizations have little effect on one’s personal life but there is still a sense of obligation to learn about any important institutions that have such a global impact, especially on international financial policies in our globalized world.

IMF Map of Developing Countries [11]

IMF World Wide Map of Developing Countries 


  [1] “About the IMF.” IMF – International Monetary Fund Home Page. IMF, n.d. Web. 15 June 2015. http://www.imf.org/external/about.htm

  [2] ibid.

  [3]“Where the IMF Gets Its Money.” Www.imf.org. IMF, 9 Apr. 2015. Web. 15 June 2015.


  [4] “About.” What We Do. The World Bank Group, n.d. Web. 15 June 2015.http://www.worldbank.org/en/about/what-we-do.

  [5] “OUR WORK.” Jubilee USA:. Jubilee USA Network, 2007. Web. 15 June 2015.http://www.jubileeusa.org/ourwork.html.

  [6]“SAPs Work for Corporations and Elites–Impoverish the Rest.” World Bank / IMF Fact Sheet | Global Exchange. 50 Years Is Enough-U.S. Network for Global Economic Justice, 2011. Web. 15 June 2015. http://www.globalexchange.org/resources/wbimf.

  [7] “Why Is the IMF Controversial | Globalization101.” Globalization101. The Levine Institute, 2015. Web. 15 June 2015. http://www.globalization101.org/why-is-the-imf-controversial/.

  [8]Bershidsky, Leonid. “IMF Offers Ukraine a Poisoned Chalice.” BloombergView.com. Bloomberg View, 10 June 2015. Web. 15 June 2015. http://www.bloombergview.com/articles/2015-06-10/imf-offers-ukraine-a-poisoned-chalice.

  [9] “Greece Submits New Reform Plan to EU and IMF - BBC News.” BBC News. BBC, 9 June 2015. Web. 15 June 2015. http://www.bbc.com/news/business-33062202.

  [10] “OUR WORK.” Jubilee USA: DEBT RELIEF AND EBOLA. Jubilee USA Network, Feb. 2015. Web. 15 June 2015. http://www.jubileeusa.org/ourwork/truth-about-debt/dont-owe-wont-pay/debt-relief-and-ebola.html.

  [11] Te, Bernardo. IMF Developing Countries Map. Digital image. File:IMF Developing Countries Map 2014.png. Wikimedia Commons, 15 Feb. 2014. Web. 15 June 2015. http://commons.wikimedia.org/wiki/File:IMF_Developing_Countries_Map_2014.png.

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