In the 1930s, the economies saw a great depression, which failed. The countries had to raise barriers and decline the usage of foreign exchange. They also had to devalue their currencies. These factors led to declining high unemployment and world trade. Then under a new monetary system, there was the creation of the IMF and World bank.
IMF vs World Bank
The difference between IMF and world bank is that they both have different functions and purposes. The IMF looks at maintaining stability in the monetary system while the world bank looks forward to reducing poverty by giving help to countries that have a low income. The IMF offers its members tools to make policies while the world bank provides financial and technical help.
IMF or the International Monetary Fund is an organization that provides advice in making strategies and policies for the monetary system. It gives out short-term loans to the countries that are in debt, and are not able to meet international payments obligations. The working staff is usually economists with experience in macroeconomics.
World Bank has the goal of reducing poverty. It promotes economic development and helps countries financially so that they can reform their various sectors. The assistance that it provides is long-term. It also helps in different projects like building infrastructure, developing the education sector, and proper flow of electricity and water.
Comparison Table Between IMF and World Bank
|Parameters Of Comparison||IMF||World Bank|
|Definition||IMF is short for International Monetary Fund. It is an organization that is there to stabilize the monetary system.||World Bank is an organization that look forward to the growth of developing nations.|
|Aim||To have a stable economy.||To reduce poverty from different nations.|
|Operations||It give suggestions for a better policy design and keep a check on exchange rates.||It give out loans for long term projects and give out suggestions for development.|
|Policy||It has a strict policy for giving out loans.||It gives out loans without any interest.|
What is IMF?
The International Monetary Fund (IMF) is an institution that is a part of the Bretton Woods Agreement at the conference, that took place in 1945. It oversees the monetary system, international payments, and exchange rates. Its main aim is to stabilize the whole system. The policies that it creates enable the people to do an exchange of goods and services smoothly.
There are twenty-nine member countries, and it has headquarters in Washington D.C. The IMF carries on its work in a strict and complicated way with some rules and regulations. So due to this, it has both supporters and critics. The criticism is due to the following points-
- It has specific conditions for loans. The country asking for a loan must implement the economic policies as told by the IMF.
- It has reforms on exchange rates, due to which it fails to understand the dynamics sometimes.
- It makes its way in the decision-making, and they do not appreciate this at all.
- It supports military dictatorship.
Apart from this, many countries are also giving good remarks to the IMF for helping in maintaining their finances. Its lending capacity has increased to around $750 billion, and it also made some changes to reduce the criticism.
What is World Bank?
World Bank is an organization that provides grants to middle and low-income countries. It is a part of the Bretton Woods Agreement and came in 1944. It lends money with no interest rate to the countries that need help. Its main aim is to reduce poverty around the world.
It consists of five bodies-
- International Bank for Reconstruction and Development(IBRD)
- International Development Association(IDA)
- International Finance Corporation(IFC)
- Multilateral Investment Guarantee Agency(MIGA)
- International Center for Settlement of Investment Disputes(ICSID)
IBRD and IDA are the main bodies with 189 member countries.
Its primary focus is on the following themes-
- Sustainable growth of poorest countries.
- Providing solutions to the various challenges in fragile states and post-conflict countries.
- Strategies for development and growth in middle-income companies, and providing them finance as well.
- Addressing global issues such as any infectious disease or climate change.
- Looking forward to the Arab world.
- Putting in the best effort to leverage the global knowledge for supporting development.
There is a sovereign guarantee of repayment of the amount in the general conditions. The world bank is not there to fund a trade deficit, but it gives out loans for big projects. It issues $25 billion of bonds in a year.
Main Differences Between IMF and World Bank
- IMF is a monetary institution, while the world bank is a developmental institution.
- The IMF looks forward to maintaining a stabilizing monetary system. On the other hand, the world bank looks forward to reducing poverty.
- IMF oversees strategies and policies and gives out suggestions for a better economy. The world bank provides huge grants with no interest rates to the countries in need.
- Twenty-three hundred staff members are working in the IMF, where most of them are economists. While in the world bank, they have a staff of 7000 total members.
- IMF is a single institution. On the other hand, the world bank has five bodies- IBRD, IDA, IFC, MIGA, ICSID.
- There are certain strict conditions on loans given out by the IMF, but the world bank has an interest-free policy.
The presence of the IMF and world bank is helping the developing countries in every possible way. Both the institutions are doing wonders for the world economy by providing financial help and a better set of policies for different nations. IMF and, World bank collaborate very often and participate together in several initiatives. They work together to reduce the debt that the developing countries are facing and help them in growth. They also set strategies for them so that they do not go through the same in the future.
When the developing countries face problems during climate change, both the organizations, work together and build strategies for finance, mitigation, adaptation, etc. In the financial sector, they identify the possible changes for a better financial system. Economic growth is the only way to improve a living standard in any country, and you can only achieve it by taking small steps.