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Grading the IMF and World Bank
Subject Economic Development
Topic Developing and Transitional Economies, and Productivity and Growth
Key Words Capitalism, Economic Growth, GDP
News Story

The International Monetary Fund and the World Bank were created 57 years ago to reduce global poverty and stabilize world currency markets. In spite of staunch political backing by the richer nations of the world, a vast amount of resources both in terms of intellect and dollars, both organizations have come under increasing criticism. Critics argue that proposed policies are inappropriate and, instead of facilitating economic development, create more problems than are solved. Responding to their critics, both institutions have been undertaking reforms.

Although both the World Bank and the IMF promote economic development, the World Bank specializes in providing loans for specific projects at interest rates that reflect the borrowing countries' economic condition. The IMF provides dollars and expertise to countries facing financial crisis. Both the bank and the IMF ask countries receiving loans and grants to make radical economic reforms. The Bank, for example, offers a third of its aid, $5.8 billion in 2001, for what it terms 'structural adjustment' - strict budgetary discipline, termination of subsidies for many goods, increases in the cost of public services and elimination of trade barriers.

Critics point to Haiti as an example of the failure of World Bank policies. In spite of an investment of over $1 billion in the last 50 years, the poverty rate in Haiti has increased to 80 percent from a level of 65 percent in 1987. The IMF in turn has been chastised for Argentina's crisis that has seen the loss of millions of dollars in family savings, and a substantial increase in unemployment and poverty. The World Bank and IMF point to China and India as examples of successful implementation of their programs.

In response to mounting criticism and some notable failures, Congress organized a commission to review the policies and practices of the IMF and World Bank. The commission, headed by Alan Meltzer, professor of economics at Carnegie-Mellon University, called for wholesale reform of both institutions. Paul O'Neill, Treasury Department Secretary, entered into the discussion of needed reforms by recommending that half of the loans be turned into grants for the neediest countries. Providing grants instead of loans has been a principal recommendation of the many street protestors that gather wherever an economic development meeting takes place. Critics counter that grants create waste, because if there is no demand for repayment, a country can apply funds to inefficient projects.


(Updated May 1, 2002)

Questions
1. What role are organizations like the World Bank and IMF supposed to play in terms of economic development?
2. According to the article, the IMF and bank are being pushed to provide grants instead of loans. What arguments are made for this position?
3. There is considerable opposition to the provision of grants instead of loans. What is the opposition's chief argument?
Source Daniel Altman, "As Global Lenders Refocus a Needy World Waits," The New York Times, March 17, 2002.

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