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IMF vs. WTO vs. World Bank: An Overview
The International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO) are highlighted in the financial press or on television nearly every day. From loans to Greece to trade deals in Asia, these organizations make headlines across the globe. Understanding these entities and their missions will provide greater insight into how these organizations help to shape the global economy.
The International Monetary Fund (IMF) is a global organization with 190 member countries currently based in Washington, D.C. The fund’s purpose is to promote financial stability and economic growth among other objectives.
The World Trade Organization (WTO is also a global association with 164 member countries. The organization’s purpose is to promote fair trade between nations.
The World Bank is also an international organization and has a goal to reduce poverty through financial assistance.
The International Monetary Fund (IMF)
The IMF promotes itself as “an organization of 190 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.” It was created in 1944, while World War II was still raging, as part of the Bretton Woods Agreement. The agreement sought to create a monetary and exchange rate management system that might prevent a repeat of the currency devaluations that contributed to the economic challenges of that period.
The organization’s “primary purpose is to ensure the stability of the international monetary system—the system of exchange rates and international payments that enables countries (and their citizens) to transact with each other.” The IMF’s broad, self-defined mandate encompasses “all macroeconomic and financial sector issues that bear on global stability,” including trade promotion, economic growth and poverty reduction. All of the IMF’s initiatives are self-funded by its members. The organization’s headquarters is in Washington, D.C.
The IMF Mission
The IMF advances its mission in a variety of ways. Monitoring and reporting on economic developments is a large part of the effort, including making recommendations to member countries on future courses of action. For example, in 2021, the IMF reviewed the state of the U.S. economy and recommended that the U.S. Federal Reserve hold off on its plans to increase interest rates because it might harm the economy as it emerges from the COVID-19 pandemic. Although the IMF’s recommendations are not legally binding, they are made public. Economic policymakers are certainly aware of them and are undoubtedly influenced by them.
Lending money to poor countries is also a major initiative at the IMF. The organization provides financing to help troubled nations avoid or recover from economic challenges. The IMF has made significant loans to Portugal, Greece, Ireland, Ukraine, Mexico, Poland, Columbia, and Morocco, among others.
The World Bank
The World Bank Group, like the IMF, was created at Bretton Woods in 1944. The group is self-funded and has its home office in Washington, D.C. Its goal is to provide “financial and technical assistance to developing countries around the world” in an effort to “reduce poverty and support development.” It consists of five underlying institutions, the first two of which are collectively referred to as The World Bank.
- International Bank for Reconstruction and Development (IBRD). This is the World Bank’s lending arm. It provides financial assistance to credit-worthy, middle- and low-income nations.
- International Development Association (IDA). IDA provides loans and grants to poor countries.
- International Finance Corporation (IFC). In contrast to the World Bank, which focuses its efforts on governments, the IFC provides money and advice to private sector entities.
- Multilateral Investment Guarantee Agency. MIGA seeks to encourage foreign direct investment in developing nations.
- International Centre for Settlement of Investment Disputes. ICSID provides physical facilities and procedural expertise to help resolve the inevitable disputes that arise when money is at the heart of a disagreement between two parties.
Advancing the World Bank Mission
The World Bank pursues its objectives by delivering financial assistance to developing nations. It gives low- or no-interest loans and grants to finance “a wide array of investments in such areas as education, health, public administration, infrastructure, financial and private sector development, agriculture, and environmental and natural resource management.” For example, the World Bank loaned India $500 million in 2015 to support micro-, small- and mid-sized businesses. The 10-year loan was made on favorable terms that include a provision that repayment does not need to begin for five years.
The World Bank’s efforts include providing advice and guidance in addition to working closely with the International Monetary Fund.
The World Trade Organization (WTO)
The World Trade Organization (WTO) claims to be “the only global international organization dealing with the rules of trade between nations.” The WTO’s efforts center on developing trade agreements between nations to encourage cross-border commerce. This includes setting up the agreements, interpreting the agreements, and facilitating dispute settlement.
Officially founded in 1995, the WTO traces its roots back to Bretton Woods where the General Agreement on Trade and Tariffs (GATT) was crafted in an effort to encourage and support trade between nations. Following up on GATT, the 1986-1994 Uruguay Roundtable trade negotiations resulted in the formal creation of the WTO. The WTO headquarters is located in Geneva, Switzerland. Like the IMF and the World Bank, the WTO is funded by its members.
Advancing the WTO Mission
The WTO seeks to facilitate cross-border trade. Negotiations are conducted in an all-or-nothing format, with every issue on the table discussed until resolved. Accordingly, there are no partial deals, so missed deadlines and protracted efforts that continue for many years are not uncommon. In addition to large-scale trade initiatives, the WTO also facilitates trade dispute negotiations, such as a disagreement between Mexico and the United States over tuna fishing.
The Bottom Line
While all three organizations promote themselves as fostering positive developments, not everyone agrees with their self-assessments. The organizations do provide financial assistance to countries in need, but like just about every other known method of obtaining financial resources, the money comes with strings attached and the motives behind the initiatives are often in question.
For example, what these groups refer to as “promoting economic growth,” their detractors view as a blueprint for destroying the local economy and despoiling the environment with globalization efforts that benefit only the rich. Protests, including those in Davos, Switzerland, Washington, D.C., Cancun, Mexico, and other major cities are a regular feature at IMF, World Bank, and WTO events. Aside from the public protests, even some business leaders argue against the organizations.