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The Impacts Of The Imf And The World Bank

1342 words - 5 pages

The Impacts of the IMF and the World Bank

The World Bank and the International Monetary fund make up major parts
of the UN's Economic sector. For both institutions the groundwork was
laid in the Bretton Woods conference. The World Bank's initial task
was to facilitate reconstruction in the post- World War II Europe. It
generates capital fund from member state contributions and from
international financial markers. Its loans are not designed to replace
private capital but to facilitate its operation by funding projects
that private banks would not support, e.g. primary education. The
World Bank also attaches conditions of its loans in the form of policy
changes it would like to see states make to promote economic
development and alienate poverty. The IMF's role has also changed over
time. Initially, it was to stabilize the currency with exchange rates
by providing short term loans to for member states with "temporary"
balance of payments difficulties. In 1982, it took the role of
intermediary in negotiations between creditors and debtor countries.
The IMF was not designed to be an aid agency but its role in economic
development is crucial insofar as stable currency values and currency
convertibility are necessary to facilitate trade. However, looking at
the effect that the work of the IMF and the World Bank have had on the
international economic development, it seems that they have had a
rather negative impact.

The IMF did have its successes in international economic development.
It was able to help out when oil prices went up in 1973 and again in
1979 - 80. The rising oil prices acted as one of the factors which
brought about the world debt crisis. Theses had transferred billions
of 'petrodollars' into the hands of oil-producing countries, which
lacked adequate investment opportunities at home. They were therefore,
almost forcing their loans on to others, particularly on middle-income
countries such as those of Latin America. At the same time, developing
countries, faced with prices of oil and other imports, which were
rising faster then their export prices, were only too eager to absorb
foreign loans to bridge the gap. This could go on well for some time
but then interest rates began to rise, causing serious strain on the
annual payments stream. The Debt crisis came about, and it was
centralized mainly in Latin America. Their budgets were out of control
and hyperinflation set in. The crisis was triggered by the default of
Mexico: it ran out of foreign currency in August 1982, and other
countries followed. Immediate help was offered by the IMF, but in the
loner term the problem was solved by "rescheduling". This usually
meant a reduction in the interest rates payable and a lengthening of
the repayment period, so that the annual burden was lightened: it also
commonly involved...

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