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Reinventing the World Bank and IMF

Since the World Bank and the International Monetary Fund, or IMF, were founded some six decades ago, the world has undergone major socio-political and economic change. And many analysts say the two institutions have failed to keep up and should be reformed.

The World Bank and the International Monetary Fund were established in New Hampshire in 1944. The IMF's mission was to ensure the stability of the international monetary system. The World Bank was tasked with helping to rebuild Europe and Japan after World War II.

But today's world is a different place, says economist Kent Hughes of the Woodrow Wilson International Center for Scholars in Washington. "Europe and Japan not only have fully recovered from the war, but have now become really major economic players in the world stage. Back in 1945, you still had many European colonies on Africa and Asia. All of that has disappeared,! says Highes. "And in more recent times, let's say from 1989 on, the fall of the Berlin Wall, you've had three-billion people who have joined the world economy. And now you see a whole set of emerging market countries - - Brazil, India, China - - that have also become very important factors in the global economy."

Headquartered in Washington, the World Bank now focuses on economic development. But critics say many of its poverty reduction programs have been ineffective, a claim that the Bank disputes. Economist V.V. Chari of the University of Minnesota says the World Bank cannot realistically eliminate poverty by itself.

"Foreign aid as provided by the World Bank or other international organizations can at best play a marginal role. But anybody who thinks that the World Bank single-handedly can solve the problems of poverty are just kidding themselves. The bulk of that hard work will have to be done by the governments and the peoples in those countries," says Chari.

Lending Policies

Some analysts argue that the World Bank, which has given poor and middle-income countries billions of dollars in loans, grants and credits over the years, has become bogged down by bureaucracy and plagued by scandals. And some critics contend that the Bank often focuses more on large-scale projects than on effective development. World Bank officials deny these accusations, although they acknowledge the need for change. Some countries say the World Bank and the IMF impose stringent conditions on loans to developing nations that hurt their poorest populations.

Political economist Alan Meltzer of Carnegie Mellon University in Pittsburgh, Pennsylvania says part of the reason for this criticism is the World Bank's lending culture. "By a lending culture, I mean that people are rewarded for making loans. The extent to which the loans are used productively to improve the quality of life in the countries is a much less concern to the Bank. So when I headed a commission appointed by Congress, we recommended the replacement of many of these loans, especially to the poorest countries, with grants, but monitored grants. That is, the Bank would pay for performance. It would make sure that the country did what it said it was going to do," says Meltzer.

The International Monetary Fund has also been criticized for its lending policies and for losing focus of its primary mission over the years. In addition to securing the stability of the international monetary system, the Fund began to increase its short-term lending to nations in the 1970s.

It has since been criticized for repeatedly bailing out bankrupt countries and contributing to Asia's financial crisis a decade ago and Argentina's economic collapse in 2001. Some analysts blame the IMF for deepening economic crises in countries like Thailand and South Korea, while advocates say things could have been a lot worse had it not been for the Fund's intervention.

But Mark Weisbrot of the Washington-based Center for Economic Policy and Research says some of the IMF's policies have been ill-conceived. "Most recently in Africa, the IMF's independent evaluation office released a report showing that because of the IMF, from 1999 to 2005, these [African] countries were not allowed to spend seventy percent of their aid money, and a lot of this aid money was for health and urgent needs, and they couldn't spend it because the IMF made this decision. I give this example because that was kind of a disaster," says Weisbrot.

Lending Reforms

Acknowledging that mistakes were made, especially in Asia, the 185 member IMF has embarked on a series of reforms to respond to demands to give its developing nation members more say in its operations. Few economists expect much progress on the voting issue. What is needed, says economist Mark Weisbrot, is more fundamental change that separates the two organizations' lending policies.

"I would advocate making the World Bank separate from the IMF, which it formally is. There is nothing in the World Bank's charter that says they have to make any of their lending conditional on IMF conditions. And the U.S. congress could do this, and the European governments as well to say, 'As a condition of our money, we want the World Bank to be separate.' Now if they happen to agree with the IMF sometimes, that's fine. But they should not have it as a matter of policy that their lending depends on a country meeting IMF conditions," says Weisbrot.

Six decades later, some experts argue that lending policies pursued by the World Bank and the International Monetary Fund are antiquated. And some critics say both organizations should be scrapped. But many analysts say the organizations have done some good and should be restructured as 21st century pools of expertise that focus on helping the world's poorest countries build better lives for their citizens.

This story was first broadcast on the English news program, VOA News Now. For other Focus reports click here.