World Bank and International Monetary Fund in Global Poverty

Updated on November 10, 2017

More than seventy years have passed since the World Bank and International Monetary Fund (IMF) were created to help countries rebuild, and stabilize their economies, following World War II. Because both institutions are affiliated with the United Nations (UN), they long have shared some of the same goals as the UN, including helping the world's poor. Originally, though, helping the world's poor was only a small part of the work of the two international institutions (Hollander, 6).

Today, however, reducing global poverty has become the primary mission of the World Bank and the IMF (Caufield, 2). The evolution of the institutions from mutual assistance organizations for wealthy countries (Collier, 171) to key pieces in the international development puzzle (Annan, 221) has generated both praise and criticism: observers point to the institutions as either the cause, or the cure, of poverty across the developing world.

Irrespective of one's stance, the World Bank is currently the largest antipoverty agency in the world (Ayers, 1).

The World Bank was created in 1944 at a meeting of forty-four world governments in Bretton Woods, a resort area in the White Mountains of New Hampshire; groundwork for the IMF was laid at Bretton Woods, but the institution didn't formally come into being until 1945. At first the World Bank – through its main arm, the International Bank for Reconstruction and Development (IBRD) – provided the services of a traditional bank, lending money, promoting investment, and backing trade (Hollander, 4). After war-torn countries were rebuilt, and economies were stabilized, the IBRD continued to lend money – to upper- and middle-income countries regarded as credit-worthy (Hollander, 11). Because poor countries were seen as poor credit risks, the IBRD would not loan them money (Collier, 171).

Much of the world's population, however, lived in developing countries. So in 1960 the World Bank added a new agency, the International Development Association (IDA), to provide grants and no-interest loans to the poorest countries. The IDA apportions money from a fluctuating pool of donations collected from rich countries every three years (Hollander, 47). “How much each [rich country] gives depends upon how good each wants to look relative to the other contributors,” Paul Collier, the World Bank's former director of development research, writes in his book, The Bottom Billion.

Financial assistance from the World Bank is usually apportioned as either development funding, which is intended to help countries meet policy goals, or investment funding, which helps countries pay for specific education, health and infrastructure projects (Hollander, 26).

Investment funding comprises some 75 percent of the financial aid (Hollander, 26).

The World Bank went on to add three more agencies to the IBRD and IDA: the International Finance Corporation, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Dispute. Together the agencies – which employ some 10,000 people in 100 offices throughout the world – are formally known as the World Bank Group.

While the World Bank is now oriented toward the long-term issues in developing countries, the IMF – with only 2,500 employees, primarily experts in economics and finance – has stayed true to its original orientation: helping all member states, not just the poor, overcome short-term economic issues (World Bank, 13).

The IMF, like the World Bank, has its headquarters in Washington, D.C. Both institutions also have 189 member countries. And while both work together to reduce global poverty, only the World Bank sets the poverty level – a standard based on the gross national income per capita, or the value of goods and services produced in a country plus income from assets abroad (Hollander, 12).

Poverty can be relative, moderate or extreme (Sachs, 20). A household living in extreme poverty has the purchasing power of $1 per person, per day (Sachs, 20). In real terms, writes economist Jeffrey Sachs (20), “Extreme poverty means that households cannot meet basic needs for survival.”

Overwhelmingly, the world's extreme poor live in sub-Saharan Africa, as well as parts of East Asia and South Asia (Sachs, 21).

In the 1980s and 1990s the World Bank and the IMF sought to reduce poverty levels through an approach of “structural adjustment” (Sachs, 81) by which developing countries were moved to improve governance and fiscal responsibility while ensuring an increasingly free market. Aid was tied, too, to so-called “conditionality” (Collier, 67), or pledges by governments to reform.

At the same time the institutions were holding developing countries more accountable, though, donations from rich countries fell to lowest-ever levels against gross domestic product (Annan, 215).

Consequently, even as numbers of people living in extreme poverty fell from 1.5 to 1.1 billion over the two decades ending in 2001 (Sachs, 20), some 100 countries were worse off than they were in the early 1980s (Annan, 215) and the world's poorest billion people were even poorer than they were in 1970 (Collier, 9).

The trickle-down strategy of social and economic development was falling short. “Globalization was not 'lifting all boats' – not by any stretch of the imagination. Instead, the opposite was happening for many,” Kofi Annan, former UN secretary-general, writes in his book, Intervention.

This realization prompted the World Bank and the IMF to begin to work more closely with the UN, according to Sachs, who helped shape the Millennium Development Goals (MDGs) that were adopted in 2000 by UN members. Among the eight goals was the reduction by half of global poverty and hunger (World Bank, 124).

Efforts to reach the MDGs were hampered by the Great Recession between 2008 and 2012, as well as the effects of climate, food and economic crises throughout the world; both the World Bank and the IMF provide emergency aid to countries affected by natural disasters (Hollander, 48). Nevertheless, in 2010 the World Bank lent more than $72 billion to developing countries (Hollander, 42).

The MDGs served as a foundation for the global development priorities and strategies currently being pursued – by the UN, World Bank, and IMF – as part of the Post-2015 Development Agenda (World Bank, 125). In fact, for the first time ever all five agencies of the World Bank (World Bank, Foreword) are working together to help the poorest 40 percent in every developing country, and end extreme poverty altogether by 2030.

Works Cited

Annan, Kofi, Nader Mousavizadeh. Interventions: A Life in War and Peace. New York: Penguin Books, 2013. Print.
Ayres, Robert L. Banking on the Poor: The World Bank and World Poverty. The MIT Press, 1983. Print.
Caufield, Catherine. Masters of Illusion: The World Bank and the Poverty of Nations. Henry Holt and Co., 1996. Print.
Collier, Paul. The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It. Oxford University Press, 2007. Print.
Hollander, Barbara. How the World Bank and the International Monetary Fund Work. The Rosen Publishing Group: 2013. Print.
Sachs, Jeffrey. The End of Poverty: Economic Possibilities for Our Times. New York: The Penguin Press, 2005. Print.
The World Bank Group A to Z 2015. World Bank Publications, 2014. Print.

© 2017 Alina Accounting

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