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Last Updated: Friday, 19 September, 2003, 13:13 GMT 14:13 UK
Explained: the IMF and World Bank
The IMF and the World Bank were established at the Bretton Woods conference in 1944 and designed to achieve different but complementary ends.

James Wolfensohn, World Bank boss
The IMF was designed to defend the international monetary system which meant in effect helping governments overcome balance-of-payments problems.

The World Bank - its proper name is International Bank for Reconstruction and Development - had the role to invest in programmes to promote post-war reconstruction. In Europe there were few countries which did not face such a problem or need no help from the World Bank.

In the five decades since then the world has changed but the two bodies have recognisably the same task.

The IMF lends money to countries which are in deep economic trouble - Mexico in the 1980s for example, Mexico again in 1995, South East Asia and Russia in the late 1990s, Argentina in 2001.

The World Bank backs these programmes with loans for specific ends. Today these often include financial support for social networks to protect the poor from some of the worst effects of the economic problems the IMF is trying to overcome.

How the IMF and World Bank work

The Fund offers its programmes to a government in need. The government is, however, said to 'own' the programme.

At the outset it signs a so-called Letter of Intent which lays out the elements of the recovery plan and in return the Fund commits itself to grant loans in stages as and when economic targets specified in the Letter are achieved. These will include cutting budget deficits and inflation.

But today there are other components in IMF programmes that have become more important. In East Asia the Fund demanded the reform of the banking system in Thailand and Indonesia and the introduction of proper formal accounting systems in South Korea.

Similarly the Bank now looks more at the long-term strategic goals of an economy than at traditional development schemes such as new highways and dams.

Charged with failure

Both institutions face unprecedented criticism.

The Fund is accused of enforcing one-size-fits-all recommendations that are too harsh in certain areas including budget cuts and inflation.

The Bank is criticised for its supposed failure to take proper account of human and environmental needs in its projects, and for being bloated and inefficient.

Both deny the charges and both are undertaking various reforms to meet the criticisms.

On of the most important reforms, they say, is a new emphasis on consulting national governments, local experts and aid organisations before laying-out policies- the so-called Poverty Reduction and Growth Strategy.


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