In 1944, U.S.A. government created the International Monetary Fund or IMF and the World Bank. These intergovernmental institutions are powerful in shaping the structure and financial arrangements of the world’s economy, development, and peace. It was vital to restore stability to the international monetary system and to devise effective ways to deconstruct war economies in Europe. The institutions are also called the Bretton Woods institutes (BWI) and were founded by the United State of America.
Despite this, USA mandates and efforts to promote the Bretton Woods institutions have been very successful. Although the Bretton Woods institutions include the World Bank and International Monetary Fund, each has a similar function and contributes mainly to the development of their members and the wider world. The International Monetary Fund is a Bretton Woods institution. Although it does not perform the same function, they have similar functions and aspirations. The code of conduct is straightforward. It requires members to allow their currency for exchange freely and without restriction.
It is responsible for its 190 member nations and governs them. The IMF’s purpose and mission is to assist member countries in eradicating poverty and financial setbacks. It also provides advice and policies to members to promote economic stability, financial crisis resilience and higher living standards. The IMF’s three main functions include monitoring the financial and monetary situation of its member countries, as well as the global economy. It also provides financial assistance to countries that are facing major balance of payment problems. They also collaborate with member nations to modernize their economies and institutions.
Thus, the World Bank also serves as a twin brother to the International Monetary Fund. Their history dates back to July 1944, when the Bretton Woods Monetary conference was held in Bretton Woods USA. The original purpose of this conference was to aid European countries that were devastated by World War II. The World Bank is generally an organization that offers assistance to developing countries, both low and middle-income. The Bank will focus on projects that are directly beneficial to the poorest populations in developing nations. Through lending to agriculture, rural development, small-scale businesses, and urban development, the Bank encourages direct participation of the poorest in economic activities. The Bank assists the poor in being more productive and gaining access to basic necessities such as water and waste disposal facilities, housing, nutrition, family planning assistance, and education. There have been many changes in infrastructure projects.
Transport projects are more focused on building farm-to-market roads. Power projects are not limited to cities. They also provide light and power to small farms and villages. The World Bank currently has two key goals to reach by 2030. The first is to eliminate extreme poverty, which means reducing the number people who live on less that $1.90 per person to below 3%. The second is to increase overall wealth by increasing income growth for the bottom 40% of countries around the globe. The organization provides financial support, advice, and research for developing nations in order to promote their economic growth.
The World Bank provides low-interest loans and grants to governments that meet the criteria for development. Suharto the former President, Indonesia, explains how and why it was possible. While many countries participated in Bretton Woods, the US played a dominant role in the creation of the IMF. They also influenced its operations. The distribution among the member states of the voting power was an important factor in its creation and continued influence by the USA. The US opted to not allocate votes according to the size or population of its member states, as this would have been more democratic. Instead, voting power was to be proportional to the contributions made. It was not surprising that the US, which is the largest economy in the world, contributed more than any other member.
The United States of America (USA), however, still have a significant influence on the International Monetary Fund or the World Bank. The USA tends to control the IMF, the World Bank because of numerous claims, factors and practical examples. Since the creations of the IMF/World Bank, the USA has held the sole right to veto the World Bank. The Bank was created in the USA. It had 35.07% voting rights at the time. The South saw a rise in independent nations, which gradually reduced the US vote’s weight. Although the US did not have 25.50% of voting rights in 1966, this was enough to retain its right to veto.
1987 saw the US lose its grip on the situation and the qualified major was amended in their favor. Japan, which was second in importance to the US after Great Britain, agreed to a significant increase on its voting rights. The US offered to lower its voting rights in exchange for Japan’s support. However, it was willing to accept a 85% increase in the required majority. The US gave Japan complete satisfaction and retained its right to veto. But, the United States of America can be seen as economically powerful, with significant contributions to IMF. They are also the only countries that have enough political power and can make many decisions. The 2008 financial crisis saw the USA increase its support for IMF. This helped to create a dominant position on IMF’s progress. The United States of America is the largest shareholder of World Bank and its most influential member. The Bank’s growth and evolution has been influenced by USA support, pressure, and criticisms. The IMF and the World Bank spend more time with the United States than any other member.
Furthermore, the presidents of the World Bank were all US citizens from their origin to present. The Board of Governors just ratifies the US’s candidate. This privilege is not allowed by the Bank’s statutes. Although it is permitted by law, no governor has publicly proposed any candidate for the presidency of any country. Once the highest level of power has been conferred on a US citizen, he will make decisions and set up meetings with the US to discuss issues related to the Bank’s future development and the country in which it is located.
Thus, US cohesion is important to ensure that loans and assistance to other countries are not suspended by the World Bank. Vietnam, Yugoslavia, Chile, and other countries are all included. I will be focusing on the Vietnam Suspended Loan influenced by US at the just concluded Vietnam War in 1975. The US successfully encouraged its affiliate International Development Association the Bank to give loans regularly to South Vietnam’s regime, an ally. The World Bank sent two subsequent factfinding missions after the war ended. They concluded that while the Vietnamese authorities were not following a fully satisfactory economic policy, they had fulfilled all conditions to qualify for concessional loans. Shahid Husain who was responsible for the Bank’s mission stated that Vietnam had economic results comparable to those in Bangladesh or Pakistan.
However, the Bank management under American pressure, suspended loans for Vietnam and Robert McNamara. In the Chile case, IMF loan suspension occurred following the 1969 election and establishment of the Popular Unity. Under US pressure, the Bank stopped lending to Chile from 1973 to 1970. The Chilean case illustrates that there is a conflict between the Bank’s judgment and the US government’s position. This led to the Bank finally changing its position. The Bank’s management acknowledged that Chile had met the criteria to receive loans. However, the US government prevented the Salvador Allende government from receiving any loan. Catherine Gwin reports that the United States pressured Bank management to refuse to lend to Allende after Chile nationalized its copper mines. The Bank sent a team to Santiago to check that Chile had followed Bank rules. Robert McNamara, a representative of the Bank, met with Allende in order to show that they were open to new loans if the government made commitments to reforming the economy. The terms of the loan could not be agreed between the Bank, Allende and McNamara.
But the US used its power to convince Bank officials not to approve loans that allowed for the production or export of US-made products. The US opposed palm oil, citrus fruits, and sugar production. The US convinced the Bank in 1987 to significantly reduce the amount of loans it granted to the Pakistani and Indian steel-manufacturing industries. The US successfully blocked an IFC-funded investment project in Brazil’s Brazilian steel industry. A loan from the Bank was later granted to Mexico for the purpose of restructuring its steel-manufacturing sectors. It threatened to use their veto power to prevent a loan being made to China’s steel sector in the 1980s. The US also blocked a loan provided by the International Financial Corporation for a mining firm to extract iron ore from Brazil. Similar actions were taken in relation to an International Financial Corporation-funded investment in Chile’s copper industry.
Management at the World Bank justifies non-allocation or allocation of loans on economic grounds. However, the US government is the primary factor in determining the Bank’s loan policies. It does so primarily for political reasons. While economic goals are not insignificant, they are secondary or supplementary to strategic and political decisions. Catherine Gwin, while defending the positive effects of US influence over the World Bank from a Washington perspective, takes a strict approach that does not hide the contradictory aspects in both the US’s and Bank management policies. As the economically most powerful country in the world, the United States of America controls the Bretton Woods Institutions as well as the International Monetary Fund.
The United States of America’s superiority does not mean it is in control of every country, organization or institution. Although we accept the United States of America’s influence on Bretton Woods institutions (IMF, World Bank), other countries have significant influence over the IMF, World Bank. This includes the United Kingdom, France and Japan. The IMF and World Bank have made many agreements that have helped influence the Bretton Woods institutions. Below are some examples and details of such agreements.
The Poverty Reduction and Growth Trust. These are agreements that were signed in response to unprecedented financial needs during the Covid-19 epidemic. This was a fast-track loan mobilisation instrument to allow the fund access to higher limits and provide emergency financing to low to moderate-income countries (LIC). The United Kingdom, France, Brazil and Japan have signed agreements or augmented existing agreements. The total amount of new Poverty Reduction & Growth Trust (PRGT), loans resources for low income countries was SDR 10.6 billion. This agreement was signed by the IMF and the countries mentioned above to benefit the poorer countries that were most affected by the Covid-19 pandemic.
The IMF seems owed the countries who brought the agreement to their table. In fact, there is a 100 percent chance that they will repay that favor in the future. This will make it easier for countries with low incomes or high levels of development to influence the IMF. This agreement was between the National Bank of Belgium as well as the International Monetary Fund as Trustee.
The bias against the International Monetary Fund has been criticized for its politicized approach to money lending to the developing world. However, this bias is mainly attributed to major Europeans. A subset of IMF states can influence the IMF by their influence, overrepresented voting shares, personnel, and informal influence. This causes conditional lending to be applied in a way that favors some countries while ignoring others. The IMF’s credibility is often eroded by political intervention. Reforms in the borrowing states are also undermined. It is thought that IMF governance problems can have an even wider impact on the global economy. Expectations regarding the IMF’s intervention in crisis situations will be affected by political influence. This influences the motivations of policymakers, as well as private investors, and encourages some countries to take risks. The IMF is expected to treat countries favorably. This reduces perceived risks of risky policies such as reducing international reserves or loosening financial regulations. Countries without political influence at the IMF are strongly encouraged to seek self-insurance.
Let’s sum it up. It is clear that the United States of America has an unquestioned dominance over the IMF/World Bank. We can talk about the geographical location of the institutions, their leaders in both the IMF/World Bank and their rights to Veto power. Also, US government intervention in decisions and approvals of money lending to member countries. These and other factors make America superior on both the IMF/World Bank.
Citing
The American Action Forum conducted a study in 2018. U.S. Participation in the international monetary fund, Retrieved February 3 rd , 2021 from https:www.americanactionforum.org
Catherine Gwin, Kapur, Devesh Lewis, Lewis, John P Webb Richard 1997. The world Bank’s first 50 years, volume 1; page 103
The International Monetary Fund (IMF) released a report in 2020. The IMF in a glance. Retrieved January 31, 2021 from https://www.imf.org
The World Bank published their report in 2021. History of the IMF and The World Bank, Retrieved January 31st , 2021 from https:www.worldbank.org
Funding on a global scale (World Finance, n.d.) The politics of the IMF , Retrieved February 4th , 2021 from https:www.worldfinance.com
