International Finance Instiutions

The World Bank

The World Bank was founded in 1944 to finance the reconstruction of Europe after the destructions of World War II. After reaching this goal the bank started giving advice, aid and loans to developing countries to promote economic growth and contribute to poverty reduction. Today, the two main goals of the World Bank are to reduce poverty and to contribute to a better distribution of resources.

The International Monetary Fund

The International Monetary Fund (IMF) was founded at the same time as the World Bank, with the goal of contributing to stabilizing the global economy after World War II. IMF was supposed to give short-term loans to countries experiencing crises, and to monitor the world economy. While IMF previously has played a significant role in developing countries during crises, it is now mainly European countries owing IMF money after the financial crisis starting in 2008 and the following debt crisis. 

The Regional Developing Banks

The regional developing banks are not as well-known as their big brother, the World Bank. Still, these are very important institutions with great impact on national governments in the global South. The banks are, the African Development Bank (AfDB), the Asian Development Bank (ADB), and the Inter-American Development Bank (IDB). The banks give advice and loans for developmental purposes to the countries in the respective regions. Each of the banks has members from the entire world, and the voting power are distributed in proportion with member states’ deposits in the banks.

Conditionalities and distribution of power

The World Bank and IMF have been criticized for how they give loans and provide debt relief, and the way in which the institutions are organized.

Since the 1970s and 80s, the World Bank and IMF have demanded that developing countries in need of bailout loans or help to be able to pay their debts had to change their economic policies. The so-called structural adjustment programs countries seeking help had to adhere to, often included privatization of public services, economic liberalization, and downsizing of the public sector. In practice, this often entails countries introduction tuition fees and fees for health care services, which hits the poorest – who has no money to pay – the hardest. These kinds of conditions were followed by protests all over the world.

When debt relief for the poorest countries was initiated in the 1990s, the World Bank and IMF demanded that these countries change their economic policies, and in addition show that they were working towards “good governance”, often understood as acting to fight corruption.

The World Bank and IMF have been heavily criticized from civil society organizations for how decisions are made. In both organization, it is the rich countries that have the power, since the voting power depends on how much money each country contributes to the organizations. When the leaders of the two organizations are designated, this does not happen through a democratic election process, but, rather, by the United States picking the president of the World Bank, while the European countries pick the managing director of the IMF. Developing countries have long protested this way of designating new leaders of the two institutions. In 2010, a reform which was supposed to give developing countries, and especially the emerging economies such as China, India and Brazil, more power was amended. However, the reform has not yet been implemented.

New Lenders

Previously, loans to developing countries were mainly given by countries and lending institutions in the global North. However, over the last years, new lenders like China and Brazil have started offering loans. For many developing countries, especially resource rich countries in Sub-Saharan Africa, Chinese loans have become an attractive alternative, with fewer conditionalities, but also with less openness concerning the loans. In July 2014, the BRICS-countries (Brazil, Russia, India, China and South-Africa) launched a new developing bank that will provide loans to infrastructural projects in developing countries. The bank is called “The New Development Bank”, and the BRICS-countries wants equal influence over the bank.

Government bonds have over the last years replaced loans as the primary way of private lending. Since 2004, 23 new countries have started to issue government bonds on the international financial markets. A bond is a debt security, under which the issuer owes the holder a debt, which makes this equal to a loan, except no political conditions are attached.