The document summarizes the purpose and history of the World Bank and IMF. The World Bank provides low-interest loans and grants to developing countries for projects to reduce poverty, while the IMF provides short-term loans to countries facing currency crises. Both were created at Bretton Woods in 1944 to help rebuild Europe after WWII. While the World Bank lends for development projects, the IMF aims to stabilize global economies and prevent financial crises. The document also discusses the large external debts Pakistan has accumulated from World Bank and IMF loans and how this has negatively impacted the country's economy.
2. PRESENTATION OUTLINE
WORLD BANK
- Purpose
- History
Difference between World Bank and IMF
IMF
- Purpose
- History
The impact of IMF & World Bank on Pakistan
3. WORLD BANK
The World Bank provides financial and technical assistance to emerging
market countries. It consists of two development institutions -- the
International Bank for Reconstruction and Development (IBRD) and the
International Development Association (IDA)-- owned by 186 member
countries.
Affiliated with the International Finance Corporation (IFC), the Multilateral
Guarantee Agency (MIGA), and the International Centre for the Settlement
of Investment Disputes (ICSID) -- that support its goal of reducing
worldwide poverty.
4. PURPOSE:
The World Bank provides low-interest loans, interest-free credits and grants
to developing countries.
The World Bank loans are usually to invest in education, health, and
infrastructure.
The loans are even use in financial sector, agriculture, and natural resources
management.
5. CONT…
The Bank's goal is to "bridge the economic divide between poor and rich
countries.
To achieve this goal, the Bank focuses on six areas:
1. Overcome poverty through growth in the poorest countries, focusing on
Africa.
2. Offer reconstruction to poor countries emerging from war.
3. Provide a customized development solution to help those middle-income
countries overcome problems that could throw them back into poverty.
4. Motivate governments to act on preventing climate change, controlling
diseases, (HIV/AIDS and malaria), managing international financial
crises, and promoting free trade.
5. Work with the League of Arab States to improve education, build
infrastructure and provide micro-loans to small businesses in the Arab
world.
6. Share its expertise with developing countries, and its knowledge with
anyone via reports and its interactive online database.
6. HISTORY
The World Bank was created at BrettonWoods in 1944 to lend
to European countries to help them rebuild after World War II. It was the
world's first multilateral development bank, and was funded through the sale
of World Bonds. Its first loans were to France and other European countries,
but soon lent money to Chile, Mexico and India to build power plants and
railways. By 1975, the Bank also lent money to countries to help with
family planning, pollution control and environmentalism.
7. DIFFERENCE BETWEEN
WORLD BANK & IMF
Since the IMF does lend money, it is often confused with theWorld
Bank
The Bank's purpose is to lend money to developing countries for
specific projects that will fight poverty.
The IMF only provides loans if it will help prevent a global economic
crisis. Its overall goal is to prevent these crises through guidance to, and
cooperation among, its members.
The Fund provides loans to help its members tackle balance of
payments problems, stabilize their economies, and restore sustainable
growth. Unlike the World Bank and other development agencies, the IMF
does not finance projects.
8. INTERNATIONAL MONETARY
FUND-IMF
The International Monetary Fund (IMF) is an organization of 186 countries,
working to foster global monetary cooperation, secure financial stability,
facilitate international trade, promote high employment and sustainable
economic growth.
9. PURPOSE
Their goal is to work with the Fund to stabilize the global economy by
cooperating in practices which achieve that aim.
The IMF helps its members by:
Surveying global economic conditions.
Advising member countries on methods to improve their economy.
Providing short-term loans to avoid currency instability.
10. HISTORY
The International Monetary Fund (IMF), like the World Bank, was
conceived at the BrettonWoods conference that sought to rebuild Europe
after World War II. Unlike the Bank, its goal was to help countries maintain
the value of their currencies without resorting to trade barriers and
high interest rates.
11. THE IMPACT OF IMF & WORLD
BANK
Impact of external debt :
Common measure to finance deficits and to keep economy on pedals of
growth cycle. But these debts hampers our growth, investment and
production. About 40% of our national income goes to debts service
payments. Every year we payoff the previous debts with the new loans
that are taken after following the conditionality that leave our economy
to vulnerable state.
- Ayub’s era--------125 million loans
- Z.A. Bhutto------330 million loans
- Zia ul Haq--------1.27 billion loans
- Moeen Qureshi ------265.4 million loans (1993)
Purpose to take loans: To overcome fiscal and external accounts
deficit.
12. OUTCOME:
Reduce investment :As most of our NI goes in paying off debts we
are unable to do investments whereas, our private sector doesn’t have
incentives and they seize their investments. While, public sector has little
fund left.
Reduce savings: Foreign capital inflows have been used entirely to
finance consumption. Moreover, the increase in foreign capital lower our
saving by same magnitude. Thus, contribute almost nothing to growth.
Negative impact on private sector-crowding out effect: In
order to finance deficits government push up interest rates to such extent
that the private sector would find it unaffordable to invest, and crowd out.
(Neo-classicists phenomenon)
Productivity worsened: Due to increase in imports as we follow
liberalize trade affects domestic Industrial producers adversely as they are ill-prepared
to compete with imported finish goods. And increase in direct tax
and sales tax negatively affects them too.
13. Our economic frontiers were thrown open: Following such
conditionality and allowing others to intervene in our state to be our ultimate
deciders leave our borders open for others to play in our country for their own
sake.
• Inflow of debt used to pay off old debts: we payoff previous debts
with the debts taken newly. And ultimately we see pile of interest rate that
hamper our economic growth.
• Dependability ( Foreign Aid Dependent Regime): Due to excessive
import our industries were one way or the other dependent on foreign aid
inflows.
• More political, not economic: Devaluation of currency, lifting trade
restrictions, curtailing government expenditures, dissolving subsides etc
left us in miserable state and acting upon such conditions in 1988 we
were granted loan by IMF. More of others interest than ours.
