two legally distinct entities: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). The IBRD was formed alongside the IMF at Bretton Woods in 1944, mainly to finance postwar reconstruction in Europe. A decade and a half later the IDA was established to provide lower-cost financing to economically less developed countries (LDCs), which rocketed to prominence with the demise of colonial holdings by European powers. For most practical purposes, the IBRD and the IDA operate as one institution, and they undertake mainly public-sector project lending— that is, lending to national governments to finance the building of roads, irrigation systems, hospitals, power plants and schools.
this suggestion short-sighted and anachronistic. For one thing, both institutions have done many, many things right on a range of issues — fighting river blindness in Africa, for instance, and saving several post-Soviet economies from complete chaos. More fundamentally, the aims of the IMF and the World Bank — such as international monetary collaboration, international economic development and a general endorsement of multilateral solutions to address global problems — are worthy and indeed essential in the world of today and tomorrow. Wise architects of a post-war economic system being built in the 1940s (many of them Americans) realized this truth, and we should do the same today by recognizing the need for effective international financial institutions with a global reach.
Like the IMF, the World Bank provides both hard loans and soft loans. The IBRD makes the hard loans, the resources for which come almost entirely from the proceeds of a vigorous IBRD borrowing program on public financial markets worldwide. The IBRD issues bonds to the public, and the proceeds flowing from the sale of those bonds (especially to huge institutional investors) provide the resources the IBRD uses to lend to its member countries. The soft loans, by contrast, come from the IDA, drawing from resources contributed by the wealthiest countries.
However, just because we are much better off with these international financial institutions — or some form of them — than we would be without them does not mean they can remain as they are. In my view, the IMF and World Bank are not, in their current form, capable of handling ever-growing problems of international economic relations. Some observers say they are capable, and that simply by making some minor adjustments these institutions can meet the needs of global economic stability and development. That view ignores what has happened since the 1940s. Too many changes have taken place in our views on environmental protection, social aspects of economic development, participatory structures in public institutions, and on the so-called NorthSouth divide for the existing institutions, working within their existing charters, to be effective in a new age. Moreover, the IMF in particular currently faces a serious short-term financial challenge; as
As in the IMF, the wealthiest countries largely control both sides of World Bank operations (both the IBRD hard lending and the IDA soft lending). In particular, the United States holds about a 15% voting share in the World Bank. A wide range of views have recently been expressed on how the United States should wield its power in the IMF and the World Bank. Some urge that one or both institutions be shut down entirely. I find
a practical matter, urgent change is needed.
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