International Financial Institutions’ Purposes and Results

Introduction

To understand what International Financial Institutions are, in particular, the International Bank for Reconstruction and Development (IBRD) and the International Monetary Fund (IMF), and why they were created, it is important to evaluate that state of Europe and the world at the time of their inception. In 1944-1945, the world was in ruin following the difficult victory in the Second World War. Countries and their economies were destroyed in the wake of it, putting Europe and the Far East into a deep crisis.

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Despite active efforts of the American-led United Nations Relief and Rehabilitation Administration, and some other organizations, which provided and coordinated relief efforts for countries that were devastated by the war, a lot of countries were still in the need of significant amounts of foreign capital to facilitate effective reconstruction and development. Until such funds could be provided, free trade could not be fully restored, and the risk of the formation of new economic blocks increased. The newly formed United Nations was looking for ways to create a helpful economic environment to bring upon global prosperity, which would help restore active world trade and would be beneficial to all countries involved. This would also be a guarantee of global peace, because of the resultant interconnection of economies.

Analysis

Such a goal could not be achieved through independent actions and required the creation of institutions with broad authority. To this end, the United Nations has created the International Bank for Reconstruction and Development and the International Monetary Fund as tools for enabling international cooperation. (Pehle 1128-1131).

The Articles of Agreement for these organizations were composed and approved at the United Nations Monetary and Financial Conference, at Bretton Woods, New Hampshire, on July 22, 1944.

According to the Articles, the purpose of the International Bank for Reconstruction and Development was to aid in post-war rebuilding and development of lands of members and affiliates of the UN, by mediating the capital investments for the restoration of economies, conversion of industries for peacetime, and advancement of economies of less developed countries. This was supposed to facilitate the development of international trade and foreign investment, to improve the living and working standards worldwide (International Bank for Reconstruction and Development 3).

The International Monetary Fund was similarly created as a permanent, stable establishment, through which international monetary cooperation could be promoted. The Fund was to provide the mediation for discussion of global monetary issues, through consultation and collaboration. Same as IBRD, IMF was supposed to support the growth of global markets and trade and, consequently, create new workplaces and sources of income for all UN members.

IMF allowed currency exchange stability and reduced depreciation. Finally, the Fund allowed easier monetary transactions between members, eliminating the restrictions imposed by exchange, as well as provided the countries with “safety cushion” funds, allowing them the chance to amend its balance of payment issues without drawing on the national or global prosperity (International Monetary Fund 2). In many ways, IMF was created as a response to the Great Depression, which preceded the Second World War, and was supposed to safeguard the rebuilding society against similar competitive devaluations which had such a damaging impact on the global economies in the 30s.

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The Fund achieved this first by reviewing the economic situation, growth tendencies in countries, the financial policies, and the involvement in the global market, and then by providing consultation to its member countries, which were meant to direct them towards economic stability, and reduce the risks of economic crisis (Communications Department 1).

While these were the original purposes of these international financial institutions, some legislative issues had to be addressed in the decades following their inception. While in 1949, it was settled that international organizations were supposed to be regulated under international law. Additionally, their rights and responsibilities were controlled by the international treaties on which they were founded.

This created a level of discrepancy which could both inhibit their purpose or lead to exploitation, For example, an organization that was dominated by one of its member countries was more likely to act it its favor in spite of its supposed independence, resulting in conflicts of interest. Or, its actions can be limited due to the treaties signed by the member countries forbidding them, while the organization itself didn’t sign such treaties and should theoretically have the freedom to act (Hunter & Bradlow xxvi).

This created a need for additional regulation of these organizations. In view of some of these allegations, the World Bank Inspection Panel was eventually established in 1993. The Penal was given jurisdiction over operations of the IBRD and the International Development Agency. Composed of three investigators of different nationalities, chosen from the Bank member countries, the purpose of the panel was to conduct independent investigations of the projects financed by the Bank, to certify that they are in compliance with its original goals and values, detect cases of infringements and harm as a result of banks actions (International Bank for Reconstruction and Development Association 2-3).

Similarly, the approach of the International Monetary Fund in pursuit of its goals has changed in the face of the most recent developments, in particular, the recessions of the 2000s. In addition to its core policies and tools, following the major reforms adopted in 2009, 2010, and 2012, the Fund improved its landing capacity and shifted the focus towards crisis aversion, and mitigation of factors causing its spread. Some of the new tools at its disposal were zero-interest emergency loans and increased financial support for the underdeveloped and impoverished countries through increased allowances as part of the Poverty Reduction and Growth Trust (Communications Department 1).

Conclusion

It is clear that both the International Bank for Reconstruction and Development and the International Monetary Fund was created by the United Nations for the purpose of improving the state of the post-war countries, aiding their rebuilding and restoration, helping them revive their economies, and transform them from wartime mode to peacetime, as well as one of the main tools for achieving of peacetime through prosperity and cooperation. Consequently, the organizations have grown to have an influential role in the global economy and had several overhauls to both maintain transparency and to better fulfill their original purposes in a changing society.

Works Cited

Communications Department 2016, The IMF at a Glance. Web.

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Hunter, David B & DD. Bradlow. “Introduction.” International Financial Institutions and International Law. Alphen Aan Den Rijn: Kluwer Law International, 2010. Xxv-xxiii. Print.

International Bank for Reconstruction and Development 2012, Articles of Agreement. Web.

International Bank for Reconstruction and Development Association 1993, The World Band Inspection Panel. Web.

International Monetary Fund 2016, Articles of Agreement. Web.

Pehle, John W. “The Bretton Woods Institutions.” The Yale Law Journal 55.5 (1946): 1127-139. Print.

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