flowchart TD A[World Bank Group] --> B[IBRD 1944] A --> C[IDA 1960] A --> D[IFC 1956] A --> E[MIGA 1988] A --> F[ICSID 1966] B --> B1[Public sector loans] C --> C1[Concessional credits & grants] D --> D1[Private sector finance] E --> E1[Political-risk insurance] F --> F1[Investor-state arbitration]
84 International Financial Institutions: IMF and World Bank
The post-war international economic order that emerged from the Bretton Woods Conference (1–22 July 1944) rests on twin pillars: the International Monetary Fund (IMF) to police currency stability and rescue economies in balance-of-payments crisis, and the International Bank for Reconstruction and Development (IBRD)—now the core of the World Bank Group—to mobilise long-term development capital. Both came into existence in December 1945; both have headquarters in Washington, D.C.; both adopt weighted voting tied to financial contributions. The third Bretton Woods institution, the International Trade Organisation, never received US Senate ratification; the GATT, 1947 served the mandate until the WTO took over in 1995.
TipWorking definitions
| Term | Working definition |
|---|---|
| Bretton Woods system | The international monetary regime (1944–1971) of US-dollar convertibility into gold at $35 / oz and pegged exchange rates of member currencies. |
| Special Drawing Right (SDR) | An international reserve asset created by the IMF in 1969; valued against a basket of five currencies (USD, EUR, RMB, JPY, GBP) since 1 October 2016. |
| World Bank Group | A family of five institutions (IBRD, IDA, IFC, MIGA, ICSID) that together finance and de-risk development projects in member states. |
84.1 International Monetary Fund (IMF)
The IMF was established in 1944 to oversee the par-value system and the Articles of Agreement obligation that members must keep current-account convertibility. It currently has 190 members; India was a founder member. The IMF’s purposes under Article I are to promote international monetary co-operation, expand world trade, exchange-rate stability, multilateral payments and confidence-building lending. Its Managing Director is by convention European; the First Deputy Managing Director is American.
TipIMF — structure and finance
| Feature | Detail |
|---|---|
| Membership | 190 (Andorra joined Oct 2020) |
| Governance | Board of Governors (one per country) → 24-member Executive Board → Managing Director |
| Resource base | Quotas of members + New Arrangements to Borrow (NAB) + bilateral borrowing |
| Quota review | Reviewed every five years; 16th General Review concluded December 2023 |
| India’s quota | 2.75 % (8th largest); Total IMF quota ≈ SDR 477 bn |
| Voting | Basic votes (250 per member) + 1 additional vote per SDR 100 000 of quota |
| Surveillance | Annual Article IV consultations with each member |
84.1.1 Article-by-Article highlights
Article IV (1978 Second Amendment) abandoned the gold-dollar standard and authorised members to choose any exchange-rate regime barring pegging to gold. Article IV mandates bilateral surveillance: an IMF mission visits each country roughly annually and publishes a Staff Report. The World Economic Outlook (WEO), Global Financial Stability Report (GFSR) and Fiscal Monitor are the IMF’s flagship multilateral surveillance products.
Article VIII obliges members to maintain current-account convertibility. India accepted Article VIII status in August 1994. Capital-account convertibility remains partial; the Tarapore Committees (1997, 2006) outlined road-maps.
84.1.2 IMF lending facilities
TipMajor IMF facilities
| Facility | Purpose |
|---|---|
| Stand-By Arrangement (SBA) | Short-term BoP support, typically 12–24 months |
| Extended Fund Facility (EFF) | Medium-term lending where structural reforms are needed |
| Flexible Credit Line (FCL) | Pre-qualified for very strong fundamentals; no ex-post conditionality |
| Precautionary and Liquidity Line (PLL) | For sound fundamentals but with vulnerabilities |
| Rapid Financing Instrument (RFI) | Emergency, low-conditionality loans (used widely during COVID-19) |
| Resilience and Sustainability Trust (RST) | 2022; long-term lending for climate and pandemic preparedness |
| Poverty Reduction and Growth Trust (PRGT) | Concessional financing for low-income countries; 0% interest under ECF |
84.1.3 Special Drawing Rights (SDRs)
SDRs are unconditional reserve assets allocated to members in proportion to quota; they are a unit of account, not a currency. Five general allocations have been made: 1970–72, 1979–81, 2009 (twice, in response to the global financial crisis), and the largest in August 2021 of SDR 456 bn (≈ $650 bn) to ease the COVID-19 reserve constraint. The valuation basket since 1 October 2016 includes the Chinese renminbi, alongside the US dollar, euro, yen and sterling.
84.1.4 India and the IMF
India has drawn on IMF resources thrice — 1981 (EFF, SDR 5 bn), 1991 (SBA + Compensatory Financing, ≈ SDR 2.4 bn) — and is now a creditor through the Financial Transactions Plan. The 1991 BoP crisis was managed with the IMF loan and the simultaneous airlift of 47 tonnes of gold to the Bank of England as collateral; the Rao-Manmohan Singh reforms followed.
84.2 World Bank Group
The World Bank Group is a family of five legally distinct institutions:
TipThe five institutions
| Institution | Year | Function |
|---|---|---|
| IBRD — International Bank for Reconstruction and Development | 1944 | Loans to middle-income and creditworthy low-income governments |
| IDA — International Development Association | 1960 | Concessional credits and grants to the poorest countries |
| IFC — International Finance Corporation | 1956 | Investment and advisory to private sector in developing countries |
| MIGA — Multilateral Investment Guarantee Agency | 1988 | Political-risk insurance for cross-border investors |
| ICSID — International Centre for Settlement of Investment Disputes | 1966 | Investor-state arbitration under the ICSID Convention |
The World Bank (in narrow usage) refers to IBRD + IDA. India is the largest cumulative borrower from IDA. The World Bank President is by convention an American nominee.
84.2.1 How IBRD raises money
IBRD does not use government contributions. It borrows on international capital markets at AAA rates (its callable capital of $300 bn provides backing) and on-lends to client countries at a small spread. By contrast, IDA is recapitalised triennially through Replenishments (the most recent, IDA21, was concluded in December 2024 with about $100 bn).
84.2.2 IFC and MIGA
IFC is the largest global development institution focused on the private sector. It owns equity in client firms, lends without sovereign guarantee, and runs IFC Asset Management Company for blended finance. MIGA issues guarantees against four non-commercial risks: currency transfer restriction, expropriation, war and civil disturbance, and breach of contract.
84.3 Conditionality and Critique
IMF and Bank lending typically attaches conditionality under the rubric of structural adjustment: fiscal compression, privatisation, market deregulation, currency devaluation. The 1990s “Washington Consensus” (a phrase coined by John Williamson in 1989) summarised these prescriptions. Critics — Joseph Stiglitz, Dani Rodrik, the Meltzer Commission (2000) — argued that IMF programmes worsened the East Asian crisis (1997–98), Argentina (2001) and Greek (2010) crises by demanding pro-cyclical austerity. The IMF’s Independent Evaluation Office and the Multilateral Debt Relief Initiative (2005) and Heavily Indebted Poor Countries Initiative (1996) responded with debt-relief reforms.
84.4 Practice Questions
Q 01 Bretton Woods Easy
The IMF and IBRD were established as a result of which conference?
View solution
Correct Option: B
The United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire (1–22 July 1944) drafted the Articles of Agreement of the IMF and IBRD.
Q 02 SDR basket Medium
The current SDR valuation basket comprises which five currencies?
View solution
Correct Option: B
The SDR basket since 1 October 2016 includes the Chinese renminbi (CNY) along with USD, EUR, JPY and GBP.
Q 03 Article VIII Medium
India accepted obligations of which Article of the IMF Agreement in August 1994?
View solution
Correct Option: C
India accepted Article VIII in August 1994, which obliges members to maintain current-account convertibility of the rupee.
Q 04 World Bank Group Easy
Which institution within the World Bank Group provides political-risk insurance to cross-border investors?
View solution
Correct Option: C
MIGA (1988) issues guarantees against currency transfer restriction, expropriation, war and civil disturbance, and breach of contract.
Q 05 IDA Medium
The International Development Association (IDA) lends primarily to:
View solution
Correct Option: B
IDA (1960) provides concessional credits and grants to the poorest member countries; resources are replenished triennially.
Q 06 IMF surveillance Medium
The IMF’s annual bilateral consultation with each member country is conducted under:
View solution
Correct Option: A
Article IV of the IMF Articles of Agreement, as amended in 1978, mandates bilateral surveillance of members through annual consultations.
Q 07 2021 SDR allocation Hard
The largest-ever General Allocation of SDRs was approved in August 2021 for an amount approximately equal to:
View solution
Correct Option: C
The August 2021 general allocation of SDR 456 bn (~ $650 bn) was the largest ever, approved to bolster reserves during the COVID-19 pandemic.
Q 08 Match the following Hard
Match the institution with its founding year:
| (P) IBRD | (1) 1956 |
| (Q) IFC | (2) 1960 |
| (R) IDA | (3) 1988 |
| (S) MIGA | (4) 1944 |
View solution
Correct Option: A
IBRD-1944, IFC-1956, IDA-1960, MIGA-1988. ICSID was added in 1966 to complete the Group.
ImportantQuick recall
- IMF + IBRD = Bretton Woods twins, 1944; both based in Washington DC.
- IMF: 190 members; Article IV bilateral surveillance; Article VIII current-account convertibility (India: Aug 1994).
- SDR basket = USD, EUR, CNY, JPY, GBP since 2016; 2021 allocation of SDR 456 bn was the largest.
- World Bank Group = IBRD (1944), IDA (1960), IFC (1956), MIGA (1988), ICSID (1966).
- “World Bank” in narrow sense = IBRD + IDA; IDA is concessional, IBRD is market-rate.