Text II. THE IMF AND THE WORLD BANK

Many people have difficulty distinguishing the IMF form the World Bank. This difficulty is understandable because these international organizations do have much in common. Both institutions were created at the Bretton Woods Conference of 1944, have the same membership, and are concerned with international economic issues. In addition, the two organizations although distinct entities work together in close cooperation and hold joint annual meetings.

Despite their similarities, the IMF and the World Bank are separate entities. The IMF, as noted, oversees the international monetary system and promotes exchange stability and orderly exchange relations among its members. The IMF assists all members, rich or poor that have balance of payments difficulties. On the other hand, the World Bank seeks to promote economic development of poorer countries and is concerned with assisting developing countries through the financial of specific development projects and programs.

 

International Bank for Reconstruction and Development

The name “World Bank” encompasses two institutions, the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). These institutions should not be confused with EBRD (European Bank for Reconstruction and Development). The IBRD was established in 1945, but due to the beginning of the Cold War (the postwar tension between the Soviet Union and the United States), when it opened in 1946, the USSR did not joint.

The IBRD does not make high-risk loans, and the loans it makes are generally at market terms. Thus, it cannot achieve its goals as much as it might hope. The IDA was created in 1960 to bridge this gap between IBRD objectives and reality. The IDA makes loans to poor countries with average per capita GNP of less than $410 on more favorable terms than the IBRD. (To put this into perspective, the United Arab Emirates has a per capita GNP of $30,000). Loans can be made only to governments, however, which stifle some private initiatives. The IDA and IBRD share staffs.

A separate entity, the International Finance Corporation (IFC), was created in 1965 to address the issue of loans to private enterprises in developing countries. The IFC works jointly with commercial banks and also advises countries on developing capital markets. The IFC does not have the backing of a governmental guarantee when it borrows.

 

 

Case study

Bank Operations

Background information

Everything in economy is controlled by money and the bank is the most important link in the world of money controlling money circulation between firms, depositors and loaners, and offering services to make this circulation easier for them.

The Ukrainian foreign exchange system is regulated by the decree of the Cabinet of Ministers “On the System of Foreign Exchange Control”. The National Bank of Ukraine together with the Cabinet of Ministers is responsible for implementing foreign currency exchange policy. It has the authority to issue licenses for currency operations.

The NBU issued a resolution canceling the restrictions on banking transactions, which non-balance branches of commercial bank can effectuate. The NBU also allowed banks to open branches in any oblast.

Problem

The “Prominvest Bank” plans to extend services and to open new branches. It has organized an informal meeting of subsidiary bank managers to brainstorm the opportunity of performing additional bank services.

Task

You are representative of the managing staff of the “Prominvest Bank”. Work in groups of 3 or 4 persons and brainstorm the points listed in the rough notes. Then meet as one group and select best suggestions for further study.

 

Brainstorming session

1. What traditional bank services are to be done?

2. What nonspecific services can be operated by the bank?

3. Where will you open a new branch?

4. How will you perform transactions?

5. What juridical help will you use?

6. How will you present the clients’ interests in the court?

7. Will you deal with information services? How?

8. Will you extend tourist services? How?

9. Will you accept “utilities” payment?

10. Will you accept proceed of enterprises?

11. Will you trade in banking metals and cash currency?

12. Will you sell lottery tickets?

13. At what expense will you open a charity fund?

14. What privileges for agricultural companies will you introduce?

 

 

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