International Finance Institutions and Collaboration Essay

In your opinion, is there any benefit to these organizations working together? Explain. Which organization do you think should play a greater role in aiding economic development? Why?

The International Monetary Fund and the World Bank were both formed at an international conference in Bretton woods, New Hampshire, USA (Gautam 231). The main objective of forming them was to induce prosperity in the global economy and to establish a foundation for economic growth and development. IMF’s main laid out roles include stabilization of the exchange rates in the globe, administering loans to countries, and offering advice on loan repayment to help countries establish strong economies. The World Bank, on the other hand, has a role of promoting economic development, eradicating poverty, and hunger among the less developed countries. Despite the difference in goals and functions, the two institutions do join forces regularly and work together on different initiatives. This collaboration is better as the two can achieve more when in cooperation (Guder 104). Benefits of collaboration between the World Bank and the IMF

1. The collaboration of staff: The staff in IMF and those in the World Bank can share ideas o different subject matters and together achieve more than if there was no collaboration. The IMF staff can assess the financial states of projects while the bank staff provides advice on economic reforms to be taken. Thus, the two can cooperate well to evaluate their lending programs more closely (Gautam 234).
2. Reduction of debt burdens: Just as in the HIPC initiative and the MDRI, the IMF and the World Bank work together to ensure that the external debt burden is moderated.
3. Interaction between economists: collaboration between the World Bank and IMF provides opportunities for economists to meet and exchange views and convictions about the economy’s progress. These economists, once brought together, can cooperate and brainstorm on the challenging issues, thus coming up with solutions (Gautam 239).
4. High coordination level: The level of coordinating activities increases when there is a cooperation between the two institutions. During annual General meetings, cooperation ensures that programs that will bring about economic growth are identified with certainty, and that finances required to carry out the projects are allocated efficiently.
5. Better management consultation and improved awareness of organizational structures: The combined management of the two institutions are able to issue joint reports and consult each other on major issues, thus an improvement on overall decision making. They can also enforce programs to ensure that the staffs appreciate the Funds and the Banks organizational structures. This will ensure that the staff are well informed of their goals and are equipped with all that is needed to achieve those goals.
6. Monitoring Progress of the millennium development Goals: With the cooperation of the bank and the Fund, the developing countries and the developed ones can be well evaluated in both the financial side(by the Fund) and the Economic side(by the bank) to assess whether the millennium goals are being achieved (Wild and Han 27).

In my opinion, the World Bank is the one that has a major role in helping to achieve economic development. This is because, from its roles, we can see that its objectives are mainly edged towards the achievement of the Millennium Development Goals.

If you were a World Bank donor, would you support the HIPC Debt Initiative or argue against it?

The goal of the HIPC Initiative is to ensure that those poor countries are not left with unmanageable debt burdens. The initiative has the benefit of reducing poverty in those lee developed countries and ensuring economic growth is enhanced using the debt relief proceeds. HIPC also ensures that public debt management of those poor countries is improved, and this will, in turn, ensure that the World Bank does not suffer from bad debts (Guder 104). If I were a donor at the World Bank, I would agree to the HIPC initiative. This is because it would be better than the borrowers are given debt relief and then instead given lower interest rates because, in the end, they might just never pay at all (Guder 108).

Do you think the World Bank and the INF should write off the entire debt of the countries? What are the pros and cons of this approach for debt relief?

Total cancellation of the poor countries’ debt by the IMF and World Bank would not be favorable to the two institutions. This is because it would require donors and guarantors to contribute finances towards assisting in protecting the financial viability of the lending sources. Thus, 100% debt cancellation might have negative effects on both the lending institutions and the borrowing countries (Wild and Han 33).

Pros and cons of the debt relief approach

Pros

1. Predictability: HIPC initiative proved that debt relief might be more predictable than other sources of financing. Debt relief provides governments with an opportunity to invest in long-term projects as compared to regular financing, which is volatile.
2. Neutrality: Whereas other forms of aid will tend to fluctuate with Economy cycles, debt relief is neutral and non-cyclical. This means that debt relief reduces the impact felt from Economic deterioration. Without debt relief, recovery from periods of Economic deterioration would be difficult and costly for the borrowing countries.
3. Transaction costs involved while administering debt relief are low: unlike other forms of aid, debt relief reduces forms any possible disruptions in the use of the funds provided. The costs involved in the administration of the aid are also minimal as compared to other forms of debt.
4. Country ownership: Debt relief offers opportunities for reforming governments to improve the living standards of their people. This is because it allows countries to utilize their own resources in the ways that they deem to be best possible. Thus, a country is able to have that sense of belonging due to the control it has over its own decisions.

Cons

1. Possible future effects on the international financing institutions: The World Bank and the IMF are fully committed to the debt relief programs and play a major role in ensuring the success of those programs. This is mainly through the provision of advice and finances. Thus increased debt relief, such as the 100% cancellation, could cause financial problems to the institutions leading to a major hindrance in fulfillment of their roles (Wild and Han 37).
2. Lack of a clear distinction between levels of debt and levels of poverty. If debt relief is to be funded depending on the standards of governance and previous reforms already established with IMF, then the program would only benefit the countries with a lower poverty level leaving the ones with the greatest need poorer (Guder 101).
3. Countries, which are poor in controlling their expenditures or those that are weak in administering poverty reduction methods are unlikely to change their strategies even after the administration of the debt relief programs. Thus, it is likely that no benefits will be obtained from funding such countries (Guder 102).

Works Cited

Gautam, Madhur. World Bank. Operations Evaluation Dept. Debt relief for the poorest: an OED review of the HIPC initiative. Washington, DC: World Bank, 2003. Print.

Guder, F. Leonie The administration of debt relief by the international financial institutions: a legal reconstruction of the HIPC initiative. New York: Springer, 2009. Print.

Wild, John, and Han, Jerry. International Business, (5th. ed.). New York: Prentice Hall, 2010. Print.