What is Multilateral Financial Institutions

Posted on 10 June 2022 Category : Indian Tax Terms

Meaning of Multilateral Financial Institutions

The details about Multilateral Financial Institutions are explained here.

Multilateral Financial Institutions

The IMF and the World Bank are the mammoths of our time. They look like very strong mighty institutions, capable of crushing whatever gets in their way, but they don’t really fit into a desired future world which is more democratic, with more equally distributed wealth and chances, and with more respect for the environment”

Introduction

In 1944, delegations from 45 countries convened in Bretton Woods, a small town in the American state of New Hampshire, to discuss the post-war world order and, more specifically, how the financial and economic problems of the twenties and thirties could be prevented in the future. They decided to establish the International Monetary Fund (IMF) to guarantee a stable monetary system. The newly established World Bank had to take care of the reconstruction of post war Europe. Also, the foundations of the World Trade Organisation - General Agreement on Tariffs and Trade until 1995- were laid. Nowadays, the World Bank and the IMF are both involved in financing developing countries as well as countries in transition. Like other Multilateral Financial Institutions (MFIs), they have a great influence on people and their environment, mainly in the South. Yet, they are dominated by powerful western governments and the people affected by the programmes of these institutions can hardly get access to them, let alone influence their policies.

This paper describes the history, goals and structure of several MFIs, including the IMF, World Bank, European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB) as well as the Global Environmental Fund (GEF).The main points of critique on the EBRD, EIB and the GEF will be incorporated in this section. Due to their far reaching impact on all levels of society in developing countries, the critique on the World Bank and the IMF will be dealt with separately in chapter 3. Chapter 4 deals with ways to get information from the MFIs and about the MFIs.

The International Monetary Fund (IMF)

Initially, the main task of the IMF was to ensure monetary stability in the world economy by establishing a system of fixed exchange rates and by giving balance of payments support. At this stage, developing countries hardly played a role, as their economies were small and they were not yet independent. When in 1971 the US government suspended the convertibility of dollars into gold, the international monetary system collapsed. Critics argued that the IMF’s ro le had become obsolete; however, the IMF was saved by the oil crisis as it found a new target group. After the first crisis in 1973, the oil-importing developing countries had received massive loans from commercial banks. At the time of the second oil pric e increase, the commercial banks had lost faith and were reluctant to grant new loans to the indebted countries. Many developing countries that had no oil turned to the IMF for balance of payments support. By bailing out the commercial banks, the IMF (and the World Bank) themselves have become the biggest creditor of developing countries, and a seemingly never ending circle was created. As Ann Pettifor of the Debt Crisis Network puts it:

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