IMF WTO World Bank: What’s Their Purpose and Who’s Babysitting Them?
If it disappeared tomorrow, I don’t think people would miss it very much 
Established after World War II — the World Bank, the International Monetary Fund and what is now called the World Trade Organization — is buckling under the weight of globalization, trade disputes and the ambitions of rising economic powers in Asia and elsewhere. The World Bank and its sister institution, the monetary fund, were established in 1944 at Bretton Woods, N.H., to secure the international economy. The bank was supposed to rebuild Europe and reduce poverty elsewhere with grants and loans. The monetary fund tries to avert financial meltdowns by monitoring countries’ economic policies. Today, however, all three institutions are facing questions about their relevance in a global economy.
Eckhard Deutscher, a German development official who serves as the dean of the World Bank’s directors, called for a re-examination of the role of all the institutions. “The international community also needs to look at the whole system. There are governance problems across the board,” says Mr. Deutscher. The most immediate issue the bank and the fund must face, experts said, is who governs them. Paul D. Wolfowitz, the president of the World Bank who resigned last week, was appointed by President Bush as an architect of the Iraq war. Well, no wonder! The recent bank crisis erupted over a narrow dispute over charges of favoritism against Mr. Wolfowitz. “The Wolfowitz situation exposed what an antediluvian system the bank has,” states Kenneth S. Rogoff, professor of public policy and economics at Harvard, referring to how the head of the organization is chosen.
Last year, the World Bank’s cumulative lending to China was $40 billion for 274 projects. China is now an export superpower, sitting on more than $1 trillion in reserves, and is so wealthy that it recently announced its own $20 billion program of loans and credits to Africa. So… why did they loan to China? More than $14 billion of the bank’s lending went to ’so called middle income’ countries like China and India. The bank borrows the money at low cost because of its peerless credit rating, then lends it at slightly above that rate. The money it makes on the loans helps pay the bank’s overhead, including the salaries of its 13,000 employees (and a few sideline pockets). In 2000, an advisory commission created by Congress and headed by Allan H. Meltzer, professor of political economy and public policy at Carnegie Mellon, recommended stopping loans to middle-income countries and converting loans to the poorest countries to grants. “The basic problem for the bank is that it’s hard to see what good it has done anywhere,” Mr. Meltzer said. Another problem for the bank, however, is that while it lends and makes grants to the world’s poorest countries ($9.5 billion last year) the bank itself has become marginalized in the overall global effort for the poor. World Bank figures show that the bank’s own contribution to the poorest countries amounts to only about 7% of the government-backed aid they get from 230 international aid agencies, including regional development banks and special funds in Europe for disease, education, maternal health and other programs. Large sums are also going to poor countries through private foundations. Like the World Bank, the fund is becoming more marginal. The world economy has been so successful that the fund, which helped bail out Mexico, other Latin American countries and several Asian countries in the 1990s, is now underemployed.
“In the past I have called for the abolition of the I.M.F.,” said former Secretary of State George P. Shultz, who is also a former Treasury secretary. “If it disappeared tomorrow, I don’t think people would miss it very much.” Many economists say that the fund will be needed when, inevitably, the next crisis occurs. The Bush administration has nonetheless made no secret of its disdain for the monetary fund, saying that the institution has been “asleep at the wheel.” The World Trade Organization, established in 1995 as the successor to the General Agreement on Tariffs and Trade, is struggling mightily to salvage the current round of trade talks that started five years ago at Doha, Qatar. A crisis mood has descended over the talks, with Treasury Secretary Henry M. Paulson Jr. warning that if they fail, a new era of protectionism could be ushered in. The fear is that the World Trade Organization, which is supposed to promote trade, will become a vehicle for lawsuits and protectionist actions threatening higher barriers, leading to a slowdown in the global economy.
