Economic Integration and Globalization

Lessons

Senior 6 · Economics

Economic Integration and Globalization

5 lessons

Lesson 5 of 5

The Bretton Woods institutions: the IMF and the World Bank

25 min

Case: four agreements in ten years

On 8 June 2026 the Executive Board of the International Monetary Fund (IMF) approved a 38-month Extended Credit Facility for Rwanda of SDR 185.031 million, about US$250 million, and paid out SDR 26.433 million (about US$35.7 million) at once. According to the IMF, the programme is meant to help Rwanda adapt to tighter global financing conditions while sustaining growth, protecting priority social and development spending, and rebuilding its buffers, at a time when higher world oil and fertiliser prices were pushing up inflation and the current account deficit.

Think: why does a fast-growing economy keep turning to the IMF? What does the IMF ask in return?

Definition

Bretton Woods institutions: the International Monetary Fund and the World Bank, both created at the Bretton Woods Conference in July 1944 (Lesson 2 of Unit 3) to rebuild and stabilise the world economy after the Second World War.

International Monetary Fund (IMF): an organisation of 191 member countries that watches over the international monetary system, lends to members with balance of payments problems, and gives technical advice.

World Bank: a group of institutions that lends money and gives grants and advice to developing countries for long-term development projects and reforms.

Definition

Quota: a member's subscription to the IMF, based on the size of its economy. It sets how much the member pays in, how much it can borrow and how many votes it has.

Special drawing right (SDR): the IMF's unit of account and reserve asset, whose value is based on a basket of five currencies (the US dollar, euro, Chinese yuan, Japanese yen and British pound).

Conditionality: the policies a borrowing country agrees to carry out in return for IMF (or World Bank) money.

Worked example 1: quotas and SDRs

(a) Rwanda's quota from the 2026 arrangement. SDR 185.031 million is 115.5% of quota, so

\text{quota} = \frac{185.031}{1.155} \approx 160.2 \text{ million SDR,}

which matches the IMF's country page. The 2022 arrangement, SDR 240.3 million, was $\frac{240.3}{160.2} \times 100\% \approx 150\%$ of quota.

(b) The value of an SDR. The IMF valued the December 2023 facility of SDR 200.25 million at about US$268.05 million, so at that time

1 \text{ SDR} \approx \frac{268.05}{200.25} \approx 1.34 \text{ US dollars.}

(c) In francs. At the BNR's end-June 2025 rate of Frw 1,968.08 per SDR, the 2026 facility would be worth about

185.031 \times 10^{6} \times 1\,968.08 \approx 364.2 \times 10^{9}

francs, or about Frw 364 billion.

The IMF: functions

Surveillance: monitoring members' economies and the world economy; each member has a regular "Article IV" consultation (Rwanda's latest listed report is dated 4 December 2025).
Lending to members with balance of payments problems, from short-term facilities (the Stand-by Credit Facility) to longer programmes (the Extended Credit Facility), and, since 2022, the Resilience and Sustainability Facility for climate and pandemic risks.
Non-borrowing programmes, such as the Policy Coordination Instrument, which lets a country show investors that its policies meet IMF standards without borrowing.
Technical assistance and training for central banks, finance ministries and statistics offices. The IMF helped the BNR rebuild its functions and move to a flexible exchange rate after 1994.
Allocating SDRs to add to members' reserves.

The World Bank Group

Institution	What it does
International Bank for Reconstruction and Development (IBRD)	Loans to middle-income and creditworthy lower-income governments at near-market rates
International Development Association (IDA)	Grants and long-term, low- or zero-interest credits to the poorest countries, including Rwanda
International Finance Corporation (IFC)	Invests in and lends to private firms in developing countries
Multilateral Investment Guarantee Agency (MIGA)	Insures foreign investors against political risks, encouraging FDI
International Centre for Settlement of Investment Disputes (ICSID)	Settles disputes between foreign investors and governments

IMF and World Bank compared

	IMF	World Bank
Main aim	Stability of exchange rates and the balance of payments	Long-term development and poverty reduction
Time horizon	Short to medium term	Long term
Typical lending	Balance of payments support to the central bank or budget	Projects (roads, energy, schools, health) and policy reforms
Borrowers	All members, rich or poor, in difficulty	Developing countries
Source of funds	Members' quotas and borrowing arrangements	Capital markets (IBRD) and donor contributions (IDA)

Criticisms of the Bretton Woods institutions

Conditionality and austerity. In the 1980s and 1990s, structural adjustment programmes required spending cuts, privatisation and liberalisation, which critics say harmed health, education and the poor.
Unequal voting power. Votes follow quotas, so rich countries dominate. The United States holds about 16.5% of IMF votes, enough to block decisions that need an 85% majority.
"One size fits all" advice that may not suit a country's circumstances.
Debt. Loans must be repaid, adding to debt-service burdens.
Leadership by convention: the IMF has always been headed by a European and the World Bank by an American.

Supporters reply that the institutions provide finance when no one else will, lend on softer terms than markets, share expertise and help countries avoid disorderly crises, and that conditions now give more weight to social spending, as in Rwanda's 2026 programme.

Warning

Don't mix up the two. The IMF deals with the balance of payments and the exchange rate: it is the "fire brigade" for short-term financial problems. The World Bank finances long-term development: it is the "builder". An IMF programme is not a World Bank project.

Tip

Three words each. IMF: surveillance, lending, advice. World Bank: projects, poverty, long-term.

Important

Discuss. Rwanda has used IMF arrangements repeatedly, including the Policy Coordination Instrument, under which it did not borrow. Is regular engagement with the IMF a sign of weakness or of good economic management? Consider the signal to investors, the finance provided and the conditions attached.

CNBC International, "What's the difference between the IMF and the World Bank?" (about 4 minutes, 2017). A clear comparison of the two institutions' jobs, funding and critics. Use it to check your comparison table.

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Practice

Name the Bretton Woods institutions and state when and why they were created.
Give four functions of the IMF.
Name the five institutions of the World Bank Group and state what IDA does.
Distinguish between the IMF and the World Bank in terms of aims, time horizon and type of lending.
A country's quota is SDR 300 million. The IMF approves an arrangement of 125% of quota. How many SDRs is that, and how many US dollars at 1 SDR = US$1.35?
Explain what conditionality means and give two examples of conditions.
Explain three criticisms of the IMF and World Bank.
"Developing countries like Rwanda benefit from their membership of the Bretton Woods institutions." Evaluate.

Show answersHide answers

The IMF and the World Bank, created at the Bretton Woods Conference in July 1944 to stabilise the international monetary system and to finance reconstruction and development after the Second World War.
Surveillance of members' economies; lending for balance of payments problems; technical assistance and training; allocating SDRs; non-borrowing policy programmes.
IBRD, IDA, IFC, MIGA and ICSID. IDA gives grants and long-term, low- or zero-interest credits to the poorest countries.
The IMF aims at balance of payments and exchange rate stability, works in the short to medium term and gives balance of payments support; the World Bank aims at long-term development, funding projects and reforms.
$1.25 \times 300 = 375$ million SDR; $375 \times 1.35 = 506.25$ million US dollars.
The policies a borrower agrees to in return for funds, for example cutting the budget deficit, raising tax revenue, reforming state enterprises, allowing a more flexible exchange rate.
For example: austerity under conditionality harming the poor; voting dominated by rich countries; one-size-fits-all advice; adding to debt; leadership reserved by convention.
Benefits: finance in crises on soft terms; IDA grants and credits; technical help (such as rebuilding the BNR); a positive signal to investors. Costs: conditions that limit policy choices; debt; unequal voice. A good answer weighs Rwanda's experience and concludes.

1Case: four agreements in ten years

2The IMF: functions

3The World Bank Group

4IMF and World Bank compared

5Criticisms of the Bretton Woods institutions

Case: four agreements in ten years

The IMF: functions

The World Bank Group

IMF and World Bank compared

Criticisms of the Bretton Woods institutions