The IMF, the World Bank and the WTO
The International Monetary Fund (IMF) keeps the international monetary system stable and lends foreign currency, on conditions, to countries with balance of payments problems. The World Bank funds development and fights poverty in developing countries. The World Trade Organization (WTO) sets and enforces the rules of global trade and settles trade disputes.
Before this: Globalization vs nationalism: gains, costs and rollback
On the exam
- Describe functions and objectives of the international organizations that facilitate trade, including the World Bank, the International Monetary Fund, and the World Trade Organization
Describe the functions and objectives of the World Bank, the IMF and the WTO. Expect a "which organization..." item: a currency shortage is the IMF, a poverty-reduction loan is the World Bank, a trade dispute is the WTO.
How deeply to learn each part
- Know the idea
- Understand it in general. It frames other topics, but you will not calculate with it.
- Use it
- Understand it well enough to solve a question with it. Recognize when it applies.
- Memorize
- Learn it by heart. The exam will not give it to you.
You know this one. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still do.
You tested strong here. The full lesson is folded away. The takeaways, formulas and checkpoint below are your quick refresher, and the checkpoint is a fair test of whether you still know it.
What does each organization do?
Three global bodies sit behind the rules and money of cross-border activity. Each has one core job.
- International Monetary Fund (IMF) Memorize stability of the international monetary system
- Forum for cooperation
- Surveillance of economies
- Temporary, conditional loans of foreign currency
-
- World Bank Memorize fight poverty, environmentally sound growth in developing countries
- IBRD market-funded, low-rate loans to creditworthy developing countries
- IDA interest-free loans and grants to the poorest
- Advice and know-how
-
- World Trade Organization (WTO) Memorize legal and institutional foundation of the trading system
- Administers trade agreements
- Negotiation platform
- Dispute settlement and policy reviews
-
| IMF | World Bank | WTO | |
|---|---|---|---|
| Core mission | Stability of the international monetary system (exchange rates and payments) | Reduce poverty and support environmentally sound growth in developing countries | Legal and institutional foundation of the multilateral trading system |
| Main tools | Forum for cooperation; surveillance; temporary, conditional loans of foreign currency | Low- or zero-interest loans and grants; advice and know-how | Administers trade agreements; negotiation platform; dispute settlement; trade-policy reviews |
| Origin | Post-war monetary conference (1944) | Same conference | 1995, replacing the General Agreement on Tariffs and Trade (GATT, 1947), which covered goods only |
| Investor angle | Contains country and systemic crisis risk | Builds the institutions and infrastructure markets need | Rules that make multinationals and global sector investing possible |
The International Monetary Fund
Memorize
The International Monetary Fund (IMF) exists to keep the international monetary system stable: the system of exchange rates and international payments that lets countries buy goods and services from each other. It does three things: it is a forum where members cooperate on monetary matters, it monitors members’ economies (surveillance), and it lends foreign currency to countries with balance of payments problems. Its wider aims include supporting trade, employment and growth, but its core mandate is the stability of the monetary system.
The lending is temporary and comes with policy conditions, such as fiscal consolidation or reforms, plus monitoring. After the 2008 financial crisis it widened its lending facilities and sharpened its surveillance of financial-sector risks.
The World Bank
Memorize
The World Bank aims to fight poverty and promote environmentally sound growth in developing countries. It has two lending arms.
- The International Bank for Reconstruction and Development (IBRD) raises money in the bond market, where its top-rated bonds are cheap to fund, and lends at low rates to creditworthy developing countries.
- The International Development Association (IDA) gives interest-free loans and grants to the poorest countries.
It also shares advice and know-how. The things developing countries need are capable governments, sound legal systems, property rights, working financial systems and less corruption, which is why the Bank pairs money with institution building.
The World Trade Organization
Memorize
The World Trade Organization (WTO) is the only global body that regulates trade between nations. Its rulebook grew from the General Agreement on Tariffs and Trade (GATT), signed in 1947 and covering goods only. The WTO replaced it in 1995. The updated GATT still governs goods, a services agreement covers services, and the WTO also deals with intellectual property.
Exam tip Read the verb. Lends foreign currency in a crisis: IMF. Funds development: World Bank. Rules on a trade dispute: WTO.
Go deeper Why the post-war trade organization arrived 50 years late
Know the idea
The 1944 conference that created the IMF and the World Bank also planned a third body for trade. That plan was never put into effect, so the GATT, a set of rules negotiated in successive rounds, filled the gap. Only in 1995 did the trade body arrive, as the WTO, with a permanent institution and a formal dispute process.
Go deeper How IMF programs work in a debt crisis
Know the idea
When a government cannot finance itself, the IMF can lend against a program of agreed policy steps, released in tranches as the steps are met. The conditions can be unpopular because they usually involve tighter budgets, but they also reassure other lenders that the country has a plan, which can help it regain market access.
Memorize this
MemorizeIMF vs World Bank vs WTO
| IMF | World Bank | WTO | |
|---|---|---|---|
| Mission | monetary system stability | poverty reduction, development | rules of global trade |
| Tools | surveillance; temporary, conditional foreign-currency loans | low- or zero-interest loans and grants (IBRD, IDA); advice | trade agreements; negotiations; dispute settlement |
| Origin | 1944 conference | 1944 conference | 1995, replaced GATT (1947, goods only) |
Memory hook Money system: IMF. Development: World Bank. Trade rules: WTO.
Know it cold IMF loans are temporary and conditional. IBRD is market-funded; IDA is interest-free for the poorest. WTO covers goods, services and intellectual property.
- International Monetary Fund (IMF) Memorize stability of the international monetary system
- Forum for cooperation
- Surveillance of economies
- Temporary, conditional loans of foreign currency
-
- World Bank Memorize fight poverty, environmentally sound growth in developing countries
- IBRD market-funded, low-rate loans to creditworthy developing countries
- IDA interest-free loans and grants to the poorest
- Advice and know-how
-
- World Trade Organization (WTO) Memorize legal and institutional foundation of the trading system
- Administers trade agreements
- Negotiation platform
- Dispute settlement and policy reviews
-
How it is asked
-
Which body lends in a currency shortage?
A country cannot pay for imports for lack of foreign currency. Who gives temporary, conditional loans?
IMF. The World Bank funds development; the WTO sets trade rules.
-
Which body rules on a dispute?
Two countries disagree over whether a subsidy breaks a trade agreement.
WTO. Dispute settlement is its job.
-
Interest-free development finance
A low-income country wants interest-free funding for schools.
World Bank (IDA arm). The IMF is the trap.
Exam traps
- Giving the IMF poverty reduction as its core mission. The IMF's core mandate is monetary stability; poverty reduction is the World Bank's.
- Saying the World Bank regulates trade. The WTO does.
- Forgetting that IMF lending is temporary and conditional.
- Mixing up IBRD and IDA. IBRD lends at low rates to creditworthy countries; IDA gives interest-free loans and grants to the poorest.
Checkpoint
4 exam-style questions. About 90 seconds each.
1A country faces a sudden shortage of foreign currency and cannot pay for imports. Which body is most likely to provide temporary, conditional loans?
2Two countries disagree over whether one of them has broken an international trade agreement and ask a global body to rule on the dispute. The body most likely involved is the:
3A low-income country seeks interest-free financing to build schools. The body most likely to provide it is the:
4Which statement about these organizations is most accurate?
Key takeaways
- IMF: monetary stability, conditional foreign-currency loans, surveillance.
- World Bank: poverty reduction and development finance through the IBRD and IDA.
- WTO: global trade rules, negotiations and dispute settlement.
All Economics formulas, every lesson
Practice exam-style questions on Introduction to Geopolitics
Questions about this lesson?
Where this comes back
- Trading blocs: free trade areas, customs unions, common markets and economic unions International Trade
- Geopolitical risk and the four country archetypes Introduction to Geopolitics
Questions candidates ask
What is the difference between the IMF and the World Bank?
The IMF focuses on the stability of the international monetary system and lends foreign currency, temporarily and on conditions, to countries with balance of payments problems. The World Bank focuses on fighting poverty and supporting environmentally sound growth in developing countries through low- or zero-interest loans, grants and advice.
What does the WTO do?
The World Trade Organization provides the legal and institutional foundation of the multilateral trading system. It administers trade agreements, hosts negotiations, settles disputes between members and reviews their trade policies. It replaced the GATT in 1995 and also covers services and intellectual property.
Why does the IMF attach conditions to its loans?
Its loans are temporary support for a country with a balance of payments problem. Conditions, such as fiscal consolidation or reforms, aim to fix the underlying imbalance so the country can repay, and the IMF monitors progress against them.
Spotted an error? Tell us and we will fix it.