The upcoming discussion will update you about the objective and functions of I.M.F and I.B.R.D.
1. Period of Loan:
The International Monetary Fund provides medium-term loans to the developing member countries for a period of ten years; where-as the World Bank offers long-term loans for developing countries for a period of fifty years.
2. Purpose of Loan:
ADVERTISEMENTS:
The main purpose of loan provided by I.M.F. is to promote exchange stability and to make the balance of payments deficits; where-as the I.B.R.D. provides loans to developing countries for reconstruction and development by facilitating the investment of capital for productive purpose mainly to develop the infrastructure for the development.
3. Parties of the Loan:
I.M.F. provides loans only to the governments of member countries which have subscribed their quota as fixed by the fund; from time to time in terms of S.D.Rs. (Special Drawing Rights) and members over currencies. No other party except the member Government is authorised to borrow from the fund.
The I.B.R.D. (World Bank) on the other hand may advance loans to Governments or to any of their political sub-divisions or even to private business or agricultural enterprises in the territories of members. If it is not a loan to the Government the Bank asks the member Government to guarantee the repayment of loan. But I.B.R.D. meets only the foreign exchange component-of the project.
ADVERTISEMENTS:
4. Terms of the Loan:
I.M.F. as a creditor institution has always insisted upon fulfillment of certain conditions by the debtor countries. Thus, I.M.F. loan is on stringent terms and it insists always on an agreed programme of action to eliminate within a reasonable time all the causes responsible for the dis-equilibrium in the balance of payments. There is no such conditionality clause in I.B.R.D. Loan.
5. Levies service charges and high rate of interests:
The IMF advances loans to member countries and levies service charges at 0.5 per cent on purchase of currencies other than purchases from reserve bank tranche. In addition, fund levies charges on balances of member currencies determined every year. Loan from I.B.R.D. bears a high rate of interest. Its rate of interest is 1/2 to 1 per cent above the cost of borrowing during the preceding six month but is below the market rates.
ADVERTISEMENTS:
6. Borrowings not from Other Resources:
I.M.F. advances loans to member countries only out of the fund’s own resources. It does not borrow money from other sources. But I.B.R.D. lends fund directly either from its own resources or from the funds it borrows from the market. The I.B.R.D. may guarantee the loans advances by other or it may participate in loans where as I.M.F. cannot do so.
It neither guarantees nor does it contribute to the capital of private or other institutions. Thus these two international lending institutions aim at assisting the developing countries. I.M.F’s. main function is to stabilise the exchange value of currencies and meet the balance of payments problems where as I.B.R.D. advances loans for the development programmes in member countries mainly to develop infrastructural facilities. It lends to member country Governments or to any private firm on the guarantee of the Government of that country.