December 27 In History: The Founding Of The World Bank Inviting Pros And Cons

Illustration (Unsplash)

JAKARTA - International financial institutions such as the World Bank (WB) have long been considered the strongest agents of economic reform in the world. Apart from that, this institution is also believed to have played an important role in determining the fiscal parameters of public policy. So, how is the history of the establishment of the WB that invites pros and cons?

As quoted by the official WB website, the World Bank was founded on December 27 today, 75 years ago or in 1945. The WB was established based on international ratification or an international agreement that was held on July 1-2, 1944 in the City of Bretton Woods, United States. Therefore this consensus is also called the Bretton Woods agreement.

The Bretton Woods Conference underlies the history of the WB, which is now headquartered in Washington DC. This high-level meeting was attended by delegations of 44 countries, but the ones that played the most role in negotiating its formation were the US and Britain.

WB is driven by an ambitious mission: to eradicate poverty worldwide. They do this by providing money and technical expertise to developing country governments.

The governments of these countries then use this support to strengthen their national economies and improve the living standards of their citizens.

Not a few people feel how difficult it is to get a loan if they don't have enough capital to be used as collateral for the loan. Poor and developing countries also experience the same problem. That's what the WB was created for.

Even though individually no one can save money or withdraw money from the WB, its function remains the same as a bank in general. What distinguishes it is that WB targets countries as consumers.

In Indonesia, the WB took hold in 1967. As of January 1998, the total disbursed assistance had reached 23 billion US dollars.

The difference with the IMF

People sometimes confuse WB with other international financial institutions, namely the International Monetary Fund (IMF), which both stood at the Bretton Woods Conference. Then what's the difference?

Although the functions of the IMF are complementary to the functions of the WB, both are independent bodies as an organization.

The WB provides assistance to developing countries, while the IMF is responsible for ensuring the stability of the international monetary system. The system regulates international payments and exchanges between various national currencies.

The IMF aims to avoid a crisis in the system by encouraging countries to adopt a solid monetary system. In addition, the IMF also provides funds that can be utilized by its members who need temporary financing to overcome balance of payments problems.

Critics

Apart from the positive role of the WB in the development of developing countries, the presence of this institution has also not escaped criticism. This loan and care from international financial institutions seems to make them the saviors of the recipient countries. However, to borrow a term in the Guardian report (2016) quoted by Indoprogress, it is nothing more than a ridiculous "cosmetic" bandage of development.

Providing financial assistance has consequences. Among other things, borrowing countries must complete a list of policy reforms that are often painful and aim to balance the budget, so that the process of repaying capital and loan interest can run smoothly.

According to Indoprogress' study, borrowing country governments often do not have a strong enough influence on the preparation of loan documents. Likewise, the influence of civil society is still very limited in the substance of the policy documents that must be agreed upon.

Whereas the implementation of WB strategic policies which are a prerequisite for borrowing greatly influences government policies and has a direct impact on people's lives. This intervention gives the WB and IMF strong authority over governments around the world which are directly related to public rights.

The report of the United Nations Children's Fun (UNICEF) entitled Adjustment with a human face (1987) even explains that policy reforms promoted by international financial institutions do not always bring improvement. On the contrary, it is very detrimental to the group of countries receiving aid.