The whole history of civilization is strewn with creeds and institutions which are invaluable at first, and deadly afterwards.                       Walter Bagehot (1826-1877)

The international framework for development assistance that continues with almost no real changes until today was officially agreed between July 1944 and October 1947. The first piece of that institutional architecture was agreement by forty-four countries to establish the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) during the Bretton Woods Conference in New Hampshire (July 1-22, 1944).1 The second piece was the agreement by fifty countries to establish the United Nations during the Conference on International Organization in San Francisco (April 25 – June 26, 1945) while the third piece was the agreement of twenty-three states to abide with the draft terms of a General Agreement on Tariffs and Trade (GATT) on October 30, 1947. All of those entities were established largely at the initiative of American and British intellectuals and political leaders for purposes substantially different than many of the missions pursued today by those organizations, including the World Trade Organization (WTO) that has since January 1, 1995 served as the organizational expression of the GATT. This post focuses on the establishment of the IMF and the IBRD. Future posts will focus on the establishment of development-oriented United Nations’ specialized agencies and the inauguration of the Marshall Plan.

Precursor Programs (1941-1943)

The primary precursors of today’s development assistance architecture were the Lend-Lease program established in 1941 and the United Nations Relief and Rehabilitation Administration (UNRRA) established in 1943. Both of these were established as temporary agencies with no expectation that they would be continued much beyond the end of World War II. Lend-Lease initially provided for the transfer of food, machinery, war supplies, and services to China and the countries of the British Commonwealth, although it was expanded almost immediately to the Soviet Union and the “Free French.” The Lend Lease Act authorized the American President to sell, transfer, lend, or lease such goods and services and to establish the terms for such transfers.  Repayment could be –

in kind or property, or any other direct or indirect benefit which the President deems satisfactory.

By the time of its official termination in August 1945, total Lend-Lease commitments exceeded $ 606.60 billion in constant 2010 dollars (all dollar amounts are presented in constant 2010 dollars throughout the remainder of this post).

When UNRRA was established In 1943, the United Nations as we know it today did not exist. Although President Franklin Roosevelt had used the term “United Nations” in 1941 to describe countries fighting against the “Axis,” the first official use of the term was on January 1, 1942, when twenty-six states signed the “Declaration by the United Nations” committing them not to enter into any separate peace with the Axis Powers.

Although the Lend-Lease program was established to meet immediate needs faced during the War, UNRRA’s mission was to provide assistance to areas liberated from German, Italian, and Japanese occupation.2 About $40 billion of emergency assistance was disbursed through UNRRA, including financing of food and medicine, the restoration of public services, the revitalization of agricultural and industrial production, and, ultimately, the return of approximately seven million displaced persons to their home countries. By the time its functions were transferred to other newer United Nation’s specialized agencies in Europe (1947) and Asia (1949), fifty-two countries had participated in UNRRA’s programs. Of the total amount disbursed, approximately sixty-two percent went to the United Kingdom followed by the Soviet Union with about twenty-two percent. China, Czechoslovakia, Greece, Italy, Poland, the Ukrainian SSR, and Yugoslavia were the other primary recipients.

The most interesting aspect of the UNRRA experience was that it served as an organizational and financial model for future multi-lateral assistance agencies. More than half of UNRRA’s budget was financed by the United States, but the remainder was provided by other member-countries through financial subscriptions equivalent to two percent of their 1943 gross national incomes (GNI). As will be discussed in a future blog post with respect to the World Bank, financing through member-country subscriptions has been the primary way most international organizations have been financed since the end of World War II.

The Foundation of The Current System

The period between 1944 and 1947 differed from the present in two significant respects. First, in 1945 the international political status of the world’s peoples remained largely divided among those in independent and dependent territories. Second, as already discussed in The More Things Change: Development’s Colonial Heritage posted January 10, 2011, the economic landscape in 1945 was littered with post-World War II wreckage over which the United States dominated as a largely unscathed economic colossus, holding approximately ninety percent of the entire non-communist world’s official gold reserves and producing at least seventy percent of the entire non-communist world’s GNI. 

It was in that context that delegations representing almost all of the Allied anti-Axis countries convened at Bretton Woods to consider the establishment of the IMF and IBRD to provide short-term loans to sovereign-state governments when necessary to meet immediate international debt repayments and long-term investment capital to sovereign-state governments. Seventeen months later, on December 27, 1945, both organizations were officially established.3


Although the original objectives and membership of the IMF and World Bank have changed dramatically since 1945, the international balance of power existing at the end of World War II continues to be reflected in the Articles of Agreement of both organizations. In addition to both organizations being headquartered in Washington, D.C., members of both organizations adhere to the original tacit agreement that the President of the World Bank is always an American nominated by the United States’ Government and that the Managing Director of the IMF is always a European. Further, the United States and its current allies together still retain a majority of weighted voting rights within the IMF and World Bank.

The IMF and World Bank are organized and managed in similar ways. They are both membership organizations, the members of which are sovereign-states represented by their respective governments. Only member-states may serve as guarantors of any financing received by their governments or other entities within their jurisdiction. Both organizations assign weighted voting shares to their indivudal sovereign-state members proportional to the number of “Quotas (IMF) or “Shares” (World Bank) assigned to them. The IMF and World Bank are each governed separately by their own Board of Governors consisting of senior serving officials of member-state governments. These Boards normally meet only once a year during joint IMF/World Bank Annual Meetings. The on-going governance of both organizations is delegated to resident Executive Directors, a few of whom are appointed by countries that have sufficient voting rights to cast their own whole vote, one or two others who choose to be represented full-time even though they have only a partial vote, and the remainder elected by a combination of member-states that together have the equivalent of approximately one vote.


Despite similarities, there are substantial differences between the IMF’s and IBRD’s purposes, organizational arrangements, and operational procedures. 

International Monetary Fund

As clearly laid out in the IMF’s Articles of Agreement,” its purpose is not “development;” nor is that its main purpose today. Rather, it was established to facilitate the balanced growth of international trade through the maintenance of market-determined currency exchange rates and balance of payments among trading partners. Its primary mechanism for achieving those objectives was the provision of short-term loans to governments in countries not able to pay their immediate foreign currency denominated international debts. Why was this viewed as important during 1944 and 1945? 

By 1944, the United Kingdom and the Soviet Union alone had already accumulated a Lend-Lease debt of $384.7 billion and $136.5 billion respectively. More than $86.9 billion had been borrowed by China, France, and other countries of the British Commonwealth under Lend Lease and another fifty-two countries had borrowed an additional $49.6 billion from UNRRA. World War II had devastated European and Soviet economies. Their own currencies were worth even less in 1944 than they had been in 1939. By normal market standards, those currencies had no real value internationally at all. So how could the victorious European countries be reasonably expected to get their hands on sufficient amounts of United States’ dollars to pay back both current and projected debt while also financing imports of both capital and consumption goods? Institutionalizing an organizational mechanism to meet those requirements was the immediate issue that the IMF was expected to address when created in 1945.

But the founding members of the IMF were concerned not only with that immediate short-term problem. They also recognized that maintaining balance within the global international trading system over the longer term could not reasonably be expected under the conditions prevailing at the end of World War II. The need to smooth-out short-term international currency shortfalls and maintain stable international exchange rates was perpetual. Responsibility for responding to those longer range issues was also assigned to the IMF.

Powers of the IMF. Most founding members of the IMF and World Bank viewed the former as more important for international peace and stability than the latter. The IMF’s assigned responsibility to “oversee the international monetary system” was extremely comprehensive. As outlined in the IMF’s Articles of Agreement

In order to fulfill its functions.., the Fund shall exercise firm surveillance over the exchange rate policies of members…. Each member shall provide the Fund with the information necessary for such surveillance…. The Fund may determinethat international economic conditions permit the introduction of a widespread system of [currency] exchange arrangements based on stable but adjustable par values [Article IV]…. A proposed par value shall not take effectif the Fund objects to it…[Schedule C]. 

The primary mechanism for surveillance are “Article IV Consultations” normally conducted every year with each member-state to assess whether or not –

a country’s economic developments and policies are consistent with the achievement of sustainable growth and domestic and external stability.

The original intention was that Article IV Consultations would focus exclusively on a country’s –

exchange rate, fiscal, and monetary policies; its balance of payments and external debt developments; the influence of its policies on the country’s external accounts; the international and regional implications of those policies.

However, such consultations have been expanded to include –

all policies that significantly affect the macroeconomic performance of a country, which, depending upon circumstances, may include labor and environmental policies and governance…; [as well as] capital account and financial and banking sector issues… [and] the identification of potential [international financial] vulnerabilities

Penalties made available to the IMF to punish member-states that pursue exchange rate policies not approved by the Fund are potentially draconian — equivalent to being “cast-out” into the international financial wilderness. Article XXVI provides for a three-step sequence of actions: (1) suspension from access to loans; (2) suspension of voting rights; and (3) expulsion from the IMF itself. And again, if expelled, what then? Article XI is clear enough –

Each member undertakes (i) not to engage inany transactions with a non-member or with persons in a non-member’s territories which would be contrary to the provisions of this Agreement or the purposes of the Fund; (ii) not to cooperate with a non-member or with persons in a non-member’s territories in practices which would be contrary to the provisions of this Agreement or the purposes of the Fund; and (iii) to cooperate with the Fund with a view to the application in its territories of appropriate measures to prevent transactions with non-members or with persons in their territories which would be contrary to the provisions of this Agreement or the purposes of the Fund.

According to Chittharanjan Felix Amerasinghe, the expulsion power has only been used once against Czechoslovakia in 1954 for failing to provide data requested by the Fund. That action followed Czechoslovakia’s explusion from the World Bank for non-payment of its authorized share capital that same year. And although attempts to expel Zimbabwe have been under consideration for years, no action has yet been taken. But when those powers were first authorized for the IMF in 1944, the objective was to ensure compliance of members in future — it had no history at that point. And it is clear that the objective of establishing and maintaining stable exchange rates linked to the needs of international trade were of sufficient importance to the founding members to provide for those previously unheard of powers by the IMF; powers that it still has today. And it is likely that Article XI reinforced the “Iron Curtain” separating the United States and its allies from the Soviet Union and its allies into not only different political camps but into distinct financial and economic camps as well. Indeed, it is likely that the Soviet Union did not become a member of the World Bank in 1945 because it was not willing to accept the IMF’s powers to interfere in its internal monetary affairs. And membership in the IMF is a pre-condition for membership in IBRD even though membership in the Bank is not required to join the IMF. Finally, it is important to keep in mind that the governments willing to accept the extensive powers of the IMF in 1945 were substantially more like-minded than is the case today. Almost all of those countries shared similar political cultures and basic premises about their national interests.

Financing the IMF. The IMF’s primary source of financing are “Quotas;” which consist of the capital subscriptions paid by each member-state revenues generated from the investment or use of Quotas. A member-state must pay its entire subscription in full; a major difference from the way the IBRD is financed. At the time the IMF was created, the requirement was that twenty-five percent of the subscription was payable in gold pegged to the United States dollar with the option of paying the remainder in the member-state’s own currency; although the requirement for payment in gold was abandoned in 1978.4 

Poverty Reduction.  Given those international trade and monetary objectives, why is the way the IMF was organized in 1945 important for the way attempts to reduce poverty within developing countries is implemented today?  There are at least two important reasons. First, the IMF was provided with substantial powers to intervene in the internal decision-making of its sovereign member-states – even though at that time those powers were limited essentially to currency exchange rate policies. Second, those powers were carried forward when the IMF expanded its limited original role to the fundamental reform of domestic economies (late 1970s) and, more recently, policies directed to the reduction of poverty (late 1990s).

World Bank

When established, the IBRD was viewed as having a relatively limited mandate. For economic and financial matters, Keynes clearly viewed the IMF as substantially more important; one of the reasons why membership in the fund is a pre-requisite for membership in the bank but not the other way round. It certainly was not the dominant organization in the development assistance arena; indeed there was no such thing in 1944 or during the years immediately following World War II. And no one envisaged anything like today’s “World Bank Group” consisting of five distinct organizations: (1) IBRD; (2) International Finance Corporation (IFC,1956); (3) International Development Association (IDA; 1960); (4) International Centre for the Settlement of Investment Disputes (ICSID, 1966); and (5) Multilateral Investment Guarantee Agency (MIGA, 1988). Each of those five organizations are governed according to their own Articles of Agreement (IBRD, IFC, and IDA) or Conventions ICSID and MIGA). Indeed, the designation “World Bank” has never been formally adopted; instead it is the result of evolving usage and is most often limited to the IBRD plus IDA.   

With specific reference to IBRD’s Articles of Agreement, its purpose is to —

 (i)   …assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes….

(ii)   …promote private foreign investment by means of guarantees or participations in loans and other investmentsand…supplement private investment…for productive purposes out of its own capital, funds raised by it and…other resources. 

(iii) …encourage[e] international investment in the productive resources of members, thereby assisting in raising productivity, the standard of living and conditions of labor in their territories. 

(iv) …arrange…loans made or guaranteed by it…so that the more useful and urgent projects, large and small alike, will be dealt with first. 

(v) …conduct its operations with due regard to the effect of international investment on business conditions in the territories of members assist in bringing about a smooth transition from a wartime to a peacetime economy. 

It is clear that almost all of the early advocates of the proposed international investment bank viewed reconstruction – the “R” in IBRD — as the “more useful and urgent” and, therefore, that it should “be dealt with first. Development was clearly intended to take a back seat during the years immediately following World War II, much to the dismay of the Latin American counties. But it is important to remember, as was discussed in The More Things Change: Development’s Colonial Heritage, that “development” was understood to mean improvement of the infrastructure required for efficient extraction of raw materials rather than today’s emphasis on macro-economic growth and the reduction of poverty.

Powers of the World Bank.  The IBRD was invested with nothing like the expansive powers assigned to the IMF. IBRD’s Articles include no provisions analogous to the IMF’s powers to “oversee the international monetary system or to “exercise firm surveillance” over the economic policies or investment decisions of its member-states. Nor is it suggested anywhere that economic policy or investment decisions not financed by the Bank are subject to approval by it. Nor are there any Articles specifying the “General Obligations of Members,” restrictions on the relations between member and non-member states, or compulsory withdrawal (with the exception that if a member-state of the World Bank ceases to be a member of the IMF, its membership in the Bank automatically ceases after three months). Although the Bank may “suspend” a member, it does not have the IMF’s power to expel. Thus, a member of the Bank may be expelled only if that action is taken by the IMF. And finally, while the IMF was clearly empowered to interfere in the financial and economic policies of its member-states, the Bank was explicitly prohibited from doing so:

The Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned.

Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes stated in Article I” [Article IV]. 

The closest the IBRD’s Articles come to providing authority to intervene in the domestic affairs of member states is the provision that –

the Bank shall make arrangements to ensure that the proceeds of any loan are used only for the purposes for which the loan was granted, with due attention to considerations of economy and efficiency and without regard to political or other non-economic influences or considerations [Article III]. 

That provision to “make arrangements to ensure…” has been interpreted to allow continuing “supervision” of activities financed by its loans. And that has ultimately served as an effective instrument for the World Bank’s direct involvement in the economic policy and investment decisions of its member-states. 

Financing IBRD.  The primary difference between the manner in which the IMF and IBRD are financed is that the Bank’s member-states are not required to pay-in the full amount of their capital subscriptions. Rather, the overwhelming bulk of IBRD’s resources come from its borrowing in private sector financial markets, the collateral for which are the guarantees represented by the unpaid capital subscriptions of its member-states.

Summary Conclusion

The first IMF and IBRD loans were made to France one day apart on May 8th and May 9th 1947 respectively. The transition by IBRD from a primary focus on “reconstruction” to “development” and subsequent redefinition of “development” is discussed in several forthcoming blog posts. Suffice it to state here that today’s world is substantially different than it was when the World War II allies gave birth to the IMF and IBRD in 1944. Clearly, the Articles of Agreement of both organizations have been sufficiently flexible to allow for the many adaptations deemed necessary over the last half-century. But the core institutional architecture created those many years ago still dominates the process through which international development assistance is provided today.     



[1]  The IMF’s Articles of Agreement have been amended only four times since first adopted at the United Nations Monetary and Financial Conference (Bretton Woods, New Hampshire) on July 22, 1944 while IBRD’s Articles, also adopted on the same date at the same Conference, have been amended only twice. The IMF’s amendments are: (1) effective July 28, 1969 to introduce Special Drawing Rights (SDRs) as the Fund’s unit of account of the Fund; (2) effective April 1, 1978 that completely rewrote Article IV to promote a “stable system of exchange rates” through “firm surveillance” by the IMF over each member’s exchange rate policies; (3) effective November 11, 1992  to suspension of voting and other membership rights for members that do not fulfill financial obligations to IMF; and (4) effective August 10, 2009 to expand the Investment Authority of the International Monetary Fund to allow all members to receive an equitable share of cumulative SDR allocations. See IMF Chronology: IMF Evolves in Response to Over Half a Century Of Challenge and Change available at http://www.imf.org/external/pubs/ft/survey/sup0998/14.htm and, for the first two amendments, James Boughton, Silent Revolution: The International Monetary Fund 1979–1989 (Washington, DC: The International Monetary Fund, 2001) available at http://www.imf.org/external/pubs/ft/history/2001/front.pdf. IBRD’s amendments are: (1) effective December 17, 1965 to allow loans from IBRD to the IFC in support of IFC’s own lending program loans and (2) effective February 16, 1989 to change the percentage of votes required to settle a disagreement between the Bank and any of its members from 85% to 80. For 1965 amendment to Article IV, see http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK:20049603~pagePK:43912~menuPK:58863~piPK:36602,00.html and for 1989 amendment to Article IX  http://go.worldbank.org/XKTZCBVRE0

[2]  George Woodbridge et al, UNRRA: The History of the United Nations Relief and Rehabilitation Administration, 3 volumes (New York: Columbia University Press, 1950).

[3]  The requirements for the official establishment of the two organizations were different. In the case of the IMF, 80% of Quotas assigned to the initial group of forty-five countries expected to join were required to be subscribed (including an 18% share to the Soviet Union that, in the event, did not join). That was not expected to be a problem since the Quotas assigned to the United States and United Kingdom alone equaled 58% of the total required (39% and 18.5% respectively). For IBRD, the signature of countries holding only 65% of assigned Shares was required. And again, the United States and United Kingdom alone were together assigned 49% of those required shares.

[4]  See Tamir Agmon and Robert Hawkins (eds), The Future of the International Monetary System (Lexington, Kentucky: Lexington Books, 1984) and Robert Hormats, Reforming the International Monetary System: From Roosevelt to Reagan (New York: Foreign Policy Association, 1987).

Keywords:  Allies, Axis, Bretton Woods Conference, British Commonwealth, China, Conference on International Organization, Czechoslovakia, Declaration by the United Nations, development, France, Franklin Roosevelt, Free French, GATT, General Agreement on Tariffs and Trade, Germany, Greece, IBRD, ICSID, IDA, IFC, IMF, IMF Quotas, International Bank for Reconstruction and Development, International Centre for the Settlement of Investment Disputes, International Development Association, International Finance Corporation, International Monetary Fund, Italy, Japan, Lend-Lease, Marshall Plan, MIGA, Multilateral Investment Guarantee Agency, Poland, reconstruction, San Francisco Conference, Second World War, sovereign-states, Soviet Union, Ukrainian SSR, United Kingdom, United Nations, United Nations Relief and Rehabilitation Administration, UNRRA, United States, USSR, World Bank, World Bank Shares, World Trade Organization, World War II, WTO, Yugoslavia.


  1. Greg says:

    I’m a policy wonk myself (who studied and writes about international development) and glad I’m not the only one out there who writes really long pieces that try to inform people!
    I also know how long it takes to write them, nice job.

  2. Barbara Thompson-Snow says:

    Ah history. I particularly like the leading quote (over 100 years ago) from Walter Bagehot, “The whole history of civilization is strewn with creeds and institutions which are invaluable at first, and deadly afterwards.”

  3. Phillip LeBell says:

    I have used material like this in several courses over the years, and can now add this to the Comparative Economic Systems course I am currently teaching down here at SU this spring. One consideration not so clear in this exposition is the impact of the Great Depression and the Second World War on international capital flows. While the Bank was first created to deal with reconstruction in war-ravaged Europe, its mission soon morphed into that of an international development institution. The notion was that private capital flows had simply evaporated in the aftermath of the two major events, and that public international financing would be necessary not just to strengthen economic and political governance, but also to stimulate private capital flows. All of that got caught up in the rhetoric of the Cold War, but with the end of the Soviet Union in the 1990s, the question then became, and still is, whether the World Bank, and the IMF in turn, can still serve any useful purpose. As the recent recession reminds us, capital flows can always turn to flight in the presence of a crisis, which leaves open whether the WB-IMF are the most appropriate institutions to provide the equivalent of economic stimulus in the presence of an economic downturn. As the EU now moves to establish an emergency central bank funding mechanism to ward off currency runs, as evidenced by the fear over the stability of Greece, then Portugal, and then Spain, in the EU, that fund takes on the equivalent functions of the IMF for Europe, much as one might expect in any case to occur. Elsewhere, the model of publicly funded developmental institutions comes under scrutiny when we take into consideration how so many countries in Asia emerged without any significant role played by the World Bank and IMF. In short, we are looking at economic and political sclerosis without any clear articulated set of alternatives, even though such alternatives do exist.

  4. Chris Nixon says:

    The formation of the Bretton Woods Institutions – World Bank, IMF and subsequently GATT (along with the reasons for its delay until 1948), the latter being subsequently transformed to WTO plus the effective torpedoing of the IMF core role by floating the USD and subsequently the IMF becoming the main advocate of the `Washington consensus’ should be mandatory reading for any development professional. It is a sobering perspective on exactly what AID is and who it is intended to benefit, and how.

  5. Thanks Jerry, a really interesting look into the history of these institutions. I wrote extensively on the impact of their bailout ‘policies’ vis-a-vis nationalism. Take a look at the following excerpt if you’re interested.


    • I agree that with your post — nationalist sentiments are often provoked by austerity programs. But that is a complicated issue depending on the country — in fragile states, the nationalism that might arise is the kind that says “my people, tribe, clan, ethnic group whatever” ought not to be responsible for debts that you guys from another group who happen to occupy the Government ran up and profited from.

  6. Signe Hermann says:

    They’ve changed their policies quite a few times as things turned out not to work, though

  7. Jerry Silverman says:

    I see that you have spent time in two of my favorite countries. Hope you are both enjoying it and learning much.

    I agree to some extent. The IMF and World Bank have added new programs over the years and reorganized and relabeled what they do several times as well. But as I will try to illustrate in several forthcoming blog posts that point out many of those changes, the core business of the WB has not changed fundamentally — the only real changes were changing the notion of “development” from infrastructure development to poverty reduction during the 1970s (although actual operations and projects didn’t change much), changing from projects to structural adjusment (now “policy-based” lending) beginning in the 1980s, and the more cosmetic than real change to governance and public sector management more recently. Beyond that, their core “business” both substantively and methodologically remains much the same — bigger is better and supply-driven.

  8. Gladys Jepchirchir says:

    The establishment of the Bretton Woods system that led to the establishment of the International Monetary Fund (IMF) and the World Bank is the major cause that development in Africa can not be attained.This is because the 1980s Structural Adjustment programmes came with conditions that countries were to follow in order to attain aid.For example the case of subsidies.How will a country develop without subsidies?.During the summit of Heads of State and government at United Nations (UN) Headquarters in New York Malawi President Bingu Wa Mutharika argued that Malawi could not work without the maize subsidies thus this applies to the whole of Africa .The African states should ensure that its citizens are provided with various subsidies be it in health,agriculture or any sector .Thus this will loosen their dependency on aid and international communities and be able to sustain themselves.

  9. […] and differences, The UN System and the WBG 40s to 50s, The UN System and the WBG 60s to 70s, establishing the World Bank and the IMF and history matters growing the UN and its specialised agencies. (There may be others, do search […]

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