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Arguably, many good things are done at the IMF and the World Bank. The institutions provide international public goods, such as high quality research, valuable databases, and technical assistance to its member countries. However, since 1944— when 45 countries gathered in Bretton Woods and agreed to establish the IMF and the World Bank—many things have changed in these institutions. Some of these changes are for better, some for worse. The IMF initially was responsible for promoting balance of payment stability and supervising economic policies of its member-countries. The World Bank was chartered to promote long-term development of its members.
Today, the division of labor between the institutions is rather blurred. After the collapse of the fixed exchange rate regime in 1973, the IMF started to grant long-term loans, over time, increasingly for structural adjustment. It became a development institution that it was not meant to be at Bretton Woods. The World Bank increasingly provided budget support rather than financing specific projects. As a consequence, two institutions are being involved in the same business. In the beginning of the 1980s, countries could for a short time choose between the IMF and the World Bank when applying for money. Obviously, this was not in the interests of the institutions. To avoid competition, the Fund and the Bank started to cooperate on lending decisions. Today, consequently, Fund missions usually involve Bank staff, and the other way round. This practice is ineffective. None of the institutions has to take full responsibility for the outcome of the credit programs, distorting incentives. There are two options. First, the Fund and the Bank could compete for the best concepts rather than forming the lending cartel that they represent today. Second, they could be merged into one institution. If they act as a cartel anyway, overhead could be spared.
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