International Finance Institutions: Leading Fight Against COVID-19


SEATTLE, Washington — International finance institutions play a pivotal but often overlooked role in managing the global economy. These institutions provide loans, fund projects and manage financial arrangements across borders. The onset of the COVID-19 pandemic has fundamentally altered economic activity and threatens to overwhelm even the most developed countries. Meanwhile, shrinking growth margins and capital flight signal the collapse of economies of developing countries. In this unprecedented time, international finance institutions have mobilized billions in financial resources to preserve the strength of the global economy.

International Monetary Fund (IMF)

Created after the end of World War II, the IMF is an institution designed to promote international monetary stability by providing emergency loans to disadvantaged countries. Typically, loans are only granted after a lengthy approval process and administered alongside strict ethical and categorical guidelines. The organization operates through a web of financing arrangements with member countries, private organizations and international institutions.

COVID-19 presented a formidable challenge to the IMF, as lockdown policies and closing markets forced many countries to request rapid assistance loans. By May, more than 100 countries had requested IMF loans, leading the institution to announce that it would tap its $1 trillion lending capacity in order to adequately respond to the COVID-19 pandemic.

While IMF loans are commonly intended to coincide with structural economic reforms or austerity measures, the situation has necessitated a shift to rapid assistance loans. Other actions taken by the IMF have provided debt relief to 29 countries classified as “low-income countries,” increased funding for the Poverty Reduction and Catastrophe Containment trusts and created a short-term Liquidity Line for member countries.

World Bank

Owned by its 187 member countries, the World Bank is an international development organization that offers grants, loans and financial products to its client countries. Operating primarily through subsidiary organizations or regional financing entities, the World Bank seeks to reduce poverty BY funding projects and improve the standard of living in low-to-middle income counties.

Unlike the IMF’s primary focus on economic restructuring, the World Bank is more of an outlet to finance development projects. For low-income countries unattractive to investors, the World Bank may be the only outlet for reliable financing.

The novel coronavirus has created an unprecedented demand for project financing, leading the World Bank to mobilize over $160 billion for COVID-19 related projects in the next 15 months. While ordinary World Bank projects concern infrastructure or market development, COVID-19 financing is focused on increasing hospital capacities, improving vaccine distribution networks and providing PPE supplies and training to health officials. The organization also plans to administer net transfers worth $50 billion to low-income countries, provide financial support for private interests, create preparedness trust funds for future outbreaks and promote Pandemic Bonds in order to attract investors. The World Bank has responded quickly to the pandemic, funding emergency operations in more than 100 countries as of May 19.

Multilateral Development Banks (MDBs)

A diverse subset of international finance, MDBs typically function as specialized lending entities appertaining to a particular region or issue. While the World Bank remains the most influential MDB, the other significant players include the Asian Development Bank, the African Development Bank, the Inter-American Development Bank and the European Bank for Reconstruction and Development. Issue-related entities include the Asian Infrastructure Investment Bank and the International Fund for Agricultural Development, among others.

Together, these institutions have committed to providing approximately $80 billion for coronavirus-related projects over the next 15 months (excluding the $160 billion promised by the World Bank) and plan to tap lending capacities across the board. Despite lacking the funding of the World Bank and IMF, MDBs are unique in their ability to provide more specialized services in accordance with the cultural and societal norms of their region. Additionally, they are better equipped to work in tandem with existing regional or political associations like ASEAN and the EU.

Trends and Conclusions

A report by the Congressional Research Service (CRS) concluded that international finance institutions are “mobilizing unprecedented levels of financial resources to support countries responding to the health and economic consequences of the COVID-19 pandemic.” This statement seems to ring true thus far, as funding commitments and project approvals have soared.

However, it is clear that more action is needed. The World Food Program warns that people suffering from acute hunger could double by the end of 2020 unless an appropriate international response is coordinated. Meanwhile, jobs, capital and investment continue its downward trends across the developing world. Recognizing the threat, international finance institutions are considering measures that provide funds to boost the reserves of developing countries, as well as extending debt relief and transparency efforts.

These proposals have wide-ranging implications for the future of international commerce. Instead of economic aid led by foreign superpowers or regional blocs with political agendas, international finance institutions implement a response guided by utilitarianism and the betterment of the whole. As the COVID-19 pandemic has demonstrated the potential consequences for an increasingly globalized world, a unifying global response through international finance institutions could provide a counterargument for its benefits.

Looking Ahead

With a continually changing global crisis like the novel coronavirus, it is impossible to determine whether the response from international finance institutions will be enough to save the global economy. Despite this uncertainty, it is clear that these organizations have provided a lifeline for developing countries struggling to contain the disease.

—Matthew Compan
Photo: Flickr


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