The changing relationship between the World Bank and the International Monetary Fund

The World Bank and the International Monetary Fund have been bedeviled since their common creation over how to define their areas of specialized competence and how to interact in areas of overlapping jurisdiction. The multiple shocks that have destabilized the global economy over the last two decades have stimulated the Bank and Fund to alter fundamentally their programs and approaches, often without fully taking into account their relation to the work of the other Bretton Woods agency.The Fund's traditional focus on short-term stabilization, correcting external account imbalances, and fighting inflation, contrasted with the World Bank's provision of long-term funds for investment in capital-intensive projects. But more recently, with the establishment of the IMF's Extended Fund Facility and the Bank's structural adjustment lending, both institutions share the objective of adjustment with growth, and each claims some responsibility for an extremely wide range of policy instruments. The new Structural Adjustment Facility, in particular, has the potential to link more tightly decision-making on Fund stand-by arrangements and Bank structural adjustment lending, increasing the probability of new forms of cross-conditionality—termed here consultative cross-conditionality, interdependent cross-conditionality, and indirect financial linkage.The Bank and Fund need to find ways to better delineate and manage their new relationship. Problems that should be addressed to do so include proper modes of collaboration between Bank and Fund staff, issue specialization, the avoidance of piling on excessively detailed performance requirements, and decisions on ineligibility. Enhanced cooperation between the Bank and Fund can not only produce more coherent adjustment programs, but can also help to mobilize other sources of official and private capital.