World Financial Crisis, Global Recession and the role of Twin institutions viz; The World Bank and the IMF.

World Financial Crisis, Global Recession and the role of Twin institutions viz; The World Bank and the IMF.


The world is in financial turmoil and the global economy is in recession. Economic slowdown, Unemployment, Loss of income, Erosion of confidence in the leadership and regulatory system are the results. Because of the inter-linkages of various economies, the contagion effect is faster and the resilience of individual economies has limitations. This has adversely affected both the developed and developing economies. In US and other developed countries the financial sector crisis got passed on to real sector and in some developing countries like India the real sector crisis gets passed on to the financial sector. Fiscal and monetary measures taken by various Governments and Central banks of different countries have not helped to tide over the crisis. Situation is worsening day by day and the fear of facing a depression comparable to that of 1930 world depression is being talked around. Is it so bad and really unmanageable as is made out to be? The conditions in 1930 and the present conditions have no comparison what so ever taking into consideration the developments witnessed in the world’s political, economic, social and technological scenario particularly during the last four decades.

The present days problems are basically man made and have come out of greed. The financial system which is to provide only a supportive role to the real sector is unfortunately allowed to take a lead and the result is there for all to see and experience now. In the name of innovations under the guise of Risk Management several exotic financial products were introduced and encouraged without examining the essentiality of such products and ensuring adequate regulatory system so that the products really served to support the real sector and emerged as something to be proud of. On the contrary the so called innovative financial products vanished from the scene without any trace leaving the real sector in doll rums .The problem in the real sector is a reality now and nobody knows how to come out of it. The reasons for 1930 depression and present day recession are therefore strictly not comparable although the results are more or less same.

The failure of regulatory system and the lack of initiatives from the world renowned institutions like the Word bank and the IMF who have played a key role in reconstructing the world economy from the devastations of the 1930 depression and the world war, have in a way contributed to the present state of affairs. The twin institutions with their expertise and knowledge of the economic and various other conditions of different countries could have visualized the dangers the world was facing the moment symptoms appeared in the US and come out with some concrete measures to prevent the present world crisis. They could and should have played a pro active role and initiated measures to sustain the growth momentum in some of the developing countries particularly the BRIC group which has the potential to support the world economy in its present crisis. Billions and billions of dollars have been spent and earmarked by various central banks and governments to bail out their respective economies and financial systems, but there are no indications of any tangible outcome as production of real goods and related services have come to a stand still or declined considerably may be due to lack of effective demand from developed countries in particular. There is basically crisis of confidence every where and this is where these two institutions have to take the lead and resolve the crisis. This is the time for these world level institutions to muster resources, identify the gaps and potentials for real sector development taking the positive sides of linkages of integrated economies. This is the best opportune moment to transfer technology and technocrats from advanced countries to developing and underdeveloped countries to develop the very essential infrastructure in these countries which can sub serve the needs of even the developed countries. Such a measure will help to solve the unemployment problem in the developed countries and at the same time take care of employment of huge human resources scattered all over the world. Some of the specific areas where these twin institutions have to seriously think and be pragmatic in solving the present global crisis are as under.

Physical infrastructure.
Development, upkeep and modernization of infrastructure like public transport system i.e; land, air and water particularly in underdeveloped regions, developing nations and including developed nations should be taken up on top priority basis seeking cooperation of all. Similarly other infrastructure like generation of electricity, provision of shelter and clean drinking water to the whole population of the world irrespective of the region where they belong to will go a very long way in arriving at some solution for the present crisis and the whole world would become a lovely place to live and enjoy. There are about 185 countries in the world and they are in different stages of economic development and some countries for no fault of theirs suffer for want of some basic needs for their human race to survive. This is the best opportune moment for all to join together and come to the rescue of the human race who suffers for no reason of their own. Development of all possible physical infrastructure will automatically increase the demand for money, men and materials and help transfer of best technology of the world to places where they are needed. Monetary resources have to be found from through out the world and this is not the time to be commercial minded and self centered. World Bank and IMF can take the lead and with the cooperation of all countries, the present crisis can/should be easily overcome for the benefit of mankind in any part of the world.
Social infrastructure:
This is another area, where world attention is called for. Education, health, general living standards, social systems, customs, civilization, culture, ethics and values etc vary from country to country impeding the economic progress. World Bank and IMF can take some initiatives to identify the problems in different countries and take some pro active measures to improve the living standards particularly in developing and undeveloped regions. This step alone will increase the demand for social goods and help the nations to prosper. These two institutions have to take a lead to think out of the box and come out with really innovative measures in all areas of social development without leaving any scope for greed and exploitation. This is the time for these institutions to have more of a philosophical approach rather than purely commercial to overcome the present crisis. The result will be tremendous bringing economic prosperity every where.


Ups and downs are natural and the present crisis should be taken as a god given opportunity to bring all nations together irrespective of their economic, social and political status and work for the welfare of humanity as a whole irrespective of their religion, caste and creed. These twin institutions with their experience, expertise and knowledge of the economic social, political and technological conditions of each and every country can do wonders and once again prove their mettle in saving the entire world from the present crisis. Technology particularly information technology should be put into optimum use to save the whole world from the present rut. Human welfare through out the world should be the long term vision and getting out of the present global crisis as early as possible should be the short term mission of these world class institutions.

Dr.T.V.G.Krishnan