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Working Paper 07-9

Merry Sisterhood or Guarded Watchfulness? Cooperation Between the International Monetary Fund and the World Bank

by Michael Fabricius, Peterson Institute for International Economics

December 2007

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Since their inception at the end of World War II, the World Bank and the International Monetary Fund have aimed to speak consistently with one voice vis-à-vis their member governments. However, anecdotal evidence suggests that they are not always on the same page. Fabricius draws on research conducted in Ghana, Pakistan, Peru, and Vietnam to (1) identify the conditions that explain whether or not the two organizations indeed speak with one voice and (2) address whether their traditional plea for consistency is always desirable. He recommends which measures are crucial to ensure Bank-Fund consistency. At the same time he argues that under certain conditions, this consistency may lead only to second-best policy choices. He proposes that the Bank and Fund pursue a case-specific approach in deciding whether they should take the same stance. A more flexible approach may increase not only the ownership of borrowing countries but also the sustainability of policy choices.