When people think of the harm that wealthy and powerful countries, cause to people throughout
the world, they are most likely to be thinking of warfare.
But rich countries also have considerable power over the lives of billions of people
through their dominance of global governance organisations such as IMF and World Bank.
Despite the Bank and Fund's efforts to depict themselves as beacons of knowledge and expertise
on development and macroeconomic challenges, both organisations have been and continue
to be the target of harsh academic, UN, and civil society criticism.
People have protested against the IMF in country after country that has borrowed from it, be
it Argentina, Ecuador, Egypt, Greece, Jordan, Kenya, Nigeria, Pakistan or Tunisia.
They frequently accuse the IMF, the world's last resort lender, of promoting debt imperialism
and worsening economic inequality.
So…
Why are IMF and the World Bank are so controversial?
Why do People Dislike them?
Before we get there, let’s start from the beginning…
The World Bank Group (WBG or World Bank) and the International Monetary Fund (IMF), were
both founded in 1944.
They are intergovernmental organisations (IGOs) that shape the global development and financial
order.
They were originally founded with the goal of recreating the international economic system
after World War II (WWII) and are known as the Bretton Woods Institutions (BWIs).
The key decisions that lead to the establishment of IMF and World Bank were largely steered
by the US, and to lesser extent the UK, and were heavily influenced by the US’s geopolitical
dominance during the post-war period.
Coming to their missions and objectives…
The World Bank assists developing nations in reducing poverty and increasing shared
prosperity, while the IMF helps to stabilize the international monetary system and monitors
global currencies, and in this way the two organisations collaborate to ensure a stable
global trade and payment system.
While the World Bank and IMF were established as an apolitical effort to rebuild the world
economy following WWII, some analysts view them as an attempt to defend or expand the
reach of western capitalism in the face of a potential threat from the Soviet Union,
as well as to promote US interests in particular.
The World Bank’s and IMF’s missions, priorities, and programmes have all evolved greatly over
time.
Since the 1970s, more frequent financial crises – particularly the 2008 crisis – have
had an impact on the IMFs work, forcing it to shift away from primarily national interventions
and toward a greater focus on the global economy, as well as from scanning the horizon for potential
crises to dealing with them in order to avoid regional or global contagion .
The World Bank's mission has also evolved considerably, from its early focus on infrastructure
finance for the Washington Consensus and Post-Washington Consensus, to the "Knowledge Bank," where
it attempted to promote itself as a reservoir of "development expertise."
The World Bank's current activity is based upon two objectives: "eliminating extreme
poverty by 2030 and increasing shared prosperity."
On the other hand, IMF's current declared objectives are to promote international fiscal
and monetary cooperation, to ensure international financial stability, to facilitate international
commerce, and to promote high employment and long-term economic growth.
It intends to accomplish this by offering loan programmes to countries with balance-of-payments
issues, as well as policy advice through technical support and bilateral and multilateral macroeconomic
surveillance.
Under the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt
Relief Initiative, the IMF and the World Bank collaborated to lower the external debt burdens
of the world's poorest countries (MDRI).
To date, debt relief packages under the HIPC Initiative have been authorized for 36 of
the 39 nations that are eligible, totaling $76 billion in debt relief over time.
The IMF and the World Bank continue to work together to help low-income nations achieve
their development goals while avoiding debt issues in the future
Now you must be thinking…
Where does the IMF or World Bank get its money?
And how do they function?
So, Let’s answer that for you…
The IMF and the World Bank Group earn money in two ways.
The first comes from their loan activities, which primarily charge borrowing countries,
while the second comes from their financial market investments.
Additionally, members contribute to the International Development Association (IDA).
Member nations provide resources for IMF loans to its members on non-concessional terms,
primarily through the payment of quotas.
After setting aside a liquidity buffer and considering that only resources of members
with strong external positions are used for lending, the IMF's current overall resources
of roughly SDR 973 billion translate into a capacity for lending of around SDR 707 billion
(around US$1 trillion).
Now the main thing to highlight here is that IMF and World Bank, without a doubt, are among
the most important and influential norm-setters, convenors, knowledge-holders, and influencers
in the international development and financial environment.
And while they have long been viewed as a weapon of political and economic power in
the United States and other Western countries, their purpose and relevance has been continually
questioned.
So…
Why is the IMF or World Bank so unpopular, despite the fact that one of its main responsibilities
is to provide "resources to member countries in need"?
John Perkins, a chief economist and advisor at World Bank, IMF and United Nations have
also talked about the show they put on to hide the cruel reality that is going behind
the curtains….
John Perkins has written a book called “Confessions of an Economic Hitman” in which he tells
his story of landing a job at an international consultation firm that was working for organisations
like USAID and World Bank.
The organisation instilled in him the belief in him that it helped underprivileged people
all over the world by raising them out of poverty and improving their living conditions.
He was very much inspired by the company's dedication, and hence worked really hard.
However, a few years later, he was able to see through the "doing good" facade of the
organisation.
He eventually realised that what he was really doing was just using fancy economic studies
to persuade leaders of countries around the world with resources that US corporations
wanted, such as oil, to accept massive loans from the World Bank, the Inter-American Development
Bank, the Asian Development Bank, or one of their sister organisations.
And these loans would put the countries in a debt trap.
To repay them, the country would have to sell its oil or other resources at a low price
to our firms, or meet other "conditions" that benefited what was quickly becoming an American
empire.
He also confessed that on the behalf of their organisation, they would compel countries
to restructure their loans and sell their oil and other resources cheaply to our firms
without regard for environmental or social restrictions by collaborating with the International
Monetary Fund (IMF).
In fact, in the beginning, he thought he was doing the right thing.
But then, over time, he began to notice that these econometric models and statistics they
were using favored the wealthy only.
And hence.
the gap between the rich and the poor was rapidly growing.
One of the most common criticisms that the World Bank and IMF face is the political power
imbalances in their governance structures, where poorer countries – often those receiving
loans from these two – are structurally under-represented in decision-making processes.
As a result, the IMF determines how much debtor countries are allowed to spend on education,
health care, and environmental protection.
The loans force member nations to pursue risky domestic economic policies which further delays
important reforms and encourages long-term dependency.
For example, during the Asian crisis of 1997, the IMF forced many countries, including Indonesia,
Malaysia, and Thailand, to follow a strict monetary (higher interest rates) and fiscal
policy to decrease the budget deficit and improve exchange rates.
However, as a result of these actions, a small downturn turned into a major recession with
extremely high unemployment.
Argentina was forced into a similar economic austerity policy in 2001.
This resulted in a decrease in public-sector investment, which harmed the economy.
A second stream of long-standing criticisms has focused on the content of the BWIs' policies,
programmes, and projects, and how they have damaged a wide range of human rights.
Many of the World Bank-funded projects have been proven to be in flagrant breach of international
human rights standards on numerous occasions.
News of indigenous and forest peoples' rights being violated, human rights advocates being
targeted, local food instability and major labour rights violations, such as child and
forced labour, are apparently being attached to the Bank-funded projects.
Lastly, the World Bank and IMF’s approach to development and economic policy, as well
as their financing decisions, have sparked more pressing criticisms about environmental
protection and mitigating climate change.
Even after signing the Paris Climate Agreement in 2015, the Bank continues to promote projects
that are part of major carbon-intensive mega-corridors and funds a significant number of fossil fuel
projects.
The Bank’s Forest policy and poor forest protection safeguards have been critiqued
not only for infringing on local populations' rights, but also for failing to conserve one
of the world's most important "carbon sinks."
Hence…
The policies of the World Bank and the International Monetary Fund have failed to fulfill their
declared goals, instead supporting an economic order that enriches elites and private sector
interests at the expense of poor and marginalized people.
However, both the institutions continue to deny their involvement in establishing the
social, political, and economic conditions that have contributed to the frustration and
disenfranchisement that have brought them to this point.
Apart from these reasons…
Much of the bitterness comes from the World Bank and IMF’s conditions for loans and
debts.
The structural changes tied to IMF loans are quite conventional.
However, the countries are expected to finish what they have been working on for decades,
in just a few years.
Moreover, people despise the World Bank and the IMF because they serve as the agents for
the international capital mafia, On the surface, this looks to be generous,
but the funds are only given to countries that agree to engage US construction corporations,
ensuring that only a few people benefit.
Furthermore, the loans are purposefully too large for any developing country to repay,
and this debt burden virtually ensures that the developing country will support US political
goals.
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