Imf And World Bank Agents Western Neoliberal Imperialism Politics Essay

The major International Financial institutions created after the second world war at the Bretton Woods conference , namely the World Bank and the International Monetary Fund (IMF and also referred to as the Fund).were created for to help improve the state of the world after the war. The World Bank was created to assist with reconstruction of countries and development project and now reduction of poverty (worldbank.org), while the IMF is tasked with the responsibility of global financial and monetary stability (imf.org) have come under attack recently more than ever before. Their policies are criticized and their processes have been called corrupt and ambiguous. The Bank and IMF’s critics have called for more transparency in their operations and dealings. The negative talk about the Bank and Fund’s policies got more intense during the tenure of the now former World Bank chief Economist, Joseph Stiglitz who especially criticized the Fund for their role in the Asian crisis and how they handled the situation.

These institutions have been seen as agents of Western Neo-liberal imperialism. The idea behind the allegation is that their policies are instruments for promoting and imposing western neo-liberal ideals of trade liberalization, democracy and capitalism in developing and borrowing countries and often results in the control of the borrowing country’s economy by the institutions and more beneficial to the North than the developing South. This paper looks into these accusations and attempts to give credit to them. The aim is to back the said allegations against the Bank and Fund. To begin with, the structure of both industries will be analysed followed by their policies to show just how neo-liberal and imperialistic the institutions are.

The World Bank is a multilateral organization and the IMF is a public institution. Being a multilateral institution means all member countries are actively involved in the operations of the institution and the projects it undertakes. The institution is obliged to listen to the opinion of its members; this makes it responsible to the member countries. The IMF as a public institution, is also accountable to the member countries as it is supported by them. At least this was the idea behind structuring these institutions this way, however, the influence of each member country varies with western countries being unilateral within the multilateral framework and ignoring their responsibility to the citizens of other countries. The World Bank for example is greatly influenced by the United States (US), so much so that:

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‘”the organization’s headquarters were placed at the seat of the US federal government in Washington ,DC, and the Bank’s charter and its operational policies enshrined [in] US views of how the world economy should be organized, how resources should be allocated and how investment decisions should be reached”‘ ( Gwin,97 in Woods, 2000: 133).

When the bank is accused of promoting western ideals and being imperialist, it is safe to conclude “western”, in this case refers to the US and its ideals.

The main office location and influence on mindset is not the only way the US influences decisions and the inner workings of the institution’s operations, it is also reflected in their voting share, which gives them veto power when decisions are being made. In addition, all of the World Bank presidents have been US citizens with some of them having worked closely with the US government at some point (e.g. McNamara). Even if the US did not necessarily set out to influence the dealings of the bank (which it does) its values, ideals and ideas are instilled in the institutions employees with majority of them being products of US universities and top United Kingdom colleges, thus they have been educated with western liberal ideals. Right from the creation of the World Bank the US has seen it as a tool for legitimizing their views on how certain aspects of governments and the economy should run. As Ngaire Woods puts it so eloquently ‘ the objectives [that] the United States seeks to achieve through the World Bank include continuing to encourage trade liberalisation and better ‘governance’ in developing country markets’ (Woods, 2000:135) which they have splendidly achieved as will be seen and discussed later on in the paper.

Supporters of the Bank’s policies will argue that the Bank is an independent institution; free from governmental influences by pointing to the fact that the Bank raises its own revenue on capital markets, independently research projects by the staff and of course, the multilateral framework slapped on the institution. However, the fact remains that all this is only true in theory and on paper but definitely not in practice; Western countries do have a discreet but firm institutional control on the institutions activities especially the US (Wade, 2001:127).

The IMF on the other hand while also having its head quarters placed in the heart of the US capital, Washington DC, does not have US monopolizing western influence on it, other powerful industrial countries like United Kingdom(UK) and Japan share in the influence and power play. The fact however remains that Western countries interests and views are promoted and dominant within the institution. The IMF presidents (past and present) hail from the UK and its pool of employees is very similar to that of the Bank, and again the US enjoys veto power because the voting scheme has been based on power rankings at the end of the Second World War (Stiglitz, 2002:12). Although a revision of the voting scheme is being proposed so that it reflects the views of less developed countries. The Fund, tasked with the stabilization of global economy and financial markets was not only promoting the ideas of governments from more developed and industrialized nations; it also reflects the wishes and views of the financial institutions within these nations. Due to the high influence Western countries have on these institutions, it is inevitable that they promote their ideals, and are often imperialist in its promotion, which can be seen through the type of policies they adopt and impose on borrowing and developing member countries.

During the 1980’s the Bank and the Fund became advocates for the development approach knows as the Washington Consensus:

‘This Consensus was forged by the US, Treasury, the Federal Reserve [(US central Bank)] and International Financial Institutions (IFIs) as a way to deal with the debt crisis of the 1980s. Central to the approach was the belief that countries facing debt problems needed…to control inflation, to balance their budgets, to liberalise prices and to deregulate and reduce the role of states in their economies’ (Woods, 2001:141).

This approach was wholly agreed to by the Bank. The Fund also considered less state interference with the market as a way to raise supply. All of these sounds plausible and good, however, the policies under the consensus and the Structural Adjustment Programmes (SAPs) adopted under this development approach were often not appropriate or applicable to borrowing countries. For instance, the contractionary policy adopted by Thailand under Fund recommendation during the East Asian financial crisis( see Stiglitz 2000 new republic article). The results frequently had negative impacts on the economies of countries that were conditioned into employing them in order to get financial assistance from the Fund and World Bank. They often resulted in increased unemployment due to the government spending cutbacks and fiscal austerity. Poverty levels were also increased because of reduced state spending which meant certain social safety nets were abandoned. This meant that the World Bank objective of reducing poverty was clearly not being met under this programme. Economic growth was slow or stagnant in majority of countries adopting the Fund and Bank SAPs policies. This begs the question of why after much evidence pointing to the failure of this programme and its policies, with only a few success stories like Mexico (which was not for long), the IMF and World Bank continue to recommend them to borrowing countries. The policies rarely brought about development and often worsened conditions in developing countries. Where they had some success, it did not last long. The institutions are quick to blame the evanescence of such change on wrong implementation, or mismanagement. The blame for the failure of the programme and policy is always placed squarely on the borrowing government. The Bank and Fund’s critics blame the “short-termness” of such change generally on bad and weak policies. The policies are considered shortsighted and ignorant of the long-term effects on the country. I concur with this school of thought. Evidence shows that, ‘countries that have borrowed from the Fund [and Bank] in the recent past are more likely to borrow from it in the reasonably near future’ (Bird, 1996:485).

There are various reasons why the World Bank and the IMF would continue to prescribe a drug with such negative side effects, with most of them centring around their ability to control, the advantages the western industrialized countries with great influence on the institutions gain, and the promotion of western neo-liberal ideals. To begin with, the trade liberalisation component of the Structural Adjustment Programme under the Washington consensus is considered. The logic behind trade liberalisation is to open domestic market to global and international market forces. This is achieved by reducing or removing trade barriers, encouraging the flow of goods and capital, and focus on sectors of the economy where the country enjoys comparative advantage, as opposed to creating import substitution industries for protection of domestic industry and creating a chance for them to grow. As it was pointed out by Oladeji Ojo,(1994:131) ‘in the case of developing countries, that comparative advantage lies in the production and exports of primary products’ and true to the idea of trade liberalisation, the World Bank and IMF policies have encouraged a primary product based market economy for their borrowing developing country members. The result of this is some sort of lock on developing countries; they import(western products) at more expensive rates due to devaluation of their currency(also recommended under SAPS) and export their primary commodities which frankly saturate the globe as most developing countries within the same region have similar ones at a cheap rate. While increasing export sounds good, the policy does nothing to improve a traditional economy and move it towards modernisation in the form of industrialisation (turning an agricultural economy into an industrial one), which is one of the aims of economic development (Ojo, 1994:131). All it does is create an avenue for western products to tap into new markets with easy access and less barriers under the facade of introducing developing countries to the benefits of global trade while imposing the western idea of liberal trade.

Reducing government spending and subsidies are put into the programme to reduce government deficit. It also encourages and leaves room for governments to pay back private commercial debts and those of the World Bank and the IMF. While this might help repay debts, evidence shows it has adverse social effects on the population. However, it appears that as long as debts are being paid all seems to be well with the Bank and Fund. Privatisation also geared towards reducing government spending not only achieves this aim, but also allows for Transnational Cooperation (TNCs) and international companies to own public resources.

The effects of the SAPs programmes like privatisation and reduced government spending on the people caused many demonstrations like the Nigerian strike over reduction of Lecturers’ wages, a form of reduction in government spending (Discussed in Adefulu) and the programmes failure called for a new approach termed the ‘post-Washington consensus’. However, as much as the Fund and Bank would like us to believe they have changed their policies, the truth is the fundamentals have remained the same. In addition to the market reform approach to economic growth and development under the Washington consensus, the think-tanks at the Bank added good governance and institutional reform. The idea behind this was to lessen the negative effects of the SAPs. Advocates of the new development approach will argue that it is fundamentally different from the Washington approach. On the contrary, what it does is alleviate some of the negative effects. The policies that caused those effects however, are still in place. The Bank and IMF only added damage control to the equation, and found another way of promoting western ideals, and effectively practicing imperialism. This is executed brilliantly through the inclusion of good governance in their lending policies as a condition for financial assistance.

Good governance as a condition was adopted to make State involvement and participation plausible. The idea behind increasing participation was to increase a sense of project/ policy ownership in the government of borrowing countries. It creates a sense of control, making them feel like they are in charge when really the financial organizations were giving them options within a narrow framework. Paul Cammack goes into detail;

‘Commitment to transparency, country ownership and participation [is ideal]. However, the context in which they are set is not one that aspires to renounce interventionism in favour of local control, but one that intends to move from “shallow interventionism” of technical prescription and project/ programme conditionality to a “deep interventionism” aimed at the fundamental transformation of society and institutions with concomitant ‘strategic conditionality’ intended [to] ensure that ‘ country ownership’ and ‘participation’ reinforce the strategic direction imposed by the bank.’ (Cammack, 2004: 196)

The organisations take advantage of the conditions borrowing countries find themselves in and use the opportunity to impose western ideals on them. Good Governance; the political condition added unto the economic ones discussed earlier like privatization, devaluation and trade liberalisation to mention a few, involves ensuring that borrowing governments engage in democratic practices through transparency, rule of law and some form of political freedom in the sense of multi party system. The inclusion of this condition effectively ensures that borrowing countries adopt and practice the western idea of how a government should run, under the guise that it is a necessary precondition for economic growth and development.

Increasing evidence shows that regime type autocracy or democracy has no impact on growth (Sorensen in Mkandawire, 1994: 161). This calls into question the reason democracy in form of good governance was and is still being prescribed to developing countries when the Bank itself believes an authoritarian government is best for kicking off SAPs (World Bank in Mkandawire, 1994:161). Certainly, an autocratic regime has no problems in keeping demonstrations and opposition arising due to the negative effects of the SAPs on its citizens under control or ensuring that it does not occur in the first place. This not only shows that the institutions are aware of the devastating effects their policies and programmes have, it also shows that they have chosen to ignore them, and like pointed out earlier try to cover it with a few policies supporting social services like health care and education under the Post Washington consensus approach.

One has to wonder why the Bank and Fund would now promote the idea of democracy as the way to growth and better implementation of policies. This begs the question of whether it is because it is the Western view of how a State should run. The institutions have found a way to force this view on undemocratic borrowing countries (often in Latin America and Africa). The institutions arguments are that developing countries are fraught with corruption and mismanagement; therefore, practicing good governance is exactly what they need and is good for them. Others say non-governmental organisations (NGOs) and human right movements in Western countries advocated for the inclusion of good governance in international organisations’ policies; ‘these movements have striven to inject human rights issues into both bilateral and multilateral aid programmes and have therefore called for some kind of political conditionality’ (Makwandiwe, 1994:161).

All of this confirms that the Bank and Fund promote neo-liberal ideas and in this case democracy. Whether it is good for the countries it is imposed upon is not the issue, the issue remains that an external organization and institution should not be telling an independent country/nation how its government should run and what its structure should resemble. The choice is not for them to make especially as there is no proof that regime type matters when it comes to economic growth and development. All it does is increase foreign influence and power on States, whilst reducing sense of sovereignty.

Economic conditions coupled with political condition of good governance undermine the sovereignty of borrowing states. Foreign countries because of their influence on international organisations inadvertently make the decisions and policies for these borrowing countries. These includes factors such as; their currency value, exchange rate, what to own and what to sell, how much the state should be spending and what areas to be spent on, and what they should be trade are all decisions made by the international financial institutions. The government loses all sense of control and becomes a figurehead regime of the Western financial and economic institutions; in this case the Bank and Fund. The Fund in particular, finds it easier to impose its Western neo-liberal ideals and policies on borrowing countries thereby influencing their economic policies because of its role as the “lender of last resort”. This means that countries coming to the Fund have no other choice, have exhausted all other options, and are in dire need of assistance. The IMF, through conditions, imposes western neo-liberal ideals on its borrowing members.

‘The influence is at its strongest where the IMF stipulates preconditions and prior actions or where there are quantified performance criteria [which is almost always present].The IMF therefore has a powerful say on the exchange rate, domestic credit creation, interest rate and fiscal imbalances’ ( Bird, 1996:483).

The World Bank and IMF take over, and the countries they make loans to might as well cease to be independent nations. Their conditions not only give over the control of economic activities, it also gains them imperial power over borrowing countries. The Financial institutions tell them what to do, how to do it and when it should be done. This explains why countries hesitate to approach the institutions, especially the IMF. Countries dread the loss of sovereignty and because of how stringent the conditions are some even turn down assistance from the institution.

The Bank and IMF have been seen as US tools for promoting Western ideology of capitalism and liberalism, so much so that both institutions are considered to promote neo-liberal imperialist policies and with good reason. The institutions have adopted various policies that promote said ideals and are more beneficial to the more developed Western nations as loan conditions to those borrowing from them. They mandate borrowing countries to adopt and follow policies under the programmes like SAPs, preaching the gospel of trade, financial and capital liberalisation (Increasing global interconnection and globalisation). However, said programmes while having some merit to them have often had negative effects on borrowing and developing countries. They often exacerbate the very problem the Bank and Fund are trying to remove such as poverty and deficit problems.

Despite the opposition to the highly Western neo-liberal ideals promoted by the World Bank and IMF, these institutions’ attempt at a reform is little to non-existent. Although some would disagree and say the Bank has attempted to focus more on the problems of developing countries due to its new direction of poverty alleviation under Wolfohnson and that the Fund however has remained unchanged. The truth is that the policies they impose on borrowing member countries remain the same. The fundamentals are unchanging and remain largely neo-liberal and Western, which essentially are; be democratic, remove trade barriers and capitalism is great to mention a few. There are alternative approaches to development (like the Asian development model discussed in Stiglitz) not being offered by the institutions, it is their way or no way. It is my contention that it is not time to view these institutions differently and furthermore, there is no sign that the time to do so is approaching in the near future. Changes made cannot be considered real changes or are inconsequential ones like that of the Post Washington consensus. All evidence points to the promotion of Western neo-liberal imperialist policies and little in the way of change.