At the conclusion of World War II, several international institutions were established to manage the world economy and prevent another Great Depression from happening again. These institutions include the International Monetary Fund (IMF), the International Bank for Reconstruction and Development (now called the World Bank), and the General Agreement on Tariffs and Trade (GATT), which was expanded and institutionalized into the World Trade Organization (WTO) in 1995.
These institutions have not only persisted for over five decades, but they have also expanded their mandates, changed their missions and increased their membership. Part of the problem for these institutions lies in their legacy. They were designed to help the developed countries create a cooperative and stable world economy in a nonglobalized world. The IMF was established to support the fixed exchange rate system created at the Bretton Woods conference in 1944; its role was to aid countries that were experiencing difficulties in maintaining their fixed exchange rate by providing them with short term loans.
The IMF also maintained global monetary cooperation and stability by making loans to countries with balance of payment problems, stabilized exchange rates and stimulated growth and employment. The IMF has since expanded its role to include a strong surveillance function: it must approve a country’s economic program in order for a government to access grants and loans from virtually all governmental and private financiers. With the collapse of the Bretton Woods fixed exchange rate system in the early 1970s, this role changed.
The IMF dealt less with the developed countries and more with the developing ones. It provided long and short term loans at below market interest rates for countries in all sorts of economic difficulty, making it less distinct from the World Bank. Promoting economic growth as well as resolving specific crises became its mission, which meant that ever more countries became involved in these socalled structural adjustment programs. The World Bank was created at the same time as the IMF to help give financial and technical assistance to countries that need it.
According to govspot. om, “The unwritten goal of the IMF and World Bank was to integrate the elites of all countries into the capitalist world system of rewards and punishments. The billions of dollars controlled by the IMF and World Bank have helped to create greater allegiance of national elites to the elites of other countries than they have to their own national majorities. ” It is the single largest source of development finance in the world, lending for broad structural and economic changes, long-term development and poverty reduction, building roads, dams, pipelines, extracting natural resources etc.
The World Bank’s three lending arms are (1) the International Bank for Reconstruction and Development (IBRD) which primarily provides loans to middle-income countries;(2) the International Development Association (IDA) which gives grants and loans to low-income countries;and (3) the International Finance Corporation (IFC) which takes equity in and channels financing to private sector projects while also extending guarantees.
The Bank has two types of loans: (a) project loans which finance projects such as mines, dams, roads, and schools and; (b) policy-based loans, or quick-disbursing loans that require reforms in a sector or the overall economy. The WTO’s central mission has been to promote trade liberalization by fostering negotiations among countries to reciprocally lower their trade barriers and providing information about countries’ trade policies. The WTO is an international organization of 134 member countries that is a forum for negotiating international trade agreements and the monitoring and regulating body for enforcing agreements.
The WTO was created in 1995, by the passage of the provisions of the “Uruguay Round” of the General Agreement on Tariffs and Trade (GATT). Prior to the Uruguay Round, GATT focused on promoting world trade by pressuring countries to reduce tariffs. But with the creation of the WTO, this corporate-inspired agenda was significantly ratcheted up by targeting so-called “non-tariff barriers to trade”-essentially any national or local protective legislation that might be construed as impacting trade.
In addition, the WTO’s mission has increasingly involved the connections between domestic policies and trade barriers. With significant lowering of tariffs and quotas, many domestic policies such as intellectual property laws, environmental policy, domestic subsidies, and tax laws, are now seen to affect trade flows and hence to reside within the WTO’s jurisdiction. The WTO also compiled a list of new trade and trade-related policy measures that had been taken since September 2008.
These included increases in steel tariffs by India, increases in tariffs on 940 imported products by Ecuador, restrictions on ports of entry for imports of certain consumer goods by Indonesia, imposition of non-automatic licensing requirements on products considered as sensitive by Argentina, increase in tariffs on imports of crude oil by South Korea, re-introduction of export subsidies for certain dairy products by the European Commission, and a rise in import duties on cars and trucks by Russia.
There has been much speculation in joining international institutions and publicly agreeing to abide by its rules, norms and practices because it has important domestic political consequences. It can help domestic leaders to alter policies at home that they otherwise would not be able to do. It can help them lock in “good” policies (i. e. , ones that enhance general welfare) and resist pressures by special interests to adopt “bad” policies (i. e. , ones that benefit special interests only).
For others the key is that achieving cooperative agreements with other countries brings advantages for some domestic groups that otherwise would not be involved in a change of policy; once their interests are engaged through the multilateral process they can become strong proponents for policy change at home. The domestic political consequences of IMF and World Bank membership may be important but little research addresses this directly. Many websites note that countries underwent IMF programs out of choice as much as necessity.
Governments were using the IMF to produce changes in policies that they desired. But unfortunately, these changes did not produce economic growth or poverty reduction. His analysis demonstrates that the programs were used instead to promote the welfare of capital-owners, who tend to be the richest groups in developing countries and thus may have further hurt developing countries. In sum, we do not know what the overall domestic effect of IMF and World Bank membership on countries has been.
The underlying theory that these International Financial Institutions (IFIs) propagate is that of ‘economic growth’ and ‘free-markets’ as the only means of generating wealth for development and poverty reduction. This neoliberal ideology now dominates the global economy and has proven to be extremely profitable for corporations and financiers. Meanwhile, these policies have increased levels of poverty and inequality in developing countries. Given their financial insecurity, developing nations are left with little option but to participate and compete in the global economy in the hope that they can increase their economic output (GDP).
However, the competitive free-market is inherently biased, and countries that enter the playing field with less wealth and undeveloped industries are handicapped. Faced with possible bankruptcy, which would ostracise them from other potential investorsthis, the country has little choice but to turn to the IMF for a loan. The IMF clearly states that it is not a development bank and is not concerned with poverty reduction. It is, however, closely allied with Wall Street bankers and the US Treasury, and ensures that economic policies are implemented that benefit private investors and financial speculators in the free-market.
It lends to governments on the strict condition that they prioritise the repayment of the loan (over and above domestic welfare needs). Countries must also agree to adjust domestic economic policies to ensure that their balance of payment problems do not occur again. Once these conditions have been implemented and the loan approved, the international investment community is informed. This reassures private investors of the country’s potential profitability, and additional funds come flooding in.
The WTO’s trade agreements work alongside the IMF and World Bank measures, ensuring all barriers to trade and domestic restrictions on how to manage foreign investment are lifted This enables foreign corporations to purchase and control everything from water, heath-care and education facilities to agricultural technology and indigenous plants and knowledge. All in all, there is a huge migration of control and financial resources away from local enterprises and industries that would otherwise benefit society and strengthen local economies.
Instead, these resources migrate to the large corporations whose major shareholders profit handsomely. Foreign ownership of domestic resources, services and production compromises local initiative and industry, and undermines the sovereign and democratic rights of local people and governments. Critics of the WTO argue that the trade agreements are written by (and favor) rich nations that have the most access to the negotiations, so these rules prioritize individual interests instead of the interests of the global economy.
The real debate between WTO advocates and their left critics is not about protectionism, therefore, but about who will be protected from the ravages of unrestrained competition. The WTO has no rules to guard those who labor or to protect long-term development or to foster cultural sustainability or diversity. Without such standards, the majority of people can actually lose from expanding trade, not only relative to a fair ideal, but relative to abstaining entirely. The critic’s theoretical understanding of the WTO as a vehicle only moved by corporate profit-seeking logic is borne out from the WTO’s history to date.
In every case that has been brought to the organization challenging environmental or public safety legislation on behalf of corporations, the corporations have won. When foreign commercial shrimp fishing interests challenged the protection of giant sea turtles in our endangered species act, the turtles didn’t stand a chance. Critics of the IMF say that since the 1980’s, the organization has been bailing out countries during financial crises with emergency loan packages that have specific conditions.
With this assistance, countries have to follow the IMF’s policies to get loans, international assistance, and even debt relief. The predictable consequences have always been disastrous. Tight monetary policy and skyrocketing interest rates not only stop productive investment, stampeding savings into short-run financial investment instead of long-term productive investment, it keeps many businesses from getting the kind of month-to-month loans needed to continue even ordinary operations. This fosters unemployment and drops in production and therefore income.
Fiscal austerity-raising taxes and reducing government spending-further depresses aggregate demand, also leading to reductions in output and increases in unemployment. Likewise, if any of the government spending eliminated was actually improving people’s lives, then reductions in those programs eliminates those benefits. Privatization of public utilities, transport, and banks is always accompanied by layoffs. Whether productivity and efficiency is improved in the long run depends on how badly the public enterprises were run in the first place, and if private operation proves to be an improvement.