World Bank and International Monetary Fund - Term Paper Example

CRITICS OF THE WORLD BANK The World Bank is a fundamental source of financial and technical assistance to developing countries. As of today the World Bank has contributed immensely towards the developments especially in the developing world in the areas of health, education, reconstruction, reduction of poverty etc. The main focus of World Bank projects was on reducing the poverty in the developing countries. Even though there have been criticism and challenges of various types, the World Bank have been an important aid after the World War II. The evolution of bank group was a slow but has shown a progressive growth over the years providing low-interest loans, interest-free credit and grants to developing countries for education, health, infrastructure, communications and many other purposes. Still there remain a lot of issues that point out at the loopholes. Though the World Bank in known for its achievements over the past few decades, it has been subject to various criticisms over the years for its policies, functions and activities. The World Bank is attack from all sides by critics on grounds that it is not efficient, not accountable or responsible, not democratic or legitimate, and most importantly that the World Bank is not relevant in a global economy which is presently subjugated by private capital, production and ideas. This paper focuses on the critics faced by the World Bank. Ever since its establishment, it has been subject to various criticisms. At this stage it will be useful to give a brief overview of how the world bank functions and what are the divisions of World Bank. The World Bank is the largest public development institution in the world. The World Bank lends about US$ 25 billion each year to developing countries or various developmental activities with the main purpose of reducing poverty. The main goals of the World Bank, as outlined in Article One of its Articles of Agreement, are: "to assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes" and "to promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment ... thereby assisting in raising the productivity, the standard of living and conditions of labour in their territories" (Bretton Woods Project, 2005a). The World Bank is a group of five closely associated international organizations responsible for providing finance and advice to countries for the purposes of economic development and eliminating poverty. Its five agencies are: International Bank for Reconstruction and Development (IBRD); International Finance Corporation (IFC); International Development Association (IDA); Multilateral Investment Guarantee Agency (MIGA); and International Centre for Settlement of Investment Disputes (ICSID). The World Bank's activities are particularly focused on economically backward developing countries. Each of these organizations has their own aims and objectives. The International Bank for Reconstruction and Development (IBRD) aims to reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans, guarantees, risk management products, and analytical and advisory services. The IBRD and IDA provide loans at preferential rates to member countries, as well as grants to the poorest countries for developmental activities. The main activities of the IFC and MIGA include investment in the private sector and capitalizing insurance respectively (Wikipedia, 2007). In the recent years criticism of the World Bank and the IMF on various issues has been a cause of concern to the Bank. These criticism in general centre on the fear about the approaches adopted by the World Bank and the IMF in defining their policies. Especially the socioeconomic impact these policies have on the population of countries who benefit themselves of financial assistance from these two institutions. To be more specific it can be said that critics of the World Bank and the IMF are mainly concerned regarding the conditionalities imposed on borrower countries which are usually the poor countries. Critics claim that the World Bank and the IMF often attach loan conditionalities based on what is termed the 'Washington Consensus', focusing on liberalization of trade, investment and the financial sector, deregulation and privatisation of nationalised industries. Time and again the conditionalities are tagged without due regard for the borrower countries' individual conditions. As a result of this the dictatorial recommendations by the World Bank and IMF often are unsuccessful to resolve the economic problems of the country that avails these help from them. In addition, IMF conditionalities may also result in the loss of a state's authority to govern its own economy as national economic policies are predetermined under the structural adjustment packages. At this juncture, these countries loss all its power over the economy and as a result issues of representation are raised. Besides, when national economies from state governments shift to a Washington-based financial institution most developing countries hold very little voting power (Bretton Woods Project, 2005b). In this aspect and many more the World Bank has been criticized by a number of non-governmental organizations and academics. Most importantly the former Chief Economist Joseph Stiglitz, also criticised world bank which is equally critical of the International Monetary Fund, the US Treasury Department, and US and other developed country trade negotiators. In fact it is not surprising to note that the Bank's own internal evaluations also have drawn negative conclusions (Wikipedia, 2007). Recent years have also seen the concerns about the types of development projects funded by the IBRD and the IDA which form an integral part of the World Bank. Global concerns are raised about many infrastructural projects financed by the World Bank Group. Most of these projects have social and environmental implications for the populations where these projects are undertaken and criticism has centred on the ethical issues of funding such projects. For instance, World Bank has funded for construction of hydroelectric dams in different countries. These constructional activities have resulted in the displacement of indigenous populations of the area. Though the World Bank is just the funding agency, it is still criticised for funding. Since these projects are to be taken up only after proper environmental impact assessment, the World Bank need to look into these aspects more seriously before funding. There are concerns that the World Bank when it is working in partnership with the private sector may destabilize the role of the state which is the primary provider of essential goods and services, such as healthcare and education, ultimately resulting in the shortfall of such services in countries that need them very badly (Bretton Woods Project, 2005b). Criticism has been raised regarding the Fund structural adjustment programs that are suspected to disproportionately hurting the poor. Researchers have found that when the International Monetary Fund (IMF) and World Bank enter in southern countries, corporate profits go up, at the same time poverty and suffering also goes up. It is anticipated that the soothing words and years of promises given to the poor that just a little more short-term pain will bring long-term gain. However these promises have proven to be in vain and have exposed the IMF and World Bank mission to protect those who already control too much wealth and power. There are also instances when many developing countries suffered constant increases in prosperity, that was accompanied by dramatic increases in inequality and child poverty under the auspices of IMF and World Bank adjustment programmes. When in many countries, structural adjustment programs (SAPs) have reversed the development successes of the 1960s and 1970s, millions of people in these countries were sliding into poverty every year. At last even the World Bank has had to accept that SAPs have been a disadvantage for the poor, especially for the women and children. Nevertheless, even now together with the IMF it still demands that developing countries persist with SAPs (Easterly, 2000). Critics of the World Bank and the IMF are also concerned about the role of the Bretton Woods institutions in determining the development discourse through their research, training and publishing activities. As the World Bank and the IMF are regarded as experts in the areas of financial regulation and economic development, their views and prescriptions may undermine or eliminate alternative perspectives on development. This is a strong negative point on the World Bank and the IMF. Many of the critics also are concern about the World Bank and IMF governance structures which are dominated by industrialised countries. Decisions are made and policies implemented by leading industrialised countries without much consultation with poor and developing countries. The rich industrialised countries are especially those countries representing the G7, as they represent the largest donors (Bretton Woods Project, 2005b). Critics argue that the so-called free market reform policies in practice are many times harmful to economic development if implemented without much research in the poor developing nations. For instance, in Russia, an apparent shock therapy policy that has raised poverty from 2 million to 60 million. In this regard UNICEF noted that this resulted in 500,000 'extra' deaths per year. In another example in Africa, following decolonization, many African countries were ruled by dictators. These dictators were corrupt and stole much of the financial support lent by the World Bank, IMF, and other lenders, leaving an enormous national debt to their successors (Wikipedia, 2007). Studies looked at the quality and results of Poverty Reduction Strategy Papers (PRSPs) in 19 countries with a focus on the effectiveness of the IMF and World Bank's roles in the PRSP process. The results pointed out that progress has been slow, but evident, in most countries. In addition it was also seen that there has been a marginal increase in the openness to civil society participation by most governments and there have been modest improvements in pro-poor policy formulation. However there are dissimilarities in terms of achievements in different countries. Critics point out that the Bank and Fund are mainly failing to meet the commitments made under the principles of the PRSP and PRGF. They have also identified that a key problem is the failure of the Bank and Fund to assume roles which allow broad country ownership of PRSPs. Hence it may be important to form a development forum with broad stakeholder participation that may include government, different political parties, civil society, donors and the IFIs should be adopted as a structure within which to take key decisions on the PRSP framework. Besides, it should also include design, implementation, monitoring and reporting of the PRSP; harmonisation of donor conditionalities; PSIA implementation; and determining suitable responses to policy failure (CIDSE, 2004). The IMF's complicity in the Asian and Russian financial crises, the sudden resignation of its long-serving Managing-Director, Michel Camdessus, and the widespread condemnation of its central policy prescription of structural adjustment have all seriously undermined the institution (FindArticles, 2000). Caufield criticizes two elements regarding the structure. First is the structure of repayment. The World Bank is a lender of foreign currency and demands to be repaid in the same currency. At the same time the borrower countries, in order to make the currencies to repay the loans, must sell to the rich countries more than they buy from them which is totally injustice. Second, she criticizes the high impact of the bank over national sovereignty. If we take this into consideration as a condition of the credit, the Bank offers suggestions on how countries should manage their finances, make their laws, provide services, and conduct themselves in the international market. In other words the Bank has great power of persuasion, because if it decides to suspend a borrower, other major international powers will follow the lead and will not give any more financial assistance because of the black mark. On top of this, by excessive lending, the Bank has added to its own power and depleted that of its borrowers, generating a blatant inconsistency with its stated mission of poverty alleviation. There has been criticism in the areas of health care also. For instance, in the 2005 Massey Lecture, entitled "Race Against Time", Stephen Lewis argued that the structural adjustment policies of the World Bank and the International Monetary Fund have intensified the problem and aided the spread of the AIDS pandemic by decreasing the funding allowed to health and education sectors. However, it should also be noted that, although finances hardly help stop the spread of the AIDS pandemic, the World Bank is a major source of funding for combating AIDS in poor countries, and in the past six years it has committed about US$ 2 billion through grants, loans and credits for programs to fight HIV/AIDS. However, critics point out that much more need to be done in the health care segment by the World Bank (Wikipedia, 2007). In conclusion, it can be pointed out that though there is an on going list of achievements of the World Bank group, there is still much more to be done. If the goals of the World Bank, is to alleviate poverty in the developing countries they need rework on policies. Statistics suggest that the world has more poor people than ever before. 1.3 billion people who form over a fifth of the world's population even now live on less than $1 a day and a further 1.6 billion survive on between one and two dollars. Besides, the plight of the people in many poor countries has become worse under the policies of economic globalisation. It is estimated that more than 80 countries now have per capita incomes lower than they were a decade or more ago. The number of people living in poverty has continued to grow over the years pointing out at the failure of the World Bank's basic goal of poverty reduction. In addition to poverty, other indicators of poverty have also worsened under economic globalisation. According to the UNDP, financial volatility, job and income insecurity, crime, threats to health, food insecurity, loss of cultural diversity, community disintegration and environmental degradation have all increased. It is essential to improve the situation and speed up the reformations in the World Bank. Unless structural changes and policy changes are not brought about, it may become an even worst situation. References Bretton Woods Project, (2005a) How does the World Bank operate' [Online] Available from: Read More