The International Financial Institutions Efforts to Address Global Poverty - Example

Student Name: Tutor: Title: The International Financial Institution’s efforts to address global poverty are Inadequate. Discuss. Course: Introduction Global poverty can be described as one of the detrimental implications of the emergence of capitalism. As argued Karl Marx, capitalism had improved the production capability of the world economy. However, the system increased the level of economic inequality and poverty in society. According to Marx, the nature of capitalism resulted to the emergence of two rival classes in society. These include the bourgeoisie who owned the means of production and the proletariat who did not own anything but there labour (Marx, 1959). To address the challenge of global poverty, international financial institutions such as the World Bank, the International Monitory Fund and the International Finance Corporation were established. Nevertheless, despite of the efforts of these institutions, global poverty continues to be an impending challenge in many regions of the world. According to the World Bank report (2012), approximately 1.3 billion people continue to live below the extreme poverty line with an income of less than US $1.25 a day. In addition, 2.6 billion live on less than US $2 a day. The big question that arises therefore is whether the efforts of international financial institutions to address poverty are inadequate. This particular paper therefore seeks to evaluate whether the efforts of international financial institutions to address global poverty are inadequate. In one perceptive, it can be argued that the efforts of international financial institutions to address global poverty have actually been inadequate. Broad, (2002) reveals that in the early years of 1960, continents across the globe created development banks in order to supplement the role of the World Bank. The developments banks were established with the objective of providing loans and grants for the purpose of development within various respective regions (Strand, 2011). Broad, (2002) further argues that development banks have had a poor record in global poverty reduction. One of the basic reasons is due to the fact that the largest share of the resources of the development banks flow to only a few countries. An additional reason is grounded on the fact that the amount of funding that is offered by the development banks to their borrowers is smaller than that provided by sources from the private sector. Based on these particular facts it has been difficult for many poor governments to fund projects that can facilitate the reduction of poverty. Consequently, Broad, (2002) highlights that the initiatives of international financial institutions such regional development banks have been inadequate in the fight against global poverty. A case in point is the African continent which has had the African Development Bank that deals with the funding of various projects. In despite of the initiatives implemented by of these particular bank, poverty is still a looming problems in most African regions essentially the Sub-Saharan region (Hercules& Dangor, 1998). The adoption of the structural adjustment programs by the World Bank and the International Monitory Fund in the mid 1980s and over the years is another signal for the inadequacy of international financial institutions in the fight against global poverty. According Commack (2004) the close association between the World Bank and the IMF since the mid 1980 essentially in the area of structural adjustment greatly tarnished the reputation of the two institutions. Shahs, (2012) highlights that; as measure of structural adjustment, international financial institutions offer assistance to poor countries that are looking for assistance; however, the institutions use the neoliberal economic ideology as a form of precondition for assistance. For example the institutions advocate for cutbacks or what is referred to as ‘’ Liberalization’’ of the economy and open markets that promote exports (Bradlow & Hunter, 2010). However, in this particular open market the rich nations benefit more based on the fact that the prices of goods from poor countries are frequently reduced (Norton, 1987). On the other hand, the poor countries continue to be poor while the rich nations gain from the efforts of the poor nations. Commack, (2004) argues that if Banks or international financial institutions have the aspiration to end poverty, then the poor should not have been sentimentalized through structural adjustment programs, but rather they should be included in the planning process of their own development. Today many developing countries are in debt as a result of the policies imposed by International financial institutions such as the World Bank and the International Monetary Fund (IMF) (Shah, 2012). This particular view point is supported by many scholars including; Adepoju, (1993), Ng'ong'ola, (2010) and Jalloh, (2012), who state that the assistance offered to poor nations increases the level of poverty and debt. As a result, policies such as structural adjustment programs, definitely give an indication that the efforts of international financial institutions in battling global poverty are inadequate. Policies by international financial institutions have also been inadequate in resolving the problem of poverty based on the fact that, instead of reducing the level of poverty, the policies tend to bring about additional problems which increase the level of poverty among nations. Glassman and Carmody (2001) undertook a study to examine the implications of structural adjustment in East and Southeast Asia. The findings of the study revealed that although structural adjustment programs were established with the objective of improving the lives of the people of East and Southeast Asian countries, the policy resulted to additional problems. Glassman and Carmody (2001) reveal that the adoption of structural adjustment programs (SAPs), was one of the contributory factors to the 1997, Asian economic crisis. According to Glassman and Carmody (2001) economic liberalization as one of the conditions for the structural adjustment programs, exposed the Asian region to the crisis. The outcome of the entire program to the Asian region was a dramatic increase in dependence, poverty and inequality. The lack of accountability among international financial institutions has also influenced the inadequacy of the institutions in fighting global poverty. Woods (2000) reveals that in the recent years, the World Bank, the IMF and also International Finance Corporation have been accused of lack of accountability. According to Schedler et al (1999) accountability within a democratic political system entails a wide range of mechanisms that are used prevent the misuse or abuse of power. These mechanisms vary from judicial review to the appointment of Ombudsmen. The objective of accountability is to ascertain that actions taken are predictable, decision makers are answerable and the decisions made are fair. Woods, (2000) reveals that the lack of accountability within international financial institutions is a basic factor that contributes to the inadequacy of the institutions to reduce poverty levels. This is because poor countries continue to be less represented in the governance of the institutions. Yet, the ironic factor is that the mission of such institutions for instance the World Bank is to alleviate poverty within poor nations. Murphy, (2008) highlights that international financial institutions operate outside democratic scrutiny and control; as a result they have the ability to impose their desired economic solutions across the world essentially on poor countries. The question of accountability is therefore rhetoric. This is based on the fact that a greater ownership and governance of the international financial institutions is vested on more developed nations as opposed to the poor nations. Woods, (2000) further argues that powerful nations such as the G7 continue to dominate the governance of international financial institutions, yet poor countries do not have much representation. Consequently, reducing poverty levels by the international financial institutions has not effectively been undertaken. On the other hand, it can be argued that the efforts of global financial institutions in terms of reducing global poverty have actually been adequate. This is because although global poverty is still an impending challenge, a reduction in the level of global poverty has been attained. Joshi, (2012) reveals that in the year 2012, the World Bank provided an update of its approximations on the rate of global poverty. According to the World Bank, there was a reduction in the percentage of people living below the poverty line. From 850 surveys that were conducted in 130 developing countries between the years 2005-2008, the findings indicated that there was a significant reduction in poverty levels. The number of people living under the poverty line of $1.25-a-day had dropped from 1.94 billion (52%) in 1981 to 1.29 billion (22%) in 2008. This was a decline of 33.5%. On the other hand, the number of people living under the $2 a day also dropped from 2.59 billion in the year 1981 to 2.47 billion people in 2008. This was a decline of 4.6%. Joshi, (2012) highlights that; this was the first reduction to be recorded ever since 1981. The latest findings on the reduction of level of global poverty can be attributed to the efforts of international financial institutions. A case in point is the World Bank. Hiremath and Hiremath, (2010) highlight that; the objective of the World Bank, since its inception 1944, has been to develop a world free of poverty. Consequently, many of the projects initiated by the institution have been geared towards poverty reduction. One of the major initiatives adopted by the World Bank is the Poverty Reduction Strategy (PRS), which has been useful in lowering poverty levels in many developing countries. For instance, one country that has benefited from the efforts of the World Bank is Bangladesh. Through the support of the World Bank, the Bangladesh government also adopted the Poverty Reduction Strategy (PRS). The program was aimed at empowering the lives of the poor through raising the level of employment and income. In addition the initiative also worked towards raising the capability of the poor in terms of health, nutrition, education and social interventions. After an intensive implementation of the Poverty Reduction Strategy (PRS) the country recorded a significant decline in the level of poverty. The World Bank (2013) reveals after the Bangladesh government conducted a poverty assessment research, the findings indicated that the poverty levels of Bangladesh had reduced from 40% in the year 2005 to 31.5% in 2010. This was mainly attributed to the Poverty Reduction Strategy which was basically an initiative of the World Bank. The efforts of the international financial institutions can also be argued to be adequate based on the fact that the aspect of global poverty can not entirely be blamed on IFI. This is because, as Broad (2002) asserts, in most cases the Word Bank and the IMF have to a great extent played an active role to combat the problem of global poverty. Nevertheless, poor countries do not fully implement the desired reforms that are necessary to elevate poverty. In the event that the poor nations adopt these reforms, they rarely sustain them because they perceive international financial institutions as outsiders. This type of attitude has therefore increased poverty levels in many countries. For instance, a study conducted by Azariadis and Stachurski, (2005) reveals that the persistence of poverty among many societies across the globe is currently influenced by factors such as the lack of adoption of modern technology, market failure, technological breakdown and poor governance. Based on the findings of this particular study, it can be concluded that the efforts of the international financial institutions to lower the global poverty levels have actually been adequate, however there are certain setbacks in the poor country that hinder poverty reductions as major one being poor governance. Consequently, it can be stated that the continued existence of global poverty is not solely grounded on the assertion that the efforts of international financial institutions in the reduction of global poverty have been inadequate. Conclusion From the above discussion, the notion of whether the efforts by International Financial Institutions to reduce global poverty have been adequate is quite controversial. The paper examined the views that point out that the efforts of the International Financial Institutions have been inadequate. These include the poor record of development banks in poverty reduction. Another aspect is the failure of structural adjustment programs and the lack of accountability. On the other hand the paper acknowledges the fact that International Financial Institutions have been adequate in the reduction of global poverty. This is attributed to the recent reduction in the level of poverty and also the fact that International Financial Institutions cannot entirely be blamed on the existing poverty in various. In conclusion, what is evident is that International Financial Institutions have been working towards reducing poverty; nevertheless, the adequacy of these efforts can only be estimated if poverty is eliminated across many poor nations of the world. References Adepoju, A, 1993, The Impact of Structural Adjustment on the Population of Africa: The Implications for Education, Health, & Employment, James Currey Publishers. Azariadis, C and Stachurski, 2005, Poverty Traps Review Article Economic Growth, 1, p 295-384. Broad, R, 2002, Global Backlash: Citizen Initiatives for a Just World Economy Rowman & Littlefield. Bradlow, D and Hunter, B, 2010, International Financial Institutions and International Law, Kluwer Law International. Commack, P, 2004, What the World Bank means by poverty reduction, and why it matters. New Political Economy, 9(2), p45-46. Glassman, J and Carmody,P,2001, Structural adjustment in East and Southeast Asia: lessons from Latin America, Geoforum, 32(1), , p 77-90. 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