Role of International Organisations in Policy Process - Essay Example

Drawing on One Area of Public Policy, Discuss the Role and Impact of International Organisations in the Policy Process College: Date: Introduction The International Monetary Fund (IMF) and the World Bank (WB) are among the leading lenders all over the world and well known for playing a very significant role in moulding the development of the so-called third world countries. The IMF is made up of 188 member states and was instituted with an objective of working devotedly to promote global monetary cooperation, facilitate international trade, secure financial stability, foster sustainable economic growth and high employment as well as reduce poverty across the globe. It was in 1944 when the World Bank was established with a charter to do-away with post-World War II reconstruction. Notwithstanding the above mentioned, the present day mandate of the Bank is broader; alleviation of worldwide poverty in collaboration with its affiliate, the International Development association. The principal aim was to come up with worldwide economic rules which would avert a recap of the Great Depression and its aftereffects (World Bank, 2002, p.1). The USA was on the forefront in these negotiations as it was already evolving from the war with a clear cut technological, military and economic superiority over all other Western partners. The United Kingdom did constitute a measurable portion of the party; not because of its position in the alliance as at that time, but also by the virtue of its representation at Bretton Woods by the globally legendary economists. John Maynard Keynes. General Roles of the World Bank and IMF As per the Bretton Woods’ planned new system, the IMF was placed at the core of a new-fashioned monetary system, being in control of a system of fixed but at the same time adjustable exchange rate and lending on an austerely short-term basis to countries facing short-term balance of payments crises. Investment in the post-war economy would be smoothed by the World Bank (the International bank for Reconstruction and Development), which would solicit capital in money markets and advance it at expedient rates to war-torn and developing countries. The very original plan of the Bretton Woods was for the first time considered by the Cold War (World Bank, 2002, p.1). The Marshall Plan publicised in 1947 availed the United States of America with a more instantaneous bilateral way of assuring investment, stabilisation and reconstruction in Western Europe. Nonetheless, by the 1950s, both the World Bank and IMF were unpretentiously taking on a key position in the international economy. While the IMF was concerned with the above-mentioned exchange rate system management role, the World Bank was involved in the control funds from private capital markets to developing countries by giving out top-rated bonds on global financial markets and loaning on the money for specific development projects (IMF, 2002, p.1). In successive decades, the roles of both the IMF and the World Bank have been dramatically changing. The World Bank, for instance, has carried out an expansion of its resources and thereafter steadily moved a distant from pure project lending into more policy-based loaning. As time progressed, the World Bank acquires three other arms; including the International Finance Corporation (IFC), the International Development Association (IDA) and the Multilateral Investment Guarantee Agency (MIGA) (World Bank 1995, p.2). During the 1970s, when Robert McNamara was the president of the World Bank, the Bank brought into being its central objectives in terms of redistribution with growth and fundamental human needs. Rural development projects were later incorporated into the all-encompassing modernization and growth-promoting priorities of the Bank (Karn & Mingst, 2010, p.23). Following the fluctuations of the IMF’s fortunes, concerns as pertains to the global liquidity- which was reported in the 1960s- compelled member countries to come up with a new virtual reserve asset under the supervision of the Fund. This called referred to as the Special Drawing Right (SDR). Unfortunately, this never took off since the move was sooner than later outmoded by the excess of dollars in the international financial system- and this was an opposite problem. Following its inability to back a surplus of dollar with its reserves, the USA, in August 1971, did suspend its dollar’s gold-convertibility. This saw the immediate disappearance of the IMF’s principal role of managing a fixed exchange rate system (IMF, 2002, p.1). This saw the IMF try all it could to negotiate for the leader position in negotiations of the form of an exchange rate regime that would perfectly replace the Bretton Woods system; but all in vain. Two years down the line, the key industrialised countries in unison got on a new system in which countries would decide on floating their currencies, on the basis of the market forces of demand and supply in the foreign exchange market in determining the value. In 1978, this system received formal recognition by an amendment of the IMF’s Articles of Agreement (AA). However, the events witnessed in the early 1970s have been limiting the subsequent role of the IMF in respect to non-borrowing member countries to surveillance (Deacon, 2007, p.6). This involves monitoring and reporting on the exchange rate policies of member countries and in this manner help in assuring a stable global exchange rate system. Practically, this means that the staffs of IMF work with their own sought information as well as the economic data that member states do provide in compiling reports for each and every member state’s economic policy and performance. As thus, stronger and wealthier countries hardly influence the process of report compilation. These reports are thereafter presented to the Board of Governors (World Bank, 1995, p.1). Having presented a brief history of these institutions in earlier paragraphs, this paper focuses on discussing- in details, the roles and impact of both the International Monetary Fund and the World Bank in the policy process as concerns poverty in the third world countries, and more especially in the African continent, as well as in other areas across the globe. Positive Aspects of the Activity of the IMF and the World Bank The World Bank avails loans for both projects and reforms and this lending is solely for the developing or the ‘transition’ countries. On the other hand, the IMF is concerned with policies and as thus lends member countries money for meeting a short-term problem in honouring their foreign payments prerequisites. Unlike the World Bank, the IMF is open for all member countries to seek aid. According to Hansen and Hansen (1999, p.46), the World Bank does influence other donor agencies, investors and private lenders and as a result strappingly influenced all aspects of the state’s macro-economy even in the event that the country’s lending portfolio is inconsequential. The annual meeting between IMF and the World Bank serves as a place of gathering for the central bank presidents and the finance ministers of member nations as well as the high-ranking representatives of the leader private commercial banks and investment firms. In Rich’s viewpoint (1994, p.8), such meetings are an unparalleled opportunity for the global bankers, private and public to cut pacts among themselves and with governments. According to some scholars, the IMF is a pro-consular force, possessing the ability to apply great power in poor borrowing countries even when the existent policies are so implemented as a result of treaties with the countries in question. Any disapproval by this Fund of a country’s economic policies is in the offing of leading to a denial of both private and public international credit as well as development aid, since multilateral development banks, private banks and aid agencies bow to the Fund’s seal of approval (Naiman & Watkins, 1999, p.4). In conjunction with the World Bank, the IMF has ended up being the driving force on a worldwide level in not only facilitating, but also guiding economic restructuring in a numbers of the developing countries. In realising the above mentioned structural adjustment has been relied upon as the loaning vehicle by which these so-believed twin institutions have gained access to policymakers and at the same time made efforts to encourage insightful changes in the development policy and economic structures (Reed, 1992, p.3). For instance, both the World Bank and IMF contend that while borrowing countries ought to open their markets, the industrialised countries will be better positioned to increase their protection of their domestic markets against infant light industries of the developing countries. To a larger extent, this is of more benefit to the industrialised countries than to the less developed ones (Rich, 1994, p.188). As thus, the economies of third world countries are with intent and steadily undergoing a reshaping process so as to become more market oriented in line with a global perspective stimulated by both the IMF and the World Bank. Milward et al (2000, p.25) notes that the predominance of structural adjustment programs (SAPs) as a remedial measure for the macro-economic imbalances within the third world economies marks the feat of mono-economies over structuralism. Since the late 1970s, both economic stabilization and structural adjustment programs (SAPs) have been a central part of the lending operations of the multilateral development banks. These account for more than 20 per cent of the total new loaning from the World Bank in the latter part of the 1980s and the early 1990s (Milward, et al 2000, p.24). The World Bank initiated structural adjustment loaning because it had been evidenced that long-term support was indispensable in resolving problems in balance of payment as well as policy mistakes and the essential structure of the economy that was slowing down the economic development in the developing countries (Killick, 1993, p.69). One of the things that led to the increased use of the structural adjustment is the 1973 oil producing and exporting countries (OPEC) oil embargo, which had permitted those countries which were wealthy in terms of petroleum to flood petro-dollars into the global markets (Milward et al, 2000, p.25). Other pre-cursors to the practice of the structural adjustments included such as the increased instability of goods, deteriorating trade terms for the primary products being exported by the developing countries, capital and foreign exchange in world markets, general slowdown of growth which saw the demand for third world countries-produced products go down and the 1980s recession in the developing countries (Killick, 1993, p.1). In an effort to alleviate the situation, and resultantly rescue these countries from further poverty, the World Bank stimulated many countries all over the world to transform agricultural land and tropical forests so as increase the production of cash crops, the likes of cocoa, cotton and coffee among others (Killick, 1994, p.188). According to some authors, industrialised countries, being led by the United States of America, have crafted a situation in which their counterpart developing countries would have no other alternative other than carrying out a restructuring of their economies (Bello, Shea & Bill, 1994, p.6). Back in 1982, the USA did make a USD 300 million cut its promised contribution to the IDA. Other industrialised countries copied the same and this left the IDA with a deficit of USD 1 billion. Since the IDA has been the World Bank’s soft-loan window of granting loans to the poorest countries on concessional terms, the action taken by the developing countries to reduce their contribution acted as the very initial move toward the process of altering the criterion through which IDA funds were being allocated from countries that were in need of the same since these countries had been branded to be poor to their counterparts, who were regarded to be making the most devoted efforts so as to restructure their economies (Bello, Shea & Bill, 1994, p.26). The loans were accompanied by harsh austerity measures since the IFIs hang to the belief that the reason as to why projects were failing was largely as a result of the inherent falsifications as well as ineptitudes in their economies. The governments of the developing countries could hardly control external causes of their debt, despite the fact that they could comfortably oversee their respective economies’ stability and efficiency. By doing away with distortions and instead increasing the internal economic efficiency as well as fashioning a considerably stable macro-economic environment, there are likelihoods of governments strengthening prospects for their long-term productivity improvements, thereby facilitating to counterbalance confrontational international conditions (Reed, 1996, p.11). Both the World Bank and the IMF have been making attempts to assist these poor countries stabilize their national economies by attaching certain conditions which are believed to be the solution to the chronic economic problems in these countries. These efforts include such as the removal of trade barriers and the elimination of subsidies. Between 1980 and 1992, for example, structural adjustment loans and sectorial adjustment loans averaged to 26% of the World Bank’s total lending. Moreover, thirty eight sub-Saharan countries did implement structural adjustment programs with USD 7.1 billion from the World Bank within the same period (Harrigan, 1997, p.848). These programs have been geared toward reforming and restoring growth in the region’s principal tradable goods sector, and in this case agriculture. In efforts to reduce poverty in the African continent (and probably in other areas across the globe), the IMF and the World Bank did initiate the Poverty Reduction Strategy Paper (PRSP) in 1999. Successful plans toward fighting poverty necessitate country ownership as well as a broad-based support from the general public so as to record success. The IMF and World Bank’s PRSP does contain an assessment of poverty in the developing countries- and more especially in Africa- and at the same time avails a description of the structural, macro-economic and social programs, procedures and policies which a country ought to pursue over a number of years so as to promote growth of the country as well as reduce the poverty levels of its nationals. Also included in the PSRP are the external financing needs and the accompanying sources of financing (IMF, 2002, p.1). The PRSP approach is a comprehensible country-based poverty reduction strategy and its introduction was a result of the IMF and the World Bank having come to the realisation of the significance of country ownership of reform programs and the need for a wider focus of reducing poverty. The aim of this approach has all through been to avail the imperative link between national public actions, donor support and the development upshots in efforts to meet the United Nations’ millennium development goals, which are centred on cutting down poverty by 50% by the year 2015. In seeing to it that poverty in the third world countries is quantifiably reduced, the PSRP approach has incorporated five principal principles in the strategies so embarked on to reduce poverty (Karns & Mingst, 2010, p.26). To begin with, the IMF and the World Bank have ensured that the approach is country-based. This has resultantly guaranteed the promotion of national ownership of the strategies to reduce poverty via a broad-based participation of civil society. Besides, the approach ought to be result-oriented and dedicated to outcomes that will be of benefit to the poor. In addition, the approach has to be inclusive in recognizing the multidimensional nature of the country’s poverty and at the same time rooted on a long-term perspective for purposes of reducing the levels of poverty. In order to the approach to be regarded as feasible, it has to be partnership-oriented; involving synchronised participation of various development partners including governments, domestic stakeholders as well as external donors (World Bank, 2002, p.1). Presently, IMF’s and World Bank’s PSRP approach is well established in a number of countries and besides, it has been closely linked with measurable advances in country ownership, making poverty reduction more protuberant in policy debates and as a result smoothing more and more open dialogue. By February 2012, a hundred and ten PSRPs had been circulated to the IMF’s executive board and fifty seven other interim ones already having been issued. With vast numbers of PRSPs in place in the low-income countries, what has been the area of concerned in the recent past is their effective implementation. The most notable aspect with PSRP approach is that it is subject to periodic assessment by staff. As per the past reviews, paramount areas of concerns have been realism, significance of country ownership, flexibility and better prioritisation on the issue of setting targets and goals as well as more open deliberations on alternative policy choices (Peet, 2003, p.5). The requisite for donors to see through the enhancement of the overall effectiveness of aid by aligning their support around the priorities articulated in the PRSP in a better way is an area of concern. Additionally, there is a need to simplify and harmonise the policies and practices put forward by the approach. As per the outcomes presented by the IMF and World Bank staff involved in a joint research, it was evident that the role PRSPs play in ensuring the realisation of balance of the different tensions inherent in the creation of national development strategies between realism and ambition and domestic accountability is closely related to ownership. Following the reform of the IMF’s low-income country facilities that took place in 2009, country-owned PRSPs still remain to be the basis of sustained program rapports with IMF under the policy support instrument (PSI) and the extended credit facility (ECF). Additionally, programs receiving support from the Fund’s concessional loaning facilities are likely to include precise quantitative targets so as to safeguard social and other precedence spending, consistent with the primacies in national poverty-reduction strategies (World Bank, 1995, p.5). In efforts to assure improved effectiveness of the PRSP process, IMF has purposed to carry on with channelling its aid to countries in designing realistic, though flexible, macro-economic frameworks which have a close link with the national budgets and strategies. It is also purposing to align its country operations and program work in such a way that they will remain as close as possible to the domestic cycles. Besides strengthening public expenditure managements with an aim of maximizing the impact of public spending on poverty reduction, the Fund is also working hand in hand with other donors so as to realize better and coordinated assistance that will augment aid effectiveness and at the same time rationalise support for the implementation of PRSP. Obstacles to Change in World Bank’s and IMF’s Poverty-Reduction Policies In large and complex institutions the likes of the World Bank and IMF, obstacles to change and adoption of policies are numerous. Some of these include such as the pipeline effect, the need for internal as well as external pressures, institutional structure and perverse incentives. Fox & Brown (1998, p.306) highlights two conceptual frameworks for availing an explanation of change in large international and /or public organizations; institutional learning and external pressure. According to the proponents of external pressure, large organizations are hardly exposed to being self-critical or self-reflective as a result of entrenched interests and as thus, change is so realised due to pressure from outside forces. On the contrary, those viewing change as a form of institutional learning perceive both the IMF and the World Bank as adaptive and thereafter avail an explanation of the evolution of policies as a result of lessons from pat experiences. According to Fox & Brown, changes in policies are more often than not as a result of interaction between internal reform and external pressure (Fox & Brown, 1998, p.334). In going through the Resettlement Review of the World Bank, scholars note that the need to head off potential external criticism strengthened the reformers internal education and lobbying efforts (Ibid, 334). For change to be realised, it seems that both internal reform and external pressure have to be present in one fell swoop. Secondly, policy change by the World Bank and IMF has been slowed down by the lengthy lead time between changes in policies by top-level executives as well as the project managers’- implemented on-the-ground result, what is commonly referred to as the pipeline effect. Misalignment of policies and staff incentives has also been another of the obstacles to change. In the case of the World Bank, environmental and social policies are the ones which do determine the manner in which staff will carry out an assessment of the impact of the economic projects. However, this is more often than not in conflict with the interests of the precise project managers and their overseers who get professional rewards for moving money hurriedly through the system (Fox & Brown, 1998, p.528). The very last impediment to this change is internal institutional structure. As a matter of fact, there are hardly any systematic internal rules within the World Bank to see to it that the staffs abide by the set policies. Conclusion From the above discussion, it is crystal clear that past structural adjustment experiences- in most cases- indicate that both the World Bank and IMF have played a very central role is cutting down the levels of poverty in the developing countries via such initiatives as trade liberalisation and public sector reduction. Furthermore, through these SAs, the developing countries are better equipped to sustain their natural resources on a long-term basis, thus aiding in remedying the problem of poverty. In the long run, structural adjustments have the tendency of causing countries to prioritise short-term BOP improvements while at the same time short-changing long-term goals of sustainability and development. In Reed’s argument (1192, p.161), he notes that adjustment loaning has over the time had a random impact on the environment and placed countries to the right and sustainable development path, thus addressing the various poverty-related problems. References Bello, Shea & Bill, W, Shea, C & Bill, R 1994, Dark Victory: The United States, Structural Adjustment and Global Poverty, London: Pluto Press. Brown, E, Milward et al B, Mohan, G & Zack-Williamsons, AB 2000, Structural Adjustment: Theory, Practice and Impacts, New York: Routledge. Deacon, B 2007, Global Social Policy and Governance, London: SAGE Publications, Ltd. Fox & Brown, J & Brown, LD 1998, The Struggle for Accountability: The World Bank, NGOs and Grassroots Movements, Cambridge, Massachusetts: MIT Press. 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