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"The United States has viewed all multilateral organisations including the World Bank, as instruments of foreign policy

to be used in support of specific US aims and objectivesUS views regarding how the world economy should be organised, how resources should be allocated and how investment decisions should be reached were enshrined in the Charter and the operational policies of the bank." -The Brookings Institute.

Objectives and function of WB & IMF


The IMF and World Bank are often depicted as a heartless moneylender which forces poor countries to adopt bad policies and takes its pound of flesh back while the countries sink further into poverty. While IMF loans are essentially aimed at resolving short-term balance-of-payments problems, the attached conditions covering fiscal, monetary, exchange rate, privatisation, deregulation and financial liberalisation issues restructure the whole economy and affect its long-term development potential. Although most developing countries are in need of fundamental reform along the general economic principles advocated by the IMF, the problem lies with the specifics of the IMF reform agenda. The problem lies in the fact that the IMF is filled almost entirely with macro-economists who specialise in short-term macroeconomic stabilisation issues but have little background in long-term development issues. Moreover, IMF loans are usually short term and given when countries are already in distress and thus ill-equipped to afford belt-tightening or major reforms. The IMF advocates stifle prospects for long-term growth by retarding development. The IMFs policy towards Public Sector Enterprises (PSE) is a case in point. The policy is to privatise PSEs and use the proceeds to repay debt and prevent the PSEs from being a further drain on the exchequer. This view continues to hold despite the fact that competing countries have created national champions out of their PSEs.. The World Bank was established to promote long-term foreign investment loans on reasonable terms. The, purposes of the Bank, as set forth in the 'Articles of Agreement are as follows: (i) To assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purpose including;the restoration of economies destroyed or disrupted by war;the reconversion of productive facilities to peaceful needs; and the encouragement of the development of productive facilities and resources in less developing countries; (ii) To promote private investment by means of guarantee or participation in loans and other investments made by private investors. (iii) When private capital is not available on reasonable terms, to supplement private investment by providing on suitable conditions finance for productive purpose out of its own capital funds raised by it and its other resources.

(iv) To promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living, and conditions of labour in their territories. (v) To arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent projects, large and small alike, will be dealt with first. (vi) To conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and in the immediate postwar years, to assist in bringing about a smooth transition from a wartime to peacetime economy.

WB & IMF policies negative impact on Developing country


Since the creation of both the International Monetary Fund (IMF) the World Bank (WB) over 60 years ago, both have provided trillions of dollars in loans to poor countries. In addition to providing financial resources, the World Bank along with the International Monetary Fund (IMF) took the lead in making policy prescriptions to the third world, which it ensures are adopted by making them conditions for lending. The third world sits on debts of over $1.3 trillion, which has seriously hindered the third worlds abilities to provide for the basic needs of their citizens, and imposed conditionality interferes with governments rights to make sovereign decisions. The World Banks Global Finance Development 1999 publication tracked the annual movement of international capital flows to developing countries, presenting new information about the scale of the debt crisis. It showed that total debt continues to rise, despite ever-increasing payments, while aid is falling. The developing world now spends $13 on debt repayment for every $1 it receives in grants, as summarized by the Jubilee 2000 campaign. The size of the debt trap can be controlled to claim all surplus production of a society, but if allowed to continue to grow the magic of compound interest dictates it is unsustainable. One trillion dollars compounded at 10 percent per year become $117 trillion in fifty years and $13.78 quadrillion in one hundred years, about $3.5 million for every man, woman and child in the Third World. Their debt is 50 percent greater than this and has been compounding at twice that rate over 20 percent per year between 1973 and 1993, from $100 billion to $1.5 trillion [only $400 billion of the $1.5 trillion was actually borrowed money. The rest was runaway compound interest]. If Third World debt continues to compound at 20 percent per year, the $117 trillion debt will be reached in eighteen years and the $13.78 quadrillion debt in thirty-four years. J.W. Smith, The Worlds Wasted Wealth 2, (Institute for Economic Democracy, 1994), p. 143. However both multilateral organisations have very little success stories to boast about and are

now seen as tools, which destroy economies. The world banks notorious structural adjustment policies came to be so maligned that its name was changed to poverty reduction and growth facility. The IMFs bailouts, financial packages and reforms have also become notorious leaving many nations in poverty and with mountains of debt. Below is a list of some cases: - Argentina was considered by the IMF to be a model country in its compliance to policy proposals by the Bretton Woods institutions; however it experienced a catastrophic economic crisis in 2001, which was caused by IMF-induced budget restrictions which undercut the government's ability to sustain national infrastructure in crucial areas such as health, education, and security. The IMF intervened to ensure its loans would be repaid and enforced a set of reforms to achieve this. Argentina was ordered to structurally change their economy to concentrate on exports in order to raise enough money to pay off their debts. Argentina was forced to remove all barriers to foreign trade and enter the global marketplace this resulted in the collapse of many local Argentine companies, as economically Argentina was not ready. Argentina was forced to request further loans to feeds its population which actually led to nation wide looting in 2001. In December 2001 on the verge of economic meltdown Argentina defaulted on its $93 billion debt. - The fall of communism in 1990 and the break-up of the Soviet Union represented a wonderful opportunity for capitalist institutes to transform a huge centralist economy to a market orientated one. A total of $129 billion poured into Russia with $22 billion by the IMF and the World Bank implemented a number of its development schemes. The IMF and WB enforced its export policy as its does to all nations as a result all industry was developed to produce goods ripe only for export abroad, hence Russia would forever become reliant on worlds prices and world currency rates. Petroleum, natural gas, metals, and timber accounted for more than 80% of Russian exports, leaving the country vulnerable to swings in world prices. Hence when the crisis hit in 1997 Russia was so integrated into the global economy it wasnt even able to protect itself. The crisis raised poverty from 2 million to 60 million, a 3000% increase. UNICEF noted that this resulted in 500,000 'extra' deaths per year. - The World Bank in 1976 introduced a Transmigration program (Transmigration V) in Indonesia. This project was funded after the establishment of the Banks OESA (environmental) office in 1971. Transmigration V was the largest resettlement program ever attempted and designed ultimately to transfer, over a period of twenty years, 65 million of Indonesians 165 million inhabitants from the overcrowded islands of Java, Bali, Madura, and Lombok. The WB objectives were: relief of the economic and social problems of the inner islands, reduction of unemployment on Java, relocation of manpower to the outer islands, the strengthening of national unity through ethnic integration, and improvement of the living standard of the poor. The project was a resounding failure it failed as the new settlements went out of control; a local population fought with the migrators and the tropical forest was devastated (destroying the lives

of indigenous peoples). Many of the settlements were established in inhospitable sites. The Funding continued through 1987, despite the problems noted and despite the Banks published stipulations (1982) concerning the treatment of groups to be resettled. - Jamaica was also on the receiving end of an IMF solution. In 1978, one year after Jamaica first entered a borrowing relationship with the IMF, the Jamaican dollar was still worth more on the foreign exchange market then the US dollar; by 1995, when Jamaica terminated the relationship the Jamaican dollar had eroded to less than USD 2 cents. The help of the IMF became highly questionable in the crisis. These examples along with numerous others clearly illustrate the failure of IMF and World Banks neo-liberal policies. However understanding their failure is much deeper then any reform or restructuring can fix, this can be understood if one looks at the origins and the allocation of decision making powers. It was the US after its new found dominant position after WW2 that decided international organizations were required to stabilize and maintain the international financial system and world development. The US with the most influence in the world at the time ensured the dollar became the central currency to which all currencies would be pegged even gold was pegged to the dollar; as a result what was created was a global economic system that traded in dollars. Thus the US global economic hegemony was secured, long term, through the vehicles of the IMF and World Bank, the US still today has the most voting rights in the World Bank amounting to 16.4% double then second placed Japan who has 7.9%. The US has similar veto rule with 17% of IMF voting rights. The US influence was outlined by Mark Weisbrot, director of the Washington-based Centre for Economic Policy Research, who said "The IMF is not really an independent actor; I don't think there's anyone in this town who would tell you with a straight face that it is not controlled by the US Treasury. As a result, there has been a clear backlash to the disastrous financial failure of the neo-liberal, Washington Consensus economic model, promoted and imposed by the IMF and the World Bank. Venezuela has announced it is to pull out of the World Bank and IMF, Ecuador has expelled the Banks representative, declaring him persona non grata. Ecuadors new President, Rafael Correa, accused the World Bank of blackmail. IMF proposals resulted in more than half of Ecuadors 13 million inhabitants living in poverty. This poverty was a direct result of an IMF policy, which required Ecuador to collect and distribute its oil revenue with debt payments given priority. The fund was initially structured to allocate 70% of resources to service Ecuadors foreign debt. Africa is also following suit, Nigeria recently reached the end of a huge debt elimination programme, which has nearly put an end to its national debt. The program involved the auctioning of 1.76m oil warrants, with about 21% bought back. Buying back these warrants will save the country about $11m a year in interest payments. Nigeria will still pay just under $42m

annually at current oil prices, but this is a drop in the ocean compared with its oil-related earnings and its debt being over nearly $30 billion only a few years ago. Angola in April cancelled all negotiations with the International Monetary Fund, on the grounds that it is quite able to maintain economic stability on its own. Angola successfully implemented its own economic programme while relying exclusively on its own resources. During the past few years, the Angolan economy has gone through massive growth and inflation has been brought under control by closing its economy to foreign companies, by being centrally driven and by not operating free markets. Similar policies are also coming from Tanzania. An updated graphic from the BBC on Africas debt servicing shows that a couple of countries even spend between 25-40% of government revenue on debt service, while many more fall within the 5 to 25% bracket. In regards to the third world countries it has also faced the brunt of IMF and World Bank led policies which apart from failing, benefit only the corrupt leadership resulting in the suffering of the people when the institutions intervene to secure their loans. The IMF delivered millions of dollars in loans every year to General Suharto and continued to support the corrupt economic practices of Suharto and his cronies, which alongside the general economic crisis in 1997 left half of Indonesia in poverty and with debts of $140 billion. Turkey experienced the same in 2000 when speculators moved their money out, resulting in the collapse of the Turkish lira. The IMF stepped in with a bailout package and Turkey today remains reeling with debts of $161 billion. In the nations that comprise the Middle East and North Africa Overall, 14 percent of regional export earnings go to debt service. In Lebanon, debt service accounts for 47 percent of the government's budget. Jordan, Morocco, Tunisia and Turkey all spend more on debt service than they do on education; all spend twice as much on debt service than they do on health care. Sudan and Yemen are among the 41 countries identified as Heavily Indebted Poor Countries [HIPCs]. Pakistan continues reeling in external debts of $36 billion and still awaits debt write-offs for its unstinting support of Americas global war on terror. However, there is no political will by any of the developing country rulers to work outside the international financial system even though Latin America is leading the way on how to do this.

Some poor countries are told by the IMF and World Bank to pay around 20 to 25 percent of their export earnings towards debt repayment. Yet, [n]o European country including Britain, France and Italy is repaying its loans at levels higher than four percent. Why then do they insist poor African countries pay what they refuse to pay and consider unsustainable? We are forced to make sad assumptions in the absence of a plausible answer as Charlotte Bagorogoza.

Reference:
1. 2. 3. 4. 5. 6. 7. 8. 9. http://www.preservearticles.com/201012291899/objectives-of-world-bank.html http://devnetjobs.tripod.com/rati/bank.htm http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty http://www.globalissues.org/issue/28/third-world-debt-undermines-development http://www.globalissues.org/issue/28/third-world-debt-undermines-development www.en.wikipedia.org www.globalaisation101.com www.globalresearcher.com The Impact of World Bank and IMF Programson Democratization in Developing Countries, Sophia Limpach & Katharina Michaelowa

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