JANGAS, JOVANNY C.

HISTORY 101
BSN III-K
WB with her sister IMF

World Bank is an international financial institution that provides leveraged

loans to developing countries for capital programs. The World Bank is the largest
public development institution in the world, meaning it lends public money to
national governments around the world at reduced interest rates to support
development projects.
IMF is an international organization that oversees the global financial
system by following the macroeconomic policies of its member countries; in
particular those with an impact on exchange rate and the balance of payments. It
is an organization formed with a stated objective of stabilizing international
exchange rates and facilitating development.
WB and IMF refer to financial institutions that have been established by
more than one country and hence are subjects of international law. Their owners
or shareholders are generally national governments, although other international
institutions and other organizations occasionally figure as shareholders.
Their members lend money for developmental projects; they provide
capital partly in cash and partly in pledges or guarantees. They WB uses as the
basis for borrowing additional funds from private banks and other capital markets
and this fund lent to government of underdeveloped countries. While the member
of IMF contributed financially. Now the IMF controls huge financial resources.
Both Bank operations are controlled by a board of executive directors.
They are appointed by member countries with the largest capital in the bank
which is USA, the largest shareholder of both banks. When it comes in decision
making, it depends and must be based on their contribution to the bank. It needs
an approval by a big shareholder before policies and operations are final. They
meet each year to discuss the policies the bank should adopt over the following
years. Since US control the banks, we can conclude that whatever new policies it
adopts each year , these will continue to advance to general and specific global
interest of these states and their giant corporation even at the expense of the
shareholder of the bank.
Both institutions were organized to rebuild an economic order of the post
war world based on free enterprise and international trade which would keep as
many countries as possible open to the investment capital and products of
transnational corporation. Free access to markets all over the world and free
access to sources of raw materials is their central feature. The IMF official
purpose is to promote international cooperation, and the expansion of
international trade and monetary convertibility and stability.
World Bank would provide needed loans and investment capital but there
are conditions, the member countries pledge to remove all restrictions on
international trade, particularly controls on import and foreign exchange
transactions. Before they can borrow they sees to it that the government
complies with its recommendations for changes in economic policies, eliminate
government price subsidies and cut the size of the public sector. The bank
chooses the project it will approve and must impose prior conditions. When the
loan is granted, it exercise control over the project and through a tight monitory
mechanism. When the borrower has a project, they must provide half of more of
the project. The bank decides how to spend its money, it also decides how to
spend ours, and then of course we must repay the loan with interest. The US
also practices protectionism, it instructed to vote against loans for countries that
have nationalized US property as well as to oppose funding projects that could
damage their industries.
Initially, the IMF supposed to provide short term loans to countries having
temporary trouble paying for their imports. When prices of third world imports
including oil were rising rapidly while prices of their own export products were
going down, imbalances of trade become chronic. So the IMF began to give long-
terms loans. In additions the fund also creates an international reserve currency
known as SDR. A country can borrow SDR’s equivalent to its own quota without
any problems. But once it goes beyond this limit, the IMF begins to impose
conditions which become stricter as the amounts being borrowed become larger
and larger. The ends of the borrowing line in the extended fund facility given to
countries which have already borrowed double their quota and still need more. At
this point, the fund exerts almost complete control over country internal economic
policies. So some countries borrowed from private banks instead. But it is
impossible for today because the international banks tie up with the IMF. When
debts are piled up and it looks as if country can no longer pay, the IMF will lend it
money to pay its debts to the banks. When the balance payments become bigger
and bigger, the IMF impose conditions, freezing of government expenditures,
more taxes and higher fees levied by government agencies for public services,
reduction in government investment, import liberalization through tariffs reduction
and removal of restricted products list, limiting short term credit facilities, and
freezing in both the public and private sectors.
It is not surprising that the government launched reform programs. Tariffs
on a long list of imported goods, including luxuries were removed by the
government leading to the massive entry of foreign goods and bankruptcy of
Filipino owned industries. The WB pressure the loan recipient to increase their
services to be in better position to repay its loan. In some way from these loans,
the price we pay is the loss of our independence to decide of our own economic
development. As a result higher taxes, low wages, loss of workers rights and
higher prices. All theses are guarantees that loans will be paid and foreign
investment will continue to reap high profits. A sector of Filipino businessman
also benefit from bank- financed project, despite increased productivity, majority
of Filipinos peasants agricultural workers remain poor because much of the
harvest just goes to the purchase of expensive farm inputs.
World Bank loans are more attractive because interest rates are lower
than the commercial banks rate and the loan is for a longer period of time. But
Reagan administration, the interest rates and fees are going up. Moreover the
bank is now promoting co- financing of its loans by private banks. This means
that we borrow; we pay a lower interest for the part of the loan that comes from
the WB and a higher interest for the part co- financed by private banks.