World Bank

& Imf Essay, Research Paper

“Debt repayments divert money away from basic life-saving health care in the world’s poorest countries. The UN estimates that if funds were diverted back into health and education from debt repayment, the lives of seven million children a year could be saved. That is 134,000 children a week.” In today’s global village one cannot ignore the other eighty percent of the world that lives in poverty. The World Bank and the International Monetary Fund (IMF) are two organizations that have been put in place to help third world countries get out of debt, but instead have further hurt the country. The World Bank and IMF instead of helping developing nations have been helping their contributors. The organizations have damaged a nation’s economy, privatized many government run programs, reduced funding to social programs and have put in place many harmful Structural Adjustment Plans (SAPs). The World Bank and The IMF have also contributed to the destruction of the environment in developing nations. They introduced harmful chemicals that are used to get larger yields in crops, have forced countries to produce cash crops to repay debts, have funded large dams that disrupt life, and encouraged the use of fossil fuel. The World Bank and the IMF have a negative impact on both the development and the environment of the nations that they are allegedly trying to give aid to.

The World Bank was formed in 1944 and is made up of five closely related branches. The International Bank for Reconstruction and Development (IBRD). The IBRD provides loans and advice on development to middle income countries and creditworthy poorer countries. IBRD sells bonds to richer countries to help provide money for the country in need. The International Development Association (IDA) is part of the Bank’s poverty reduction mission. It focuses in on poorer countries of the world. The International Finance Corporation (IFC) finances private sectors and government businesses. The Multilateral Investment Guarantee Agency (MIGA) encourages foreign investment and provides technical assistance to help countries with investment opportunities. The International Centre for Settlement of Investment Disputes (ICSID) facilitates settlements between investors and borrowers. The aim of the World Bank is to help third world countries further develop, to alievate hunger and poverty and promote economic growth.

The IMF and the World Bank are two organizations that are tied together. Their actions and plans are very similar. Both lend money to countries, and have become the only place that countries with a bad credit record can get loans. This makes the two organizations very powerful. They act as world mediators, they resolve problems between creditors, and the countries who owe them money.

The IMF was established in 1946 it lends money to countries that are in need. The organization conducts research, provides financial assistance, and technical assistance. The IMF has a membership of 182 countries. These members joined to promote international cooperation, stability in international economics, foster economic growth, and to provide financial assistance to countries to help elivate poverty. The IMF is active in three areas. The first is surveillance; this is the process by which the IMF appraises its members’ exchange rate policies, by the analysis of the general economic situation of each member. The IMF fulfills its surveillance responsibilities through: annual bilateral Article IV consultations with individual countries, multilateral surveillance twice a year in the context of its World Economic Outlook (WEO) exercise.

The World Bank and IMF often use their power to benefit themselves and the G-7 countries. Canada, France Germany, Italy, Japan, United Kingdom, and the United States make up the G-7. They are the top contributors to the World Bank and the IMF. Together they control over 40% of the votes in the World Bank and IMF . The United States is the only country with a veto power over amendments to the Articles of Agreement of the World Bank . The president of the World Bank is American and the President of the IMF is European. The developing countries have little say in what happens in the World Bank and the IMF, even though they are affected the most by their policies. The World Bank usually funds large projects that require a lot of high-tech equipment and high skilled workers to use them. These products and workers often are North American or European. “U.S. Treasury Department officials calculate that for every U.S.$1 the United States contributes to international development banks, U.S. exporters win more than U.S.$2 in bank-financed procurement contracts.” Another instance where the World Bank and the IMF have helped their top contributors was during the Green Revolution. The Bank approved US$56.9 million worth of contracts for pesticides and agrochemicals to be supplied by France (38%), Germany (27%), the United Kingdom (15%), the United States (11%) and Japan (10%). By helping their contributors the World Bank and IMF have helped themselves by pleasing their most important clients, the G-7.

The World Bank and IMF have claimed to be very helpful to countries that are in debt, but instead have helped make life harder for them. The two organizations have hindered development and have damaged the environment of developing nations around the world. When individuals become deeply in debt they have an option of claiming bankruptcy. Bankruptcy is a line that the government does not allow people to fall beyond. No such line can be drawn in international law. When poor countries become deeply indebted they fall into an abyss of economic degradation. Their governments owe vast sums to Western-controlled institutions; the World Bank and the IMF. These countries still have to turn to the World Bank and IMF for help because they are no longer credit worthy (no other organization will lend them money) and are so heavily in debt that they must listen to whatever structural adjustment plans (SAPs) that the organizations impose on them.

DEVELOPMENT

The World Bank and the IMF instead of helping a nation’s economy have been very detrimental. Many countries that the two organizations have ‘helped’ have not repaid their debts. Instead the debts have increased. This can be seen in Sub-Saharan Africa, despite being rich in human and natural resources they are among the poorest nations in the world. Most have borrowed money from the World Bank and IMF and have followed what they have been told to do, yet they are still in debt. The careless lending which the World Bank and IMF and high interest rates have resulted in the economic crisis that many countries are in today. The more a country borrows the farther it goes into debt, a spiraling effect that a nation cannot solve by itself. To payback loans, these countries must have a high taxation rate, which hurts the economy, small industries/businesses cannot survive and are taken over by multinational corporations. Multinational corporations find ways around taxation, which cost countries even more money, making them raise taxes even more . Another way that the World Bank and IMF have told their lenders to save money is to privatize government industries. The effects of privatization can be seen in Mexico. Nearly, one thousand state-owned enterprises have been sold since 1983. Telephone bills rose from sixteen pesos per minute to one hundred and fifteen pesos per minute. The biggest losers from the privatization were consumers who paid an extra ninety trillion pesos for their phone service. By privatizing government controlled services the people suffer and only large companies gain. The World Bank and the IMF are hurting their borrowers by carelessly lending then forcing the country to pay back the loan by privatizing government services. Another way that the World Bank and the IMF force countries to payback loans is through Structural Adjustment Plans (SAPs).

Structural Adjustment Policies are policies that are imposed on borrowers that must be followed in order to qualify for new World Bank and International Monetary Fund (IMF) loans and help them make debt repayments on the older debts. Although SAPs are designed for individual countries, they have common guiding principles and features which include export-led growth and the efficiency of the free market. They generally require countries to devalue their currencies against the dollar; lift import and export restrictions; balance their budgets and not overspend, and remove price controls and state subsidies. By devaluing their currency the country encourages foreign investors, makes their products cheaper on the market, which in turn sells more products because of the reduced price. Though this seems good it also raises the cost of debts, because all loans are measured in dollars. It also makes importing more costly (importing is usually required because farmers produce export-oriented cash crops like cocoa, coffee and tobacco instead of food to feed the people.) These seem to benefit the richer countries more than the poorer ones. Making imports cheaper and at the same time not hurting export revenues for the richer countries.

The World Bank and IMF have influenced third world politics and third world political issues even though they are not governing bodies of the nations. The two organizations are not International, or national law makers but many times have used their position to influence a country. The World Bank and the IMF have often interfered with domestic issues. The Bank admits in many of its literature that it does take an active role in the domestic affairs of its borrowers. In India the World Bank threatened to cut off its telecommunications loans unless India agreed to certain ‘conditions.’ Catherine Caufield the author of the book Masters of Illusion: The World Bank and the Poverty of Nations, an in depth look at the World Banks dealings with its lenders says “They’re seeing themselves more and more as a world government.” The World Bank has also decided to ban U.S. funds from going to countries that are considered enemies of the U.S. Since the United States is the only shareholder that has a veto power over the amendments to the Articles of Agreement it would also seem that the Bank must answer to them and make decisions that would help the U.S. This power that the U.S. holds over the Bank affects the Bank’s decision making when dealing with countries deemed enemies of the United States.

ENVIRONMENT

The World Bank and the IMF besides hurting a country’s development also have a very negative impact on the country’s ecosystems, and the general environment. Forcing countries to be very export-oriented, funding projects that often damage the environment, promoting countries to lower environmental standards to encourage industrial development are some of the ways the two organizations affect a countries environment. The World Bank and the IMF fund three different projects that affect the environment very heavily; logging, export-oriented agriculture, and large dams. Together these three ecological disasters are damaging countries natural environment beyond repair.

Logging is one field that the World Bank and the IMF heavily promote. The World Bank and the IMF have funded many different logging operations around the world. In 1981 the two organizations lent a total of $445 million to the Northwest Brazil Integrated Development Program to pave one thousand five hundred kilometers of dirt roads into a remote region in Rondonia. This new road caused logging to multiply ten times from the time the road was built to 1991. The president of the World Bank in 1987 was Barber Conable and she openly said what a failure the project was. The World Bank and the IMF also lent millions of dollars to companies to cut down four hundred and eighty thousand hectares in the Congo. The World Bank and the IMF have also affected forests by encouraging countries with densely populated areas to spread and remove forests if necessary. The two organizations provided a US $500 million loan to help the migrations of Indonesians to the islands of Sumatra and New Guinea both of which had untouched forests which were cut down, or burned to provide living space and/or space for agriculture. Since the World Bank and the IMF preach export-oriented economies to developing countries so they can pay back loans, the country is forced to ignore pressure from its citizens and other countries to conserve forests because they are the lungs of the earth. It is obviously not fair that countries be looked down on if they cut down forests because that is one sources of income for them. Conserving forests help the world, more than it helps the country. If the north does not want the south to cut down forests then the north should compensate the south for lost profit from conserving their forests. This ‘debt for nature swap’ seems to be the only solution because the south is so heavily in debt that they cannot afford to lose any profit that can be made from exploiting their natural resources. Trees are one sustainable resource that can be managed through hard work and proper planning. The World Bank and IMF export-oriented economy plans for their borrowers do not allow for any planning for the future to be made. The two organizations long arms do not only affect forestry, they also play a key role in the agriculture of developing nations.

The World Bank and the IMF have heavily funded projects in agriculture that damage the environment. The World Bank started a program called the Green Revolution. This program promoted export-oriented crops that were grown using heavy machinery, over fertilizing, and pesticides. Any small farms that could not afford the techniques would be forced to close down or sell to larger farms. Not only did this revolution hurt the country’s economy it also destroyed the environment with all the fertilizers and pesticides, running off into the local water systems, and into the air. The extra phosphorus and other fertilizing chemicals in the water caused massive amounts of algae and other plants to grow, when the fertilizers were all used up the plants would die. The decomposition of the extra plants uses up all the oxygen in the water, which suffocates the fish and throws off the local ecosystem. Pesticides are harmful to humans, but cause even more damage to the local wildlife. They do not know that their food is contaminated, and if they did, they cannot wash their food before they eat. Biocides build up in small animals and slowly move up the food chain getting more concentrated as one moves up the chain. Also these export-oriented crops do not have nutritional value, like coffee, cocoa, and tobacco, if they are not sold on the international market they cannot even be used locally because poor people need to buy food not coffee. In the 1960’s India and the U.S. banded together to promote the green revolution. India imported seed, fertilizer, and machinery. The World Bank and the IMF gave large loans to fund these projects, to help India’s agricultural industry. India’s agricultural output did increase but the environmental damage in the form of soil degradation, tainted water supplies, and destruction of the local wildlife will cost just all the money they made to repair the environment. Another large concern for the ecosystems of the world is Mega Dams.

The World Bank and the IMF believe in funding large projects that create lots of jobs. A common project is dam building. Though these projects do create a lot of jobs, the high skilled, high pay ones are filled in not by the local workforce but are flown in from richer countries. Dams are a major environmental hazard because it changes the existing ecosystem by destroying forests, wetlands, fisheries and affects the community downstream, increases waterborne diseases. The Yacyreta Hydroelectric project, one of the largest hydroelectric projects in the world, is a joint project between Argentina and Paraguay. The effect of this dam was felt in Paraguay when it destroyed a unique system of large river islands with an impressive biodiversity, widespread species of fauna and flora and the ancestral home of indigenous communities. There are many riverside communities that are forced to leave their homes because of flooding. Another project that the World Bank funded was the Narmada River dams, a series of thirty dams. The largest is the Sardar Sarovar Dam that has received the most attention. This dam is the largest out of the thirty and would displace 320,000 people, and negatively affect another 1,000,000. The stagnant water combined with monsoons would cause massive flooding along the banks of the river. Poor planning and research seems to be the code that the World Bank and the IMF follow when it comes to building dams. The long term ‘benefits’ of dams include new and more powerful disease, polluted water supply, bad sewage system because of the rise in water levels, and severe environmental destruction.

The World Bank and The IMF have had negative impacts on both the environment and the development of the third world nations that they are supposed to be helping. The two organizations destroy the environment through their export-oriented economies forcing countries to cut down their trees, through encouraging the use of harmful fertilizers, and pesticides, and through the construction of dams. They hurt the economies of nations by carelessly lending and having high interest rates on their loans, they enforce very harmful SAPs, that cut into social programs and lower the standards of living, and by interfering in the politics of borrowing nations. The World Bank and the IMF should not claim that they elevate poverty if they are going to be the main cause of it. After several generations of poverty people stop buying into short term suffering for long-term benefits, and because it is simply not true. At this level debt becomes a vicious circle that cannot be broken by enforcing SAPs or building dams, and the only alternative is to forgive the debt. The World Bank and The IMF can no longer act as collaborator in development because they have been exposed as slave drivers in our society today. The world does need a governing body but can organizations that steal from the poor to give to the rich really lead the world into the twenty-first century?

Bibliography

Endnotes

Hugo, V., Jubilee 2000, http://www.jubilee2000uk.org/main.html 04/16/00 pg 1

unknown,. World Bank Role In Today’s Society IBRD http://www.worldbank.org/html/extdr/backgrd/ibrd/role.htm 04/16/00 pg 1

unknown,. World Bank Role In Today’s Society IDA

http://www.worldbank.org/ida/idao.html 04/16/00 pg 1

Brutten, J., IFC Overview

http://www.ifc.org/about/ 04/16/00 pg 1

unknown,. MIGA Helping Developing Nations

http://www.miga.org/screens/about/about.htm 04/16/00 pg 1

unknown,. World Bank Role In Today’s Society ICSID http://www.worldbank.org/icsid/about/about.htm 04/16/00 pg 1

unknown., International Monetary Fund At a Glance http://www.imf.org/external/np/exr/facts/glance.htm 04/16/00 pg 1

8 Brigitte Granville, Global Finance: Bingo or Fiasco, International Affrairs, Vol 75 Num 4 Oct 99. pg 710

Catherine Caufield, Masters of Illusion, (New York: Henry Holt and Company, Inc., 1996), 180

Henry, K., World Bank and IMF Fact Sheet.

http://www.globalexchange.org/wbimf/faq.html 04/16/00 pg 1

unknown., Pesticide Use in Developing Nations

http://www.50years.org/factsheets/pesticide.html 04/16/00 pg 1

Brigitte Granville, Global Finance: Bingo or Fiasco, International Affrairs, Vol 75 Num 4 Oct 99. 714

John Kenneth Challenges for the New Millennium, Finance & Development, December 1999, 14

unknown., Structural Adjustment Plans.

http://www.whirledbank.org/development/sap.html 04/16/00 pg 1

Catherine Caufield, Masters of Illusion, (New York: Henry Holt and Company, Inc., 1996), 193

ibid pg 196

unknown., Logging and the World Bank

http://www.whirledbank.org/environment/logging.html 04/16/00 pg 1

unknown., Agriculture and the World Bank http://www.whirledbank.org/environment/agriculture.html 04/16/00 pg 1

Sharer, R., Latin American Dams http://www.irn.org/programs/latamerica/yacireta.subm.html 04/16/00 pg 1

Streeten, P., Narmada Dams

http://www.narmada.org/sardarsarovar.html 04/16/00 pg 1

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Sharer, R Latin American Dams http://www.irn.org/programs/latamerica/yacireta.subm.html 04/16/00

Streeten, P Narmada River Dams http://www.narmada.org/sardarsarovar.html 04/16/00

Unknown Pesticide Use Developing Countries http://www.50years.org/factsheets/pesticide.html 04/16/00

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Unknown MIGA overview http://www.miga.org/screens/about/about.htm 04/16/00

Unknown, SAP facts http://www.whirledbank.org/development/sap.html 04/16/00

Unknown, Agriculture and The World Bank http://www.whirledbank.org/environment/agriculture.html 04/16/00

Unknown, Logging in Developing Nations http://www.whirledbank.org/environment/logging.html 04/16/00

Unknown, IBRD in Today’s Society http://www.worldbank.org/html/extdr/backgrd/ibrd/role.htm 04/16/00

Unknown, ICSID Overview http://www.worldbank.org/icsid/about/about.htm 04/16/00

Unknown, IDA Overview http://www.worldbank.org/ida/idao.html 04/16/00