International Financial Institutions and Local Economies
The World Bank, the IMF, and the World Trade Organization
What Are the International Financial Institutions?
·
The World Bank, the International Monetary Fund (IMF) and the World
Trade Organization (WTO).
·
Genesis of the World Bank and IMF: post-World War II, set up with the
U.N.
·
Original goals of the IMF and WB: to ensure financial stability in the world
economy, so as to prevent another depression and World War.
Also to finance the redevelopment of Europe.
Early Decades Dominated by Keynesian solutions to Economic Problems
Depression caused by insufficient demand, role of government was to stimulate
demand.
IMF charged with promoting international stability.
Would provide loans to countries who were experiencing ‘balance of payments’
problems.
In the early 1980s, the influence of Thatcher and Reagan’s politics led to a
‘coup’ at the IMF and World Bank.
 Free markets were the solution to all the problems of developing countries.
The Role of the World Bank and IMF today:
To
introduce and supervise neo-liberal growth policies.
To introduce changes in the economic policies of ‘developing’ countries. From
‘import-substitution’ to ‘export-oriented’ growth.
·
Sectoral adjustment and structural adjustment loans: dependent on a
country conforming to and agreeing with the Bank’s economic philosophies.
Conditions of structural adjustment loans:
· to promote an environment conducive to foreign direct investment.
i. Tight fiscal and monetary policies: i.e. raising interest rates and decreasing
the money supply, also cutting back on government spending, especially health
and education.
ii. Removing all tariffs and quotas against foreign consumer goods. (Although
this is not the case with developed countries).
iii. Devaluing the currency


IMF Shock Treatment in Peru in 1990
Peru’s independent path in the 1980s.
·
Blacklisted by IFIs and international banks.
·
Led to externally-induced financial crisis by 1989.
·
Election in 1990 based on ‘free trade’ (Vargas Llosa versus Fujimori).
Fujimoro argued against it.
·
Fujimori won, but changed his policies dramatically after a visit to the IMF
in Washington.
·
Effects of the 1990s’ Policies
Devaluation and trade liberalisation instituted immediately.
·
Rapid and steep rises in prices of imported goods, such as kerosene and
drugs.
·
Severe cutbacks in health and education:
·
Public health infrastructure in rural regions completely collapsed.
·
Health consequences: child malnutrition, tuberculosis and meningitis
increases.
·
Cholera epidemic: from 1500 reported cases before August 1990 to
200,000 cases 6 months later.
·
Cholera a water-borne disease and people couldn’t afford to boil their
drinking water any longer.
·
Rural economy, land laws and the narco economy.
