Brittany Ryley
The Paradox of The IMF and World Bank: Lender’s Keepers or Somali People?
Nov. 27th, 2017
Natasha Bennett
T R 3:30 – 4:45
As Somalia’s children suffer from acute malnutrition and its population suffers from cycles
of drought and hunger, crisis responders from the IMF and the World Bank sit hesitantly at a table
discussing whether it is in their best interest provide the fragile country with long-term funding to
prevent its collapse. Eradicating poverty and investing in Somalia’s infrastructure should be
underpinned as a priority for these institutions, but the lending parties have viewed the debt
Somalia has incurred as a faux pas in proceeding with multi-year financing. Within the current
context of the debate, the livelihoods of the Somali people lie in the hands of economic
governance: is mission-creep propelling these institutions to serve the interests of states in lieu of
pursuing economic security for all? Or do the institutions stand as autonomous actors as they
undertake mandate-led projects, leading to a stable international economy?
This paper will aim to explain that, though both sides of the debate hold very strong
arguments, the IMF and World Bank bureaucratically serve the interests of the loan sharks within
the international system. In order to properly assess the argument, this paper will surround itself
on the responsibilities pertaining to economic governance of both the IMF and the World Bank
and how they each affect international security. This paper will begin by arguing that the IMF and
World Bank’s agenda is tightly bound to human security, but the increasingly entwined interest of
their lending states has created an unfaltering economic interdependence which constrains these
institutions. Following, it will then show that U.S. interests play a major role in extending debt
relief to Somalia. To conclude, the argument that the World Bank and the IMF are continuously
reforming to improve the efficacy of their developmental assistance programs will be rebuked
through a thorough examination of the permanent intrinsic and extraneous forces shaping their
current roles.
In order to properly assess the roles of the World Bank and the IMF, it is important to
understand economic governance as a security-promoting mechanism within the international
system. Karns et al. describe economic governance as a variety of “formal and informal
international institutions [established by both states and non-state actors] to help manage
international economic relations, and to promote development, trade, stability, and growth” (KMS,
382). Globalization has linked all open national economies to some degree and has perpetuated
free trade worldwide. Although government institutions are put in place to provide basic order and
facilitate free flow of global trade, not all states face the same financial problems or adopt identical
economic norms when they participate in the world economy. As a result, the IMF and World
Bank were created “to be the lubricant needed to allow all states to side into a more globalized
world economy” (KMS, 383).
Initially, the World Bank was created to rehabilitate war-damaged economies and provide
the needed development capital through long-term loans to improve the infrastructure of various
countries. This would enable them to participate in the economic trade regime while
simultaneously improving the overall infrastructure of the country. The World Bank has a unique
breadth and depth of perspective as it takes the lead in framing and addressing that cut across many
sectors. Its ability to directly engage with diverse communities and local institutions delegate it
the authority “to translate ideas and visions into reality” (TWB, Ch. 1). In addition, because its
provides country analysis, informal advice to global data collection, and is effective in mobilizing
development support, the Bank can persuade borrowers to live up to commitments they have made
in international treaties (NY Times). As time has progressed, the problems of the international
community have transcended from those of war-torn Europe to promoting basic justice and
common goods in the realm of the international community.
Although its intentions are kindhearted, critics believe the effect of the Bank’s policies and
communities serve the political and economic interests of the wealthy and powerful. In fact, many
have criticized the World Bank for being an “imperial Bank”—an institution that follows “an
economic theology that is narrowly and attuned to the world’s rich rather than the poor
communities it was meant to serve” (TWB, Ch. 10). This criticism is tailored specifically to the
U.S, for many believe the World Bank is an instrument of its hegemony and power. This perception
is inextricably tied to the Bank’s funding through both the IRBD and the IDA. The IDA provides
interest-free loans to the poorest countries, and is funded largely by contributions from donor
member governments who meet every three years to replenish its funds (World Bank). In 2010,
the biggest donor countries were the US, Germany, the United Kingdom, France, Canada, and
Japan (World Bank). Consequently, these donor countries apply external pressure as to what
constitutes the Bank’s agenda and mandate. Therefore, the Bank has a choice—either to tailor its
mission to benefit its donor’s interests, or to risk receiving funds and thus give up its mission.
The World Bank is meant to provide economic security, or protection or freedom from
poverty and basic necessities of life. A lack of economic security and thus state development can
lead to failed states which are destabilizing forces in the global world. Weak state capacity can
lead to piracy, may incentivize breeding grounds for terrorism, and grievances in one state can
spill over into a neighboring state (Strathman). Economic instability also causes problems with
sovereignty, norms of human rights, as well as internal discontent (Strathman). If states don’t have
the political will and economic power to control their borders, the likelihood of states collapsing
greatly increases. In addition, human rights may be continually abused which may lead to severe
humanitarian crises around the world. Therefore, the World Bank is likely to have no other choice
but to compromise with the donor states and incorporate its interests as it undertakes new projects.
Similarly, the International Monetary Fund was created to stabilize the exchange rates by
providing short-term loans to correct imbalances in trade. This was done to ensure that the value
of a states’ currency doesn’t disrupt trade in the world economy. However, the conditionalities
under which the loans are given stipulates that “the recipients must institute economic policy
reforms or achieve certain conditions in return for financial assistance” (KMS, 391). It has also
put into place a surveillance process in which it consults with member governments about the
framework of general economic and policy strategies. The main purpose of this institution is “to
anticipate risks to stability and advise on policy adjustments before crises break out” (KMS, 393).
In the midst of a crisis, the IMF has set up a credit line to provide another account from which
countries in trouble could draw (KMS, 394).
The IMF bureaucratically incorporates the preferences of the Fund’s richest and most
powerful members in regards to recipient countries and as to how much aid they will receive. It
weighs the voting power of its 184 members according to the monetary contributions to the Fund’s
resources. Therefore, similar to the World Bank, the IMF is put in a binding situation—if the
institution forgoes the executive board’s votes, its mission and funding may be put on a halt. The
bureaucratic organization of the IMF has unintentionally bound the institution to the donor states
for material resources (B&F, Ch. 3). Therefore, the prosperity and wealth of the key actors to set
the agendas is problematic in achieving the institution’s goals. In fact, the implementation of many
of the Fund’s programs have been blocked through gridlock because certain policies may not favor
the interests of the key actors of these member states (B&F, Ch. 3).
The power of both international trade and currency value highlight the importance the IMF
in economic governance. When the purchasing power of a country declines, the population is less
able to support itself and often leads to chaos and instability. In fact, 90% of armed conflicts have
taken place in low or lower-income countries (Strathman). The state is therefore forced into one
of two possible scenarios— become dependent on other states for stability and funding, or remain
exposed and vulnerable to collapse. In the current “golden era” of globalization, a collapse of this
sort would weaken everyone in the international system, and an “economic crisis that [begins] in
the rich world risks becoming a humanitarian crisis everywhere else” (Strathman). As a result, the
IMF cannot risk aggravating its donors or creating resentment among the member states. If it does,
they would likely halt or decrease their monetary contributions which would culminate to greater
poverty and lower the state capacity—and a higher risk of war.
The IMF and the World Bank have not taken the suggestions of relieving Somalia of its
debt because it does not serve the economic interest of the United States. Currently, Somalia is not
eligible for IDA funds because it owes just over $300 million to both institutions—all of which is
part of a $5 billion debt owed to multilateral and bilateral creditors (The Guardian). But what role
do security and US interests play? Ironically, the United States is Somalia’s biggest creditor and
has not written off all the debt as it is currently still owed large sums of money from the loans in
the 1980s. Therefore, the U.S. is resistant to give more aid if there is no intention of paying the
loans back. The infiltration of the U.S.’ interests can be seen in the decisions made by both the
IMF and the World Bank regarding the Somalia crisis. For example, the IMF has proposed that
Somalia should have the ability to establish a longer track record of reform before it releases it of
its debt (The Guardian). This could also be interpreted as Somalia should show intent of paying
the United States for the large chunks of money given to improve Somali health, nutrition,
education, and livelihoods. Likewise, the World Bank has taken the stance that although they
qualify them for debt relief and allocate a grant, they would be free-riding from countries that
contribute to the common pool of money (The Guardian). This is the “safety first approach,” for
the institutions do not want to risk confrontations with the donor countries’ and their executive
boards. Although the debts were incurred in the 1980s and 90% of the debt has been written off,
Somalia may never qualify to be a recipient under the categories of lenders as recognized by the
World Bank, and conversely by the United States. As long as Somalia experiences high levels of
armed conflict, has severe management problems, or fails to pay back its debt to the U.S., it will
continue to lack the resources to feed the mouths of its starving population.
Although critiques of the World Bank and the IMF have opened up the institutions to
dialogue, has increased transparency, and is forcing new communications and listening approaches
with the recipient countries, both institutions will continue to have their hands tied by the donor
countries. Both institutions work within a zone of discretion in which the main contributors
explicitly state their desires or influence their mandate. These institutions are purely autonomous
only when policies are clouded or do not exist pertaining to that circumstance. Furthermore, the
institutions have created an economic dependency and would not be able to operate without the
support of the donor countries. As a result, both must sacrifice or compromise their core missions
and original mandate in order to comply with the requests and serve the interests of those countries.
It is questionable whether the institutions are completely manipulated by powerful and rich
countries, however, they do tend to be negatively skewed towards developing economies.
Economic governance is a way that states can protect their citizens from sudden and hurtful
disruptions in the patterns of daily life, therefore creating stability from shocks to the international
system. Because the IMF and World Bank both intend to fulfill the common interests of the global
economy, they are willing to compromise their mandates to serve the interests of their donor
countries. However, the institutions will continue to be constrained and influenced by the rich and
powerful until they gain complete monetary and resource independence.
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