Lec 2 IMF, & WB
World System Theory:
WST argument:
AIC’s ideology and power of capital are continually being reinforced in the decisions
of the IMF, WB and WTO in order to maintain their core status.
http://www.youtube.com/watch?v=tiav0V_F0bk
On song dynamite
AICs commercial interests are embodied in the rules on global trade, aid and loan
imposed on the LDCs :
• Washington consensus
• Neoliberal policies
• SAP
• Conditionality
• MFN
WASHINGTON CONSENSUS (1989)
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LAPDog
Liberalization
Austerity
Privatization
De-regulation
AICs commercial interests are embodied in the rules on global trade, aid and loan
imposed on the LDCs :
• Washington consensus
• Neoliberal policies
• SAP
• Conditionality
• MFN
http://www.youtube.com/watch?v=XIUWZnnHz2g&feature=related
neolib as a water balloon 12 min
What are the Neoliberal policies? DOPE LD
Liberalize trade
Deregulate finance/currency
Open up for foreign investment,
Privatize economy
Deregulate commercial activity
Ensure property protection
http://www.youtube.com/watch?v=XtTeDv5FbNw free market/trade
We Made a Devils Bargain: Fmr. President Clinton Apologizes for
6.5min- 2010
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AICs commercial interests are embodied in the rules on global trade, aid and loan
imposed on the LDCs :
• Washington consensus
• Neoliberal policies
• SAP
• Conditionality
• MFN
http://www.youtube.com/watch?v=Be5SudSdO6Q
Martin Khor Structural Adjustment Explained
5 min 2011
How does Structural Adjustment Program (SAP) affect the Developing countries?
Impact:
• Balancing the government budget
• Weakening the Labour
• Deregulating the economy
• Reducing the State
BLeeDS
IMF’s imposition of SAP on Asian countries created a financial crisis of economic
contraction and depression.
AICs commercial interests are embodied in the rules on global trade, aid and loan
imposed on the LDCs :
• Washington consensus
• Neoliberal policies
• SAP
• Conditionality
• MFN
Conditionality:
• Conditions placed on loans to LDCs
Conditions imposed to make aid effective in a recipient country – in reality could
hurt the country’s economy or the country’s political stability
Bretton Woods Institutions: 1944
Multilateral bodies:
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IMF
World Bank (IBRD)
15:19 World Bank : IMF : World Control 3 min 2013
http://www.youtube.com/watch?v=gtPqT-UPBT4
What is IMF expected to establish globally?
Global:
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monetary cooperation
exchange rate stability
trade expansion as lender of last resort
- Lends to correct balance of payment deficits
From where does IMF get its money?
• Subscriptions from member countries ‘Quota’ (capital) that they pay
when they join the IMF
What do Quotas determine?
• Countries’ payments
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Voting power
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How much they can borrow
e.g.: U.S. has 16.76 %, Seychelles is 0.03 % of quotas (2011)
http://www.imf.org/external/np/sec/memdir/members.aspx, oct 22, 2011
From where does IMF get its money?
• Subscriptions from member countries ‘Quota’ (capital) that they pay
when they join the IMF
What do Quotas determine?
• Countries’ payments
•
Voting power
•
How much they can borrow
e.g.: U.S. has 16.76 %, Seychelles is 0.03 % of quotas (2011)
http://www.imf.org/external/np/sec/memdir/members.aspx, oct 22, 2011
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In 2012
http://www.imf.org/external/about/members.htm accessed Oct 2011
Governments have votes based on the amount of money they pay in to the
organizations. In this sense, they operate much like private corporations, except that
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the owners of shares are governments instead of individuals. The U.S. government
has by far the largest share of votes in both the IMF and World Bank and, along with
its closest allies, effectively controls their operations
the IMF and the World Bank have great power, and are able to insist that
governments adopt certain policies as a condition for receiving funds.
The IMF and the Bank make sure that U.S. allies get the financial support they need
to stay in power, abuses of human rights, labor, and the environment
notwithstanding; that big banks get paid back, no matter how irresponsible their
loans may have been; and that other governments continually reduce barriers to the
operations of U.S. business in their countries, whether or not this conflicts with the
economic needs of their own people.
http://www.imf.org/external/np/sec/memdir/eds.aspx (Oct
22, 2011)
Appointed IMF Executive Directors and Voting Power - Top 5 members in voting power :
Director
Alternate
Casting Votes of
Votes by
Country
Total Votes1
Percent
of Fund
Total2
Appointed
Meg Lundsager
Douglas A. Rediker
United States
421,965
421,965
16.76
Mitsuhiro Furusawa
Tomoyuki Shimoda
Japan
157,026
157,026
6.24
Hubert Temmeyer
Steffen Meyer
Germany
146,396
146,396
5.81
Ambroise Fayolle
Alice Terracol
France
108,126
108,126
4.29
Alexander Gibbs
Robert James Elder
United Kingdom
108,126
108,126
4.29
Some countries in IMF Executive Board & their voting
power:
% SDR Quota
USA
Japan
China
Canada
India
Mexico
17.09
6.57
4.00
2.68
2.45
1.52
% of Votes
16.77
6.24
3.81
2.56
2.34
1.47
SDR: Special Drawing Rights
"http://www.imf.org/external/np/sec/memdir/members.htm#3", IMF. Retrieved on 2011 -Oct 22
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% Gains in Quota for EMCs
http://www.imf.org/external/mmedia/view.asp?eventID=1153
(accessed 16 Oct 2009)
http://www.imf.org/external/mmedia/view.aspx?vid=79161031001
accessed oct 22 2011 Video on voting structure
Criticisms of IMF & WB:
1. Washington Consensus and neoliberal policies imposed on DW by IMF & WB
have been discredited (#6 Birdsall & Fukuyama).
2. To remedy the impact of 2008 global financial crash on developing countries,
UN and development economists have offered policies that have been
misdirected (DW #6)
3. Although the West’s influence is diminishing (Susan George, End of Poverty),
the status quo is maintained in development policies due to the
disproportionate power of Rich countries in WTO, IMF & WB.
Susan George: http://www.youtube.com/watch?v=NQ952ba75Yk&feature=related
7min 2011
Bretton Woods Institutions: 1944
Multilateral bodies:
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• IMF
• World Bank (IBRD group)
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the IMF provides funds to governments in immediate financial emergencies:
bridging trade and balance of payment deficits.
As to the source of their funds, the IMF gets most of its money as
subscriptions from member governments-the amount determining the
number of votes each government has in running the operation. When, in
extreme circumstances, the IMF needs an especially large amount of funds, it
can activate a line of credit it has established with governments and large
banks.
But, IMF imposed wrong policies on the Developing Countries
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1. Blamed Developing countries for their B of P deficit –during the Oil crisis
(1971).
2. Argentina experienced a catastrophic economic crisis in 2001, caused by
IMF’s budget restrictions —this undercut the government's ability to sustain
national infrastructure in crucial areas: e.g., health, education, and security—
and privatization of strategically vital national resources.
the IMF provides funds to governments in immediate financial emergencies:
bridging trade and balance of payment deficits.
As to the source of their funds, the IMF gets most of its money as
subscriptions from member governments-the amount determining the
number of votes each government has in running the operation. When, in
extreme circumstances, the IMF needs an especially large amount of funds, it
can activate a line of credit it has established with governments and large
banks.
But, IMF imposed wrong policies on the Developing Countries
1. Blamed Developing countries for their B of P deficit –during the Oil crisis
(1971).
2. Argentina experienced a catastrophic economic crisis in 2001, caused by
IMF’s budget restrictions —this undercut the government's ability to sustain
national infrastructure in crucial areas: e.g., health, education, and security—
and privatization of strategically vital national resources.
The World Bank promotes long term development strategies – thus it shapes
the developing countries’ economies that receive its loans: e.g., to build
hydroelectric or clean water projects or training programs for local business
• WB requires that public sector (State owned) should be replaced by private
sector (corporate): e.g. privatization of communal lands and other public
corporations.
• WB raises its money in the financial market - as loans from the private sector,
operating through financial markets. Because investing in WB is secure
(secured by funds from member governments) it can borrow private funds at
low interest rates. WB then offers these low interest loans to the developing
countries. Thus, through it, WB allows developing countries’ governments to
borrow on the international capital markets at lower rates than they could
borrow if they were to try to borrow on their own.
The World Bank: a Bretton Woods institution (1944)
Original aim: post-war reconstruction of Europe
• First loan of $250 million was to France (1947)
What is its aim today?
• Reconstruction is WB’s important focus
o Natural disasters,
o Humanitarian emergencies
o Post-conflict rehabilitation needs.
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The World Bank
• Owned by member countries
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Voting power related to members’ capital subscriptions
Quota is based on a country’s relative
economic strength
Raises most funds in financial markets
IBRD sells AAA rated bonds and other debt
securities
• Charges interest that reflects its low-cost borrowings in capital markets
IBRD: 188 members (2012)
• World Bank provides long-term development loans to LDCs
IBRD’s Board : 24 Executive Directors.
5 Exec Directors: appointed by the 5 largest shareholders (the US, Japan, Germany,
France and the UK).
19 Exec Directors : elected by the Bank's other members.
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The “World Bank Group”
1944
1960
1956
1988
1966
International Development Association (IDA)
• Established 1960 to provide concessional assistance to countries unable to
borrow at commercial rates
What does IDA do? (March 2011)
o Gives grants and interest free loans
o Borrowers pay 1% administration fee
o 52 countries contribute to funding ($49.3bil)
o $12.6 billion – grants and loans to Africa and South Asia, in education,
health, social services, water and sanitation.
http://www.worldbank.org/ida/ida-factsheet.pdf oct 22, 2011
New IDA Lending by Region:
Sub-Saharan Africa...........43%
South Asia...........................39%
East Asia/Pacific..................10%
Europe/Central Asia...............4%
Latin America/Caribbean........3%
Middle East/North Africa.........1%
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FY11 Top Ten IDA Borrowers
($million, excludes regional projects)
http://www.worldbank.org/ida/ida-financing.html
Bangladesh
2,139
India
2,072
Pakistan
1,292
Vietnam
1,280
Ethiopia
630
Ghana
605
Nigeria
535
Kenya
490
Tanzania
420
Mozambique
413
Millennium Development Goals MDGs)
Help developing countries and their people reach the Millennium
Development Goals by working with our partners to alleviate poverty.
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