IMF and the World Bank

1. IMF and the World Bank A Presentation By Sally Barth

2. Structural Adjustment: An Introduction • Organizations that implement structural adjustment policies (IMF & World Bank) establish a set of conditions required for countries to get loans or reduce their interest rates on existing loans • The goal is to reduce a country’s fiscal imbalances • Acronyms to know! • Structural Adjustment Programs (SAPs) • Poverty Reduction Strategy Papers (PRSPs)

3. Usually free market oriented policies • The “Washington Consensus” - some common conditions: • Cutting expenditures (austerity) • Focusing on direct export and resource extraction • Devaluation of currencies • Trade Liberalization • Increasing the stability of investment • Balancing budgets and not overspending • Removing price controls and state subsidies • Privatization of industries • Enhancing the rights of foreign investors in national policy • Improving governance and fighting corruption

4. A Brief History • July, 1944 (during WWII): 44 Allied nations meet for UN Monetary and Fiscal Conference • Established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD) • Influences: Great Depression (countries raised trade barriers, currencies were devalued), rise of government intervention, Atlantic Charter, devastation after the war • The Bretton Woods System: • each country to adopted a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar • IMF bridged temporary imbalances of payments • Cessation of the gold standard killed the backing via US dollar; became backed on government promise alone • Led to a period of embedded liberalism (ending in the 70s)

5. 1989-Today • Policy changed in response to harsh criticism • Environmental groups and NGOs now included in lending process • The U.S. doesn’t automatically pick president now • Has helped to make many UN Millenium Development Goals possible (i.e. stronger and more inclusive growth in Africa and fragile states, integration of the development and environment agendas, more and better aid, stronger and more focused support from multilateral institutions)

6. The International Monetary Fund • Membership: • Most all countries, with the exception of Cuba, North Korea, South Sudan and a few others • Each country pays a quota based on their economy; ¼ is paid in widely accepted foreign currency and ¾ in the country’s own currency • Must disseminate statistical monetary data to one of two systems (the GDDS or the SDDS) • Benefits • Access to information on economic policies of all member countries • Opportunity to influence members’ economic policies • Increased opportunity for trade and investment

7. IMF SAPs • The IMF mainly loans to countries with balance of payment problems (they can not pay their international debts) • Stand-by Agreement (SBA): assistance to member states, normally arising from financial crisis. Hungary, Iceland, Greece • The reforms required to get financial assistance are thought to be beneficial to countries with fixed exchange rate policies that may engage in fiscal, monetary, and political practices that may lead to the crisis itself • Intended to ensure that the IMF is actually helping to prevent financial crises rather than merely funding financial recklessness

8. The World Bank • Includes the IBRD and the International Development Association (IDA) • A brief history of the World Bank: • 1944-1968: • Relatively fiscally conservative • The Marshall Plan (1947) shifted focus to non-European countries, with loans earmarked for projects that could generate money to repay the lender (ex. Ports, highway systems, power plants) • 1968-1980: • Shift in concentration to third world development • McNamera streamlines lending process  more third world debt due to so much borrowing • 1980-1989: • A.W. Clausen- increased number of SAPs in developing nations

9. World Bank SAPs • 1979 Energy Crisis  SAPs that encouraged production and manufacturing, changed real exchange rates and altered the distribution of government resources • Reducing poverty was not a goal • Killed some economies (esp. in Sub-Saharan Africa ) due to a reduction in social spending and an increase in the price of food as subsidies were lifted • 1980s: changed structural adjustment loans, allowing for social spending to be maintained and encouraging a slower change to policies such as transfer of subsidies and price rises • Poverty Reduction Strategies (IDA) • PRSPs developed in tandem with the government • Case-by-case assistance tailored to the poorest individual countries • $25.1 billion pledged by 45 countries for this use • Goes through the IDA * The World Bank requires sovereign immunity: waives the organization from all legal liability for its actions* • The U.S. can still veto WB actions if it is taking action against its interests

10. Criticisms • The highest donating countries hold too much influence over which countries receive the loans and the SAPs that accompany them (US, UK, Japan, Canada, Germany) • Threatens sovereignty of national economies • Privatization policies: when resources are transferred to private corporations /elites, goal of public prosperity is replaced with goal of private accumulation • The agricultural, anti-land reform and food trade policies have led to rapid urbanization and the growth of slums • Forced austerity programs  economic stagnation • Involuntary resettlement

11. Sources • http://www.imf.org/external/np/exr/facts/finfac.htm • http://www.imf.org/external/data.htm • http://data.worldbank.org/ • http://www.who.int/trade/glossary/story084/en/index.html