The world economy in the 1980s was described as being in a depression. When many developing countries’ economies were in turmoil, essential steps were taken to prevent economic uncertainty by seeking financial assistance. The International Monetary Fund (IMF) and the World Bank then was a target for these demands. However, the appropriateness of the IMF’s policies in developing countries was the subject of fierce debate. Since then the turmoil and the controversy have intensified further (Killick 1984:The IMF and Stabilisation: Introduction and summary I).
During the early stages of its operation, both the IMF and the World Bank provided loans to countries that needed financial help for reconstruction after World War II and the newly independent countries from the colonies. The IMF provided funds to support these countries facing balance of payment difficulties while the World Bank granted loans for the reconstruction of infrastructure, power stations etc. In the 1970s and the 1980s the World Bank redirected its lending programme to promote education and health in most countries in need of funding. The IMF and the World Bank were progressively active in the 1980s during the debt crisis. To deal with this crisis many African countries decided to borrow money from the World Bank as well as governments from the west. The western commercial banks came to play a crucial role in providing loans to some developing countries such as Latin-America (The IFM and the World Bank: Trevor’s lecture Oct 2006).
The developing countries are the main clients of the IMF and World Bank. The IMF functions to assist any countries facing serious payment disequilibria by providing the support through stand-by arrangements. The fund could guarantee to its members that it would be able to borrow foreign exchange during their time of need. According to Sutton (1984): of the 114 new Stand-bys approved by the Fund in 1976/77- 1981/82, 108 were in the developing countries. Nonetheless, the relationship between the fund and its developing country members is not always an easy one. The main points of contention are the conditions attached to the use of some fund credits. The accessibility of the fund resources to a member depends on its quota to the fund, which equals up to 25% available without condition and the rest is subject to condition. The member states can also access the fund with low conditionality in the Compensatory Financing Facility, which is accessible through the core of the agreed programme, which comprises of a number of performance criteria. The appreciation to the continuation of the fund is qualified upon the progress in the fulfilment of the criteria imposed (Sutton 1984: 3-4).
Since the beginning of its existence, the US has influenced most of the initiations including policy and it has played a major role in convincing and lobbying others to agree on one common decision. The IMF itself seems to act as a mechanism which is able to transmit the US’ ideological and spirit across the globe. Kiely (2005) argues that the US has laid its political and economic spheres by the creation and the unification of itself into the International Institutions.
In the political sphere, the US would join the new United Nations, and in the economic sphere, there was to be commitment to (managed) free trade. For free trade to be advanced, there would have to be an internationally acceptable currency to pay for internationally traded goods. (Kiely 2005: 89)
However, the US has illustrated its good will which is committed to the improvement of developing countries. Firstly, the US engaged in pushing the colonial states to become independent by providing the political support and the technical and financial assistance through the provision of aid which is considered to be a vehicle for development and reconstruction (Kiely 2005). The generosity of US support together with the emergence of nationalist movements enabled many countries to gain independence. The fund was made available, on demand, for developing countries to reform their economies and resolve their payment deficit problems.
Despite the appreciation of this benevolence, one may never forget the underlying reasons behind this generosity which critics are always keen to point out. The US is an industrial country with huge commodity, productivities. The US needs to expand its market abroad in order to improve its economic performance and help US traders to increase their revenue. This is a one of the reasons why the US provides Marshall Aid to help less developing countries. Furthermore, the US was also deeply concerned about the threat from the spread of communism which would challenge its market’ extension (Kiely 2005:88-95).
In order to tackle the serious macroeconomic struggle, the IMF and World Bank created the structural adjustment programmes (SAPs). The IMF and World Bank use SAPs as a base for their lending to underdeveloped countries dealing with macroeconomic imbalance with certain conditions attached. The Structural Adjustment Programmes are both embraced and criticised from people with different perspectives. Woodward (1992) emphasises that SAPs are designed to enable the adjusting country to change the structure of its economy in order to meet the long-term needs of efficient utilisation of production and to insure sustainable economic development (Hoogvelt 2001). There is a belief that the adoption of the SAPs would create the necessary conditions for sustainable economic growth because it is a process of reshaping the Third World’s market to be more market-oriented economies which countries should undoubtedly follow. The capacity for the IMF and World Bank to assist developing countries is greater under the capitalist system. In Mexico, the IMF and World Bank had its role in the frontier of the crisis, while Mexico first declared a moratorium on its international debt payments (Hoogvelt 2001: 180). In the third world, the IMF and World Bank used the package of SAPs to persuade many developing countries to adopt free trade policies during the 1980.s This was for the purpose of promoting an open and free competitive market economy with less supervision from the nation states in the hope that these countries would help to facilitate economic growth and reduce poverty. Adrian Leftwich indicates that since 1980, the loans of structural adjustments increased sharply amongst the developing countries. Between 1980 and 1990, World Bank structural adjustment loans increases from 7 to 187 in sixty countries (Hoogvelt 2001: 181).
Mohan (2000: 24-26) provides evidence to show that the growth of SAPs is increasingly high between 1980- 1991. In the period between 1980-82 the average yearly value of adjustment loans was $190 million, rising to 468 million in the period of 1983-85; $124 million for 1986-88 and up to 10,025 million until 1991. (Structural Adjustment: Mohan, Brown, Milward and Williams 2000: 24-26).
Most newly independent states are actually the main actors of increasing the popularity of this international institution. During the colonial period, the colonial states were subservient to imperialist forces established to serve the interests of the colony. Since independence, most countries’ economies are unstable which led to the crisis in 1970s, in particular the oil crises, which pushed most counties into deep recession and initiated the debt crisis and the subsequent need for multilateral borrowing. (Mohan 2000: 4).
The structural adjustment programmes are thought to be a channel of development. The conditions attached are designed to encourage improved economic performance. It always requires the borrowers to adjust their economic structure such as the adaptation of free trade policies, the reduction of tariffs, deregulation, privatisation, market liberalisation and the elimination of any trade’s barriers to enable the countries to attract more foreign investments. This is possible only if the countries are strongly committed to the interests of their own people, as a whole. As Synge has observed, countries such as Kenya and the Ivory Coast have been successful in attracting the investment of multinational corporations and building up their agricultural exports. Others, such as Ghana and Zambia apprehended the revenues of exporters and channeled them into a multitude of government-owned import-substituting firms, whilst Nigeria’s faith in economic nationalism meant that the government controlled capital markets to subsidize investments by private businessman and local corporations, thereby promoting the formation of indigenous bourgeoisies (Mohan 2000: 5). This strategy can only truly work if individual governments are committed to change in the interest of their own people. Not all countries are willing to make the commitment, and some states use the false promise of conformity to the IMF and World Bank strategies simply to obtain aid and loans. According to Stiglitz (2002): the IMF has blamed the Asian nations’ institutions for being dishonest, rotten and breaking their promises, he believes the governments are corrupt both secretly and openly and that essential reforms are needed (Joseph Stiglitz 2002:90).
In most developing countries where agriculture is the only valuable asset in their economy, there is a necessity for foreign investment and exports. When there are vast investments in agriculture and rural infrastructure, this can significantly increase agricultural productivity. This has been a key turning point in the development of some Asian countries, who have used this increased productivity to increase their agricultural exports, using this as a mechanism for economic growth (Mohan 2000: 6). In contrast, strong intervention in the economic policies of some African countries led to the deficiency of investment in rural sectors which resulted in a decline in agricultural productivity and general poor economic performance.This in turn led to the fall in GNP for Sub- Saharan African states from US$200,080 million in 1980 to 156,313 million in 1990. This is in contrast to the GNP in other third world regions such as East Asia and the Pacific which rose from US$ 528,189 million to US$874,990 million, Latin America from US$690,342 million to US$1,057,666 million, Southeast Asia from US$220,757 million to US$374,433 million for the same period (Mohan 2000:6).
Even Stiglitz who is sceptical about world integration and describes the era of globalisation as a period of dissatisfaction, has pointed out some positive outcomes the global force has produced through free international trade. What we can see now is far better than the world centuries ago. Is this not the result produced by the effort of these international institutions? When international trade helps economic development, country’s exports greatly assist with economic growth. This is evidently proved by the economic growth seen in Asia where the standard of living of people is considerably higher than it was in the past. The movement of new technology and knowledge left the world less isolated (Joseph Stiglitz 2002: 3-7). People seem to enjoy working in the transnational corporations where benefits are much better than working in the agricultural sector. Even though people in developed countries obviously see some exploitation such as human rights abuse and cheap labour, they still accept it as an opportunity for growth and they embrace this development.
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During the early stages of its operation, both the IMF and the World Bank provided loans to countries that needed financial help for reconstruction after World War II and the newly independent countries from the colonies. The IMF provided funds to support these countries facing balance of payment difficulties while the World Bank granted loans for the reconstruction of infrastructure, power stations etc. In the 1970s and the 1980s the World Bank redirected its lending programme to promote education and health in most countries in need of funding. The IMF and the World Bank were progressively active in the 1980s during the debt crisis. To deal with this crisis many African countries decided to borrow money from the World Bank as well as governments from the west. The western commercial banks came to play a crucial role in providing loans to some developing countries such as Latin-America (The IFM and the World Bank: Trevor’s lecture Oct 2006).
The developing countries are the main clients of the IMF and World Bank. The IMF functions to assist any countries facing serious payment disequilibria by providing the support through stand-by arrangements. The fund could guarantee to its members that it would be able to borrow foreign exchange during their time of need. According to Sutton (1984): of the 114 new Stand-bys approved by the Fund in 1976/77- 1981/82, 108 were in the developing countries. Nonetheless, the relationship between the fund and its developing country members is not always an easy one. The main points of contention are the conditions attached to the use of some fund credits. The accessibility of the fund resources to a member depends on its quota to the fund, which equals up to 25% available without condition and the rest is subject to condition. The member states can also access the fund with low conditionality in the Compensatory Financing Facility, which is accessible through the core of the agreed programme, which comprises of a number of performance criteria. The appreciation to the continuation of the fund is qualified upon the progress in the fulfilment of the criteria imposed (Sutton 1984: 3-4).
Since the beginning of its existence, the US has influenced most of the initiations including policy and it has played a major role in convincing and lobbying others to agree on one common decision. The IMF itself seems to act as a mechanism which is able to transmit the US’ ideological and spirit across the globe. Kiely (2005) argues that the US has laid its political and economic spheres by the creation and the unification of itself into the International Institutions.
In the political sphere, the US would join the new United Nations, and in the economic sphere, there was to be commitment to (managed) free trade. For free trade to be advanced, there would have to be an internationally acceptable currency to pay for internationally traded goods. (Kiely 2005: 89)
However, the US has illustrated its good will which is committed to the improvement of developing countries. Firstly, the US engaged in pushing the colonial states to become independent by providing the political support and the technical and financial assistance through the provision of aid which is considered to be a vehicle for development and reconstruction (Kiely 2005). The generosity of US support together with the emergence of nationalist movements enabled many countries to gain independence. The fund was made available, on demand, for developing countries to reform their economies and resolve their payment deficit problems.
Despite the appreciation of this benevolence, one may never forget the underlying reasons behind this generosity which critics are always keen to point out. The US is an industrial country with huge commodity, productivities. The US needs to expand its market abroad in order to improve its economic performance and help US traders to increase their revenue. This is a one of the reasons why the US provides Marshall Aid to help less developing countries. Furthermore, the US was also deeply concerned about the threat from the spread of communism which would challenge its market’ extension (Kiely 2005:88-95).
In order to tackle the serious macroeconomic struggle, the IMF and World Bank created the structural adjustment programmes (SAPs). The IMF and World Bank use SAPs as a base for their lending to underdeveloped countries dealing with macroeconomic imbalance with certain conditions attached. The Structural Adjustment Programmes are both embraced and criticised from people with different perspectives. Woodward (1992) emphasises that SAPs are designed to enable the adjusting country to change the structure of its economy in order to meet the long-term needs of efficient utilisation of production and to insure sustainable economic development (Hoogvelt 2001). There is a belief that the adoption of the SAPs would create the necessary conditions for sustainable economic growth because it is a process of reshaping the Third World’s market to be more market-oriented economies which countries should undoubtedly follow. The capacity for the IMF and World Bank to assist developing countries is greater under the capitalist system. In Mexico, the IMF and World Bank had its role in the frontier of the crisis, while Mexico first declared a moratorium on its international debt payments (Hoogvelt 2001: 180). In the third world, the IMF and World Bank used the package of SAPs to persuade many developing countries to adopt free trade policies during the 1980.s This was for the purpose of promoting an open and free competitive market economy with less supervision from the nation states in the hope that these countries would help to facilitate economic growth and reduce poverty. Adrian Leftwich indicates that since 1980, the loans of structural adjustments increased sharply amongst the developing countries. Between 1980 and 1990, World Bank structural adjustment loans increases from 7 to 187 in sixty countries (Hoogvelt 2001: 181).
Mohan (2000: 24-26) provides evidence to show that the growth of SAPs is increasingly high between 1980- 1991. In the period between 1980-82 the average yearly value of adjustment loans was $190 million, rising to 468 million in the period of 1983-85; $124 million for 1986-88 and up to 10,025 million until 1991. (Structural Adjustment: Mohan, Brown, Milward and Williams 2000: 24-26).
Most newly independent states are actually the main actors of increasing the popularity of this international institution. During the colonial period, the colonial states were subservient to imperialist forces established to serve the interests of the colony. Since independence, most countries’ economies are unstable which led to the crisis in 1970s, in particular the oil crises, which pushed most counties into deep recession and initiated the debt crisis and the subsequent need for multilateral borrowing. (Mohan 2000: 4).
The structural adjustment programmes are thought to be a channel of development. The conditions attached are designed to encourage improved economic performance. It always requires the borrowers to adjust their economic structure such as the adaptation of free trade policies, the reduction of tariffs, deregulation, privatisation, market liberalisation and the elimination of any trade’s barriers to enable the countries to attract more foreign investments. This is possible only if the countries are strongly committed to the interests of their own people, as a whole. As Synge has observed, countries such as Kenya and the Ivory Coast have been successful in attracting the investment of multinational corporations and building up their agricultural exports. Others, such as Ghana and Zambia apprehended the revenues of exporters and channeled them into a multitude of government-owned import-substituting firms, whilst Nigeria’s faith in economic nationalism meant that the government controlled capital markets to subsidize investments by private businessman and local corporations, thereby promoting the formation of indigenous bourgeoisies (Mohan 2000: 5). This strategy can only truly work if individual governments are committed to change in the interest of their own people. Not all countries are willing to make the commitment, and some states use the false promise of conformity to the IMF and World Bank strategies simply to obtain aid and loans. According to Stiglitz (2002): the IMF has blamed the Asian nations’ institutions for being dishonest, rotten and breaking their promises, he believes the governments are corrupt both secretly and openly and that essential reforms are needed (Joseph Stiglitz 2002:90).
In most developing countries where agriculture is the only valuable asset in their economy, there is a necessity for foreign investment and exports. When there are vast investments in agriculture and rural infrastructure, this can significantly increase agricultural productivity. This has been a key turning point in the development of some Asian countries, who have used this increased productivity to increase their agricultural exports, using this as a mechanism for economic growth (Mohan 2000: 6). In contrast, strong intervention in the economic policies of some African countries led to the deficiency of investment in rural sectors which resulted in a decline in agricultural productivity and general poor economic performance.This in turn led to the fall in GNP for Sub- Saharan African states from US$200,080 million in 1980 to 156,313 million in 1990. This is in contrast to the GNP in other third world regions such as East Asia and the Pacific which rose from US$ 528,189 million to US$874,990 million, Latin America from US$690,342 million to US$1,057,666 million, Southeast Asia from US$220,757 million to US$374,433 million for the same period (Mohan 2000:6).
Even Stiglitz who is sceptical about world integration and describes the era of globalisation as a period of dissatisfaction, has pointed out some positive outcomes the global force has produced through free international trade. What we can see now is far better than the world centuries ago. Is this not the result produced by the effort of these international institutions? When international trade helps economic development, country’s exports greatly assist with economic growth. This is evidently proved by the economic growth seen in Asia where the standard of living of people is considerably higher than it was in the past. The movement of new technology and knowledge left the world less isolated (Joseph Stiglitz 2002: 3-7). People seem to enjoy working in the transnational corporations where benefits are much better than working in the agricultural sector. Even though people in developed countries obviously see some exploitation such as human rights abuse and cheap labour, they still accept it as an opportunity for growth and they embrace this development.
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