IMF and the World BankA Presentation By

Sally Barth

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)

• 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

• 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)

A Brief History

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)

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

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

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

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

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

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