Tag Archive for World bank

The IMF – Not Fit For Purpose Anymore

The IMF and the World Bank were created in a very different world than we live in today.  The emerged in the chaos of 1944 when the world was still very at much at war.    The organisations were intended to promote some sort of economic stability and to encourage free trade and economic cooperation through financial support when required.

It’s role has developed and expanded over the years – especially during the 1980s when it took a much more active role in Global finance by bailing out many countries who were in financial turmoil and facing bankruptcy.    However it was to become much more than some simple lender of last resort, it in fact became the architect of economic policy for most of the countries that needed it’s services.

To obtain the crisis loans, countries had to adopt the stringent economic requirements and policies that the IMF stipulated as terms and conditions.  The power wielded by this huge Financial behemoth in shaping the economies of the world should not be understated.

The problem has been that economic policy run by a financially focused  organisation is not always the best way to run an economy.  One of the main issues is that the policies that the IMF impose (structural adjustment policies) have a single goal – to repay the loans by decreasing spending and reducing debt.

So in the name of debt repayment – countries will have to forsake their populations, cutting spending on things like health and education, throwing out green and sustainable policies in exchange for strict austerity budgets.   As we can see with the Greeks in our current crisis, cutting spending for debt repayments leads to a rapidly shrinking economy – the people pay the price.  In the Third World countries the cost is even greater than for the Europeans, investments in health and education are already at much lower levels than the rest of the world.

The reality is that these debt repayment policies may seem logical to rich Western economies but all they do is increase the inequalities that already exist for the underdeveloped countries.  Shackled by huge debt repayments the policies increase poverty and leave various multinational companies free to exploit both the environment and the workers of these countries.

The truth is that there are opportunities for developing countries to expand their economies.  Boosting communications infrastructure is one great opportunity, there are possibilities for the internet to bring wealth and jobs to all sorts of areas.  Imagine the benefits of having a thousands on Internet based entrepreneurs could bring to areas of Asia and Africa which currently rely on foreign aid.  There are prerequisites of course, besides the big one of infrastructure –  unfortunately digital markets are sometimes difficult to access outside the Western World.  For example you won’t get far in the US without using a USA proxy to bypass Geo Restrictions – here’s an example – http://www.proxyusa.com/.  But these obstacles are minor in comparison and could be easily solved through a big global organisation.

The IMF and World Bank may be what the world needed in the post conflict environment they were created in.  However many would argue that they are not fit for purpose for the world we live in today.