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The Imf and the World Bank, a Social and Economical Perspective

Essay by   •  January 4, 2011  •  Research Paper  •  3,044 Words (13 Pages)  •  1,842 Views

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Introduction

It is claimed that the mission of the World Bank and the International Monetary Fund (IMF) is to "fight poverty and improve the living standards of people of the developing world ... promote growth to create jobs and to empower poor people to take advantage of these opportunities." The annual gathering of the directors of the World Bank and IMF reconfirms the World Bank's and IMF's vision of fighting poverty and promoting growth in the "third world." Every year the directors of those two Bretton Woods institutions meet for one week, enjoying $10 million worth of lavish meals and elite social events. During one of those annual gatherings, the ex-world Bank president Barber Conable gave a speech, in which he described the duty of the World Bank and the IMF to "look through the eyes of the most underprivileged, [to] share their hopes and their fears, [to] serve their needs and help them realize their strength, potential, and aspirations."

There is something fundamentally wrong in an institution that needs $10 million worth of lavish meals and elegant limousine rides in order to look through the eyes of the most underprivileged and to realize that poor people are in fact needy. There is something essentially flawed in a system based on the extremely rich trying to help the severely poor, without any hidden agendas or intentions. The hypocrisy of the Bretton Woods meetings is a fitting metaphor of their corrupt functioning. This paper will delve into the hypocrisy of the World Bank and IMF and will expose aspects of their purely corporate dealings.

Demand for Debt

The World Bank and the IMF were originally created for the reconstruction of Europe after the Second World War. Of course, most of Europe by that time was under the Marshal Plan which provided the assistance that Europe needed, mainly balance of payment adjustments and imports to meet basic needs. The World Bank's loan by that time was as low as 1.75 billion , so the World Bank started looking at third world countries as potential "customers". The oil crises hit in the 1970's and as interest rates soared, third world countries started over extending their already existing debts. The World Bank and IMF seized this opportunity and stepped in as mediators between international lenders and the virtually bankrupt countries. In light of this economic turmoil, the World Bank facilitated loans for the third world, and developed structural adjustment policies (SAP) that indebted countries must follow in order to concentrate their economic power on debt repayment. Privatization, removal of price and wage controls, and balanced fiscal budgets are all integral to these structural adjustment policies. "By 1980 the debt of the low-income countries increased from $21 billion a decade before, to $110 billion, by 1992 the indebtedness of low-income countries reached $473 billion." It is only then that those Bretton Woods institutions started accumulating a vast power over Third World Countries; a kind of power that puts the poor at a disadvantage while benefiting the elite.

Privatization and the poor

Privatization ranks high on the IMF's wish list. Capitalist economic theories preach that privatization increases efficiency, productivity and output; but how does privatization affect the poor? India has experienced widespread privatization in recent years in part due to SAPs imposed by the World Bank and IMF. Sure, many in India would like to "see aggressive reforms in the Indian Public sector...more scientific and technological modernization... more technically competent and motivated professionals managing Public Sector companies..." However; privatization only benefits, and is "actively endorsed" by, a very small percentage of India's vast population, "mainly the English-speaking urban elite that is ...unbothered by the needs and concerns of the masses...(and) generally less worried by the higher prices that may follow privatization." But for the vast majority of India's poor, privatization is hardly the solution. Privatization results in massive lay-offs as profit-first companies strive to lower costs. In a country like India, where the public sector employs a large percentage of the workforce, this leads to large scale unemployment. Profit maximizing firms higher rates for these basic services (that were initially provided at low rates by government organizations) to the extent that the poor can no longer afford them. In addition to this, for-profit companies may even cut services to poor or rural areas if they are deemed to be "unprofitable." The discontinuation of such essential services leads to widespread pain and suffering for the already poverty-stricken. Greater government involvement in the production of such basic necessities would definitely serve the needs of the poor far better than the privatization policies imposed by the World Bank and IMF. Of course, the World Bank and IMF are strongly opposed to most forms of government involvement. They believe in diminishing the role of the government and making sure the government's Fiscal Budget is balanced, "even though basic Keynesian economics suggests that slow-growth developing nations should in fact run a deficit to spur economic expansion."

Balancing the fiscal deficit

There are many ways to balance a fiscal deficit, one of them being raising taxes (which the IMF seriously frowns upon - even though such a strategy would redistribute income more fairly and thus "empower" the poor) or by cutting government spending. The latter option strongly recommended by the IMF and World Bank, even though most first-world nations used "heavily-state interventionist policies" in which the governments played a major role in "directing investment, managing trade and subsidizing chosen sectors of the economy." As a result, "SAPs often result in deep cuts in programmes like education, health and social care, and the removal of subsidies designed to control the price of basics such as food and milk. So, SAPs hurt the poor most, because they depend heavily on these services and subsidies." Less government spending means school fees rise, which may force parents to pull children from school, literacy rates fall. "In Zimbabwe, a SAP resulted in cutbacks in government spending on social services such as healthcare and education. Following the introduction of Bank-mandated user fees, maternal mortality rose from 90 per 100,000 live births in 1990 to 168 per 100,000 in 1993." The higher fees for medical services meant less treatment, more suffering and even more needless

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