International Monetary Fund

Compare and contrast the role of the World Bank with the roles of the International Monetary Fund and the World Trade Organisation

The World Bank is not a bank in the common sense of the word. It compromises two international development organisations constituted by 184 member states, namely the International Bank for Reconstruction and Development (hereafter “IBRD”) and the International Development Association (hereafter “IDA”).  It came into formal existence in December 1945 and commenced operations in the summer of the following year.  The World Bank Group is a term commonly employed to refer to a collective of five international organisations that have assumed responsibility for making finance available to countries to assist in the goals of global poverty reduction and development.

Based in Washington D.C., the World Bank promotes and endeavours to protect investment on the international stage. The IBRD works predominantly with so-called “middle income” and poor but creditworthy countries, whereas the IDA focuses its operations on the world’s poorest and most disadvantaged countries. Together, these institutions offer interest-free credit, low-interest loans and grant aid to developing countries for, inter alia, health, education, infrastructure development and the improvement of communications networks.

The activities of the World Bank have been subject to vociferous criticism from a variety of non-governmental organisations and academics around the world.  Even the Bank's own internal evaluations have on occasion proved damning. The Bank has been accused of being an instrument of the United States, or more generally the West, for the imposition of economic policies that safeguard and promote western interests. Those critical have contended that policies aimed at free market reform - which the Bank champions - in practice are often harmful to economic development if implemented clumsily, too hastily, inappropriately, or in fledgling or otherwise particularly vulnerable economies.

The International Monetary Fund (hereafter “IMF”) is a body distinct from the World Bank, but these separate organisations are sometimes referred to as the Bretton Woods Institutions, because the United Nations Monetary and Financial Conference which resulted in their creation took place in Bretton Woods, New Hampshire in July 1944. The IMF is also an organisation of 184 countries.  It aims to improve financial stability and global monetary cooperation, to promote international trade, and develop policies designed to secure sustainable economic growth, high levels of employment and the reduction of poverty. The IMF offers temporary financial assistance to countries in an effort to facilitate balance of payments adjustments. Almost all United Nations member states either participate directly in the IMF or are represented in its work.

In common with the experience of the World Bank, the IMF has been subject to critical comment from a variety of quarters. In part it is this the case that the IMF is damned by its association with the World Bank, but it is certainly true that in recent decades countries have responded in wildly different ways to IMF intervention and policies and the consequences have not always been positive. Ghana, for example, was an early testing ground for the effectiveness of IMF stabilization and adjustment-based lending strategies pursued in tandem with World Bank policies. The Ghanaian government “bit the IMF bullet” in a concerted and sustained attempt to improve and grow its economy. In terms of strict compliance, Ghana was for years a model patient.  The country took steps to deregulate its currency, liberalize trade, reduce and invigorate publicly-owned enterprises and strengthen its civil services in the manner dictated by the lending institutions and reaped considerable benefits before suffering setbacks which were arguably inflicted by the blinkered imposition of certain aspects of policy.

The World Trade Organisation (hereafter “WTO”) is a global international organisation charged with responsibility for establishing the rules of trade between nation states.  The organisation is underpinned by a series of WTO Agreements which have been negotiated, signed and ratified by the great majority of the world’s trading states. It is the raison d’être of the WTO to facilitate and improve the way in which the producers of goods and services, exporters, and importers conduct commercial activities. The WTO is based in Geneva, Switzerland and came into being on 1 January 1995 as a product of the Uruguay Round  of the GATT (General Agreement on Tariffs and Trade) Negotiations and as the successor to that body.  A much stronger body than its predecessor, World Trade Organisation rules now apply to over ninety percent of international trade.

The WTO, in similar fashion to the aforementioned institutions, has become increasingly controversial and subject to growing criticism since its inception and, in particular, as it has dramatically expanded the scope of its operations from the restricted focus of GATT, which was confined to reducing tariffs on manufactured goods.  The WTO of 2005 strives to eliminate non-tariff and other anti-competitive barriers to trade, and has the power to challenge health, environmental and other regulations that may serve legitimate social goals at a domestic level but which may be regarded as serious impediments to the flux and free play of international trade.

These matters require the WTO to venture into highly sensitive and contentious territory and leave it open to accusations that it is manipulated by influential powerbrokers to bully weaker members in their domestic affairs. The replacement of GATT by the WTO originally inspired concern among critics because its stronger enforcement powers represented a further shift in power from citizens and national governments to a global authority run by unelected bureaucrats. It is certainly true to say that the organisation suffers a so-called democratic deficit, but it is submitted this is not quite as serious as the situation that, for example, the European Commission finds itself in, given the latter institutions centrality in the convoluted EU lawmaking processes. On the positive side, many big business, centre and right-wing academic, and national government supporters across the world applaud the WTO as a more muscular guardian, policeman and sheriff of the global trading system.

As stated above, member states have the right to challenge each other’s local, state, or federal regulations as unlawful impediments to international trade under the WTO. If the Organisation finds the law to be contrary to its own legal framework, the government of the defaulting state may be required to amend or repeal the conflicting law under the threat of the imposition of trading sanctions. It can indeed be contended that this transfer of power to an overarching global bureaucratic super-structure prejudices the integrity of national democracy and devalues the input of citizens and domestically elected public officials in the development of laws for the maintenance of society.

While supporters contend that the WTO offers poorer, developing countries further and greater access to the industrialised markets of the richer North, detractors argue that putative trade liberalisation undermines the long-term development prospects and actual potential of those second and third world Southern nations. This chimes very much with the cynical reception of certain progressive World Bank and IMF policies in recent years.  Locally owned SMEs  - the lifeblood of every national economy - may have difficulty competing with effectively with multinational firms given that they do not have comparable access to economies of scale in production and transport, capital, cutting edge technology, wholesale networks, marketing channels or research and development funds.

This concern is particularly pertinent in the sensitive and hard fought field agriculture, where WTO regulations on trade and domestic policy reform have been seen to weaken if not damage national strategies to ensure food security. 

Moreover, recent WTO regulations have banned protectionist rules designed to shelter local domestic firms in the services sector. Foreign banks, for example, are now permitted to open branches in small towns, and arguably this could threaten locally owned banks with strong community links, but to focus on the negative is to ignore the many advantages that such reform can yield and opportunities that may open up as a consequence of such market penetration. 

The Ardent Critic

Richard Peet, in his book, Unholy Trinity : The IMF, World Bank and WTO,  presents a damning and highly critical commentary on the three institutions under review in this paper from an impassioned left wing perspective. Emphasising their lack of ostensible democratic legitimacy, Peet contends that these institutions exercise an unprecedented degree of control over a growing majority of the world's population. He suggests that, while sustaining a Keynesian regulatory function over the world economy, these institutions have become cheerleaders, sergeant majors and standard-bearers for the alleged neo-liberal stance of the so-called “Washington-Wall Street Alliance”, compelling weaker member countries to abide by a blunt regime of public austerity, free trade, export-driven growth and widespread national deregulation and privatisation.

Peet argues that, although beneficial to international investors and multinational corporations, these policies have had a highly deleterious impact on the populations and nascent market economies of many struggling countries, and that the result has been environmental destruction, impeded industrial growth, and increasing, rather than decreasing inequality and poverty. It is the opinion of this commentator, that while well argued and accessible, Peet’s arguments are a trifle one sided and niggardly in according credit where credit is due.

All three institutions have pursued good work and positive projects to fruition and it is difficult to assert that this is not the underlying aim of those that staff them. However, to Peet, and others of his ilk , the glass is certainly half empty rather than half full and it is submitted that that is to do a disservice to some extent, to the institutions under review. A more balanced survey of the Bank and in context its IMF and WTO partners is provided by Pincus et al in Reinventing the World Bank, which tellingly and perhaps reassuringly observes that the institution has attracted as much criticism from right wing interests as it has from those of the left. 

Concluding Comments

The world is a complex socio-economic and political mosaic beset by competing perspectives across all issues from hundreds of vastly diverse countries and societies. In simple terms, as a global community we cannot agree on anything. Even the matter of the Earth’s environment - something in which we all have an equal stake and interest - fails to inspire even the faintest trace of unanimity. Again in simple words, the three institutions under review have a task in common and a thankless, possibly insurmountable one at that.

It is no wonder therefore that these grand financial and trade oriented organisations are subject to criticism from one quarter or another. Given the global real politick it is a credit to them that they manage to function with the status and efficiency that they have been able to muster. The problems faced by the three organisations under review in this paper are largely similar and utterly inevitable. Given the wide differences in development between the world’s societies, to say nothing of cultural, religious and other geo-political divides and morays, it is submitted that it would be entirely impossible to satisfy all parties all the time. The analogy of the plate spinner comes to mind. It is possible to spin two or three plates at once - sometimes more if you are skilful - but if you were to try to spin 184 plates and they all need to go in different directions you would end up knee deep in broken crockery in no time at all.

In the opinion of this commentator, all three organisations face continued difficulties due predominantly to these complexities. All three confront concerns that they are driven with American and European interests to the fore and these concerns are inevitably not without some foundation. Ultimately it will be necessary for these bodies to distance themselves from the concerns of their Western masters and to take a global view on policy making and enforcement, but this must be done gently and with sensitivity, because without the support of the West the institutions could wither on the vine.

The awesome rise of China, with India hard on its heels, will dramatically change the world economy and political canvass in the coming decades. All three institutions must prepare for and accommodate this inevitable and permanent shift in power, if they are to preserve their positions of influence and authority on the global stage.

Bibliography

  • Jonathan R Pincus (ed), Reinventing the World Bank, (2002) Cornell University Press.
  • Richard Peet, Unholy Trinity : The IMF, World Bank and WTO, (2003) Zed Books.
  • Kevin Danaher, Ten Reasons to Abolish the IMF and World Bank, (2001) Open Media.
  • Lynne Brydon and Karen Legge, Adjusting Society: World Bank, the IMF and Ghana (International Library of African Studies), (1996) IB Tauris.
  • Sarah Anderson and John Cavanagh, World Trade Organization, January 1997, Institute for Policy Studies, Editors: Tom Barry and Martha Honey: http://www.fpif.org/briefs/vol2/v2n14wto_body.html.
  • Sparks Fly In WTO Agriculture Negotiations, ICTSD Bridges Weekly Trade Digest, 13 February 2001: http://www.ictsd.org/html/weekly/story1.13-02-01.htm.

Official websites:

  • http://www.worldbank.org/
  • http://www.imf.org/.
  • http://www.wto.org/

Miscellaneous internet resources:

  • http://www.globalexchange.org/campaigns/wbimf/facts.html
  • http://www.fpif.org/

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