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Lecture 11

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Political Science
R Rice

LECTURE 11: The World Bank, the IMF and the Politics of Structural Adjustment OUTLINE: I. The Bank and the Fund II. Structural Adjustment Defined III. Beyond the Washington Consensus? _______________________________________________________________________ _ I. The Bank and the Fund Post-War Restructuring and Bretton Woods (1944) • A system of international monetary management established the rules for commercial and financial relations among the world major industrial nations o 44 nations got together o First nation affairs • Fixed exchanged rate pegged the US dollar and gold link to US dollar – effective until 1971 until Nixon unlinked it Bretton Woods Institutions (BWIs) • WB: international bank for development and re construction o Long term finance for investment and development • IMF: international monetary fund o Short term finance to address budget and imbalances • UN; united nations o Forms for international decisions to be made; political instrument, maintain political and military stability; forum for less developed nations to have a say o UN is supposed to not get into issues of money and economics • GAT: general agreement on trade and tariffs aka World trade organization o Rules of the system o To regulate commodity prices • Favorable to global north b/c little participation from global south o Global capitalist system o Now the muscle is in the economics, imf and wb, ever since the recession. = now involved in policy decisions and condition lending on domestic policy and structural change. Criticisms of the Fund and the Bank • Not autonomous, tool of US foreign policy o Voting power = economic contribution to the bank = US 18% of the vote o In sept 11 attack; Pakistan was promised debt cancellation if it helped with the war against terrorism • Too much power of domestic policy in the global south; reoriented pakistam to come with a new policy = cost Pakistan more money to fight terriorism  Privatize  Change policies without meeting with appropriate reps • Not transparent and lack of accountability; who’s watching the watchers? o US, GER, FR, JAP, CHINA, RU etc. have direct reps but other countries have regional representation. o No transparent process of leader election – head of the world bank = always American and head of world bank is always non American = European  Solution: 1 country 1 vote = global south is bigger so that wouldn’t be favorable to the US  Record meetings in order to see who agrees to what, or make records public  Have civil society members = brings protesters inside • Ineffective and incompetent o 20 years and their structural adjustment plan hasn’t been too successful o In Africa, individual country success but overall = not too much growth o In L. America = most money goes to debt repayment II. Structural Adjustment Defined Structural Adjustment Programs (SAPs): medium-term measures to reform the economy of a country along free-market principles; including privatization, deregulation, and trade liberalization (World Bank) • Take government out of the economy • Free trade and market principles • Sell off government assets to private companies • Cut out social services • Price controls, environment protection measures and job security = removing controls and regulations that make investments and MNC to be cheaper • Reducing tariffs, get rid any barriers that regulate or stop trade = make more vulnerable to international market changes o Get rid of import tax and quotas Stabilization Policies: short-term measures to reduce budget imbalances by cutting down on government expenditures and reducing deficits (IMF) • Cutting subsidies; immediate Shock Therapy • Sudden release of price and currency controls withdrawal of state subsidies and immediate trade liberalization within a country ( stability + adjustment all at once) o Preferred approach by WB. Slow change = resistence will build up and undermine the free market o Better to reel from the change and pick up the pieces  Eg. the dog’s tail being cut off  Dramatic Economic Orthodoxy • Follow to the letter the neo liberal prescriptions of the world bank and IMF o Few neoliberal success cases – tinkered with it to make it work = successful Economic Heterodoxy • Attempts to combine stabilization and adjustment with growth, redistribution of income (equity) o Eg. Indonesia: successful in combining stab abd adjust o By maintaining GDP growth through exports o Egalitarian growth so not sector was left behind between rural and urban sectors  Didn’t create imbalances in the country  Protection of services to the poor during the government cuts (health care, etc 2 tier type system)  Adjustment with a human face. o East asian miracle countries = didn’t follow this = because they didn’t fall in debt  They believe in export led development but they have a development state without the pressure of the IMF and WB telling them what to do o SAPs were an obstacle for Indonesia Assessing SAPs: Do Current World Bank and IMF Lending and Aid Models Alleviate Poverty? • Is it activating growth in the long run • Not fully succeeded • 1. Norrow scope: fails to consider the larger structures o Investing in social capital – health, job, edu – puts a strain on it instead o Sustainable use of resources; o Strong state is need for effective and efficient change  Neo liberal state = make the state as small as possible – can down it in a tub o There is not tech innovation o Not a development model or strategy = only to generate currency to pay back debt = not a solution to over come poverty but just to get money back to the financiers • 2. Lack of financing o Jump start economy; promises from the north to increase loans with structional adjustments were met = didn’t go through o All you get is a loan and conditionality o They just got a piece of the puzzle • 3. Homogenous/ cookie cutter perspective o One size fits all model o Standard formula given to without looking at the
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