Lec 2 IMF, & WBWorld System Theory:WST argument: AIC’s ideology and power of capital are continually being reinforced in the decisions of the IMF, WB and WTO in order to maintain their core status.http://www.youtube.com/watch?v= tiav0V_F0bk On song dynamite

AICs commercial interests are embodied in the rules on global trade, aid and loan imposed on the LDCs :

• Washington consensus• Neoliberal policies• SAP• Conditionality• MFN

WASHINGTON CONSENSUS (1989)

• Liberalization• Austerity • Privatization• De-regulation

LAPDog

AICs commercial interests are embodied in the rules on global trade, aid and loan imposed on the LDCs :

• Washington consensus• Neoliberal policies• SAP• Conditionality• MFN

http://www.youtube.com/watch?v=XIUWZnnHz2g&feature=related neolib as a water balloon 12 min

What are the Neoliberal policies? DOPE LD Liberalize tradeDeregulate finance/currency Open up for foreign investment,Privatize economyDeregulate commercial activityEnsure property protection

Trade Liberalization: Remove or reduce restrictions or barriers on trade between nations: e.g., tariff (customs duties) and non-tariff barriers (licensing rules, quotas,

1

specs: GM crops). The easing or eradication of such restrictions is used for promoting "free trade.” Financial deregulation : e.g., in the United States deregulation occurred in 1999 when Congress repealed sections of the Glass-Steagall Act. This act, passed in 1933 during the depression, meant that any one company could only act as a commercial bank, an investment bank or an insurance company. A commercial bank offered savings and loans services to customers, while an investment bank carried out functions such as selling securities, trading in foreign currencies and assisting firms in mergers.Commercial deregulation: deregulated industries are free of any restrictions that might be essential to protect the consumer.Property protection: e.g., Corporations with copyright/patent control

http://www.youtube.com/watch?v= XtTeDv5FbNw free market/tradeWe Made a Devils Bargain: Fmr. President Clinton Apologizes for 6.5min- 2010AICs commercial interests are embodied in the rules on global trade, aid and loan imposed on the LDCs :

• Washington consensus• Neoliberal policies• SAP• Conditionality• MFN

http://www.youtube.com/watch?v= Be5SudSdO6Q Martin Khor Structural Adjustment Explained 5 min 2011

How does Structural Adjustment Program (SAP) affect the Developing countries?Impact:

• Balancing the government budget• Weakening the Labour• Deregulating the economy• Reducing the State

BLeeDSIMF’s imposition of SAP on Asian countries created a financial crisis of economic contraction and depression.

AICs commercial interests are embodied in the rules on global trade, aid and loan imposed on the LDCs :

• Washington consensus• Neoliberal policies• SAP• Conditionality• MFN

2

Conditionality:• Conditions placed on loans to LDCs

Conditions imposed to make aid effective in a recipient country – in reality could hurt the country’s economy or the country’s political stability

Bretton Woods Institutions: 1944Multilateral bodies:

• IMF • World Bank (IBRD)

15:19 World Bank : IMF : World Control 3 min 2013http://www.youtube.com/watch?v=gtPqT- UPBT4

What is IMF expected to establish globally?Global:

• monetary cooperation• exchange rate stability• trade expansion as lender of last resort

- Lends to correct balance of payment deficits

From where does IMF get its money?• Subscriptions from member countries ‘Quota’ (capital) that they pay

when they join the IMFWhat do Quotas determine?

• Countries’ payments• Voting power• How much they can borrow

e.g.: U.S. has 16.76 %, Seychelles is 0.03 % of quotas (2011) http:// www.imf.org/external/np/sec/memdir/members.aspx , oct 22, 2011

From where does IMF get its money?• Subscriptions from member countries ‘Quota’ (capital) that they pay

when they join the IMFWhat do Quotas determine?

• Countries’ payments• Voting power• How much they can borrow

e.g.: U.S. has 16.76 %, Seychelles is 0.03 % of quotas (2011) http:// www.imf.org/external/np/sec/memdir/members.aspx , oct 22, 2011

3

Governments have votes based on the amount of money they pay in to the organizations. In this sense, they operate much like private corporations, except that the owners of shares are governments instead of individuals. The U.S. government has by far the largest share of votes in both the IMF and World Bank and, along with its closest allies, effectively controls their operations the IMF and the World Bank have great power, and are able to insist that governments adopt certain policies as a condition for receiving funds.The IMF and the Bank make sure that U.S. allies get the financial support they need to stay in power, abuses of human rights, labor, and the environment notwithstanding; that big banks get paid back, no matter how irresponsible their loans may have been; and that other governments continually reduce barriers to the operations of U.S. business in their countries, whether or not this conflicts with the economic needs of their own people.

4

Criticisms of IMF & WB:1. Washington Consensus and neoliberal policies imposed on DW by IMF & WB

have been discredited (#6 Birdsall & Fukuyama).2. To remedy the impact of 2008 global financial crash on developing countries,

UN and development economists have offered policies that have been misdirected (DW #6)

3. Although the West’s influence is diminishing (Susan George, End of Poverty), the status quo is maintained in development policies due to the disproportionate power of Rich countries in WTO, IMF & WB.

Susan George: http://www.youtube.com/watch?v=NQ952ba75Yk&feature=related7min 2011

5

Bretton Woods Institutions: 1944Multilateral bodies:

• IMF • World Bank (IBRD group)•

• the IMF provides funds to governments in immediate financial emergencies: bridging trade and balance of payment deficits.

• As to the source of their funds, the IMF gets most of its money as subscriptions from member governments-the amount determining the number of votes each government has in running the operation. When, in extreme circumstances, the IMF needs an especially large amount of funds, it can activate a line of credit it has established with governments and large banks.

• But, IMF imposed wrong policies on the Developing Countries • 1. Blamed Developing countries for their B of P deficit –during the Oil crisis

(1971). • 2. Argentina experienced a catastrophic economic crisis in 2001, caused by

IMF’s budget restrictions —this undercut the government's ability to sustain national infrastructure in crucial areas: e.g., health, education, and security—and privatization of strategically vital national resources.

• the IMF provides funds to governments in immediate financial emergencies: bridging trade and balance of payment deficits.

• As to the source of their funds, the IMF gets most of its money as subscriptions from member governments-the amount determining the number of votes each government has in running the operation. When, in extreme circumstances, the IMF needs an especially large amount of funds, it can activate a line of credit it has established with governments and large banks.

• But, IMF imposed wrong policies on the Developing Countries • 1. Blamed Developing countries for their B of P deficit –during the Oil crisis

(1971). • 2. Argentina experienced a catastrophic economic crisis in 2001, caused by

IMF’s budget restrictions —this undercut the government's ability to sustain national infrastructure in crucial areas: e.g., health, education, and security—and privatization of strategically vital national resources.

• The World Bank promotes long term development strategies – thus it shapes the developing countries’ economies that receive its loans: e.g., to build hydroelectric or clean water projects or training programs for local business

• WB requires that public sector (State owned) should be replaced by private sector (corporate): e.g. privatization of communal lands and other public corporations.

• WB raises its money in the financial market - as loans from the private sector, operating through financial markets. Because investing in WB is secure

6

(secured by funds from member governments) it can borrow private funds at low interest rates. WB then offers these low interest loans to the developing countries. Thus, through it, WB allows developing countries’ governments to borrow on the international capital markets at lower rates than they could borrow if they were to try to borrow on their own.

The World Bank: a Bretton Woods institution (1944)Original aim: post-war reconstruction of Europe• First loan of $250 million was to France (1947)

What is its aim today?• Reconstruction is WB’s important focus

o Natural disasters, o Humanitarian emergencieso Post-conflict rehabilitation needs.

The World Bank• Owned by member countries• Voting power related to members’ capital subscriptions • Quota is based on a country’s relative economic strength• Raises most funds in financial markets• IBRD sells AAA rated bonds and other debt

securities• Charges interest that reflects its low-cost borrowings in capital markets

IBRD: 188 members (2012)• World Bank provides long-term development loans to LDCs

IBRD’s Board : 24 Executive Directors.5 Exec Directors: appointed by the 5 largest shareholders (the US, Japan, Germany, France and the UK). 19 Exec Directors : elected by the Bank's other members.

International Development Association (IDA)

7

• Established 1960 to provide concessional assistance to countries unable to borrow at commercial rates

What does IDA do? (March 2011)o Gives grants and interest free loanso Borrowers pay 1% administration feeo 52 countries contribute to funding ($49.3bil)o $12.6 billion – grants and loans to Africa and South Asia, in education,

health, social services, water and sanitation. http://www.worldbank.org/ida/ida-factsheet.pdf oct 22, 2011

New IDA Lending by Region:Sub-Saharan Africa...........43%South Asia...........................39%East Asia/Pacific..................10%Europe/Central Asia...............4%Latin America/Caribbean........3%Middle East/North Africa.........1%

FY11 Top Ten IDA Borrowers($million, excludes regional projects)http://www.worldbank.org/ida/ida-financing.html

Bangladesh 2,139

India 2,072

Pakistan 1,292

Vietnam 1,280

Ethiopia 630

Ghana 605

Nigeria 535

Kenya 490

Tanzania 420

Mozambique 413

8

WB’s mission: Help developing countries and their people reach the Millennium Development Goals by working with our partners to alleviate poverty.

WTO: AICs commercial interests are embodied in the rules global trade, aid and loan imposed on the LDCs :

• WTO works on power-based bargainingWorld Trade Organization (WTO) ( for expanding free trade) It oversees and regulates:

• Global trade balance• Monetary stability

Wto p1 6.36 min - 2007 http://www.youtube.com/watch?v=aOE7Ve06tXA&feature=fvwrel  http://www.youtube.com/watch?NR=1&v=HbwZhCfO2GQ&feature=fvwpwto p 2 6.45 minWatch the following 2 links yourself:https://www.youtube.com/watch?v=X- ptS6Ln_ss World Trade Organization (WTO).wmv 5.33minhttps://www.youtube.com/watch?v= cijnV8P5UHE GATT and WTO - Social Studies 2013 6.5 min

How does power-based bargaining works in

9

WTO negotiations?What do poor countries face?

• Agricultural Protectionism• High Tariffs on Labour intensive goods• Anti-dumping

What do Rich countries reject?• Opening AICs’ agri market• Access to cheaper medicines• Lowering industrial tariff

WTO (cont’d)• From 1995-2010, WTO has the mission to implement free trade but has not

acted on it. Result: Not improved the trade related development in DW • AICs rejected G-21 demand to cut their agri subsidies/ tariff barriers• Widening disagreements between the rich and poor countries

Rich countries spend $84 billion a year subsidizing their farmers. That’s nearly as much as they spend on foreign aid, which is about $29 a year for each of the world’s 2.7 billion people who live on less than $2 a day. Poor people often get less assistance than the rich world’s farm animals. The European Union, for example, doles out almost $30 per year for each sheep living there. In Norway and Switzerland, each cow gets nearly $1,000 of the government’s money a year. These subsidies push down global agricultural prices and undermine farmers in poorer countries. Bellying up to the government’s trough has never been so costly.

10

Customs duties on merchandise imports are called tariffs. Tariffs give a price advantage to locally-produced goods over similar goods which are imported, and they raise revenues for governments. One result of the Uruguay Round was countries’ commitments to cut tariffs and to “bind” their customs duty rates to levels which are difficult to raise. The current negotiations under the Doha Agenda continue efforts in that direction in agriculture and non-agricultural market access.

Unequal trade relations:• Tariff barriers• Non Tariff barriers• E.g. http://www.slideshare.net/nbairstow/international-tariffs-and-

non-tariff- barriers 13 slides 2011Davos: • World Economic Forum (WEF) – founded in 1971 by K.M. Schwab, a Swiss

prof. • Annual meetings in Davos, Switzerland• Membership: top leaders in business & politics: Presidents, PMs, Trade

Ministers - a business forum - the richest businesses negotiate deals and lobby powerful politicians

What would be their real objective? • profit-making?

or• solving economic problems such as poverty?

WTO: AICs commercial interests are embodied in the rules global trade, aid and loan imposed on the LDCs :

• MFN Most favored nation status (MFN)

• An agreement between two nations to levy tariffs on each other at rates as low as those levied on any other country.

• If one of these nations reduces tariffs on a third country, all of that nation's MFN partners also receive that lower tariff rate.

11