Thursday, April 12, 2007

Some IMF, World Bank policies do not work

Recently, we have heard members of the World Bank and IMF entertain the possibility that maybe their structural adjustment policies did have some negative effects.

The Bretton Woods Project revealed that in 2000, an “internal World Bank report has concluded that the poor are better off without structural adjustment.” The report itself is titled “The Effect of IMF and World Bank Programs on Poverty.”

However, it doesn't really look in detail at why the poor benefit less from the said adjustment. Instead it speculates that they “may be ill-placed to take advantage of new opportunities created by structural adjustment reforms” because, as the Bretton Woods Project insinuates, the report implies that the poor “have neither the skills nor financial resources to benefit from high-technology jobs and cheaper imports.”

Now, it may not have been the intent of the report to do so, but one can't help but notice how it almost seems as though while they may admit that structural adjustment didn't benefit the poor, it is almost as though the Bank tries to subtly absolve itself by sort of blaming the poor for not benefiting from this.

When structural adjustments have required cut backs in health, education and so on, then what would one expect? In March 2003, the IMF itself admitted in a paper that, “Globalization has heightened these risks since cross-country financial linkages amplify the effects of various shocks and transmit them more quickly across national borders.”

The Fund adds that, “The evidence presented in the said paper suggests that financial integration should be approached cautiously, with good institutions and macroeconomic frameworks viewed as important.”

In addition, the Fund admits that it is hard to provide a clear road-map on how this should be achieved, and instead it should be done on a case by case basis. This would sound like a move slightly away from a “one size fits all” style of prescription that the IMF has been long criticized for.

As many critics have said for a long time, opening up poorer countries in an aggressive manner can leave them vulnerable to large capital volatility and outflows. In theory there may, indeed, be merit to various arguments supporting global integration and cooperation, but politics, corruption, geopolitics, as well as numerous other factors need to be added to economic models, which could prove very difficult.

Because economics is sometimes separated from politics and other major issues, theory can indeed be far from reality. Joseph Stiglitz, the former World Bank chief economist once gave an insight into the power that the IMF has, and why accusations of it and its policies being colonial-like are perhaps not too far off.

He says “…the IMF is not particularly interested in hearing the thoughts of its ‘client countries' on such topics as development strategy or financial austerity. All too often, the Fund's approach to the developing countries has had the feel of a colonial ruler. A picture can be worth a thousand words, and a single picture snapped in 1998, shown throughout the world, has engraved itself in the minds of millions, particularly those in the former colonies.”

The IMF's Managing Director, Michel Camdessus, a short, neatly dressed former French Treasury bureaucrat, who once claimed to be a Socialist, is standing with a stern fact and crossed arms over the seated and humiliated president of Indonesia .

The hapless president was being forced, in effect, to turn over economic sovereignty of his country to the IMF in return for the aid his country needed. In the end, ironically, much of the money went not to help Indonesia , but to bail out the “colonial power's” private sector creditors.

Officially, the “ceremony” was the signing of a letter of agreement. An agreement effectively dictated by the IMF, though it often still keeps up the pretense that the letter of intent comes from the country's government.

Defenders of Camdessus claim the photograph was unfair, that he did not realize that it was being taken and that it was viewed out of context. But that is the point -in day-to-day interactions. Away from cameras and reporters, this is precisely the stance that the IMF bureaucrats take, from the leader of the organization right through the least. To those in developing countries, the picture raised a very disturbing question; had things really changed since the “official” ending of colonialism two centuries ago?

When I saw the picture, images of other signings of “agreements” came to mind. I wondered how similar this scene was to those marking the “opening up of Japan ” with Admiral Perry's gunboat diplomacy or the end of the Opium Wars or the surrender of Maharajas in India .

In his book ( Globalization and its Discontents (Penguin Books, 2002), pp. 40 – 41)), Stiglitz highlights many, many more issues, criticisms and aspects of IMF/Washington Consensus ideological fanaticism that have hindered development, and in many cases, as he points out, worsened situations. It is surprising and also quite illuminating to get the “insider” image of the workings of some large institutions in this way.

Into mid-2005, and though not as vocal as Stiglitz, as Bretton Woods Project reveals, one of the authors of a paper from the IMF “concedes the failure of IMF policies for the poorest countries” saying that “Much of sub-Saharan Africa has been under IMF and World Bank programmes during the last three decades, and while a modicum of macroeconomic stability has been achieved, progress has been spotty at best.”

Another working paper from the IMF suggests that trade liberalization has crippled some governments of poorer countries, and that prospects for further trade liberalization in poor countries may be troubling.