International Monetary Fund
Or, the ‘soft’ way to force capitalism onto developing countries
The IMF is an organization which 186 of the world’s 195 countries belong to. Its original function was as a pool of money which the member countries (who numbered 45) could donate to and borrow from.
Established in 1944, and with the aim of ‘Stabilization of exchange rates’ and reconstruction of the international payment system, the IMF was somewhat a reaction to the Great Depression of the 1930s - the economic scarcity of which unquestionably influenced Germany’s actions leading up to WWII.
Furthermore, at the end of WWII, the European empires were beginning the process of granting independence to their colonies. This meant that newly liberated countries throughout Africa, Asia and South America had to make economic decisions - they faced a choice between state-controlled development, free enterprise development, or a mixed model. For almost all, the IMF would become a lender of funds, an advisor in their development, and a monitor of their progress. It is when acting in these capacities that the IMF is most criticized.
Since the late 1990s, the IMF has focused on ‘reducing poverty’. It provides loans to developing countries, with ‘conditionalities’ – terms of contract - claimed to enable the country to pay off their debt quickly, and to develop their country in terms of technology and infrastructure. Money is loaned to the government of the country who must use their political power to channel economic development in a certain direction, or in the IMF terminology, enact ‘structural adjustments’. The structural adjustments favored by the IMF are the steps toward a capitalist structure of economy.
When these countries were part of an empire, they were exploited for their raw goods. The means of production were mining, farming, foresting etc, under the overseers’ authority - who were European, or nationals complicit with the authority for status or financial reasons. By limiting education in the country, colonial owners maintained this hierarchical social/power structure. These relations of production were directly linked to the political system. For the most part, property and industry was removed from ownership of individuals and chiefs/lords – the pre-colonial feudalist system was overcome by the desire of the colonizer to profit from ownership of the country. Goods and labor were sold for low prices, so the European countries were guaranteed the resources they needed, and they had a market to sell their excess product to.
After liberation, once a government was in place, they needed to plan an infrastructure which would enable their countries to grow, organize the labor of the country and have enough money to put their plans to action.
- In a capitalist model of development, land and resources would be privatized – sold to individuals or companies. This generates some revenue for the government. As the countries have little capital, most of these businesses and individuals will be from the West. To be more attractive to foreign investors, the countries must not regulate their actions, or tax them too heavily. For example, the company can do what it wishes with the product. This means that they are under no written obligation to re-invest in the country. Within this model, an employer or business owner need only act in his own interests – which are to maximize profit.
- In a state-owned economy, the government retains control of land and resources, and becomes manager of industry. Again, a developing country will struggle with lack of capital, and taxation is not useful when the population is unemployed. To meet this problem they may receive loans from the IMF or World Bank, grants from individual countries, or agree to partner with businesses on particular ventures. In ideal circumstance, the government will act in the interest of the population.
- In a mix of these two models, the country could select some areas to privatize, and retain state control of others. They can use revenue from the initial sale of resources and taxes on the private industry to invest in public services.
After political independence, many countries in the world are economically dependent on the west. The Profit Motive of private businesses remains - to use developing countries for cheap labor and resources, and as a market for their products. As such, many businesses would be better off if developing countries did not become self sufficient, produce enough food and manufacture goods for their own needs, or have a well-regulated labor system. Furthermore, it is better for corporations if the developing countries do not restrict or tax imports, as this limits their markets, and if they privatize their institutions (education, healthcare) then foreign business investors could compete for those contracts. In other words, it is in the economic interest of the businesses of the western world for poor countries to develop into capitalist nations, provided they remain little threat on the global market. This last could be insured by, for example, charging them extortionate interest on loans taken out and fixing exchange rates against them.
Since independence, the mode of production has changed little in developing countries: Many people work for foreign businesses, who get cheap labor there, but are not bound by any conditions & contracts to stay there if the workers begin to unionize or minimum wage requirements increase.The labor of the country is in the same employment sector. Their main exports continue to be raw goods. These have a relatively low value as all the developing countries are selling the same cash crops. The colonial mode of production has been maintained, with the titles of the overseers and profiteers changed.
The IMF has had a significant role in the directing of these events, as the conditionalities attached to their loans are removing state control, and implementing the capitalist model. Specifically they advocate: reduced trade barriers and protection of domestic industries, concentration on raw good export as opposed to service industry, currency devaluation, non-unionized labor and removal of subsidies.
The IMF interacts with several groups intended to hold it accountable, which vary in their impartiality: the G20 and G8 may share many of the capitalist sentiments the IMF is accused of; the internal watchdog may have its hands tied, and the think-tanks tend to be funded by interested parties. The Independent Evaluation Office, however, has the chance to be more honestly appraising of the IMF’s functioning.
One of the criticisms in the past has been the IMF- imposed structural adjustment programs (SAPs), which are contracts contain the conditionalities mentioned above . This has led to the introduction of Poverty Reduction Strategy Papers, which the governments of countries borrowing money draw up themselves, showing changes they plan for their country. The similarities in the content of SAPs and PRSPs suggest that the IMF is still very much involved with the policy-making process.
The power that the IMF has over individual governments is concerning in itself. They cannot claim to be without opinions about what is best for a country, or that they don’t use their influence to achieve it. It is interesting then, where they do draw the line - they continue to fund military dictatorships, particularly those using Western corporations for their gunrunning needs.
These disparities between the latent and manifest function of the IMF are a result of the conflicting interests of Western corporations and developing countries. The IMF acts on the behalf of the former by using its financial leverage with the latter.
Established in 1944, and with the aim of ‘Stabilization of exchange rates’ and reconstruction of the international payment system, the IMF was somewhat a reaction to the Great Depression of the 1930s - the economic scarcity of which unquestionably influenced Germany’s actions leading up to WWII.
Furthermore, at the end of WWII, the European empires were beginning the process of granting independence to their colonies. This meant that newly liberated countries throughout Africa, Asia and South America had to make economic decisions - they faced a choice between state-controlled development, free enterprise development, or a mixed model. For almost all, the IMF would become a lender of funds, an advisor in their development, and a monitor of their progress. It is when acting in these capacities that the IMF is most criticized.
Since the late 1990s, the IMF has focused on ‘reducing poverty’. It provides loans to developing countries, with ‘conditionalities’ – terms of contract - claimed to enable the country to pay off their debt quickly, and to develop their country in terms of technology and infrastructure. Money is loaned to the government of the country who must use their political power to channel economic development in a certain direction, or in the IMF terminology, enact ‘structural adjustments’. The structural adjustments favored by the IMF are the steps toward a capitalist structure of economy.
When these countries were part of an empire, they were exploited for their raw goods. The means of production were mining, farming, foresting etc, under the overseers’ authority - who were European, or nationals complicit with the authority for status or financial reasons. By limiting education in the country, colonial owners maintained this hierarchical social/power structure. These relations of production were directly linked to the political system. For the most part, property and industry was removed from ownership of individuals and chiefs/lords – the pre-colonial feudalist system was overcome by the desire of the colonizer to profit from ownership of the country. Goods and labor were sold for low prices, so the European countries were guaranteed the resources they needed, and they had a market to sell their excess product to.
After liberation, once a government was in place, they needed to plan an infrastructure which would enable their countries to grow, organize the labor of the country and have enough money to put their plans to action.
- In a capitalist model of development, land and resources would be privatized – sold to individuals or companies. This generates some revenue for the government. As the countries have little capital, most of these businesses and individuals will be from the West. To be more attractive to foreign investors, the countries must not regulate their actions, or tax them too heavily. For example, the company can do what it wishes with the product. This means that they are under no written obligation to re-invest in the country. Within this model, an employer or business owner need only act in his own interests – which are to maximize profit.
- In a state-owned economy, the government retains control of land and resources, and becomes manager of industry. Again, a developing country will struggle with lack of capital, and taxation is not useful when the population is unemployed. To meet this problem they may receive loans from the IMF or World Bank, grants from individual countries, or agree to partner with businesses on particular ventures. In ideal circumstance, the government will act in the interest of the population.
- In a mix of these two models, the country could select some areas to privatize, and retain state control of others. They can use revenue from the initial sale of resources and taxes on the private industry to invest in public services.
After political independence, many countries in the world are economically dependent on the west. The Profit Motive of private businesses remains - to use developing countries for cheap labor and resources, and as a market for their products. As such, many businesses would be better off if developing countries did not become self sufficient, produce enough food and manufacture goods for their own needs, or have a well-regulated labor system. Furthermore, it is better for corporations if the developing countries do not restrict or tax imports, as this limits their markets, and if they privatize their institutions (education, healthcare) then foreign business investors could compete for those contracts. In other words, it is in the economic interest of the businesses of the western world for poor countries to develop into capitalist nations, provided they remain little threat on the global market. This last could be insured by, for example, charging them extortionate interest on loans taken out and fixing exchange rates against them.
Since independence, the mode of production has changed little in developing countries: Many people work for foreign businesses, who get cheap labor there, but are not bound by any conditions & contracts to stay there if the workers begin to unionize or minimum wage requirements increase.The labor of the country is in the same employment sector. Their main exports continue to be raw goods. These have a relatively low value as all the developing countries are selling the same cash crops. The colonial mode of production has been maintained, with the titles of the overseers and profiteers changed.
The IMF has had a significant role in the directing of these events, as the conditionalities attached to their loans are removing state control, and implementing the capitalist model. Specifically they advocate: reduced trade barriers and protection of domestic industries, concentration on raw good export as opposed to service industry, currency devaluation, non-unionized labor and removal of subsidies.
The IMF interacts with several groups intended to hold it accountable, which vary in their impartiality: the G20 and G8 may share many of the capitalist sentiments the IMF is accused of; the internal watchdog may have its hands tied, and the think-tanks tend to be funded by interested parties. The Independent Evaluation Office, however, has the chance to be more honestly appraising of the IMF’s functioning.
One of the criticisms in the past has been the IMF- imposed structural adjustment programs (SAPs), which are contracts contain the conditionalities mentioned above . This has led to the introduction of Poverty Reduction Strategy Papers, which the governments of countries borrowing money draw up themselves, showing changes they plan for their country. The similarities in the content of SAPs and PRSPs suggest that the IMF is still very much involved with the policy-making process.
The power that the IMF has over individual governments is concerning in itself. They cannot claim to be without opinions about what is best for a country, or that they don’t use their influence to achieve it. It is interesting then, where they do draw the line - they continue to fund military dictatorships, particularly those using Western corporations for their gunrunning needs.
These disparities between the latent and manifest function of the IMF are a result of the conflicting interests of Western corporations and developing countries. The IMF acts on the behalf of the former by using its financial leverage with the latter.
Bibliography
International Monetary Fund official website: www.imf .org
‘IMF challenged on accountability, governance’, article on Bretton Woods Project website: www.brettonwoodsproject.org/art-561807
‘Structural adjustment a major cause of poverty’, article at: www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty
Exploring Africa website: http://exploringafrica.matrix.msu.edu/students/curriculum/m9/activity8.php
Wikipedia pages on IMF and Structural Adjustment
2 comments:
that was really enlightening! thanks for that, lizzy!
Well written and interesting - light enough to be able to digest with some good infomration. Very much like the other insights into your life further down and my picture
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