World Bank Fact Sheet
- What is the World Bank?
- What is the IMF?
- Why are they so important?
- What are structural adjustment programs (SAPs)?
- Is structural adjustment working?
- If structural adjustment doesn't work, then why are they promoting it?
- What about Third World debt?
- What is the relationship between debt and structural adjustment?
- Who makes the decisions?
- How do companies benefit from the lending programs at the World Bank?
- Why is this bad?
- Can they be reformed?
- How can I make a difference?
What is the World Bank?
Created at the Bretton Woods Conference in 1944, the World Bank Group is comprised of five agencies that make loans or guarantee credit to 177 member countries. It aims to help countries reduce poverty by making long-term
loans to governments for projects such as dams or bridges, or to back
economic reform programmes. The World Bank also produces many influential
research reports and has affiliates which back private companies investing
in poor countries.
What is the IMF?
Also created at the Bretton Woods Conference, the International Monetary Fund seeks to maintain an orderly balance of international trade and payments by regularly assessing economies and making short-term loans to those with balance of payments difficulties. Countries wanting to join the World Bank must first become members of the IMF.
Why are they so important?
The two agencies determine whether developing countries get access to aid
money and how it is spent. Northern governments use them to carry out
certain foreign and commercial policy objectives, but as multilateral
institutions they have the potential to foster cooperative international
approaches on key issues such as environmental change.
What are structural adjustment programs (SAPs)?
Structural adjustment programs (SAPs) are a set of economic policies required by the World Bank and the IMF as a condition of loans these institutions make to developing countries. These programs often include austerity measures such as high interest rates and reduced access to credit, which result in slower economic growth as well as increased poverty and unemployment. Other adjustment policies include cuts in government spending on health care and education, increases in the cost of food, health care and other basic necessities, mandates to open markets to foreign trade and investment, and privatization of state-run enterprises.
Is structural adjustment working?
No, structural adjustment has exacerbated poverty in most
countries where it has been applied, contributing to the
suffering of millions and causing widespread environmental
degradation. And since the 1980s, adjustment has helped
create a net outflow of wealth from the developing world,
which has paid out five times as much capital to the
industrialized countries of the North as it has received.
I know there are a lot of qualified people at the World
Bank and IMF who are experts in economics and other fields.
If structural adjustment doesn't work, then why are they
The wealthy Northern countries which control the World
Bank and IMF dictate the agendas of these institutions, and
their interests are best served by defending the status quo.
Furthermore, the Bank's staff is currently dominated by
economists who have spent their careers defending the
validity of neoclassical economics, the foundation of the
World Bank model of development. This orthodox view holds
sacred the efficiency of free markets and private producers
and the benefits of international trade and competition.
Given the lack of accountability to outside parties, there
is little incentive for the Bank and IMF to alter the design
of structural adjustment, even when faced with mounting
evidence attesting to the failure of these programs.
I hear a lot about the debt crisis in the Third World and
know that many of the loans are owed to commercial banks and
Northern governments. People say that some or all of this
debt should be canceled to give developing countries a
chance to recover economically. Shouldn't they pay?
Much of this debt dates back to 1970s, when it was lent
irresponsibly by commercial banks and borrowed recklessly by
foreign governments, most of which were not popularly
elected and which no longer hold power. The advent of the
debt crisis, which occurred in the early 1980s due to a
worldwide collapse in the prices of commodities that
developing countries export (e.g., coffee, cocoa) and to
rising oil prices and interest rates, forced these countries
into a position where they were unable to make payments. Yet
there's no such thing as bankruptcy protection for a
country, regardless of the circumstances. When the U.S.
department store Macy's filed for bankruptcy under chapter
11 in January 1992, it received instant protection from
creditors and working capital to keep open. At the same
time, when Russia told the West that it could not meet
government had to wait for more than a year before the IMF
provided financial help.
What is the relationship between debt and structural
Since the 1980s the debt situation has steadily worsened,
so that now the total debt of the developing world equals
about one-half their combined GNP and nearly twice their
total annual export earnings. Because of this crushing
debt-service burden, foreign governments have virtually no
bargaining power when negotiating a structural adjustment
program and must accept any conditions imposed by the World
Bank and the IMF. And SAPs themselves, by orienting
economies toward generating foreign exchange, are designed
to ensure that debtor countries continue to make debt
payments, further enriching Northern creditors at the
expense of domestic programs in the South.
Who makes the decisions?
Decisions at the World Bank and IMF are made by a vote of
the Board of Executive Directors, which represents member
countries. Unlike the United Nations, where each member
nation has an equal vote, voting power at the World Bank and
IMF is determined by the level of a nation's financial
contribution. Therefore, the United States has roughly 17%
of the vote, with the seven largest industrialized countries
(G-7) holding a total of 45%. Because of the scale of its
contribution, the United States has always had a dominant
voice and has at all times exercised an effective veto. At
the same time, developing countries have relatively little
power within the institution, which, through the programs
and policies they decide to finance, have tremendous impact
throughout local economies and societies. Furthermore, the
President of the World Bank is by tradition an American, and
the IMF President is a European.
How is it that U.S. business and other companies benefit
from the lending programs at the World Bank?
Development projects undertaken with World Bank financing
typically include money to pay for materials and consulting
services provided by Northern countries. U.S. Treasury
Department officials calculate that for every U.S.$1 the
United States contributes to international development
banks, U.S. exporters win more than U.S.$2 in bank-financed
Why is this bad?
Given this self-interest, the Bank tends to finance
bigger, more expensive projects--which almost always require
the materials and technical expertise of Northern
contractors--and ignores smaller-scale, locally appropriate alternatives. The mission of the World Bank to alleviate poverty, not provide business for U.S.
Can they be reformed?
Most incoming World Bank Presidents promise major reforms, normally
emphasising poverty and the environment. The latest, James Wolfensohn, is
being particularly bold in his aims and has unveiled a number of positive
initiatives towards openness and a more balanced view of economic reform.
But many previous plans have been thwarted by the Bank's institutional
culture, which prevents internal debate, and rewards large loans regardless
of whether they help poor people.
The IMF remains a very secretive and technocratic organisation with little
concern for poverty or environmental issues, but recently has made some
attempts to open up.
How can I make a difference?
Get informed and tell others. Not enough people know what is going on with
these distant international agencies. If you are from a rich country your government (Finance, Foreign Affairs or Aid/International Cooperation Ministries) is contributing your aid money to the World Bank and IMF, and will have a strong voice in how Bank money is used. You can contact your Ministers or officials to make your views known and ask for their response. If you are from a developing country then you now have the right to obtain information about what the World Bank and IMF are doing in your countries.
- 194 World Financial Institutions