How IMF Has Assisted In The Underdevelopment Of Third World Countries

How IMF Has Assisted in the Underdevelopment of Third World Countries

According to the The International Monetary Fund (IMF) is an international financial institution (IFI) which monitors the international financial system and provides loans to developing country member-states with balance-of-payments problems. (www.IMF.com)

History of IMF

The IMF was established in 1945, having first been conceived at the Bretton Woods Conference in New Hampshire, USA in 1944. That conference saw representatives from forty four allied nations gather to craft new rules and institutions to regulate the chaotic global economy – blamed for the Great Depression and for helping cause two World Wars. The outcome was the Bretton Woods Agreement which created two new multilateral institutions: the International Bank for Reconstruction and Development (IBRD), now known as the World Bank, and the International Monetary Fund. (www.IMF.com)

The creation of the IMF was a ‘compromise’ between the proposals put to the Bretton Woods conference by head negotiators from England and the USA: John Maynard Keynes and Harry Dexter White. Keynes advocated the establishment of a global bank called the International Clearing Union, which would have divided the responsibility for balance-of-payments imbalances between both the debtor and creditor nations. But the United States was at the time not just the most economically powerful nation in the world, but also the world’s largest creditor. As a result, it was White’s proposal for a Fund which favored creditor nations by placing the world’s debt burden solely on debtor nations which won out in the end, altered only slightly by a few concessions to Keynes. (Bob Davis 2010)

The IMF’s responsibilities:

The IMF's primary purpose is to ensure the stability of the international monetary system the system of exchange rates and international payments that enables countries (and their citizens) to transact with one other. This system is essential for promoting sustainable economic growth, increasing living standards, and reducing poverty. Following the recent global crisis, the Fund has been clarifying and updating its mandate to cover the full range of macroeconomic and financial sector issues that bear on global stability. (Bob Davis 2010)

Roles of IMF:

At its establishment, the IMF was to given a number of interconnected roles, set out in Article 1 of its Articles of Agreement. In essence, the IMF’s two main roles were to:

• Monitor an international system of fixed exchange rates based on the value of the US dollar which would be pegged to the value of gold, with the goal of ensuring international monetary stability; and

• Provide short-term loans to nations in danger of balance-of-payments crises (ie: when there is not enough hard currency to pay for imports). The loans were to be made from a large gold reserve, and from contributions from the Fund’s members, based on the relative size of their economies. (Gerald Chaliad 2000)

Accompanying this change in focus was a change in method. Former World Bank Chief Economist Joseph Stiglitz notes that originally, “the IMF was based on a recognition that markets often did not work well, that they could result in massive unemployment and might fail to make needed funds available to countries” (Stiglitz 2003, p. 12). But in the 1970s and 1980s, “the Keynesian orientation of the IMF, which emphasized market failures and the role for government in job creation, was replaced by the free market mantra of the 1980s, part of a new ‘Washington Consensus’” (Stiglitz 2003, p. 16).

The Washington Consensus was so named because it was a common ideology of the IMF, World Bank and US Treasury all based in Washington that markets, free from government intervention of any kind, held the key to development in rich and poor countries alike. (Stiglitz 2003, p. 21).

Structural adjustment

Structural adjustment policies mean across-the-board privatization of public utilities and publicly owned industries. They mean the slashing of government budgets, leading to cutbacks in spending on health care and education. They mean focusing resources on growing export crops for industrial countries rather than supporting family farms and growing food for local communities. And, as their imposition in country after country in Latin America, Africa, and Asia has shown, they lead to deeper inequality and environmental destruction. For decades people in the Third World have protested the way the IMF and World Bank. (www.imf.com)

"Research shows clearly that the policies prescribed by the IMF have, among other things, not produced strong or sustainable growth; opened countries, communities and families to new vulnerabilities; exacerbated inequalities, which puts a brake on growth, stresses political systems to the breaking point, and engenders new and powerful forms of criminality and social tension.

Bolivia has been a model student of such "reforms", and is now also a showcase for the contradictions and crisis these policies engender."

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