World Bank and IMF: Sink or Shrink

April 17, 2007

Many people have publicly protested the World Bank and International Monetary Fund (IMF) and are philosophically opposed to the way these organizations operate but not many people have been able to give suggestions as to how these organizations or policies should change. Ms. Vandana Shiva (Director of the Research Foundation for Science, Technology, and Natural Resource Policy) and Ms. Juliette Beck (Economic Rights Coordinator for Global Exchange, an international human rights organization) were interviewed by the US Public Broadcasting System (PBS) and stated that the World Bank and IMF must either “sink or shrink.”

These women also suggest that the United Nations Development Programme (UNDP) is better structured to address the problems of global poverty than either the IMF or the World Bank. Ms. Shiva suggests that a new institution should emerge to address poverty issues and this new organization should encompass “an international system that is not driven by the investors, but driven by the people of the world and their needs.”

In order to understand the context of these suggestions, it is necessary to understand the objections that these women have to the IMF and World Bank. Ms. Beck explains that when the IMF offers a loan to a country in need, this country must agree to austerity measures, such as reducing social services spending and suspending farmer subsidies. The austerity measures result in making the poor poorer.

Ms. Shiva further explains that when the World Bank finances a country’s education or health programs, the World Bank is effectively privatizing these sectors and taking away the universal rights to health and education from the poor. She further argues that a country like India could be paying these costs themselves if they did not have annual payments of $9 billon for debt servicing.

Ms. Shiva also provides an example of the World Bank looking out for the interest of its investors rather than the needs of the people they are trying to help. In 1984, India requested a “tiny loan” to supply clean drinking water to its people but the World Bank denied this request. Instead, they offered a loan to convert the agricultural industry in Maharash into sugarcane cultivation, which would provide a product for export but would impair the water quality of the region.

Can the World Bank and IMF be reformed to more effectively address the problems of poverty around the globe? Or, as Ms. Shiva suggests, should a new organization be formed “that is not the driven by the investors, but driven by the people of the world and their needs?”

Jessica Bellas and Monica Wong

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5 Responses to “World Bank and IMF: Sink or Shrink”

  1. Maggie Law Says:

    Will there be a possibility that “a new organization” subsequently become another sink/shrink “WB”&”IMF”? From my observations, most of the international institutions in which hegemonic powers are always the decision-makers. I don’t think these superpowers, where those affluent investors are residing, will hand in their control panels to those inferior ones. To make it simple, investors are always the key players in most international systems and sometimes, they even deliberately create such kind of system by themselves as to safeguard their personal interests at the expense of the poorer. Ms. Shiva’s idea is constructive but less likely to be endorsed by supernation leaders. A Chinese old saying, “Power makes people become corruptive”, and any international system, as far it is operated by man, will be flawed and may not truly address the need of those underprivileged communities.

  2. Perry Woods Says:

    the World Bank is not really different from Preditory Credit Card lenders.

    Now we have the head of the organization that puts pressure to root out coruption engaging in the worst sort himself.

    We need a system that places value on things other than Capital.

  3. Kenneth Li Says:

    Despite the World Bank is a multilateral institution with 184 membership, its president is chosen by the US. Over the years, it seems that EU countries are happy to support, in order to protect their interests in other international posts. This leaves the 150-plus developing countries sitting at the back benches. Views of poor countries are under-represented. They have very little say in the allocation of any funding.

    The US is a major player and it has 16 per cent of the bank’s votes. Behind the decision making processes, the US has been the biggest constraint on increasing the bank’s finance for poor countries. US has further pushed for debt relief in ways that would weaken the bank’s finances. The US demands to run the bank but on the cheap. That’s why some commentators have described the World Bank as the “American Bank”.

    As for the role of IMF today, it embraces surveillance, crisis prevention, crisis management and monitoring oversights. However, the ineffective operation of the IMF has always been a subject of criticism. The organization ought to advance to attend to common global concerns rather than concentrating on the narrow interests of some dominant states.

    A number of NGOs and observers have advocated for governance reform in both IMF and World Bank. It is suggested that middle income and low income countries should come up together to push for such reforms.

    Meanwhile, it is understood that the selection procedures of IMF Managing Director and the World Bank President were drafted in 2001 but have yet to be implemented. The new procedures are operated under an open and transparent system which allows all member states to recommend candidates for the seat. Officials are therefore to be selected on the basis of merit not by nationality. However, U.S. remains the major resistance while EU countries would not opt for any changes unless U.S. is on the move.

    To help people in the developing countries, I see a need to prevent any supernation to dominant the two organizations and I share the view that there is a need to revamp the governance structure of both IMF and World Bank in order to achieve results.

  4. gdaniel7 Says:

    This is a ‘catch 22’ situation. The WB and the IMF needs reform of its governance to be more efficient but at the same time it also needs money. The money comes mostly from the countries that are the less willing to reform those institutions (especially the USA and France).

    The work of the Paris club over the last decade shows the extent of this and the risk that a meaningful reform present for those institutions. If the reformist get their way at the WB and the IMF the real money backers might just stay nominative members while effectively quietly moving their lending operations in less visible institutions that will be more in line with their political objectives.

    I acknowledge that this is a bleak view advocating for the status quo as the less damaging option.

    Paris club http://www.clubdeparis.org/sections/qui-sommes-nous

  5. jenny Says:

    I really doubt whether reforming IMF or World Bank would do any help in improving the situation. The International Monetary Fund is such a powerful international institution. In any event, the very top (the US) and the very bottom (the poorest countries) would not change much. Maybe another way of looking at the issue will be on who should have more say: devloped countries like Japan or emerging market countries such as China and Brazil? Hopefully, a change in governance may help pomoting “role reversals” among these type of countries. After all, it should be a scaled-back IMF, which imposes less conditionality and resists the temptation to lend, will do less harm!


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