A North-South Relations Global History 12 Presentation on the global economic powers - The World Bank and IMF.

A North-South RelationsA North-South RelationsGlobal History 12Global History 12

Presentation Presentation on the global economic powers -on the global economic powers -

The World Bank and IMFThe World Bank and IMF

• The increasing economic problems The increasing economic problems within states and escalating economic within states and escalating economic trading tensions between states was trading tensions between states was interrupted by the Second World War interrupted by the Second World War (1939-1945). (1939-1945).

• By the war’s end, world leaders , By the war’s end, world leaders , anxious not to repeat the disasters of anxious not to repeat the disasters of the 1930s, turned their attention to the the 1930s, turned their attention to the regulation of world trade. regulation of world trade.

• In July 1944, representatives In July 1944, representatives from 44 countries met at Bretton from 44 countries met at Bretton Woods, New Hampshire, to Woods, New Hampshire, to design a multilateral (involving design a multilateral (involving more than two parties in the more than two parties in the economic systems of the world) economic systems of the world) postwar system through which postwar system through which the trade and monetary relations the trade and monetary relations of the non-communist world of the non-communist world could be regulated in a stable could be regulated in a stable manner. manner.

• An overriding concern for An overriding concern for policymakers at Bretton Woods was policymakers at Bretton Woods was the importance to avoid another Great the importance to avoid another Great Depression. Depression.

• The policymakers at Bretton Woods The policymakers at Bretton Woods believed that the length and severity believed that the length and severity of the Great Depression was caused of the Great Depression was caused by a lack of commitment by individual by a lack of commitment by individual states to the maintenance of a stable states to the maintenance of a stable world economic regime and the world economic regime and the absence of formal international rules absence of formal international rules to guide state actions. to guide state actions.

• The Bretton Woods conference was an attempt The Bretton Woods conference was an attempt to construct an international agreement that to construct an international agreement that would promote international political and would promote international political and economic cooperation. economic cooperation.

• The United States, USSR and Britain were The United States, USSR and Britain were among the countries attending the conference. among the countries attending the conference.

• The architects (framers) of the Bretton Woods The architects (framers) of the Bretton Woods system believed that expanding international system believed that expanding international trade held the key to stable economic trade held the key to stable economic reconstruction and development. reconstruction and development.

• Advanced economies in the postwar Advanced economies in the postwar period were driven by manufacturing period were driven by manufacturing and mass consumption of the new and mass consumption of the new technologies of the period (i.e. cars, technologies of the period (i.e. cars, home appliances and televisions). home appliances and televisions).

• National governments the world over National governments the world over kept a watchful eye over the flow of kept a watchful eye over the flow of money within the national economy in money within the national economy in order to ease inflation or prevent order to ease inflation or prevent recession. recession.

• People sometimes confuse the World People sometimes confuse the World Bank with the International Monetary Bank with the International Monetary Fund (IMF), which was also founded Fund (IMF), which was also founded at the Bretton Woods conference in at the Bretton Woods conference in 1944. 1944.

• While the World Bank and IMF While the World Bank and IMF compliment the other, the World Bank compliment the other, the World Bank provides assistance to developing provides assistance to developing countries, and the IMF serves to countries, and the IMF serves to stabilize the international monetary stabilize the international monetary system and acts as a monitor of the system and acts as a monitor of the world’s currencies. world’s currencies.

The “Bank” of all BanksThe “Bank” of all Banks

• The initial role of the World Bank The initial role of the World Bank was that of a financial was that of a financial intermediary (go-between) intermediary (go-between) providing finance for postwar providing finance for postwar reconstruction in such sectors as reconstruction in such sectors as agriculture, transportation and agriculture, transportation and energy.energy.

The Beginning – the 1950sThe Beginning – the 1950s

• By the 1950s, it became clear By the 1950s, it became clear that a growing number of that a growing number of developing countries were developing countries were having problems meeting the having problems meeting the requirements to borrow on the requirements to borrow on the World Bank’s terms. World Bank’s terms.

• When many When many colonies of colonies of European European imperialism imperialism gained gained independence in independence in Africa in the Africa in the 1960s, the World 1960s, the World Bank began to Bank began to play a larger play a larger economic role. economic role.

• As a lender for As a lender for large-scale large-scale development development projects such as projects such as dams, bridges, and dams, bridges, and power plants, the power plants, the contracts to build contracts to build these projects were these projects were largely American or largely American or other Western other Western enterprises. It was enterprises. It was seldom for local or seldom for local or regional companies regional companies to be awarded to be awarded tenders. tenders.

• By this time, the World Bank was By this time, the World Bank was starting to focus its attention on starting to focus its attention on poverty. poverty.

• Aid given by the World Bank to Aid given by the World Bank to fight against poverty was tightly fight against poverty was tightly linked to the recipient country’s linked to the recipient country’s economic and social reforms.economic and social reforms.

• The World Bank became more aware The World Bank became more aware of the importance of governmental of the importance of governmental techniques designed to influence techniques designed to influence broad aspects of the domestic broad aspects of the domestic economy.economy.

• Examples include policies for Examples include policies for economic growth, unemployment, economic growth, unemployment, inflation, money supply, balanced inflation, money supply, balanced budgets, decreased government budgets, decreased government spending, and the transference of spending, and the transference of responsibilities from the public to the responsibilities from the public to the private sector. private sector.

• Loans to improve a country’s Loans to improve a country’s infrastructure were ineffective infrastructure were ineffective without a healthy economy to without a healthy economy to sustain developmental progress.sustain developmental progress.

• The World Bank also believed The World Bank also believed

that sound economic that sound economic management would mean the management would mean the repayment of loans to repayment of loans to international financial international financial institutions. institutions.

• Up to the time of the Third World debt Up to the time of the Third World debt crisis in the 1980s, the work of the crisis in the 1980s, the work of the Bank and its lending institutions as a Bank and its lending institutions as a source of development finance grew source of development finance grew in scope. in scope.

• The perceived success of the Bank in The perceived success of the Bank in its early years, led to the creation and its early years, led to the creation and development of multilateral banks, development of multilateral banks, such as the Asian Development Bank such as the Asian Development Bank and the African Development Bank, and the African Development Bank, along with the Inter-American along with the Inter-American Development Bank. Development Bank.

• The 1980s marked a dramatic The 1980s marked a dramatic turning point in the history of the turning point in the history of the World Bank.World Bank.

• The Bank went from development The Bank went from development

aid to structural adjustments aid to structural adjustments programs (SAPs) – conditional aid – programs (SAPs) – conditional aid – which are loans tied to conditions. which are loans tied to conditions. Conditions usually involve spending Conditions usually involve spending cuts to vital areas, rainforest and cuts to vital areas, rainforest and resource destruction or selling off resource destruction or selling off and repayment plans. and repayment plans.

• This became quite the difference from This became quite the difference from its earlier days of infrastructure its earlier days of infrastructure development. The World Bank began development. The World Bank began to support polices that led to to support polices that led to privatization, stabilization and privatization, stabilization and deregulation. deregulation.

• All in all, the SAPs have gone hand-in-All in all, the SAPs have gone hand-in-hand to erode already low levels of hand to erode already low levels of social spending, and to encourage the social spending, and to encourage the privatization of health and education, privatization of health and education, as well as the forced exports of food as well as the forced exports of food production. production.

• Clearly such policies have led to Clearly such policies have led to increases in malnutrition and increases in malnutrition and illiteracy, and to deteriorating illiteracy, and to deteriorating levels of basic health standards levels of basic health standards for the general population. for the general population.

• In the early 1990s, the World In the early 1990s, the World Bank admitted that SAPs have Bank admitted that SAPs have had a deleterious impact on the had a deleterious impact on the developing world and once again developing world and once again turned its attention to poverty. turned its attention to poverty.

The World Bank’s The World Bank’s Priorities Have Priorities Have

Changed DramaticallyChanged Dramatically• The World Bank’s work in more The World Bank’s work in more

than one hundred countries is than one hundred countries is seen to be a challenge worth seen to be a challenge worth taking on.taking on.

• Over the past 20 years, the Over the past 20 years, the Bank's focus has changed and Bank's focus has changed and so has its approach to how it so has its approach to how it operates.operates.

• It is now addressing newer issues like It is now addressing newer issues like gender, community-driven gender, community-driven development and indigenous peoples, development and indigenous peoples, and it support for social services like and it support for social services like heath, nutrition, education, and heath, nutrition, education, and pensions. pensions.

• Monies for these issues and Monies for these issues and programs has grown from 5 percent programs has grown from 5 percent in 1980 to 22 percent by 2003, just in 1980 to 22 percent by 2003, just four years ago. four years ago.

The Millennium The Millennium Development GoalsDevelopment Goals• Goal 1 -Eradicate Goal 1 -Eradicate

extreme poverty extreme poverty and hunger.and hunger.

• Goal 2 – Achieve Goal 2 – Achieve universal primary universal primary education.education.

• Goal 3 – Promote Goal 3 – Promote gender equality and gender equality and empower women.empower women.

• Goal 4 – Reduce Goal 4 – Reduce child mortality.child mortality.

• Goal 5 – Improve Goal 5 – Improve maternal health.maternal health.

• Goal 6 – Combat Goal 6 – Combat HIV/AIDS, malaria, HIV/AIDS, malaria, and other diseases.and other diseases.

• Goal 7 – Ensure Goal 7 – Ensure environmental environmental sustainability.sustainability.

• Goal 8 – Develop a Goal 8 – Develop a global partnership. global partnership.

The IMFThe IMF

• The International Monetary Fund—The International Monetary Fund—also known as the “IMF” or the also known as the “IMF” or the “Fund”—was conceived at a United “Fund”—was conceived at a United Nations conference convened in Nations conference convened in Bretton Woods, New Hampshire, Bretton Woods, New Hampshire, U.S. in July 1944. U.S. in July 1944.

• The The International International Monetary Monetary Fund was Fund was created in created in 1945 to help 1945 to help promote the promote the health of the health of the world world economy.economy.

• It was established to promote It was established to promote international monetary international monetary cooperation, exchange stability, cooperation, exchange stability, and orderly exchange and orderly exchange arrangements; to foster arrangements; to foster economic growth and high levels economic growth and high levels of employment; and to provide of employment; and to provide temporary financial assistance to temporary financial assistance to countries to help ease balance of countries to help ease balance of payments adjustment. payments adjustment.

• The 45 governments represented The 45 governments represented at that conference sought to at that conference sought to build a framework for economic build a framework for economic cooperation that would avoid a cooperation that would avoid a repetition of the disastrous repetition of the disastrous economic policies that had economic policies that had contributed to the Great contributed to the Great Depression of the 1930s.Depression of the 1930s.

• Drawing on the experiences of the Drawing on the experiences of the 1930s, the IMF sought to alleviate 1930s, the IMF sought to alleviate trade deficits because of the fear that trade deficits because of the fear that they might eventually threaten the they might eventually threaten the entire world economic system. entire world economic system.

• To avoid the possibility of disrupting To avoid the possibility of disrupting economic stability, the IMF lent economic stability, the IMF lent money to countries facing a balance –money to countries facing a balance –of-payments problem.of-payments problem.

IMF's main responsibilities:IMF's main responsibilities:

• promoting promoting international international monetary monetary cooperation; cooperation;

• facilitating the facilitating the expansion and expansion and balanced growth of balanced growth of international trade; international trade;

• promoting promoting exchange stability; exchange stability;

• assisting in the assisting in the establishment of a establishment of a multilateral system multilateral system of payments; and of payments; and

• making its making its resources available resources available (under adequate (under adequate safeguards) to safeguards) to members members experiencing experiencing balance of balance of payments payments difficulties.difficulties.

• More generally, the IMF is responsible for More generally, the IMF is responsible for ensuring the stability of the international ensuring the stability of the international monetary and financial system—the system monetary and financial system—the system of international payments and exchange of international payments and exchange rates among national currencies that rates among national currencies that enables trade to take place between enables trade to take place between countries. countries.

• The Fund seeks to promote economic The Fund seeks to promote economic stability and prevent crises; to help resolve stability and prevent crises; to help resolve crises when they do occur; and to promote crises when they do occur; and to promote growth and alleviate poverty. It employs growth and alleviate poverty. It employs three main functions—surveillance, three main functions—surveillance, technical assistance, and lending—to meet technical assistance, and lending—to meet these objectives. these objectives.

• Since the IMF was established its Since the IMF was established its purposes have remained purposes have remained unchanged but its operations—unchanged but its operations—which involve surveillance, which involve surveillance, financial assistance, and financial assistance, and technical assistance—have technical assistance—have developed to meet the changing developed to meet the changing needs of its member countries in needs of its member countries in an evolving world economy. an evolving world economy.

• The IMF's resources are provided by its The IMF's resources are provided by its member countries, primarily through paymmember countries, primarily through paym

• ent of quotas, which broadly reflect each ent of quotas, which broadly reflect each country's economic size. country's economic size.

• The total amount of quotas is the most The total amount of quotas is the most important factor determining the IMF's important factor determining the IMF's lending capacity. lending capacity.

• The annual expenses of running the Fund The annual expenses of running the Fund are met mainly by the difference between are met mainly by the difference between interest receipts (on outstanding loans) and interest receipts (on outstanding loans) and interest payments (on quota “deposits”). interest payments (on quota “deposits”).