It is now the 50th anniversary of the Bretton Woods meeting which created the World Bank and the International Monetary Fund. Even as the organisations themselves are celebrating the event, there has been an astonishing joining of hands by the far right, far left and deep greens, calling for the abolition of the two organisations. All three groups accuse the Bank and Fund of following disastrous policies that perpetuate poverty, though from completely different viewpoints.
Readers in India are familiar with the leftist claim that the Bank and IMF are agents of western imperialism, and the environmentalist claim that the agencies are financiers of ecological destruction. Not many readers are aware that the right wing in the USA and Europe has always criticised the Bank and IMF for financing socialism in the Third World on a scale unknown in human history. Leftists claim that the Bank and Fund are free- market maniacs. In fact, the Bank’s very articles prohibit it from lending directly to the private sector, and it can lend only to governments or projects guaranteed by governments. It has done so on a grand scale.
The Cato Institute, a right-wing think-tank, has just published a book, “Perpetuating Poverty: The World Bank, the IMF and Developing World” by Bandow and Vazquez. It accuses the international agencies of financing faulty socialist policies and consequent misery, and says that successful Asian countries succeeded despite and not because of aid agencies. It says aid has “helped finance some of the world’s most burdensome public sectors, in creased recipients’ foreign debt, and subsidised harmful economic policies that caused poor people’s misery.” It says that aid, “by ameliorating symptoms of economic collapse, is likely to postpone the adoption of neccesary reforms. Governments that receive aid find it easier to avoid making the politically difficult decisions required by economic restructuring.”
ADDICTION: Another Cato Institute book by Doug Bandow is called “The IMF: Reccord of Addiction and Failure”. It says the IMF has failed conspicuously to promote free-market policies in the Third World, and, “instead provided ongoing subsidies to corrupt rulers of statist regimes”. It also created addiction to aid.
“Through 1989, six nations had been relying on IMF aid for more than 30 years; 24 countries had been borrowers for 20 to 29 years.” And despite much free-market rhetoric, the IMF was guilty of “extending credit despite lack of policy reforms.”
More such criticism comes in “The World Bank and the Impoverishment of Nations”, by James Bovard. This says, “The World Bank has consistently financed the massive expansion of government throughout the developing world. The Bank has thus underwritten human atrocities, helped cripple Third World economies, and degraded the ennvironment”.
Some other book titles speak for themselves. “Fostering Aid addiction in Eastern Europe,” by Mel-anie S. Tammen. “Aid for Black Elephants: How Foreign Assistance has Failed Africa” by George B.N. Ayittey.
Many of these charges are exaggerated, some ridiculously so. And yet it seems to me that of the criticisms by the greens, the left and the right, perhaps the right is somewhat more on target than the others. The greens are certainly correct in saying that the Bank has financed many environmentally unsound projects but so has every other aid agency, every government and the private sector in every country, and the solution cannot be to close down all governments and business. After the collapse of communism in the Soviet Union and Eastern Europe, the leftist accusation of the bank financing imperalism sounds a weak version of Brezhnevism. True, the USA greatly influences the World Bank, but no imperialist agency would have gone ga-ga over Tanzanian socialism (as Mr Roert McNamara did) or financed Indira Gandhi’s “Garibi Hatao” socialism at a time when President Nixon had cut off all US aid to India as punishment for liberating Bangladesh.
PUBLIC SECTOR:The far right is on sounder ground in saying that the Bank likes to finance governments. Under its articles, it could have financed only private sector projects guaranteed by governments. In fact, it has done so to a very limited extent, and overwhelmingly financed governments instead. The public sector in the Third World would have been a tiny fraction of its currrent size but for enormous Bank assistance. For the first 35 years of its existence, the Bank believed in the model of state-led development, and spoke approvingly of five-year plans. It financed Marxist experiments in Tanzania (which was a favourite of Robert McNamara), Ethiopia, Yugoslavia, and Romania.
Only in the 1980s did the Bank come around to the view that in countries with faulty policies, loans could not generate high enough returns to enable their ultimate repayment.
The far right says the World Bank crowds out private investment, by borrowing in the world’s capital markets to on-lend cash to Third World governments instead of letting private sector companies access the same money. However, the far right also claims that markets know best, and has to face the uncomfortable fact that the financial markets give the World Bank a triple A rating.
The World Bank can feel quite pleased that it is attacked by tHie left and right at the same time,’a sign that it cannot be far off tlie track. The critics are simply wrong in claiming that the world has been impoverished in the la|st 50 years. The very opposite ‘is true — the world has experienced the most rapid growth in all history in the last 50 years, and this includes the Third World as will as the industrialised countries. At the same time all measures of social development, like literacy and life expectancy, have improved greatly.
Even in the 1980s, when Africa and Latin America went into reverse gear, improved economic performance in Asia (notably jn China, which is more populous than Latin America and Africa put together) meant that per capita income in the Third World as a whole rose by an impressive 2.9 per cent annually, much more than achieved by the UK or USA during their industrial revolutions.
No era is without blemishes. Bpt the 50 years after World War ill must go down as the mo|st glorious half-century ever. The credit for this goes to several actors, notably the governments of the most successful countries (Japan, Taiwan, Korea and Chijia deserve special mention). But-a modest share of credit must go to the three international agencies that presided over the huge expansion of flows of trade, technology and capital — GATT, the IMF and the World Bank.
The World Bank and India
The world Bank has decided to change its role from a financial to advisory one in Latin America and East Asia and will concentrate on development of South Asia and Africa.
Changing Composition of IBRD and IDA Lending, in million dollars
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