The Effect of Globalisation, IMF and World Bank Economic Policies on Less Developed Nations

John T. Rourke author of, International Politics on the World Stage, defines globalism as, “The process of expanding globalism and denotes the increasing integration of economics, communications, and culture across national boundaries” (Rourke, pg 131). The economies of less developed countries (LDCs) have been negatively impacted by intergovernmental organizations like the International Monetary Fund (IMF) and the World Bank.  This paper will examine the effect intergovernmental organizations and globalization has had on LDCs from an economic and historical perspective.

First, LDCs is a term which refers to Third World countries.  As M.D. Litonjua author of, Third World/Global South: From Development to Imperial Project, explains, “The decolonization process of the 1960s brought the newly independent countries of Africa into the halls of the United Nations, swelled the membership of the General Assembly, and called attention to the social, economic, and political problems of the countries that would be grouped together as the Third World” (Litonjua, pg 1).  Later the newly independent countries of Asia and Latin America would be classified as Third World Countries as well.  The term was “…First used by the French economist and demographer Afred Sauvy in 1952 who saw the Third World (Tiers Monde) as a modern parallel to the Third Estate (Tiers Etat) of the French Revolution, the class of commoners after the aristocracy and the clergy” (Litonjua, pg1).  It is also important to note that there are countries whose economies have developed, and are no longer LDCs.  The growth by some countries can be attributed to a phenomenon known as globalism.

Globalism can be traced back to the ancient societies of Greece and Rome; however the process of globalization has accelerated during the past two hundred years.  After World War II the United States lead an effort to unify the world economies, making nations dependent on one another with the purpose of preventing other world wars.  Two factors which made the United States successful were technological change and government policy.  “Be it the Internet, jet travel, or some other advance, a great deal of this technological innovation is moving the world away from national orientation that has dominated for several centuries and toward a growing global connectedness” (Rourke, pg 134).  Government policy on the other hand was more complicated, beginning during the post World War I era.

From a historical perspective, globalization was not always accepted by the international community.  “After World War I (WWI), countries increasingly tried to protect their economies from foreign competition by instituting trade restrictions in the form of high tariffs and by impeding the free exchange of currencies” (Rourke, pg 134).  However policy makers soon found these policies to be self destructive as industrial production fell and unemployment rose around the world, especially in Europe.  In 1929 the United States stock market crashed, which had disastrous effects on the nation.  Global trade decreased dramatically, and soon the world was in a global crisis known as the Great Depression.  Violent, Fascist Dictators like Adolf Hitler, and Benito Mussolini soon came into power committing genocide which would cause a second World War.  There were arguments that isolationist economic policies implemented after WWI caused the economic climate that allowed fascism to take hold, and lead to WWII.  After WWII nations abandoned isolationist economic policies and toward a new globalized world economy.

During the post WWII period the United States lead effort to unite the world’s economies lead to the creation of treaties like the General Agreement on Tariffs and Trade (GATT), later becoming the World Trade Organization (WTO), which existed to eliminate trade barriers.  The United Nations was created during this period in order to facilitate international law, security, economic development, social progress, human rights and over all world peace.  The IMF and the World Bank were also created, with the purpose of stabilizing international economic systems by, fostering global monetary cooperation, securing financial stability, encouraging international trade, promoting high employment; assisting nations in creating sustainable economic growth, and reducing poverty around the world.  Although the IMF has positively impacted economically developed countries (EDCs) for the most part, the impact it has had on LDCs is questionable.

During the 1980s, years after the Great Depression a new crisis developed called the Foreign Debt Crisis.  To combat this new crisis the Regan Administration with assistance from the United States Treasury department, the Federal Reserve, and international economic institutions developed the Washington consensus.  These parties claimed that the Washington consensus system would create sustainable economic growth in LDCs.  The Washington consensus system offered structural adjustment loans (SALs) to the governments of LDCs through the IMF and the World Bank.  According to Theodore H. Cohn author of, Global Political Economy, an SAL is a, “Medium-term balance of payments financing the World Bank and IMF provide to LDCs.  To receive such loans, LDCs must agree to institute structural reforms” (Cohn, pg 417).  In order to receive SALs governments of LDCs were required to:
Control of inflation
Decrease government spending (possibly in social services)
Balance their budget
Privatize state owned enterprises
Deregulate their financial and labor markets
Liberalize their trade and investment policies
The World Bank and the IMF claimed these policies would have positive effects on everyone in the country, and that the money would have a “trickle down” effect, improving the lives of the poorest segments of their society. Unfortunately the policies implemented in order to receive these loans had adverse effects on LDCs.

One effect has been repeated food crisis which have negatively impacted LDCs like Mexico, who was forced to ask for money from the IMF and the World Bank in order pay for its debt to international commercial banks after the debt crisis in the early 1980s.  Walden Bello author of, World Bank and IMF destroying Third World agriculture, writes, “The Mexican food crisis cannot be fully understood without taking into account the fact that, in the years preceding the tortilla crisis, the homeland of corn had been converted to a corn-importing economy by “free market” policies promoted by the International Monetary Fund (IMF), the World Bank, and Washington” (Bello, pg 1).  Due to these policies Mexico became dependent on the U.S. import of corn, even though it is the place where corn was first domesticated, and is a main crop of the country.  When the U.S. government began to provide subsidies to U.S. farmers for bio-fuel, they dedicated more of their acreage to corn for ethanol, rather than for food, which caused the price of imported corn to increase by 60%.  The rise of oil also impacts LDCs like Mexico, often in ways more drastic than in EDCs.  Jeyakumar Devaraj wrote of the plight of LDCs in an article in, Links International Journal of Socialist Renewal, writing that the, “Huge hike in petroleum prices impacted food prices – both because the cost of food production went up (diesel for machines used to plant and harvest foods, and for the transport of food products) and because certain food crops were channeled to the production of bio-diesel” (Devaraj).  The rise in the price of oil in the new globalized economy has caused food crisis throughout LDCs unlike any crisis in history.  Trade agreements created in order to promote international trade also has had negative effects on LDCs.

In 1994 something else occurred that would further hurt peasant agriculture.  According to the IMF working paper, How has NAFTA Affected the Mexican Economy? Review and Evidence, “ Canada, Mexico, and the United States launched the world’s largest free trade area under the North American Free Trade Agreement” (Kose, pg 1).  NAFTA effected merchandise trade, issues related to investment, labor markets, and environmental policies.  Eventually, NAFTA caused the corn, rice, beef, poultry and pork sectors to fall into chronic crisis due to preferential treatment given to U.S. producers though the NAFTA agreement.  It is estimated that approximately 1.3 million Mexican farmers lost their jobs, and have since been forced to migrate to the United States.  Later, due to further globalization, trade between Mexico and the U.S. would decline as trade with China increased.  The effects of debt and IMF and World Bank economic policies had a similar effect in the Philippines.

Ellen Hodgson Brown author of, The Web of Debt, wrote, “The banks preferred “stable” governments for clients.  Generally, that meant governments controlled by dictators.  How these dictators had come to power, and what they did with the money, were not of immediate concern to the banks.  The Philippines, Chile, Brazil, Argentina, and Uruguay were all prime loan targets.  In many cases, the dictators used the money for their own ends, without significantly bettering the condition of the people; but the people were saddled with the bill” (Hodgson, pg 210).   Dictator Ferdinand Marcos accepted aid and loans from the United States and is to blame for the huge debt incurred during his time in power.  Marcos accepted numerous loans and U.S. aid from the United States to improve conditions in the Philippines; however he gave large sums of the money away to his friends and family, and invested in real estate in the United States for his personal gain.  While Marcos was corrupt he did not allow his nations people to starve, as it would have caused civil unrest.  Marcos provided subsidies for fertilizer and seeds, launched credit plans, and built rural infrastructure to benefit farmers.  However, when Marcos left the country there was a $26 billion dollar foreign debt.  Unfortunately, this was an important time for the Philippines’ economy.  Alexander R. Magno explained this need for growth in his article, Philippines: Trauma of a Failed Presidency, “It was important to restore the momentum of growth diminished by the Asian contagion.  In an increasingly competitive global economy, much had to be done to raise Philippine competitiveness. In order to lower the costs of doing business in the country, infrastructure needed to be modernized quickly, the economic policy architecture required urgent reforms, governance must be brought to world standards, and a unifying vision must be articulated to unite a complex and often confused society” (Magno, 2001).  When Corazon Aquino took power she was pressured by the IMF and the World Bank to repay the debt.  To do this she would have to take another loan from the IMF and the World Bank who’s policies forced her to cut government spending, thus halting the reforms needed to make the country competitive in the global economy.  As Bello explained, “In the Philippines, the one-two punch of IMF-imposed adjustment and WTO-imposed trade liberalization swiftly transformed a largely self-sufficient agricultural economy into an import dependent one as it steadily marginalized farmers” (Bello, pg 2).  These trade liberalizations had effects on the countries agriculture as well as its infrastructure.

Government spending decreased, so spending on agriculture fell by more than half, and the sector soon diminished.  Roads were no longer being built, thus further hurting rural farmers and the agriculture sector as a whole.  “Public spending for health, education and welfare in debtor countries was slashed” (Hodgson, pg 211).  Further trade liberalization in the Philippines led to their entry into the WTO in 1995 which had the same effect as Mexico’s joining NAFTA.  “WTO membership required the Philippines to eliminate quotas on all agricultural imports except rice, and allow a certain amount of each commodity to  enter at low tariff rates” (Bello, pg 2).  Many countries on the continent of Africa experienced the worst of SALs and its destructive economic policies.

More than two thirds of African states received SALs during the 1980s due to the debt crisis.  The policies implemented in African states after receiving SALs caused a decline in agricultural, industrial and sustainable economic growth. However, the private sector did benefit from the new economic policies, but those who benefited were not the majority of the working class and poorest segments of Africa’s society.  Part of the problem with the implementation of the policies is that they ignored social issues crucial increasing the standard of living of the average person.  “IMF and World Bank Demands that LDC debtors privatize, deregulate, and downgrade the role of the government ignore the fact that the public sector provides a critical source of employment for African LDCs” (Cohn, pg 322).  Furthermore the policies implemented due to IMF regulations negatively impacted the lives of women in Africa.

When the IMF and the World Bank issued SALs to governments across Africa they paid no attention to gender issues, and did not take into consideration that these loans could possibly be used to further marginalize women on the continent.  “By disregarding the subsidiary role of women, these programs reinforce male bias and exacerbate the problems confronting LDC women” (Cohn, 323).  Gender issues in Africa are an important issue because there is a history of human rights violations against woman in the region.  Structural Adjustment Programs (SAPs) cannot be successful when vulnerable groups of a society are not able to live in peace, and it hinders any potential progress.  Ellen Hodgson Brown included an excerpt written by Helen Caldicott, M.D. saying, “Women tend to bear the brunt of these IMF policies, for they spend more and more of their day digging in the fields by hand to increase the production of luxury crops, with no machinery or modern equipment.  It becomes their lot to help reduce the foreign debt, even though they never benefited from the loans in the first place…Most of the profits from commodity sales in the Third World go to retailers, middlemen, and shareholders in the First World…UNICEF estimates that half a million children die each year because of the debt crisis” (Hodgson, pg 264).  Furthermore regional trade agreements (RTAs) like NAFTA and SALs are have done more harm than good in many LDCs because they ignore humanitarian issues, woman’s rights, environmental and global issues.

Globalization, regional trade agreements, and SALs are all having devastating effects on not only the economies of LDCs but their environments as well, causing repeated secondary crisis.  Lester R. Brown author of the periodical, Could food shortages bring down civilization, writes, “Water shortages, soil losses and rising temperatures from global warming are placing severe limits on food production” (Brown, 2009).  A lack of food causes secondary issues, especially in high poverty areas.  These issues include a rise in terrorism, the sale and consumption of illegal drugs, and weapons, which are all detrimental to national and international security.  People were also forced to migrate under harsh and unsanitary conditions, and they inadvertently spread disease in other nations. At times citizens in LDCs have had to take matters into their own hands in order to survive the detestation caused by policies implemented by the IMF and the World Bank.
In 1995 Argentina went bankrupt due to policies their government implemented after receiving loans from the IMF.  During this time, due to the privatization of the public sector, much of the population working in the public sector lost their jobs became impoverished.  To make matters worse, banks in Argentina were forced to close, and people’s savings are lost.  The Argentinean people were forced to create their own system for trading their goods and survive.  Out of a need to survive in the most basic way, a counter currency market was created called Global Exchange Network.  The Global Exchange Network allowed the Argentinean to recapture control of their lives without government involvement.  “The model spread though Central and South America, growing to 7 million members and a circulation valued at millions of U.S. dollars per year” (Brown, pg 344).  The situation where Argentina was forced into bankruptcy though World Bank and IMF policy has become a crisis in itself.

Ellen Brown explained the process by which a country can become bankrupt due to destructive economic policies in her book, The Web of Debt.  First a country is encouraged to open its economy to “free trade”, so that the country’s currency can be freely convertible into other currencies.  Soon thereafter the currency is devalued allowing the country’s natural assets such as oil and labor to be exploited, forcing the country into bankruptcy.  At this time the country is forced to borrow from international monetary lending institutions such as the IMF.  Intergovernmental organizations such as the IMF and the World Bank, then imposes conditions of this debt relief that which have disasters effects on the country’s economy.  If the government attempts to protect its economy by nationalizing its banks, they are demonized, and accused of being communist, socialist or worst of all terrorist.  This then gives the United States reason to replace the government, though military coups, or otherwise with a government that will abide by IMF and World Bank policies (Brown).  Not only do globalization and IMF and World Bank policies negatively impact LDC societies, but they also create an atmosphere of exploitation. Bushra Hamid author of, Institutional Analysis of Globalization: A Case of Pakistan, writes, “The rapid growth of globalization in recent years has led to greater activity on part of the vested interests, rent-seekers and organizations to pursue their respective selfish agendas…The process of globalization resulted in emergence of institutions and professions that are more detrimental to global peace and prosperity” (Hamid, pg 1).  The recent globalization was accelerated by the United States after World War II for international and national security purposes however the effects of globalization have not helped those it was intended to help, and international organizations along with some economic treaties have ruined the lives of working class, and poor people around the world.

It is possible for globalization to do better around the world.  It is important that those looking to globalize LDCs pay attention to issues of social justice so that there is sustainable change, and the people are given the opportunity to prosper peacefully.  Anca Dinicu, author of, Manifestations of Economic Interdependence.  The spread of Financial Liberalization between persuasion and Coercion explained, “The process of globalization is not be neglected because it has the capacity to produce much more good than worst. What is to be worried about is the manner it is promoted, mainly the pressure put on countries less developed to liberalize themselves, both from the economic and political point of view. From this perspective we must take into account that the developed countries, till they build strong economies, protected their fields of activity in order to make them ready to face all the challenges coming from outside the national territory” (Dinicu, pg 1).  It is sometimes difficult to understand and gauge the pros and cons of globalization because while on paper a countries economy might be growing and doing well, that is not a clear indication of what is happening to a nations citizens.

Katherine Hutchings author of, Globalization—An Examination of the Effects if its Economic Emphasis on Individual Livelihood, wrote about globalization explaining, “I contend that the enormous economic growth of the Asian region has not served as a force for the empowerment of the people, rather their cultural attributes have been used by their governments and international business to achieve the economic indicator figures that have only advantaged a minority. The many continue to experience inequity and intolerable working conditions. The growth of multinational corporations (MNCs) in the developing world and the formation of regional blocs will only entrench these inequalities within the Asia-Pacific region. I argue that an end to authoritarianism in these countries and the growth of democratization pose the only real challenge to globalization and its economic imperative. Only then is it possible to truly engender local interests as the solution for achieving an equitable order” (Hutchings, pg 1).  Thus far globalization has had both negative and positive effects on societies around the world, but if countries act only in their self interest when establishing economic policy, and disregard the social issues they say they want to help, everyone will pay the price especially in this new global economy.

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