The current international system is structured along the lines of globalization and the neo-liberal philosophy of free trade while being dominated not by a single state but by global institutions, particularly international financial institutions and other multinational organizations. Ultimately, the Bank and the Fund dramatically shape the daily existence of states within the international system through various structural adjustment programs and policies of free trade and transactions imposed on low-income countries. Therefore, to create a world that might work for all, it is necessary to begin with efforts to eliminate the damage inflicted by these institutions. The primary step is to recognize and acknowledge these institutions’ strings of oppression and exploitation. This exploitation is done vastly by providing active funds and loans to the poor states, not reconstructing their economy but exploiting it with this foreign capital aid. This, in short, creates a cycle of Fund after Fund, loan after loan and thus paves the way for the mass exploitation of third-world countries by making them loan addicts. It is a phenomenon which gets generated as soon as a country accepts the terms and conditions of structural adjustment plans and then self-replicates as the World Bank and IMF reward still more loans, thus, in the long run, deepening the debt of respective states. It can best be put into an analogy of a firefighter trying to put out a fire with gasoline (Cavanagh, 2003).
Following is an essay reflecting on the historical development of such International Financial institutions, with a primary focus on the Bretton Woods institutions, particularly ‘The IMF and its exploitative policies for the African Region.
INTERNATIONAL FINANCIAL INSTITUTIONS – FROM BRETTON WOODS TO THE CONTEMPORARY ERA
Although there exist in the contemporary world, multiple International Financial institutions such as the ‘Inter-American Development Bank’, The Asian and African Development Banks as well as the EBRD, the IMF and the World Bank acted as the pioneers of this hyper-capitalist order. In the aftermath of WW2 in 1944, a set of two financial institutions was formulated to provide for the reconstruction of the ashen-driven economic structures of European states. Commonly referred to as the Bretton Woods structures, these two economic institutions were established reflecting the characteristics of a bank and a fund, represented by the World Bank and the International Monetary Fund (IMF). It is upon the basis of these two twin inter-governmental institutions the world’s economic development and financial order have been determined and influenced ever since. Initially drafted as Bretton Woods Institutions (BWIs) and steered by the US, both the Bank and the Fund focused on reconstructing the broken economic order of the world by providing loans and funds to the developing states in addition to generating new policies for the regulation of capital and other developmental projects, particularly in the wake of yet another war, i.e., Cold war against communism. Both IMF and the World Bank were the pioneers of international financial institutions. Both were established with the aim of providing support and aid to war-torn and transitioning economies along with other long-term goals of reducing global poverty through international economic integration and cooperation.
Although it was the set schedule, little was checked off from this list as both the institutions began generating a circle of spinning money which had little to do with economic integration and more with spreading the American-Triumphed capitalist agenda, which in short is also acknowledged as economic imperialism. Even after the collapse of the Bretton Woods system in 1973, these financial institutions stood in place with their mandates and programs getting evolved. This evolution was witnessed as a shift in their pivot role as the designers of the fixed exchange rate for stability to actively promote a fluctuating exchange rate, mainly as a tool of oppression and a string of exploitation of the states in the Global South.
These Bretton Woods institutions began with a theoretical schedule to assist in reconstructing the Western European economic outlook by promoting a balanced and sustainable growth of international trade and transactions through lending money and capital at favourable rates. But little to no interest was showcased by the European states in mortgage of their economies to foreign bankers. Thus, in the subsequent years, the focus was shifted from reconstruction to development assistance of the transitioning economies of the third world, i.e.the Bank began marketing loans to the newly independent states, making them get sucked in the vicious spiral of loans and interest rates. Moreover, the Bank became more inclined towards venturing into the terrains of ‘political considerations’ even though it was a domain designated off-limits in the charter. Thus, with this initiation of taking political sides began the oppression as described quite correctly under the ‘World System Theory’, which essentially states that the International System has divided the states into categories, i.e., one which exploits and the other which gets exploited. Global financial institutions sustain this exploitation through capital aid and goods production utilizing their Structural Adjustment Programs (SAPs).
INTERNATIONAL MONETARY FUND
Established to ensure the stability of the correct balance of payments and maladjustments in the international financial system, IMF aims to uphold a regulatory system of currency, trade and exchange rate to avoid currency devaluations as a means to avoid economic crisis and in case of a crisis emerges, IMF was responsible for providing monetary funds. At its core structure, IMF was created to perform three kinds of activities, i.e., monitoring the economic activities of member states, lending funds for economically adjusted programs and providing technical and economic training to the candidates of member states. But in the 1980s, it took a different approach. Instead of monitoring governmental economic policies to help avoid economic blunders, it began to pressure them to abandon particular cross-border trade resulting in an imbalanced capital flow, causing economic degradation for specific target states in reckless financial speculation.
It was widely known as the ‘lender of the last resort, particularly in the face of 1990s emerging economies in Latin America, Asia and Eurasia, all of which turned with an increasing pace to IMF for credits, loans and stabilization plans. These plans were increasingly formulated upon the underlings of exploitation with the influx of foreign money employing adjustment protocols and programs, resulting in subsequent financial meltdowns in those economies, e.g. in Asia, Mexico, Russia and Brazil from 1994 to 1998. When it became clear that these economic bubbles couldn’t be sustained any longer, foreign speculators pulled out billions of dollars, causing the economy to freefall, and as the loan payment due dates arrived, IMF eventually returned with new plans and loans, indebting those economies even further, eventually generating a vicious cycle of decline and stagnation followed by further loans, and ultimately resulting in a demographic divide, a geographical inequality of states in the face of Global North and Global South, with the IMF abiding the interests of North to instigate economic instability in the South, particularly at a massive scale in South Asia and Africa.
From Guyana to Ghana, these structural adjustment plans (SAPs) have painted the economic markets with foreign debt, causing private loans to become public. The main objective of this plan and policies, as stated by many scholars, is not to seek repayment of dues or economic building of developing states but to reduce the government protectionist policies in those states, making them dependent upon the influx of foreign capital, mainly dollars.
IMF AND AFRICA
The poor state of the African region is not a secret to anyone. It is a region drowned in poverty, hunger, debt, illiteracy, disease and civil strife. This state of circumstances dictates one thing, i.e., the transition from colonialism to economic imperialism, given that the African region is still under the foreign control of Western states. This new dynamic exists under the pretext of economic imperialism, under which Western states still control the region through foreign loans and aid provided mainly by the IMF and other financial institutions. These aids, funds and loans have not only increased the mountains of debt in African countries but also made them practically chained to foreign dependence. Without this aid, the region can merely sustain itself. This has seemed to happen through multiple SAPs extended by the IMF to the African states.
These SAPs began being prescribed to African states in the early 1980s to help them face the economic crisis that was estimated to be hovering over the region. The concern originated with corrupt governments, spending a lot while the capital wasn’t reciprocated with the same revenue, causing a mass budget deficit. Thus, as a means to express support, Structural Adjustment Programs were initiated as a neo-liberal strategy to help mobilize the rigid economic system through optimal free trade in markets. These aimed at the privatization of the economy, with an increase in private enterprises and a decrease in government-led economic policies in the form of trade liberalization by lifting taxes and tariffs, price control and governmental subsidies. These structural adjustment plans were laid out as a precondition to further loans and funds by the Bretton woods structures, particularly IMF, to ensure a follow-up of any future debt crisis. Many states were reluctant to uphold these plans and agree to its terms but eventually obliged out of desperate necessity, with a hope to recover and reconstruct their economic platforms after fierce independence, but only to find themselves hovering under the debt being alleviated to 8 times with absolutely no recovery in economic balance. The neoliberal ideology of SAPs in the increasingly globalized world didn’t benefit it with comparative advantage; instead sucked the region’s resources dry, resulting in nothing but mass poverty within the region itself. This was the case in Ghana. This was the case in Guyana. This has been the case in Mozambique, where instead of instigating profits and a sustainable economic environment, the IMF-initiated SAPs went wrong.
The world today is, most on a part, upheld and governed by International Financial institutions. These institutions, alongside other supra-national and multinational organizations and corporations, sustain and regularize the economic system to deplete any potential crash. This game of economic power play within the hands of non-political agents at the international level began with the onset of the Bretton Woods system, which paved the way for The World Bank and the Monetary Fund, both of which were devised to reconstruct the already lost structure and sustain it from any future recession. But things do not always go on as they are planned. For the most part, it will be entirely accurate to state that these institutions were a signature move of American Triumph, declaring to the world the power transition in the hands of America, for the bidding of whom these institutions were established in the first place. Thus, both were exploited from the start, basing their policies upon American will. Therefore, ultimately moving on to produce policies and generate such programs which will benefit only the powerful at the expense of the poor states of developing nations. This exploitation and oppression are much reflected in IMF’s Structural Adjustment Programs and economic policies of liberation and currency devaluation, upon the basis of which the free trade rhetoric is used to disrupt the social fabric at both state and regional and international levels, followed by grants, funds and aids projected onto underdeveloped nations, for example in Africa, not to help in development projects but to maintain this cycle of dependency as described under World system theory. Thus, to state that IMF and other international financial institutions cash start these nations to generate their interests is correct. It is done by stirring the strings of oppression to make them loan addicts, with the long-term strategy of dependency, not interdependency. The Marshal Plan provided the first glimpse into this strategy, further making its way into the cold war’s Truman doctrine, upon the shoulders of the Bank and the Fund, ultimately leading to a Posthegemonic international order.
Maryam Yasmeen is an avid reader and writer. A student of International Relations, she has published multiple articles on various issues and topics. She aims to achieve excellence as a writer, researcher, and academic in the field of International Relations and Environmental politics.
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