‘Follow our model of development’ – The IMF, World Bank and the double standards of aid.

The news of the arrest of Dominique Strauss-Kahn, the managing director of the IMF, and the speculation around his successor has shone a spot light on the organisation for the first time in a number of years. Who will take over? Lagarde? A history making non-European? This spotlight has illuminated something else: so few people are aware of the IMF, what it does or why it was created. I’m writing this post to discuss broadly the purpose of the Bretton Woods institutions (those created by the Bretton Woods agreements at the end of World War Two) take a look at what they do for the world and warn of the double standards inherent in so many aid agreements.

The last time(s) people have been generally made aware of the World Bank or IMF have been a sex scandal and the riots triggered by their presence in a city. From Doha to Genoa to Seattle, whenever the World Bank comes into town people set fire to buildings and the tear gas comes out. This seems unusual considering none of these events have actually been held for the Bretton Woods institutions, they were held for the World Trade Organisation, the World Bank and IMF just came to participate. What this shows us is that there is a huge deficit in the public understanding of international financial organisations but that they are seen as symbols of globalisation, the greed of Washington and the capitalist system and as having responsibility generally for so many of the world’s problems.

For all the bad press the World Bank and the IMF get they are still powerful forces for good. The Bretton Woods institutions were founded to redevelop the world after World War Two but also to prevent the catastrophic economic meltdown that some argued precipitated the War – the Great Depression. As part of global governance building they were created to eliminate poverty, regulate the international economy and prevent the unpredictable shocks that encourage protectionism and other factors that contributed to the War – fear and resentment come from want, economic uncertainty generates economic nationalism which in turn feeds xenophobia.
However particularly the World Bank soon found itself with little do when the Marshall Plan swiftly overtook them rebuilding Europe.

They turned their sights on new endeavours, the newly independent countries of former empires with generous loans (with tiny or even negative rates of interest) for infrastructure, investment and development projects. The ability to fund these came from the wealthy donor countries that steered the institutions.

But exceptional generosity came with strings attached. This is known as conditionality or more broadly as ‘structural adjustment programmes’. These countries were to reform (and often radically downsize) their public sectors, liberalise their economies in a relentless drive towards the freer market and reduce barriers to foreign investment. The argument was simple (and I would argue sound), that capitalism is a very effective way at making people richer.

 

However vicious circles emerged: loans were given, targets were set and the Bretton Woods institutions would disappear for five years before returning to discover not much had changed. Where the school teachers had been fired in structural adjustment programmes they had gone on to work in a nascent telecommunications company set up with infrastructure investment, as a result of reducing foreign investment barriers a telecoms company in the Global North had immediately bought the company and downsized it’s overheads to make it more profitable, the teachers were out of work once again and unable to rely on state benefits which had been reduced as part of the trimming of the state. We’re back to square one except people are poorer and the state can’t or won’t help.

Another example: a wealthy country acting on behalf of the IMF offers a bilateral loan to a developing country, then notes the relative lack of attack helicopters in its armed forces, low and behold the wealthy country has a few spare to sell for the money it just loaned to the developing country. Convenient right?

This militarist relationship between the developed and the developing manifests in a more subtle but pernicious way as a model of development. A wealthy (often former colonial) country will offer a bilateral loan to their former imperial subjects and in return they must embrace capitalism and the free market. The aid conditions revolve around ‘follow our model of development and we will give you money’ (this was particularly problematic during the Cold War when two opposing models competed for attention like divorcing parents buying their children’s love) so when the donor came back in five years to find a slightly more marketised economy, liberalised trade laws but also a vast and unnecessary army…

Why did they act shocked? The developing country was simply following the model of development that was set for it. A donor saying to recipient ‘do as we say not as we do’ smacks of double standards and would simply be a return to imperialism. So whilst I do not condone the use of aid for military spending can you blame them?

The IMF and World Bank have come a long way from these days but the problems described above have yet to be relegated to the history books. Countries now participate in the development of the poverty reduction strategies that act in concert with structural adjustment programmes but ‘liberalise and marketise’ are still the dish of the day.

To conclude I think it’s useful to point out some statistics on what the Bretton Woods institutions have done for the world. They have vast potential for good, I honestly believe they think they are doing the right thing and want to make the world a more prosperous and stable place. Just to note: ongoing World Bank development projects exist in 105 countries with a subset of 16,000 locations spending $169,000,000,000. The IMF has a total pledged resource of $600,000,000,000 to help struggling governments. The Bretton Woods institutions may be evangelising the capitalist system but I’d rather have a sermon and a meal than no meal at all.

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3 thoughts on “‘Follow our model of development’ – The IMF, World Bank and the double standards of aid.”

  1. Thanks Richard, I’m glad you enjoyed it.
    I have a degree in Peace Studies and I’m still shaky on the exact ins and outs of the international financial system! Considering it’s been hugely important and relevant for the last 5 years or so I think we could all do with brushing up on it.

  2. Aid can never be divorced from politics. And political ideals and ideas can not be easily changed too. Thus escaping the dependence on external organisations is important.

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