World Bank, IMF and WTO

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World Bank, IMF and WTO

Postby MayaH » Thu Mar 01, 2012 12:11 pm


Ok -- so within this chat we will be having a closer look at some of the ‘guardians’ of the capitalistic system: The World Banks, the International Monetary Fund (IMF) and the World Trading Organization (WTO) – together they form the ‘Unholy Trinity’.

I am going to briefly touch on the history and origin of these international organizations, afterwards the emphasis will be placed upon the methods they currently use to expand their empire. Let’s start with the World Trade Organization. At the end of World War II, it was proposed that a global economic organization ought to be established. This organization – the International Trade Organization (ITO) – would have the task of establishing rules relating to world trade, business practices and international investment.Through opposition of the United States though, the ITO never came into being. Later on, some twenty-three countries entered negotiations in relation to tariff reductions(Tariffs are a tax levied upon goods as they cross national boundaries, usually by the government of the importing country. The words tariff, duty, and customs can be used interchangeably.)

Tariffs are used to protect the country from other countries bombing their country with cheap goods -- by implementing tariffs the prices of the products become higher and are less attractive for outside countries to come and sell there -- Then, these negotiations led to tariff reductions affecting roughly one-fifth of world trade. Among the tariff reduction negotiations, other agreements were reached on rules of trade. These agreements became known as the ‘General Agreement on Tariffs and Trade’, also known as ‘GATT’. Through the establishment of the GATT, trade barriers were gradually brought down and world trade started growing.

Throughout the years, non-tariff trade related issues started demanding more and more attention as the tariff subject was becoming of lesser importance -- as they already kind of 'dealt' with it. It was decided that a new organization should be set up to replace the GATT. This organization is now known as the World Trade Organization (WTO). The WTO carried over its key principles from GATT: non-discrimination and national treatment.These two principles are integrated in the overall mission of the WTO, which encompasses the promotion of fair competition, insurance of market access, encouragement of economic development and economic reform. So that's what the WTO is about -- Now we’re going to move on the World Bank and the IMF (International Monetary Fund).

Besides the WTO, two other global organizations were set up after the events of World War II: the World Bank and the International Monetary Fund. To avoid re-experiencing a complete collapse of economic relations which had followed the First World War, discussion were held between countries regarding the shape of post-war international economic order. The end result of their regular discussions was the formation of a framework of what would become the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank). The function of the IMF is to provide its members loans under different programs (short, medium and long-term). Each member country is charged with a particular quota for their membership which is in proportion with their economic power (GDP). The same way, will the voting power of a country within the IMF and World Bank depend on and be proportional to their economic wealth / GDP. To illustrate: the United States holds for instance 20% of all votes – while 43 African countries together hold less than 5%. If you look at quota on a pie chat --it is the world as 100% GDP and then according to the individual GDP the voting rights are --thus--the better GDP--the bigger say --which leave poor countries with no say. So this also kind of explains why some countries will needlessly produce things to 'up' their GDP and thus in essence their voting power -- Like the empty cities in CHINA is build to up the GDP.

The IMF’s most prominent role is to intervene, on request, whenever a country is experiencing a crisis in its international payments (repaying debt). Besides the repayment of the borrowed money + interest – there are conditions drafted for the borrowing country which demand fundamental changes to its economy (which generally means making amendments to the government and its relation to the free market) – to prevent the re-occurrence of the same problem.These requirements/conditions are known as “IMF conditionality” or “structural adjustment programs”. Originally the World Bank was known as the International Bank for Reconstruction and Development (IBRD). The name indicates that the main purpose for creating the organization was to assist with the reconstruction of countries that had been badly affected by World War II.

As time went by the countries affected became more stable, it was suggested that undeveloped countries could benefit from capital investment to speed up the development process.In the meantime the IBRD has become one of five subgroups within the World Bank.Each group has a different focus – though all groups are related towards the development of poor countries.The main differences between the IMF and World Bank is that the head of the IMF will usually be a European while the World Bank is led by an American.Any country can borrow from the IMF but only developing countries who meet specific criteria are allowed to borrow from the World Bank.

Next we will be looking at some of these main conditions that are called for by the World Bank and IMF -- that have been placed in order to ‘assist’ the borrowing country in economic growth so that it will be able to pay off its debts (In many cases though, the actual results from structural adjustment report that the borrowing country is worse off after having accepted a loan from the IMF/World Bank – while the rich countries reap the benefits - but they'll for instance take 6 cases that show improvement while there's 20 others worse off, and it will not even be clear that these countries are better off because these new conditions). In SA the power utility is being prepared for privatization with prize hikes of over 300% over several year, rolling black outs to get the population task for private control and mismanagement with billions lost to corruption --with some one like Malema screaming nationalization to keep the masses happy and diverted -- while he become supper rich -- and they are patient --because this may take 10 years to achieve a particular point to own the cash cows like power utilities and water works --and the rich become super rich every time this happens.

OK -- Let’s start with “Government Reduction” as one of the conditions. The main reason the IMF and World Bank think that a country is unable to pay its foreign debt, is the assumption that the Free Market is being obstructed by government activity.Their rationale is that if the government gets downsized, markets will function more effectively, which in turn will stimulate economic growth.In the case of government reduction policies the government requires to abandon certain functions so that the private sector can take these functions over and "optimize them". In the areas or functions that the government still retains (because it is either impossible for the private sector to do it better or those functions that are hard to impossible to capitalize from but are a necessity for society) – cutbacks in spending and staff are demanded. In most countries (both rich and poor), the government is the largest employer. In poor countries where a strong private sector has not yet been developed, the government is most often the dominant force in the country’s economy. Sudden and extensive cuts in government spending can leave hundreds of thousands of people jobless and contribute to a massive surge in unemployment. In addition to that, because the private sector is not as developed as in other countries, frequently the functions and services the government stopped providing, do not get continued by the private sector – because there is simply no-one to take it over -- or --- often criminal organizations will come and buy over enterprises as a front for laundering money).

OK -- Next, “Privatization”:Government reduction goes hand in hand with privatization plans.Governments agree to lay off thousands of workers to prepare the way for corporations to privatize.This however does not leave the private sector untouched by the IMF and World Bank. Privatization is often also affected by downsizing, as well as private employer assaults on unions and demands for wage those two points of government reduction and privatization go hand in hand. Then there's "Labor Flexibility". IMF and World Bank often demand higher labor flexibility.This concept refers to the transformation of labor to a mere commodity. Basically for instance to take an extreme example of labor flexibility would be : a child is starting and hungry and is willing to work for 10 cents an hour -- you as company will then take this child for that price. so they want flexibility in terms of 'supply and demand'. where the companies demand 'cheap prices' as 'low wages' and where the people will supply the labor at these cheap prices cause they have no choice. Quick fact: at some point the ban on child-labor was very controversial as this was not in line with the free market principle).

The IMF/World Bank reason that if labor is treated like a commodity, the free market system will function more efficiently and effectively, which in turn will stimulate economic growth.The theory however does not match up with reality. Stiglitz, former World Bank chief economist shared that :The evidence in Latin America is not supportive of those conclusions. Wage flexibility has not been associated with lower unemployment. Nor has there been more job creation in general.” Where “labor market flexibility was designed to move people from low productivity jobs to high productivity jobs, too often it moved people from low productivity jobs to unemployment, which is even lower productivity.”

Another condition which often gets imposed is that of “Wage Decompression”:Wage decompression refers to the increasing of the ratio of highest to lowest paid worker. So for instance if you have a line of people from the toilet cleaner to the manager -- they will lower the wage of the toilet cleaner and up the manager. so that if previously for instance the ratio was 4:1 in terms of the manager earning 4x more -- they will make it like 10:1. This concept is most commonly applied within the public sector where the government has the authority to regulate wages, and is done in order to “reduce government expenditure” (so there is more money left for debt repayment). However, this concept is not applied to managers where the belief is held that higher pay is needed to attract high quality employees and to provide an incentive for hard work (how convenient). Sometimes the World Bank and IMF also apply wage freezes, wage cuts and wage rollbacks in the private sector (where the minimum wage is frozen or reduced). These various policies of wage adjustment are often referred to “wage flexibility”.

And lastly : Pension Reforms. Pension reforms come down to the implementation of lower benefits, provided at a later age – along with the privatization of social security.The funny thing within this all is that America, before it was a developed country – was the most protectionist country in the whole of history. The funny thing within this all is that America, before it was a developed country – was the most protectionist country in the whole of history. All the conditions we’ve just discussed were actually greatly opposed by all the dead presidents and other key figures which are printed on the US dollar.protectionist as in = they protected themselves from other outside influences to build themselves up --- while the free market is all about opening borders and letting everyone buy and sell everywhere. Because they were so protectionist, they were able to grow into the vast empire they are now. and its only because they are now a superpower that the free market works for them because it doesn't work for anyone else. They however argue that current undeveloped countries should just ‘skip that step’ (of protectionism) and jump straight into the wonderful world of the free market system.This somewhat sums up the general “theoretic” info on these organizations – next chat we can maybe go into some study cases on particular countries so you can get a better idea how these policies affect the countries they’re supposed to help.

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