IMF & WB: Criticisms & Conditionality Policy - Essay Sample

Introduction

Since their creation, and particularly over the past two decades, the IMF and WB have been subject to multiple criticisms. In general, the lack of political will and legal instrumentation to carry out their functions has been questioned. The first criticism is that IMF and WB usually prescribe economic policies that are far from healing the member states - and with it the world economy. The IMF's conditionality policy consists of a substantial reduction of the national budget; a vigorous correction of the balance of payments deficit, a generalized increase in interest rates, a drastic reduction in inflationary levels, a commitment to privatization of state assets, a reduction in trade barriers; as well as strict regulation in capital flows from the country and to the country (Hillebrand, 2017). However, it is clear that at least from a human rights perspective, reductions in the social budget - in matters such as health, education, basic infrastructure, etc. - place the accredited Member State in a potential breach of its obligations to its citizens.

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The second criticism and controversy, about social and inequitable distributive injustice, argues that the policies imposed by the IMF and WB increase inequality and ignore the social aspects of the welfare of that country. With this, conditionality hurts society, damages the environment, and deteriorates the social values of the affected country (Donlagic & Kozaric, 2010). In essence, the argument - in line with the previous point - makes it clear that while IMF prescriptions can aggregate the macroeconomic variables of the State, the truth is that at a disaggregated level - on a human scale - they deteriorate the social fabric. The social impairment in Argentina - followed by the outbreak of its crisis in 2001 - or, the affectation in a range of African countries in poverty levels, restrictions on education and health, followed by IMF prescriptions, under of crisis in the balance of payments, are examples of this (Bretton Woods Project, 2019). In ten years, projects funded by the World Bank have caused the "involuntary displacement" of more than 3 million people (Hillebrand, 2017). By not requiring governments, particularly African governments, to relocate these populations properly, the bank is violating its principles.

The argument about the effects on sovereignty expresses that the control of economic variables by the government - and the central bank -, based on the policy authorized by the IMF to the country, is simply non-existent (Donlagic & Kozaric, 2010). Thus, beyond human rights violations, there is even a question about the validity of these conditionality mechanisms within the scope of the WB, and specifically in the economic rights of the African states (Hillebrand, 2017). Although this criticism makes some sense, its validity seems at least relatively questionable, since it is the organs of power of the State that represent the conditions on behalf of the population. That is, no previously acquired obligation links the Member State to accept the conditions set out above.

Regarding the secret and opaque attitude, sectors of civil society have denounced for years, what they understand as apparent hypocrisy of the IMF and WB, by demanding openness and total transparency to the information and policies to be adopted by the accredited Member States. While this criticism was accurate in the past, the IMF and WB have taken several steps to show their transparency in their actions. Although it has not reached a level as elaborated as the BM Inspection Panel, the truth is that the follow-up to the conditionality agreed with each country is observable by all other members, both in annual reports, as in general, in thematic studies even incorporated in its web page.

In my opinion, the democratic deficit is one of the IMF's most obvious criticisms. Not only does the weighted voting system mean that ordinary countries - even large clients such as Mexico, Korea, or Russia - do not have an effective role in the institution's decisions. But the legality of its actions is validated and resolved by itself, without a strict jurisdictional or inspection mechanism that autonomously reviews its activities. In addition to these two arguments, it must be taken into account that the IMF is still far from effectively implementing and using a mechanism for real cooperation with NGOs.

The change or overreach to its original objectives is a criticism that, from my point of view, is loaded with certain ideological rhetoric of a constructive attack on the organization (Donlagic & Kozaric, 2010). In this sense, it has been tried to argue that, although its Constitutive Agreement makes it clear that it is only the economic factors that should guide its criteria, the IMF has entered into a dynamic by valuing elements related to the mere credit relationship. With this, the IMF and WB now consider factors such as environmental protection, respect for indigenous peoples, good governance or corruption (Bretton Woods Project, 2019). The criticism seems unacceptable. The consideration of collateral elements to credit to balance the balance of payments is part of a support package. Moreover, each one of the exposed subjects is incorporated in international treaties, and therefore, they only dimension the financial scope in the context of previously acquired and binding international obligations.

Beyond criticism, no one can doubt that the work of the World Bank in more than one hundred countries is, although insufficient, very commendable. Following the criticisms that over the last two decades have been formulated to its credit operation; and thanks to the work of the inspection panel as a channel for this exercise, the WB is today advocating an effective change of view; and begins to take into account issues not considered in the past of development policy; among them: gender, community development, and indigenous peoples. The support for social services such as health, nutrition, education and pensions has practically multiplied fivefold, reaching today about 25% of its resources (Bretton Woods Project, 2019). The way of work also seems to be changing; since the WB and IMF aim to be more receptive to the plans to combat poverty and inequality, according to what the countries themselves evaluate and aspire to themselves.

References

Bretton Woods Project (2019). What are the main criticisms of the World Bank and the IMF? Retrieved from https://www.brettonwoodsproject.org/wp-content/uploads/2019/06/Common-Criticisms-FINAL.pdf

Donlagic, D., & Kozaric, A. (2010). Justification of criticism of the international financial institutions. Economic Annals, 55(186), 115-132. Retrieved from http://www.doiserbia.nb.rs/img/doi/0013-3264/2010/0013-32641086115D.pdf

Hillebrand, R. (2017). IMF and World Bank: Institutional Set-up, Criticisms, and Challenges. Retrieved from https://fuldok.hs-fulda.de/opus4/frontdoor/deliver/index/docId/703/file/Discussion+Paper+No+21+Hillebrand+IM+and+World+Bank+2017.pdf