World Bank Loan Conditions - Research Paper

Introduction

The World Bank is an International financial institution whose function is to provide loans to countries in order to improve their capital projects; education, health, and infrastructure. In addition to giving low-interest loans, the World Bank also provides grants, credits, and interest-free loans to aid in revolutionizing countries' economies. Over the past few years, the World Bank has been the major financier in most Latin American countries and in Africa, translating to a high impact in terms of development in both continents. This paper highlights the approaches and policies the bank has been giving in financing those projects in South America as well as its impact on such countries. The World Bank as an organization has had to put in place measures that regulate lending countries money. Several approaches were enacted, some of which have affected countries in the developing world. A number of policies have failed and the tactics that are available made the balance of developing these areas to weigh them down.

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To start with, for a bank to give out loans, there are certain guidelines stipulated by the said bank that has to be adhered to. Such terms and conditions govern the loan and legal agreements, or any other agreement before a loan is given out. Their function is to ensure loan guarantee repayment and, in the case of the World Bank, development.

Countries that agree to the set guidelines form part of the group and are the only ones allowed to access loans or receive grants. This locks out some countries making them slag in development simply because they are not members of the group. The current approaches being undertaken by the bank on governance and decision making processes have neglected the larger populations' democracy in South America. Most of the top management comes from the United States and other developed countries.

Loans are given to member countries on the basis of 'conditions', which totally disregards the borrower country's economic power. In this policy, for the bank to give out loans, a consensus has to be reached by a group of individuals who form the management. In essence, the borrower country's plea is not heard by the people who determine whether or not the country gets the loan. Moreover, 'these people' spell out how the money should be used, giving them total power on the control of the borrower's economy.

Another condition imposed by the World Bank on borrower countries regards the type of projects to be funded. Despite having to control how the money should be spent, the bank also controls the nature of development project to be undertaken, even if it means neglecting a major part of the economy that is pulled down the one being funded(Maria,2000).

Whereas the World Bank has done a tremendous job in ensuring global development, major downfalls have also been observed in Latin America and Africa. These are areas which are still developing and considered 'poor'. All people have a right to self-determination. Due to this right, the free will of the people should guide them in tailing their economic, political, and cultural success. On the contrary, the World Bank has not always honored this right. Furthermore, an individual country should be able to identify and use their resources, its social status notwithstanding, to the best of its ability in order to realize development, something the World Bank advocates for. A failure has been registered in South America as the bank seeks to express neocolonialism.

Most of the member countries which seek loans from the World Bank are not industrialized. Their economy level is way below other countries in the west. The fact that they are not so industrialized and are lagging behind in terms of development translates to such countries not being able to be part of the decision-making team in the bank's management structure. Policies are formulated by leading industrialized countries in their annual meetings- the G7. This can be seen as a failure on the part of the bank for discriminating based on the level of industrialization.

Secondly, most projects funded by the world bank usually have social and environmental repercussions. For instance, the bank would only finance projects that benefit the people in that country without having to impact on them. However, this has not always been the case as noted in South America where some type of projects has led to the actual displacement of people. In the construction of dams have led to people being evicted from their indigenous homes without proper compensation given to them.

Conditions placed on member countries from this region while borrowing money is uncalled for. The 'Washington Consensus', responsible for making decisions on behalf of the borrower country without giving the said country an opportunity to express itself out in terms of which areas of the economy to develop, should be abolished and the structure made to encompass all member states. These absurd conditions derail them.

Some of the bank's indulgence have been working against their own policies. The World Bank took a role in mitigating and formulating ways of dealing with the global climate change, something that weighs itself down because it supports heavy industrialization. The fact that the bank lends a lot of money to industries that pollute the environment, including the manufacture of power from coal indicates that some of the policies put in place should be either abolished or made to encompass all environmental aspects. The financial support given to such countries should be reduced.

Many countries in the South American continent have expressed fear of being neo-colonized. The real aim of the World Bank as seen by these countries is to establish economic policies that are neoliberal and end up making such states to be slaves. Eventually, the profits benefit the western developed countries (Chen Pp. 43-48). The financial institution presents itself as helping the poor countries yet the ultimate goal is to enslave such countries, a selfish desire.

The policy of the World Bank is to create an environment that is friendly and transnational to all member states so that no one country suffers when a loan is borrowed.The challenges that the World Bank is facing is majorly due to its management structure and policies they have put in place. Their policies question their own accountability as to whether no profits are being made in favor of a few individuals or states. All this is an indication of their failing policy planning. Other times, the bank faces threats due to the existing competition between other banks.

It is however seen that the bank initially supports various development programs, this is because it started as a reconstruction bank and progressively moved to a bank that offered support economically and generally made benefits out of its involvement.The threats that the word bank suffers are; it lacks visual development and failure to deal with clear cases.

World Bank structural adjustment loans were of importance in the early ages. Although the bank helped, the Latin American nations adjusted to other private banks because they had lots of debts.The bank ensured that there is consumption growth during the crucial times, it ensured that countries are firm and no longer stagnating.Despite the countries investment send savings the capital remained low thereby leading to poverty .the world bank had loan requirements and conditions that the South American countries were required to ensure they attain.

Since the South American countries were more exposed to natural disasters such as floods, earthquakes, and hurricanes, the world bank offered help by giving them loans to recreate back a positive environment .however some of the countries are in a situation where they have a weak growth that requires fiscal adjustment to enable them to prepare for future economic headwinds and also protecting the resources .

It is reported that the fiscal adjustments should not be heavy that they should not cut on public investments .the world bank being the creditors to the countries were happy to provide loans and so they had to restructure the debts in order to avoid financial pains that can be caused by the debtor countries. The loans helped to stagnate the economic growth, create employment, reducing inflation and increasing the incomes and imports that had initially dropped. This forced the countries to address the issues and pay the debt. Due to this, the countries had to find a way to pay the debts.

They had to turn to the IMF (International monetary fund) that gave loans and unpaid debts.The IMF asked the countries to lower their total spending by coming up with programs that would recover the debts(Robert, 2001).This leads to most countries to abandon import substitution industrialization models and adjusted to export-oriented industrialization strategy.There are some of the countries that abandoned the strategy.

It is later on that Latin America paid back the debt.During the crisis the unemployment rate was high, this forced young adults to get involved in drug trade, prostitution and terrorism .there are problems that came up, the crime rate increased and made some countries insecure to live in.The crisis forced many banks to stop new foreign lending and agreed to concentrate on collecting on and reorganize existing loans collections.

The world has given out loans to different countries in the south American that fund them in implementing projects such as providing water, electricity, construction of roads, schools, and hospitals.Through this, the economy is able to develop.Through the banks' lending, the government is able to venture into risky businesses and non-profitable business since it has availed resources granted out.

When the loans granted by the banks are used appropriately then occurring disasters are able to be cubed and a new positive environment will be created (Koleski, 2012).The leadership in the countries may be corrupt and mismanagement took its own way, there are leaders who seek to enrich themselves and spend all resources set aside by the government, this lead to bankruptcy and the government is said not able to pay loans. The world banks come upon and promote the government with a loan that stabilizes the country's economy.

Politics has influenced the use of income in a country's economy .politicians to use their power to enrich themselves and use the money wastefully which causes upcoming politicians to continue with the similar trend and abuse their citizens.This encourages the failing of the country to a point where it cannot stagnate itself including funding its projects becomes an issue. However since the world banks act as a guarantor such countries, the countries may survive from falling.

The bank also advises the countries on areas to exploit and acquire income in order to reduce the amount of loan that is debated too. By this the country is able to stand without further support from other financial institutions .the loans provided by the bank are given in different lending rates are given as a promotion. The countries that are unable to pay their debts they are forced to suspend all projects that were being constructed.

In South American countries the main reasons for weak growth are the market turbulence, however since the world bank came across, poverty has reduced but the countries need to respond to external imbalances such as to invest in promoting education since it will contribute and benefit the economic growth of the country and reduces poverty.

The economic overview of the South American countries is that it is generally it is moving to a period where the economic growth will stag and more financial crisis will be reported.The crisis should act as a challenge to the countries and motivate them in programming and preparing...