The World Bank and the IMF: A Limited Mandate

In the fight against global poverty, the World Bank aims to help direct developing economies onto a stable path of sustained economic growth through the support of domestic financial institutions and large-scale infrastructure projects. Yet, there are ethical and moral implications to an organization that seeks to alleviate poverty in the developing world, while failing to reach the poorest of the poor, who lack access to the financial services and development projects that the World Bank provides.
The Bank addresses the development of financial institutions and seeks to bolster domestic economic capacity, infrastructure, systems of governance and financing for the poor. The Bank devotes much of its resources towards large-scale development projects that build capacity for future economic growth. Yet proposals for reform of the Bank’s allocation of funds, should pressure those countries that receive the most aid, to achieve sustained economic growth and thereby contribute more to the Bank’s pool of funds. By creating an incentive for greater involvement in the Bank’s operations, countries may find it politically salient to make good use of the funds provided to them.
The IMF’s role as a crisis lender and monitor of exchange rates and international trade have increasingly placed it at the forefront of the contentious debate over economic globalization. Many have assailed its increased role as a lender of last resort for defaulting economies. Although the IMF’s ability to meet the debt payments of countries on the brink of insolvency can have a calming effect on global markets, its so-called “organizational infallibility” and movement away from development initiatives, have sullied its mandate. Economist Joseph Stiglitz has examined the disconnect that exists between the Fund’s short-term capacity to avert crisis, and the adverse long-term effects its loans have had on weakened economies. There is little evidence to suggest that the IMF’s loans bolster basic health or education services, which are critical components of poverty alleviation. Furthermore, the IMF is generally unaccountable to the countries in which it intervenes. It principally serves world financial markets and the large economies from which its receives the lion share of its funds. Thus, the IMF is limited in its ability to implement concrete goals for development. Although it plays a vital role in stabilizing international trade and world financial markets, it provides little aid to struggling microentrepeneurs, rural farmers or urban day laborers, who constitute the bulk of poor populations in developing economies. Loans to ailing economies are short-term in nature and provide little of the long-term assistance that is found in the work of World Bank and various civil society networks.
The World Bank’s has increasingly focused its mandate towards ‘middle economies,’ often bypassing those states in the most dire need of economic assistance. The rationale behind this development initiative is that weak or failing states lack the systems of governance, rule of law and political mechanisms to implement aid and support infrastructure projects in a tenable manner. It is within these very economies that a vibrant civil society and network of non-governmental organizations can flourish and effectively deliver aid to the lion share of the world’s poor that are overlooked by large-scale public-works projects. Microfinance NGO’s and other civil society networks can bridge the divide between rural and urban marketplace and provide a mechanism by which the poor can benefit from the work of the World Bank. Thus, the World Bank can play an important role in supplementing and financing the network of NGO’s that help to finance the poorest of the poor. These privately-funded networks can serve as the foundation upon which the Bank can effectively serve developing economies.
Many have also questioned the environmental impact that the Bank’s large-scale infrastructure projects have had on fragile ecosystems and in economies that are wholly dependent on subsistence activities. Large dams or power stations can undermine the goals of the UNDP to prevent environmental degradation and promote sustainable means of development. There are also profound legal and moral implications for both state sovereignty and international environmental law when the construction of such projects serve as a detriment to the health of a country’s biodiversity and farmland.
Private-sector economic development projects are better able to consider the level of inequality not only between individuals and the wider marketplace, but also between intrastate populations and regions. The World Bank addresses these differences on a larger scale, principally considering the disparities in standards of living and economic output between states. Thus, reform to global development initiatives must consider the need for funds from both public and private sources—from both a vibrant civil society and large scale development institutions—to address the complexities of the global poverty landscape.
Furthermore, a central issue for the World Bank and IMF is whether countries with poor governance, who have pursued policies of fiscal imprudence, should be eligible for development assistance. Yet within the interconnected global marketplace, the threat of contagion has warranted action by the IMF and World Bank, regardless of the fiscal track-record of the country in question.
The World Bank and IMF’s voting structure and source of funding has also served as fodder for critics of globalization. A country’s voting share is proportional to the amount of funds it contributes. Therefore, as largely western-oriented organizations, the World Bank and IMF are chiefly represented by those countries with the most capital to contribute to international development. The countries of Sub-Saharan Africa, which receive a substantial percentage of Bank’s capital, have a small voting share in comparison to the countries who provide those funds.
The actions of the World Bank and IMF must also can be examined within the context of non-traditional security issues, for it is salient to note the extent to which poverty and economic marginalization can undermine global, state and individual security. Economic development, traditional and non-traditional security dilemmas and the civil society sector all converge within the geopolitical debate. Economic crises often leads to state failure and ethnic conflict. To that end, economic development can have both a positive and negative effect on transnational terrorist networks, who both thrive in weak and failing state environments, yet benefit from stable methods of financing and access to readily available capital. In the absence of rule of law, the threat of terrorism and horizontal nuclear proliferation become critically important issues. Thus, the World Bank’s efforts at bolstering economic and political institutions and creating mechanisms for prosperity and the IMF’s efforts at stabilizing floundering economies, all serve a greater purpose for international security.

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