The International Monetary Fund (IMF) and World Bank’s 2023 annual summit of finance ministers and central bank governors – held in Africa for the first time since 1973 – concluded on 15th October at the Moroccan city of Marrakech.
Among the key discussion points of the annual gathering included:
- A pledge by IMF member states to increase quota (financial) contributions.
- Reviving a global economy weighed down by debt, inflation, and conflict.
- Addressing the growing wealth gap between rich and poor countries.
- Zoning in on the global financial institutions’ floundering efforts to tackle climate change.
Notable during the summit was the symbolic move by the IMF and World Bank to give Africa a third seat on their executive boards. This, according to Kristalina Georgieva (IMF Managing Director), would give the continent a stronger voice, adding “A prosperous world economy in the 21st century requires a prosperous Africa”.
There was much talk ahead of Marrakech on revamping the IMF and World Bank to better reflect the emergence of The Global South’s economies like China and India. Here lies the calls for reform to reflect a more multipolar world, and the changing reality of the developing world – which has long decried its structural under-representation at the two institutions, and the ‘colonial’ practices imposed upon their economies.
The IMF and World Bank: Imperial Origins
Founded in 1944, the key decisions leading to the establishment of these two institutions were largely steered by the US (and to a lesser extent a Europe weakened by WWII), which has significantly imposed their geopolitical interests on the two institutions ever since.
Considering both organizations were formed just before the beginning of The Cold War, their tremendous influence in shaping the structure of the world’s development and financial order to reflect the US and her European allies’ designs cannot be understated. This has continued to hamper efforts of the Global South in calling for their reforms, for a more inclusive policy framework catering equally to the world in eliminating extreme poverty and boosting shared prosperity – and not prioritizing the vested interests of the Elite few running the show like the Iron Curtain is still up.
While the establishment of the Bank and Fund was presented as an apolitical effort to rebuild the world economy in the aftermath of the Second World War, some interpretations view them as a continuing vision to expand the reach of Western capitalism in the face of potential challenge from the former Soviet Union, and today’s emerging economies of The Global South symbolized particularly by the multipolar influence of the BRICS block of countries (Brazil, Russia, India, China and South Africa) – seen by many as challenging the perceived hegemony of the West over the rest of the world.
There was little real commitment to this apolitical vision among the advanced powers once the Second World War was over, as the institutions began making their first loans to member states in the developing world. Already during the early Cold War, the IMF began to act like earlier imperial creditor arrangers by making loans conditional on austerity, beginning in Latin American states like Mexico, Paraguay, and Chile, and later more broadly throughout the Caribbean and the postcolonial states of Africa.
Development Incorporated: Masters of Disaster
“IMF Aid Generates 4-7x More Loans for Third World”
It has been estimated that every dollar provided to the Third World by the IMF ‘unlocks’ a further four to seven dollars of new loans and refinancing from commercial banks and rich-country governments. It also unlocks the very large amounts of development funds at the disposal of the World Bank.
Indeed, the crucial connection between the two institutions is that membership of the Bank is conditional upon membership of the Fund. This has been described by observers as a classic example of a carrot-and-stick device: Without IMF membership, there’s no admission to the World Bank – and without conformity to IMF rules, there’s no development aid from the World Bank.
IMF’s mission is to supply member countries with funds to help them overcome short-term balance of payment difficulties. However, such funds are only made available after the recipient agrees to policy reforms in their economies – in the form of sweeping structural adjustments.
Historical evidence of the two institutions’ negative policy impact on the poorest countries of the world is well documented, especially throughout the 1980s and 1990s. These structural adjustment reforms and austerity measures on client states deepened inequality in the Global South and the former Eastern Bloc countries, and continue to do so. Many of them had civilizational, paternalistic, and white supremacist assumptions, which were used to justify meddling in the economies of developing states.
”IMF practices eroded borrower nations’ sovereignty and policy autonomy”
Failing to agree to these terms not only jeopardized the IMF’s assistance; it also jeopardized access to other sources of foreign capital, since the existence of a prior arrangement with the IMF was used by other lenders to determine a country’s creditworthiness. It is in this that the IMF became notorious for meddling in the domestic affairs of sovereign states for the sake of globalizing a hyper-liberalized form of capitalism under US and European dominance.
Such practice greatly undermined the sovereignty of borrower nations, limiting their ability to make policy decisions, and eroding their ownership of national development strategies. With both institutions showing a weak ability to learn from such past mistakes, this is not a good indicator of a more inclusive future going forward for The Global South. Unless drastically changed, this current status quo of domination will continue to be maintained and continually favor the West. It will be business as usual, to the detriment of the world’s poor.
There’s good reason to take recent changes in economic ideas at the IMF seriously — from its new emphasis on tackling inequality to cautious support for the use of capital controls. But even if the IMF has formally loosened its tight embrace, the institution continues to link its assistance for vulnerable member states to the same old demands for austerity, including most recently in the series of emergency loans it made during the Covid-19 pandemic.
Of Quotas Favouring the West: A Nefarious Economic Agenda
”Burundi, Kiribati and Haiti have as strong a voice as the United States or Britain”
The World Bank is a registered UN specialized agency but its relationship to the United Nations system is tenuous in the extreme. The UN has been characterized by a decision-making system where each nation has one vote. This, in theory at least, means little or poor countries like Burundi, Kiribati, and Haiti have as strong a voice as the United States or Britain.
In contrast, votes at the World Bank are based entirely on the size of the financial commitment each member state makes. There is no pretense of equality here – the dominant economic powers of The Global North (United States, Western Europe, Japan, Canada, and Australia) simply run the show.
The IMF’s quota system (based on a country’s economic performance) also determines how much funding they should provide, their voting power, and the maximum amount of loans they can obtain. At present, the IMF distribution of quotas favors these advanced economies to the detriment of other emerging countries, which have been calling for a reform of the system for several years.
The main contributors are not in favor of the proposed capital increase, which would give greater influence to emerging powers of The Global South. This indicates the Western economies’ desire for control and influence over decisions made by the international financing bodies. China and India are poised to overtake powers like Germany and Japan in the coming years as the second and third-largest world economies respectively.
With that comes a needed adjustment to the quota system – something that the advanced economies are not in favor of. This reflects the fear that the recently expanded BRICS (now including Saudi Arabia, Iran, Argentina, UAE, Ethiopia, and Egypt) is seen as a rising counterweight over the collective Global South, challenging the West’s domination.
This begs the question – for international bodies meant to foster collective economic good for all, what does blocking reform key to reflecting these changing realities tell us about the intentions behind the countries in control? The distribution of voting power remains severely imbalanced in favor of these Western powers. Importantly, The United States still has veto power over an array of major decisions.
The under-representation of low and middle-income countries on the institutions’ executive boards is exacerbated by the historic ‘gentleman’s agreement’ between the United States and European countries – which has seen the Fund and Bank led by a European and US national respectively since their inception. Civil society has long called for this opaque system to be replaced with a merit-based, transparent process.
“Low- and middle-income countries have a limited say in shaping their economic destinies”
You would expect that representation in these two key institutions that govern global economic policy would be modeled along the lines of the United Nations General Assembly, or perhaps calculated according to population. But in reality, they are deeply undemocratic.
The rich countries of the Global North will continue wielding disproportionate influence when it comes to setting the rules of international trade and finance – and they will continue to do it in ways that serve their economic interests, quite often at the expense of everyone else. Middle and low-income countries, which together constitute 85 percent of the world’s population, will continue having a minority share – and a muffled voice in shaping the realities of their economic destinies.
Defenders of this system argue that this is a legitimate approach: it makes sense, they say, that bigger economies should have more power over decisions related to the global economy.
But how democratic is the notion that rich people should have more voting power than poor people, and thus more influence over economic policy decisions? This is plutocracy normalized and should be seen for what it is – as corrupt and morally repulsive.
There is also a clear racial imbalance at play here: on average, the votes of people of color are worth only a fraction of their counterparts. If this was the case in any particular country, we would be outraged. We would even call it apartheid. Yet, this is a form of financial apartheid that has operated right at the heart of international economic governance since 1944, and has come to be accepted as “normal”.
”The IMF-World Bank annual meetings count for nothing if they cannot look at our world through the eyes of the most underprivileged”
The IMF-World Bank annual meetings are meant to be a global rallying point for the two financial bodies, the world’s country officials, aid donors and recipients, bureaucrats, company directors, academics, and researchers among other applicable invitees. A summit representing might in resources and experience, but whose labors will count for nothing if it cannot look at our world through the eyes of the most underprivileged.
These representatives are meant to serve our needs, to help the poor realize their strength, their potential, and their aspirations. Collective action against global poverty is a common purpose that brings the meetings together, and the two lead institutions should rededicate themselves to the pursuit of this greater good.
Unfortunately, the interventionist powers of the IMF and the World Bank have all along been rooted in empire and colonialism. If this does not warrant urgent reform, I don’t know what does.