THE WORLD BANK & THE INTERNATIONAL MONETARY FUND (IMF)

QUESTIONS AND ANSWERS

What is the World Bank?

Created at the Bretton Woods Conference in 1944, the World Bank Group is comprised of five agencies that make loans or guarantee credit to its 181 member countries. In addition to financing projects such as roads, power plants and schools, the Bank also makes loans to restructure a country's economic system by funding structural adjustment programs (SAPs). The Bank manages a loan portfolio totaling US$200 billion and last year loaned a record $28.9 billion to over 80 countries.

What is the IMF?

Also created at the Bretton Woods Conference, the mission of the International Monetary Fund (IMF) is to supply member states with money to help them overcome short-term balance-of-payments difficulties. Such money is only made available, however, after the recipients have agreed to policy reforms in their economies-- in short, to implement a structural adjustment program.

Is structural adjustment working?

No. Structural adjustment has exacerbated poverty in most countries where it has been applied, contributing to the suffering of millions and causing widespread environmental degradation. And since the 1980s, adjustment has helped create a net outflow of wealth from the developing world, which has paid out five times as much capital to the industrialized countries of the North as it has received.

I know there are a lot of qualified people at the World Bank and IMF who are experts in economics and other fields. If structural adjustment doesn't work, then why are they promoting it?

The wealthy Northern countries which control the World Bank and IMF dictate the agendas of these institutions, and their interests are best served by defending the status quo. Furthermore, the Bank's staff is currently dominated by economists who have spent their careers defending the validity of neoclassical economics, the foundation of the World Bank model of development. This orthodox view holds sacred the efficiency of free markets and private producers and the benefits of international trade and competition. Given the lack of accountability to outside parties, there is little incentive for the Bank and IMF to alter the design of structural adjustment, even when faced with mounting evidence attesting to the failure of these programs.

I hear a lot about the debt crisis in the Third World and know that many of the loans are owed to commercial banks and Northern governments. People say that some or all of this debt should be canceled to give developing countries a chance to recover economically. Shouldn't they pay?

Much of this debt dates back to 1970s, when it was lent irresponsibly by commercial banks and borrowed recklessly by foreign governments, most of which were not popularly elected and which no longer hold power. The advent of the debt crisis, which occurred in the early 1980s due to a worldwide collapse in the prices of commodities that developing countries export (e.g., coffee, cocoa) and to rising oil prices and interest rates, forced these countries into a position where they were unable to make payments. Yet there's no such thing as bankruptcy protection for a country, regardless of the circumstances. When the U.S. department store Macy's filed for bankruptcy under chapter 11 in January 1992, it received instant protection from creditors and working capital to keep open. At the same time, when Russia told the West that it could not meet government had to wait for more than a year before the IMF provided financial help.

What is the relationship between debt and structural adjustment?

Since the 1980s the debt situation has steadily worsened, so that now the total debt of the developing world equals about one-half their combined GNP and nearly twice their total annual export earnings. Because of this crushing debt-service burden, foreign governments have virtually no bargaining power when negotiating a structural adjustment program and must accept any conditions imposed by the World Bank and the IMF. And SAPs themselves, by orienting economies toward generating foreign exchange, are designed to ensure that debtor countries continue to make debt payments, further enriching Northern creditors at the expense of domestic programs in the South.

How's the World Bank's record on responsible lending?

In 1992, an internal World bank review found that more than a third of all Bank loans did not meet the institution's own lending criteria and warned that the Bank had been overtaken by a dangerous "culture of approval." Bank officials, in other words, felt heavy pressure to push through new loans even when presented with overwhelming evidence that the project in question was ill advised.

Who makes decisions at the World Bank and IMF?

Decisions at the World Bank and IMF are made by a vote of the Board of Executive Directors, which represents member countries. Unlike the United Nations, where each member nation has an equal vote, voting power at the World Bank and IMF is determined by the level of a nation's financial contribution. Therefore, the United States has roughly 17% of the vote, with the seven largest industrialized countries (G-7) holding a total of 45%. Because of the scale of its contribution, the United States has always had a dominant voice and has at all times exercised an effective veto. At the same time, developing countries have relatively little power within the institution, which, through the programs and policies they decide to

finance, have tremendous impact throughout local economies and societies. Furthermore, the President of the World Bank is by tradition an American, and the IMF Managing Director is a European.

How is it that U.S. business and other companies benefit from the lending programs at the World Bank?

Development projects undertaken with World Bank financing typically include money to pay for materials and consulting services provided by Northern countries. U.S. Treasury Department officials calculate that for every $1 the United States contributes to international development banks, U.S. exporters win more than $2 in bank-financed procurement contracts.

Why is this bad?

Given this self-interest, the Bank tends to finance bigger, more expensive projects--which almost always require the materials and technical expertise of Northern contractors--and ignores smaller-scale, locally appropriate alternatives. The mission of the World Bank to alleviate poverty, not provide business for U.S. contractors.

For more information on the World Bank, the IMF and the 50 Years Is Enough Network contact:

50 Years Is Enough: U.S. Network for Global Economic Justice

1247 E Street, SE

Washington, D.C. 20005

tel: (202) IMF-BANK/ fax: (202) 544-9359

email: wb50years@igc.org Web Site: www.50years.org