A friend forwarded this rhetorical piece. I am posting it as an alternative view that needs to be heard and addressed.
How international financial institutions hamper the Third World economies
By Abba Isyaku Adamu
Going by the historical formation of the international financial institutions, the era of decolonization, nobody can deny the fact that they were established for the integrated ‘development’ of the less developed nations (LDCs) most of which were colonies.
Whether ironically or wholeheartedly framed, the objectives of these institutions are geared toward managing the world economy with much priority on the LDCs.
Such institutions like International Monetary Fund (IMF), World Bank, General Agreement on Tariff and Trade (GATT), now, World Trade Organization, (WTO), International Finance Corporation e.t.c have their economic motives nakedly directed at encouraging free international trade; management of international debt and exchange and formation of world monetary and fiscal policies. Others like United Nations Development Program (UNDP), Agency for International Development (AID), UNESCO e.t.c serve as facilitating agents for the implementation of other development programs.
For over five decades now, these institutions have not only persisted but they are also increasing their membership and expanding their mandate and influence across the globe particularly amongst the developing nations.
Despite the continued ‘effort’ by these institutions to improve the less developed economies, these countries remain economically backward, falling further behind the rich ones and the gap between the two is getting wider.
Trade and capital market liberalization, privatization, deregulation, austerity and other neoliberalization strategies that the so-called Washington Consensus advocates, have not been promoting development of poor countries.
Evident to this is the retrogressive development recorded in their economies since the increased intervention of such institutions.
There was much lending, little adjustment, and little growth in the 1980s and 1990s in the developing countries.
Annual per capita growth for the developing countries averaged zero per cent for the years from 1980 to 1998, whereas from 1960 – 1979 their growth had averaged about 2.5 per cent annually.
Poverty remains very high, with roughly 20 per cent of the world’s population living on less than a dollar a day, and more than 45 per cent on less than two dollars a day. A sizable number of these countries were worse off economically in 2000 than they were in the 1980.
This proved beyond reasonable doubt that these institutions have in no way bettered the economy of the less developed countries, instead they do more harm to it in disguise.
One of the ways to which international financial institutions claim to be posturing development of the less developed countries is by giving aid, stylishly branded as foreign aids mostly through World Bank and IMF.
Foreign aids look generous on their face value, but are not meant for development. They are reactive to disaster that devastated a particular country.
Most of the aid materials are for instant subsistence and not for sustainable investments. In addition to that, food aids dwart local farming and discourage agricultural policies.
They also minimize the roles of market and private entrepreneurship, thereby distorting the influence of free market in the less developed countries which in turn hinder local productivity.
According to the foundation for Economic Education (2006) “dumping of free food in the third world countries depresses prices for local farmers, therefore resulting in less domestic production.” Foreign aids also distort market signals and incentives.
They divert economic resources from their most productive uses in developing nations. Whenever resources are made available outside normal market channels, buyers and sellers in related market activities receive inappropriate signals and change their behaviors, reducing locally generated income which is a catalyst to economic growth. Another way in which foreign aids depresses the economy of the less developed countries is through the conditions hedging around the aids. These include the inclusion of commerce and navigation treaties; agreements for economic cooperations, to meddle internal finances including currency and foreign exchange to lower trade barriers in favour of the donor country’s goods and capital; to protect the interests of private investments; determination of how the funds are to be used; forcing the recipients to set up counter funds; to supply raw materials to the donor and use of such funds a majority of, in fact to buy goods from the donor nation.
These conditions apply to industry, commerce, agriculture, shipping and insurance apart from others which are political and military.
Provision of loan with high interest rate by the international financial institutions to the less developed countries is another mechanism that leads to perpetual underdevelopment of the less developed world. Figures from the World Bank in 1962 showed that 71 Asian, African and Latin American countries owed foreign debts of some $27,000 million, on which they paid in interest and service charges at some $5,000 million.
Since then, such foreign debts have been estimated as more than £30,000 million in these areas.
In 1961, the interest rates on almost three quarters of the loans offered by the major imperialist powers amounted to more than five percent, in some cases up to seven or eight percent, while the call-in periods of such loans have been burdensomely short since then; these burdens of debt interest proliferated after 1970s.
In addition, debt problems of many developing countries increased. Total debt of developing countries increased until 1999 and then stabilized at about $3 trillion as in 2003.
While debt has declined as a proportion of GDP, it remains high at some 40 percent, and the ratio of debt to exports at 113 percent.
This magnitude suggests that it is difficult to consider current levels of debt sustainable and helping growth.
Even without conditionalities debt with interests can hardly help the less developed countries break the vicious cycle of poverty. This is because the debt structure and its compilation are beyond the debtors’ control.
In effect since 1988 for instance, the increase in the sub-Saharan Africa debt is due for 65 per cent to arrears on amortization and capitalist interests. This shows that the debt burden has become more and more unbearable for the populations.