How Far Should The Playing Field be Leveled ?! [Archives:2000/07/Business & Economy]

February 14 2000

1st in a series
Tawfiq Abdullah Al-Dubhani,
MSC. International Economics, Scotland.
This is a study about the World Bank, the International Monetary Fund, and the World Trade Organization conducted by Mr. Tawfiq Abdullah Al-Dubhani, MSC. International Economics, Scotland.
The World Bank (WB), International Monetary Fund (IMF) and the World Trade Organization (WTO) – What? What for? How and Why?
For many people these are three international bodies or institutions, which have been integrated within the United Nations System and many may know that they are part of the UN-Organizational structure included under the Economic and Social Organizations, like many others. Others may say as long as they are part of the UN-System, they automatically fulfill the duties designed by the UN. If this is the Answer for our questions mentioned above, there will be no need for this issue to be articulated. In the reality this does not represent from my point of view even the smallest portion of the Answers for these and other related enquiries. On the other hand, one might ask why taking these three bodies together? Are there any major relations among them? Are there special reasons behind any of these beliefs? Of course there are reasons to believe that these three Institutes are interrelated in terms of their objectives.
Moreover, it is to argue there that they have even complementary functions and almost the same long term overall objectives, serving towards a unified strategy. To handle all these issues in a proper way may need more than one research to be executed and is beyond the content of this rather very descriptive and general article. Nevertheless, and for many reasons we will discuss this topic in several parts to be published weekly from now on. Our objective is to qualitatively prescribe the issue under consideration in a global context, aiming at focusing on the most fundamental issues regarding the evolution of all three bodies including their international roles as well as their complementary functions in the context of leveling the way for the so-called new International order, the policy of globalization. It is to be admitted here that all the discussion coming hereafter will be based on my acquired knowledge about this matter of concern, aiming, at highlighting, from an individual point of view, some important issues, which will sooner or later affect every society. Hence any comment and/or justified critics will be welcome and highly appreciated.
Despite the fact that all three bodies (WB, IMF and WTO) are independent in terms of their organizational structure, WB and the IMF were born out of the Britten Woods Conference at the end of the Second World War, as part of the new established political and economic structure. The WTO were part of the same arrangement but for many reasons it could not be founded. However, efforts were made, led by the USA until it came to be established by the General Agreement on Tariffs and Trade (GATT), as an alternative forum in 1947 and continued on the same basis, until it was realized, in March 1993. Despite our principle assumption made earlier regarding their integrated complementary function, we will, for simplicity and clarity reasons, consider the three bodies at this stage as totally isolated from each other and discuss them separately. Based on objective reasons, more weight will be given to WB and WTO in the context of our discussion thereafter.
–The International Bank for Reconstruction and Development Ð IBRD, hereafter given as (WB).
As mentioned earlier, the WB was established in 1945 with an initial objective to reconstruct and assist in initiating economic development in those countries which were hardly affected during the second World War (WW2), mainly European regions. This action was economically and politically justified and highly appreciated by the recipient countries. The initial basic Fund has come from the Victory members in the WW2, led by the USA. This sounded well and in fact it has been highly respected. The WB has immediately started to operate on this basis, executing the related duties in proper ways, making successful business over the two decades after the WW2. After about three decades the WB has almost achieved its overall objective in restoring the major damage, resulted during the WW2. Nevertheless we are not here to argue or go further in this respect. More important is here to explore the basic and essential information laying behind the evolutionary process of the increasing role of the WB in linking and reforming the global economic and socioeconomic structures world wide. For simplicity reasons it might be suitable to divide this evolutionary process into three main timely interrelated and overlapped periods to be indicated below separately.
1- WB in the post War Era (1945 – end of the 1960s)
As briefly mentioned above, it was aimed for the WB to provide the required assistance for those countries affected during the WW2. The remarkable high success of the WB in executing various development activities in those countries for over two decades is obvious. As an institution, the WB has gained more power and accumulated lot of experiences in undertaking various development activities. However these experiences were based on European social and political structures, which are not consistent with those of many developing countries. As a result of these high performances the WB has obtained an increased support by its members and hence it gained more credibility and trust by other states as an institution. Based on these and other developments, the WB has increased its capital and has expanded its activities. In the late 1960s, most of the major activities in Europe were partially terminated due to increasing competition of national institutes and the economies of the relevant countries started to perform accordingly. A decreasing demand for further assistant was also one of the main factors behind the contraction of the activities of the WB in the late 1960s to start shifting its activities, resulting in territorial expansion world wide. Thus, it has initiated in offering Loans for developing countries to be invested in development projects. Meanwhile, it has initiated to get involved in exercising its past technical experiences with regard to development activities in Developing World.
2-WB (end of the 1960s – end of the 1970s)
It may be worthwhile here to outline the most essential developments, which have facilitated a relative smooth and successful performances of the WB during the period under consideration. In this historical period, an increasing number of developing countries have struggled for their independence from the former colonialism, resulting for almost all developing countries in having attained their political independence. The new leaderships in those countries were motivated to establish and develop their economic and social structures. But to achieve this objective, mainly capital resources were necessarily demanded. Hence the offered loans by the WB have found its way to developing countries, aiming at financing the increased demand to cover the increased development project activities. The increased WB memberships has led to increase support, easing the WB international role and interference, reflecting basically the interests of its leading weighted member countries, i.e. the USA and other major western countries. This has resulted in creating some kind of integrated oligopolistic economical and political power.
Another aspect to be emphasized here, which has motivated the WB to expand its activities towards developing countries, refers to the fact that, most of the economies of the developed world were laying under series of contraction difficulties during the 1970s, resulting mainly in economic recession and discouragement of investments, causing further reduction of possible WB activities in those countries. In contrast and over the same period most of the relative new economies of the developing world have registered high rates of growth and relative stable economic performances. An additional very important of accompanying developments over shocks in 1973/74 and 1979. It is worth in this regard to mention here that, the economic capacity of most oil exporting countries, mainly OPEC-members, were limited for oil revenues surpluses to be reinvested and the absence of well developed national or regional recognized banking institutions, these revenue surpluses found its way to western banking institutions which have been recycled in loan forms to the developing countries.
This particular development has had two major accumulated consequences for our issue here, i.e. on one hand it has facilitated for the WB and other related banking institutes in the western countries, through the provision of oil revenues, to increase loans to developing countries. On the other hand most of net oil importers in the developing world were due to that confronted with a sudden high import Bills, leading them to search for ways and means to cover this financial gap. The easiest way for many countries was to borrow more to fill the deficit in the balance of payments, hoping of immediate recovery.
3-WB (Beginning of the 1980s up to date)
The provision of loans and technical assistance by the WB to developing countries over the 1970s were generally not bound to any kind of special economic reforms in the recipient countries. Nevertheless, in some cases, over the same period, certain economic by the WB and it was left for the concerned countries to decide on their appropriation for their own given conditions. At the same period, the WB has accumulated what may be termed as information basis regarding the actual given economic, political and social structures including main strengths and weaknesses of many developing countries. Based on these experiences and on relevant researches, the WB has become able to define and identify particular measures for certain countries based on well-justified economic theories. The adoption of these measures in any developing country were motivated, encouraged and highly appreciated by the WB, IMF and many other international organizations and leading developed countries, easing for the WB to observe their outcomes in the real world. Moreover, the WB continued through its researches to develop a general program for action, containing all economic measures which could be applied for almost each developing country and are consistent with neo-classical economic theories. This program or package is known as an Adjustment Program, Economic Adjustment policy or Structural Adjustment Program. The most common term used in expressing all or part of these measures in Structural Adjustment Program (SAP) which we will refer to later on. One important aspect in this regard has to be mentioned here, namely the fact that similar programs were elaborated earlier by the IMF. Despite the similarity of both programs, they tend to have different approaches, however, the final outcome tend to be the same. Referring to our issue here, the WB has provided some developing countries with relevant programs at the end of the 1970s mostly in relation with the technical assistance to be generally adopted on voluntary basis.
At the beginning of the 1980s, debt crises of increased number of developing countries started to come again on the surface of major disputes and to become very serious. The total external debt of developing countries taken as a group increased from 68.4 Bill US$ in 1970 to 846.6 bill US$ in 1982, making an increase of about 13 times over a period of 12 years.
These and many other indicators were observed particularly by the WB and the IMF, justifying the necessity for their recommended SAPs which are argued to bring fruitful results over the long term. Members of the WB and IMF have obviously supported this rather conceptual strategy and it may have been considered by the WB and IMF as protecting their interests and insuring a sustainable monopolistic/oligopolistic international power.
An important development associated with debt crises has occurred, when the Mexican government had is 1982 declared in an official statement its Bankruptcy. Hence it has stated to be unable to meet its obligations related to external debt. This particular development has represented the basis for the WB and IMF to insist on the imposition of SAPs for any loan to developing countries. This was initially opposed hardly upon the most indebted countries and relaxed the preconditions for other less indebted. Ultimately, however, and at the end of the 1980s the term Loan Conditionality has been and become increasingly the general way for obtaining external loans, i.e. for almost each loan requested by a developing country, this particular country should at least show its willingness to adopt the approach relevant to restructuring its domestic economy via certain means and measures as a precondition for qualifying it to get the required loan. In addition to all these accumulated events and in some ways predetermined developments, other factors and developments should be indicated here which occurred during the last 20 years, enhancing the general rule of the game, (CONDITIONALITY), facilitating and increasing the speed for smooth functioning of the WB and avoiding to a large extent the possibility of any kind of essential opposition or competitive voice on international level, leading to more effective performances and achieving better functioning environment and increasing the bargaining and thus the political power of these two organizations all over the world. The most weighted and relevant developments may be briefly outlined bellow.
– Most of the developing countries have suffered from the first Oil price shock in 1973/74 and many of them tried to overcome this problem by borrowing more and increasing exports to mainly cover the persisted deficit gap in the Balance of payments without any major success. Though, in 1979 the second Oil Price shock occurred, widening the debt crises and resulting in a sort of accumulation of economic problems in particular for net oil importing and relative high indebted developing countries.
– Over the 1980s, the gradual decrease in export earnings for many developing countries due to accumulated effects resulted from falling of the average prices for many primary export commodities and from increasing protection measures, decreasing access to international markets, imposed mainly by the former EC-(now the EU) members and the USA. Minor exceptions were those countries bound to the LOME-Convention, mainly former colonies in Africa, Caribbean and Pacific regions (ACP-countries), with the EU, which is far to have provided a compensation effect for the concerned countries.
– A further important issue in this context is the change in the global political circumstances resulting in the late 1980s due to the termination of the so-called cold war Era, leading, for political reasons, the WB and the IMF to shift their attention towards the integration of the former Eastern-bloc countries and provide them with their service at the expense developing countries, leaving the last group of countries with relatively limited financial sources.
– The economies of many developed countries have experienced economic recovery and started to perform well at the beginning of the 1980s, resulting in increasing demand for financial assets leading to pushing up the overall level of interest rates. This in turn has made the loans for the rest of the world much expensive than it was over the 1970s.
– Last but not the least aspect which may be considered here is the evolution of information technology, emerged during the 1990s, easing and speeding up the process of exchange information and the decision-making process world wide.
In summing up, the accumulative effects of all mentioned events and developments are obvious to have resulted in increasing poor economic performances of the majority of developing world since the beginning of the 1980s up to date. Generally, these circumstances have consequently led to a decreased possibility and sometimes even major difficulties for many developing countries to find the required financial capital not only to cover their deficits but also to meet their increased public sector borrowing requirements. For many governments in the third world the demand for financial assistance has increased dramatically and covering this demand could be argued be a prerequisite for these governments to sustain their political leaderships.
Hence they would agree, and in fact they had, on any conditions, provided they can acquire the necessary financial assets to keep them ruling in a given countries. This has made loans more competitive among developing countries. For the WB and IMF, more suitable atmosphere was created to get in depth and widening their prescribed measures for the concerned countries. In the 1990s, it is realized that almost each country is undertaking certain economic measures, prescribed or imposed by the WB and/or the IMF. The overall current situation can be argued to be based on the Principle (the more and the faster a country in getting the approval economic measures accordingly, the more likely it has the opportunity in getting the approval for more loans, it needs). The fast increase in demand for new loans has become the main feature of the global economy in the current decade of this century, resulted in pushing and leaving the ball for one team only. Without getting any further here, it may be applicable in this context to indicate that despite all these so-called appropriate measures and major efforts made, the total external debt indicated earlier has risen from 846.6 Bill. US$ in 1982 to more than 1,3000 Bill. Bill US$ in 1990. More serious is the fact that the over due payments for debt servicing only for all developing countries has increased from 11 Bill. US$ in 1970 to above 160 Bill. US$ in 1988. More details regarding the implications of SAPs on the developing countries will be discussed later on, in this article.
–The International Monetary Fund (IMF)
Due to the high degree of common features between the IMF and the WB in terms of the Formulation and imposition of SAPs which is the core of our topic here, it may be applicable here to briefly indicate some aspects related to the different function of the IMF, aiming at getting an overall background to help us in distinguishing between these two rather supplementary international institutes. Later on, we will be able to combine them together to discuss the effects and the implications of their SAPs on the Societies of Societies of the developing countries.
As indicated at the very beginning of this article, IMF was established together with the WB at the Briton Woods conference in 1944. Its main duty has been firmly declared to control the international financial institutions, to help initially developed member countries in overcoming difficulties in the Balance of payments and to be as a World Police Office with respect to the follow of financial capital. The IMF has fulfilled its duties parallel to the WB for over 5 decades, providing mainly short term measures for the developed countries to adjust short term monetary shocks in their balance of payments. It may be argued here that, the IMF was largely influenced by monetarist views, i.e. there is an increased believe among western economists that many economic behavioral changes are caused and can be affected through mechanism related to the control of Money supply. Hence the IMF was emphasizing on controlling the follow of financial capital from and to the individual economies in the developed world. It shifted its duties towards the developing world at the beginning of the 1970s and in particular over the time of major changes in international oil price shocks which has caused a shift in the follow of financial capital initially in favor of oil exporters and ultimately in favor of developed world and has enhanced the debt crises of the developing countries. In fact the IMF has started to recommend the SAPs already in the early years of the 1970s, however it did not found the required and adequate support. The IMF and the WB are not functioning in a vacuum, they are ultimately bound to represent the interests of their weighted members.
Since the beginning of the 1980s the IMF and the WB have developed some kind of partnerships with executing and imposing SAPs in the developed world. Although they have different approaches, the impacts of SAPs tend to have approximately the same outcome or even complementary features. More about these issues will be discussed later.
–The World Trading Organization (WTO)
The concept for the establishment of the WTO was provided together within the same proposal, made by Great Britain, contained the two other institutions, the WB and the IMF, at the end of WW2 as an important part of the post War arrangements. WTO is aiming at establishing an internationally acceptable institutional frame work based on relevant rules and regulations including a manageable framework for dispute settlements related to international trade. However and due to disagreements among leading countries, the Briton Woods conference has resulted in the establishment of the WB and IMF only, delaying the decision on WTO to be taken after getting ratified by the concerned governments. Since the US-congress did not ratify the relevant agreement and other governments did not ratify it either, the WTO could not be established at that time.