Adonis Diaries

Posts Tagged ‘World Bank (WB)

The International Monetary Fund (IMF) failed in its mission; (Mar. 27, 2010)

After 30 years of successive wrong decisions, decisions based on ideology and not on economics, that

1. weakened the developing States and reduced them to further poverty and famine;

2. decisions that destabilized world economy and lead to the global financial crash…

This International Monetary Fund (IMF) is still refusing to evaluate its ideological economic policies and account for modern economics theories that have

1. demonstrated the total inadequacy of market mechanisms and

2.  financial forces working independently of State interventions and benefiting the upper classes

3.  failing to come to the rescue of the poorer classes and reducing chronic employment.

The IMF has failed in its objectives.

Its mission was supposed to tackle two global economic problems: first, engaging world economic stability and second, aiding developing countries to healthier transition into economic globalization.

The IMF thought that it was doing the right thing for over 30 years:  It stuck staunchly to an archaic economic theory of market forces taking care of fluctuations and inefficient decisions.

The IMF went further to feeling comfortable in the position that poverty and joblessness are not within its mission: they were the World Bank (WB) mission of carrying these functions toward the less fortunate classes!

In fact, the IMF adopted this slogan: “What is good for the financial community in diagnosing healthy world economy is necessarily an excellent stability factor for globalization.”

This incomprehensible laziness of the IMF economists to studying, evaluating, and analyzing economic structural singularities of developing countries, led to strengthening the notion that world market forces is the best solution for hazardous economic investments.

John Keynes theorized that when market mechanisms are not challenged by States and that market forces work unperturbed, it is inevitable that chronic collective joblessness follow.  Keynes stated that, even singular developed nation economic decisions, affect global economic stability: what one State import in product and services many other States are exporting them.

Keynes reflected that in financial crashes many needy economies will be unable to borrow liquidity to stimulating their solvable economies to either finance spending deficits or compensating for tax income reduction.

Indeed, many solvable States went down for lack of international lending policies.

Thus, Keynes was the economics guru who demanded the establishment of an international monetary fund with mission to extending liquidity to maintain a certain level of full employment that will sustain global economic stability.

The IMF policy makers functioned contrary to Keynes’ economic theory and mission, and the IMF relied on the archaic market dynamics and refused to have any faith on the interventions of States institutions.   This ideology is a blatant irony since the IMF is supposed to be a public institution, but it is acting and behaving as if transparency in decision, management, and administration, is none of its concern or demanded to be submitted to restrictions.

For three decades, the IMF has been pressuring developing states to adopting stringent restrictive economic policies that never suited world economic stability. The successive failures never incited the IMF into revising its economic ideology and make sense of all those incoherent concepts that led to humongous errors and deeper poverty.

For example, during the last three decades, world finance considered exchange rates as one of other commodities, such as product and services.  Thus, exchange rates were to be flexible to accommodate market forces. That was a great wise idea; what the IMF did?

The IMF considered that exchange rate is one commodity that should be maintained at any cost by pumping billions of dollars in pure expenses for no benefit to real economy. Contrary to its market ideology, the IMF excluded exchange rate from market mechanism tool to stabilizing a failing economy.

Usually, it is excessive pessimism after a euphoric phase that drives speculative capitals to be withdrawn in economically solvable States.  Speculative investment is the disease to be treated and an overvalued exchange rate is just one of the symptoms.

The ideology of the IMF did its best to greatly facilitating speculative influx of capitals, and when difficulties arise, to pumping more liquidity in order to maintain the previous exchange rate to the benefit of the multinational financial speculators.

Consequently, the disease is aggravated by this unilateral vision of who should be the prime beneficiary; it has never been the developing States.

For three decades, the developing States have been paying interest on IMF loans simply to enrich multinational speculators by maintaining high exchange rates.  Otherwise, speculators would have desisted if developing States were not pressured to maintaining their exchange rates.

When a private company fails to pay interests on wrong investment decisions, it just declares bankruptcy.  The IMF refuses the developing States to declaring bankruptcy because the multinational financial speculators have to benefit from their faulty loaning decisions.

For example, Russia slapped the IMF in 1998 and defaulted on its external debts; two years later, the multinationals were back investing in Russia.  Thus, liquidity pumped by the IMF at high interest rates into bankrupt States ends up in the pocket of the speculators at the detriment of stringent social conditions of the needy classes.

The gain amassed by speculators, as a group, basically amount to a State financial and economic loss as a government and society at large.  The IMF has in fact been encouraging financial speculators for over 30 years!

Consequently, the other incoherence in the IMF mission is the lack of viable diagnostic tools.  The economists hired by the IMF get worried with balance of payment deficits but barely care how the money was used and where it ended.

The IMF has been extending funds to developing countries in order to salvage companies of the developed States, which made very bad investment decisions.  Multinationals had not to worry about examining closely their faulty policies or had any incentives to reform since the IMF is established principally to come to their rescue.

When States enjoy surplus export balances it is at the expense of excess import balances in other States.  If imports are of the luxury-kind items then desisting extending financial loans on luxury items should take care of the imbalance.

The IMF ideology states: “Once a State reaches a pessimistic speculative mood, the neighboring States will inevitably suffer by disease contamination.”  The coherent economic theory of Keynes reflected as follow: “A State will reduce imports which will hurt neighboring economies.

How did the IMF interpret that relationship? 

The IMF responds by forcing neighboring States to drastic austerity policies in order to avoid “contagion!”  Thus, an entire region such as South East Asia, had to crumble after Thailand. Oil demands and other basic products were cut down which generated reduction in brute oil demands and prices; the waves of panic spread thousands of miles away.  Russia was affected by reduced oil prices and not by any mysterious links related to investors’ confidence.

So far, after the latest financial crash, the IMF was forced to re-examine its economic ideology and to reform its governance.  The IMF is encouraging developing States to control and manage the flux of speculative investments and discourage any investment that does not benefit real economy.

What is needed is that the IMF funds institutions, particularly in developing countries, can identify, control, and manage external investments and offer developing countries the availability of instant information and intelligence on economic and financial activities to be able to compete with the elite multinationals.

Part Two: “The Great Disillusion”; (Mar. 24, 2010)

Joseph Stieglitz, Nobel Prize for economics, stated in his book “The Great Disillusion, 2002”:

“Today, Globalization is not working; not for the poor of the world and developing States; not for the environment; and not for world economic stability.”

Although it is no longer feasible to abandon globalization, its management must be reformed according to greater consensus on the rules of the game that needs to be revisited for it to work.

Globalization has functioned relatively well in the Far East of Asia by promoting trades and technological exchange and transfer.

It also brought great successes in health progress and in galvanizing civil societies toward dynamic social justice and greater transparencies in policies and administration.

So far, the real culprits for the failure of globalization were the international institutions such as the World Bank (WB), the International Monetary Fund (IMF), and the World Commerce Organization (WCO).  Why?

These institutions fixed the rules of the game unilaterally to the profit of the developed States and specifically the USA: the US imposed options for recovery to other developing States that it had rejected for its own economic development.

Although these international institutions are public institutions they in fact are not accountable but to the Central Banks Chiefs and the corresponding ministers of the leading economic and financial States.

Thus, the international institutions that were meant to rescue faltering developing countries functioned mostly according to the interest of the industrial and developed nations.

There is great need for serious reforms to the financial structure and management practices.  Debates are demanded to be more open in World Forums.

Until now, it appears that the international institutions are not serious in engaging any reforms: they simply changed their discourse to mentioning “poverty” more often.

Financial interests dominated the ideology of the IMF as economic interests dominated the World Commerce Organization. The same as the IMF feels not concerned with the poor (its focuses is on banks crisis), and the WCO is ready to sacrifice everything to trade facilities for the rich nations. For example, environment and fishing industries that kill many varieties of fishes such as turtles and small fishes are considered as collateral damages.

The greatest challenge is in the mind of the institution structures because they simply reflect the state of mind of those they are responsible to. Their theses do not enjoy any consensus.

For example, the governor of a central bank starts his day by worrying of inflation statistics and not on its effects on the poor.  The minister of trade and commerce worries on export numbers and care less of pollution indexes.

There is a need for a functional economic global system vision such as it was extended by Adam Smith and Karl Marx.

Many States have better standard of living per capita than the USA and they still have much lower inequalities and far better health care systems.

It is how State governments intervene in the market that makes the difference in matter of health, unemployment, adequate retirees’ compensations, and social justice for all.

The performing States ensure high quality education, convenient infrastructures, independent efficient legal systems and regulations, technological development and innovations.

It is important that economic structure differ among States: some States have strong syndicates and others have high levels of debts among enterprises. Thus, alternative resolutions for financial and economic aid should be tailored made to economic structures in order not to penalize the entire society and the poorer of the poor.

The next post will provide details on reforms for collective global participation in the international institutions, the mode of governance of these institutions, and further transparency in their management and decision processes.


adonis49

adonis49

adonis49

November 2020
M T W T F S S
 1
2345678
9101112131415
16171819202122
23242526272829
30  

Blog Stats

  • 1,440,655 hits

Enter your email address to subscribe to this blog and receive notifications of new posts by email.adonisbouh@gmail.com

Join 783 other followers

%d bloggers like this: