Organizations: Domestic Economic and Social Policy
To what extent do organizations like the IMF, WTO, and World Bank challenge the nation state’s ability to shape domestic economic and social policy? This should not be a paper about the history of these organizations. The International Monetary Fund (IMF), the World Bank, and the General Agreements on Trades and Tariffs(GATT), which turn into the World Trade Organization(WTO), are the main organizations that deal with the stability of the global economy.
They have done this but promoting trade, issuing loans to countries in economic trouble and allowing international investing. The problem that has arisen from these organizations is that they have sacrificed the domestic economy of many countries in order to support their global agenda. A quick over view of how the WTO, IMF and the World Bank started and operate. Post World War II, many countries looked to rebuild the financial structure of the global economy without losing their power in the economy. The three organizations each share a common goal of international policies.
The IMF was created to maintain global monetary cooperation and stability by making loans to countries with balance of payment problems, stabilizing exchange rates and stimulating growth and employment, the WTO deals with international trade, both formalizing trade and settling disputes between countries, and the World Bank has steadily increased its original mandate of providing long term loans for reconstruction, to funding multimillion dollar infrastructure projects in developing countries. These individual organizations have come under much scrutiny for their involvement in the international economy.
They have been accused of negatively affecting the economies of its participating countries instead of helping. Many policies set forth by these groups have shown a drastic change in the growth of the domestic economy and social policies. These policies mostly affect less developed countries’ economies since the IMF and the World Bank are control by few, wealthy nations like the “Big Five”(U. S. , UK, Germany, Japan, and France) who look to remain the controlling powers in the global economy. The reason for this uneven voting power is because the IMF and World Bank are set up so that the voting power is distributed by the
financial strength of countries. Unlike the IMF and World Bank, the WTO does in fact have equal voting power through its participating members. Less developed countries do not have the resources and government power, like these more developed countries. So even with the equal voting power, these less developed countries still fall victim to these more developed countries. The IMF, World Bank and WTO are often interconnecting because how they each contribute to international policies. For example, a country that is looking to increase its domestic economy will turn to the World Bank for a loan in order to invest in a project.
More often than not, these project result in more debt for this country than profit. By putting themselves in a bigger financial hole, this country must now turn towards the IMF in order to keep them from becoming bankrupt. Before the IMF issues a loan, this country must agree to certain conditions that often require economy policies to be adjusted. These conditions allow for foreign corporations to invest and control the economy of this country. The WTO joins in by maintaining trade agreements set up by them.
“The WTO has the authority to prevent, overrule, or dilute and laws of any nation deemed to burden the investment and market prerogative of transnational corporations. ” (ROTHENBERG pg 450) This allows for the WTO to maintain its control over this country. The major factor in this process is the IMF’s terms and conditions that they require from their participating members. These conditions are greatly detrimental to the domestic economy of these countries because once these conditions are satisfied, these countries are now left powerless and unable to grow internally.
These terms include cutting social spending and the national budget, increasing interest rates, dismantle regulations international investing and ownership of public businesses, eliminating tariffs, cut and redirect subsides certain goods, and decrease government power. This type of “structural adjustment is conducive to a form of “economic genocide” which is carried out through the conscious and deliberate manipulation of market forces. ”(ROTHENBERG pg. 455) First, the cutting of social spending and the national budget affect the domestic economies and social policies in quite a few ways. Cutting social
spending has a very obvious affect on the social policies by taking money away from health care, education, military, ect.. The national debt, on the other hand, allows the IMF and World Bank to reduce the amount of money in the domestic economy, which in turn forces countries to have to take out loans from these groups. These loans that are taken are often too hard to repay. This in a way creates a paradox between these organizations and the people they are trying to help. They make it so that poorer nations need to take receive help from the IMF, but by taking their help they inevitably put themselves in more debt and economic turmoil.
One of the big ways the domestic economy and social policies are being challenged is the dismantling of foreign ownership and international investing. This creates a huge uphill battle for the local enterprises. By getting rid of these regulations, the IMF allows foreign investor to control the economy and run local companies out of business as well as control many of the public sectors of the economy, like healthcare or education. With public sectors of an economy now controlled by an outside investor, the domestic economies are not only at risk but the social policies are also subject to much change.
Increase in interest rates is a direct result of tightening monetary policies. This has made domestic borrowing very hard. For example, many smaller and poorer famers must fight for the little money available. And because they are small and poor, they lack the collateral and are a high risk so when they borrow money they are subject to interest rates of 50 to 400 percent. “Rice traders generally provide loans for production inputs and then extract small farmers to lose their mortgage land.
With an increasing number of landless laborers in the countryside, real rural wagers and income have declined, and the incidence of starvation has doubled since 1985. The latest figures indicate that approximately 75 percent of rural households live in abject poverty. ” (Danaher pg. 65) By eliminating tariffs, taxes are not being applied to international companies. This gives these companies an easier time incorporating their product into domestic economies. These products can be made for cheaper than the domestic product. And once these companies are producing in these countries, these groups can now protect them.
This causes competition between the domestic product and the international product. Cutting and redirecting subsides on certain goods. Subsides are used to help produce certain goods, such as wheat and vegetables, at a more affordable cost. These subsides are often the only profit that these companies make since it cost so much to produce these goods which are sold for cheap. Without subsided, these manufactures must increase the cost of goods and this increase make it hard for these domestic economies to resist taking loans from these organizations.
This also makes these economies more dependent on imported goods. This all leads to a reducing in the government power for many of these countries. By reducing the domestic economy and social policies, these countries have little say in how they are treated. So instead of helping these countries that look to these organizations for help in developing their Gross Domestic Product (GDP), the IMF, WTO and World Bank will leave these less developed countries in a poorer state than they were originally.
And on top of that fact, slowly weakening the government powers of these less developed countries will lead to less democratic countries with any power within the global economy. All of these previously mentioned factors have contributed the IMF, WTO, and World Bank’s negative reputation as far as hurting the domestic economy and social policies of many countries, especially less developed ones. In a lot of cases, these organizations have a tight hold on the countries that rely on them for help.
It is shown that between these three organizations, the main problem with their plan is that it only favors the more developed countries while at the same time putting restricting on the domestic economies of less developed countries. These less developed countries few options and therefore must turn towards these organizations in the hopes of increasing their economies. They are often left in more debt and a worse GDP because of their few financial resources to invest in the foreign trade and their lack of power to stop other countries from doing the same to them.
