This summer the World Bank surveyed 700 opinion-leaders in industrialised countries to see what they think about international aid and the role of the World Bank. The first question was whether interest in official aid has declined in recent years, then a chance to comment on four possible reasons why this might be the case:
- confidence in aid effectiveness has dropped;
- public sector finance is not necessary because the private sector is doing the job;
- budget cuts mean less money is available for aid;
- debt relief is more important than other forms of assistance.
These questions are vital when considering the future roles of the World Bank and IMF, but frequently NGOs and researchers do not take time to address these trade-offs in depth, and conclude what arguments they will put forward.
The World Bank and IMF were established to mediate international financial flows to poorer countries and to regulate the world economic system to prevent further 1930’s-style slumps and trade wars. The context for their operations has changed dramatically since they were established, partly due to their promotion of international economic integration and private sector investment. The view that foreign private investment can resolve the world’s serious poverty problems appears almost unchallenged in official circles, with the end of the Cold War, the establishment of the World Trade Organisation and aid being conditioned on all countries adopting the same “right policies”.
Yet at the same time this consensus is under assault. The East Asian financial crisis, the Jubilee 2000 campaign, the postponement of negotiations on a Multilateral Agreement on Investment, and the admission by the World Bank that the Washington Consensus model was limited and not relevant for all countries all show that space is opening to put forward alternative analyses. Unless pushed, however, it is likely that many officials will just propose minor modifications rather than rethink their model from first principles.
This report questions some of the basic assumptions underlying models which champion private foreign investment as the key to growth and aims to fill a gap for campaigners and researchers. It is not just relevant to discussions on the Bank and Fund, how much debt relief can be provided, and whether the IMF should have the right to press countries to liberalise their capital accounts, but also on issues such as international trade agreements, investment codes and declining aid budgets.
The arguments here cannot conclude discussion on the areas outlined above, but will, we hope contribute to a more informed debate and appreciation of the pitfalls of the current narrow economic thinking, its irrelevance for many of the world’s poorest citizens and its dangers for the world system as a whole.
Chapter One outlines the paradigm shift advocated by the World Bank and the International Monetary Fund, which promotes free-flowing commercial capital flows.
Chapter Two examines the financial cost of these flows and whether they are affordable to developing countries and a substitute for official finance.
Chapter Three considers the impact commercial flows have an a government’s ability to choose between policies and their impact on a country’s economic development.
Chapter Four looks at the opportunities for reducing the cost and increasing the volume of World Bank and IMF loans.
Chapter Five weighs up the trade-off between debt relief and aid and proposes alternative sources of funds for debt reduction which could help to reduce this trade-off.
Bretton Woods Project