Economic Global Governance

Why were the IMF and WB created?

• Both created at Bretton Woods conference (1944) redesigning global economic system after WW2

  • Great Depression (post 1929 Wall St Crash) lasted over a decade

  • States had imposed tariff barriers on imports to protect industries, leading to huge drop in world trade + mass unemployment

  • Outbreak of WW2 by fuelling extremism and nationalism

What is the IMF role in supervising exchange rates?

• Supervising exchange rates - initially manged fixed exchange rates system to stabilise trade

• System abandoned in 1971 and exchange rates have been free floating against one another since

• Now supervises to ensure stability

What is the IMF role as a ‘lender of last resort’?

• Provides low-interest/no interest short term loans to states experiencing balance of payments crisis

• This helps state recovery via structural adjustment of economy, balancing payment problems and reducing debt

• Protects global economy from being dragged into recession

  • e,g, loaned 3.9 billion to UK in 1976 when govt faced econ crisis

  • e.g. loans to Greece, Ireland, Spain, Portugal after 2007/8 Credit Crunch

What is the IMF role in surveillance?

• Monitoring trends in the global economy, ensuring member states are carrying out economically sensible and strategic policies

  • e.g. in 2022 IMF warned Liz Truss that her proposed unfunded tax cuts threatened to destabilise UK public finances + cause higher levels of inflation

What is the IMF role in technical assistance?

• Provides expertise, support and advice over economic matters (e.g. econ. reform measures or tax collection policies)

How has the role of the World Bank changed since it was formed?

• Initially reconstructed Western Europe after WW2

• Later concentrated on providing low-interest/no interest loans to fund capital projects in developing countries to improve infrastructure + agriculture

• Then focused on human and social development, achieving MDGs and SDGs intended to end extreme poverty

• Now focuses on issues like preventing environmental degradation, improving healthcare, protecting indigenous people rights, promoting gender equality (e.g. programmes to tackle HIV, TB and malaria, also providing $12 bullion to fund COVID-19 vaccines in 78 countries)

How is the voting system of IMF/World Bank unfair?

• Democratic deficit and power imbalance, voting power based on financial contributions/richest states

• Decision-making dominated by US and EU, while poorer countries have limited influence

• Structure means decisions must be made with an 85% majority

• US representatives account for around 16% of voting power in each organisation, has an effective veto

• Voting rights of newly emerging powers like China, Brazil, India do not reflect their growing importance in the world economy

• Fuels perception that these institutions serve wealthy states’ interests

How is the leadership of the IMF/World Bank biased?

• Western influence and conditionality, leadership always USA and managing director always European

• Projects tied to governance or market reforms reflecting Western economic models, adopting philosophy of Washington Consensus - finance only given if recipient country follows conditions in the loan agreement, conditions part of SAPs (under SAPs countries must follow econ policies like privatisation, public spending cuts, reducing tariffs)

• Pushes neoliberal reform agenda on states too aggressively, infringing on their sovereignty and undermining democracy

• Form of neo-colonialism, with powerful states controlling + exploiting weaker states, serving interests of western TNCs

How do their one-size-fits-all policies weaken the IMF/World Bank?

• Programmes apply similar solutions regardless of local context, not sufficiently tailored to needs of recipient country

• Led to cycles of debt and dependency

• States that have received loans have accumulated huge debts + interests payments e.g. Jamaica

How is the IMF strong in crisis response and providing financial stability?

• Rapid financial assistance to countries facing balance-of-payments crisis

• As a lender of last resort, prevents economic collapse and contagion

  • E.g. in 2025 continued IMF bailout programmes in Pakistan + Egypt stabilised currencies, prevented default

  • Emergency financing mechanisms for fragile economies facing inflation + debt crises

• Most effective when crises threaten global financial stability, not long-term development

How is the World Bank strong in long-term development focus?

• Focus on infrastructure, education, healthcare and poverty reduction

• Provides low-interests loans and grants, through IDA

  • e.g. 2024-25 World Bank funded climate adaptation, energy transition, health system in developing countries, also expanded lending to conflict-affected areas

• World Bank better suited than IMF to address structural causes of poverty