US Not Dominates IMF And World Bank
The devastation effects of word war I and II threw the entire global community into a catastrophic condition and economic predicament especially in Europe. This protracted condition also led to the emergence of the Great Depression in the 1930s. The Great Depression was a global economic decline that began in 1929 and lasted until about 1939. It was the longest and most severe depression ever experienced by the industrialized Western world, sparking fundamental changes in economic institutions, macroeconomic policy, and economic theory. Although it emanated from the United States, the Great Depression caused drastic declines in output, severe unemployment, and acute deflation in almost every country of the world. As a consequence, countries therefore decided to focus their attention on coming up with policies to put their economies on a path of growth. The collapse of financial system precipitated by the Great Depression and the Second World War spurred the need to rebuild a more resilient global financial system. The unipolarity nature of United States fueled much influence in the establishment of international, financial and trade regimes to reinvigorate and revamp the economic pillars of the world. World leaders led by United States agreed on the establishment of the International Bank for reconstruction and Development ( now the World Bank), the International Monetary Fund and the general agreement on tariffs and trade( GATT now the World Trade Organization). The indispensability influence and contributions of United States in the formation of World Bank and International Monetary Fund has led to the contest-ability of these institutions as international financial institutions to benefit all member states equally. Some contemporary economic scholars and political actors contend on the view that the hegemony and the unipolarity nature of United States in the formation and the establishment of the two formidable international financial regimes headquartered in the New Hemisphere (USA) has eroded the core mission and functions of IMF and World Bank. Some scholars also postulate that US dominates and influences the operations of IMF and World Bank thereby defeating their purpose and core values. It is against this background that, this paper critically examines the dominance nature of US in the activities of World Bank and IMF and its ramifications to the international community.
During the 1930s, the Great Depression had so many repercussions in failing economies across the globe. The fall of the gold standard fueled countries to raise trade barriers where they imposed financial burdens on imported goods, devalue their currencies to compete against one another for export markets and cut off the use of foreign exchange by their citizens. All these factors led to declining world trade, high unemployment, and rapidly descended living standards in many countries. In 1944, the Breton Woods Agreement established a new International Monetary system which entailed the IMF and the World Bank. The IMF and World Bank often called Bretton wood’s institutions, are twin intergovernmental pillars supporting the structure of the worlds economic and financial order. The two institutions may come across to have confusing functions because they are closely associated or connected. Nonetheless, while some similarities exist, they are two distinct organizations with different roles. Both are owned and directed by the government of member nations. States who have joined these institutions are eligible and also capable of influencing the activities that goes on within IMF and the world bank. As such, if a state is not part of this association, its ideas will not be welcomed. They are also accountable and answerable to its members in a sense that, they must be capable of giving an account on something they have done or are supposed to do. At the top of its organizational structure is the Board of Governors, consisting of one governor and one alternate governor from each member country, usually the top officials from the central bank of finance ministry. The board of governors meet once a year at the IMF-World Bank Annual Meetings and advises the IMF’s Executive Board on the supervision and management of the international monetary and financial system. Both the IMF and World Bank concern themselves with economic issues facing the world which includes prospects for growth, inflation, energy and the environment, inequality, labor issues, emerging markets and the impact of new technologies. They also have the same membership that is, they work hand in hand. For this reason, once you are admitted at IMF, you automatically become a member of World Bank. They both have the same management structure in a sense that their activities such as task allocation, coordination and supervision are directed towards achieving the same organizational goal or objectives. Besides almost every country on earth is a member of both institutions. Despite these and other similarities, however, the World Bank and the IMF remain distinct.
International Monetary Fund is an international organization that promotes global economic growth and financial stability, encourages international trade and also take the edge off poverty. The IMF was envisioned an institution that would oversee the international monetary system, exchange rates, and international payments to enable countries and their citizens to buy goods and services from each other. They expected that this new global entity would ensure exchange rate stability and encourage its member countries to eliminate the exchange restrictions that hindered trade. Officially, the IMF came into existence in December 1945 with twenty-nine member countries. (The Soviets, who were at Bretton Woods, refused to join the IMF). In 1947, the institution’s first formal year of operations, the French became the first nation to borrow from the IMF. Over the next thirty years, more countries joined the IMF, including some African countries in the 1960s. The Soviet bloc nations remained the exception and were not part of the IMF until the fall of the Berlin Wall in 1989. The IMF experienced another large increase in members in the 1990s with the addition of Russia; Russia was also placed on the IMF’s executive committee. Today, 187 countries are members of the IMF; twenty-four of those countries or groups of countries are represented on the executive board. The purposes of the International Monetary Fund are as follows; To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems, To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy, To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation, To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade, To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. It also aims to reducing global poverty. By reducing global poverty of countries, the IMF lends money to underdeveloped countries to help build infrastructures in a form of road and railway transport system, ports, schools hospitals and other social amenities which at the end will ensure the mobility of labor in a way of high employment and eventually boost their economy. In addition to financial assistance, the IMF also provides member countries with technical assistance to create and implement effective policies, particularly economic, monetary, and banking policy and regulations that will help facilitate their economic growth. Sometimes countries who go in for a bailout from the IMF lacks technical know how on how to manage their economy. The IMF does not loan them only but also impart knowledge on how they can use the money borrowed to accomplish a specific task like managing its economy. This and many more are the responsibilities of International Monetary Fund to its members.
The World Bank was established in 1944 as the International Bank for Reconstruction and Development (IBRD). The World Bank is widely seen as the second most prominent IGO after the United Nations. It is situated at Washington, DC USA. Although it is a bank, the World Bank is more concerned about meeting the demands of its 187 member countries rather than making profits like the commercial banks in the world. The bank is owned by the 187 member countries so the management of the bank, at least in theory, promotes causes that benefit the member countries. Apart from contributions from member countries, the bank also borrows money from the financial markets. This suggests that member countries will have to pay some interest on the loans they collect from the bank. In some literature, you will see the World Bank Group instead of the Word Bank. The reason is that the bank is made up of different institutions. The addition of the group ensures that the bank is presented as a number of institutions working together. The bank supports developing countries by giving them low interest loans that they can hardly get in the private and capital markets. It also gives grants to developing countries to support education, road infrastructure, healthcare delivery, public sector management, private sector development, and several others. Many developing countries have received and continue to receive technical assistance from the bank. The bank also gives long term financial assistance to developing countries to support a number of development projects The World Bank comprises of two development institutions. The IBRD and the International Development Association (IDA). Both institutions support member countries in several ways. The IBRD works to decrease poverty in middle-income and creditworthy poorer countries, while IDA focuses on the worlds poorest countries, such as those Saharan Africa. The activities of the bank are also complemented by the International Finance Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the Settlement of Investment Disputes. IFC fosters sustainable economic growth in developing countries by financing private sector investment, mobilizing capital in the international financial markets, and providing advisory services to businesses and governments. IFC also helps companies and financial institutions in emerging markets to create jobs, generate tax revenues, improve cooperate governance and environmental performance, and contribute to their local communities. The goal is to improve lives, especially for the people who most need the benefits of growth. As a member of the World Bank Group, MIGA’s mission is to promote foreign direct investment (FDI) into developing countries to help support economic growth, reduce poverty and improve people’s lives. It does this by providing political risk insurance (guarantees) to the private sector. The bank’s management is headed by a president appointed by US president. The reason why the US president appoints the president of the bank is that, there is an unwritten law which says that that the president must be a US citizen. This means no citizen of another country can be president of the World Bank. Once the position of the president is vacant, the sitting US president will nominate a US citizen for the position. The current president of the Bank o the Bank, Dr. Jim Yong Kim, was appointed by president Barrack Obama. However, those appointed must receive the approval of the Bank’s shareholders. In recent times non-US citizens have been applying for the position but no one has been successful. The US became the economic power of the world after the World War II, and it is therefore not surprising that the countries that met to form the World Bank agreed that the president should go to the US.. The other members of the management team come from different countries. Including the top-level officials, the bank has more than 10,000 workers working in different countries. There are country offices in several countries headed by Country Directors. In Ghana, for instance, there is a World Bank County Office which represents the World Bank in Ghana. The primary responsibility of the country office is to coordinate some of the activities of the bank in the county and report on the social, political and economic development of the country.
Despite the possibility that members of IMF and World Bank influence the activities of these institutions, thus the board of governors of each member states meet once a year at the IMF-World Bank Annual Meetings and advises the IMF’s Executive Board on the supervision and management of the international monetary and financial system. It is again contested that, United State dominates or influences IMF and World Bank. To uphold this view stated right above, some of the factors which set forth the fact that United States dominates IMF and World Bank are as follows;
One main significant reason which authenticate that IMF and World Bank is dominated by United States is the location of these institutions. In the earlier submission on the history of IMF and World Bank, we got to know that the headquarters of IMF and World Bank is situated in Washington DC, United States. This raised a lot of skepticism that because the IMF and the World Bank is within the territory of US, there will be a possibility that US by one way or the other will force the hands of these institutions to conform to their instructions on how they will operate these institutions thereby managing them in accordance to suit US.. Some members of the Bretton Woods association did not concur to the situation of these institutions which eventually led to many disagreements. The US Treasury wanted it to be established in Washington, within the reach of its influence, while several foreign delegations preferred New York, on the one hand to put it at a distance from the US government, and on the other hand to move it closer to the future headquarters of the United Nations.
Again, the United States governments proposed that the president of World Bank must be a US citizen and also appointed by the US president. The reason why the US president appoints the president of the Bank is that, there is an unwritten law which says that the president of the bank must be a US citizen. This raises questions on why choosing the president of the World Bank is not based on merit but rather geopolitical consideration and also why despite the institutions globally name “World” its leaders has always been an American. Since the president of the World Bank is appointed by the US government, it is more arguably in a way to be accountable and transparent to US as compared to its member countries. For this reason, the US government will easily have access to whatever goes on in the confines of World Bank even if it is not supposed to be opened to the public. It is therefore in this regard that US is seen to be a dominant force in World Bank. In 2012, for the first time in the history of World Bank, a non US president Mr. Kim was appointed by the former US president Barack Obama.
Moreover, the United States has the right of veto at the bank. The veto power is the power used by an officer of the state to unilaterally stop an official action which is likely to take place especially the passing of bill. From its beginning till today, the US is the only country to have a de facto right of veto at the World Bank. As the highest shareholder of the world bank, the US has the veto power over certain amendments that affects the world bank. In a situation where the members of the world bank wants to enact or alter a bill or a law, the US can deny the movement because of its hegemonic states. This usually happens when the law which want to be passed does not favor US on the other hand, because US has this veto power, it sometimes does not care about the decision it takes even if it could bring major hitch across globe. This and some other bold decisions taken by the US shows that the World bank is manipulated and or dominated by US.
In addition, US is the highest shareholder and most influential among member country thus, they massively give more money to the World bank than other countries. This basically balls down to the fact that even if US does not conform to the activities of the World Bank and IMF, the other members of these associations can not call on US to go according to the rules of these institutions because they know that US is the pacesetter and as such, have the capability to do things on their own. US have more votes than any other country. It is said that the votes of United State surpasses the total number of votes allocated to all Africa countries. As a result, they can easily influence the operation of World Bank and IMF.
To wind it up, one can say that IMF and World Bank in a way, is not dominated by US because every organization or institution has its set rules and regulations which makes it an independent body. But in this case, it is ostensible that US enjoys some privileges which catapults them to overshadow the activities of World Bank and IMF. As stated earlier, we realized that US has majority votes in World Bank, has a veto power which enables it to retract any decision taken by other associate members and lastly, stumbled on the fact that US is the highest shareholder of these institutions thereby does anything they prefer to do knowing that they have nothing to lose.
