IMF and World Bank need reform to confront today's challenges

The “growth first” model is not sustainable and raises questions.

Alex William

IMF and World Bank policies are outdated and need to be reformed. They have only caused more misery and credit addiction in borrowing countries. Al Majalla explains.

IMF and World Bank need reform to confront today's challenges

Khaled Kassar

last update on 08 Oct 2023

The International Monetary Fund (IMF) and the World Bank have been criticised since their inception.

Although these two institutions emerged from the Bretton Woods Conference in 1944 to support the global monetary and economic system, today, almost 80 years after their founding, we still live in a world riddled with crises, debt, inequality and poverty, as well as natural disasters and their enormous humanitarian and economic consequences, which are exacerbating pain and instability around the world.

Both institutions have a role in this.

The two institutions are closely linked in their origins, coordination, and implementation; almost every country in the world is a member of both.

The work of the IMF and the World Bank began with the hopes of their founders to prevent a repeat of the Great Depression in the 1930s by expanding the horizons of economic cooperation and helping countries with balance of payments problems.

With the transformations unfolding in the global economy, the focus of these institutions has shifted to developing countries.

Since the 1980s, the policies of the IMF and the World Bank have been dominated by the principles of new liberalism, represented by the free market, privatisation and trade liberalisation.

Criticisms mount

These policies were imposed on developing countries through structural adjustment programmes, which required borrowing countries to meet certain conditions.

The reputation of the two institutions has wholly changed. It is constantly subject to harsh criticism due to the imposition of one-size-fits-all lending programmes that have had a devastating impact on people's living standards, human rights, and the environment.

Since the 1980s, the reputation of the two institutions has wholly changed. It is constantly subject to harsh criticism due to the imposition of one-size-fits-all lending programmes that have had a devastating impact on people's living standards, human rights, and the environment.

The policies applied include austerity measures, significant cuts in public spending, especially in healthcare and education sectors, tax increases, subsidy reductions, privatisation of public services, liberalisation of the exchange rate, trade liberalisation, and opening markets to competition, without taking into account the specific economic, financial, social, and even environmental circumstances of the borrowing countries.

This has resulted in more suffering and poverty for the populations of these countries, without guaranteeing positive outcomes that would justify the enormous sacrifices made by these countries.

This has heightened criticism that the two institutions have failed to protect the interests of creditors and support an economic system that benefits elites and private sector interests at the expense of impoverished societies. This has systematically marginalised these societies even further, as described in United Nations reports.

Criticisms have also pointed to practices of inequality in the two institutions and their unbalanced management structure that marginalises low-income countries.

The World Bank and the IMF were established in 1944 on fundamental principles reinforcing the interests, ideology and dominance of the United States and other Western European countries.

Criticisms have also pointed to practices of inequality in the two institutions and their unbalanced management structure that marginalises low-income countries.

"Growth First" is not sustainable

The two Bretton Woods institutions have not yet risen to the challenge of supporting the fundamental reforms needed to repair the rifts caused by their economic models.

Several reviews of IMF conditions have found that many of its programmes have exceeded debt expectations by significant margins, with loans used to finance infrastructure projects and imports exceeding the export revenues of the borrowing country.

Ultimately, additional loans will be needed to service interest payments on existing debts and the amounts due on previous loans. As borrowing increases, the need for larger loans increases, turning borrowing into something akin to economic addiction.

AFF — Pedestrians walk past a billboard announcing the World Bank Group and International Monetary Fund annual meetings on the side of the International Monetary Fund headquarters in Washington, DC, on October 5, 2023.

The "growth first" approach of the two Bretton Woods institutions does not take into account the enormous environmental consequences resulting from the implementation of credit or development programmes and infrastructure projects.

Although the World Bank has developed its environmental policies, particularly those related to forest conservation, the worsening climate crisis calls into question the efforts made by both institutions to factor in environmental and climate changes in their work over the past decades.

The worsening climate crisis calls into question the efforts made by both institutions to factor in environmental and climate changes in their work over the past decades.

The appointment of a new World Bank president, Ajay Banga, in June last year after the resignation of former president, David Malpass, whom Donald Trump appointed, was only after questions were raised about whether Malpass downplayed climate factors in the bank's policies.

AFP — Ajay Banga, 14th President of the World Bank Group, speaks onstage at The New York Times Climate Forward Summit 2023 at The Times Center on September 21, 2023 in New York City.

Outdated policies

If we consider all these facts and data, it is clear that both institutions' policies are outdated and need to be reformed.

These policies — with a few exceptions over the decades since their establishment — have only led to more misery, worsened crises, and credit addiction of borrowing countries, thereby undermining their financial and monetary sovereignty, all in the service of the interests of the great powers.

On the eve of the annual meetings of the IMF and the World Bank Group, which will take place tomorrow in Marrakesh, Al Majalla presents three case studies that summarise the historical experiences of three Arab countries with the IMF — particularly Egypt, Morocco, and Lebanon.

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