The World Bank was established with the main goal of rebuilding post war economies. However, in modern times the World Bank has evolved into an institution that revolves around alleviating third world poverty through the provision of loans. The World Bank consists of two lending agencies; The International Development Association (IDA) and the Bank for Reconstruction and Development (IBRD) (Hancock, 1992:51). These two agencies provide the mechanism through which the World Bank provides ‘low-interest, intense free-credit loans and grants to developing nations’ (Hancock, 2008).
It is the less developed countries of the world that generally receive loans from the World Bank. These countries often have difficulty in borrowing money on international markets and rely on financial assistance in the form of loans and direct contributions as well as interest free loans, grants, and technical assistance (Riesenhuber, 2001:11).
The World Bank also consists of three other branches which each have different parts to play in providing financial assistance to developing nations. The Multilateral Investment Guarantee Agency (MIGA), the International Finance Corporation (IFC) and the International Centre for Settlement of Investment Disputes (ICSID). All three branches play critical roles in providing guarantees to investors in developing countries as well as promoting private sector investment and settling disputes involving investments (Trivedi, 2005:96).
In order for countries to qualify for receiving aid they must adhere to the regulations that are imposed by MIGA, IFC and ICSID. The introduction of the Highly Indebted Poor Countries Initiative (HIPC) in 1999 emphasizes the necessity for countries requiring aid to go through a process that will ultimately decide whether or not the country is eligible for financial assistance (Elliot, 2003:123). The first stage in this process is known as the ‘decision point’ and involves a wide scale analysis of the country in question and aid is only provided if said country adheres to the conditions prescribed by the organisation (Elliot, 2003:123).
The IMF and the World Bank are the two most prominent and dominant financial institutions in the world. Since their formation, they have been the main sources of financial aid to many African countries. However, the aid comes at a price and there are strict regulations that must be met in order for a country to qualify for receiving aid. As a result the IMF and World Bank are able to prescribe policies and dictate changes in the policies of the various countries that receive their loans (Stein, 2004:3). Over the past twenty years many African countries have been forced to turn to the IMF and the World Bank in order to acquire much needed finances. The strict regulations imposed by the IMF and World Bank on what constitutes a loan gives them complete control over borrowing governments. These conditions are not always in the true interests of the borrowing country but their perilous financial situation gives them no choice but to accept the terms and conditions of the loan (Stein, 2004:4). The fact that the IMF and World Bank are controlled by the richest countries in the world gives these countries the necessary control which enables them to control the conditions for providing loans (Stein, 2004:2). This system ensures that both institutions act primarily, in the interests of the richest countries, promoting a neo-liberal model of economic growth that benefits the rich nations.
In response to the growing debt and economic morass throughout Africa, the IMF and World Bank set about implementing Structural adjustment programmes (SAPs) which were concerned with promoting economic self-sufficiency and sustainability amongst African countries through the stimulation of exports, the encouragement of private development and the promotion of economic diversification. (Appiagyei-Atua, 2006:539).
The IMF and World Bank have been heavily criticized for their neo-liberalist approach to solving Africa’s developmental problems, their policies emphasize the minimization of the state in all forms of economic and social development thus allowing the private sector and the markets to flourish and facilitate the onset of sustainable economic growth (Lesfudi, 2004:812). In short, throughout most of the developing world the fiscal institutions of the Bretton Woods agreement have not succeeded in bringing about economic development which have been attributed to their neo-liberalist and classical economic approach to development as well as the emphasis placed on the private sector and markets in order to bring about economic development which has failed miserably. Critics have identified the need for a revamp in policy, one that is completely citizen centric in order to improve the perilous situation throughout Africa.
The implementation of the Structural adjustment programmes (SAP’s) that were developed by the IMF and World Bank have caused much debate due to the disastrous effects that the SAP’s have had throughout Africa (Maloka, 2004:4). SAP’s were subjected to fierce scrutiny due to their neo-liberalist ideologies. Critics have highlighted the importance of ensuring that macro-economic growth remains controlled amongst developing nations in order to reduce the risks of economic declination and unemployment (Maloka, 2004:4). Similarly, other neo-liberalist ideologies such as the neo liberalist concept of privatization would adversely impact many people as privatized services will not serve the poor on our continent (Maloka. 2004:4). The SAP’s that were imposed by the IMF and World Bank only succeeded in widening the gap between the rich and poor and did little to alleviate poverty throughout the developing world. The main focuses of the SAP’s were to restructure economies and ensure repayment of debt amongst developing nations, however this resulted in less money for the financing of health, education and development which in short, severely lowered living standards in developing countries and did little in enticing sustainable economic growth.
Another problem with the Bretton Woods institutions is that they lacked a ‘fully comprehensive understanding of the structure of African society’ (Moloka, 2004:4). This can be seen in the World Bank’s definition of good governance which revolved around the ideas of reduced state intervention in economic decision making, the establishment of free markets and the elimination of unnecessary public subsidies as well as an increased integration into the world economy (). However these ideas have been criticized as being hopeless in alleviating poverty in Africa and bringing about the fundamental prerequisites that are necessary for the onset of sustainable economic growth and development.
Another main concern with the Bretton Woods institutions has been with the Highly Indebted Poor Countries (HIPC) debt relief programme and the Poverty Reduction Strategy (PRSP) which are primarily concerned with debt relief rather than the cancellation of debt (Maloka, 2004:4).
Another problem that has hindered African development is the inequalities and injustices that are associated with the global trading system. These inequalities and injustices could potentially be incredibly detrimental to the future stability and security of many African economies which primarily rely on the export of agricultural produce for survival (Clapp, 2006:563). The concept of agricultural protectionism is a highly divisive issue that will succeed in rendering many Africans countries becoming susceptible to economic stagnation and ultimately economic declination as their ability to compete in the Global markets is significantly reduced. Agricultural protectionism therefore places an unfair burden on African countries and completely undermines the concept of free and liberalized trade (Clapp, 2006:564). One example of the affects of agricultural protectionism can be seen in The United States where the US government subsidizes cotton farmers two to four billion dollars annually which has severe repercussions for African farmers (Clapp, 2006:565). In 2003 US agricultural exports sold for anywhere between 10 percent and 50 percent below the cost of production, similarly, The European Union also exports key commodities for less than the cost of production. In other OECD countries, agricultural subsidies rose from US$271.2 billion in 1986-88 to US$330.6 billion in 1998-2000 (Clapp, 2006:565). In Africa, farming is one of the main sources of income for millions of people and accounts for up to seventy percent of employment. Therefore the protectionist policies of developed countries and OECD countries pose severe implications for the future sustainability of many African economies (Stiglitz, 2006). Throughout Africa there are many examples of industries that have been hit by overseas competition from highly subsidized agricultural produce most of it from the USA and the European Union. One prominent example can be seen in Namibia where a 600% increase in EU beef exports to South Africa has severely hampered the ability of Namibian cattle farmers to compete in the market as the surplus of EU beef floods the market thus lowering beef prices (Hooper-Box, 2003). It is therefore of the utmost importance for the future harmonious, complete and sustainable development and growth of the developing world, that the EU and USA be forced to cut back on export subsidies. 2001 Nobel Prize winning economist Joseph Stiglitz emphasizes the necessity for developed countries to open and completely liberalise their markets to the developing world without any ‘political or economic reciprocity or conditionality’ as such a mentality would be hugely beneficial in aiding the crippling situation in the developing world (Stiglitz, 2006).
The ‘dumping’ of produce on global markets also adversely affects the global trading system as it results in price deficits which negatively affects economic growth and therefore sparks reductions in employment and social development rates (Stiglitz, 2006). According to Stiglitz, the gross imbalance in the global trading system is mainly due to economic globalisation out pacing political globalisation. Agricultural protectionism may not be the cause of poverty and underdevelopment in Africa; however the liberalization and implementation of free trade routes without barriers would sufficiently aid and improve the perilous situation in Africa. Africa is in dire need of investors and the opening of global trade markets would entice investment and therefore encourage the much needed economic growth.
It is clear that the Bretton Woods system and the consequent establishment of the Bretton Woods institutions have done little in improving the perilous situation throughout much of the developing world. The institutions failed at their objectives which were to put an already underdeveloped Africa on a path of sustainable growth and development by enhancing economic growth, enticing economic prosperity, eradicating poverty through debt relief and placing an emphasis on sound economic management as well as liberalised, free and democratic governance. However, the neo-liberalist policies implemented by such organisations have had adverse effects on the development of many African states and have paved the way for the onset of many issues that have further impeded and stagnated potential economic growth throughout the continent (Maloka, 2004:4). Neo-liberalist policies have also been blamed for the continuing gap forming between the rich and poor, which can be seen by examining the policies imposed by the IMF and the World Bank which only succeeded in increasing debt and averting growth (Maloka, 2004:4). The global trading system governed by the WTO is indicative of the hardships and injustices that the developing world is constantly exposed to. Agricultural protectionism and the imposition of subsidies on African products are severely hindering the ability of developing nations in competing in world markets and therefore reducing the chances for economic growth and prosperity. For too long the developing world has been subjected to the harsh and unjust conditions of the global system, there is a need for liberalization and the implementation of free trade routes without barriers in order to sufficiently improve the situations in the developing world. There is a great need for investment and the opening of global trade markets to entice investment and therefore encourage the much needed economic growth. The strict implementation of regulations is a necessity in policing the detrimental effects that globalisation is having on the developing world.
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