There is a striking contrast in the global economy. Living standards and the quality of life are steadily on the rise in the industrial countries as well as in a number of emerging economies. But both are stagnating in a number of the poorest countries, in particular in Africa and Asia. Some African countries are even regressing. The income gap between the rich and the poor has never been so great.
The International Monitory Fund (IMF) has analysed the reasons behind the failure of the many countries that have not taken advantage of the last half-century's prosperity (Laerzen 2001). These reasons are complex: economic mistakes, institutional shortcomings, political instability, chronic civil disturbances or armed conflict. And we must also take into account external factors such as sudden changes in the terms of trade, the recent flare-up of petroleum prices, or the paucity of foreign capital. On the other side critics emphasised on, across the world, the lives of millions of people are in the hands of two of the most powerful financial institutions - the International Monetary Fund (IMF) and the World Bank (WB). These banks hold the major share of the debt currently payable by the 'Third World'. This debt first accumulated in the '70s when poorer countries borrowed in order to develop their economies. But when the world recession hit in the '80s huge numbers of countries found they could not able to repay their loans (workers solidarity 2001). This was when the IMF and WB first stepped in. It continues now also and is being increased day by day. At present, approximately two thirds of world trade is conducted in dollars and two thirds of central banks' currency reserves are held in the American currency which remains the sole currency used by international institutions such as the IMF and World Bank. This atmosphere has made many major economic advantages to United States. Every country needs dollars to repay their debts to the IMF and other international financial institutions. Other than this they need dollar to conduct international trade and to build up their currency reserves. The US provides the world with these dollars by buying goods and services produced by foreign countries. So long as the dollar remains the dominant international currency. The US can continue consuming more than it produces and build up its military strength (Spatacist1998).
The debates are going on after 65 years of formation of IMF and IBRD and it will be continuing. But based on the political interferences of these International financial regimes, I argue that IMF and World Bank end up serving powerful interests of United States leads capital imperialism. At the end of World War II most of the western countries are distressed. The United States only the nation could rebound the shattered western region and oppose USSR led communist bloc. This bloc had begun very strong in different parts of the world. For these reasons US has took leadership in financial and political aspects and it continues today also. The IMF and World Bank are funded by member nations but it is at different level. Wealthy nations are paying more and poor countries pay less based on the economy. But voting power also attached the funds which offered by the share holding countries. One dollar one vote system has been helping US to impose their likes and dislikes because US is the main fund providing nation. It’s clear that IMF and World Bank always implement the policies of US lead Imperialism. More over US is the only nation with Veto power (Tussoint 2004).
Article IV section 10 of IBRD article stipulates
“The Bank and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes (set by the Bank) stated in Article I.”
The Bank has found many systematic means of getting round the prohibiting its operations taking “political” and “non-economic” considerations into account, one of the primary objectives of its charter, from its establishing onwards(Shihata 2001) . But the Bank has repeatedly contravened article IV of its own statutes. In practical, the Bank has made many choices based on political considerations. The quality of governments’ economic policies is not the determining element in its choices to support or help. The Bank has often lent money to the authorities in countries despite the dismal quality of their economic policies and a great degree of corruption. Most of the time, Bank choices relative the countries that play a major shareholders’ interests and it is starting with the United States. As per the different historical and political experience from 1947 to the collapse of the Soviet bloc, World Bank and IMF decisions were determined in large part by the criteria which have included avoid shoring up self-reliant models and support strategic allies of the western capitalist bloc and in particular of the US. In addition to this WB and IMF refused to help regimes seen as a threat by the United States government (Delgado 2007). Other important thing is shareholders have provided funds to large-scale projects (WB) or policies (IMF) enabling major industrialized countries to increase exports.
Romania was the one of the best examples in US invasion through financial regimes during the time of cold war. From1947, Romania was brought into the Soviet bloc. In 1972, Romania was the first Soviet satellite Country to joined the bank. Since 1965, Mr.Ceaucescu had been Secretary-General of the ruling Communist Party. In 1968, he criticized the USSR’s invasion of Czechoslovakia and Romanian troops did not take part in the Warsaw Pact operation. In August 1969 US President Nixon has made an official visit to Romania after many decades. This presidential visit has leads to Joint venture involving equity participation, which has introduced in 1971 and New Economic and Financial Mechanism introduced in 1979 with the support of IMF. In 1972, a consular convention to facilitate protection of citizens and their property in both countries was signed. Overseas Private Investment Corporation (OPIC) facilities were granted, and Romania became eligible for U.S. Export-Import Bank credits. A trade agreement signed in April 1975 accorded Most Favoured Nation (MFN) status to Romania under section 402 of the Trade Reform Act of 1974(DISM Journal 2006). This status was renewed yearly after Congressional review of a presidential determination that Romania was making progress toward freedom of emigration. All these financial set-ups and arrangements are showing the US involvement and interest to transform a central planned economy to capitalist investment flow.
Asia financial rescue package is the other best experience of financial invasion of American interest. The rescue packages of the International Monetary Fund (IMF) for the Asian financial crisis of 1997-1999 shows that Asian countries had lost the economic sovereignty of the countries having to seek its assistance. These nations would no longer direct or control their own economic or social policies. In particular, policy conditions tied to IMF loans would pave the way to foreign ownership and domination of the economy, especially in the financial sector. Over $100 billion from the IMF, the World Bank, the U.S. government, and other institutions went to South Korea, Thailand, Indonesia, and the Philippines to help their governments pay billions of dollars owed to U.S., European, and Japanese banks, to re-establish business confidence, and to persuade foreign investors to return to their markets. In exchange, the four countries agreed to restructure their economies by shutting down insolvent enterprises and banks, ending monopolies, phasing out government restrictions on investment, and opening their markets even further to foreign capital, easing restriction of foreign ownership and making it easier to dismiss workers (Richadson 1998). Those moves have paved the way for a massive sell-off of Asian assets to foreign companies. The result of the Asian economic reformation has badly reflect the national economic stability and natural growth.The IMF has imposed on Thailand and South Korea, the condition that they must allow higher foreign ownership of their economy, especially in the financial sector. According to various domestic and international media reports, the market access conditions were believed to be placed in the IMF package at the insistence of the United States.
As part of its deal with the IMF, Thailand was asked to allow foreign banks to own more equity in the local banking sector. In October, the government announced it would allow foreign institutions to hold a majority stake in operating financial institutions for up to ten years, after which any further capital increases would have to be sold to local investors, if the foreign share is more than 49%. (Bangkok Post 1997). Specifically, foreign banks and financial institutions are seeking to take over local financial institutions. This opened the door for foreign banks to take advantage of the situation and had raised their share of the banking business. The local Thai banks were reeling from overdue loans and many were suffering from a weak capital base. Foreign banks had taken over the local banks, taking advantage of the latter's present vulnerable situation. According to the Wall Street Journal December 1997, “the restructuring of Thailand's financial system is expected to result in foreign majority ownership in many of the country's 15 commercial banks." On 26 November, the American financial institution, Citibank signed a memorandum of understanding with First Bangkok City Bank and said it planned to buy a stake of at least 50.1%, although the price was not yet fixed. This was the first salvo (International Herald Tribune 1997). The foreign companies mentioned are American International Group Inc., Development Bank of Singapore etc. All but two of the 58 troubled finance companies have been closed by the government. One of the survivors, Bangkok Investment Co. has proposed being 80% acquired by the American International Assurance subsidiary, AIG Consumer Finance Group. (Asian Wall Street journal 1997).
In Thailand, meanwhile, the American Chamber of Commerce is pressing the government to open up the economy further to foreign firms. It called for additional financial liberalisation, lifting of all restrictions on foreign ownership of assets and participation in the services sector and tariff cuts. It would not be surprising if further loans to the IMF client countries would come with more conditions promoting the foreign firms' access.
In South Korea, the IMF also forced the government to allow foreigners to have a larger share of the Korean economy, which had till then been relatively protected. According to a Reuters report 5th December 1997 on the IMF terms: "Foreign investment in the capital markets will be liberalised and direct foreign investment procedures will be simplified and made more transparent. Foreign entities will be allowed to buy 50% of the equity of a listed Korean company by end-1997 and 55% by end-1998, paving the way for foreign takeovers of Korean firms. Foreign banks could be allowed to form joint ventures and set up subsidiaries” (Reuters 1997).Before the IMF deal, the shareholding limit for foreign individuals was 7% in a specific Korean company stock, while the combined foreign shareholding limit was 26% in a stock. On 11 December, the ceiling on a combined or individual basis was raised to 50%.
US businesses had made scrutinising opportunities created by the IMF measures, which had opened the South Korea's financial sector and allow greater foreign ownership of South Korean companies. The biggest potential winners are financial firms, including commercial banks and brokerage houses. "For these companies, the bailout means short-term advisory business and long-term investment opportunities, and expansion of existing operations and investment in Korean firms." (Asian Wall Street Journal 1997).
The IMF is also pushed South Korea to accelerate the schedule for allowing foreign entry into the domestic financial sector, including allowing foreign banks to establish subsidiaries and brokerage houses. The IMF also wants South Korea to remove restrictions on foreign companies' access to domestic money-market instruments and the corporate-bond market. After the transformation US and other non-Korean foreign firms are dominating the financial services scene in Korea. Another IMF condition was that South Korea must allow Japanese products, greater access to its market. Previously, imports of Japanese goods had been restricted because of Japan's large trade surplus with South Korea. It was also reported that the conditions forcing South Korea to give greater ownership access to foreign companies and more trade access for Japanese goods were injected into the IMF package at the insistence of the US and Japan.
What the US could not achieve through bilateral pressures on South Korea, or through negotiations in the World Trade Organisation, they have been able to do through IMF. The US is the country which has by far, the largest influence on IMF Secretariat policies. Also, the pledges of US$5 billion by the US and US$10 billion by Japan to the total US$55 billion rescue package gave the two countries the handle with which they could shape IMF conditions.
According to the Financial Times December 1997 "The full opening of the capital markets will pave the way for foreign takeovers of Korean companies and increase foreign competition in the financial sector, heralding the end of the nation's protectionist economy."(Financial Times 1997). The administration also linked the Asian crisis to U.S. national security interests, saying that serious social unrest in Indonesia and other Asian countries could somehow lead to involvement by the U.S. military and could threaten the use of the Indonesian sea lanes, through which about 30% of global shipping passes (shorrock 1998).
Globalization, basically defined, is the increasing interdependence, integration and interaction among people, organizations and governments in disparate locations around the world. After six decades ago, the concept of globalization became closely associated with Washington's policy agenda for the world. IMF and World Bank have systematically lent to States in order to influence their policies with United States. The examples given in this study show that political and strategic interests of major capitalist powers to other countries.These recent developments in the countries undergoing IMF and WB imposed conditions are a lesson for other countries, for they give a clear picture of what could happen if the latter were also to fall under the IMF's fascination.
