The International Monetary Fund (IMF) and World Bank are run by their member governments, but not on the basis of one-country-one-vote. Instead, governments have votes based on the amount of money they pay in to the organizations. In this sense, they operate much like private corporations, except that the owners of shares are governments instead of individuals.
The U.S. government has by far the largest share of votes in both the IMF and World Bank and, along with its closest allies, effectively controls their operations. In 1998, the U.S. held 18% of the votes in the IMF and 15% in the World Bank. Together, the United States, Germany, Japan, the U.K. and France control about 40% of the shares in both institutions. With the rest of the shares spread among 175 other member governments, some holding a tiny number of votes, the United States is effectively in charge.
So the people running the IMF and the World Bank are the same folks who run the U.S. government and the governments of its closest allies. Since the institutions were founded at the end of World War II, the president of the World Bank has always been a U.S. citizen, and the head of the IMF has always been a European. These are all men, generally coming from the top of the financial industry.
While the IMF and the Bank operate as extensions of the U.S. government’s foreign policy, they are well insulated from democratic accountability. Congress, to say nothing of the populace in general, has no role overseeing their operations, and they operate largely outside the public eye (though Congressional ire sometimes appears in response to a request for more funds).
What the IMF and the World Bank do is lend money to governments. Because many governments, especially governments of poor countries, are often in dire need of loans and cannot readily obtain funds through financial markets, they turn to these institutions. And if the IMF and World
Bank will not loan to a country, international banks certainly won’t. As a result, the IMF and the World Bank have great power, and are able to insist that governments adopt certain policies as a condition for receiving funds.
The IMF and the Bank make sure that U.S. allies get the financial support they need to stay in power, abuses of human rights, labor, and the environment notwithstanding; that big banks get paid back, no matter how irresponsible their loans may have been; and that other governments continually reduce barriers to the operations of U.S. business in their countries, whether or not this conflicts with the economic needs of their own people.
In the division of functions between the IMF and the World Bank, the IMF provides funds to governments in immediate financial emergencies and the Bank provides funds for long-term development projects. For example, when the financial crisis that developed in 1997 spread through several Asian countries, capital fled to safer havens. The values of local currencies fell drastically relative to the dollar. Governments (and private firms) whose revenues were in their own local currencies could not meet their dollar obligations to international bankers. This forced governments to turn to the IMF for funds to maintain the values of their currencies and meet their obligations to international banks. Along with the loans, however, came conditions: the IMF’s program for economic stability.
The World Bank may receive fewer headlines, not being on the spot in crises, but over the long run it shapes the economies of countries where it makes loans. Its loans cover a wide spectrum of projects, from large hydro-electric dams to local business training programs. Many of the Bank’s programs appear desirable in themselves-who would object to dean water facilities, education in animal husbandry, or better roads? Yet the particular projects promote a development strategy that minimizes the role of the public sector, and demands the privatization of communal lands and other public property.
As to the source of their funds, the IMF gets most of its money as subscriptions from member governments-the amount determining the number of votes each government has in running the operation. When, in extreme circumstances, the IMF needs an especially large amount of funds, it can activate a line of credit it has established with governments and large banks.
The World Bank raises its money by taking loans from the private sector, operating through financial markets as would private firms or governments. Because the Bank is backed by funds from member governments, it can obtain private funds at relatively low interest rates. It then turns around and loans this money to the governments of poor countries to support development projects. In effect, the Bank allows governments of poor countries to borrow, through it, on the international capital markets and at lower rates than they could borrow were they to seek funds on their own.
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HOW YOUR LAWFUL GOVERNMEMT WORKS – GRANNA’S BITES – ANNA VON REITZ