IMF, WORLD BANK’S SAPs A MAJOUR CAUSE OF POVERTY.

IMF, WORLD BANK’S SAPs A MAJOUR CAUSE OF POVERTY.

“DEBT is an efficient tool. It ensures access to other people’s raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters’ income to a bare minimum while the North enjoys huge savings. The IMF cannot seem to understand that investing in (a) healthy, well-fed, literate population is the most intelligent economic choice a country can make.” Susan George in A fate Worse Than Debt.
Many developing countries are in poverty partly due to the money-lending programmes by institutions such as the IMF and World Bank. Their programme have been heavily criticised for many years for resulting in an increased dependency by the developing countries upon the richer nations.
The IMF imposes its Structural Adjustment Programmes (SAPs) to ensure debt repayment n such a way that social spending must be cut back. In effect, it demands poor nations to lower the standards of living of their masses. Under a plan devised by President Reagan’s Secretary to the Treasury, James Baker, indebted countries were offered ‘servicing’ loans in return for the ‘structural adjustment’ of their economies. This meant that the economic direction of each country would be planned, monitored and controlled in Washington. ‘Liberal containment’ was replaced by the Laissez-faire capitalism.
A lot of poverty we see around the worlds is related to the way global markets and trading practices are structures and how they have been shaped in previous years. In order to remain attractive to foreign investors, the IMF prescribes cutbacks. These factors lead to further misery fir developing nations and keep them dependent on developed nations. The SAPs also mean that these countries must export more in order to raise enough money to pay-off debts. Because there are so many nations being asked or forced into the global market place before they are economically and socially ready, it is like a big price war. The resources then become even cheaper from the poorer regions. Governments then need to further increase exports just to keep their currencies stable. They therefore must spend less, reduce consumption, remove or decrease financial regulations and devalue the national currency. Over time, the value of labour decreases, capital flows become more volatile and we get into a spiralling race to the bottom. These nations are then told to peg their currencies to the dollar. But keeping the exchange rate stable is costly due to increased interest rates. Investors obviously concerned about their assets pull out. In worst cases, capita flights can lead to economic collapse le we have seen in the Asian crises of 1997/8.
Of course, the blame by mainstream freemarketeers is laid on emerging markets and their governments’ restrictive or inefficient practices, crony capitalism etc, which is cruel irony. Keeping exchange rates in their favour, courtesy of the IMF and donors, means that the poor nations get even poorer. This is one of the backbones to today’s so-called “Free” trade. In this form it is seen as an unfair, one-way extractive game.
One of the many things the Bretton Woods twins [prescribe is that the developing nations should open up to allow more imports in an exports more of their commodities. However, this is precisely what contributes to poverty and dependency. If a society spends $100 to manufacture a product locally, the money that is used to buy materials, employ labour moves trough the economy as each recipient spends it. Due to this multiplies effect, $100 worth of primary products can add several hundreds dollars to the GNP of that country. If money is spent in another country, the multiplier takes effect in the other country. This is the reason an industrialised product-exporting country is wealthier than an undeveloped product-importing commodity exporting country is poor. Developed countries grow rich by selling capital-intensive (cheap) products for a high price and buying labour-intensive (expensive) products for a low price. This imbalance of trade expands the gap between the rich and the poor. This maintains the monopolisation of the tools of production, and assures a continued market for the product.
This model of development, whereby the North imposes their conditions on the South has come under criticism by many NGOs. True, in some cases corrupt governments have borrowed money from these institutions and ended up using that money to pursue selfish interests, conflicts, arms deals and divert resources away from their people but it also true that more often than not, this has been done knowingly, with support from various nations due to their own “national interests”, especially during the Cold War.
SAPs are based on a narrow economic model that perpetuates poverty, inequality, and environmental degradation. Every rich nation today has become developed because in the past their governments took a major responsibility to promote economic growth through protectionism and interventionist measures. There was an attempt to provide some sort of equality, education, health and other services to help enhance the nation. But on the contrary the SAPs force developing countries to cut back on the very same provisions that helps the developed countries to prosper in the past. Europe is a good example of this. While the phrase “Welfare State” probably conjures up negative images, with regards to globalisation, it is realised by the European communities that protecting their people when developing hep societies, economies and cultures to thrive. Forcing developing countries t compete with industrialised nations before their foundations are stable has been and continues to be economic suicide. As a result of this heavy criticism, the IMF have attempted to change the SAPs and “re-launch” it under various brands which sound slightly more moral and passionate to humanity such as the Enhance Structural Adjustment facility (ESAF), the Poverty Reduction Growth Facility(PRGP), the Poverty Reduction Strategy Papers (PRSP). The effect is still the same. Poverty and inequality continue to increase at alarming rates.