International Organization and International Relations Year 1 – Block 3 & 4
Week 4: International Organization 1-2
Lecture 7 – Global governance of monetary relations and development finance: the IMF,
World Bank and New Challengers
Lecture (p. 2-5)
Readings (p. 6-12)
Gutner – Chapter 5: The World Bank
Gutner – Chapter 7: The International Monetary Fund
Lecture 8 – Economic and Monetary Union: Monetary Cooperation in Europe
Lecture (p. 13-16)
Readings (p. 17-22)
Gutner – Chapter 11: The European Union (selected number of pages)
Kelemen, Jones & Meunier – Failing forward? The Euro crisis and the
incomplete nature of European integration
1
,International Organization 1 & 2 International Organization and International Relations
Week 4 – Lecture 7: Global governance of monetary relations and development finance: the IMF,
World Bank and New Challengers
Lecture
Useful terms
- Bretton Woods institutions (BWIs)/International Finance Institutions (IFIs): World Bank (WB) and
International Monetary Fund (IMF), but IFIs can include other institutions as well
- development: multi-dimensional concept related to improvements for a society and its members
across many different sector (e.g. economic, human, sustainable, environmental development)
- Sovereign guarantee: assumption of risk by government for repayment of project loans
- Global south: low- and middle-income states in Asia, Africa, Latin America and the Caribbean
Historical background of the BWIs
- 1944 Bretton Woods Conference to plan post-war cooperation, coordination and construction
- IFIs largely British and American creations, as reflected in their structures, mandates and
procedures
- 1945: Establishment of International Bank for Reconstruction and Development (IBRD) to rebuild
war-ravaged Europe
- 1945: Establishment of IMF to keep exchange rates stable and prevent ‘race to the bottom’
devaluations; not necessarily for providing loans for infrastructure or rebuilding projects; more to
prevent the inter-war tendency of continuously devaluating (‘race to the bottom’ tactics). Exchange
rates could only be change by up to 1%, if more, the IMF needed to consent to it.
-> in addition to this coordinating function, it also made loans to countries in financial and economic
trouble; instead of devaluating, the IMF paid loans: not for projects, but repayment of debts - to
keep the system stable
BWIs shift towards developing nations
- WB’s post-War ambitions in Europe undermined by Marshall Plan, by 1960s had switched its focus
to the developing world - even faster than the IMF.
- WB loan portfolio expands beyond projects that increased profits (ports & dams) to those that
benefited people (education, sanitation systems). There were many ‘customers’ to both the IMF and
the World Bank, given the decolonization in the 60s - which brought many problems, e.g.
development problems and balance of payment problems
- 1970s: Bretton Woods system collapses, IMF pivots into concessional leader (lender of last resort,
against low interest rates) and intermediary between donor/debtor governments and banks
- Late 70s - 2009, no Western developed nations utilised an IMF loan
Structure & governance of the BWIs
- WB: IBRD has 189 members, IDA has 173. Weighted voting, based on capital subscription. President
from America
- IMF: 189 member states, each with a quota that dictates their max obliged contribution, maximum
obtainable financing and voting power. Headed by European
- Both are UN specialised agencies, operate on consensus system (voting rare), have boards of
governors and directors as well as professional management: not every state has a governor and
director; some small states share one
- Both IOs subject to criticism for privileging Western nations in their procedures: see tables on slides
about voting power ratio towards GDP in IMF and WB procedures. Example: The Netherlands had 7%
of Chinese GDP, but 40% of its voting power in World Bank procedures. Chinese GDP had 4 times the
French GDP, but only 1% more voting power in the WB as well
-> it’s not just Western in geographical sense, but also ‘cultural’ or political, e.g. Japan - which is a US-
aligned state
,International Organization 1 & 2 International Organization and International Relations
Policy-influencing power of the BWIs
- Have the power to keep economies afloat, “cash in the ATMs”, to make or break enormous
government projects and initiatives
- Both IOs wield enormous policy-influencing power through ‘conditionality’ and ‘structural
adjustment’ (e.g. privatisation, trade liberalisation, political reforms - so, also more respect for HR)
-> these are the things that are the most subject of criticism
- Exert considerable normative influence (though this has been curtailed in recent years)
- Authoritative sources and disseminators of information
Criticism of the BWIs
- SAPs promoted neoliberal orthodoxy rather than social and human development, and rarely
worked
- Western-dominated IFIs grew increasingly powerful in the domestic policy space of developing
countries: there would be a 6% shift from developed to developing countries, however, in reality it is
only a 1.7% decrease of G7 voting power: mostly from developed to developed countries
- Superficial reform of voting procedures keep power in Western hands
- Counterproductive advice would be given by the BWIs (e.g. Asian Financial Crisis, reforms in Sub-
Saharan catastrophic in some instances): Asian Financial Crisis would be partly caused by the
openness of economies advocated by the IMF
- ‘Washington Consensus’ argued by some to represent new form of colonialism: the ‘conditionality’
that comes with giving loans was perceived as intrusive. Most funding comes from the former
colonizer states, and most funding is received by former colonized states. The consequences of the
IMF and WB policy are often positive for the former colonizers, and negative for the people in former
colonized states: more access to these markets, which hampers economic growth domestically
Structural Adjustment Programmes - Sub-Saharan Africa (SSA)
- Debt crisis (as a consequence of oil crisis) in SSA in 1980s became unsustainable in many states
- In 1980s, 36 African states impose SAPs through IMF/WB (‘lender of last resort’); four structural
elements to the SAPs:
- Privatise industry (education, health care, water provision)
- Liberalise capital markets (currency devaluation; mostly negative for local people, because
all they own suddenly loses all its value)
- Market-based pricing
- Trade liberalisation
- 1980s, “Africa’s lost decade”:
- Cote d’Ivoire: cocoa industry privatised -> pressure on cocoa farmers -> child labour
increases -> teachers’ salaries halved -> health service charges introduced -> currency
devaluations reduce purchasing power of the poor -> poverty doubles. Ultimately, debt
increases
- Zimbabwe: tax cuts mainly for TNC’s -> lowered minimum wage -> removal of employment
protections -> reduced government spending -> recession follows, GDP falls, private
investment reduces -> health spending reduces as AIDS epidemic worsens, crisis followed
rather than preceded structural adjustment (Zimbabwe did not ask for loans in response to a
crisis, but rather the loans caused a crisis)
Power shifts away from the BWIs
In recent years, WB/IMF global influence slips due to:
- Loss of normative appeal
- Changing perceptions of role of the state, ‘second generation’ reforms not viewed as
particularly influential over economic fortunes
- Operational challenges
3
, International Organization 1 & 2 International Organization and International Relations
- Losing borrowers from traditional client base as some become today’s rising economies,
while others try to avoid conditionality and adverse outcomes from imposed policy
- Competition
- South-South cooperation increases, new lending institutions emerge, often offering loans
without intrusive conditionality and policy prescriptions of BWIs
-> as a consequence of this, the IMF has seen a steady decline of customers - neglecting for the
moment, the little bump caused by the 2009 financial crisis
New challengers in development financing
- Since mid-2000s, emergence of new actors, providing alternative approaches to governments to
foster development
- NGOs, public private partnerships, rising economic powers, new financial institutions offer new
sources of revenue with far less conditionality
- 1997 Asian Financial Crisis (in particular IMF’s role in it) a primary motivator for alternatives
- Paradigm-dictated policy now being replaced by results-guided, theoretically agnostic policy
Structure and governance of the New Challengers
New Development Bank
- Founded by BRICS, all UN members can join though founders must retain 55% voting share.
Currently only 5 members
- Infrastructure and sustainable development focus, in BRICS and other ‘underserved, emerging
economies’
Asian Infrastructure Investment Bank
- 70 members, 27 prospective, with China holding 300k of 1.1m votes
- Seen as most serious potential rival to the WB/IMF
China in Africa
- China the leading donor in South-South development aid through Exim bank, AIIB, BRICS bank
- Africa a key element of ‘one belt, one road’ initiative
- Chinese 20th century cooperation with Africa traditionally conducted on the basis of non-
interference (as it is today). The only condition is that the countries do not recognize Taiwan
- Strategy makes business sense for China, with many of world’s fastest growing economies in SSA
Defending supremacy: BWIs’ response to challengers
BWIs strategies involve:
- Preservation and expansion of operations with LICs and smaller MICs
- Abandoned ‘hard’ conditionality, ringfenced social spending, greater role for IDA in WB,
human development focus, more active in humanitarian emergencies, more borrower
friendly
- Flexible approach to larger MICs to retain their business
- Stigma attached to IMF but WB has enjoyed success with greater flexibility, prioritising
social development and selective use of funds
- Sustaining authority through non-lending activities
- IMF/WB inter-organisational reach, transnational policy, policy influence and ability to
gather and disseminate data is unrivalled by challengers
The future of development financing
- Güven (2017) says BWI reforms are insufficient
- Some argue a new ‘scramble for Africa’ underway by non-Western states following China’s lead
- China and others accused of ‘debit diplomacy’ by the US, prompting major expansion of Overseas
Private Investment Corporation
4
Week 4: International Organization 1-2
Lecture 7 – Global governance of monetary relations and development finance: the IMF,
World Bank and New Challengers
Lecture (p. 2-5)
Readings (p. 6-12)
Gutner – Chapter 5: The World Bank
Gutner – Chapter 7: The International Monetary Fund
Lecture 8 – Economic and Monetary Union: Monetary Cooperation in Europe
Lecture (p. 13-16)
Readings (p. 17-22)
Gutner – Chapter 11: The European Union (selected number of pages)
Kelemen, Jones & Meunier – Failing forward? The Euro crisis and the
incomplete nature of European integration
1
,International Organization 1 & 2 International Organization and International Relations
Week 4 – Lecture 7: Global governance of monetary relations and development finance: the IMF,
World Bank and New Challengers
Lecture
Useful terms
- Bretton Woods institutions (BWIs)/International Finance Institutions (IFIs): World Bank (WB) and
International Monetary Fund (IMF), but IFIs can include other institutions as well
- development: multi-dimensional concept related to improvements for a society and its members
across many different sector (e.g. economic, human, sustainable, environmental development)
- Sovereign guarantee: assumption of risk by government for repayment of project loans
- Global south: low- and middle-income states in Asia, Africa, Latin America and the Caribbean
Historical background of the BWIs
- 1944 Bretton Woods Conference to plan post-war cooperation, coordination and construction
- IFIs largely British and American creations, as reflected in their structures, mandates and
procedures
- 1945: Establishment of International Bank for Reconstruction and Development (IBRD) to rebuild
war-ravaged Europe
- 1945: Establishment of IMF to keep exchange rates stable and prevent ‘race to the bottom’
devaluations; not necessarily for providing loans for infrastructure or rebuilding projects; more to
prevent the inter-war tendency of continuously devaluating (‘race to the bottom’ tactics). Exchange
rates could only be change by up to 1%, if more, the IMF needed to consent to it.
-> in addition to this coordinating function, it also made loans to countries in financial and economic
trouble; instead of devaluating, the IMF paid loans: not for projects, but repayment of debts - to
keep the system stable
BWIs shift towards developing nations
- WB’s post-War ambitions in Europe undermined by Marshall Plan, by 1960s had switched its focus
to the developing world - even faster than the IMF.
- WB loan portfolio expands beyond projects that increased profits (ports & dams) to those that
benefited people (education, sanitation systems). There were many ‘customers’ to both the IMF and
the World Bank, given the decolonization in the 60s - which brought many problems, e.g.
development problems and balance of payment problems
- 1970s: Bretton Woods system collapses, IMF pivots into concessional leader (lender of last resort,
against low interest rates) and intermediary between donor/debtor governments and banks
- Late 70s - 2009, no Western developed nations utilised an IMF loan
Structure & governance of the BWIs
- WB: IBRD has 189 members, IDA has 173. Weighted voting, based on capital subscription. President
from America
- IMF: 189 member states, each with a quota that dictates their max obliged contribution, maximum
obtainable financing and voting power. Headed by European
- Both are UN specialised agencies, operate on consensus system (voting rare), have boards of
governors and directors as well as professional management: not every state has a governor and
director; some small states share one
- Both IOs subject to criticism for privileging Western nations in their procedures: see tables on slides
about voting power ratio towards GDP in IMF and WB procedures. Example: The Netherlands had 7%
of Chinese GDP, but 40% of its voting power in World Bank procedures. Chinese GDP had 4 times the
French GDP, but only 1% more voting power in the WB as well
-> it’s not just Western in geographical sense, but also ‘cultural’ or political, e.g. Japan - which is a US-
aligned state
,International Organization 1 & 2 International Organization and International Relations
Policy-influencing power of the BWIs
- Have the power to keep economies afloat, “cash in the ATMs”, to make or break enormous
government projects and initiatives
- Both IOs wield enormous policy-influencing power through ‘conditionality’ and ‘structural
adjustment’ (e.g. privatisation, trade liberalisation, political reforms - so, also more respect for HR)
-> these are the things that are the most subject of criticism
- Exert considerable normative influence (though this has been curtailed in recent years)
- Authoritative sources and disseminators of information
Criticism of the BWIs
- SAPs promoted neoliberal orthodoxy rather than social and human development, and rarely
worked
- Western-dominated IFIs grew increasingly powerful in the domestic policy space of developing
countries: there would be a 6% shift from developed to developing countries, however, in reality it is
only a 1.7% decrease of G7 voting power: mostly from developed to developed countries
- Superficial reform of voting procedures keep power in Western hands
- Counterproductive advice would be given by the BWIs (e.g. Asian Financial Crisis, reforms in Sub-
Saharan catastrophic in some instances): Asian Financial Crisis would be partly caused by the
openness of economies advocated by the IMF
- ‘Washington Consensus’ argued by some to represent new form of colonialism: the ‘conditionality’
that comes with giving loans was perceived as intrusive. Most funding comes from the former
colonizer states, and most funding is received by former colonized states. The consequences of the
IMF and WB policy are often positive for the former colonizers, and negative for the people in former
colonized states: more access to these markets, which hampers economic growth domestically
Structural Adjustment Programmes - Sub-Saharan Africa (SSA)
- Debt crisis (as a consequence of oil crisis) in SSA in 1980s became unsustainable in many states
- In 1980s, 36 African states impose SAPs through IMF/WB (‘lender of last resort’); four structural
elements to the SAPs:
- Privatise industry (education, health care, water provision)
- Liberalise capital markets (currency devaluation; mostly negative for local people, because
all they own suddenly loses all its value)
- Market-based pricing
- Trade liberalisation
- 1980s, “Africa’s lost decade”:
- Cote d’Ivoire: cocoa industry privatised -> pressure on cocoa farmers -> child labour
increases -> teachers’ salaries halved -> health service charges introduced -> currency
devaluations reduce purchasing power of the poor -> poverty doubles. Ultimately, debt
increases
- Zimbabwe: tax cuts mainly for TNC’s -> lowered minimum wage -> removal of employment
protections -> reduced government spending -> recession follows, GDP falls, private
investment reduces -> health spending reduces as AIDS epidemic worsens, crisis followed
rather than preceded structural adjustment (Zimbabwe did not ask for loans in response to a
crisis, but rather the loans caused a crisis)
Power shifts away from the BWIs
In recent years, WB/IMF global influence slips due to:
- Loss of normative appeal
- Changing perceptions of role of the state, ‘second generation’ reforms not viewed as
particularly influential over economic fortunes
- Operational challenges
3
, International Organization 1 & 2 International Organization and International Relations
- Losing borrowers from traditional client base as some become today’s rising economies,
while others try to avoid conditionality and adverse outcomes from imposed policy
- Competition
- South-South cooperation increases, new lending institutions emerge, often offering loans
without intrusive conditionality and policy prescriptions of BWIs
-> as a consequence of this, the IMF has seen a steady decline of customers - neglecting for the
moment, the little bump caused by the 2009 financial crisis
New challengers in development financing
- Since mid-2000s, emergence of new actors, providing alternative approaches to governments to
foster development
- NGOs, public private partnerships, rising economic powers, new financial institutions offer new
sources of revenue with far less conditionality
- 1997 Asian Financial Crisis (in particular IMF’s role in it) a primary motivator for alternatives
- Paradigm-dictated policy now being replaced by results-guided, theoretically agnostic policy
Structure and governance of the New Challengers
New Development Bank
- Founded by BRICS, all UN members can join though founders must retain 55% voting share.
Currently only 5 members
- Infrastructure and sustainable development focus, in BRICS and other ‘underserved, emerging
economies’
Asian Infrastructure Investment Bank
- 70 members, 27 prospective, with China holding 300k of 1.1m votes
- Seen as most serious potential rival to the WB/IMF
China in Africa
- China the leading donor in South-South development aid through Exim bank, AIIB, BRICS bank
- Africa a key element of ‘one belt, one road’ initiative
- Chinese 20th century cooperation with Africa traditionally conducted on the basis of non-
interference (as it is today). The only condition is that the countries do not recognize Taiwan
- Strategy makes business sense for China, with many of world’s fastest growing economies in SSA
Defending supremacy: BWIs’ response to challengers
BWIs strategies involve:
- Preservation and expansion of operations with LICs and smaller MICs
- Abandoned ‘hard’ conditionality, ringfenced social spending, greater role for IDA in WB,
human development focus, more active in humanitarian emergencies, more borrower
friendly
- Flexible approach to larger MICs to retain their business
- Stigma attached to IMF but WB has enjoyed success with greater flexibility, prioritising
social development and selective use of funds
- Sustaining authority through non-lending activities
- IMF/WB inter-organisational reach, transnational policy, policy influence and ability to
gather and disseminate data is unrivalled by challengers
The future of development financing
- Güven (2017) says BWI reforms are insufficient
- Some argue a new ‘scramble for Africa’ underway by non-Western states following China’s lead
- China and others accused of ‘debit diplomacy’ by the US, prompting major expansion of Overseas
Private Investment Corporation
4
