IMF & WB SAPs Bleeding Global South

The IMF and WB were established to rebuild the post-WWII economy, foster global monetary cooperation, and ensure financial stability; by promoting international trade, reduce poverty, and prevent economic crises through international cooperation. However, both the institutions proved to be a tool in the hands of global north against global south. This write up "IMF & WB SAPs Bleeding Global South" is a discussion based on a research paper published this week.

أَعُوذُ بِاللّٰهِ مِنَ الشَّيْطَانِ الرَّجِيمِ۔

بِسۡمِ ٱللهِ ٱلرَّحۡمَـٰنِ ٱلرَّحِيمِ

In the name of ALLAH, the Most Gracious, the Most Merciful

IMF & WB SAPs Bleeding Global South

The International Monetary Fund (IMF) and the World Bank (WB) were established in July 1944 at the Bretton Woods Conference to create a framework for post-war economic reconstruction, promote international monetary cooperation, and foster financial stability to prevent future economic crises. However, over the years, both the organizations not only have failed to live up to expectations; but have proved to be doing exact opposite to the very purposes they were established. Both the organizations; IMF and WB; have proved to be tools in the hands of Global North (US, Canada, Europe, Japan, Australia) representing wealthier, industrialized nations, often formerly colonial powers; for bleeding and harming the Global South (most countries of Africa, Latin America & developing Asia) forcing them to face greater economic instability.

Structural Adjustment Programs (SAPs) implemented by the International Monetary Fund (IMF) and the World Bank (WB) have long been criticized for perpetuating economic crises in the Global South, often characterized as a form of "neocolonialism" that prioritizes debt repayment over human welfare. These programs, typically required as conditions for loans to nations in financial distress, often mandate severe austerity measures, including privatization of public services, drastic cuts in social spending, currency devaluation, and trade liberalization.

The International Monetary Fund (IMF) and the World Bank (WB) are frequently accused of exacerbating economic distress in the Global South, with critics arguing their policies function as a form of "neocolonialism" or "structural violence". Through debt restructuring, structural adjustment programs, and austerity measures, these institutions are accused of draining resources from developing nations, forcing them into cycles of dependency. There is a new research paper published recently, which has taken up the issue and documented evidences very well and recommended various reparations models and pathways to non- recurrence. In the following, salient of the research papers are being shared.

Structural Adjustment: Damages, Reparations and Pathways to Non-Recurrence

"Beginning in the 1980s and 1990s, the International Monetary Fund (IMF) and the World Bank implemented neoliberal structural adjustment programmes (SAPs) across most countries in Asia, Africa and Latin America. SAPs imposed austerity, privatisation and economic deregulation and have been associated with severe negative impacts on human welfare, including (a) declining real wages and working-class consumption, (b) increased rates of poverty and basic-needs deprivation, (c) increased neonatal and maternal mortality and (d) reduced health system access. Structural adjustment also created conditions for increased financial outflows and drain from the global South through unequal exchange." The paper reviewed evidence of the damages and proposes possible options for reparations and distributive justice. The paper recommended that the IMF and the World Bank should be democratised and restructured—or otherwise replaced by alternative institutions—to prevent further harm.

Summary Box

"Structural adjustment programmes, implemented by the International Monetary Fund (IMF) and World Bank across the global South from the 1980s onward, are associated with substantial negative impacts on human health and welfare.

This analysis summarises key findings from existing studies demonstrating the human impacts of structural adjustment. It argues that the IMF and World Bank should provide reparations for damages caused, and they should be restructured or replaced by alternative financial institutions to guarantee non-recurrence.

The proposals developed in this study can ensure that, in the future, developing countries can access necessary finance without harmful conditions."

Salient of the Research Paper

"The move to implement SAPs is best understood in the context of historical dynamics of international political economy. For most of the past 500 years, the world economy has been broadly structured such that growth and capital accumulation in the core (Western Europe and the European settler colonies of the US, Canada, Australia and New Zealand, often collectively referred to as the global North) depends on inputs of cheap labour and resources from the peripheries (Asia, Africa and Latin America, often collectively referred to as the global South)".

"This arrangement was challenged in the middle of the 20th century, as political movements across Global South succeeded in overthrowing colonial and neo-colonial forces. Progressive governments rose to power across these regions, began dismantling the colonial economic arrangement and re-organised production more around local human needs and national development. They introduced land reforms, labour rights and capital controls; they invested in public healthcare and education; they nationalised key resources; and they used industrial policy and planning to build economic sovereignty. These developmentalist strategies were remarkably successful. From the 1950s through the 1970s, real per capita income grew at an average of 3.2% per year across the South, and countries achieved substantial improvements in social outcomes".

"The success of the progressive movement posed a problem for Northern powers, however, as developmentalist policies restricted their access to the cheap labour, resources and captive markets, constraining their growth and profits. They responded in two ways. First, by intervening militarily to topple progressive leaders and reverse developmentalist reforms, often installing right-wing dictatorships in their place. Second, they leveraged their power as lenders of the world’s reserve currencies to attach economic conditions to finance".

"Global South countries are obliged to borrow or otherwise obtain core currencies—such as the US dollar and the Euro—to pay for necessary imports such as energy and producer goods. This makes them vulnerable to interest rate changes in currencies that they do not control. In the late 1970s, the US Federal Reserve dramatically increased interest rates, triggering a debt crisis across the global South. To protect US banks from the risk of Southern default, the US sought to ensure repayment by rolling over Southern debts on the condition that Southern governments implement SAPs under the IMF and the World Bank. SAPs included three main measures:

Austerity: cuts to public healthcare, education, food, social security, etc.

Privatisation: transfer of public services, public industries and assets to private capital.

Deregulation: removal of industrial policy, tariffs, capital controls and labour protections".

In other words, SAPs imposed neoliberal shock therapy on the South, reversing the progressive reforms which succeeded during the 1960s and 1970s. It re-cheapened labour and resources, forced open Southern markets and also organised Southern production around supplying Northern firms through global commodity chains. Countries targeted by these measures had little choice in this matter; many governments considered default to be risky, on the grounds that they might be punished by financial markets, and rules under the Baker Plan (a US proposal for debt restructuring) prevented them from accessing finance via other private or bilateral lenders. In some cases, capitalists within the global South embraced SAPs because they saw opportunities to increase their own profits, for example by taking advantage of weakened labour standards and environmental protections. Through structural adjustment, Western institutions assumed de facto control over economic policy in global South countries, shifting power over key macroeconomic decisions from national parliaments and elected representatives in Southern capitals to technocrats and bankers in Washington and New York.

Damages Associated with Structural Adjustment

Poverty and access to basic needs: Structural adjustment was associated with a dramatic collapse in income and consumption across much of the global South after 1980. Neoliberal policy decreased the consumption of the poor in order to make resources available for appropriation by core states and corporations. Taking the global South as a whole (all emerging and developing economies, as defined by the IMF), average annual income growth collapsed from 3.2% during the progressive era to 0.7% during the 1980s and 1990s.

Health impacts: Structural adjustment has been associated with significant damages to human welfare, and the neoliberal policies imposed by SAPs have long been known to negatively impact health. In a 2017 systematic review of empirical evidence, it was shown that structural adjustment imposed by the IMF, World Bank and African Development Bank has had a strong negative impact on child and maternal health. Structural adjustment is also associated with a reduction in the rate of improvement in adult mortality, and for the poorest quintiles an increase in mortality, compared with the 1960–1980 period.

Financial outflows and unequal exchange: The removal of capital controls has led to large financial outflows from the global South in the form of net outward profit repatriation by foreign companies, reaching up to US$250 billion per year. Deregulation of customs and trade rules has led to capital outflows. SAPs had the effect of depressing wages and resource prices in the global South, due ‘unequal exchange’ in international trade.

Possibilities for Reparations and Distributive Justice

The evidence cited in the paper demonstrates that structural adjustment is associated with substantial damages in affected countries, with causal effects in the case of specific negative impacts such as increased poverty, increased child and maternal mortality and reduced health-system access. The paper suggested that because these damages have been inflicted by programmes implemented primarily by the IMF and the World Bank, so both institutions should bear primary responsibility for repair; with some precedent in the demands issued in 2019 by Tunisia’s Truth and Dignity Commission. The paper continues to argue various proposals for "Reparations" and "Distributive Justice" and these shall be taken up by concerned quarters in "Global South" individually and collectively on international forums.

Conclusion

The Paper has provided an overview of evidence demonstrating that SAPs had negative impacts on human welfare across several key registers. It would fall next to scholars of international law to assess questions of legal procedure and practical implementation. However, even in the absence of a practical way forward, the paper forwarded argument for reparations nevertheless establishes an important principle and can contribute to current efforts to change IMF and World Bank policy and abolish structural adjustment conditions, while underlining the need for new institutions.

Global South (most countries of Africa, Latin America & developing Asia) can challenge IMF and World Bank Structural Adjustment Programs (SAPs) by demanding an end to austerity and surcharges, fostering regional financial cooperation, pursuing debt cancellation, and implementing sovereign economic policies like capital controls and trade tariffs. Other strategies may include prioritizing key resources and fostering South-South trade to reduce dependence on Western-led institutions. It's time for Global South Nations to forge combined front for development and prosperity on regional block basis.

NOTE: Its a must read paper available on the link below:-

https://gh.bmj.com/content/11/Suppl_1/e017221