David Jaques

Whos Got What?

Spring Quarter
THE HISTORY AND FUNCTIONS OF THE WORLD BANK & IMF
It is a curious matter that worlds most powerful financial institutions, the World Bank
and the International Monetary Fund, exist relatively omnipotently; that is to say that although
they affect the majority of the worlds population and consist of members from 188 countries,
little is commonly known about their origin and purpose as organized forces in the global
economy. In the seemingly few instances in which they are discussed or at least mentioned in the
media they are more often than not lumped together. This apparent synonymity only provides
further mystification, as the World Bank and IMF have distinct functions although they are both
mechanisms which cooperate fully in maintaining the current neo-liberal global financial and
economic order. Their history begins during the Second World War, when the need for such
maintenance was being discussed by allied powers at the prospect of a world in post-war
economic turmoil.
Since the beginning of the WWII, the Roosevelt administration had been considering the
establishment of a number of public multilateral institutions to provide public capital and
manage international debts. According to a 1942 memorandum of the Council of Foreign
Relations, these institutions would police international investment by private capital, so as to
provide judicial and arbitral facilities for settlements of disputes between creditor and debtor, and
to remove the danger of the use by creditor countries of their claims for illegitimate political or
military or economic demands (Toussaint, 2008, p. 13). Drafts and proposals were conceived by
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Harry White of the US Department of the Treasury, who stressed that two separate, though
linked agencies would be better than one, since one agency dealing with both tasks would have
too much power and would run the risk of greater errors of judgment. There was to be a Bank to
lend money for development and a Fund to administer the terms for such development.
Over the years leading up to the Bretton Woods Conference Whites proposals were
diminished and altered by Roosevelt, pressured by Wall Street who saw two established public
institutions whose purpose was to regulate the flow of private capital as excessively
interventionist and in competition with their own private aims. After much concession and
debate, the project was finally brought to order in Bretton Woods, New Hampshire in July of
1944. In attendance were 730 delegates from the 44 allied nations, formally establishing the IMF
and the International Bank for Reconstruction and Development (now an extension of the World
Bank). The IBRD served to fund and facilitate post-war reconstruction and the IMF to oversee
fixed exchange rate arrangements between countries. These aims were first focused on
industrialized countries in Western Europe until 1948, when the Marshall Plan was introduced
and lending policies to Europe were drastically curtailed. This, along with Point IV of Trumans
inaugural speech, seems to mark a turning point in the perceived aims of the World Bank and
IMF to focus more on underdeveloped and developing (terms referring to nations and former
colonies which are in early stages of industrialization, impoverished and have low living
standards and employment rates) countries. The original sentiments driving this new direction
can be seen in Trumans 1949 address:
We must embark on a bold new program for making the benefits of our scientific
advances and industrial progress available for the improvement and growth of
underdeveloped areas. More than half the people of the world are living in conditions
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approaching misery. Their food is inadequate. They are victims of disease. Their
economic life is primitive and stagnant. Their poverty is a handicap and a threat to them
and to more prosperous areas [] I believe that we should make available to peaceloving peoples the benefits of our store of technical knowledge in order to help them
realize their aspirations for a better life [] With the cooperation of business, private
capital, agriculture and labour in this country, this program can greatly increase the
industrial activity in other nations and can raise substantially their standards of living []
Greater production is the key to prosperity and peace. And the key to greater production
is a wider and more vigorous application of modern scientific and technical knowledge
[] we hope to create the conditions that will lead eventually to personal freedom and
happiness for all mankind. (Toussaint, 2008, p. 20)
This ethos revolving around technology and economic saviorship by industrially
advanced nations has more or less served as the rationale behind the economic interventions
carried out by the World Bank and IMF since. While the eradication of poverty and disease may
sound like noble aims, they have most importantly served as justification for the Bretton Woods
institutions systematic exploitation of such afflicted nations, creating further economic
devastation and increased dependence on (and indebtedness to) the primary beneficiaries of the
World Bank and IMF: the US, Great Britain and a handful of other wealthy countries (and their
respective shareholding powers). Since its inception, the World Bank has supported through
financial aid as well as economic and technical assistance military coups of governments by
tyrannical regimes and dictators, often violent, who have agreed to implement its policies.
Among them are Iran (1953), Guatemala (1954), Haiti (1957), South Korea (1961), Brazil
(1964), the Congo and Indonesia (1965), Thailand (1966), in Uganda and Bolivia (1971), the
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Philippines (1972), in Chile, Uruguay and Rwanda (1973), Argentina (1976), in Kenya and
Pakistan (1978), Iraq (1979) and in Turkey (1980) (Toussaint, 2008, p. 1). In Chile and the
Philippines, the money loaned to the oppressive regimes was then carried over as debt owed by
the new democratic governments that took over after the dictators falls from power, effectively
burdening the populations of those countries with the responsibility of paying for the weapons
used to persecute them. Similar appropriations of debt occurred in the 1950s and 60s as IMF and
World Bank loaned money to colonial powers such as Belgium, Great Britain, France and
Portugal in order to fund mining projects and other such exploitation of natural resources, and
then simply forced the colonies to inherit the resulting debt once they gained independence. The
World Bank also supported the apartheid regime in South Africa from 1951 to 1968, in direct
violation of the 1964 resolution by the UN General Assembly which stated that no UN agency
was to continue financial support to South Africa, as it had violated the UN Charter. When it is in
the USs political interest, the World Bank will provide direct support to murderous governments
with little to no regard for human rights and in contradiction with international law, as long as
they comply with neoliberal economic policy and its conditionalities.
Much of the economic devastation in the name of structural adjustment has primarily
been concerned with actions taken directly by the World Bank. This is because the IMFs role
was not originally intended to oversee the Third Worlds most common financial issues, but
rather it was designed to provide short-term financing to enable countries to work their way out
of payments deficits and thus avoid contractionary or restrictive measures which could
destabilize the system and inhibit global trade (Browne, 1987, p. 67). IMF membership is a
prerequisite for receiving funding from the World Bank, and the Fund is financed by fees paid

annually by its members. Since the 1970s the Bank and Funds cooperation has increased
significantly, as explained on the IMFs website.
It does little good for the Bank to develop a long-term irrigation project to assist, say, the
export of cotton, if the country's balance of payments position is so chaotic that no
foreign buyers will deal with the country. On the other hand, it does little good for the
IMF to help establish a sound exchange rate for a country's currency, unless the
production of cotton for export will suffice to sustain that exchange rate over the medium
to long term the IMF implicitly recognizes that balance of payments problems arise not
only from a temporary lack of liquidity and inadequate financial and budgetary policies
but also from long-standing contradictions in the structure of members' economies,
requiring reforms stretching over a number of years and suggesting closer collaboration
with the World Bank, which commands both the expertise and experience to deal with
protracted structural impediments to growth The bedrock of cooperation between the
Bank and IMF is the regular and frequent interaction of economists and loan officers who
work on the same country. The Bank staff brings to this interchange a longer-term view
of the slow process of development and a profound knowledge of the structural
requirements and economic potential of a country. The IMF staff contributes its own
perspective on the day-to-day capability of a country to sustain its flow of payments to
creditors and to attract from them investment finance, as well as on how the country is
integrated within the world economy. This interchange of information is backed up by a
coordination of financial assistance to members. (Driscoll, 1996)
As neoliberal globalization has rapidly progressed, the IMF and World Banks activities have
often overlapped as the Fund has relatively recently begun to concern itself with the structural
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reform in addition to general oversight of the international monetary system. However, structural
adjustment has historically been the Banks role primarily.
In order to develop a nation, the World Bank offers loans for specific projects to
countries who are in dire economic straits and cant afford to establish or repair basic
infrastructure and sectors of their economy. The World Bank has different branches (the
International Finance Corporation, the Multilateral Investment Guarantee Agency and the
International Centre for Settlement of Investment Disputes) in order to facilitate these loans and
the strict conditions they entail. Many of these manipulative stipulations include the privatization
of public utilities, the devaluation of the nations currency and austerity cuts to education,
healthcare, etc. amongst other damaging constraints. These loans have often come with high
interest rates, management commissions and relatively short periods for repayment. The Bank
does not lend its support to just any nation in need, though. It is selective and preferential to
projects it foresees as profitable, with the capital invested coming primarily from bonds issued
on the financial markets, and the fact that the richest countries in the world are its shareholders
ensures that these funds come at preferential rates. In its first 17 years, the World Bank did not
permit a single loan for education, public health, drainage systems or drinking water
infrastructure. Instead, export-oriented loans focused on increased production capacity and
extraction of raw materials, fuel and agricultural goods were the focus. Potential for nations selfreliance is typically avoided, as significant reliance on the importation of goods from
industrialized nations and the exportation of goods desired by those same nations is conditionally
forced. These methods can be explained by the World Banks theories of development, which
have been influenced by popular neoliberal economists.

In 1960, Walt Whitman Rostow, an influential economist and political adviser to

Secretary of Defense (and future World Bank president) Robert McNamara during the Vietnam
War, published The Stages of Economic Growth: a Non-Communist Manifesto. In it he
establishes his theory of economic development being comprised of five stages which all
countries must linearly navigate in order to modernize. The first stage mainly consists
agricultural activity as a means of subsistence, with growth unviable both economically and
psychologically for the population. The next stage is characterized as a pre-condition for takeoff, where technology has just begun to be introduced, a demand from other nations to export
raw materials rises, investments in infrastructure that facilitates expanded production and a
national identity in the context of the world economy develops. Once these conditions exist,
Rostow argues, an influx of external capital is the indispensable third step by which
industrialization, the creation of an entrepreneurial class and foreign credit can produce a rapidly
growing economy. Once take-off has been successfully completed, the nation enters its fourth
stage, dubbed the drive to maturity during which a society has effectively applied the range of
modern technology to the bulk of its resources (Rostow, 1960, p. 59). This long period of
sustained growth should, after some 60 years, usher in the high age of mass consumption as we
have come to know it in the west (commodity culture, widespread disposable income, etc.).
Rostows model is rife with false assumptions and selective historical examples. In his
postulation of mass consumption as the final era and end-goal of economic development around
the world he draws mainly from the growths that occurred in the US post-WWII. Likewise his
take-off stage is modeled after the agricultural and industrial revolutions which occurred in
Britain. In his work he has effectively decontextualized these examples in the hopes of broadly
applying them to countries which may not have large populations, abundant natural resources or

the will to become competitive forces in the market. These same simplified theories of linear
growth, nevertheless, have been historically present in IMF and World Bank logic and policy. In
the mid-1960s future chief-economist and vice president of the World Bank Hollis Chenery
formulated his double deficit model, in which due to insufficient savings and the lack of
available foreign currency to import during the initial stages of industrialization, development is
constrained and the only feasible solution is external borrowing, foreign investment and increase
in export production (Toussaint, 2008, p. 100). Again we can see the emphasis on debt accretion
and export-oriented growth as imperatives along the road which is proposed to eventually arrive
at a nirvana in which all countries may enjoy the contemporary comforts afforded to Americans,
but not without the US profiting along the way. Can this fifth stage of post-modern luxury, which
fails to recognize the cultural implications of such a transition as well as the finite nature of
natural resources, really be achieved by all nations? More importantly, is this really the aim of
these institutions in the first place? Even Chenery (1966) concedes that the main objective of
foreign assistance, as of many other tools of foreign policy, is to produce the kind of political and
economic environment in the world in which the United States can best pursue its own social
goals (p. 81). In fact, since its inception the World Banks president has always been an
American citizen appointed by the US government. In addition, the US is the only member of the
bank allotted the right to veto decisions made by the Bank. The USs considerable influence over
the World Bank and IMFs activities often has a direct effect on the assessment of eligibility for
the allocation of loans to countries whose governments are not allied with the US. That is to say
that regardless of the standard conditionalities being met, the Bank has historically denied loans
to nations such as Nicaragua, Guatemala, and Chile due to the establishment of communist
regimes of which the US did not approve. In the case of the Vietnam War, the Bank made loans

at the encouragement of the US to the anti-communist regime of the South. After the war the US
pressured the Bank to suspend any further loans, despite the Bank finding that the new
Vietnamese authorities had met the conditions to continue receiving them. Here we can clearly
see the purported economic objectives of the World Bank subordinated to the interventionist
politics of the United States. There are many cases in which the Bretton Woods institutions have
been used in part as a vehicle for US political motivations with disastrous effect. A prime
example is the Philippines.
In July of 1946, the Philippines was granted independence following agreements on a
fixed exchange rate between the US dollar and the Philippine peso and various free trade
agreements. After a few years, though, the Philippine government introduced policy that aimed
to curb the devaluation of their currency, establish stricter controls on imports and eliminate
private borrowing from foreign investors. This alteration of the conditions the country was
originally granted independence on led to small but considerable economic growth. This was
allowed by the US for some time due to a willingness to secure a lasting alliance with the newly
independent Southeast Asian nation, in which the US had great geostrategic interest and a strong
military presence. However, after the Philippine congress was taken over by the Conservatives in
1959, the economic controls aimed at bolstering state revenue and promoting self-reliant
development were eliminated to the satisfaction of the US, IMF, World Bank, transnational
corporations and conservative sectors of the ruling class in the Philippines. In ten years time,
after massive capital flight towards foreign investors and sharp devaluation of the peso, the
Philippines had accreted $1.88 billion in external debt. In 1972 Ferdinand Marcos established his
dictatorship with the full support of the World Bank and IMF due to his promises to cooperate in
the establishment of neoliberal policy. Marcos removed the debt ceiling, enabling the World
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Bank to loan out more money to the Philippines than ever before. However, Marcos was not so
popular with the Philippine people and following the banking and debt crises in the early 1980s
national discontent grew so strong that Marcos was removed from office and replaced by
President Corazon Aquino in 1986. Aquino committed to enacting neoliberal forms more quickly
and efficiently than Marcos. In her first six years in office the World Bank loaned the Philippines
$1.8 to carry out structural adjustment and the privatization of state-owned firms initiated by the
IMF, with the added stipulation that American military bases in the country were to remain open
(Toussaint, 2008, p. 73-77). The impacts these changes have had on the working population in
the Philippines since can be seen in Elizabeth Uy Eviotas essay The Context of Gender and
Globalization in the Philippines in Women and Globalization. In it, Eviota highlights the effects
trade liberalization, deregulation of markets and privatization. Since Aquino came into power,
much of the agricultural lands have become cash-crop plantations or industrialized export zones,
destroying the livelihood of tens of thousands of farmers. Food security in the Philippines is
heavily dependent on imports, which has driven down the price of domestically produced food.
Other rural areas have been overtaken by investments in tourism, open-pit mining, commercial
fishing, international trading ports and various other economic ventures which have driven many
rural women to migrate to urban areas in search of employment in both the informal sector and
in export-zone factories. However, job security, benefits and workers rights are practically nonexistent due to the flexible nature of employment under neoliberal policy, which has proven to
devalue womens labor and create conditions conducive to an increase in the severity of worker
exploitation and inequality between men and women as well as more broadly between the rich
and the poor. However, this inequality is identified by the World Bank as just another step on the
road to prowess in the global market. The president of the Bank put it quite plainly in 1961 when

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he said that inequalities in income are a necessary by-product of economic growth which makes
it possible for people to escape a life of poverty (Kapur, Lewis & Webb, 1997, p. 171). For the
Philippines and plenty of other nations who have undergone economic restructuring at the hands
of the Bretton Woods institutions, mass economic inequality has been less of a by-product and
more of a direct result of neoliberal policy, and poverty hasnt been escaped but brutally inflicted
upon them. From the looks of it, it is doubtful that this is merely a stage in the Philippines
economic development and it would be reasonable to assume that its only hopes to escape a life
of poverty would lie in the neutralization of the forces of globalization that have plagued the
country like so many others.
Are the IMF and World Banks intentions of alleviating global poverty genuine? Is there
really room in the world economy for every country these institutions fund to become
competitive forces in the global market? Can radical reform reshape the ways these institutions
operate in order to transform their policy into that which truly aims to develop nations
economies based on models of self-reliance? These are all important questions which even the
most benign amount of research into the history of the Bretton Woods institutions can raise. It is
important, however, to consider the concrete evidence that this history presents in its examples of
implementation, which strongly points to the verdict that the Bank and the Fund are not the
philanthropic aid-doling organizations they often project to be. Rather they have become the
worlds new colonial authority, serving as the apparatuses by which globalization may advance.

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REFERENCES
1. Toussaint, E., Dropsy, S., & Anne, E. (2008). The World Bank: A Critical Primer.
London: Pluto Press.
2. Browne, R. S. (1987). The Political Morality of the International Monetary Fund.
S.l.: Transaction Publishers.
3. Driscoll, D. D. (n.d.). International Monetary Fund. The IMF and the World Bank:
How Do They Differ?. Retrieved May 30, 2014, from
https://www.imf.org/external/pubs/ft/exrp/differ/differ.htm
4. Rostow, W. W. (1960). The Stages of Economic Growth: A Non-communist Manifesto.
Cambridge: University of Cambridge.
5. Chenery, H. B., & Strout, A. M. (1965). Foreign Assistance and Economic
Development (Rev. ed.). Washington: Dept. of State, Agency for International
Development, Office of Program Coordination.
6. Aguilar, D. D., & Lacsamana, A. E. (2004). The Context of Gender and Globalization
in the Philippines. Women and Globalization (pp. 52-63). Amherst, N.Y.: Humanity
Books.
7. Kapur, D., Lewis, J. P., & Webb, R. C. (1997). The World Bank: Its First Half
Century. Washington, D.C.: Brookings Institution.

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