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The Imf, World Bank And Wto: The Burden Of Developing Countries

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Theorist Karl Polanyi's 1944 book, The Great Transformation warned that nationalism, socialism, and monopolistic protectionists in the late 19th century created, "an unholy alliance of trade unions and labor parties" which destroyed the, spirit of Enlightenment and led to a "collectivist countermovement" (Polanyi, p.144-145). Following the tumultuous events of World War II, "the urge to organize was given impetus" (Klabbers, p. 21) and the Bretton Woods Conference established what would become the major international financial institutions (IFIs) of the world. The World Bank, the International Monetary Fund (IMF), and the later the ratification of the WTO in 1995; completed institutionalization of world economic policy. One of the major critiques of these institutions is that they impose restrictions that take away national economic sovereignty. This paper provides a careful analysis of how IFIs fit into the global marketplace; specifically how they are controlled and managed by states. Furthermore, it elucidates several key reasons why the transfer of economic sovereignty is vital, while recognizing that certain changes within IFIs could further their intended mission of world-wide economic development.

Abram and Antonia Chayes argue correctly that the "enforcement model" or the use of coercive methods is not effective to use when monitoring treaty enforcement . They chart the course of compliance with international regulatory agreements to understand the thought process being used by countries who do not obey them. The primary understanding that they glean from their analysis is that the managerial approach is more likely to preserve a satisfactory level of compliance with international regulatory agreements based upon the factors of efficiency, interests, and norms (Chayes, p.4). In essence, the existence of international treaty norms broadly promotes compliance. The management strategy requires transparency, capacity building, and dispute settlement which, in turn, require data collection and verification to work (Chayes, 23-25). The WTO, WB, and IMF function under the notion that states operate interdependently, and thus collaboration is needed to achieve their goals. Obviously, the synergistic model is achieved via collaboration, but this is only one of the reasons.

The institutionalist mantra that sovereignty is vital, ignores the fact that isolation is no longer a practical possibility in the global marketplace. China has been the most prevalent critique of this assertion, as it has continued to grow economically and has also continued with economic isolation. U.S. Treasury Secretary Paulson offers this analysis, "those nations that reform their economies and open themselves to competition benefit their citizens greatly" and "have better jobs, improved living standards and greater opportunity (NY Times, 2006)." Quality of life assessment is not the only benefit from competition. Isolation also " increases the risk of boom and bust cycles (NY Times, 2006)." It is widely believed that markets are the favored resolution to underdevelopment and poverty due to the fact that they are the, "efficient way to promote diversification, industrialization, and production (Pease, p.158)". Underdevelopment of international economic infrastructure results in a loss in comparative advantage because of international competition barriers. A whole host of additional side factors that poor countries must deal with are: corruption, rapid population growth, and unhealthy environmental practices (Pease, p. 159-160)."

The WTO is perhaps the most democratic of the IFI's. It's mission is to create rules for international trade and operates with authority only after all member states agree unanimously. This unanimoty keeps decisions as agreeable to as many member states as possible . The WTO restricts laws of member states by forcing them to adhere to WTO agreements like the GATT. The Agreement on Agriculture is a big source of criticism due to uneqal tariff protection requirements levelled against farmers in developing countries (FAO, p.18). The problem intensifies when developed countries can afford to spend billions of dollars in subsidies, resulting in markets flooded with cheap produce. This problem is what is frequently highlighted by major news media covering WTO meetings. The stated goal of the WTO is to provide a level of, "predictability and stability" (Jackson, 105) by setting rules that govern investment and also by providing guidance to governments in an effort to maintain monetary security. The concept of sovereignty within the realm of the WTO, is that all member governments are sovereigns within their respective customs territory that is regulated by a dispute settlement system operated in city X (Jackson, 107).

Obviously, the idea of sovereignty can be open to interpretation when there is a rule-forming apparatus in place dictating state actions. The "umbrella of the WTO" is something only meant to ensure compliance with WTO Agreements. Its existence does not keep a government from making laws that effect internal processes within its borders. WTO Agreements rarely even require specific content to exist within these laws. What primarily concerns this IFI is that international cooperation moderates the potentially negative external effects. Also, with regard to sovereignty, the initial GATT Agreements contain rules about the national regulation of member governments, however, they are rules which are made under unanimous agreement . The WTO's trade agreements work in coordination with IMF and World Bank procedures, lifting trade barriers and domestic limitations and enabling it to supervise foreign investment.

The IMF has an institutional structure that is much less democratic in comparison to the WTO. Prior to the 1970s, it had an exchange rate policy that did not allow wealthy states to distinguish themselves from developing states. Since the economic collapse thirty years ago, the IMF changed the Articles of Agreement to permit each member state to craft its own exchange rate policy (Bradlow, 2006). The wealthy "supplier states", are separate (or have more sovereignty) from the poorer IMF "consumer states" and have adequate votes and Board representation to guide decision making. This means that they can make decisions for the IMF not affecting their citizens. This situation allowing decision-makers to have power without accountability to those most affected by their decisions provides potential for abuse. The structure of votes is also comprised in such a way that, a major decision requires 85% of the vote which allows the US, with 17%, to have veto over the fund's considerable business while the 80 poorest countries, only have 10% in total



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