17 September 2012

Day 98: The Unholy Trinity

The World Banks, the International Monetary Fund (IMF) and the World Trading Organization (WTO) – together they form the ‘Unholy Trinity’.
Together these three organizations form a vast and extensive set-up that enforces a neo-liberal economic ideology through conditional lending and foreign aid

The World Trade Organisation

At the end of World War II, it was proposed that a global economic organisation ought to be established. This organisation – the International Trade Organisation (ITO) – would have the task of establishing rules relating to world trade, business practices and international investment.
Through opposition of the United States though, the ITO never came into being.

Later on, some twenty-three countries entered negotiations in relation to tariff reductions. These negotiations led to tariff reductions affecting roughly one-fifth of world trade. Among the tariff reduction negotiations, other agreements were reached on rules of trade. These agreements become known as the ‘General Agreement on Tariffs and Trade’, also known as ‘GATT’.
Through the establishment of the GATT, trade barriers were gradually brought down and world trade started growing. Throughout the years, non-tariff trade related barriers started demanding more and more attention as the tariff subject was becoming of lesser importance. It was decided that a new organization should be set up to replace the GATT. This organization is now known as the World Trade Organization (WTO).
The WTO carried over its key principles from GATT: non-discrimination and national treatment.
These two principles are integrated in the overall mission of the WTO, which encompasses the promotion of fair competition, insurance of market access, encouragement of economic development and economic reform.

The World Bank & the International Monetary Fund

Besides the WTO, two other global organisations were set up after the events of World War II: the World Bank and the International Monetary Fund.
To avoid re-experiencing a complete collapse of economic relations which had followed the First World War, discussions were held between countries regarding the shape of post-war international economic order.
The end result of their regular discussions was the formation of a framework of what would become the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (World Bank).

The function of the IMF is to provide its members loans under different programmes (short, medium and long-term). Each member country is charged with a particular quota for their membership which is in proportion with their economic power. The same way, will the voting power of a country within the IMF and World Bank depend on their economic wealth. As a result, the United States holds for instance 20% of all votes – while 43 African countries together hold less than 5%.

The IMF’s most prominent role is to intervene, on request, whenever a country is experiencing a crisis in its international payments. The price countries pay for a loan is an agreement by the borrowing country to make fundamental changes to its economy (which generally means making amendments to the government and its relation to the free market) – to prevent the reoccurrence of the same problem. These requirements are known as “IMF conditionality” or “structural adjustment policies”.

Originally the World Bank was known as the International Bank for Reconstruction and Development (IBRD). The name clearly indicates that the main purpose for creating the organisation was to assist with the reconstruction of countries that had been badly affected by World War II. As time went by the countries affected became more stable, it was suggested that undeveloped countries could benefit from capital investment to speed up the development process. In the meantime the IBRD has become one of five subgroups within the World Bank. Each group has a different focus – though all groups are related towards the development of poor countries, and only developing countries are allowed to borrow from the World Bank (unlike the IMF).

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