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International Monetary Fund (IMF)


Developing countries have been struggling for centuries to improve their economic and social structures with help from “development” institutions, such as the Bretton Woods institutions, and through assistance from the more developed countries but with no avail. Developed countries and global development institutions have left these developing countries in a much worse position than they were originally in by exploiting these countries through economic means and through the implementation of damaging economic reforms. In terms of the Bretton Woods's institutions and policies, why are many developing countries unhappy under the global arrangements of this system? Have these institutions and their policies been positive or negative for developing countries? In order to answer these questions, an overview of the Bretton Woods conference and the intentions of this conference will be discussed, two specific institutions of the under the Bretton Woods system, the International Monetary Fund (IMF) and the World Bank, original intentions will be highlighted and how the IMF and the World Bank have affected developing countries through their policies, such as Structural Adjustment Programmes (SAPs), will be explained. To aid this explanation, examples of the IMF - World Bank intervention in the following countries: Somalia and Indonesia will be illustrated and discussed.

Background of the Bretton Woods Conference and the results

During the World War 2 period, 44 countries gathered at Bretton Woods in New Hampshire, led by Britain and the United States, during July of 1944. The purpose of this conference was to discuss how to resolve two serious problems dominating their states during this period. Firstly, they had to establish some kind of economic system to ensure and event like the Great Depression of the 1930's does not repeat itself. In order to prevent this from happening, a system was created to ensure an exchange rate system which was relatively stable, to establish a unit of account such as the gold standard, to ensure the effective control of capital flows within countries, to ensure the provision of short-term loans to prevent a balance of payments crisis and to create a free trade market (Baylis; 2008: 244). Secondly, the conference discussed and formulated economic plans for the restructuring of economies in the post-war peacemaking (Le Pere; 2006: 1). Governments of these countries were determined to secure global peace after the war that the Bretton Woods conference gave birth to the International Monetary Fund (IMF), the International Bank of Reconstruction and Development, which is now referred to as the World Bank, and the International Trade Organisation which became known as the General Agreement on Tariffs and Trade (GATT) then referred to the World Trade Organisation (WTO) in 1994 (Le Pere; 2006: 1). The Bretton Woods organisations, the IMF and World Bank in particular, ended up playing an important, yet very controversial, role in the international political economy through development processes and market controls (Le Pere; 2006: 1).

The International Monetary Fund (IMF)

The International Monetary Fund (IMF) was established in 1946, along with the World Bank. The IMF was developed to promote all monetary cooperation and remedy economic problems incurred during the post - war reconstruction period (Baylis; 2008: 245). The IMF was therefore considered as the “rule keeper” and an important component in public international management. In the pursuit to stabilise the exchange rate system, the IMF reserves the authority to change exchange rates. Another vital role is control over the balance of payments deficit of states and governing the policies which affect states monetary systems (Spero; 1990: 33). However, since the 1980's, the IMF's role has settled into the position of an institution providing assistance, based on financial situations, to developing countries. In order for countries to receive any assistance, the governments of those countries must agree to certain conditions set out by the IMF and the World Bank which permits the implementation of specific reforms provided by these institutions (Baylis; 2008: 245).

The World Bank

The International Bank for Reconstruction and Development, now known as the World Bank, is responsible for the development and reconstruction of countries in economic and social crisis. It is seen as the largest source of development assistance, along with the IMF, to developing countries. However, the World Bank requires the support of other organisations apart from the International Monetary Fund. These organisations include the International Development Association, the Multilateral Guarantee Agency and the International Finance Corporation (Baylis; 2008: 245). The role of the World Bank in our generation has not changed much compared to the past goals. The World Bank has assumed the responsibility to resolve the major challenges faced by poverty-stricken countries through capital provisions, assumed the role as a mediator for fragile countries in conflict and assisted with global development on a economic, social and reconstructive level. These goals form part of the overall Millennium Development Goals which were adopted by the World Bank (

Negative Impacts of the IMF and World Bank intervention

The global crisis that our world faces in these modern years is much more complex and challenging compared to the global issues experienced in the post-World War 2 period. An attempt in the resolution of these current issues has resulted in the stabilisation of the global economy through the process of debt collection. Instead of helping with the reconstruction of economies, the degree of debt built up by countries destroys economic activity and increases the levels of unemployment as institutions within these countries go bankrupt as a result of the level of debt repayments to debtor countries and organisations. The rising urgency of this situation captured the attention of the IMF and the World Bank which resulted in the implementation of IMF - World Bank policies within these countries. However, these IMF policies had the opposite intended consequences. Instead of encouraging growth within these vulnerable, developing economies, it led to the destruction of state institutions, disintegration of protective economic barriers and the impoverishment of large numbers of the population (Chossudovsky; 1997: 15). IMF policies have played a major role in the increase of unemployment rates within developing countries. As IMF-sponsored reforms affect the labour market by “regulating labour costs” in terms of lowering the expenditure by the overall labour market costs, they undermine local consumer industry developments by damaging the market structures with harsh “development” policies which limit the amount of international market power of local markets. This has a negative impact on the local industries of developing countries by producing a lower level of earnings within these industries which eventually leads to the closure of local businesses as they suffer from bankruptcy. This leads to an increase in the already large numbers of unemployed individuals (Chossudovsky: 1997: 16). As local industries are destroyed by harsh economic policies, international corporations grasp the opportunity to invade the markets of developing countries. In order for these multinational corporations to expand their operations in countries, they intimidate local small and medium-enterprises in the market by dominating the markets. In turn, these small and medium-enterprises are forced to either support these global corporations through producing for them or run the risk of going bankrupted. This leads to the destruction of the domestic economies as agricultural producers are phased out of the market and are forced to join the unemployed masses (Chossudovsky; 1997: 17). Perhaps it is a bit far-fetched to imply that all the problems faced by developing economies in terms of industry destruction and economic failure is fuelled by the Bretton Woods reforms. Some of the problems faced by these countries were already present before any intervention of the IMF and the World Bank occurred. However, it is true to say that these institutions have aggravated already present problems as well as causing new issues to fester (Le Pere; 2006: 2). Another area where the IMF and the World Bank have managed to cause more destruction than reconstruction is through failed attempts at state intervention to in order to curb corruption within government organisations. These so-called development policies have encouraged environments where corruption is able to flourish and destroy any successful state policies. State failure under the Bretton Woods organisations has not only reversed any growth experienced by developing countries and their economies but they have also managed to negatively affect income distribution and social reconstruction (Le Pere; 2006: 2).

Structural Adjustment Programmes (SAPs)

The Structural Adjustment Programmes (SAPs) were implemented by the IMF and the World Bank with the intention to provide countries in economic turmoil with positive solutions to aid development. This is done by determining the direction of a country's reconstruction policies through implementing “currency devaluation, fiscal reform, the removal of tariff and import quotas, price control liberalisation and other similar policies” (Le Pere; 2006: 6). Unfortunately, the implementation of SAPs has contributed to the destabilization of national currencies and further degradation of economies. It has also led to the emergence of famines, the closure of schools and other educational facilities as well as health institutions, and the resurgence of infectious diseases in several regions of developing countries through a lack of vaccines. Even though the primary goal of the World Bank was poverty reduction and environmental protection, its support of environmental projects have just increased the process of deforestation and further destruction of the natural environment resulting in less arable land to sustain the agricultural communities (Chossudovsky; 1997: 33). SAPs have become a source of a type of economic “genocide”, which relates to the mass destruction of world economies, encouraged by the IMF and World Bank manipulation of the market drivers (Chossudovsky; 1997: 37).

Examples of SAP implementation and IMF-World Bank intervention: Somalia

The abovementioned effects caused by the Bretton Woods organisations are obvious reasons why many developing countries do not approve of the arrangements enforced by the IMF and the World Bank. To illustrate these issues, real world examples from some developing countries will be referred to. Somalia, in Sub-Saharan Africa, is a “pastoral economy based on exchange between nomadic herdsman and agriculturalists” (Chossudovsky; 1997: 101). The intervention by the IMF and the World Bank in the 1980's instituted an agricultural crisis within Somalia through the enforcement of harmful economic policies which weakened the relationship between the pastoralists and the agriculturalists (Chossudovsky; 1997: 101). The IMF enforced a Structural Adjustment Programme within the country where food aid was provided resulting in Somalia's dependency on imported grain. As more surplus cheap grain flooded onto the local market, many local producers were expelled from the industry due to the decrease in the consumption of local crops. This eventually led to the deterioration of the majority of local crop fields. This left many farmers with limited or no sources of income. The impacts of the SAP in Somalia led to the collapse of the infrastructure, detrimental effects to the local grain markets and the mass inflow of food aid brought on the impoverishment of the farming communities (Chossudovsky; 1997: 102). The IMF - World Bank intervention policies brought on a chain of destruction within Somalia. The decline in the nomadic herdsmen community due to starvation decreased livestock numbers causing a breakdown in the economic exchange with the agricultural community. The entire economic system collapsed. The disintegration of the markets resulted in a decline in foreign exports which negatively affected the balance of payments system destroying, in turn, government policies. Farmers were left unemployed due to the surplus aid diminishing the domestic market and increasing the costs of farming inputs. Overall, the implementation of SAPs led to the impoverishment of Somalia on an economic and social level (Chossudovsky; 1997: 104).


In 1997, Indonesia was one of the many countries that were severely affected by the East-Asian crisis. The IMF and World Bank intervened to try and relieve the situation through the implementation of SAPs but these institutions just aggravated the situation further as well as introduced new and unwanted struggles (Toussaint, 2008: 82). The East Asian crisis was a result of a massive economic meltdown which affected many countries such as Malaysia, the Philippines and Indonesia by July 1997. The neo-liberal reforms which were enforced by the IMF worsened the situation by causing bankruptcy to large sectors of the markets and entrepreneurs within Indonesia. The IMF and the World Bank then instructed the Indonesian government the convert all their private debt owed to private banking institutions into public debt as part of their reconstruction policies which resulted in a drastic decrease in the incomes of much of the population (Toussaint; 2008: 90 - 91). This sudden increase in the public debt of Indonesia caused a major decline in the social and economic development of the country as well as undermining all state policies and state support from the population. This is a clear illustration on how the IMF adjustment policies have caused further destruction within the countries that received its “aid” (Toussaint; 2008: 93).


In conclusion, it is quite clear that the roles of the Bretton Woods institutions have had disastrous affects in developing countries therefore causing much unhappiness within those countries affected by these policies. The Bretton Woods conference was held to discuss and create ways to reconstruct global economies after the destruction caused by World War 2. The IMF and the World Bank was established to help with the reconstruction process and relieve poverty in many developing countries. However, the original intentions of these institutions of these institutions were never achieved. As illustrated in the examples of Somalia and Indonesia, the reforms implemented by the IMF - World Bank have caused more harm than good, leaving these, and many more other victims, in a much worse state than before their intervention.