Wednesday, May 29, 2013

international economy

Introduction In the current era of economic interconnectedness (globalization), international financial institutions (IFIs) have come out as very important institutions in the international economy. These are the financial or economic organizations that have been created or chartered by a number of countries, and thus are subjects to the international law. The shareholders or owners of these organizations are normally national governments, even if other global institutions and other organizations sometimes feature as shareholders. Some of the most common international economic organizations include the World Trade Organization (WTO) and Group of Eight, the World Bank, and the World Economic Forum. There has always been a debate as to whether the international economic organizations operate in such a way that benefits all the countries in the global arena (Kacowicz, 2007). This paper looks at this debate taking a stand in opposition of these organizations having benefits to all countries. International economic institutions were developed with the aim of providing development opportunities to all countries in the global arena. This would be achieved through policies and financial assistance to the developing nations to achieve sustainable development. As a matter of fact, the developing nations have continued to benefit from financial aid and loans given to them by these organizations. However, things are not the way they seem. Rather than providing the promised sustained development in the developing world, the international financial organizations have been a cause of the problems faced in the developing nations. These organizations have the choice to provide or refuse grant (particularly the ones financing unplayable Third World Debt) (Perkins 2004). This is one of the things leading to higher rates of poverty in the developing nations. This is an effective form of control that makes them have lack of means of production for sustainable development. Some of the international financial organizations that have been criticized for this in the past are the World Bank and the International Monetary Fund (IMF). These organizations have argued that for a country to qualify for the loans, and other forms of financial aid, they have to take some steps that are favorable to the interests of the international financial institutions. Some of these measures though favorable to the organizations and the developed world are detrimental to the economies of the developing nations (Kacowicz, 2007). The structural adjustments affect the developing nations by increasing instead of decreasing poverty. It has been argued that the current economic arrangements permit some organizations to control and exploit poorer countries by fostering debts. This leads to some governments in the developing nations to give monopolies and concessions to international companies in exchange to consolidation of control and financial bribes. Such multinationals use the power in such a way that affects the natural resources of the poorer country. In various cases, most of the money that is loaned to the developing nations is returned to the favored international company. The foreign loans are thus subsidies to companies of the loaning state. Most of the major international financial organizations have been blamed for engaging in this kind of neo-imperialism. Some of the developed nations like the United States are argued to be involved, as claimed in Confessions of an Economic Hit Man by John Perkins (Perkins 2004). The United States has always been hegemony, the most powerful country in the world. This has led to its leadership always influencing the way the world economy has operated and the way it has been governed. Thus, the United States and other nations in the West have for a long time had a lot of influence on international economic organizations. The developed world has always used globalization, capitalism and other related factors to have control over the developing nations. Behind the interconnection of nations in a global system lie international decisions, practices and policies. All these are basically driven, influenced and formulated by the richer and more powerful nations and forced down to the developing nations (Shannon, 1996). The policies and decisions developed by the international economic institutions have tended to favor multinational companies, and developed nations at the expense of the developing nations. Their capitalist policies have produced a rigid system that is the international division of labor that favors the developed world at the expense of the developing nations. Thus, the dependent countries provide cheap agricultural products, cheap mineral and labor and also play the role of the repositories of surplus capital, manufactured products and obsolescent technologies. This orients the economies of the dependent nations toward the outside. Goods, money, services do flow to these nations, but the allotment of these resources is on the basis of the economic interests of the developed nations, which are the dominant states. The division of labor is the basic explanation of poverty and environmental issues in the developing nations (Kacowicz, 2007). As a result, the economic development that is promised by the policies of the international economic organizations takes place in the industrialized or developed nations and does not necessarily cause development in the developing countries. In fact, it has been suggested through economic research that economic activities in the developed nations cause serious economic, social and environmental problems in the developing countries. With the promise of free trade, developing nations export raw materials to the developed nations, which are used to produce finished products. The finished products from the raw materials are sold back to the developing nations. The value that is added to the primary products in the process of creating the finished products makes them to have a higher cost than the primary products. This means that the developing nations would not earn sufficient for their export earnings to cater for their imports. This is a form of exploitation is rampant in the globalised world (Reuveny, 2007). The impacts of the international economic organizations on the developing world have put them in major debts instead of helping them to develop. Most of the developing countries, particularly in Africa are currently paying more money per year in servicing their debts to the World Bank and the International Monetary Fund than they get in loans from these organizations. This is one of the factors that have led to an increase in the gap between the rich and the poor countries as most of these poor countries have their people deprived of their necessities. This is the kind of dependency that enables the World Bank and the International Monetary Fund to enforce Structural Adjustment Programs upon these countries. These adjustments that basically consist of privatization plans result in deterioration of education health and generally low living standards. The opponents of these international monetary organizations have carried out studies as to the impact of policies such as devaluations by the International Monetary Fund. This policy demands devaluations of currency. The critics have argued that the international monetary fund wants these currency devaluations as a provision for refinancing loans. The organization also insists that the loan be paid back in dollars or currencies from the other First World nations against which the currency of the least developed country has been devalued. This increases the debt by a percentage of the devalued currency. This is a means of keeping these countries under perpetual debt and poverty (Reuveny, 2007). Conclusion The international financial institutions such as the International Monetary Fund and the World Bank, and the developed economies such as the United States develop and implement policies related to development in the developing nations. While these policies and decisions are suggested to be with the aim of achieving sustainable development all over the world, they are not necessarily beneficial to the developing nations. The policies that have been developed by these organizations are favorable to the West and detrimental to the developing world, especially in Africa. They have caused more problems than benefits for these countries that end up serving huge debts and suffering destruction of resources and increasing poverty. Generally, it can be concluded that the international economic organizations do not work for the equal benefit of all countries. References Kacowicz, A. M. 2007. Globalization, Poverty, and the North–South Divide. International Studies Review 9(4). Perkins, J. 2004. Confessions of an Economic Hit Man, Berrett-Koehler Publishers, San Francisco, CA. Reuveny, R. X. 2007, The North–South Divide and International Studies: A Symposium. International Studies Review 9(4). Shannon, T. 1996. An introduction to the world-system perspective. Second Edition. Westview Press, Boulder, CO