Within the last twenty years, there have emerged non-state world aristocracies that have more global power than the nation-states. These international bodies include the IMF and the World Bank, which have created powerful international bureaucracies. Although people did not elect these bodies, they set rules of the economic game for most of the world’s population. Today the World Bank and the IMF have acquired supranational powers whereby they dictate and supervise the economic policies of many developing countries. Many elected governments in Africa, Asia, and Latin America are rapidly being transformed by the supranational economic policies beyond the control of their citizens into very low-intensity democracies. As a result, the policies affect the daily lives of citizens in those countries without being accountable to anyone. Therefore, the governments put in power by the people are limited, and hence citizens are denied their democratic rights of a sovereign nation (De Rivero & De Rivero, 2001).We will write a custom Weakened Sovereignty: the IMF and the World Bank specifically for you
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Transferred National Responsibility
Although most developing countries dislike the rise in undemocratic and supranational power of the IMF, they are left with no alternative to the rigorous policies. Any government that rejects them becomes a world pariah because it will not be able to access international credit. The supranational monitoring of the IMF of the national economic policies of Asian, Latin American, and African countries has led to erosion of national sovereignty over the entire category of the quasi-nation states that refer to themselves as sovereign. Such countries have lost their democratic control of financial and economic policies to the IMF. Most leaders of developing countries have been convinced that adopting the IMF requirements is the only alternative to reducing poverty and attaining economic development. Therefore, most of them have transferred the responsibility placed on them of decision making as a sovereign nation to the IMF (Sihanya, Morkomen & Ambani, 2008).
IMF is today the world’s most powerful non-state body because it affects the economies of at least 184 countries. Some of the effects may be drastic or even disastrous such as the conditionality phenomenon. The multilateral nature of the IMF has enabled it to exercise conditionality on the borrowing nations whereby it affects the nature of policies implemented by the government of the recipient country instead of simply monitoring their quality. This may include a commitment by the borrowing nations to implement some policy decisions which, although are desirable, may be difficult to implement. Some conditions set may have delayed benefits, which means that a country’s priorities are ignored in favor of IMF policies. However, countries have to adhere to these conditions as they affect their rating by the body on their creditworthiness. Some of the ways in which the sovereignty of a country is restricted through the concept of conditionality are explained below (Miles & Scott, 2005).
Control of the budget
In most countries, the minister of finance usually controls the national budget. It is a common phenomenon that the ministry determines the size of the national budget. The minister and his staff will cut spending on some areas depending on the spending limits the government has for itself. However, this practice of determining the budget according to the needs is rarely observed in developing countries that are members of the IMF. The body often sets rules on government spending that qualifies a country to receive financial aid from it. Therefore, instead of drawing budgets that are in line with the needs and goals of the country, the expenditures are to be aligned to the IMF conditions. For instance, the education for all and the millennium development goals which require that all people of school going-age should have access to education and are in a class where a teacher handles not more than 40 pupils (Miles & Scott, 2005).
To be able to accommodate 72 million children worldwide who were not going to school, there is a need to recruit around 18 million teachers and train them. As the ministry of education in various countries call allocation of a larger budget share, these calls are never attended to because the budget allocation is determined with the Ministry of Finance and the IMF officials behind closed doors. The IMF has put conditions on such governments whereby for them to receive financial aid to support the educational program, they must ensure that teachers are only employed to a given limit set by the IMF. The underdeveloped countries need a good rating by the IMF, and hence they will ignore the need for more teachers and allocate the available money on other needs that may not be as important. As a result, the sovereignty of such a country on budgetary issues is not guaranteed (Kelsey, 2000).
Control of Monetary policies
The major concern of the International Monetary Fund is in achieving macro-economic stability of its member countries. This is shown by their focus on achieving low inflation rates and deficit targets at the expense of national development goals and reduction of poverty. As a result, they will always ask countries to keep their interest rates below 5%. In addition, they encourage member states to strive to achieve a situation of little or no deficit. This means that governments have to focus on keeping their expenditure at low levels. This directly affects the major sectors of the economy, such as education and health. When public expenditure is reduced based only on inflation reasons, sectors that need development through government spending will be drastically affected. However, the government will have no alternative because it focuses on achieving a good rating by meeting the interest rates set (Ranis, Vreeland & Kosa, 2006).
Control of Public sector wages
The IMF sets wage ceilings, which are limits that determine the amounts allocated in the budget for payment of government employees’ wages. This is based on the notion that such limits will reduce the bureaucracies associated with a bloated government. This is only true in theory because such wage limits mainly affect the large sectors of government employees such as teachers and health workers. To adhere to the ceilings, the government will be forced to keep down the wages of health workers and teachers and to resist recruiting more workers for the sectors. However, with the growing population, most countries have witnessed a higher enrollment of pupils due to the removal of user fees. Therefore, the government will forfeit its goals of providing quality education as they cannot employ more teachers. In addition, they cannot increase the earnings of the current employees to act as an incentive for the increased work (Ranis, Vreeland & Kosa, 2006). A case in point was in 2003 when the Kenyan government abolished the user fees in schools. This led the government to focus on recruiting untrained teachers on a contractual basis who were ready to receive a third of what the trained teachers were paid. As a result, the government compromised on the quality and could not provide employment for the qualified teachers (Sihanya, Morkomen & Ambani, 2008).Get your
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Control of donor aid
The IMF encourages members to turn down donor aid from other donors even when the donors are willing to give the aid unconditionally. This is base on the notion that receiving such financial aid would lead to an increase in the inflation rate, which the IMF is focused on keeping low. Therefore, they would put pressure on member countries to turn down donor aid or to ask for other types of support. They would advocate for other items like health or school equipment and infrastructure. Sometimes this is done even when the promised aid was urgently needed. Sometimes the IMF would provide a lesser amount of aid than what was provided by the donor. Even if the donor had pledged to give a large sum of money to one of the major employment sectors, the government should not consider the amount as it comes up with its budget. If the money is eventually sent to the recipient, it defeats its purpose because they had made other plans, and the donation was not factored in. As a result, a country that calls itself sovereign is unable to plan and implement policies to the benefit of its citizens (Ranis, Vreeland & Kosa, 2006).
Although the developing countries form the largest share of the International Monetary Fund’s client base, they have an insignificant representation. Most of the projects and programs of the body are carried out in developing countries. Conversely, the countries have no adequate opportunity to air out their concerns to the board of the IMF. This has led to a mismatch of priorities whereby often the priorities of the body are not in line with the priority needs of the developing countries. In spite of this obvious problem, the developing countries’ ability to contribute to the policies made by the institution is clearly obstructed. They have no representation in the decision-making organs of the institution. The board, which is the highest decision-making organ, is largely populated by members from developed countries. As a result, they make rules which the developing countries have little input, yet they expect strict adherence to the rules. Therefore, such nations end up losing their sovereignty to the developed ones (Kelsey, 2000).
Support for Conditionality
Although most of the discussion above points out how policies promoted by the IMF and other such bodies reduce the sovereignty of countries, there is evidence that such rules, if followed keenly, will lead to the strengthening of a country’s sovereignty. First, multilateral conditionality can provide an avenue through which other resources can be obtained. By meeting the conditions set by the IMF, other lenders will have greater confidence in the ability (sovereignty) of the country to meet its contractual agreements. This is also supported by the notion that implementing sound policy conditions will lead the economy to a path of stability and hence regain its sovereignty. Most donor countries rely on the IMF rating to determine the possibility of lending because this shows a country’s commitment to reforms and the ability o repay the loans granted (Lombardi, 2005).
The IMF also provides support to its members in developing the ability or capacity to formulate and implement effective policies. This is important, especially to the low-income countries that have a poor quality of the rule of law and institutions. Therefore, the IMF focuses on capacity building to help the low-income countries come out of the poverty traps and become self-reliant. The superiority of the IMF enables it to collect and share information with other donors, which helps the developing countries that are improving their capacity to attract resources from various donor countries and institutions like the World Bank. As a result, the country will be able to relate with other donors as equals because they would have gained the capacity to contract (Lombardi, 2005).
The IMF and such institutions have in the recent past gained supranational powers that have seen them usurp the powers of countries and hence weaken their sovereignty. Citizens have lost their democratic right of holding their elected governments accountable because the organizations have been setting rules that affect citizens of countries that are sovereign without their consent. Governments have also transferred the responsibility given to them by the citizens to the organizations, whereby they determine how things are run in an independent country. Conditionality is another feature of the policies of IMF that has denied nations their sovereignty. Member countries have lost control of the national budget, monetary policies, donor aid as well as public sector wages because they are required to meet certain conditions. Misrepresentation in the IMF has also led to weakened sovereignty, whereby developed countries who are the majority make rules in the IMF, and they expect the developing countries to adhere strictly to these rules. However, imposing conditions by the IMF can also strengthen a country’s sovereignty. Countries that strictly implement the policy reforms increase their ratings and are able to attract more resources from other donors. As a result, they become self-reliant as well as sovereign.
List of References
De Rivero, O. B. and De Rivero O. (2001). The myth of development: non-viable economies of the 21st century. Dhaka: Zed Books
Kelsey J. (2000). Reclaiming the future: New Zealand and the global economy. Toronto: University of Toronto Press.We will write a custom
Weakened Sovereignty: the IMF and the World Bank
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Lombardi D. (2005). The IMF’s role in low-income countries: issues and challenges, Issues 2005-2177. International Monetary Fund
Miles D. and Scott A. (2005). Macroeconomics: understanding the wealth of nations. Wes Sussex: John Wiley and Sons.
Ranis G., Vreeland, J. R. and Kosa S. (2006). Globalization and the nation state: the impact of the IMF and the World Bank. New York, NY: Routledge
Sihanya B., Morkomen, O. K. and Ambani, J. O. (2008). The Impact of IMF Policies on Education, Health and Women’s Rights in Kenya. Web.