The Globalisation of Poverty: Impacts of IMF and World Bank Reforms

Akhtar Mahmood (Islamabad)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 1 June 2000




Mahmood, A. (2000), "The Globalisation of Poverty: Impacts of IMF and World Bank Reforms", Journal of Economic Studies, Vol. 27 No. 3, pp. 222-229.



Emerald Group Publishing Limited

Copyright © 2000, MCB UP Limited

The external indebtedness of developing countries and countries in transition is at the centre of analysis in this book. Starting from this core issue, Chossudosky goes on to provide a highly critical account of recent developments in the global economy, the financial crises that have afflicted the world in the last two decades and the failures of the IMF and the World Bank programs to resolve them. He adds that he has designed this book “to highlight the process of economic restructuring imposed by international creditors on developing countries since the beginning of the 1980s”.

The structure of the book is based on two important assumptions. First, it was always difficult to understand properly the workings of national economies without reference to their global determinants, but it is even harder to do so now. The global economy is no less intrusive now than it was in the colonial era. The second and perhaps even more controversial assumption is that the Bretton Woods Institutions, being part of the unequal international system, reflect more the interest of the dominant financial and political centres than those of the indebted developing countries. Based on these perspectives, the book is composed of five parts and an introduction. The first part reflects on problems that have a global domain such as global debt, IMF policy conditionalities and the global cheap‐labor economy, while the rest of the book contains ten sharply etched country studies organised into four regional sections. The case studies examine the experience of countries as diverse as India, Brazil, Russia, Somalia, Rwanda, Vietnam, Peru and Bosnia‐Herzegovina to demonstrate the common origins of the contemporary economic crisis.

External debt is not a problem of developing countries alone, but what makes these debts a particularly onerous burden for developing countries is the fact that they do not have the same degree of access to capital that advanced countries have; nor are their fiscal systems resilient enough to service, in all circumstances, their interest payments without jeopardising their investment rates and economic growth. At the same time, the export sectors of these countries are also more vulnerable to unanticipated adverse demand and price shocks. In the recent past, the public debts of the USA, Belgium, Ireland, Italy, and Greece have reached perilous levels, but these countries, through individual and collective action, succeeded in avoiding large‐scale crises. Similar options, however, are not available to the developing countries, and, according to this book, the international support mechanisms in place, namely, the Bretton Woods Institutions, are a part of the problem rather than the solution.

As has been brought out by several country studies in this book, it is difficult to avoid the conclusion that the debts of developing countries are burgeoning into a massive threat to their social and economic life. It is indeed alarming that the stock of external debt of all developing countries rose from $609.5 billion in 1980 to $1,472.8 billion in 1990, and in 1998 climbed to a level ($2,465.1 billion) which equals 146.2 percent of their GNP[1]. Of this stock, short‐term debt amounted to $463.0 billion in 1997 and $412.2 billion in 1998, while their international reserves in 1998 were of the order of $699 billion. These aggregate data are bad enough, but other debt indicators of the 40 heavily‐indebted poor countries (HIPCs) are even worse[2]. For example, the IMF[3] has estimated that the external debt of HIPCs at the end of 1996 amounted to some one‐and‐a‐half times their combined GNP. Yet progress under the HIPC Initiative has been very limited, and at the end of 1997 debt forgiveness or reduction amounted to a mere $8.9 billion[4], against a total debt of $169.1 billion.

The second main thesis of the book, that with the globalisation of production and finance, income disparities between and within nations have widened, is also fully supported by independent research. Discussing postwar growth in historical perspective, even the IMF World Economic Outlook, 1994 has concluded that “During the past 30 years, poor economies do not appear to have caught up with wealthy ones. Cross‐country inequality also seems to have increased over the same time.” It is clear that contrary to the prediction of the neo‐classical growth models, convergence across nations has not taken place; in fact, together with international inequality, disparities within countries have increased as well. Only as recently as May, 1998, The Center for Economic Policy Analysis (CEPA), New York, in its study Measuring the Evolution of Inequality in the Global Economy has reported that:

Inequality world‐wide has been decisively upwards. Liberalizations have almost always made inequality worse; only a few developing countries escaped by upgrading their employment structures, and this is a feat that necessarily only a few can achieve.

Poverty and inequality, Michel Chossudosky argues, are at the root of violence, social strife and economic breakdowns in developing countries.

What has been the role of the IMF and the World Bank in the troubled years since 1980? Michel Chossudosky has argued that the “movement of the global economy is regulated by a world‐wide process of debt collection”, and that:

the IMF, WB, and WTO[5] are administrative structures … regulatory bodies [which] operate within a capitalist system and respond to dominant economic and financial interests. What is at stake is the ability of this international bureaucracy to supervise national economies through the deliberate manipulation of market forces.

The neo‐liberal adjustment and reforms programs attached to the lending activities of the BWIs therefore need to be viewed against this background. This is indeed a strong indictment of the operations of the BWIs, but it is also fairly clear, even from the official IMF literature, that the Fund does attach a great deal of importance to orderly recovery of external debt.

It is well known that in times of crisis the IMF frequently organises rescue packages, with the help of the World Bank, the regional development banks and several high income countries like the USA and Japan, in order to avoid default and disorderly accumulations of debt arrears. But it has also been carefully recorded that the:

resources[6] provided [during the Mexican crisis] enabled most private creditors to avoid losses, as Mexico was able to meet debt‐service payments and even reduce its short‐term debt.

Similarly, in the context of the East Asian crisis:

Most loans[6] to banking systems have been serviced or rolled over. In Korea and Thailand substantial short‐term debts were either repaid directly after disbursement of the IMF loan package or converted to long‐term maturities (in Korea, coupled with the provision of government guarantees).

At least in these two cases, the points made by Michel Chossudosky regarding the instrumental role of the IMF are not out of place.

At the same time, even the Fund has also now recognised that between 1985‐1995 “the average level of per capita income of ESAF countries fell further behind”[7] that of other developing countries. The same report goes on to say that:

the relatively poor response of saving rates … in ESAF countries [to the policies recommended by the Fund] has meant that their current account deficits have barely been reduced, on average, over the past decade.

This report was written at a time when the crisis in East Asia, Brazil and Russia had not yet broken out; in fact, no one even suspected at that time that the world was on the brink of another disaster. It is, however, clear now that at least the ESAF countries are not any nearer to external viability.

It is fascinating that even an improbable figure like George Soros[8], the famous money manager and a philanthropist, has supported the thesis of Chossudosky that the events of the two last decades are not mere isolated episodes; rather they represent a crisis of global capitalism. But, in conclusion, it must also be said that none of us yet knows how best to reform this unstable and inefficient system.


  1. 1.

    See Global Development Finance 1999, World Bank and Joint (BIS, IMF, WB and OECD) Statistics on External Debt, 1999.

  2. 2.

    HIPC Initiative was endorsed by the Interim and Development Committees in 1996.

  3. 3.

    mSee World Economic Outlook, October 1998, International Monetary Fund.

  4. 4.

    See Global Development Finance 1999, World Bank.

  5. 5.

    WTO (World Trade Organisation).

  6. 6.

    See Global Development Finance 1999, World Bank.

  7. 7.

    See “The ESAF at ten years”, Occasional Paper 156, IMF, December 1997.

  8. 8.

    See George Soros, The Crisis of Global Capitalism.

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