Loading...

The influence of the International Finance Institutions’ liberal policies in Latin America

Seminar Paper 2008 14 Pages

Politics - International Politics - Topic: International Organisations

Excerpt

Inhalt

I. The reputation of the IMF and the World Bank in Latin America

II. The economy of Latin America in the second half of the 20th century
1. 1950-1990: Import substitution and the “década perdida”
2. The neoliberal “revolution” and the “Washington Consensus”

III. The structural adjustment package of the Bretton Woods institutions and its consequences
1. Trade liberalization
3. Privatization
4. Cutting social security contributions
5. Case study: Argentina

IV. The new “Banco del Sur” as an alternative?
1. Founding and aims
2. What is to be expected?

V. Bibliography

I. The reputation of the IMF and the World Bank in Latin America

During the election campaign of Cristina Fernández de Kirchner, now president of Argentina, a television ad was shown where children gave strange explanations over what the abbreviation “IMF” could mean, followed by an off-screen voice saying “We [the party of Fernández de Kirchner] are making sure that your children, and your children's children, have no idea what the IMF is.”[1] Mrs. Fernández de Kirchner and the Argentines who voted her into presidency are obviously proud to have kicked the IMF out of their country. Venezuelan president Hugo Chávez recently critized the International Finance Instutions by which principally the International Monetary Fund (IMF) and the World Bank are meant. He described them as a “curse” for Latin America, and condemned its "shock politics that have spread hunger, misery, poverty and violence to our peoples." He made clear that the founding of the “Banco del Sur”, a new development bank founded by Venezuela and six other Latin American countries, was an answer to the IMF and the World Bank.[2]

Criticism like this is common in Latin America. Some points are quite understandable: In the International Monetary Fund, which is responsible for monitoring the global financial system, the United States de facto has a veto power. Other Western industrial nations make up for the majority of the vote. The same applies to the World Bank whose president always is appointed by the President of the United States.[3] It is hard not to suspect US political interests behind this appointment: Two World Bank presidents – Robert McNamara and Paul Wolfowitz – came from the US Department of Defense, where they were responsible for leading controversial wars like Vietnam or Iraq.[4]

These criticisms are well-known. This paper thus concentrates on the actual work of the International Finance Institutions in Latin America, the implementation of their policies and how they affected the subcontinent. Their influence is enormous: some hold the IMF and the World Bank responsible for severe crises that nearly lead to collapses of nations and for the ongoing underdevelopment of Latin America. Indirectly they are also blamed for the current enormous resurgence of leftist movements, which all declared the International Finance Institutions one of their main enemies. As the measures of the IMF and the World Bank are intertwined, they will be depicted together. First, the conceptual framework of the IMF, the World Bank and the “Washington Consensus” will be presented, followed by a short summary of Latin American economic history from the 1950s to the 1990s. Then the different measures of the structural adjustment package of the Bretton Wodds Institutions, their impact (illustrated by different country examples) and outcomes will be discussed in detail. Finally this paper will give attention to the “Banco del Sur”, a development bank very recently founded by seven Latin American nations that should make these countries independent from perceived Western influence through the IMF and the World Bank.

II. The economy of Latin America in the second half of the 20th century

1. 1950-1990: Import substitution and the “década perdida”

Since the Great Depression of the 1930s most Latin American countries followed a very interventionist economic policy that was centered on import restrictions to promote the development of local branches of industry – a strategy that is called import substitution. Though this strategy was not excessively successful, Latin American per-capita income rose by 2.8 per cent a year in average between 1950 and 1980[5]. In Brazil, whose government intervened especially aggressive in economic affairs, it rose even by 5.7 per cent a year (between 1930 and 1980).[6] Even though export revenues were rising, the balance of trade and also the balance of payments stayed negative. Hence, Latin American countries had to take out short-term loans. These were increasingly granted by commercial banks that passed out credits generously without making demands to change their economic policy like the IMF did. Especially large, dynamic countries like Brazil, Argentina and Mexico were granted huge loans, which thus later became the main victims of the debt crisis.[7] When the United States raised its key interest rate to tackle its own inflation problem in 1980, these interest rates also affected the Latin American loans. Thus many Latin American nations like Mexico, Argentina, Brazil or Costa Rica could not acquit their foreign debts anymore and had to declare themselves bancrupt.[8] Yet, the commercial banks and governments of developed countries insisted on a full payback of their credits. This led to the so called “década perdida”( the lost decade) of Latin America: Without being able to receive more loans and having to pay back old ones, Latin American countries had to cut social security benefit aid and put reform programmes to rest. Also unemployment rose sharply, Latin American GDP regressed, and sporadically social unrest ensued.[9] The rate of inflation in Latin American countries rose exorbitantly during this time: In Argentina the inflation rate was at 4900 per cent in 1989, in Peru at 7600 per cent in 1990, in Brazil at 1900 per cent and in Nicuragua even at 34000 per cent in 1988. The public deficit compared to GDP was equally high at -21.8 per cent in Argentina, -10.7 per cent in Peru, -6.9 per cent in Brazil and -18.4 per cent in Nicaragua.[10] All this led to an increased dependence on the IMF and the World Bank and to a dramatic upheaval in the economic policy of the subcontinent.

[...]


[1] Webber, Jude; Lapper, Richard: It won’t be easy… No tears for the IMF as a feisty Argentina awaits its next Evita, in: Financial Times, Oct 25 2007, online: http://search.ft.com/ftArticle?queryText=argentina+imf&y=0&aje=true&x=0&id=071025000703&ct=0&nclick_check=1

[2] South America launches rival to the IMF, World Bank, Dec 9 2007, online: http://afp.google.com/article/ALeqM5gNDfrovUk6vINegpO3Hw2A1OKUCA

[3] The current president, Robert Zoellick, was US Deputy Secretary of State in the government of George W. Bush before his appointment.

[4] Stiglitz, Joseph: Die Chancen der Globalisierung, 2006, S. 32.

[5] Between 1900 and 1913, Latin American per-capita income grew by 2.3 per cent annually, but was slowed by World War I and came to a complete halt because of the Great Depression. In: World Bank, The (Ed): Poverty Reduction and Growth. Virtuous and Vicious Circles, Washington, D.C., 2006, p. 49.

[6] Stiglitz, Joseph: Die Chancen der Globalisierung, 2006, S. 59.

[7] Waldmann, Peter: Industrie und Außenwirtschaft Mitte der achtziger Jahre, in: Informationen zur politischen Bildung (Heft 226), online: http://www.bpb.de/publikationen/VU19O2,3,0,Industrie_und_Au%DFenwirtschaft_bis_Mitte_der_achziger_Jahre.html#art3

[8] Stiglitz, Joseph: Die Chancen der Globalisierung, 2006, S. 59.

[9] Waldmann, Peter: Industrie und Außenwirtschaft Mitte der achtziger Jahre

[10] Nolte, Detlef: Neoliberale Revolution und wirtschaftliche Integration in den neunziger Jahren, in: Informationen zur politischen Bildung (Heft 226), online: http://www.bpb.de/publikationen/IR8Q40,0,0,Neoliberale_Revolution_und_wirtschaftliche_Integration_in_den_neunziger_Jahren.html#art0

Details

Pages
14
Year
2008
ISBN (eBook)
9783640710560
ISBN (Book)
9783656722427
File size
562 KB
Language
English
Catalog Number
v157895
Institution / College
LMU Munich – Geschwister-Scholl-Institut für politische Wissenschaften
Grade
1,0
Tags
International Finance Institutions’ Latin America

Author

Previous

Title: The influence of the International Finance Institutions’ liberal policies in Latin America