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The development process in a country relies on the interrelationship
between several actors. It is difficult for a country, in the era of
globalization, be independent of external actors in managing its activities
to achieve national priorities. The influence of external actors such as
developed countries, the World Bank, and the IMF is widely recognized.
Due to their power, knowledge, networks, and finance, these international
actors have created a form of supremacy in the development process in
many parts of the world. Their dominant influence began in the second half
of the twentieth century. Developing countries are most influenced by
these international actors. Economic crises, poverty and a lack of financial
resources are some of the problems that attract international institutions’
involvement in the processes of development in developing countries.
The involvement of international actors in the development process,
however, can not be seen as neutral. There are political, economic,
cultural and social interests embedded in their involvement. The paradigm,
policies and strategies of development favoured by international actors
serve specific interests that are not necessarily the same as those of
developing countries.
This chapter examines the Bretton Woods institutions policies and
development towards developing countries.

This chapter assesses the

historical development paradigm, policy and strategies adopted the World
Bank in the 1980s, and 1990s.

could effectively tackle economic crises and lead to an increase in economic growth within developing countries (SAPRIN 2004. moreover. would be reduced automatically as soon as the developing countries restored high levels of economic growth as a result of economic liberalization (Soubbotina and Sheram 2000. Asia and Latin America benefited from economic liberalization. Lustig (2001) stated that the failure of SAPs was not a result of economic liberalization approaches.111). experienced economic crises. p. was the cause of poverty and failure to achieve improved economic performance within developing countries (Nuruzzahman 2005. Very few countries in Africa. The rest remained trapped by poverty and huge debt.7-8. p. which led to an increase in poverty and foreign debt. many developing countries. After 10 years of SAPs. The poverty problem. This has created a debate about the effectiveness of SAPS. In reality. Harvey 2007. the poverty problem and lack of economic performance were still embedded in many developing countries (Mosley. it was argued by others that SAPs were responsible for the continuing economic crisis and poverty in developing countries. Sustained economic growth and poverty reduction were not automatically achieved by implementing structural adjustment. P and Weeks. pp. The Bretton Woods Institutions responded with liberalization strategies under its Structural Adjustment Programmes (SAPs). however. 8 . which it argued. p. it was claimed. could not sustain their economic growth. the effectiveness of this approach was questioned. 71). 90-91). Economic liberalization itself.The Concepts and the debates on the Bretton Woods Institutions’ Approach to Development In the 1980s. On the one hand.2). p. especially in Latin America. according to supporters of structural adjustment. but rather a result of internal situations within developing countries (pp. J 1994.7). On the other hand. Some of these developing countries. despite the implementation of SAPs.

The meeting’s aim was to create an international trading environment to foster free market economic activities at the international level (Rapley 2007. This term was used to describe ‘a set of 9 . The idea of Keynesianism supported state intervention in development in order to ensure the economic progress (growth. World Bank development policy of the time promoted modernization by the state as a core solution for developing countries (Fine 2006. This assistance. Bretton Woods Institutions Policy in the 1980s: The establishment of Structural Adjustment Programmes (SAPs) The World Bank and the IMF were two institutions created in 1944 after the meeting in Bretton Woods. especially the USA and Britain. p. New Hampshire. This aim is enshrined in the Washington Consensus. has been linked with intellectual discourse on development.15). p.13). 1. moreover. The Washington Consensus: The Beginning era of Neoliberalism The Washington Consensus is a term which was introduced by John Williamson who examined World Bank policies for developing countries in 1980s. and at the practical level. In the 1980s. Pincus 2003. p.4-5). In the 1970s. welfare) (Fine. problems with policy were recognized. education. there was a major change in Bretton Woods Institutions policies. As an international institution which was established largely by developed countries. its revised policy was to construct a new world order. At the end of 1990s the World Bank adopted a new approach called the Comprehensive Development Framework (CDF) which it argued could effectively tackle the poverty problem and lead to sustained economic performance.In the Bretton Wood Institutions themselves. how to assist developing countries. the concept of development relied on Keynesianism. employment and structural change) and social progress (health. Its new approach was based on neoclassical liberal economic theory. and views about. however. the World Bank and the IMF have specific interests in. Lapavitsas.

the International Development Bank. p. economic agencies of the US government. the role of the state in development had to be minimized and only act in support of market mechanism (Peet and Hartwick 1999. Furthermore. p. Onis and Senses 2005. the Washington Consensus promoted new roles for the state: (a) maintaining macroeconomic stability by controlling inflation and reducing the fiscal deficit. then. 256). p. p. In order to achieve these goals. was to be measured by the achievement of high and sustained economic growth. the Washington Consensus was ‘a set of structural reforms’ imposed by International institutions based in Washington for developing countries (Parkin n. the developing country had to allow the market to lead the development process. p. according to the Washington Consensus. 10 . 399). (c) promote privatization and deregulation as a main element of liberalizing the internal economy (Gore 2003. The focus of the Washington Consensus was to establish conditions for rapid economic growth guided by market mechanisms (Waeyenberge 2006. then. the IMF. (b) opening the market to international trade and capital mobilization. and other economic institutions based in the USA’ (Williamson 1990 cited in Montiel 2007. The political interests of western societies were embedded in the Washington Consensus (Pender 2001. 27. p. 398-399). the World Bank. p.d. 2001. 1)”. 93). and. pp. p. could not be seen as neutral. to ensure the effectiveness of free market operation. Structural reform imposed under the Washington Consensus.. 115). More specifically.318). Control of inflation and sound public finance were two important objectives to be pursued in economic development (cited in Harvey 2005. The significant interest embedded in the Washington Consensus was the need to liberalize the world economy. Development. 49.economic policy reforms and instruments approved by the United States Congress. Further. Pender.

It began in Latin America.1470). 2. where countries such as Mexico and Brazil were in economic crisis.29). according to supporters of the Washington Consensus. This was a significant change in the dominant development paradigm. The Washington Consensus has influenced development practice and can be considered a victory of market-oriented policies over state-led development (Gore 2003. p.It can be argued that the need to reduce the role of the state was necessary in order to guarantee the operation of the market as a mechanism for economic growth (Fine 2006. 399).56). but now steered agendas set by the market. Rapley 2007. could be solved by economic solutions: improving economic environment. The purpose of structural adjustment programs was to make the economy less vulnerable to future shocks by eliminating balance of payment deficits. achieving a high rate of economic growth.79). As stated by Pender (2001). The 1980s Latin American debt crisis provided the momentum for the Bretton Woods institutions to enforce free market fundamentalism in the region (Harvey 2007. by structural liberalizing adjustment the economic involved the reconstructing of developing countries’ economic environments so that they could integrate into a global liberal economic environment (Peet and Hartwick 1999. Structural Adjustment in Developing Countries The implementation of the Washington Consensus was widespread in developing countries. p. the major approach in terms of development before the establishment of the Washington Consensus was mainly state-led development (p. The state was no longer the principal actor in development. pp. stabilizing the economy and ensuring future payment of debts (Streeten 1987. The problems of development within these countries. This dramatic shift from also defined the beginning era of neo-liberalism. p. 319). p. p. According to the supporters of structural 11 . 5-6. In growth short.

Governments needed to welcome foreign capital. arose because developing countries did not operate in a liberal economic environment. Supporters of liberalization. the privatization of state-owned enterprises. currency devaluation. This situation encouraged developing countries to agree to adjust their economic environment in order to get ‘fresh’ money from the World Bank (Lafay and Lecaillon 1993. A country that experienced economic crisis and a lack of economic growth needed to obtain money as fast as possible. there were many structural blockages in developing countries that reduced the market’s capacity to foster economic growth. Thus.adjustment. p. technology and 12 . structural deregulation adjustment and asserted privatization that (key market strategies embedded in SAPs) would lead to an increase in economic achievement (SAPRIN 2004. and the general deregulation of the economy” (Rapley 2007. The first action was to ensure budget discipline. the developing country should carry out three major actions.79). developing countries were “asked to change their economic situation especially via the use of fiscal austerity and deinflationary policies. The second action was to open up the economic environment. a negative balance of payments and capital flight could be reduced by cutting expenditure rather than increasing taxes. To obtain these objectives. according to proponents of structural adjustment. p. Economic crisis and a lack of economic achievement. Structural adjustment.72-73).2).1470). The deficits caused by inflation. p. There was another factor: loans. according to its supporters. pp. trade liberalization. could overcome a deficit in the balance of payments and problems with inflation (cited in Streeten 1987. The mass implementation of structural adjustment programs in developing countries did not occur merely because the approach was so influential at the time.

the implementation of structural adjustment unavoidably increased the burden on people who were already suffering due to the economic crisis. 3.265. did not pay attention to poverty and poor people (Drache 2001. With these three actions. the countries were supposed to be able to overcome balance of payment deficits and inflation and this would then be followed by sustained economic growth. At the very beginning structural adjustment. Economic liberalization would lead to increased wealth 13 . The implementation of structural adjustment programs did not address poverty directly. the problem of poverty would reduce when the developing country achieved high economic growth (Sanford 1988.250). trade. rather than dealing with poverty and the problems of the poor (2006.10). however.17). The third strategy was to liberalize the market economy and let the market manage economic activities (Lafay and Lecaillon 1993. Poverty and Structural Adjustment In countries that had already experienced an economic crisis and poor economic performance. p.72-73). even though the architects of structural adjustment recognized that the implementation of structural adjustment would increase the burdens of people who were already suffering (Lafay and Lecaillion 1993. 4). People who were experiencing difficulties in their economic conditions and standards of living would suffer more with the implementation of structural adjustment. As described by Waeyenberge. the concerns of the World Bank in the era of structural adjustment were the establishment of a market-friendly environment in developing countries. p. Mavroudeas & Papadatos 2005. According to the supporters of structural adjustment. p. p. This approach was chosen on the basis of the argument that structural adjustment only emphasizes the restructuring of economy as a precondition to sustained economic growth. p.

It was just a matter of time before the fruits of economic liberalization would reach poor people. the Bretton Woods institutions themselves recognized the poor results of their strategies. In the middle of the 1990s.512). Moreover. The Comprehensive Development Framework After a decade of imposing structural adjustment in developing countries.1). especially poor results in poverty reduction (cited in Mafeje 2001. To some extent.30). P and Weeks. “Adjustment in Africa” (1994). the results did not match its promise. health deterioration. Fine 2003. structural adjustment failed to bring economic growth and alleviate poverty.for all. In Africa. p. 71. and an increase in unemployment were some of the social effects associated with the implementation of liberalization and structural adjustment (UNRISD (1995) cited in Petras and Veltmeyer 2004. As stated in the World Bank’s report entitled. p. direct foreign investment. public investment. 1 billion people still lived in extreme poverty (measured by per capita income of less than a dollar per day) and many countries had between 25 and 50 percent of their total populations living in poverty (Vries 1996 cited in Fine 2003. 18). a significant reduction in wages. UNICEF reports that most of the 36 African countries studied experienced ‘a decrease in capital accumulation. but the internal conditions within developing countries. the World Bank considered that the problem was not the strategy itself. In contrast to opponents of structural adjustment. a decrease in the even distribution in terms of wealth and income. p.1). J 1994. p. Many developing countries that had implemented structural adjustment programs did not achieve sustained economic growth and poverty reduction (Mosley. This idea was known as the ‘trickle-down’ effect.21). p. poor people would gain the benefits of structural adjustment after market liberalization had been fully implemented in their country. and industrial and export growth’ (cited in Lopes 1999. even though it had already undergone liberalization (Mafeje 2001. p. Further. 14 . p. In other words.

12. According to Lustig (1995). the result would have been even worse (p. The active role of the state in development. Moreover. This approach became known as the Post Washington Consensus. p. An active role by the state could be complementary to the market and could lead to a 15 . especially Mexico. Thus. 46). according to the architects of Post Washington Consensus. This argument was followed by Lustig who examined the link between growth and poverty reduction in Latin America. Lack of success in the structural adjustment era was because the state within the developing country was incorrectly approached. the solution to the poor performance of developing countries in the late 1990s was to continue using market mechanisms to boost economic growth. The Post Washington Consensus: State Reform for the Market The Post Washington Consensus (PWC) tried to redefine the relationship between state and market. Lustig argued (1995). combined with strengthening state capacity in designing and implementing development policies and putting poverty alleviation as a new agenda (Cling. should not be viewed as an obstacle to market-led liberalization. Razafindrakoto and Rouboud 2002. 46). for supporters of market liberalization.29). during the implementation of structural adjustment was mainly caused by the debt crises and its consequences rather than as an effect of structural adjustment (p. poor performance in terms of growth and poverty reduction in Latin American countries. 1. p.the poor economic performance in Africa was due to a failure to adjust and not a failure of adjustment itself. proponents of structural adjustment still argued that adjustment was the initial step for achieving the other major objective of development: poverty reduction (cited in Chossudovsky 1997. 70). World Bank cited in Waeyenberge 2006. Without structural adjustment. p. The architects of the Post Washington Consensus still believed that economic liberalization led by the market was the best way to achieve positive results in development.

275).276). supporters of neoliberalism changed their previous opposition to any state intervention (Harvey 2007. Thus. Thus. p. p. The state also had to provide infrastructure. The state’s role was to regulate the financial system in order to make capital more mobile. p. The Post Washington Consensus agreed that the market could not be expected to run perfectly all the time. 276). In other words. p. pp. This shift in approach also meant that Post Washington Consensus reduced its adherence to the view that the free market could automatically deliver wealth for all. but also sought to create a new approach in political matters.high level of achievement in development (Onis and Senses. p. 276-277). The new role of the state was mainly to address market imperfections (Olis and Senses 2005. making because process proponents was of the no longer PWC formally argued that democracy could foster market-based economic reform (Olis and Senses 2005. In addition. The economic decision depoliticized.275).275). improve security for the banking system. 20). p. reconstruction of the state-market relation was due 16 . the market and the state needed to be reformed simultaneously in order to make these institutions more effective in supporting each other (Olis and senses. The need for reform of the state was not without importance. More specifically. the state should promote equality and alleviate poverty in their programs (Onis and Senses 2005. technology and social services for its citizen. The policy of good governance was proposed to create a democratic.173 or p. transparent and accountable state within developing countries (Onis and Senses. The Post-Washington Consensus not only constructed a new role for the state in economic matters. by establishing the Post Washington Consensus. the Post Washington Consensus promoted a more active role for the state: to correct market imperfections. and provide more money for investment.

Pender 2001. namely an economic one. Consensus pp. a development strategy which combines economic dimensions. 407-408). The policy of structural adjustment was considered unsuccessful because it only used a single approach. but also the social and political conditions within developing countries (Stiglitz 1998. a development strategy that can be operated in terms of a country-based approach and provides access for stakeholders 17 .to the need for correcting market failures.407). as was the case when the World Bank introduced structural adjustment. pp. World Bank 1999 cited in Waeyenberge. The new approach was more holistic: reconstructing not only the economic environment. It was introduced in the late 1990s by James Wolfensohn and has become the central policy of the Bretton Woods Institutions since (Pender 2001. p.32-33. governance and social dimensions. This approach was known as the Comprehensive Development Framework (CDF). by the the Post-Washington World Bank via its Comprehensive Development Framework. World Bank 1999 cited in Waeyenberge. 2.32-33). social and political approaches to support the development process. 2. pp. Thus. The important elements of Comprehensive Development Framework (CDF) are: 1. The Comprehensive Development Framework The Post-Washington Consensus introduced a combination of economic. The Post-Washington Consensus still believed that the market was the most significant factor for positive economic achievement. was In implemented practice. development was not simply regarded as solely an economic matter. Development was also a social and political matter which created a significant impact on economic matters (Stiglitz 1998. The state was necessary to support the operation of the market.

p. pp. p. Partnership was needed both at the external level. a strategy where progress on poverty reduction and sustained growth are considered prior to examining progress on investment and institutional reform (Hanna and Agarwala 2000. a partnership between government and international development agencies which should be strengthened based on its comparative advantages 4. 3.2). According to the World Bank. Internal partnerships provide benefits for governments which lacked the capacity and resources to run development programs alone.409).to participate in formulating and implementing development programs. between a country and an international institution. civil society and the poor (Pender 2001. the Comprehensive Development Framework also introduced the idea of ownership. p. the Comprehensive Development Framework has moved the focus of the development process from economic growth to a more holistic approach.9) The Comprehensive Development Framework made the notion of partnership an essential strategy of development. between government.408). and at the internal level. 18 . p. with more emphasis on poverty reduction as a major goal in that process (Drache 2001. Overall. The idea of ownership in the development process was necessary because it provide significant freedom to the government to plan and operate its development policies (Pender 2001. both types of partnership were needed in the development process. External partnerships provide a balance between national development strategies and external assistance (World Bank 2004. 14-15) Along with the idea of partnership.

The poor. insisted that governments of developing countries make a significant commitment to use ‘pro-poor policies’ in all regulations and activities (Pender 2001.406).3. then. p. Hayami 2003a. the World Bank has begun to use the Comprehensive Development Framework as a new strategy for development where poverty reduction is an immediate objective. Since 1999. The Poverty Alleviation Program as a New Strategy in Development Since the beginning of the 1990s. poverty has become an important issue in development discourse. p.406. educational attainment and health status (Pender. The shift from development defined only as economic growth to one which included poverty reduction as well. the World Bank has changed the indicators for measuring development progress from per capita GDP to the Human Development Index (HDI). In simple terms. The approach of the Bretton Woods Institutions to the conception of poverty has also changed significantly. International development agencies began to make poverty reduction a priority in their agendas (Thomas 2000. poverty reduction and non-market approaches then became central to Bretton Woods Institutions policies and strategies (Pender 2001. The World Bank now measures poverty using a human poverty approach. 408). p. the human poverty approach gives much attention to well being as indicated by nutritional status. p. The introduction of the Comprehensive Development Framework by the Bretton Woods Institutions shows that the Bank itself considered that there was a disconnection between sustained growth and poverty reduction (cited in Hanna and Agarwala 2000. p. 19 . 57).10). Rather than measuring poverty only by income per capita. 1). This approach. indicated that the Bretton Woods Institutions had begun to consider that market-led economic approaches did not provide direct benefits to the poor. p.

pp. health and social safety nets. but it fails to give strategic direction at the practical level. As Roddik (2001) points out.21). This strategy has been combined with the idea of empowerment of the poor. where the power and the voices of the poor are expected to be included in the development process (Hayami 2003b. by the government and the people (Hayami 2003a. the PWC is inclusive in its ideas and objectives. others are not convinced about the impact of the changing paradigm on reducing poverty and inequality around the world. One factor that was considered to be missing in the new Bretton Woods institutions’ approach was a failure to address the existing international economic system which tends to discriminate against developing countries (Kay 2006. the existing domination of a particular class and its interests both in developing countries and in the global environment has not been given significant attention (p. This cynical assessment arises because the PWC ignores the existence of unequal power relations both inside and outside of a country. p. This action was supposed to be done by internal actors within a country.28).The conceptual change has had a significant impact on the Bretton Woods Institutions’ strategies for alleviating poverty. As pointed out by Onis (2003).488-490). Without reconstructing the 20 . p. Thus. Criticisms of the Post Washington Consensus The benefits of the emerging PWC have been widely praised. Reducing poverty as an ultimate objective of development has resulted in some development theorists beginning to applaud to the change in the Bretton Wood Institutions. that is. 57). 4. Alleviating poverty has led to the provision of social services such as education. The new approach of the Bretton Woods Institutions is only an “illusion”. the active role of the state in providing social services related to poverty reduction and fostering poor people empowerment was central to the argument for the need for some state intervention in the Neoliberal era of ensuring free market operation. But.

This role. pp. Furthermore. and how to change the structural economic conditions of the poor so that they could gain advantages of market liberalization. It is widely recognized that one of the roles of the IMF is to assist a country which has an economic crisis by conducting short-term financial discipline and regulatory reform. was needed for the survival of the Bretton Woods Institutions in a global market place. there were no clear povertyreduction consequences embedded in the policies of CDF (cited in Peet 2003.99100) Another critique concerned the clash with the interests of the Bretton Woods institutions themselves. provides significant obstacles to poverty reduction efforts due to the need for a massive reduction in public spending embedded in the IMF approach (Oniz 2003. 100). Moreover. liberalization and a limitation of the state’s role in economic activities. macroeconomic policies continued to stress the need for privatization. which was not so much different from structural adjustment (Marshall and Woodroffe 2001 cited in Peet 2003. economic growth was still the main concern with less focus on how to market liberalism benefits to the poor. There was no clear explanation of how poor people participate in the global economy. Moreover. according to Mosley (2001). in effect there were limited changes in the new approach compared to the previous approach. These conflicting interests have made some critics skeptical of the promise of PWC. p. what should be done by poor people to win in global competition. the changing Bretton Woods approach served its own interests (p. for Mosley (2001). however. p. 28).312). Added to economic system it was hard to foresee significant improvement in economic development in developing countries. The Bretton Wood institutions’ business has little place in high 21 Comment [SS1]: Explain more . As stated in the report of World Development Movement. The emerging PostWashington Consensus.

Under this approach. p. 93). the reduction of poverty was the ultimate goal of development. 102). Furthermore. The assistance of these institutions was also accompanied by a certain paradigm of development. the developing countries were obligated to continue the liberalization process and at the same time reform the state so as to protect against the failure of market mechanism.income countries. there was not much different between structural adjustment and Comprehensive Development Framework as it only served developed countries’ interests to open all part of the world to make capital easily to flow among countries (Harvey 2005. There has been evidence shown that loans under structural adjustment caused long-term dependency in developing countries without creating significant improvement in economic performance (Johnson and Schaefer 1999 cited in Peet 2003. To achieve that goal. To respond to this situation. Conclusion Since the 1980s the Bretton Wood institutions’ increased involvement in developing countries’ development has been widely recognized. p. 312-313). Many developing countries did not achieve substantial growth and poverty reduction. In the 1980s these institutions promoted liberalization by imposing structural reform within developing countries in order to achieve high and sustained economic growth. p. The result of that approach was not as expected. the Bretton Wood institutions developed a new approach called Comprehensive Development Framework in the late 1990s. Loans under Comprehensive Development Framework would become a new mechanism for Bretton Woods institutions to invest their money in developing countries. so it needs low income countries in which market economies are not yet effective and economic growth is not yet sustainable (Mosley 2001. 22 Comment [SS2]: Is the bank or imf really under threat? .

Some criticisms exist of this new approach by the World Bank. A comparison of the impact of Comprehensive Development Framework and of Structural Adjustment Policies is necessary to assess whether the promise of the latest CDF was realized or whether it had similar results as the earlier SAP approach. 23 . respectively. The main argument by critics has been that poverty reduction would not be achieved without alleviating unequal power relation among actors both within a country and across the world. Thus. the following two chapters explore the implementation and consequences of SAP and CDF in Mexico.