INTERNATIONAL FINANCIAL INSTITUTIONS: WB, IMF, AND’ADB The Philippine economy “is a developing’ economy, particularly an agricultural economy. It doe§snot have enough funds for its various programs/projects of. develop- ment. Being a developing country, it has to lay the social and economic foundations of the economy like education, health, housing, irrigation, transportation, cmmmunication and electrification, among other things. Just like most — if not all — poor countries, the Philippines greatly depends on the international financial institutions to finance its major development programs. Among the international financial institutions are the World Bank, International Monetary Fund, and the Asian Development Bank. These three institutions are the biggest lenders to the poor and developing countries. However, these financial institutions do not just extend loans to borrowing countries without specific conditions. They have a prescribed set of loan policies for borrowers to comply with. Among other things, the loan applicant & Scanned with CamScannerapplicants. (For instance,” in PI “demanded a‘clean election as.a conditio ‘its loan to our government.) Such att institutions towards«.the borrowing 0 hi understandable. Apparently, they want ( i olitical conditions, so that the have stable economic and p Sey to taacxinne on latter can repay their loans an z a benefits to be generated from the loans. But their ‘policies have attracted many accusations or criticisms. from intel- lectuals nad nationalists both from the rich’ and poor countries. These countries have charged that the WB, IMF, and ADB are the tools of Western economic imperialism or servants of the multinational corporati: This chapter presents the organization, objectives, functions, policies and programs/projécts of WB, IMF, and ADB. Likewise, ‘the criticisms against these international financial institutions are exposed. THE WORLD BANK On July 1, 1944, a group of 44 Allied Nations convened the United Nations Monetary and Financial Conference at gee Woods, New Hampshire, USA. This was the result of a recommendation of economic and financial ex f z perts of the Allied Nations that the postwar world would be in great need of international cooperative arrangements to deal with prcceicats and enepetal problems. Articles of Agreement or } were wn up for two complementary i a- nal financial institutions: the Tntcnasiicnnal Higaetary : I ee and the International Bank for Reconstruction _ ue) Bae (BRD) popularly known as the World assigned roles sa reapeetia’ mene ene ity. 2 ponsible for promoting global prosper- Scanned with CamScannersr 27, 194 ‘ J Woods Conference signed the nthe later, on June 25, 1946, the W business. All the participants, except the tually joined the » World Bank. Other like Cuba, Czechoslovakia, and Poland be. members. The World Bank is an intergovernmental institution, and_all its capital stocks are owne' nts. It has three financial affiliates: Multilateral Investment Guarantee Agency (MIGA), the International Finance Corporation and the International Development’ Association. The IDA is the the “soft loan window" of the World Bank while the IFC is concerned exclusively with, the private industrial sector. These three institutions plus the Bank constitute the World Bank Group. Membership of the Bank is a requirement for membership in IFC and IDA. %, : corporate in form, its member governme we Objectives x The World Bank was organized with the following objectives: 2 1. -To assist in the reconstruction and development of member countries whose economies were destroyed or disrupted by war, and to encourage the development of the productive facilities and resources of the less developed countries. 2. To promote private foreign investments by means of guarantees or participations in loans, and to supplement Private investment by providing suitable conditions and finance for productive purposes. _ 8. To promote the long-range balanced growth of international trade and the maintenance of equilibrium in the balance of payments by encouraging international investment for the development of the productive resources of the member countries, thus increasing productivity, the Scanned with CamScannerd of living, and conditions of lab ‘9 arrange. the Joans made or gua) to international loans through _-that the more useful and urgent projects, er channels s0 © 1 be given first 5." To conduct. its’ operations th due regard to the » ‘effect of international investment on business enero in the member countries, and to bring about. a ee I x sition from a wartime to a peacetime economy ee e ‘immediate postwar years. Capitalization 2 spas The initial authorized capital stock of the World Bank was $10 billion. This was divided into 100,000 shares of the par value of $100,000 each. In 1992, the authorized capital stock of the bank is $152.25. ,pillion. Based on. the Articles of Agreement, the capital sub- scription of each member is divided into three parts: 1. Two percent of each subscription is payable in gold or US dollars, which maybe used freely by the World Bank in any of its operations. 2. Eighteen percent of each subscription is payable in the currency of the subscribing member country. These funds may be lent only with the consent of the member country whose currency is intended for lending. 3. The remaining 80% of each subscription i . tion is not mor aye to the World Bank for lending. Hieaiee, this is ep call if required by the World Bank in order to = ia obligations on borrowings or on loans guaranteed y it. Payments on any such call may be made in gold, US dollars, or the currenc: i 2, y required to disch: ee of the WB for which the call is nadie the obligations Scanned with CamScanner‘the Articles of Agreertien International Monetary Ful membership in the World Bank. orld Bank had 173 members. Every member ountry has a quota based on its conomic strength. The rich countries have bigger quotas, their ‘subscriptions to the World Bank are in accordance to these quotas. ‘And their voting power is linked to the size of their ‘subscriptions. to the WB. Each member country has 950 votes plus one additional vote for each share of stock owned. The’ United States ig the biggest stockholder of the WB with 16.53% of total voting power as of June 30, 1998. The biggest contributors to both IMF and WB are the United States, United Kingdom, Germany, France, and Japan. These member countries control the voting power in both organizations. They hold 38.89% of all WB votes as of June 30, 1993. In the case of the Philippines, it has only 0.5% of the total WB votes. The other member. countries get 61.11%. Below is a list ofthe,top WB stockholders and their voting power: United States 16.53% . United Kingdom ° 6.87% Mogi Germany 5.31% France 5.09% Japan 5.09% eb a country ceases to be member of the IMF, its : ane ip in the World Bank is terminated automatically fouths i ae unless WB governors exercising three- ctuntry ae total voting power decide otherwise. If. Suspended A to fulfill any of its obligations it may be an ae member country can withdraw from the World Ww te ie. However, termination of membership in the direct, op = relieve the member country concerned of any it ceased ae obligations to the World Bank before a member. The former member country Scanned with CamScannerr ul iptic h resp! which has been contracted before mem former member country can repw! chas in the World Bank if it can satis! ~ financial obligations to the organizal > Organizational Structure ‘ The board of governors ison top of the Srigtlystonal structure of the World Bank. All powers of the World Ban! are vested in it. ‘The board is. composed of one governor appointed by each member country, Usually, the ee is the prime minister, central bank governor, or finance minister of a member. country. Each member country has the right to designate an alternate governor. The board of governors is required to hold an annual meeting usually in September as a “matter of custom in conjunction with that of the IMF. Such annual meetings of WB-IMF are held in Washington, D.C. and in the capitals of the member countries e London, Mexico City, New Delhi, Manila, etc. Both,:WB and IMF have the same headquarters ini Washington, D.C. and have a common publication — Finance and Development. Except for certain powers specifically reserve to the governors by the Articles of Agreement, such as decisions on membership, allocation of net income, and changes in the capital stock, they have delegated their powers to the board of executive directors who perform its duties on a full- time basis at the bank's headquarters in Washington, D.C. The president of the World Bank is the chairman of the executive directors. He may only vote in case of a tie. The executive directors are responsible for interpreting the provisions of the Articles of Agreement, subject to appeal to the board of governors. As of June 30, 1993, there were 24 executive directors. Each of the five biggest stockholders of WB appoints a single executive director. The remaining Scanned with CamScannerive directors are elected for g-tw0-Year ten rs from other countries. Each governor casts votes to which his country is entitled. Each appoints his own alternate. ~ % ‘of the World Bank ig selected by th sxecutive directors. He is responsible for the conduct of the ordinary business. of the bank and for the organization. He appoints and dismisses its officers and staff. As a tradition, the president of the World Bank has always been an American. There is no explicit requirement, however, that the WB president should be an American. However, sinice the United States is the biggest contributor, the bank members feel that it is only appropriate that the president should be an American. The first WB president was Eugene Meyer. At present, the president is Lewis Preston. 4 In the case of the IMF, the managing director has always been a European.as a matter of tradition: However, he must be a European acceptable to the United States. Since the US has the highest voting power in the IMF being the biggest stockholder it has the final say like in the WB. Operational Structure of WB The operational structure of the World Bank was reorganized in 1973 along regional lines. It consists mainly in five regional offices at the bank's headquarters in Washington, D.C. These are: — Eastern Africa — Western Africa — Asia : — Europe, Middle East, and North Africa — Latin America and the Caribbean _ The aforementioned regional offices are headed by Tegional vice presidents who report to the senior vice President of operations. Each regional office is responsible Scanned with CamScannerfor planning and supervising the’ implem t assistance programs. within its assigned” countries L office has two country programs departme! done project department. The reorganized operational structure ‘has been intended to serve the following principal *aims:. z 1. To permit the bank’to maintain and improve the effectiveness of the development assistance it extends to countries. : b 2. To establish the framework for close working rela- tions between the country experts and the sector specialists. 3. To allow optimum utilization of bank staff in dealing with more complex programs which require a multi-disci- plinary team approach in preparing, appraising and imple- menting projects. x Financial and Lending Operations. Aside from the governments ofthe member countries, the World Bank also lends to public and private organiza- tions which can obtain the guarantee of a member govern- ment where the project is located. Except in special circum- stances, a WB loan must be used for reconstruction or development of a member country, or a territory controlled by thé member. The project to be funded by the World Bank must be technically and economically viable. It must have a high Priority for the economic development of a country. It must satisfy the World Bank that the project will be properly managed both during implementation and after completion. There must be a reasonable assurance that the loan will be repaid and that it must not be a burden to the borrowing country's economy. In addition, the borrower cannot obtain a loan on reasonable terms from other sources. The WB determines the credit worthiness of the borrower by periodically sending economic missions to member countries to evaluate their developmental progress, and problems, and policies. Such assessments include analysis of: Scanned with CamScannerlent fiscal and investment pojicie ent planning achievement of plan targets -— pattern: ‘of public expenditure , "— application of external assistance mobilization: and allocation of domestic resources — effectiveness of foreign trade and investment policies — effectiveness of institution's building programs — others which affect the political, social, and economic stability of the member country Terms of Lending The World Bank extends medium- and long-term loans. The principal repayment begins at the end of the grace period and thereafter spread over the remainder of the life of the loan. The length of the loan and the grace period is related to the characteristics of the particular’ project, adjusted in appropriate. cases to the prospective balance of payments and external debt situation of the borrowing country. Normally, the grace period is designed to run until the project becomes operational and begins to produce economic benefits. The calculation of the amortization period is based on the estimated useful life of the project. The rate of interest being charged by the World*Bank is kept low without endangering its financial strength and reputation. In determining the rate of interest, the following are taken into consideration: — trend of the bank's earnings — maintenance of an adequate ratio of bank earnings to interest requirements on funded debt — maintenance of a reasonable rate of return on capital and reserves — accumulation of adequate reserves On July 1, 1976 the World Bank further increased its rate to 8.9% for new loans to developing countries. Scanned with CamScannerutilized two thirds of its financi «and urban areas, and smal * has diversified its activities. It now, to projects that can dire Projects for the Poorest 5 Ia its first’20. years of operations, the World Bank al assistance for electric and in recent years the Bank gives particular attention ctly benefit the poorest ofthe poor transportation projects. However; “in developing countries. The focus of financial assistance of the Bank is towards the development: of agriculture, rural ll-scale industries. The Bank has been helping the poor. to increase their productivity and to gain access to basic social services, such as safé. water and waste-disposal facilities, health care, family planning assistance, nutrition; education and hous- ing. About 75-percent of the Bank's lending: is for specific projects, such as roads, dams,: power stations, agriculture and industry. In 1993, the sectors which obtained the biggest shares in WB Loans were agriculture and rural develop- ment, energy, transportation and education. THE INTERNATIONAL MONETARY FUND The International Monetary Fund (IMF) was a product of the Bretton Woods Conference in 1944, ee with ite World Bank. Membership in the IMF is a prerequisite o membership in the World Bank. The International eee Fund was organized in 1946 and Camille Gutt a igium was elected as managing director. At present, e managing director is Michel Camdessus of France. is exh i dune 30, 1993, IMF had 173 member countries. » bia ly concerned with the establishment of an inter- ua us anny system that will support and promote free ation: le and foreign investme: i the eeu d a stment. This means the Poser against trade restrictions and foreign €* Scanned with CamScannerMAL INSTITUTIONS er country is assigned g quota whith ‘ount of foreign exchange that it May draw 4 its voting power. The subscription of each mo! equal to its quota. This is payable in “gold or US dollars (25% of its quota) and the member's own qurency (75%: of its' quota). Top Officials 3 : ; | The highest authority of the IMF is the board of i governors. Each member country ‘is represented by a ] governor and an alternate governor. The board usually meets once a:year and decides on important issues like the conditions governing the admission of new members, adjust- ments of quotas, election of: directors, and other vital matters. The governors may vote by mail or delegate their powers to the executive directors stationed in Washington, D.C. 3 There are 24 executive directors. Five of them are appointed by the five member countries with the highest quotas. These are the United States, United Kingdom, Germany, France, and Japan. Each of;said countries has one executive director. The other’ nineteen — executive directors are elected by the groups of the member countries. The IMF member countries are grouped into various cat= egories like Group of 10 which constitutes the ten’ indus- trialized countries, Group of 24 which is the Third World counterpart of Group of 10, and the Group of 77 which takes up the recommendations of the Group of 24 about monetary Matter. The managing director is the chief of the IMF staff and irman of the executive directors. Next to the managing director is the deputy managing director. As stated earlier, e IMF managing director has always been a European Who is acceptable to the United States. The deputy man- aging director is an American. * Scanned with CamScannertries determine their voting power in the I _ Kingdom, Germany, France, and Japan. “alone had 19.64% of the total: IMF votes. The aforemen- ome Fad FINANCIAL INSTITUTION s Top Shareholders: a 3 ibutions of member coun- ‘The amount of capital contributions MF. As of June 30, 1992, the biggest shareholder. among ‘the member i i ites, followed by the United countries was the United States, fol tad States ther held 37.71% of the votes: tioned five member countries put toge' total votes. Here is the table‘on percentage of “Member Countries. Percentage of Votes: United States 17.64 United Kingdom = 6.12 2 Germany 5.34. 2 France 4.43 Japan 4.18 Sub-total 87.71 Philippines ge" 05 Other member countries 62.29 Total 100.00 * Objectives 1. To promote international monetary cooperation through a permanent institution which provides the machin- ery for consultation and collaboration about international monetary problems. 2. To facilitate the expansion and balanced growth of international trade, and to contribute to the promotion of high levels of sustained employment, production, and income among the member countries. 3. To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation. Scanned with CamScannerTIONAL FINANCIAL INSTITUTIONS E * 4. Towassist in the establishment of q multilateral ystem of payments regarding current trangactions between “jpembers. and in the elimination of foreign exchange restric. ‘fons which hamper the. growth of world trade. . 5. To provide ‘confidence to members with balance of yments problems by extending loans to them, Such fnancial-assistance gives the members the opportunity to correct maladjustments in their balance‘ of payments without resorting to measures which are not favorable to national or international prosperity. 6. To shorten the duration and reduce the degree of disquilibrium in the international balance of payments of members. i Financial Assistance r j The IMF financial assistance is in the form of a foreign exchange transaction. The member country pays to the IMF ; an amount of its own currency equivalent to the amount of a foreign currency it wishes to purchase. The payment is made within three to five years in the form of gold, special. drawing rights, or convertible currency acceptable to the IMF. Members with foreign payment problems may secure an emergency loan within seventy two hours. ih addition, members often get an assurance from the IMF of assistance in a fixed amount for periods usually up to one year in advance through the stand-by arrangements. This _facili- lates a member's negotiations for additional loans with international institutions, lending agencies of foreign gov- emments, or private banks. The Bretton Woods agreements assigned each member Cae a line of credit called "drawing rights" at the IMF. nder these rules, the member country deposited on agreed | Mount of gold with the IMF. The tatal line of credit was | ‘qual to four times the gold deposit. The total drawing right i ze divided into a right to borrow sums up to the value i ‘© gold deposit of each member country, called the "gold Scanned with CamScanner- . ~The aforemeritione ‘drawing rights were supplemented “since 1970 by special draiving rights (SDR). The rights and privileges of borrowing ftom IMF. ar still limited by strictly defined: quotas. But the SDR quota is a borrowing right in “ addition to the member country's gold tranche: Such drawing rights are a pure credit money for, international exchange. “SDRs are often referred to as "paper gold". They have been designed to supplement gold and dollars. in setting inter- national balance of payments accounts. They circulate only among central banks. For instance, the Bank of England wishes to exchange part of its dollar accounts at the Federal Reserve Bank of New York for. pounds sterling, the Federal Reserve Bank uses its allocation of SDRs to settle the claim. In the case of the Philippines, as of February 28, 1982, our country was indebted to the IMF at SDR, 134.6 million (about $1.5 billion) or 360.2% of its 1982 quota of SDR 315 million. The Philippines was second only to the United Kingdom in receiving total IMF loan assistance in 1980. Other IMF Facilities Extended fund facility — to support balance of pay- ments for longer periods and in greater amounts than under the credit tranches. . Sunplementary financing facility — to supplement orrowings from the upper credit tranches ae and/or extended Compensatory financing facility — to assi: i J sist primary products of exporting member countries with palanes of payments problems due to decline in export income. Oil facility — to extend financial assistance to member countries with balance of payments problems: caused by increases in the costs of petroleum and petroleum products. Scanned with CamScanner| I echnical ‘Assistance One of. the, major activities of thesIMF is to extend technical assistance to its member countries. IMF experts, vice in‘connection "| — ‘stabilization’ programs ~=— Simplication of exchange systems modification of central banking machinery —-reform of fiscal systems and budgetary controls preparation of financial statistics The International Monetary Fund also collects and “publishes statistics supplied by member countries. In May 1964, the IMF. Institute was: established. This coordinates and expands the training Program for the staff of the finance ministries and central banks ‘or member countries. Financial Operations Since 1974, IMF has undertaken various efforts to formulate new monetary arrangements ‘for its member countries. Likewise, new policies and facilities have been developed to meet the current needs ofits members in a fast changing global economic condition. For example, the Committee on Reform of the International Monetary System and Related Issues was succeeded by two new committees, the Interim Committee and the Development Comittee. The Interim Comittee was organized on the day the Committee of Twenty ceased, to exist. Its role is to advise and report to the board of governors about the management of the international monetary system, amendment of the Articles of Agreement, and sudden disturbances which may affect adversely the system. In the case of the Development Committee, it was set up upon recommendation of the Committee of Twenty. Its task is to study and recommend measures about the transfer of real resources to developing countries, especially the least developed ones and those which are most seriously affected by balance of payments Scanned with CamScannerThe Interna the needs its- members and tl international monetary system. To: be with current issues during its etings, ~ of the various assets in reserves, dnd e structure to accommodate the needs of its member countries. Some of these additional developments which have.‘been designed to help its: members are the trust fund, special drawing rights, oil facility, buffer stock financing facility, and the role of gold. The trust fund was set up to provide balance of payments assistance to eligible poor member countries. The buffer stock financing facility was established to assist members in financing contributions to international buffer tries. that acquire stocks, stocks. This refers to member coun! being members of the International. Tin Agreement and the International Sugar Agreement. As regards the role of gold, it was “agreed among the IMF members that it should be reduced to enhance the role of the SDR as the central asset of the internatignal monetary system. Based on 1974 IMF decision, the relative levels © cond! i lopment — availability of othe f financing: | The ADB's current lending rate on lo: i ordinary capital resources is 6.42% per annum. The maturity “period for such loans varies from ten to thirty years, with a grace period from two to seven” years. However, for the Jess developed member countries ‘which have higher per capita GNP (gross national product divided by population in a given year) of US$850,as of 1972, the. maturity period of loans approved on or ‘after January 1, 1977 would be subject to a limit of fifteen years, inchisive of a grace period of three years. The amount of loans for such countries is to be kept at modest levels and priorities are given to projects with significant social content. Like the World Bank, the Asian Development Bank has also a softloan: window. The concessional loans from the ADF carry only a_ service charge of 1% per annum. Repayments of such loans extend over forty years including a grace period of ten years. ee lending may be classified into three main gories: project lending, program lendin; lending. Project lending remains to be the a ar eee by which the bank transfers resources to i Pe ei member countries. However, both 0 its less developed sector lending have assumed { a ee ang tha bank's “rol ned greater importance in making le more flexible, effectiv: > e, and broader based. orb assistance > Sector lending was only i ly introduced b: i ee pesreral advantages like larger Raat poo ent, and useful in a wide area. Such lending. covers: Scanned with CamScanner=)» The major sectors covered by ADB Joans are the following: —- agriculture ‘and ‘agro: — energy ies — industry and ‘non-fuel’ minerals — devélopment: banks — transport and communication — water supply and sanitation — education 3 — health and population — multi-project loans Technical Assistance The provision of technical assistance’ to the developing member countries is an important element ofthe role of ADB. Such assistance is a felt need among ‘the - poorer member countries of the Bank. ‘Member governments, government entities, private enterprises in the developing member countries and international or regional institutions May request technical assistance from the Asian Develop- ment Bank. The ADB's technical assistance covers project prepara- tion and implementation, sectoral studies, policy formula- tion, development planning, institution building and other €conomic problems of national or regional concern. ‘To improve the capacity of the developing member countries of the bank to absorb external assistance and to accelerate their economic development, ADB has expanded the scope and coverage of its technical assistance operations along the following lines: Scanned with CamScannerfor preparation ‘provide technical’ assistarice i ler to stimulate development financing from s, either exclusively oF jointly with the bank, — preparation of projects that the bank might . ‘ 9, To provide technical’ assistance for improving the technical, managerial and administrative capabilities of * local authorities, including: government departments and bureaus. ' 3. To pay increasing attention | q oriented studies which may or may development projects. 4, To pay increasing attenti tance activities to the needs of the 5. To promote technical cooperation among the oping member countries of the ADB. to sectoral and problem- not be related to specific on in its:technical assis- least developed countries. devel- Finance “Excludes regional activi: ties. Includes technical assistance grants and loans. Total: $463.92 million Scanned with CamScannerWater Sapply 5.1% 16.40% "Excludes regional activi- ties: Includes technical assistance grants and loans. Total: $3,140.99 million How ADB Helps the Poorest Nations ie The charter of the Asian Development Bank,,provides that in its task of helping all the developing member countries, it should pay special attention to the needs of the smaller and less developed member countries. As a financial institution, the bank gives very close attention to ensuring that its lending program meets the highest and rigorous tests of financial management and sound banking practices. Likewise, the bank is most concerned about the social impact of the projects it supports. Thus, it seeks to focus the benefits ofits assistance mostly on the poorest and most economically depressed areas and population groups of its borrowing Member countries. The ADB has strived to carry out its special role in the least developed countries by: Scanned with CamScannerBe smaller and less BLS g the overall share of the developed countries in bank lending. 3. Lending funds on highly concessional terms. - local currency expen-~ jn deserving cases. 4: Financing to a'limited extent, _ ditures by lending-.foreign, exchange The access of the developing member’ countries to the bank's concessional funds is based on their economic con- ditions. Aside from their per capita GNP, their capacity to repay and service their foreign debts determines their eligibility for concessional loans. Borrowing member coun- ~ tries have been classified into three groups: Group A, Group B and Group C. Group A countries are*the poorest in the sregion, and they are entitled to 85% of the ADB loans. Group B ‘countries, where the Philippines belongs, are given 15% of the ADB loans. Group.C countries have no access to such concessional loans. These countries are. Taiwan, Fiji, Hong Kong, South Korea, Malaysia, and Singapore. VIEWS AGAINST’ THE WB, IMF AND ‘ADB After knowing the various programs and projects of the World Bank, ‘International Monetary Fund, and Asian Development Bank, the other side should also be known — those views which contradict the apparent intentions of said international financial institutions. They have exposed the real objectives of the banks and the fund towards the less developed countries. In unmasking the real intentions of the Ae at en eres other parties have been pricked like e multinational corporations, i ii i local business and political alites. a ee Based on the accusations of foreign and Filipino intel- lectuals, these financial institutions want the less developed countries to remain agricultural economies and:subservient to their policies. It has been noted that a great portion of. their loans has been allocated to agricultural development Scanned with CamScanner‘de jpternational trade and usrestricted foreign investments ag qaditions for the grant‘of loans to the poor ‘countries. It jg very. evident that the removal of trade barriers by the poor or ‘agricultural ¢ountries only favors the industrial countries — the biggest stockholders of the WB, IMF, and ADB. c capi hy Eh. ae : More negative evaluations are presented in subsequent sections of this chapter. Materials of such critical observa- tions came from Ernest Feder, author of Perverse Develop- ment, The Philippine-Financial System, a publication of Ibon Databank Phil:, Inc.,“and Filipino nationalists, Hilarion Henares and Renato Constantino. For an objective presen- tation of all sides.of the WB, IMF, and ADB, the rules of foreign debts explained by IMF managing director appear. in the last pages of the chapter. : Philippines — Favorite Customer of WB-ADB The Philippines has been one of the favorite customers the World Bank and’ the Asian Development Bank. for general and agricultural financing. Such favorable attitude of the Banks towards our country is due to several major factors (Feder, 1983): 1. The opening up of the country to foreign investments after the inauguration of the Marcos Regime. 2. The abundant — and at the beginning of the Seventies still largely. unexplored — agricultural and non- agricultural resources in large parts of the country. 3. The cheap manpower of the country. 4. The country's leading role in the expansion of the freen revolution. z In relation to the aforementioned observations of Dr. Emest Feder (professor of agricultural development in ferent universities in Europe and Latin America), Dr. Scanned with CamScannerFINANCIAL INSTITUTE Hilarion Henares, ‘noted Filipino economic nationalist, said’ that based on confidential report from the World Bank, the Philippines is the highest borrower of IMF loans — and yet our country seems to be the favorite of both WB and IMF. ~ It is noted that the principal policy of the IMF is to stimulate free international trade and free flow of international capital. Naturally, these favor the economic and‘business interests of.the highly developed countries through their multinational corporations. As a result, the less developed countries Spend more money on imports compared with their incomes from exports. Thus, they-always suffer from balance of payments difficulties. This appears to contradict the objective of the IMF to help nations which have temporary balance of payments problems. A poor country.should protect its infant economy by means of tariffs, controls, and other restrictioris ‘against the stronger economies of the rich countries like the United States and those of Western Europe. But IMF promotes free international trade which only aggravates the balénce of payments problems of the poor countries. Some economists believe that IMF loans to the Third World countries are not really intended to be paid but to bribe or blackmail the borrowing country into - becoming more subservient to the policies of IMF. WB Promotes Private International Capital Cheryl Payer, author of WB Project Lending, stated: The World Bank has deliberately and consciously used its financial power to promote the interest of private international capital in its expansion to every corner of the “underdeveloped” world. It has worked towards this end in many different ways. The various ways are: a. Pressuring the borrowing governments to improve the legal privileges for and to moderate the tax burdens on foreign investments. Scanned with CamScannerminimum wage laws, trade umlon a if kinds of measures which would impDtove the national income. Eee : isti f inputs of WB proj ting the procurement of inputs o p ts jprough international competitive bidding which favors the “Yargest multinational corporations. : : 4, Financing projects and promoting national policies which deny control of basic resources — land, water, forest — to poor people, and appropriate them for the benefit of multinationals and their collaborative local elites. Even US government officials have been frank in telling the true role of WB-IMF. Based on the 1974 Congressiqonal Research Service Report, the United States has been successful in effectively’ influencing the operations and policies of WB and IMF. Such financial institutions have become valuable tools of US foreign policies. They have been’ generous in granting loans to those regimes that are particularly "vital" to US security and economic interests. On the other hand, WB-IMF have refrained from: extending financial assistance to countries which are not very receptive to US foreign investments. John Bushell, deputy director for : Developing Nations of the US Department of Treasury, said (Ibon, 1983): << the US national point of view, these banks sone development along lines compatible with our.own efectie ie eae the role of market forces in the outward aa of resources and the development of intemationnt g trading economies... Our participation... in assured ann development banks will also provide more dimate fos mee essential raw materials, and a better of the ota investmment in the developing world... Most interest lending... is to countries... where we have strong Scanned with CamScanner» population control, ant FINANCIAL! IMF, and ADB: Control Philippine Economy ts of both the WB and the ADB have bee integrated in all major sectors of the Philippine economy, « such as agriculture, education, ‘urbanization, transportation, d electric power, among other things. The WB loans have been channeled mostly in agriculture: The bank even extended multi-million dollar support to the International Rice Research Institute (IRRD): Both WB and ADB possess a decisive voice in fashioning the orientation and verformance of the various sectors of the country's economy, considering their wide participation in our major economic projects and programs. Thus, they,greatly influ- ence vital socioeconomic factors like distribution of wealth and income, poverty, and employment. Dr. Ernest Feder stated that unlike the long range general economic development plan of the Socialist econo- mies whose productive resources and national products are allocated to satisfy the needs of the entire population, the WB-ADB loans have been designed to support the invest- ment of the monopoly capital of the industrial countries. Such loans generate profits and other benefits for the transnational or multinational corporations. __ Even social projects like drinking water, slum clearance in towns and cities or loans for the rural poor are only fronts for the benefits of transnational corporaitons which supply the materials of agricultural inputs of such projects. It is noted that agricultural loans are concentrated more on high- value crops for commercial purposes — and not on food production which is the most urgent need of the Third World Countries like the Philippines. Such cash crops, instead of food crops, are for the benefit of giant agribusin corpo zaneas une! by the transnational corporations. ‘Likewise, Lik as: Deen: observed by the transnational corporations. ewise, it has been observed by Dr. Feder that the Green Revolution of the 1970s was implemented without significant financial assistance from the WB and nothing” ‘rom ADB. The WB support for rice production has been merely lip ” Project Scanned with CamScannergrvice But the WB supported IRRI development program rigated rice production because this increases the sales gricultural inputs (fertilizers, insecticides tools, etc.) of ansnational corporations. 4 7 On the other hand, IMF's principal role ig to encourage foreign. investments and free international trade. This exposes our developing economy to the powerful and efficient transnational ‘corporations owned by the United States, Japan, Great Britain, France, Germany, and other highly industrialized countries. Such countries are the biggest shareholders of both WB'and IMF — and also the ADB. For this reason, such. international financial institutions have been often accused as the instruments of transnational corporations or. economic imperialism. IMB Boss Explains Lending Operations Jacques de Larosiere, former managing director of the International Monetary, Fund, stated (Larosiere, 1984): Let me begin by recalling a basic. point: the IMF resources are a revolving pool of funds which can be made available on a temporary basis to members. facing balance of payments’ difficulties. The purpose is to enable such countries to tackle their problems by means of a policy strategy. that is consistent both with strengthening their own economies as well as the economic well-being of their trading and financial partners. The policy elements that are needed to ensure that the adjustmment takes place in an orderly and cooperative way constitute the conditionality that underlines the IMF lending operations. Regarding the common knowledge that IMF imposes “conditions” on member countries which apply for IMF loans, Larosiere pointed out that officials of the IMF. and the authorities of the member countries work together to’ letermine the nature and cause of the economic problems °f such countries. Both IMF and borrowers examine the Scanned with CamScannerti at exist for restoring @ viable payments’ osition over the medium term. Such policy options are nsistent with the domestic social and political objectives “Sof the member countries i omic priorities. The ~ aim of such discussions with IMF officials of the problems of the member countries which apply for IMF funds is to reach an agreement on a package of measures which constitutes a ‘coordinated attack on the problems they face and which the IMF can financially support. ‘Another criticism against the IMF conditionality is that it is unduly harsh and that it has the effect of undermining the economic growth of borrowing countries. The IMF managing director responded that in practice; conditionality is no more severe than it has to be’ in order to meet the essential medium term objective. of restoring a viable payments position. Sometimes, conditionality is tough de- pending upon the economic or financial conditions of the borrowing countries. For instance, « countries which are suffering from serious financial crisis find it difficult or impossible to obtain foreign financing. Local residents lose confidence in their own currency, and this results to a large- scale capital flight. Under these critical situations, adjust- ments are forced by IMF on said depressed countries in \ circumstances that are sometimes socially and politically hard to bear, as well as being disruptive to the economy. Conditionality also depends on the world trading climate. Obviously, it is much easier for a country to adjust in a cyaamc and growing world economy when markets are oyant: and expanding. And finally, conditionality reflects the availability and terms of external financing, Benefits of IMF Policies Cited Former IMF Executive Dir 5 ecti - mentioned the following betiefite. of Toi ai ee ies: 1, The IMF loans to the less a r : level i i are financially distressed have albedo ac a higher imports and hence higher levels of activity. Scanned with CamScanneri eae INTERNATIONAL FINANCIAL INSTITUTIONS 311 2, The policy elements underlying the programs that these countries have introduced with the IMF's help will enhance their growth prospects for the period ahead;; IMF- supported programs are always geared towards establishing the conditions that will foster sustainable growth over the medium term. 3. Rigorous monetary and fiscal policies are designed to establish an environment of price stability in which growth can flourish. 4. Policies are aimed at providing the right incentives to production and ‘the flexibility to ensure that capital and other resources are allocated efficiently. This means, in particular, interest rates, exchange rates, and government prices must be realistic. In addition, rigidities and controls must be phased out. in’ order to enhance flexibility and competition. 5. Countries “that have’ pursued Heorous demand management and flexible exchange rate policies have achieved not only better balance of payments performance but also higher growth rates. Demand management refers to cuts in government expenditures or more realistic prices. for public Services to reduce fiscal imbalance. Scanned with CamScanner