ABUSE LEADING TO ABYSS

How it all began

"The extremes of poverty and deprivation are simply no longer acceptable. It is development's task to deal with them", World Bank president Robert McNamara assured in 1973 at the Bank annual meeting. The World Bank increased lending from $953 million in 1968 to $12.4 billion in 1981. In 1980, the Board of Directors launched structural adjustment loans to aid developing countries suffered from debt crisis and oil crisis. Meanwhile, dollar entrenched after 1979-1980 measurements and monetary policies in the US. Thus, the US started to compete aggressively on world capital markets attracting billions of investments in its economy. Consequently, developing countries dwindled dramatically with double pace demanding more debt. 

What was the aim to launch Structural Adjustment Loan?

SAL assumed low interest rates for the most suffering countries. However, this form of loan obligates the borrowers to comply specific conditions. Governments borrowed from World Bank were incurred by intervention of latter to their policy. Proposing and managing financial strategies, Bank literally limits national sovereignty."Putting external conditions on governments' behaviour through structural adjustment loans has not proven to be very effective in achieving widespread policy improvements or in raising growth potential (William Easterly,2003,20). Opponents of Bretton Wood system sharply criticize that World Bank applied the same one-sided policies such as privatization, free-trading promotion and market liberalization regardless of country and its ability to undergo these changes. I. B. Logan and K. Mengisteab(1993,22) remark: "There are several elements of adjustment (the manipulation of prices, interest rates, and exchange rates, for example) that are relevant for the Westernized enclaves, but these reforms cannot be implemented to the exclusion of their impacts on, and relationships with, critical domestic and international factors". In the 80s, World Bank widely launched austerity programs to mitigate the aftermath of crisis in developing countries. According to Rick Rowden (2009), World Bank forces governments to target low inflation and low budget deficits through cuttings in health, education and social aid. Survival International claimed that devastation of tribal’s areas in Ethiopia, Brazil and Ghana is the consequence of irrational agricultural reforms. 45 out of 82 implemented agricultural projects between 1975 and 1982 were assessed as unsatisfactory.

Who is guilty?

Being the president from 1968 to 1981, S. McNamara has raised the role of World Bank as a primary creditor. "Push to lend more" strategy masked by the high-moralistic idea of "poverty reduction" was successfully accomplished during his presidency. Although Structural adjustment loans had deepened the rate of poverty and unemployment in developing countries, World Bank maintained SALs as a quarter of its portfolio.

One can suggest that it was a great opportunity for developed countries to easily obtain the benefits of the 1979 crisis. Lending to developing countries during crises balanced the budget of the indebted developed countries. Moreover, the millions of capital flowed to distressed economies, since creditors obtained the access to the emerging markets. The effects of such cash inflows might be ambiguous for developing countries as it has been for Thailand in 1997. 

Perhaps, west companies and countries simply exploited World Bank as an intermediary to move their debts to the remaining world. While indebted countries start to struggle, there are two options for World Bank governors. If country has prospects, invest there. Otherwise, lend more.

What next?

One can suggest that debt crisis in the developing world arose as the consequence of stagnation in west economies. While debt/GDP ratio of developed countries reached the critical point during last financial crisis, World Bank lent $437billion to developing countries in 2010 only (theguardian.com). Currently, majority of developed countries are heavily indebted. Investors do not expect any high profits from west markets in 2014, greedily looking after trends of foreign 'fresh' prospects. The same scenario, is not it?

Hopefully, it is just a coincidence.