“Shame on you!” That was one of the many slogans yelled and used often over the past few years at protests held by thousands of people in Washington against the International Monetary Fund (IMF) and the World Bank (Jones, 2000). In the last decades the world has seen a general trend of neoliberal globalisation giving power to international organisations like these. There seems, however, to be more and more controversy around this topic and the number of contra-groups is rapidly increasing. Especially in Latin American countries, people are discontent. Movements are becoming more organised and are in some countries not only expressed through political force, but also military action (Marks, 2001).
Academics from all fields of expertise have been asking themselves why. Even though this problem is supranational and complex, most academics have been looking for answers at an individual level, focusing on national policies. This article steers away from this approach by focusing on one of the key aspects of globalisation —international organisations like the IMF and the World Bank. This paper argues that neoliberal policies in Latin American countries were implemented in a non-democratic way by international organisations, which has contributed to the rise of anti-globalisation movements. This will be done by looking at the issue from an economic point of view and considering the neoliberal policies implemented by these organisations.
This article will firstly conceptualise neoliberalism, globalisation and their relationship. Secondly, it will analyse democratic decision making within the World Bank and IMF. The implementation of neoliberal policies in Latin America and the lack of democratic participation of these countries will also be discussed. Lastly, the former will be connected to anti-globalisation movements in Latin-America and their increasing popularity.
Neoliberalism and Globalisation
Before going into detail about international organisations, it is important to firstly conceptualise globalisation and neoliberalism. Globalisation is a phenomenon that influences every aspect of human life. It can be described as the intensification of worldwide interactions and relations on a social level. It is an historical process that includes not only the growing magnitude of interconnectedness, but also the stretching of a variety of activities across borders — economic, political and social. Furthermore, it includes the acceleration of these interactions due to the rise of communication and transport technologies. In short, it can be defined as the growing velocity, intensity and extent of global interactions (Held & McGrew, 2007).
The second important term is neoliberalism. As an economic model, it consists of an ideology, a mode of governance and a policy package. In its most ideal form, neoliberalism takes the form of a consumerist, free market world interlinked with capitalism — international trade and financial flows move between countries all over the world. Its mode of governance is a self-regulating free market, emphasising entrepreneurship. Its values are decentralisation, self-interest and competitiveness. In other words, government stays out of economic processes and refrains from interfering in the market. For economic policy, this means trade liberalisation, deregulation and the privatisation of state-owned enterprises. Subsidies and taxes are cut and trade barriers are decreased as much as possible (Steger & Roy, 2010).
The World Bank and the IMF
In this section, the IMF and World Bank will be assessed according to their standards of democracy. These conclusions will then be applied to the specific case of neoliberal policies in Latin America. On paper, the IMF’s goal is to “ensure the stability of the international monetary and financial system” and to “[promote] economic stability and global growth by encouraging countries to adopt sound economic and financial policies” (IMF, n.d.). The goal of the World Bank is more explicit in stating its particular focus in the developing world as it aims to “end extreme poverty” and “promote shared prosperity by fostering the income growth of the bottom 40% of every country” (World Bank, n.d.).
When analysing how democratic these institutions are, it becomes immediately clear that there is a sense of imbalance at the foundations of the institutions. Both are based on weighted voting. This means that instead of each country having one vote, the amount of decision-making power depends on the financial resources a country provides the organisation. Within the IMF, decisions are made by the Board of Governors and the Executive Board. The Board of Governors meets just once a year, consists of a representative of each member nation and has de jure decision-making power over important cases like the admission of new members, quota adjustments and constitutional changes. The lack of meetings means that in practice, the Executive Board — besides carrying out the decisions — also makes most of the decisions with regards to policies as they meet several times a week (Strand & Rapkin, 2006). The representation on this board is unequal in that it consists of an executive director from the largest shareholders — the United States, Japan, China, Germany, Russia, France, Saudi-Arabia and the United Kingdom — and from 16 others voting groups (IMF org, 2016).
The structure of the World Bank is similar to that of the IMF, also making its decisions based on weighted votes with the five largest shareholders, — the US, Japan, Germany, France and China — each having a separate executive director (Bretton Woods Project org, 2016). The remaining countries are grouped together and given one executive director who represents a wide range of countries with different needs. National governments of these countries have a weak link to the decision-making processes and formal deliberations, meaning many countries are underrepresented (Woods, 2001).
Another point of criticism often raised is the fact that the most important decisions made within the IMF and the World Bank, such as changes in quota and constitutional issues, require an 85% majority. Since the United States holds over 16% of the shares, this means that it possesses a veto which is a privilege enjoyed by no other country (Onneshan, 2004). In addition, the G7 — the seven most advanced economies as reported by the IMF — enjoy considerably greater power. They have a combined voting power of 46%, whereas world’s poorest 80 countries have a combined voting share of only 10% (Thistle, 2000).
In the specific case of Latin America, an important term is what Williamson in 1990 labelled the “Washington Consensus”. This refers to the “lowest common denominator of policy advice” promoted by the international institutions based in Washington (Srinivasan, 2000, p. 266). It included neoliberal trends such as fiscal discipline, tax reform, trade liberalisation, inflows of foreign direct investment, competitive exchange rates, privatisation and deregulation (Williamson, 2000). As Moisés Naím (2000, p. 95) notes in his article You call this a consensus?, promoting these polices was far from a consensus decision within Latin America. Nor were academics, economists and policy makers all in agreement, even amongst those who worked for the IMF and World Bank. The World Bank was even accused of malpractice (Dornbusch, 2000).
Despite the dissension which was silenced due to power imbalances, these neoliberal policies were pushed through and imposed on Latin American countries by the international organisations, which forced these countries to structurally adjust (Lopes, 2012). The interference of the international organisations led to the adoption of new governance agendas on a national level, not only economically, but also because state institutions were forced to reform. Under the guise of development, structural adjustments aimed to ensure a minimalist model of state (Tuezzo, 2004). An example of this is Mexico, which was forced into bankruptcy when the United States raised the proportion of foreign earnings that borrowing countries had to put to debt-interest payments. This forced Mexico to adopt neoliberal policies (Harvey, 2007). From a macro perspective, it can be said that the neoliberal system was used to destroy “…prior institutional frameworks and powers such as the supposed prior state sovereignty over political-economic affairs…” (Harvey, 2007, p.23). Thus, neoliberal policies were implemented due to external pressure from organisations under the guise of “economic development”, without the consent of Latin American countries.
The Rise of Anti-globalisation Parties in Latin America
The consequences of neoliberal policies were far from what politicians had promised and what the econometric models of the IMF and World Bank had predicted (Naím, 2000). There was less growth in Latin-America in the 1990s in per capita GDP than between 1950 and 1980, even though the populist, state-led protectionist policies were being dismantled. In addition, decreased government influence caused higher unemployment rates. Subsidies on necessities as food, fuel and social services were also diminished and prices increased significantly: gasoline by 3000%, water by 1300% and electricity by 5300% (Kelly, 2009). This severely affected the poor.
The implementation of neoliberal policies led certain countries to crisis. In 2002, Argentina was set to be the example of economic revolution, the neoliberal baby, but the policies proved unsustainable (Rodrik, 2006). As Argentina was opened up to foreign capital and privatisation, it collapsed as international capital withdrew because of a lack of protective measures (Harvey, 2007).
The Washington Consensus in Latin America failed. When this became clear, an additional problem arose: the IMF and World Bank failed to respond in an appropriate manner. Instead of adapting or reversing neoliberal policies, they blamed the Latin American countries, accusing them of wrongful implementation. They forced them to continue liberalising their capital markets (Stiglitz, 2004). In the specific case of Argentina, the IMF decided to cut off its support to the country completely. This meant that access to foreign capital was lost and in 2001, and Argentina was forced to default on US$93 billion of sovereign debt. As a result, President Saá was forced to resign which increased political instability (van de Wiel, 2013).
In the late 1990s a new wave of protest events emerged in Latin America. The examples are endless: the regular annual number of strikes in Argentina was surpassed, the 100,000 people who marched and protested in Costa Rica in 2000 and the riots which broke out in Peru in 2002. These were all protests against the privatisation of enterprise and the continuation of neoliberalism.
Even though the causes of these protests also included cuts in subsidies and policies that threatened the safety net of Latin American people, this kind of popular mobilisation does not only show distaste for policy. Research by Walton and Ragin and Walton and Shefner has shown that countries with multiple IMF agreements and dense international civil-society organisational networks are most likely to experience popular unrest (Almeida, 2007). This is also why the main targets of the demonstrations are not only international organisations, but also national actors. Besides the countless demonstrations at the IMF and World Bank annual governor’s meetings, demonstrations also take place inside Latin American countries themselves (Wilson, 2015).
In their fight for the self-determination of their local governments, protestors reject the ideology of globalisation and capitalism. They show pain for their own countries and economies — the purpose being a kind of ‘wake-up call’ for domestic governments in place (Starr & Adams, 2003). People within Latin American countries want to get rid of internationalised domestic politics, so that their vote and democratic consensus predominates the will of supranational financial institutions (Almeida, 2007). The Latin American citizens are fighting for local autonomy and these movements are only the beginning.
This paper argues that the neoliberal policies implemented in Latin American countries were enforced by international organisations in a non-democratic way, which then contributed to the rise of anti-globalisation movements. It explains how the World Bank and IMF’s voting procedures are problematic because developing countries are underrepresented and lack influence.
The imbalance between rich countries and lower-income countries has lead to undemocratic policy imposition. Neoliberal policies were implemented under the guise of structural adjustment or the Washington Consensus and were forced upon Latin American countries by wealthy countries like the United States. These policies turned out to be extremely problematic and far from what was promised. After several crises arose, they failed to respond in a proper manner. Lastly, anti-globalisation movements in Latin-America prove this undemocratic imposition, as people are dissatisfied with international organisations and globalisation in its entirety. They want their domestic governments to be their policy makers again.
Romée Vandenbergh is an undergraduate exchange student from University Honours College Maastricht, the Netherlands. She specialises in development economics and policy-making and has great interest in international organisations like the United Nations, IMF and the World Bank. She has been a participant of development programs in India and Mongolia, and last year she was a member of the Crisis Committee discussing currency wars in the Stockholm Model United Nations, Sweden.
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