Globalisation:International Monetary Fund:Policies

Policies

created in 1996 by the IMF and World Bank, the Heavily Indebted Poor Countries (HIPC) is an agreement between creditors to help the poorest and most indebted countries reduce their debt burden. Poor countries owe a combined debt of over $2 trillion to rich countries. The HIPC Initiative enables poor countries to focus on “building the policy and institutional foundation for sustainable development and poverty reduction.” Along with reducing debt, the Initiative reduces poverty, and helps a country’s fiscal and monetary performance.

HIPC is open to the poorest countries that meet the following requirements:

1. A per capita income below $785. 2. Eligibility for assistance from the World Bank’s International Development Association. 3. Have such high debt that they cannot sustain it even after applying debt relief devices. 4. A track reform of trying to reduce poverty and building economic growth.

26/2/08

The IMF also has a number of policies incorporated into the Structural Adjustment Policies (SAPs). These particular policies involve countries having to meet certain financial conditions in order to recieve loans.Eligibility for loans from the IMF requires governments to be in compliance with the IMF’s Structural Adjustment Programs (SAPs), which aim to reduce a government’s budget deficits through decreasing government expenditure. Among the conditions are increasing exports, devaluing overvalued currencies, trade liberalization, balancing budgets, price controls, privatization, and fighting corruption.

11/2/08

However the structural adjustment policies have been criticised due to the fact that the debts of the poorest countries have increased rather than decreased. Another possible criticism is that the structural adjustment policies are simply loans which are being added to the ever increasing debt which the poorest developing countries are accumulating.

This is basically the forced introduction and integration of the country into the world free market economy. This allows the wealthy economies to gain access to the country in questions economy, which benefits the developed nations (in support of the IMF) The structural adjustment program often requires the devaluation of the currency against the dollar (http://www.whirledbank.org/development/sap.html), and recommends the removal of price controls and state subsidies. This aspect of the program weighs most heavily on the poor of the country, who will often depend greatly on what little state subsidised services the government were able to provide pre IMF intervention. The basic services often impacted are Health and education, which many would consider to be more important in development and poverty reduction than the economic program proposed by the IMF, which is focused on the export of primary commodities and foreign exchange. (http://www.whirledbank.org/development/sap.html)

This explains the fact that in many cases, a country that has been subject to the IMF Structural Adjustment Program often experience a sharp increase in GDP, but these increases are often characterised by stark inequality. The program often creates, or increases the existence of a wealthy elite, whilst simultaneously further impoverishing the already very poor.

This program gained such a negative connotation that it eventually ‘abandoned’ it, only to introduce the Poverty Reduction Strategy Initiative, which hold much of the same ideology of the Structural Adjustment Policy