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Opinion: The Unspoken Role of IFIs in the Economic Development of Pakistan

Aqsa Ajaz

Developed nations maintain their hegemony by exploiting the poorest nations and using them as a source of cheap raw materials and labor, as was the case in the subcontinent of India in the time of East India Company. This exploitative relationship is still maintained into the 21st century through Western countries' domination of international trade, the emergence of financial institutions like World Bank and IMF and the reliance of less-developed countries on Western aid as is in the case of Pakistan. A look at Pakistan’s economic development shows that after independence, Pakistan was enforced into pursuance of a neo-colonial capitalist model in which authoritarianism and economic growth were blended, a trend continued till today.



The United States influenced less powerful or Third World nations like Pakistan by its economic authority exercised through its control or preeminent influence through agencies such as the World Bank and the International Monetary Fund. This is reiterated by German sociologist Andre Gunder Frank who said Western nations deliberately failed to develop these countries (Frank, 1966). He argued that historically, core nations such as the USA and UK, who made up the elite metropolis, exploited peripheral nations by keeping them as satellites in a state of dependency and under-development. We see the same happening with how the IFIs like World Bank and IMF operate in developing countries.


The main purpose of the IMF, as noted on its website, is to “provide the global public good of financial stability”. A stable international financial system is defined as one that provides an environment conducive to trade, and trade is viewed by proponents of neoliberalism as the engine of growth for all states. However, stability is too often defined in terms of the interests of the advanced industrial states, often to the detriment of developing states. While the IMF has remained true to its stated mission in promoting policies that achieve these goals, it is important to question the underlying assumptions of this approach to global economic stability. Surprisingly, while much research has been done questioning the effectiveness of IMF policies, little has been written in the field of political economy addressing the Fund’s underlying assumptions and how these came to dominate Fund policy making. Also, although many authors have been critical of the Fund for its promotion of elite interests, there is little analysis of the cleavages within this class and the role the Fund plays in supporting one particular segment of the economic elite. As, arguably, the most powerful international economic organization, the Fund should be examined from a more critical perspective.


International financial institutions like the World Bank and International Monetary Fund have played a significant role in devising the economic structures of developing countries by using structural adjustment and other conditional lending policies. Structural adjustment loans are given to countries facing issues with their balance of payment problems. These come with certain conditions in which the debtor is asked to adopt certain structural policies and monetary, exchange, and fiscal rates by which the government’s role in the economy is reduced and market’s role is increased, trade barriers are reduced, and private property rights are strengthened (Peet 2003). In reality, accepting these conditions means a reduction in the government’s spending on welfare, education, health, etc., an increase in interest rates, privatized state enterprises, and weakened labor laws. Thus, we can see that these policies mimic the policies of Western nations, and echo the outcomes of neoliberal economic policies i.e., minimum government intervention followed in Western nations, particularly the U.S., Cox observes that hegemony follows from power, but hegemonic power invites consent more often than it coerces. Machiavelli likened the image of power to a centaur: half man and half beast, which he believed is a necessary combination of consent and coercion. It is to the extent that the consensual aspect of power is at the forefront for hegemony to prevail (Puchal, 2005). Hence, when these countries accept these conditions, they give consent to this control of their economies, monitoring and evaluation systems, and government organizational structures.


Blame for this acceptance of these conditions can be laid on the actors within these countries, especially since some specific economic elites and government agencies benefit from such policies and the flow of loans. However, the main reason for these developing countries accepting these conditional loans is that they have very little choice in the matter because of the hegemony of these IFIs. The nations that seek out these loans are in dire need of assistance because of the severe economic crisis that they’re facing. It is not possible to get external assistance without the support of these international institutions. They need this support not just for receiving money from the World Bank and IMF but even as a seal of approval for them to access other sources of assistance such as friendly nations (Liam Downey, 2020).


Furthermore, these IFIs do not represent a place for collective action but constitute an executive agent of US power and its global projections vis-à-vis other economies. Throughout its history, the IMF mended the faults of the American hegemonic order by maintaining its original mission whilst at the same time developing new areas of intervention (Lagna, 2012). However, despite these developments, the Fund never fulfilled its potentially universal role.


Resistance to this exploitative capitalism and free market structure could have been a stepping-stone to a change in history, but this revolt is manipulated by the very system’s supporters and beneficiaries. They sold the idea of neoliberalism and free market practices as the solution to all problems which eventually became the new normal of democratic liberalism. This eventually resulted in an escalation of hegemonic politics that remained unchallenged by the world at large at the end of the Cold War. Nonetheless, examining the countries where such policies are being followed, we can conclude that after 30 years all the promises of free markets and as free individuals have proven hollow. The countries within the historical peripheries of the capitalist world, at present, remain more exploited, cast out, exploited, and brimming with violence than in the past.

 

References

Frank, A. G. (1966). The development of underdevelopment. New England Free Press. Boston: New England Free Press.

Lagna, A. (2012, August 9). The IMF and American Power. Retrieved from E-International Relations: https://www.e-ir.info/2012/08/09/the-imf-and-american-power/

Liam Downey, E. L. (2020). Power, Hegemony, and World Society Theory: A Critical Evaluation. 22.

Puchal, D. J. (2005). World Hegemony and the United Nations. International Studies Review, 571-584.


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