The Washington Consensus refers to the idea that the International Monetary Fund, the World Trade Organisation and the World Bank share common ideals. This is the idea that trade liberalisation and moving towards free trade is the best way for countries to develop. The IMF has 185 member countries; their work mainly consists of monitoring and advising countries on exchange rates, providing loans in emergencies, both long and short term and providing assistance and training. The IMF requires countries that receive loans to put in place reforms in the form of “Structural Adjustment Programs” (SAPs).
Some examples of saps are; cutting government spending, focusing on exports, devaluing currencies, liberalizing trade and Privatization. SAPs are applied the same to every country, regardless of specific problems. This follows a neo-liberalist ideology. It may be wrong for the IMF to demand SAPs in exchange for a loan as it intrudes on countries sovereignty, countries have the right to set their own policies without interference. When countries get into monetary trouble, it must be due to honest mistakes or factors beyond control, for example a natural disaster.
The policies implemented are not that of the government and so are likely to be followed loosely and therefore not reach their full potential. If the IMF was to hand out loans to without conditions however, the IMF would face the problem that since countries have the IMF to bail them out, they would act less responsibly. The implementation of SAPs discourages this. SAPs may be seen to harm the economy, the IMF forget that in many poor countries the economy needs to be developed first.
One example of this is in Jamaica, where the SAP allowed dumping, resulting in dumping from U. S. companies which killed off local industry. SAPs do create monetary stability, which is the aim of the IMF which does not focus on economic development as the World Bank does. This is measured by stable inflation, lack of deficits, and a good flow of capital The IMF seems to practice neo-colonialism, voting rights are distributed between member countries however the US and Europe have the most influence; this can be said for both the WTO and WB as well.
The countries that are most likely to require the help of the IMF are also the ones who have the least say in its policies. The IMF and the World Bank seem to favour America and Europe as in The 1990s, when the IMF suggested measures to the USA to help slow inflation which were ignored there was no reaction but the IMF did react when Ethiopia repaid a loan early which made economic sense however they did so without seeking approval first. In 1995, the World Trade Organization replaced the General Agreement on Tariffs and Trade. Trade liberalization in developing was a key policy.
The cotton growing industries of the four West African countries of Benin, Burkina Faso, Chad and Mali clearly show the injustice of international trade. These are some of the least developed countries in the world; they rely on cotton as an export. Cotton forms 5%-10% of their GDP. Here cotton is cheap to produce which should place them competitively on the global market. Their main obstacle however is that subsidies provided to cotton growers in the United States, the European Union, China and India which totally undermines their ability to use this advantage to trade their way to development.
Since 2001, $47bn has been granted to cotton growers in subsidies to the United States, the European Union, China and India by their governments. Over 51% of this is directly to US farmers. Without this trade they have no means with which to develop their countries and remain reliant. The elimination of these subsidies would result in rapid expansion of production in these poorer countries and a decline in the heavily subsidised ones. In 2002, Brazil filled a complaint against America using the WTO dispute settlement.
They argue that the US cotton subsidies WTO agreements and that US cotton subsidies were harmful to Brazilian cotton growers. In 2009 The WTO accused the US of using subsidies exceeding the cap. This victory gained by Brazil confirms the idea that US subsidies are harmful. In this dispute, Benin and Chad gave support as third parties, they would be likely to win a case on similar grounds to Brazil however they would reap little reward as they import very little from the US so any sanction upon this would be unlikely to have much effect. Another risk of opening onflicts with the US for these countries are that they receive aid form them, to speak out alone against them could leave them very vulnerable.
In this case study, these developing countries should not be in this position. The idea of subsidies goes against the ideals of the WTO’s trade liberalisation approach and has by their own rules been declared illegal however it is allowed to continue under he conditions of a cap which really doesn’t benefit anyone. These organisations do provide help to the developing countries of the world, this is undisputed.
However they also do a lot of damage. It is clear that free-trade, loans, SAPs and privatization are key to economic development and globalization. Although the evidence seems to support the fact that the Washington consensus is ineffective in reducing poverty and facilitating trade. They are also heavily criticized for being heavily in favour of the dominant countries, allowing them to have control of policies. It is the pursuit of economic growth at the cost of all else that causes these organisations to be so ineffective.
The organisations both help and hinder, dependant on the situation however their efficacy could be greatly improved by moving away form their neo liberal approaches , the benefits of which are hardly ever evenly distributed. This could be replace with a solution such as trade barriers which allow all countries to be more equal, allowing developing countries to retain their barriers at a reasonable level while encouraging MEDC’s to lover theirs to encourage trade between the two.