DEVELOPING nations—including the Philippines—around the globe were crushed under mountains of debt in the last decades of the 20th century. While international lending organizations like the World Bank proclaim that they are “Working for a World Free of Poverty,” in many ways they did more to keep people in poverty than they care to admit.
The International Monetary Fund (IMF), the World Bank and regional institutions like the Asian Development Bank were not only lenders. They are also pushing their own economic agenda.
There is no question that loans to developing countries may have been granted with the best of intentions. That’s why the World Bank touts the success of loans to the Dominican Republic to provide a much better power-supply situation that has a positive effect on reducing crime and increasing the standard of living.
Good intentions notwithstanding, we also know that World Bank funds were misused through government incompetence and corruption, and the supposed benefits never reached the people. Yet, the people were stuck with the loan repayments that stretch for generations.
These institutions, as a part of a broader economic agenda, sought to foster the growth of freer markets and capitalism through the requirements laid down for giving out loans. Governments were expected to deregulate and privatize government-owned industries. However, in many cases, this was counterproductive and damaging to local economies.
Deregulation could take the turn of favoring large crony-owned companies over the ability of smaller companies to compete. Privatization often meant selling government assets at bargain prices to other cronies all in the name of free enterprise. There is little question that the global lenders turned a blind eye to potential abuses and the fact that these requirements hurt developing nations all in the name of their economic philosophy.
The new Asian Infrastructure Investment Bank (AIIB) formed by China has made it clear that it does not intend to pursue the same method of lending as the World Bank and the IMF. The AIIB will not insist on free-market economic policies for its project lending. The AIIB will follow the local conditions of each country.
There is a fear that future AIIB lending could slow economic reforms in some countries. But, as one example of past lending failure, development banks that financed a water-treatment plant required the price of treated water to be raised to recoup costs, even if the local conditions were not favorable to higher prices. The AIIB could avoid an increase in prices and rely instead on other sources of financing, such as limited government subsidies, to defray costs. The potential benefits to the people could be much greater in the longer term than under similar loans from the World Bank and the IMF.
As Susan Engel, a professor at Australia’s University of Wollongong who has studied the impact on the World Bank of free-market ideas, said, “It’s a religion—this commitment to the involvement of the private sector, even in sectors, where, in fact, their involvement is shown to do harm.”
Image credits: Jimbo Albano