IMPERIALISM IN INTERNATIONAL FINANCIAL INSTITUTIONS
Updated: Feb 2
1. Financing Imperialism: British and American Bankers as Vectors of Imperial Expansion in China, 1908-1920 Clarence B. Davis, The Business History Review, Vol. 56, No. 2 (Summer 1982), pp. 236-264 This article focuses on the American and the British Banks, who provided various loans and financial negotiations with China during the 1910s when China was going through a period of massive political turmoil. Providing us with a glimpse of an era before the World Bank or the IMF were established, it highlights how many of the Western governments competed with each other through their banks in hopes of imposing financial control over China. These nations supported their banks through the manipulation of public opinion and diplomatic pressure on China in order to gain further inroads to their goal of economic imperialism. However, the bankers were more interested in gaining more and more profit rather than pursuing the political goals of their parent government. This led to many conflicts between the bankers and the statesmen, which, combined with the background of a World War followed by an economic depression, soon led to a withdrawal of investments from China. Ultimately the goal of economic imperialism in China failed not only because of the difference of policy and motive between the bankers and the government but also because of the rivalry between the various Western governments in trying to take control of China.
2. Internationalization of Capital, Neo-Colonialism and International Finance Sunanda Sen, Economic and Political Weekly, Vol. 18, No. 31 (Jul. 30, 1983), pp. PE27-PE35 This article takes a broader view of the impact that international finance capital has had in concentrating economic power in the hands of a few rich nations while leaving the poorer nations to fend for themselves. It particularly highlights how the post-Bretton Woods era cemented this regime in the global economic order through various methods like the use of key currencies as an international reserve, free flow of capital among industrially rich nations, revival of monetarism in the West and prominence of transnational banks to distribute surplus funds. It also points out how Western nations have built a financial oligarchy between themselves due to the hegemony present between the capitalist nations. This alliance and the institutions built by this alliance ensure that the less developed nations which are not a part of this alliance would be systematically discriminated against. Examples of this type of discrimination include the unconditional borrowings conducted by the rich nations, which took up 77% of the IMF's funds between 1947 to 1980, while a Less Developed Country (LDC) like India was given six times less funding than the U.K. despite the size and population of the former nation. The author highlights many more discrepancies between the treatment given to rich nations and the treatment given to LDCs through various tables and statistics to prove how entrenched discrimination is in international financial institutions.
3. The Bretton Woods institutions and the self-deceiving state in Africa: How international finance capital and blunted vision have underdeveloped Africa D. Moore-Sieray, Journal of African Research & Development, Vol. 27/28 (1997/98), pp. 183-196 This article focuses on the case study of Africa and how Bretton Woods was used by industrial nations to plunder Africa and its resources further. Bretton Woods put a huge emphasis on growth led development strategies in Africa while underutilizing the agricultural and informal sectors already present there. This strategy failed and led to both massive socio-economic disparities and a huge capital flight from Africa to the West. This, along with the OPEC crisis and the global recession, led to the development being stagnated and a debt crisis to emerge on the continent. Due to this crisis, many African countries were forced to take loans from Western monetary institutions like IMF and World Bank, which imposed draconian reform programs in exchange for the loans, which proved to be even more disastrous for the continent's industries. Hence, through this specific case study, we can see how Western institutions have meddled in the affairs of LDCs under the guise of helping them and have used this opportunity further to plunder those nations' resources for their own benefit.
4. Globalization in the Perspective of Imperialism Robert Went, Science and Society, Vol. 66, No. 4 (Winter 2002-2003) pp. 473-497
This article highlights how international institutions like IMF and World Bank advocating for free trade and capital mobility as agents of stabilization are similar to how classic economists like Mill and Torrens advocated for colonization on the basis of free trade and capital mobility allowing for stabilization. While these policies are said to be progressive and beneficial to all, it has instead proved to be massively disadvantageous to a majority of the world population and has instead forced unwilling countries to comply with the unfair demands placed in front of them by the globalized financial market. Hence, the globalization age has proved to be a return to the pre-World War I period of imperialism where instead of incorporation of foreign territories, the rich nations instead focus on an increase of capital. The article also highlights that globalization has led to a huge increase in the cross-border links of capital from different countries, and if there is a collapse in the system, then all of these countries could be affected. This prediction did turn out to be true a few years later, when the Great Recession caused a massive impact on the world market.
5. International Institutions Today: An Imperial Global State in making B.S. Chimni, EJIL Vol. 15, No. 1 (2004) pp. 1-37 This article lays down important arguments in how international institutions have become akin to a global state of their own. It points out how international institutions have come to exist in all areas of international relations and have severely limited the autonomy of every sovereign nation and instead distributed this autonomy among themselves for making economic decisions. He also points out that the United Nations, by increasing the role of the private corporate sector has embraced and encouraged a neo liberalistic ideology for its members. Another argument made by this article is that independent thinking in these international institutions has been shut down by powerful industrial nations in order to suit their priorities. An emphasis is also placed on the complete lack of democratic character to these institutions and how the powerful industrial nations have explicitly opposed any kind of attempt to make these institutions more democratic. Finally, this article points out that the capitalist class has played a huge role in shaping the policies of these institutions, and these institutions have further legitimized policies throughout the world that explicitly favour people belonging to this class.
6. How international financial institutions and donors influence economic policies in developing countries
Tiago Stichelmans, Eurodad (September 2016)
This paper examines the implementation of the ownership principles by the IMF and the World Bank and the various conditionalities attached by them. It highlights how many problematic conditions are placed by IMF upon LDCs who desperately need funds. Some of these conditions include privatization of state-owned enterprises, deregulation of labour markets, and tax reforms. It also points out how new borrowers face draconian conditions, which puts a large amount of pressure on them to adopt these reforms. The paper also points out how the World Bank implements its decisions on the basis of the opinions of the members of its board, the majority of which belong to rich nations. The paper also emphasizes how rich donors have, through various donations, influenced the research departments of the World Bank and IMF in order to support the formation of policies that would be favourable to them. It proves how there is a major difference to be found between the commitments promised by the IMF and the World Bank towards developing countries and the actual practices carried out in those areas.
7. The World Bank and International Monetary Fund as Mechanisms of Western Domination: Historical and Contemporary Analysis
Mohammed Bani Salamah, The Arab Journal of Arts, Vol. 14, No. 2 (2017) pp. 923-944
This article analyses how Western countries, especially the United States, in the wake of World War II, have used the World Bank and IMF to achieve their political goals. These institutions were created by the United States, and the majority of their basic design and management, along with a permanent location was provided by the United States only. An application for a loan requires at least the approval of 80% of the voting members, and since the United States has never had less than 20% of voting power, it effectively is the only country to hold veto power on these loans. The United States is also the only nation that holds a review on every loan that is proposed to the World Bank. The article also points out that since the voting power of a nation in the World Bank depends upon their financial contribution rather than a more democratic approach, this ensures that rich nations would always hold more voting power than LDCs. It also emphasizes that most of the loans given to LDCs have rarely been allowed to be used for the development of a nation and instead have been used for the purchase of military weapons or equipment used to suppress ideological revolutions based on communism or socialism which are unfavourable to the United States. Hence, the World Bank and IMF are considered to be tools used by Western nations in order to achieve financial imperialism.
Through this paper, we will underline the role of the World Bank (hereinafter, "W.B.") and the International Monetary Fund (hereinafter, “IMF”) in propagating the capitalist notions of the developed nations of the world and the role of The United States of America (hereinafter, "USA" or "U.S.") as a key agent in promulgating the imperialistic goals of the western states. This paper will analyze various instances in history where the IMF and the W.B. have successfully promoted capitalist propaganda and shown how deep-rooted imperialism is in these international financial institutions. USA’s role in the formation of these international organizations helped them get the majority voting power and control over decision-making authorities in these United Nations (hereinafter, "U.N.") bodies. Using this power, the Americans have managed to sway the decisions of the W.B. and the IMF on multiple instances, which will be observed in the course of this paper. Furthermore, through the rampant misuse of this authority, the IMF itself shifted from the aim of ‘developmental assistance’ to forwarding the colonialist goals of the developed western states through an anti-communistic approach. This paper aims to highlight the under-lying truth that the U.S. and the western states use the façade of ‘developmental assistance’ through these international organizations to subordinate the less developed countries (hereinafter, “LDC”) by means of financial oppression which severely affect the growth of the subjugated countries.
Background of facts
The history of this world shows how the developed states of today have used their military power to oppress the weaker states of the world since the 15th century. The colonization period brought about drastic economic and social suffering to the colonized nations. From mass exploitation of manual labour to an unbridled use of natural resources, the imperialist nations emptied the colonized nations of all forms of national wealth and left them on the brink of economic. It was not until the 20th century that the traditional methods of colonization were finally abolished by the southern states in their battle for independence. Although the independence of the colonized states put an end to their direct exploitation, it did not stop the oppression from the imperialist states.
Following the economic catastrophes of the first half of the 20th century, the majority of the capitalist states were forced to act in contravention to the prevalent practices of international trade in that era, which left the global economy in shambles. Seeing the state of the world, the U.S. started to plan the conception of the New International Economic Order that would facilitate in restoring the economic order of the world following the peace agreements. The U.S. claimed that the aim of this Order was to bring stability to the international trade markets and allow for regulation of the currencies of all nations. Eventually, the U.S. introduced this policy to the United Nations in the Bretton Woods conference which played a major role in the formation of the IMF and the W.B. Finally, On 22nd July 1944, as World War II came to an end, the IMF and the W.B. were established through the Bretton Woods conference. These international financial institutions were founded in the interest of development and rehabilitation of states that had suffered irrecuperable losses due to the two World Wars, which had led to the crash of multiple economies of the world in that era. The aim of these financial organizations was to provide a platform for international financial cooperation, which would lead to the restoration of financial stability, assistance in global trade and commerce and would encourage sustainable economic growth models across the world. Nonetheless, it was not long before the victorious western states from the World Wars realized the opportunity this presented to continue their political dominion over the damaged and weaker southern states of the world, which gave rise to a new form of colonialism, economic colonialism. The USA was the first superpower nation of the world to take cognizance of this opportunity. In the next section, we look at how the U.S. managed to use the International Economic Institutions (IEIs) to forward their economic ideologies to the rest of the world.
The issue that is brought up in the current situation is the oppression of third world countries through misuse of the governing powers of the IMF and W.B. Nations that enjoy high voting rights in these financial institutions have all the authority over the investment decisions, loan deals, and the conditions to be laid down in these negotiations. Weaker nations with heavy national debts are left helpless in situations when the dominant states decide to enforce unfavourable conditions upon them for the realization of these debts. This counter-productive approach often leads to the breakdown of the economic machinery in many of the weaker states, which pushes them further down the financial hierarchy. Another issue that is brought about is the mala fide use of the dominant power of the western capitalist states in situations of war. On many occasions of civil wars or war between states, these IEIs have sided with parties that support the ideologies of the dominant western states. In the next section of this paper, we will look at examples of these issues and critically break down the misuse of this authority of the IEIs to have a better understanding of the issues at hand.
Influence of Imperialism on the International Economic Institutions
As we have observed earlier, these IEIs are largely a product of the New International Economic Order that is based on the American ideal of economic governance. The U.S. had laid down their basic framework, provided much of the executive manpower and the capital required to get these institutions up and running. This was seen in the fact that the U.S. strongly pushed for the headquarters of these IEIs to be located in the capital of their country. Furthermore, the U.S. also obtained the power to outline the roles of the Directors and other executive personnel for these agencies. Through these actions, the U.S. achieved the status of being an authoritative figure in the governance of these agencies since its inception at Bretton Woods. The motive behind this action was to extract the economic command of the world from London and Wall Street and centralize it with the United States Treasury. Since Washington D.C. was decided as the centre for the location of the headquarters for these agencies, the decision regarding the appointment of the executive officials was also with the U.S. and many of these individuals that finally secured those job titles were American citizens that were closely tied with their nation’s government. Therefore, the support of the U.S. government was an unsaid prerequisite before any investment decision was to be made by the W.B. or the IMF. This took away the sovereignty of these financial institutions and established the U.S. as the dominant authority. Moreover, the charter of these international financial agencies was also reflective of the notions of the U.S. on how the operation of these agencies should be carried out. As per the W.B. charter, at least 80% of the total votes must agree to a loan application before it can be granted. The inherent flaw with this provision was that up until 1980, U.S. enjoyed more than 20% voting rights in these institutions. Eventually, in 1987, the U.S. having sole authority over a quarter of the voting shares was not viable for the signatories of these IEIs.
Consequentially, Japan (an ally of the U.S.) and the U.S. negotiated a deal in which the U.S. gave Japan was a substantial amount of its voting rights (this gave Japan the second-highest voting rights) in return for the required majority of votes to be raised to 85%. This means that since the inception of the W.B., not only has the U.S. enjoyed the maximum share of voting rights in this agency, but it has also enjoyed the power to embargo any investment proposal put forth in this financial institution. Looking at the facts, one can infer that every single decision of investment by the W.B. had to have been in agreement with the notions of the U.S. government, and any discrepancy with the same would attract the veto powers of the U.S. which would disallow the W.B. from acting upon it. This point gives validation to the fact that the U.S. is the sole authority that has spearheaded the two financial agencies from the beginning.
The situation in the case of IMF was not any different. Since the formation of this agency, the U.S. has enjoyed the position of the majority shareholder. The U.S. currently holds 16.52% of the total share of votes of the IMF, which is 10.37% higher than Japan, an ally of the U.S., and the second-highest shareholder in the IMF. In fact, in a similar situation like that of the W.B., Japan negotiated a deal with the U.S. to obtain its voting shares in IMF in return for the veto rights being solely held by the U.S. The U.S. has used this regal authority on multiple instances to suit its needs. On numerous occasions, the IMF has utilized a substantial amount of its financial resources to support the needs of the U.S. and the developed nations. Unconditional borrowing was an option made available to all parties of the IMF, and the allocation of these funds was supposed to be done in an equitable manner (based on the aggregate funds drawing rights) after approval from the IMF Board. From 1947 to 1980, 77% of the total money set aside for unconditional borrowing was given to the industrialized nations of the world. Now, this does not seem unfair as one might say that the developed nations contributed more gold to the IMF, which allowed for them to have greater drawings sanctioned by the IMF. While that is true, one cannot ignore the fact that the drawings were based on the total amount of gold deposited by the nations upon which a percentage of the total value of gold deposited by that nation was supposed to be sanctioned for withdrawal by the IMF. The difference in the percentage allowed to the developed states versus the developing states highlighted the inequitable treatment shown towards the southern states. In the cases of developed states, 45% of the total value of gold deposited by the nation was allowed for withdrawal in the developed states. In the case of the LDCs, this number stood at 12%, while for the U.S., this number stood at 100%. A similar situation was observed in the recordings of funds lent to various states in the first three decades of these institutions. One might assume that the developed nations of the world will require less funding from these institutions since they already have stable and well-developed economies, but the truth is far from this. In fact, in the first three decades, the U.S. borrowed more than three times the amount that India borrowed while the United Kingdom took six times the amount borrowed by India. This depicts a picture of the unfair treatment shown towards the LDCs and other southern states and foregrounds the pre-established notions of favouritism in the governance of IMF. Another example of the same is the choice of 16 currencies (which were the currencies of the developed nations that held a majority share in world trade at that time) that were accepted for allotment of special drawing rights before the Bretton Woods methodologies were abolished. Thus, struggling countries with weak economies that could substantially benefit from the special drawing rights were not even presented the opportunity to avail of these benefits, which further elaborates on the point of maltreatment of the LDCs.
It is pertinent to point out here that none of the LDCs can make avail of the benefits of the IEIs granted to the more developed nations of the world like the G-10. Additionally, there is a lack of other means for these LDCs to keep up with their balance of payments considering their inadequate financial resources and weak sources to attract foreign investment. This leaves the LDCs with only one recourse, to approach the IMF for financial aid by putting their economic sovereignty on the line. Furthermore, since the imperialist states are aware of the pitiful conditions of the borrower, they provide insufficient funds along with stringent conditions that not only fail to realize the total deficit of the nation, but also impose their capitalist policies that often thwart economic growth in the borrower countries, and in most cases, these borrower countries have no option but to accept these feckless conditions which gives rise to the issue of economic colonization upon the borrower state.
We have now proven that the U.S. was the prominent force behind the decisions of these IEIs. The U.S., in addition to the suppression of the LDCs, has also used loans as a means of acknowledgement of nations who have shown loyalty to the American regime and their idea of governance while penalizing any enemy states that opposed the U.S. regime. This can be observed in three different instances: The Cold war, the Nicaragua case, and the Vietnam war.
1. The Cold War – Even before the beginning of the Cold War, the imperialists' disdain towards communist regimes was evidence. In 1947, Poland (allies of the Soviet Union) applied for the $128 million loans towards a coal mining project, which was a good investment from a financial standpoint, but the U.S. scorned the political backlash that would be brought about if it supported the communist government of the Polish. Therefore, by raising impossible conditions in the negotiations between the W.B. and Poland, the deal was dissolved. A similar authoritarian approach was taken by the U.S. in its war against the Soviet Union and its communist government. The military means of oppression had failed the U.S., and therefore, the U.S. used the economic powers of these IEIs to form allies with various southern states to cut off the support that the communist government was receiving in the south. Even though the Soviet Union was rich and at par with the U.S. in military resources, it had lost the support of its neighbouring states, which led to political issues with the neighbouring countries of the Soviet Union. This gradually caused internal management problems for the Soviet Union and their allies, who gradually started integrating themselves with the U.S. in order to receive the benefits from the IEIs, which eventually led to the collapse of the Soviet Union.
2. The Nicaragua Case – From ‘50s to the late ‘70s, Nicaragua was run under the dictatorship of the Somoza family. The Somoza family had a great relationship with the U.S. They supported the U.S. in most international platforms and even provided their nation as a platform for the U.S. to train and send exile forces into Cuba during the Cuban War of Independence. Furthermore, Nicaragua allowed for the U.S. to set up a military base in its country, led by the CIA, which was responsible for overthrowing the communist party of Guatemala in 1955. This calls for a necessary parallel to be drawn between the two smaller nations and the loans they received from the IEIs during this period. From 1951 to 1956, the W.B. sanctioned nine loans towards the aid of Nicaragua, a small nation with a population of a million people. In the case of Guatemala, having three times the population of Nicaragua and higher urgency for the need of financial aid did not receive its first loan from the W.B. until 1956, which was one year after the U.S. had succeeded in overthrowing the communist government of Guatemala. Furthermore, after the Somoza family was overthrown in 1979 by the socialist party of Sandinista, the U.S. thwarted all support towards Nicaragua and even went on to use military force to destabilize the socialist government of Nicaragua. This led to the case of “Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America)”to be brought up in the International Court of Justice. The Court stated that the U.S. was in violation of articles 2 and 4 of the U.N. Charter, which bans the use of force or attempts to dissolve the sovereignty of a state but failed to realize the misuse of the authority of the IEIs due to lack of sufficient proof. Since U.S. officials comprise to form most of the executive body of these IEIs, it was not hard for them to mask the misuse of their authority through lying and suppression of proper evidence. The graph below depicts the financial support received by Nicaragua over the duration of the aforementioned events.
3. The Vietnam War – The South Vietnam regime was an ally to the U.S. during the Vietnam war. Therefore, the U.S. regularly authorized loans in support of the forces in South Vietnam. Upon the defeat of South Vietnam and the end of this war, the W.B. called for a revision of the economic status of the newly unified state of Vietnam that was now governed by the communist policies of victorious North Vietnam (an ally of China and the Soviet Union). The revision team concluded that the economic status of Vietnam met the criteria for economic aid to be sanctioned. The director of this mission reaffirmed this by stating that the status of Vietnam is on par with the economic stability of Pakistan and Bangladesh, who regularly received such loans from the W.B. Yet, the U.S. pressured the W.B. into discounting the financial aid provided to Vietnam. The reason for the same was obvious, the newly established nation of Vietnam was a result of the actions of China and the Soviet Union (who have been the greatest threats to the U.S. ideology of governance in the past 100 years) and their influence in the economic policies of Vietnam. The effect of the same can be observed today as well as the GDP of the U.S. is 87 times more than that of Vietnam, which shows the extent of the exponential growth that the U.S. has enjoyed while suppressing growth in other countries through its repressive capitalist economic policies.
Looking at the examples above, it is evident that the U.S. government has used its authority over the IEIs to oppress countries that defy the American policies.
In situations where an opposition government of the U.S. was in dire need of economic aid from the financial agencies, the U.S. intervened and denied access to funds for these countries.
Under circumstances where the military force to subdue enemy states failed, it used the economic authority of these IEIs to punish the opposition and disallow their progress. This evidently points to mala fide use of the dominant authority that the U.S. and its allies enjoy as the imperialist forces behind these IEIs.
In the colonial eras, a difference in ideologies between two nations would usually lead to military conflict between those nations. The U.N., after its formation, brought about multiple peace treaties and international peace accords that marked an end to these traditional violent means of colonialism. This still did not mark the end of the imperialist ideologies of many of the world nations. With their need to oppress and dominate building up amidst the peace accords, the western imperials set up the W.B. and the IMF to form a more effective form of oppression, economic colonialism, that rarely failed to meet the needs of the capitalist states. Through this power, these western states subjected the southern states to various degrees of economic duress. Through the corrupt use of the authority of the U.N., these imperialists continued their colonialist rule to maintain their hierarchy over the weaker states, which severely damaged the national growth of many of the third world countries. With no check on this authority to date, in a world where equality and peace seem to be the acceptable norms and oppression and violence are looked down upon, it makes one wonder as to how the western states have continued their rampant misuse of an international authority to blatantly tyrannize their oppositions with the whole world watching as mere spectators.
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supra note 21.
Cover Image: Louis Dalrymple