Thoughts on the Bretton Woods Institutions

  

Date Posted: 10/17/2012 9:04:18 AM

Posted By: moff J  Membership Level: Silver  Total Points: 485

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When we were in school our parents used to motivate us a lot in order for us to pass the exams. Some of us were promised mobile phones, bicycles, and a treat to some five-star hotel, among others. One thing that all of these motivators had in common was that there was a conditionality attached, which in most of us was good grades. This in effect meant that if we did not meet the condition we would not get the reward.

Now, let us look at this scenario from the economics point of view. Your country is in financial distress; teachers, lecturers, doctors, civil servants, are all demanding a pay rise. The economy is not doing very well and the government is already operating under high austerity measures. The budget deficit is approaching the permissible maximum levels and none of the striking workforce is willing to give an inch. In short, there is no money to meet their demands without hurting the economy. What would you do if you were the government?

It is at this edge of the cliff that the bretton woods institutions come in.
The Bretton Woods institutions refer to the International Monetary Fund (IMF) and the World Bank Group together with all their subsidiaries. These two institutions were conceived in 1944 at Bretton Woods to assist in the management of finances in the international setting. They were meant to help the international community maintain a stable financial cooperation and they occasionally come in handy to boost depressed economies.

Let us take our beloved country Kenya as the case study. First let us go back in time to the 1980s. This is one of the most difficult economic periods in Kenya. Companies were collapsing alarmingly and there was great political instability. Commercial banks did not have the finances to lend and

those that had were not willing to give credit because of the high defaulting risk. It is here that the IMF came to play.
You may have heard of the structural adjustment programmes(SAPs). Well, IMF was willing to give a rescue package to the country but this package had to be given under some conditions which included high austerity measures, privatization of parastatals, and liberalization of the market, among others. The government had no option other than to implement the wishes of the IMF.
It is because of this “arm twisting” that some people have labeled the bretton woods twins another version of colonization. They hold the opinion that the SAPs were policies for the West where these institutions came from and therefore could not effectively work in Kenya. The provision of the credit also meant that the country would continue paying interest to IMF for a long time.

However, I am here to dispel that notion. My opinion is that the IMF and World Bank have really fostered development in Kenya. For instance there are many infrastructural projects that are being funded by the World Bank. The loans that this institution offers are at a very low rate, while some do not even carry interest, compared to borrowing from the commercial banks, for instance. The repayment period is also over a long time period. On top of that, a country is given relief when it is financial difficulties. There are other projects that the Bank has also initiated in the country without any repayment conditions. For instance, have you heard of the “wezesha project”? It’s a project whereby university students were being empowered to acquire a laptop by giving them a voucher equivalent to sh.9600. This was funded by the World Bank.
Another recent case is when the Kenyan currency touched record lows of sh.107 per dollar. The IMF again came to the rescue giving the country foreign exchange to bolster its reserves. The shilling responded well by rallying against the dollar to its current price of around sh.84 per dollar.
The government recently awarded its workers a pay rise equaling around sh.40 Billion. It has already approached the bretton woods for a loan which will be given subject to some conditions among them increasing taxes and widening the tax base to raise funds.
It is because of such conditions that people are quick to blast the bretton woods institutions. However, we all know that there is no one who would be willing to lend their money without some assurance of how the loan would be repaid.

To conclude, these institutions are here to stay. They play a central role in the development of our country. There purpose is to help the country attain its vision and achieve economic, social and environmental development. Hence, before saying that these institutions are a form of neo-colonialism, one needs to understand their objectives and purposes.

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