Non-governmental organisations (NGOs) recognise the distinct advocate’s role of the World Bank and its will to help as rapidly as possible. However, effective payments tend to lag far behind the approvals. Furthermore, there are doubts as to whether the massive investments in infrastructure would really help to protect the socially weakest. They further demand that the aid measures should not be coupled with economic policy provisos. The services should be rendered as concessional as possible, or even in the form of gifts. The slow and near-reaching progress in the democratisation of the World Bank has been deemed completely insufficient.
Criticism of international monetary institutions, like the World Bank (WB) and the International Monetary Fund (IMF), encompass a whole range of issues, but they generally centre around concerns about the approaches adopted in formulating their policies, and the way they are governed. This includes the social and economic impact these policies have on the population of countries that avail themselves to financial assistance from these two institutions, and accountability for these impacts.
Critics of the World Bank and the IMF are concerned about the ‘conditionalities’ imposed on borrower countries. The World Bank and the IMF often attach loan conditionalities based on what is termed the ‘Washington Consensus’, focusing on the liberalisation of trade, investment and the financial sector, and deregulation and privatisation of nationalised industries. Often, the conditional loans are attached without due regard for the borrower countries’ individual circumstances and the prescriptive recommendations put forward fail to resolve the economic problems within the countries.
Those conditionalities may additionally result in the loss of a state’s authority to govern its own economy, as national economic policies are predetermined under IMF packages. Issues of representation are raised as a consequence of the shift in the regulation of national economies – from state governments to a Washington-based financial institution, in which most developing countries hold little voting power. The packages of such financial institutions have also been associated with negative social outcomes, such as reduced investment in public health and education, for they consume more rather than investing, draining the resources to pay off a loan in the following period.
With the World Bank, there are concerns about the types of development projects funded. Many infrastructure projects financed by the World Bank Group have social and environmental implications on the populations in affected areas and criticism has centred around the ethical issues of funding such projects. For example, the World Bank-funded construction of hydroelectric dams in various countries has resulted in the displacement of indigenous populations.
There are also concerns that the World Bank’s partnerships with the private sector may undermine the role of the state as the primary provider of essential goods and services, such as healthcare and education. This could result in the shortfall of such services in countries badly in need of them. As an increasing shift from public to private funding in development finance has been observed recently, the Bank’s private sector lending arm – the International Finance Corporation (IFC) – has also been criticised for its business model, the increasing use of financial intermediaries (such as private equity funds) and the funding of companies associated with tax havens.
There are also criticisms against the World Bank and IMF governance structures, which are dominated by industrialised countries. Decisions are made and policies implemented by leading industrialised countries — the G7 — because they represent the largest donors. This is carried out without much consultation with poor and developing countries. With this excessive inward orientation, the developing and underdeveloped countries, like us, have become rather mute with regards to policy recommendations and compulsory quotations of the institutions. These conditional loans restrict us from devising the best alternative methods of investing in securing national growth.
In practice, bargaining over conditionality almost always involves more than the debtor government binding itself to a specific path of policies. Bargaining between a debtor country and the creditors may also involve an implicit dispute about which objective function to use in evaluating a set of outcomes. If a programme will lead to a recession next year, but a recovery over the following several years, is it desirable? The answer may well be “yes” to the Fund or the Bank (or their creditor governments, which recognise that adjustment may involve short-term pain in return for long-run benefits), but the same answer might be “no” to a precarious regime that could lose power during a period of austerity. Openness about this difference of opinion would block the signing of many agreements. In practice, neither the Fund and the Bank, on the one hand, nor the creditor government, on the other, fully admits their disagreements. Thus, many conditionality packages are signed that have little chance of being fulfilled.
With that being said, Ethiopia and the World Bank have signed an 18-billion-birr loan agreement, which, or so we are being told, will enable Ethiopia to expand infrastructure. Also, the World Bank recently approved a 300-million-dollar credit deal to improve mobility along selected corridors in Addis Abeba, as well as the effectiveness of road safety compliance systems throughout.
Ethiopia aims to use the loan for its Higher Education institutions, electric line expansion, modern transport services, and small and micro enterprises, as well as refuge, social and economic services. The World Bank, on its part, ambitiously wished the money would be utilised in helping the facilitation of the second Growth and Transformation Plan (GTP II) and to sustain the acceleration of its growth in creating more jobs. The conditional position of the world bank seemingly sweeping; as those critics may drift away in implementing the specifics, since the results of such lending have rarely lived up to the advertised hopes.
We are among the high risk countries in terms of debt vulnerability, where the debt vulnerability has risen sharply.
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