The IMF and the World Bank are monuments to misguided economic thinking and policies that have brought much misery to the peoples of the Global South.
Let me start with the World Bank, which is located at 1818 H St NW. This institution has so-called development projects throughout the Global South, otherwise known as developing countries. This agency says that its mission is to end poverty in the developing world. To fulfill this goal, its lending has risen from nearly $55 billion in 2015 to $117.5 billion in 2024. Yet, despite this massive increase, the bank admits that global poverty reduction “has slowed to a near standstill, with 2020-2030 set to be a lost decade.” Some 3.5 billion people, or 44% of the globe, remain poor, after decades of massive World Bank lending. And a major part of the reason is that World Bank programs have created poverty instead of alleviating it.
Living in Luxury While “Fighting Poverty”
To manage its operations, the Bank’s full-time staff rose from nearly 12,000 in 2015 to over 13,000 in 2023. These figures are just the tip of the iceberg. If one includes all employees—permanent, non-permanent, contractual, part-time—throughout the world, the bank employs close to 41,000 people. The vast majority, 26,000, or 63%, work out of the World Bank headquarters in Washington, D.C., and only 3,200 are located in Africa, where most people in extreme poverty live.
The Bank’s economists and top administrators are among the highest paid financial functionaries in the world, which explains the reason why the bank is a major cause of the brain drain from developing countries: a great number of highly trained economists from developing countries prefer to work at the bank instead of their home countries, with some going straight from Ivy League or British graduate schools to Washington, D.C. Many within the bank and the International Monetary Fund complain about the “South Asian Mafia” that they claim controls employment opportunities for economists and higher-level staff in the two organizations.
The World Bank has come under fire for the billions it has spent supporting fossil-fuel projects throughout the Third World that have contributed to global warming and to mega-dam projects that have displaced millions. The bank, along with the fund, has also gained notoriety for imposing “structural adjustment” programs guided by the radical principles of the “Washington Consensus” that are designed to promote globalization but have, instead, increased poverty and deepened inequality. The reason World Bank projects and programs don’t work or create exactly the opposite of their intended goals is because they are based on questionable propositions built on little or no empirical evidence. An assessment made a few years ago by an all-star team of renowned economists led by Princeton’s Angus Deaton, a recipient of the Nobel Prize for Economics, was damning:
[The] panel had substantial criticisms of the way that the research was used to proselytize on behalf of bank policy, often without taking a balanced view, and without expressing appropriate skepticism. Internal research that is favorable to bank positions was given great prominence, and unfavorable research ignored. In these cases, we believe that there was a serious failure of checks and balances that should have separated advocacy and research. The panel endorses the right of the bank to strongly defend and advocate its own policies. But when the bank leadership selectively appeals to relatively new and untested research as hard evidence that these preferred policies work, it lends unwarranted confidence to the bank’s prescriptions. Placing fragile selected new research results on a pedestal invites later recrimination that undermines the credibility and usefulness of all bank research.
The bank’s refusal to acknowledge real-world refutations of its pro-globalization advocacy and its unbalanced, one-sided research led to justifiable rejection of its advice by the people who were suffering from the policies it was implementing, confessed Paul Collier, head of the Research Development Department of the Bank from 1998 to 2003:
The profession has been unprofessional, fearful that any criticism would strengthen populism, so that little work has been done on the downsides of these different processes [of globalization]. Yet the downsides were apparent to ordinary citizens, and the effect of economists appearing to dismiss them has resulted in widespread refusal of people to listen to “experts.” For my profession to reestablish credibility we must provide a more balanced analysis, in which the downsides are acknowledged and properly evaluated with a view to designing policy responses that address them. The profession may be better served by mea culpa than by further indignant defenses of globalization.
Despite the high rate of failure of its lending programs acknowledged in internal World Bank assessments, the World Bank administrative budget that supports the high salaries of its economists and other high-level staff just keeps growing. The World Bank (IBRD/IDA) administrative budget was approved at $3.5 billion for FY25, a sizable rise from the $3.1 billion authorized for FY 2024, with no convincing reason at all.
The IMF and the Art of Worsening Financial Crises
The International Monetary Fund, whose address is 700 19th St NW, is the World Bank’s sister agency. It has a full-time staff of 3,100, supported by a budget of $1.5 billion. The IMF’s economists are paid even higher than those at the World Bank, and they evoke more fear, hatred, and contempt than the Bank.
The IMF has an equally controversial history. It has a record of coming in to supposedly assist developing economies in crisis, only to make things worse. Its greatest debacle and scandal was its performance during the Asian Financial Crisis of 1997-98, when the so-called “tiger economies “of the East and Southeast Asia were destabilized by the massive inflows and outflows of foreign portfolio investment.
The fund was heavily criticized on three counts. First, it had encouraged the governments of the region to eliminate capital controls, thus provoking uncontrolled capital flows. Second, it assembled multi-billion dollar “rescue packages” that went to rescue not the people suffering from the crisis but to compensate the foreign financial speculators that had lost millions in dubious speculative ventures, thus encouraging “moral hazard,” or irresponsible investing. Third, its measures to stabilize the damaged economies intensified the crisis, since instead of encouraging government spending to counteract the collapse of private sector, it told the governments to radically cut spending, leading to a “procyclical” negative synergy that ended in deep recession.
So long as the IMF is there, the big international banks will assume that they will be bailed out for making irresponsible loans.
In just a few weeks, 1 million people in Thailand and 22 million in Indonesia fell below the poverty line. The only country that contained the crisis was Malaysia, which refused to follow the fund’s dictates and imposed capital and currency controls
So disastrous were the IMF’s interventions that George Schultz, President Ronald Reagan’s secretary of the Treasury, called for its abolition for encouraging moral hazard, and prominent economists like Jagdish Bhagwati and Jeffrey Sachs accused it of provoking global macroeconomic instability. Indeed, a rare conservative-liberal alliance in the U.S. Congress came within a hair’s breath of denying the IMF a $14.5 billion replenishment.
Eventually, the fund was forced to admit that the “thrust of fiscal policy… turned out to be substantially different… because the original assumptions for economic growth, capital flows, and exchange rates… were proved drastically wrong.” But things were never the same again. The IMF was so reviled for its performance that Asian governments developed IMF-phobia, swearing never again to ask the IMF for rescue even in the most dire circumstances. For instance, after paying off what Thailand owed the IMF, Prime Minister Thaksin Shinawatra declared the country “liberated” from the fund in 2004.
Instead of learning from its debacle during the Asian Financial Crisis, the IMF stumbled into another fiasco more than a decade later, during the Global Financial Crisis. It allowed itself to be hijacked by Germany, the European Commission, and the European Central Bank to provide billions of public money to rescue German financial institutions and investors that had engaged in an orgy of irresponsible lending to Greece to the tune of 25 billion euros. To get the so-called rescue funds, the Greek government, like the Asian governments previously, was forced to adopt severe austerity measures that drove unemployment up to 28% and condemned the Greek economy to permanent stagnation, only to turn the money it was ostensibly receiving over to the German banks.
Not surprisingly, so long as the IMF is there, the big international banks will assume that they will be bailed out for making irresponsible loans.
The U.S. and the Bretton Woods Twins: Fiction and Fact
There is a fiction that the IMF and World Bank are multilateral institutions that are owned by their many member governments. The reality is that the United States controls both institutions, with a 17.4% share of total quotas at the fund and 15.8% share of voting power at the bank. These shares give the U.S. government a veto power over any policy change. But the truth is that U.S. power is not limited to its being able to veto policy decisions it does not like. No country would dare oppose a move by the United States to radically cut the administrative budgets (by, say, 75% initially) and the number of personnel in the two organizations (to 600 personnel each, as in the case of USAID) if it wanted to do so. All it needs to do to get its way is to threaten to withhold its contributions to the two organizations. I can guarantee that immediately the interest rate at which the bank borrows in international capital markets would leap upward, paralyzing its lending operations.
The IMF and the World Bank are monuments to misguided economic thinking and policies that have brought much misery to the peoples of the Global South. They are institutions that no longer serve any purpose except to perpetuate and enlarge themselves. If Elon Musk and Donald Trump are really serious about radically downsizing bloated bureaucracies, they could not have better targets than the Bretton Woods twins.
