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International Economics

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Global institutions have grown to a new level of prominence in recent history. Global institutions like the IMF and World Bank have provided countries with public goods like stability and the reduction of uncertainty in international markets. As the influence of institutions like the IMF and World Bank grow a large set of critics have pointed out major flaws in the structure and philosophies of these institutions. These criticisms fall into three categories Sovereignty and transparency, Ideology, and Implementation and Adjustment costs. These criticisms call for major reform to the current international financial institutions and call into question whether they provide any benefit to the global economy at all. The first type of criticism is Sovereignty and transparency. Sovereignty criticisms point to the infringement of these institutions policies on the sovereignty of nations. In particular IMF conditionality is of harsh scrutiny as it requires countries to pursue certain macroeconomic policies as a condition of borrowing money from the International Monetary Fund. Countries and their people may not want to use these policies, but they are required by the institution. Nations are no longer in charge of their own policy and this can anger people who favor localize policies for the specific characteristics of certain nations. Transparency is another major criticism of both the IMF and World Bank. Transparency criticisms state that too many o these important decisions are made behind closed doors, do not include everyone, and there is no accountability for these decisions. They question the mechanisms that these institutions use to make major decisions and their equity. Transparency criticisms attack the legitimacy of these decisions as because of the lack of transparency there is a perceived possibility and greater likelihood of corruption. These criticisms must be s that these institutions decisions are considered legitimate and will be more likely to be followed. Ideology is the next form of criticism. Critics argue that decisions are made based on the biases and ideologies of more developed countries. They feel that the specific needs of low income countries are not met as their particular circumstances are not taken into account when provided with assistance. Ideological decisions can give a country a less efficient option than one that is produced tailored to their own country. The last form of criticism is implementation and Adjustment cost criticisms. The equity in terms of allocating costs is questioned. Critics point to asymmetries between the relative costs between higher developed and lower developed countries. Decisions made by these international institutions favor the higher developed countries. Most of these criticisms are predicated on the idea of fairness. They call into question whether lower developed nations are being taken advantage of by higher developed nations. Nations may simply be imposing their ideologies, and costs upon them with no accountability. In order to address these criticisms there must be large change in the structure of these international monetary institutions. Transparency can be addressed by making all meetings conducted by the World Bank and International Monetary Fund placed on public record, recorded and transcribed. Also within each meeting a neutral party should be present to ensure the accuracy of these transcriptions. Furthermore, they should be open to members of the public. Sunshine laws –which are prevalent in many nations-, should also be applied to international monetary institutions. These laws give the public a sense of oversight and a sense of direct involvement. As more and more light is shed on the inner working of these institutions the transperancy criticisms will begin to fade. Addressing ideology will mean the inclusion of previously weak members of both the World Bank and IMF in both leadership and decision making. When discussing and deciding on possible solutions for certain countries the country in question should have a major vote in the decisions that are made, also countries surrounding it should have a larger proportion of votes in order to ensure that decisions are predicated on what is going to work for both that country and for that region. There must be equal input between developed nations and lesser developed nations. What worked in one country will not necessarily work in another, so it is imperative that the needs of particular countries and regions are taken into account. Ideologies of powerful nations –though may carry valuable insights into international economics- are not recipes for success in all countries. People within the country will know more about specific conditions within the nation and how to address them to promote economic development. The solution for these criticisms is to not base voting power on shares or the size of contribution to the institution, but also base it on how much the policy in question will affect that nation. The country discussed should be given veto power and surrounding countries should be given enough voting power to ensure that the regions ideologies and conditions are reflected in decision making.
Implementation and adjustment costs can also be solved in this manner. If countries involved are given a much larger say in what solutions or assistance is given to their nation than the cost may be more evenly distributed among all countries. Because lesser developed countries are now major players in decision making hopefully the costs will not be so unevenly distributed. These LDC leaders will choose plans that evenly distribute implementation costs. Lower developed countries should be more proportionally represented in the leadership for both the World Bank and IMF. If the leadership of international monetary institutions is partially composed of leaders from developing nations than the needs of developing nations can be more adequately and equitably addressed. Leaders from Lesser Developed Nations will craft solutions, treaties, and ideas that not only benefit the larger nations, and reflect the ideologies of developed nations, but will fit the needs and desires of people from Lesser Developed Nations. All of these previous criticisms are stemmed from the fact that LDC’s are nearly powerless when it comes to decision making in international monetary institutions. In order for these criticisms to be addressed these institutions need to give the power to the nations they are trying to change and craft solutions that will work for them.
Sovereignty criticisms are unable to be addressed. As the power of these international institutions grows, we must cede more power to them at the expense of national power. This “evil” will be necessary to tackle the future of a globalized economy and create less uncertainty and more stability in international markets. Nations will need to understand that the benefits from these international institutions must and will be greater than their loss of sovereignty. These criticisms will ease over time as both the power of both the World Bank and IMF becomes more accepted and the decisions that these institutions make are more equitable to all nations.

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