International Organizations and Reforms

International organizations and reforms IMF, World Bank, WTO, and other international organizations play a key role in promoting economic reforms worldwide. What are their mechanisms of influence? How effective and legitimate are their interventions?

Main players
IMF (International Monetary Fund):

• Lender of last resort for countries
• Oversight of macroeconomic policy
• Conditionality — lending conditions
• ~190 member countries, quotas determine votes

World Bank:

• Development financing — infrastructure, education, healthcare
• Analytical and consulting work
• Structural adjustment lending

WTO (World Trade Organization):

• Rules for international trade
• Dispute settlement mechanism
• Negotiations for liberalization

Regional banks:

• European Bank for Reconstruction and Development (EBRD)
• Asian Development Bank
• African Development Bank

Mechanisms of influence
How do international organizations promote reforms?

• Conditionality. Lending conditions — a country receives funds in exchange for implementing reforms. Prior actions (before) and structural benchmarks (in process).
• Surveillance. Monitoring and evaluation of policy. Article IV consultations by IMF. Pressure through public criticism.
• Technical assistance. Support in designing and implementing reforms. Transfer of knowledge and practices.
• Ideas and norms. Formation of consensus on “correct” policy. Dissemination of ideas through publications, training, conferences.
• Leverage EU. Conditions for EU accession — the most powerful reform mechanism in Central and Eastern Europe.

Criticism of international organizations

• Democratic deficit. Decisions are made by unelected officials. Recipient countries have few votes. USA and Europe dominate.
• One size fits all. Standard prescriptions do not consider the local context. Washington Consensus — universal template.
• Procyclical policy. Requirements to cut spending in a crisis worsen recession. Social costs are ignored.
• Ownership problem. Reforms are imposed from outside, do not “belong” to local authorities. This lowers legitimacy and sustainability.
• Results. Structural programs do not always work. Latin America in the 1980s, Russia in the 1990s, Greece after 2010 — contentious cases.

Evolution of approaches
International organizations adapt:

• Post-Washington Consensus. Recognition of the role of institutions, social safety nets, ownership. But critics say: rhetoric changed, practice — less so.
• Poverty reduction focus. PRSP (Poverty Reduction Strategy Papers) — countries themselves develop strategies. But conditionality remains.
• Easing conditionality. Fewer conditions, more streamlined. But core conditions remain.
• Governance reforms. Increase in quotas and votes for developing countries. But slowly and insufficiently.
• New players. Chinese institutions (AIIB, NDB) — alternatives with less conditionality. Competition.

Are international organizations useful?
Assessment is ambiguous:
Positive functions:

• Crisis insurance — lender of last resort
• Coordination between countries
• Dissemination of knowledge and practices
• Discipline — commitment device for reformers

Negative aspects:

• Imposition of inappropriate policies
• Social costs of programs
• Moral hazard — expectations of bailout
• Legitimization of unpopular reforms without a democratic mandate

Conclusions
International organizations — a reality of the world economy:

• Neither philanthropists nor villains. Complex organizations with conflicting mandates and interests.
• Power is asymmetric. Developing countries — in a weak position. Governance reform is necessary.
• Context matters. The same interventions work in some conditions and fail in others.
• Alternatives are emerging. Chinese institutions, regional mechanisms create competition. This can change the balance.
• For developing countries, the question is how to use the resources and expertise of international organizations while minimizing the costs of dependence and inadequate conditions.