‘The Washington Consensus has proved more of a help than a hindrance to the economic development of countries. Assess the validity of this claim.’
The Washington Consensus refers to the idea that the International Monetary Fund, the World Trade Organisation and the World Bank share common ideals. This is the idea that trade liberalisation and moving towards free trade is the best way for countries to develop.
The IMF has 185 member countries; their work mainly consists of monitoring and advising countries on exchange rates, providing loans in emergencies, both long and short term and providing assistance and training. The IMF requires countries that receive loans to put in place reforms in the form of “Structural Adjustment Programs”
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They argue that the US cotton subsidies WTO agreements and that US cotton subsidies were harmful to Brazilian cotton growers.
In 2009 The WTO accused the US of using subsidies exceeding the cap. This victory gained by Brazil confirms the idea that US subsidies are harmful.
In this dispute, Benin and Chad gave support as third parties, they would be likely to win a case on similar grounds to Brazil however they would reap little reward as they import very little from the US so any sanction upon this would be unlikely to have much effect. Another risk of opening conflicts with the US for these countries are that they receive aid form them, to speak out alone against them could leave them very vulnerable.
In this case study, these developing countries should not be in this position. The idea of subsidies goes against the ideals of the WTO’s trade liberalisation approach and has by their own rules been declared illegal however it is allowed to continue under he conditions of a cap which really doesn’t benefit anyone.
These organisations do provide help to the developing countries of the world, this is undisputed. However they also do a lot of damage. It is clear that free-trade, loans, SAPs and privatization are key to economic development and globalization. Although the evidence seems to support the fact that the Washington consensus is ineffective in reducing poverty and facilitating trade. They are also heavily criticized for being heavily in favour of the
In 2002, the United States of America passed a policy that granted United States farmers access to subsidies, in order to protect the domestic market in agriculture. In retaliation to this policy being passed the Brazilian government sued the United States in the court under the World Trade Organization for violating free trade agreements. The Brazilian government claimed that the United States was liberalizing its trade, making it unfair in a free market. The World Trade Organization enacted punitive measures against the United States by imposing tariffs and lifting patent protection on various United States goods. The United States had to act in some way because these measures would hurt markets in other areas including agriculture. The U.S. then agreed to subsidize farmers in Brazil by giving them one hundred and fifty million dollars. Many people argue that the other countries do not face the same regulations as in America, and there for are more protected, but other countries say that subsidizing farmers takes away a free market. There are pros and cons to subsidizing farmers in any country. The good side is that it provides job security for farmers and helps them to work around regulations and still acquire profits. The bad side is that these subsidies result in inefficient farmers that just get their compensation at the end of the year without producing a standard amount of product. It is also argued that subsidizing farmers restricts economic growth. I believe that
Brazil filed a dispute against USA in the World Trade Organization in 2002, due to unfair subsidies given the US government to its cotton farmers. The subsidies given to the US cotton farmers made it increasingly hard for the Brazilian cotton farmers to compete in the world market. “In 2005 and again in 2008, the WTO found that certain U.S. agriculture programs were inconsistent with the United States WTO commitments” (US Trade Representative). Brazil eventually ended up suing the US because they thought parts of the cotton market was shown to be inconsistent with what the WTO promised. The United States and Brazil have had a discussion for quite some time to try and resolve the initial conflict. The United States pays Brazil $300 million
Why though does America need to bend for the favor of Brazil? The answer is found is a story of an almost decade old trade dispute started by one Brazilian man. Chana Joffe-Wait of NPR’s Planet Money Blog reports on her encounters of the Cotton Industry while working on a project to produce a t-shirt for their show, from raw material to final product. During her research she meets that single Brazilian man, Dr. Pedro de Carmago Neto, a Brazilian cattle farmer, who started the campaign against US Cotton that culminated in the very controversial $147.3 million pay-off. Mr. Carmago felt “they were being cheated in the process”, cheated by American subsidies. In 1994 America, Brazil, and 150 others countries signed the world trade organization agreements otherwise known as the Global Trade Rule Book, which spelled out which subsidies, were legal
Surveillance involves the monitoring of economic and financial developments, and the provision of policy advice, aimed especially at crisis-prevention. The IMF also lends to countries with balance of payments difficulties, to provide temporary financing and to support policies aimed at correcting the underlying problems; loans to low-income countries are also aimed especially at poverty reduction. Third, the IMF provides countries with technical assistance and training in its areas of expertise. Supporting all three of these activities is IMF work in economic research and statistics (What the IMF Does).
However, the effectiveness of aid in countering these problems is seen to be small as the effect of Western economic dominance on restricting developing countries trade is seen to be too great. Libertarian Johan Norberg wrote, ‘According to the United Nations Conference on Trade and Development, EU protectionism deprives developing countries of nearly $700 billion in export income a year. That's almost 14 times more than poor countries receive in foreign aid.’ Norberg is showing that even with aid, developing countries are still in a state of perpetual famine and lack of development as Western protectionism is causing them to lose billions of pounds in lost revenue each year, something which can only be improved through liberating the markets instead of giving more aid.
For years developing countries have been striving to become a better country for their people, but neoliberal institutions hold back developing countries, and also force them to partake in hurtful policies. Developing countries have been searching for more pragmatic policies that account for interests in markets societies and states. The world should put into account the disadvantage developing countries have as they don’t have the same technology and advancements as the rest of the world does so they should be aided even more in their development. Neo-mercantilists policies like the World Trade Organization say they strive to help developing countries but in the end these organizations do more harm than good. Developing countries have high interests in catching up to world leading countries but are naturally out into world constraints because of their stake in the world.
On the other hand, the IMF was performing a very different function. As the center of the post-war international monetary system that was based on the fixed exchange rate, the IMF played a role as a guardian of the international monetary system and helped the member states to stick to the rules of the system. These processes were known as credit operations that helped both developing and developed countries to avoid unexpected monetary frustration (Moffitt 32).
The World Bank is the largest public development institution in the world, lending around US $25 billion a year to developing countries. (The World Bank and IMF) The World Bank is designed to provide financial and long-term loans to support the underdeveloped countries to build big, financially intensive infrastructure projects. The main purposes of the Bank are to assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes. As with any loan, there are conditions upon the borrower that must be met. The World Bank promotes the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international
nternational Monetary Fund and The World Bank, though has a good purpose of their existence, they have come under lots of criticisms as to how they use the leverage of being in a position of helping poor countries to either recover from economic collapse or give them debt relief and economic boost from loans they give out to them to impose policies and condition that those poor countries has to implement. These loan conditions and policies structured by these international financial power institutions are geared towards moving resources from the poor countries to the rich western countries. The end result is creating a situation where the poor countries sunk into more economic suicidal condition in which they have to still depend on more loans or aids to survive and they would have to comply with any condition attached to the help, due to the urgent need of support.
Title: CASE ANALYSIS ONE: AGRICULTURAL SUBSIDIES: ISSUES OF CONFLICT IN THE WORLD TRADE ORGANIZATION OVER INTERNATIONAL TRADE
Many countries started to negotiate Doha Development Agenda under the World Trade Organization (WTO) in 2001. In July 2004, members in WTO reached agreement to make a reform in agriculture. One of focused things is to cut agricultural subsidies both in developed countries and developing countries. In recent several years, millions of people from both developed and developing countries give in response to eliminate agricultural subsidies. Agricultural subsidies should be eliminated because they distort free trade, damage the local environment.
The Washington Consensus is a set of 10 economic policy prescriptions considered to constitute the “standard” reform package promoted for crisis-wracked developing countries Washington, D.C. –based institutions such as the international Monetary Fund (IMF), World Bank, and the US Treasury Department. The term was first used in 1989 by English
The IMF began operations in Washington DC in May 1943. It then had 39 members. Presently the members of the IMF are 188.
“The International Monetary Fund is an organisation that provides short-term credit to 186 member nations. The International Monetary Fund works to maintain orderly payments arrangements between countries and to promote growth of the world economy without inflation. It supports free trade in goods and services. To stabilize its members’ economies, the IMF provides policy advice and short-term loans when a member nation encounters financial difficulty.”
The Responsibilities of IMF: The primary objective of IMF remained confirming stability of international monetary system; exchange rates policy as well as international payments which enables nations (as well as citizens of them) for making transaction with each other. Such Fund’s mandate could be updated during 2012 for comprising every macroeconomic as well as financial segment issues which endures global sustainability.