Why in the news?

Once again, mass protests in Kenya, where at least 30 people were fatally shot by police, highlight opposition to an IMF-supported finance Bill proposing essential goods tax hikes.

Bretton Woods Conference of 1944

• The Bretton Woods Conference was held in 1944 in New Hampshire, USA. It established the International Monetary Fund (IMF) and the World Bank.
• The IMF was designed to aid economic development and promote monetary cooperation and stability globally.
• Criticism: It has been criticized for reflecting and perpetuating power dynamics favouring Western financial interests, with voting rights disproportionately allocated based on financial contributions rather than equal representation.

Functions of IMF and Recent Challenges Faced by Developing Countries

• Functions: The IMF aims to provide financial assistance and policy advice to member countries facing balance of payments problems.

Challenges:

• Austerity Measures: IMF loans often come with conditions such as austerity measures (like tax hikes and spending cuts) that can be unpopular and detrimental to social services and economic stability.
• Dependency: Many developing countries face criticism for being overly dependent on IMF loans, which come with stringent conditions that may not always align with local priorities.
• Public Backlash: There is often a public and political backlash against IMF policies perceived as imposing Western economic ideologies without adequate consideration for local contexts.

SAP (Structural Adjustment Programs) and Its Impacts

• Definition: SAPs are economic policies imposed by the IMF and World Bank on developing countries in exchange for loans.

Impacts:

• Economic Restructuring: SAPs typically involve privatization, deregulation, and liberalization policies aimed at restructuring national economies towards export-led growth.
• Social Consequences: They often lead to job losses, reduced public spending on health and education, and increased poverty and inequality.
• Criticism of SAPs: SAPs have been criticized for exacerbating social inequalities and benefiting Western financial interests over local populations.

Way forward: 

• Policy Transparency: The IMF could enhance transparency in its loan conditions and negotiations, ensuring that the terms and impacts of loans are clearly communicated to the public and local stakeholders.
• Local Consultation: Before implementing major policy changes or austerity measures, the IMF could mandate extensive consultation with local governments, civil society organizations, and affected communities to ensure that proposed measures align with local economic priorities and social needs.

Mains PYQ: 

Q The World Bank and the IMF, collectively known as the Bretton Woods Institutions, are the two inter-governmental pillars supporting the structure of the world’s economic and financial order. Superficially, the World Bank and the IMF exhibit many common characteristics, yet their role, functions and mandates are distinctly different. Elucidate. (UPSC IAS/2013)

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