At a time when world economies are getting closer, perhaps, more than any time in the past, people and countries around the world should perhaps be looking up to the world's two top financial organizations (International Monetary Fund and the World Bank) for inspiration. The opposite is actually happening. The world is condemning them.
The popular backlash against the meetings of International Monetary Fund (IMF) and World Bank (WB) Group, held in Prague two weeks ago, and previously in the streets of Seattle in December 1999 is the most telling example of world dissatisfaction with the two groups.
The theoretical heading was "asking the global economy work for everyone", but the actual procedures of the meeting were hardly as cozy and comfortable as the headline was. The two groups failed to seriously address issues like the oil prices, fluctuations in exchange rates, and poverty and debt - all crucial issues with direct impinge on the global economy.
Deep-seated fears of the two organizations' policies stem from concern over the direction of world economy. Previous experiences justify such a fear. The whammy international economic situation was first reflected in the Asian Crisis, Russian Crisis and lastly on the collapse of the Euro and oil prices take off.
Fears, widespread from both developed and developing countries, also come from the rapid development of financial markets -global markets- rather than national markets in last decade. This brings up the possibility of another quick destabilization phase not only for East Asian economies, like the financial crisis of 1997-98, but also for the world's biggest economies as well.
Global European markets
Such disquiet was expressed by IMF managing director Horst Kohler about the fall of Euro, which was followed by a coordinated action to prop up the currency. These were signs of worries shared now by most countries, about possible consequences of the sharp changes in exchange rates. Private Banking Sector has also expressed its worries that dollar rather than euro could come under pressure.
Big fluctuations in exchange rates are also possible in the process of running up the European Union membership. Early membership of the euro was "dangerous option" for countries that hadn't completed its structural reform process.
IMF also warned Eastern European countries that if they are to join the Union and to keep a stable exchange rate, they must retain flexible markets and not to adopt rigidities in their countries. This will also help them avoid high unemployment in the future.
For the industrialized countries, the fears, which were discussed with World Bank president James Wolfensohn, are focused on the environment and health levels and on unemployment rates. Wolfensohn said, "People were worried about losing jobs and lowering their environmental standard because of free trade."
In response the IMF maintains that low wage differentials between skilled and unskilled workers were working jointly to achieve labor market flexibility in industrialized countries. The IMF also said that European Union should try to reform its own labor market, so that that it could absorb new workers with different skills.
All this was hardly convincing to demonstrating outside the well-guarded meetings.
Oil Price Dilemma
After sharp increase in oil prices, which caused many countries to suffer especially industrialized nations, finance ministers of G7 group expressed their concern about adverse impact on the world economy of oil price, which was tripled in past two years. European countries have been gripped by fuel blockades in the past four weeks by protesters, demanding cuts in oil prices and fuel taxes.
The increase in oil prices cut up 0.75% of world growth, which was measured by loss of more than $200 billion world wide potential output. So it was very critical issue to be discussed at the Prague meetings. The IMF's main policy committee announced that they had reached board agreement on the collective action, from oil producers and consumers aiming to stabilize market prices.
The committee's chairman Gordan Brown said: "The committee agrees on the desirability to stabilize oil markets around reasonable long term policies...The committee calls on oil producing countries to take further steps to create conditions of healthy global growth". This pleased neither producers nor consumers.
Poverty Ghost
No greater problem has been facing the world since the 21 century than world poverty, proved by the troubling slow progress of poverty reduction over the last decade. The number of those living on one dollar a day or less fell slightly from 1.3 billion in 1990 to 1.2 billion in 1998, when the under poverty rate population fell from 29% to 24%.
Theoretically, economic growth must be accompanied with poverty reduction. But evidences resulted from greater openness in international trade showed different results!
Although poverty is not often associated with increasing total output of goods and services, poverty have proven to increase at the same time. The reason behind this contradiction is the inequality. The question is why does globalization cause inequality?
Trade openness means increasing in factors of production, which are relatively abundant in the liberalizing country, but scarce in outside world. Opening markets will cut such factor, which is relatively scarce in a country but abundant in the world. For example, wages of skilled workers rose relatively than wages of unskilled workers, with relative abundance of unskilled workers.
Because of lack in the systematic association between economic growth and changes in inequality, positive link between overall growth and incomes of poor hasn't changed recently even after globalization.
Poverty rates were broadly flat in Latin America, Sub-Sahara Africa, Middle East and Northern Africa, when the poverty rates increased sharply in Europe and central Asia region, particularly among countries making difficult transition from socialism to market economy.
Third World Run Out From Sinking Fund
The debt burden is limiting the chance of being developed. This can be easily said because no one can improve without having his own power rather than a borrowed power. So the problem of debt relief was one of the most critical to be discussed at the Prague's meetings.
Debt campaigners were asking for 100% debts canceling owed by the two organizations. Protesters are against the role of IMF in promoting free trade, which makes poor countries poorer, they were dressed in black symbolizing death, saying that 19,000 children are dying each day because of the high burden of debts in poor countries.
IMF and WB reacted under this painful truth by a hardly satisfying reply. They said debt relief would cripple its ability to lend in the future.
"Outside these walls, young people are demonstrating against globalization, I believe deeply many of them are asking legitimate questions, and I share them, but we can't turn globalization back because our challenge is to use it as instrument of opportunity and conclusion not a fear and insecurity," Mr. Wolfensohn said
