Financial Institutions & Global Poverty Essay

  • Length: 8 pages
  • Sources: 15
  • Subject: Economics
  • Type: Essay
  • Paper: #8949009

Excerpt from Essay :

Secondly, the projects are diverted away from its target population because state institutions of these poor countries tend to be weak and inefficient. And in the process, we only encounter the "iron law of political economy" in which the resources that were initially allocated to the poor tend to flow towards those who possess more power because the state is inefficient in regulating these resources. Thirdly, the political dimension of the development aid should be taken into consideration -- countries whose majority of the budget comes from development aid may become less capable of independent political action (1-4).

Still on the case of Africa, Jere-Malanda's work (2007) maintained that the manipulative operations undertaken by the IMF, World Bank, and WTO via their aversive economic policies has, opened up Africa to exploitations by Western corporate powers. This is illustrated in the case of IMF and World Bank's insistence on the privatization of the water supply of Uganda, which gave opportunities for Western corporations to take over these industries that clearly involve basic social services (12).

Moving along the issue of the Third World, or developing countries, Weber (2004) argued that the practice of development assistance for the Third World reinforces the notion that an immediate and systemic attention must be placed in these countries. This displaces the rather broad and ideological global dimension of social and political struggle. Moreover the notion of Third World has been proven to be conducive to the global capitalist economic set-up and the management of the socio-political contradictions of a rather stronger and heightened social polarization and global poverty.

Bello's (n.d.) findings have the same implications, this time he used the case of the Mexican food crisis. Mexico, the homeland of corn, has been converted to a corn-importing economy upon the promotion of laissez faire policies by IMF, World Bank, and Washington. This process started during the debt crisis of 1980s. Mexico, a leading debtor, was forced to beg for money to World Bank and IMF in order pay its debt to international commercial banks. The bailout package was designed to pay for the loaned money while at the same time promoting their neoliberalist agenda: doing away with high tariffs and state regulation. Indeed, the neoliberalist agenda (which has its roots in the Bretton Woods system) paved way for the opening up of market and finance in a rather borderless world. It also paved way for what is known as the transnational corporation -- a firm which operates in two or more than two countries, engages in international production, and undertakes direct foreign investment (O'Brien & Williams 2002).

Aside from problems stemming from the results of the programs initiated by these international organizations, we also see problems within these organizations. Clearly with anti-neoliberalist tone, Sreenivisan and Grinspun (2002) maintained that these international financial institutions do not serve the interest of the poor countries, but the interest of the rich and powerful ones. Moreover, the steps undertaken by these institutions can be subjected to the influence of big and powerful corporations (14).

This view was seconded by Stiglitz (2002) as he claimed that the IMF undertook economic policies guided by flawed economic theories. Moreover, this institution suffered of lack of transparency and accountability to the public -- these two being important hallmarks in just about any kind of public organization. The IMF, Stiglitz believes that, has had pursuits of special corporate interests.

Summary and Conclusion

The issue of poverty, experienced in the global level, is multi-dimensional in nature. As there is no consensus on how to universally measure and describe poverty, the vast poverty literature has offered different perspectives in analyzing this term. Poverty is the lack of basic social needs and other needs that are deemed significant during a particular period in human history. We also have different ways by which we can understand poverty -- particularly on the domain of developed and developing nations. For the developed nations, poverty is usually associated with the lack of social benefits while for developing nations, poverty could mean the lack or scarcity of jobs which can give people purchasing power.

Today, living in the era of global capitalism, international institutions such as the World Bank, the International Monetary Fund, and the World Trade Organization have made public their organization's aims and goals of alleviating and reducing global poverty. These institutions provide development assistance to developing nations or commonly known as Third World Nations. Moreover, these institutions believe that it is imperative for them not only to provide development assistance but also to aid these countries in designing their macroeconomic frameworks and policies.

However, and we argue, that the international financial institution's efforts to address the issue of global poverty is inadequate based on three major points.

Firstly, our discussion has shown that the programs/projects that the international financial institutions have undertaken on developing countries have been proven to be unsuccessful in three particular ways: these projects or programs are not suited to its target population; countries whose large chunk of their budget comes from development aid are left with limited political independence; and third, the inefficient or weak state institutions of the Third World fail to regulate the allocation of this programs and more likely -- they fall on the hands of the more powerful strata of that society (see Wenar n.d.).

Secondly, understand that these international financial institutions operate in the era of global capitalism. One of the most basic tenets of capitalism is that power and economic wealth are held by a small portion of the society. Hence, the issue of which interests do these institutions serve ensues. Again, history has shown that these institutions are associated with major economic players and that, in the past, they have undertaken steps to serve the interests of the powerful and wealthy few.

Hence, we arrive at the conclusion that their efforts towards poverty reduction will never be adequate because the interests that these international financial institutions serve would not in anyway benefit from poverty reduction. In the logic of capitalism, only a small part of the strata gets to control the wealth while all the rest are subjected to the capitalist exploitation. Hence, poverty is functional for the dominant class to retain its position and to allow for further exploitation -- only through this can the wealth of the capitalist flourish. The capitalist needs poor people who will sell their labor power and subject themselves to capitalist exploitation. In this perspective, we can view the efforts towards poverty reduction as some form of ideology -- blinders by which people will be enticed of a hope of better future. The discourse of a better future and poverty alleviation propagated by international financial institutions is confined on the rhetorical level. Clearly, in practice we see that the economic policies they have chosen and promote, makes poverty all the more rampant.


Ayittey, G 2005, Africa Unchained: The Blue Print for Africa's Failure. Palgrave Macmillan: New York.

Bello, W n.d., Focus on the Global South, viewed 19 April, 2009,


Bhalla, S 2002, Imagine There's No Country: Poverty, Inequality, and Growth in the Era of Globalization 1st ed, Institute for International Economics, Washington, DC.

Bird, G 2004, 'Growth, Poverty, and the IMF', Journal of International Development, vol. 16, no. 1, pp. 621-636

de Gato, R 2005, International Monetary Fund, viewed 19 April, 2009

Global Poverty Report 2000, World Bank, viewed 19 April 2009

Jere-Malanda R, 2007, 'Profiting from Poverty', New African, pp. 11-17.

Morazes, J & Pintak, I 2007, 'Theories of Global Poverty: Comparing Developed

and Developing World Frameworks', Journal of Human Behavior in the Social Environment, vol. 16, no. 1/2, pp. 105-121.

New Internationalist Magazine 2004, Third World Traveler, viewed 19 April, 2009,

O'Brien, R & Williams, M 2002, Global Political Economy: Evolution and Dynamics.

Palgrave Macmillan: New York.

Rank, M. et al. 2003, 'American poverty as a structural failing: Evidence and arguments',

Journal of Social and Social Welfare, vol. 30, no. 4, pp. 3-29.

Shah, A 2009, Global Issues, viewed 19 April 2009,

Sreenivasan, G & Grinspun, R 2002, CCIC, viewed 19 April, 2009,

Stiglitz, J 2002, Globalization and Its Discontents. Penguin Books: London.

Weber, H 2004, 'Reconstituting the 'Third World'? Poverty reduction and territoriality in the Global politics of development', Third World Quarterly, vol. 25, no.1, pp. 187-206.

Wenar, L n.d., Accountability in International…

Cite This Essay:

"Financial Institutions & Global Poverty" (2009, April 20) Retrieved January 15, 2017, from

"Financial Institutions & Global Poverty" 20 April 2009. Web.15 January. 2017. <>

"Financial Institutions & Global Poverty", 20 April 2009, Accessed.15 January. 2017,