The World Bank in State Participation

Team Members: T. Chittenden and C. Cloud*

*Note: The team members contributed equally and are listed in alphabetical order.

Blog Post

THE WORLD BANK: 

REGIONAL INEQUALITY IN SOUTHEAST ASIA

The World Bank and Structural Adjustment Programs (SAPs)

The World Bank is an international organization formed by the Bretton Woods Conference in 1944 to aid struggling economies by providing development loans, grants, and credits (World Bank Group). To ensure that loans are utilized correctly by recipients, the World Bank and other organizations such as the IMF utilize Structural Adjustment Programs, or SAPs. SAPs are designed to structurally adjust the economic policies of countries to ensure that loans are utilized effectively. SAPs have adverse outcomes that can lead to extreme regional inequality. 

The Doctrine of Conditionality

The World Bank has two main goals, “ending extreme poverty and promoting shared prosperity” (World Bank 2015).The inability of the World Bank to succeed in its mission to provide for shared prosperity is influenced by a variety of factors inherent in the design, function, and ideology of the organization. When the World Bank provides financial assistance to developing countries, it does so by giving large sums of money to governmental institutions via loans. Such loans are highly sought after by participating countries.

These loans, however, are provided by organizations such as the World Bank and IMF according to the doctrine of conditionality. Thus, loans are given conditionally, and only on the premise that recipient countries adjust their pre-existing economic and political policies to ensure repayment, and to correspond with World Bank or IMF fiscal ideology. 

The organizational mechanism of conditionality is formalized via the use of Structural Adjustment Programs by the IMF and the World Bank to adjust the economic and structural policies of recipient countries to qualify for loans. Policies promoted by the World Bank correspond with dominant neoliberal values that emphasize strengthening the financial sector and eliminating price controls (International Monetary Fund 2021).

Regional Inequality -- One Problem Caused by the Conditionality of SAPs

Despite the World Bank’s mission to promote shared prosperity, it is evident that economic prosperity is not equally distributed between countries and regions. The unequal distribution of economic prosperity can be identified as inequality, and can be observed at local, state, regional, and worldwide levels. Here, we focus on inequality as a result of World Bank SAPs seen at the regional level. 

In areas where the World Bank is most involved, the overwhelming result has been regional inequality. Regional inequality can be defined as “the differences in the quality of life, income, wealth and living standards of people living and working in different locations” (Dunford 2007, as cited in Simbunga 2017). Regional inequality can be further expressed by factors such as socioeconomic power distribution, access to food and resources, and equitable economic growth with sustainable outcomes.

The Case of Southeast Asia

Southeast Asia has been the subject of extensive World Bank involvement since the mid-20th century. As shown in figure 1 above, economic growth has been steady since the year 1980, but highly unequal in distribution. Dixon (1995) notes Thailand’s “serious difficulties… in implementing the IMF and World Bank policies,” that resulted in “mass public protests.” These difficulties resulted in long term consequences that limited the sustainability of economic growth until the Thai government deviated from World Bank-sponsored programs in the late 1980s (Dixon 1995). 

Solutions to Regional Inequality and World Bank Policy

The World Bank recognizes that inequality at the macro level stems from problems at the local or individual level. The World Bank’s website states that “To date, no country has managed to transition beyond middle-income status while maintaining high levels of inequality” (World Bank Group 2020). The World Bank itself knows that this problem will not be fixed until inequality at the micro level is addressed. However, its attempts to solve this problem via SAPs have only resulted in adverse outcomes.

Therefore, mechanisms that ensure the proper use of World Bank funds are necessary but should not invasively alter the pre-existing economic policies of recipient institutions. Instead, the World Bank should abandon conditionality and SAPs to adopt a strategy that seeks to strengthen the security and sustainability of developing economies. Exposing a country to market forces through market liberalization and the privileging of the financial sector may bring short-term economic benefits, but can lead to long-term consequences that jeopardize the sustainability of growth by exposing developing economies to extractive international institutions, causing extreme regional and global inequality to emerge. 

References

Dixon, Chris. (1995). Origins, Sustainability and Lessons from Thailand’s Economic Growth. Contemporary Southeast Asia, 17(1), 38–52. 

http://www.jstor.org/stable/25798269

Dunford. (2007). International Encyclopedia of Human Geography (pp. 236–245). Retrieved February 20, 2022 from

https://doi.org/10.1016/B978-008044910-4.00874-9

Easterly, William. (2003).  IMF and World Bank Structural Adjustment Programs and Poverty. NBER,

https://www.nber.org/system/files/chapters/c9656/c9656.pdf.

International Monetary Fund. (2021, February 22). IMF conditionality. Retrieved February 20, 2022, from

https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-Conditionality

Konadu-Agyemang, Kwadwo. (2000). The Best of Times and the Worst of Times: Structural Adjustment Programs and Uneven Development in Africa: 

The Case of Ghana. Taylor & Francis, https://www.tandfonline.com/doi/abs/10.1111/0033-0124.00239.

Polyp. (1980). Corporate Rule and Democracy [jpg]. Polyp. 

https://polyp.org.uk/corporate-rule_cartoons/cartoons_about_corporaterule_and_democracy.html

Roser, Max. (2013). Economic Growth. Published online at OurWorldInData.org. Retrieved February 20, 2022 from

https://ourworldindata.org/economic-growth

Simbunga, Oliver. (2017). How does 'Bolsa Família' affect Brazil's income inequality and poverty? Retrieved February 20, 2022 from  

https://doi.org/10.13140/RG.2.2.22514.45760

World Bank Group. (2015). Ending extreme poverty and promoting shared prosperity. World Bank. Retrieved February 20, 2022, from

https://www.worldbank.org/en/news/feature/2013/04/17/ending_extreme_poverty_and_promoting_shared_prosperity

World Bank Group. (2020). Inequality and Shared Prosperity Overview. World Bank. https://www.worldbank.org/en/topic/isp/overview#1.

World Bank Group. (2022). Explore History. World Bank. https://www.worldbank.org/en/archive/history