International Financial Institutions, Globalization, and the Development of Developing Countries
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In modern international relations, non-state actors are very important to keeping some level of order in the system. International Financial Institutions (IFIs), which are inherently part of globalization, have become a common topic of discussion in state politics. This paper tries to look at International Financial Institutions in a critical way and show how important they are to the growth of developing countries. These institutions are known for investing in growth projects and helping economies that are struggling. This paper also talks about how biased these institutions are and suggests that they might be a tool for neo-colonialism. This paper suggests that these institutions should look at their strict loan requirements, which hurt poor countries, and perhaps make them less strict. They should also make their leadership more open and democratic. This research is qualitative in nature and the data is derived from secondary sources such as newspapers, books, journals, and reports.
Overview of International Financial Institutions
It is important to highlight that International Financial Institutions (IFIs) refers to financial institutions created by more than one nation, and as such, they are governed by international law. In other words, International Financial Institutions are established to encourage public and private investments aimed at promoting social and economic development in their member states (Aniekan & Otoabasi, 2013). In addition, membership in these International Financial Institutions is not limited to countries alone; International Organizations may also join. It is essential to recognize that national governments are often IFI shareholders. IFIs may be bilateral (consisting of only two nations) or multilateral (consisting of many countries). These IFIs could also have a regional coverage such as the African Development Bank, Asian Development Bank, or a Global coverage like the World Bank (WB). The first IFIs to be established were Multilateral Development Banks. They were deliberately instituted to help stabilize war-torn nations and maintain the global financial system in the wake of World War II. Later, Regional Development Banks (RDBs) were founded to promote regional economic growth and development.
The repeated practice of attaching conditions to loans has afforded IFIs a measure of sway on the international stage, notably in international politics (Stubbs & Kentikelenis, 2017). However, this has the potential to undermine national policies and hamper a country’s national development strategy to some extent. IFIs such as the World Bank, IMF, and other major regional development banks are regarded as the world’s most effective economic reformers (Babb & Kentikelenis, 2018). The fact that these IFIs are considered the Lenders of Last Resort for countries experiencing an economic crisis places them in a position of influence (Woods, 2006). It is essential to recognize the significance of IFIs in project financing. This is due to the fact that they frequently fund large-scale infrastructure projects in emerging markets. In addition, they can supply funds and persuade other major international actors. International financial institutions lend in local currency to some enterprises. IFIs assist economic and institutional sustainability. They conduct research to promote and sustain development. IFIs help create new monetary knowledge.
Features/Objectives of International Financial Organizations
International Financial Institutions play a big part in the social and economic development plans of many countries. These roles include giving advice on how to plan for development, how to pay for it, and how to carry out development projects. Even though these institutions work in different ways, they all have the same goals or objectives.
The goal of IFIs is to cut poverty around the world by a lot and make life better for people everywhere. They have both made plans for how to reach this goal.
IFIs also want to promote regional integration and cooperation. This cooperation is considered crucial and a requirement for the establishment of peace. Many believe that countries can really extend their views of self-interest to increase the potential for cooperation by becoming members of international organizations (Keohane & Nye, 1977).
These IFIs also target finding means to address the Sustainable development goals.
International Financial Institutions and Globalization
The definition of globalization is not agreed upon among academics. A vast network of cross-national cultural, economic, social, and political interrelationships and procedures is known as globalization (Yeates, 2001). Additionally, it shows the cycle of deepening cultural and economic fusion (Nilson, 2010). The dissemination of commodities, infrastructure, information, and jobs across national boundaries and cultural norms is a common aspect of globalization (Klopp, 2020). We must comprehend the characteristics of globalization, including its multidimensionality, complexity, and overall structure, in order to explain IFIs and the role of globalization. Globalization speeds up an economy’s technical development. Globalization has reportedly boosted global financial markets. The global financial system is a network of legal structures, institutions, and official and informal economic participants that promotes international investment and industrial financing. This financial globalization, through 2 main channels, can help improve the functioning of the financial system. Firstly, financial globalization can boost funding accessibility. Secondly, it will move the financial system ahead. Globalization has contributed to greater economic interdependence in both the world’s developed and developing nations.
Many financial institutions now attribute their success in providing distinctive services to customers to strategic relationships. Globalization has increased the effectiveness of the various rules financial organizations follow in the global economy. Financial organizations accomplish more than just saving. International financial institutions can improve globalization. They promote foreign economic cooperation to safeguard global integration’s benefits.
The Role of International Financial Institutions in the Development of Developing Countries
There is no agreement among scholars as to the definition of development. The concept of development is not strictly an economic affair, it is however a multidimensional process which involves modification or transformation from a less to a more desirable state (Aniekan & Otoabasi, 2013). Kukreja noticed a great disparity in the degree of development in countries (Kukreja, 1996). In the same vein, he said that about 80 percent of the wealth of the world is owned and controlled by a minority of the world’s population which are principally those in the developed countries while the vast majority of those living in less developed states have to share the other 20 percent of world wealth. It’s important to remember that IFIs are seen as key players in helping developing countries grow. These institutions are known for giving developing and third world countries both short-term and long-term loans. But there are some rules that come with these loans. Some of these countries are in a depression, so these loans are just as important. IFIs also work together with relevant multilateral companies and regional organizations to sponsor and help fund projects that help with development. This includes things like building infrastructure, giving out hydroelectric power, building roads, and so on. It’s also important to note that some IFIs offer technical help and expert advice on issues that will help developing countries grow. Also, they give aid to people who are displaced within their own countries and give scholarships to citizens of countries.
It is important to note that IFIs are not immune to criticism. Scholars and the governments of some developing countries have put a lot of blame on these institutions. In some cases, IFIs are blamed for being tools that developed countries use to keep third-world countries from getting better. In another way, loans with strict terms break international law because they interfere with the sovereignty of independent states. IFIs are also often blamed for giving the governments of developing countries bad advice. are seen as key players in helping developing countries grow and improve. These institutions are known for giving developing and third world countries both short-term and long-term loans. But there are some rules that come with these loans. Some of these countries are in a depression, so these loans are just as important. IFIs also work together with relevant multilateral companies and regional organizations to sponsor and help fund projects that help with development. This includes things like building infrastructure, giving out hydroelectric power, building roads, and so on. It’s also important to note that some IFIs offer technical help and expert advice on issues that will help developing countries grow. Also, they give aid to people who are displaced within their own countries and give scholarships to citizens of countries.
Conclusion
The importance of IFIs to the global economy cannot be overstated, as they have made substantial contributions to development projects in many nations. Recent efforts have focused on addressing the sustainable development goals. Despite the acclaim bestowed upon these institutions, they still contain problems. To this purpose, it is suggested that meritocracy be adopted and applied in these institutions, as this will go a long way toward fostering good relations among its member states. Similarly, the leadership structure of these financial institutions should be rebuilt, made inclusive, and made democratic. IFIs should adhere to international law and refrain from interfering in the domestic policy of states.
References
Aniekan, E., & Otoabasi, A. (2013). Readings in International Political Economy. Yaounde: Book House.
Babb, S., & Kentikelenis, A. (2018). International Finalncial Institutions as agents of Neoliberalism. In D. Cahill, M. Cooper, M. Konings, & D. Promise, The Sage Handbook of Neoliberalism (p. 16). London: Sage.
Keohane, R., & Nye, J. (1977). Power and interdependence. Boston.
Klopp, C. (2020). What is Globalization. INVESTOPIA. Retrieved July 2, 2020, from https://www.investopedia.com/termsg/globalization.asp
Kukreja, S. (1996). The Development Dilemma: NICs and LDCs. In J. Balaam, & M. Veseth, Introduction to International Political Economy (p. 313). New Jersey: Prentice Hall.
Stubbs, T., & Kentikelenis, A. (2017). International Financial Institutions and Human Rights imolications for Public health. Public Health Review, 38(27), 2. Retrieved June 29, 2020, from http://creativecommons.org/publicdomain/zero/i.o/
Woods, N. (2006). The Globalizers: The IMF, The World Bank and their borrowers. New York: Cornell University Press.
Yeates, N. (2001). Globalization and social policy. London: Sage.
