Activity 8:  While the MDGs clearly make some difference to people’s lives, some argue that rich countries are not doing enough. Others argue that the power relations between rich and poor countries mean that it is impossible for poorer countries to ever get out of poverty.

 Read this text criticizing the practices of the International Monetary Fund (IMF) and The World Bank. These two organisations were set up after the Second World War to support poorer countries and to strengthen their economies with long term investment.

 A Downward Spiral to the Bottom

The IMF and World Bank provide financial assistance to countries in the form of loans, but set preconditions to receiving the money. For example:

• They demand cutbacks in public spending e.g. areas such as health, education and housing, and getting rid of subsidies such as food subsidies.
• They push for privatisation
• They impose high interest rates on the loan
• They pressurise the country to develop a flexible labour market, and reduce regulations and standards, in order to be attractive to foreign investors ( who want cheap labour)

The impact of these preconditions on poorer countries can be devastating. They can lead to further misery for the developing nations and keep them dependent on developed nations:

For example:

o    to pay back the loan plus interest, countries have to cut back drastically on spending which makes the country even poorer.

o    It can be difficult to obtain contracts from one of the big corporations without child labour, exploiting workers and operating unsafe practices.

o    people get paid less for the work they do

o     with people earning less, they spend less. This affects the country’s economy. The economy becomes more unstable – and that can lead to economic collapse

o    As health and housing are cut,  people die of preventable health problems, and have to live in dangerous/unhealthy/overcrowded conditions

— adapted from John Madeley, Big Business Poor Peoples; The Impact of Transnational Corporations on the World’s Poor, (Zed Books, 1999) p. 103

 Questions:

a)  Countries borrowing from the IMF have to pay high interest on their loans. What is the effect of that on the country?

b) What is the result, according to this text, of cutting back on public spending and developing a flexible labour market (e.g. fewer/no rules on terms & conditions for workers)?

c) How do richer countries benefit from a flexible labour market?

d) Why would competition for contracts from big corporations result in child labour and unsafe working practices?