From Poverty to Power Green, Oxfam 2008 - weman

5 THE INTERNATIONAL SYSTEM FINANCEmajor donors. 3 At US insistence, the organisations were located inWashington, within walking distance of the White House, rather thanwith the UN in New York.The Fund and Bank were arguably given the wrong names at birth.The IMF is supposed to lend money like a bank when financial crisesthreaten, while the World Bank funds projects and governmentreform programmes to address longer-term development issues. Thetwo institutions were created not to feed global markets but to step inwhere markets failed, in order to mitigate the harsh effects of globalcapitalism. 4At first, they confined their attentions to rebuilding Europe withloans to Denmark, France, and Holland. As Europe began to recover,they began to look farther afield. The Bank’s first loan to a developingcountry went to Chile in 1948. However, it was the breakdown in theearly 1970s of the system of fixed exchange rates, followed by the onsetof a global debt crisis in the early 1980s, that catapulted the Fund andBank to global prominence. Across large swathes of Latin America,Africa, and Asia, governments had run up large debts and then sawinterest rates spiral just as the prices of their exports collapsed.Desperate to reschedule their debts and find new sources of capital,they turned to the Fund and the Bank.In return for loans, the two IFIs demanded far-reaching reforms,disguised by bland euphemisms such as ‘stabilisation’ and ‘structuraladjustment’. Acceptance of such policy reforms quickly became a litmustest for countries to access development assistance from donors, turningthe Bank and the Fund into the gatekeepers of the global financialsystem.Although Nineteenth Street in Washington DC, which separatesthe two institutions, is a border of fierce institutional rivalry, the Fundand Bank largely shared the same DNA of economic orthodoxy.They both believed that the underlying problems of developing countriessprang largely from a mistaken, state-centred development modelthat ran out of steam in the 1970s, echoing the anti-state‘Reaganomics’ and ‘Thatcherism’ of the time. The ultimate foe wasprice inflation; the broad solution was ‘less state, more market’. Theprogramme was stabilisation by cutting state spending to reduce297