Rheinische Friedrich-Wilhelms-Universität Bonn
Department for Political Science

Seminar: Comparing Political Systems in Latin America

Wintersemester 2000/2001

World Bank, IMF and Democracy

Presented by

Sebastian Karcher

Bonn, January 25^th 2001

Index

1. INTRODUCTION 2

2. STRUCTURAL ADJUSTMENT: ECONOMIC AND SOCIAL ISSUES 3
2.1 20 Years of SAPs - An Outline 3
2.2 Criticism on the BWI 4
2.2.1 Economic Criticism 4
2.2.2 Social Criticism 5
2.2.3 How the BWI deal with criticism 6
2.3 Conclusions 7

3. STRUCTURAL ADJUSTMENT AND DEMOCRATIC DEVELOPMENT 8
3.1 The Public Image of the Bretton Wood Institutions 8
3.1.1 Painful memories 8
3.1.2 The BWI as US-dependent institutions 9
3.1.3 The BWI and Neo-liberalism 9
3.1.4 The Impact on Democratic Development 10
3.2 Good Governance and its Implications 11
3.2.1 Good Governance as a WB/IMF policy 11
3.2.2 Criticism on Good Governance 12
3.2.3 Good Governance and Democracy 13

4. CONCLUSION 14

BIBLIOGRAPHY 16

1. Introduction

Since 1982, when the debt crisis broke out in Latin America the continuous presence of IMF and World Bank has become part of the every day life of Latin American countries. While the programs have changed both in nature and in size, the criticism on the structural adjustment programs (SAPs) has been a constant factor throughout the last years¹. The debate on SAPs focused basically(with minor variations) on two key questions: Their effect on the economy and their social costs, the latter including income distribution². The tendency of scientific studies reached from vigorous defence of IMF/WB policy to complete rejection.

The vast majority of the studies were performed by economists applying economic criteria. The economic perspective is without any doubt the centre of the issue and thus absolutely indispensable. However, investigating the consequences of SAPs without due regard to the political side of the issue will result in an incomplete picture. Many economists regard the political consequences of SAPs as a mere economic factor that has to be considered. From a political scientist′s viewpoint on the other hand, the effect of SAPs on the democratic development of a country is the most important issue. One should keep in mind though that WB and IMF are, according to their Articles of Agreements, politically neutral. But due to the strong influence the institutions exercise, political effects are inevitable. This paper will attempt to analyse these political effects of SAPs. The question it seeks to answer is, how the adjustment programs of World Bank and IMF influence democratic development in Latin America. Nevertheless, economic aspects cannot be excluded: Economic success can stabilise a democratic government the same way an economic crisis can destabilise it. Therefore the second chapter of this paper will deal with economic and social aspects of SAPs (2.). It will reflect the arguments of critics as well as supporters of WB/IMF policy and describe the development of adjustment programs over the last two decades. The third chapter investigates those political effects that are caused by SAPs independent of their economic outcome(3.). It will first investigate the image of the World Bank and IMF and then examine the implications of good governance. The results will be evaluated using the concept of political culture. In the conclusion it will then be possible to draw some conclusions about the political effects of SAPs and to propose policy improvements. As almost all Latin American countries have at least formally democratic systems, this paper will focus on the effects on existing democracies. Effects of SAPs on authoritarian regimes may vary and are not subject of this investigation.
Drafting this paper I have relied on a great number of journal articles and online resources. Two of the most important sources were the IMF website³ and Weltbank und Währungsfond - Gestalter der Bretton-Woods-Ära by Rainer Tetzlaff⁴. The paper isnot an empirical study and will thus rely on empirically derived results from other studies as well as on concepts and arguments.

2. Structural Adjustment: Economic and Social Issues

In the following chapter the main economic issues of IMF/WB programs will be discussed. The basic content of SAPs and their evolution throughout the last 20 years is briefly summarised (2.1). A second part treats the main lines of criticism of the BWI and their reactions(2.2). This chapter can not deal in depth with the economic issues, its function is to outline the most important concepts and problems.

2.1 20 Years of SAPs – An Outline

Throughout the last 20 years SAPs have followed the so called “Washington Consensus” (although the term itself was first used in 1990). It contains the following policy guidelines: “

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1 Cf. e.g. Rainer Tetzlaff, Weltbank und Währungsfond - Gestalter der Bretton-Woods Ära, Opladen 1996, pp. 26-30.

2 Since the beginning of the end of the 80s, environmental costs could be added to this list. Due to the limited extent of this paper they cannot be included.

3 www.imf.org

4 Tetzlaff, Weltbank und Währungsfond.