the World Bank, IMF and Social Spending

POVERTY HEADCOUNT

The most rapid decline in poverty occurred in East Asia and the Pacific, where extreme poverty in China fell from 60 percent in 1990 to 13 percent. In the developing world outside china, the poverty rate fellfrom 37 to 25 percent. Poverty remains widespread in Sub-Saharan Africa and South Asia, but progress has been substantial. In South Asia, the poverty rate fell from 54 to 36 percent. In Sub-Saharan Africa thepoverty rate fell by 4.8 percentage points to less than 50 percent between 2005 and 2008, the largest dropin Sub-Saharan Africa since international poverty rates have been computed.

These statistics from the World Bank website are incredible to me; especially considering that while China was experiencing a dramatic decline in poverty rates, they were also dealing with spikes in population and an all-time high in mortality rates. It is fascinating that a region can foster such growth and such management at the same time. It is also an instigation of why sub-saharan Africa cannot substantiate positive economic growth and a reduction in poverty.

The World Bank has set out on missions to provide “low-interest loans, interest-free credits, and grants to developing countries,” as their mission statement reads. They even refer to themselves not as a bank, but as a “unique partner.” Additionally the World Bank has commissioned itself to achieving two goals by the year 2030:

  • End extreme poverty by decreasing the percentage of people living on less than $1.25 a day to no more than 3%
  • Promote shared prosperity by fostering the income growth of the bottom 40% for every country

Although the website reads very charitably, a bank is still a bank, and impoverished countries are still referred to as clients. But through the loans, grants and economic stimulation, the World Bank needs to encourage more social spending, which is the amount of money spent on welfare within a country. The logic behind all of this is that through spending, money circulates and the economy experiences growth. By spending money and giving money to a wider range of potential earners and spenders, money has more opportunity to regenerate. Think back to the 9/11 tragedy in America, when we invaded  Iraq and experienced a recession. One reporter asked President George W. Bush what American citizens could do to help. He replied, “I encourage you all to go out shopping more.”

Now, we are in a Presidential era where welfare, health care, and social programs are central to economy. Similarly, these types of programs are modeled after what the World Bank is criticized for not utilizing enough.

Unlike the World Bank, which provides loans and grants, the IMF is more of a watchdog and monitor of the economies and their growth. Their mission is to:

  • provide a forum for cooperation on international monetary problems
  • facilitate the growth of international trade, thus promoting job creation, economic growth, and poverty reduction;
  • promote exchange rate stability and an open system of international payments; and
  • lend countries foreign exchange when needed, on a temporary basis and under adequate safeguards, to help them address balance of payments problems.

Notice that lending is on a temporary and infrequent basis–unlike that of the World Bank.

With both of these institutions providing specific and varying methods of support, it is crucial to take a closer look at what kind of aid and support really will aid impoverished regions such as sub-Sahara Africa.

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