Existing Global Institutions and their problems

Existing Global Institutions and their problems

In an increasingly connected and interdependent world, global institutions play an important role in promoting stability and guiding developing countries towards becoming market economies. This process and the importance of this role was never more clear than during the 1990s. In Eastern Europe, a host of new countries appeared on the world map franticly began running towards capitalism and prosperity. The premier international institution, the International Monetary Fund, was given the difficult task of crediting emerging economies and providing the western know-how to build strong market economies. Alas, in many cases, it failed. Possibly, the most tragic example was that of Russia. Some argue that the fund had modest desings and was fundamentally uncapable of this great project. This essay will explore why the fund failed, how its decisions were made, and what must be done in an ideal institution that would be able to accomplish the task.

Currently, or over the last decade, the fund was in a peculiar situation. It essentially gave loans to countries that were politically important to the west, such as Russia and Brazil, repeatedly bailing them out of crises which their poor policies led it to. The fund also prescribed certain reforms and policies that should improve the economy over the long tuerm. Unfortunately, these recommendations were all too often either incorrect, as in Asia, or were ignored altogether, as in Russia. The reason is the simple moral hazard. There was no real reason to comply and change inside, when a state knew that they will be given the loan anyway, for the west had political reasons such as the fear that the country will renounce democracy and the like.

It is important to refute the illusion early on that the IMF was truly international or independent body. It was, and is massively underfunded ant the result is that its directors have to ask the US treasury department for funds, giving the bosses of the treasury such as Robert Rubin and Larry Summers immense influence over the fund's policies. Therefore, while the fund essentially promoted policies of the American government, or the "Washington concensus", it was often used as a scapegoat. Whenever something was wrong, such as a crisis precipitating due to poor and not peer-accepted recommendations, as was the case in Asia in 1998, few blamed the department of the Treasury of the Clinton administration. Problems were attributed to the fund, which is labeled as international, and to such mysterious and ill-understood phenomena such as globalization.