Essay: Financial Institutions &amp Global Poverty

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Financial institutions & Global poverty

GLOBAL POVERTY

A Look at International Financial Institutions in Relation to Global Poverty

The Great Depression of the 1930s, the problems surrounding international trade and economic policies that were isolationist in nature, and the imminent end of World War II -- all of these factors led the world's powerful and leading politicians to the Bretton Woods Conference. The conference's solution: the creation of international institutions that are known today as the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO). These institutions were established with the aim of solving global economic problems (New Internationalist Magazine 1994).

At present, at the heart of our many global economic problems, we shall find the most basic issue of global poverty. Global Poverty is illustrated by these facts: (1) almost half of the world's population live on less than $2.50 day; (2) at the 21st century, nearly a billion people are illiterate; (3) the Gross Domestic Product of the Heavily Indebted Poor Countries which approximately have a population of 567 million people is less than the economic wealth of the world's seven wealthiest people combined which further highlights social polarization (Shah 2009).

Indeed, global poverty is a universal concern which warrants not only academic interest but actionable research as well. Our international financial institutions have publicly declared their efforts to combat poverty reduction. But how have they been doing so far? More crudely, are these efforts adequate to address this global problem?

With the aim of understanding and gauging the efforts of these international financial institutions' to alleviate global poverty, this paper will begin by providing a brief discussion of global poverty. We shall then move to the discussion of international financial institutions, particularly on what they have been doing in so far as global poverty is concerned. In the last section of this article, we shall provide a brief summary and conclusion which shall answer the objectives mentioned above.

Global Poverty: The case in action

Morazes & Pintaks' (2007) described global poverty as a term that is multi-faceted in nature. The ability to use one's multiplicity of perspectives is a requirement in understanding this concept. One of the earliest accounts of poverty can be found in the theory of Adam Smith as he said that poverty is the lack of basic and indispensable commodities as experienced by people who considered these commodities necessary (Smith in Morazes & Pintak 2007:108).

Indeed Smith's analysis shows a move from the absolute definition of poverty, i.e. The "condition characterized by severe deprivation of basic human needs" (The Copenhagen Declaration 2000 in Morazes & Pintak 2007: 109) to its relative definition with includes the "welfare provisions, benefits from the state, tax systems, social security transfers, education, social exclusion, social capital, feminization of poverty, and inequality" (ibid).

Further differentiation of the term poverty, or global poverty by and large, can be found in the framework employed by different developed countries. For example, liberal countries (those following the laissez faire market rule) such as United States, UK, Australia and Canada have less generous benefits while Sweden, Denmark, and Norway are more generous social democratic states. France, Germany, and Italy, on the other hand, provide welfare rights that are closely associated to their citizen's social position and income (ibid).

Aside from understanding poverty in terms of the lack of basic needs and welfare systems, Rank et al. (2003) provides a different theory, one that suggests that poverty has three criteria: (1) there is a lack of sufficient jobs; (2) the government's safety nets on its policies are ineffective; and (3) poverty-level income has been experienced more than once in an adult's lifetime.

Having similar undertones, Bhalla's (2002) work maintains that income is central to the issue of poverty and its alleviation because it gives the poor some degree of purchasing power in the same way that income provides resources that are not made available for them. Following Bhalla on understanding poverty in developing countries, Ayittey's (2005) findings on the poverty case of Africa suggest that it is not the economic security model that is key to economic development (and consequently alleviation of global poverty) in Africa, but economic freedom -- the freedom from colonial powers and elite dictators.

Given these numerous discursive materials on poverty that the literature contains, empirical findings maintain that measuring poverty remains debatable. At this point in poverty literature, there is still no consensus on how to universally measure poverty, its indicators, etc. (Bird 2004). But this perceived barrier in quantification should not stop anyone from understanding poverty. On the contrary, we can rely on the richness of the ontology of poverty. At the end of the day, poverty discourse still allows us to get a grasp of poverty -- may it be described in many different and numerous way.

Global Poverty: Accomplishment Report

In a speech presented before professionals in economics and development, Rodrigo de Gato (2005), Managing Director of the International Monetary Fund, blames "global imbalances" for the global poverty experience today. Global imbalance, as he claims, refers to the large current account deficit in the United States and large surpluses in a few countries, mainly coming from Asia. We have a lopsided pattern of growth. In line with this, he calls the attention of major players of the world economy in addressing the issue of global poverty. Moreover, "credible and sustained measures must be taken towards fiscal consideration in the United States, particularly in the medium-term. This will reinforce the impressive record of monetary management in years" (ibid, pars: 6-7). IMF also fully believes that its position is critical in the concerted efforts towards the alleviation of global poverty. IMF believes that they should work with countries to design their policies and in building institutions that will grow them out of poverty. Further in his speech, de Gato outlined concrete steps by which to go about the issues of global poverty. Firstly, IMF's aid assistance. Secondly, boost trade as IMF believes that developing countries can achieve sustained and rapid growth increased trade opportunities. And lastly, global poverty reduction must begin at home. Developing countries must craft poverty reduction strategies. IMF, on its part, can assist these countries by helping in designing the country's macroeconomic framework (ibid, pars 17-29).

The Global Poverty Report in 2000 presented in the G8 Okinawa Summit by distinct global financial institutions such as the World Bank, IMF, Asian Development Bank, African Development Bank, European Bank for Reconstruction and Development, Inter-American Development Bank claim that major improvements in the health and education status of developing nations. They also claim that globalization, volatility of commodity prices, and mobile private and official capital made a powerful impact on poverty reduction. The role of multilateral development banks and the IMF in the global level involve helping in shaping international rules and ensure provision of global public goods. Development Bank's poverty reduction strategy also involves lending and technical assistance to countries below the poverty line. International financial institution's trade-centered perspective on poverty alleviation is anchored on the belief that the global economy provides benefits to developing countries through trade opportunities -- which results to new investments and jobs as well as more efficient use of resources and increased productivity.

The presentation of international financial institutions and their efforts towards global poverty reduction, indeed, leaves us with some questions, and some issues unresolved. Firstly, how altruistic can the goals of these financial institutions really be? When they say "they are in the position" to help alleviate poverty, does not it, in anyway, spell the power relation that is involved in the creation of these international financial institutions? Does not it, in anyway, reflect the power dynamics associated with these supranational institutions?

When we talk of power, we can understand this on the basis of who owns this power, and who are subjected to this power? Indeed, it can be seen that these international financial institutions command a kind of power by which our world economy is, on some level, vulnerable to. The International Monetary Fund, for example, emphasized their role in assisting countries in the development of their macroeconomic frameworks. Who benefits from these frameworks? Which group of the society benefits and is served by the powers-that-be in these international institutions?

In order to better understand the questions we have just posited, I believe it is fitting to present the anti-capitalist discourse -- the discourse which criticizes the creation and ongoing activities of these supranational institutions. Moreover, this will shed light on the possible inadequacies in terms of the efforts of international financial institutions in addressing the systemic problem of global poverty.

Global Poverty: The Less Popular Discourse

According to Wenar (n.d.), the current state of international development aid which involves the range of efforts by the world's powerful countries towards improving the condition of the poor countries of the world is faced by numerous challenges. Firstly, the technical challenges in the design of the projects. Take the case of Asia and Africa -- they have a… [END OF PREVIEW]

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