What They Tell You
The IMF and World Bank help developing countries. They provide expertise and resources that poor countries lack. Their conditions ensure that aid is used well. They promote good policies: free markets, fiscal discipline, trade openness. Without them, developing countries would make costly mistakes.
What They Don’t Tell You
The “Washington Consensus” policies these institutions promoted have a poor track record. Countries that followed their advice often did worse than those that didn’t. Their one-size-fits-all approach ignored local contexts. Structural adjustment programs caused enormous suffering. The institutions serve rich country interests more than poor country needs. And their governance gives developing countries little voice.
The Bretton Woods Institutions
The IMF and World Bank were created in 1944 to manage the postwar international economy:
IMF: Originally to maintain fixed exchange rates and provide short-term balance of payments support World Bank: Originally to fund reconstruction, later development
Their mandates expanded over time, especially after the debt crisis of the 1980s.
The Washington Consensus
By the 1980s, these institutions promoted a standardized policy package:
- Fiscal discipline (balanced budgets)
- Redirecting public spending (cutting subsidies)
- Tax reform (lower rates, broader bases)
- Interest rate liberalization
- Competitive exchange rates
- Trade liberalization
- Foreign direct investment openness
- Privatization
- Deregulation
- Property rights protection
Countries seeking loans had to accept these conditions.
The Record
How did countries that followed this advice fare?
Latin America (the original test case): The 1980s and 1990s were “lost decades” with low growth, high inequality, and repeated crises. Countries grew faster before and after the Washington Consensus period than during it.
Sub-Saharan Africa: Decades of structural adjustment produced stagnation. Africa grew faster before adjustment programs and after they loosened.
East Asia: The successful developers (Japan, Korea, Taiwan, China) explicitly rejected Washington Consensus policies, using industrial policy, trade protection, and government intervention.
The 2008 crisis: The deregulation promoted by these institutions contributed to the financial crisis that originated in the advanced economies themselves.
Specific Harms
Austerity in crisis: The IMF demanded budget cuts during recessions, deepening downturns. (They’ve since acknowledged this was wrong.)
Financial liberalization: Opening capital markets led to volatile capital flows and crises (Mexico 1994, East Asia 1997, Argentina 2001).
Privatization: Fire sales of public assets often went to cronies or foreigners, with service quality declining.
User fees: Charging for healthcare and education hurt the poor most.
Agriculture liberalization: Exposing smallholders to global competition devastated rural livelihoods.
The Governance Problem
Who controls these institutions?
Voting shares: Based on economic size, giving US and Europe dominant control. The US has effective veto power over major decisions.
Leadership: By tradition, the World Bank president is American; the IMF managing director is European.
Staff: Overwhelmingly trained in mainstream Western economics, with limited understanding of developing country realities.
This means those affected by policies have little say in making them.
The Ideological Function
These institutions enforce market orthodoxy globally:
Defining “good policy”: What they recommend becomes the definition of sound economics.
Creating conditionality: Countries in crisis must accept their terms.
Legitimizing markets: Their imprimatur makes market-friendly policies seem neutral and technical rather than ideological.
Constraining alternatives: Countries that try different approaches face capital withdrawal and credit downgrade.
The Selective Memory
The success stories don’t support Washington Consensus policies:
The US: Built its economy behind high tariff walls, with extensive government intervention.
Europe: Post-war development relied on state investment, planning, and protection.
East Asia: Japan, Korea, Taiwan all used industrial policy, subsidies, and trade protection.
China: The fastest development in history came with extensive state control, SOEs, and capital controls.
The institutions told developing countries to do what successful countries did not do.
Recent Changes
The institutions have evolved:
- More acknowledgment of market failures
- Some acceptance of capital controls
- Recognition that austerity was excessive
- More attention to inequality
But the fundamental orientation remains market-centric, and the governance remains Northern-dominated.
What Genuine Help Would Look Like
- Policy space: Letting countries experiment with different approaches
- Technology transfer: Rather than protecting intellectual property
- Finance without conditions: Or conditions chosen by recipients
- Governance reform: Giving developing countries real voice
- Learning from successes: Rather than imposing failed orthodoxies
The problem isn’t that developing countries lack advice. It’s that the advice reflects rich-country interests and ideologies rather than evidence about what actually works.