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The G8 and the Global Economy

Since its birth, the G8 has primarily been concerned with strengthening the global economy. Criticisms of G8 economic policies center on the following areas:

• The World Bank and the International Monetary Fund (IMF)
• Third World Debt

World Bank and International Monetary Fund (IMF)

The World Bank and the IMF were established in 1944 by 44 nations at the Bretton Woods Conference. The World Bank was created to give countries easier access to international financial markets. Through the World Bank, countries can borrow more cheaply and use the World Bank as a guarantor of loans. The IMF was set up to manage international currency exchange rates and to provide countries with short-term, emergency financing during financial crises.

Together, the G8 has almost 50% of the votes in the World Bank and IMF, and is able to control its agenda and policies. The United States alone has over 15% of the votes in both organizations. Any change to the mandate or structure of the institutions requires a majority of 85% of the vote. As such, the US has the ability to unilaterally veto any reforms.

Source: The G8, the World Bank and the IMF, by the Alberta Council for Global Cooperation

The G8 is criticized for supporting Structural Adjustment Programmes (SAPs). SAPs are the conditions that the World Bank and IMF place on countries when they grant loans. These conditions often include the following:

• Privatization of public companies and services such as healthcare
• Liberalization of capital markets and trade
• Market-based domestic pricing
• Focus on a single cash (high value) crop or resource for export

The purpose of SAPs is to strengthen a country’s finances and economy so that it will no longer be dependent upon the World Bank or IMF. However, critics argue that SAPs actually have a negative economic, social, and environmental effect.

• Economic Concerns
  SAPs can lead to unstable domestic currencies; high inflation; high interest rates; vulnerability to competition with transnational corporations; increased debt; and dependence on a single cash commodity for export and vulnerability to drops in world prices for that commodity.
   
• Social Concerns
  SAPs can lead to a loss of food security; lower social welfare due to cuts in social programs; and negative impacts on workers rights.
   
• Environmental Concerns
  SAPs can lead to accelerated resource extraction; deforestation; soil erosion; decreases in bio-diversity; and increased greenhouse gases.

In recent years, the G8 has attempted to address these criticisms. At the 1995, 1998 and 1999 Summits, the G8 stated that it would encourage the World Bank and IMF to develop new approaches to how it lends money to developing nations. As a result, the World Bank and IMF have initiated programs that account for poverty in the conditions it places and involve greater consultation with borrowers. However, critics argue that these reforms have not altered the fundamental policies of the World Bank and IMF. They still require borrowers to privatize, liberalize, and cut government spending.

Third World Debt

In 1999, the world’s poorest countries paid $128 million in debt repayments every day (Source: United for a Fair Economy, Globalization for Beginners). These repayments have had a devastating affect upon life in these countries.

• Increased poverty
• Inability to provide clean water and proper housing
• Inability to strengthen social services such as healthcare and education
• Environmental damage from unsustainable resource extraction to pay debts
• Increased unemployment as public companies are sold to pay debts

Most third world debt is held by G8-based lenders (i.e. private banks and export credit agencies in G8 countries) and by G8-controlled creditors (i.e. the World Bank and the IMF).

The G8 has been criticized for forcing Third World countries to make repayments of debt at such a social and environmental cost. In 1995, the G8 responded by stating that it would encourage the World Bank and IMF to assist poor countries with heavy debt levels. In result, the World Bank and the IMF announced the Highly Indebted Poor Country Initiative (HIPC) in 1996. The HIPC allowed for some debt reduction for extremely poor countries after they had completed a series of structural adjustment to their finances and economy. Following the 1999 Summit, the G8 announced the Enhanced HIPC Initiative, which made the process of debt relief easier.

Critics have denounced the G8’s attempts to solve the Third World debt problem. Criticisms tend to be of the following sorts:

• Band-Aid Solution
  The goal of G8 debt reduction programs has been to elevate poor countries to a level of “debt sustainability.” Most poor countries have debt that they cannot pay back or even make the interest payments. Under the Enhanced HIPC Initiative, the debt of these countries is forgiven only to the extent that they can start making debt payments again. Critics argue that solution does not solve the problem of Third World debt and still leaves countries unable to make social and environmental investments.
   
• Too Narrow and Painful
  Since 1999, only 23 countries have qualified for the Enhanced HIPC Initiative. Critics argue that this represents only a small number of countries needing debt relief. Furthermore, to receive debt relief, countries are required to undertake many structural reforms to their finances and economies (i.e. privatization, and trade and market liberalization). Critics suggest that these requirements are often too difficult for poor countries to meet (in 2001, eight countries were delayed in receiving relief because they failed to meet the requirements) and may lead to greater economic, social and environmental problems.

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G8 and Global Health

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