Thesis Final

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Paper presented during my Masters studies at Alliant International University

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  • 1. ThesisEconomic Policy of the World Bank in the Egypt during the period 2000-2010: Is it Politicized?Presented ByAbdelhamied Hany El-RafieUnder the Supervision ofStephen MurrayDirector of the Marshal Goldsmith Program Alliant International UniversityMexico City Campus1 Abdelhamied El_Rafie

2. )) 2 Abdelhamied El_Rafie 3. Introduction:My research topic will be: Economic Policy of the World Bank in the Egypt during theperiod 2000-2010: Is it Politicized?Main theme:The basic idea of the research is to examine whether there are direct or indirect politicalimpacts of the economic policy and operations of the bank in Egypt.Time period:The research will focus on the operations of the Bank during the Period 2000-2010.Questions I will try to answer in my thesis: 1. What is the official mission and the real role of the World Bank in todays world? 2. Does this role or mission have political impacts in the world? 3. What is the Economic system imposed by the World Bank in the region? 4. Is the role of the World Bank affected by the political situation in Egypt? 5. What are the historical backgrounds of the WB operations in Egypt? 6. What are the targets and goals of such operations? 3 Abdelhamied El_Rafie 4. Hypothesis of the research:The World Bank role in Egypt is conditioned by the international and regional politicalsituation, the policies of development investments and the policy-making process of theboard of directors of the Bank.Although World Bank operations will help Egypt to reach sustainable economic growth,those operations might face obstacles due to the lack of political and economicintegration in the Middle East region.Structure of the Research:Part IThe World Bank from inside: 1. Mission of the WB according to the Bank itself. 2. Historical background. 3. The voting power in the Board. 4. Structural adjustment programs. 5. Reforms within the WB. 6. The bank assistance programs. 7. The relation between the WB and The United States.Part II4 Abdelhamied El_Rafie 5. The World Bank and Egypt 1. Historical background about the relation between the WB and Egypt. 2. Egyptian Economic progress. 3. The WB evaluation to the economic situation in Egypt in 2001. 4. The WB evaluation to the economic situation in Egypt in 2005. 5. The WB evaluation to the economic situation in Egypt in 2008. 6. Developments from 2008 till 2010.Part IIIThe final analysis 1. The current International Economic system. 2. Has Egypt followed the WB ?and what about the social and political prices? 3. Is there another option for Egypt? 4. Economic integration in the Middle East and its future with regards to the deterioration in the Peace process. 5Abdelhamied El_Rafie 6. Part I The World Bank from InsideMission of the World Bank (according to the Bank itself)The World Bank (WB) is a vital source of financial and technical assistance to developingcountries around the world. The mission of the WB is to fight poverty by providing resources,sharing knowledge, building capacity and forging partnerships in the public and private sectors.1The WB is made up of two development institutions owned by 187 member countries:the International Bank for Reconstruction and Development (IBRD) and the InternationalDevelopment Association (IDA). Each institution plays a different but collaborative role inadvancing the vision of inclusive and sustainable globalization. The IBRD aims to reduce povertyin middle-income and creditworthy poorer countries, while IDA focuses on the worlds poorestcountries.2Historical background:After the end of the Second World War, the US found itself superior in every form. TheUS was trying to invest the superiority in which it ended the war as an acquirer of nuclearweapons, so the US was superior on the military side and politically it was the leader ofthe Pact who won the war. After the war, the US put its economic and military power toconfront the Soviet Union. On the economic side, the US had funded through the WorldBank the reconstruction of Western Europe and Japan; on the military side, it gave asmooth direction towards the creation of a western military alliance named NATO.1,,pagePK:50004410~piPK:36602~theSitePK:29708,00.html2,,pagePK:50004410~piPK:36602~theSitePK:29708,00.html6 Abdelhamied El_Rafie 7. The US used its economic and military dominance to manage and control the worldeconomy. The key features of that world economy were that it has the features of bothliberalism and multilateralism; the system was based on liberal economic principals.Western states participated in three international organizations which were created toachieve the capitalist economic order. These three organizations are the InternationalMonetary Fund (IMF), the International Bank for Reconstruction and Development(IBRD) (effectively the World Bank (WB)) and the General Agreement on Tariffs andTrade (GATT) which was transferred recently to the World Trade Organization (WTO).Not only this, these western countries had put restrictions on the memberships of theseorganizations and didnt allow any country that was not following free-market principalsin their internal economic management to have membership.Under this economic system, the United States, Western Europe and Japan have achievedunder this economic system what has been called a golden era of economic growth duringthe 50s until the early 70s.Countries (apart from the developed world) have not been protected from the pressures ofthe global market. Two developments happened during the 70s and 80s which led toeconomic competition between developing states. The first was the decision of China tobegin an era of trade and foreign direct investment to allow trade and foreign investmentinto China by the west. The second development was the debt crisis in the 1980s.33Robert OBrien and Marc Williams, Global Political Economy, 2004, pp. 113-134.7Abdelhamied El_Rafie 8. The World Bank was founded in an international conference after the end of World WarTwo aiming for a framework of international economic governance. The target wasstability of the world economy: for this reason, the International Monetary Fund wasestablished as the core of the system, the WorldBank (thenthe IBRD) was to provide governments with assistance to offer the private sectorespecially in the field of reconstruction and investment and attracting direct investments.The IBRD started its work in September 1946; the first loan of the Bank was to Francewith a value of US$250 million. The number of member countries of the Bank then was38; now after more than sixty years it has reached 185 member states. During this sameperiod, the Bank had 11 Presidents and it supported countries with more than US$500billion in the form of investment in the resources and loans for poorer countries.The IBRD, which is the major lending part of the World Bank system, holds loanscurrently of more than US$100 billion; it has average yearly profits of US$1 billion sinceits foundation in which allowed itself to make grants to other organizations within theWB including the International Development Association.4The WB is supposed to meet social necessities in which the private sector will not be ableto fulfill; the WB should also face market failures which could happen through threephases: the first is capital deficiency, the second skills know-how deficiency, and thethird a complex of resources scarcities.The WB role at the beginning was concentrated on finance and it started in Europe as areconstruction financier, then the WB started in the fifties to do the same job with poor4David A. Phillips, Twenty Years of Trial and Error, pp. 1-6. 8 Abdelhamied El_Rafie 9. countries. Later the WB changed its priorities: it moved beyond finance towardseconomic structure and models of economic growth. That is why the IDA was establishedbut still the major role of the WB was to finance but it went further towards infrastructureprojects such as telecommunications, power and industry. The working strategy of theWB became more diversified over the next decades: it included social sectors, support toeconomic reform, technical assistance projects, training and research.The shift towards investing in the infrastructure started during the presidency of RobertMcNamara (1968-1981) through his belief that investments and direct financing alonewere not addressing correctly the problem of poverty. The scope transferred during theeighties into the issues of debt, structural adjustments and restoration of privateinvestments and financial flows to the developing countries; thus it was a transfertowards macroeconomic adjustments. The WB role was important in internationalfinancing but this importance was reduced during its lending expansion during the debtcrisis of the eighties, although it was responsible for less than 50% of international flows.Currently the WB is responsible for about 85% of the total flow of capital to developingnations in the form of direct investment and portfolio investments.Under the presidency of Paul Wolfowitz there was another shift, towards what is calledthe Knowledge Bank which was first declared in 1996. This was a transfer frominfrastructure and macroeconomic adjustment towards so called Institution Building,which is concerned with the regulations of the market and legal frameworks.5The voting power in the Board:5David A. Phillips, Twenty Years of Trial and Error, pp. 6-9. 9Abdelhamied El_Rafie 10. The way the Bank is ruled is very important in order to understand the management ofthe Bank. The Bank consists of lenders, shareholders and informal activist groups, andeach group is divided into sub-groups. The Banks creditors target is to get repaid so theyare concerned about profits and security. Due to this the United States (because it is thelargest shareholder) uses the bank for its foreign policy objectives