World Bank Lending: A Catholic Social Teaching’s Perspective</= title>  <style>  </style>  </head> <body lang=3DEN-US vlink=3Dpurple style=3D'tab-interval:.5in'> <div class=3DSection1> World Bank Lending: A Catholic Social Teaching̵= 7;s Perspective <o:p> </o:p> <h5>Stefan A. Perun</h5> <h6>Liberal Studies</h6> <o:p> </o:p> Introduction<o:p></o:p> <o:p> </o:p> Catholic Social Teaching (CST), which frames morality in terms of promoting the common good, offers moral guidance on a wide range of issues. One such issue is developm= ent in the global economy. By its own account, the World Bank plays an important role in facilitating global economic development for the global good (About Us, 2007). As such, CST prov= ides a lens through which one can evaluate both the morality and effectiveness of World Bank lending practices. After evaluating the empirical results of Wor= ld Bank lending to Latin American countries during the 1990s by the standards established by CST, this essay argues that World Bank lending practices are immoral. Additionally, it is argued that sound economic policies are actual= ly congruent with a moral approach to= World Bank lending. In addition, I argue that CST offers an opportunity to bring about both human flourishing and sound economic policy for the benefit of t= he entire global community.<o:p></o:p>= <o:p></o:p> <h2>The Globaliz= ation Debate<o:p></o:p></h2> There is much deba= te in the public arena about whether or not globalization is a beneficial phenomenon, particularly for emerging economies. The scope of the phenomenon called globalization makes it difficult to assess outcomes from either subjective or empirical points of view with precision. Many current argumen= ts in the globalization debate would at least acknowledge that globalization h= as the potential to impact the glo= bal community in very positive ways. One such piece of research is the socioeconomic matrix reporting on 1997 outcomes of globalization among poor nations (World Bank as cited in Wolf 143). After controlling for population differences, the results suggest that more globalized countries were better developed then their less globalized counterparts, based on indicators such= as Gross Domestic Product (GDP), growth rate per capita, primary education, and rule of law. Additionally, some rise in the overall life expectancy and a reduction in global malnourishment has been an effect of globalization (Sin= ger 85-87). The enormous potential benefit of globalization to universally incr= ease the standard of living seems to outweigh the costs. Based on the empirical evidence of improved economic conditions throughout the world, particularly= in countries like China and India, it seems possible for countries to “t= ake advantage of globalization, without being taken advantage of by globalization” (Stiglitz 23-43). <o:p></o:p> However, many of t= hese same arguments are also critical of the ways in which developed countries exercise an upper hand in deciding the terms of globalization, particularly in negotiating multinational trade arrangeme= nts. In addition, some argue more generally that globalization exploits workers = in poorer countries, while richer countries capitalize on the resulting human suffering (Daly as cited in Gehring 73-80). At the heart of such arguments = is the critique that wealthy countries continue to repress the exploited count= ries in order to maintain a favorable power balance. Rather than engage in dichotomous debate—i.e., one that seeks to defend a strictly pro- or anti-globalization stance—a more meaningful approach is to assess globalization based on its effects in the global community.<o:p></o:p></spa= n> How is one to disc= ern the impact of policies of nation-states, international trade organizations, international courts of law, and treaties between countries that facilitate globalization? I argue that evaluating empirical evidence resulting from pr= evious multilateral loan arrangements through the World Bank is one place to start. The numbers and outcomes of loans made to Latin American countries during t= he early 1990s and the regions’ 0% GDP that ensued provides compelling evidence about the effects of World Bank lending policies in practice. In t= his case, the risk of development fell on the shoulders of the region, and curr= ency fluctuations resulted in an enormous, unpayable debt burden that stifled La= tin America’s economic growth. While western banks were bailed out of this crisis, Latin American countries were left to sort out the resulting defaul= ts (Stiglitz 211-244). <o:p></o:p> Unfortunately, the case of Latin America (evaluated in detail below) is not the exception. Eas= tern Europe’s poverty grew ten-fold in the years after the fall of communi= sm as World Bank policies acted to “ease” the transition to capita= lism (Stiglitz 39). In another example, debt from World Bank lending, coupled wi= th poor regulatory oversight, doubled Africa’s poverty over the last twe= nty years, while Western investors have extracted many of the region’s abundant natural resources (Stiglitz 41). The empirical evidence speaks for itself. As this essay will explore, the structure of World Bank lending practices are economically and morally amiss. Certainly there must be some moral obligation for the wealthy nations to not only enjoy the economic and material rewards of growth in developing countries, but also to bear some risk associated with the= ir development.<o:p></o:p> <o:p> </o:p><= /span> Catholic Social Teaching<o:p></o:p> <o:p> </o:p> There are many too= ls one could use to evaluate World Bank lending practices. For instance, one m= ight rely solely on rationality, a certain religious tradition, a particular philosophy of ethics, or even popular opinion. It seems most reasonable to = use a tool that combines elements of each. CST draws on a rich intellectual tradition, the experience of the Catholic Church, and standing traditions. = More specifically, using CST offers a rich tradition informed by centuries of the Catholic Church’s work toward “humanization” (Verstraeten= as cited in Coleman & Ryan 28). Utilizing a dogma from one religious tradi= tion may be perceived as problematic. However, CST offers, particularly through papal encyclicals, ideals of moral responsibility that are relevant to unde= rstanding the moral responsibility of richer nations to poorer ones.<o:p></o:p></span= > Despite its complexity, the basic theme of CST is the promotion of the common good. The “common good” refers to the ability of all in a community to ha= ve the necessary conditions to “perfect their humanity,” or condit= ions that provide for “human flourishing” (Land 64; Rowntree 596). T= he common good from a CST perspective is nuanced. It could be argued that at i= ts roots lies Aristotle’s idea of law-abidingness, or the collective of = all virtues necessary for a moral life (Novak 69). Aristotle referred to this as legal justice. Aquinas, who saw law-abidingness as a “general justice,” or social justice, believed that this was a virtue in and of itself, thereby advancing Aristotle’s idea of legal justice. Aquinas reasoned that it was the common good that supported the good of individuals (Novak 70; Land 65). Accordingly, drawing on the Biblical tradition, CST ha= s a strong bias in favor of the poor (Coleman & Ryan 17). As such, the comm= on good does not favor one or a few privileged groups (Land 65-66). <o:p></o:p> Modern CST has it roots in the encyclical tradition founded in 1891 by Pope Leo XIII (Coleman & Ryan 15; McCann 57). The first papal encyclical, Rerum Novarum, contained guidance on international trade and affirmed the natural right to private property. In 1991, Pope John Paul II issued Centesimus Annus (CA) celebrating one-hundred years since the first papal encyclical. In it the P= ope writes, “…the free mark= et is the most efficient instrument for utilizing resources and effectively responding to needs” (CA 34). More importantly, CA explains that there are many people who are not able to participate in the free market because = of inequality between countries, and thus stronger nations have a moral respon= sibility “…to provide all individuals and nations with the basic conditi= ons which will enable them to share in development” (CA 35). <o:p></o:p><= /span> This idea of “distributive justice̶= 1; as a morally binding principle supports the common good by asserting that God’s intention for every human is to be given the conditions to flou= rish (Rowntree 598; Colman & Ryan 17-18). Advancing the idea further, the encyclical Sollicitudo Rei Socialis= (SRS) defines this moral binding to distributive justice as a virtue, as solidarity. Solidarity as a “virtue” calls for developed countr= ies to fully acknowledge their relationship of interdependence with developing ones, and also asserts that developed countries have a moral responsibility= to enable developing countries to share in the benefits of development (SRS 38= ). SRS suggests that this solidarity “demands… sacrifices necessary for the good of the whole world community” (SRS 45). These sacrifices= in solidarity are what Coleman and Ryan would refer to as the “fair allocation of burdens and benefits in society, [which] guarantees [that] parties… have relatively equal weight as moral agents” (Coleman & Ryan 17). An evaluation of lending practices, analyzed through the lens of CST’s concept of the common good in general and of distributive justice in particular, would dic= tate that the World Bank lending practices must seek the common good through relati= vely equal sharing of burdens as well as benefits among bargaining parties. = The members of the World Bank have a moral duty, according to CST, to share risk associated with development lending.<o:p></o:p> <h2>World Bank<o= :p></o:p></h2> The World Bank was founded in 1944 in New England for the purpose of post-World War II reconstruction. In recent decades, the World Bank has shifted its mission to “…global poverty reduction and improve[ment] of living standards…” (About Us</= i> 2007). The World Bank is comprised of five separate institutions. They are = the International Finance Corporation (IFC), the Multilateral Investment Guaran= tee Agency (MIGA), the International Centre for Settlement of Investment Disput= es (ICSID), the International Bank for Reconstruction and Development (IBRD), = and the International Development Association (IDA). The primary two development institutions are the IBRD and the IDA.<o:p></o:p> The IBRD works solely with middle-income coun= tries (MICs). These countries account for a little under half of the world’s population and represent 70% of people living on less then two dollars per = day (Projects & Operations 2007). According to the World Bank, the IBRD see= ks to meet the unique needs of MICs by raising capital in the world markets and making loans with favorable terms. The World Bank states that MICs are important in the global community because of their ability (or inability) to “provide global public goods such as clean energy, trade integration, environmental protection, international financial stability, and the fight against communicable diseases” (Projects & Operations 2007). As such, the work = of the IBRD is to provide needed financing for infrastructure and other societ= al needs, such as education and healthcare (Projects & Operations 2007). The World Bank claims that the IBRD plays an important role in developing MICs because favorable loan terms facilitate access to capital. Without this developmental institution, MICs would be fo= rced to borrow on world markets, which are subject to various credit-worthiness requirements, fluctuations in repayment terms, and interest rates. Based on various political, economic, and market conditions, MICs may not otherwise = have access to needed funding.<o:p></o:p> The other major development institution of the World Bank, the IDA, stands in contrast to t= he IBRD by focusing on the world’s poorest countries. These countries are defined as those with a Gross National Income (GNI) per capita of $1,065 or less per year (IDA 2007). Primary concerns in these countries are access to clean water, basic healthcare, and basic education. Funding makes its way to these destitute countries through grants or interest-free loans, called credits. The repayment terms of these loans are often spread over thirty-fi= ve or forty years with an initial ten-year grace period (IDA 2007). The money = used in these societal investment projects comes from donor nations such as the United States, the United Kingdom, Japan, Germany, France, Sweden, Italy and Canada. These and other countries contributed $33 billion in 2005 to the IDA (for a complete list of donors and amounts, see Contributions to the 14th Replenishment 2007).<o:p><= /o:p> <h2>IBRD Lending Practices: An Empirical Look<o:p></o:p></h2> The essential prac= tice of the IBRD is to raise capital in the world markets and to make loans to M= ICs for the purpose of funding public goods including infrastructure, energy, education, and healthcare. These public goods allow the borrowing nation to better participate in the global economy by providing the basic conditions necessary to produce goods and to trade with other nations. Monies used to build roads and the like are supposed to provide necessary conditions to ex= pand GDP growth, primarily through an increase in exported commodities, goods, a= nd to a lesser extent, services. It would not be reasonable to expect lending outcomes to always be ideal or the aims to be achieved perfectly. It is true that IBRD lending has the potential to successfully provide the necessary infrastructure to participate in the global economy (Wolf xii-xv). However, IBRD loans can also frustrate development. This is particularly true when l= oans by the World Bank are lent in dollar or euro denominations.<o:p></o:p></spa= n> Countries who are major “donors” to the World Bank also set the policies for lend= ing programs. From 1984 to 1993, debt service payments from Latin American countries to developed lending nations totaled $116 billion in net outflows, resulting in a dismal annual economic growth of less than one percent (Aris= ta 30). Known as the “lost decade,” the effects of this ten-year period on the world economy prompted a closer look at international lending policies (Arista 27). Policy makers from the World Bank, along with representatives from ten Latin American countries, met in Washington, D.C.,= to develop policies that would provide sustainable capital inflows for development. The so-called Washington Consensus was structured to ease capi= tal flow restrictions with the idea that rapid privatization was the best way to facilitate development (Stiglitz 17). Unfortunately, the adoption of the Washington Consensus policies did not result in mass inflows of capital from private investors into the region. Instead, it exposed Latin American count= ries to volatility in global capital markets. <o:p></o:p> One such example of exposure occurred during = the East Asia crisis in 1997, when investors panicked to extract capital out of= the region due to potentially threatening currency fluctuations (Stiglitz 34). = The capital contraction in East Asia forced interest rates to rise throughout t= he global economy. Argentina’s exposure to dollar-denominated debt payme= nts in the context of rising interest rates increased their debt payments by al= most 50% (Stiglitz 221). This happened to coincide with favorable shorter-term lending practices, which encouraged Latin American countries to borrow, effectively restructuring their external debt obligations (Arista 26). The favorable lending terms resulted in Intergovernmental Organizations (IGO), = lead by the World Bank, to make loans accounting for 81% of the region’s n= et capital inflows (Arista 26). Unlike the other 19% of inflows from foreign direct investment (FDI), these loans issued by public sector creditors plac= ed the bulk of the development risk on the borrower. Moreover, since the collective debt restructuring across Latin American countries was mainly conducted in short-term instruments, outstanding debt obligations rose to 1= 14% of reserves by the summer of 2002 (Arista 28). As Stiglitz argues, this short-term lending “exports” the risk associated with lending to the borrowing country by effectively allowing for the recall (net outflows = of capital) at the first sign of economic instability (237). Furthermore, the debt-to-service ratio placed downward pressure on domestic currency, result= ing in local inflation and compounding capital outflows. The 2002 presidential elections in Brazil and the impending Iraq war created additional uncertain= ty in currency markets. By 2002, Argentina defaulted on its massive debt and t= he Latin American currencies fell dramatically against the dollar. The lasting effects continue to be evident in Latin America as the resulting currency crisis smashed any hope of sustainable growth or reasonable inflation expectations (Arista 26-30). The debt service of Latin American countries to public credit institutions, including the World Bank, resulted in a disheartening 0% per capita GDP growth rate between 1997 and 2002 (Ocampo as citied in Arista 30). There is little doubt that there can be much GDP grow= th when net capital movement is negative, as was the case when the Latin Ameri= can MICs tried to service their dollar or euro-denominated debt with their relatively worthless currency. The case of Latin America demonstrates how most of the development risk was placed squarely on the shoulders of the citizens and governments in borrowing countries. Crisis after crisis has, and will continue, to retard economic growth in the region until the developed countries decide to share in the risk (as well as the rewards) of economic prosperity. Taken at face value, the premise of World = Bank loans, particularly through the IBRD, look very promising in its endeavor to “[reduce] global poverty… and improve… living standards&#= 8221; (About Us 2007). However, polic= ies in practice prove to be antithetical to the World Bank’s altruistic aim,= and demonstrate the potential to create and prolong economic crises.<o:p></o:p>= <o:p> </o:p> Policy Concerns<o:p></o:p> <o:p> </o:p> Since loans are denominated in dollars or eur= os, the main risk countries bear when borrowing through the World Bank is curre= ncy fluctuation. This currency fluctuation risk has real consequences that ultimately keep Latin America and other countries impoverished. Borrowers, = like the Latin American countries in the late 1990s, are subject to a devaluatio= n of their currency in relation to the currency in which the loan is to be repai= d. There is research that indicates loans made to MICs with “good democracies” produce outcomes that are much more positive than the La= tin America example above (Butkiewicz, & Yanikkaya 379). Here, capital infl= ows by way of IDA aid or a loan from the IBRD seem to correlate to GDP growth o= nly in as much as the economic and monetary policies of the borrowing nation-st= ates are sound (Butkiewicz, & Yanikkaya 378-383). Governments having sound policies generally enjoy rule of law, open economies, stable “general fund” accounts, and low inflation. As such, these countries are presumably better able to service their debt. More importantly, the capital= inflows are more likely to make their way to needed infrastructure, education, and healthcare needs. In recent years, t= he World Bank has made their loans conditional with the aim of promoting democratic political systems. This could have two counterproductive results= . First, imposing external conditions on a country has the potential to weaken its political institutions and can impede democratization, as the borrowing country’s citizens may perceive its government as “giving into international institutions… run by the U. S.” (Stiglitz 12). In cases where a country’s citizens feel betrayed by their government, citizens and the members of government could be discouraged from working together to establish policies, especially economic ones, that enjoy widesp= read support. The World Bank has no real post-loan policing abilities in any cas= e. As such, there is little evidence that loan policy conditions have any actu= al impact on the development outcomes themselves (Dollar & Stevens as cite= d in Bird & Rowlands 88). This means that the sources of power for influenci= ng policy reforms lies not with the World Bank, but with the country whose monetary denomination the loan is made in. Currency adjustments in the Gene= ral Account appear to wield greater influence over policy reforms in borrowing nations (Bird & Rowlands 87-89).<o:p></o:p> Second, as evidenc= ed by the failure of the Washington Consensus, enforcing economic policies that work for developed countries prove disastrous for developing ones. Many developing countries thought (or were told) that adopting the Washington Consensus would somehow make themselves appear more investment or credit-wo= rthy in world markets, thus attracting FDI. This was just not the case. Some research has shown that adoption of the loan conditions have little if any = impact on FDI, and in some cases there is evidence to suggest that World Bank lend= ing actually deters FDI (Bird, & Rowlands 98).<o:p></o:p> <h2>Applying CST= <o:p></o:p></h2> A survey of World = Bank lending practices to Latin America over the last decade exposes some of the ways in which developed countries do in fact exploit developing countries u= nder the auspice of “global poverty reduction” (About Us 2007). These words rang empty during the lost decade a= nd in 2002 when the Latin American countries needed capital inflows to stabili= ze their economy. Instead, the developed countries, operating through the World Bank, retracted capital and let the borrowing countries default, which furt= her compounded the problem. Certainly, it is reasonable to have some moral expectation for developed countries to cease exploiting other countries thr= ough the World Bank. It also seems reasonable to construct World Bank policies t= hat are congruent with its mission. CST offers just such a moral critique by as= king the question, in the economic relationships facilitated by the World Bank, = is the common good served through an equitable distribution of burdens and benefits? As this essay has proven thus far, the answer is definitively no.= <o:p></o:p> As evidenced by lending to Latin America, the World Bank (and thereby its members) does not share equally in the burdens of development in the global economy on at lea= st three accounts. First, in the interest of its developed members, the World = Bank denominates loans in dollars or euros to protect the lenders from currency fluctuations and regional politics. Secondly, policies such as the Washingt= on Consensus protect investors and private lenders by allowing them to withdraw their capital at the first sign of economic instability. Thirdly, lenders profit from short-term and cyclical lending that provides economic rewards = in times of economic growth, but exposes the borrowing nation to instability a= nd subsequent net outflows precisely at the time when inflows are most needed.= <o:p></o:p> In these ways, World Bank lending practices a= re at least partially predatory. That is, instead of lifting up developing countr= ies so all member of the global community can enjoy the fruits of economic prosperity, these loans serve to suppress economic growth for those who nee= d it most. And, while the dollar was affected slightly by the currency fluctuati= ons in the Latin American example, the brunt of the burden is left on the borro= wing region. The 0% GDP growth resulting from net capital outflows to service the dollar-denominated debt is disharmonious with CST. The idea of solidarity in SRS calls us to make sacrifices for the good of the global community (SRS 4= 5). While there is a great responsibility for poorer nation-states to adopt policies that give their citizenry an opportunity to partake in the wealth generated by trade, the wealthier nations have a moral responsibility to be= ar some of the burden of development in poorer countries (Galston, as cited in Gehring 3). The basic criticism leveled against globalization is that it excludes the participation of the majority of the global community (Held &a= mp; McGrew, as cited in Coleman & Ryan 14). This principle was well underst= ood by Thomas Aquinas, who would benchmark the flourishing of the few to the flourishing of the entire global community (Land 65-66). The World Bank pra= ctices favor the few and privileged and require little or no sacrifice on the beha= lf of the developed nations; therefore, World Bank policies, when put into practice, do not produce human flourishing. The idea of the common good as developed through CST, particularly from a standpoint of distributive justi= ce, requires more moral responsibility than World Bank lending practices demonstrate. <o:p> </o:p> CST Ideals and Good Economic Sense: <o:p></o:p> Dollar Denominations and Interdependence<o:p></o:p> <o:p> </o:p> In addition to usi= ng CST as a moral guidepost, ideals of the common good and distributive justice provide some basis for sound economic policy as well. Take, for instance, t= he example of what it might look like for the World Bank to lend money denomin= ated in pesos. Stiglitz suggests that this “sound macro-economic policy= 221; would reduce the borrowing countries’ risk because it would lead to l= ow inflation and more consistent exchange rates (237). Certainly lenders would have a more vested interest in the success of projects funded in local curr= encies. If the development project enabled participation in the global economy, then success will be directly linked to repayment as well as the stability of the international monetary system. In this way, borrowing countries’ econ= omic flourishing, and presumably general human flourishing, would truly be in the (economic) interest of all members of the World Bank. <o:p></o:p> Consider the benefits of additional markets f= or U.S. goods and services or less expensive and higher quality agrarian impor= ts. Economically, it makes sense for the U.S. to have a vested interest in the prosperity of all nations of the globe, particularly our neighbors to the south. As CST suggests, developed countries should “acknowledge fully their interdependence,” including currency exchange rates. Here the m= oral responsibility is to share the risk associated with development lending so = that MIC might achieve sustained economic growth. If currency fluctuation risk in the Latin American example was more equally shared, the U.S. might have had more of a vested interest in helping the Latin American countries succeed in their attempts to achieve sustained growth. A growing economy to the U.S.’s south has the potential to alleviate some of the immigration issues the country currently faces, to create open markets for American exports, and to provide a steady supply of low-cost imports for consumption= . <o:p></o:p> <o:p> </o:p> <h1 align=3Dleft style=3D'text-align:left'>Long-Te= rm Commitment<o:p></o:p></h1> <o:p> </o:p> Solidarity implies= a long-term commitment and a vested interest in a relationship. CST offers guidance into how our common thread as members of the human race ought to g= uide our actions and polices. This idea of solidarity and sharing in burdens and benefits suggest unifying with members of the global community for the flourishing of all. It also makes sense from an economic perspective. <o:p>= </o:p> Consider the lendi= ng that takes place on a short-term basis during periods of boom for developing countries. The World Bank and private lenders make these loans because they= are profitable. The Bank hopes to return the profits to other developing countr= ies in the way of loans or credits. The private lenders will report the profits= in their bottom line. Even if profits gained through predatory lending was mor= ally acceptable, the eventual default proves less than profitable in the long ru= n. Again, consider the Latin American example. After defaulting on their loans, Argentina, one of the major borrowing countries, was only able to repay len= ders a fraction of the original loan amount (Stiglitz 223). Had the World Bank structured the loans in a way that promoted a long-term commitment to the region, the resulting sustained growth would have been profitable for all involved. For the World Bank, it also would have been a demonstration of its members’ commitment to its mission.<o:p></o:p> <o:p> </o:p> Short-Term Cyclical Lending<o:p></o:p> <o:p> </o:p> It seems particularly obvious that solidarity in the international community would require that h= elp be provided in a time of need. Unfortunately, the global economic system and the lending practices of the World Bank run seemingly counterintuitive. The= conditionality of World Bank loan terms oftentimes requires borrowing countries to liberal= ize their markets so that capital can easily flow in and out of the country. Th= ese supposed economic integration policies (e.g., the Washington Consensus), wh= ich provide lenders the right to pull their capital at the first sign of econom= ic instability, result in what amounts to a flight of capital at the precise t= ime when capital is needed. The resulting instability in exchange rates, inflat= ion, and the economic loss to the lending institutions endangers the global econ= omic system (Wolf 32, 61). Instead, the World Bank should lend counter-cyclically, not only because it would provide resources= to people in desperate need, but because it is sound economic policy that will perpetuate stability in the global economy (Stiglitz 236).<o:p></o:p> The idea of shared bur= dens and benefits for the pursuit of the common good suggest that it is the lend= ers, rather than the borrowing nations, who need policy reform. As Stiglitz argues, oftentimes def= ault is not the result of poor economic policies in borrowing countries, but rat= her a failure of markets to share in the risk (231-244). Though not based in economic theory, CST offers relevant guidance on moral responsibilities in = the economic sphere. These moral responsibilities are both market friendly and congruent with sound economic policy. It seems easy for members of the World Bank from developed nations to point the finger outward and not take responsibility for all the human suffering that exists. However, policies in practice matter. The reality is that the World Bank and its wealthy nation members have more power than they care to exercise. <o:p></o:p> <h2>Conclusion<o= :p></o:p></h2> In conclusion, the globalization debate is often marked by contention over how globalization impacts the global community. There is much evidence to suggest that countr= ies that participate in globalization, on the whole, enjoy increased GDP rates = per capita, more primary education, and more rule of law then their less global= ized counterparts. There is little doubt that globalization and the free market system have enormous potential to relieve human suffering and universally r= aise the global standard of living. However, those critical of globalization arg= ue that in the current power structure, developed countries repress and exploit countries in order to preserve their position at the top. These critics are= not necessarily anti-globalization, but they are certainly anti-human suffering= at the hands of wealthy nation-states.<o:p></o:p> Taking Latin America a= s an example, this essay has argued that one starting place to evaluate the phenomena of globalization is to look at World Bank lending practices. Developed nations set the agenda and polices of the World Bank and thus the development scheme in the global economy. By crafting policies, trade agreements, and loan terms that are favorable to them, members of the World Bank from developed countries do not meet reasonable moral standards sugges= ted by CST.<o:p></o:p> CST offers moral guida= nce grounded in centuries of experience of the Catholic Church in human development. The basic theme in CST is the idea of the common good. Since t= he World Bank is chartered for the purpose of the common global good, CST seems particularly relevant for a moral analysis. Using some historical roots of = CST and more recent papal encyclicals, we see that the idea of equal distributi= ons of burdens and benefits associated with being members of the global communi= ty is morally binding. Advancing this idea of moral responsibility, solidarity calls upon nations to acknowledge their interdependence and to make sacrifi= ces for the common good. Having CST as a frame of reference, one can ask the question—how do World Bank lending practices stand up?<o:p></o:p></sp= an> The World Bank is made= up of five institutions and in recent years has claimed to serve the purpose of “global poverty reduction and improve[ing] living standards” (About Us 2007). Its activities on = the world markets, designed to raise funds for MICs, give the Bank the capital = it needs to make loans with favorable terms to countries that otherwise would = not receive enough FDI to sustain development. However, in practice, lending te= rms favor the developed nations more than the developing ones. As was the case = with the Latin American example, the World Bank forces policies like the Washing= ton Consensus upon poorer countries, which exposes them to volatility that their fledgling economies cannot handle. Additionally, loans denominated in dolla= rs and euros expose the borrowing regions to major currency fluctuation risk. These lending practices oftentimes result in developed countries and their banks extracting their capital unharmed while the borrowing countries are l= eft to default on their debt, or worse use large percentages of the their GDP to service loans. This is often money that could be used to invest in infrastructure, education, health, and other public goods needed for development.<o:p></o:p> Applying the basic pri= nciple of the common good taught by CST to this case analysis suggests that World = Bank lending practices are immoral. Developed countries have a responsibility to share equally in the burdens of development lending. On all accounts discus= sed in this essay, developed countries do not share in any of the burdens becau= se they do not share any of the risk. Denominating loans in dollars, lending f= or the short-term, and withdrawing capital in times of crisis, leaves many poo= rer nations left to suffer. CST’s morality is not so pious as to be unattainable. Rather, the moral responsibility that CST proposes is also gr= ounded in sound economic policy. Sharing risk has the potential to create sustaina= ble growth for the world’s population. This, in turn, will create more pu= blic goods, more consumable goods, and more markets for exports. Most importantl= y, it would fulfill the wealthy nations’ moral obligation to the global community by providing the poorer nations with an opportunity to share in t= he benefits of globalization.<o:p></o:p> <o:p> </o:p></spa= n> <o:p> </o:p></spa= n> <o:p> </o:p></spa= n> Works Cited<o:p></o:p> <o:p> </o:p></spa= n> About Us. The World Bank Web site. Oct. 2007 <http://www.worldbank.org>.<o:p></= o:p> <o:p> </o:p> Arista, J. D. “M= oving Beyond the Washington Consensus.” Int’l Journal of Political Economy 32.4 (2002-2003): 22-34.<o:p></o:p> <o:p> </o:p> Bird, G. & Rowland= s, D. “World Bank Lending and Other Financial Flows: Is There a Connection?” The Journal of Development Studies 37.5 (2001): 83-103.<o:p></o:p> <o:p> </o:p></spa= n> Butkiewicz, J. L. & Yanikkaya, H. “The Effects Of IMF And World Bank <o:p></o:p></= p> Lending On Long-Run Ec= onomic Growth: An Empirical Analysis.” World Development 33.3 (2005): 371-391.<o:p></o:p> <o:p> </o:p></spa= n> Centesimus-annus. 5 January 1991. Encyclical. John Paul II. Vatican website. 27 Nov. 2007 <http://www.vatican.va>.<o:p></o:p> <o:p> </o:p> Coleman, J. A. & Ryan, W. F., eds. Globalization and Catholic Social <o:p></o= :p> Thought: Present Crisi= s, Future Hope. Ottawa, Canada: Novalis, 2005.<o:p></o:p> <o:p> </o:p></spa= n> Contributions to the 14th Replenishment. The World Bank website.<o:p></o:p><= /p> Oct. 2007 <http://w= ww.worldbank.org>.<o:p></o:p> <o:p> </o:p></spa= n> Gehring, V. V., ed. <u= >The Ethical Dimensions Of Global Development.<o:p></o:p> New York: Rowman = & Littlefield Publishers, 2007.<o:p></o:p> <o:p> </o:p> International Development Association= . The World Bank website.<o:p></o:p> Oct. 2007 <http://www.worldbank.org>.<o:p></o:p> <o:p> </o:p> Land, P. S. Catholic Social Teaching: As I Have Lived, Loathed, and Love It</u= >. Chicago, IL: Loyola University Press, 1994.<o:p></o:p> <o:p> </o:p> McCann, D. P. “Catholic Social Teaching In An Era Of Economic Globalization:A Resou= rce For Business Ethics.” Business Ethics Quarterly 7.2 (1997): 57= -70.<o:p></o:p> <o:p> </o:p></spa= n> Novak, M. The Catholic= Ethic and the Spirit of Capitalism. New York: The Free Press, 1993.<o:p></o:p></s= pan> <o:p>&nb= sp;</o:p> Projects & Operations: Middle Income Countries. The World Bank websi= te. <o:p></o:p> Oct. 2007 <http://www.worldbank.org&g= t;.<o:p></o:p> <o:p> </o:p></spa= n> Rowntree, S. C. “= ;The Ethics of Trade Policy in Catholic Political Economy.” <o:p></o:p></s= pan> T= heological Studies 65 (2004): 596-622.<o:p></o:p> <o:p> </o:p> Singer, P. One world: The ethics of globalization. 2nd ed. New Haven, CT: <o:p></o:p> Yale University Press, 2002.<o:p></o:p> <o:p> </o:p> Sollicitudo-rei-socialis.<= span style=3D'font-size:14.0pt;mso-bidi-font-size:10.0pt;font-family:"Times New = Roman"'> 30 December 1987. Encyclical. John Paul II. Vatican website. 27 Nov. 2007 <http://www.vatican.va>.<o:p></o:p> <o:p> </o:p> Stiglitz, J. E. Mak= ing Globalization Work. New York, NY: W. W. Norton & Co., 2007.<o:p></o= :p> <o:p> </o:p></spa= n> Wolf, M.= Why Globalization Works. New Haven, CT: Yale University Press, 2004.<o:p></= o:p> <o:p> </o:p> </div> </body> </html> ------=_NextPart_01C8A6E7.8E471B20 Content-Location: file:///C:/06899145/perunon-linewebpage_files/header.htm Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii" <html xmlns:v=3D"urn:schemas-microsoft-com:vml" xmlns:o=3D"urn:schemas-microsoft-com:office:office" xmlns:w=3D"urn:schemas-microsoft-com:office:word" xmlns=3D"http://www.w3.org/TR/REC-html40"> <head> <meta http-equiv=3DContent-Type content=3D"text/html; charset=3Dus-ascii"> <meta name=3DProgId content=3DWord.Document> <meta name=3DGenerator content=3D"Microsoft Word 11"> <meta name=3DOriginator content=3D"Microsoft Word 11"> <link id=3DMain-File rel=3DMain-File href=3D"../perunon-linewebpage.htm"> <![if IE]> <base href=3D"file:///C:\06899145\perunon-linewebpage_files\header.htm" id=3D"webarch_temp_base_tag"> <![endif]> </head> <body lang=3DEN-US vlink=3Dpurple> <div style=3D'mso-element:footnote-separator' id=3Dfs> <![if !supportFootnotes]> <hr align=3Dleft size=3D1 width=3D"33%"> <![endif]> </div> <div style=3D'mso-element:footnote-continuation-separator' id=3Dfcs> <![if !supportFootnotes]> <hr align=3Dleft size=3D1> <![endif]> </div> <div style=3D'mso-element:endnote-separator' id=3Des> <![if !supportFootnotes]> <hr align=3Dleft size=3D1 width=3D"33%"> <![endif]> </div> <div style=3D'mso-element:endnote-continuation-separator' id=3Decs> <![if !supportFootnotes]> <hr align=3Dleft size=3D1> <![endif]> </div> <div style=3D'mso-element:header' id=3Deh1> Stefan Perun </div> <div style=3D'mso-element:header' id=3Dh1> World Bank Le= nding </div> <div style=3D'mso-element:footer' id=3Def1> <div style=3D'mso-element:frame;mso-element-wrap:around;mso-element-anchor-= vertical: paragraph;mso-element-anchor-horizontal:margin;mso-element-left:outside; mso-element-top:.05pt;mso-height-rule:exactly'> <table cellspacing=3D0 cellpadding=3D0 hspace=3D0 vspace=3D0 align=3Dright> <tr> <td valign=3Dtop align=3Dleft style=3D'padding-top:0in;padding-right:0in; padding-bottom:0in;padding-left:0in'> <p class=3DMsoFooter style=3D'mso-element:frame;mso-element-wrap:around; mso-element-anchor-vertical:paragraph;mso-element-anchor-horizontal:margi= n; mso-element-left:outside;mso-element-top:.05pt;mso-height-rule:exactly'><= !--[if supportFields]>PAGE <![endif]-->14<o:p></o:p> </td> </tr> </table> </div> <o:p>&n= bsp;</o:p> </div> <div style=3D'mso-element:footer' id=3Df1> <div style=3D'mso-element:frame;mso-element-wrap:around;mso-element-anchor-= vertical: paragraph;mso-element-anchor-horizontal:margin;mso-element-left:outside; mso-element-top:.05pt;mso-height-rule:exactly'> <table cellspacing=3D0 cellpadding=3D0 hspace=3D0 vspace=3D0 align=3Dright> <tr> <td valign=3Dtop align=3Dleft style=3D'padding-top:0in;padding-right:0in; padding-bottom:0in;padding-left:0in'> <p class=3DMsoFooter style=3D'mso-element:frame;mso-element-wrap:around; mso-element-anchor-vertical:paragraph;mso-element-anchor-horizontal:margi= n; mso-element-left:outside;mso-element-top:.05pt;mso-height-rule:exactly'><= !--[if supportFields]>PAGE <![endif]-->15<o:p></o:p> </td> </tr> </table> </div> <o:p>&n= bsp;</o:p> </div> </body> </html> ------=_NextPart_01C8A6E7.8E471B20 Content-Location: file:///C:/06899145/perunon-linewebpage_files/filelist.xml Content-Transfer-Encoding: quoted-printable Content-Type: text/xml; charset="utf-8" <xml xmlns:o=3D"urn:schemas-microsoft-com:office:office"> <o:MainFile HRef=3D"../perunon-linewebpage.htm"/> <o:File HRef=3D"header.htm"/> <o:File HRef=3D"filelist.xml"/> </xml> ------=_NextPart

MIME-Version: 1.0 Content-Type: multipart/related; boundary="----=_NextPart_01C8A6E7.8E471B20" This document is a Single File Web Page, also known as a Web Archive file. If you are seeing this message, your browser or editor doesn't support Web Archive files. Please download a browser that supports Web Archive, such as Microsoft Internet Explorer. ------=_NextPart_01C8A6E7.8E471B20 Content-Location: file:///C:/06899145/perunon-linewebpage.htm Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii" World Bank Lending: A Catholic Social Teaching’s Perspective</= title>  <style>  </style>  </head> <body lang=3DEN-US vlink=3Dpurple style=3D'tab-interval:.5in'> <div class=3DSection1> World Bank Lending: A Catholic Social Teaching̵= 7;s Perspective <o:p> </o:p> <h5>Stefan A. Perun</h5> <h6>Liberal Studies</h6> <o:p> </o:p> Introduction<o:p></o:p> <o:p> </o:p> Catholic Social Teaching (CST), which frames morality in terms of promoting the common good, offers moral guidance on a wide range of issues. One such issue is developm= ent in the global economy. By its own account, the World Bank plays an important role in facilitating global economic development for the global good (About Us, 2007). As such, CST prov= ides a lens through which one can evaluate both the morality and effectiveness of World Bank lending practices. After evaluating the empirical results of Wor= ld Bank lending to Latin American countries during the 1990s by the standards established by CST, this essay argues that World Bank lending practices are immoral. Additionally, it is argued that sound economic policies are actual= ly congruent with a moral approach to= World Bank lending. In addition, I argue that CST offers an opportunity to bring about both human flourishing and sound economic policy for the benefit of t= he entire global community.<o:p></o:p>= <o:p></o:p> <h2>The Globaliz= ation Debate<o:p></o:p></h2> There is much deba= te in the public arena about whether or not globalization is a beneficial phenomenon, particularly for emerging economies. The scope of the phenomenon called globalization makes it difficult to assess outcomes from either subjective or empirical points of view with precision. Many current argumen= ts in the globalization debate would at least acknowledge that globalization h= as the potential to impact the glo= bal community in very positive ways. One such piece of research is the socioeconomic matrix reporting on 1997 outcomes of globalization among poor nations (World Bank as cited in Wolf 143). After controlling for population differences, the results suggest that more globalized countries were better developed then their less globalized counterparts, based on indicators such= as Gross Domestic Product (GDP), growth rate per capita, primary education, and rule of law. Additionally, some rise in the overall life expectancy and a reduction in global malnourishment has been an effect of globalization (Sin= ger 85-87). The enormous potential benefit of globalization to universally incr= ease the standard of living seems to outweigh the costs. Based on the empirical evidence of improved economic conditions throughout the world, particularly= in countries like China and India, it seems possible for countries to “t= ake advantage of globalization, without being taken advantage of by globalization” (Stiglitz 23-43). <o:p></o:p> However, many of t= hese same arguments are also critical of the ways in which developed countries exercise an upper hand in deciding the terms of globalization, particularly in negotiating multinational trade arrangeme= nts. In addition, some argue more generally that globalization exploits workers = in poorer countries, while richer countries capitalize on the resulting human suffering (Daly as cited in Gehring 73-80). At the heart of such arguments = is the critique that wealthy countries continue to repress the exploited count= ries in order to maintain a favorable power balance. Rather than engage in dichotomous debate—i.e., one that seeks to defend a strictly pro- or anti-globalization stance—a more meaningful approach is to assess globalization based on its effects in the global community.<o:p></o:p></spa= n> How is one to disc= ern the impact of policies of nation-states, international trade organizations, international courts of law, and treaties between countries that facilitate globalization? I argue that evaluating empirical evidence resulting from pr= evious multilateral loan arrangements through the World Bank is one place to start. The numbers and outcomes of loans made to Latin American countries during t= he early 1990s and the regions’ 0% GDP that ensued provides compelling evidence about the effects of World Bank lending policies in practice. In t= his case, the risk of development fell on the shoulders of the region, and curr= ency fluctuations resulted in an enormous, unpayable debt burden that stifled La= tin America’s economic growth. While western banks were bailed out of this crisis, Latin American countries were left to sort out the resulting defaul= ts (Stiglitz 211-244). <o:p></o:p> Unfortunately, the case of Latin America (evaluated in detail below) is not the exception. Eas= tern Europe’s poverty grew ten-fold in the years after the fall of communi= sm as World Bank policies acted to “ease” the transition to capita= lism (Stiglitz 39). In another example, debt from World Bank lending, coupled wi= th poor regulatory oversight, doubled Africa’s poverty over the last twe= nty years, while Western investors have extracted many of the region’s abundant natural resources (Stiglitz 41). The empirical evidence speaks for itself. As this essay will explore, the structure of World Bank lending practices are economically and morally amiss. Certainly there must be some moral obligation for the wealthy nations to not only enjoy the economic and material rewards of growth in developing countries, but also to bear some risk associated with the= ir development.<o:p></o:p> <o:p> </o:p><= /span> Catholic Social Teaching<o:p></o:p> <o:p> </o:p> There are many too= ls one could use to evaluate World Bank lending practices. For instance, one m= ight rely solely on rationality, a certain religious tradition, a particular philosophy of ethics, or even popular opinion. It seems most reasonable to = use a tool that combines elements of each. CST draws on a rich intellectual tradition, the experience of the Catholic Church, and standing traditions. = More specifically, using CST offers a rich tradition informed by centuries of the Catholic Church’s work toward “humanization” (Verstraeten= as cited in Coleman & Ryan 28). Utilizing a dogma from one religious tradi= tion may be perceived as problematic. However, CST offers, particularly through papal encyclicals, ideals of moral responsibility that are relevant to unde= rstanding the moral responsibility of richer nations to poorer ones.<o:p></o:p></span= > Despite its complexity, the basic theme of CST is the promotion of the common good. The “common good” refers to the ability of all in a community to ha= ve the necessary conditions to “perfect their humanity,” or condit= ions that provide for “human flourishing” (Land 64; Rowntree 596). T= he common good from a CST perspective is nuanced. It could be argued that at i= ts roots lies Aristotle’s idea of law-abidingness, or the collective of = all virtues necessary for a moral life (Novak 69). Aristotle referred to this as legal justice. Aquinas, who saw law-abidingness as a “general justice,” or social justice, believed that this was a virtue in and of itself, thereby advancing Aristotle’s idea of legal justice. Aquinas reasoned that it was the common good that supported the good of individuals (Novak 70; Land 65). Accordingly, drawing on the Biblical tradition, CST ha= s a strong bias in favor of the poor (Coleman & Ryan 17). As such, the comm= on good does not favor one or a few privileged groups (Land 65-66). <o:p></o:p> Modern CST has it roots in the encyclical tradition founded in 1891 by Pope Leo XIII (Coleman & Ryan 15; McCann 57). The first papal encyclical, Rerum Novarum, contained guidance on international trade and affirmed the natural right to private property. In 1991, Pope John Paul II issued Centesimus Annus (CA) celebrating one-hundred years since the first papal encyclical. In it the P= ope writes, “…the free mark= et is the most efficient instrument for utilizing resources and effectively responding to needs” (CA 34). More importantly, CA explains that there are many people who are not able to participate in the free market because = of inequality between countries, and thus stronger nations have a moral respon= sibility “…to provide all individuals and nations with the basic conditi= ons which will enable them to share in development” (CA 35). <o:p></o:p><= /span> This idea of “distributive justice̶= 1; as a morally binding principle supports the common good by asserting that God’s intention for every human is to be given the conditions to flou= rish (Rowntree 598; Colman & Ryan 17-18). Advancing the idea further, the encyclical Sollicitudo Rei Socialis= (SRS) defines this moral binding to distributive justice as a virtue, as solidarity. Solidarity as a “virtue” calls for developed countr= ies to fully acknowledge their relationship of interdependence with developing ones, and also asserts that developed countries have a moral responsibility= to enable developing countries to share in the benefits of development (SRS 38= ). SRS suggests that this solidarity “demands… sacrifices necessary for the good of the whole world community” (SRS 45). These sacrifices= in solidarity are what Coleman and Ryan would refer to as the “fair allocation of burdens and benefits in society, [which] guarantees [that] parties… have relatively equal weight as moral agents” (Coleman & Ryan 17). An evaluation of lending practices, analyzed through the lens of CST’s concept of the common good in general and of distributive justice in particular, would dic= tate that the World Bank lending practices must seek the common good through relati= vely equal sharing of burdens as well as benefits among bargaining parties. = The members of the World Bank have a moral duty, according to CST, to share risk associated with development lending.<o:p></o:p> <h2>World Bank<o= :p></o:p></h2> The World Bank was founded in 1944 in New England for the purpose of post-World War II reconstruction. In recent decades, the World Bank has shifted its mission to “…global poverty reduction and improve[ment] of living standards…” (About Us</= i> 2007). The World Bank is comprised of five separate institutions. They are = the International Finance Corporation (IFC), the Multilateral Investment Guaran= tee Agency (MIGA), the International Centre for Settlement of Investment Disput= es (ICSID), the International Bank for Reconstruction and Development (IBRD), = and the International Development Association (IDA). The primary two development institutions are the IBRD and the IDA.<o:p></o:p> The IBRD works solely with middle-income coun= tries (MICs). These countries account for a little under half of the world’s population and represent 70% of people living on less then two dollars per = day (Projects & Operations 2007). According to the World Bank, the IBRD see= ks to meet the unique needs of MICs by raising capital in the world markets and making loans with favorable terms. The World Bank states that MICs are important in the global community because of their ability (or inability) to “provide global public goods such as clean energy, trade integration, environmental protection, international financial stability, and the fight against communicable diseases” (Projects & Operations 2007). As such, the work = of the IBRD is to provide needed financing for infrastructure and other societ= al needs, such as education and healthcare (Projects & Operations 2007). The World Bank claims that the IBRD plays an important role in developing MICs because favorable loan terms facilitate access to capital. Without this developmental institution, MICs would be fo= rced to borrow on world markets, which are subject to various credit-worthiness requirements, fluctuations in repayment terms, and interest rates. Based on various political, economic, and market conditions, MICs may not otherwise = have access to needed funding.<o:p></o:p> The other major development institution of the World Bank, the IDA, stands in contrast to t= he IBRD by focusing on the world’s poorest countries. These countries are defined as those with a Gross National Income (GNI) per capita of $1,065 or less per year (IDA 2007). Primary concerns in these countries are access to clean water, basic healthcare, and basic education. Funding makes its way to these destitute countries through grants or interest-free loans, called credits. The repayment terms of these loans are often spread over thirty-fi= ve or forty years with an initial ten-year grace period (IDA 2007). The money = used in these societal investment projects comes from donor nations such as the United States, the United Kingdom, Japan, Germany, France, Sweden, Italy and Canada. These and other countries contributed $33 billion in 2005 to the IDA (for a complete list of donors and amounts, see Contributions to the 14th Replenishment 2007).<o:p><= /o:p> <h2>IBRD Lending Practices: An Empirical Look<o:p></o:p></h2> The essential prac= tice of the IBRD is to raise capital in the world markets and to make loans to M= ICs for the purpose of funding public goods including infrastructure, energy, education, and healthcare. These public goods allow the borrowing nation to better participate in the global economy by providing the basic conditions necessary to produce goods and to trade with other nations. Monies used to build roads and the like are supposed to provide necessary conditions to ex= pand GDP growth, primarily through an increase in exported commodities, goods, a= nd to a lesser extent, services. It would not be reasonable to expect lending outcomes to always be ideal or the aims to be achieved perfectly. It is true that IBRD lending has the potential to successfully provide the necessary infrastructure to participate in the global economy (Wolf xii-xv). However, IBRD loans can also frustrate development. This is particularly true when l= oans by the World Bank are lent in dollar or euro denominations.<o:p></o:p></spa= n> Countries who are major “donors” to the World Bank also set the policies for lend= ing programs. From 1984 to 1993, debt service payments from Latin American countries to developed lending nations totaled $116 billion in net outflows, resulting in a dismal annual economic growth of less than one percent (Aris= ta 30). Known as the “lost decade,” the effects of this ten-year period on the world economy prompted a closer look at international lending policies (Arista 27). Policy makers from the World Bank, along with representatives from ten Latin American countries, met in Washington, D.C.,= to develop policies that would provide sustainable capital inflows for development. The so-called Washington Consensus was structured to ease capi= tal flow restrictions with the idea that rapid privatization was the best way to facilitate development (Stiglitz 17). Unfortunately, the adoption of the Washington Consensus policies did not result in mass inflows of capital from private investors into the region. Instead, it exposed Latin American count= ries to volatility in global capital markets. <o:p></o:p> One such example of exposure occurred during = the East Asia crisis in 1997, when investors panicked to extract capital out of= the region due to potentially threatening currency fluctuations (Stiglitz 34). = The capital contraction in East Asia forced interest rates to rise throughout t= he global economy. Argentina’s exposure to dollar-denominated debt payme= nts in the context of rising interest rates increased their debt payments by al= most 50% (Stiglitz 221). This happened to coincide with favorable shorter-term lending practices, which encouraged Latin American countries to borrow, effectively restructuring their external debt obligations (Arista 26). The favorable lending terms resulted in Intergovernmental Organizations (IGO), = lead by the World Bank, to make loans accounting for 81% of the region’s n= et capital inflows (Arista 26). Unlike the other 19% of inflows from foreign direct investment (FDI), these loans issued by public sector creditors plac= ed the bulk of the development risk on the borrower. Moreover, since the collective debt restructuring across Latin American countries was mainly conducted in short-term instruments, outstanding debt obligations rose to 1= 14% of reserves by the summer of 2002 (Arista 28). As Stiglitz argues, this short-term lending “exports” the risk associated with lending to the borrowing country by effectively allowing for the recall (net outflows = of capital) at the first sign of economic instability (237). Furthermore, the debt-to-service ratio placed downward pressure on domestic currency, result= ing in local inflation and compounding capital outflows. The 2002 presidential elections in Brazil and the impending Iraq war created additional uncertain= ty in currency markets. By 2002, Argentina defaulted on its massive debt and t= he Latin American currencies fell dramatically against the dollar. The lasting effects continue to be evident in Latin America as the resulting currency crisis smashed any hope of sustainable growth or reasonable inflation expectations (Arista 26-30). The debt service of Latin American countries to public credit institutions, including the World Bank, resulted in a disheartening 0% per capita GDP growth rate between 1997 and 2002 (Ocampo as citied in Arista 30). There is little doubt that there can be much GDP grow= th when net capital movement is negative, as was the case when the Latin Ameri= can MICs tried to service their dollar or euro-denominated debt with their relatively worthless currency. The case of Latin America demonstrates how most of the development risk was placed squarely on the shoulders of the citizens and governments in borrowing countries. Crisis after crisis has, and will continue, to retard economic growth in the region until the developed countries decide to share in the risk (as well as the rewards) of economic prosperity. Taken at face value, the premise of World = Bank loans, particularly through the IBRD, look very promising in its endeavor to “[reduce] global poverty… and improve… living standards&#= 8221; (About Us 2007). However, polic= ies in practice prove to be antithetical to the World Bank’s altruistic aim,= and demonstrate the potential to create and prolong economic crises.<o:p></o:p>= <o:p> </o:p> Policy Concerns<o:p></o:p> <o:p> </o:p> Since loans are denominated in dollars or eur= os, the main risk countries bear when borrowing through the World Bank is curre= ncy fluctuation. This currency fluctuation risk has real consequences that ultimately keep Latin America and other countries impoverished. Borrowers, = like the Latin American countries in the late 1990s, are subject to a devaluatio= n of their currency in relation to the currency in which the loan is to be repai= d. There is research that indicates loans made to MICs with “good democracies” produce outcomes that are much more positive than the La= tin America example above (Butkiewicz, & Yanikkaya 379). Here, capital infl= ows by way of IDA aid or a loan from the IBRD seem to correlate to GDP growth o= nly in as much as the economic and monetary policies of the borrowing nation-st= ates are sound (Butkiewicz, & Yanikkaya 378-383). Governments having sound policies generally enjoy rule of law, open economies, stable “general fund” accounts, and low inflation. As such, these countries are presumably better able to service their debt. More importantly, the capital= inflows are more likely to make their way to needed infrastructure, education, and healthcare needs. In recent years, t= he World Bank has made their loans conditional with the aim of promoting democratic political systems. This could have two counterproductive results= . First, imposing external conditions on a country has the potential to weaken its political institutions and can impede democratization, as the borrowing country’s citizens may perceive its government as “giving into international institutions… run by the U. S.” (Stiglitz 12). In cases where a country’s citizens feel betrayed by their government, citizens and the members of government could be discouraged from working together to establish policies, especially economic ones, that enjoy widesp= read support. The World Bank has no real post-loan policing abilities in any cas= e. As such, there is little evidence that loan policy conditions have any actu= al impact on the development outcomes themselves (Dollar & Stevens as cite= d in Bird & Rowlands 88). This means that the sources of power for influenci= ng policy reforms lies not with the World Bank, but with the country whose monetary denomination the loan is made in. Currency adjustments in the Gene= ral Account appear to wield greater influence over policy reforms in borrowing nations (Bird & Rowlands 87-89).<o:p></o:p> Second, as evidenc= ed by the failure of the Washington Consensus, enforcing economic policies that work for developed countries prove disastrous for developing ones. Many developing countries thought (or were told) that adopting the Washington Consensus would somehow make themselves appear more investment or credit-wo= rthy in world markets, thus attracting FDI. This was just not the case. Some research has shown that adoption of the loan conditions have little if any = impact on FDI, and in some cases there is evidence to suggest that World Bank lend= ing actually deters FDI (Bird, & Rowlands 98).<o:p></o:p> <h2>Applying CST= <o:p></o:p></h2> A survey of World = Bank lending practices to Latin America over the last decade exposes some of the ways in which developed countries do in fact exploit developing countries u= nder the auspice of “global poverty reduction” (About Us 2007). These words rang empty during the lost decade a= nd in 2002 when the Latin American countries needed capital inflows to stabili= ze their economy. Instead, the developed countries, operating through the World Bank, retracted capital and let the borrowing countries default, which furt= her compounded the problem. Certainly, it is reasonable to have some moral expectation for developed countries to cease exploiting other countries thr= ough the World Bank. It also seems reasonable to construct World Bank policies t= hat are congruent with its mission. CST offers just such a moral critique by as= king the question, in the economic relationships facilitated by the World Bank, = is the common good served through an equitable distribution of burdens and benefits? As this essay has proven thus far, the answer is definitively no.= <o:p></o:p> As evidenced by lending to Latin America, the World Bank (and thereby its members) does not share equally in the burdens of development in the global economy on at lea= st three accounts. First, in the interest of its developed members, the World = Bank denominates loans in dollars or euros to protect the lenders from currency fluctuations and regional politics. Secondly, policies such as the Washingt= on Consensus protect investors and private lenders by allowing them to withdraw their capital at the first sign of economic instability. Thirdly, lenders profit from short-term and cyclical lending that provides economic rewards = in times of economic growth, but exposes the borrowing nation to instability a= nd subsequent net outflows precisely at the time when inflows are most needed.= <o:p></o:p> In these ways, World Bank lending practices a= re at least partially predatory. That is, instead of lifting up developing countr= ies so all member of the global community can enjoy the fruits of economic prosperity, these loans serve to suppress economic growth for those who nee= d it most. And, while the dollar was affected slightly by the currency fluctuati= ons in the Latin American example, the brunt of the burden is left on the borro= wing region. The 0% GDP growth resulting from net capital outflows to service the dollar-denominated debt is disharmonious with CST. The idea of solidarity in SRS calls us to make sacrifices for the good of the global community (SRS 4= 5). While there is a great responsibility for poorer nation-states to adopt policies that give their citizenry an opportunity to partake in the wealth generated by trade, the wealthier nations have a moral responsibility to be= ar some of the burden of development in poorer countries (Galston, as cited in Gehring 3). The basic criticism leveled against globalization is that it excludes the participation of the majority of the global community (Held &a= mp; McGrew, as cited in Coleman & Ryan 14). This principle was well underst= ood by Thomas Aquinas, who would benchmark the flourishing of the few to the flourishing of the entire global community (Land 65-66). The World Bank pra= ctices favor the few and privileged and require little or no sacrifice on the beha= lf of the developed nations; therefore, World Bank policies, when put into practice, do not produce human flourishing. The idea of the common good as developed through CST, particularly from a standpoint of distributive justi= ce, requires more moral responsibility than World Bank lending practices demonstrate. <o:p> </o:p> CST Ideals and Good Economic Sense: <o:p></o:p> Dollar Denominations and Interdependence<o:p></o:p> <o:p> </o:p> In addition to usi= ng CST as a moral guidepost, ideals of the common good and distributive justice provide some basis for sound economic policy as well. Take, for instance, t= he example of what it might look like for the World Bank to lend money denomin= ated in pesos. Stiglitz suggests that this “sound macro-economic policy= 221; would reduce the borrowing countries’ risk because it would lead to l= ow inflation and more consistent exchange rates (237). Certainly lenders would have a more vested interest in the success of projects funded in local curr= encies. If the development project enabled participation in the global economy, then success will be directly linked to repayment as well as the stability of the international monetary system. In this way, borrowing countries’ econ= omic flourishing, and presumably general human flourishing, would truly be in the (economic) interest of all members of the World Bank. <o:p></o:p> Consider the benefits of additional markets f= or U.S. goods and services or less expensive and higher quality agrarian impor= ts. Economically, it makes sense for the U.S. to have a vested interest in the prosperity of all nations of the globe, particularly our neighbors to the south. As CST suggests, developed countries should “acknowledge fully their interdependence,” including currency exchange rates. Here the m= oral responsibility is to share the risk associated with development lending so = that MIC might achieve sustained economic growth. If currency fluctuation risk in the Latin American example was more equally shared, the U.S. might have had more of a vested interest in helping the Latin American countries succeed in their attempts to achieve sustained growth. A growing economy to the U.S.’s south has the potential to alleviate some of the immigration issues the country currently faces, to create open markets for American exports, and to provide a steady supply of low-cost imports for consumption= . <o:p></o:p> <o:p> </o:p> <h1 align=3Dleft style=3D'text-align:left'>Long-Te= rm Commitment<o:p></o:p></h1> <o:p> </o:p> Solidarity implies= a long-term commitment and a vested interest in a relationship. CST offers guidance into how our common thread as members of the human race ought to g= uide our actions and polices. This idea of solidarity and sharing in burdens and benefits suggest unifying with members of the global community for the flourishing of all. It also makes sense from an economic perspective. <o:p>= </o:p> Consider the lendi= ng that takes place on a short-term basis during periods of boom for developing countries. The World Bank and private lenders make these loans because they= are profitable. The Bank hopes to return the profits to other developing countr= ies in the way of loans or credits. The private lenders will report the profits= in their bottom line. Even if profits gained through predatory lending was mor= ally acceptable, the eventual default proves less than profitable in the long ru= n. Again, consider the Latin American example. After defaulting on their loans, Argentina, one of the major borrowing countries, was only able to repay len= ders a fraction of the original loan amount (Stiglitz 223). Had the World Bank structured the loans in a way that promoted a long-term commitment to the region, the resulting sustained growth would have been profitable for all involved. For the World Bank, it also would have been a demonstration of its members’ commitment to its mission.<o:p></o:p> <o:p> </o:p> Short-Term Cyclical Lending<o:p></o:p> <o:p> </o:p> It seems particularly obvious that solidarity in the international community would require that h= elp be provided in a time of need. Unfortunately, the global economic system and the lending practices of the World Bank run seemingly counterintuitive. The= conditionality of World Bank loan terms oftentimes requires borrowing countries to liberal= ize their markets so that capital can easily flow in and out of the country. Th= ese supposed economic integration policies (e.g., the Washington Consensus), wh= ich provide lenders the right to pull their capital at the first sign of econom= ic instability, result in what amounts to a flight of capital at the precise t= ime when capital is needed. The resulting instability in exchange rates, inflat= ion, and the economic loss to the lending institutions endangers the global econ= omic system (Wolf 32, 61). Instead, the World Bank should lend counter-cyclically, not only because it would provide resources= to people in desperate need, but because it is sound economic policy that will perpetuate stability in the global economy (Stiglitz 236).<o:p></o:p> The idea of shared bur= dens and benefits for the pursuit of the common good suggest that it is the lend= ers, rather than the borrowing nations, who need policy reform. As Stiglitz argues, oftentimes def= ault is not the result of poor economic policies in borrowing countries, but rat= her a failure of markets to share in the risk (231-244). Though not based in economic theory, CST offers relevant guidance on moral responsibilities in = the economic sphere. These moral responsibilities are both market friendly and congruent with sound economic policy. It seems easy for members of the World Bank from developed nations to point the finger outward and not take responsibility for all the human suffering that exists. However, policies in practice matter. The reality is that the World Bank and its wealthy nation members have more power than they care to exercise. <o:p></o:p> <h2>Conclusion<o= :p></o:p></h2> In conclusion, the globalization debate is often marked by contention over how globalization impacts the global community. There is much evidence to suggest that countr= ies that participate in globalization, on the whole, enjoy increased GDP rates = per capita, more primary education, and more rule of law then their less global= ized counterparts. There is little doubt that globalization and the free market system have enormous potential to relieve human suffering and universally r= aise the global standard of living. However, those critical of globalization arg= ue that in the current power structure, developed countries repress and exploit countries in order to preserve their position at the top. These critics are= not necessarily anti-globalization, but they are certainly anti-human suffering= at the hands of wealthy nation-states.<o:p></o:p> Taking Latin America a= s an example, this essay has argued that one starting place to evaluate the phenomena of globalization is to look at World Bank lending practices. Developed nations set the agenda and polices of the World Bank and thus the development scheme in the global economy. By crafting policies, trade agreements, and loan terms that are favorable to them, members of the World Bank from developed countries do not meet reasonable moral standards sugges= ted by CST.<o:p></o:p> CST offers moral guida= nce grounded in centuries of experience of the Catholic Church in human development. The basic theme in CST is the idea of the common good. Since t= he World Bank is chartered for the purpose of the common global good, CST seems particularly relevant for a moral analysis. Using some historical roots of = CST and more recent papal encyclicals, we see that the idea of equal distributi= ons of burdens and benefits associated with being members of the global communi= ty is morally binding. Advancing this idea of moral responsibility, solidarity calls upon nations to acknowledge their interdependence and to make sacrifi= ces for the common good. Having CST as a frame of reference, one can ask the question—how do World Bank lending practices stand up?<o:p></o:p></sp= an> The World Bank is made= up of five institutions and in recent years has claimed to serve the purpose of “global poverty reduction and improve[ing] living standards” (About Us 2007). Its activities on = the world markets, designed to raise funds for MICs, give the Bank the capital = it needs to make loans with favorable terms to countries that otherwise would = not receive enough FDI to sustain development. However, in practice, lending te= rms favor the developed nations more than the developing ones. As was the case = with the Latin American example, the World Bank forces policies like the Washing= ton Consensus upon poorer countries, which exposes them to volatility that their fledgling economies cannot handle. Additionally, loans denominated in dolla= rs and euros expose the borrowing regions to major currency fluctuation risk. These lending practices oftentimes result in developed countries and their banks extracting their capital unharmed while the borrowing countries are l= eft to default on their debt, or worse use large percentages of the their GDP to service loans. This is often money that could be used to invest in infrastructure, education, health, and other public goods needed for development.<o:p></o:p> Applying the basic pri= nciple of the common good taught by CST to this case analysis suggests that World = Bank lending practices are immoral. Developed countries have a responsibility to share equally in the burdens of development lending. On all accounts discus= sed in this essay, developed countries do not share in any of the burdens becau= se they do not share any of the risk. Denominating loans in dollars, lending f= or the short-term, and withdrawing capital in times of crisis, leaves many poo= rer nations left to suffer. CST’s morality is not so pious as to be unattainable. Rather, the moral responsibility that CST proposes is also gr= ounded in sound economic policy. Sharing risk has the potential to create sustaina= ble growth for the world’s population. This, in turn, will create more pu= blic goods, more consumable goods, and more markets for exports. Most importantl= y, it would fulfill the wealthy nations’ moral obligation to the global community by providing the poorer nations with an opportunity to share in t= he benefits of globalization.<o:p></o:p> <o:p> </o:p></spa= n> <o:p> </o:p></spa= n> <o:p> </o:p></spa= n> Works Cited<o:p></o:p> <o:p> </o:p></spa= n> About Us. The World Bank Web site. Oct. 2007 <http://www.worldbank.org>.<o:p></= o:p> <o:p> </o:p> Arista, J. D. “M= oving Beyond the Washington Consensus.” Int’l Journal of Political Economy 32.4 (2002-2003): 22-34.<o:p></o:p> <o:p> </o:p> Bird, G. & Rowland= s, D. “World Bank Lending and Other Financial Flows: Is There a Connection?” The Journal of Development Studies 37.5 (2001): 83-103.<o:p></o:p> <o:p> </o:p></spa= n> Butkiewicz, J. L. & Yanikkaya, H. “The Effects Of IMF And World Bank <o:p></o:p></= p> Lending On Long-Run Ec= onomic Growth: An Empirical Analysis.” World Development 33.3 (2005): 371-391.<o:p></o:p> <o:p> </o:p></spa= n> Centesimus-annus. 5 January 1991. Encyclical. John Paul II. Vatican website. 27 Nov. 2007 <http://www.vatican.va>.<o:p></o:p> <o:p> </o:p> Coleman, J. A. & Ryan, W. F., eds. Globalization and Catholic Social <o:p></o= :p> Thought: Present Crisi= s, Future Hope. Ottawa, Canada: Novalis, 2005.<o:p></o:p> <o:p> </o:p></spa= n> Contributions to the 14th Replenishment. The World Bank website.<o:p></o:p><= /p> Oct. 2007 <http://w= ww.worldbank.org>.<o:p></o:p> <o:p> </o:p></spa= n> Gehring, V. V., ed. <u= >The Ethical Dimensions Of Global Development.<o:p></o:p> New York: Rowman = & Littlefield Publishers, 2007.<o:p></o:p> <o:p> </o:p> International Development Association= . The World Bank website.<o:p></o:p> Oct. 2007 <http://www.worldbank.org>.<o:p></o:p> <o:p> </o:p> Land, P. S. Catholic Social Teaching: As I Have Lived, Loathed, and Love It</u= >. Chicago, IL: Loyola University Press, 1994.<o:p></o:p> <o:p> </o:p> McCann, D. P. “Catholic Social Teaching In An Era Of Economic Globalization:A Resou= rce For Business Ethics.” Business Ethics Quarterly 7.2 (1997): 57= -70.<o:p></o:p> <o:p> </o:p></spa= n> Novak, M. The Catholic= Ethic and the Spirit of Capitalism. New York: The Free Press, 1993.<o:p></o:p></s= pan> <o:p>&nb= sp;</o:p> Projects & Operations: Middle Income Countries. The World Bank websi= te. <o:p></o:p> Oct. 2007 <http://www.worldbank.org&g= t;.<o:p></o:p> <o:p> </o:p></spa= n> Rowntree, S. C. “= ;The Ethics of Trade Policy in Catholic Political Economy.” <o:p></o:p></s= pan> T= heological Studies 65 (2004): 596-622.<o:p></o:p> <o:p> </o:p> Singer, P. One world: The ethics of globalization. 2nd ed. New Haven, CT: <o:p></o:p> Yale University Press, 2002.<o:p></o:p> <o:p> </o:p> Sollicitudo-rei-socialis.<= span style=3D'font-size:14.0pt;mso-bidi-font-size:10.0pt;font-family:"Times New = Roman"'> 30 December 1987. Encyclical. John Paul II. Vatican website. 27 Nov. 2007 <http://www.vatican.va>.<o:p></o:p> <o:p> </o:p> Stiglitz, J. E. Mak= ing Globalization Work. New York, NY: W. W. Norton & Co., 2007.<o:p></o= :p> <o:p> </o:p></spa= n> Wolf, M.= Why Globalization Works. New Haven, CT: Yale University Press, 2004.<o:p></= o:p> <o:p> </o:p> </div> </body> </html> ------=_NextPart_01C8A6E7.8E471B20 Content-Location: file:///C:/06899145/perunon-linewebpage_files/header.htm Content-Transfer-Encoding: quoted-printable Content-Type: text/html; charset="us-ascii" <html xmlns:v=3D"urn:schemas-microsoft-com:vml" xmlns:o=3D"urn:schemas-microsoft-com:office:office" xmlns:w=3D"urn:schemas-microsoft-com:office:word" xmlns=3D"http://www.w3.org/TR/REC-html40"> <head> <meta http-equiv=3DContent-Type content=3D"text/html; charset=3Dus-ascii"> <meta name=3DProgId content=3DWord.Document> <meta name=3DGenerator content=3D"Microsoft Word 11"> <meta name=3DOriginator content=3D"Microsoft Word 11"> <link id=3DMain-File rel=3DMain-File href=3D"../perunon-linewebpage.htm"> <![if IE]> <base href=3D"file:///C:\06899145\perunon-linewebpage_files\header.htm" id=3D"webarch_temp_base_tag"> <![endif]> </head> <body lang=3DEN-US vlink=3Dpurple> <div style=3D'mso-element:footnote-separator' id=3Dfs> <![if !supportFootnotes]> <hr align=3Dleft size=3D1 width=3D"33%"> <![endif]> </div> <div style=3D'mso-element:footnote-continuation-separator' id=3Dfcs> <![if !supportFootnotes]> <hr align=3Dleft size=3D1> <![endif]> </div> <div style=3D'mso-element:endnote-separator' id=3Des> <![if !supportFootnotes]> <hr align=3Dleft size=3D1 width=3D"33%"> <![endif]> </div> <div style=3D'mso-element:endnote-continuation-separator' id=3Decs> <![if !supportFootnotes]> <hr align=3Dleft size=3D1> <![endif]> </div> <div style=3D'mso-element:header' id=3Deh1> Stefan Perun </div> <div style=3D'mso-element:header' id=3Dh1> World Bank Le= nding </div> <div style=3D'mso-element:footer' id=3Def1> <div style=3D'mso-element:frame;mso-element-wrap:around;mso-element-anchor-= vertical: paragraph;mso-element-anchor-horizontal:margin;mso-element-left:outside; mso-element-top:.05pt;mso-height-rule:exactly'> <table cellspacing=3D0 cellpadding=3D0 hspace=3D0 vspace=3D0 align=3Dright> <tr> <td valign=3Dtop align=3Dleft style=3D'padding-top:0in;padding-right:0in; padding-bottom:0in;padding-left:0in'> <p class=3DMsoFooter style=3D'mso-element:frame;mso-element-wrap:around; mso-element-anchor-vertical:paragraph;mso-element-anchor-horizontal:margi= n; mso-element-left:outside;mso-element-top:.05pt;mso-height-rule:exactly'><= !--[if supportFields]>PAGE <![endif]-->14<o:p></o:p> </td> </tr> </table> </div> <o:p>&n= bsp;</o:p> </div> <div style=3D'mso-element:footer' id=3Df1> <div style=3D'mso-element:frame;mso-element-wrap:around;mso-element-anchor-= vertical: paragraph;mso-element-anchor-horizontal:margin;mso-element-left:outside; mso-element-top:.05pt;mso-height-rule:exactly'> <table cellspacing=3D0 cellpadding=3D0 hspace=3D0 vspace=3D0 align=3Dright> <tr> <td valign=3Dtop align=3Dleft style=3D'padding-top:0in;padding-right:0in; padding-bottom:0in;padding-left:0in'> <p class=3DMsoFooter style=3D'mso-element:frame;mso-element-wrap:around; mso-element-anchor-vertical:paragraph;mso-element-anchor-horizontal:margi= n; mso-element-left:outside;mso-element-top:.05pt;mso-height-rule:exactly'><= !--[if supportFields]>PAGE <![endif]-->15<o:p></o:p> </td> </tr> </table> </div> <o:p>&n= bsp;</o:p> </div> </body> </html> ------=_NextPart_01C8A6E7.8E471B20 Content-Location: file:///C:/06899145/perunon-linewebpage_files/filelist.xml Content-Transfer-Encoding: quoted-printable Content-Type: text/xml; charset="utf-8" <xml xmlns:o=3D"urn:schemas-microsoft-com:office:office"> <o:MainFile HRef=3D"../perunon-linewebpage.htm"/> <o:File HRef=3D"header.htm"/> <o:File HRef=3D"filelist.xml"/> </xml> ------=_NextPart_01C8A6E7.8E471B20--