The Economics of War:
how economic intervention sows the seed for armed conflicts
“The culture of death is imposed by economic and political interests, the arrogance of
power, corruption. I blame the first world for having taken our riches for so many years. I
am speaking of the superpowers that dominate the life of the world. More concretely,
the World Bank, the IMF. Those that have caused and tolerated the death of our people,
those responsible for the plundering of the third world. Silence is also part of
repression.”
- Rigoberta Menchu, Guatemalan political activist.
It can be said that economic institutions are transnational organizations concerned with
issues of monetary distribution and/or gain among their member states. One example of
such an institution is the International Monetary Fund, IMF. Formed in 1944 and
realized in 1945 under their parent organization of the United Nations, their mission is to
“[work] to foster global monetary cooperation, secure financial stability, facilitate
international trade, promote high employment and sustainable economic growth, and
reduce poverty around the world.” Consisting of 189 countries, the high and wide range 1
of member states testifies to the far reach and, consequently, the impact the
organization has around the world in relation to the various social, political and
economic issues. This paper seeks to examine, explore and analyse the literature on
the origins of conflict as a direct consequence of intervention by economic institutions,
notably the IMF in the context of the Somali civil war (1986-present) and the Dutch East
India Company by answering the question “to what extent are economic institutions the
1“About the IMF, accessed 29 April 2017, ” https://www.imf.org/external/about.htm
primary cause of war?” This will be carried out through looking at the moral implications
of intervention, the idea of for-profit within economic institutions and involved
governments, the extent to which economic autonomy is relevant, the notion of foreign
aid and its positive and negative consequences, the framework of a ‘one size fits all’
policy and its implications and what happens in the event that a war breaks out in
countries that are intervened.
It is a broad generalization to claim that economic institutions are the sole cause of
conflict. Ethnic tensions, economic inequality and lack of resources are all contributing
factors to the onset of violence. However, intrastate warfare is far more common in the
poorest of the world’s countries where researchers find the most statistical evidence for
the cause of violence: a failure of economic development . Simply put, an environment 2
prime for conflict is created due to economic inequalities that are imbedded into the
social structure of the country . IMF conditionality has been correlated with lower growth 3
rates and so may be a contributing reason for armed conflict to break out. However, the 4
morality of such conditions must first be discussed before going into further detail.
2 Collier, Paul et al. Breaking The Conflict Trap. 1st ed. Washington DC: Oxford
University Press, 2003. Print.
3 Sidell, Scott R. The IMF And Third-World Political Instability. 1st ed. New York: St.
Martin's Press, 1988. Print.
4 "World Bank, IMF And Armed Conflicts - Bretton Woods Project". Bretton Woods
Project. N.p., 2004. Web. 20 Apr. 2017.
Economic intervention by international organizations has various moral implications that
must be taken into account and justified in order to sustain the status quo. First,
economic institutions as lenders are in a place of power. Governments that seek help
are likely to, in their desperation, accept unwanted conditions imposed on them.
Negotiating conditions that will have long term effects on the economy and society as a
whole takes time. Making these decisions under the pressure of crisis takes both time
away from the immediate implementation of solutions which in turn may worsen the
condition of the crisis as well as government leaders being pressured into agreeing to 5
less than ideal conditions due to time constraints. Furthermore, economic institutions
have, in the past, supported illegitimate leaders who have committed human rights
violations. An example of this is the Chilean dictator Pinochet who received full backing
by the IMF with an exponential increase in funding in the years following his power grab
. It could be argued that the economic institutions lend support in order to relieve the 6
country’s population under an autocratic rule. However, to place significant austerity
measures on a population that is unable to voice their opinion without government
retaliation is in remiss with many economic institutions’ intention to help the people.
Another moral implication to consider is the possibility of governments using economic
institutions for monetary gain. A Meltzer commission report found that G7 governments
5 Vines, David, and Christopher Gilbert. The IMF And Its Critics. 1st ed. Cambridge:
Cambridge University Press, 2004. Print.
6 Wolff, Ernst. Pillaging The World. 1st ed. Tectum Verlag, 2014. Print.
use the IMF to further their own agenda . The US is a prime example of this as they 7
retained their veto power even as their individual votes were less influential. By doing
so, the US was able to successfully compete against the IMF for funding from Saudi
Arabia and thus obstruct the very institution it helped create. The governments that 8
benefit from producing in developing countries also have a significant vote in the
institutions that made it possible. Furthermore, it has been found that donors influence
the IMF to fund developing countries where their multinational corporations reside . It 9
could therefore be argued that economic institutions do not function solely for the
benefit of the countries which it aids, but instead has contains an aspect of profit for
wealthy nations.
The Somali civil war may shed light onto the topic. The country had been struggling
Creditors planned for an ever increasing cut in public spending, a restructuring of the
central bank mere months before the height of the civil war when General Barre’s
government collapsed. The great amount of food aid that was brought in deepened the
impoverishment of the Somali people with the sale of food aid by the government
making up the vast majority of the state’s revenue. This means that donors, who
provided the food aid had significant sway on what the state was able to spend its
money on. There was a destruction of food security and a famine commenced.
7 Vines, David, and Christopher Gilbert. The IMF And Its Critics. 1st ed. Cambridge:
Cambridge University Press, 2004. Print.
8 Spiro, David E. The Hidden Hand Of American Hegemony. 1st ed. Ithaca, NY: Cornell
University Press, 1999. Print.
9 Presbitero, Andrea, and Alberto Zazzaro. IMF Lending In Times Of Crisis. 1st ed.
Elsevier Ltd., 2012. Web. 30 Apr. 2017.
As can be applied to intervention by other organizations not restricted to those that are
economically based as in the case of the IMF, it can be said that to a degree, states that
request intervention from large bodied organisations lose as aspect of their sovereignty
and autonomy. In the case of IMF intervention, many receiving states lose a majority of
their economic autonomy and thus other forms of self-governance as a result of needing
to adhere to the various policies as set by the IMF. The notion of economic autonomy
has consequences for the aiding and aided countries. The aided country often loses
forms of political and social power and this undermines their influence in the greater
sphere of the organisation and within their own country. In this way, as alluded to by the
quote by Jose Saramago, the countries, as a result of institutional intervention by the
IMF, ceases to be democratic. The foreign intervention as dictated by the aiding can be
seen as a form of a debased tool of diplomacy. This is because it often consists of
former colonial powers ordering what should be done in the country and can thus be a
form of neocolonialism.
In his: The Report of the International Financial Institution Advisory Commission:
Comments on the Critics, Allan H. Meltzer states that “ [The] IMF wields too much
power over developing countries’ economic policies.’ he further adds that ‘G7
governments use the IMF as a vehicle to achieve their political ends.’ and [The] ‘IMF
relies too much on mandates and conditional lending dictated from abroad and too little
on credible long term incentives that encourage local decision makers to act responsibly
and reform domestic regulations, laws, institutions and practices’ (Vines 2004, 290). 10
This supports the notion that the IMF is used to perpetuate neocolonialist power by the
G7 and its hegemony and in effect contributes to the many factors that cause civil wars
in aided countries as seen in the case study of Somalia.
To further support his claims, in relation to how the loss of economy autonomy results in
crises arising caused by the policies and the loss of power of the aided countries,
Meltzer states that “Many developing countries rely excessively on short term capital
inflows to finance long term development, which is risky and has caused crises
throughout history. Financial systems in developing countries are too often used to
subsidize favored industries or individuals, weakening the financial institutions and
eroding their capital... With weak financial systems dependent on short term capital, the
system became subject to frequent, severe crises” (Vines 2004, 108). The cyclical 11
cycle of the loss of economic autonomy by aided countries results in their loss of
political power within their states and thus exacerbates civil unrest. At the same time the
global hegemonic powers continue to profit from intervention and indirect control of the
economy in the aided country. Thus in this way it can be said that economic institutions
contribute to war in aided countries.
Similarly, as previously discussed in relation to economic autonomy, the extent to which
10 Vines, David, and Christopher Gilbert. The IMF And Its Critics . 1st ed. Cambridge:
Cambridge University Press, 2004. Print.
11 Vines, David, and Christopher Gilbert. The IMF And Its Critics . 1st ed. Cambridge:
Cambridge University Press, 2004. Print.
aid or bailouts by institutions such as the IMF are effective can be said to be
debateable. For example, many have argued that aid by the IMF often causes hardship
in the primary stages, which could last from months to years though countries are able
to recover and have stronger economies as a result of the implemented policies.
However, others have noted that, in some cases, countries can obtain positive results
even if they are left to tend to their own affairs.
In the argument for the eventual, or immediate, positive effect of IMF intervention it is
argued that in some cases “domestic prices of food staples, essential drugs, fuel and
public services decrease overnight” (Chossudovsky 1997, pp 56). Thus, the sentiment 12
that although “the situation is bad, but it would have been far worse had the structural
adjustment measures not been adopted” (Chossudovsky 1997, pp 70) seems
particularly relevant. This comes to support the idea that intervention by the IMF, and its
member states is necessary in order to reform and reconstruct the aided state. Even
though during the primary stages of policy implementation nationals may suffer, their
burdens can be alleviated as they are better off than they were before intervention. As
illustrated by Chossudovsky in the first quote, these policies also have immediate
effects that better the lives of the lower income classes. Others say that “Revisiting
effects of IMF programs cost connected to adjustment process borne out by the lower
income classes, leading to a worsening of income inequality and a rise in poverty. The
effect of poverty begins to decline as program participation is included in the estimation
12 Chossudovsky, Michel. The Globalisation Of Poverty . 1st ed. New Jersey: Zed Books,
1997. Print.
with a one year lag” (Dreher 2006, pp 124). In this way giving help to countries through
economic institutions may prevent war as it may contribute to quelling unrest by
alleviating economic hardship. Even if the results are prolonged they are positive within
the year from implementation.
Though some may counter that IMF contributes to civil unrest as it disrupts economic,
social and political aspects of national life. On top of his argument Chossudovsky
identifies other limitations in that that “Anti-inflationary programs” are predicated “on a
contraction of demand” requiring the dismissal of public employees, drastic cuts in
social sector programs and the deindexation of wages” (Chossudovsky 1997, pp 56).
He insinuates that on the basis of existing studies, one cannot say whether the adoption
of programs supported by the Fund led to an improvement in inflation and growth
performance. Stating: “In fact it is often found that programs are associated with a rise
in inflation and a fall in growth rate” (Chossudovsky 1997, pp 69). This shows how IMF
measures can cause inflation and the economic growth rate of a country which may
incite political unrest.
In the case of the outbreak of the bubonic plague in India in 1994, the aid received by
the IMF to India has been said to have been “the direct consequence of a worsening
urban sanitation and public health infrastructure which accompanied the compression of
national and municipal budgets under the 1991 IMF/World Bank sponsored structural
adjustment program” . In this way, the policies dictated by the IMF had dire 13
consequences for the overall health of the population and can be said to be negative.
Furthermore, in her book The Debt Trap, Cheryl Payer suggests that the IMF requires
that aided countries focus on the implementation of their policies as opposed to the
regulation and reformation of their economies and, thus, “The countries concerned are
thrown back into the very economic pattern they tried to escape from” . This supports 14
the notion that the IMF as an economic institution not only adheres to the hegemony of
the powers that fund it, but its priorities are not to positively impact countries and thus
they would be better off left alone without the interference of the organisation.
Others add that the IMF programs are a failure. Some evidence shows that compliance
with IMF conditionality does increase growth rates but it’s quantitatively small compared
to the overall reduction. Negative impact probably due to “bad” advice given by the IMF
of the moral hazard it induces with its borrowers. It has recently been shown that its
conditions do not influence economic policy (Dreher & Vaubel 2004, pp 781 ). As one
interpretation of this result, conditions imposed by outside actors might be
circumvented, even if the officially agreed criteria have been met. Results support
(Dollar & Svensson 2000) to some extent who show that governments which are
inclined to reform must be identified and cannot be created by international
13 See Madrid Declaration of Alternative Forum, The Other Voices of the Planet, Madrid, October
1994.
14 Payer, Cheryl. The Debt Trap . 1st ed. New York: Monthly Review Press, 1975. Print.
organizations. Arguably, if the IMF would support reform-minded governments, its loans
might make a difference (even if its advice might not). As claimed by the IMF, conditions
are the outcomes of a bargaining process between the government and the Fund
(Conway, 2003). They might therefore reflect the government’s agenda instead of being
imposed by the IMF. As a consequence, compliance with conditionality does not make a
difference with respect to economic growth – the same policies would have been
implemented without the Fund’s conditions.
Though all the arguments carry weight it is important to realise that “According to the
IFIs, the “social costs” must be balanced against the “economic benefits” of
macro-economic stabilization. Short term pain for long term gain” (Moshin 1990, pp
222). Further, although the IMF may not fulfill all aspects of an expected criteria by 15
aided countries, as an economic organisation they often fulfill those they set out to no
matter the cost as they embark to correct only economic issues regardless of social or
political issues.
Rather than using frameworks to solve various problems that may arise, this ‘one size
fits all’ notion is especially relevant in the context of the IMF and other economic,
political and social institutions. This framework should be adaptable however can be
said to generalise and reduce the possible solutions for developing nations who have
encountered varying degrees of the impacts of colonialism, previous civil unrest and
other social problems.
15 Mohsin Khan, “Macroeconomic Effects of Fund Supported Adjustment Programs”, IMF Staff
Papers, Vol. 37, No. 2, 1990, p. 222.
This is supported by Jeffrey Chwieroth in his book Capital ideas who states that the
“one size fits all” policies that ignore different circumstances that of its member states,
encourages governments to liberalize their controls prematurely and thereby
precipitating the wave of financial instability that swept much of east Asia in 1997-8
before moving on to Russia and Latin America” (Chwieroth 2010, pp 1).
This argument is especially important in today’s globalised world, which can be said to
encompass the variety of past and present events which shape the current international
climate. Therefore the idea of a one size fits all framework should not be used as a
definite solution which can be applied to all cases but should be adaptable.
To conclude, economic institutions cause war only to a certain extent. It has been
shown that they are not the primary cause of armed conflict, however, they may
destabilize economies and create an environment where violence may occur.
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