The destructive role of IMF and World Bank over the world (relevant articles)



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The IMF and the World Bank

Two of Several Instruments of National Destruction

An Interview with Michel Chossudovsky
by Jared Israel, Emperors-Clothes.com 4/18/00

In this electrifying interview, Prof. Chossudovsky challenges the movement which has converged on Washington to look more deeply at the institutions destroying nations in the Third World and the former Socialist bloc. In doing so, Chossudovsky opens a much-needed discussion.

Michel Chossudovsky: When an IMF mission goes into a country and requires the destruction of social and economic institutions as a condition for lending money - this is very similar to the physical destruction caused by NATO bombing. The IMF will order the closing down of hospitals, schools and factories. That's of course more cost effective than bombing those hospitals, schools and factories, as they did in Yugoslavia, but the ultimate result is very similar: the destruction of the country.
The IMF has what is called the MAI - the Multilateral Agreement on Investment. It's the ultimate investment treaty. Signing leads to the economic destruction of the targeted country. Well, really, war is simply the MAI of last resort.
Jared Israel: What are your thoughts on the demands of the folks protesting now in Washington?
Chossudovsky: Well, lots of people have converged on Washington to protest the Bretton Woods system, the IMF and the World Bank. The question is: what are we fighting for? I suspect the dominant position among the NGOs [Non-Governmental Organizations] is still that we need to reform these institutions, give them a human face, make them work for the poor and so forth. I think this approach, which developed from the "50 Years Is Enough" campaign against the Bretton Woods institutions is a mistake. And increasingly people are challenging it, questioning the legitimacy of these Washington institutions.
But still there's a lot of confusion. Some think the IMF and World Bank are playing contradictory roles, which is not so. And also there's a tendency to see these institutions in isolation. In fact they are simply two tools used by the Western elite to destroy nations, to turn them into territories.
JI: You think some people are fooled by the World Bank?
Chossudovsky: They believe the World Bank has adopted a humane approach, that it's involved in poverty alleviation whereas the IMF creates poverty. Or they even think there's a conflict between the two. That's nonsense. The World Bank is doing essentially the same job as the IMF; it merely has different responsibilities in the Third World. In a way, it is far more dangerous precisely because [of the fact that] its supposed mandate to alleviate poverty disarms critics. The simple fact is: Wall Street is behind both these institutions. They are run by bankers not sociologists.

Free Trade, brother of War

Chossudovsky: More important: a lot of people don't see the link to NATO. Very few of the organizations criticizing the Bretton Woods institutions opposed the attack on Yugoslavia. They didn't talk about it in Seattle and they aren't doing it in Washington now. They campaign against free trade, against the IMF, in favor of the Jubilee campaign to cancel third world debt, but not against war. But free trade and war go hand in hand. It was true with the British in the 19th century when they forced the Chinese to "freely" purchase opium and it is true today.
And there's a good deal of coordination between the IMF and NATO. You saw it in Kosovo. The IMF and the World Bank had set up a postwar economic plan including free market reforms well before the onset of bombing.1 They work together. If a country refuses IMF intervention, NATO steps in, or NATO and various covert agencies, and they create the proper conditions for IMF programs to be imposed.
JI: Very sharp point.
Chossudovsky: The countries that accept the IMF, like Bulgaria and Romania, they may not get bombed but they are destroyed with the pen. In Bulgaria the IMF implemented the most drastic reforms, IMF medicine, which decimated social conditions - pensions slashed, factories closed, dumping of cheap finished goods, elimination of free medical care and transportation services and so on.
And it's not just NATO. We see that in Central Asia and the Caucasus. Hand in hand with the imposition of IMF and World Bank reforms and privatization program we have not only NATO but also CIA covert intelligence operations - the institutions of war and economic management interface with one another at a global level.
So right now various countries are being softened up with regional conflicts that are financed overtly and covertly by the Western elite. The KLA is just one example of an externally financed insurgency. You see these manipulated conflicts especially wherever there are strategic pipelines, and they are linked to the drug trade and the CIA, covertly, then openly linked to NATO and official US foreign policy, and finally to the IMF, the World Bank and regional banks and private investors. Links in a chain.
Let's categorize these global institutions: you've got the United Nations system and peace keeping; they play a role and they are interfacing with NATO as well. Then you've got the IMF and the World Bank, and the regional development banks like the ADB, the Asian Development Bank, and so on. In Europe it's the European Bank for Reconstruction and Development. These are the main arms.
Sometimes war creates the conditions, and then the economic institutions come in and pick up the pieces. Or conversely the IMF itself does the destabilizing, as they did in Indonesia. They insisted on cutting off transfer payments to the various states in the federation. Now that fractures a country like Indonesia which has 2,000 islands with a system of local governments. It is the geography of the bloody place. So they leave these islands to their own devices.
Do you see what that accomplishes?
JI: In other words, they insisted on cutting money that was supposed to subsidize local government?
Chossudovsky: Yes, for example for education and so on. By doing this - and incidentally they did it in Brazil as well - they destabilize the country because in order to have a country there must be fiscal coherence, a system of fiscal transfers. So in a place like Indonesia, each of these islands becomes a small state. And of course now the idea of going it alone becomes far more attractive to the many different ethnic groups. Of course they [that is, the planners] are fully aware of this - they have made it happen time and again. It took place in Yugoslavia; it took place in Brazil; it took place in the former Soviet Union where the regions are left to their own devices because Moscow doesn't transfer any money. Potentially it could happen in the United States as well. It is guaranteed to produce a situation of conflict, internal strife.
JI: Mutually unproductive conflict...
Chossudovsky: Yes because people are impoverished to such an extent that they start fighting.
JI: On every basis, especially ethnic.
Chossudovsky: Incidentally in Somalia there weren't any ethnic groups, but it worked there too. You don't need a multi-ethnic society to have divisions, to have Balkanization.
JI: And you're saying this is part and parcel of a plan for Empire?
Chossudovsky:I am saying this is recolonization. Countries are transformed into territories, colonies essentially.
JI: What distinguishes the two?

Countries vs. territories

Chossudovsky:A country has a government. It has institutions. It has a budget. It has economic borders. It has customs. A territory has only a nominal government, controlled by the IMF. No schools and hospitals, as those have been closed down on orders of the World Bank. No borders because the WTO has ordered free trade. No industry or agriculture because these have been destabilized as the result of interest rates of 60% per anum and that is also the IMF program.
JI: 60% per year?
Chossudovsky:In Brazil it's much higher. I'm looking at Botswana now. The interest rate is horrendously high.
Israel: And this is imposed by the IMF?
Chossudovsky:They put a ceiling on credit. Do you see? So people can't get bank loans; it drives interest sky high and that kills the economy. Then they open it up to free trade. So the local capitalist enterprises have to borrow at 60% from the local banks and then they have to compete with commodities from the United States or Europe where interest rates are 6 or 7%. These reforms are essentially aimed at destroying local capitalism.
JI: So how do we fight this?
Chossudovsky:Not with a single-issue movement. We can't focus solely on the Bretton Woods institutions, or the WTO, or environmental issues or genetic engineering; we have to look at the totality of relations. When we look at the totality we see the link to the use of force.
Beneath this economic system lie the undercover features of the capitalist order: the military-industrial complex, the intelligence apparatus and the links to organized crime including the use of narcotics to finance conflicts aimed at opening nations to Western control.
We have gone from gunboat diplomacy to missile diplomacy. In fact it is not missile diplomacy. It is sheer bombing.
JI: You said that part of the military intelligence apparatus is gangsters. I know that you have been writing material about how drugs is actually an economically powerful force.
Chossudovsky: Well it is more complicated than that. Because in fact the gangsters are the instruments of big capital. They are not - they don't overshadow the system in any way. The gangsters are people who can be easily used precisely because they are not responsible to anybody. So it is much more convenient.
Let's say you install Hacim Thaci [leader of the Kosovo Liberation Army] in the seat of government in Kosovo. It's much more convenient to have a gangster like this running a country than to have an elected prime minister that is responsible to citizens.
The best thing is to have an elected gangster, somebody like Boris Yeltsin, that's the best - get an elected gangster. We have elected gangsters in the US as well.
Why? Because elected gangsters are much easier to control than elected non-gangsters. But we must understand these gangsters are pretty obviously subordinate - when we say it is the criminalization of the colony, it is not true. It's the other way around. You are never going to have a situation where these gangsters will be given any power. The big ones perhaps... So there is a certain interpenetration of legal and illicit trade. But in effect illicit trade is always subordinate to large scale financial and business undertakings.
An important aspect of this is that the IMF creates the conditions for the growth of illicit trade and for the laundering of dirty money, all over the world. That is very clear because when legal economies collapse under the brunt of IMF reforms what are you left with? It's the gray economy; it's the criminal economy.
JI: And that encourages the development of forces that can be used to replace potentially responsible legal forces.
Chossudovsky:Yes and that type of collapse in legal economic systems creates also the conditions for developing insurgencies, destabilizing elected governments, closing down of institutions and transforming countries into territories which are then run as colonies.


Michel Chossudovsky, Professor of Economics, University of Ottawa, specializes in studying the effects of Western economic policy on the world. He is author of "The Globalization of Poverty, Impacts of IMF and World Bank Reforms", TWN, Penang and Zed Books, London, 1997. For information on ordering a copy, write to emperors1000@aol.com.

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TThe IMF and the World Bank: It’s time to replace them

4 October 2013,

 by Eric Toussaint
In 2014, the World Bank and the IMF will turn 70, and in October 2013, they will hold their usual annual meeting in Washington. Many organisations, including the CADTM, are joining together to call for a worldwide week of action against illegitimate debt and international financial institutions, from 8 to 15 October 2013. This article assesses the performance of the IMF and the World Bank, and offers ideas for a new international financial system.
  • 1) Since their creation in 1944, the World Bank and the IMF have actively supported all dictatorships and corrupt U.S.-allied regimes.
  • 2) In flagrant violation of the right of people to control their own destinies, they have trampled on the sovereignty of countless States, in particular through conditionalities they impose on them. These conditionalities impoverish people, increase inequalities, hand the country over to transnational corporations, and modify States’ legislation (profoundly reforming the Labour, Mining, and Forestry Codes, and abrogating collective bargaining agreements) to cater to foreign creditors and “investors.”
  • 3) In spite of having learned of massive misappropriations, the World Bank and the IMF have maintained or increased the amounts lent to corrupt and dictatorial regimes, allied with the Western powers (see the classic case of Congo-Zaire under Marshal Mobutu analysed in the 1982 Blumenthal report).
  • 4) Through their financial support, they aided Habyarimana’s dictatorship in Rwanda until 1992, which enabled a five-fold increase in his army. The economic reforms they imposed in 1990 destabilised the country, and exacerbated latent contradictions. The genocide that had been prepared for since the end of the 1980s by the Habyarimana regime was perpetrated beginning 6 April, 1994, resulting in the death of almost a million Tutsis (and moderate Hutus). Subsequently, the World Bank and the IMF demanded that the new Rwandan authorities reimburse the debt contracted by the genocidal regime.
  • 5) They also supported dictatorial regimes in the other camp (Romania from 1973 to 1982, China from 1980) in order to weaken the USSR before its collapse in 1991.
  • 6) They supported the worst dictatorships up until they were overthrown: Suharto in Indonesia from 1965 to 1998; Marcos in the Philippines between 1972 and 1986; Ben Ali in Tunisia and Mubarak in Egypt until they were overthrown in 2011.
  • 7) They have actively sabotaged progressive experiments in democracy (from Jacobo Arbenz in Guatemala and Mohammad Mossadegh in Iran in the first half of the 1950s and Joao Goulart in Brazil in the early 1960s to the Sandinistas in Nicaragua in the 1980s, and of course including Salvador Allende in Chile from 1970 to 1973. The full list is much longer).
  • 8) The very people who are the victims of the tyrants financed by the World Bank and the IMF are forced by these same institutions to reimburse the odious debts these authoritarian, corrupt regimes have contracted.
  • 9) The World Bank and the IMF have also forced countries that became independent at the end of the 1950s and in the early 1960s to repay the odious debt contracted by former colonial powers when they colonised these countries. This is true, for example, of the colonial debt contracted by Belgium with the World Bank in order to fund its colonisation of the Congo in the 1950s. We must remember that this type of transfer of colonial debt is prohibited by international law.
  • 10) In the 1960’s, the World Bank and the IMF provided financial support to countries like apartheid South Africa under and Portugal, which was keeping colonies in Africa and the Pacific under its yoke despite the fact those countries were under an international financial boycott imposed by the UN. The World Bank has supported a country that annexed another by force (Indonesia’s annexation of East Timor in 1975).
  • 11) On the environmental front, the Bank continues to pursue a productivist policy that is disastrous for people and detrimental to nature. It has also succeeded in being assigned the role of managing the emissions trading market.
  • 12) The World Bank finances projects that flagrantly violate human rights. For instance, many components of the “transmigration” project in Indonesia, which was directly supported by the World Bank, , may be considered to be crimes against humanity (destruction of the natural environment of native peoples, enforced displacement of populations). More recently, the World Bank financed, in its entirety, the ironically-named “Voluntary Departure” operation in the DRC, a severance program that violates the rights of 10,655 employees of Gécamines, the public mining company located in Katanga. These workers have still not been paid their back wages and the compensation required by Congolese law.
  • 13) The World Bank and the IMF contributed to the emergence of factors that caused the outbreak of the 1982 debt crisis : a) the World Bank and the IMF encouraged countries to contract debts under conditions that led to their over- indebtedness; b) they drove, and even forced, countries to remove capital- movement and exchange controls, thereby increasing the volatility of capital and significantly facilitating its flight; c) they drove countries to abandon import substitution industrialisation and replace it with a model based on export promotion.
  • 14) They have concealed dangers such as over-indebtedness, payment crises, and negative net transfers, which they themselves detected.
  • 15) From the start of the crisis in 1982, the World Bank and the IMF systematically supported creditors and weakened debtors.
  • 16) The World Bank and the IMF have recommended, and even imposed, policies that put the burden of debt on common people, while favouring the most powerful.
  • 17) The World Bank and the IMF have attempted to spread an economic model that systematically increases inequalities between and within countries.
  • 18) In the 1990s, the World Bank and the IMF, with the complicity of government leaders, extended structural adjustment policies to the majority of the countries of Latin America, Africa, Asia, and Central and Eastern Europe (including Russia).
  • 19) In the latter countries, massive privatisations have been carried out to the detriment of the common good and have brought colossal wealth to a handful of oligarchs.
  • 20) They have strengthened major private corporations and weakened both public authorities and small businesses. They have exacerbated the exploitation of employees and made their employment more precarious. They have done the same to small businesses.
  • 21) Their self-proclaimed fight against poverty fails to conceal the actual policy that reproduces and aggravates the very causes of poverty.
  • 22) The liberalisation of capital flows, which they have systematically encouraged, has increased the incidence of tax evasion, flight of funds and corruption.
  • 23) The liberalisation of trade has strengthened the strong and weakened the weak. The majority of small and medium businesses in developing countries are unable to withstand competition from large corporations, both in the North and the South.
  • 24) The World Bank and the IMF act in conjunction with the WTO, the European Commission, and willing governments to impose an agenda that is radically opposed to ensuring basic human rights.
  • 25) Since today’s crisis hit the European Union, the IMF has spearheaded the move to impose on the peoples of Greece, Portugal, Ireland, Cyprus, and other countries the same policies that were imposed on the peoples of the developing countries and Central and Eastern Europe in the 1990s.
  • 26) The World Bank and the IMF, which preach good governance in one report after another, are in fact themselves engaged in dubious conduct.
  • 27) The two institutions keep most countries marginalised even though they represent most of its members, preferring to back a handful of governments in wealthy countries.
  • 28) In a nutshell, the World Bank and the IMF are despotic machines in the hands of an international oligarchy (a handful of major powers and their transnational corporations) that enforce an international capitalist system that is detrimental to mankind and the environment.
  • 29) The destructive actions and policies of the World Bank and the IMF must be denounced in order to put to an end to them. The debt these institutions are trying to collect must be abolished, and they themselves must be brought to justice.
  • 30) A new international, democratic financial system must be found as soon as possible to promote the redistribution of wealth and to support people’s efforts to achieve development that is socially just and respectful of nature.
Build a new international financial system
Paths must be chosen that radically redefine the foundations of the international financial system (its missions, operations, and so on.) Let us consider the example of the WTO, the IMF, and the World Bank.
In terms of trade, the new WTO should work to have a series of fundamental international agreements adopted, based on the Universal Declaration of Human Rights and all the fundamental treaties concerning human rights (individual or collective) and environmental rights. Its function would be to supervise and regulate trade so that it would strictly comply with social (International Labour Organisation – ILO conventions) and environmental standards. Such a definition is in direct contradiction with the WTO’s current goals. This obviously implies a strict separation of powers. It is out of the question for the WTO, or for that matter any other organisation, to have its own tribunal. Therefore, the Dispute Settlement System must be eliminated.
The organisation that could replace the World Bank should be highly regionalised (banks in the South could be brought together within it). Its role would be to supply loans with very low or no interest and grants, which could only be given on condition that they be used in strict adherence to social and environmental standards, and more generally, respect of fundamental human rights. Unlike the current World Bank, this new bank which the world needs would not seek to defend the interests of creditors, while forcing debtors to submit to an all-powerful market. Its primary mission would be to defend the interests of the people who receive the loans and grants.
Meanwhile, the new IMF, should recover part of its original mandate to guarantee currency stability, fight speculation, keep watch over movements of capital, and act to prohibit tax havens and tax evasion. To attain this goal, it could assist in the collection of various international taxes by working with national authorities and regional monetary funds.
All these solutions require the development of a coherent international financial system that is hierarchical and has an internal division of powers. The UN could be its cornerstone, provided that its General Assembly becomes the actual decision-making body – which implies eliminating the status of permanent member of the Security Council (and the associated veto power). The General Assembly could delegate specific missions to ad hoc entities.
Another issue that has not yet been sufficiently investigated is that of an international legal mechanism, an international judicial power (independent of the other international bodies) which would complement the existing system, mainly made up of the International Court of Justice in The Hague, and the International Criminal Court. With the neoliberal offensive of the past thirty years, trade law has increasingly overshadowed public law. International institutions like the WTO and the World Bank operate with their own tribunals – the Dispute Settlement System within the WTO and the ICSID within the World Bank, whose role has increased out of all proportion. The UN’s Charter is regularly violated by permanent members of its own Security Council. New zones outside the rule of law have been created (Guantánamo, where the USA denies its prisoners all legal rights). The United States, after having condemned the International Court of Justice in The Hague (where they had been convicted in 1985 of aggression against Nicaragua), refuses to recognise the International Criminal Court. All this is grounds for great concern, and means that initiatives must be taken immediately to bolster an international judicial body.
In the meantime, institutions like the World Bank and the IMF must be held accountable for their actions before national jurisdictions |1|, the debts they are trying to collect must be cancelled, and action must be taken to prevent the harmful policies they recommend or impose from being applied.
Translated by Judith Harris, Snake Arbusto and Charles La Via

Footnotes

|1| As of today, there is still no competent international jurisdiction for trying the crimes of the World Bank and the IMF.




Éric Toussaint, doctor of political science, is president of the CADTM Belgium (Committee for the Abolition of Third World Debt, www.cadtm.org). He is the author of The World Bank : A critical Primer, London, Pluto Press, 2008, http://cadtm.org/The-World-Bank-A-c...
His latest book is Procès d’un homme exemplaire (The Trial of an Exemplary Man), Édition Al Dante, Marseille, September 2013. He is co-author with Damien Millet of Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Press, New York, 2010 http://cadtm.org/Debt-the-IMF-and-t...); La dette ou la vie (Debt or Life?) co-published by CADTM- Aden, Liège-Brussels, 2011. Prix du Livre Politique awarded by the Foire du Livre Politique in Liège http://www.cadtm.org/The-CADTM-reco...
See also Eric Toussaint, doctoral thesis in political science, presented in 2004 at the Universities of Liège and Paris VIII: “Enjeux politiques de l’action de la Banque mondiale et du Fonds monétaire international envers le tiers-monde” (“Political aspects of the World Bank and the International Monetary Fund actions toward the Third World”), http://cadtm.org/Enjeux-politiques-...



Source: http://cadtm.org/The-IMF-and-the-World-Bank-It-s



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How the IMF Props Up the Bankrupt Dollar System
By F. William Engdahl, US/Germany
One of the crucial pillars of support for today's Dollar System is Washington's control of the International Monetary Fund, the IMF. The way this actually works is carefully disguised, behind a facade of technocrats and economic theory of free market ideology. In reality, the IMF is a modern era collection agency for the Dollar Empire. It collects its tribute, through major international banks, who use the dollars to further extend the power of American financial and corporate hegemony, in effect the driving motor of what is globalization.
Ironically, though the IMF is a main prop of the Dollar System, it's nominally headed by a European, today a German, Horst Koehler, and before him, by a Frenchman, Michel Camdessus. The real power is carefully concealed behind the facade. Under the constitution of the IMF, no major decision is possible without 85% support of the board of directors. The United States, which drafted the original IMF charter at Bretton Woods New Hampshire in 1944, made sure it had the decisive veto control with an 18% vote share. That veto remains to today. Insiders know well that the IMF is run by Washington. It is no accident that its headquarters is also there.
The IMF was originally created in the 1944 Bretton Woods New Hampshire international monetary conference, called by President Roosevelt to set up a postwar monetary and trade system. It was intended as a fund to support stability of currencies and trade of the postwar European allied countries. At that time Washington held the vast bulk of world gold reserves and expected to lend dollars to rebuild Europe. The original IMF idea was to pool a share of reserves of member states, which any single state could then borrow, in event of a short term payments crisis, to stabilize their currency. Ten years after the Great Depression, the major industrial nations, including the USA, were concerned with creation of a stable, growing Europe, not least as an export market for US products. The first member to borrow was Great Britain after the war. The last European state was Italy in 1977.

The IMF is retooled in 1980s

Since 1977, no European or G7 country has gone to the IMF to borrow. Instead they have borrowed from private banks or issued state debt. They know all too well how destructive the IMF conditions are. By the end of the 1970s some people were suggesting the IMF had outlived its role, much as some argue with NATO after the end of the Cold War. Washington had other ideas for the IMF however.
The role of the IMF changed dramatically in the early 1980s, under US pressure. Instead of serving as a stabilizing fund for industrial countries of Europe or Japan, the IMF became the decisive agency controlling economic policy of underdeveloped countries. What evolved since the first Latin American debt crises of the early 1980s, was an entirely new role for the IMF to act as policeman to collect dollar loans for private New York and international banks. The IMF became the driving motor for what came to be called "globalization."
After the first oil price rise of 400% in the 1970s, many developing countries such as Brazil, Argentina, or most of Africa, borrowed heavily to finance needed oil imports, or trade deficits. They borrowed dollars from major international banks operating in the London Eurodollar market. London was the center for, in effect, the recycling of the large sums of petrodollars from Arab OPEC countries to US and other major banks.
The major banks took the new oil dollars and immediately relent them at a nice profit, to countries like Argentina or Egypt. Before the 1970s Argentina had been a fast-growing economy developing modern industry, agriculture and a rising standard of living for its people. It had almost no foreign debt. Ten years later, the country was under control of the IMF and foreign banks. The US changed the rules, in the process creating the debt crisis.
In October 1979, a dramatic shock occurred for the debtor countries. Overnight their cheap dollar loans cost them 300% more interest charge. Paul Volcker of the Federal Reserve Bank in the US, unilaterally changed US interest policy to force the dollar higher against other currencies. The effect was to raise US interest rates 300% and rates in the London bank market by even more. The bank loans to Argentina and other countries had been made in "floating" rate agreements. If the key international rate in the London bank market, LIBOR, was low, Argentina would pay a low rate on its dollar loans. But when it suddenly rose 300% in 1979-1980, many countries suddenly faced a payments crisis.
It took until 1982 for the crisis to reach default level. At that point, Washington demanded the IMF be brought in to police a debt collection process on developing debtor nations. This came to be called the Third World Debt Crisis. The impression was created that countries like Argentina were guilty for mismanagement. In reality, whatever political corruption may have existed in the debtor countries, the corruption of the IMF system and the petrodollar recycling was far greater. The Volcker interest rate shock completed the package of destruction of living standards on behalf of dollar debts.
How did the IMF act in the third world debt crisis? Here is where it becomes clear that the role of the IMF was to support the dollar hegemony of the United States, and not to help poor countries get through a temporary debt problem.

The 'Washington Consensus'

The IMF has been described by some as a tool of neo-colonialism. That is too mild, as 19th Century British or European colonialism, however harsh, never managed to accomplish the extent of devastation and destruction of health and living standards the IMF has done since the 1970s.
The IMF operates as a supranational agency to take control over helpless debtor states, to impose economic policies that force the country ever deeper into debt, while opening the market to foreign, often US capital and global corporate exploitation. The fact that debtor countries never get out of their dollar debt, only deeper in, is deliberate. IMF policy in fact insures this. The dollar debt is a major prop of the dollar system and of private international banks. When that debt is repaid, banks lose power and credit contracts. So long as debt grows, bank credit can grow, the paradox of modern banking.
The tip-off that the real purpose of the IMF is quite different from its public claims, is that despite repeated proof of the destructiveness of its policies, called "conditionalities," the IMF has never changed the method it uses in a target country. There is a reason for that.
Take Argentina as a case in point. In early 2002 Argentina defaulted on repaying $141 billion in foreign dollar debt. One of the most devastating economic collapses in modern history ensued. The IMF was crucial. In early 2000 Argentina had turned to the IMF for emergency credit to prevent a collapse of its currency, then fixed to the strong US dollar. As the dollar rose, Argentina found its exports trade collapsing. The country went into recession. The IMF stepped in with a $48 billion "rescue" package. But there were conditions.
First the government had to agree to severe IMF-dictated cuts in government spending before it would get any money. State subsidies on food for low income were ended, triggering food riots. Interest rates exploded in a vain effort to convince foreign banks and bondholders to not sell. That only worsened the economic depression. State companies were forced to privatize to raise money and "promote free market" liberalization. The Buenos Aires water system was sold for pennies to Enron, as was a pipeline going from Argentina to Chile.
Washington insisted all the while that Argentina hold to its fixed currency value, arguing that the trust of foreign bondholders and creditors was the priority. Meanwhile the country sank into its worst depression in memory, as millions lost jobs, and bank accounts were in the final stage frozen, so ordinary citizens could not even draw savings for life necessities.
What exactly does the IMF do when it comes into a crisis country that asks for emergency lending to overcome a debt or currency crisis? The IMF always uses the same program, regardless of whether it is Russia or Argentina, Zimbabwe or South Korea, all very different cultures, economies and situations. The IMF demands are often referred to as the Washington Consensus, the name given in 1990 by a US economist and IMF backer, John Williamson, to describe the IMF method of attack.
IMF medicine almost always includes demands to privatize state industries, to slash public spending even on health and education, devalue the national currency against the dollar, and open the country to free flow of international capital-both in and, especially, out.
First the IMF demands the government in question sign a secret Memorandum of Understanding with the IMF, in which it agrees to a list of "conditionalities", the pre-condition for getting any penny of IMF aid. Under today's globalized free capital markets, banks do not invest in a country that does not have the IMF seal of approval. So the IMF role is far more than giving some emergency loan. It determines if a country gets any money from any source at all-World Bank, private banks and other.
The conditions of an IMF deal are always the same. Privatization of state industries is top on the list. The effect of privatization with a cheap Peso or Rouble currency is that foreign dollar investors are able to buy up the prime assets of a country dirt cheap. Often the politicians involved in the country get corrupted by the lure of under-the-table deals in privatizing their national assets. Foreign multinationals can grab profitable mining, oil, or other national treasures with their dollars.
The case of the Yeltsin government in Russia is classic, with dollar billionaires emerging overnight on the looting of national assets via IMF-dictated privatization. The Clinton Administration backed the process fully. They knew it turned Russia into a dollar zone, and that was the intent.
The second demand of the IMF is that a country liberalize, that is open, its financial and banking markets to foreign investors. This allows high-profile speculators like George Soros or Citibank or Credit Suisse to come into a country, run up asset prices in a speculation, take huge profits, as in Thailand in the mid-1990s, and quickly sell, then exit with huge gains, as the local economy collapses behind them. Then Western multinationals can come in after, and take prime assets at very low cost.
This is what happened to Asia in the 1990s. The IMF and US Treasury, which actually determines US IMF policy, began strong pressure on the fast-growing East Asia "Tiger" economies in 1993, to remove national controls on capital flows. They argued it would help Asia get large sums of money to invest. What it did was give US pension funds and big banks a huge new market for speculation. Too much money flowed in, and an unhealthy real estate bubble grew. It burst when Soros and other US speculators deliberately pulled the plug in 1997, triggering the Asia crisis. The end result was that for the first time, Asian economies were forced to turn to the IMF to be rescued.
But the IMF did not "rescue" any Asian economy in 1998. It rescued international banks and hedge fund speculators. In Indonesia, the IMF demanded the government raise interest rates to 80%, on the argument that would keep foreign investors from leaving, and stabilize the situation. In fact, as critics like Joseph Stiglitz charged at the time, the IMF interest rate demands guaranteed a full-blown collapse of the Indonesian and other Asian banking systems.
Once the IMF got control of South Korea, one of the strongest industrial economies in the world, it demanded breakup of large industry conglomerates, charging "corruption" and "crony capitalism." In fact, Washington hoped to weaken a growing competitor and open the door for US companies like GM or Ford to take over. In part it worked, until Korea and other regional economies were strong enough to re-impose national controls. Malaysia openly defied the IMF demands and imposed currency controls during the crisis. The damage to Malaysia was minimal as a result, a great embarrassment to the IMF.
The next step for IMF conditions, is the demand a country turn to "market-based" domestic prices. This is code for eliminating government subsidies or price controls. Often developing countries have state-subsidized fuel or food or other necessities for their people. In 1998 the IMF demanded, for example, that Indonesia remove state food subsidies for the poor. The idea of "market-based price" is itself a fiction. A market is man-made. The market in Switzerland or Denmark or Japan is different from the market in Cuba or Cameroon. What the IMF is after is a slashing of state budgets to minimize the state role in the economy and make a target country defenseless against foreign takeover of its key assets. The government share in the fragile economy is cut also, in order to insure foreign banks get their "pound of flesh."
Finally the IMF demands the country devalue its currency, and massively, often by 60-70% or more. Here the argument is that this will make its exports "more competitive" and bring more income to repay the foreign dollar debts. This is a crucial part of the IMF Washington Consensus medicine. If, say, Chile devalues the Peso in half, or the Republic of Congo, it must export twice as many tons of copper to earn the same dollar of export surplus. For the giant multinationals in the industrial world, it means the cost of raw materials has become cheaper by half.
Over the past twenty years since the IMF stepped in to play the major role in reorganizing developing countries, world raw materials prices have been dramatically depressed, even though demand has risen. The reason is that countries of Africa, Latin America and elsewhere are mainly raw materials exporters, and their commodities, like oil, are all exported in dollars. They need to earn dollars to repay dollar debts. The IMF policies have driven their raw material prices, measured in dollars, drastically lower. This has been deliberate, but is never admitted. The IMF is an agency of American dollar domination of the global economy, not an agency to help developing countries.

The real IMF record

None of this is exaggeration, unfortunately. IMF defenders claim that "market liberalization" has resulted in major economic growth over the past 20 years in developing countries. The reality is opposite. In a study done by Joseph Stiglitz when he was at the World Bank, between 1989 and 1997 the GDP of every country in the former Soviet Union had fallen to levels of 30% to 80% of that before the collapse of state controls, with the sole exception of Poland. The level in Russia was only 60% that in 1989. GDP had collapsed 40%, and unemployment went from 2 million to 60 million. The rapid privatization without adequate legal and institutional safeguards such as unemployment insurance or health insurance, led to social catastrophe comparable to wartime. IMF demands to free capital movement allowed new Russian dollar oligarchs such as Berezovsky to plunder billions of dollars and put it into secret bank accounts in Cyprus or Liechtenstein, while they bought luxury villas in Monte Carlo. [1]
The IMF record in Africa is as outrageous and destructive. In Zimbabwe, the IMF demanded the government privatize certain state companies and cut subsidies on food, education and health care to get IMF aid. The government complied with most demands, and then the IMF accused it of funding the war in the Democratic Republic of Congo, using that as an excuse to deny giving Zimbabwe loans. In Kenya the IMF earlier demanded that specific individuals be named to the government of Moi, people friendly to Western interests. Washington then charged these governments being "corrupt," which conveniently blinds Western opinion from realizing the moral travesty taking place under IMF auspices.

Deeper in debt ...

Take the official World Bank debt statistics and it becomes obvious that the IMF game is to support the dollar. The first debt crisis in the Third World erupted in 1982. The IMF stepped in to "stabilize" the debt problem. Since then, the foreign debts of developing countries have risen exponentially. In Argentina, the earlier "success" of the IMF, foreign debt stood at $62 billion in 1990. In 2000 it was $146 billion. Brazil's foreign debt has gone from $120 billion to $240 billion in the same time. Iran, isolated from the IMF system by US sanctions, is one of the few developing countries which has managed to reduce its foreign debt.
The total foreign dollar debt of all low and middle income countries rose from $1.4 trillion in 1990 to $2.5 trillion in 2000, almost double. In most cases, the unpayable interest costs on the debts were merely added to the amount of principal owed foreign lenders, at compound interest rate, of course. With compound interest charges often 10% to 15% per year, the debt grows exponentially.
The result is a Ponzi debt pyramid, in which the more a country pays, the more it owes. Bankers call it "interest capitalization." It is no different from the plight of a poor shopkeeper debtor who is forced to turn to a mafia loan shark to survive and ends up paying more and more at ever more interest, until he is bankrupt and the mafia takes all his possessions. The IMF and banks know only some 80% of Third World debts can ever be repaid. They care only about the legal fiction and the ability to use the debt as a lever to grab assets cheaply. According to the World Bank, between 1980 and 1986, for a group of 109 debtor countries, payment of interest alone to the creditors on foreign debts totalled $326 billion. Repayment of principal on the same debts totalled another $322 billion, for a combined capital flow out to the New York and other creditor banks, in debt service, of $658 billions on an original debt of $430 billion. Yet, despite this enormous effort, these 109 debtors still owed the banks a sum of $882 billion in 1986. This was because of the pyramid effect of compound interest, interest capitalization and Volcker's floating rate policy.
In 1990 the developing world repaid some $150 billion in interest on dollar debt, three times all aid received. This was a huge boost to the dollar credit system, which lends on the basis of assuming it will be repaid the entire $2.5 trillion third world debt. The IMF allows that myth to continue. Occupied Iraq today must still "honor" billions in debts of the Hussein era, many to the former Soviet Union, despite its devastated situation. Russia is still forced to admit billions in debt from the Soviet era to Western agencies. Under the IMF system, debt is more sacred than human life. [2]
The vicious trick in all IMF-led "debt restructuring," is that so long as a debtor is able to pay interest on its loans, the creditor banks in New York or London or elsewhere do not have to declare their loan in default. Even if they know it never will be repaid, they treat it as if it were a fully good credit, and use it as capital collateral for further bank lending. The banking system of the dollar world is to a major degree propped up by the pyramid of unpayable third world loans from Africa to Indonesia to Argentina to Croatia.
There has been a dramatic slowdown in economic growth in developing economies over the past two decades since the IMF was brought in to police the debtor states in 1982. There is a direct link. In Latin America, if we take per capita GDP growth, there was a growth of 75% between 1960 and 1980. In the following 20 years to 2000, per capita GDP grew a mere 6%.
In Sub-Sahara Africa, per capita GDP grew by 36% in the two decade period to 1980. Then, it fell by a staggering 15% the next two decades. According to the World Bank itself, some 300 million Africans, almost half of the Continent, survive on less than ? 0.65 a day. IMF-dictated cuts in national health care have resulted in rising infant mortality across the Continent. In 2002 Malawi underwent famine. It coincided with the April 2002 decision by the IMF to suspend Malawi on allegations of "corruption." The IMF had ordered Malawi's government to sell its grain reserves in order to repay a South African bank loan of the National Food Reserve Agency. The IMF also ordered export of maize to service debt, ignoring a developing famine crisis. The IMF piously denied it played any role in the famine crisis however. [3]
For Arab states, including Algeria, Morocco, GDP growth per capita swung from a plus 175% between 1960-1980 to a minus 2% in the following two decades, a staggering collapse.
The only apparent exception to this negative trend is East Asia including China. Here growth was faster between 1980 and 2000. But the reason is the including of China, which saw a 400% increase in GDP and accounts for 83% of the region's population. China has adamantly refused any dealings with the IMF, and runs a controlled state-guided economy with full currency controls, hardly an IMF model state.
Globalization is a word used today, often without precision. If we use the word globalization to refer to the entire process of IMF and WTO-led neo-colonialism under the Dollar System, then it is a descriptive term. It describes the creation of a global dollar imperium, a Pax Americana. Establishment critics of the IMF system such as Joseph Stiglitz, himself a former Clinton adviser and World Bank official, make accurate charges against the IMF. They assume, however, that it is merely misguided policy that leads to the problems. The entire IMF institution, along with the World Bank and WTO, however, have been deliberately developed to advance this globalization of the Dollar System, the second pillar of Pax Americana after the military power. It is no mistaken policy, no result of bureaucratic blunders. That is the crucial point to be understood. The IMF exists to support the Dollar System. [4]

Footnotes

1. Mark Weisbrot et al, "Growth may be good for the poor — But are IMF and World Bank Policies good for growth?", Center for Economic Policy Research, Washington, August 2000. The paper is a strong critique of IMF policy, documenting the real decline in living standards since 1980 in IMF target countries.
2. World Bank, "World Development Indicators", 2002, Table 4.16, External Debt.
3. Anecdotal evidence of the effect of IMF demands on Africa can be found in the magazine, African Business, January 2003, "Who Caused the Malawi Famine?" by Kwesi Owusu and Francis Ng'ambi.
4. A useful but limited critique of IMF policies is found in Stiglitz, Joseph, Globalization and its Discontents, London, W.W. Norton, 2002. 



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http://www.whirledbank.org/ourwords/image/stiglitz.jpg
Joseph E. Stiglitz was Chief Economist at the World Bank from 1996 until 1999, during which time he became quite critical of World Bank policy. Under pressure to keep quiet, he resigned in protest.
The text below is excerpted from What I Learned At The World Economic Crisis
 
The global economic crisis began in Thailand, on July 2, 1997. The countries of East Asia were coming off a miraculous three decades: incomes had soared, health had improved, poverty had fallen dramatically. Not only was literacy now universal, but, on international science and math tests, many of these countries outperformed the United States. Some had not suffered a single year of recession in 30 years.
But the seeds of calamity had already been planted. In the early '90s, East Asian countries had liberalized their financial and capital markets--not because they needed to attract more funds (savings rates were already 30 percent or more) but because of international pressure, including some from the U.S. Treasury Department. These changes provoked a flood of short-term capital--that is, the kind of capital that looks for the highest return in the next day, week, or month, as opposed to long-term investment in things like factories. In Thailand, this short-term capital helped fuel an unsustainable real estate boom. And, as people around the world (including Americans) have painfully learned, every real estate bubble eventually bursts, often with disastrous consequences. Just as suddenly as capital flowed in, it flowed out. And, when everybody tries to pull their money out at the same time, it causes an economic problem. A big economic problem.
The last set of financial crises had occurred in Latin America in the 1980s, when bloated public deficits and loose monetary policies led to runaway inflation. There, the IMF had correctly imposed fiscal austerity (balanced budgets) and tighter monetary policies, demanding that governments pursue those policies as a precondition for receiving aid. So, in 1997 the IMF imposed the same demands on Thailand. Austerity, the fund's leaders said, would restore confidence in the Thai economy. As the crisis spread to other East Asian nations--and even as evidence of the policy's failure mounted--the IMF barely blinked, delivering the same medicine to each ailing nation that showed up on its doorstep.
I thought this was a mistake. For one thing, unlike the Latin American nations, the East Asian countries were already running budget surpluses. In Thailand, the government was running such large surpluses that it was actually starving the economy of much-needed investments in education and infrastructure, both essential to economic growth. And the East Asian nations already had tight monetary policies, as well: inflation was low and falling. (In South Korea, for example, inflation stood at a very respectable four percent.) The problem was not imprudent government, as in Latin America; the problem was an imprudent private sector--all those bankers and borrowers, for instance, who'd gambled on the real estate bubble.
Under such circumstances, I feared, austerity measures would not revive the economies of East Asia--it would plunge them into recession or even depression. High interest rates might devastate highly indebted East Asian firms, causing more bankruptcies and defaults. Reduced government expenditures would only shrink the economy further.
So I began lobbying to change the policy. I talked to Stanley Fischer, a distinguished former Massachusetts Institute of Technology economics professor and former chief economist of the World Bank, who had become the IMF's first deputy managing director. I met with fellow economists at the World Bank who might have contacts or influence within the IMF, encouraging them to do everything they could to move the IMF bureaucracy.
Convincing people at the World Bank of my analysis proved easy; changing minds at the IMF was virtually impossible ... It was maddening, not just because the IMF's inertia was so hard to stop but because, with everything going on behind closed doors, it was impossible to know who was the real obstacle to change ... I shouldn't have been surprised. The IMF likes to go about its business without outsiders asking too many questions. In theory, the fund supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies. Officially, of course, the IMF doesn't "impose" anything. It "negotiates" the conditions for receiving aid. But all the power in the negotiations is on one side--the IMF's--and the fund rarely allows sufficient time for broad consensus-building or even widespread consultations with either parliaments or civil society. Sometimes the IMF dispenses with the pretense of openness altogether and negotiates secret covenants.
When the IMF decides to assist a country, it dispatches a "mission" of economists. These economists frequently lack extensive experience in the country; they are more likely to have firsthand knowledge of its five-star hotels than of the villages that dot its countryside. They work hard, poring over numbers deep into the night. But their task is impossible. In a period of days or, at most, weeks, they are charged with developing a coherent program sensitive to the needs of the country. Needless to say, a little number-crunching rarely provides adequate insights into the development strategy for an entire nation. Even worse, the number-crunching isn't always that good. The mathematical models the IMF uses are frequently flawed or out-of-date. Critics accuse the institution of taking a cookie-cutter approach to economics, and they're right. Country teams have been known to compose draft reports before visiting. I heard stories of one unfortunate incident when team members copied large parts of the text for one country's report and transferred them wholesale to another. They might have gotten away with it, except the "search and replace" function on the word processor didn't work properly, leaving the original country's name in a few places. Oops.
It's not fair to say that IMF economists don't care about the citizens of developing nations. But the older men who staff the fund--and they are overwhelmingly older men--act as if they are shouldering Rudyard Kipling's white man's burden. IMF experts believe they are brighter, more educated, and less politically motivated than the economists in the countries they visit. In fact, the economic leaders from those countries are pretty good--in many cases brighter or better-educated than the IMF staff, which frequently consists of third-rank students from first-rate universities. (Trust me: I've taught at Oxford University, MIT, Stanford University, Yale University, and Princeton University, and the IMF almost never succeeded in recruiting any of the best students.)
The IMF pressed ahead, demanding reductions in government spending. And so subsidies for basic necessities like food and fuel were eliminated at the very time when contractionary policies made those subsidies more desperately needed than ever ... Not only was the IMF not restoring economic confidence in East Asia, it was undermining the region's social fabric. And then, in the spring and summer of 1998, the crisis spread beyond East Asia to the most explosive country of all--Russia.
Today, Russia remains in desperate shape. High oil prices and the long-resisted ruble devaluation have helped it regain some footing. But standards of living remain far below where they were at the start of the transition. The nation is beset by enormous inequality, and most Russians, embittered by experience, have lost confidence in the free market. A significant fall in oil prices would almost certainly reverse what modest progress has been made.
East Asia is better off, though it still struggles, too. Close to 40 percent of Thailand's loans are still not performing; Indonesia remains deeply mired in recession. Unemployment rates remain far higher than they were before the crisis, even in East Asia's best-performing country, Korea. IMF boosters suggest that the recession's end is a testament to the effectiveness of the agency's policies. Nonsense. Every recession eventually ends. All the IMF did was make East Asia's recessions deeper, longer, and harder. Indeed, Thailand, which followed the IMF's prescriptions the most closely, has performed worse than Malaysia and South Korea, which followed more independent courses.
I was often asked how smart--even brilliant--people could have created such bad policies. One reason is that these smart people were not using smart economics. Time and again, I was dismayed at how out-of-date--and how out-of-tune with reality--the models Washington economists employed were. For example, microeconomic phenomena such as bankruptcy and the fear of default were at the center of the East Asian crisis. But the macroeconomic models used to analyze these crises were not typically rooted in microfoundations, so they took no account of bankruptcy.
But bad economics was only a symptom of the real problem: secrecy. Smart people are more likely to do stupid things when they close themselves off from outside criticism and advice. If there's one thing I've learned in government, it's that openness is most essential in those realms where expertise seems to matter most.
 
Joseph E. Stiglitz served on the U.S. Council of Economic Advisers from 1993 to 1997 under President Clinton. He was Chief Economist at the World Bank from 1996 to 1999 when he resigned in protest. He is the author of the book Globalization and its Discontents, a critique of the major international financial institutions.
 
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How the World Bank, IMF and WTO destroyed African agriculture

Walden Bello

(July 20, 2008) Biofuel production is certainly one of the culprits in the current global food crisis. But while the diversion of corn from food to biofuel feedstock has been a factor in food prices shooting up, the more primordial problem has been the conversion of economies that are largely food-self-sufficient into chronic food importers. Here the World Bank, International Monetary Fund (IMF), and the World Trade Organization (WTO) figure as much more important villains.
Whether in Latin America, Asia, or Africa, the story has been the same: the destabilization of peasant producers by a one-two punch of IMF-World Bank structural adjustment programs that gutted government investment in the countryside followed by the massive influx of subsidized U.S. and European Union agricultural imports after the WTO’s Agreement on Agriculture pried open markets. .
African agriculture is a case study of how doctrinaire economics serving corporate interests can destroy a whole continent’s productive base.



From Exporter to Importer

At the time of decolonization in the 1960s, Africa was not just self-sufficient in food but was actually a net food exporter, its exports averaging 1.3 million tons a year between 1966-70. Today, the continent imports 25% of its food, with almost every country being a net food importer. Hunger and famine have become recurrent phenomena, with the last three years alone seeing food emergencies break out in the Horn of Africa, the Sahel, Southern Africa, and Central Africa.
Agriculture is in deep crisis, and the causes are many, including civil wars and the spread of HIV-AIDS. However, a very important part of the explanation was the phasing out of government controls and support mechanisms under the structural adjustment programs to which most African countries were subjected as the price for getting IMF and World Bank assistance to service their external debt.
Instead of triggering a virtuous spiral of growth and prosperity, structural adjustment saddled Africa with low investment, increased unemployment, reduced social spending, reduced consumption, and low output, all combining to create a vicious cycle of stagnation and decline.
Lifting price controls on fertilizers while simultaneously cutting back on agricultural credit systems simply led to reduced applications, lower yields, and lower investment. One would have expected the non-economist to predict this outcome, which was screened out by the Bank and Fund’s free-market paradigm. Moreover, reality refused to conform to the doctrinal expectation that the withdrawal of the state would pave the way for the market and private sector to dynamize agriculture. Instead, the private sector believed that reducing state expenditures created more risk and failed to step into the breach. In country after country, the predictions of neoliberal doctrine yielded precisely the opposite: the departure of the state “crowded out” rather than “crowded in” private investment. In those instances where private traders did come in to replace the state, an Oxfam report noted, “they have sometimes done so on highly unfavorable terms for poor farmers,” leaving “farmers more food insecure, and governments reliant on unpredictable aid flows.” The usually pro-private sector Economist agreed, admitting that “many of the private firms brought in to replace state researchers turned out to be rent-seeking monopolists.”
What support the government was allowed to muster was channeled by the Bank to export agriculture – to generate the foreign exchange earnings that the state needed to service its debt to the Bank and the Fund. But, as in Ethiopia during the famine of the early 1980s, this led to the dedication of good land to export crops, with food crops forced into more and more unsuitable soil, thus exacerbating food insecurity. Moreover, the Bank’s encouraging several economies undergoing adjustment to focus on export production of the same crops simultaneously often led to overproduction that then triggered a price collapse in international markets. For instance, the very success of Ghana’s program to expand cocoa production triggered a 48% drop in the international price of cocoa between 1986 and 1989, threatening, as one account put it, “to increase the vulnerability of the entire economy to the vagaries of the cocoa market.” 1 In 2002-2003, a collapse in coffee prices contributed to another food emergency in Ethiopia.
As in many other regions, structural adjustment in Africa was not simply underinvestment but state divestment. But there was one major difference. In Latin America and Asia, the Bank and Fund confined themselves for the most part to macromanagement, or supervising the dismantling of the state’s economic role from above. These institutions left the dirty details of implementation to the state bureaucracies. In Africa, where they dealt with much weaker governments, the Bank and Fund micromanaged such decisions as how fast subsidies should be phased out, how many civil servants had to be fired, or even, as in the case of Malawi, how much of the country’s grain reserve should be sold and to whom. In other words, Bank and IMF resident proconsuls reached into the very innards of the state’s involvement in the agricultural economy to rip it up.

The Role of Trade

Compounding the negative impact of adjustment were unfair trade practices on the part of the EU and the United States. Trade liberalization allowed low-priced subsidized EU beef to enter and drive many West African and South African cattle raisers to ruin. With their subsidies legitimized by the WTO’s Agreement on Agriculture, U.S. cotton growers offloaded their cotton on world markets at 20-55% of the cost of production, bankrupting West African and Central African cotton farmers in the process.2
These dismal outcomes were not accidental. As then-U.S. Agriculture Secretary John Block put it at the start of the Uruguay Round of trade negotiations in 1986, “the idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on U.S. agricultural products, which are available, in most cases at lower cost.”3
What Block did not say was that the lower cost of U.S. products stemmed from subsidies that were becoming more massive each year, despite the fact that the WTO was supposed to phase out all forms of subsidy. From $367 billion in 1995, the first year of the WTO, the total amount of agricultural subsidies provided by developed country governments rose to $388 billion in 2004. Subsidies now account for 40% of the value of agricultural production in the European Union (EU) and 25% in the United States.
The social consequences of structural adjustment cum agricultural dumping were predictable. According to Oxfam, the number of Africans living on less than a dollar a day more than doubled to 313 million people between 1981 and 2001 – or 46% of the whole continent. The role of structural adjustment in creating poverty, as well as severely weakening the continent’s agricultural base and consolidating import dependency, was hard to deny. As the World Bank’s chief economist for Africa admitted, “We did not think that the human costs of these programs could be so great, and the economic gains would be so slow in coming.”4
That was, however, a rare moment of candor. What was especially disturbing was that, as Oxford University political economist Ngaire Woods pointed out, the “seeming blindness of the Fund and Bank to the failure of their approach to sub-Saharan Africa persisted even as the studies of the IMF and the World Bank themselves failed to elicit positive investment effects.”5

The Case of Malawi

This stubbornness led to tragedy in Malawi.
It was a tragedy preceded by success. In 1998 and 1999, the government initiated a program to give each smallholder family a “starter pack” of free fertilizers and seeds. This followed several years of successful experimentation in which the packs were provided only to the poorest families. The result was a national surplus of corn. What came after, however, is a story that will be enshrined as a classic case study in a future book on the 10 greatest blunders of neoliberal economics.
The World Bank and other aid donors forced the drastic scaling down and eventual scrapping of the program, arguing that the subsidy distorted trade. Without the free packs, food output plummeted. In the meantime, the IMF insisted that the government sell off a large portion of its strategic grain reserves to enable the food reserve agency to settle its commercial debts. The government complied. When the crisis in food production turned into a famine in 2001-2002, there were hardly any reserves left to rush to the countryside. About 1,500 people perished. The IMF, however, was unrepentant; in fact, it suspended its disbursements on an adjustment program with the government on the grounds that “the parastatal sector will continue to pose risks to the successful implementation of the 2002/03 budget. Government interventions in the food and other agricultural markets…crowd out more productive spending.”
When an even worse food crisis developed in 2005, the government finally had enough of the Bank and IMF’s institutionalized stupidity. A new president reintroduced the fertilizer subsidy program, enabling two million households to buy fertilizer at a third of the retail price and seeds at a discount. The results: bumper harvests for two years in a row, a surplus of one million tons of maize, and the country transformed into a supplier of corn to other countries in Southern Africa.
But the World Bank, like its sister agency, still stubbornly clung to the discredited doctrine. As the Bank’s country director told the Toronto Globe and Mail, “All those farmers who begged, borrowed, and stole to buy extra fertilizer last year are now looking at that decision and rethinking it. The lower the maize price, the better for food security but worse for market development.”

Fleeing Failure

Malawi’s defiance of the World Bank would probably have been an act of heroic but futile resistance a decade ago. The environment is different today. Owing to the absence of any clear case of success, structural adjustment has been widely discredited throughout Africa. Even some donor governments that once subscribed to it have distanced themselves from the Bank, the most prominent case being the official British aid agency that co-funded the latest subsidized fertilizer program in Malawi. Perhaps the motivation of these institutions is to prevent the further erosion of their diminishing influence in the continent through association with a failed approach and unpopular institutions. At the same time, they are certainly aware that Chinese aid is emerging as an alternative to the conditionalities of the World Bank, IMF, and Western government aid programs.
Beyond Africa, even former supporters of adjustment, like the International Food Policy Research Institute (IFPRI) in Washington and the rabidly neoliberal Economist acknowledged that the state’s abdication from agriculture was a mistake. In a recent commentary on the rise of food prices, for instance, IFPRI asserted that “rural investments have been sorely neglected in recent decades,” and says that it is time for “developing country governments [to] increase their medium- and long-term investments in agricultural research and extension, rural infrastructure, and market access for small farmers.” At the same time, the Bank and IMF’s espousal of free trade came under attack from the heart of the economics establishment itself, with a panel of luminaries headed by Princeton’s Angus Deaton accusing the Bank’s research department of being biased and “selective” in its research and presentation of data. As the old saying goes, success has a thousand parents and failure is an orphan.
Unable to deny the obvious, the Bank has finally acknowledged that the whole structural adjustment enterprise was a mistake, though it smuggled this concession into the middle of the 2008 World Development Report, perhaps in the hope that it would not attract too much attention. Nevertheless, it was a damning admission:

Structural adjustment in the 1980’s dismantled the elaborate system of public agencies that provided farmers with access to land, credit, insurance inputs, and cooperative organization. The expectation was that removing the state would free the market for private actors to take over these functions—reducing their costs, improving their quality, and eliminating their regressive bias. Too often, that didn’t happen. In some places, the state’s withdrawal was tentative at best, limiting private entry. Elsewhere, the private sector emerged only slowly and partially—mainly serving commercial farmers but leaving smallholders exposed to extensive market failures, high transaction costs and risks, and service gaps. Incomplete markets and institutional gaps impose huge costs in forgone growth and welfare losses for smallholders, threatening their competitiveness and, in many cases, their survival.
In sum, biofuel production did not create but only exacerbated the global food crisis. The crisis had been building up for years, as policies promoted by the World Bank, IMF, and WTO systematically discouraged food self-sufficiency and encouraged food importation by destroying the local productive base of smallholder agriculture. Throughout Africa and the global South, these institutions and the policies they promoted are today thoroughly discredited. But whether the damage they have caused can be undone in time to avert more catastrophic consequences than we are now experiencing remains to be seen.

Walden Bello is a senior analyst at Focus on the Global South, a program of Chulalongkorn University's Social Research Institute, and a columnist for Foreign Policy In Focus (www.fpif.org).  This article first appeared in Foreign Policy In Focus and may be viewed at http://www.fpif.org/fpiftxt/5271.
 

Sources


1. Charles Abugre, “Behind Crowded Shelves: as Assessment of Ghana’s Structural Adjustment Experiences, 1983-1991,” (San Francisco: food First, 1993), p. 87.
2. “Trade Talks Round Going Nowhere sans Progress in Farm Reform,” Business World (Phil), Sept. 8, 2003, p. 15
3. Quoted in “Cakes and Caviar: the Dunkel Draft and Third World Agriculture,” Ecologist, Vol. 23, No. 6 (Nov-Dec 1993), p. 220
4. Morris Miller, Debt and the Environment: Converging Crisis (New York: UN, 1991), p. 70.
5. Ngaire Woods, The Globalizers: the IMF, the World Bank, and their Borrowers (Thaca: Cornell University Press, 2006), p. 158.

http://www.worldhunger.org/articles/08/editorials/bello_afag.htm 
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Walden Bello: Structural Adjustment Programmes dictated by the IMF and World Bank destroyed African agriculture
Bello on Structural Adjustment Programmes
22 September 2009 TNI Ama Biney
Allafrica
 
How is it possible that in the 21st century the world has the capacity to feed every single human being on the planet, yet the majority of people in Africa and the rest of the Global South go rampantly hungry?

How is it possible that in the 21st century the world has the capacity to feed every single human being on the planet, yet the majority of people in Africa and the rest of the Global South, who are poor - whilst obesity soars in the West - go rampantly hungry? In addition, why has there been a recent 'land grab' in Africa by rich countries?
The short answer to the first question lies in the unequal distribution and control of global wealth and its ownership, which lies in a few hands. The answer to the second question is tied to the first and is the focus of this article.
The recent haste i.e. within the last 12 months, to buy land in Africa, has its origins in a number of factors related to global food security concerns, particularly the increase in world grain prices between 2007-2008 which led to food riots in over 20 countries around the world, including Haiti, Senegal, Yemen, Egypt and Cameroon.
Contributing to this state of affairs has been the volatility of food prices in the international market and speculation on future food prices. The food growing nations imposed tariffs on staple crops to minimise the amounts that left their countries. The consequences of this were that it escalated the situation further.
For the Gulf States, Saudi Arabia, Bahrain, Oman, Qatar (which control 45 per cent of the world's oil), they are finding that they can no longer rely on regional and global markets to feed their populations. They have rushed to grab land in Africa and are the pioneers of this agri-colonialism to secure food supplies for their own populations. The geopolitical ramifications of this is that food is likely to become the next coveted commodity like oil.
Other factors include failure to deal with environmental trends such as climate change, which has led to water shortages and drought in several places around the world. The impact of drought in places such as the Rift Valley for the Masai people in Kenya and Punjabi farmers in Pakistan has been totally disastrous.
In short, these global developments have led countries such as China, South Korea, Saudi Arabia and Kuwait, which are short of arable land, to seek agricultural investments in Africa. They are joined by Malaysia, Qatar, Bahrain, India, Sweden, Libya, Brazil, Russia and the Ukraine.
As the world's population is projected to grow from 6 billion to 9 billion by 2050, the capacity of the world to produce as much abundantly as it has done is beginning to be squeezed. The world must change how food is produced, how much is eaten in the richer parts of the globe, and slow down its negative impact on the environment. Otherwise the crisis in food security because of a rising demand will be catastrophic in years to come, as food production fails to keep pace with rising demand. It appears for countries like Saudi Arabia that can no longer feed their own populations, they are aggressively seeking to do this by buying land in other countries.
Is 'land grabbing' just scaremongering
In the last 4 months a spate of articles in the Western media, with headlines such as: 'The food rush: Rising Demand in China and West Sparks African Land Grab',[1] 'The World Wide Land Grab',[2] and 'Africa Investment Sparks Land Grab Fear'[3] - have given publicity to this emerging trend. Setting aside the sensationalist headlines, the trend is a profoundly disturbing one for the political and economic implications it suggests.
The cause for alarm among Africans is justified when the trend is being dubbed a 'neo-colonial system' by the head of the United Nations Food and Agricultural Organisation (FAO), Jacques Diouf. The deputy director of the FAO, David Hallam, claims: 'This could be a win-win situation or it could be a sort of neo-colonialism with disastrous consequences for some of the countries involved. There is a danger that host countries, particularly the more politically sensitive and food-insecure, will lose control over their own food supplies when they need it most.'
Others have also referred to it as 'the new colonialism' and 'agrarian colonialism'. The reality is that in the last year millions of hectares of land have been leased for bio fuel and agricultural production by countries such as Ghana, Ethiopia, Mali, Tanzania, Kenya and Sudan. For example, Saudi Arabia has approached the Tanzanian government in April 2008 to lease 500,000 hectares of farmland for rice and wheat production.[4]
The pros and cons of these new large-scale land acquisitions have recently been presented in a paper entitled Land Grab or Development Opportunity? Agricultural Investment and International Land Deals in Africa, published in June by the FAO, the Institute for Environment and Development (IIED) and the International Fund for Agricultural Development (IFAD).
The liberal position of the authors is that their 'aim is not to come up with definitive answers, but to facilitate bold debate among government, private sector and civil society interest groups.'[5] They point out that 'there is a big difference between announcing plans [to sell or lease land] and actually acquiring land - let along starting to cultivate it.' They maintain that some of the land purchases are unprecedented and significant. They concur with the Economist that 'investment in foreign farms is not new.'[6]
What is unprecedented, is firstly, the scale of the land deals that have been transacted. The Washington DC think-tank, the International Food Policy Research Institute (IFRI) estimates the deals to be worth between US$20 - $30 billion and involving between 15 - 20 million hectares of farmland in poor countries in Africa, Cambodia, Pakistan and the Philippines. According to the FAO report, such huge deals could be 'the tip of the iceberg'. Already 2.5 million hectares (6.2 million acres) of farmland in five sub-Saharan African countries have been bought or rented in the last five years at a total cost of $920 million ( £563 million).[7]
The second important characteristic of these new land acquisitions is that they are focused on staples (e.g. wheat, maize, rice, jatropha) or bio fuels. For example, in 2002 Sudan signed the Special Agricultural Investment Agreement with Syria. It involves a 50-year lease by the government of Sudan to the government of Syria. According to the FAO paper, 'the Saudi Arabia company Hadco reportedly acquired 25,000 hectares of cropland in Sudan with 60 per cent of the project's cost coming from the governmental Saudi Industrial Development Fund.'[8] In Ethiopia, the government of Meles Zenawi has recently accepted a deal of US$100 million for farmlands permitting Saudi Arabia to cultivate barley and wheat.
Thirdly, in the past, foreign farming investment was pursued by private investors. Now, several new deals are government-to-government. At times the acquirers are foreign companies. The sellers are host governments dispensing land e.g. Cambodia leased land to Kuwaiti investors in August 2008. In the same year the Sudanese and Qatari governments set up a joint venture in Sudan. The land is usually leased or made available through concessions but sometimes bought. Adding to the complexity of the land buying deals is the fact, pointed out by the FAO paper, that 'there is no single dominant model for financial and ownership arrangements but rather a wide variety of locally specific arrangements among government and the private sector.[9]
A win-win situation for all involved?
The FAO paper seeks to manoeuvre between extolling the advantages of the land deals and offering a critique of them. The authors write, 'This fast-evolving context creates opportunities, challenges and risks. Increased investment may bring macro-level benefits (GDP growth and government revenues), and create opportunities for raising local living standards. For poorer countries with relatively abundant land, incoming investors may bring capital, technology, know-how and market access, and may play an important role in catalysing economic development in rural areas. On the other hand, large-scale acquisitions can result in local people losing access to the resources on which they depend for their food security and livelihoods.'[10]
What these deals do not spell out is the environmental tab of highly intensive farming - that is devastated soils, dry aquifers and ruined ecologies from chemical contamination. This will be the cost to the host country to pick up - no different from the environmental wreckage of exploitation carried out by Anglo-Dutch Shell in the Niger Delta region in Nigeria.
Dr Vandana Shiva, Director of the Research Foundation for Science, Technology and Ecology in India, questions the current zeal for biofuels in the West that not only require millions of hectares of land, but, as she points out 'are very centralised and industrial.'[11] They were a hidden factor behind the 2007-8 increase in global food prices, however, Shiva points out that the production of biofuels as an alternative to fossil fuels is forcing many farmers to switch their production on land that would otherwise be used to grow food.
In central India, the region of Chattisgarh has seen several jatropha fields ripped up by villagers (jatropha produces oil sees that can produce biodiesel). One woman who was imprisoned for doing so, forthrightly said 'the problem we have with jatropha is that we can't eat it. We can't burn it; we can't use it for anything. The poor have to make their living from the land. Jatropha is only useful for fuel. As we don't have a vehicle it is of no value to us. Also, a big problem is that if our animals eat jatropha they die.'[12]
Recently, it is alleged that land in northern Ghana has been offered to a Norwegian bio fuel company to create a massive jatropha plantation. The people of northern Ghana should heed the experience of the dispossessed villagers of Chattisgarh who wish to be self-sufficient in food production yet their land has been given over to the exploitation of jatropha for profit.
Walden Bello rightly contends that at independence many African countries were self-sufficient in food production and were exporters of food. That situation has dramatically changed. The policies of Structural Adjustment Programmes (SAPs) dictated by the IMF and World Bank during the 1980s and 1990s helped to destroy African agriculture through the imposition of conditionalities as the price for receiving IMF and World Bank assistance to service debt. African governments were obliged to withdraw government controls and support mechanisms and in addition 'lifting price controls on fertilisers while simultaneously cutting back on agricultural credit systems simply led to reduced application, lower yields, and lower investments.'[13]
As the IMF and World Bank insisted that their policies would lead to foreign direct investment 'in country after country, the predictions of neoliberal doctrine yielded precisely the opposite: the departure of the state "crowded out" rather than "crowded in" private investment.' In short, 'as in many other regions, structural adjustment in Africa was not simply underinvestment but state divestment.' Currently African governments such as that of Ethiopia and Sudan are using the argument of seeking foreign direct investment as the reason why they have invited rich countries to purchase land in their countries. Even before these unprecedented land purchases, farmers in Africa had been forced to grow crops that the market demanded if they were to make a living. Few farmers had genuine options. They often get into debt in order to purchase or hire machinery, acquire credit to purchase seeds, fertilisers, or abandon farming altogether in order to migrate to urban areas in search of an alternative means of living.
Overall, the political and economic risks of these land purchases are colossal and outweigh any gains. The reasons are many. Firstly, the unequal power relations in such deals jeopardise the livelihoods of the poor. In essence, the foreign investor has the might of power in money to buy off local and government elites in their favour. In this way, smallholders will be legally trampled on, displaced, if not dispossessed of their land. Ruth Meinzen-Dick, a researcher at the IFPR claims, 'The bargaining power in negotiating these agreements is on the side of the foreign investor, especially when its aspirations are supported by the host state or local elites.'
Often these smallholders have little formal education and do not understand the full implications of the small print in legal documents. In addition to this, the UN and other agencies caution that many African farmers often do not have formal rights to the land they farm and therefore will be pushed off in favour of the investor.
Secondly, many African countries do not have in place the legal mechanisms or procedures to protect the rights of such smallholders. Compounding the matter is that there is often lack of transparency and checks and balances in such contract negotiations. This creates a fertile ground for corruption, particularly as there are often huge gaps between what is on the statute books and the reality on the ground that can be manipulated in particular interests.
Is it just a case of greater transparency or a necessary code of conduct? The July meeting of the G8 group of rich countries in north eastern Italy pledged to develop a proposal on principles and best practices on purchase of land in developing countries. This code of conduct is being support by the IFPRI and the African Union (AU).
The win-win language of Western agri-businesses conceals the fact that as Raj Patel points out, 'as lands have fallen before the banks, repossessed and repurchased, suicide rates for farmers across the world have soared.'[14] Whilst records of suicides amongst African farmers are unknown, according to P. Sainath, between 1997 and 2007 the official numbers of Indian farmers who have committed suicide has reached 182,936. He writes, 'Those who have taken their lives were deep in debt - peasant households in debt doubled in the first decade of the neoliberal "economic reforms."'[15] Meanwhile, it is ironic that whilst Indian farmers commit suicide, the Indian government is seeking to purchase land for growing food in Ethiopia and Sudan.
The barometer of social distress is reflected in the increase in suicide rates in countries such as Sri Lanka, China and South Korea. As Patel points out, 'these are not only individual tragedies, but social ones.'[16] They tell the story of political and economic powerlessness of a community. They are an acute symptom of a society's inability to ensure not only food sovereignty but economic security in the hands of a people. They are also indicative of the absurdity of the capitalist free trade logic of the World Trade Organisation (WTO) that dictates that competition is good and will weed out the inefficient producer. Meanwhile, farmers in the West continue to receive agricultural subsidies that give them a head start in the capitalist game and they are able to out price African farmers.
Why land grabbing is a critical topic for Africans
For the majority of Africans land remains both an emotive and political issue. One only has to look at the history of settler-colonialism in Africa, in countries such as Zimbabwe, Kenya and South Africa to see that land is not only an issue of economic resources, and therefore livelihood, but is also tied to identity. The continued purchase of African land is a critical topic for Africa because it is an integral dimension of the neo-colonial partnership that exists between the elite in African countries and Western governments and trans-national corporations.
Such a class continues to perform the role of gatekeepers of the rentier state, that is, renting out the resources of the state, whether it be oil, diamonds, coltan or land, that should be utilised for the benefit of the African majority, in order to consolidate their own political and economic base and to shore up their illegitimate regimes in terms of defence and security. Frantz Fanon aptly described such an elite as considering themselves as having 'nothing to do with transforming the nation; it consists, prosaically, of being the transmission line between the nation and a capitalism, rampant though camouflaged, which today puts on the masque of neo-colonialism.'[17]
In cognisance of this masque, we should ask: To what extent are the leaders of Sudan and Ethiopia different from the African chiefs and kings who during the days of colonialism signed away their land not knowing exactly what they were signing away? Today, unlike the African chiefs of the colonial era, African leaders such as Meles Zenawi and Omar Bashir sign such contracts with deliberation and calculation. Moreover, to what extent would Europe, Britain or the US have developed in the way they currently have, if they had sold or leased huge hectares of their land to other countries? This outsourcing of African land is a profoundly negative feature of globalisation and it is necessary that we stop our rulers voluntarily making us a colony again. Such neo-colonial partnerships are indirectly a re-colonisation of Africa's resources, which is unlikely to benefit all parties equally.
For example, the European Union (EU) paid developing countries £125 million in 2008 to allow modern European fleets to fish the waters of developing countries. The deals proved controversial and continue to be. For years European trawlers from around the world and particularly Europe have fished off the coast of Senegal, some are legal and some are illegal. Every year about 25,000 tons of fish is exported to the EU. Many big trawlers fly Senegalese flags and are allegedly Senegalese ships. Yet as Moussa Faye from Actionaid, who campaigns against overfishing, candidly remarks, 'They are cheating the Senegalese government and the Senegalese people, because they are actually European enterprises who come for our resources and who export the fish and the profit they make. I think that this issue should serve Senegalese people and should be a source of livelihood for the people here. There is also a serious limitation on the numbers of trawlers authorised to fish. We rely mainly on fish as source of animal protein in Senegal, which means we have less animal protein available for people who cannot afford to buy meat. The result will be malnutrition.'[18]
Like European trawlers engaging in fish farming in African waters for their own people, there is no doubt that the countries involved in land purchases in Africa, the Gulf States, India, South Korea and China, are seeking to ensure cheap food for their own citizens. Similarly, during the slave trade and colonial period in Africa, European nations managed to maintain a tacit social contract with their working classes: The ruling class would maintain low levels of hunger and deprivation where possible, by ensuring sufficient quantities of food was available. This contract was maintained on the backs of millions of African slaves in the New World and colonial subjects in the African colonies, who produced cheap sugar, tea, cotton, rubber, tin, palm oil, that were shipped to the colonial metropole. Then - as now - the cheap sugar and other agricultural products were intended to pacify the bodies of European workers. In the light of the riots that occurred in over 20 countries in 2007-8, the spate of new land deals perform a similar role in pacifying such citizens at the expense of the African poor and African farming communities in particular. In such a situation, who will feed Africa's hungry?
What is to be done?
Malagasy farmers have recently given farmers worldwide an example of what is to be done. In fact their example requires wider media coverage in the dissemination of globalising resistance and victories against such land deals. The farmers of Madagascar recently resisted the neo-colonial deal between South Korea's Daewoo Logistics and the government of Marc Ravalomana. The announcement of the deal led to the toppling of Ravalomana's government when the people of Madagascar were informed that the Ravalomana government had entered into a land deal to lease 1.3 million hectares in a 99-year lease in east and west Madagascar to the South Korean Company Daewoo Logistics. The contract gave Daewoo Logistics the right to grow and export maize and oil palm to South Korea to the tune of US$6 billion.
The 34 year-old new president of Madagascar said that land was not for sale in his country. The Malagasy Farmers Confederation (Fekritana) mobilised its workers to resist the contract. Its programme officer, Rihatiana Rasonarivo said that it was not in the interests of Madagascar to lease land for food. He said: 'We don't agree with the idea of foreigners coming to buy land in Madagascar. Our concern is that first of all the government should facilitate the access to land by local farmers before dealing with foreigners. One of the biggest problems for farmers in Madagascar is land ownership, so we think it's unfair for the government to be selling or leasing land to foreigners when local farmers do not have enough land.'
Similarly, in the Philippines, a poor South East Asian country of 90 million people, the politician Rafael Mariano, who represents Filipino farmers introduced a resolution calling for an immediate enquiry into what he characterised as the 'great foreign land grab.' He said: 'It is the height of stupidity for our country to bargain our lands for the sake of other nation's food security, while being dependent on importation for our very own food security needs.' Therefore, it is necessary to question how it is possible that Ethiopia, a country which is largely associated with famine and Live Aid, is able to have signed land deals with Saudi Arabia, when it cannot feed its own population but is promising to feed the people of Saudi Arabia? Similarly, why is the Kenyan government considering leasing parcels of the rich coastal lands in the delta of Kenya's Tana River, which is home to farming and pastoralist communities, when Kenya is currently facing not only huge food shortages and high prices but a third consecutive year of drought?
Other protests which have received little media coverage in the West and in Africa is the campaign led by the militant Asian Peasant Coalition (APC) and International League of Asia Wide Peasants Caravan for Land and Livelihood from July 2009 to November 2009 in ten Asian countries. The theme of the Peasant's Caravans is 'Stop Global Land Grabbing! Struggle for Genuine Agrarian Reform and People's Food Sovereignty.' This grassroots movement is seeking to bring to light the plight of poor peasants whose livelihoods have been worsened by neo-liberal policies of trans-national corporations, the WTO and large-scale corporatisation of farming. Their objectives are 'to popularise peasant victories and success stories in the struggle for genuine land reform that will inspire' and lead to agrarian change in the interests of Asian farmers.
In addressing what is to be done, there are a number of actions and sites of struggle to be initiated. Firstly, African governments must make food security and sufficiency for their own people paramount. Agricultural investment is a necessity and number one priority, as is the need to help small farmers produce greater yields to stem both rural and urban hunger. African farmers need to be paid a decent wage to produce for the nation and not for foreign investors. Secondly, civil society, including African farmers unions and co-operatives need to educate local people, and small-scale farmers, that such land deals are not in their interests, however well-meaning or couched in 'win-win' terminology they appear to be. Thirdly, resistance along the lines of the Malagasy farmers' union and the Asian Peasant Coalition needs to be shared by farmers unions in the Global South not only in a spirit of solidarity but also as concrete evidence of collective change being both a possibility and reality against such land deals. Ultimately, we need to fight for African people's right to control land and other critical resources and these must be placed in the interests of African people.

Dr Ama Biney is a Pan-Africanist and scholar-activist who lives in the United Kingdom.
Allafrica.com

Source: http://www.tni.org/inthemedia/walden-bello-structural-adjustment-programmes-dictated-imf-and-world-bank-destroyed



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How The IMF-World Bank and Structural Adjustment Program (SAP) Destroyed Africa

HerbertJauchmuok
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Herbert Jauch , Labour Resource and Research Institute, NamibiaStructural adjustment programmes (SAPs) have been implemented in many ‘developing’ countries since the 1980s. They were designed by the International Monetary Fund (IMF) and the World Bank and imposed as a condition for
further loans. Below is a brief background of the events that led many countries to accept SAPs. It describes how SAPs are being implemented and what results they have produced over the past 20 years. This article also gives a short analysis of the roles of the World Bank, the IMF and the local political elites in this process.
Structural Adjustment and the Debt CrisisSAPs were born as a result of a debt crisis that has hit especially developing countries since the 1980s.
This debt crisis has its origin in the early 1970s when oil-producing countries that had united in the Organisation of Petroleum Exporting Countries (OPEC) increased the oil price to gain additional revenue. Most of these profits were invested with banks in industrialised countries. These banks, in turn, were interested to lend this money to developing countries to finance the purchase of products from the industrialised countries. In this way, the loans given to ‘developing’ countries helped to stimulate production in the North (see Toussaint and Comanne 1995: 15). At that time. both private and public institutions encouraged the South to borrow. Even the World Bank ‘preached the doctrine of debt as the path towards accelerated development’. As a result, huge amounts were borrowed by the political elites, often wasted on luxuries, ‘white elephant’ projects or stolen by corrupt officials  (Usually stooges, selected by the exiting colonial powers to lead these failed African states). Very little was invested productively with a view of achieving sustainable economic growth (see George 1995: 21).
Related: NewsRescue 01/01/2012- IMF Forces African Nations to Remove Fuel Subsidies
During the 1970s loans were given freely at very low interest rates but this situation changed dramatically in the early 1980s. The USA pushed up interest rates drastically in an attempt to stop inflation. ‘Developing’ countries that had taken out loans with US banks now had to pay huge interests. The major lending banks in Europe followed suit and the debt crisis was born (see George 1995: 21). ‘Developing’ countries were unable to repay their loans and were forced to take up new loans to pay the interest.In 1980 the total debt of developing countries stood at US$ 567 billion. Between 1980 and 1992 these countries paid back US$ 1662 billion. However, because of the high interest rates, the debt increased to US$ 1419 billion in 1992 – despite the repayments! The rising interest rates forced developing countries to take out new loans to avoid bankruptcy.Debt repayments drain about US$ 160 billion each year from ‘developing’ countries. This is about 2.5 times the total development aid that these countries receive!Since the 1980s, debt repayments are a major mechanism of transferring wealth from the South to the North. The former French President Francois Mitterand admitted this when he said in 1994:
‘Despite the considerable sums spent on bilateral and multilateral aid, the flow of capital from Africa toward the industrial countries is greater than the flow of capital from the industrial countries to the developing countries’ (see Touissaint and Comanne 1995: 10-12).
Despite the fact that ‘developing’ countries have long paid back their initial loans, they are still highly indebted and are dependent on new loans. This paved the way for the IMF and World Bank to come ‘to the rescue’. They were given the task to make sure that ‘developing’ countries will continue paying their debt by offering new loans – to countries who accept certain conditions: structural adjustment.Related: NewsRescue- Summary of Nigeria IMF-SAP debt progressionThe role of the IMF and World BankInitially the idea behind the World Bank and IMF, also called the Bretton Woods institutions, was widely supported. The Bank was given the task to rebuild first Europe and then other countries after the Second World War. The IMF was supposed to facilitate trade and to make short-term loans available to countries with temporary balance of payment problems (see George 1995: 19).
Today the IMF and the World Bank are much more powerful than its founders could have imagined. Both have over 170 member countries whose power is determined by the amount they pay in subscriptions. This system of ‘one dollar – one vote’ has meant that the rich industrialised countries control these institutions today (see the description of the IMF and World Bank attached). The IMF and World Bank are far from democratic and their policies are shaped by their principal shareholders – the powerful industrialised countries.
The IMF and World Bank today have a strong influence over economic policies in many countries. The inability of many countries to repay their debt has made them dependent on new loans. The IMF has the power to declare countries credit worthy – or not. To get the seal of approval countries have to accept the conditions of structural adjustment programmes. They have to restructure their economies according to IMF/World Bank guidelines – otherwise they will have virtually no chance to get loans from private or public creditors anywhere (see George 1995:19-21).
Herbert Jauch; LARRI, Namibia
The Implementation of Structural Adjustment ProgrammesSAPs are built on the fundamental condition that debtor countries have to repay their debt in hard currency. This leads to a policy of ‘exports at all costs’ because exports are the only way for ‘developing’ countries to obtain such currencies.
A first feature of SAPs is therefore a switch in production from what local people eat, wear or use towards goods that can be sold in the industrialised countries. Since the 1980s dozens of countries have followed these policies simultaneously. They often exported the same primary commodities, competed with each other and then suffered because of declining world market prices for their commodities. Between 1980 and 1992, ‘developing’ countries lost 52% of their export income due to deteriorating prices (see Touissant and Comanne 1995: 12; George 1995:22; Bournay 1995: 51).
SAPs have 4 fundamental objectives according to which they are shaped:
  1. Liberalisation: promoting the free movement of capital; opening of national markets to international competition.
  1. Privatisation of public services and companies.
  1. De-regulations of labour relations and cutting social safety nets.
  1. Improving competitiveness (see Toissant and Comanne 1995:14)
Based on these objectives, SAPs prescribe nearly always the same measures as a condition for new loans. These are:
  • reduction of government deficit through cuts in public spending (cost recovery programmes);
  • rationalisation and privatisation of public and parastatal companies;
  • deregulation of the economy, for example:
- liberalisation of foreign investment regulations
- deregulation of the labour market, e.g. wage ‘flexibility’
- abolishing price controls and food subsidies
  • shift from import substitution to export production (see Isaacs 1997: 135)
Poverty in Africa {Img: sfgate.com}
Poverty in Africa {Img: sfgate.com}
These measures forced countries on a path of deregulated free market economies. The IMF/World bank basically determine countries’ macro-economic policies, they take control over central bank policies and over public expenditure through the so-called ‘Public Expenditure Review’. SAPs promote the principal of cost-recovery for social services and the gradual withdrawal of the state from basic health and educational services. Under its ‘Public Investment Programme’ the IMF even decides what type of infrastructure should be built while an imposed system of international tender ensures that public-works projects are carried out by international construction and engineering firms (see Chossudovsky 1995: 59).
Although several countries were skeptical about such neo-liberal policies (designed along the ideas of the Reagan and Thatcher administrations) they were forced to abandon socialist or even social democratic ideas. In this way, the debt crisis has provided the IMF and World Bank with a very effective instrument of disciplining rebellious countries. Debtor countries are kept in a ‘strait-jacket’ which prevents them from implementing their own economic policies (SEE George 1995:21; Chossudovsky 1995:57).
The Results of Structural Adjustment ProgrammesDespite the IMF and World Bank claims of SAP successes, it is widely acknowledged that SAPs have failed to achieve their goals. They have not created wealth and economic development as unregulated markets did not benefit the poor and failed to protect the delivery of social services. The IMF/World Bank believe that the elimination of protective tariffs will make domestic industries more competitive. In reality, domestic manufacturing often collapsed and imported consumer goods replaced domestic production. Other results of SAPs were:
  • Privatisation allows international capital to buy state enterprises at very low costs.
  • Tax reforms under SAPs (like VAT) place a greater tax burden on middle and low-income groups while foreign capital receives generous tax holidays.
  • Deregulation of the banking system leads to very high interest rates which makes most goods unaffordable to the majority.
  • Elimination of subsidies and prize controls, covered with devaluation lead to price increases and reduce real earnings in the formal and informal sectors.
  • Free movement of foreign exchange allows foreign companies to repatriate their profits. It also allows the ‘laundering’ of ‘dirty money’ from offshore banking accounts.
  • Cost-recovery programmes in the health sector increased the inequality in health care delivery, reduced health coverage and increased the number of people without access to health care. Diseases like cholera, malaria and yellow fever are on the increase again.
  • Various NGOs funded by international aid agencies have gradually taken over government functions in the social sector.
  • Cuts in public sector employment (for example 300 000 civil servants were retrenched in Zaire – now DRC – in 1995), coupled with bankruptcies of local companies has led to large increases in unemployment.
  • Liberalisation of the labour market leads to the elimination of cost of living adjustment clauses in collective agreements and to the phasing out of minimum wage legislation.
  • Export orientation in agriculture is eliminating subsistence crops and accelerates the exodus of the unemployed towards the cities. (See Touissant and Comanne 1995: 9; Chossudovsky 1995:58-64)
Even in those countries that are singled out as success stories, SAPs imposed severe hardships on the poor. In Uganda, for example, the government obediently followed the World Bank/IMF policies and implemented far-reaching liberalisation such as:
  • Privatisation of government institutions
  • Reducing the size of the civil service and the army
  • Decentralisation of services to local authorities
  • Cuts in government spending on social services
Despite some (statistical) economic growth, these policies resulted in:
  • Drop in formal sector employment to less than 14% of the economically active population
  • Retrenchment of more than half the civil service (170 000)
  • Lack of equipment and medication in government health facilities
  • Collapse of small enterprises
  • Declining co-operative movement
  • Trade Unions lost 60% of their members since 1990
SAPs had a detrimental effect on social services. In the education sector, for example, they led to:
  • Increasing class size (student-teacher ratios)
  • Increasing school fees as part of cost-recovery programmes
  • Reduction in the number of teachers and/or wage freezes
  • Introduction of ‘double shifts’
  • Drop in the standard of public education due to deteriorating facilities
  • Increasing inequalities in the standard of education between poor and rich communities
  • Lower enrolment at schools as the poor have to choose between feeding their children and paying for school uniforms, stationery and school fees.
  • Finance-driven education reforms under SAPs often reversed the gains made by African countries after independence.
SAPs meant that most countries had to make major cuts in their education budgets and the world-wide rate of illiteracy began to grow again after a long period of decline (see Bournay 1995: 51). The poor and vulnerable groups in society are always the hardest hit by the SAP measures. SAPs have had a particularly negative effect on women because:
  • Privatisation of social services like health and education makes these services unaffordable for the poor. As a result, women are often forced to take on these responsibilities, for example tacking care of the sick.
  • Cuts in education services lead to an increase in illiteracy among women and girls. Under SAPs, the drop-out rate for girls is increasing.
  • Reduced spending on health leads to an increase in maternal deaths.
  • The elimination of food subsidies coupled with falling (real) wages reduces women’s buying power.
  • Unemployment is increasing as a result of public sector ‘restructuring’
  • ‘Labour flexibility’ may result in more jobs for women at the expense of men. These jobs, however, are usually poorly paid and insecure.
  • The reduction of formal sector jobs drives women into the informal sector.
  • In Zambia, the hardships caused by SAPs led to an increase in divorces. Men left their homes because they were unable to look after their families. As a result, more women were forced to look after their children on their own.

Picture representation
SAPs in Southern AfricaThe results of SAPs in Southern Africa were similar to those of the programmes elsewhere. The effects of these policies are visible in all countries of Southern Africa, although the manifestations are different. In Angola, the war sponsored by the CIA and South Africa during the 1970s and 1980s has devastated the country. Virtually the entire industrial production base was destroyed and Angolans have to fight a daily battle for survival. In the late 1980s the World Bank and the International Monetary Fund (IMF) enforced SAPs resulting in what was described as “wild capitalism” (Brittain: 3-7). These policies have done nothing but exacerbate the already devastated economic and social structures of Angola.
In Zimbabwe and Zambia, SAPs placed severe hardships on the population while failing to lead to the promised economic recovery and reduced unemployment. ESAP, the abbreviation for ‘Economic Structural Adjustment Programmes’ is now seen as the abbreviation for ‘Ever Suffering African People’, as these programmes resulted in popular protests and food riots after subsidies for basic food items were withdrawn. The Zimbabwe Congress of Trade Unions (ZCTU) has pointed out that ESAPs worsened poverty and that export orientation further disadvantages small-scale communal farmers who still have no adequate access to suitable land (Goncalves: 6)
After 5 years of SAPs, Zimbabwe’s external debts had increased dramatically due to heavy SAP-related borrowing. It now stands at more than 100% of the GDP and the domestic debt is even higher. Due to currency devaluations the real foreign exchange value of exports in Zimbabwe declined by 2,7% a year while it had grown by 9% before SAPs were introduced. Economic growth was slow and 60 000 workers were retrenched (Saunders: 9; Goncalves:70).
In 1995 the IMF suspended the lending programme and called for even bigger sacrifices to be imposed on the population. SAPs forced the government to concentrate on budget deficits at the expense of creating employment and improving social services. Unemployment stands at 50% in some sectors and only 16 000 jobs are created per year for 220 000 school leavers. Since the early 1990s 130 companies were liquidated and a process of de-industrialisation is underway in a country that once had a relatively self-contained and integrated economy (Saunders: 8-11).
Zambia took the most dramatic steps to fully implement ESAPs and has seen whole industries disappear as protective measures were dropped. External debts are strangulating the country and between 1990 and 1993 the Zambian government spent 35 times more on debt repayment than on primary school education! (Goncalves: 7)
Mozambique is often regarded as one of the poorest countries in the world with foreign assistance accounting for two-thirds of its GDP. After 20 years of South African sponsored war, the state has virtually been destroyed and is presently trying to establish some kind of political stability.
During the 1980s the Mozambiquen leadership tried to find a way of protecting social achievements when dealing with external financial institutions like the IMF and World Bank. This did not last long and a process of ‘recolonisation’ unfolded. Privatisation hit every sphere of the country’s social and economic life: banking, cotton industry, agriculture, health and education.
Today Mozambique is dominated ” not by the agents of a colonial power, but by the technically sophisticated and politically disinterested economists of the IMF , the World Bank and of bilateral aid agencies whose prescriptions are determined by economic analysis” (Plank).
They portray Mozambique’s subordination as a natural consequence of global economic trends. A Mozambiquen MP admitted that “our budget is really set by donors at the annual Paris conference” (Saul: 12-17). Privatisation which was meant to improve efficiency and reduce budget deficits often results in massive retrenchments. According to Mozambique’s trade union federation OTM, of the 502 companies which were privatised since 1989 only 25% are still operational and 37 000 workers have been retrenched (Goncalves: 6).
Under pressure form international donors, the Malawi government removed fertiliser subsidies in 1995. As a result, small-scale farmers could no longer afford fertilisers or were forced to sell their food stocks. This poses a serious threat for the country’s food self-sufficiency.
Although Namibia and South Africa are not heavily indebted and were not forced to implement SAPs, there are indications that these countries are following similar policies. After decades of sanctions and partial isolation, South Africa is re-integrating into the global economy. This is changing its domestic economy which had been characterised by protective tariffs and import substitution. It now has to face global competition. As a signatory to the General Agreement on Trade and Tariffs (GATT) and member of the World Trade Organisation (WTO), South Africa has started to dismantle tariff barriers. The government sees this as a necessary step to make domestic industries internationally competitive. The macro-economic plan known as “Growth, Employment and Redistribution” (GEAR) shows many similarities with the structural adjustment policies of other countries.
So far, the harshest effects of trade liberalisation are experienced by workers in South Africa’s clothing and textiles industry. 80% of workers in the clothing sector and 50% of those in the textile sector are women. Between 1991 and 1997, 50 000 out of a total of 200 000 workers have lost their jobs. South African companies were unable to produce goods as cheaply or at the same quality as competitors from South-East Asia and had to close down. The industry proposed a more “flexible” labour force (i.e. wage cuts) to tackle the crisis, and some companies have initiated plant-level restructuring accompanied by retrenchments, casualisation and decentralisation of production (Macquene). Another prominent feature in South Africa is the privatisation of state assets similar to what has happened in other African countries as part of SAPs. Despite opposition from the labour movement, the South African government seems to follow the demands of national and international capital to speed up the process of privatisation.
In Namibia, the government is still spending a large portion of the national budget on social services like education and health, but there are signs that cuts are imminent. The Ministry of Education, for example, has already cut down on expenditure for school hostels by reducing and sometimes even abolishing the subsidies. Several hostels were privatised and the Ministry now wants to implement a programme known as “staffing norms’. This programme aims to achieve a uniform teacher-student ratio across the country and claims to achieve the following: financial sustainability; enhanced educational quality; and equity among regions and schools. The Ministry targets teacher learner ratios of 1:40 for primary schools and 1:36 for secondary schools by the year 2002 (NANTU 1997:13).
Other signs of structural adjustment policies are the government’s commitment to sweeping privatisation which is justified as a means of making state-run and state-owned companies more efficient. ‘Commercialisation’ is mentioned almost daily in the media and has become the ‘religion’ of economic policy. The Namibian government is also determined to reduce the size of the civil service and believes that economic development can only be achieved through foreign investments and export-led growth. These are definite signs that structural adjustment has arrived.
SAPs and GlobalisationSAP destroyed Africas HopesCheated! SAP destroyed Africa’s Hopes
Overall, SAPs have reversed some of the gains made by ‘developing’ countries in their attempt to find an autonomous development process that would suit local conditions. The rolled back some of the achievements made by African states in the post-colonial era (see Goncalves: 6-8). Countries like India, Mexico, Algeria and Brazil are now returning to their former dependency on and subordination to the industrialised world (see Toussaint and Comanne 1995: 17). Chipeta points out that this is no accident as ESAPs were not designed to promote genuine economic development. “Each policy is designed to fail so that the implementing country can enter into another programme”. In other words, an implementing country becomes permanently locked into ESAPs which are designed by the industrialised blocks to shape developing countries according to their needs (Chipeta: 11).
SAPs as a part of the broader process of globalisation have increased the manoeuvring space for Transnational Corporations to an unprecedented level. They could utilise the opportunities created through privatisation and the general economic liberalisation. However, it is important to point out that the political and economic elite of ‘developing’ countries has also played a crucial role in the adjustment process. These elites often used the initial loans for their own benefits. They continued a life in luxury while telling their people to tighten their belts. Even under structural adjustment they were hardly the ones who suffered and sometimes even benefited from SAPs. When public services deteriorate or disappear they can afford private schools and hospitals. They often benefited from privatisation by obtaining functioning enterprises at give-away prices and they benefit from low labour costs as a result of labour flexibility. Susan George has accurately summed up the results of SAPs and globalisation when she wrote about the global apartheid economy:
‘The Bretton Woods twins have become the managers of a global apartheid economy in which the transnational elite from both “North” and “South” plays the role of the “whites”; a shrinking and anxious middle class the role of the “coloureds”; and finally, at the bottom, the vast sea of wretchedness made up of “blacks”, whatever their literal skin colour’ (1995:23).
The failure of SAPs have often led to violent protests that were often repressed with great brutality. The IMF/WB have ignored all critics for years and even today continue to argue that the situation would have been worse without SAPs. In recent years, they tried to respond to public criticism by moving towards adjustment ‘with a human face’. They are now prepared to look at a very basic safety net and have allowed some countries (e.g. Egypt) to maintain some subsidies on essential food products. However, the basic philosophy and the believe in the unregulated free market have remained unchanged (see Bournay 1995: 52).
ConclusionAlthough the relative share of the ‘developing’ countries’ debt in the world’s debt has declined, the people of those countries still have to suffer under structural adjustment programmes. They still have to pay a heavy price to ensure that the debt is paid. The same is now happening in the former countries of the Soviet bloc that are also forced to undergo structural adjustment. Debt is even becoming an issue in the rich industrialised countries as people there are now also experiencing austerity measures that are similar to structural adjustment. Industrial countries justify cuts in social spending as necessary to reduce the public debt. Toussaint and Commanne pointed out that: ‘While austerity measures imposed in the North do not have tragic consequences equal to those in the South and East, the results are nonetheless destructive’ (1995:18).
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The World Bank and the IMF have repeatedly come under sharp criticism over the failure of their SAPs. Under mounting pressure, Social Dimension Funds (SDFs) were introduced in recent years to cushion the blows and hardships of ESAPs. However, they have been ineffective and insufficient to offset the damages caused. ‘Adjustment with a human face’ did not address the fundamental flaws of SAPs but the Bank and the Fund still believe that the solution to the world’s problem lies in continued liberalisation of economies. They still believe that SAPs short term pain will lead to long term gain. Rhetorical commitment to ‘poverty alleviation’ did not change the SAP principle of systematically withdrawing the state from delivering social services. According to the IMF and World Bank, these services are meant to be cost effectively managed by ‘civil society’(see Chossudovsky 1995: 64). During a seminar in Namibia in 1998, IMF officials confirmed that:
‘Structural Adjustment programmes have become the main vehicle for the IMF’s support in Africa.’ Reinhold van Til, IMF
Under structural adjustment, Ghana and Uganda ‘experienced a sharp improvement in competitiveness, trade, investment, and economic performance.’ ‘The ‘right’ economic policies will automatically lead to economic growth and prosperity. Investors will reward countries with good economic policies and punish those with bad ones.’‘Liberalisation of the trade system is a key element of reform if Africa is to take advantage of increasingly global patterns of production and trade….this must be accompanied by a liberalisation of exchange rates.’ Robert Sharer, IMF
Government intervention must be limited to ‘areas of market failure and to the provision of the necessary social and economic infrastructure’ Alassane D. Quattare, IMF
In theory, SAPS are meant to assist countries to return to economic recovery. In practice the opposite has happened. SAPs have destroyed any chance to achieve sustainable economic development that would meet national priorities. Chossudovsky pointed out that the ‘…IMF-World bank reform package constitutes a coherent programme for economic and social collapse…They destroy the entire fabric of the domestic economy’ (1995: 66).
Whenever SAPs fail, the IMF and World Bank blame the host government which they accuse of incompetence or insufficient motivation. ‘IMF riots’ have happened in more than 30 countries, sometimes in the form of violent protests against the hardships caused by SAPs. The host country’s governments were always left to deal with the uprisings that were often brutally suppressed. However, initial protests against SAPs were hardly followed by a systematic initiative to build the political capacity to replace SAPs with a different development strategy. Even the political leaders of ‘developing’ countries have become quiet on the debt issue and are no longer campaigning for the cancellation of the debt. In most cases they have become a corrupt elite that is no longer interested in establishing a new and more just world order. It will therefore be left to those organisations that represent the increasingly impoverished majority to actively campaign against structural adjustment policies and to develop alternative policies that will be able to solve our problems.
It must also be mentioned that the wars and conflicts in Africa only started after the seventies, and after the impacts of the enforced adjustments discussed above.
As they say in Nigeria- ‘Monkey dey work, Baboon dey chop’.Article sourceHerbert Jauch has been with the labour movement in Southern Africa for over 20 years. He served as executive member of the Namibia National Teachers Union (NANTU) as well as on various committees of the National Union of Namibian Workers (NUNW). For the past 15 years Herbert worked as labour researcher, carrying out research projects for the Southern African Trade Union Co-ordination Council (SATUCC) as well as Namibian and South African trade unions. Herbert was instrumental in developing a labour diploma course for Namibian trade unions and served as director of the Labour Resource and Research Institute (LARRI) in Katutura from 1998 until 2007. He was LaRRI’ssenior researcher until January 2010 and now works as freelance labourresearcher and educator with various organisations in Southern Africa. -IFWEA.orgPublished, May 19th, 2009SOURCE: http://newsrescue.com/how-the-imf-world-bank-and-structural-adjustment-programsap-destroyed-africa/#ixzz2nhM8TUQl

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THE MULTINATIONAL MONITOR

SeSeptember 2001 - VOLUME 22 - NUMBER 9


B e a r i n g  t h e  B u r d e n  of  I M F  a n d  W o r l d  B a n k  P o l i c i e s
Privatization Tidal WaveIMF/World Bank Water Policies and the Price Paid by the PoorBy Sara Grusky
In July, the World Bank approved a new $110 million structural adjustment loan for Ghana. Before disbursing the loan, however, the Bank forced the government of Ghana to implement seven “prior actions,” including a requirement to “increase electricity and water tariffs by 96 percent and 95 percent, respectively, to cover operating costs.”

The effort to attain “full cost recovery” is a prerequisite to privatization. Private companies want to operate systems where consumers meet the expenses of running the systems and pay enough for company profits, too.
Pressured by the World Bank, the government of Ghana plans to lease the Ghana Water Company to two as yet undetermined multinational water companies to provide urban water service. The World Bank included water privatization as one of many conditions that determined the extent of Ghana’s access to the portfolio of loans in the World Bank’s Country Assistance Strategy (CAS).

In May 2001, a broad coalition of groups in Ghana responded by forming the National Coalition Against the Privatization of Water (National CAP of Water), which is committed to conducting a broad campaign to ensure that all Ghanaians have access to safe and affordable water.

Rudolf Amenga-Etego of the Integrated Social Development Centre and one of the founders of the National CAP of Water, says most people in Accra do not earn the minimum wage of less than US$1 a day, while a significant number have no regular employment. In April, the average price for a bucket of water, which used to be 400 cedis, was raised to 800 cedis (US$1 equals 7,000 cedis) to comply with the Bank’s required “prior action” for accessing the structural adjustment loan approved in July. The proposed water privatization is expected to increase water tariffs even further.

“The current water tariff rates that the government of Ghana and the World Bank think are ‘below the market rate’ are already beyond the means of most of the population in Ghana,” says Amenga-Etego. “How will the population possibly be able to absorb a so-called ‘open market’ price for water in the context of privatization? As water becomes less affordable, it is highly likely that there will be a corresponding increase in diseases stemming from reduced access to clean water.”
Cost Recovery and PrivatizationThe Ghanaian case is representative of an increasingly common policy recommendation of the World Bank, along with the International Monetary Fund (IMF), to increase consumer fees for water and sanitation and to force privatization of water utilities.

The Bank argues that developing country governments are too poor and too indebted to subsidize water and sanitation services. World Bank structural adjustment loans and water and sanitation loans routinely include conditions requiring increased cost recovery, full cost recovery or “economic pricing” for water services.

These requirements mean that user fees paid by water consumers must cover all water system costs, which usually include the costs of operation, maintenance and capital expenditure, and sometimes the cost of servicing past utility company debt.

Increased consumer fees for water can make safe water unaffordable for poor and vulnerable populations, however. As water becomes more costly and less accessible, women and children, who bear most of the burden of daily household chores, must travel farther and work harder to collect water — often resorting to water from polluted streams and rivers. Families are forced to make trade-offs between water, food, schooling and health care.

The World Bank and the IMF often impose increased cost recovery conditions in order to improve the economic viability of water utilities so that they will be more lucrative for private sector investors. In many countries, World Bank officials have concluded that public sector ownership of the water utilities is too costly and inefficient while the sale of water utilities and other public enterprises can provide quick resources to service developing country debt.

“Effective water resource management requires that water be treated as an economic good,” the World Bank asserts on its website, explaining that “private participation in water and wastewater utilities has generally resulted in sharp efficiency gains, improved service, and faster investment in expanding service.”

Structural adjustment loans and water and sanitation loans contain conditions requiring privatization, including service contracts, management contracts or leases with private sector “international operators.” The multinational corporate water sector is highly concentrated, including such large companies as the French companies Vivendi, Suez and Bouygues, and the Texas-based Enron. Of the five companies currently bidding for Ghana’s water system, two of them, Suez and Bouygues/Saur, have annual sales figures significantly larger than Ghana’s 1999 gross domestic product.
The Price Of Access To WaterWorld Bank officials argue that increased cost recovery and privatization will actually expand access to clean water and sanitation. “Where public delivery fails, the World Bank Group supports private entry,” Bank officials explain in their policy paper on urban water and sanitation. “We advise and assist countries in developing regulatory frameworks and in designing viable, clean transactions that reconcile the interests of investors and consumers, and recognize the needs of the poor.”
In many developing countries, large proportions of the population are outside the limited “grid” of the piped water system. Expansion of the infrastructure is a key need. In the meantime, neighborhoods, villages and communities are dependent on other sources for clean water such as private water tanker trucks. Buying water from tanker trucks generally costs more than paying fees for piped water, often much more. Those who cannot afford treated water must depend on streams, rivers, lakes or shallow hand-dug wells. Some households or communities develop “illegal” hook-ups to the piped water system.

The World Bank contends that, with higher payments from consumers, private companies will have an incentive, as well as the revenues, to extend pipes to those relying on water trucks or unclean sources.

“In many countries, middle-class consumers pay subsidized rates that shift the financial burden of the water they use — and often waste — to the government,” argues John Briscoe, head of the World Bank’s global water unit. “Public sector providers waste water, too, typically losing 40 to 50 percent of their volumes through leaks and theft. Costs are inflated, as utilities often employ more than twice the staff of an efficient operation. This bleeding of money leaves governments unable to expand services to urban slums, small towns, and villages. Indeed, the poorest urban dwellers, whose plight is cited as a reason to keep water in the public sector, get no service at all from subsidized utilities. Many must buy water at a high price from private tanker trucks.”
But privatization critics say the Bank’s calculus is flawed on numerous grounds.
First, higher prices for water mean the poor have to use less or go without. In Ghana, for example, price increases have already forced many poor people to cut down drastically on their use of water. People often go to public places to fetch water for free or for a token fee, and children spend a lot of time fetching water and carrying it back to their parents.

The University of Ghana, which has adopted the philosophy of “struggle alongside the people,” permits community members to use the university’s water. People travel from all parts of Accra to the university to fetch water.

Public health officials recognize that serious health risks are imposed by the lack of access to clean water, including transmission of water-borne diseases such as guinea worm, cholera and other diarrheal illnesses. The World Health Organization estimates more than 2 million deaths annually from diarrheal diseases due to lack of access to adequate water and sanitation services. “The situation will get worse with the full cost recovery policies placed on the Government of Ghana as part of the World Bank loan conditions,” says Amenga-Etego
In South Africa, water charges imposed in 1999 forced some poor people in Kwagulu-Natal to rely on polluted river supplies for their water. Public health officials trace a 2001 cholera outbreak, which has killed dozens, to the water pricing policy.
In Latin America, cholera has returned to the continent after being absent for nearly a century.
In addition, increased consumer fees for water may also hurt those who are not even part of the formal water pipe system. In many countries, private tanker truck operators buy water from the public water utility. Increased wholesale water prices trickle down to the poor.

What is often referred to as “leaks” include illegal hook-ups and other informal survival strategies used by the poor. Thus, World Bank policies to reduce “leaks” can actually reduce poor people’s access to water, since households with “illegal” hook-ups may end up having to pay for services.

Finally, there is little evidence of the multinational water companies’ commitment to expanding service, especially to poor communities where the ability to pay increased fees is limited. Instead, the multinationals, which have only recently started their major moves into developing countries, have quickly racked up very poor social and environmental records. In Indonesia, Suez and Thames Water have both been charged with tampering with water pricing. In South Africa, protesters claimed that Suez was taking excessive profits, grossly overcharging for its services, and leaving the municipality unable to pay its workers a living wage. Saur (a subsidiary of Bouygues) is alleged to have made the largest of 12 bribes that are the subject of various investigations into corruption and political pay-offs in the World Bank-funded Lesotho Highlands Water Project [see “Falling for AES’s Plan?” Multinational Monitor, June 1999]. There are many other cases.
World Bank officials and citizen groups in developing countries would probably agree on one point, however: Water sector reforms are needed. Current water management systems in many developing countries, especially centralized national water utilities, have not been able to provide safe and affordable water to the population. However, the World Bank’s proposed solution, increased consumer fees and privatization, responds more to concerns about fiscal deficits and foreign debt than to citizens’ need for safe, affordable water, say critics. Citizens’ groups like the Ghana National
Cap of Water propose alternative solutions such as decentralized community/municipal partnerships, continued government subsidies as well as innovative financing schemes, and citizen involvement and oversight in locally managed water systems.
The Water Privatization Push
Despite reason for skepticism about water privatization and increased cost-recovery schemes, the World Bank and IMF are pushing full-steam ahead for these measures.

A review of IMF loan documents in 40 countries reveals that, during 2000, IMF loan agreements with 12 borrowing countries included conditions imposing water privatization or cost recovery requirements.

In the division of labor between the IMF and the World Bank, it is the Bank that has primary responsibility for “structural” issues such as the privatization of state-owned companies. In countries where IMF loan conditions include water privatization or cost recovery requirements, there are usually corresponding World Bank loan conditions and water projects that are implementing the financial, managerial and engineering details required for “restructuring” the water sector. But IMF structural adjustment documents are more often publicly available than those from the World Bank, making it easier to search IMF documents, despite the Bank’s lead role in this area.
In general, it is African countries and the smallest, poorest and most debt-ridden countries where loan documents reveal IMF conditions on water privatization and cost recovery. Water privatization or cost recovery provisions are attached to loans to Angola, Benin, Guinea-Bissau, Honduras, Nicaragua, Niger, Panama, Rwanda, Sao Tome and Principe, Senegal, Tanzania and Yemen.
The IMF has different categories of loan conditions with corresponding degrees of leveraging power. Performance criteria are the most influential IMF conditions in that loan disbursements (known as tranches) can be withdrawn or allowed to proceed based on compliance with performance criteria. The IMF water privatization conditions are primarily structural benchmarks. Structural benchmarks influence the overall “grade” the IMF attaches to a county’s performance, but they are not, in-and-of-themselves, conditions for withdrawing or advancing a loan disbursement.
For the countries on the receiving end of IMF water mandates, crucial decisions about water privatization and cost recovery may be made by Fund officials negotiating with key government leaders behind closed doors and without the knowledge or consent of citizens. Neither the IMF and the World Bank nor borrowing governments are obliged to publicly disclose information during loan negotiations. Once a loan agreement is signed and approved by the IMF’s Executive Board, some of the loan conditions are made public in “Letters of Intent” posted on the IMF’s website. The World Bank is currently revising its information disclosure policies. Presently, the conditions attached to World Bank structural adjustment loans are rarely publicly disclosed.
Eager, and sometimes desperate, government leaders will often adopt IMF policy prescriptions in order to secure the resources necessary to avoid an immediate financial crisis.

In March 2001, the IMF announced that it would streamline the scope of its conditionality and withdraw from the area of public enterprise restructuring and privatization. The IMF claims that, in the future, water privatization will rest in the domain of the World Bank and other multilateral development banks. This may reduce opportunities for public input even further, as most structural adjustment documents for World Bank loans remain secret.

But the institutional division of labor notwithstanding, the policy mandates are unlikely to change. World Bank loan documents show increased cost recovery requirements for water services imposed in loans to Tanzania, Mozambique and Uganda.
Fighting For Water And DemocracyStruggles against the privatization of water supplies have already erupted in a number of countries. In Bolivia in 1999, the government responded to structural adjustment policies of the World Bank by privatizing the water system of its third largest city, Cochabamba. The government granted a 40-year concession to run the debt-ridden system to a consortium led by Italian-owned International Water Limited and U.S.-based Bechtel Enterprise Holdings. The newly privatized water company immediately raised prices. Although the minimum wage stood at less than $65 a month, many of the poor had water bills of $20 or more. Water collection also required the purchase of permits, which threatened the access to water for the poorest citizens.

Mass local opposition in Cochabamba coalesced in the Coalition in Defense of Water and Life, known as La Coordinadora, which demanded the water system stay under local public control [See “The Fight For Water and Democracy,” Multinational Monitor, June 2000]. After weeks of intense protests, in April 2000, La Coordinadora won its demands when the government turned over control of the city’s water system, including its $35 million debt, to the organization and cancelled the privatization contract. La Coordinadora achieved the first major victory against the global trend of privatizing water resources.

Ghanaians have also mounted protests against the World Bank’s water privatization push in their country. Public outcry over alleged bribes that influenced the bidding process forced the Ghanaian government to deny an initial contract to Enron/Azurix, and start the bidding process all over again. National CAP of Water observers say the bidding process continues to be closed off from public scrutiny, however.

Information from World Bank officials suggests that the Government of Ghana, acting under the advice of the IMF and the Bank, has decided to lease the Ghana Water Company to two different multinationals and has demarcated the districts that will comprise the markets of each of the corporations into project “A” and project “B.” Project “A” has received four bids so far while project “B” has received five bids. However, four out of the five corporations have bid on both projects, which means that a total of five transnational corporations have placed bids to date. National CAP of Water has vowed to mobilize public opposition to the privatization plans. The coalition is planning a national march against water privatization in Accra, Ghana on November 10.
Meanwhile, allies of citizen groups such as the Coordinadora in Bolivia and the National Cap of Water in Ghana are working to block a continuation of the Bank and IMF’s water privatization frenzy. In the United States, groups like Results, the 50 Years is Enough Network, Globalization Challenge Initiative and Essential Action (a project of Essential Information, the publisher of Multinational Monitor) are developing draft U.S. legislation that would obligate U.S. representatives to the IMF and World Bank to oppose any loan that mandates increased costs to poor consumers for clean drinking water.

A version of the legislation, which is modeled after similar enacted legislation restricting user fees for primary health or education, is expected to be introduced in Congress soon.

Turning the tide of the water privatization trend is essential, says Rudolph Amenga-Etego of Ghana.

“Water issues are too important to be left to decisions by government and foreign creditors like the World Bank,” says Amenga-Etego.

Countries must be permitted to find their own solutions and to keep water provision and sanitation in the public sector, he says.

“We need to develop a national response to the contractionary policies of the IMF and examine new options for financing our water sector reforms inan equitable and socially responsive manner,” Amenga-Etego says.

“With abject poverty and the lack of employment opportunities that characterizes Ghana and many other developing countries, it is not in the national interest to privatize water. Water should be regarded as a social service with government bearing the primary responsibility for its provision.”
Sara Grusky is co-director of the Globalization Challenge Initiative, which supports citizen's groups in developing countries struggling against undue interference from foreign donors and creditors, particularly the IMF and World Bank.
Double Standards And The Boomerang Effect
The United States and other industrialized countries have long recognized that government investments in water and sanitation services yield substantial benefits to public health, social equity, the environment, and the economy. Wealthy countries provide a range of government subsidies for water and sanitation services. In the United States, the federal Clean Water Act and the Safe Drinking Water Act mandate subsidies for water and sanitation services.
But U.S. and other rich country representatives on the boards of the IMF, World Bank and other multilateral development banks often push contrary policies on developing countries, forcing them to accept reductions in government subsidies for water and sanitation, increased consumer fees for water, and corporate privatization of water utilities.
Recent examples include:
• In Nicaragua, a 30 percent increase in consumer water fees was enacted in June as a result of IMF and Inter-American Development Bank policies.
• In May, IMF and World Bank policies mandated a 95 percent increase in consumer water fees in Ghana.
• In Tanzania, a World Bank water project proposes: “enhancing” commercial water operations by “gradually raising [the] water tariff to a level that compares with the long run marginal cost.”
Now, similar policies appear to be beginning to creep into the industrialized world. Recent tax cuts and growing needs make it unlikely that water and sanitation infrastructure will receive the public subsidies sufficient to maintain operations and hold the line on water charges. According to the U.S. Water Infrastructure Network (WIN), an additional $23 billion per year investment — over and above current expenditure levels — is needed in the United States to meet environmental and public health mandates, and to replace aging infrastructure. Relying just on utility rate increases will cause consumer bills to double or triple, according to WIN.
As a result, cash-strapped municipal, county and regional water system managers will likely have to face hard choices, including the temptation to sell the utility to private corporate investors.
Meanwhile, new rules proposed for the World Trade Organization services agreement may help private investors access government subsidies and may help to ease the entry of foreign private corporate investors in the water service sector.
The policies of water privatization and increased cost recovery faced by citizens in developing countries may soon begin to hit home in the United States and other countries.
— S.G.
SOURCE:
http://multinationalmonitor.org/mm2001/01september/sep01corp2.html

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The IMF Formula:
Prescription for Poverty
by John Cavanagh, Carol Welch and Simon Retallack
IFG Bulletin, 2001, Volume 1, Issue 3, International Forum on Globalization


When the International Monetary Fund (IMF) and the World Bank announced at their 1999 annual      meeting that poverty reduction would henceforth be their overarching goal, this sudden "conversion" provoked  jjustifiable skepticism. The history of the IMF shows that it has consistently elevated the need for financial and m monetary "stability" above any other concern. Through its notorious structural adjustment programs (SAPs), it has imposed harsh economic reforms in over 100 countries in the developing and former communist worlds, throwing hundreds of millions of people deeper into poverty.
The IMF came to hold virtual neo-colonial control over developing countries as a result of the Third World "debt crisis" of the 1980s. In the 1970s, commercial banks were eager to make large loans to developing countries and newly independent countries. The interest rates on these loans were initially very low, but variable. But when interest rates were raised sharply in the early 1980s, heavily indebted countries suddenly found themselves unable to make soaring interest payments on these bank loans, and many were simultaneously indebted to the World Bank. That's when the IMF stepped in.
Unless the IMF certified that an economy was being "restructured" and "maintained soundly," the world's public and private lenders would refuse to extend loans. The IMF decided that countries must now adhere to the policy package of structural adjustment, which essentially integrates national economies into the global market, enabling multinational corporations to access cheaper labor markets and natural resources, and increase exports. Sold as means to increase domestic growth and living standards, countries must remove restrictions on trade and investment, promote exports, devalue national currencies, raise interest rates, privatize state companies and services, balance national budgets by slashing public expenditures, and deregulate labor markets.
Caught in the trap of having to repay massive debts, most developing country governments-representing 80 percent of the world's population-have felt they have had little choice but to agree to implement these reforms in exchange for IMF assistance. The results, however, have brought ruin to national economies, cutbacks in schools and hospitals, increased poverty and hunger, and environmental harm.
IMPACT ON EMPLOYMENT
The IMF has ardently promoted changes in labor laws and wage policies; changes designed to make countries more competitive and attractive to foreign investment. However, according to the 1995 United Nations (UN) Trade and Development Report, employers are changing labor laws to make it easier to fire workers and undermine the ability of unions to defend themselves, rather than add to productive capacity and create work. In spring 2000, for example, Argentinian legislators passed the harsher of two labor law reforms after IMF officials spoke out strongly in support of it, even though tens of thousands of Argentinians carried out general strikes against the reform.
Also contributing to unemployment is the IMF requirement that countries privatize public companies and services and fire public sector workers. As compliant government agencies downsize, the ranks of the unemployed grow faster than the private sector can absorb them. Removing barriers to foreign investment and trade, meanwhile, makes it much harder for private local producers to compete against better-equipped and richer foreign suppliers, often leading to the closure of businesses and further layoffs.
Under structural adjustment, many developing countries export similar, often identical, agricultural products and mineral resources to the industrialized nations. The result is a glut, the collapse of staple export prices and the further loss of livelihoods. Similarly, the IMF policy of devaluing national currencies makes imports (which usually include energy resources and machinery) more expensive, squeezing import-reliant domestic industries which are then forced to lay off more workers. The IMF policy of raising interest rates prevents small businesses from getting the capital needed to expand or stay afloat, often leading them to shut down, leaving even more workers unemployed.
The IMF's purely market-based approach has contributed to the fact that at least one billion adults-more than 30 percent of the global workforce-are unemployed or seriously underemployed today. In Senegal, touted by the IMF as a success story because of increased growth rates, unemployment increased from 25 percent in 1991 to 44 percent in 1996. In South Korea, a US$58 billion structural adjustment loan in 1998 contributed to an average of 8,000 people a day losing their jobs. Compounding this harsh reality is the lack of existing social safety nets that can support people out of work.
Even those who are working suffer, as the IMF frequently encourages countries to keep wages low in order to attract foreign investment. This often translates into the lowering of minimum wages and the weakening of collective bargaining laws. By the end of 1997, Haiti's minimum wage was only $2.40 a day, worth just 19.5 percent of the minimum wage in 1971. Costa Rica, the first Central American country to implement a SAP, saw real wages decline by 16.9 percent between 1980 and 1991, while during the first four years of Hungary's SAP, the value of wages fell by 24 percent.
IMPACT ON HEALTHCARE
Even though rich country governments commonly engage in deficit spending, the IMF and World Bank have made this a taboo for poor countries. Faced with tough choices, governments must often cut social spending because this doesn't generate income for the federal budget, while simultaneously increasing fees for medical services leading to less treatment, more suffering, and needless deaths. Throughout much of Africa, cuts in government health spending arising from SAPs have caused a shortage of funds to be allocated to medical supplies (including disposable syringes). This, in combination with IMF-ordered price hikes in electricity, water and fuel (required to sterilize needles), has increased the incidence of infection (including HIV transmission). Yet the proposed "solutions" still consist of, in effect, privatization of public health and the massive lay-off of doctors and health workers.
In Kenya alone, the introduction of fees for patients of Nairobi's Special Treatment Clinic for Sexually Transmitted Diseases (vital for decreasing the likelihood of transmission of HIV/AIDS) resulted in a decrease in attendance of 40 percent for men and 65 percent for women over a nine month period.
In Zimbabwe, spending per head on healthcare has fallen by a third since 1990 when a SAP was introduced. UNICEF reported in 1993 that the quality of health services had declined by 30 percent since then; twice as many women were dying in childbirth in Harare hospitals compared to 1990; and fewer people were visiting clinics and hospitals because they could not afford user fees.
IMPACT ON EDUCATION
Under the mandate of reducing the size of the state, the IMF has encouraged the privatization of schools. Such a measure was undertaken in Haiti, and an IMF report predicts that the extreme deterioration in school quality and attendance will hamper the country's human capacity for many years to come. For example, only 8 percent of teachers in private schools (now 89 percent of all schools) have professional qualifications, compared to 47 percent in public schools. Secondary school enrollment dropped from 28 to 15 percent between 1985 and 1997. Nevertheless, the report ends with recommendations for Haiti to pursue further privatization initiatives.
Meanwhile, to make up shortfalls, school fees are often introduced, forcing parents to pull children-usually girls-from school, resulting in declining literacy rates and skills. In Ghana, the Living Standards Survey for 1992-93 found that 77 percent of street children in the capital city Accra dropped out of school because of an inability to pay fees. In sub-Saharan Africa, under explicit conditions of adjustment, education budgets were curtailed, and a "double shift system" was installed so that one teacher now does the work of two. The remaining teachers were laid off and the resulting savings to the Treasury are funneled toward interest payments on debt.
IMPACT ON FOOD SECURITY
The increased dependence on food imports that SAPs create places countries in an extremely vulnerable position because they lack the foreign exchange to import enough food, given falls in export prices and the need to repay debt. It should come as no surprise therefore that 80 percent of all malnourished children in the developing world live in countries where farmers have been forced to shift from food production for local consumption to the production of crops for export to the industrialized world. Furthermore, as Davison Budhoo, a former IMF economist, notes, export orientation "has led to the devastation of traditional agriculture and the emergence of hordes of landless farmers in nearly every country in which the Fund operates."
Hunger and farmer bankruptcy is also a product of budget cutting under IMF programs, often leading to the removal of price supports for essential items, including food and farm inputs such as fertilizer, whose prices then rise dramatically. This problem is compounded by IMF-inspired currency devaluation, making these imports more expensive. In Caracas in 1989, for example, following a 200 percent increase in the price of bread, riots ensued in which the army responded by firing upon and killing l,000 people. In addition, higher interest rates often prevent small farmers from obtaining the capital needed to stay afloat, forcing them to sell their land, work as tenants, or move to the slums of large cities.
FAILURE ON THEIR OWN TERMS
Although the Fund and the Bank have promoted SAPs as a virtual religion for nearly 20 years, they cannot claim that they have achieved even their own narrow objectives. IMF internal studies reveal that many SAPs have failed to enhance economic growth, reduce fiscal and balance of payment deficits, lower inflation and reduce external debt. In fact, between 1980 and 1997, the debt of low-income countries grew by 544 percent and that of middle income countries by 481 percent. Poor countries have thus gone through all the pain of structural adjustment only to continue to engage in a net transfer of wealth to the industrialized world.
A decade and a half ago, we likened the Bretton Woods institutions to medieval doctors. No matter what the ailment, they applied leeches to the patients and bled them. At the onset of the new millennium, the doctors' cruel ministrations have been exposed in dozens of studies and increasingly vocal street protests. Yet thus far, the Fund and the Bank's response has been largely cosmetic. New leeches are applied, dressed up by public relations experts. However, the "new" treatment is still ineffective. The growing public outcry in North and South alike will hopefully result in real reform and effective cures.
John Cavanagh is the director of the Institute for Policy Studies in Washington DC. He is co-author (with Sarah Anderson and Thea Lee) of Field Guide to the Global Economy (New Press, 2000), and he serves on the board of directors of the International Forum on Globalization. Carol Welch is an international policy analyst at Friends of the Earth, USA, and Simon Retallack is the managing editor of The Ecologist's special issues, and is an associate of the International Forum on Globalization.


SOURCE:http://www.thirdworldtraveler.com/IMF_WB/IMF_Formula_PrescripPover.html
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Structural Adjustment—a Major Cause of Poverty
Author And Page Information
·         by Anup Shah
·         This Page Last Updated Sunday, March 24, 2013
·         This page:http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty.
·         To print all information e.g. expanded side notes, shows alternative links, use the print version:
·         http://www.globalissues.org/print/article/3
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Debt is an efficient tool. It ensures access to other peoples’ raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters’ income to a bare minimum while the North enjoys huge savings. The IMF cannot seem to understand that investing in … [a] healthy, well-fed, literate population … is the most intelligent economic choice a country can make.
                                                                                                                                            
— Susan George, A Fate Worse Than Debt, (New York: Grove Weidenfeld, 1990), pp. 143, 187, 235
Many developing nations are in debt and poverty partly due to the policies of international institutions such as the International Monetary Fund (IMF) and the World Bank.
Their programs have been heavily criticized for many years for resulting in poverty. In addition, for developing or third world countries, there has been an increased dependency on the richer nations. This is despite the IMF and World Bank’s claim that they will reduce poverty.
Following an ideology known as neoliberalism, and spearheaded by these and other institutions known as the “Washington Consensus” (for being based in Washington D.C.), Structural Adjustment Policies (SAPs) have been imposed to ensure debt repayment and economic restructuring. But the way it has happened has required poor countries to reduce spending on things like health, education and development, while debt repayment and other economic policies have been made the priority. In effect, the IMF and World Bank have demanded that poor nations lower the standard of living of their people.
This web page has the following sub-sections:
1.      A Spiraling Race To The Bottom
2.      Maintaining Dependency And Poverty
3.      Earn More, Eat Less
1.      What Is The IMF/World Bank Prescription?
4.      The Welfare State Has Helped Today’S Rich Countries To Develop
1.      Structural Adjustment In Rich Countries
5.      IMF And World Bank
1.      IMF And World Bank Reform?
2.      IMF And World Bank Admit Some Of Their Policies Do Not Work
3.      PSRPs Replace SAPs But Still SAP The Poor
6.      The Asian Development Bank
A Spiraling Race To The Bottom
As detailed further below, the IMF and World Bank provide financial assistance to countries seeking it, but apply a neoliberal economic ideology or agenda as a precondition to receiving the money. For example:
·         They prescribe cutbacks, “liberalization” of the economy and resource extraction/export-oriented open markets as part of their structural adjustment.
·         The role of the state is minimized.
·         Privatization is encouraged as well as reduced protection of domestic industries.
·         Other adjustment policies also include currency devaluation, increased interest rates, “flexibility” of the labor market, and the elimination of subsidies such as food subsidies.
·         To be attractive to foreign investors various regulations and standards are reduced or removed.
The impact of these preconditions on poorer countries can be devastating. Factors such as the following lead to further misery for the developing nations and keep them dependent on developed nations:
·         Poor countries must export more in order to raise enough money to pay off their debts in a timely manner.
·         Because there are so many nations being asked or forced into the global market place—before they are economically and socially stable and ready—and told to concentrate on similar cash crops and commodities as others, the situation resembles a large-scale price war.
·         Then, the resources from the poorer regions become even cheaper, which favors consumers in the West.
·         Governments then need to increase exports just to keep their currencies stable(which may not be sustainable, either) and earn foreign exchange with which to help pay off debts.
·         Governments therefore must:
·         spend less
·         reduce consumption
·         remove or decrease financial regulations
·         and so on.
·         Over time then:
·         the value of labor decreases
·         capital flows become more volatile
·         a spiraling race to the bottom then begins, which generates
·         social unrest, which in turn leads to IMF riots and protests around the world
·         These nations are then told to peg their currencies to the dollar. But keeping the exchange rate stable is costly due to measures such as increased interest rates.
·         Investors obviously concerned about their assets and interests can then pull out very easily if things get tough
·         In the worst cases, capital flight can lead to economic collapse, such as we saw in the Asian/global financial crises of 1997/98/99, or in Mexico, Brazil, and many other places. During and after a crisis, the mainstream media and free trade economists lay the blame on emerging markets and their governments’ restrictive or inefficient policies, crony capitalism, etc., which is a cruel irony.
·         When IMF donors keep the exchange rates in their favor, it often means that the poor nations remain poor, or get even poorer. Even the1997/98/99 global financial crisis can be partly blamed on structural adjustment and early, overly aggressive deregulation for emerging economies.
·         Millions of children end up dying each year.

Competition between companies involved in manufacturing in developing countries is often ruthless. We are seeing what Korten described as “a race to the bottom. With each passing day it becomes more difficult to obtain contracts from one of the mega-retailers without hiring child labor, cheating workers on overtime pay, imposing merciless quotas, and operating unsafe practices.
                                                                                                                                               
— John Madeley, Big Business Poor Peoples; The Impact of Transnational Corporations on the World’s Poor, (Zed Books, 1999) p. 103
This is one of the backbones to today’s so-called “free” trade. In this form, as a result, it is seen by some as unfair and one-way, or extractionalist. It also serves tomaintain unequal free trade as pointed out by J.W. Smith.
As a result, policies such as Structural Adjustments have, as described by Smith, contributed to “the greatest peacetime transfer of wealth from the periphery to the imperial center in history”, to which we could add, without much media attention.
Back to top
Maintaining Dependency And Poverty
One of the many things that the powerful nations (through the IMF, World Bank, etc.) prescribe is that the developing nation should open up to allow more imports in and export more of their commodities. However, this is precisely what contributes to poverty and dependency.

[I]f a society spends one hundred dollars to manufacture a product within its borders, the money that is used to pay for materials, labor and, other costs moves through the economy as each recipient spends it. Due to this multiplier effect, a hundred dollars worth of primary production can add several hundred dollars to the Gross National Product (GNP) of that country. If money is spent in another country, circulation of that money is within the exporting country. This is the reason an industrialized product-exporting/commodity-importing country is wealthy and an undeveloped product-importing/commodity-exporting country is poor. [Emphasis Added]
…Developed countries grow rich by selling capital-intensive (thus cheap) products for a high price and buying labor-intensive (thus expensive) products for a low price. This imbalance of trade expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for the product. [Such control of tools of production is a strategy of a mercantilist process. That control often requires military might.]
                                                                                                                                                   
— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), pp. 127, 139.
As seen above as well, one of the effects of structural adjustment is that developing countries must increase their exports. Usually commodities and raw materials are exported. But as Smith noted above, poor countries lose out when they
·         export commodities (which are cheaper than finished products)
·         are denied or effectively blocked from industrial capital and real technology transfer, and
·         import finished products (which are more expensive due to the added labor to make the product from those commodities and other resources)
This leads to less circulation of money in their own economy and a smaller multiplier effect. Yet, this is not new. Historically this has been a partial reason for dependent economies and poor nations. This was also the role enforced upon former countries under imperial or colonial rule. Those same third world countries find themselves in a similar situation. This can also be described as unequal trade:

At first glance it may seem that the growth in development of export goods such as coffee, cotton, sugar, and lumber, would be beneficial to the exporting country, since it brings in revenue. In fact, it represents a type of exploitation called unequal exchange. A country that exports raw or unprocessed materials may gain currency for their sale, but they lose it if they import processed goods. The reason is that processed goods—goods that require additional labor—are more costly. Thus a country that exports lumber but does not have the capacity to process it must then re-import it in the form of finished lumber products, at a cost that is greater than the price it received for the raw product. The country that processes the materials gets the added revenue contributed by its laborers. (Emphasis is original)
                                                                                                                                                    
— Richard Robbins, Global Problems and the Culture of Capitalism, (Allyn and Bacon, 1999), p. 95
Exporting commodities and resources is seen as favorable to help earn foreign exchange with which to pay off debts and keep currencies stable. However, partly due to the price war scenario mentioned above, commodity prices have also dropped. Furthermore, reliance on just a few commodities makes countries even more vulnerable to global market conditions and other political and economic influences. As Gemini News Servicealso reports, talking to the World Bank:

More than 50 developing countries depend on three or fewer commodities for over half of their export earnings. Twenty countries are dependent on commodities for over 90 percent of their total foreign exchange earnings, says the World Bank.
                                                                                                                                                    
— Ken Laidlaw, Market Cure Proposed For Third World’s Battered Farmers, Gemini News Service, December 4, 2001 (Link is to reposted version on this web site)
Almost four years after the above was written, Oxfam reveals that things have not changed for the better: more than 50 per cent of Africa’s export earnings is derived from a single commodity; numerous countries are dependent on two commodities for the vast majority of their export earnings; and there are a number of other countries in Africa heavily dependent on very few commodities.
In addition, as Celine Tan of the Third World Network explains:

Falling [commodity] prices have meant that large increases in export volume by commodity producers have not translated into greater export revenues, leading to severely declining terms of trade for many commodity producing countries. When the purchasing power of a country’s exports declines, a country is unable to purchase imported goods and services necessary for its sustenance, as well as generating income for the implementation of sustainable development programs.
A vast majority of developing countries depend on commodities as a main source of revenue. Primary commodities account for about half of the export revenues of developing countries and many developing countries continue to rely heavily on one or two primary commodities for the bulk of their export earnings.
                                                                                                                                                 
— Celine Tan, Tackling the Commodity Price Crisis Should Be WSSD’s Priority, TWN Briefings for WSSD No.14, Third World Network, August 2002
Tan also highlights in the above article that “a fall in commodity prices have [sic] also led to a build-up of unsustainable debt.” The lack of greater revenues from exports has knock-on effects, as described further above. The irony is that structural adjustments were prescribed by the IMF and the World Bank due to debt repayment concerns in the first place.

As debt-relief and trade became major topics of discussion during the G8 Summit 2005, Yaya Orou-Guidou, an economist from Benin (a small African country), also noted that exporting raw materials and agricultural products would not help fight poverty. Those raw materials have to be processed in the same poor country to help create a multiplier effect:
Orou-Guidou believes Benin will need to start processing the raw materials it produces if it is to escape the poverty trap.
“A prime material kept in Africa for processing in our factories is one less thing for Western factories to earn money on,” he notes. But, if “we content ourselves with selling our agricultural or mining products in their raw states, they will always feed Western factories which provide jobs for (the West’s) own people.
                                                                                                                                                    
— Ali Idrissou-Toure, Debt Cancellation No Panacea for Benin, Inter Press Service, July 7, 2005
This concern also applies to larger economies. The global financial crisis that started in 2008 resulted in Brazil’s exports to US falling by some 42%, while it increased with China by 23%. However, almost 75% of Brazil’s export to the US were industrial products, whereas the opposite — about 25% — was for China. Vice president of the Brazilian Foreign Trade Association explained why this is a concern to IPS:
·         When dealing in commodities, “the importer decides and controls the quantity and prices, making an unstable market,” in contrast to the situation with manufactured goods.
·         Commodities also generate low-grade jobs, whereas manufacturing employs skilled personnel for higher wages, creates a multiplier effect on employment as the production chain is longer, and expands the domestic market.
These concerns are not new.
Political economist Adam Smith also provided some insights in his 1776 classic, The Wealth of Nations, which is regarded as the Bible of capitalism. He was highly critical of the mercantilist practices of the wealthy nations, while he recognized the value of local industry and the impact of imported manufactured products on local industries:

Though the encouragement of exportation and the discouragement of importation are the two great engines by which the mercantile system proposes to enrich every country, yet with regard to some particular commodities it seems to follow an opposite plan: to discourage exportation and to encourage importation. Its ultimate object, however, it pretends, is always the same, to enrich the country by the advantageous balance of trade.It discourages the exportation of the materials of manufacture, and of the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations in all foreign markets; and by restraining, in this manner, the exportation of a few commodities of no great price, it proposes to occasion a much greater and more valuable exportation of others. It encourages the importation of the materials of manufacture in order that our own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities. (Emphasis Added)
                                                                                                                                                                                                                                                                                                 
— Adam Smith, Wealth of Nations, Book IV, Chapter VIII, (Everyman’s Library, Sixth Printing, 1991), p.577
Reading the above, we can say that structural adjustment policies are also mercantilist. We are constantly told that we live in a world of global capitalism, and yet we see that while free markets are preached (in Adam Smith’s name), mercantilism is still practiced!
Of course, today it is a bit more complicated too. We do have, for example, products being exported from the poorer countries (albeit some facing high barriers in the rich nations). But exporting rather than first creating and developing local industry and economy, means the “developing” country loses out in the long run, (hardly “developing”) because there is little multiplier effect of money circulating within the country, as mentioned above. Furthermore, with labor being paid less than their fair wages in the poorer nations, wealth is still accumulated by—and concentrated in—the richer nations.
The Luckiest Nut In The World is an 8 minute video (sorry, no transcript available, as far as I know), produced by Emily James. It is a cartoon animation explaining the effects of loans, structural adjustment and cashcrops, and their impacts on poorer countries. It traces how Senegal was encouraged to grow nuts for export. In summary,
·         As a poor nation without many resources, it took out loans to help develop the industry.
·         Other nations saw this was going well, so they followed suit.
·         The price of nuts started to drop and Senegal faced debt repayment problems.
·         Structural adjustment policies were put in place, cutting spending and reducing government involvement in the nut industry and elsewhere.
·         However, things got worse.
·         At the same time rich countries, such as the US, were subsidizing their own nut (and other) industries, allowing them to gain in market share around the world.
·         Rich countries have tools such as trade tariffs and the threat of sanctions at their disposal to help their industries, if needed.
Get the Flash Player to see this video.
The luckiest nut in the world
Thus we are in a situation where the rich promote a system of free trade for everyone else to follow, while mercantilism is often practiced for themselves.
·         “Free trade” is promoted by the rich and influential as the means for all nations to achieve prosperity and development.
·         The wealth accumulated by the richer countries in the past is attributed to this policy to strengthen this idea.
·         That such immense wealth was accumulated not so much from “free” trade but from the violent and age-old mercantilism or “monopoly capitalism” is ignored.
·         Such systems are being practiced again today, and even though they are claimed to be Adam-Smith-style free trade, they are the very systems that Adam Smith himself criticized and attacked.
In 1991 Larry Summers, then Chief Economist for the World Bank (and US Treasury Secretary, in the Clinton Administration, until George Bush and the Republican party came into power), had been a strong backer of structural adjustment policies. He wrote in an internal memo:

Just between you and me, shouldn’t the World Bank be encouraging more migration of dirty industries to the LDCs [less developed countries]?… The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that… Under-populated countries in Africa are vastly under-polluted; their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City… The concern over an agent that causes a one in a million change in the odds of prostate cancer is obviously going to be much higher in a country where people survive to get prostate cancer than in a country where under-five mortality is 200 per thousand.
                                                                                                                                                  
— Lawrence Summers, Let them eat pollution, The Economist, February 8, 1992. Quoted from Vandana Shiva, Stolen Harvest, (South End Press, 2000) p.65; See also Richard Robbins, Global Problems and the Culture of Capitalism (Allyn and Bacon, 1999), pp. 233-236 for a detailed look at this.
When looked at in this light, poverty is more than simple economic issues; it is also an ideological construct.
Earn More, Eat Less

Half a world away [from Zambia] in Washington, the architects of this human disaster dine in comfort and seclusion, spending more on one meal than Masauso Phiri’s wife makes in a year of selling buns in their shantytown. Although most World Bank staff work at its Washington headquarters, those unlucky enough to be posted in the Third World receive ample compensation for their misfortune. This includes subsidized housing (complete with free furnishings), an extended “assignment grant” of $25,000 and a “mobility premium” to defray the cost of child education. Salaries are tax-free and averaged $86,000 in 1995, according to a General Accounting Office report to Congress. No “structural adjustment,” then, for this privileged coterie of bankers and policy analysts. Meanwhile, in Africa a hidden genocide lays waste the continent.
“It’s not right for a bank to run the whole world,” says Fred M’membe, editor of the Zambia Post. “They do not represent anybody other than the countries that control them. What this means in practice is that the United States runs our countries.” He continues: “Look at any African country today, and you'll find that the figures are swinging down. Education standards are going down, health standards going down and infrastructure is literally breaking up.”                                                                                                                                                                                                                                        
— Mark Lynas, Letter from Zambia, The Nation, February 14, 2000
In some countries, more is spent on debt servicing than education. For example, even in the former communist countries that are trying to undergo rapid economic “reform”,education is given a back seat. In fact, the UK-based development and relief organization, Oxfam, goes as far as saying that the IMF policies deny children an education.
Since the end of the Cold War, even wealthier nations have seen government rollback on some functions, in a similar style to structural adjustment. John McMurtry captures this well, being very critical on the impact of such adjustments on “life requirements”:

Such systematic overriding of life requirements is now clearly evident from the most undeveloped to the most advanced societies of the world. In the case of Canada, again, infant mortality rates, the quintessential indicator of social health, rose an astonishing 43 per cent in the 1995 Statistics Canada figures, the first recorded rise in over thirty-one years, while child poverty had increased by 46 per cent since 1989. In Africa an estimated 500,000 more children died from the imposed restructuring of their countries’ economies to ensure increased flows of money to external banks, while spending on health care declined by 50 per cent and on education by 25 per cent since these structural adjustment programs began.
                                                                                                                                                                                                                                                                                                
  — John McMurtry, Unequal Freedoms; The Global Market as an Ethical System, (Kumarian Press, 1998), p.305.
And as the crisis of AIDS gets worse in Africa, measures that reduce health budgets in already poor countries contribute to the problems. (See this site’s section on AIDS in Africa for more on that issue.)
What Is The IMF/World Bank Prescription?
As economist Robin Hanhel summarizes:
The IMF has prescribed the same medicine for troubled third world economies for over two decades:
·Monetary austerity. Tighten up the money supply to increase internal interest rates to whatever heights needed to stabilize the value of the local currency.
·Fiscal austerity. Increase tax collections and reduce government spending dramatically.
·Privatization. Sell off public enterprises to the private sector.
·Financial Liberalization. Remove restrictions on the inflow and outflow of international capital as well as restrictions on what foreign businesses and banks are allowed to buy, own, and operate.
Only when governments sign this “structural adjustment agreement” does the IMF agree to:
·Lend enough itself to prevent default on international loans that are about to come due and otherwise would be unpayable.
·Arrange a restructuring of the country’s debt among private international lenders that includes a pledge of new loans.
— Robin Hanhel, Panic Rules!, (South End Press, 1999) p. 52.
Joseph Stiglitz is one of the most cited economists in the world, the former winner of the Nobel prize for economics and a professor at Columbia University. He was also former chief economist at the World Bank, who “resigned” under pressure from criticisms he made of the IMF and World Bank. He was also a member of then-US President Bill Clinton’s cabinet and chairman of the US President’s Council of Economic Advisers. His insights and criticisms are worth paying attention to. He notes that:

The IMF likes to go about its business without outsiders asking too many questions. In theory, the fund supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies. Officially, of course, the IMF doesn’t “impose” anything. It “negotiates” the conditions for receiving aid. But all the power in the negotiations is on one side—the IMF’s—and the fund rarely allows sufficient time for broad consensus-building or even widespread consultations with either parliaments or civil society. Sometimes the IMF dispenses with the pretense of openness altogether and negotiates secret covenants.
                                                                                                                                                  
— Joseph Stiglitz, What I learned at the world economic crisis. The Insider, The New Republic, April 17, 2000
In April 2001, Greg Palast conducted an interview with Joseph Stiglitz which was published in the British newspaper Observer and Guardian.
The World Bank talks of “assistance strategies” for every poor nation using careful country by country investigations. However, as reported in the article, “according to insider Stiglitz, the Bank’s ‘investigation’ involves little more than close inspection of five-star hotels. It concludes with a meeting with a begging finance minister, who is handed a ‘restructuring agreement’ pre-drafted for ‘voluntary’ signature.”
Stiglitz then tells Palast that after each nation’s economy is analyzed, the World Bank “hands every minister the same four-step program” (emphasis added), described in the article as follows:
1.       Privatization. Stiglitz tells Palast that some politicians were corrupt enough to go ahead with some state sell-offs: “Rather than object to the sell-offs of state industries, he said national leaders—using the World Bank’s demands to silence local critics—happily flogged their electricity and water companies. ‘You could see their eyes widen’ at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets.” According to Palast, Stiglitz asserts that the US government knew about, at least in one case: the 1995 Russian sell-off: “‘The US Treasury view was this was great as we wanted Yeltsin re-elected. We don’t care if it’s a corrupt election.’” (Emphasis added)
2.       Capital market liberalization. According to Palast, Stiglitz describes the disastrous capital flows that can ruin economies as being “predictable,” and says that “when [the outflow of capital] happens, to seduce speculators into returning a nation’s own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%.”
3.       Market-based pricing. Palast writes that it is at this point that the IMF “drags the gasping nation” to this third points, described as “a fancy term for raising prices on food, water and cooking gas” which, Palast continues, “leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls, ‘The IMF riot.’” These riots, which the article clarifies are “peaceful demonstrations dispersed by bullets, tanks and teargas[sic],” cause further capital outflows, a situation which, as Palast points out, is not without a “bright” side: “foreign corporations … can then pick off remaining assets, such as the odd mining concession or port, at fire sale prices.”
4.       Free trade. But a version dominated by “rules of the World Trade Organization and the World Bank,” which according to Palast, Stiglitz likens to the Opium Wars: “That too was about ‘opening markets’,” he said. Palast writes that “As in the nineteenth century, Europeans and Americans today are kicking down barriers to sales in Asia, Latin American and Africa while barricading our own markets against the Third World’s agriculture.” (Note that while even President Bush will claim that we want rules based global mechanisms, the mainstream media often does not ask what the rules themselves are, and whether they are most appropriate.) Palast highlights Stiglitz’s problems with the IMF/World Bank plans, plans that the article describes as “devised in secrecy and driven by an absolutist ideology”: first, they are not open to discourse and dissent, and second, that they don’t work. Palast writes that “Under the guiding hand of IMF structural ‘assistance’ Africa's income dropped by 23%.”
In a 5 minute video clip (available in transcript), the well-respected Martin Khor, director of the Third World Network notes similar concerns to Stiglitz’s and adds that rich countries are being hypocritical and aggressive by
·         Protecting their own industries while attempting to force open markets of poor countries
·         Selling artificially cheaper products in poor countries, undermining local producers
·         Promising more aid while real economic development suffers:
Get the Flash Player to see this video.
Martin Khor, Structural Adjustment Explained, July 15, 2005,© Big Picture TV
As part of a wider process of globalization, these policies, he argues in another clip (2 minutes, transcript), create a “straight jacket” for poor countries in terms of policy space to make their own decisions:
Get the Flash Player to see this video.
Martin Khor, Debt in the Developing World—Part One, July 15, 2005,© Big Picture TV
Africa Action, an organization working for political, economic and social justice in Africa is highly critical of SAPS, noting that, “The basic assumption behind structural adjustment was that an increased role for the market would bring benefits to both poor and rich. In the Darwinian world of international markets, the strongest would win out. This would encourage others to follow their example. The development of a market economy with a greater role for the private sector was therefore seen as the key to stimulating economic growth.”
Focusing on Africa, the article points out that the issue wasn’t that African countries did not need corrective reforms, but whether SAPs were the appropriate answers. “The key issue with adjustments of this kind, however, is whether they build the capacity to recover and whether they promote long-term development. The adjustments dictated by the World Bank and IMF did neither.”
Get the Flash Player to see this video.
Joseph Stiglitz explains the effects of liberalization & subsidized agriculture on poor farmers(see link for transcript)
In these ways then, the IMF and World Bank’s encouragement of poor countries to open up for foreign trade is too aggressive; arguing that these policies will help create a “level playing field” with rich countries is almost opposite to what has happened in reality in most cases.
Perhaps one of the most serious effects is that these external policies indirectly undermine democracy and democratic accountability, not only of the IMF and World Bank (after all, if their policies fail, who are they accountable to?) but also of the governments of the poor countries themselves, who see a reduction in their ability to make important decisions for their people. In some cases, the more corrupt governments can use structural adjustment as an excuse not to cater to all their people.

Oxfam International estimates that, in the Philippines alone, IMF-imposed cuts in preventative medicine will result in 29,000 deaths from malaria and an increase of 90,000 in the number of untreated tuberculosis cases. Tribunals investigating “crimes against humanity” take note!
                                                                                                                                                     
— Jeremy Brecher, Panic Rules: Everything you want to know about the Global Economy, by Robin Hahnel (South End Press, 1999).
Because some of the poor nations are not as aggressive in privatization and other conditionalities as the IMF or World Bank would like, they face continual delays of debt relief.
This model of development, whereby the North (or the developed Nations) impose their conditions on the South (the developing Nations) has come undercriticism by many NGOs and other groups/individuals. Perhaps the model needs to be revised and approached from different angles, as this Oxfam paper suggests.
True, in some cases corrupt governments have borrowed money from these institutions and/or directly from various donor nations and ended up using that money to pursue conflicts, for arms deals, or to divert resources away from their people. However, in most cases that has been done knowingly, with the support of various rich nations due to their own “national interests”, especially during the Cold War. As Oxfam says, “it would be wrong to hold civilians to ransom by placing stringent conditions on humanitarian relief because of the way their government spends its money.”
Furthermore, it has been argued that Structural Adjustments encourage corruption and undermine democracy. As Ann Pettifor and Jospeh Hanlon note, top-down “conditionality has undermined democracy by making elected governments accountable to Washington-based institutions instead of to their own people.” The potential for unaccountability and corruption therefore increases as well.
As the article from Africa Action above also mentions, “African countries require essential investments in health, education and infrastructure before they can compete internationally. The World Bank and IMF instead required countries to reduce state support and protection for social and economic sectors. They insisted on pushing weak African economies into markets where they were unable to compete with the might of the international private sector. These policies further undermined the economic development of African countries.”
Side Note»
This inevitably means that the poor suffer, while the rich get richer.
Also note that the illegal drug trade has increased in countries that are in debt (because of the hard cash that is earned), as Jubilee 2000 points out. Growing such illegal crops also diverts land away from meeting local and immediate needs, which also leads to more hunger. Debt’s chain reactions and related effects are enormous. (For more information on debt in general, see this web site’s section on debt related issues.)
These policies may be described as “reforms”, “adjustments”, “restructuring” or some other benign-sounding term, but the effects on the poor are the same nonetheless. Some even describe this as leading to economic apartheid.
                    
·The U.S. uses its dominant role in the global economy and in the IFIs [International Financial Institutions] to impose SAPs on developing countries and open up their markets to competition from U.S. companies.
·SAPs are based on a narrow economic model that perpetuates poverty, inequality, and environmental degradation.The growing civil society critique of structural adjustment is forcing the IFIs and Washington to offer new mitigation measures regarding SAPs, including national debates on economic policy.                                                                                           

— Carol Welch, Structural Adjustment Programs & Poverty Reduction Strategy, Foreign Policy in Focus, Vol 5, Number 14, April 2000
In a more cynical or harsher description, structural adjustments and other trade related policies could also be seen as a “weapon of mass destruction” as Raj Patel hints, (commenting on the Doha WTO conference in November, 2001. Although this is a different context, the overall aspect remains the same):

A fertilizer bomb that kills hundreds in Oklahoma. Fuel-laden civil jets that kill 4000 in New York. A sanctions policy that kills one and a half million in Iraq. A trade policy that immiserates continents. You can make a bomb out of anything. The ones on paper hurt the most.
                                                                                                                                                    
— Raj Patel, They also make bombs out of paper, ZNet, November 28, 2001
Indeed, consider the following:

According to UNICEF, over 500,000 children under the age of five died each year in Africa and Latin America in the late 1980s as a direct result of the debt crisis and its management under the International Monetary Fund’s structural adjustment programs. These programs required the abolition of price supports on essential food-stuffs, steep reductions in spending on health, education, and other social services, and increases in taxes. The debt crisis has never been resolved for much of sub-Saharan Africa. Extrapolating from the UNICEF data, as many as 5,000,000 children and vulnerable adults may have lost their lives in this blighted continent as a result of the debt crunch.
                                                                                                                                                    
— Ross P. Buckley, The Rich Borrow and the Poor Repay: The Fatal Flaw in International Finance, World Policy Journal, Volume XIX, No 4, Winter 2002/03 (Emphasis Added)
The “Welfare” State Has Helped Today’S Rich Countries To Develop

The era of globalization can be contrasted with the development path pursued in prior decades, which was generally more inward-looking. Prior to 1980, many countries quite deliberately adopted policies that were designed to insulate their economies from the world market in order to give their domestic industries an opportunity to advance to the point where they could be competitive. The policy of development via import substitution, for example, was often associated with protective tariffs and subsidies for key industries. Performance requirements on foreign investment were also common. These measures often required foreign investors to employ native workers in skilled positions, and to purchase inputs from domestic producers, as ways of ensuring technology transfers. It was also common for developing countries to sharply restrict capital flows. This was done for a number of purposes: to increase the stability of currencies, to encourage both foreign corporations and citizens holding large amounts of domestic currency to invest within the country, and to use the allocation and price of foreign exchange as part of an industrial or development policy.
                                                                                                                                                   
— Mark Weisbrot, Dean Baker, Egor Kraev and Judy Chen, The Scorecard on Globalization 1980-2000: Twenty Years of Diminished Progress, Center for Economic Policy and Research, July 11, 2001
As J.W. Smith notes, every rich nation today has developed because in the past theirgovernments took major responsibility to promote economic growth. There was also a lot of protectionism and intervention in technology transfer. There was an attempt to provide some sort of equality, education, health, and other services to help enhance the nation.
The industrialized nations have understood that some forms of protection allow capital to remain within the economy, and hence via a multiplier effect, help enhance the economy.
Yet, as seen in the structural adjustment initiatives and other western-imposed policies,the developing nations are effectively being forced to cut back these very same provisions that have helped the developed countries to prosper in the past.
The extent of the devastation caused has led many to ask if development is really the objective of the IMF, World Bank, and their ideological backers. Focusing on Africa as an example:

The past two decades of World Bank and IMF structural adjustment in Africa have led to greater social and economic deprivation, and an increased dependence of African countries on external loans. The failure of structural adjustment has been so dramatic that some critics of the World Bank and IMF argue that the policies imposed on African countries were never intended to promote development. On the contrary, they claim that their intention was to keep these countries economically weak and dependent.
The most industrialized countries in the world have actually developed under conditions opposite to those imposed by the World Bank and IMF on African governments. The U.S. and the countries of Western Europe accorded a central role to the state in economic activity, and practiced strong protectionism, with subsidies for domestic industries. Under World Bank and IMF programs, African countries have been forced to cut back or abandon the very provisions which helped rich countries to grow and prosper in the past.
Even more significantly, the policies of the World Bank and IMF have impeded Africa’s development by undermining Africa’s health. Their free market perspective has failed to consider health an integral component of an economic growth and human development strategy. Instead, the policies of these institutions have caused a deterioration in health and in health care services across the African continent. 
                                                                                                                                                  
 — Ann-Louise Colgan, Hazardous to Health: The World Bank and IMF in Africa, Africa Action, April 18, 2002
While the phrase “Welfare State” often conjures up negative images, with regards to globalization, most European countries feel that protecting their people when developing helps society as well as the economy.
It may be that for real free trade to be effective countries with similar strength economies can reduce such protective measures when trading with one another. However, for developing countries to try to compete in the global market place at the same level as the more established and industrialized nations—and before their own foundations and institutions are stable enough—is almost economic suicide.
An example of this can be seen with the global economic crisis of 1997/98/99 that affected Asia in particular. A UN report looking into this suggested that such nations should rely on domestic roots for growth, diversifying exports and deepening social safety nets. For more about this economic crisis and this UN report, go to this web site’s section on debt and the economic crisis.
The type of trade is important. As the UN report also suggested, diversification is important. Just as biodiversity is important to ensure resilience to whatever nature can throw at a given ecosystem, diverse economies can help countries weather economic storms. Matthew Lockwood is worth quoting in regards to Africa:

What Africa needs is to shake off its dependence on primary commodity exports, a problem underlying not only its marginalization from world trade but also its chronic debt problems. Many countries rely today on as narrow a range of agricultural and mineral products as they did 30 years ago, and suffer the consequences of inexorably declining export earnings. Again, the campaigners’ remedy—to improve market access for African exports to Europe and America—is wide of the mark.
                                                                                                                                                               
— Matthew Lockwood, We must breed tigers in Africa, The Guardian, June 24, 2005
Asia too has seen development where policies counter to neoliberalism have been followed, as Lockwood also notes.
To see more about the relationship of protectionism with free trade, check out this site’s section on Free Trade, which also discusses protectionism and its pros and cons.
Structural Adjustment In Rich Countries
As the global financial crisis which started in the West around 2008 has taken hold, many rich nations themselves are facing economic problems. Perhaps surprisingly many have prescribed to themselves structural adjustment and austerity programs. Some have been pressured onto them by others. For example, in Europe, Germany is influential in requiring austerity measures if countries want bailouts from Germany or the European Union.
For more about the austerity measures being put in, and how some of it seems ideologically based in fact of evidence that it is not working — or even making the economy worse — see this site’s section on the global financial crisis.
IMF And World Bank
The IMF and World Bank’s policies are very different now from their original intent, as summarized here by the John F. Henning Center for International Labor Relations:

The International Monetary Fund and the World Bank were conceived by 44 nations at the Bretton Woods Conference in 1944 with the goal of creating a stable framework for post-war global economy. The IMF was originally envisioned to promote steady growth and full employment by offering unconditional loans to economies in crisis and establishing mechanisms to stabilize exchange rates and facilitate currency exchange. Much of that vision, however, was never born out. Instead, pressured by US representatives, the IMF took to offering loans based on strict conditions, later to be known as structural adjustment or austerity measures, dictated largely by the most powerful member nations. Critics charge that these policies have decimated social safety nets and worsened lax labor and environmental standards in developing countries. The World Bank (The International Bank for Reconstruction and Development) was created to fund the rebuilding of infrastructure in nations ravaged by World War Two. Its vision too, however, soon changed. In the mid 1950’s, the Bank turned its attention away from Europe to the Third World, and began funding massive industrial development projects in Latin American, Asia, and Africa. Many scholars and activists contend that the Bank’s aggressive dealings with developing nations, which were often ruled by dictatorial regimes, exacerbated the developing world’s growing debt crisis and devastated local ecologies and indigenous communities. Both IMF and World Bank policies remain a source of heated debate.
                                                                                                                                                      
— John F. Henning Center for International Labor Relations, Institute for Industrial Relations, University of California, Berkeley
Although their goals are slightly different, the IMF and World Bank policies complement each other:

World Bank and IMF adjustment programs differ according to the role of each institution. In general, IMF loan conditions focus on monetary and fiscal issues. They emphasize programs to address inflation and balance of payments problems, often requiring specific levels of cutbacks in total government spending. The adjustment programs of the World Bank are wider in scope, with a more long-term development focus. They highlight market liberalization and public sector reforms, seen as promoting growth through expanding exports, particularly of cash crops.
Despite these differences, World Bank and IMF adjustment programs reinforce each other. One way is called “cross-conditionality.” This means that a government generally must first be approved by the IMF, before qualifying for an adjustment loan from the World Bank. Their agendas also overlap in the financial sector in particular. Both work to impose fiscal austerity and to eliminate subsidies for workers, for example. The market-oriented perspective of both institutions makes their policy prescriptions complementary.
                                                                                                                                                    
— Ann-Louise Colgan, Hazardous to Health: The World Bank and IMF in Africa, Africa Action, April 18, 2002
But economics is often driven by politics. As a result of policies by the IMF, World Bank and various powerful nations, basic human rights have been severely undermined in many countries, as also noted sharply by Global Exchange:

By insisting that national leaders place the interests of international financial investors above the needs of their own citizens, the IMF and the World Bank have short circuited the accountability at the heart of self-governance, thereby corrupting the democratic process. The subordination of social needs to the concerns of financial markets has, in turn, made it more difficult for national governments to ensure that their people receive food, health care, and education—basic human rights as defined by the Universal Declaration of Human Rights. The Bank’s and the Fund’s erosion of basic human rights and their perversion of the democratic process have made the institutions a clear and present threat to the well being of hundreds of millions of people worldwide.
                                                                                                                                                    
— How the International Monetary Fund and the World Bank Undermine Democracy and Erode Human Rights, Global Exchange, September 2001
For decades, the IMF and World Bank have been largely controlled by the developed nations such as the USA, Germany, UK, Japan etc. (The IMF web site has a breakdown of the quotas and voting powers.) The US, for example, controls 17% of the voting power at the IMF. Until November 2010, an 85% majority was required for a decision, so the US effectively had veto power at the IMF. In addition, the World Bank is 51% funded by the U.S. Treasury.
The global financial crisis from 2008 onwards has resulted in some shifts in power, such that some leading developing countries have finally managed to break some of the control at the IMF and get more seats and votes. While some say that parts of Europe have resisted giving up some share which would be appropriate, the changes also mean the US no longer has veto power that it had for decades.
Journalist John Pilger also provides a political aspect to this:

Under a plan devised by President Reagan’s Secretary to the Treasury, James Baker, indebted countries were offered World Bank and IMF “servicing” loans in return for the “structural adjustment” of their economies. This meant that the economic direction of each country would be planned, monitored and controlled in Washington. “Liberal containment” was replaced by laissez-faire capitalism known as the “free market”.
                                                                                                                                                     
— John Pilger, Hidden Agendas, (The New Press, 1998), p.63
The IMF and World Bank’s policies have indeed been heavily criticized for many years and are seen as unhelpful and sometimes, unaccountable, as they have led to an increased dependency by the developing countries upon the richer nations, as also mentioned at the top of this page. At the same time, the different cultures are not respected when it comes to prescribing structural adjustment principles, either.
In Africa, the effects of policies such as SAPs have been felt sharply. As an example of how political interests affect these institutions, Africa Action describes the policies of the IMF and World Bank, but also hints at the influences behind them too:

Over the past two decades, the World Bank and International Monetary Fund (IMF) have undermined Africa’s health through the policies they have imposed. The dependence of poor and highly indebted African countries on World Bank and IMF loans has given these institutions leverage to control economic policy-making in these countries. The policies mandated by the World Bank and IMF have forced African governments to orient their economies towards greater integration in international markets at the expense of social services and long-term development priorities. They have reduced the role of the state and cut back government expenditure.

The World Bank and IMF were important instruments of Western powers during the Cold War in both economic and political terms. They performed a political function by subordinating development objectives to geostrategic interests. They also promoted an economic agenda that sought to preserve Western dominance in the global economy.
Not surprisingly, the World Bank and IMF are directed by the governments of the world’s richest countries. Combined, the “Group of 7” (U.S., Britain, Canada, France, Germany, Italy and Japan) hold more than 40% of the votes on the Boards of Directors of these institutions. The U.S. alone accounts for almost 20%. (The U.S. holds 16.45% of the votes at the World Bank, and over 17% of the votes at the International Monetary Fund.).
                                                                                                                                                    
— Ann-Louise Colgan, Hazardous to Health: The World Bank and IMF in Africa, Africa Action, April 18, 2002
But it is not just health. Basic food security has also been undermined. An example in 2002 at least made it to mainstream media attention in UK. As Ann Petifor, head of debt campaign organization, Jubilee Research noted, the IMF forced the Malawi government to sell its surplus grain in favor of foreign exchange just before a famine struck. This was explicitly so that debts could be repaid. 7 million of the total 11 million population were severely short of food.
“But its [sic] worse than that,” said Petifor. “Because Malawi is indebted, her economic policies are effectively determined by her creditors—represented in Malawi by the IMF.” Malawi spent more than the budget the foreign creditors set. As a result the IMF withheld $47 million in aid. Other western donors, acting on advice from IMF staff, also withheld aid, “pending IMF approval of the national budget.” (Emphasis added).
“To add to the humiliation of the Malawian government, the IMF has also suspended the debt service relief for which she was only recently deemed eligible—because she is ‘off track.’”
That is not the end of the story unfortunately. As Petifor also mentioned, under the economic program imposed by her creditors, Malawi removed all farming and food subsidies allowing the market to determine demand and supply for food. This reduced support for farmers, leading many to go hungry as prices increased. As she also noted, the rich countries, on the other hand, do not follow their own policies; Europe and the US subsidize their agriculture with billions of dollars.
But the US, for example, sees this situation as exploitable. Petifor again:

US Secretary for Agriculture, Dan Glickman, illustrates well the US attitude to countries suffering famine and in need of food aid:
“Humanitarian and national self interest both can be served by well-designed foreign assistance programs. Food aid has not only met emergency food needs, but has also been a useful market development tool.” (OXFAM report: “Rigged Rules and Double Standards: Trade Globalization and the Fight Against Poverty” by Kevin Watkins and Penny Fowler)
                                                                                                                                                   
— Ann Petifor, Debt is still the linchpin: the case of Malawi, Jubilee Research, July 4, 2002
It is not just the US that uses aid in this way. Most rich countries do this. And it isn’t just food aid, but aid in general that is often used inappropriately. The Guardian reported (August 29, 2005) how £700,000 (about $400,000) of £3 million in British aid to Malawi was mis-spent on US firms’ hotel and meal bills. Even notebooks and pens were flown in from Washington rather than purchased locally. See this site’s section on foreign aid for more details about the issue of foreign aid and its misuse.
IMF And World Bank Reform?
Throughout the period of structural adjustment from the 80s, various people have called for more accountability and reform of these institutions, to no avail.
Following the IMF and World Bank protests in Washington, D.C on April 16, 2000, and coinciding with the Meltzer Report criticizing the IMF and World Bank, there has been more talk about IMF reforms. At first thought the reforms sound like the protests and other movements’ efforts are paying off. However, as Oxfam noted, some of the reform suggestions may not be the way to go and may do even more harm than good. In their own words:
While some of the reform proposals now being debated are sensible, the thrust of the reform agenda is a source of concern for the following reasons:
·It reflects a growing disenchantment with multilateralism
·It threatens to replace inappropriate IMF conditions with inappropriate conditions dictated by the G7 countries
·It fails to address the real policy issues at the heart of the IMF’s failure as a poverty reduction agency
·It does not address the politicization of IMF loans, especially with regard to the US Treasury’s influence
·It does not adequately consider the “democratic deficit” which prevents poor countries from having an effective voice in the IMF
— Reforming the IMF, Oxfam International Policy Paper, April 2000
On the one hand it seems appropriate to demand an end to the IMF. However, such an abrupt course of action may itself lead to a gaping hole in international financial policies without an effective alternative. And that is another topic in itself!

Into 2008, and the global financial crisis has been so severe that rich countries have been affected. Calls for reform have therefore increased, even from within some of these institutions themselves. These calls have included more transparency and accountability as well as specifics such as creating a more stable financial system, and cracking down on tax havens.
This time, however, developing countries are demanding more voice, and have more power that in past years to try and affect this. In April, the IMF conceded just 3% of rich country votes to the developing countries, but developing countries rightly want more.
Historically democracy and power have not gone well together, and as journalist John Vandaele has found,
The most powerful international institutions tend to have the worst democratic credentials: the power distribution among countries is more unequal, and the transparency, and hence democratic control, is worse.                                                             
                                                                                                                                                   
— John Vandaele, Democracy Comes to World Institutions, Slowly, Inter Press Service, October 27, 2008
If change is to be effective, these fundamental issues will need resolving. Powerful countries may try to reshape things only in so far as they can get themselves out of trouble and if they can avoid it, they will try to limit how much power they concede to others. And perhaps a sad reality of geopolitics will be that any emerging nations that become truly influential and powerful in this area will one day try to do the same. For now, however, developing countries generally have a common agenda of more voice and will therefore champion common principles of better democracy and accountability.
IMF And World Bank Admit Some Of Their Policies Do Not Work
Recently, we have heard members of the World Bank and IMF entertain the possibility that maybe their structural adjustment policies did have some negative effects.
For example, the Bretton Woods Project revealed that in 2000, an “internal World Bank report has concluded that the poor are better off without structural adjustment”. The report itself is titled The Effect of IMF and World Bank Programs on Poverty. (Requires a PDF reader.)
The report doesn’t really look in detail at why the poor benefit less from adjustment. Instead it speculates that they “may be ill-placed to take advantage of new opportunities created by structural adjustment reforms” because, as the Bretton Woods Project insinuates, the report implies that the poor “have neither the skills or financial resources to benefit from high-technology jobs and cheaper imports.”
Now, it may not have been the intent of the report to do so, but one can’t help but notice how it almost seems as though while they may admit that structural adjustment didn’t benefit the poor, it is almost as though the Bank tries to subtly absolve itself by subtly blaming the poor for not benefiting from this. When structural adjustments have required cut backs in health, education and so on, then what would one expect?
In March 2003, the IMF itself admitted in a paper that globalization may actually increase the risk of financial crisis in the developing world. “Globalization has heightened these risks since cross-country financial linkages amplify the effects of various shocks and transmit them more quickly across national borders” the IMF notes and adds that, “The evidence presented in this paper suggests that financial integration should be approached cautiously, with good institutions and macroeconomic frameworks viewed as important.” In addition, they admit that it is hard to provide a clear road-map on how this should be achieved, and instead it should be done on a case by case basis. This would sound like a move slightly away from a “one size fits all” style of prescription that the IMF has been long criticized for.
As mentioned further above, and as many critics have said for a long time, opening up poorer countries in an aggressive manner can leave them vulnerable to large capital volatility and outflows. Reuters, reporting on the IMF report also noted that the IMF “sounded more like its critics” when making this admission.
In theory there may indeed be merit to various arguments supporting global integration and cooperation. But politics, corruption, geopolitics, as well as numerous other factors need to be added to economic models, which could prove very difficult. As suggested in various parts of this site, because economics is sometimes separated from politics and other major issues, theory can indeed be far from reality.
Sitglitz, the former World Bank chief economist, is worth quoting a bit more to give an insight into the power that the IMF has, and why accusations of it and its policies being colonial-like are perhaps not too far off:

…The IMF is not particularly interested in hearing the thoughts of its “client countries” on such topics as development strategy or financial austerity. All too often, the Fund’s approach to the developing countries has had the feel of a colonial ruler. A picture can be worth a thousand words, and a single picture snapped in 1998, shown throughout the world, has engraved itself in the minds of millions, particularly those in the former colonies. The IMF’s managing director, Michel Camdessus (the head of the IMF is referred to as its “Managing Director”), a short, neatly dressed former French Treasury bureaucrat, who once claimed to be a Socialist, is standing with a stern fact and crossed arms over the seated and humiliated president of Indonesia. The hapless president was being forced, in effect, to turn over economic sovereignty of his country to the IMF in return for the aid his country needed. In the end, ironically, much of the money went not to help Indonesia, but to bail out the “colonial power’s” private sector creditors. (Officially, the “ceremony” was the signing of a letter of agreement, an agreement effectively dictated by the IMF, though it often still keeps up the pretense that the letter of intent comes from the country’s government!)
Defenders of Camdessus claim the photograph was unfair, that he did not realize that it was being taken and that it was viewed out of context. But that is the point—in day-to-day interactions, away from cameras and reporters, this is precisely the stance that the IMF bureaucrats take, from the leader of the organization on down. To those in the developing countries, the picture raised a very disturbing question: Had things really changed since the “official” ending of colonialism a half century ago? When I saw the pictures, images of other signings of “agreements” came to mind. I wondered how similar this scene was to those marking the “opening up of Japan” with Admiral Perry’s gunboat diplomacy or the end of the Opium Wars or the surrender of maharajas in India.
                                                                                                                                                  
— Joseph Stiglitz, Globalization and its Discontents, (Penguin Books, 2002), pp. 40–41
The above passage is from Stiglitz’s book, Globalization and its Discontents. In it, he highlights many, many more issues, criticisms and aspects of IMF/Washington Consensus ideological fanaticism that have hindered development, and in many cases, as he points out, worsened situations. It is surprising and also quite illuminating to get the “insider” image of the workings of some large institutions in this way.
Into mid-2005, and though not as vocal as Stiglitz, others at the IMF are also questioning the institution’s strict adherence to the free market doctrine, as Bretton Woods Projectreveals. One of the authors of a paper from the IMF “concedes the failure of IFI policies for the poorest countries” saying that “Much of sub-Saharan Africa has been under IMF and World Bank programmes during the last three decades, and while a modicum of macroeconomic stability has been achieved, progress has been spotty at best.” Another working paper from the IMF suggests that trade liberalization has crippled some governments of poorer countries, and that prospects for further trade liberalization in poor countries may be troubling.
PSRPs Replace SAPs But Still SAP The Poor
The IMF in 1999 replaced Structural Adjustments with Poverty Reduction Growth Facility (PRGP) and Policy Framework Papers with Poverty Reduction Strategy Papers (PSRP) as the new preconditions for loan and debt relief. However, the effect is still the same as the preceding disastrous structural adjustment policies, as the World Development Movement reported. Many civil society organizations are increasing their critique of the PSRPs.
[T]he PRSP process is simply delivering repackaged structural adjustment programmes (SAPs). It is not delivering poverty-focused development plans and it has failed to involve civil society and parliamentarians in economic policy discussions.
— PRSPs just PR say civil society groups, Bretton Woods Project Update #23, June/July 2001
As Jubilee Research (formerly Jubilee 2000, the debt relief campaign organization) adds:

Joint World Bank/IMF papers (39) on the PRSP stress “poverty reduction” and that the paper must be “country-driven with the broad participation of civil society”. But the IMF in its own papers stresses that this is in addition to everything that was required in the past; none of the old “Washington consensus” policies have been removed. In a paper for a meeting of African finance ministers, 18-19 January 2000, to explain the new PRGF, (40) the IMF stresses that it will demand of all countries “a more rapid privatisation process” and “a faster pace of trade liberalization”—the conditions criticized by Joseph Stiglitz when he was chief economist of the World Bank.
… James Wolfensohn, president of the World Bank, commented that “it is also clear to all of us that ownership is essential. Countries must be in the driver’s seat”. The theory is fine, but the practice distorts the meaning of these words. Countries are in the driving seat only as the chauffeur of the Washington Consensus limousine. And as Angela Woods and Matthew Lockwood comment, all too often “ownership relates to persuading the public that reforms are necessary and good in order to minimize political opposition to them”.
… The implication is that governments wishing to take an alternative economic approach must expect to forgo aid and debt relief. But Wood and Lockwood note that “not only does the Bank define a ‘good’ policy environment very narrowly, the consensus on what defines ‘good’ policies is subject to change. What may have been regarded as a good policy yesterday may not be today.”
„… It is impossible to ignore the sweeping critique, by the second most important man in the World Bank [Joseph Stiglitz], of policies still being imposed on poor countries as a condition of debt cancellation and aid. And it must be remembered that these are being imposed in the names of “good governance”, “sound policies” and “poverty reduction”.
Stiglitz notes that had the US followed IMF policy it would have not achieved its remarkable expansion.
                                                                                                                                               
— Joseph Hanlon and Ann Pettifor, Kicking the Habit; Finding a lasting solution to addictive lending and borrowing—and its corrupting side-effects, Jubilee Research, March 2000
Additionally, as this book reports (see pages 37-38 of the PDF online version), “[A] senior [World] Bank official described the PRSP-PRGF as a ‘compulsory programme, so that those with the money can tell those without the money what they need in order to get the money.’” It would be worth additionally noting the cruel irony that nations that are “those with the money” today have largely accumulated it through plunder via imperialism and colonialism upon those very nations who today are “without the money.” Prescribing how to get “the money,” in that context, is dubious indeed.
For additional information and critique, you can see the following links as well:
·         Reports from the World Development Movement:
·         One size for all: A study of IMF and World Bank Poverty Reduction Strategies, September 2005
·         Still Sapping the Poor: A critique of IMF poverty reduction strategies, by Charles Abugre, June 2000
·         Polices to Roll-back the State and Privatize? from the World Development Movement, April 2001 provides additional studies and examples
·         From the Bretton Woods Project, an IMF and World Bank monitoring organization:
·         Structural Adjustment/PRSP section of their web site
·         The ABC of the PRSP, an introduction to the new Bank and Fund Poverty Reduction Strategy Papers, by Angela Wood, April 2000
·         From the Focus on the Global South:
·         The World Bank and the PRSP: Flawed Thinking and Failing Experiences
The Asian Development Bank
Like the IMF and World Bank, the Asian Development Bank (ADB) has also fallen under much criticism for its policies, which also require structural adjustments for loans. Through its policies it encourages export-driven, capital and resource-intensive development, just like the other international financial institutions. The largest financing and influence of the bank comes from Japan and the United States.
As summarized from chapter 2 of The Transfer of Wealth; Debt and the making of a Global South:
The escalating dependence of developing countries in the [Asia] region on debt-financed development has a number of negative consequences. These include:
a.       the neglect of domestic savings as a source of development finance;
b.       cuts in government expenditure for basic social services and basic infrastructure in order to meet debt servicing requirements;
c.       an escalation of export-oriented resource extraction to generate hard currency receipts for debt servicing;
d.       a reorientation of agricultural production from meeting local needs to production for export in highly skewed regional and global markets;
e.       increased dependence on imported, capital intensive technologies as a consequence of tied procurement and project design processes led by foreign consulting companies;
f.        increased dependence on and influence of international financial institutions such as the ADB and the World Bank, particularly through the imposition of debt-induced structural adjustment programs and policy based lending.
Also, as with the IMF and World bank, and mentioned in the above link, “governments are using the rubric of poverty reduction to channel taxpayer funds to their private sector companies via the ADB. This is occurring with little or no pubic scrutiny although government representatives will, if necessary, appeal to commercial self-interest to justify continued contributions to the ADB and other multilateral development banks.” As with the IMF for example, loans by the IMF are guaranteed by the creditor country. In essence then, tax payers from the lending countries will bail out the IMF and ADB if there are problems in their policies.
(For more details, statistics etc., the above link is a good starting place.)
The ADB has mentioned its desires to promote “good governance.” However, Aziz Choudry is highly critical in terms of whom this governance would actually be good for:

It has nothing to do with democratization, humanitarianism or support for peoples’ rights. It is a euphemism for a limited state designed to service the market and undermine popular mandates. The term is explicitly linked to the kinds of structural adjustment measures promoted by the ADB—measures for which there is little popular support and which are rapidly increasing economic inequalities.
                                                                                                                                                    
 — Aziz Choudry, The Asian Development Bank—“Governing” the Pacific?, June 6, 2002
Structural adjustment policies have therefore had far-reaching consequences around the world. Yet, this is just one of the mechanisms whereby inequality and poverty has been structured into laws and institutions on a global scale.
Related Articles
1.       Poverty Facts And Stats
2.       Structural Adjustment—A Major Cause Of Poverty
3.       Poverty Around The World
4.       Today, Around 21,000 Children Died Around The World
5.       Corruption
6.       Tax Avoidance And Tax Havens; Undermining Democracy
7.       Foreign Aid For Development Assistance
8.       Causes Of Hunger Are Related To Poverty
9.       United Nations World Summit 2005
10.   IMF & World Bank Protests, Washington D.C.
Main Source: http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty

Online Sources:
(Note that listed here are only those hyperlinks to other articles from other web sites or elsewhere on this web site. Other sources such as journal, books and magazines, are mentioned above in the original text. Please also note that links to external sites are beyond my control. They might become unavailable temporarily or permanently since you read this, depending on the policies of those sites, which I cannot unfortunately do anything about.)
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This next version is posted on Greg Palast’s own site. The Observer version seems slightly edited, so citations used come from both. Palast’s article is titled “The Globalizer Who Came In From the Cold.”
http://www.gregpalast.com/the-globalizer-who-came-in-from-the-cold
A repost of the Observer article by Jubilee Research
http://www.jubileeresearch.org/analysis/articles/IMF_Four_steps_Damnation.htm
A repost of the Observer article by ZMag
http://www.zmag.org/ParEcon/palastimf.htm
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http://www.globalissues.org/video/727/martin-khor-structural-adjustment-explained
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http://www.oxfam.org.uk/policy/papers/africa_forgotten_crises/africa.htm
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http://www.globalissues.org/article/170/why-is-biodiversity-important-who-cares
http://www.guardian.co.uk/hearafrica05/story/0,15756,1513561,00.html
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http://www.globalissues.org/article/43/deregulation-or-protectionism
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http://www.globalissues.org/article/768/global-financial-crisis
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http://www.globalissues.org/article/768/global-financial-crisis
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http://www.imf.org/external/np/sec/memdir/members.htm
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http://www.foreignpolicy-infocus.org/briefs/vol4/v4n21debt.html
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http://www.guardian.co.uk/Archive/Article/0,4273,4177445,00.html
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http://www.globalissues.org/article/768/global-financial-crisis
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http://www.ipsnews.net/news.asp?idnews=53493
Note, if the above link has expired, please try the following alternative
http://www.globalissues.org/news/2010/11/08/7578
'Whitewash of IMF Role Charged', Institute for Public Accuracy, June 4 1998,
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http://www.africaaction.org/action/sap0204.htm
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http://www.jubileeresearch.org/opinion/debt040702.htm
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http://business-times.asiaone.com.sg/news/story/0,4567,75709,00.html
Note, if the above link has expired, please try the following alternative locations:
A repost of the same Reuters article. A Google search on the internet can reveal a number of other web sites that have reposted the same article.
http://www.yearzero.org/communique/e0106110654bfa8517462e40899b0578.php
The BBC also reported on this, March 19, 2003. This is an alternative link to the Reuters article.
http://news.bbc.co.uk/2/hi/business/2863153.stm
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http://web.archive.org/web/20060107135027/http://www.wdm.org.uk/campaigns/cambriefs/debt/PRSPcrit.htm
http://web.archive.org/web/20060107124525/http://www.wdm.org.uk/campaigns/cambriefs/debt/PRSProllbackstate.htm
http://www.brettonwoodsproject.org/topic/adjustment/index.html
http://www.brettonwoodsproject.org/topic/adjustment/abcprsp.html
http://www.focusweb.org/publications/2001/THE-WORLD-BANK-AND-THE-PRSP.html
http://www.focusweb.org/publications/Books/Transfer%20of%20Wealth.html
http://www.zmag.org/sustainers/content/2002-06/06choudry.cfm
Author And Page Information
by Anup Shah
Created: Monday, July 20, 1998
Last Updated: Sunday, March 24, 2013


---------------------------------------------
JULY 1983 - VOLUME 4 - NUMBER 7

I N T E R N A T I O N A L   M O N E T A R Y   F U N D

The IMF

An analysis of the International Monetary Fund's role in the Third World debt crisis, its relation to big banks, and the forces influencing its decisions.

by Walden Bello and David Kinley
The International Monetary Fund is a secretive institution. Its staff economists and bankers who delve in the nether-world of international finance assiduously avoid publicity. In a cloistered, oak-panelled office twelve floors above busy downtown Washington, 22 men representing all 143 member governments decide the financial fate of many of the world's countries. Afterward, they submit confidential reports of their deliberations and invariably refuse to speak to the press. But lately the IMF has been thrust into the public limelight.
The Fund has traditionally served as a source of emergency financial aid to countries suffering balance of payments difficulties. But with Third World debt rising over tenfold in the last decade, from $50 billion in 1972 to about $640 billion in 1982, the Fund, critics charge, has been transformed into a debt-collection agency for the big multinational private banks, and a key instrument for achieving American foreign policy objectives.
About 35 countries, mostly from the Third World, are currently under strict IMF "conditionality" programs designed to "cure" their liquidity crisis with harsh deflationary measures.
These programs have provoked anti-IMF riots in Sao Paolo, Brazil, and in Chile. They have united virtually all sectors of Philippine society - including the business elite - against the technocrats who do the IMF's bidding. And in debt -ridden Mexico, the specter of demonstrations against the "stabilization program" haunts the government.
In contrast, the Fund is proving to be a great asset to the big U.S. private banks which are dangerously overextended in the Third World. The multi-billion IMF credits to Brazil, Argentina, Mexico, and Chile have been attacked across the political spectrum as simply "bail-out" mechanisms for the overextended banks. As Congressmen Bill Patman of the House Banking Committee put it, "The IMF makes a loan of $5 billion to Brazil, and Brazil takes that and pays off Chase Manhattan. Is that not a payoff to Chase Manhattan?"
The banks and the IMF have nothing less that full repayment in mind. While arguing for an increase in IMF contributions from the United States, Treasury Secretary Donald Reagan, a man with a solid Wall Street background, stated: "I don't think we should just let a nation off the hook because we are sympathetic to the fact that they are having difficulty... As debtors, I think they should be made to pay as much as they can without breaking them... You just can't let your heart rule your head in these situations."

The Bail-out Process

Bailing out the banks is a three-step process. First, the IMF draws public money contributed by member-governments and hands it over to, say, Argentina or Brazil. This enables the latter to repay the amounts falling due on its debts to the big banks, in addition to replenishing the foreign reserve credits needed to purchase imports.
Second, with the IMF presence guaranteeing payment of future installments of the debt, the IMF and the banks draw up a plan for rescheduling future payments and an "emergency finance package" from the banks. The interest payments on the rescheduled debt and the emergency finance package are usually significantly higher than the average rate. This accounts for two seemingly paradoxical phenomena. On the one hand, the banks most heavily involved in international lending - which are supposed to be in great trouble - are posting record profits. On the other hand, the arrangements increase the risk of future default on the part of the debtor country.
The third element in the process is the stabilization program imposed by the Fund on the debtor country. This usually consists of sharp cutbacks in imports, "maxi-devaluation" of the currency, repression of wages, massive reductions in government expenditures, and big tax increases. The idea is to save on foreign exchange and generate the internal resources to pay off the debt.
Not only have these measures provoked popular discontent, but they threaten to wipe out these countries as markets for U.S. products. Twenty-three percent of U.S. exports are currently purchased by Third World countries under IMF stabilization programs - a fact which is leading some sectors of the U.S. establishment to worry that the proposed schemes may merely prolong and deepen the recession in the U.S. itself. According to Congressman Charles Schumer of New York (see interview, p. 18), IMF stabilization programs mean that "we cannot prosper and grow rapidly when IMF austerity forces our best customers to reduce their consumption and investment in U.S. products." Henry Kissinger, always on the lookout for the long-term stability of the establishment, calls this "the inherent contradiction in the IMF's basic strategy."
Who's Responsible?
The IMF is now projected as the savior of the international financial system by both the Reagan administration and liberals, who have united in an effort to increase IMF quotas (the contribution of member states) by 47 percent under the rationale of enabling the agency to assist the debt-ridden countries. They conveniently forget that the IMF bears a great deal of the responsibility for the generation of the current debt crisis.
Possessing huge amounts of surplus capital (including petrodollars deposited by the OPEC countries), the banks inaugurated a period of easy lending to selected Third World countries in the mid-1970s. They were, however, reluctant to enter a country unless it had an ongoing program with the IMF - the "seal of approval" of the borrower's policies, and a catalyst for additional private and official financing. Thus, throughout the 1970s, the big private banks were the most powerful lobbyist for the expansion of IMF credit facilities to Third World countries.
"The reason is obvious," asserted Congressman Tom Harkin in 1980. "With the IMF providing the funds to underpin the riskiest loans and providing the muscle to squeeze repayment from the world's poorest countries, the private banks can continue to reap enormous profits in the Third World." Even the Wall Street Journal termed the 1978 creation of a new IMF credit facility "the Bankers' Relief Act."
In choosing preferred clients in the Third World, both the Fund and the banks tried to reduce the "political risk factor" - which meant that the biggest loans often went to capitalist countries with superficial signs of stability imposed by authoritarian regimes, like Chile, the Philippines, Argentina, and Brazil. Yet, these were often times the borrowers who were not likely to invest the bulk of the loans in creating productive assets that could generate the wealth from which the loans could be later repaid.
As one student of Argentina's debt put it, "Between 1978 and 1982, the Argentinian external debt increased by roughly $18 billion. Where did the money go? Two to three billion went to pay for the increase in the current account deficit. A couple of billion went for interest. The generals used a couple of billion to buy airplanes and Exocet missiles. And the Argentinian private parties took $10 to $12 billion from the Central bank and parked it in condos in Miami, bonds in New York, and ski lodges in Vail."
Creating the Debt-Prone Economy
Encouragement of easy lending to irresponsible elites was not, however, the IMF's only contribution to the financial crisis. IMF stabilization programs were themselves responsible for creating the structural conditions which led to consistently huge deficits that demanded external finance.
The Philippines is a classic example of the type of economy that the IMF, together with its sister institution the World Bank, attempt to forge throughout the Third World. Through the 1970's, the Philippines was under one or another kind of stabilization program, making it by mid-1980 the Third World country most indebted to the IMF.
Working closely with the World Bank, the Fund used its tremendous power to restructure Philippine production along the lines of an "export-oriented" development strategy. This consisted of a concerted effort to push productive capital away from production for the internal market - by destroying the mechanisms sheltering Philippine firms from multinational competition - to a one-sided emphasis on producing labor-intensive manufactured exports. Attracting investment to export production also meant a policy of low wages and constant currency depreciation to ensure the competitiveness of Philippine products in export markets.
This growth strategy, however, could only succeed if the international economy continued to expand and Western and Japanese markets remained open to Philippine imports. Both these conditions began to vanish in the mid-1970s. First, the international prices for sugar and coconut products, the Philippine's chief export crops, plunged. Then, in 1980, demand collapsed further with the onset of the international recession. In reaction to the economic downspin, the United States, Japan, and Western Europe began erecting protectionist barriers against labor-intensive manufactured imports from the Philippines and the rest of the Third World. In a confidential internal report, the Fund admitted that its strategy of export-led growth in the Philippines had failed: "The staff shares the view ... that export promotion has become more difficult in the present climate of uncertainty of the international economy as well as the trade restrictions faced by Philippine exports."
This confession was, of course, no help to the Philippines, whose current account deficit widened sharply with the combination of weak exports and inexorably rising imports (which included imports of raw materials and machinery for the ailing export industries). By mid-1983, the deficit has risen to almost $3 billion, up from $2 billion in 1980. To bridge the gap, the country borrowed heavily from the Fund and the big banks.
In a more balanced economy, the decline of the export sector can be balanced by the expansion of internal demand to ensure continued growth. But in the Philippines, years of following the IMFWorld Bank strategy of depressing wages to gain "export-competitiveness" had so gutted the internal market that deep recession became the only possible outcome. In 1982, the Philippines' GNP growth rate was down to 2.4 percent - the lowest in Southeast Asia. The Fund, then, has helped saddle Filipinos with the worst of all possible worlds: an economy racked by deep recession and weighed down by an impossible external debt burden.
The Fund as an Instrument of U.S. Foreign Policy
As Third World countries scramble to get last-resort financing from the IMF, another ugly side to the institution has become evident: its responsiveness to political manipulation by the U.S. The U.S., with the largest contribution to the Fund, holds more than 20 percent of voting power.
Perhaps the most glaring example was the recent approval by the IMF Executive Directors of a $1.1 billion loan to South Africa. The Fund, under U.S. pressure, not only ignored the immorality of apartheid. It also refused to face the fact that apartheid is a key factor behind South Africa's balance-of-payments difficulties.
As Professor Colin Radford of Yale emphasized in recent congressional testimony on the loan: "In the language of the economists, sometime soulless language, apartheid is a qualitative restriction on the labor force. In the interests of economic efficiency, the position of the IMF has been stated over and over again in opposition to qualitative restrictions which interfere with the operation of the economy."
But it is futile to look at the Fund's economic "performance standards" to explain the South Africa loan. For the key factor behind its approval was the Reagan administration's desire to tighten up its political and military ties with South Africa, which is strategically located off the Indian Ocean, where the Pentagon is undertaking a major military build-up.
Deserting its economic performance criteria in favor of decision-making on political grounds is not unusual for the IMF. In 1982, for instance, at least three loans to Third World countries were evaluated mainly in terms of their relevance to U.S. foreign policy.

  • In July 1982, the Fund granted El Salvador a credit of $83 million in spite of what it acknowledged to be a state of economic chaos. In its confidential report, the IMF did not hesitate to describe its mission in political terms: to maintain a "holding pattern" which would be "instrumental in restoring and retaining an economic setting conducive to the renewal of growth and investment - once noneconomic factors permit it" (i.e., when the country is pacified politically).
  • More recently, it has been revealed that the IMF approved two $35 million loans of another type to El Salvador during 1981 and 1982, although the country failed to meet the Fund's own criteria for the loans (see box).
  • Again in July 1982, Haiti received a $38 million standby credit - despite dismal economic performance and despite the failure of the government of "Baby Doc" Duvalier to meet all the conditions attached to a different three-year credit extended in 1978. Baby Doc got the loan because Washington considers him a strategic ally in its efforts to isolate Cuba in the Caribbean.
  • While the Fund extended credits to El Salvador and Haiti, it refused a request from Socialist Vietnam. In terms of economic performance, Vietnam clearly deserved the loan for it had met the key goal of a previous IMF credit extended in 1981: raising the gross domestic product by three percent. It had also begun to introduce market norms in a limited fashion and moved toward export-oriented development, as prescribed by the Fund.But while the Fund took a sympathetic view toward the Salvadoran regime's preoccupation with "noneconomic factors," it criticized the Vietnamese for "the continued diversion of resources toward military purposes." The staff report, in fact, sounds remarkably similar to arguments advanced by the State Department for denying bilateral aid to Vietnam unless it withdraws its troops from Kampuchea: "The continued diversion of resources toward non-economic purposes . . . contributed to a decline in total investments ... Military manpower requirements also continue to absorb a disproportionate share of technical and managerial skills that are in short supply."
  • A recently leaked study by the Congressional Research Service indicates that the politicization of the IMF loan process has become especially marked under the Reagan administration. The study lists numerous instances in which the U.S. has disregarded the economic guidelines in order to advance its political interests. For instance, the study quotes an administration source as saying that the leftist government of Grenada, should not "get a penny of indirect aid" from the IMF and other multinational institutions.
In sum, the International Monetary Fund, by serving as an undisguised agent of debt collection for the big international banks and a selective political instrument for the advancement of Reagan's foreign policy, is part of the problem and hardly the solution to the massive liquidity crisis now racking the Third World.


Co-authors of Development Debacle: The World Bank in the Philippines (Institute for Food and Development Policy, 1982) Walden Bello and David Kinley are presently at work on a book on the IMF.


El Salvador won improper loans under U. S. patronage

IMF data together with internal IMF documents reveal that El Salvador received loans that it did not qualify for by the Fund's own rules - and that approval came as a result of some strong arm-twisting from the U.S.
According to an analysis by the Center for International Policy, which obtained the internal documents, El Salvador was not eligible for the two $35 million loans it received on easy terms from the IMF's Compensatory Finance Facility in 1981 and 1982.
The United States championed the 1981 loan as part of its campaign to place the IMF and other international financial institutions at the service of U.S. political objectives in Central America. A number of IMF executive directors objected to the loan because the IMF staff refused to endorse it. The staff failed to provide estimates of El Salvador's future export income, claiming that internal conflict in El Salvador made such estimates impossible.
In confidential minutes of an IMF executive directors meeting of July 27, 1981, IMF Managing Director Jacques de Larosiere says "I can tell you very frankly that I would have preferred" the staff to recommend the loan. Executive Director Richard Erb, clearly irked at the staff's resistance, is described as saying that he "would have liked to see the staff make a forecast" for future export earnings, and that "the implication of not making a forecast is that the internal situation [in El Salvador] will become much worse."
Erb and de Larosiere argued that the executive directors should make their own judgment about the likelihood of El Salvador hitting the targets and that in this case they should approve the loan.
Directors representing nearly all the developed nations objected to this unprecedented intervention in the staff's work, and abstained from voting. One executive director pleaded for the board "to be well aware of the impact on the Fund's . . . reputation for objectivity that would result from . . . slipping into the practice of considering requests that did not carry .., the initials of staff and management." Nevertheless, the loan was approved with 57 percent of the board's voting power, 20 percent coming from the United States. According to sources within the IMF, this is the first time in the institution's history that a loan has been granted without the approval of the staff.
IMF data published in June of this year proves that the loan was in fact not justified; El Salvador's export earnings in the two following years (1982 and 1983) have declined, rather than rebounded.
Perhaps taking a cue from Erb's and de Larosiere's displeasure in 1981, the IMF staff did recommend to the executive board in June 1982 that El Salvador would qualify, though barely, for a second $35 million loan. But it appears likely that this additional loan will also prove to be improper, since earnings continue to slide. Only a doubling of export income in 1984 would make El Salvador eligible for the loan. In fact, a confidential IMF study of the Salvadoran economy dated April 25, 1983 notes that export income has declined since 1980, contrary to previous projections, and will at best hold steady in 1984.
Under IMF rules, El Salvador should have to pay back most of the $70 million immediately.
- Caleb Rossiter


Source: http://multinationalmonitor.org/hyper/issues/1983/07/bello.html
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Greece: Same Tragedy, Different Scripts




Cafés are full in Athens, and droves of tourists still visit the Parthenon and go island-hopping in the fabled Aegean. But beneath the summery surface, there is confusion, anger, and despair as this country plunges into its worst economic crisis in decades.

The global media has presented Greece, tiny Greece, as the epicenter of the second stage of the global financial crisis, much as it portrayed Wall Street as ground zero of the first stage.

Yet there is an interesting difference in the narratives surrounding these two episodes.

Narratives in Conflict

The unregulated activities of financial institutions, which created ever more complex instruments to magically multiply money, created the Wall Street crash that morphed into the global financial crisis.

With Greece, however, the narrative goes this way: This country piled up an unsustainable debt load to build a welfare state it could not afford, and is now the spendthrift that must tighten its belt. Brussels, Berlin, and the banks are the dour Puritans now exacting penance from the Mediterranean hedonists for living beyond their means and committing the sin of pride by hosting the costly 2004 Olympics.

This penance comes in the form of a European Union-International Monetary Fund program that will increase the country’s value-added tax to 23 percent, raise the retirement age to 65 for both men and women, make deep cuts in pensions and public sector wages, and eliminate practices promoting job security. The ostensible aim of the exercise is to radically slim down the welfare state and get the spoiled Greeks to live within their means.

Although the welfare-state narrative contains some nuggets of truth, it is fundamentally flawed. The Greek crisis essentially stems from the same frenzied drive of finance capital to draw profits from the massive indiscriminate extension of credit that led to the implosion of Wall Street. The Greek crisis falls into the pattern traced by Carmen Reinhart and Kenneth Rogoff in their book This Time is Different: Eight Centuries of Financial Folly: Periods of frenzied speculative lending are inexorably followed by government or sovereign debt defaults, or near defaults. Like the Third World debt crisis of the early 1980s and the Asian financial crisis of the late 1990s, the so-called sovereign debt problem of countries like Greece, Europe, Spain, and Portugal is principally a supply-driven crisis, not a demand-driven one.

In their drive to raise more and more profits from lending, Europe’s banks poured an estimated $2.5 trillion into what are now the most troubled European economies: Ireland, Greece, Belgium, Portugal, and Spain. German and French banks hold 70 percent of Greece’s $400 billion debt. German banks were great buyers of toxic subprime assets from U.S. financial institutions, and they applied the same lack of discrimination to buying Greek government bonds. For their part French banks, according to the Bank of International Settlements, increased their lending to Greece by 23 percent, to Spain by 11 percent, and to Portugal by 26 percent.

The frenzied Greek credit scene featured not only European financial actors. Wall Street powerhouse Goldman Sachs showed Greek financial authorities how financial instruments known as derivatives could be used to make large chunks of Greek debt “disappear,” thus making the national accounts look good to bankers eager to lend more. Then the very same agency turned around and, engaging in derivatives trading known as “credit default swaps,” bet on the possibility that Greece would default, raising the country’s cost of borrowing from the banks but making a tidy profit for itself.

If ever there was a crisis created by global finance, Greece is suffering from it right now.

Hijacking the Narrative

There are two key reasons why the Greek narrative has become a time-worn cautionary tale of people living beyond their means, rather than a case of financial irresponsibility on the part of bankers and investors.

First of all, financial institutions successfully hijacked the narrative of crisis to serve their own ends. The big banks are now truly worried about the awful state of their balance sheets, impaired as they are by the toxic subprime assets they took on and realizing that they severely overextended their lending operations. The principal way they seek to rebuild their balance sheets is to generate fresh capital by using their debtors as pawns. As the centerpiece of this strategy, the banks seek to persuade the public authorities to bail them out once more, as the authorities did in the first stage of the crisis in the form of rescue funds and a low prime lending rate.

The banks were confident that the dominant Eurozone governments would never allow Greece and the other highly indebted European countries to default because it would lead to the collapse of the euro. By having the markets bet against Greece and raising its cost of borrowing, the banks knew that the Eurozone governments would come out with a bailout package, most of which would go toward servicing the Greek debt to them. Promoted as rescuing Greece, the massive 110-billion-euro package, put together by the dominant Eurozone governments and the IMF, will largely go toward rescuing the banks from their irresponsible, unregulated lending frenzy.

The banks and international financial institutions played this same old confidence game on developing country debtors during the Third World debt crisis of the 1980s, and on Thailand and Indonesia during the Asian financial crisis of the 1990s. The same austerity measures — then known as structural adjustment — followed lending binges from northern banks and speculators. And the scenario played out the same way: Pin the blame on the victims by characterizing them as living beyond their means, get public agencies to rescue you with money upfront, and stick the people with the terrible task of paying off the loan by committing a massive chunk of their present and future income streams as payments to the lending agencies.

No doubt the authorities are preparing similarly massive multibillion-euro rescue packages for the banks that overextended themselves in Spain, Portugal, and Ireland.

Shifting the Blame 

The second reason for promoting the “living beyond one’s means” narrative in the case of Greece and the other severely indebted countries is to deflect the pressures for tighter financial regulation, which have come from citizens and governments since the start of the global crisis. The banks want to have their cake and eat it too. They secured bailout funds from governments in the first phase of the crisis, but don’t want to honor what governments told their citizens was an essential part of the deal: the strengthening of financial regulation.

Governments, from the United States to China and Greece, had resorted to massive stimulus programs to keep the real economy from collapsing during the first phase of the financial crisis. By promoting a narrative that moves the spotlight from lack of financial regulation to this massive government spending as the key problem of the global economy, the banks seek to forestall the imposition of a tough regulatory regime.

But this is playing with fire. Nobel Prize laureate Paul Krugman and others have warned that if this narrative is successful, the lack of new stimulus programs and tough banking regulations will result in a double-dip recession, if not a full-blown depression. Unfortunately, as the recent G-20 meeting in Toronto suggests, governments in Europe and the United States are caving in to the short-sighted agenda of the banks, who have the backing of unreconstructed neoliberal ideologues that continue to see the activist, interventionist state as the fundamental problem. These ideologues believe that a deep recession and even a depression is the natural process by which an economy stabilizes itself, and that Keynesian spending to avert a collapse will only delay the inevitable.

Resistance: Will It Make a Difference? 

The Greeks are not taking all this lying down. Massive protests greeted the ratification of the EU-IMF package by the Greek parliament on July 8. In an earlier and much larger protest on May 5, 400,000 people turned out in Athens in the biggest demonstration since the fall of the military dictatorship in 1974. Yet, street protests seem to do little to avert the social catastrophe that will unfold with the EU-IMF program. The economy is set to contract by 4 percent in 2010. According to Alexis Tsipras, president of the left parliamentary coalition Synapsismos, the unemployment rate will likely rise from 15 to 20 percent in two years, with the rate among young people expected to hit 30 percent.

As for poverty, a recent joint survey by Kapa Research and the London School of Economics found that, even before the current crisis, close to a third of Greece’s 11 million people lived close to the poverty line. This process of creating a “third world” within Greece will only be accelerated by the Brussels-IMF adjustment program.

Ironically, this adjustment is being presided over by a Socialist government headed by George Papandreou voted into office last October to reverse the corruption of the previous conservative administration and the ill effects of its economic policies. There is resistance within Papandreou’s party PASOK to the EU-IMF plan, admits the party’s international secretary Paulina Lampsa. But the overwhelming sense among the party’s parliamentary contingent is TINA, as Margaret Thatcher famously put it: “there is no alternative.”

The Consequences of Compliance

Faced with the program’s savage consequences, an increasing number of Greeks are talking about adopting a strategy of threatening default or a radical unilateral reduction of debt. Such an approach could be coordinated, says Tsipras, with Europe’s other debt-burdened countries, like Portugal and Spain. Here Argentina may provide a model: it gave its creditors a memorable haircut in 2003 by paying only 25 cents for every dollar it owed. Not only did Argentina get away with it, but the resources that would otherwise have left the country as debt service was channeled into the domestic economy, triggering an average annual economic growth rate of 10 percent between 2003 and 2008.

The “Argentine Solution” is certainly fraught with risk. But the consequences of surrender are painfully clear, if we examine the records of countries that submitted to IMF adjustment. Forking over 25 to 30 percent of the government budget yearly to foreign creditors, the Philippines in the mid-1980s entered a decade of stagnation from which it has never recovered and which condemned it to a permanent poverty rate of over 30 percent. Squeezed by draconian adjustment measures, Mexico was sucked into two decades of continuing economic crisis, with consequences such as the pervasive narcotics traffic that has brought it to the brink of being a failed state. The current state of virtual class war in Thailand can be traced partly to the political fallout of the economic sufferings of the IMF austerity program imposed on that country a decade ago.

The Brussels-IMF adjustment of Greece shows that finance capitalism in the throes of crisis no longer respects the North-South divide. The cynics would say, “Welcome to the Third World, Greece.”

But this is no time for cynicism. Rather, it’s a key moment for global solidarity. We’re all in this together now.

Walden Bello is a member of the House of Representatives of the Philippines, representing the party-list Akbayan. He is also the author of Food Wars (London: Verso, 2009). He is columnist for Foreign Policy In Focus and can be reached at waldenbello@yahoo.com

Source: http://fpif.org/greece_same_tragedy_different_scripts/

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A farewell to the Aegean: the EU, the IMF and the destruction of an ancient sea

IANNIS CARRAS 1 July 2011

The EU and IMF plan to 'save' Greece will result in man-made environmental devastation on an unparalleled scale. The construction industry is delighted. But is there any alternative to destroying the Aegean for good?
Much of the debate around the economic, political and societal crisis gripping Greece has overlooked the role of the European Union in fuelling the crisis. Quite apart from the distortionary effects on the competitiveness of peripheral states precipitated by the introduction of the Euro and the subsequent lack of adequate oversight, it was misplaced EU subsidies that resulted in a lack of competitiveness in many sectors of the Greek economy, and misplaced EU subsidies that allowed the dramatic growth of the Greek public sector following the election of Andreas Papandreou as Prime Minister in 1981.

One glaring example of the consequences of such subsidies is the more than twenty year old and on-going dispute on the diversion of the Acheloos river from western Greece to Thessaly, an issue that is currently being adjudicated in the European Court of Justice in Luxemburg. Greek environmental NGOs fighting the case claim that the projected diversion, which has already cost millions of Euros, is being carried out without proper environmental feasibility studies, and thus contravenes an EU directive that forbids the transfer of water between riverbeds without proper analysis. As Oliver A. Houck reports in his recent book Taking Back Eden (Island Press, 2010), the total cost of the diversion and related projects has been estimated at anything between 1.4 and 6.5 billion Euros, depending on what exactly is included in the calculation.

The EU has not provided financial support for the diversion of the river itself, but, as part of the Common Agricultural Policy, it long subsidised the highly water-intensive production of cotton in the Thessalian plain. Artesian wells and other water sources are now running dry, but rather than funding the shift to alternative forms of agricultural production, the Greek government insists the diversion must proceed. The main beneficiaries will not be the farmers of Thessaly, as EU cotton subsidies are now being reduced. Rather, it is the members of parliament of Thessaly and the parties they serve that stand to profit; they are seen as mediating to procure EU patronage. Most of all, of course, the benefits accrue to construction companies that in turn provide much of the funding that oils the Greek political system. Many similar examples could be given.

For the reasons set out by Dionyssis G. Dimitrakopoulos (Greece's exit from the Eurozone a poisoned chalice, Open Democracy, 28 June 2011), the Greek Parliament may have been justified in voting through the second Memorandum as requested by the EU and the IMF. As George Provopoulos, governor of the Bank of Greece put it, this was a “suicide vote”. But this coerced vote leaves more questions unanswered than answered. To meet the demands of the EU and the IMF, Greece is supposed to raise 50 billion Euros from privatisation proceeds. As a report in the Financial Times (based on research by Privatisation Barometer) makes clear (Greece faces ‘fire sale’ shortfall, 28 June 2011), Greece has only 13 billion Euros of assets ready to be sold. The shortfall has to be covered through the sale of state land; in particular Greece needs to add “more prime land and cultural heritage to its sales list”. In other words, the EU and the IMF are requesting the sale of coastal land on a unprecedented scale throughout the Aegean. These will be fire sales at a tiny proportion of the actual value of the properties concerned. They will be used to reduce the rate of increase of Greece’s debt as a percentage of GDP. Once sold and constructed, the nature of the Aegean will change for ever.

How will such a policy help Greece? In the very short term, it keeps Greece going for another day. The IMF will provide the next 12 million Euros in loans and a disorderly default in July will not occur. In the medium term, however, the benefits of the policy are ambivalent at best. Construction may provide a boost to the economy, but – as the case of Spain with seven hundred thousand unsold second homes reveals – there is no guarantee that the demand for such second homes exists. What’s more, there’s no need to comment on the impact of such construction on water use in a part of the world that is already suffering the effects of climate change.

Precisely because widespread environmental destruction and construction on “prime land and cultural heritage” sites was one of the policies that characterised the Junta (1967-1974), the twenty fourth article of the constitution of the newly democratic Greek state protects the environment. Though widespread illegal construction has taken place due to the lack of a proper land registry (and Transparency International Greece has proposed ways of resolving the issue), one of the results of this constitution is that Greece today can attract high quality tourism to its islands (unlike its cities, where destruction of architectural heritage has been much more widespread). Indeed, it is remarkable that despite paralysis in Athens, the Aegean regions of Greece have not so far been affected. Instead of travelling through Athens, visitors land directly in Crete, Rhodes and other islands, hence ensuring that this sector of the Greek economy is growing (the increase in tourist arrivals has been estimated at up to 10% for 2011). Thus construction won’t make the Greek economy more productive. In fact, it will have the opposite effect. By destroying Greece’s environment, it eliminates one of the few sources of productivity that Greece has so far relied on to attract high end tourism. Rather than reform the Greek state for good, EU and IMF policies seem to be intent on undermining even those sectors of the Greek economy that do in fact work.

Various attempts could and probably will be made to by-pass the obstacle posed by the Greek constitution: short of rewriting the constitution itself, the land could be leased rather than sold; however, if the rule of law is upheld, these will in due (delayed) course be shot down in the Council of State, the country’s highest administrative court. It’s not inconceivable that the rule of law won’t be upheld; pressures on the Greek state and on the judges involved in any decision will be enormous. It’s reassuring to see that Greek NGOs and civil society (for example the Sustainable Aegean programme) are already gearing up for the battle against this attempt by the EU and the IMF to undermine alike the rule of law, and the Greek, or, perhaps, more accurately, the European environment.

In short, EU and IMF policies on the sale and construction of the Aegean constitute a form of colonialism: primary resources (in this case land) are being extracted for the benefit of foreign interests served by a highly corrupt class of state servitors. Stephanos Manos, Greece's former Minister of Economics, well respected in business circles and leader of the neo-liberal party Drasi, has issued a statement condemning the policy as “a return to the urban planning of the Junta”. Instead of solving the problems of a corrupt Greek state, EU and IMF policies are now made to purpose for the construction sector and its acolytes – in other words, benefiting those sectors that are most responsible for the political and economic crisis faced by Greeks today.

The irony is that the Prime Minister, George Papandreou, whatever his other faults, has thus far stood out for his commitment to the environment, creating a Ministry of the Environment, and promoting known environmental activists within his party, at some cost to his political standing (Anthony Barnett and Mary Kaldor, Can Greece Lead the Way?, Open Democracy, 9 November 2009). He is now being forced by the EU and the IMF to take responsibility for the worst man-made environmental destruction in the history of the Aegean.

The government may have been right to vote through the second Memorandum. It now has a duty to future Greeks, and indeed to humanity, to ensure that the provisions of the second Memorandum with regard to sale of state land to construction companies are not carried out. Rather it should delay land privatisation as long as possible, redouble efforts to achieve a primary surplus within 2012, and then plan for Greece to default of its own accord. The peoples of Europe deserve no less.

Source: https://www.opendemocracy.net/iannis-carras/farewell-to-aegean-eu-imf-and-destruction-of-an




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Friday, 1 March 2013

Where Austerity Really Rules

Many of us rightly complain about the damage austerity politics is doing in both the UK and the US. However, in terms of simple numbers, this is nothing compared to what is happening in the Eurozone. The table below, based on numbers from the latest OECD Economic Outlook, may look a little complicated, but it clearly establishes this point.

The first column is the general government underlying primary surplus, where underlying includes an adjustment for the cycle. (The primary surplus is basically taxes less spending, but ignoring interest on existing debt.) This is the best simple measure of fiscal impact on the economy. In the US, UK and particularly Japan, we have deficits, which are entirely appropriate in a situation of little or no recovery and with interest rates at their lower bound. Indeed I have argued that, in the US and UK, these deficits are too small given the nature of the recession: people want to save (or are unable to borrow), so the government needs to do the opposite or else output will fall.

In the Eurozone we have primary surpluses! Not just in the crisis torn periphery economies, but in the heart of the Eurozone as well. (It is for this reason that things would not be much better if the Eurozone was a fiscal union.)

These numbers on their own could be misleading: a country with a large amount of government debt will need to run a surplus in the long run to pay the interest on that debt. By comparing column 1 with column 2 we can see that surpluses in the Eurozone are high by historical standards, so the picture is the same. However this could just be because of ‘fiscal irresponsibility’ in the Eurozone in the decade before the recession. So we need to try and get a handle on sustainability.[1]

Column 4 shows debt interest payments in 2012, based on the net debt shown in column 3. You could compare column 4 with column 1, but if the two were equal and stayed that way this would mean that debt as a percentage of GDP would gradually fall over time because the value of GDP grows. [2] So, based on the implicit 2012 interest rate on debt in column 5, I’ve made up a growth corrected interest rate in column 6. (This involves subtracting a guess at an underlying growth in nominal GDP, but also increasing the interest rate, because interest rates will not stay this low forever.) The stabilising primary balance in column 7 is this rate applied to net debt, and this is compared to the actual balance in the final column.


1.11Stabilising Underlying Government Primary Deficits (% GDP)

Underlying
Primary
Budget
Balance
Net debt
Debt interest
Implicit
Interest rate
Growth Corrected
Interest rate
Stabilising
Primary Budget
Balance
Actual less Stabilising
Balance
2013/14
95-07
2012
2012
2012
2013/14
France
1.47
-0.79
66.41
2.44
3.67
2
1.33
0.14
Germany
1.72
0.30
50.29
1.80
3.58
2
1.01
0.72
Italy
4.74
2.31
98.09
5.00
5.10
4
3.92
0.81
Greece
7.05
0.22
145.74
5.20
3.57
5
7.29
-0.24
Ireland
2.34
1.55
79.86
4.98
6.24
5
3.99
-1.66
Portugal
4.54
-2.09
82.54
5.45
6.60
5
4.13
0.41
Spain
1.91
0.87
58.02
3.15
5.43
4
2.32
-0.41

Euro area
2.20
0.73
63.28
2.76
4.37
3
1.90
0.30

Japan
-6.13
-4.54
134.33
1.49
1.11
2
2.69
-8.82
United Kingdom
-2.53
-0.05
73.04
2.93
4.01
2
1.46
-3.99
United States
-3.11
-0.04
86.48
1.75
2.02
2
1.73
-4.84
Total OECD 
-1.32
-0.16
69.63
1.79
2.57
3
2.09
-3.41
Source: OECD Economic Outlook December 2012


This is all very crude, but the basic message remains unchanged. Once we correct for the economic cycle, the core of the Eurozone are expected to run surpluses that are sufficient to bring down the level of debt, whereas the US, UK and Japan are planning to run deficits. In normal times, and particularly if we were in boom times, the Eurozone could rightly congratulate itself, and make disdainful remarks about policy elsewhere. During the current period in which the private sector is running an unusually high level of net saving it is completely the wrong policy. As the textbooks tell us, without the will or ability to provide offsetting monetary stimulus, this level of austerity will cause a recession, and sure enough it has.

I guess the ruling elite in the Eurozone are telling themselves that the current recession is all a result of the 2010 crisis caused by profligate governments in the periphery, and that if everyone pulls together by cutting spending and raising taxes things will come good. That has been the story for the past two years, and we are still waiting. Those who opposed this policy said that the market crisis could only be solved by ECB action, and that has turned out to be the case. We also said austerity of this kind would kill any recovery, and on that we were also right. So with macroeconomic theory, plenty of empirical evidence and recent events on our side, there is just no contest in terms of which narrative is correct.

[1] Actually, as the data shows (see, for example, Calmfors and Wren-Lewis), it was in the decades before the mid-90s that Euro area fiscal policy was irresponsible.
[2] For the debt to GDP ratio to be constant, we need the primary surplus as a share of GDP to equal debt to GDP multiplied by the nominal interest rate less the nominal growth rate.



-----------------------------------

Argentina's Crisis, IMF's Fingerprints

Mark Weisbrot
Washington Post, December 25, 2001
International Herald Tribune, December 26, 2001
As Argentina's government was resigning in the face of full-scale riots and protests from every sector of society, a BBC-TV reporter asked me whether this economic and political meltdown would change the way people viewed the International Monetary Fund. I wanted to say yes, but I had to tell him: "It really depends on how the media reports these events."
So far it looks as if the IMF is getting off easy, once again. The Fund and the World Bank -- the world's two most powerful financial institutions -- learned an important lesson from their brief spate of bad publicity during the Asian economic crisis a few years ago. They have become masters of the art of "spinning" the news.
Argentina's implosion has the IMF's fingerprints all over it. The first and overwhelmingly most important cause of the country's economic troubles was the government's decision to maintain its fixed rate of exchange: one peso for one U.S. dollar. Adopted in 1991, this policy worked for awhile. But over the past few years, the U.S. dollar has been overvalued. This made the Argentine peso overvalued as well.
Contrary to popular belief, a "strong" currency is not like a strong body. It is very easy to have too much of a good thing. An overvalued currency makes a country's exports too expensive and its imports artificially cheap. Just look at the United States, where our "strong" dollar has brought us a record $400 billion trade deficit.
But it gets catastrophically worse for a country that has committed itself -- as Argentina has -- to a fixed exchange rate. When investors start to believe that the peso is going to fall, they demand ever higher interest rates. These exorbitant interest rates are crippling to the economy. This is the main reason Argentina has not been able to recover from its 4-year-old recession.
To maintain an overvalued currency, a country needs large reserves of dollars: The government has to guarantee that everyone who wants to exchange a peso for a dollar can get one. The IMF's role here was crucial: It arranged massive amounts of loans -- including $40 billion a year ago -- to support the Argentine peso.
This was the IMF's second fatal error. To appreciate its severity, imagine the United States borrowing $1.4 trillion -- 70 percent of our federal budget -- just to prop up our overvalued dollar. It didn't take long for Argentina to pile up a foreign debt that was literally impossible to pay back.
As if all that weren't enough, the Fund made its loans conditional on a "zero-deficit" policy for the Argentine government. But it is neither necessary nor desirable for a government to balance its budget during a recession, when tax revenues typically fall and social spending rises.
The "zero-deficit" target may make little economic sense, but it has great public relations value. By focusing on government spending, the IMF has managed to convince most of the press that Argentina's "profligate" spending habits are the source of its troubles. But Argentina has run only modest budget deficits, much smaller than our own deficits during recessions.
The IMF now claims that it was against the fixed exchange rate, and the massive loans to support it, all along. Fund officials say they went along with these policies to please the Argentine government. So now Argentina tells the U.S. government what to do! This is not a very credible story, but of course verifying who made what decision is a little like tracking the chain of command at al Qaeda. IMF board meetings, consultations with government ministers and other deliberations are secret.
But they do have a track record. In 1998 the Fund supported overvalued currencies in Russia and Brazil, with massive loans and sky-high interest rates. In both cases the currencies collapsed anyway, and both countries were better off for the devaluation: Russia's growth in 2000 was its highest in two decades.
Argentina will undoubtedly recover too, after it devalues its currency and defaults on its unpayable foreign debt. But the people will need a government that is willing to break with the IMF and pursue policies that put their own national interests first.
Washington has other ideas. "It's important for Argentina to continue to work through the International Monetary Fund on sound policies," said White House spokesman Ari Fleischer on Friday. For the IMF, failure is impossible.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is also president of Just Foreign Policy


---------------------------------------

IMF Helped Sink Argentine Economy

Kemp Column Distributed By Copley News Service
When democracies create economic calamity, free markets get blamed. In today's world that means the International Monetary Fund, with U.S. backing, bails out lenders on condition that creditor governments agree to poison their citizens with fiscal austerity, causing the people to rebel and turn to socialism.If you want to know where the next riots will break out, follow the IMF "candy man" around the world. It's happening in Argentina today. The economy is melting down; there have been deadly riots in the streets. President Bush insists that Argentina stay with the IMF program of fiscal austerity, the government has fallen and Peronist governor Adolfo Rodriguez Saa - sworn in as president a week earlier - resigned Sunday.Economic collapse in Argentina began with a failure of U.S. monetary policy that created worldwide dollar deflation and led to a global recession. Because Argentina's peso is linked one-to-one to the dollar through its currency board, the government was forced to sit idly by since1997 while its currency appreciated 30 percent in tandem with the dollar against gold, other commodities and other currencies.The result was a dearth of peso liquidity resulting in falling prices and economic contraction. Today wholesale prices are falling at an annual rate of 7 percent, and consumer prices are declining at a 1.5 percent annual rate.The money supply continues to shrink at double-digit rates. Ironically, the IMF, usually obsessed with the shibboleth of "overvalued" currencies, failed to recognize the effects of dollar deflation and instead mistook effect for cause and blamed Argentina's economic woes on budget deficits and unmanageable debt.While it is true that the former government of Fernando De la Rua mismanaged the nation's fiscal affairs and allowed spending to get out of hand, these mistakes were by no means the prime cause of Argentina's meltdown.Argentina's debt has become "unmanageable" because its economy hasn't grown in three years. De la Rua's biggest mistake was to succumb to the fatal attraction of bailout loans once the economic slide began and join in dangerous liaison with the IMF to increase taxes, impose salary reductions on public employees and slap on financial controls that threatened to seize up the financial system.Think of Argentina's one-to-one exchange rate between the dollar and the peso as an aircraft carrier (the United States) and a motorboat (Argentina) afloat on the high seas. If the motorboat economy floats freely, an economic squall can swamp and sink it, but if it tethers itself to the aircraft carrier, the resulting stability allows it to weather most storms.A currency anchor, however, won't prevent the political crew of the motorboat economy from making policy mistakes like raising tax rates and increasing regulations, which can create an economic crisis.When that happens, the IMF typically comes around with cash in hand insisting on more tax hikes to reduce deficits and demanding that the small economic craft cut itself loose from its currency anchor in the hope that a free-floating currency has a better chance of righting itself.Bad advice. Small currencies invariably sink in high economic seas as speculators make runs on the currency, capital flees the country and wealth is destroyed. What happens, though, if the motorboat is shipshape but the aircraft carrier for some reason - say deflationary monetary policy - begins to take on water and ride lower in the sea?An aircraft-carrier economy may not be much affected by the additional monetary ballast of a heavier currency, perhaps experiencing little more than a slight slowdown in speed. But small changes to how high the motorboat's anchor ship floats can have catastrophic consequences for the smaller vessel.If the anchor ship sinks low enough and the point at which the two vessels are tethered cannot be adjusted higher upon the hull of the anchor ship, it can drag the motorboat under.Argentina's economy will not recover as long as it lies prostrate between the hammer of dollar deflation and the anvil of IMF austerity. With 80 percent of Argentina's debt in dollars and workers' and businesses' income in pesos, allowing the peso to float freely would impoverish the country and increase the debt burden.A new government cannot be established on the foundation of debt repudiation. The new government's default on Argentina's $155 billion debt must be followed up by debt rescheduling and a plan to reliquify the economy, cut tax rates and reduce regulations.One approach would be to allow the central bank to print sufficient pesos to buy up enough debt to reverse the currency's unwarranted appreciation. Alternatively, the United States could alleviate the deflationary squeeze by having the Fed purchase sufficient new peso bonds to inject adequate dollar liquidity into the economy to relieve the deflation without breaching the currency board.Unless America lends a hand, socialists and the IMF will wreak more havoc in Argentina.

Jack Kemp is co-director of Empower America and Distinguished Fellow of the Competitive Enterprise Institute


----------------------------------------------

Four Steps Which Destroyed Argentina

    The following is from Greg Palast’s website www.gregpalast.com An expanded American edition of his global bestseller, The Best Democracy Money Can Buy: An Investigative Reporter Exposes the Truth About Globalization, Corporate Cons and High-Finance Fraudsters, was released on 25 Feb 2003.
    Bolivia is in flames, its economy shot dead. And I’ve got my hands on the murder weapon, the same one that killed Argentina’s economy: the “Country Assistance Strategies” of the World Bank and International Monetary Fund (IMF). They are marked confidential. How I got them — well, that’s not important. But the following is from this month’s Harper’s Magazine, my exposé of a batch of these secretive plans for the seizure, control and ultimate ruin of the nations the IMF supposedly seeks to save. See “Resolved to Ruin”, by me in Harper’s Magazine, March 2003:
    Green-haired protesters in the streets of Seattle were ridiculed for their belief that the World Bank, the International Monetary Fund, and the world’s finance ministers enter into secret agreements to impoverish developing nations.
    Here, in fact, is one such agreement: Argentina’s “Country Assistance Strategy Progress Report” from June 2001. This document, nominally produced by the World Bank, represents the interlocking directives of both the Bank and the IMF, as well as, indirectly, the wishes of both institutions’ largest patron, the United States Treasury Department.
    Marked “Confidential” or “Official Use Only,” these reports are seldom publicized to the citizenry bound up in their stipulations. And yet for the 100-plus that rely on IMF and World Bank loans — countries such as Argentina, Tanzania, Ecuador, Sierra Leone — such agreements serve as de factolegislation, meticulous in detail and ideological in thrust. Although couched as loan conditions or as helpful development advice, these reports more closely resemble the minutes of a financial coup d’etat.
    To reduce its deficit per IMF decree, Argentina had cut $3 billion from government spending — a cut that was necessary, the authors note here, to “accomodat[e] the increase in interest obligations.”
    These obligations, the report did not need to add, were largely to foreign creditors, including the IMF and World Bank themselves.
    Since 1994, in fact, Argentina’s budget deficits had been entirely attributable to interest payments on foreign loans. Excluding such payments, spending had remained constant at 19 percent of GDP. Despite the visible harm caused by cuts, the new plan ordered more.
    This, the report promised, would “greatly improve the outlook for the remainder of 2001 and 2002, with growth expected to recover in the later half of 2001.” The Bank was slightly off the mark. By December 2001, Buenos Aires’ middle class, unaccustomed to hunting the streets for garbage to eat, joined the poor in mass demonstrations.
    HOW HAD ARGENTINA ARRIVED AT SUCH AN IMPASSE?


    In the 1990s the nation was the poster child for globalization, having followed without question the IMF and World Bank program.
    The “reform” plan for Argentina, as for every nation, has four steps.
    The first of these, capital market liberalization, was achieved by 1991’s “Convertibility Plan,” which pegged the Argentine peso in a one-to-one relationship with the U.S. dollar. This peg was designed both to keep inflation low and to make deficit spending difficult, in hopes of attracting and comforting foreign investors. Liberalized markets free capital to flow in and out across borders. But once Argentina’s economy began to wobble, money simply flowed out.
    The second step in the IMF/World Bank regimen is privatization. Both at the urging of lenders and out of financial necessity, Argentina throughout the nineties sold off what Argentines now ruefully call las joyas de miabuela, grandmother’s jewels: the state’s oil, gas, water, and electric companies and the state banks. It was quite a fire sale. Vivendi of France won rural water systems; Enron of Texas the pipes of Buenos Aires; Fleet of Boston took the provincial banks….
    In 1994, at the World Bank’s urging, Argentina partially privatized even its social security system, diverting much of it into private accounts. The US-based Center for Economic and Policy Research calculated the revenue loss from this decision alone to be almost equal to the nation’s budget deficit during the period.
    The third prong of the laissez-faire putsch is market-based pricing. In Argentina, the main target of this initiative has been labor, that most inflexible of commodities.
    “A major advance was made to eliminate outdated labor contracts,” states this report, noting approvingly that “labor costs” (ie, wages) had fallen due to “labor market flexibility induced by the de facto liberalization of the market via increased informality.” Translation: workers who lost unionized jobs were forced into ad hoc arrangements, with far less protection. Here, the report asks the government to decentralize collective bargaining, a move that would reduce union power.
    Far from achieving this goal of “unemployment in single digits,” the World Bank and IMF saw the jobless figure in the Buenos Aires area rise from 17 percent to 22 percent in the year after the report’s issuance. The violence and looting that rocked the city in December 2001 thus represents a stage in the “austerity” process that Stiglitz terms the “IMF riot.” When a nation, he said, “is down and out, [the IMF] takes advantage and squeezes the last pound of blood out of them. They turn up the heat until, finally, the whole cauldron blows up.”
    Step four of the IMF/World Bank program is free trade. The loan terms of the two institutions had required Argentina to accept “an open trade policy.” As recession set in, Argentina’s exporters — whose products were effectively priced, via the peg, in US dollars — were forced into a spectacularly unequal competition against Brazilian goods priced in that nation’s devalued currency. Argentina grows a special kind of long-grain rice favored by Brazilians, and yet even as Brazil faced a hunger crisis tons of rice went unsold.
    Before 1980, when the World Bank and IMF set out to rearrange the economies of developing nations, nearly all of them adhered to Keynesianism or socialism. Following the “import-substitution model”, they built locally owned industry through government investment, behind a protective wall of tariffs and capital controls. In those supposed economic dark ages, spanning roughly from 1960 to 1980, per-capita income grew by 73 percent in Latin America and by 34 percent in Africa.
    By comparison, since 1980, Latin American income growth has slowed to a virtual halt — to less than 6 percent over twenty years — while African incomes have declined by 23 percent. The IMF itself, in a statement accompanying its April 2000 World Economic Outlook report, noted that “in recent decades, too many countries, and nearly one-fifth of the world population, have regressed. This is arguably one of the greatest economic failures of the 20th Century.”
    On this, at least, the IMF had it right.
    SOURCE:


    ----------------------------------------------

    This article was first published in January, 1995. in the wake of the Rwandan Genocide.  It was subsequently included as a Chapter in  The Globalization of Poverty, first edition, 1997. 
    In the context of recent revelations concerning the 1994 genocide and the covert role of the United States in triggering a humanitarian disaster,  the role of the International Monetary Fund and the World Bank must be understood.
    In September 1990 at the very outset of the US-UK sponsored RPF insurgency and invasion from Uganda, a devastating program of macroeconomic reforms was imposed on Rwanda by the IMF.
    Michel  Chossudovsky, October  20  2014
    *      *     *
    The Rwandan crisis has been presented by the Western media as a profuse narrative of human suffering, while neglecting to explain the underlying social and economic causes. As in other ‘countries in transition’, ethnic strife and the outbreak of civil war are increasingly depicted as something which is almost ‘inevitable’ and innate to these societies, constituting ‘a painful stage in their evolution from a one- party State towards democracy and the free market’.
    The brutality of the massacres has shocked the world community, but what the international press fails to mention is that the civil war was preceded by the flare-up of a deep-seated economic crisis. It was the restructuring of the agricultural system which precipitated the population into abject poverty and destitution. This deterioration of the economic environment which immediately followed the collapse of the international coffee market and the imposition of sweeping macro-economic reforms by the Bretton Woods institutions – exacerbated simmering ethnic tensions and accelerated the process of political collapse .
    In 1987, the system of quotas established under the International Coffee Agreement (ICA) started to fall apart. World prices plummeted, the Fonds d’egalisation (the State coffee stabilisation fund) which purchased coffee from Rwandan farmers at a fixed price started to accumulate a sizeable debt. A lethal blow to Rwanda’s economy came in June 1989 when the ICA reached a deadlock as a result of political pressures from Washington on behalf of the large US coffee traders. At the conclusion of a historic meeting of producers held in Florida, coffee prices plunged in a matter of months by more than 50%. For Rwanda and several other African countries, the drop in price wreaked havoc. With retail prices more than 20 times that paid to the African farmer, a tremendous amount of wealth was being appropriated in the rich countries.

    The legacy of colonialism

    original
    What is the responsibility of the West in this tragedy? First, it is important to stress that the conflict between the Hutu and Tutsi was largely the product of the colonial system, many features of which still prevail today. From the late 19th century, the early German colonial occupation had used them wami (King) of the nyiginya monarchy installed at Nyanza as a means of establishing its military posts.
    However, it was largely the administrative reforms initiated in 1926 by the Belgians which were decisive in shaping socio-ethnic relations. The Belgians explicitly used dynastic conflicts to reinforce their territorial control. The traditional chiefs in a each hill (colline) were used by the colonial administration to requisition forced labour. Routine beatings and corporal punishment were administered on behalf of the colonial masters by the traditional chiefs. The latter were under the direct supervision of a Belgian colonial administrator responsible for a particular portion of territory. A climate of fear and distrust was installed, communal solidarity broke down, traditional client relations were tranformed to serve the interests of the coloniser.
    The objective was to fuel inter-ethnic rivalries as a means of achieving political control as well as preventing the development of solidarity between the two ethnic groups which inevitably would have been directed against the colonial regime. The Tutsi dynastic aristocracy was also made responsible for the collection of taxes and the administration of justice. The communal economy was undermined, the peasantry was forced to shift out of food agriculture into cash crops for export. Communal lands were transformed into individual plots geared solely towards cash crop cultivation (the so-called cultures obligatoires).
    Colonial historiographers were entrusted with the task of ‘transcribing’ as well as distorting Rwanda-Urundi’s oral history. The historical record was falsified: the mwami monarchy was identified exclusively with the Tutsi aristocratic dynasty. The Hutus were represented as a dominated caste….
    The Belgian colonialists developed a new social class, the so-called negres evolues recruited among the Tutsi aristocracy, the school system was put in place to educate the sons of the chiefs and provide the African personnel required by the Belgians. In turn, the various apostolic missions and vicariats received under Belgian colonial rule an almost political mandate, the clergy was often used to oblige the peasants to integrate the cash crop economy… These socio-ethnic divisions – which have been unfolding since the 1920s – have left a profound mark on contemporary Rwandan society.
    Since Independence in 1962, relations with the former colonial powers and donors have become exceedingly more complex. Inherited from the Belgian colonial period, however, the same objective of pushing one ethnic group against the other (‘divide and rule’) has largely prevailed in the various ‘military’, ‘human rights’ and ‘macro- economic’ interventions undertaken from the outset of the civil war in 1990.
    The Rwandan crisis has become encapsulated in a continuous agenda of donor roundtables (held in Paris), cease-fire agreements, peace talks…These various initiatives have been closely monitored and coordinated by the donor community in a tangled circuit of ‘conditionalities’ (and cross-conditionalities). The release of multilateral and bilateral loans since late 1990 was made conditional upon implementing a process of so-called ‘democratisation’ under the tight surveillance of the donor community. In turn, Western aid in support of multiparty democracy was made conditional (in an almost ‘symbiotic’ relationship) upon the government reaching an agreement with the International Monetary Fund (IMF), and so on….
    These attempts were all the more illusive because since the collapse of the coffee market, actual political power in Rwanda largely rested, in any event, in the hands of the donors. A communique of the US State Department issued in early 1993 vividly illustrates this situation: the continuation of US bilateral aid was made conditional on good behaviour in policy reform as well as progress in the pursuit of democracy….
    The model of ‘democratisation’ based on an abstract model of inter-ethnic solidarity envisaged by the Arusha peace agreement signed in August 1993 was an impossibility from the outset and the donors knew it. The brutal impoverishment of the population which resulted from both the war and the IMF reforms, precluded a genuine process of democratisation. The objective was to meet the conditions of ‘good governance’ (a new term in the donors’ glossary) and oversee the installation of a bogus multiparty coalition government under the trusteeship of Rwanda’s external creditors. In fact multipartism as narrowly conceived by the donors, contributed to fuelling the various political factions of the regime… Not surprisingly, as soon as the peace negotiations entered a stalemate, the World Bank announced that it was interrupting the disbursements under its loan agreement.

    The economy since independence

    The evolution of the post-colonial economic system played a decisive role in the development of the Rwandan crisis. While progress was indeed recorded since Independence in diversifying the national economy, the colonial-style export economy based on coffee (les cultures obligatoires) established under the Belgian administration was largely maintained providing Rwanda with more than 80% of its foreign exchange earnings. A rentier class with interests in coffee trade and with close ties to the seat of political power had developed. Levels of poverty remained high, yet during the 1970s, and the first part of the 1980s, economic and social progress was nonetheless realised: real gross domestic product (GPD) growth was of the order of 4.9% per annum (1965-89), school enrolment increased markedly, recorded inflation was among the lowest in sub-Saharan Africa, less than 4% per annum.
    While the Rwandan rural economy remained fragile, marked by acute demographic pressures (3.2% per annum population growth), land fragmentation and soil erosion, local-level food self-sufficiency had, to some extent, been achieved alongside the development of the export economy. Coffee was cultivated by approximately 70% of rural households, yet it constituted only a fraction of total monetary income. A variety of other commercial activities had been developed including the sale of traditional food staples and banana beer in regional and urban markets.
    Until the late 1980s, imports of cereals including food aid were minimal compared to the patterns observed in other countries of the region. The food situation started to deteriorate in the early 1980s with a marked decline in the per capita availability of food. In overt contradiction to the usual trade reforms adopted under the auspices of the World Bank, protection to local producers had been provided through restrictions on the import of food commodities. They were lifted with the adoption of the 1990 structural adjustment programme.

    The fragility of the State

    The economic foundations of the post-Independence Rwandan State remained extremely fragile, a large share of government revenues depended on coffee, with the risk that a collapse in commodity prices would precipitate a crisis in the State’s public finances. The rural economy was the main source of funding of the State. As the debt crisis unfolded, a larger share of coffee and tea earnings had been earmarked for debt servicing, putting further pressure on small-scale farmers.
    Export earnings declined by 50% between 1987 and 1991. The demise of State institutions unfolded thereafter. When coffee prices plummeted, famines erupted throughout the Rwandan countryside. According to World Bank data, the growth of GDP per capita declined from 0.4% in 1981-86 to – 5.5% in the period immediately following the slump of the coffee market (1987-91).
    A World Bank mission travelled to Rwanda in November 1988 to review Rwanda’s public expenditure programme… A series of recommendations had been established with a view to putting Rwanda back on the track of sustained economic growth. The World Bank mission presented to the government, Rwanda policy options as consisting of two ‘scenarios’. Scenario I entitled ‘No Strategy Change’ contemplated the option of remaining with the ‘old’ system of State planning, whereas Scenario II labelled ‘With Strategy Change’ was that of macro-economic reform and ‘transition to the free market’.
    After careful economic ‘simulations’ of likely policy outcomes, the World Bank concluded with some grain of optimism that if Rwanda adopted Scenario II, levels of consumption would increase markedly over 1989-93 alongside a recovery of investment and an improved balance of trade. The ‘simulations’ also pointed to added export performance and substantially lower levels of external indebtedness. These outcomes depended on the speedy implementation of the usual recipe of trade liberalisation and currency devaluation alongside the lifting of all subsidies to agriculture, the phasing out of the Fonds d’egalisation, the privatisation of State enterprises and the dismissal of civil servants…
    The ‘With Strategy Change’ (Scenario II) was adopted, the government had no choice… A 50% devaluation of the Rwandan franc was carried out in November 1990, barely six weeks after the incursion from Uganda of the rebel army of the Rwandan Patriotic Front.
    The devaluation was intended to boost coffee exports. It was presented to public opinion as a means of rehabilitating a war-ravaged economy. Not surprisingly, exactly the opposite results were achieved exacerbating the plight of the civil war. From a situation of relative price stability, the plunge of the Rwandan franc contributed to triggering inflation and the collapse of real earnings. A few days after the devaluation, sizeable increases in the prices of fuel and consumer essentials were announced. The consumer price index increased from 1.0% in 1989 to 19.2% in 1991. The balance-of-payments situation deteriorated dramatically and the outstanding external debt which had already doubled since 1985, increased by 34% between 1989 and 1992.
    The State administrative apparatus was in disarray, State enterprises were pushed into bankruptcy and public services collapsed. Health and education collapsed under the brunt of the IMF imposed austerity measures. Despite the establishment of ‘Social Safety’ (earmarked by the donors for programmes in the social sectors), the incidence of severe child malnutrition increased dramatically, the number of recorded cases of malaria increased by 21% in the year following the adoption of the IMF programme largely as a result of the absence of anti-malarial drugs in the public health centres. The imposition of school fees at the primary school level was conducive to a massive decline in school enrolment.
    The economic crisis reached its climax in 1992 when Rwandan farmers in desperation uprooted some 300,000 coffee trees. Despite soaring domestic prices, the government had frozen the farmgate price of coffee at its 1989 level (125 RwF a kg), under the terms of its agreement with the Bretton Woods institutions. The government was not allowed (under the World Bank loan) to transfer State resources to the Fonds d’egalisation. It should also be mentioned that a significant profit was appropriated by local coffee traders and intermediaries serving to put further pressure on the peasantry.
    In June 1992, a second devaluation was ordered by the IMF leading — at the height of the civil war – to a further escalation of the prices of fuel and consumer essentials. Coffee production tumbled by another 25% in a single year…. Because of over-cropping of coffee trees, there was increasingly less land available to produce food, but the peasantry was not able to easily switch back into food crops. The meagre cash income derived from coffee had been erased yet there was nothing to fall back on. Not only were cash revenues from coffee insufficient to buy food, the prices of farm inputs had soared and money earnings from coffee were grossly insufficient.
    The crisis of the coffee economy backlashed on the production of traditional food staples leading to a substantial drop in the production of cassava, beans and sorghum… The system of savings and loan cooperatives which provided credit to small farmers had also disintegrated. Moreover, with the liberalisation of trade and the deregulation of grain markets as recommended by the Bretton Woods institutions, (heavily subsidised) cheap food imports and food aid from the rich countries were entering Rwanda with the effect of destabilising local markets.
    Under ‘the free market’ system imposed on Rwanda, neither cash crops nor food crops were economically viable. The entire agricultural system was pushed into crisis, the State administrative apparatus was in disarray due to the civil war but also as a result of the austerity measures and sinking civil service salaries… A situation which inevitably contributed to exacerbating the climate of generalised insecurity which had unfolded in 1992…
    The seriousness of the agricultural situation had been amply documented by the Food and Agriculture Organisation (FAO) which had warned of the existence of widespread famine in the southern provinces. A report released in early 1994 also pointed to the total collapse of coffee production due to the war but also as a result of the failure of the State marketing system which was being phased with the support of the World Bank. Rwandex, the mixed enterprise responsible for processing and export of coffee, had become largely inoperative.

    Military hardware

    The decision to devalue (and ‘the IMF stamp of approval’) had already been reached on 17 September 1990 prior to the outbreak of hostilities in high-level meetings held in Washington between the IMF and a mission headed by the Rwandan Minister of Finance Mr Ntigurirwa. The ‘green light’ had been granted: as of early October, at the very moment when the fighting started, millions of dollars of so-called ‘balance-of-payments aid’ (from multilateral and bilateral sources) came pouring into the coffers of the Central Bank. These funds administered by the Central Bank had been earmarked (by the donors) for commodity imports, yet it appears likely that a sizeable portion of these ‘quick disbursing loans’ had been diverted by the regime (and its various political factions) towards the acquisition of military hardware (from South Africa, Egypt and Eastern Europe). These purchases of Kalachnikov guns, heavy artillery and mortar were undertaken in addition to the bilateral military aid package provided by France which included inter alia Milan and Apila missiles (not to mention a Mystere Falcon jet for President Habyarimana’s personal use).
    Moreover, since October 1990, the Armed Forces had expanded virtually overnight from 5,000 to 40,000 men requiring inevitably (under conditions of budgetary austerity) a sizeable influx of outside money… The new recruits were largely enlisted from the ranks of the urban unemployed of which the numbers had dramatically swelled since the outset of the collapse of the coffee market in 1989. Thousands of delinquent and idle youths from a drifting population were also drafted into the civilian militia responsible for the massacres. And part of the arms purchases enabled the Armed Forces to organise and equip the militiamen…
    In all, from the outset of the hostilities (which coincided chronologically with the devaluation and the initial ‘gush of fresh money’ in October 1990), a total envelope of some $260 million had been approved for disbursal (with sizeable bilateral contributions from France, Germany, Belgium, the European Community and the US). While the new loans contributed to releasing money for the payment of debt servicing as well as equipping the Armed Force, the evidence would suggest that a large part of this donor assistance was neither used productively nor was it channelled into providing relief in areas affected by famine.
    It is also worth noting that the World Bank through its soft-lending affiliate, the International Development Association (IDA), had ordered in 1992 the privatisation of Rwanda’s State enterprise Electrogaz. The proceeds of the privatisation were to be channelled towards debt servicing. In a loan agreement co-financed with the European Investment Bank (EIB) and the Caisse francaise de developpement (CFD), the Rwandan authorities were to receive in return (after meeting the ‘conditionalities’) the modest sum of $39 million which could be spent freely on commodity imports. The privatisation, carried out at the height of the civil war, also included dismissals of personnel and an immediate hike in the price of electricity which further contributed to paralysing urban public services. A similar privatisation of Rwandatel, the State telecommunications company under the Ministry of Transport and Communications, was implemented in September 1993.
    The World Bank had carefully reviewed Rwanda’s public investment programme. The fiches de projet having been examined, the World Bank recommended scrapping more than half the country’s public investment projects. In agriculture, the World Bank had also demanded a significant down-sizing of State investment including the abandonment of the inland swamp reclamation programme which had been initiated by the government in response to the severe shortages of arable land (and which the World Bank considered ‘unprofitable’). In the social sectors, the World Bank proposed a so-called ‘priority programme’ (under ‘the Social Safety Net’) predicated on maximising efficiency and ‘reducing the financial burden of the government’ through the exaction of user fees, lay-offs of teachers and health workers and the partial privatisation of health and education.
    The World Bank would no doubt contend that things would have been much worse had Scenario II not been adopted. The so- called ‘counterfactual argument’… Such a reasoning, however, sounds absurd particularly in the case of Rwanda. No sensitivity or concern was expressed as to the likely political and social repercussions of economic shock therapy applied to a country on the brink of civil war… The World Bank team consciously excluded the ‘non-economic variables’ from their ‘simulations’.
    While the international donor community cannot be held directly responsible for the tragic outcome of the Rwandan civil war, the austerity measures combined with the impact of the IMF-sponsored devaluations, contributed to impoverishing the Rwandan people at a time of acute political and social crisis. The deliberate manipulation of market forces destroyed economic activity and people’s livelihood, fuelled unemployment and created a situation of generalised famine and social despair…

    Economic Genocide

    To lay the blame solely on deep-seated tribal hatred not only exonerates the great powers and the donors, it also distorts an exceedingly complex process of economic, social and political disintegration affecting an entire nation of more than seven million people… Rwanda, however, is but one among many countries in sub-Saharan Africa (not to mention recent developments in Burundi where famine and ethnic massacres are rampant) which are facing a similar predicament. And in many respects the Rwandan 1990 devaluation appears almost as a ‘laboratory test case’ as well as a threatening ‘danger signal’ for the devaluation of the CFA franc implemented on the instructions of the IMF and the French Treasury in January 1994 by the same amount, 50%.
    It is also worth recalling that in Somalia iln the aftermath of ‘Operation Restore Hope’, the absence of a genuine economic recovery programme by the US Agency for International Development (USAID) mission in Mogadishu – outside the provision of short-term emergency relief and food aid – was the main obstacle to resolving the civil war and rebuilding the country. In Somalia, because of the surplus of relief aid which competed with local production, farmers remained in the relief camps instead of returning to their home villages.
    What are the lessons for Rwanda? As humanitarian organisations prepare for the return of the refugees, the prospects for rebuilding the Rwandan economy outside the framework determined by the IMF and Rwanda’s international creditors seem to be extremely bleak. Even in the event a national unity government is installed and the personal security of the refugees can be ensured, the two million Rwandans cramped in camps in Zaire and Tanzania have nothing to return to, nothing to look forward to: agricultural markets have been destroyed, local-level food production and the coffee economy have been shattered, urban employment and social programmes have been erased.
    The reconstruction of Rwanda will require ‘an alternative economic programme’ implemented by a genuinely democratic government (based on inter-ethnic solidarity and free from donor interference). Such a programme presupposes erasing the external debt together with an unconditional infusion of international aid. It also requires lifting the straitjacket of budgetary austerity imposed by the IMF, mobilising domestic resources, and providing for a secure and stable productive base for the rural people.

    Bio

    Nii Akuetteh is an independent analyst of African & international affairs, seen regularly on Al Jazeera and many other global TV outlets and published frequently, especially by Pambazuka News. He is the former Executive Director of Africa Action, and he was a professor of African Studies at Georgetown University.

    Transcript

    IMF & World Bank Policies Responsible For Weakening Health Systems in West 
AfricaSHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I'm Sharmini Peries, coming to you from Baltimore.
    The Ebola epidemic continues to spread rapidly in Guinea, Liberia, and Sierra Leone. If the virus continues to surge in the three worst-affected countries and spread to the neighboring countries, the two-year regional financial impact could reach $32.6 billion by the end of 2015, says the World Bank. Economic activity in West Africa has come to a virtual standstill because of Ebola. Markets, centers of commerce, and cross-border activity is halted in order to contain the virus.
    How will these countries cope with this kind of a price tag protect the people? The people of the West African nations will over the next few years have to rely completely on the international community for their survival and livelihood. How much of that price tag will come from the World Bank and the IMF group? Let's have a look at what the president of the World Bank had to say, Jim Yong Kim.
    ~~~
    JIM YONG KIM, PRESIDENT, WORLD BANK GROUP: --just announced that the World Bank Group will raise as much as $200 million to support Guinea, Liberia, and Sierra Leone in their efforts to battle the Ebola epidemic that has broken out in those three countries. This money will go for very basic support for medical supplies and medical staff, and also to help with people who are facing economic hardship as a result of this epidemic.
    We want to stress that we're doing this under the leadership of the World Health Organization. When I was working at the World Health Organization in 2003 at the tail end of the SARS epidemic, we learned several things. One, these epidemics can happen anywhere. And two, when they do happen, the world community has to respond to put in place those systems that can prevent these kinds of outbreaks from happening again.
    We have a responsibility to that particular region of Africa. We're going to do everything we can not only to provide support in the short term, but to think really think about building the kind of public health systems that the people of those three countries deserve.
    ~~~
    PERIES: Now joining us to discuss if that is an adequate response the part of an organization that is set up to respond to economic development and financial needs of developing countries is Nii Akuetteh. Nii is coming to us from Washington, D.C. Nii is a Ghanaian-born policy analyst and activist. Akuetteh is the founder of Democracy and Conflict Research Institute. And he is the former executive director of Africa Action and editor of TransAfrica.
    Thanks for joining us, Nii.
    NII AKUETTEH, FMR. DIRECTOR AT AFRICA ACTION: My pleasure. Thanks for having me.
    PERIES: Nii, do you think this is an adequate response on the part of the World Bank?
    AKUETTEH: I don't think so, because for one thing, it simply is not enough to contain the virus, as well as directly halt the virus, and as well as the economic repercussions that you mentioned; so certainly, if it's not enough medicine to address the disease. But I think the additional factor is that the reason that these three countries have been hit so hard, in my very strong opinion: the World Bank and the IMF have contributed to the weak health systems in Africa, which is why Ebola hit so hard. So, therefore, so to speak, they contributed to the problem; therefore they need to own up to their mistakes and they need to do more to help rescue these countries.
    PERIES: What do you mean by that? What role has IMF and the World Bank played in West Africa in the past?
    AKUETTEH: Oh, well, you know, two phrases. One is structural adjustment programs. Anybody who's been studying Africa since independence [knows that] especially since the '80s, when Ronald Reagan got into power in the United States and the World Bank and the IMF actually made themselves the economic stewards of economic policy in Africa, structural adjustment, otherwise called austerity measures, they have imposed these policies on the African countries regardless of what the people want, regardless of what the leaders wanted. So structural adjustment is one of those phrases. And the governments were told, were forced, that in order to get a good mark from the World Bank and the IMF, you have to keep government small, you have to slash government officials' pay; after you have slashed the number of government officials, you have to privatize everything and you have to force people to pay, and especially to pay for health care and to pay out of pocket for education.
    So I think, though structural adjustment went on for decades and they devastated the African economies, the other phrase that I wanted to throw in is IMF riots. This actually came from Africa, where every time the IMF would impose economic conditions, ordinary people in the street were so hit hard that they would riot. And so it actually created a new phrase in the English language and in economic writing: IMF riots.
    PERIES: So, Nii, explaine more, in the sense that, yes, of course the IMF would have these horrendous austerity policies and neoliberal economic policies and force governments to shrink their bureaucratic and civil service, all these things in the past were set up in order to service their people. But why are they forced to come to these kinds of agreements with the World Bank and the IMF?
    AKUETTEH: I think that's a great question, because on the surface of it, a government, a country can simply say, sorry, your conditions are too harsh, we don't have to deal with you. After all, the United States doesn't take the advice of the World Bank and the IMF. A number of big countries don't. But for African countries, number one, they are economically small and weak. Secondly, having just gotten out of colonialism--I know this is about 50 years ago, but when you are trying to restructure economic systems that was built over more than a century, it is not easy. And so they are tied into the global economy. They are tied into their former colonial masters. That is especially France and the U.K. And they are tied to the United States.
    Now, those three countries, the United States, the U.K., and France, play a major role in the World Bank and the IMF. And therefore the World Bank and the IMF actually act as policeman and gatekeepers for the entire global economy if you are an African country, because the rest of the global economy says to you, we will deal with you only if the World Bank and the IMF says you are well behaved. And the World Bank and the IMF will say you are well behaved only if you agree to their conditions. And therefore it's almost impossible for an African country to say, listen, I don't want to do this anymore.
    You know, everybody who reads the news, Africa news, and especially U.S.-Africa, will know that the West doesn't much care for Robert Mugabe. Usually you will be told that it's because he is internally repressive and other things. But I happen to think that one major factor also is that for about ten years after Zimbabwe became independent, Robert Mugabe followed the dictates of the World Bank and the IMF very closely. And after about ten years he said, no, this is not working no more. For instance, they made Zimbabwe sell its stock of maize, and say it's uneconomical to hold it; sell it, buy it when you need it. But that was bad economic advice, because when they wanted to buy it, they had to pay more. And so I am saying that countries that defy the IMF and the World Bank get punished by the larger global economy, and therefore it's not been very easy for those countries to reject what the World Bank and the IMF recommend, because they were doing it on behalf of the global economy.
    PERIES: But these economies are very resource-rich. I mean, places like Sierra Leone have diamonds and gold, and West Africa is considered one of the natural resource rich regions of the world. The World Bank adopting these policies is really opening the doors and the gates to a flood of corporations coming in to do business in the region and reap the resources out of the region and leave very little behind. Can you sort of describe those complex relationships between the World Bank, the IMF, the local governments, the corporations that have left--the conditions that they have left in the region that is now unable to cope with basic--I shouldn't say basic, but a grave epidemic of Ebola in the region?
    AKUETTEH: I think that question is fantastic. I mean, because the reason that the World Bank and the IMF do what they do, the reason that they squeeze the African countries and say to them, you do what we tell you, never mind what your own people might want, never mind what your own leaders might want, the IMF and the World Bank, there's a method to their madness. And I believe said the method, the reason they do what they do, is actually to make it safe and hospitable for international corporations to go in and plunder Africa's wealth. It is as simple as that.
    Now, it's been going on for years. The IMF and the World Bank are creatures created after the Second World War. They're Bretton Woods institutions. So [then U.S. came in. (?)] After the Second World War, with the U.K. and Western Europe being weakened, they were created to help stand up again in the global economy. So they took over what has been done, which is plundering Africa's wealth, leaving very little for the Africans, [under whose feet the world is (?)]. And so you are so right. That question goes to why this is done. The World Bank and the IMF would tell the African countries, keep governments small; you can't afford--. I mean, when I was in school, our governments were being told, listen--I'm from Ghana--you are a small country, the United States doesn't invest this much into education, so why should you? You shouldn't invest in education; let parents pay for it, when most parents are poor and when education is an investment. So they want to keep governments small. They want the people of the country to get as little as possible from the wealth--the bottom line is because they want the Western corporations to continue taking the wealth from out of Africa. This is precisely why they do it. Even as recently as in Liberia, when Ms. Johnson Sirleaf--whom I know well because she was my boss at a certain point-- when she became president, she got a lot of kudos from the West because she is well known in the West and it was great that a woman had been in elected president in Africa. But behind the scenes, she was told that, listen, you will get a lot of corporations investing if you don't insist that they clean up the environment, if you don't push hard for labor protections, if you don't insist on high taxes, so all the things that the World Bank and the IMF says.
    I'm saying your question is great because it goes to the heart of it: it's designed to make it easier for Western corporations to plunder Africa. It's as simple as that.
    PERIES: Nii, I want to thank you for joining us today and explaining all of this, and I'm hoping that you will come back and keep us posted so that we could use this very dire and sad situation of the Ebola crisis to really open the hearts and minds of the people around the world to what's really been going on in the region prior to all of this.
    AKUETTEH: I thank you very much for having me.
    And I think that after--containing Ebola is important, but this issue goes beyond that, because after Ebola is contained, there has to be: how do we rebuild health care systems so that this doesn't happen again? And so we need to understand how the health care systems became weak. And then for--those like the World Bank and others who contributed to it must be held accountable, so that they can be made to help rebuild the systems. They must not get away with hiding their mistakes.
    PERIES: Thank you so much, Nii.
    AKUETTEH: Thank you.
    PERIES: And thank you for joining us on The Real News Network.

    Source: http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=12545

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