When I was much younger, I attended what was considered a very good public high school in the United States. Yet like many schools around the world, much of what I was taught had very little to do with practical knowledge.
In a humble attempt to shine a light on what my former teachers missed, I present to you a new series I call Basic Learning. Many of you who read these articles may be far more well-versed on these topics than I, and I apologize if my discourses offend you. Furthermore, I am as much a purveyor of knowledge as I am still a student seeking it, and therefore remain prone to the fallacies of the non-expert.
Today's Basic Learning: the World Bank and the International Monetary Fund.
I have of course heard of these two institutions but what exactly are they? From their titles, they sound almost like a souped up lending institution for the planet, a sort of normal bank for countries instead of people. The truth I'm afraid to say is much more ominous.
The term
World Bank actually refers to 5 sister organizations which are collectively known as the "World Bank".
The first "World Bank" was entitled the "International Bank for Reconstruction and Development" (IBRD) and was created at the same time as the International Monetary Fund (IMF) at the end of World War 2 in a historic financial summit known as the "Bretton Woods" conference, held in New Hampshire in 1944.
The World Bank(s) are very similar in scope and mission to the IMF with some key differences. The World Bank(s) were designed specifically to pool money to loan for countries to rebuild after the devastation of World War 2. It has since moved to lending money to developing (read: poor) countries to develop infrastructure.
The IMF was originally designed as a sort of regulatory agency to handle currency cooperation, facilitate economic trade and provide financial advice to countries rebuilding from the war. It has since moved on to being a direct lender to developing (read: poor) nations.
The short version is that the World Bank(s) lend money to poor countries to build or rebuild things (from massive projects like dams or smaller projects like hospitals or agricultural "reform") while the IMF lends money to a government directly.
Whatever the original intentions of these organizations, within a decade or so after World War 2 ended they both focused almost entirely on what is euphemistically known as "developing" nations. I prefer to say "impoverished" nations as a more accurate term, but in any case I am referring to countries outside of Europe, North America and Japan. In essence, the IMF and WB have become the tools of propagating what should properly be referred to as neo-colonialism.
From the 16th to the 19th century, the European powers directly held much of the globe as vassal states, known as "colonies". Controlling them militarily and politically, the colonies were used to produce raw (and sometimes finished) products for direct consumption by the imperial master. This ranged from gold bullion shipped back home to Spain to tea consumed in Britain.
After World War 2, the European powers (and United States, to a lesser extend) lost direct military and political control over their colonies. The IMF/WB were then part of an overall strategy of still maintaining economic control over the former colonies. I am indebted to this excellent analysis, which I encourage you to read in full.
In short, this is how the IMF/WB continue to hold impoverished countries in vassal:
- An impoverished country seeks a loan from the IMF/WB
- The loan is only given if the country follows the IMF/WB's rules, which are always designed to benefit the "developed" (richer) nations more than the loan receiver
- The conditions imposed by the IMF/WB further impoverish the country and soon the debt repayments are so high they cannot be maintained
- Further loans from the IMF/WB are then needed
- Repeat Step 1
It's a vicious cycle and it is purposefully kept that way. A few countries (notably Botswana and to a lesser extent, Argentina) have managed to escape the noose by refusing to repeat the cycle, but the vast majority of the IMF/WB's client states are still rendered helpless.
Here are some of the rules that the IMF/WB impose on client states who receive loans:
- Subsidies and tariffs must be reduced or eliminated, opening the "market" to competition from abroad. Often this comes from the wealthier countries, who heavily subsidize their own domestic industries. This is why you can find frozen chicken for sale in Romania, cheaper than the local meat even though it comes from Georgia (USA)
- The debt must be paid back in cash (in the currency of a rich nation, usually the dollar or Euro), meaning that money must be raised by exporting products, nearly universally unprocessed or "raw" resources such as timber or copper. Because the debtor country lacks economic development, it lacks the resources to turn these into furniture or wire (for instance), meaning it often buys back its own raw materials after they've been processed.
- Many debtor nations export the same raw or unfinished resources, leading to a major cut in the global price for these items, making raising cash to pay back the debts that much more difficult
- To pay back debts, the governments must cut back on expenses, often on non-economic items such as health care and education
- Governments must remove or decrease financial regulations, meaning foreign investors increase control over local industries
- State-owned resources such as utility companies, from electricity to drinking water, must be sold off and foreign investors usually are the buyers
- Currency regulations must be modified, often pegging them to the U.S. dollar or other rich nations, making them vulnerable to global fluctuations and currency manipulations
This leads to a decrease in economic output by the debtor nation, a reduction in basic services (health care, education, etc), exporting cheap goods (and therefore becoming reliant on importing finished products, much more expensive) and quite frankly, social instability.
The single fact which illustrates what a stranglehold that these lending rules impose on impoverished nations is that every year debtor nations pay more in interest on loans than they receive in loans. Quite simply this renders them as effective colonies to rich nations, providing cheap resources and cheap labor and unable to do much of anything to change the equation.
The IMF/WB imposes these rules because a country in debt has no choice but to accept them or else not receive the loan. This makes the IMF/WB de facto a kind of "super government" with more authority than the domestic one, as the IMF/WB is able to control wide swathes of domestic policy. Hence the life of an average citizen in Bolivia or Malawi or Indonesia is being affected by decisions determined by the IMF/WB.
The IMF/WB is controlled by the G7 nations, otherwise known as the 7 richest nations in the world.
Technically, all members of the IMF/WB have to vote on loans and other issues, but the organizations are designed like companies - the number of votes each member get is a percentage of the share they've contributed to the pool. And since the richer nations have contributed the most, they get the most votes. Specifically, the United States owns approximately between 16% and 18% of the votes in both the IMF/WB. And unsurprisingly, an 85% majority must be achieved for most decisions, giving the United States a de facto veto over everything the IMF/WB proposes. In simpler terms, the IMF/WB cannot do almost anything without the United States' approval.
Furthermore, the undercutting of social spending (often referred to as "welfare programs"), tolerance of foreign capital controlling vital industries and deregulation of pricing (usually leading to soaring costs of basic necessities) is a perfect formula for incubating dictatorships. I think it is absolutely no coincidence whatsoever that so many debtor nations have been ruled by dictators or that the United States and the European powers have actively supported them. Dictatorships are the form of government best suited to controlling popular unrest over soaring costs, low standards of living and the imposition of unpopular measures (such as selling off public resources like drinking water).
Of course the above is very short and condensed and entire books could be written about the process. One of the foremost critics of the IMF and WB is the man who used to be the Chief Economist of the World Bank, Joseph Stiglitz. A brief excerpt:
Each nation's economy is analysed, says Stiglitz, then the Bank hands every minister the same four-step programme.
Step One is privatisation. Stiglitz said that rather than objecting to the sell-offs of state industries, some politicians - 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 possibility of commissions for shaving a few billion off the sale price.
And the US government knew it, charges Stiglitz, at least in the case of the biggest privatisation of all, 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." '
Stiglitz cannot simply be dismissed as a conspiracy nutter. The man was inside the game - a member of Bill Clinton's cabinet, chairman of the President's council of economic advisers.
Most sick-making for Stiglitz is that the US-backed oligarchs stripped Russia's industrial assets, with the effect that national output was cut nearly in half.
After privatisation, Step Two is capital market liberalisation. In theory this allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money often simply flows out.
Stiglitz calls this the 'hot money' cycle. Cash comes in for speculation in real estate and currency, then flees at the first whiff of trouble. A nation's reserves can drain in days.
And when that 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%.
'The result was predictable,' said Stiglitz. Higher interest rates demolish property values, savage industrial production and drain national treasuries.
At this point, according to Stiglitz, the IMF drags the gasping nation to Step Three: market-based pricing - a fancy term for raising prices on food, water and cooking gas. This leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls 'the IMF riot'.
The IMF riot is painfully predictable. When a nation is, 'down and out, [the IMF] squeezes the last drop of blood out of them. They turn up the heat until, finally, the whole cauldron blows up,' - as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998. Indonesia exploded into riots.
Now we arrive at Step Four: free trade. This is free trade by the rules of the World Trade Organisation and the World Bank, which Stiglitz likens to the Opium Wars. 'That too was about "opening markets",' he said. 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.
In the Opium Wars, the West used military blockades. Today, the World Bank can order a financial blockade, which is just as effective and sometimes just as deadly.
And that, in short, is why so many people are so opposed to these organizations. To be fair, they do a great deal to enrich the primary stakeholders - the United States and the other 6 richest nations of the world. From that perspective, they are wonderfully efficient programs.
For the average citizen of the planet however, it's quite a different story...
This is cross-posted from Flogging the Simian, where you are humbly invited to visit
Peace