World Bank and IMF: Banking on Misery
Revolutionary Worker Online, December 7, 1997
An average middle class family in a Paris suburb has an income more than 100 times higher than a rural household in Southeast Asia. A Filipino peasant has to work for two years to earn what a New York lawyer earns in an hour. The amount spent in the U.S. by Americans ($30 billion a year) on Pepsi and Coca-Cola is nearly twice the gross national product of Bangladesh. Rich countries (including rich oil producers of the Persian Gulf) with 15 percent of the population control close to 80 percent of total world income.
For over 50 years, the IMF and World Bank have played a major role in enforcing imperialist domination of Third World countries and have helped create this lopsided global impoverishment.
The World Bank and the International Monetary Fund (IMF) portray themselves as neutral agencies concerned with issues of economic development and stability. But they are imperialist institutions with an imperialist agenda.
The IMF and World Bank were founded in 1944 as part of U.S. post World War 2 plans to reorganize and dominate the world economy and forge a bloc of imperialist powers. After the war, the World Bank and IMF focused on reconstruction in Western Europe and creating a stable world monetary system.
Starting in the 1950s the World Bank started financing major "development projects" in the Third World. These projects, like dams, roads and power plants, were set up to promote profits and investments of imperialist corporations and banks. Today, the World Bank lends out $23 billion a year to developing countries in Asia, Africa and Latin America, as well as countries of the former Soviet bloc. It is the world's largest funder of development projects.
During the 1950s and 1960s, the IMF lent funds to many Third World countries. But starting in the 1970s, its functions widened. A debt crisis had broken out in the Third World. The debt of the non-oil-producing Third World increased five-fold between 1973 and 1982, reaching a staggering $612 billion. The IMF's mission became to protect the interests of imperialist banks and to protect the world financial system from collapse. To achieve this, it had to coordinate policy between governments and banking institutions.
The IMF lends money to poor countries on the condition that they institute certain economic reforms. For countries to be members of the World Bank they must be members of the IMF and submit to IMF supervision. IMF reforms are supposed to help poor countries get out of debt. But in reality IMF-imposed policies aim to increase foreign investment and intensify imperialist domination in the Third World.
the World Bank and IMF?
The World Bank and IMF headquarters are in Washington, D.C. The president of the World Bank is always a North American. The managing director of the IMF is always a West European. The U.S. has effectively had the power to veto any decision the IMF takes.
The World Bank's Board of Executive Directors has power and responsibility for decisions on policies and approval of all loans. Five wealthy countries--U.S., Great Britain, France, Germany and Japan--dominate the Board. Voting rights are proportional to a country's share of the Bank's annual contribution and the U.S. has the biggest share.
The decision-making body of the IMF is dominated by countries with the largest Gross National Products. Votes in the IMF to set policy and approve loans are determined by a country's donation to the fund, so rich countries can literally buy voting power. The U.S. contributes about $115 billion, or roughly 18 to 19 percent of the total fund, and has the biggest voting power.
Enforcing Imperialist Domination
Debt is a political, not just an economic or financial, phenomenon. And institutions like the IMF and World Bank that administer debt on behalf of creditors have political power.
All kinds of strings are attached to loans. And by putting conditions on aid, the IMF and World Bank exert a great deal of control over the economic and social policies of Third World countries. IMF conditions aim to create a more favorable foreign investment climate and typically include the privatization of government-owned operations, cuts in social services, and tax increases. Such "reforms" fall hardest on the poor.
Poor countries get IMF loans to try and get out of debt. And the "restructuring" reforms the IMF makes these countries carry out are supposed to help them pay their debts and get back on their feet. But in reality, this restructuring only causes deeper debt and poverty. The IMF and the World Bank now operate with reverse capital flows--they take more money out of the Third World than they put back in. In the past four years Brazil has paid the World Bank $5.3 billion more than it has received.
The total Third World debt now equals about half their combined GNP and nearly twice their total annual export earnings. Meanwhile, wealth continues to flow out of Third World countries. Between 1982 and 1990, Third World countries transferred $418 billion to rich capitalist countries.
Structural Adjustment Programmes
"Structural Adjustment Programmes" (SAPs) are the policies imposed on countries by the World Bank and the IMF as a condition for receiving loans. SAPs restructure Third World economies in order to subordinate them more fully to the requirements of international capital and multinationals. Over 90 debtor countries have adopted SAPs, and by 1992 SAPs accounted for 27 percent of World Bank lending.
SAPs result in the impoverishment of hundreds of millions of people. Poor countries are forced to produce and export more, and spend and eat less. To pay back loans, poor countries are told they must earn more on the world market--and that means cutting back on domestic spending, exporting more, and making exports cheaper (by reducing costs and lowering the value of their currencies). Poor countries are forced to open their economies up even more to foreign investors. And government cuts demanded by the IMF usually fall heaviest on health care, education, food subsidies and housing.
SAPs try to increase foreign exchange earnings by boosting exports of cash crops and other primary commodities such as rubber, cotton, coffee, cocoa, copper, and tin. But in recent years the prices of many of these goods have declined sharply, so that even when countries boosted the amount exported, their revenues rose by far less or actually declined. One reason is that when many countries undergoing "structural adjustment" all tried to increase commodity exports, the result was oversupply leading to a slump in prices.
For example when the Ivory Coast, Ghana, and Nigeria, which together supply about half the world's cocoa, increased their cocoa exports by about two-thirds in the second half of the 1980s, their income from cocoa during the period actually fell by a third. The World Bank was advising each country individually while ignoring what would happen when they all did the same thing simultaneously.
Private banks have greatly profited from SAPs. Between 1984 and 1990, private banks got $178 billion out of the Third World. And the World Bank has made a profit every year since 1947. Between 1980 and 1992 its net earnings rose by over 172 percent to over $1.6 billion, increasing its accumulated retained earnings to over $13 billion.
Instead of alleviating the Third World debt crisis, SAPs have worsened it--from $785 billion at the beginning of the debt crisis to $1.3 trillion in 1992.
Increased Poverty and Misery
The World Bank itself estimates that by 1997, it will have created three million impoverished "development refugees," displaced by giant dams and other mega-projects. Meanwhile, forests and rivers that have sustained generations of people have been ruined.
World Bank-financed projects in Indonesia have led to massive relocation and the impoverishment of tens of thousands of people. In Brazil, World Bank roadbuilding projects have contributed to the speedup of forest destruction.
In Peru, IMF policies had a devastating effect on public health. A cholera epidemic broke out in 1991. President Fujimori had imposed an IMF-sponsored adjustment program which resulted in a 34-fold increase in the price of home fuel and similar increases in the price of wood and basic consumer goods. As a result, large numbers of the poor could no longer afford to buy treated water, or buy fuel and wood to boil water to make it safe to drink or bathe in. These conditions contributed to the outbreak of the worst cholera epidemic in Latin America in the 20th century.
In more than half of the countries receiving SAP loans between 1980 and 1987, the availability of food per person declined. And in the drive to make Third World economies more "competitive," adjustment programs have also led to increased unemployment and falling wages. In Mexico, for instance, real wages have dropped 50 percent during the country's 10-year-old adjustment program.
Human rights are ignored when World Bank projects disrupt the lives and destroy peoples' livelihood--particularly among indigenous peoples. Indian communities in the Amazon have been decimated by the gigantic Grande Carajas mining project in Brazil. Forest-dwellers of the Indonesian outer islands found their forests being cut down to make way for hundreds of thousands of migrants being transferred there in a giant World Bank-funded relocation project.
Currently, 134 ongoing World Bank-financed projects are forcibly resettling two million poor people. Another two million will be displaced by projects to be approved up to 1996.
World Bank projects have been notorious for ignoring environmental concerns and have resulted in tremendous destruction to the earth's forests, mineral deposits, and rivers. In a secret 1991 memo, Lawrence Summers, the World Bank's Chief Economist, suggested that it makes "economic sense" to shift polluting industries in advanced countries to the Third World. Ghana, under structural adjustment by the IMF and the World Bank, more than doubled timber cutting between 1984 and 1987. This reduced forest cover to 25 percent of its original size. Soon, Ghana is expected to go from being a net exporter to a net importer of wood. And it is predicted that by the year 2000, Ghana could well be completely stripped of trees.
As Mao Tsetung said, "Where there is oppression, there is resistance." And there is a long history of mass protest and resistance against the IMF and World Bank.
In Venezuela in 1989, at least 250 people died in three days of street protests against the IMF. That year, what have come to be called "IMF riots" also erupted in Argentina, Peru, Jordan, Egypt, Zambia and the Dominican Republic.
In 1994, the World Bank and the IMF imposed a currency devaluation on 14 West African countries. About 80 million people woke up one morning to find that basic goods had doubled in price. Protests and "IMF riots" broke out in Senegal.
In 1985, the World Bank lent India $450 million to build a giant dam along the Narmada River that would uproot 200,000 people and harm hundreds of thousands more. People were evicted, put in temporary shacks on unfarmable land. In October 1992, the Bank Board voted to continue funding. Mass protests broke out. There was bitter resistance from thousands of people who vowed not to move from their homes. A study by the Bank warned that opposition to the dam was so strong that the authorities would have to use "unacceptable means" to get the dam built. Six months later, the World Bank was forced to withdraw its support of the project.
IMF and World Bank loans don't improve the quality of life for people in the Third World. The Rainforest Action Network put it this way: "Staggering levels of Bank debt impoverish countries already poor. The gulf between a privileged few and those clinging to survival has widened. And, nearly everywhere, the seething unrest and desperation of displaced millions are increasingly beyond the containment of urban shantytowns."
The World Bank and the IMF are tools of imperialist domination that intensify poverty, environmental destruction, and economic dependency in the Third World. Despite their rhetoric and promises, these imperialist institutions have greatly contributed to the growing gap between rich and poor countries over the last several decades. Fifty years is more than enough!
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