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IMF/WB Info Pamphlet |
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by yves engler
Email: yvesengler (nospam) hotmail.com (unverified!) |
24 Aug 2001
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A brief analysis of IMF/WB |
At the end of September the International Monetary Fund(IMF) and World Bank(WB) are holding their bi-annual meetings in Washington D.C, greeting the delegates will be one of the largest demonstrations the US has seen since the Vietnam War. In the spirit of this mass mobilization against the IMF/WB and corporate globalization, popular education campaigns are under way around the globe. This pamphlet attempts to provide the framework for a critical understanding of the IMF/WB.
HISTORY OF IMF/WB
The IMF/WB were created in 1944. The IMF for the purpose of maintaining the standard of fixed exchange rates that was established at the end of WWII. Since the abandonment of the gold standard in 1971, the IMF has adopted a new core mission, providing loans to economically troubled countries.
Countries with balance of payment difficulties-meaning their earnings from imports and other sources are insufficient to pay off their foreign debts-turn to the IMF for two reasons. First, the IMF provides loans to cover immediate obligations to foreign creditors. Second, private lenders and other public lenders such as the WB, generally will not lend to troubled economies unless they have a loan agreement with the IMF.
Thus the IMF plays a \"gatekeeper\" role: If you are a poor, indebted country, you can\'t get access to foreign credit unless you have a deal with the IMF. Agreements with the IMF typically require countries to adopt \"structural adjustment\" policies as the condition for a loan.
The WB initially was created to help with European postwar reconstruction. Starting in the 1980\'s, and while continuing to do project lending, the WB began shifting its loans toward structural adjustment and sectoral adjustment loans. About two-thirds of the WB\'s lending now goes for structural adjustment and sectoral adjustment.
ACCUMULATION OF DEBT
It was actually the swift and arbitrary increase of the interest rates on the U.S. dollar in the 1980\'s and the decrease of basic commodity prices- a fundamental source of revenue for developing countries that created the debt crisis in the first place. Moreover much of the debt that was accumulated by these impoverished nations was funneled by corrupt dictators for their self serving benefit, such as Marcos in the Phillipines, it is therefore odious and should not have to be repaid. However the debt continues to feed on itself in a vicious circle whereby money is borrowed to pay interest on old debt.
DEBT
IMF and World Bank policies have forced poor countries to make foreign debt service a higher priority than basic human needs. The World Bank claims that it is \"sustainable\" for countries like Mozambique to pay a quarter of their export earnings on debt service. Yet after World War II, Germany was not required to pay more than 3.5 percent of its export earnings on debt service. Poor countries today need a ceiling on debt service similar to the one Germany had. According to U.N. statistics, if Mozambique were allowed to spend half of the money on healthcare and education that it is now spending on debt service, it would save the lives of 100,000 children per year.
STRUCTURAL ADJUSTMENT
Structural adjustment is a policy package in line with what is often called \"neoliberalism,\" a far-reaching version of the free trade agenda. The central goals of structural adjustment are to open up countries to having transnational corporations get access to their workers and natural resources, shrink the size and role of government, rely on market forces to distribute resources and services, and integrate poor countries into the global economy.
Key structural adjustment policies include: privatizing government-owned enterprises and government-provided services, slashing government spending, orienting economies to promote exports, liberalizing trade and investment rules, raising interest rates, increasing taxes, and eliminating subsidies on consumer items such as food, fuel, and medicines.
ENVIRONMENT
IMF policies encourage and frequently require the lowering of environmental standards and the reckless exploitation of natural resources in debtor countries. The export of natural resources to earn hard currency to pay foreign debts under IMF mandates damages the environment while providing no benefit to poor and working people in debtor countries.
The now infamous memo that follows is an example of the perverse environmental logic of the IMF/WB.
The memo from which the following was excerpted was written by Treasury Secretary Lawrence Summers, who was then chief economist at the World Bank.
December 12, 1991
Dirty Industries: Just between you and me, shouldn\'t the World Bank be encouraging MORE migration of the dirty industries to the LDC;s [Less developed Nations]?
1) The measurements of the costs of health impairing pollution depends on the foregone earnings from increased morbidity and morality. From this point of view a given amount of health impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.
2) The costs of pollution are likely to be non-linear as the initial increments of pollution probably have very low cost. I\'ve always thought that under-populated countries in Africa are vastly UNDER-polluted, their air quality is probably vastly inefficiently low[sic] compared to Los Angeles or Mexico City. Only the lamentable facts that so much pollution is generated by non-tradable industries (transport, electrical generation) and that the unit transport costs of solid waste are so high prevent world welfare enhancing trade in air pollution and waste.
DEMOCRACY
IMF policies that affect the lives of a billion people are negotiated in secret, with key conditions not released to the public. The people who bear the burden of these policies often do not even have access to the agreements that have been negotiated.
The very logic and framework of structural adjustment policies require the repression of democratic rights. This is because these policies demand drastic fiscal, monetary, and economic measures which cannot help but raise very strong reactions from the public. And such reactions have to be repressed. This is a joint production of the international finance community with the cooperation of local elites as well as leaders in our own country. The majority of people are shut out of the negotiations.
HOW THE IMF/WB EFFECT CANADA
IMF policies that attack labour standards, the environment and social services in developing nations, have a ripple effect in Canada. Countries around the world are increasingly under pressure from international capital and trans-national corporations to reduce labour costs, environmental codes and government services, resulting in a \"race to the bottom\". In the \"race to the bottom\", Canadian workers, health care, education and other social services as well as the environment are subjected to the desires of international capital and transnational corporations.
A more direct example of the effects of IMF policies on Canada was attained, through the access to information act, when a document titled \"secret\" was sent by the IMF to Paul Martin. The 1994 document begins with advice \"to consolidate the federal fiscal position by ... cutting government spending... It is critical that fiscal policy take the lead.\" (IMF 1994:1) In the subsequent 1995 budget, Martin slashed health care spending, unemployment insurance and education spending by close to 30 billion dollars.
IMF BAILOUTS DEEPEN ECONOMIC CRISIS
During financial crises, such as with Mexico in 1995 and South Korea, Indonesia, Thailand, Brazil, and Russia in 1997, the IMF stepped in as the lender of last resort to \"bail out\" countries with huge loan packages. Yet the IMF Bailouts in the Asian financial crisis did not stop the financial panic—instead, the crisis deepened and spread to more countries. The policies imposed as conditions of these loans were bad medicine, causing layoffs in the short run and undermining development in the long run. In South Korea, the IMF sparked a recession by raising interest rates and lowering the currency, resulting in more bankruptcies, increased unemployment, and government spending cuts. Under the IMF-imposed economic reforms after the peso bailout in 1995, the number of Mexicans living in extreme poverty increased more than 50% and the national average minimum wage fell 20%.
WHO BENEFITS FROM THE IMF/WB?
For an understanding of IMF/WB policies it is critical to understand supply side economics or \"Reaganomics\" as some have termed it. The basic assumption is that giving MORE power to capital and international finance is what benefits the economy. Supply side dogma presupposes that RICH people having lots of money to \"invest\" is better for the economy than workers and government having money to spend to create DEMAND. This flies in the face of the economic orthodoxy of the post WWII period, which happens to be the most prosperous time for wage workers. Supply side economics should really be understood as the new P.R. tool for wealthy financial interests with the IMF/WB being the institutions that force this economic model on developing nations, for the benefit of wealthy interests throughout the world but mainly in the north.
A direct example of the way the IMF aids wealthy investors is through their bailouts. IMF money which is funded through Canadian and other countries tax dollars is used to pay wealthy investors who have made risky investments. Wealthy creditors receive exorbitant interest rates based upon the high level of investment risk, however if their debt cannot be repaid by the impoverished nation, the IMF with our tax dollars makes sure wealthy investors receive their money. Therefore these wealthy creditors receive exorbitant interest rates for little or no risk at all.
GLOBAL MOVEMENT
A common myth running through the media is that the people\'s of developing nations are supporters of \"capitalist globalization\". However this myth does not hold up to scrutiny. Over the past 10 years many mass mobilizations have sprung up throughout the developing world attacking the IMF/WB and other institutions of \"capitalist globalization\"
Recent Protests.
In Papua New Guinea on June 26th 2001 3 students were killed demonstrating against an IMF imposed structural adjustment
A General strike of over 7 million people on July 20th rattled Argentina where an IMF structural adjustment was to bring cuts to pensions, government workers salaries and a host of other social services.
WHAT YOU CAN DO?
The World Bank draws 80% of its money through bonds bought on the market. A campaign is now under way to boycott WB bonds. Enlist your church, union, university or city government in this campaign to boycott World Bank bonds www.worldbankboycott.org
Join the massive protest taking place in Washington D.C. between Sept 28-30th. calling for the dismantling of the IMF and immediate reforms to the WB. Contact the U-C IMC for information on traveling to DC.
Connect with the Jubilee 2000 debt reduction campaign spearheaded by the Catholic church encompassing a wide range of social justice groups.
Educate yourself and friends on the destructive effects of these institutions. |
See also:
http://www.indymedia.org/front.php3?article_id=60153&group=webcast
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