The World Bank and the International Monetary Fund play an obnoxious role in world economy, and an intrusive one in politics. This is a brief post to explain where they came from, how they function, and why many see them as a direct threat to the independence and the progress of the poorer nations.
I’m not the expert by any means, I just took the time to look into it. That, and I was offered a helping hand from my Mancunian friend Lizzie Walmsley.
Both the World Bank as well as the IMF were founded at the Bretton Woods Conference in 1944 with the intention of stabilizing the world economy and offering money and help to the countries that need it, in the form of loans. Many argue that the organizations’ intentions were largely genuine to develop poorer countries in particular, and help the world economy in general.
In order for a country to join the World Bank, it needs to gain shares and therefore become a shareholder with a corresponding vote on decisions made. More importantly, you need to join and be accepted by the IMF. So even though they are separate entities, they practically function as one. It’s an unwritten agreement to avoid disagreement.
Up until 1967 the World Bank wasn’t easy on handing out loans – there was a bit of a rigid system that really limited the flow. After that, however, it started taking the form that we know of today; easy loans, but with strings attached. That is when fit really started to hit the shan.
There are 187 members who are shareholders. The voting right is equal to the share, which could be understood. However, you can’t actually just decide to increase your share – each country is allocated how much of a say it gets depending on its economic size.
As you’d expect, the US alone has over 15% of the shares, which is practically a veto. If the US votes against a decision, so do many of its ‘friends’ and it is almost impossible for the vote to pass. Japan has 6.8%, followed by China, who for the longest time was overlooked, but recently managed to prove it’s worth its current 4.4%.
If that’s not enough, the World Bank’s president is always an American, ‘recommended’ by the White House. In contrast, the IMF’s presidency is always granted to a European. So the US government dictates who will become the World Bank’s president, while at the same time holding the biggest share and vote.
Looking back at each of the World Bank’s presidents, you will find that there is almost always a clear conflict of interest. And the US government is well aware of that and in fact makes the appointment accordingly. In 1968, Robert McNamara become president of the World Bank and remained at the post for 13 years.
McNamara is a perfect example of the corruption plaguing the institutions; he was a World War II officer who was hired as a Business Executive at Ford and worked his way up until he became the first president from outside the Ford family in 1960. Weeks later, he was appointed as the Secretary of Defense in the Kennedy administration. During his 8 years at the White House, McNamara was the man behind many of the strategic decisions in regards to the Cuban Missile Crises and the Vietnam War.
Sure enough, McNamara become the president of the World Bank from 1968 all the way to 1981. During his time he refused to offer loans to countries that were not considered allies by the US, like Iran, and in fact focused the loans on military dictatorships that did not represent the people. Examples include Argentina, Chile and the Philippines – the officials made a significant cut, and the people were left to bail the country out of its loan.
Political Economist Susan George explains the World Bank, the IMF and the WTO:
Here is an excerpt from an interview with Noam Chomsky in which he explains the function of the IMF, in relation to the World Bank, eloquently, as always:
The IMF is not the World Bank, but it’s closely related. The IMF’s former U.S. executive director Karin Lissakers accurately described the Fund as the credit community’s enforcer. The IMF is very anti-capitalist. For example, suppose I lend you money. And I know that you’re a risky borrower, so I insist on a high-interest rate. Now, suppose that you can’t pay me back. In a capitalist system, it’s my problem. I made a risky loan. I got a lot of profit from the interest. You defaulted. It’s my problem.
That’s now what the IMF is about. What the IMF is saying, to put it in personal terms, is that your friends and neighbors have to pay off the loan. They didn’t borrow the money, but they have to pay it back. And my friends and neighbors have to pay me to make sure that I don’t lose any money. That’s essentially what the IMF is.
He went on to mention how Argentina, under military dictatorship, took loans and eventually defaulted. As a result, the loans were repaid by the workers and peasants.
Perhaps not all programs are harmful to the citizens of the governments that take them on. It could be argued that the World Bank, together with the IMF, has chipped in with its fair of achievements. Overall, however, the grass is not so green.
The main issue is the contradicting function of the World Bank and the IMF. On the one hand, their job is a political one, where they are responsible for funding projects and policies’ implementation to help reduce poverty worldwide. On the other, however, they represent money from the different countries that are looking to give out loans and benefit from the interest. Further corruption aside, this formula is bound to fail – banks will always look for their own interest, and it won’t matter who pays them.
Another problem is what could be seen like a bit of an orientalist approach to initiating projects. When a loan is pitched out, the conditions applied do not take into account the local needs and tend to be a recipe for failure. It is like success is measured by how the West would rate it.
Moreover, the idea of a loan for a development project is to eventually deem itself useless. In other words, a successful project is one that becomes sustainable for the country and allows them to pay back the loan, and move forward independently from there. Naturally, however, if poorer countries refrain from taking loans, that would defeat the purpose behind making profit out of loan interests. Ultimately, decision-making banks will want the clients coming back and asking for more loans.
Interestingly, in response to the Volcker report (pdf) which aimed at shedding light at corruption issues plaguing the organizations’ programs, World Bank president Robert Zoellic admitted:
The Volcker report makes clear the serious challenges ahead in overcoming the cancer of corruption in operations supported by the Bank, and it offers constructive recommendations. Now it will be up to all of us to move forward, as part of our on-going commitment to address this vital issue.
They’re not even trying to hide it.
But why would countries put up with this injustice? First of all, the majority of poor countries who suffer the most from the World Bank and the IMF are actually under dictatorships. Therefore, the decision makers in fact look at the cash they’ll slip in their pockets, and not what the rest of the country will have to repay. More importantly, being left out of the World Trade Organization would seriously hinder any country’s chances of growth.
The WTO put together the 10 ‘benefits’ of being a member. If you read between the lines, you’ll see how it’s a nice and dandy way of saying: privatization of as much as possible, and the reduction of production costs on the large corporations (regardless of environmental damage and exploitation of labor). Despite the harm, abstaining would backfire more than giving in. In essence, you’re left with no choice but to take part.
Not only that, but even if a country’s economy grows, the percentage of the poor rises. And in fact, in most cases, the World Bank and IMF leave the countries in ruins way worse than how they started.
The IMF imposes a “structural adjustment program” (SAP), requiring debtor countries to grant tax breaks to the transnational corporations, reduce wages, and make no attempt to protect local enterprises from foreign imports and foreign takeovers. The debtor nations are pressured to privatize their economies, selling at scandalously low prices their state-owned mines, railroads, and utilities to private corporations.
Some Examples – The Asian Economic Crisis
The following is an excerpt from the breath-taking documentary by Adam Curtis, All Watched Over by Machines of Loving Grace. This segment in particular takes does an impressive job of summarizing the IMF’s involvement in the Asian economic crisis.
The World Bank and the IMF are not entirely harmful, but for the vast majority of human beings across the globe, they cause a lot more harm than anything else. A lot more.
In fact, the only groups benefiting are a few bankers, corrupt politicians, and multi-national business owners. Everyone else, from regular consumers, to employees, and sustainable communities worldwide, pay the real cost.
This needs to stop. And doing so is not as hard as one might think. For starters, spreading awareness about these bad boys is rather straight-forward since the web is glowing with material on the issue in different forms. Building on that, citizens of real democracies should maintain pressure on their representatives to avoid taking part in this dirty game.
The Greek showed us inspirational courage that might have not paid off, but it has still applied notable pressure that would make the next ‘democratic’ government think twice before getting itself involved. Spain and Italy are next to find themselves in an economic crisis and will be pressured into asking for loans that will deepen their problems. However, I’m personally optimistic that their people will take the Greeks’ courage to the next level and succeed in preventing their governments in enforcing imperialism.
As for the rest of us, our fight for the revolution is not over, and our struggle continues. With victory we will become independent, and justice will prevail. Perhaps our governments are under the illusion that they can get away with just about anything, but little do they know that sooner or later, we, the people, will win.
While the imperialists enjoy watching their hidden bank accounts’ growing digits, we are holding out for the sheer enjoyment of the revolutionary last laugh.