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WB/IMF Fact Sheet
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by Global Exchange
 

What is the World Bank?

Created at the Bretton Woods Conference in 1944, The World Bank Group is comprised of five agencies that make loans or guarantee credit to its 177 member countries. In addition to financing projects such as roads, power plants and schools, the Bank also makes loans to restructure a country's economic system by funding structural adjustment programs (SAPs). The Bank manages a loan portfolio totaling US$200 billion and last year loaned a record US$28.9 billion to over 80 countries.

What is the IMF?

Also created at the Bretton Woods Conference, the mission of the International Monetary Fund (IMF) is to supply member states with money to help them overcome short-term balance-of-payments difficulties. Such money is only made available, however, after the recipients have agreed to policy reforms in their economies-- in short, to implement a structural adjustment program.

Is structural adjustment working?

No. Structural adjustment has exacerbated poverty in most countries where it has been applied, contributing to the suffering of millions and causing widespread environmental degradation. And since the 1980s, adjustment has helped create a net outflow of wealth from the developing world, which has paid out five times as much capital to the industrialized countries of the North as it has received.

I know there are a lot of qualified people at the World Bank and IMF who are experts in economics and other fields. If structural adjustment doesn't work, then why are they promoting it?

The wealthy Northern countries which control the World Bank and IMF dictate the agendas of these institutions, and their interests are best served by defending the status quo. Furthermore, the Bank's staff is currently dominated by economists who have spent their careers defending the validity of neoclassical economics, the foundation of the World Bank model of development. This orthodox view holds sacred the efficiency of free markets and private producers and the benefits of international trade and competition. Given the lack of accountability to outside parties, there is little incentive for the Bank and IMF to alter the design of structural adjustment, even when faced with mounting evidence attesting to the failure of these programs.

I hear a lot about the debt crisis in the Third World and know that many of the loans are owed to commercial banks and Northern governments. People say that some or all of this debt should be canceled to give developing countries a chance to recover economically. Shouldn't they pay?

Much of this debt dates back to 1970s, when it was lent irresponsibly by commercial banks and borrowed recklessly by foreign governments, most of which were not popularly elected and which no longer hold power. The advent of the debt crisis, which occurred in the early 1980s due to a worldwide collapse in the prices of commodities that developing countries export (e.g., coffee, cocoa) and to rising oil prices and interest rates, forced these countries into a position where they were unable to make payments. Yet there's no such thing as bankruptcy protection for a country, regardless of the circumstances. When the U.S. department store Macy's filed for bankruptcy under chapter 11 in January 1992, it received instant protection from creditors and working capital to keep open. At the same time, when Russia told the West that it could not meet government had to wait for more than a year before the IMF provided financial help.

What is relationship the between debt and structural adjustment?

Since the 1980s the debt situation has steadily worsened, so that now the total debt of the developing world equals about one-half their combined GNP and nearly twice their total annual export earnings. Because of this crushing debt-service burden, foreign governments have virtually no bargaining power when negotiating a structural adjustment program and must accept any conditions imposed by the World Bank and the IMF. And SAPs themselves, by orienting economies toward generating foreign exchange, are designed to ensure that debtor countries continue to make debt payments, further enriching Northern creditors at the expense of domestic programs in the South.

How's the World Bank's record on responsible lending?

In 1992, an internal World bank review found that more than a third of all Bank loans did not meet the institution's own lending criteria and warned that the Bank had been overtaken by a dangerous "culture of approval." Bank officials, in other words, felt heavy pressure to push through new loans even when presented with overwhelming evidence that the project in question was ill advised.

Who makes decisions at the World Bank and IMF?

Decisions at the World Bank and IMF are made by a vote of the Board of Executive Directors, which represents member countries. Unlike the United Nations, where each member nation has an equal vote, voting power at the World Bank and IMF is determined by the level of a nation's financial contribution. Therefore, the United States has roughly 17% of the vote, with the seven largest industrialized countries (G-7) holding a total of 45%. Because of the scale of its contribution, the United States has always had a dominant voice and has at all times exercised an effective veto. At the same time, developing countries have relatively little power within the institution, which, through the programs and policies they decide to finance, have tremendous impact throughout local economies and societies. Furthermore, the President of the World Bank is by tradition an American, and the IMF President is a European.

How is it that U.S. business and other companies benefit from the lending programs at the World Bank?

Development projects undertaken with World Bank financing typically include money to pay for materials and consulting services provided by Northern countries. U.S. Treasury Department officials calculate that for every U.S.$1 the United States contributes to international development banks, U.S. exporters win more than U.S.$2 in bank-financed procurement contracts.

Why is this bad?

Given this self-interest, the Bank tends to finance bigger, more expensive projects--which almost always require the materials and technical expertise of Northern contractors--and ignores smaller-scale, locally appropriate alternatives. The mission of the World Bank to alleviate poverty, not provide business for U.S. contractors.

What are the IMF and World Bank?

    The IMF and World Bank have been empowered by the governments which control it (led by the U.S., the U.K., Japan, Germany, France, Canada, and Italy -- the "Group of 7," which holds over 40% of the votes on their boards) with imposing economic austerity policies in the countries of the so-called "Third World" or "global South." Once Southern countries build up large external debts, as most have, they cannot get credit or cash anywhere else and are forced to go to these international institutions and accept whatever conditions are demanded of them. None of the countries has emerged from their debt problems; indeed most countries now have much higher levels of debt than when they first accepted IMF/World Bank "assistance."

Structural Adjustment Programs (SAPs)

    The IMF/World Bank conditions -- "structural adjustment programs" -- force Southern countries to promote sweatshops, exports to rich countries, and high-return cash investment. The resulting increase in international commerce -- corporate globalization -- led to demands by corporations and investors for ways to lock in their privileges and protection against the perceived danger of governments seizing assets or imposing new regulations. The WTO was the answer to those demands, an institution whose secret tribunals can overrule national laws if they are found to violate the rights of corporations.

    The World Bank is best known for financing big projects like dams, roads, and power plants, supposedly designed to assist in economic development, but which have often been associated with monumental environmental devastation and social dislocation. In recent years, about half of its lending has gone to programs indistinguishable from the IMF's: austerity plans that "reform" economic policies by suffocating the poor and inviting corporate exploitation.

    Although the IMF finally got some of the criticism due it with the East Asian financial crisis (where it imposed austerity programs on South Korea, Indonesia, and Thailand), the two institutions continue to be the chosen tools of the political and business elites for ruling the global economy, and run, to one degree or another, about 90 Southern countries' economies. These countries are forced to adopt policies even more committed to deregulation and withdrawal of government from insuring public welfare than those in the U.S. Considering how impoverished many of these countries were to start with, the effects of these policies have been predictably devastating. The of "emerging market success stories" we sometimes read about generate wealth which goes to very small segments of the populations, and much of it ends up in the North. The great majority of the people of the South are enduring increased poverty, decreased access to basic services, and decreased control over their own economies.

SAPs Work for Corporations and Elites--Impoverish the Rest

    How--and why--do the structural adjustment programs that the IMF & World Bank impose create conditions that multinational corporations desire and that devastate most people in the Southern countries? A look at the most common SAP conditions show how economic "advice" is used to maintain the interests of the wealthy at the expense of continued suffering for the bulk of the people.

IMF / WORLD BANK CONDITION IMPACT ON ELITE
(Corporations, Investors, Wealthy)
IMPACT ON POOR
Cut Social Spending: Reduce expenditures on health, education, etc.

[IMF claims it is now making sure such spending goes up, but often it's to put in place systems to collect fees.]

More debts repaid, including to World Bank and IMF. Increased school fees force parents to pull children--usually girls--from school. Literacy rates go down.

Poorly-educated generation not equipped for skilled jobs

Higher fees for medical service mean less treatment, more suffering, needless deaths.

Women, already overburdened, must provide healthcare and caretaking for family members.

Shrink Government: Reduce budget expense by trimming payroll and programs. Fewer government employees means less capacity to monitor businesses' adherence to labor, environmental, and financial regulations

Frees up cash for debt service

Massive layoffs in countries where government is often the largest employer

Makes people desperate to work at any wage

Increase Interest Rates: to combat inflation, increase interest charged for credit and awarded to savings Investors find country a profitable place to park cash, though they may pull it out at any moment

Small farmers and businesses can't get capital to stay afloat.

Small farmers sell land, work as tenants or move to worse lands.

Businesses shut down, leaving workers unemployed

Eliminate Regulations on Foreign Ownership of Resources and Businesses

Multinational corporations can purchase or start enterprises easily

Countries compete for foreign investment by offering tax breaks, low wages, free trade zones

Once in the country, corporations can turn to WTO for enforcement of "rights"

Control of entire sectors of economy can shift to foreign hands

Governments offer implicit pledges not to enforce labor and environmental laws.

Eliminate Tariffs: Stop collecting taxes on imports; these taxes are often applied to goods which would compete with domestically-produced goods

Allows foreign goods easy access to domestic markets

Makes luxury items cheaper for those in the country

Allows country to comply with WTO agreements

Makes it harder for domestic producers to compete against better-equipped and richer foreign suppliers

Leads to closure of businesses and layoffs

Cut Subsidies for Basic Goods: Reduce government expenditures supporting reduced cost of bread, petroleum, etc. Frees up more money for debt payments Raises cost of items needed to survive

Most frequent flashpoint for civil unrest

Re-orient Economies from Subsistence to Exports: Give incentives for farmers to produce cash crops (coffee, cotton, etc.) for foreign markets rather than food for domestic ones; encourage manufacturing to focus on simple assembly (often clothing) for export rather than manufacturing for own country; encourage extraction of valuable mineral resources Produces hard currency to pay off more debts

Law of supply and demand pushes down price of commodities as more countries produce more, meaning guaranteed supply of low-cost products to export markets

Local competition eliminated for multinational corporations

Increased availability of low-cost labor

Law of supply and demand pushes down price of commodities as more countries produce more, meaning local producers often lose money

Best lands devoted to cash crops; poorer land used for food crops, leading to soil erosion

Food security threatened

Women often relegated to gathering all food for family while men work for cash

Makes country more dependent on imported food and manufactured goods

Forests and mineral resources (oil, copper, etc.) over-exploited, leading to environmental destruction and displacement

So Why Do Countries Agree to SAPs?

    SAPs are anti-democratic in more than one way. The institutions are correct in saying that the plans are formulated in part, and agreed to, by the governments. But the government officials involved are usually limited to the Finance Ministry and the Central Bank, usually among the most conservative, Northern-educated, and wealthy members of the government -- in other words, those most likely to agree with IMF economics and benefit from the policies. In many cases even they feel coerced into going along with IMF/World Bank demands. If they don't cooperate, the consequence can be a complete cut-off of credit because other lenders follow the lead of these institutions.

    With such unpopular policies, it is the rare government that can "sell" structural adjustment to its people, especially after 20 years of similar failed policies. The slogan "short-term pain for long-term gain" sounds hollow when people have heard it for a whole generation. SAPs encourage instability in democratic countries by forcing elected governments to institute measures which make them illegitimate among their people. It has been argued that the IMF prefers dictatorships to democratic governments, because dictators can more successfully impose SAPs. And once the rules are in place the WTO extends the attack on democracy by overruling any regulations that corporations claim interfere with their right to profits.

    The fact that institutions based in Washington and largely controlled by the U.S. Treasury Department have been starving peoples around the world for two decades is a scandal. That people in the U.S. are barely aware of the fact is a disgrace.

http://www.globalexchange.org/campaigns/wbimf/faq.html