part 3

[Follow Ups] [Post Followup] [Our Discussion Forum]

Posted by Sadie from D006033.N1.Vanderbilt.Edu ( on Wednesday, April 30, 2003 at 0:43AM :

In Reply to: part 2 posted by Sadie from D006033.N1.Vanderbilt.Edu ( on Wednesday, April 30, 2003 at 0:40AM :

These pillars of the postwar international financial order were conceived during the latter part of World War II at a conference of American, British, and European economists and civil servants held in Bretton Woods, New Hampshire, and dominated intellectually by John Maynard Keynes. The World Bank was originally intended to help finance the reconstruction of postwar Europe – a project that neither private capital nor shattered states could be expected to undertake. After the Marshall Plan made that purpose redundant, the Bank, looking for a raison d’ętre, began to concentrate on Asia, Africa, and Latin America, where it loaned money to poor governments, usually for specific projects. Today, the Bank has 9,700 employees, 184 member states, and lends nearly $20 billion a year. The founding purpose of the I.M.F. was to make short-term loans to stabilize currencies and the balance of payments, promote international economic cooperation, and prevent another Depression. It, too, has changed with the times. Now it makes long-term loans as well, functions almost entirely in the developing world, and, but interpreting its mandate to maintain international financial stability as broadly as possible, seeks to actively manage the economies of many poor countries. Because almost all significant aid and loans to poor countries hinge on the I.M.F.’s assessment of a nation’s financial soundness, the Fund has the leverage to dictate public policy in large areas of the globe. Power within the institutions was originally apportioned among governments according to their relative financial strength and contributions, which meant that the United States had the leading role from the start. Although the managing director of the I.M.F. is traditionally a European, the U.S. is the only country with an effective veto over I.M.F. actions. The president of the World Bank has always been an American. The Bank and the I.M.F. work together closely. They are the two most powerful financial institutions in the world.

During the Cold War, loans were often nakedly political. Anti-Communist dictators – in Uruguay, Ethiopia, the Philippines – were rewarded. Dictatorships in general were viewed as more reliable than democracies, and useful Communists, such as Ceausescu, in Romania, also became big clients. Even apartheid South Africa got loans from the World Bank. Robert McNamara, having presided over the Vietnam War, became president of the Bank in 1968. He aggressively expanded its operations, pushing poor countries to accept loans to build factories, highways, huge power projects, vast agro-industrial schemes. This development model had fundamental problems. By 1981, when McNamara retired, abandoned megaprojects littered the Third World, together with uprooted populations, ravaged forests and watersheds, countries no longer able to feed themselves, and an ocean of impossible debt.

Both the Bank and the I.M.F. passed through an ideological looking glass in the 1980s. They had been established and run on Keynesian principles – on assumptions that markets need state guidance, whether to stabilize currencies and prevent panics (I.M.F.) or to build infrastructure necessary for economic development (the Bank). But with the ascendance of Reaganite (and Thatcherite) free-market economics in the West – among their rich-country masters, that is – both institutions changed their operating philosophies (2). They began pushing policies laissez-faire – what became known as the Washington Consensus.

Unfortunately, they have had even less successes with the new philosophy. Financial panics and crises continue to roil the I.M.F.’s clients, from East Asia to Argentina. The idea that open markets and increased trade lead invariably to economic growth may be sound in theory, but it has repeatedly failed the reality test. A recent study found that I.M.F. programs have had, overall, a NEGATIVE effect on economic growth in participating countries. And the World Bank’s declared mission of reducing poverty has been a bust so far. More than a billion people are now living on less than one dollar a day – the figure in 1972 was 800 million – while nearly half the world’s population is living on less than two dollars a day. When Catherine Caufield began the reporting for her book on the World Bank, “Masters of Illusion,” she asked the Bank to direct her toward some of its most successful projects. The Bank’s press officers made repeated promises but produced no list. Finally, as Caufield was leaving for India, which happened to be the Bank’s largest client, they came up with the name of one project, the South Bassein Offshore Gas Development Project. Caufield could find no one in India who had heard of it. Later, she discovered that the project was a gas field in the Arabian Sea and was known in India by a different name. The Bank had loaned $772 million to the project and, because no villagers had needed to be resettled from the open sea, had managed to avoid controversy – this was apparently the successful part. The project had taken twice as long as expected to complete, and, according to Bank records, more than a third of the loan had ultimately been written off “due to misprocurement.”

Every generation of Bank officials has vowed to improve this record, to start funding projects that benefit not only big business and local elites but also the poor. And the Bank’s efforts to promote access to health care and education – projects undertaken with non-governmental organizations (NGOs) and other “civil society” groups – have increased. But many Bank contracts are worth millions, and multinational corporations remain their major beneficiaries. Testifying before Congress in 1995, Lawrence Summers, then of the Treasury Department (now president of Harvard), disclosed that American corporations received $1.35 in procurement contracts for each dollar the American government contributed to the World Bank and other multilateral development banks. This was an unusually candid admission by a leading Bank supporter that one of its main activities is, in fact, corporate welfare. Those donated American dollars come, after all, from ordinary American taxpayers – few of whom know anything about what the World Bank does.

The Bank does many things, of course, and employs many people who are undoubtedly devoted to the idea of reducing poverty. (So does the I.M.F.) It provides technical assistance to poor countries, some of it clearly useful, and even tolerates a degree of internal debate (3). But both the Bank and the I.M.F. are locked in unhealthy relationships with their client governments. Governments recognize, obviously, that their poverty is a precondition for the flow of aid, and, for the less scrupulous among them, this can turn the poor themselves into a valuable commodity, their pitifulness a resource not to be squandered through amelioration. On the donors’ side, lending is essential to the continued health of aid bureaucracies and the advancement of careers – not the best environment in which to make wise decisions. Then there is the merry-go-round of fiscal crises and bailouts, aboard which the Bank and the I.M.F. and rich-country bilateral lenders regularly make new loans to deeply indebted countries in order to avoid the embarrassment of non-performing loans. Because it helps condemn the world’s poor to a fate of permanent debt, the Bank’s self-description as a “pro-poor” development agency is at best self-deluding. (Bolivia, like many other countries, spends more on debt servicing than it spends on health care.) The Bank’s core constituencies remain the corporations and the poor-country bureaucrats and politicians whom it enriches.

-- Sadie
-- signature .

Follow Ups:

Post a Followup

E-Mail: ( default )
Optional Link ( default )
Optional Image Link ( default )

This board is powered by the Mr. Fong Device from