The general public holds the vague idea that the World Bank (WB) and the International Monetary Fund (IMF) are forces for good, helping Third World countries with loans and other assistance to improve their economies. But, the truth is that the World Bank, and the IMF are the prime causes of increased poverty and suffering around the globe.
First, we’ll focus on the IMF, the front line enforcer of World Bank policies in the so-called “underdeveloped” countries, which, in reality are neither “underdeveloped” nor “developing.” Rather, these countries have been systematically overexploited and mal-developed by global corporations and financial speculators with the help of the World Bank and the IMF.
The official story line
The International Monetary Fund (IMF) and the World Bank were established at the United Nations Monetary and Financial Conference, held at Bretton Woods, New Hampshire, on July 1-22, 1944. They were created to oversee stability in international monetary affairs and to facilitate the expansion of world trade. Both are specialized agencies of the United Nations. The World Bank was given domain over long-term financing for nations in need, while the IMF’s mission was to monitor exchange rates, provide short-term financing for balance of payments adjustments, provide a forum for discussion about international monetary concerns, and give technical assistance to member countries.
That’s the official story. The real story is that the World Bank and the IMF were designed to benefit bankers and financial speculators in a handful of rich countries. Award-winning journalist, Johann Hari offers a scathing expose of how the IMF, the frontline enforcer of this terrible duo, really works.
Some people call the IMF “inconsistent”, because the institution supports huge state-funded bank bailouts in the rich world, while demanding an end to almost all state funding in the poor world. But that’s only an inconsistency if you are thinking about the realm of intellectual ideas, rather than raw economic interests. In every situation, the IMF does what will get more money to bankers and speculators. If rich governments will hand banks money for nothing in “bailouts”, great. If poor countries can be forced to hand banks money in extortionate “repayments”, great. It’s absolutely consistent.
How the IMF caused starvation in Malawi
As an example, Johann Hari tells the story of the Southeastern African country of Malawi, which, during the 1990s, was facing severe economic problems due to a terrible HIV-AIDS epidemic and a horrific dictatorship. Desperate, they asked the IMF for help. True to its approach with every country, the IMF demanded the imposition of “structural adjustment programs” or “SAPs.”
Saps are the IMFs usual first step, in which countries are required to sell off everything publically owned to private companies and speculators. Then, they are required to stop all government subsidies to its citizens. In Malawi’s case, the IMF demanded a stop to fertilizer subsidies even though those subsidies made it possible for farmers, who made up most of the population, to grow food in the country’s depleted soil. The IMF required that the country’s money be used to repay international bankers rather than help the Malawian people.
In 2001, when the IMF discovered the Malawian government had built up large stockpiles of grain in case of a crop failure, it ordered them sold off to private companies so that the proceeds could be used to pay off an IMF recommended loan from a large bank—one that carried a 56% annual rate of interest.
The next year, the crops failed and at least a thousand Malawians starved to death. During this time, the IMF suspended $47 million in aid because the government was not enacting the free market adjustments fast enough.
In 2005, in the height of the starvation and economic wreckage caused by the IMF, Malawi ignored IMF demands and brought back fertilizer subsidies, along with a range of other services to ordinary people. As a result, during 2007/08, Malawi was not only able to feed its population, but it began to supply food aid to neighboring Uganda and Zimbabwe. For more information see the 2007 New York Times article “Ending famine simply by ignoring the Experts”
This story about Malawi is only one of many, many stories demonstrating how damaging IMF policies have been to poor countries. From Johann Hari:
Look at some of the organisation’s greatest hits. In Kenya, the IMF insisted the government introduce fees to see the doctor – so the number of women seeking help or advice on STDs fell by 65 percent, in one of the countries worst affected by AIDS in the world. In Ghana, the IMF insisted the government introduce fees for going to school – and the number of rural families who could afford to send their kids crashed by two-thirds. In Zambia, the IMF insisted they slash health spending – and the number of babies who died doubled. Amazingly enough, it turns out that shoveling your country’s money to foreign bankers, rather than your own people, isn’t a great development strategy.
The World Bank model for creatiing wealth for global corporations and financial speculators
Joseph Stiglitz, Nobel Prize winner and former World Bank chief economist, was fired from the Bank in 1999 for questioning WB/IMF policies. In an interview with award-winning author Greg Palast, he outlines the four steps of the World Bank’s bank-friendly “Country Assistance Strategy.” The purpose of the IMF is to enforce this four-step program.
- Step One: Privatization of public resources
Stiglitz says this could more accurately be called “Briberization.” In return for development loans, national leaders are required to sell off their electricity and water companies “with the promise of 10% commissions paid to their Swiss bank accounts if they are able to shave a few billion off the sale price of national assets.”
- Step Two: Market Deregulation
Capital market deregulation starts what Stiglitz calls the “Hot Money” cycle. “Cash comes in for speculation in real estate and currency, then flees at the first sign of trouble, which drains a nation’s reserves in days, hours.” Then, to seduce speculators into returning the nation’s own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%. The higher interest rates demolish property values, savage industrial production and drain national treasuries.
- Step Three: Elimination of subsidies to citizens
To further squeeze the nations, subsidies are eliminated and prices are raised on food, water and cooking gas, which leads to what Stiglitz calls “the IMF riot.” The IMF riot—peaceful demonstrations dispersed by bullets, tanks and teargas— causes new panicked flights of capital, which can trigger government bankruptcies. According to Palast: “This economic arson has it’s bright side—for foreign corporations, who can then pick off remaining assets, such as the odd mining concession or port, at fire sale prices. A pattern emerges. There are lots of losers in this system but one clear winner: Western banks and the US Treasury, making the big bucks off this crazy new international capital churn.”
It’s important to mention here that the US Treasury owns 51% of the World Bank.
- Step Four: Imposition of Free Trade Agreements
The World Bank and the IMF demand free trade arrangements according to the rules of the World Trade Organization (WTO). The WTO backs European and American corporations who demand access to Asia, Latin America and Africa with the use military actions or blockades to force open markets for favorable trade relationships. The World Bank can also order a financial blockade, which can be just as effective—and sometimes just as deadly.
What Johann Hari, Greg Palast and Joseph Stiglitz reveal is that the IMF, the World Bank and WTO are interchangeable arms of a single system that, contrary to its deceptive PR, exists to enrich the few. Together these institutions have caused the deepening impoverishment and suffering of Third World nations around the globe. According to Joseph Stiglitz:
When the IMF arrives in a country, they are interested in only one thing. How do we make sure the banks and financial institutions are paid?… It is the IMF that keeps the [financial] speculators in business. They’re not interested in development, or what helps a country to get out of poverty.
But the chickens have come home to roost. The corporate and bank owned governments of Western industrialized countries, including our own, are now using the same tactics and austerity measures with devastating consequences to their ordinary citizens. The same four steps—Privatization, Deregulation, Gutting of social services, and Free Market trade agreements—supported by corporate owned Democrats and Republicans, are destroying working and middle class families here in the United States.