At the end of the night just off Sunset Blvd., near to Hollywood & Vine, I headed back home to sle [ ... ]+ Read More
Everytime the summit draws closer, the protests will be an increasingly popular subject for conversation. At dinner parties and in bars across town, everybody is going to have an opinion. Unfortunately, due to the complexity of the issues and the deluge of propaganda we are subjected to, many of these opinions will be ignorant.
So, in the time left before the next protests, Think will be running educational pieces - call it counter propaganda if you want - about the IMF and the World Bank. The purpose of these pieces will be to outline the basic history and function of the institutions and dispel some myths about them - as well as about the protestors.
WHAT EXACTLY IS THE WORLD BANK/IMF ANYWAY?
The International Monetary Fund and the World Bank were both created in 1944 and represent the heart of the postwar financial system as crafted by the US Treasury. In 1944 Europe was in ruins, and the US was in the unique position of being able to construct a "new world order."
The IMF and the World Bank were designed to ensure that capital was available for European reconstruction, and acted as an insurance policy for American investors and speculators. When Europe recovered, the richest European countries assumed leadership roles in both institutions.
Now, the IMF "rescues" "developed" economies such as Korea, Russia and Mexico, while the World Bank concentrates on "developing" the Third World. They offer "rescue packages" to stabilize currencies and prop up failing banks and low interest loans to cash starved nations trying to build infrastructure.
WHO CONTROLS THEM?
Power in the IMF and World Bank is determined by wealth. Unlike the UN, where each member has an equal vote, voting power at the IMF/World Bank is determined by the level of financial contribution. The US holds about 17% of the vote and has the dominant voice as well as an effective veto. Developing countries, who are influenced most by the decisions made within, have very little power in these institutions.
MAKE LOVE, NOT LOANS
The problem with these low interest loans is that they come with heavy strings attached. For states to qualify for IMF/World Bank financing, they must agree to a series of "conditions. " These conditions vary from country to country, but generally involve prying open the economy to foreign (i. e., western) competition. Often this competition devastates national industries in the early stages of development.
(Despite the Free Trade mantra of the US and the UK, both countries developed under very high protectionist barriers; when they say countries will suffer by protecting their industries from competition they are lying.)
"Conditions" also involve making the investment climate as appealing as possible for western firms. Environmental regulation is weakened, capital controls are taken apart, and public spending is slashed in the name of "macroeconomic stability. " Enforcement of these conditions is referred to as "structural adjustment. " They ensure a "healthy investment climate" but often have brutal consequences for the majority of the population.
BUT THESE COUNTRIES AREN'T FORCED TO TAKE OUT LOANS
First of all, when we speak of "countries" we have to remember who we are talking about. There will always be an elite benefiting from IMF/World Bank loans happy to inflict suffering on their people for private gain. The fact is that most of the debt held by the Third World was taken out during the 70s and 80s by tyrants not responsible to their public.
This is why Indonesians riot when the IMF tells them they must "tighten their belts" to pay off the debt incurred by the Suharto dictatorship currently sitting in Swiss banks. Loans are often met with riots in countries when their conditions are revealed, or public services cut to pay back wealthy western banks. The Center-Right wing government in Romania last week reluctantly buckled under IMF pressure to put a cap on public sector wages to get a loan; the result was militant mass protest and the government was forced to back out of the deal.
DOESN'T THE MONEY RECYCLE THROUGH THE DOMESTIC ECONOMIES OF POOR COUNTRIES, THUS HELPING THEM IN THE LONG RUN?
No. At least not in any way that effects the bulk of the population. IMF loans bail out wealthy foreign investors and private banks, while World Bank financing typically pays for materials and consulting services provided by Northern countries. US Treasury Department officials calculate that for every $1 the US contributes to international development banks, US exporters win more than $2 in bank-financed procurement contracts.
By "developing" export sectors such as agribusiness and mining, these institutions act as vacuums for natural wealth. Since the 1980s, there has been an outflow of natural wealth from the developing world, which has paid out five times as much capital to rich countries as it has received. These countries are left with massive debt, environmental ruin, and a very small and very rich elite who pass the debt buck on the poor. Small scale, less expensive projects on a community scale that would benefit the poor are not profitable, and thus bypassed by the World Bank.
IF IT ISN'T WORKING, WHY DON'T THEY STOP?
As far as the people running the show are concerned, the system is working just fine. And even in instances such as Russia where the stakes are high and the failure apparent to all, World Bank/IMF economists seem incapable of changing strategy. This is because they are ideologues, more so than any Marxist alive today. They are steeped in neoclassical economic theory and hold orthodox free-market views about the world. Because they are unaccountable to outsiders, they have little incentive to modify their views. Because they are ideologues, they are impervious to logic, reason, or compassion.
WHY SHOULD I CARE?
Because these people are seriously f*cking up your world. In the blind pursuit of GNP "growth" they are financing the destruction of rainforests and throwing millions of people into poverty. Instability on the scale being wreaked by the IMF/World Bank system will inevitably effect you, one way or another. Either through ecological catastrophe or widespread economic/social unrest. You can only keep your head buried in the sand for so long.