Global Poverty and Macro-Economic Reform

excerpted from the book

The Globalization of Poverty and the New World Order

by Michel Chossudovsky

Global Research, 2003, paperback [first edition 1997]

p17
Since the early 1980s, the "macro-economic stabilization" and structural adjustment programs imposed by the IMF and the World Bank on developing countries (as a condition for the renegotiation of their external debt) have led to the impoverishment of hundreds of millions of people. Contrary to the spirit of the Bretton Woods agreement, which was predicated on "economic reconstruction", and the stability of major exchange rated the structural adjustment program has contributed largely to destabilizing national currencies and ruining the economies of developing countries.

Internal purchasing power has collapsed, famines have erupted, health clinics and schools have been closed down and hundreds of millions of children have been denied the right to primary education. In several regions of the developing world, the reforms have been conducive to a resurgence of infectious diseases including tuberculosis, malaria and cholera.

p17
Internal purchasing power has collapsed, famines have erupted, health clinics and schools have been closed down and hundreds of millions of children have been denied the right to primary education. In several regions of the developing world, the reforms have been conducive to a resurgence of infectious diseases including tuberculosis, malaria and cholera.

p17
In the wake of the Cold War, macro-economic restructuring has supported global geopolitical interests including US foreign policy... the structural adjustment program has, since the 1990s, been applied also in the developed countries.

... Monetarism is applied on a world scale and the process of global economic restructuring strikes also at the very heart of the rich countries. The consequences are unemployment, low wages and the marginalization of large sectors of the population. Social expenditures are curtailed and many of the achievements of the welfare state are repealed.

p19
Under IMF jurisdiction, the same "menu" of budgetary austerity, devaluation, trade liberalization and privatization is applied simultaneously in more than 150 indebted countries... A "parallel government", which bypasses civil society, is established by the international financial institutions (IFIs). Countries which do not conform to the IMF's "performance targets" are blacklisted.

... the structural adjustment program requires the strengthening of the internal security apparatus and the military intelligence apparatus: political repression - with the collusion of the Third World elites - supports a parallel process of "economic repression".

... Structural adjustment promotes bogus institutions and a fake parliamentary democracy which, in turn, supports the process of economic restructuring.

p20
Structural adjustment programs affect directly the livelihood of more than four billion people. The application of the structural adjustment program in a large number of individual debtor countries favors the internationalization of macroeconomic policy under the direct control of the IMF and the World Bank acting on behalf of powerful financial and political interests (e.g. the Paris and London Clubs, the G7).

p20
The Washington-based international bureaucracy has been entrusted by international creditors and multinational corporations with the execution of a global economic design, which affects the livelihood of more than 80 percent of the world's population.

... The restructuring of the world economy, under the guidance of the Washington-based financial institutions, increasingly denies individual developing countries the possibility of building a national economy: the internationalization of macro-economic policy transforms countries into open economic territories and national economies into "reserves" of cheap labor and natural resources.

p21
The rich countries (with some 15 percent of the world population) control close to 80 percent of total world income.

p21
In Peru - in the aftermath of the IMF-World Bank sponsored Fujishock implemented by President Alberto Fujimori in August 1990 - fuel prices increased 31 times overnight, whereas the price of bread increased 12 times. The real minimum wage had declined by more than 90 percent (in relation to its level in the mid-1970s).

p23
[The] global market system is characterized by a duality in the structure of wages and labor costs between rich and poor countries. Whereas prices are unified and brought up to world levels, wages (and labor costs) in the Third World and Eastern Europe are as much as 70 times lower than in the OECD countries.

p24
The inauguration of the World Trade Organization (WTO) in 1995 marked a new phase in the evolution of the post war economic system. Anew triangular division of authority among the IMF, the World Bank and the WTO has unfolded.

... The deregulation of trade under WTO rules, combined with new clauses pertaining to intellectual property rights, enable multinational corporations to penetrate local markets and extend their control over virtually all areas of national manufacturing, agriculture and the service economy.

p24
The Articles of Agreement the WTO provide what some observers have entitled a "charter of rights for multinational corporations" derogating the ability of national societies to regulate their national economies threatening national level social programs, job creation policies, affirmative action and community based initiatives. The WTO articles threaten to lead to the disempowerment of national societies as it hands over extensive powers to global corporations.

p25
The process of actual creation of the WTO ... is blatantly illegal. Namely, a totalitarian intergovernmental body has been casually installed in Geneva, empowered under international law with the mandate to police country-level economic and social policies, derogating the sovereign rights of national governments.

p25
The articles of the WTO are not only in contradiction with pre-existing national and international laws; they are also at variance with "The Universal Declaration of Human Rights". Acceptance of the WTO as a legitimate organization is tantamount to an "indefinite moratorium" or repeal of the Universal Declaration of Human Rights.

... WTO rules provide legitimacy to trade practices which border on criminality, including: "intellectual piracy" by multinational corporations; the derogation of plant breeders rights - not to mention genetic manipulation by the biotechnology giants, and the patenting of life forms including plants, animals, micro-organisms, genetic material and human life forms under the TRIPs agreement.

p26
Under WTO rules, the banks and multinational corporations (MNCs) can legitimately manipulate market forces to their advantage leading to the outright re-colonization of national economies. The WTO articles provide legitimacy to global banks and MNCs in their quest to destabilize institutions, drive national producers into bankruptcy and ultimately take control entire countries.

p27
G7 governments and global institutions, including the IMF, the World Bank and the World Trade Organization casually deny the increasing levels of global poverty; social realities are concealed, official statistics are manipulated, and economic concepts are turned upside down.

p27
The dominant economic discourse has(also) reinforced its hold in academic and research institutions throughout the world. Critical analysis is strongly discouraged; social and economic reality is to be seen through a single set of fictitious economic relations, which serve the purpose of concealing the workings of the global economic system. Mainstream economic scholarship produces theory without facts ("pure theory") and facts without theory ("applied economics"). The dominant economic dogma admits neither dissent from nor discussion of its main theoretical paradigm: the universities' main function is to produce a generation of loyal and dependable economists who are incapable of unveiling the social foundations of the global market economy.

p27
Mainstream economic scholarship produces theory without facts ("pure theory") and facts without theory ("applied economics"). The dominant economic dogma admits neither dissent from nor discussion of its main theoretical paradigm: the universities' main function is to produce a generation of loyal and dependable economists who are incapable of unveiling the social foundations of the global market economy.

p28
The World Bank "estimates" that 18 percent of the Third World is "extremely poor" and 33 percent is "poor". In the World Bank's authoritative study on global poverty, the "upper poverty line" is arbitrarily set at a per capita income of US$ 1 a day corresponding to an annual per capita income of US$ 370 per annum.' Population groups in individual countries with per capita incomes in excess of US$ 1 a day are arbitrarily identified as "non-poor".

p28
The World Bank arbitrarily sets a "poverty threshold" at one dollar a day, labelling population groups with a per capita income above one dollar a day as "non-poor'.

... The one dollar a day standard has no rational basis; population groups in developing countries with per capita incomes of 2, 3 or even 5 dollars a day remain poverty stricken (i.e. unable to meet basic expenditures on food, clothing, shelter, health and education).

... The entire "one dollar a day" framework is totally removed from an examination of real life situations. No need to analyse household expenditures on food, shelter and social services; no need to observe concrete conditions in impoverished villages or urban slums. In the World Bank framework, the "estimation" of poverty indicators has become a numerical exercise, which usefully serves to conceal the globalization of poverty.

p29
[In] India according to official data more than 80 percent of the population have a per capita income below one dollar a day.

p30
In the West, methods for measuring poverty have been based on minimum levels of household spending required to meet essential expenditures on food, clothing, shelter, health and education.

p35
The debt burden of developing countries has increased steadily since the early 1980s despite the various rescheduling, restructuring and debt-conversion schemes put forward by the creditors. In fact, these procedures, when combined with IMF-World Bank policy-based lending (under the structural adjustment program), were conducive to enlarging the outstanding debt of developing countries, while ensuring prompt reimbursement of interest payments.

The total outstanding long-term debt of developing countries (from official and private sources) stood at approximately US$ 62 billion in 1970. It increased sevenfold in the course of the 1970s to reach $ 481 billion in 1980. The total debt of developing countries stood at close to $ 2 trillion (1998) - a 32-fold increase in relation to 1970.

p42
There is a close, almost symbiotic, relationship between debt-management policy and macro-economic reform. Debt management is confined to ensuring that individual debtor nations continue formally to abide by their financial obligations. Through "financial engineering" and the careful art of debt rescheduling, repayment of the principal is deferred while interest payments are enforced; debt is swapped for equity and "new" money is "lent" to nations on the verge of bankruptcy to enable them to pay off their (interest arrears on "old" debts so as to temporarily avert default.

... The objective consists in enforcing the legitimacy of the debt-servicing relationship while maintaining debtor nations in a straitjacket, which prevents them from embarking upon an independent national economic policy.

... Countries which refuse to accept the fund's [IMF] corrective policy measures faced serious difficulties in rescheduling their debt and/or obtaining new development loans and international assistance. The IMF also ha the means of seriously disrupting a national economy by blocking short-term credit in support of commodity trade.

p47
The exchange rate is by far the most important instrument of macro-economic reform: currency devaluation (including the unification of the exchange rate and the elimination of exchange controls) affects fundamental supply and demand relations within the national economy.

... The social impact of the IMF-sponsored devaluation is brutal and immediate: the domestic prices of food staples, essential drugs, fuel and public services increase overnight. While the devaluation invariably triggers inflation and the "dollarization" of domestic prices, the IMF obliges the government (as part of the economic package) to adopt a so-called "antiinflationary program". The latter has little to do with the real causes of inflation (i.e. the devaluation). It is predicated on a contraction of demand, requiring the dismissal of public employees, drastic cuts in social-sector programs and the deindexation of wages.

... Devaluation leads to a "realignment of domestic prices" at the levels prevailing in the world market. This process of "dollarization" of domestic prices leads to abrupt price hikes in most commodities, including food staples, consumer durables and gasoline and fuels well as most inputs an raw materials used in production (e.g. farm inputs, equipment, etc.).

p59
The IMF tightly monitors and provides resources for the restructuring of the Central Bank. The IMF requires so-called "Central Bank independence from political power as a remedy against the inflationary bias of governments". In practice, this means that the IMF, rather than the government, controls money creation. The agreement signed between the government and the IMF prevents the funding of government expenditure and the provision of credit by the Central Bank through money creation, - i.e. the IMF, on behalf of the creditors, is in a position virtually to paralyze the financing of real economic development.

... With regard to the social sectors the IFIs [IMF, World Bank, WTO] insist on the principle of cost recovery and the gradual withdrawal of the state from basic health and education services... The austerity measures in the social sectors - requiring a shift from regular to targeted programs has largely been responsible for the collapse of schools, health clinics and hospitals.

... The budget targets imposed by the Bretton Woods institutions [World Bank, IMF, WTO], combined
with the effects of the devaluation, trigger the collapse of public investment... the state is no longer permitted to mobilize its own resources for the building of public infrastructure, roads or hospitals, etc..

p55
Structural adjustment constitutes a means for taking over the real assets of indebted countries through the privatization program, as well as collecting debt-servicing obligations. The privatization of state enterprises is invariably tied to the renegotiation of the country's external debt. The most profitable parastatals are taken over by foreign capital or joint ventures often in exchange for debt. The proceeds of these sales deposited in the Treasury are channeled towards the London and Paris Clubs [powerful international economic and political interests]. International capital gains control and/or ownership over the most profitable state enterprises at a very low cost.

p57
The IMF insists on the "transparency" and "free movement" of foreign exchange in and out of the country (through electronic transfers). This process enables foreign companies freely to repatriate their profits in foreign exchange.

... the liberalization of capital movements encourages the "repatriation of capital flight", namely, the return of "black" and "dirty money" which had been deposited by the Third World elites since the 1960s in offshore bank accounts. "Dirty money" constitutes the proceeds of illegal trade and/or criminal activity whereas "black money" is money which has escaped taxation.

... The liberalization of capital movements serves the interests of the creditors. It constitutes a means for channeling "dirty" and "black money" deposited offshore towards the servicing of the external debt, while providing the privileged social classes with a convenient mechanism for laundering large amounts of money which were obtained illegally.

p59
The solution to the debt crisis becomes the cause of further indebtedness. The IMF's economic stabilization package is, in theory, intended to assist countries in restructuring their economies with a view to generating a surplus on their balance of trade so as to pay back the debt and initiate a process of economic recovery. Exactly the opposite occurs. The very process of "belt-tightening" imposed by the creditors undermines economic recovery and the ability of countries to repay their debt.

... IMF-World Bank reforms brutally dismantle the social sectors of developing countries, undoing the efforts and struggles of the post-colonial period and reversing "with the stroke of a pen" the fulfillment of past progress. Throughout the developing world, there is a consistent and coherent pattern: the IMF-World Bank reform package constitutes a coherent program of economic and social collapse. The austerity measures lead to the disintegration of the state, the national economy is remolded, production for the domestic market is destroyed through the compression of real earnings and domestic production is redirected towards the world market. These measures go far beyond the phasing out of import-substituting industries. They destroy the entire fabric of the domestic economy.

p59
IMF-World Bank reforms brutally dismantle the social sectors of developing countries, undoing the efforts and struggles of the post-colonial period and reversing "with the stroke of a pen" the fulfillment of past progress.

p59
Throughout the developing world, there is a consistent and coherent pattern: the IMF-World Bank reform package constitutes a coherent program of economic and social collapse. The austerity measures lead to the disintegration of the state, the national economy is remolded, production for the domestic market is destroyed through the compression of real earnings and domestic production is redirected towards the world market. These measures go far beyond the phasing out of import-substituting industries. They destroy the entire fabric of the domestic economy.

p69
The global economic system feeds on cheap labor.

The world economy is marked by the relocation of a substantial share of the industrial base of the advanced capitalist countries to cheap-labor locations in developing countries. The development of the cheap-labor export economy was launched in SouthEast Asia in the 1960s and 1970s largely in "labor-intensive manufacturing". Initially limited to a few export enclaves (e.g. Hong Kong, Singapore, Taiwan and South Korea), the development of offshore cheap-labor production gained impetus in the 1970s and 1980s.

Since the late 1970s, a "new generation" of free trade areas has developed with major growth poles in SouthEast Asia and the Far East, China, Brazil, Mexico and Eastern Europe.

p70
The worldwide development of cheap-labor industries ... is predicated on the compression of internal demand in individual Third World economies and the consolidation of a cheap, stable and disciplined industrial labor force in a "secure" political environment. This process is based on the destruction of national manufacturing for the internal market ... in individual Third World countries and the consolidation of a leap-labor export economy.

p70
The "hidden agenda" of the SAP [structural adjustment program]: the compression of wages in the Third World and Eastern Europe supports the relocation of economic activity from the rich countries to the poor countries

p70
The globalization of poverty endorses the development of a worldwide cheap-labor export economy; the possibilities of production are immense given the mass of cheap impoverished workers throughout the world.

p70
Consumer demand is limited to approximately 15 percent of the world population, confined largely to the rich countries together with small pockets of wealth in the Third World and the countries of the former Soviet bloc.

p71
Under the close watch of the World Bank and the IMF, "non-traditional" exports are promoted simultaneously in a large number of developing countries. The latter now joined by cheap-labor producers in Eastern Europe are forced into cutthroat competition. Everybody wants to export to the same European and North American markets: oversupply obliges Third World producers to cut their prices; the factory prices of industrial goods tumble on world markets in much the same way as those of primary commodities. Competition between and within developing countries contributes to depressing wages and prices. Export promotion (when applied simultaneously in a large number of individual countries) leads to overproduction and the contraction of export revenues. Ironically, the promotion of exports leads ultimately to lower commodity prices and less export revenue from which to repay the external debt.

p71
Structural adjustment transforms national economies into open economic spaces and countries into territories... "reserves" of cheap labor and natural resources.

p78
With the phasing out of manufacturing, a "rentier economy" which virtually does not produce anything has developed in the rich countries.

... In the international garment trade, for instance, an international fashion designer will purchase a Paris-designed shirt for US$3 to $4 in Bangladesh, Vietnam or Thailand! The product will then be resold in the European market at five to 10 times its price: the GDP of the importing Western country increases without any material production taking place.

p81
[In Bangladesh] the factory price of one dozen shirts is US$36 to $40 (fob). All the equipment and raw materials are imported. The shirts are retailed at approximately US$22 a piece or US$266 a dozen in the United States. Female and child labor in Bangladeshi garment factories is paid approximately US$20 a month, at least 50 times less than the wages paid to garment workers in North America. Less than two percent of the total value of the commodity accrues to the direct producers (the garment workers) in the form of wages. Another one percent accrues as industrial profit to the "competitive" independent Third World producer.

p84
Whereas Third World enterprises operate under conditions which approximate "perfect competition", the buyers of their products are trading companies and multinational firms. The net industrial profit accruing to the "competitive" Third World entrepreneur is of the order of one percent of the total value of the commodity. Because Third World factories operate in a global economy marked by oversupply, the factory price tends to decline, pushing industrial profit margins to a bare minimum.


Globalization of Poverty and New World Order

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