IMF/World Bank Wreak Havoc on Third World

by Davison Budhoo

Davison Budhoo, a prominent economist from Grenada, created a worldwide sensation when he resigned from the IMF in 1988 in disgust over what he called the Fund 's "increasingly genocidal policies." He is author of Enough Is Enough, and Global Justice: The Struggle to Reform the International Monetary Fund. Budhoo is Executive Director of the Bretton Woods Reform Movement
(BWRM), which is spearheading a campaign against IMF / World Bank structural adjustment programs.

1994 marks the 50th anniversary of the founding of the World Bank and the International Monetary Fund at Bretton Woods, New Hampshire.

But as the North congratulates itself and celebrates, the South and its three billion poor will tear out their hair in rage. For the operations of these agencies there have been catastrophic. Instead of development and favorable adjustment, the Third World today is in an accelerated spiral of economic and social decline. That decline is linked directly to the World Bank and the International Monetary Fund.

IMF-World Bank structural adjustment programs (SAPs) are designed to reduce consumption in developing countries and to redirect resources to manufacturing exports for the repayment of debt. This has caused overproduction of primary products and a precipitous fall in their prices. It has also led to the devastation of traditional agriculture and to the emergence of hordes of landless farmers in virtually every country in which the World Bank and IMF operate. Food security has declined dramatically in all Third World regions, but in Africa in particular. Growing dependence on food imports, which is the lot of sub-Saharan Africa, places these countries in an extremely vulnerable position. They simply do not have the foreign exchange to import enough food, given the fall in export prices and the need to repay debt.

Basic conditionalities of the IMF-World Bank include drastic cuts in social expenditures, especially in health and education. According to the UN Economic Commission for Africa, expenditures on health in IMF-World Bank programmed countries declined by 50 percent during the 1980s, and spending on education declined by 25 percent. Similar trends are evident in all other Southern regions.

IMF-World Bank programs come with other requirements. Governments are generally forced to remove subsidies to the poor on basic foodstuffs and services such as rice and maize, water and electricity. Tax systems are made more repressive, and real wage rates are allowed to fall sharply -- in Mexico during the 1980s, the real wage rate declined by over 75 percent. Today, in that country, a family of four on the minimum wage (and over 60 percent of the employed labor force is on the minimum wage) can buy only 25 percent of its basic needs.

With IMF-World Bank-inspired devaluation come inflation and increases in the prices of all imported foodstuffs. Removal of price controls domestically leads to sudden increases in the prices of commodities used by the poor. Big increases in interest rates cause bankruptcies in domestically owned small businesses and further unemployment. Removal almost overnight of trade restrictions throws domestic industries into disarray and liquidation and compounds unemployment. Dismantling foreign exchange restrictions allows the elite classes to export funds overseas, carte blanche, as capital flight, thus worsening the balance of payments. Privatization of all government owned productive enterprises as an ideological prerogative of the IMF-World Bank is an incalculable loss.

Even on the basis of objectives established by the IMF-World Bank themselves, SAPs have not been successful. An internal study within the IMF completed in 1988 reveals that the 40-odd programs implemented between 1983 and 1987 failed in their objectives of enhancing economic growth, reducing fiscal and balance of payments deficits, lowering inflation and stabilizing or decreasing external debt. Subsequent programs, as the United Nations Development Program (UNDP) and UN Economic Commission for Africa have shown, have failed even more dismally in relation to IMF-World Bank self-imposed objectives.


But the greatest failure of these programs is to be seen in their impact on the people. Using figures provided by the United Nations Children's Fund (UNICEF) and the UN Economic Commission for Africa, it has been estimated that at least six million children under five years of age have died each year since 1982 in Africa, Asia and Latin America because of the anti-people, even genocidal, focus of IMF World Bank SAPs.

And that is just the tip of the iceberg. Even more pervasively, these programs have created economic, social and cultural devastation whenever and wherever they are introduced. The prestigious and highly Northern-oriented UNDP has determined that some 1.2 billion people in the Third World now live in absolute poverty (almost twice the number ten years ago), over half of sub-Saharan children are starving or malnourished, 1.6 billion people in the Third World are without potable water and well over two billion are unemployed or underemployed. In some countries of Africa, infant mortality rates are double what they were ten years ago, before SAPs were widespread.

Recently, UNDP reported (in its 1992 Human Development Report) that, mainly because of inherent inequities built into SAPs, the income gap between rich and poor in the Third World doubled in the course of the 1980s. Today, the richest fifth of the world (including most of Europe and North America) receives 150 times more in income than the poorest fifth (located almost exclusively in the South). "This [disparity] was a big shock to me," said the Chief Adviser to UNDP at a press conference. "I had never expected a ratio of 150 to 1; perhaps 40 to 1." In scathingly cynical terms, the Report concluded that "the World Bank and the IMF should be the buffer to protect developing countries, but their recent record shows that they have become institutions for recycling debt, not recycling resources."

On the environmental side, millions of indigenous people have been driven out of their ancestral homelands by large commercial ranchers and timber loggers. Several millions more have been displaced by massive dams that benefit primarily elite classes and transnational corporations. Both types of activities were approved and financed by the IMF-World Bank. It is now generally recognized that the environmental impact of the IMF-World Bank on the South has been as devastating as the economic and social impact on peoples and societies.

These policies, which are really the outpouring of a new and savage push for instant and highly unjust expropriation of the resources and economic sustenance of the South, must be brought to a halt. How can this be done? Three possible lines of approach can be suggested.

The first is to abolish these institutions. This is the view taken by independent researchers (such as Susan George and Walden Bello) and by human rights organizations (such as PROBE lnternational and the Peoples' Tribunal on IMF-World Bank Crimes against Humanity, Berlin 1988). Senior officials of the Swedish official aid agency, SIDA, have also suggested this. While abolition is fully justified, it is unrealistic to think that it will happen. The governments of the North will never agree to abolition, simply because these institutions are too important to them as instruments to achieve their economic and political objectives. This has been proven over and over again by the Group of Seven [France, Germany, Italy, Canada, Japan, England and the U.S.] who, at every meeting, enhance rather than diminish the powers of these bodies.

A second possible way out is to let the World Bank and the IMF continue to operate, but to control them through the creation of a special UN agency. This is the solution put forward by the UNDP in its 1992 Report. The difficulty with this solution is that the UN today, like the IMF-World Bank themselves, is under the total control of a small clique of Northern countries. The form may change, but the substance of the policies of major industrialized countries in relation to the South, as expressed in the operations of the IMF-World Bank, will remain the same.

The third possible solution is for peoples and countries to force change on the institutions, by confronting them with irrefutable evidence of their gross injustices, inequities and contradictions. In this respect, several things can be done immediately. There are, for instance, various Articles of Agreement in the constitutions of the World Bank and IMF that have not been implemented at all, simply because implementation would have improved the position of developing countries vis-a-vis the staff of the IMF and World Bank. In this regard, there is provision for a conflict resolution body to intervene in cases of conflict of a technical nature between management of the institutions and member governments. These Articles should be made operational immediately. Also, the IMF Council, as defined in the Articles of Agreement to mean a Peoples' Parliament within the management structure of the institution, should be established forthwith. This would not only serve to help democratize the institution, but would create a meaningful checks-and-balances mechanism against abuse. There should also be created a Third World Watchdog Committee, comprising highly qualified technical people, to help developing countries in their negotiations with the institutions. Leaders of the industrialized world have much to ponder and do about the IMF-World Bank, apart from preparing 50th Anniversary celebrations and handing out more accolades and power to their staff. But the most likely outcome is that, as always, they will do nothing.

from the book 50 Years Is Enough
edited by Kevin Danaher of Global Exchange

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50 Years Is Enough

IMF, World Bank, Structural Adjustment