Mr. Budhoo's Bombshell:

A people's alternative to Structural Adjustment

by Susan Meeker-Lowry

Summer 1995

"Today I resigned from the staff of the International Monetary Fund after over 12 years, and after 1000 days of official fund work in the field, hawking your medicine and your bag of tricks to governments and to peoples in Latin America and the Caribbean and Africa. To me, resignation is a priceless liberation, for with it I have taken the first big step to that place where I may hope to wash my hands of what in my mind's eye is the blood of millions of poor and starving peoples. Mr. Camdessus, the blood is so much, you know, it runs in rivers. It dries up too; it cakes all over me; sometimes I feel that there is not enough soap in the whole world to cleanse me from the things that I did do in your name and in the name of your predecessors, and under your official seal. "

With those words, Davison Budhoo, a senior economist with the International Monetary Fund (IMF) for more than 12 years, publicly resigned in May, 1988. A native Grenadian, Budhoo received his degree from the London School of Economics. He joined the staff of the World Bank in 1966 and later shifted to the IMF, where he was responsible for designing and implementing Structural Adjustment Programs (SAPs) for African, Latin American and Caribbean nations. His 100-plus page open letter to Michel Camdessus, managing director of the IMF, titled "Enough is Enough," sent shock waves around the world, making front page headlines in many countries (but not in the US).

Budhoo was the first person to break the IMF's code of silence regarding internal affairs by exposing extensive statistical fraud carried out by the fund in Trinidad and Tobago during 1985-1987.

The IMF and World Bank are separate institutions with distinct roles. While the bank makes loans for development projects, the IMF lends to governments to ease deficits and make their economies appear stable to the international market. The World Bank was created in April 1944 as a lending institution composed of member governments to help rebuild post-war economies. The IMF was created to restructure and organize the market systems of member nations by promoting international economic cooperation and trade, and by encouraging stable currencies.

The bank introduced Structural Adjustment Programs in 1980 to increase export production in debtor nations to provide cash for debt-service payment. Under "structural adjustment," developing countries typically are required to devalue their currency; dramatically cut spending on social services, medical care and education; eliminate barriers to foreign multinationals and trade; privatize national assets; deregulate business; decrease wages; restrict credit and raise interest rates.

Due to the radical reorganization of national economies, people in "SAPed" countries often pay for their governments' loans with extreme poverty, hunger and disease. Using figures provided by UNICEF and UNDP, the editors of the IMF-World Bank Watchdog estimated that more than six million children under the age of five have died each year since 1982 in Africa, Asia and Latin America as a result of IMF / World Bank policies.

SAPs often carry heavy ecological costs as well. The forced privatization of nationalized industries and public or communal lands often opens Third World countries to opportunistic multinational corporations resulting in degraded (or destroyed) and polluted environments. Placing the emphasis on exports rather than local needs in a time of falling world commodity prices results in exploitation and depletion of oil, minerals, forests and other natural resources.

Even though debtor countries paid more than $1.3 trillion to the IMF between 1982 and 1990, they were still 61 percent more in the hole in the 1990s than they were in 1982. According to the 1988 UNICEF annual report, debt and interest payments by Southern countries totaled more than three times the amount of aid received from the World Bank and IMF.

" Under structural adjustment, the IMF and the World Bank do not merely supervise individual sectors of the economy as in the past... they now manage each country entirely," said an official of the Institute for African Alternatives. "They have to approve annual national budgets. . . monetary, trade and fiscal policies . . . before countries can negotiate with other foreign lending agencies." During his years at the World Bank and IMF, Budhoo learned that core staff members are "successors of colonial civil servants." Pointedly observing that South Africa is administered by the European Department, not the African department, Budhoo concludes that "our staff is the logical consequence... of the prevailing 1944 international ethos of 'superior man' and 'inferior man,' and the white man and his system to be saved and nurtured, and the black / brown colonized man to be overlooked and cast aside...."

IMF staff receive six-figure salaries along with generous perks, including subsidies for travel and foreign work, and housing and education for family members. A staffer on assignment in the South often receives more basic pay than a head of-state. Newly recruited staff are often wined and dined, offered fat consultancy fees and lucrative, tax-free salaries to lure them into compliance with the IMF against what may be their better judgment. The promise of becoming a member of the "new nobility of Earth" can be overpowering.

IMF Statistical Fraud

In his 1994 book, Dark Victory, Walden Bello reveals how the Reagan and Thatcher administrations in the 1980s launched a global offensive to "subordinate" developing nations by "rolling back the gains that had been made by the South from the 1950s through the 1970s... decades marked by high economic growth, successful struggles of national liberation and the coming together of Southern states to demand a 'New International Economic Order' that would entail a more equitable distribution of global economic power."

Budhoo recalled how, at one IMF board of directors meeting, then-President Ronald Reagan declared that the sole duty of the IMF was to convert all countries to free wheeling Western market economies. Reagan's declaration signaled that the IMF no longer had to operate under the guise of "development," or alleviating poverty or any other humanist philosophy.

A key IMF economic indicator used to evaluate a nation's economy is the index of Relative Unit of Labor Cost (RULC), which compares the competitiveness of a developing country's manufacturing-labor costs to those of industrialized nations. A rising RULC means that the costs of a country's manufactured exports are increasing. The IMF prescription for a high RULC is currency devaluation to lower the expense of exports. The RULC formula was particularly important in the IMF's appraisal of Trinidad and Tobago when, in 1986, the bottom fell out of the oil market, the sector accounting for the majority of the country's export earnings.

A healthy RULC would have indicated that Trinidad and Tobago could successfully diversify its export base and service its foreign debt. However, IMF reports for Trinidad and Tobago for 1985-1987 indicated extraordinary RULC increases. This became the pretext for massive currency devaluation, cuts in government expenditures and a freeze on public sector wages. But these figures were false.

In his letter, Budhoo wrote, "What we had done over these years was to 'manufacture' statistical indices-the RULC and several others-that would allow us to prove our point and push a particular policy line, irrespective of economic realities and circumstances of the country."

The IMF more than doubled Trinidad and Tobago's RULC figures, even though data were available to enable the staff to calculate the RULC accurately. Even after Budhoo made the staff aware of its "miscalculations" and senior officials acknowledged the accuracy of his figures, the IMF refused to admit any error. Instead, it deleted all references to the index from its report.

This "statistical trickery a resulted in what Budhoo described as "the sudden and dramatic freezing up of virtually all foreign funding... [T]he choice that we have given the government is either to accept our 'deadliest medicine' or to go it alone as an international outcast. Either way, the consequences are accelerating economic chaos and ultimate social disintegration."

Budhoo noted that Trinidad and Tobago was "only one country from the host of Third World nations where we are perpetrating the same economic nonsense, with the same catastrophic consequences."

A People's Program for Change

The World Bank's current focus on "democratization" is a sham, Budhoo charges, designed to convince NGOs that the World Bank is capable of reforming itself. He believes that reform suggestions, such as demands for "more participation" and "more accountability," are mostly cosmetic and too general.

Many experts on multilateral lending institutions (including the Peoples' Tribunal on IMF-World Bank Crimes Against Humanity and Sweden's official aid agency, SIDA) have called for the abolition of the IMF and World Bank. While Budhoo feels that this is "fully justified," he has concluded that "it will never happen." So in 1991, Budhoo founded the Bretton Woods Reform Organization International (BWROI) to launch a campaign to make the World Bank and IMF more accountable to Southern countries.

BWROI's brand of "reform" supports the kind of change that will only come about in response to pressure from those most affected by IMF/World Bank policies.

In October 1993, in history's largest public demonstration, 500,000 Indians protested IMF/World Bank agricultural policies and GATT. Budhoo predicts more "massive participation and massive demonstrations" in India and the Philippines in the months to come.

BWROI's objectives include: · alternatives to IMF/World Bank SAPs, · seeking IMF accountability for statistical fraud in Trinidad and Tobago, · creating a Third World Watchdog Committee to assist in negotiations and interactions with the IMF/World Bank and, · democratizing macroeconomic decision-making in the South.

The BWROI's most ambitious effort is the Alternative Structural Adjustment Program (ASAP), which Budhoo calls "a people's economic program with equity." Until now, SAPed countries had no concrete alternatives to IMF policies. As an economist and an insider, however, Budhoo knows that technical expertise is the IMF/World Bank's Achilles heel. "The technical work at the IMF/ World Bank is really pathetic," he claims. "They cannot justify, in economic terms, the costs of their projects and they can't' stand up to technical scrutiny."

The Third World Watchdog Committee (TWWC), BWROI's technical arm, has begun to confront the IMF/World Bank on a professional and technical level. "We are trying to destroy the World Bank/IMF as technical institutions by doing what they say they're doing-only we need to do it better," Budhoo has said.

The TWWC has been designing ASAPs on behalf of citizen groups and Third World governments. The expertise of committee members like Ramesh Ramsaran (a former IMF consultant and a consultant to the European Secretariat in charge of negotiating European aid structure to the Caribbean) and Morris Miller (former executive director of the World Bank for Canada and the English-Speaking Caribbean, and former executive director of the Caribbean Development Bank) ensure that the ASAPs will be able to withstand IMF scrutiny.

According to BWROI's project director (and Davison's brother) Patrick Budhoo, creating an ASAP "involves democratically designing a comprehensive, highly visible and quantifiable economic policy to meet the basic needs of the entire population" with a clear time frame for implementation. ASAPs are flexible-able to accommodate the dynamics of change, ranging from natural disasters to economic or political upheavals-and responsive to the needs of ordinary people.

BWROI develops rural agriculture to create greater food security; linkages with rural non-agricultural production; a broad economic base with priority given to small scale, labor-intensive, high value-added enterprises; improvement of appropriate rural infrastructure including roads, communications, affordable energy and technology; and friendly credit, using "Grameen-type" banks that make small loans for income-producing activities to typically disenfranchised people (particularly women), at no- or low-interest rates, using a peer-group-lending process.

BWROI does not support exporting primary resources and commodities like minerals and grains. Export of non-traditional fruits, vegetables and exotic flowers is acceptable provided that their cultivation is not at the expense of traditional crops needed by residents.

In 1993, Guyana, Trinidad and Tobago, India and the Philippines started initiating ASAPs. Project descriptions for Mexico, Costa Rica, Kenya and Uganda are under way, and the TWWC has been invited to prepare project descriptions for Bangladesh, Sri Lanka, Indonesia, Nigeria, Zimbabwe, Tanzania, Jamaica, the Dominican Republic, Brazil, Peru and Nicaragua.

Guyana Leads the Way

In August l993, the citizens and government of Guyana joined forces with BWROI to create the world's first ASAP. Guyana is the most heavily indebted country in the world. It has a foreign debt equal to 650 percent of its total gross domestic product and is the poorest country in the Western hemisphere, surpassing even Haiti.

Guyana was once considered one of the more prosperous countries in the Caribbean region. However, following independence from Britain in 1966, a corrupt civilian dictatorship (led by Forbes Bumham until 1985 and propped up by the US, the IMF and the World Bank) succeeded in placing 80 percent of all economic activity under state control.

Mismanagement and "cronyism" resulted in the country's inability to meet its export quotas for North American and European markets in the 1970s. An agreement negotiated with the IMF in 1978 reduced Guyana's budget, but caused a drastic decline in all sectors of the economy and a corresponding 40 percent rise in unemployment.

From a ratio of 1:4 (US : Guyana) in 1980, the Guyanese dollar is now valued at 1:130, making it virtually worthless. Since 1988, 80 percent of revenues and 60 percent of Guyana's foreign earnings have gone into servicing and repaying its foreign debt. In the late 1980s, under World Bank supervision, Burnham implemented an economic recovery program that removed the last barriers to foreign control over key sectors of the economy. This mainly benefited foreign investors and multinationals.

The political tide turned in 1992 when, in Guyana's first free elections in 30 years, voters elected Cheddi Jagan of the People's Progressive Party (PPP). (President Jagan, a Marxist, had been Guyana's first native born Prime Minister in 1953, but British Prime Minister Winston Churchill ordered his government dissolved. In 1961, Jagan's overtures to President John F. Kennedy were rebuffed and a covert CIA operation was mounted to drive Jagan from power.)

Despite good intentions, the PPP was powerless to implement necessary social and economic reforms due to requirements imposed by the IMF, so the Guyanese, working with BWROI, established a National Committee (renamed BWRO/Guyana in late 1994) to oversee the creation of an ASAP "for short-term financial stabilization and long-term economic and social development." After receiving BWROl's ASAP Debt Strategy Paper in May 1992, Jagan wrote to the IMF's Camdessus to plead for debt relief. In a press conference held in Guyana, Jagan stated, "It is ridiculous to expect real growth in the economy if we have to continue paying these debts."

In May, 1994, President Jagan and government officials met with Patrick Budhoo and the Guyana National Committee and issued a resolution declaring the IMF program for Guyana to be "massively flawed and inappropriate." The government also agreed to cancel negotiations with the IMF pending the "conclusions and recommendations of the people's ASAP."

The International Debt Tribunal (IDT), chaired by Jan Pronk, Minister for Development Cooperation of the Netherlands, will propose an equitable solution to Guyana's debt crisis, a critical step if the country is to implement the ASAP. The IDT will pay special attention to the origins of Guyana's foreign debt, its structure and growth, its legal basis and legitimacy. Another crucial step will be getting Guyana classified as a Least Developed Country (LDC) by the UN which would entitle Guyana to substantial debt relief and other concessions not currently available.

A Rainforest Tribunal

Money-poor Guyana is rich in natural resources-bauxite, gold and diamonds- and has some of the most extensive remaining rain forests in the world (9.1 million hectares or 22.4 million acres). According to the World Rainforest Movement, approximately 80 percent of Guyana's forests have been leased for exploitation by multinationals-many of them, Asian-based firms responsible for deforesting rain forests in the Philippines, Malaysia and New Guinea. Under IMF "conditionalities," Guyana now offers multinationals a ten-year exemption from all taxes-income, withholding, property, import and timber. A recent addition to the Guyana ASAP is the appointment of an International Rainforest Tribunal (IRT) to make recommendations for the renegotiation of the government's agreements with logging and mining multinationals.

The IRT will declassify secret contracts between the government and multinational companies, work to reform the Forestry Commission, Mines Commission, help to revive the Guyanese Natural Resources Agency, and ensure that Indigenous Amerindian land titles will be honored.

"Guyana is important," Budhoo says, "because we need to show... that we can use peoples' participation and economic technical skills to push through the ASAP. It must only be the first of many."

When the Guyana ASAP was presented at European Parliamentary hearings in Brussels last June. representatives from Poland, Caribbean nations, the Philippines and Latin America expressed support. Budhoo expects the IMF to accept the ASAP by year end. In November, Antigua and Trinidad and Tobago initiated ASAPs.

Adoption of ASAPs in those nations, Budhoo stated, "would change the international equation overnight."

However, the big splash will come in late 1995 when India and the Philippines are expected to stand up to the international lending community to enact ASAPs.

Surprisingly few US activists are aware of BWROI and the South's new economic initiative. It is no accident that Budhoo's resignation and BWROl's work are practically secrets in the US, while they are major news in Europe and the Third World.

The "powers that be" want us to believe that we have no influence on their policies and actions. The Guyanese people know differently and face great risks by acting on this knowledge. How can we do less?

As Budhoo so passionately wrote in 1988, "we are not speaking about technical problems in international finance... we're speaking about our role in shaping the destiny of humankind... about the legacy that we will leave to generation upon generation yet unborn...."

What You Can Do:

Read : Enough is Enough, by Davison L. Budhoo New Horizons Press available from the Council on International and Public Affairs (212) 953-6920.

For more information contact: 50 Years is Enough Campaign 1025 Vermont Ave. NW, Suite 300, Washington, DC 2005; (202) 463 2265; e-mail: wb50years@igc.apc.org;

or the Bretton Woods Reform Organization International Green St. and Bain Alley St. George's, Grenada, The West Indies; fax: (809) 440-6651.


this article is from the Earth Island Journal, Summer 1995

50 Years Is Enough

IMF, World Bank, Structural Adjustment

Structural Adjustment page