IMF and WorId Bank:
GIobal Rule-Makers

from Global Exchange newletter - February 2000


Fifty years before the WTO was even created, the World Bank the International Monetary Fund (IMF) began designing a global economy that puts the interests of corporations before the interests of people and the planet. In many ways these two institutions are the architects of corporate globalization-their free-market, export-driven policies spawned the WTO. To fully understand how the global economy works, and whose interests it ultimately serves, it's necessary to know how these very powerful and secretive institutions operate.

First, where did they originate?

The World Bank and IMF were created near the end of World War 1I by the US and British governments. At that time, a big problem for the US and British elites was that during the war the business class of Europe was either supporting the Nazis or fleeing Europe with all the money they could carry. On the other hand, socialists, communists and anarchists enjoyed popular support since they had led the resistance to Nazi occupation.

In order to prevent leftists from coming to power in Western Europe, the US and Britain needed to create international institutions that would promote free-market policies and strengthen the power of the corporate sector

After an initial focus on Western Europe, the World Bank shifted its lending to finance railroads, bridges, and other infrastructure in the Global South.

The IMF was established to smooth global commerce by making foreign currency exchanges easier and using its reserve of funds to lend to countries experiencing temporary cash-flow problems so they could continue trading without interruption.

The unwritten goal of the IMF and World Bank was to consolidate wealth and power in the hands of a few, knowing that this concentration would help maintain existing power relations.

What role do tthe IMF and World Bank play now?

TheWorld Bank and the IMF are the world's largest public lenders. The Bank manages a loan portfolio totaling US $200 billion and last year loaned a record US $28.9 billion to over 80 countries. The IMF supplies member governments with money to help them overcome short-term credit crunches.

To really understand how these institutions work, think of them as the world's biggest loan sharks. When the Bank and IMF lend money to debtor countries, the money comes with strings attached. The strings come in the form of policy prescriptions that are usually referred to as "structural adjustment. "

What is Structural Adjustment?

Structural Adjustment Policies (SAPs) restructure a country's economy to ensure that its debts are repaid. SAPs require that debtor governments open their economies to penetration by foreign corporations, allowing access to the workers and natural resources of the country at bargain basement prices.

Among other things, Structural Adjustment Policies generally require a country to:

* slash government spending, which usually means cutbacks for health care, education, child care, and environmental protection;

* attract foreign investment by removing tariffs and weakening labor laws and environmental protections;

* sell off publicly owned assets such as mines, mills, forests, telephone, water and electricity companies-a process known as ~privatization";

* focus resources on growing export crops for industrial countries, rather than supporting family farms and growing organic food for local consumption; and

* devalue the currency to promote exports.

Sometimes structural adjustment prescriptions include ending government subsidies on heating oil, gasoline and basic food items such as bread or rice, which raises the cost of living for poor people. In Haiti, the World Bank went so far as to oppose increasing the minimum wage-this in a country where more than 70% of the population lives on less than $1 a day.

The Bank and the IMF say these policies are necessary market reforms. In fact, they are poison pills for the poor majority in debtor countries. The record shows these policies to be a dismal failure: Real growth has been slow and poverty has increased.

Many grassroots groups in the Third World talk about the 'recolonization' of their countries as they steadily lose control over their own land, factories and services. As Martin Khor of the Third World Network explains: "Structural adjustment is a policy to continue colonial trade and economic patterns developed during the colonial period, but which the Northern powers want to continue in the post-colonial period. The World Bank and the IMF are playing the role that our ex-colonial masters used to play."

How does the WTO relate to the World Bank and the IMF?

The WTO was created in 1995 to enforce and extend GATT (the General Agreement on Tariffs and Trade). A tariff is a tax that is only paid by transnational corporations when they move goods across a national border. Through decades of pressure on national governments to lower their



World Bank continued taxes on transnational corporations, GATT transferred trillions of dollars from governments to large corporations. This reduction in taxes led to the bankrupting of governments around the world. Governments of both rich and poor countries responded to this fiscal crisis in two ways: (l) borrowing huge amounts of money from the World Bank, IMF and commercial banks, and (2) cutting social programs in order to reduce budget deficits.

Growing government debt gave bankers increasing influence over government economic policies

and greatly increased the muscle of the IMF and World Bank. These institutions say to Third World elites: "If you want new loans to make payments on your debts and keep yourself in power, you better implement the structural adjustment policies we recommend." Complying with the free trade rules of GATT/ WTO is often a large part of SAPs, and SAPs lock in dependency to export markets.

How have the Bank and the Fund affected the environment?

These institutions have a terrible record of environmental destruction. From a hydroelectric dam in India that displaced thousands of people to road-building and agricultural colonization in the Brazilian Amazon, the Bank's history has been characterized by misguided and massive development debacles-debacles that continue today despite the objections of environmental groups around the world.

The Bank's proposal to support a 600-mile pipe

line that will carry oil from Chad to the coast of Cameroon is a perfect example of the Bank's disregard for environmental concerns. The massive oil development project will pass through or close to important ecological areas that are home to indigenous tribes and endangered species. Even if the best available technology were adopted, 2,000 gallons a day could leak without being detected. Equally disturbing, the oil companies planning the project-Shell and Exxon-each have terrible environmental records. In 1997, the Wall Street Journal reported Exxon's chairman as advising developing countries to avoid environmental controls if they wanted to secure foreign investment.

What do the Bank and the Fund have to do with sweatshops?

IMF and World Bank policies encourage countries to center their economic development strategies around production for export to the developed world. These policies typically include encouraging countries to keep wages low and unions out of the workplace, so as to ensure the cheapest exports possible. The kind of production encouraged is often based on imported inputs and dependent on foreign investment.

Isn't the economic growth created by the "free market" policies of the IMF and World Bank creating prosperity around the world?

No. That's largely because growth, as it's conventionally measured by the Bank and the Fund, is not an accurate gauge of prosperity.

For a more complete answer to this question, it's useful to look at the period of worldwide economic growth from 1960 to the present. During that period, the global economy experienced rapid growth in all the major economic indicators-foreign direct investment, international trade, international debt, and Gross National Product (GNP). But did inequality in the world get better or worse during that period? It got far worse. All of these facts were underscored by a report released in 1999 by the United Nations Development Program (UNDP) which showed that corporate globalization has prioritized profits above people.

The Bank and the Fund measure economic growth by a country's annual percentage increase in GNP. GNP counts all goods and services-no matter how destructive and harmful-as positive numbers. For example, when the Exxon Valdez ran aground in Alaska and spilled millions of barrels of oil, it created many positive contributions to GNP The cleanup efforts, the lawsuits, and increased health and environmental expenses all added to the GNP of the United States.

If we were including social and environmental criteria in our GNP formulations, the effects of irresponsible, harmful behavior such as clear-cutting, cigarette smoking, and toxic waste dumping would be negative numbers. These numbers would subtract from our measure of economic well-being-not add to it as they do now-and give us a more complete picture of growth and prosperity. Because the IMF and the World Bank rely so heavily on the narrow minded, free-market economic criteria for measuring prosperity, they are systematically raising corporate interests above the interests of poor communities and the environment.

Who makes decisions at the WB and IMF?

Decisions at the World Bank and IMF are made by a vote of the Board of Executive Directors, which represents member countries. Unlike the United Nations, where each member nation has an equal vote, voting power at the World Bank and IMF is determined by the level of a nation's financial contribution. Therefore, the United States has roughly 17% of the vote, with the seven largest industrialized countries (G-7) holding a total of 45% of the votes. Because of the scale of its contribution, the United States has always had a dominant voice and has at all times exercised an effective veto. At the same time, developing countries have relatively little power within the institution. Furthermore, the President of the World Bank is by tradition an American, and the IMF President is a European; the developing world has no say about who will run these institutions.

How do corporations benefit from Bank and Fund policies?

Development projects undertaken with World Bank financing typically include money to pay for materials and consulting services provided by Northern countries. US Treasury Department officials calculate that for every US $I the United States contributes to international development banks, US exporters win more than US $2 in bank-financed contracts.

The Bank tends to finance large, expensive projects-which almost always require the materials and technical expertise of Northern contractors-and ignores smaller-scale, locally appropriate alternatives. A good example is the Bank's proposal to provide Exxon and Shell with financing for the Chad-Cameroon oil pipeline. Because of rampant corruption in Chad and Cameroon, the poor communities most affected by the development are unlikely to see its benefits. But the pipeline will surely earn big profits for these two companies.

The World Bank and IMF also promote corporate welfare with their the structural adjustment policies, which put commercial interests above community interests through deregulation, privatization, and "free" trade.

IMF, World Bank, Structural Adjustment