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Herbert Jauch , Labour Resource and Research Institute, NamibiaStructural adjustment programmes (SAPs) have been implemented in many ‘developing’ countries since the 1980s. They were designed by the International Monetary Fund (IMF) and the World Bank and imposed as a condition for
further loans. Below is a brief background of the events that led many countries to accept SAPs. It describes how SAPs are being implemented and what results they have produced over the past 20 years. This article also gives a short analysis of the roles of the World Bank, the IMF and the local political elites in this process.
Structural Adjustment and the Debt CrisisSAPs were born as a result of a debt crisis that has hit especially developing countries since the 1980s.
This debt crisis has its origin in the early 1970s when oil-producing countries that had united in the Organisation of Petroleum Exporting Countries (OPEC) increased the oil price to gain additional revenue. Most of these profits were invested with banks in industrialised countries. These banks, in turn, were interested to lend this money to developing countries to finance the purchase of products from the industrialised countries. In this way, the loans given to ‘developing’ countries helped to stimulate production in the North (see Toussaint and Comanne 1995: 15). At that time. both private and public institutions encouraged the South to borrow. Even the World Bank ‘preached the doctrine of debt as the path towards accelerated development’. As a result, huge amounts were borrowed by the political elites, often wasted on luxuries, ‘white elephant’ projects or stolen by corrupt officials  (Usually stooges, selected by the exiting colonial powers to lead these failed African states). Very little was invested productively with a view of achieving sustainable economic growth (see George 1995: 21).
Related: NewsRescue 01/01/2012- IMF Forces African Nations to Remove Fuel Subsidies
During the 1970s loans were given freely at very low interest rates but this situation changed dramatically in the early 1980s. The USA pushed up interest rates drastically in an attempt to stop inflation. ‘Developing’ countries that had taken out loans with US banks now had to pay huge interests. The major lending banks in Europe followed suit and the debt crisis was born (see George 1995: 21). ‘Developing’ countries were unable to repay their loans and were forced to take up new loans to pay the interest.In 1980 the total debt of developing countries stood at US$ 567 billion. Between 1980 and 1992 these countries paid back US$ 1662 billion. However, because of the high interest rates, the debt increased to US$ 1419 billion in 1992 – despite the repayments! The rising interest rates forced developing countries to take out new loans to avoid bankruptcy.Debt repayments drain about US$ 160 billion each year from ‘developing’ countries. This is about 2.5 times the total development aid that these countries receive!Since the 1980s, debt repayments are a major mechanism of transferring wealth from the South to the North. The former French President Francois Mitterand admitted this when he said in 1994:
‘Despite the considerable sums spent on bilateral and multilateral aid, the flow of capital from Africa toward the industrial countries is greater than the flow of capital from the industrial countries to the developing countries’ (see Touissaint and Comanne 1995: 10-12).
Despite the fact that ‘developing’ countries have long paid back their initial loans, they are still highly indebted and are dependent on new loans. This paved the way for the IMF and World Bank to come ‘to the rescue’. They were given the task to make sure that ‘developing’ countries will continue paying their debt by offering new loans – to countries who accept certain conditions: structural adjustment.Related: NewsRescue- Summary of Nigeria IMF-SAP debt progressionThe role of the IMF and World BankInitially the idea behind the World Bank and IMF, also called the Bretton Woods institutions, was widely supported. The Bank was given the task to rebuild first Europe and then other countries after the Second World War. The IMF was supposed to facilitate trade and to make short-term loans available to countries with temporary balance of payment problems (see George 1995: 19).
Today the IMF and the World Bank are much more powerful than its founders could have imagined. Both have over 170 member countries whose power is determined by the amount they pay in subscriptions. This system of ‘one dollar – one vote’ has meant that the rich industrialised countries control these institutions today (see the description of the IMF and World Bank attached). The IMF and World Bank are far from democratic and their policies are shaped by their principal shareholders – the powerful industrialised countries.
The IMF and World Bank today have a strong influence over economic policies in many countries. The inability of many countries to repay their debt has made them dependent on new loans. The IMF has the power to declare countries credit worthy – or not. To get the seal of approval countries have to accept the conditions of structural adjustment programmes. They have to restructure their economies according to IMF/World Bank guidelines – otherwise they will have virtually no chance to get loans from private or public creditors anywhere (see George 1995:19-21).
Herbert Jauch; LARRI, Namibia
The Implementation of Structural Adjustment ProgrammesSAPs are built on the fundamental condition that debtor countries have to repay their debt in hard currency. This leads to a policy of ‘exports at all costs’ because exports are the only way for ‘developing’ countries to obtain such currencies.
A first feature of SAPs is therefore a switch in production from what local people eat, wear or use towards goods that can be sold in the industrialised countries. Since the 1980s dozens of countries have followed these policies simultaneously. They often exported the same primary commodities, competed with each other and then suffered because of declining world market prices for their commodities. Between 1980 and 1992, ‘developing’ countries lost 52% of their export income due to deteriorating prices (see Touissant and Comanne 1995: 12; George 1995:22; Bournay 1995: 51).
SAPs have 4 fundamental objectives according to which they are shaped:

1. Liberalisation: promoting the free movement of capital; opening of national markets to international competition.

1. Privatisation of public services and companies.

1. De-regulations of labour relations and cutting social safety nets.

1. Improving competitiveness (see Toissant and Comanne 1995:14)

Based on these objectives, SAPs prescribe nearly always the same measures as a condition for new loans. These are:

• reduction of government deficit through cuts in public spending (cost recovery programmes);

• higher interest rates

• liberalisation of foreign exchange rules and trade (deregulation);

• rationalisation and privatisation of public and parastatal companies;

• deregulation of the economy, for example:

- liberalisation of foreign investment regulations
- deregulation of the labour market, e.g. wage ‘flexibility’
- abolishing price controls and food subsidies

• shift from import substitution to export production (see Isaacs 1997: 135)

Poverty in Africa {Img: sfgate.com}
These measures forced countries on a path of deregulated free market economies. The IMF/World bank basically determine countries’ macro-economic policies, they take control over central bank policies and over public expenditure through the so-called ‘Public Expenditure Review’. SAPs promote the principal of cost-recovery for social services and the gradual withdrawal of the state from basic health and educational services. Under its ‘Public Investment Programme’ the IMF even decides what type of infrastructure should be built while an imposed system of international tender ensures that public-works projects are carried out by international construction and engineering firms (see Chossudovsky 1995: 59).
Although several countries were skeptical about such neo-liberal policies (designed along the ideas of the Reagan and Thatcher administrations) they were forced to abandon socialist or even social democratic ideas. In this way, the debt crisis has provided the IMF and World Bank with a very effective instrument of disciplining rebellious countries. Debtor countries are kept in a ‘strait-jacket’ which prevents them from implementing their own economic policies (SEE George 1995:21; Chossudovsky 1995:57).
The Results of Structural Adjustment ProgrammesDespite the IMF and World Bank claims of SAP successes, it is widely acknowledged that SAPs have failed to achieve their goals. They have not created wealth and economic development as unregulated markets did not benefit the poor and failed to protect the delivery of social services. The IMF/World Bank believe that the elimination of protective tariffs will make domestic industries more competitive. In reality, domestic manufacturing often collapsed and imported consumer goods replaced domestic production. Other results of SAPs were:

• Privatisation allows international capital to buy state enterprises at very low costs.

• Tax reforms under SAPs (like VAT) place a greater tax burden on middle and low-income groups while foreign capital receives generous tax holidays.

• Deregulation of the banking system leads to very high interest rates which makes most goods unaffordable to the majority.

• Elimination of subsidies and prize controls, covered with devaluation lead to price increases and reduce real earnings in the formal and informal sectors.

• Free movement of foreign exchange allows foreign companies to repatriate their profits. It also allows the ‘laundering’ of ‘dirty money’ from offshore banking accounts.

• Cost-recovery programmes in the health sector increased the inequality in health care delivery, reduced health coverage and increased the number of people without access to health care. Diseases like cholera, malaria and yellow fever are on the increase again.

• Various NGOs funded by international aid agencies have gradually taken over government functions in the social sector.

• Cuts in public sector employment (for example 300 000 civil servants were retrenched in Zaire – now DRC – in 1995), coupled with bankruptcies of local companies has led to large increases in unemployment.

• Liberalisation of the labour market leads to the elimination of cost of living adjustment clauses in collective agreements and to the phasing out of minimum wage legislation.

• Export orientation in agriculture is eliminating subsistence crops and accelerates the exodus of the unemployed towards the cities. (See Touissant and Comanne 1995: 9; Chossudovsky 1995:58-64)

Even in those countries that are singled out as success stories, SAPs imposed severe hardships on the poor. In Uganda, for example, the government obediently followed the World Bank/IMF policies and implemented far-reaching liberalisation such as:

• Privatisation of government institutions

• Reducing the size of the civil service and the army

• Liberalisation of foreign exchange

• Decentralisation of services to local authorities

• Cuts in government spending on social services

Despite some (statistical) economic growth, these policies resulted in:

• Drop in formal sector employment to less than 14% of the economically active population

• Retrenchment of more than half the civil service (170 000)

• Lack of equipment and medication in government health facilities

• Collapse of small enterprises

• Declining co-operative movement

• Trade Unions lost 60% of their members since 1990

SAPs had a detrimental effect on social services. In the education sector, for example, they led to:

• Increasing class size (student-teacher ratios)

• Increasing school fees as part of cost-recovery programmes

• Reduction in the number of teachers and/or wage freezes

• Introduction of ‘double shifts’

• Drop in the standard of public education due to deteriorating facilities

• Increase in private schools for the wealthy

• Increasing inequalities in the standard of education between poor and rich communities

• Lower enrolment at schools as the poor have to choose between feeding their children and paying for school uniforms, stationery and school fees.

• Finance-driven education reforms under SAPs often reversed the gains made by African countries after independence.

SAPs meant that most countries had to make major cuts in their education budgets and the world-wide rate of illiteracy began to grow again after a long period of decline (see Bournay 1995: 51). The poor and vulnerable groups in society are always the hardest hit by the SAP measures. SAPs have had a particularly negative effect on women because:

• Privatisation of social services like health and education makes these services unaffordable for the poor. As a result, women are often forced to take on these responsibilities, for example tacking care of the sick.

• Cuts in education services lead to an increase in illiteracy among women and girls. Under SAPs, the drop-out rate for girls is increasing.

• Reduced spending on health leads to an increase in maternal deaths.

• The elimination of food subsidies coupled with falling (real) wages reduces women’s buying power.

• Unemployment is increasing as a result of public sector ‘restructuring’

• ‘Labour flexibility’ may result in more jobs for women at the expense of men. These jobs, however, are usually poorly paid and insecure.

• The reduction of formal sector jobs drives women into the informal sector.

• In Zambia, the hardships caused by SAPs led to an increase in divorces. Men left their homes because they were unable to look after their families. As a result, more women were forced to look after their children on their own.

Picture representation
SAPs in Southern AfricaThe results of SAPs in Southern Africa were similar to those of the programmes elsewhere. The effects of these policies are visible in all countries of Southern Africa, although the manifestations are different. In Angola, the war sponsored by the CIA and South Africa during the 1970s and 1980s has devastated the country. Virtually the entire industrial production base was destroyed and Angolans have to fight a daily battle for survival. In the late 1980s the World Bank and the International Monetary Fund (IMF) enforced SAPs resulting in what was described as “wild capitalism” (Brittain: 3-7). These policies have done nothing but exacerbate the already devastated economic and social structures of Angola.
In Zimbabwe and Zambia, SAPs placed severe hardships on the population while failing to lead to the promised economic recovery and reduced unemployment. ESAP, the abbreviation for ‘Economic Structural Adjustment Programmes’ is now seen as the abbreviation for ‘Ever Suffering African People’, as these programmes resulted in popular protests and food riots after subsidies for basic food items were withdrawn. The Zimbabwe Congress of Trade Unions (ZCTU) has pointed out that ESAPs worsened poverty and that export orientation further disadvantages small-scale communal farmers who still have no adequate access to suitable land (Goncalves: 6)
After 5 years of SAPs, Zimbabwe’s external debts had increased dramatically due to heavy SAP-related borrowing. It now stands at more than 100% of the GDP and the domestic debt is even higher. Due to currency devaluations the real foreign exchange value of exports in Zimbabwe declined by 2,7% a year while it had grown by 9% before SAPs were introduced. Economic growth was slow and 60 000 workers were retrenched (Saunders: 9; Goncalves:70).
In 1995 the IMF suspended the lending programme and called for even bigger sacrifices to be imposed on the population. SAPs forced the government to concentrate on budget deficits at the expense of creating employment and improving social services. Unemployment stands at 50% in some sectors and only 16 000 jobs are created per year for 220 000 school leavers. Since the early 1990s 130 companies were liquidated and a process of de-industrialisation is underway in a country that once had a relatively self-contained and integrated economy (Saunders: 8-11).
Zambia took the most dramatic steps to fully implement ESAPs and has seen whole industries disappear as protective measures were dropped. External debts are strangulating the country and between 1990 and 1993 the Zambian government spent 35 times more on debt repayment than on primary school education! (Goncalves: 7)
Mozambique is often regarded as one of the poorest countries in the world with foreign assistance accounting for two-thirds of its GDP. After 20 years of South African sponsored war, the state has virtually been destroyed and is presently trying to establish some kind of political stability.
During the 1980s the Mozambiquen leadership tried to find a way of protecting social achievements when dealing with external financial institutions like the IMF and World Bank. This did not last long and a process of ‘recolonisation’ unfolded. Privatisation hit every sphere of the country’s social and economic life: banking, cotton industry, agriculture, health and education.
Today Mozambique is dominated ” not by the agents of a colonial power, but by the technically sophisticated and politically disinterested economists of the IMF , the World Bank and of bilateral aid agencies whose prescriptions are determined by economic analysis” (Plank).
They portray Mozambique’s subordination as a natural consequence of global economic trends. A Mozambiquen MP admitted that “our budget is really set by donors at the annual Paris conference” (Saul: 12-17). Privatisation which was meant to improve efficiency and reduce budget deficits often results in massive retrenchments. According to Mozambique’s trade union federation OTM, of the 502 companies which were privatised since 1989 only 25% are still operational and 37 000 workers have been retrenched (Goncalves: 6).
Under pressure form international donors, the Malawi government removed fertiliser subsidies in 1995. As a result, small-scale farmers could no longer afford fertilisers or were forced to sell their food stocks. This poses a serious threat for the country’s food self-sufficiency.
Although Namibia and South Africa are not heavily indebted and were not forced to implement SAPs, there are indications that these countries are following similar policies. After decades of sanctions and partial isolation, South Africa is re-integrating into the global economy. This is changing its domestic economy which had been characterised by protective tariffs and import substitution. It now has to face global competition. As a signatory to the General Agreement on Trade and Tariffs (GATT) and member of the World Trade Organisation (WTO), South Africa has started to dismantle tariff barriers. The government sees this as a necessary step to make domestic industries internationally competitive. The macro-economic plan known as “Growth, Employment and Redistribution” (GEAR) shows many similarities with the structural adjustment policies of other countries.
So far, the harshest effects of trade liberalisation are experienced by workers in South Africa’s clothing and textiles industry. 80% of workers in the clothing sector and 50% of those in the textile sector are women. Between 1991 and 1997, 50 000 out of a total of 200 000 workers have lost their jobs. South African companies were unable to produce goods as cheaply or at the same quality as competitors from South-East Asia and had to close down. The industry proposed a more “flexible” labour force (i.e. wage cuts) to tackle the crisis, and some companies have initiated plant-level restructuring accompanied by retrenchments, casualisation and decentralisation of production (Macquene). Another prominent feature in South Africa is the privatisation of state assets similar to what has happened in other African countries as part of SAPs. Despite opposition from the labour movement, the South African government seems to follow the demands of national and international capital to speed up the process of privatisation.
In Namibia, the government is still spending a large portion of the national budget on social services like education and health, but there are signs that cuts are imminent. The Ministry of Education, for example, has already cut down on expenditure for school hostels by reducing and sometimes even abolishing the subsidies. Several hostels were privatised and the Ministry now wants to implement a programme known as “staffing norms’. This programme aims to achieve a uniform teacher-student ratio across the country and claims to achieve the following: financial sustainability; enhanced educational quality; and equity among regions and schools. The Ministry targets teacher learner ratios of 1:40 for primary schools and 1:36 for secondary schools by the year 2002 (NANTU 1997:13).
Other signs of structural adjustment policies are the government’s commitment to sweeping privatisation which is justified as a means of making state-run and state-owned companies more efficient. ‘Commercialisation’ is mentioned almost daily in the media and has become the ‘religion’ of economic policy. The Namibian government is also determined to reduce the size of the civil service and believes that economic development can only be achieved through foreign investments and export-led growth. These are definite signs that structural adjustment has arrived.
SAPs and GlobalisationCheated! SAP destroyed Africa’s Hopes
Overall, SAPs have reversed some of the gains made by ‘developing’ countries in their attempt to find an autonomous development process that would suit local conditions. The rolled back some of the achievements made by African states in the post-colonial era (see Goncalves: 6-8). Countries like India, Mexico, Algeria and Brazil are now returning to their former dependency on and subordination to the industrialised world (see Toussaint and Comanne 1995: 17). Chipeta points out that this is no accident as ESAPs were not designed to promote genuine economic development. “Each policy is designed to fail so that the implementing country can enter into another programme”. In other words, an implementing country becomes permanently locked into ESAPs which are designed by the industrialised blocks to shape developing countries according to their needs (Chipeta: 11).
SAPs as a part of the broader process of globalisation have increased the manoeuvring space for Transnational Corporations to an unprecedented level. They could utilise the opportunities created through privatisation and the general economic liberalisation. However, it is important to point out that the political and economic elite of ‘developing’ countries has also played a crucial role in the adjustment process. These elites often used the initial loans for their own benefits. They continued a life in luxury while telling their people to tighten their belts. Even under structural adjustment they were hardly the ones who suffered and sometimes even benefited from SAPs. When public services deteriorate or disappear they can afford private schools and hospitals. They often benefited from privatisation by obtaining functioning enterprises at give-away prices and they benefit from low labour costs as a result of labour flexibility. Susan George has accurately summed up the results of SAPs and globalisation when she wrote about the global apartheid economy:
‘The Bretton Woods twins have become the managers of a global apartheid economy in which the transnational elite from both “North” and “South” plays the role of the “whites”; a shrinking and anxious middle class the role of the “coloureds”; and finally, at the bottom, the vast sea of wretchedness made up of “blacks”, whatever their literal skin colour’ (1995:23).
The failure of SAPs have often led to violent protests that were often repressed with great brutality. The IMF/WB have ignored all critics for years and even today continue to argue that the situation would have been worse without SAPs. In recent years, they tried to respond to public criticism by moving towards adjustment ‘with a human face’. They are now prepared to look at a very basic safety net and have allowed some countries (e.g. Egypt) to maintain some subsidies on essential food products. However, the basic philosophy and the believe in the unregulated free market have remained unchanged (see Bournay 1995: 52).
ConclusionAlthough the relative share of the ‘developing’ countries’ debt in the world’s debt has declined, the people of those countries still have to suffer under structural adjustment programmes. They still have to pay a heavy price to ensure that the debt is paid. The same is now happening in the former countries of the Soviet bloc that are also forced to undergo structural adjustment. Debt is even becoming an issue in the rich industrialised countries as people there are now also experiencing austerity measures that are similar to structural adjustment. Industrial countries justify cuts in social spending as necessary to reduce the public debt. Toussaint and Commanne pointed out that: ‘While austerity measures imposed in the North do not have tragic consequences equal to those in the South and East, the results are nonetheless destructive’ (1995:18).
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The World Bank and the IMF have repeatedly come under sharp criticism over the failure of their SAPs. Under mounting pressure, Social Dimension Funds (SDFs) were introduced in recent years to cushion the blows and hardships of ESAPs. However, they have been ineffective and insufficient to offset the damages caused. ‘Adjustment with a human face’ did not address the fundamental flaws of SAPs but the Bank and the Fund still believe that the solution to the world’s problem lies in continued liberalisation of economies. They still believe that SAPs short term pain will lead to long term gain. Rhetorical commitment to ‘poverty alleviation’ did not change the SAP principle of systematically withdrawing the state from delivering social services. According to the IMF and World Bank, these services are meant to be cost effectively managed by ‘civil society’(see Chossudovsky 1995: 64). During a seminar in Namibia in 1998, IMF officials confirmed that:
‘Structural Adjustment programmes have become the main vehicle for the IMF’s support in Africa.’ Reinhold van Til, IMF
‘Under structural adjustment, Ghana and Uganda ‘experienced a sharp improvement in competitiveness, trade, investment, and economic performance.’ ‘The ‘right’ economic policies will automatically lead to economic growth and prosperity. Investors will reward countries with good economic policies and punish those with bad ones.’‘Liberalisation of the trade system is a key element of reform if Africa is to take advantage of increasingly global patterns of production and trade….this must be accompanied by a liberalisation of exchange rates.’ Robert Sharer, IMF
Government intervention must be limited to ‘areas of market failure and to the provision of the necessary social and economic infrastructure’ Alassane D. Quattare, IMF
In theory, SAPS are meant to assist countries to return to economic recovery. In practice the opposite has happened. SAPs have destroyed any chance to achieve sustainable economic development that would meet national priorities. Chossudovsky pointed out that the ‘…IMF-World bank reform package constitutes a coherent programme for economic and social collapse…They destroy the entire fabric of the domestic economy’ (1995: 66).
Whenever SAPs fail, the IMF and World Bank blame the host government which they accuse of incompetence or insufficient motivation. ‘IMF riots’ have happened in more than 30 countries, sometimes in the form of violent protests against the hardships caused by SAPs. The host country’s governments were always left to deal with the uprisings that were often brutally suppressed. However, initial protests against SAPs were hardly followed by a systematic initiative to build the political capacity to replace SAPs with a different development strategy. Even the political leaders of ‘developing’ countries have become quiet on the debt issue and are no longer campaigning for the cancellation of the debt. In most cases they have become a corrupt elite that is no longer interested in establishing a new and more just world order. It will therefore be left to those organisations that represent the increasingly impoverished majority to actively campaign against structural adjustment policies and to develop alternative policies that will be able to solve our problems.
It must also be mentioned that the wars and conflicts in Africa only started after the seventies, and after the impacts of the enforced adjustments discussed above.
As they say in Nigeria- ‘Monkey dey work, Baboon dey chop’.Article sourceHerbert Jauch has been with the labour movement in Southern Africa for over 20 years. He served as executive member of the Namibia National Teachers Union (NANTU) as well as on various committees of the National Union of Namibian Workers (NUNW). For the past 15 years Herbert worked as labour researcher, carrying out research projects for the Southern African Trade Union Co-ordination Council (SATUCC) as well as Namibian and South African trade unions. Herbert was instrumental in developing a labour diploma course for Namibian trade unions and served as director of the Labour Resource and Research Institute (LARRI) in Katutura from 1998 until 2007. He was LaRRI’ssenior researcher until January 2010 and now works as freelance labourresearcher and educator with various organisations in Southern Africa. -IFWEA.orgPublished, May 19th, 2009SOURCE: http://newsrescue.com/how-the-imf-world-bank-and-structural-adjustment-programsap-destroyed-africa/#ixzz2nhM8TUQl

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THE MULTINATIONAL MONITOR

SeSeptember 2001 - VOLUME 22 - NUMBER 9

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B e a r i n g  t h e  B u r d e n  of  I M F  a n d  W o r l d  B a n k  P o l i c i e s

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Privatization Tidal WaveIMF/World Bank Water Policies and the Price Paid by the PoorBy Sara Grusky
In July, the World Bank approved a new $110 million structural adjustment loan for Ghana. Before disbursing the loan, however, the Bank forced the government of Ghana to implement seven “prior actions,” including a requirement to “increase electricity and water tariffs by 96 percent and 95 percent, respectively, to cover operating costs.”

The effort to attain “full cost recovery” is a prerequisite to privatization. Private companies want to operate systems where consumers meet the expenses of running the systems and pay enough for company profits, too.
Pressured by the World Bank, the government of Ghana plans to lease the Ghana Water Company to two as yet undetermined multinational water companies to provide urban water service. The World Bank included water privatization as one of many conditions that determined the extent of Ghana’s access to the portfolio of loans in the World Bank’s Country Assistance Strategy (CAS).

In May 2001, a broad coalition of groups in Ghana responded by forming the National Coalition Against the Privatization of Water (National CAP of Water), which is committed to conducting a broad campaign to ensure that all Ghanaians have access to safe and affordable water.

Rudolf Amenga-Etego of the Integrated Social Development Centre and one of the founders of the National CAP of Water, says most people in Accra do not earn the minimum wage of less than US$1 a day, while a significant number have no regular employment. In April, the average price for a bucket of water, which used to be 400 cedis, was raised to 800 cedis (US$1 equals 7,000 cedis) to comply with the Bank’s required “prior action” for accessing the structural adjustment loan approved in July. The proposed water privatization is expected to increase water tariffs even further.

“The current water tariff rates that the government of Ghana and the World Bank think are ‘below the market rate’ are already beyond the means of most of the population in Ghana,” says Amenga-Etego. “How will the population possibly be able to absorb a so-called ‘open market’ price for water in the context of privatization? As water becomes less affordable, it is highly likely that there will be a corresponding increase in diseases stemming from reduced access to clean water.”
Cost Recovery and PrivatizationThe Ghanaian case is representative of an increasingly common policy recommendation of the World Bank, along with the International Monetary Fund (IMF), to increase consumer fees for water and sanitation and to force privatization of water utilities.

The Bank argues that developing country governments are too poor and too indebted to subsidize water and sanitation services. World Bank structural adjustment loans and water and sanitation loans routinely include conditions requiring increased cost recovery, full cost recovery or “economic pricing” for water services.

These requirements mean that user fees paid by water consumers must cover all water system costs, which usually include the costs of operation, maintenance and capital expenditure, and sometimes the cost of servicing past utility company debt.

Increased consumer fees for water can make safe water unaffordable for poor and vulnerable populations, however. As water becomes more costly and less accessible, women and children, who bear most of the burden of daily household chores, must travel farther and work harder to collect water — often resorting to water from polluted streams and rivers. Families are forced to make trade-offs between water, food, schooling and health care.

The World Bank and the IMF often impose increased cost recovery conditions in order to improve the economic viability of water utilities so that they will be more lucrative for private sector investors. In many countries, World Bank officials have concluded that public sector ownership of the water utilities is too costly and inefficient while the sale of water utilities and other public enterprises can provide quick resources to service developing country debt.

“Effective water resource management requires that water be treated as an economic good,” the World Bank asserts on its website, explaining that “private participation in water and wastewater utilities has generally resulted in sharp efficiency gains, improved service, and faster investment in expanding service.”

Structural adjustment loans and water and sanitation loans contain conditions requiring privatization, including service contracts, management contracts or leases with private sector “international operators.” The multinational corporate water sector is highly concentrated, including such large companies as the French companies Vivendi, Suez and Bouygues, and the Texas-based Enron. Of the five companies currently bidding for Ghana’s water system, two of them, Suez and Bouygues/Saur, have annual sales figures significantly larger than Ghana’s 1999 gross domestic product.
The Price Of Access To WaterWorld Bank officials argue that increased cost recovery and privatization will actually expand access to clean water and sanitation. “Where public delivery fails, the World Bank Group supports private entry,” Bank officials explain in their policy paper on urban water and sanitation. “We advise and assist countries in developing regulatory frameworks and in designing viable, clean transactions that reconcile the interests of investors and consumers, and recognize the needs of the poor.”
In many developing countries, large proportions of the population are outside the limited “grid” of the piped water system. Expansion of the infrastructure is a key need. In the meantime, neighborhoods, villages and communities are dependent on other sources for clean water such as private water tanker trucks. Buying water from tanker trucks generally costs more than paying fees for piped water, often much more. Those who cannot afford treated water must depend on streams, rivers, lakes or shallow hand-dug wells. Some households or communities develop “illegal” hook-ups to the piped water system.

The World Bank contends that, with higher payments from consumers, private companies will have an incentive, as well as the revenues, to extend pipes to those relying on water trucks or unclean sources.

“In many countries, middle-class consumers pay subsidized rates that shift the financial burden of the water they use — and often waste — to the government,” argues John Briscoe, head of the World Bank’s global water unit. “Public sector providers waste water, too, typically losing 40 to 50 percent of their volumes through leaks and theft. Costs are inflated, as utilities often employ more than twice the staff of an efficient operation. This bleeding of money leaves governments unable to expand services to urban slums, small towns, and villages. Indeed, the poorest urban dwellers, whose plight is cited as a reason to keep water in the public sector, get no service at all from subsidized utilities. Many must buy water at a high price from private tanker trucks.”
But privatization critics say the Bank’s calculus is flawed on numerous grounds.
First, higher prices for water mean the poor have to use less or go without. In Ghana, for example, price increases have already forced many poor people to cut down drastically on their use of water. People often go to public places to fetch water for free or for a token fee, and children spend a lot of time fetching water and carrying it back to their parents.

The University of Ghana, which has adopted the philosophy of “struggle alongside the people,” permits community members to use the university’s water. People travel from all parts of Accra to the university to fetch water.

Public health officials recognize that serious health risks are imposed by the lack of access to clean water, including transmission of water-borne diseases such as guinea worm, cholera and other diarrheal illnesses. The World Health Organization estimates more than 2 million deaths annually from diarrheal diseases due to lack of access to adequate water and sanitation services. “The situation will get worse with the full cost recovery policies placed on the Government of Ghana as part of the World Bank loan conditions,” says Amenga-Etego
In South Africa, water charges imposed in 1999 forced some poor people in Kwagulu-Natal to rely on polluted river supplies for their water. Public health officials trace a 2001 cholera outbreak, which has killed dozens, to the water pricing policy.
In Latin America, cholera has returned to the continent after being absent for nearly a century.
In addition, increased consumer fees for water may also hurt those who are not even part of the formal water pipe system. In many countries, private tanker truck operators buy water from the public water utility. Increased wholesale water prices trickle down to the poor.

What is often referred to as “leaks” include illegal hook-ups and other informal survival strategies used by the poor. Thus, World Bank policies to reduce “leaks” can actually reduce poor people’s access to water, since households with “illegal” hook-ups may end up having to pay for services.

Finally, there is little evidence of the multinational water companies’ commitment to expanding service, especially to poor communities where the ability to pay increased fees is limited. Instead, the multinationals, which have only recently started their major moves into developing countries, have quickly racked up very poor social and environmental records. In Indonesia, Suez and Thames Water have both been charged with tampering with water pricing. In South Africa, protesters claimed that Suez was taking excessive profits, grossly overcharging for its services, and leaving the municipality unable to pay its workers a living wage. Saur (a subsidiary of Bouygues) is alleged to have made the largest of 12 bribes that are the subject of various investigations into corruption and political pay-offs in the World Bank-funded Lesotho Highlands Water Project [see “Falling for AES’s Plan?” Multinational Monitor, June 1999]. There are many other cases.
World Bank officials and citizen groups in developing countries would probably agree on one point, however: Water sector reforms are needed. Current water management systems in many developing countries, especially centralized national water utilities, have not been able to provide safe and affordable water to the population. However, the World Bank’s proposed solution, increased consumer fees and privatization, responds more to concerns about fiscal deficits and foreign debt than to citizens’ need for safe, affordable water, say critics. Citizens’ groups like the Ghana National
Cap of Water propose alternative solutions such as decentralized community/municipal partnerships, continued government subsidies as well as innovative financing schemes, and citizen involvement and oversight in locally managed water systems.
The Water Privatization Push
Despite reason for skepticism about water privatization and increased cost-recovery schemes, the World Bank and IMF are pushing full-steam ahead for these measures.

A review of IMF loan documents in 40 countries reveals that, during 2000, IMF loan agreements with 12 borrowing countries included conditions imposing water privatization or cost recovery requirements.

In the division of labor between the IMF and the World Bank, it is the Bank that has primary responsibility for “structural” issues such as the privatization of state-owned companies. In countries where IMF loan conditions include water privatization or cost recovery requirements, there are usually corresponding World Bank loan conditions and water projects that are implementing the financial, managerial and engineering details required for “restructuring” the water sector. But IMF structural adjustment documents are more often publicly available than those from the World Bank, making it easier to search IMF documents, despite the Bank’s lead role in this area.
In general, it is African countries and the smallest, poorest and most debt-ridden countries where loan documents reveal IMF conditions on water privatization and cost recovery. Water privatization or cost recovery provisions are attached to loans to Angola, Benin, Guinea-Bissau, Honduras, Nicaragua, Niger, Panama, Rwanda, Sao Tome and Principe, Senegal, Tanzania and Yemen.
The IMF has different categories of loan conditions with corresponding degrees of leveraging power. Performance criteria are the most influential IMF conditions in that loan disbursements (known as tranches) can be withdrawn or allowed to proceed based on compliance with performance criteria. The IMF water privatization conditions are primarily structural benchmarks. Structural benchmarks influence the overall “grade” the IMF attaches to a county’s performance, but they are not, in-and-of-themselves, conditions for withdrawing or advancing a loan disbursement.
For the countries on the receiving end of IMF water mandates, crucial decisions about water privatization and cost recovery may be made by Fund officials negotiating with key government leaders behind closed doors and without the knowledge or consent of citizens. Neither the IMF and the World Bank nor borrowing governments are obliged to publicly disclose information during loan negotiations. Once a loan agreement is signed and approved by the IMF’s Executive Board, some of the loan conditions are made public in “Letters of Intent” posted on the IMF’s website. The World Bank is currently revising its information disclosure policies. Presently, the conditions attached to World Bank structural adjustment loans are rarely publicly disclosed.
Eager, and sometimes desperate, government leaders will often adopt IMF policy prescriptions in order to secure the resources necessary to avoid an immediate financial crisis.

In March 2001, the IMF announced that it would streamline the scope of its conditionality and withdraw from the area of public enterprise restructuring and privatization. The IMF claims that, in the future, water privatization will rest in the domain of the World Bank and other multilateral development banks. This may reduce opportunities for public input even further, as most structural adjustment documents for World Bank loans remain secret.

But the institutional division of labor notwithstanding, the policy mandates are unlikely to change. World Bank loan documents show increased cost recovery requirements for water services imposed in loans to Tanzania, Mozambique and Uganda.
Fighting For Water And DemocracyStruggles against the privatization of water supplies have already erupted in a number of countries. In Bolivia in 1999, the government responded to structural adjustment policies of the World Bank by privatizing the water system of its third largest city, Cochabamba. The government granted a 40-year concession to run the debt-ridden system to a consortium led by Italian-owned International Water Limited and U.S.-based Bechtel Enterprise Holdings. The newly privatized water company immediately raised prices. Although the minimum wage stood at less than $65 a month, many of the poor had water bills of $20 or more. Water collection also required the purchase of permits, which threatened the access to water for the poorest citizens.

Mass local opposition in Cochabamba coalesced in the Coalition in Defense of Water and Life, known as La Coordinadora, which demanded the water system stay under local public control [See “The Fight For Water and Democracy,” Multinational Monitor, June 2000]. After weeks of intense protests, in April 2000, La Coordinadora won its demands when the government turned over control of the city’s water system, including its $35 million debt, to the organization and cancelled the privatization contract. La Coordinadora achieved the first major victory against the global trend of privatizing water resources.

Ghanaians have also mounted protests against the World Bank’s water privatization push in their country. Public outcry over alleged bribes that influenced the bidding process forced the Ghanaian government to deny an initial contract to Enron/Azurix, and start the bidding process all over again. National CAP of Water observers say the bidding process continues to be closed off from public scrutiny, however.

Information from World Bank officials suggests that the Government of Ghana, acting under the advice of the IMF and the Bank, has decided to lease the Ghana Water Company to two different multinationals and has demarcated the districts that will comprise the markets of each of the corporations into project “A” and project “B.” Project “A” has received four bids so far while project “B” has received five bids. However, four out of the five corporations have bid on both projects, which means that a total of five transnational corporations have placed bids to date. National CAP of Water has vowed to mobilize public opposition to the privatization plans. The coalition is planning a national march against water privatization in Accra, Ghana on November 10.
Meanwhile, allies of citizen groups such as the Coordinadora in Bolivia and the National Cap of Water in Ghana are working to block a continuation of the Bank and IMF’s water privatization frenzy. In the United States, groups like Results, the 50 Years is Enough Network, Globalization Challenge Initiative and Essential Action (a project of Essential Information, the publisher of Multinational Monitor) are developing draft U.S. legislation that would obligate U.S. representatives to the IMF and World Bank to oppose any loan that mandates increased costs to poor consumers for clean drinking water.

A version of the legislation, which is modeled after similar enacted legislation restricting user fees for primary health or education, is expected to be introduced in Congress soon.

Turning the tide of the water privatization trend is essential, says Rudolph Amenga-Etego of Ghana.

“Water issues are too important to be left to decisions by government and foreign creditors like the World Bank,” says Amenga-Etego.

Countries must be permitted to find their own solutions and to keep water provision and sanitation in the public sector, he says.

“We need to develop a national response to the contractionary policies of the IMF and examine new options for financing our water sector reforms inan equitable and socially responsive manner,” Amenga-Etego says.

“With abject poverty and the lack of employment opportunities that characterizes Ghana and many other developing countries, it is not in the national interest to privatize water. Water should be regarded as a social service with government bearing the primary responsibility for its provision.”
Sara Grusky is co-director of the Globalization Challenge Initiative, which supports citizen's groups in developing countries struggling against undue interference from foreign donors and creditors, particularly the IMF and World Bank.
Double Standards And The Boomerang Effect
The United States and other industrialized countries have long recognized that government investments in water and sanitation services yield substantial benefits to public health, social equity, the environment, and the economy. Wealthy countries provide a range of government subsidies for water and sanitation services. In the United States, the federal Clean Water Act and the Safe Drinking Water Act mandate subsidies for water and sanitation services.
But U.S. and other rich country representatives on the boards of the IMF, World Bank and other multilateral development banks often push contrary policies on developing countries, forcing them to accept reductions in government subsidies for water and sanitation, increased consumer fees for water, and corporate privatization of water utilities.
Recent examples include:
• In Nicaragua, a 30 percent increase in consumer water fees was enacted in June as a result of IMF and Inter-American Development Bank policies.
• In May, IMF and World Bank policies mandated a 95 percent increase in consumer water fees in Ghana.
• In Tanzania, a World Bank water project proposes: “enhancing” commercial water operations by “gradually raising [the] water tariff to a level that compares with the long run marginal cost.”
Now, similar policies appear to be beginning to creep into the industrialized world. Recent tax cuts and growing needs make it unlikely that water and sanitation infrastructure will receive the public subsidies sufficient to maintain operations and hold the line on water charges. According to the U.S. Water Infrastructure Network (WIN), an additional $23 billion per year investment — over and above current expenditure levels — is needed in the United States to meet environmental and public health mandates, and to replace aging infrastructure. Relying just on utility rate increases will cause consumer bills to double or triple, according to WIN.
As a result, cash-strapped municipal, county and regional water system managers will likely have to face hard choices, including the temptation to sell the utility to private corporate investors.
Meanwhile, new rules proposed for the World Trade Organization services agreement may help private investors access government subsidies and may help to ease the entry of foreign private corporate investors in the water service sector.
The policies of water privatization and increased cost recovery faced by citizens in developing countries may soon begin to hit home in the United States and other countries.
— S.G.
SOURCE:
http://multinationalmonitor.org/mm2001/01september/sep01corp2.html

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The IMF Formula:
Prescription for Poverty
by John Cavanagh, Carol Welch and Simon Retallack
IFG Bulletin, 2001, Volume 1, Issue 3, International Forum on Globalization


When the International Monetary Fund (IMF) and the World Bank announced at their 1999 annual      meeting that poverty reduction would henceforth be their overarching goal, this sudden "conversion" provoked  jjustifiable skepticism. The history of the IMF shows that it has consistently elevated the need for financial and m monetary "stability" above any other concern. Through its notorious structural adjustment programs (SAPs), it has imposed harsh economic reforms in over 100 countries in the developing and former communist worlds, throwing hundreds of millions of people deeper into poverty.
The IMF came to hold virtual neo-colonial control over developing countries as a result of the Third World "debt crisis" of the 1980s. In the 1970s, commercial banks were eager to make large loans to developing countries and newly independent countries. The interest rates on these loans were initially very low, but variable. But when interest rates were raised sharply in the early 1980s, heavily indebted countries suddenly found themselves unable to make soaring interest payments on these bank loans, and many were simultaneously indebted to the World Bank. That's when the IMF stepped in.
Unless the IMF certified that an economy was being "restructured" and "maintained soundly," the world's public and private lenders would refuse to extend loans. The IMF decided that countries must now adhere to the policy package of structural adjustment, which essentially integrates national economies into the global market, enabling multinational corporations to access cheaper labor markets and natural resources, and increase exports. Sold as means to increase domestic growth and living standards, countries must remove restrictions on trade and investment, promote exports, devalue national currencies, raise interest rates, privatize state companies and services, balance national budgets by slashing public expenditures, and deregulate labor markets.
Caught in the trap of having to repay massive debts, most developing country governments-representing 80 percent of the world's population-have felt they have had little choice but to agree to implement these reforms in exchange for IMF assistance. The results, however, have brought ruin to national economies, cutbacks in schools and hospitals, increased poverty and hunger, and environmental harm.
IMPACT ON EMPLOYMENT
The IMF has ardently promoted changes in labor laws and wage policies; changes designed to make countries more competitive and attractive to foreign investment. However, according to the 1995 United Nations (UN) Trade and Development Report, employers are changing labor laws to make it easier to fire workers and undermine the ability of unions to defend themselves, rather than add to productive capacity and create work. In spring 2000, for example, Argentinian legislators passed the harsher of two labor law reforms after IMF officials spoke out strongly in support of it, even though tens of thousands of Argentinians carried out general strikes against the reform.
Also contributing to unemployment is the IMF requirement that countries privatize public companies and services and fire public sector workers. As compliant government agencies downsize, the ranks of the unemployed grow faster than the private sector can absorb them. Removing barriers to foreign investment and trade, meanwhile, makes it much harder for private local producers to compete against better-equipped and richer foreign suppliers, often leading to the closure of businesses and further layoffs.
Under structural adjustment, many developing countries export similar, often identical, agricultural products and mineral resources to the industrialized nations. The result is a glut, the collapse of staple export prices and the further loss of livelihoods. Similarly, the IMF policy of devaluing national currencies makes imports (which usually include energy resources and machinery) more expensive, squeezing import-reliant domestic industries which are then forced to lay off more workers. The IMF policy of raising interest rates prevents small businesses from getting the capital needed to expand or stay afloat, often leading them to shut down, leaving even more workers unemployed.
The IMF's purely market-based approach has contributed to the fact that at least one billion adults-more than 30 percent of the global workforce-are unemployed or seriously underemployed today. In Senegal, touted by the IMF as a success story because of increased growth rates, unemployment increased from 25 percent in 1991 to 44 percent in 1996. In South Korea, a US$58 billion structural adjustment loan in 1998 contributed to an average of 8,000 people a day losing their jobs. Compounding this harsh reality is the lack of existing social safety nets that can support people out of work.
Even those who are working suffer, as the IMF frequently encourages countries to keep wages low in order to attract foreign investment. This often translates into the lowering of minimum wages and the weakening of collective bargaining laws. By the end of 1997, Haiti's minimum wage was only $2.40 a day, worth just 19.5 percent of the minimum wage in 1971. Costa Rica, the first Central American country to implement a SAP, saw real wages decline by 16.9 percent between 1980 and 1991, while during the first four years of Hungary's SAP, the value of wages fell by 24 percent.
IMPACT ON HEALTHCARE
Even though rich country governments commonly engage in deficit spending, the IMF and World Bank have made this a taboo for poor countries. Faced with tough choices, governments must often cut social spending because this doesn't generate income for the federal budget, while simultaneously increasing fees for medical services leading to less treatment, more suffering, and needless deaths. Throughout much of Africa, cuts in government health spending arising from SAPs have caused a shortage of funds to be allocated to medical supplies (including disposable syringes). This, in combination with IMF-ordered price hikes in electricity, water and fuel (required to sterilize needles), has increased the incidence of infection (including HIV transmission). Yet the proposed "solutions" still consist of, in effect, privatization of public health and the massive lay-off of doctors and health workers.
In Kenya alone, the introduction of fees for patients of Nairobi's Special Treatment Clinic for Sexually Transmitted Diseases (vital for decreasing the likelihood of transmission of HIV/AIDS) resulted in a decrease in attendance of 40 percent for men and 65 percent for women over a nine month period.
In Zimbabwe, spending per head on healthcare has fallen by a third since 1990 when a SAP was introduced. UNICEF reported in 1993 that the quality of health services had declined by 30 percent since then; twice as many women were dying in childbirth in Harare hospitals compared to 1990; and fewer people were visiting clinics and hospitals because they could not afford user fees.
IMPACT ON EDUCATION
Under the mandate of reducing the size of the state, the IMF has encouraged the privatization of schools. Such a measure was undertaken in Haiti, and an IMF report predicts that the extreme deterioration in school quality and attendance will hamper the country's human capacity for many years to come. For example, only 8 percent of teachers in private schools (now 89 percent of all schools) have professional qualifications, compared to 47 percent in public schools. Secondary school enrollment dropped from 28 to 15 percent between 1985 and 1997. Nevertheless, the report ends with recommendations for Haiti to pursue further privatization initiatives.
Meanwhile, to make up shortfalls, school fees are often introduced, forcing parents to pull children-usually girls-from school, resulting in declining literacy rates and skills. In Ghana, the Living Standards Survey for 1992-93 found that 77 percent of street children in the capital city Accra dropped out of school because of an inability to pay fees. In sub-Saharan Africa, under explicit conditions of adjustment, education budgets were curtailed, and a "double shift system" was installed so that one teacher now does the work of two. The remaining teachers were laid off and the resulting savings to the Treasury are funneled toward interest payments on debt.
IMPACT ON FOOD SECURITY
The increased dependence on food imports that SAPs create places countries in an extremely vulnerable position because they lack the foreign exchange to import enough food, given falls in export prices and the need to repay debt. It should come as no surprise therefore that 80 percent of all malnourished children in the developing world live in countries where farmers have been forced to shift from food production for local consumption to the production of crops for export to the industrialized world. Furthermore, as Davison Budhoo, a former IMF economist, notes, export orientation "has led to the devastation of traditional agriculture and the emergence of hordes of landless farmers in nearly every country in which the Fund operates."
Hunger and farmer bankruptcy is also a product of budget cutting under IMF programs, often leading to the removal of price supports for essential items, including food and farm inputs such as fertilizer, whose prices then rise dramatically. This problem is compounded by IMF-inspired currency devaluation, making these imports more expensive. In Caracas in 1989, for example, following a 200 percent increase in the price of bread, riots ensued in which the army responded by firing upon and killing l,000 people. In addition, higher interest rates often prevent small farmers from obtaining the capital needed to stay afloat, forcing them to sell their land, work as tenants, or move to the slums of large cities.
FAILURE ON THEIR OWN TERMS
Although the Fund and the Bank have promoted SAPs as a virtual religion for nearly 20 years, they cannot claim that they have achieved even their own narrow objectives. IMF internal studies reveal that many SAPs have failed to enhance economic growth, reduce fiscal and balance of payment deficits, lower inflation and reduce external debt. In fact, between 1980 and 1997, the debt of low-income countries grew by 544 percent and that of middle income countries by 481 percent. Poor countries have thus gone through all the pain of structural adjustment only to continue to engage in a net transfer of wealth to the industrialized world.
A decade and a half ago, we likened the Bretton Woods institutions to medieval doctors. No matter what the ailment, they applied leeches to the patients and bled them. At the onset of the new millennium, the doctors' cruel ministrations have been exposed in dozens of studies and increasingly vocal street protests. Yet thus far, the Fund and the Bank's response has been largely cosmetic. New leeches are applied, dressed up by public relations experts. However, the "new" treatment is still ineffective. The growing public outcry in North and South alike will hopefully result in real reform and effective cures.
John Cavanagh is the director of the Institute for Policy Studies in Washington DC. He is co-author (with Sarah Anderson and Thea Lee) of Field Guide to the Global Economy (New Press, 2000), and he serves on the board of directors of the International Forum on Globalization. Carol Welch is an international policy analyst at Friends of the Earth, USA, and Simon Retallack is the managing editor of The Ecologist's special issues, and is an associate of the International Forum on Globalization.


SOURCE:http://www.thirdworldtraveler.com/IMF_WB/IMF_Formula_PrescripPover.html
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Structural Adjustment—a Major Cause of Poverty
Author And Page Information
·         by Anup Shah
·         This Page Last Updated Sunday, March 24, 2013
·         This page:http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty.
·         To print all information e.g. expanded side notes, shows alternative links, use the print version:
·         http://www.globalissues.org/print/article/3
 “
Debt is an efficient tool. It ensures access to other peoples’ raw materials and infrastructure on the cheapest possible terms. Dozens of countries must compete for shrinking export markets and can export only a limited range of products because of Northern protectionism and their lack of cash to invest in diversification. Market saturation ensues, reducing exporters’ income to a bare minimum while the North enjoys huge savings. The IMF cannot seem to understand that investing in … [a] healthy, well-fed, literate population … is the most intelligent economic choice a country can make.
                                                                                                                                             „
— Susan George, A Fate Worse Than Debt, (New York: Grove Weidenfeld, 1990), pp. 143, 187, 235
Many developing nations are in debt and poverty partly due to the policies of international institutions such as the International Monetary Fund (IMF) and the World Bank.
Their programs have been heavily criticized for many years for resulting in poverty. In addition, for developing or third world countries, there has been an increased dependency on the richer nations. This is despite the IMF and World Bank’s claim that they will reduce poverty.
Following an ideology known as neoliberalism, and spearheaded by these and other institutions known as the “Washington Consensus” (for being based in Washington D.C.), Structural Adjustment Policies (SAPs) have been imposed to ensure debt repayment and economic restructuring. But the way it has happened has required poor countries to reduce spending on things like health, education and development, while debt repayment and other economic policies have been made the priority. In effect, the IMF and World Bank have demanded that poor nations lower the standard of living of their people.
This web page has the following sub-sections:
1.      A Spiraling Race To The Bottom
2.      Maintaining Dependency And Poverty
3.      Earn More, Eat Less
1.      What Is The IMF/World Bank Prescription?
4.      The Welfare State Has Helped Today’S Rich Countries To Develop
1.      Structural Adjustment In Rich Countries
5.      IMF And World Bank
1.      IMF And World Bank Reform?
2.      IMF And World Bank Admit Some Of Their Policies Do Not Work
3.      PSRPs Replace SAPs But Still SAP The Poor
6.      The Asian Development Bank
A Spiraling Race To The Bottom
As detailed further below, the IMF and World Bank provide financial assistance to countries seeking it, but apply a neoliberal economic ideology or agenda as a precondition to receiving the money. For example:
·         They prescribe cutbacks, “liberalization” of the economy and resource extraction/export-oriented open markets as part of their structural adjustment.
·         The role of the state is minimized.
·         Privatization is encouraged as well as reduced protection of domestic industries.
·         Other adjustment policies also include currency devaluation, increased interest rates, “flexibility” of the labor market, and the elimination of subsidies such as food subsidies.
·         To be attractive to foreign investors various regulations and standards are reduced or removed.
The impact of these preconditions on poorer countries can be devastating. Factors such as the following lead to further misery for the developing nations and keep them dependent on developed nations:
·         Poor countries must export more in order to raise enough money to pay off their debts in a timely manner.
·         Because there are so many nations being asked or forced into the global market place—before they are economically and socially stable and ready—and told to concentrate on similar cash crops and commodities as others, the situation resembles a large-scale price war.
·         Then, the resources from the poorer regions become even cheaper, which favors consumers in the West.
·         Governments then need to increase exports just to keep their currencies stable(which may not be sustainable, either) and earn foreign exchange with which to help pay off debts.
·         Governments therefore must:
·         spend less
·         reduce consumption
·         remove or decrease financial regulations
·         and so on.
·         Over time then:
·         the value of labor decreases
·         capital flows become more volatile
·         a spiraling race to the bottom then begins, which generates
·         social unrest, which in turn leads to IMF riots and protests around the world
·         These nations are then told to peg their currencies to the dollar. But keeping the exchange rate stable is costly due to measures such as increased interest rates.
·         Investors obviously concerned about their assets and interests can then pull out very easily if things get tough
·         In the worst cases, capital flight can lead to economic collapse, such as we saw in the Asian/global financial crises of 1997/98/99, or in Mexico, Brazil, and many other places. During and after a crisis, the mainstream media and free trade economists lay the blame on emerging markets and their governments’ restrictive or inefficient policies, crony capitalism, etc., which is a cruel irony.
·         When IMF donors keep the exchange rates in their favor, it often means that the poor nations remain poor, or get even poorer. Even the1997/98/99 global financial crisis can be partly blamed on structural adjustment and early, overly aggressive deregulation for emerging economies.
·         Millions of children end up dying each year.
“
Competition between companies involved in manufacturing in developing countries is often ruthless. We are seeing what Korten described as “a race to the bottom. With each passing day it becomes more difficult to obtain contracts from one of the mega-retailers without hiring child labor, cheating workers on overtime pay, imposing merciless quotas, and operating unsafe practices.
                                                                                                                                                „
— John Madeley, Big Business Poor Peoples; The Impact of Transnational Corporations on the World’s Poor, (Zed Books, 1999) p. 103
This is one of the backbones to today’s so-called “free” trade. In this form, as a result, it is seen by some as unfair and one-way, or extractionalist. It also serves tomaintain unequal free trade as pointed out by J.W. Smith.
As a result, policies such as Structural Adjustments have, as described by Smith, contributed to “the greatest peacetime transfer of wealth from the periphery to the imperial center in history”, to which we could add, without much media attention.
Back to top
Maintaining Dependency And Poverty
One of the many things that the powerful nations (through the IMF, World Bank, etc.) prescribe is that the developing nation should open up to allow more imports in and export more of their commodities. However, this is precisely what contributes to poverty and dependency.
“
[I]f a society spends one hundred dollars to manufacture a product within its borders, the money that is used to pay for materials, labor and, other costs moves through the economy as each recipient spends it. Due to this multiplier effect, a hundred dollars worth of primary production can add several hundred dollars to the Gross National Product (GNP) of that country. If money is spent in another country, circulation of that money is within the exporting country. This is the reason an industrialized product-exporting/commodity-importing country is wealthy and an undeveloped product-importing/commodity-exporting country is poor. [Emphasis Added]
…Developed countries grow rich by selling capital-intensive (thus cheap) products for a high price and buying labor-intensive (thus expensive) products for a low price. This imbalance of trade expands the gap between rich and poor. The wealthy sell products to be consumed, not tools to produce. This maintains the monopolization of the tools of production, and assures a continued market for the product. [Such control of tools of production is a strategy of a mercantilist process. That control often requires military might.]
                                                                                                                                                    „
— J.W. Smith, The World’s Wasted Wealth 2, (Institute for Economic Democracy, 1994), pp. 127, 139.
As seen above as well, one of the effects of structural adjustment is that developing countries must increase their exports. Usually commodities and raw materials are exported. But as Smith noted above, poor countries lose out when they
·         export commodities (which are cheaper than finished products)
·         are denied or effectively blocked from industrial capital and real technology transfer, and
·         import finished products (which are more expensive due to the added labor to make the product from those commodities and other resources)
This leads to less circulation of money in their own economy and a smaller multiplier effect. Yet, this is not new. Historically this has been a partial reason for dependent economies and poor nations. This was also the role enforced upon former countries under imperial or colonial rule. Those same third world countries find themselves in a similar situation. This can also be described as unequal trade:
“
At first glance it may seem that the growth in development of export goods such as coffee, cotton, sugar, and lumber, would be beneficial to the exporting country, since it brings in revenue. In fact, it represents a type of exploitation called unequal exchange. A country that exports raw or unprocessed materials may gain currency for their sale, but they lose it if they import processed goods. The reason is that processed goods—goods that require additional labor—are more costly. Thus a country that exports lumber but does not have the capacity to process it must then re-import it in the form of finished lumber products, at a cost that is greater than the price it received for the raw product. The country that processes the materials gets the added revenue contributed by its laborers. (Emphasis is original)
                                                                                                                                                     „
— Richard Robbins, Global Problems and the Culture of Capitalism, (Allyn and Bacon, 1999), p. 95
Exporting commodities and resources is seen as favorable to help earn foreign exchange with which to pay off debts and keep currencies stable. However, partly due to the price war scenario mentioned above, commodity prices have also dropped. Furthermore, reliance on just a few commodities makes countries even more vulnerable to global market conditions and other political and economic influences. As Gemini News Servicealso reports, talking to the World Bank:
“
More than 50 developing countries depend on three or fewer commodities for over half of their export earnings. Twenty countries are dependent on commodities for over 90 percent of their total foreign exchange earnings, says the World Bank.
                                                                                                                                                    
— Ken Laidlaw, Market Cure Proposed For Third World’s Battered Farmers, Gemini News Service, December 4, 2001 (Link is to reposted version on this web site)
Almost four years after the above was written, Oxfam reveals that things have not changed for the better: more than 50 per cent of Africa’s export earnings is derived from a single commodity; numerous countries are dependent on two commodities for the vast majority of their export earnings; and there are a number of other countries in Africa heavily dependent on very few commodities.
In addition, as Celine Tan of the Third World Network explains:
“
Falling [commodity] prices have meant that large increases in export volume by commodity producers have not translated into greater export revenues, leading to severely declining terms of trade for many commodity producing countries. When the purchasing power of a country’s exports declines, a country is unable to purchase imported goods and services necessary for its sustenance, as well as generating income for the implementation of sustainable development programs.
A vast majority of developing countries depend on commodities as a main source of revenue. Primary commodities account for about half of the export revenues of developing countries and many developing countries continue to rely heavily on one or two primary commodities for the bulk of their export earnings.
                                                                                                                                                  „
— Celine Tan, Tackling the Commodity Price Crisis Should Be WSSD’s Priority, TWN Briefings for WSSD No.14, Third World Network, August 2002
Tan also highlights in the above article that “a fall in commodity prices have [sic] also led to a build-up of unsustainable debt.” The lack of greater revenues from exports has knock-on effects, as described further above. The irony is that structural adjustments were prescribed by the IMF and the World Bank due to debt repayment concerns in the first place.
“
As debt-relief and trade became major topics of discussion during the G8 Summit 2005, Yaya Orou-Guidou, an economist from Benin (a small African country), also noted that exporting raw materials and agricultural products would not help fight poverty. Those raw materials have to be processed in the same poor country to help create a multiplier effect:
Orou-Guidou believes Benin will need to start processing the raw materials it produces if it is to escape the poverty trap.
“A prime material kept in Africa for processing in our factories is one less thing for Western factories to earn money on,” he notes. But, if “we content ourselves with selling our agricultural or mining products in their raw states, they will always feed Western factories which provide jobs for (the West’s) own people.
                                                                                                                                                    „
— Ali Idrissou-Toure, Debt Cancellation No Panacea for Benin, Inter Press Service, July 7, 2005
This concern also applies to larger economies. The global financial crisis that started in 2008 resulted in Brazil’s exports to US falling by some 42%, while it increased with China by 23%. However, almost 75% of Brazil’s export to the US were industrial products, whereas the opposite — about 25% — was for China. Vice president of the Brazilian Foreign Trade Association explained why this is a concern to IPS:
·         When dealing in commodities, “the importer decides and controls the quantity and prices, making an unstable market,” in contrast to the situation with manufactured goods.
·         Commodities also generate low-grade jobs, whereas manufacturing employs skilled personnel for higher wages, creates a multiplier effect on employment as the production chain is longer, and expands the domestic market.
These concerns are not new.
Political economist Adam Smith also provided some insights in his 1776 classic, The Wealth of Nations, which is regarded as the Bible of capitalism. He was highly critical of the mercantilist practices of the wealthy nations, while he recognized the value of local industry and the impact of imported manufactured products on local industries:
“
Though the encouragement of exportation and the discouragement of importation are the two great engines by which the mercantile system proposes to enrich every country, yet with regard to some particular commodities it seems to follow an opposite plan: to discourage exportation and to encourage importation. Its ultimate object, however, it pretends, is always the same, to enrich the country by the advantageous balance of trade.It discourages the exportation of the materials of manufacture, and of the instruments of trade, in order to give our own workmen an advantage, and to enable them to undersell those of other nations in all foreign markets; and by restraining, in this manner, the exportation of a few commodities of no great price, it proposes to occasion a much greater and more valuable exportation of others. It encourages the importation of the materials of manufacture in order that our own people may be enabled to work them up more cheaply, and thereby prevent a greater and more valuable importation of the manufactured commodities. (Emphasis Added)
                                                                                                                                                                                                                                                                                                 „
— Adam Smith, Wealth of Nations, Book IV, Chapter VIII, (Everyman’s Library, Sixth Printing, 1991), p.577
Reading the above, we can say that structural adjustment policies are also mercantilist. We are constantly told that we live in a world of global capitalism, and yet we see that while free markets are preached (in Adam Smith’s name), mercantilism is still practiced!
Of course, today it is a bit more complicated too. We do have, for example, products being exported from the poorer countries (albeit some facing high barriers in the rich nations). But exporting rather than first creating and developing local industry and economy, means the “developing” country loses out in the long run, (hardly “developing”) because there is little multiplier effect of money circulating within the country, as mentioned above. Furthermore, with labor being paid less than their fair wages in the poorer nations, wealth is still accumulated by—and concentrated in—the richer nations.
The Luckiest Nut In The World is an 8 minute video (sorry, no transcript available, as far as I know), produced by Emily James. It is a cartoon animation explaining the effects of loans, structural adjustment and cashcrops, and their impacts on poorer countries. It traces how Senegal was encouraged to grow nuts for export. In summary,
·         As a poor nation without many resources, it took out loans to help develop the industry.
·         Other nations saw this was going well, so they followed suit.
·         The price of nuts started to drop and Senegal faced debt repayment problems.
·         Structural adjustment policies were put in place, cutting spending and reducing government involvement in the nut industry and elsewhere.
·         However, things got worse.
·         At the same time rich countries, such as the US, were subsidizing their own nut (and other) industries, allowing them to gain in market share around the world.
·         Rich countries have tools such as trade tariffs and the threat of sanctions at their disposal to help their industries, if needed.
Get the Flash Player to see this video.
The luckiest nut in the world
Thus we are in a situation where the rich promote a system of free trade for everyone else to follow, while mercantilism is often practiced for themselves.
·         “Free trade” is promoted by the rich and influential as the means for all nations to achieve prosperity and development.
·         The wealth accumulated by the richer countries in the past is attributed to this policy to strengthen this idea.
·         That such immense wealth was accumulated not so much from “free” trade but from the violent and age-old mercantilism or “monopoly capitalism” is ignored.
·         Such systems are being practiced again today, and even though they are claimed to be Adam-Smith-style free trade, they are the very systems that Adam Smith himself criticized and attacked.
In 1991 Larry Summers, then Chief Economist for the World Bank (and US Treasury Secretary, in the Clinton Administration, until George Bush and the Republican party came into power), had been a strong backer of structural adjustment policies. He wrote in an internal memo:
“
Just between you and me, shouldn’t the World Bank be encouraging more migration of dirty industries to the LDCs [less developed countries]?… The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that… Under-populated countries in Africa are vastly under-polluted; their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City… The concern over an agent that causes a one in a million change in the odds of prostate cancer is obviously going to be much higher in a country where people survive to get prostate cancer than in a country where under-five mortality is 200 per thousand.
                                                                                                                                                   „
— Lawrence Summers, Let them eat pollution, The Economist, February 8, 1992. Quoted from Vandana Shiva, Stolen Harvest, (South End Press, 2000) p.65; See also Richard Robbins, Global Problems and the Culture of Capitalism (Allyn and Bacon, 1999), pp. 233-236 for a detailed look at this.
When looked at in this light, poverty is more than simple economic issues; it is also an ideological construct.
Earn More, Eat Less
“
Half a world away [from Zambia] in Washington, the architects of this human disaster dine in comfort and seclusion, spending more on one meal than Masauso Phiri’s wife makes in a year of selling buns in their shantytown. Although most World Bank staff work at its Washington headquarters, those unlucky enough to be posted in the Third World receive ample compensation for their misfortune. This includes subsidized housing (complete with free furnishings), an extended “assignment grant” of $25,000 and a “mobility premium” to defray the cost of child education. Salaries are tax-free and averaged $86,000 in 1995, according to a General Accounting Office report to Congress. No “structural adjustment,” then, for this privileged coterie of bankers and policy analysts. Meanwhile, in Africa a hidden genocide lays waste the continent.
“It’s not right for a bank to run the whole world,” says Fred M’membe, editor of the Zambia Post. “They do not represent anybody other than the countries that control them. What this means in practice is that the United States runs our countries.” He continues: “Look at any African country today, and you'll find that the figures are swinging down. Education standards are going down, health standards going down and infrastructure is literally breaking up.”                                                                                                                                                                                                                                        „
— Mark Lynas, Letter from Zambia, The Nation, February 14, 2000
In some countries, more is spent on debt servicing than education. For example, even in the former communist countries that are trying to undergo rapid economic “reform”,education is given a back seat. In fact, the UK-based development and relief organization, Oxfam, goes as far as saying that the IMF policies deny children an education.
Since the end of the Cold War, even wealthier nations have seen government rollback on some functions, in a similar style to structural adjustment. John McMurtry captures this well, being very critical on the impact of such adjustments on “life requirements”:
“
Such systematic overriding of life requirements is now clearly evident from the most undeveloped to the most advanced societies of the world. In the case of Canada, again, infant mortality rates, the quintessential indicator of social health, rose an astonishing 43 per cent in the 1995 Statistics Canada figures, the first recorded rise in over thirty-one years, while child poverty had increased by 46 per cent since 1989. In Africa an estimated 500,000 more children died from the imposed restructuring of their countries’ economies to ensure increased flows of money to external banks, while spending on health care declined by 50 per cent and on education by 25 per cent since these structural adjustment programs began.
                                                                                                                                                                                                                                                                                                „
  — John McMurtry, Unequal Freedoms; The Global Market as an Ethical System, (Kumarian Press, 1998), p.305.
And as the crisis of AIDS gets worse in Africa, measures that reduce health budgets in already poor countries contribute to the problems. (See this site’s section on AIDS in Africa for more on that issue.)
What Is The IMF/World Bank Prescription?
As economist Robin Hanhel summarizes:
The IMF has prescribed the same medicine for troubled third world economies for over two decades:
·Monetary austerity. Tighten up the money supply to increase internal interest rates to whatever heights needed to stabilize the value of the local currency.
·Fiscal austerity. Increase tax collections and reduce government spending dramatically.
·Privatization. Sell off public enterprises to the private sector.
·Financial Liberalization. Remove restrictions on the inflow and outflow of international capital as well as restrictions on what foreign businesses and banks are allowed to buy, own, and operate.
Only when governments sign this “structural adjustment agreement” does the IMF agree to:
·Lend enough itself to prevent default on international loans that are about to come due and otherwise would be unpayable.
·Arrange a restructuring of the country’s debt among private international lenders that includes a pledge of new loans.
— Robin Hanhel, Panic Rules!, (South End Press, 1999) p. 52.
Joseph Stiglitz is one of the most cited economists in the world, the former winner of the Nobel prize for economics and a professor at Columbia University. He was also former chief economist at the World Bank, who “resigned” under pressure from criticisms he made of the IMF and World Bank. He was also a member of then-US President Bill Clinton’s cabinet and chairman of the US President’s Council of Economic Advisers. His insights and criticisms are worth paying attention to. He notes that:
“
The IMF likes to go about its business without outsiders asking too many questions. In theory, the fund supports democratic institutions in the nations it assists. In practice, it undermines the democratic process by imposing policies. Officially, of course, the IMF doesn’t “impose” anything. It “negotiates” the conditions for receiving aid. But all the power in the negotiations is on one side—the IMF’s—and the fund rarely allows sufficient time for broad consensus-building or even widespread consultations with either parliaments or civil society. Sometimes the IMF dispenses with the pretense of openness altogether and negotiates secret covenants.
                                                                                                                                                   „
— Joseph Stiglitz, What I learned at the world economic crisis. The Insider, The New Republic, April 17, 2000
In April 2001, Greg Palast conducted an interview with Joseph Stiglitz which was published in the British newspaper Observer and Guardian.
The World Bank talks of “assistance strategies” for every poor nation using careful country by country investigations. However, as reported in the article, “according to insider Stiglitz, the Bank’s ‘investigation’ involves little more than close inspection of five-star hotels. It concludes with a meeting with a begging finance minister, who is handed a ‘restructuring agreement’ pre-drafted for ‘voluntary’ signature.”
Stiglitz then tells Palast that after each nation’s economy is analyzed, the World Bank “hands every minister the same four-step program” (emphasis added), described in the article as follows:
1.       Privatization. Stiglitz tells Palast that some politicians were corrupt enough to go ahead with some state sell-offs: “Rather than object to the sell-offs of state industries, he said national leaders—using the World Bank’s demands to silence local critics—happily flogged their electricity and water companies. ‘You could see their eyes widen’ at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets.” According to Palast, Stiglitz asserts that the US government knew about, at least in one case: the 1995 Russian sell-off: “‘The US Treasury view was this was great as we wanted Yeltsin re-elected. We don’t care if it’s a corrupt election.’” (Emphasis added)
2.       Capital market liberalization. According to Palast, Stiglitz describes the disastrous capital flows that can ruin economies as being “predictable,” and says that “when [the outflow of capital] happens, to seduce speculators into returning a nation’s own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%.”
3.       Market-based pricing. Palast writes that it is at this point that the IMF “drags the gasping nation” to this third points, described as “a fancy term for raising prices on food, water and cooking gas” which, Palast continues, “leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls, ‘The IMF riot.’” These riots, which the article clarifies are “peaceful demonstrations dispersed by bullets, tanks and teargas[sic],” cause further capital outflows, a situation which, as Palast points out, is not without a “bright” side: “foreign corporations … can then pick off remaining assets, such as the odd mining concession or port, at fire sale prices.”
4.       Free trade. But a version dominated by “rules of the World Trade Organization and the World Bank,” which according to Palast, Stiglitz likens to the Opium Wars: “That too was about ‘opening markets’,” he said. Palast writes that “As in the nineteenth century, Europeans and Americans today are kicking down barriers to sales in Asia, Latin American and Africa while barricading our own markets against the Third World’s agriculture.” (Note that while even President Bush will claim that we want rules based global mechanisms, the mainstream media often does not ask what the rules themselves are, and whether they are most appropriate.) Palast highlights Stiglitz’s problems with the IMF/World Bank plans, plans that the article describes as “devised in secrecy and driven by an absolutist ideology”: first, they are not open to discourse and dissent, and second, that they don’t work. Palast writes that “Under the guiding hand of IMF structural ‘assistance’ Africa's income dropped by 23%.”
In a 5 minute video clip (available in transcript), the well-respected Martin Khor, director of the Third World Network notes similar concerns to Stiglitz’s and adds that rich countries are being hypocritical and aggressive by
·         Protecting their own industries while attempting to force open markets of poor countries
·         Selling artificially cheaper products in poor countries, undermining local producers
·         Promising more aid while real economic development suffers:
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Martin Khor, Structural Adjustment Explained, July 15, 2005,© Big Picture TV
As part of a wider process of globalization, these policies, he argues in another clip (2 minutes, transcript), create a “straight jacket” for poor countries in terms of policy space to make their own decisions:
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Martin Khor, Debt in the Developing World—Part One, July 15, 2005,© Big Picture TV
Africa Action, an organization working for political, economic and social justice in Africa is highly critical of SAPS, noting that, “The basic assumption behind structural adjustment was that an increased role for the market would bring benefits to both poor and rich. In the Darwinian world of international markets, the strongest would win out. This would encourage others to follow their example. The development of a market economy with a greater role for the private sector was therefore seen as the key to stimulating economic growth.”
Focusing on Africa, the article points out that the issue wasn’t that African countries did not need corrective reforms, but whether SAPs were the appropriate answers. “The key issue with adjustments of this kind, however, is whether they build the capacity to recover and whether they promote long-term development. The adjustments dictated by the World Bank and IMF did neither.”
Get the Flash Player to see this video.
Joseph Stiglitz explains the effects of liberalization & subsidized agriculture on poor farmers(see link for transcript)
In these ways then, the IMF and World Bank’s encouragement of poor countries to open up for foreign trade is too aggressive; arguing that these policies will help create a “level playing field” with rich countries is almost opposite to what has happened in reality in most cases.
Perhaps one of the most serious effects is that these external policies indirectly undermine democracy and democratic accountability, not only of the IMF and World Bank (after all, if their policies fail, who are they accountable to?) but also of the governments of the poor countries themselves, who see a reduction in their ability to make important decisions for their people. In some cases, the more corrupt governments can use structural adjustment as an excuse not to cater to all their people.
“
Oxfam International estimates that, in the Philippines alone, IMF-imposed cuts in preventative medicine will result in 29,000 deaths from malaria and an increase of 90,000 in the number of untreated tuberculosis cases. Tribunals investigating “crimes against humanity” take note!
                                                                                                                                                     „
— Jeremy Brecher, Panic Rules: Everything you want to know about the Global Economy, by Robin Hahnel (South End Press, 1999).
Because some of the poor nations are not as aggressive in privatization and other conditionalities as the IMF or World Bank would like, they face continual delays of debt relief.
This model of development, whereby the North (or the developed Nations) impose their conditions on the South (the developing Nations) has come undercriticism by many NGOs and other groups/individuals. Perhaps the model needs to be revised and approached from different angles, as this Oxfam paper suggests.
True, in some cases corrupt governments have borrowed money from these institutions and/or directly from various donor nations and ended up using that money to pursue conflicts, for arms deals, or to divert resources away from their people. However, in most cases that has been done knowingly, with the support of various rich nations due to their own “national interests”, especially during the Cold War. As Oxfam says, “it would be wrong to hold civilians to ransom by placing stringent conditions on humanitarian relief because of the way their government spends its money.”
Furthermore, it has been argued that Structural Adjustments encourage corruption and undermine democracy. As Ann Pettifor and Jospeh Hanlon note, top-down “conditionality has undermined democracy by making elected governments accountable to Washington-based institutions instead of to their own people.” The potential for unaccountability and corruption therefore increases as well.
As the article from Africa Action above also mentions, “African countries require essential investments in health, education and infrastructure before they can compete internationally. The World Bank and IMF instead required countries to reduce state support and protection for social and economic sectors. They insisted on pushing weak African economies into markets where they were unable to compete with the might of the international private sector. These policies further undermined the economic development of African countries.”
Side Note»
This inevitably means that the poor suffer, while the rich get richer.
Also note that the illegal drug trade has increased in countries that are in debt (because of the hard cash that is earned), as Jubilee 2000 points out. Growing such illegal crops also diverts land away from meeting local and immediate needs, which also leads to more hunger. Debt’s chain reactions and related effects are enormous. (For more information on debt in general, see this web site’s section on debt related issues.)
These policies may be described as “reforms”, “adjustments”, “restructuring” or some other benign-sounding term, but the effects on the poor are the same nonetheless. Some even describe this as leading to economic apartheid.
            “        
·The U.S. uses its dominant role in the global economy and in the IFIs [International Financial Institutions] to impose SAPs on developing countries and open up their markets to competition from U.S. companies.
·SAPs are based on a narrow economic model that perpetuates poverty, inequality, and environmental degradation.The growing civil society critique of structural adjustment is forcing the IFIs and Washington to offer new mitigation measures regarding SAPs, including national debates on economic policy.                                                                                            „

— Carol Welch, Structural Adjustment Programs & Poverty Reduction Strategy, Foreign Policy in Focus, Vol 5, Number 14, April 2000
In a more cynical or harsher description, structural adjustments and other trade related policies could also be seen as a “weapon of mass destruction” as Raj Patel hints, (commenting on the Doha WTO conference in November, 2001. Although this is a different context, the overall aspect remains the same):
“
A fertilizer bomb that kills hundreds in Oklahoma. Fuel-laden civil jets that kill 4000 in New York. A sanctions policy that kills one and a half million in Iraq. A trade policy that immiserates continents. You can make a bomb out of anything. The ones on paper hurt the most.
                                                                                                                                                    „
— Raj Patel, They also make bombs out of paper, ZNet, November 28, 2001
Indeed, consider the following:
“
According to UNICEF, over 500,000 children under the age of five died each year in Africa and Latin America in the late 1980s as a direct result of the debt crisis and its management under the International Monetary Fund’s structural adjustment programs. These programs required the abolition of price supports on essential food-stuffs, steep reductions in spending on health, education, and other social services, and increases in taxes. The debt crisis has never been resolved for much of sub-Saharan Africa. Extrapolating from the UNICEF data, as many as 5,000,000 children and vulnerable adults may have lost their lives in this blighted continent as a result of the debt crunch.
                                                                                                                                                     “
— Ross P. Buckley, The Rich Borrow and the Poor Repay: The Fatal Flaw in International Finance, World Policy Journal, Volume XIX, No 4, Winter 2002/03 (Emphasis Added)
The “Welfare” State Has Helped Today’S Rich Countries To Develop
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The era of globalization can be contrasted with the development path pursued in prior decades, which was generally more inward-looking. Prior to 1980, many countries quite deliberately adopted policies that were designed to insulate their economies from the world market in order to give their domestic industries an opportunity to advance to the point where they could be competitive. The policy of development via import substitution, for example, was often associated with protective tariffs and subsidies for key industries. Performance requirements on foreign investment were also common. These measures often required foreign investors to employ native workers in skilled positions, and to purchase inputs from domestic producers, as ways of ensuring technology transfers. It was also common for developing countries to sharply restrict capital flows. This was done for a number of purposes: to increase the stability of currencies, to encourage both foreign corporations and citizens holding large amounts of domestic currency to invest within the country, and to use the allocation and price of foreign exchange as part of an industrial or development policy.
                                                                                                                                                    „
— Mark Weisbrot, Dean Baker, Egor Kraev and Judy Chen, The Scorecard on Globalization 1980-2000: Twenty Years of Diminished Progress, Center for Economic Policy and Research, July 11, 2001
As J.W. Smith notes, every rich nation today has developed because in the past theirgovernments took major responsibility to promote economic growth. There was also a lot of protectionism and intervention in technology transfer. There was an attempt to provide some sort of equality, education, health, and other services to help enhance the nation.
The industrialized nations have understood that some forms of protection allow capital to remain within the economy, and hence via a multiplier effect, help enhance the economy.
Yet, as seen in the structural adjustment initiatives and other western-imposed policies,the developing nations are effectively being forced to cut back these very same provisions that have helped the developed countries to prosper in the past.
The extent of the devastation caused has led many to ask if development is really the objective of the IMF, World Bank, and their ideological backers. Focusing on Africa as an example:
“
The past two decades of World Bank and IMF structural adjustment in Africa have led to greater social and economic deprivation, and an increased dependence of African countries on external loans. The failure of structural adjustment has been so dramatic that some critics of the World Bank and IMF argue that the policies imposed on African countries were never intended to promote development. On the contrary, they claim that their intention was to keep these countries economically weak and dependent.
The most industrialized countries in the world have actually developed under conditions opposite to those imposed by the World Bank and IMF on African governments. The U.S. and the countries of Western Europe accorded a central role to the state in economic activity, and practiced strong protectionism, with subsidies for domestic industries. Under World Bank and IMF programs, African countries have been forced to cut back or abandon the very provisions which helped rich countries to grow and prosper in the past.
Even more significantly, the policies of the World Bank and IMF have impeded Africa’s development by undermining Africa’s health. Their free market perspective has failed to consider health an integral component of an economic growth and human development strategy. Instead, the policies of these institutions have caused a deterioration in health and in health care services across the African continent. 
                                                                                                                                                   „
 — Ann-Louise Colgan, Hazardous to Health: The World Bank and IMF in Africa, Africa Action, April 18, 2002
While the phrase “Welfare State” often conjures up negative images, with regards to globalization, most European countries feel that protecting their people when developing helps society as well as the economy.
It may be that for real free trade to be effective countries with similar strength economies can reduce such protective measures when trading with one another. However, for developing countries to try to compete in the global market place at the same level as the more established and industrialized nations—and before their own foundations and institutions are stable enough—is almost economic suicide.
An example of this can be seen with the global economic crisis of 1997/98/99 that affected Asia in particular. A UN report looking into this suggested that such nations should rely on domestic roots for growth, diversifying exports and deepening social safety nets. For more about this economic crisis and this UN report, go to this web site’s section on debt and the economic crisis.
The type of trade is important. As the UN report also suggested, diversification is important. Just as biodiversity is important to ensure resilience to whatever nature can throw at a given ecosystem, diverse economies can help countries weather economic storms. Matthew Lockwood is worth quoting in regards to Africa:
“
What Africa needs is to shake off its dependence on primary commodity exports, a problem underlying not only its marginalization from world trade but also its chronic debt problems. Many countries rely today on as narrow a range of agricultural and mineral products as they did 30 years ago, and suffer the consequences of inexorably declining export earnings. Again, the campaigners’ remedy—to improve market access for African exports to Europe and America—is wide of the mark.
                                                                                                                                                               „
— Matthew Lockwood, We must breed tigers in Africa, The Guardian, June 24, 2005
Asia too has seen development where policies counter to neoliberalism have been followed, as Lockwood also notes.
To see more about the relationship of protectionism with free trade, check out this site’s section on Free Trade, which also discusses protectionism and its pros and cons.
Structural Adjustment In Rich Countries
As the global financial crisis which started in the West around 2008 has taken hold, many rich nations themselves are facing economic problems. Perhaps surprisingly many have prescribed to themselves structural adjustment and austerity programs. Some have been pressured onto them by others. For example, in Europe, Germany is influential in requiring austerity measures if countries want bailouts from Germany or the European Union.
For more about the austerity measures being put in, and how some of it seems ideologically based in fact of evidence that it is not working — or even making the economy worse — see this site’s section on the global financial crisis.
IMF And World Bank
The IMF and World Bank’s policies are very different now from their original intent, as summarized here by the John F. Henning Center for International Labor Relations:
“
The International Monetary Fund and the World Bank were conceived by 44 nations at the Bretton Woods Conference in 1944 with the goal of creating a stable framework for post-war global economy. The IMF was originally envisioned to promote steady growth and full employment by offering unconditional loans to economies in crisis and establishing mechanisms to stabilize exchange rates and facilitate currency exchange. Much of that vision, however, was never born out. Instead, pressured by US representatives, the IMF took to offering loans based on strict conditions, later to be known as structural adjustment or austerity measures, dictated largely by the most powerful member nations. Critics charge that these policies have decimated social safety nets and worsened lax labor and environmental standards in developing countries. The World Bank (The International Bank for Reconstruction and Development) was created to fund the rebuilding of infrastructure in nations ravaged by World War Two. Its vision too, however, soon changed. In the mid 1950’s, the Bank turned its attention away from Europe to the Third World, and began funding massive industrial development projects in Latin American, Asia, and Africa. Many scholars and activists contend that the Bank’s aggressive dealings with developing nations, which were often ruled by dictatorial regimes, exacerbated the developing world’s growing debt crisis and devastated local ecologies and indigenous communities. Both IMF and World Bank policies remain a source of heated debate.
                                                                                                                                                      „
— John F. Henning Center for International Labor Relations, Institute for Industrial Relations, University of California, Berkeley
Although their goals are slightly different, the IMF and World Bank policies complement each other:
“
World Bank and IMF adjustment programs differ according to the role of each institution. In general, IMF loan conditions focus on monetary and fiscal issues. They emphasize programs to address inflation and balance of payments problems, often requiring specific levels of cutbacks in total government spending. The adjustment programs of the World Bank are wider in scope, with a more long-term development focus. They highlight market liberalization and public sector reforms, seen as promoting growth through expanding exports, particularly of cash crops.
Despite these differences, World Bank and IMF adjustment programs reinforce each other. One way is called “cross-conditionality.” This means that a government generally must first be approved by the IMF, before qualifying for an adjustment loan from the World Bank. Their agendas also overlap in the financial sector in particular. Both work to impose fiscal austerity and to eliminate subsidies for workers, for example. The market-oriented perspective of both institutions makes their policy prescriptions complementary.
                                                                                                                                                     „
— Ann-Louise Colgan, Hazardous to Health: The World Bank and IMF in Africa, Africa Action, April 18, 2002
But economics is often driven by politics. As a result of policies by the IMF, World Bank and various powerful nations, basic human rights have been severely undermined in many countries, as also noted sharply by Global Exchange:
“
By insisting that national leaders place the interests of international financial investors above the needs of their own citizens, the IMF and the World Bank have short circuited the accountability at the heart of self-governance, thereby corrupting the democratic process. The subordination of social needs to the concerns of financial markets has, in turn, made it more difficult for national governments to ensure that their people receive food, health care, and education—basic human rights as defined by the Universal Declaration of Human Rights. The Bank’s and the Fund’s erosion of basic human rights and their perversion of the democratic process have made the institutions a clear and present threat to the well being of hundreds of millions of people worldwide.
                                                                                                                                                     „
— How the International Monetary Fund and the World Bank Undermine Democracy and Erode Human Rights, Global Exchange, September 2001
For decades, the IMF and World Bank have been largely controlled by the developed nations such as the USA, Germany, UK, Japan etc. (The IMF web site has a breakdown of the quotas and voting powers.) The US, for example, controls 17% of the voting power at the IMF. Until November 2010, an 85% majority was required for a decision, so the US effectively had veto power at the IMF. In addition, the World Bank is 51% funded by the U.S. Treasury.
The global financial crisis from 2008 onwards has resulted in some shifts in power, such that some leading developing countries have finally managed to break some of the control at the IMF and get more seats and votes. While some say that parts of Europe have resisted giving up some share which would be appropriate, the changes also mean the US no longer has veto power that it had for decades.
Journalist John Pilger also provides a political aspect to this:
“
Under a plan devised by President Reagan’s Secretary to the Treasury, James Baker, indebted countries were offered World Bank and IMF “servicing” loans in return for the “structural adjustment” of their economies. This meant that the economic direction of each country would be planned, monitored and controlled in Washington. “Liberal containment” was replaced by laissez-faire capitalism known as the “free market”.
                                                                                                                                                     „
— John Pilger, Hidden Agendas, (The New Press, 1998), p.63
The IMF and World Bank’s policies have indeed been heavily criticized for many years and are seen as unhelpful and sometimes, unaccountable, as they have led to an increased dependency by the developing countries upon the richer nations, as also mentioned at the top of this page. At the same time, the different cultures are not respected when it comes to prescribing structural adjustment principles, either.
In Africa, the effects of policies such as SAPs have been felt sharply. As an example of how political interests affect these institutions, Africa Action describes the policies of the IMF and World Bank, but also hints at the influences behind them too:
“
Over the past two decades, the World Bank and International Monetary Fund (IMF) have undermined Africa’s health through the policies they have imposed. The dependence of poor and highly indebted African countries on World Bank and IMF loans has given these institutions leverage to control economic“ policy-making in these countries. The policies mandated by the World Bank and IMF have forced African governments to orient their economies towards greater integration in international markets at the expense of social services and long-term development priorities. They have reduced the role of the state and cut back government expenditure.
…
The World Bank and IMF were important instruments of Western powers during the Cold War in both economic and political terms. They performed a political function by subordinating development objectives to geostrategic interests. They also promoted an economic agenda that sought to preserve Western dominance in the global economy.
Not surprisingly, the World Bank and IMF are directed by the governments of the world’s richest countries. Combined, the “Group of 7” (U.S., Britain, Canada, France, Germany, Italy and Japan) hold more than 40% of the votes on the Boards of Directors of these institutions. The U.S. alone accounts for almost 20%. (The U.S. holds 16.45% of the votes at the World Bank, and over 17% of the votes at the International Monetary Fund.).
                                                                                                                                                     „
— Ann-Louise Colgan, Hazardous to Health: The World Bank and IMF in Africa, Africa Action, April 18, 2002
But it is not just health. Basic food security has also been undermined. An example in 2002 at least made it to mainstream media attention in UK. As Ann Petifor, head of debt campaign organization, Jubilee Research noted, the IMF forced the Malawi government to sell its surplus grain in favor of foreign exchange just before a famine struck. This was explicitly so that debts could be repaid. 7 million of the total 11 million population were severely short of food.
“But its [sic] worse than that,” said Petifor. “Because Malawi is indebted, her economic policies are effectively determined by her creditors—represented in Malawi by the IMF.” Malawi spent more than the budget the foreign creditors set. As a result the IMF withheld $47 million in aid. Other western donors, acting on advice from IMF staff, also withheld aid, “pending IMF approval of the national budget.” (Emphasis added).
“To add to the humiliation of the Malawian government, the IMF has also suspended the debt service relief for which she was only recently deemed eligible—because she is ‘off track.’”
That is not the end of the story unfortunately. As Petifor also mentioned, under the economic program imposed by her creditors, Malawi removed all farming and food subsidies allowing the market to determine demand and supply for food. This reduced support for farmers, leading many to go hungry as prices increased. As she also noted, the rich countries, on the other hand, do not follow their own policies; Europe and the US subsidize their agriculture with billions of dollars.
But the US, for example, sees this situation as exploitable. Petifor again:
“
US Secretary for Agriculture, Dan Glickman, illustrates well the US attitude to countries suffering famine and in need of food aid:
“Humanitarian and national self interest both can be served by well-designed foreign assistance programs. Food aid has not only met emergency food needs, but has also been a useful market development tool.” (OXFAM report: “Rigged Rules and Double Standards: Trade Globalization and the Fight Against Poverty” by Kevin Watkins and Penny Fowler)
                                                                                                                                                    „
— Ann Petifor, Debt is still the linchpin: the case of Malawi, Jubilee Research, July 4, 2002
It is not just the US that uses aid in this way. Most rich countries do this. And it isn’t just food aid, but aid in general that is often used inappropriately. The Guardian reported (August 29, 2005) how £700,000 (about $400,000) of £3 million in British aid to Malawi was mis-spent on US firms’ hotel and meal bills. Even notebooks and pens were flown in from Washington rather than purchased locally. See this site’s section on foreign aid for more details about the issue of foreign aid and its misuse.
IMF And World Bank Reform?
Throughout the period of structural adjustment from the 80s, various people have called for more accountability and reform of these institutions, to no avail.
Following the IMF and World Bank protests in Washington, D.C on April 16, 2000, and coinciding with the Meltzer Report criticizing the IMF and World Bank, there has been more talk about IMF reforms. At first thought the reforms sound like the protests and other movements’ efforts are paying off. However, as Oxfam noted, some of the reform suggestions may not be the way to go and may do even more harm than good. In their own words:
While some of the reform proposals now being debated are sensible, the thrust of the reform agenda is a source of concern for the following reasons:
·It reflects a growing disenchantment with multilateralism
·It threatens to replace inappropriate IMF conditions with inappropriate conditions dictated by the G7 countries
·It fails to address the real policy issues at the heart of the IMF’s failure as a poverty reduction agency
·It does not address the politicization of IMF loans, especially with regard to the US Treasury’s influence
·It does not adequately consider the “democratic deficit” which prevents poor countries from having an effective voice in the IMF
— Reforming the IMF, Oxfam International Policy Paper, April 2000
On the one hand it seems appropriate to demand an end to the IMF. However, such an abrupt course of action may itself lead to a gaping hole in international financial policies without an effective alternative. And that is another topic in itself!
“
Into 2008, and the global financial crisis has been so severe that rich countries have been affected. Calls for reform have therefore increased, even from within some of these institutions themselves. These calls have included more transparency and accountability as well as specifics such as creating a more stable financial system, and cracking down on tax havens.
This time, however, developing countries are demanding more voice, and have more power that in past years to try and affect this. In April, the IMF conceded just 3% of rich country votes to the developing countries, but developing countries rightly want more.
Historically democracy and power have not gone well together, and as journalist John Vandaele has found,
The most powerful international institutions tend to have the worst democratic credentials: the power distribution among countries is more unequal, and the transparency, and hence democratic control, is worse.                                                             
                                                                                                                                                    „
— John Vandaele, Democracy Comes to World Institutions, Slowly, Inter Press Service, October 27, 2008
If change is to be effective, these fundamental issues will need resolving. Powerful countries may try to reshape things only in so far as they can get themselves out of trouble and if they can avoid it, they will try to limit how much power they concede to others. And perhaps a sad reality of geopolitics will be that any emerging nations that become truly influential and powerful in this area will one day try to do the same. For now, however, developing countries generally have a common agenda of more voice and will therefore champion common principles of better democracy and accountability.
IMF And World Bank Admit Some Of Their Policies Do Not Work
Recently, we have heard members of the World Bank and IMF entertain the possibility that maybe their structural adjustment policies did have some negative effects.
For example, the Bretton Woods Project revealed that in 2000, an “internal World Bank report has concluded that the poor are better off without structural adjustment”. The report itself is titled The Effect of IMF and World Bank Programs on Poverty. (Requires a PDF reader.)
The report doesn’t really look in detail at why the poor benefit less from adjustment. Instead it speculates that they “may be ill-placed to take advantage of new opportunities created by structural adjustment reforms” because, as the Bretton Woods Project insinuates, the report implies that the poor “have neither the skills or financial resources to benefit from high-technology jobs and cheaper imports.”
Now, it may not have been the intent of the report to do so, but one can’t help but notice how it almost seems as though while they may admit that structural adjustment didn’t benefit the poor, it is almost as though the Bank tries to subtly absolve itself by subtly blaming the poor for not benefiting from this. When structural adjustments have required cut backs in health, education and so on, then what would one expect?
In March 2003, the IMF itself admitted in a paper that globalization may actually increase the risk of financial crisis in the developing world. “Globalization has heightened these risks since cross-country financial linkages amplify the effects of various shocks and transmit them more quickly across national borders” the IMF notes and adds that, “The evidence presented in this paper suggests that financial integration should be approached cautiously, with good institutions and macroeconomic frameworks viewed as important.” In addition, they admit that it is hard to provide a clear road-map on how this should be achieved, and instead it should be done on a case by case basis. This would sound like a move slightly away from a “one size fits all” style of prescription that the IMF has been long criticized for.
As mentioned further above, and as many critics have said for a long time, opening up poorer countries in an aggressive manner can leave them vulnerable to large capital volatility and outflows. Reuters, reporting on the IMF report also noted that the IMF “sounded more like its critics” when making this admission.
In theory there may indeed be merit to various arguments supporting global integration and cooperation. But politics, corruption, geopolitics, as well as numerous other factors need to be added to economic models, which could prove very difficult. As suggested in various parts of this site, because economics is sometimes separated from politics and other major issues, theory can indeed be far from reality.
Sitglitz, the former World Bank chief economist, is worth quoting a bit more to give an insight into the power that the IMF has, and why accusations of it and its policies being colonial-like are perhaps not too far off:
“
…The IMF is not particularly interested in hearing the thoughts of its “client countries” on such topics as development strategy or financial austerity. All too often, the Fund’s approach to the developing countries has had the feel of a colonial ruler. A picture can be worth a thousand words, and a single picture snapped in 1998, shown throughout the world, has engraved itself in the minds of millions, particularly those in the former colonies. The IMF’s managing director, Michel Camdessus (the head of the IMF is referred to as its “Managing Director”), a short, neatly dressed former French Treasury bureaucrat, who once claimed to be a Socialist, is standing with a stern fact and crossed arms over the seated and humiliated president of Indonesia. The hapless president was being forced, in effect, to turn over economic sovereignty of his country to the IMF in return for the aid his country needed. In the end, ironically, much of the money went not to help Indonesia, but to bail out the “colonial power’s” private sector creditors. (Officially, the “ceremony” was the signing of a letter of agreement, an agreement effectively dictated by the IMF, though it often still keeps up the pretense that the letter of intent comes from the country’s government!)
Defenders of Camdessus claim the photograph was unfair, that he did not realize that it was being taken and that it was viewed out of context. But that is the point—in day-to-day interactions, away from cameras and reporters, this is precisely the stance that the IMF bureaucrats take, from the leader of the organization on down. To those in the developing countries, the picture raised a very disturbing question: Had things really changed since the “official” ending of colonialism a half century ago? When I saw the pictures, images of other signings of “agreements” came to mind. I wondered how similar this scene was to those marking the “opening up of Japan” with Admiral Perry’s gunboat diplomacy or the end of the Opium Wars or the surrender of maharajas in India.
                                                                                                                                                   „
— Joseph Stiglitz, Globalization and its Discontents, (Penguin Books, 2002), pp. 40–41
The above passage is from Stiglitz’s book, Globalization and its Discontents. In it, he highlights many, many more issues, criticisms and aspects of IMF/Washington Consensus ideological fanaticism that have hindered development, and in many cases, as he points out, worsened situations. It is surprising and also quite illuminating to get the “insider” image of the workings of some large institutions in this way.
Into mid-2005, and though not as vocal as Stiglitz, others at the IMF are also questioning the institution’s strict adherence to the free market doctrine, as Bretton Woods Projectreveals. One of the authors of a paper from the IMF “concedes the failure of IFI policies for the poorest countries” saying that “Much of sub-Saharan Africa has been under IMF and World Bank programmes during the last three decades, and while a modicum of macroeconomic stability has been achieved, progress has been spotty at best.” Another working paper from the IMF suggests that trade liberalization has crippled some governments of poorer countries, and that prospects for further trade liberalization in poor countries may be troubling.
PSRPs Replace SAPs But Still SAP The Poor
The IMF in 1999 replaced Structural Adjustments with Poverty Reduction Growth Facility (PRGP) and Policy Framework Papers with Poverty Reduction Strategy Papers (PSRP) as the new preconditions for loan and debt relief. However, the effect is still the same as the preceding disastrous structural adjustment policies, as the World Development Movement reported. Many civil society organizations are increasing their critique of the PSRPs.
[T]he PRSP process is simply delivering repackaged structural adjustment programmes (SAPs). It is not delivering poverty-focused development plans and it has failed to involve civil society and parliamentarians in economic policy discussions.
— PRSPs just PR say civil society groups, Bretton Woods Project Update #23, June/July 2001
As Jubilee Research (formerly Jubilee 2000, the debt relief campaign organization) adds:
“
Joint World Bank/IMF papers (39) on the PRSP stress “poverty reduction” and that the paper must be “country-driven with the broad participation of civil society”. But the IMF in its own papers stresses that this is in addition to everything that was required in the past; none of the old “Washington consensus” policies have been removed. In a paper for a meeting of African finance ministers, 18-19 January 2000, to explain the new PRGF, (40) the IMF stresses that it will demand of all countries “a more rapid privatisation process” and “a faster pace of trade liberalization”—the conditions criticized by Joseph Stiglitz when he was chief economist of the World Bank.
… James Wolfensohn, president of the World Bank, commented that “it is also clear to all of us that ownership is essential. Countries must be in the driver’s seat”. The theory is fine, but the practice distorts the meaning of these words. Countries are in the driving seat only as the chauffeur of the Washington Consensus limousine. And as Angela Woods and Matthew Lockwood comment, all too often “ownership relates to persuading the public that reforms are necessary and good in order to minimize political opposition to them”.
… The implication is that governments wishing to take an alternative economic approach must expect to forgo aid and debt relief. But Wood and Lockwood note that “not only does the Bank define a ‘good’ policy environment very narrowly, the consensus on what defines ‘good’ policies is subject to change. What may have been regarded as a good policy yesterday may not be today.”
„… It is impossible to ignore the sweeping critique, by the second most important man in the World Bank [Joseph Stiglitz], of policies still being imposed on poor countries as a condition of debt cancellation and aid. And it must be remembered that these are being imposed in the names of “good governance”, “sound policies” and “poverty reduction”.
Stiglitz notes that had the US followed IMF policy it would have not achieved its remarkable expansion.
                                                                                                                                                „
— Joseph Hanlon and Ann Pettifor, Kicking the Habit; Finding a lasting solution to addictive lending and borrowing—and its corrupting side-effects, Jubilee Research, March 2000
Additionally, as this book reports (see pages 37-38 of the PDF online version), “[A] senior [World] Bank official described the PRSP-PRGF as a ‘compulsory programme, so that those with the money can tell those without the money what they need in order to get the money.’” It would be worth additionally noting the cruel irony that nations that are “those with the money” today have largely accumulated it through plunder via imperialism and colonialism upon those very nations who today are “without the money.” Prescribing how to get “the money,” in that context, is dubious indeed.
For additional information and critique, you can see the following links as well:
·         Reports from the World Development Movement:
·         One size for all: A study of IMF and World Bank Poverty Reduction Strategies, September 2005
·         Still Sapping the Poor: A critique of IMF poverty reduction strategies, by Charles Abugre, June 2000
·         Polices to Roll-back the State and Privatize? from the World Development Movement, April 2001 provides additional studies and examples
·         From the Bretton Woods Project, an IMF and World Bank monitoring organization:
·         Structural Adjustment/PRSP section of their web site
·         The ABC of the PRSP, an introduction to the new Bank and Fund Poverty Reduction Strategy Papers, by Angela Wood, April 2000
·         From the Focus on the Global South:
·         The World Bank and the PRSP: Flawed Thinking and Failing Experiences
The Asian Development Bank
Like the IMF and World Bank, the Asian Development Bank (ADB) has also fallen under much criticism for its policies, which also require structural adjustments for loans. Through its policies it encourages export-driven, capital and resource-intensive development, just like the other international financial institutions. The largest financing and influence of the bank comes from Japan and the United States.
As summarized from chapter 2 of The Transfer of Wealth; Debt and the making of a Global South:
The escalating dependence of developing countries in the [Asia] region on debt-financed development has a number of negative consequences. These include:
a.       the neglect of domestic savings as a source of development finance;
b.       cuts in government expenditure for basic social services and basic infrastructure in order to meet debt servicing requirements;
c.       an escalation of export-oriented resource extraction to generate hard currency receipts for debt servicing;
d.       a reorientation of agricultural production from meeting local needs to production for export in highly skewed regional and global markets;
e.       increased dependence on imported, capital intensive technologies as a consequence of tied procurement and project design processes led by foreign consulting companies;
f.        increased dependence on and influence of international financial institutions such as the ADB and the World Bank, particularly through the imposition of debt-induced structural adjustment programs and policy based lending.
Also, as with the IMF and World bank, and mentioned in the above link, “governments are using the rubric of poverty reduction to channel taxpayer funds to their private sector companies via the ADB. This is occurring with little or no pubic scrutiny although government representatives will, if necessary, appeal to commercial self-interest to justify continued contributions to the ADB and other multilateral development banks.” As with the IMF for example, loans by the IMF are guaranteed by the creditor country. In essence then, tax payers from the lending countries will bail out the IMF and ADB if there are problems in their policies.
(For more details, statistics etc., the above link is a good starting place.)
The ADB has mentioned its desires to promote “good governance.” However, Aziz Choudry is highly critical in terms of whom this governance would actually be good for:
“
It has nothing to do with democratization, humanitarianism or support for peoples’ rights. It is a euphemism for a limited state designed to service the market and undermine popular mandates. The term is explicitly linked to the kinds of structural adjustment measures promoted by the ADB—measures for which there is little popular support and which are rapidly increasing economic inequalities.
                                                                                                                                                     „
 — Aziz Choudry, The Asian Development Bank—“Governing” the Pacific?, June 6, 2002
Structural adjustment policies have therefore had far-reaching consequences around the world. Yet, this is just one of the mechanisms whereby inequality and poverty has been structured into laws and institutions on a global scale.
Related Articles
1.       Poverty Facts And Stats
2.       Structural Adjustment—A Major Cause Of Poverty
3.       Poverty Around The World
4.       Today, Around 21,000 Children Died Around The World
5.       Corruption
6.       Tax Avoidance And Tax Havens; Undermining Democracy
7.       Foreign Aid For Development Assistance
8.       Causes Of Hunger Are Related To Poverty
9.       United Nations World Summit 2005
10.   IMF & World Bank Protests, Washington D.C.
Main Source: http://www.globalissues.org/article/3/structural-adjustment-a-major-cause-of-poverty
—
Online Sources:
(Note that listed here are only those hyperlinks to other articles from other web sites or elsewhere on this web site. Other sources such as journal, books and magazines, are mentioned above in the original text. Please also note that links to external sites are beyond my control. They might become unavailable temporarily or permanently since you read this, depending on the policies of those sites, which I cannot unfortunately do anything about.)
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http://www.globalissues.org/article/768/global-financial-crisis
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http://www.globalissues.org/article/768/global-financial-crisis
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Matthew O. Berger, 'IMF Criticised For ‘fancy Footwork’ Over Real Reforms', Inter Press Service, November 8, 2010,
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Note, if the above link has expired, please try the following alternative
http://www.globalissues.org/news/2010/11/08/7578
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Ann Petifor, 'Debt is still the lynchpin: the case of Malawi', Jubilee Research, July 4, 2002,
http://www.jubileeresearch.org/opinion/debt040702.htm
Note, if the above link has expired, please try the following alternative
http://www.jubileeresearch.org/worldnews/africa/malawi040702.htm
http://www.jubileeresearch.org/opinion/debt040702.htm
David Hencke, 'Anger as £700,000 of £3m British aid to Malawi spent on US firms', The Guardian, August 29, 2005,
http://www.guardian.co.uk/hearafrica05/story/0,15756,1558530,00.html
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http://www.globalissues.org/article/35/foreign-aid-development-assistance
http://www.oxfam.org.uk/policy/papers/2000imf/imf2.htm
Global Issues: “Global Financial Crisis”, Last updated: Sunday, March 24, 2013,
http://www.globalissues.org/article/768/global-financial-crisis
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'Adjustment lending is 'bad news' for poor: Bank study', Bretton Woods Update No. 21, Bretton Woods Project, February/March 2001,
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http://www.acrobat.com
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http://www.imf.org/external/np/res/docs/2003/031703.pdf
Note, if the above link has expired, please try the following alternative
http://www.brettonwoodsproject.org/article.shtml?cmd[126]=x-126-16182
'Little evidence that globalisation helps poor nations: IMF', Reuters, March 19, 2003 [link is to reposted version by Business Times, Singapore, a major business daily there],
http://business-times.asiaone.com.sg/news/story/0,4567,75709,00.html
Note, if the above link has expired, please try the following alternative locations:
A repost of the same Reuters article. A Google search on the internet can reveal a number of other web sites that have reposted the same article.
http://www.yearzero.org/communique/e0106110654bfa8517462e40899b0578.php
The BBC also reported on this, March 19, 2003. This is an alternative link to the Reuters article.
http://news.bbc.co.uk/2/hi/business/2863153.stm
'Fund economists whistle different trade tune', Bretton Woods Project, September 12, 2005,
http://www.brettonwoodsproject.org/article.shtml?cmd[126]=x-126-351529
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http://www.focusweb.org/publications/Books/Transfer%20of%20Wealth.html
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http://web.archive.org/web/20060107135027/http://www.wdm.org.uk/campaigns/cambriefs/debt/PRSPcrit.htm
http://web.archive.org/web/20060107124525/http://www.wdm.org.uk/campaigns/cambriefs/debt/PRSProllbackstate.htm
http://www.brettonwoodsproject.org/topic/adjustment/index.html
http://www.brettonwoodsproject.org/topic/adjustment/abcprsp.html
http://www.focusweb.org/publications/2001/THE-WORLD-BANK-AND-THE-PRSP.html
http://www.focusweb.org/publications/Books/Transfer%20of%20Wealth.html
http://www.zmag.org/sustainers/content/2002-06/06choudry.cfm
Author And Page Information
by Anup Shah
Created: Monday, July 20, 1998
Last Updated: Sunday, March 24, 2013


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JULY 1983 - VOLUME 4 - NUMBER 7

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I N T E R N A T I O N A L   M O N E T A R Y   F U N D

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The IMF An analysis of the International Monetary Fund's role in the Third World debt crisis, its relation to big banks, and the forces influencing its decisions. by Walden Bello and David Kinley The International Monetary Fund is a secretive institution. Its staff economists and bankers who delve in the nether-world of international finance assiduously avoid publicity. In a cloistered, oak-panelled office twelve floors above busy downtown Washington, 22 men representing all 143 member governments decide the financial fate of many of the world's countries. Afterward, they submit confidential reports of their deliberations and invariably refuse to speak to the press. But lately the IMF has been thrust into the public limelight. The Fund has traditionally served as a source of emergency financial aid to countries suffering balance of payments difficulties. But with Third World debt rising over tenfold in the last decade, from $50 billion in 1972 to about $640 billion in 1982, the Fund, critics charge, has been transformed into a debt-collection agency for the big multinational private banks, and a key instrument for achieving American foreign policy objectives. About 35 countries, mostly from the Third World, are currently under strict IMF "conditionality" programs designed to "cure" their liquidity crisis with harsh deflationary measures. These programs have provoked anti-IMF riots in Sao Paolo, Brazil, and in Chile. They have united virtually all sectors of Philippine society - including the business elite - against the technocrats who do the IMF's bidding. And in debt -ridden Mexico, the specter of demonstrations against the "stabilization program" haunts the government. In contrast, the Fund is proving to be a great asset to the big U.S. private banks which are dangerously overextended in the Third World. The multi-billion IMF credits to Brazil, Argentina, Mexico, and Chile have been attacked across the political spectrum as simply "bail-out" mechanisms for the overextended banks. As Congressmen Bill Patman of the House Banking Committee put it, "The IMF makes a loan of $5 billion to Brazil, and Brazil takes that and pays off Chase Manhattan. Is that not a payoff to Chase Manhattan?" The banks and the IMF have nothing less that full repayment in mind. While arguing for an increase in IMF contributions from the United States, Treasury Secretary Donald Reagan, a man with a solid Wall Street background, stated: "I don't think we should just let a nation off the hook because we are sympathetic to the fact that they are having difficulty... As debtors, I think they should be made to pay as much as they can without breaking them... You just can't let your heart rule your head in these situations." The Bail-out Process Bailing out the banks is a three-step process. First, the IMF draws public money contributed by member-governments and hands it over to, say, Argentina or Brazil. This enables the latter to repay the amounts falling due on its debts to the big banks, in addition to replenishing the foreign reserve credits needed to purchase imports. Second, with the IMF presence guaranteeing payment of future installments of the debt, the IMF and the banks draw up a plan for rescheduling future payments and an "emergency finance package" from the banks. The interest payments on the rescheduled debt and the emergency finance package are usually significantly higher than the average rate. This accounts for two seemingly paradoxical phenomena. On the one hand, the banks most heavily involved in international lending - which are supposed to be in great trouble - are posting record profits. On the other hand, the arrangements increase the risk of future default on the part of the debtor country. The third element in the process is the stabilization program imposed by the Fund on the debtor country. This usually consists of sharp cutbacks in imports, "maxi-devaluation" of the currency, repression of wages, massive reductions in government expenditures, and big tax increases. The idea is to save on foreign exchange and generate the internal resources to pay off the debt. Not only have these measures provoked popular discontent, but they threaten to wipe out these countries as markets for U.S. products. Twenty-three percent of U.S. exports are currently purchased by Third World countries under IMF stabilization programs - a fact which is leading some sectors of the U.S. establishment to worry that the proposed schemes may merely prolong and deepen the recession in the U.S. itself. According to Congressman Charles Schumer of New York (see interview, p. 18), IMF stabilization programs mean that "we cannot prosper and grow rapidly when IMF austerity forces our best customers to reduce their consumption and investment in U.S. products." Henry Kissinger, always on the lookout for the long-term stability of the establishment, calls this "the inherent contradiction in the IMF's basic strategy." Who's Responsible? The IMF is now projected as the savior of the international financial system by both the Reagan administration and liberals, who have united in an effort to increase IMF quotas (the contribution of member states) by 47 percent under the rationale of enabling the agency to assist the debt-ridden countries. They conveniently forget that the IMF bears a great deal of the responsibility for the generation of the current debt crisis. Possessing huge amounts of surplus capital (including petrodollars deposited by the OPEC countries), the banks inaugurated a period of easy lending to selected Third World countries in the mid-1970s. They were, however, reluctant to enter a country unless it had an ongoing program with the IMF - the "seal of approval" of the borrower's policies, and a catalyst for additional private and official financing. Thus, throughout the 1970s, the big private banks were the most powerful lobbyist for the expansion of IMF credit facilities to Third World countries. "The reason is obvious," asserted Congressman Tom Harkin in 1980. "With the IMF providing the funds to underpin the riskiest loans and providing the muscle to squeeze repayment from the world's poorest countries, the private banks can continue to reap enormous profits in the Third World." Even the Wall Street Journal termed the 1978 creation of a new IMF credit facility "the Bankers' Relief Act." In choosing preferred clients in the Third World, both the Fund and the banks tried to reduce the "political risk factor" - which meant that the biggest loans often went to capitalist countries with superficial signs of stability imposed by authoritarian regimes, like Chile, the Philippines, Argentina, and Brazil. Yet, these were often times the borrowers who were not likely to invest the bulk of the loans in creating productive assets that could generate the wealth from which the loans could be later repaid. As one student of Argentina's debt put it, "Between 1978 and 1982, the Argentinian external debt increased by roughly $18 billion. Where did the money go? Two to three billion went to pay for the increase in the current account deficit. A couple of billion went for interest. The generals used a couple of billion to buy airplanes and Exocet missiles. And the Argentinian private parties took $10 to $12 billion from the Central bank and parked it in condos in Miami, bonds in New York, and ski lodges in Vail." Creating the Debt-Prone Economy Encouragement of easy lending to irresponsible elites was not, however, the IMF's only contribution to the financial crisis. IMF stabilization programs were themselves responsible for creating the structural conditions which led to consistently huge deficits that demanded external finance. The Philippines is a classic example of the type of economy that the IMF, together with its sister institution the World Bank, attempt to forge throughout the Third World. Through the 1970's, the Philippines was under one or another kind of stabilization program, making it by mid-1980 the Third World country most indebted to the IMF. Working closely with the World Bank, the Fund used its tremendous power to restructure Philippine production along the lines of an "export-oriented" development strategy. This consisted of a concerted effort to push productive capital away from production for the internal market - by destroying the mechanisms sheltering Philippine firms from multinational competition - to a one-sided emphasis on producing labor-intensive manufactured exports. Attracting investment to export production also meant a policy of low wages and constant currency depreciation to ensure the competitiveness of Philippine products in export markets. This growth strategy, however, could only succeed if the international economy continued to expand and Western and Japanese markets remained open to Philippine imports. Both these conditions began to vanish in the mid-1970s. First, the international prices for sugar and coconut products, the Philippine's chief export crops, plunged. Then, in 1980, demand collapsed further with the onset of the international recession. In reaction to the economic downspin, the United States, Japan, and Western Europe began erecting protectionist barriers against labor-intensive manufactured imports from the Philippines and the rest of the Third World. In a confidential internal report, the Fund admitted that its strategy of export-led growth in the Philippines had failed: "The staff shares the view ... that export promotion has become more difficult in the present climate of uncertainty of the international economy as well as the trade restrictions faced by Philippine exports." This confession was, of course, no help to the Philippines, whose current account deficit widened sharply with the combination of weak exports and inexorably rising imports (which included imports of raw materials and machinery for the ailing export industries). By mid-1983, the deficit has risen to almost $3 billion, up from $2 billion in 1980. To bridge the gap, the country borrowed heavily from the Fund and the big banks. In a more balanced economy, the decline of the export sector can be balanced by the expansion of internal demand to ensure continued growth. But in the Philippines, years of following the IMFWorld Bank strategy of depressing wages to gain "export-competitiveness" had so gutted the internal market that deep recession became the only possible outcome. In 1982, the Philippines' GNP growth rate was down to 2.4 percent - the lowest in Southeast Asia. The Fund, then, has helped saddle Filipinos with the worst of all possible worlds: an economy racked by deep recession and weighed down by an impossible external debt burden. The Fund as an Instrument of U.S. Foreign Policy As Third World countries scramble to get last-resort financing from the IMF, another ugly side to the institution has become evident: its responsiveness to political manipulation by the U.S. The U.S., with the largest contribution to the Fund, holds more than 20 percent of voting power. Perhaps the most glaring example was the recent approval by the IMF Executive Directors of a $1.1 billion loan to South Africa. The Fund, under U.S. pressure, not only ignored the immorality of apartheid. It also refused to face the fact that apartheid is a key factor behind South Africa's balance-of-payments difficulties. As Professor Colin Radford of Yale emphasized in recent congressional testimony on the loan: "In the language of the economists, sometime soulless language, apartheid is a qualitative restriction on the labor force. In the interests of economic efficiency, the position of the IMF has been stated over and over again in opposition to qualitative restrictions which interfere with the operation of the economy." But it is futile to look at the Fund's economic "performance standards" to explain the South Africa loan. For the key factor behind its approval was the Reagan administration's desire to tighten up its political and military ties with South Africa, which is strategically located off the Indian Ocean, where the Pentagon is undertaking a major military build-up. Deserting its economic performance criteria in favor of decision-making on political grounds is not unusual for the IMF. In 1982, for instance, at least three loans to Third World countries were evaluated mainly in terms of their relevance to U.S. foreign policy. In July 1982, the Fund granted El Salvador a credit of $83 million in spite of what it acknowledged to be a state of economic chaos. In its confidential report, the IMF did not hesitate to describe its mission in political terms: to maintain a "holding pattern" which would be "instrumental in restoring and retaining an economic setting conducive to the renewal of growth and investment - once noneconomic factors permit it" (i.e., when the country is pacified politically). More recently, it has been revealed that the IMF approved two $35 million loans of another type to El Salvador during 1981 and 1982, although the country failed to meet the Fund's own criteria for the loans (see box). Again in July 1982, Haiti received a $38 million standby credit - despite dismal economic performance and despite the failure of the government of "Baby Doc" Duvalier to meet all the conditions attached to a different three-year credit extended in 1978. Baby Doc got the loan because Washington considers him a strategic ally in its efforts to isolate Cuba in the Caribbean. While the Fund extended credits to El Salvador and Haiti, it refused a request from Socialist Vietnam. In terms of economic performance, Vietnam clearly deserved the loan for it had met the key goal of a previous IMF credit extended in 1981: raising the gross domestic product by three percent. It had also begun to introduce market norms in a limited fashion and moved toward export-oriented development, as prescribed by the Fund.But while the Fund took a sympathetic view toward the Salvadoran regime's preoccupation with "noneconomic factors," it criticized the Vietnamese for "the continued diversion of resources toward military purposes." The staff report, in fact, sounds remarkably similar to arguments advanced by the State Department for denying bilateral aid to Vietnam unless it withdraws its troops from Kampuchea: "The continued diversion of resources toward non-economic purposes . . . contributed to a decline in total investments ... Military manpower requirements also continue to absorb a disproportionate share of technical and managerial skills that are in short supply." A recently leaked study by the Congressional Research Service indicates that the politicization of the IMF loan process has become especially marked under the Reagan administration. The study lists numerous instances in which the U.S. has disregarded the economic guidelines in order to advance its political interests. For instance, the study quotes an administration source as saying that the leftist government of Grenada, should not "get a penny of indirect aid" from the IMF and other multinational institutions. In sum, the International Monetary Fund, by serving as an undisguised agent of debt collection for the big international banks and a selective political instrument for the advancement of Reagan's foreign policy, is part of the problem and hardly the solution to the massive liquidity crisis now racking the Third World. Co-authors of Development Debacle: The World Bank in the Philippines (Institute for Food and Development Policy, 1982) Walden Bello and David Kinley are presently at work on a book on the IMF. El Salvador won improper loans under U. S. patronage IMF data together with internal IMF documents reveal that El Salvador received loans that it did not qualify for by the Fund's own rules - and that approval came as a result of some strong arm-twisting from the U.S. According to an analysis by the Center for International Policy, which obtained the internal documents, El Salvador was not eligible for the two $35 million loans it received on easy terms from the IMF's Compensatory Finance Facility in 1981 and 1982. The United States championed the 1981 loan as part of its campaign to place the IMF and other international financial institutions at the service of U.S. political objectives in Central America. A number of IMF executive directors objected to the loan because the IMF staff refused to endorse it. The staff failed to provide estimates of El Salvador's future export income, claiming that internal conflict in El Salvador made such estimates impossible. In confidential minutes of an IMF executive directors meeting of July 27, 1981, IMF Managing Director Jacques de Larosiere says "I can tell you very frankly that I would have preferred" the staff to recommend the loan. Executive Director Richard Erb, clearly irked at the staff's resistance, is described as saying that he "would have liked to see the staff make a forecast" for future export earnings, and that "the implication of not making a forecast is that the internal situation [in El Salvador] will become much worse." Erb and de Larosiere argued that the executive directors should make their own judgment about the likelihood of El Salvador hitting the targets and that in this case they should approve the loan. Directors representing nearly all the developed nations objected to this unprecedented intervention in the staff's work, and abstained from voting. One executive director pleaded for the board "to be well aware of the impact on the Fund's . . . reputation for objectivity that would result from . . . slipping into the practice of considering requests that did not carry .., the initials of staff and management." Nevertheless, the loan was approved with 57 percent of the board's voting power, 20 percent coming from the United States. According to sources within the IMF, this is the first time in the institution's history that a loan has been granted without the approval of the staff. IMF data published in June of this year proves that the loan was in fact not justified; El Salvador's export earnings in the two following years (1982 and 1983) have declined, rather than rebounded. Perhaps taking a cue from Erb's and de Larosiere's displeasure in 1981, the IMF staff did recommend to the executive board in June 1982 that El Salvador would qualify, though barely, for a second $35 million loan. But it appears likely that this additional loan will also prove to be improper, since earnings continue to slide. Only a doubling of export income in 1984 would make El Salvador eligible for the loan. In fact, a confidential IMF study of the Salvadoran economy dated April 25, 1983 notes that export income has declined since 1980, contrary to previous projections, and will at best hold steady in 1984. Under IMF rules, El Salvador should have to pay back most of the $70 million immediately. - Caleb Rossiter

Source: http://multinationalmonitor.org/hyper/issues/1983/07/bello.html
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Greece: Same Tragedy, Different Scripts