THE WORLD BANK/IMF

(THE BRETTON WOODS TWIN SISTERS)

Formally named the International Bank for Reconstruction and Development (IBRD), the World
Bank and the International Monetary Fund (IMF), the United Nations' associated agencies, were
created in 1944 at the Bretton Woods Conference. Formed originally to provide long-term loans
for the post-World War II reconstruction of Europe, the World Bank has become one of the
primary international institutions that provide long-term loans to the underdeveloped countries.
The IMF was established for the purpose of supporting international monetary stability as well as
establishing stable exchange rates among nation-states. The IMF was to do this by establishing
exchange rates between currencies under a fixed exchange rate system. It had at its disposal a
fund of gold and currencies that it could use to credit accounts of countries that experienced
chronic balance of payments deficits. Although fixed exchange rate system was eventually
replaced by a floating system by former President Richard Nixon (unilaterally) to the advantage
of the U.S., the IMF still uses its funds to credit the accounts of countries with chronic balance of
payment problems. The developed countries fund both the two financial institutions. They
operate on a weighted voting system, providing the most votes to the countries that contribute the
most funds. The presidency of the World Bank has always been an American and the presidency
of the IMF has always been a European.
That background serves as a backdrop to our understanding of why the underdeveloped countries
distrust these institutions. The peripheral countries play no role in the institutions except as
dependent recipients of repayable loans with outrageous interest rates. There is little surprise
therefore that both the World Bank and the IMF have caused unbearable hardships on people
around the world. The IMF regularly imposes austerity measures including structural
adjustments on borrowers. Even a neoliberalist and Columbia University Economist, Jeffrey
Sachs, who had helped Russia dismantle its state-run economy, called the IMF the "Typhoid
Mary of emerging markets, spreading recessions in country after country."23 When the Asian
financial crisis erupted in 1997, the IMF imposed higher interest rates to supposedly shore up
investor confidence in local currencies, cuts in government spending to reduce deficits, and
privatization of state-owned enterprises.24 Similar measures were imposed on Mexico and other
Latin American countries to overcome a serious debt crisis in the 198Os.25 Thus, the IMF does
not just hand out loans on demand but requires the recipient governments to institute policy
changes to improve its economy. In that way, the IMF can be rest-assured that the loan will be
repaid. But the stringent spending cuts and high interest rates have driven troubled economies
into further difficulties because businesses could no longer afford to borrow money, factories
shut down and workers lost their jobs. Moreover, many of these peripheral countries already
have weak social programs. So, the austerity measures have further exacerbated the falling
standards of living. As shown in Table I - Regional Breakdown of Poverty in Developing
Countries -- there is a widening economic gap between the developed and the underdeveloped
countries in terms of the number of people living in poverty. In the study conducted by the
World Bank, the number of people living on less than $1 per day in 1990, as the Table I
indicates, was much lower in the developed countries than the underdeveloped countries. In East
Asia and Pacific, it was 452,000,000; in South Asia, it was 495,000,000; in Latin America and
the Caribbean, it was 74,000,000; and in Sub-Saharan Africa, it was 242,000,000. But in Europe
and Central Asia it was only 7,000,000. Similarly, the Table I shows the same trend in the World
Bank's study of the number of people living on less than $2 per day in 1990. In East Asia and
Pacific, it was 1,084,000,000; in South Asia, it was 976,000,000; in Latin America and the
Caribbean, it was 167,000,000; and in Sub-Saharan Africa, it was 388,000,000. Also, according
to Table I, the projected number of people living on less than $2 per day in 2015 will decline in
each region except in Sub-Saharan Africa. The projected number is 597,000,000. The continued
population explosion and economic stagnation as well as lack of industrial base may have
combined to forecast the gloomy picture of the region.
Some of the crises in Africa threaten its peoples' traditional resiliency. The facts are grim. In
material terms, the average African is poorer today than at independence, and it is predicted that
poverty will only increase in the immediate future. The continent is faced with myriad of
problems including the Acquired Immune Deficiency Syndrome (A.I.D. pandemic), foreign debt,
mismanagement of resources, and armed conflicts. Even nature is not so kind to Africa. Drought
conditions in recent decades have led to food shortages across the continent. According to Table
II -Measuring Misery, a Human Development Report of 2002 published by the United Nations
Development Program - nearly all the African countries are among the least underdeveloped
countries of the world. With the exception of Seychelles (ranked 47), Libya (ranked 64), and
Mauritius (ranked 67), the ranking of African states among world nations is from 100 to 173.
Therefore, nowhere are impacts of the IMF/World Bank machinations felt more intensely than
Africa. As Festus Iyayi laments: "The fact (is) that the economy of Nigeria is not owned by
Nigerians; that World Bank and IMF officials are in control of our national politics and
economy; that we are indebted to external creditors to the tune of over $32 billion when, indeed,
other nations should be indebted to us."26 As a consequence of the IMF/World Bank austerity
measures that have been imposed on Nigeria in the late 198Os, the country, like many other
Asian and Latin American countries, is steadily retrogressing; or simply put, Nigeria has all of
the trappings of 'the development of underdevelopment'. The 2002 World Development report
succinctly unravels the puzzle on Nigeria. The report provides information on the quality of life
and the level of poverty in 174 countries in the world. According to the report, in 1998, Nigeria
ranked 23rd poorest country in the world out of the 174 nations. Between 1980 and 1998, gross
domestic GDP per capita in Nigeria declined from $314 in 1980 down to $258 in 1990 and to
$256 in 1998. The average annual rate of change in GDP during the period was a negative 0.7
percent. The life expectancy at birth in 1998 was 51.5 years for females and 48.7 years for males.
That means the life expectancy of the people of Nigeria at birth was only 50.1 years. Indeed, the
report further revealed that 33.3 percent of the Nigerian population in 1998 was not expected to
survive to age 40. Again, whereas, the poorest 20 percent of population had access to 4.4 percent
of the national income, the richest 20 percent consumed 55.7 percent of the national income. In
addition, 70.2 percent of the Nigerian population earned less than $ 1.0 a day between 1987 and
1998, indicating that at least 43 percent of the copulation lived below the poverty line.27 In the
midst of the abundant data that show the declining economic development, the IMF and World
Bank are now demanding the repayment of their loans while the Nigerian government is
requesting for a debt relief.
Indeed, under the rubric of globalization championed by the IMF/World Bank, many other
African countries besides Nigeria have been going through unprecedented economic distress.
Table III - Development Indicators for Selected African Countries and the United States, 1992-
1993 - illustrates the enormity of the problem.
The inference from the data is that life in contemporary Africa is a matter of survival. While the
income per capita as an economic indicator of the growth of a nation-state is debatable because it
does not show the complete development outlook, suffice it to say that great disparity exists
between African countries and the United States. The continent displays a great diversity in
lifestyles and jobs. Approximately 70 percent of Africans live in rural areas and work in
agriculture. Yet, the World Bank/IMF lending activities are not targeted at the grassroots where
the peasants can be part of the development plans. Instead, development plans are usually urban-
centered and the peasants are marginalized. Even a large number of the other roughly 30 percent
of the African population who reside in the cities or urban areas have chronic problem of
joblessness. A small number of the people in the cities make a very good living, but others barely
make enough money to keep them from starving. The unemployed and the unemployable usually
resort to social vices such as prostitution, drug abuse, begging, stealing, and similar activities.
Indeed, large African cities are populated with beggars many of whom are children.
The African conditions as well as the Asian and the Latin American predicaments are the direct
result of the policies of the IMF/World Bank. Globalization is not just a vague concept like
liberty or equality. It is actually a well-planned program with an agenda for action. This agenda
is known as "Washington Consensus,"28 an idea conceived by the United States government in
close collaboration with the IMF/World Bank. It stands for ten policies, detailed in the
Consensus document. They are (a) free trade; (b) freely flowing FCI; (c) fiscal disciplines
meaning smaller budget deficits; (d) cuts in subsidies; (e) tax reforms; (f) competitive exchange
rates; (g) liberalized financial systems; (h) privatization; (i) deregulation; and (j) property
rights.29
There is little doubt that the agenda had been carefully designed to serve the needs of the rich
nations at the expense of the poor. The developed countries have surplus capital. When the
American capitalists started to accumulate surplus capital around 1980 or so, globalization like
mercantilism, was envisioned. But it did not take off. It needed time for maturity considering the
presence of the Cold War. However, following the collapse of communism in the former Soviet
Union and the Eastern Bloc and the fashioning of privatization and democratization in those
countries, the capitalists declared victory (see the works of Francis Fukuyama 1989 and 1992 -
The End of History) and embarked on a mission to unify the world into one economic, political,
and social entity. Thus, globalization designed to homogenize the world into a monoculture
earnestly began in 1990. Its first test was Iraq. The invasion of Kuwait by Iraq in 1990 presented
an opportunity for the United States to test its victory in the aftermath of the Cold War. The
invocation of collective security and the use of military force against Iraq marked the first time
the United Nations applied the collective security in its charter other than in 1950 in Korea (note
that the former USSR, a permanent member with veto power, was not present in the Security
Council to cast a vote).
Indeed, the Bretton Woods twin sisters have failed woefully to alleviate poverty in the world.
They have failed because they were never designed to serve the interest of anyone but their
shareholders. Instead of promoting economic growth, the IMF and the World Bank have
institutionalized economic stagnation in the underdeveloped countries. They are irrelevant to the
central goal of eliminating global poverty. Driven by the interests of key political and economic
institutions in the Group of Seven (G-7) countries, in particular the United States, the IMF and
the World Bank are more concerned about the internal imperative of capitalist expansionism or
empire building for capital accumulation. In terms of achieving positive development impact, a
Meltzer Report in April 2000 indicates that the World Bank's own evaluation of its projects
shows an outstanding 55-60 percent failure rate. The failure rate is particularly high in the
poorest countries, where it ranges from 65 percent to 70 percent.30 These are the very countries
that are supposed to be the main targets of the Bank's anti-poverty approach. The report states
that the rhetoric about focusing on poverty alleviation is contradicted by the reality that 70
percent of the Bank's non-aid lending is concentrated in 11 countries, while the Bank's 145 other
member countries are left to divide the remaining 30 percent. Moreover, the report concludes
that: "80 percent of World Bank resources have gone, not to poor countries with poor credit
ratings and investment ratings, but to countries that could have raised the money in international
private capital markets owing to their having investment grade or high yield ratings."31
Furthermore, the World Bank in its quest for capital accumulation lends money to that states
noted for atrocities including gross violations of human rights. This has been observed: "In Fiscal
Year 2001 alone, the World Bank extended capital commitments totaling $17.3 billion...., in
many cases to states that have been the venues for atrocities and abuses committed by either the
government or other groups."32 It is important to note that a government engaged in or
facilitating atrocities will have less incentive to adhere to international legal norms if it continues
to receive funds from the World Bank or the IMF without any consideration of the atrocities or
the impunity of those responsible. The issue is not whether the Bretton Woods Twin Sisters
should automatically cease all activities in a country at the first sign of humanitarian law
violations. The power of the purse is not even used by the institutions as one of the loudest
voices, one that can be applied to complement the efforts by the United Nations, some concerned
states, and non-governmental organizations (NGOs) to protect civilians and prevent violations of
international humanitarian law. Diplomatic pressure will lose its muscle when matched with
"reverse" economic incentives to the states that undermine the gross violations of human rights.

1994 marks the 50th year of the founding of the International Monetary Fund (IMF) and the
World Bank at Bretton Woods, New Hampshire, during an Anglo-American-managed
conference attended by, among others, Lord Keynes.
For people in the more than 70 countries which have been subjected to 566 IMF and World Bank
stabilization and "structural adjustment" programs (SAPs) in the last 14 years, there is hardly any
reason to celebrate this anniversary. Indeed, from Nigeria to Jamaica, "Sap" has entered popular
discourse as a synonym for economic misery.
And far from being the promoters of global economic growth and stability envisioned by
Keynes, the World Bank and IMF are a central cause of the stagnation and instability that plague
the world economy.
At the onset of the global debt crisis in the early 1980s, Third World countries were told that the
"structural reforms" promoted by these programs were essential to sustained growth and
economic stability. Faced with the threat of a cutoff of external funds needed to service the
mounting debts they had incurred from the western private banks that had gone on a lending
binge in the 1970s, these countries had no choice but to implement the painful measures
demanded by the Bank and Fund. These usually included:
• cutbacks in government expenditures, especially in social spending;
 • rollback or containment of wages;
• privatization of state enterprises and deregulation of the economy;
• elimination or reduction of protection for the domestic market and less restrictions on the
operations of foreign investors;
• successive devaluations of the local currency in the name of achieving export
competitiveness.
Rationale and Reality
In an effort to counter a rising crescendo of criticism, the World Bank has released a report
claiming that African countries that faithfully follow SAP prescriptions have better economic
growth rates than those that don't. Instead, the report has come across as a classic methodological
exercise of how to manipulate marginal statistical differences for ideological ends. The real
world provided a harsh counterpoint shortly after the report appeared earlier this year: Mali is
one of the World Bank and IMF's model African pupils, having fully implemented, over the last
12 years, all key elements of the SAP program, including massive salary cutbacks, devaluation
of the currency, and liquidation of state enterprises. But with their purchasing power declining by
over 117 per cent since the start of adjustment, people finally rebelled "against SAP" this
February, barricading streets and ransacking buildings.
A similar unmasking of another model SAP occurred more than a month earlier, in early
January. The indigenous Zapatista rebellion in Chiapas, Mexico drew global attention not only to
popular opposition to the North American Free Trade Agreement (NAFTA) but also to the
staggering consequences of 13 years of structural adjustment: some 20 percent of the work force
unemployed, another 40 percent underemployed, over half the population below the poverty line,
and massive discontent all around.
In fact, structural adjustment has failed-miserably-to accomplish what World Bank and IMF
technocrats said it would do: promote growth, stabilize the external accounts, and reduce
poverty.
Institutionalizing Economic Stagnation. In contrast to the positive evaluation of the recent
World Bank report on structural adjustment in Africa, an earlier global survey of the impact of
adjustment over a 15 year period by the IMF reported the uncomfortable finding that "the growth
rate is significantly reduced in program countries relative to the change in non-program
countries." For non-doctrinaire economists, in fact, this was not surprising, for structural
adjustment had brought about in Third World countries the same conundrum that stymied the
mature industrial economies during the Great Depression, and for which Keynesian demand-side
economics was designed as the solution. That is, economies under adjustment are stuck in a low-
level trap, in which low investment, increased unemployment, reduced social spending, reduced
consumption, and low output interact to create a vicious cycle of stagnation and decline, rather
than a virtuous circle of growth, rising employment, and rising investment, as originally
envisaged in World Bank theory. In the words of Massachusetts Institute of Technology
Professor Rudiger Dornbusch, "[E]ven with major adjustment efforts in place, countries do not
fall back on their feet running; they fall into a hole."
Guaranteeing Debt Repayments. Despite global adjustment, the Third World's debt burden
rose from $785 billion at the beginning of the debt crisis to nearly $1.5 trillion in 1993. Thirty-
six of Africa's 47 countries have been subjected to structural adjustment by the Fund and Bank,
yet the total external debt of the continent is now 110 percent of its gross national product.
Structural adjustment loans from the World Bank and the IMF were given to indebted countries
to enable the latter to make their immediate interest payments to the western commercial banks.
Having done this, the Bank and the Fund then went on to apply draconian adjustment policies
that would assure a steady supply of repayments in the medium and long term. By having Third
World economies focus on production for export, foreign exchange would be gained which could
be channeled into servicing dollar-denominated foreign debt.
The policy was immensely successful, effecting as it did an astounding net transfer of financial
resources from the Third World to the commercial banks that amounted to $178 billion between
1984 and 1990. So massive was the decapitalization of the South that a former executive director
of the World Bank exclaimed: "Not since the conquistadors plundered Latin America has the
world experienced a flow in the direction we see today."
Intensifying Poverty. If structural adjustment has brought neither growth nor debt relief, it has
certainly intensified poverty. In Latin America, according to Inter-American Development Bank
president Enrique Iglesias, adjustment programs had the effect of "largely canceling out the
progress of the 1960s and 1970s." The numbers of people living in poverty rose from 130 million
in 1980 to 180 million at the beginning of the 1990s. Structural adjustment also worsened what
was already a very skewed distribution of income, with the result that today, the top 20 percent
of the continent's population earn 20 times that earned by the poorest 20 percent.
In Africa adjustment has been a central link in a vicious circle whose other elements are civil
war, drought, and the steep decline in the international price of the region's agricultural and raw
material exports. The number of people living below the poverty line now stands at 200 million
of the region's 690 million people, and even the least pessimistic projection of the World Bank
sees the number of poor rising by 50 percent to reach 300 million by the year 2000.
Adjusting the Environment. IMF and Bank-supported adjustment policies have been among
the major contributors to environmental destruction in the Third World. By pushing countries to
increase their foreign exchange to service their foreign debt, structural adjustment programs have
forced them to superexploit their exportable resources. In Ghana, regarded as a "star pupil" by
the Fund and the Bank, the government has moved to intensify commercial forestry, with World
Bank support. Timber production more than doubled between 1984 and 1987, accelerating the
destruction of the country's already much-reduced forest cover, which is now 25 percent of its
original size. The country is expected to soon make the transition from being an net exporter to
being a net importer of wood. Indeed, economist Fantu Cheru predicts that Ghana could well be
stripped of trees by the year 2000.
Impoverishment, claims the World Bank, is one of the prime causes of environmental
degradation because "land hungry farmers resort to cultivating erosion-prone hillsides and
moving into tropical forest areas where crop yields on cleared fields usually drop after just a few
years."
What the World Bank fails to acknowledge is that its structural adjustment programs have been
among the prime causes of impoverishment, and thus a central cause of ecological degradation.
In the Philippines, for instance, a World Resources Institute study claims that the sharp economic
contraction triggered by Bank-imposed adjustment in the 1980s forced poor rural people to move
into and superexploit open access forests, watersheds, and artisanal fisheries.
The Strategic Objective
But if structural adjustment programs have had such a poor record, why do the World Bank and
the Fund continue to impose them on much of the South?
This question is vali, only if one assumes that the Bank and Fund's intention is to assist Third
World economies. Then, the failure of structural adjustment programs can be laid to such things
as bad conceptualization or poor implementation. However, it is becoming increasingly clear
that, whatever may be the subjective intentions of the doctrinaire technocrats that are tasked to
implement them, structural adjustment programs were never meant to succeed. Instead, they
have functioned as key instruments in the North's effort to roll back the gains that had been made
by the South from the 1950s to 1980s.
These decades were marked by high rates of economic growth in the Third World. They also
witnessed successful struggles of national liberation, and the coming together of southern states
at the global level to demand a New International Economic Order (NIEO) that would entail a
more equitable distribution of global economic power.
Central to the economic achievements of the South was an activist state or public sector. In some
countries, the state sector was the engine of the development process. In others, state support was
critical to the success of domestic businesses wishing to compete against foreign capital. While
private ownership of land, resources, and enterprises was the rule in most of the newly
independent societies of the South, and economic exchange was largely mediated by the market,
government intervention in economic life was pervasive, and the state had a strategic role in
economic transformation.
Contrary to doctrinaire conservative interpretations, the prominence of the state in post-colonial
economic development did not stem from a usurpation of the role of private enterprise; rather it
was a response to the weakness of private industrial interests. "[T]he state," observes one analyst,
"became a surrogate for private enterprise that could drive modernization without
challenging....entrenched interests-indeed would continue to protect them-and without turning
the country completely over to foreign interests."
In this connection, Third World political and economic elites were Janus-faced. Fearful of
insurgent lower-class movements, they cooperated with Washington's anti-Communist
campaigns. But partly from a desire to gain popular legitimacy and outmaneuver the left, some
Southern elites took increasingly bold moves to gain more control over their economies and a
greater share of the surplus being extracted from them in the 1960s and 1970s. Led by the US's
most strategic allies in the Persian Gulf, Saudi Arabia and Iran, the Organization of Petroleum
Exporting Countries (OPEC) seized control of the pricing of oil via the oil embargo of 1973 and
a massive price rise in 1979. Meanwhile, US businesses were alarmed by developments in two
key markets. In Brazil, where foreign-owned firms accounted for half of total manufacturing
sales, the military-technocrat regime, invoking national security considerations, moved in the late
1970s to reserve the strategic information sector to local industries, provoking bitter
denunciation by the then massively dominant IBM (International Business Machines). In
Mexico, where foreign firms accounted for nearly 30 percent of manufacturing output,
government moves to give local drug manufacturers greater control of the market via no-patent
policies provoked threats of disinvestment by the powerful US pharmaceutical industry.
It was not surprising then that when Reaganites came to power, they saw as one of their central
missions the resubordination of the Third World. State-assisted capitalism was the key target,
and here the anti-South agenda coincided with the free market ideological mindset of the new
regime. After a brief period of debate, the mechanism chosen for the dismantling of the
economic apparatus of the Third World state was the structural adjustment program of the IMF
and the World Bank.
Not surprisingly, few southern governments were willing to accept structural adjustment loans
when they were first offered. The onset of the debt crisis in 1982, however, provided the golden
opportunity for Washington to simultaneously protect US financial interests and roll back the
threat from the South by radically adjusting Third World economies. The US, notes Latin
America specialist John Sheahan, took advantage of "this period of financial strain to insist that
debtor countries remove the government from the economy as the price of getting credit."
Similarly, a survey of structural adjustment programs in Africa carried out by the United Nations
Economic Commission for Africa concluded that the essence of these programs was the
"reduction/removal of direct state intervention in the productive and distributive sectors of the
economy."
The New South
By the end of the 12-year Reagan-Bush era in 1992, the South had been transformed: from
Argentina to Ghana, state participation in the economy had been drastically curtailed;
government enterprises were passing into private hands in the name of efficiency; protectionist
barriers to Northern imports were being eliminated wholesale; restrictions on foreign investment
has been radically reduced; and, through export-first policies, the internal economy was more
tightly integrated into the capitalist world market.
To be sure, it was not the South alone that suffered from adjustment policies. With the ostensible
objective of reducing its trade deficit with the Asian "tiger economies," the US has launched a
multipronged offensive designed strategically to radically reduce the leading role of the state in
these economies, which even the World Bank in a recent study has grudgingly conceded as a key
element in their success. And in the US, adjustment came in the form of Reaganomics-
deregulation, radical reductions in tax rates for the rich, gutting of the New Deal safety nets, and
the end of the compromise between big capital and big labor mediated by big government. The
elimination of state supports for production in rival economies-including Japan and Europe-and
state restraints on corporate activity in the home economy: this was the key thrust of a global
adjustment program designed to reassert US corporate hegemony globally. But the main brunt of
adjustment fell on the South.
The coming to power of a new Democratic administration has not altered Washington's
economic policy toward the South. On structural adjustment and trade policies, the Clinton
administration has emphasized continuity with the Bush administration. Indeed, the coupling of
free market and free trade rhetoric with threats of the unilateral display of US power vis-a-vis all
comers-the South, the Newly Industrializing Countries, Europe, and Japan-has, if anything,
become more aggressive under Clinton.
The erosion of Third World economies has translated at the international level to the weakening
of the formations which the South had traditionally used to attain its collective goal of bringing
about a change in the global power equation: the Non-Aligned Movement, the United Nations
Conference on Trade and Development (UNCTAD), and the Group of 77. The decomposition of
the Third World was felt at the United Nations, where the US was emboldened to once again use
that body to front the interests of the North, including providing legitimacy for the US-led
invasion of Iraq in 1991.
Rollback via structural adjustment had succeeded.
At the time on independence in the 1950s and 1960s, the peoples of the South were optimistic
that the future belonged to them, the 80 percent of the world's population that colonialism had
long treated as second or third class citizens of the world. The illusions were gone by the
beginning of the 1990s. As the South stood on the threshold of the 21st century, the South
Commission captured the essence of its contemporary condition: "It may not be an exaggeration
to say that the establishment of a system of international economic relations in which the South's
second-class status would be institutionalized is an immediate danger."
Copyright Association of Third World Studies, Inc. Spring 2005
Provided by ProQuest Information and Learning Company. All rights Reserved
Irogbe, Kema "GLOBALIZATION AND THE DEVELOPMENT OF
UNDERDEVELOPMENT OF THE THIRD WORLD". Journal of Third World Studies.
FindArticles.com. 02 Feb, 2009.
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