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The IMF and World Bank exposed
Global loan sharks

August 31, 2001 | Pages 8 and 9

WHEN THE Mafia does it, it's called "loan sharking" and "extortion"--lending money to desperate people and attaching outrageous and dangerous conditions as part of the payback scheme. But when the International Monetary Fund (IMF) and World Bank do it...well, then it's sound international economic policy.

Created in 1944, these two institutions were formed with the stated aim of opening up the global economy for economic development and protecting the world against financial crisis.

That's the rhetoric. The reality is that the IMF and World Bank are tools used by the world's most powerful countries to protect and expand their economic dominance.

They lend money to poor countries to fund development projects or for bailouts when their financial systems are cracking. But the money comes with "conditions"--governments in poor countries are forced to slash living standards, end subsidies for basic goods like food and housing, get rid of restrictions on trade and investment and privatize publicly owned enterprises.

Millions of people around the world have paid the price--enduring poverty, unemployment and environmental destruction, thanks to the IMF and World Bank.

NICOLE COLSON explains the facts you need to know about these global loan sharks.

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IMF: The world's debt cop
World Bank: Stealing from the poor
WTO: Putting free trade first
Bankrolling dictators
They won't stop us from taking a stand
Eric Toussaint: "We're seeing movements coming together"

IMF: The world's debt cop

"THEY'RE ALWAYS cutting back on us, on those who suffer. They never hit the multinational bankers and those that have made lots of money in the last few years." That's what Christian Valcalda, a 26-year-old worker at a government agricultural agency in Argentina, told a reporter as he joined more than 100,000 Argentinians on strike in early August.

The 48-hour general strike was part of a wave of protests against another "ajuste"--austerity measures to squeeze workers and the poor, in the name of dealing with Argentina's debt crisis.

Under the latest ajuste, salaries and pensions of government workers are being cut by 13 percent--even though official unemployment in Argentina has hit 16 percent and one-third of the population lives below the poverty line.

But that's the price that the IMF is demanding in return for loans to prevent a financial meltdown in Argentina. IMF loans always come with strings attached--strings called "structural adjustment programs."

Although the IMF is made up of 182 member countries, each country casts votes based on the size of its economy--a sort of "one dollar, one vote" system. As a result, the world's wealthiest countries make all the real decisions.

"When the IMF decides to assist a country, it dispatches a 'mission' of economists," says former World Bank chief economist Joseph Stiglitz. "These economists frequently lack extensive experience in the country; they are more likely to have firsthand knowledge of its five-star hotels than of the villages that dot its countryside."

The big winners are foreign corporations that locate facilities in poor countries or buy up domestic companies. Meanwhile, the IMF--along with the big banks that go along for the ride--make huge profits on the loans.

In 1997 alone, the IMF extracted a net $1 billion from sub-Saharan Africa. That year, the agency made $589 million in net profits, and the average salary of an IMF staffer at that time was $123,000.

The consequences of IMF policies are horrific. Take the African country of Zambia. Between 1990 and 1993, Zambia repaid $1.3 billion on loans from the West, $335 million of which went to the IMF. During the same period, the country spent just $37 million on primary education. Countries like Zambia are literally strangled by debt.

Plus there's the effect of "structural adjustment." In the early 1990s, Zambia was forced to slash government spending and sell off state-owned companies to private buyers, including crucial copper mines.

When copper prices dropped and half of the newly privatized businesses went bankrupt, there was no safety net to catch thousands of poor families whose lives were destroyed. Today, life expectancy in Zambia has dropped to 37 years, and child mortality rates are 20 percent higher than 10 years ago.

Elsewhere, the story of IMF "bailouts" is equally bleak. A few years ago in South Korea, workers bitterly joked that the letters "IMF" stood for "I'M Fired" after conditions on a 1998 bailout loan led to an average of 8,000 layoffs a day.

Even former officials like Stiglitz have begun to question the situation. "They bungled the crisis," Stiglitz wrote of the aftermath of the 1997-98 financial crisis in Asia.

"The IMF pressed ahead, demanding reductions in government spending. And so subsidies for basic necessities like food and fuel were eliminated at the very time when contractionary policies made those subsidies more desperately needed than ever...Not only was the IMF not restoring economic confidence in East Asia, it was undermining the region's social fabric."

The IMF claims to have learned its lesson from the devastating social consequences of its policies in Asia. But it continues to make the same demands for austerity.

"Our programs are like medicine," IMF chief economist Michael Mussa declared. "Some of the medicine has harmful side effects, and there are real questions about what the dosage ought to be. The best that can be hoped for is that we are prescribing more or less the right medicine in more or less the right dosage."

Cold comfort for workers and the poor around the globe who've been forced to swallow the IMF's bitter--and sometimes deadly--pills.

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World Bank: Stealing from the poor

"OUR DREAM is a world free of poverty." This lofty ideal is written across the top of the World Bank's Web site. But a better motto for the bank would be: "We kick poor people when they're down."

The Bank was first promoted as the financial institution that would guarantee loans to rebuild Europe following the Second World War--and later to promote development projects in poor countries.

Like the IMF, World Bank decisions are made by its 182 member governments--but on the basis that "whoever pays the most gets the most say." That means the world's most powerful and richest countries call the shots--and they use the World Bank to open up markets around the world for the multinational companies they serve.

The impact on working people is devastating. In India, for example, the World Bank has been a major force in pressing for privatization of the energy industry.

The state of Orissa, in eastern India, received a $350 million loan from the Bank in 1996 to restructure its electricity industry. But the condition was privatization of the state electricity board, which was taken over by the U.S.-based power company AES in mid-1999 for $10 million.

After privatization, power rates in Orissa jumped by 500 percent--despite the fact that only 20 percent of households could afford power when the industry was run by the state.

In October 1999, Orissa was hit by devastating cyclones that killed thousands and made millions homeless. Even as the state government was struggling to cope with the disaster, Dennis Bakke, the chief executive of AES, demanded to be paid $60 million for the cost of repairs to the electricity system.

If Orissa refused to pay, consumers would face another 300 percent rate hike. In the end, ordinary Indians paid for repairs to a power system that few could afford anyway.

Orissa has paid in other ways as well. World Bank projects opened the door for a boom in industrial development that is wrecking the environment. Strip mining and new power plants are causing toxic levels of pollution. Meanwhile, privatization of the coal industry led to 20,000 jobs lost in the mines.

But the political leaders who pull the strings of the World Bank don't care--because there's money to be made. Former Treasury Secretary Lawrence Summers told Congress in 1995 that, for every $1 that the U.S. spent on the World Bank, it got back $1.30 in contracts for U.S. corporations.

Summers called this "enlightened self-interest." He should have called it extortion.

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WTO: Putting free trade first

THE GLOBAL justice movement that will protest the IMF and World Bank in Washington, D.C., first exploded on the scene in 1999 at the Seattle demonstrations against the WTO. The WTO is younger than the IMF and World Bank--it was formed in 1995 to enforce and expand the international General Agreement on Tariffs and Trade.

But it's equally committed to the priority of profits over people. The WTO is supposed to keep watch over the system of international trade and resolve disputes between different countries. But by putting "free trade" before all else, the WTO helps expand corporate power at the expense of working people around the world.

Since its creation, one out of every four trade disputes that came before the WTO involved one country challenging another's laws on health, safety or the environment. In each case, the WTO has ruled against such regulations--on the grounds that they amounted to an illegal trade barrier and had to be removed or modified.

Some opponents have focused especially on how the WTO undermines U.S. laws. But this misses an important point--if the U.S. comes out the loser in a WTO dispute, it's because American bosses didn't really care about winning--because they have the power to win almost every fight they want to.

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Bankrolling dictators

THE IMF and World Bank have a long record of looking the other way while quietly bankrolling some of the world's most brutal dictators.

Indonesia's Suharto–the vicious tyrant who ruled for four decades until he was toppled in 1998–was especially notorious for funneling money to himself and his family. But the World Bank had nothing but praise for Indonesia under Suharto.

A 1993 report singled the country out as one of the leading example of "the Asian economic miracle." Indonesia, the Bank concluded, was one among several countries that were "unique in that they combine this rapid sustained growth with highly equal income distribution."

Yeah right. The only way that World Bank "experts" could get away with that line was by ignoring the millions in Suharto's bank accounts–and going along "with government estimates that showed epic improvements in living standards, despite indications the numbers were inflated," the Wall Street Journal later reported.

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They won't stop us from taking a stand

CHARLES RAMSEY is getting ready for a battle. A battle against protesters who want to speak out against the International Monetary Fund (IMF) and World Bank during their joint meeting in late September.

The Washington, D.C., police chief and other government officials plan to spend an incredible $31 million defending the city against the threat of free speech. The Secret Service will oversee construction of a 9-foot-high fence to seal off a two-mile area around the White House and the World Bank and IMF headquarters.

Ramsey's police force will be joined by 3,000 extra cops recruited from up and down the East Coast--and they'll have $5 million in new riot gear and other equipment. "Whatever takes place, we are going to keep control of those streets," Ramsey declared.

Ramsey and others are spreading scare stories about activists bent on "violent behavior." But the experience of past global justice demonstrations--especially the 300,000-strong turnout in Genoa, Italy, to protest the Group of Eight (G8) summit in July-shows that the police are the ones engaged in "violent behavior." Just ask the family of Carlo Giuliani, the 23-year-old demonstrator shot down at the Genoa protests.

The planning for a show of force in Washington is a sign of the dramatic impact of the global justice movement, which took off less than two years ago at the demonstrations in Seattle against the World Trade Organization (WTO).

Since then, more and more people have joined the movement, intent on showing their anger with a system run by the global loan sharks at the IMF and World Bank in the interest of profit-hungry corporations.

Across the country, activists are getting ready for the next step in the fight--the September 26-October 4 protests in Washington. These demonstrations "will be of an intensity, scope and magnitude that we have never seen in this city," Ramsey told reporters.

He may have said that to whip up fear--and to pry more cash out of the federal government for the defense of the city. But we aren't intimidated. And we plan to be in Washington in September--to show the IMF and World Bank that our world is not for sale.

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"We're seeing movements coming together"

ERIC TOUSSAINT is president of the Committee for the Cancellation of Third World Debt and author of Your Money or Your Life! The Tyranny of Global Finance. He talked to Socialist Worker's LEE SUSTAR about the crimes of the IMF and World Bank.

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THE G8 leaders claim that their debt relief programs are making progress in the Third World--and even George W. Bush is proposing to replace loans to poor countries with grants. What's the reality of these policies?

THE REALITY is that the external debt of Highly Indebted Poor Countries is higher now than three years ago. In reality, there's been no reduction.

On the contrary, when it comes to the recently announced fund for solving diseases like AIDS and tuberculosis, the reality is that it's a subsidy for the pharmaceutical multinationals.

They'll take public money to sell their products at lower costs than usual in the Third World. This is an initiative against the possibility of Third World countries producing generic drugs themselves.

Bush's proposal about grants is very controversial, because he didn't propose to increase development aid--he simply proposed to transfer loans into grants. The grants are presented as if they're generous, but they come with a high level of conditionality.

To get the grants, poor countries will have to open up to the multinationals. So this is a very dangerous and negative policy.

SOME SAY it's unrealistic to forgive Third World debt.

FIRST, WE shouldn't discuss what's realistic or not. We have to discuss what is justice--what are the needs of the people. Second, if you compare the public external debt of the Third World, it's less than 5 percent of the world public debt.

So the problem isn't at the financial level, but at the level of politics. That's the reason for the IMF, the World Bank, the G8 and private banks to refuse full cancellation of the debt--because if they cancel it, they'll lose leverage over Third World countries.

WHAT'S BEEN the impact of the huge protests against the G8 in Genoa, Italy?

I THINK we're seeing a convergence of the social movements--the trade unions, the unemployed, indigenous movements, peasant movements, student movements and some radical NGOs [non-governmental organizations].

Last week, I was in Mexico City to participate in a meeting of [the French-based global justice group] ATTAC and Via Campesina [an international peasant organization].

The majority of delegates were from the peasant movement, and a majority of those were indigenous people from Bolivia, Peru, Guatemala and so on. And it was very easy to have a dialogue between organizations like ATTAC, our committee from Brussels, and the indigenous delegates.

The movement against corporate globalization is understanding that the problem of food and agriculture in Andean countries is related to the problem of speculation, deregulation and trade.

We'll continue to have big demonstrations. At the end of September in Naples, Italy, there'll be a NATO meeting. We'll have big demonstrations against the IMF and World Bank in Washington.

What we're seeing is the capacity for the movement against corporate globalization to accumulate new forces.

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