- How has the debt crisis led to the problems of structural adjustment? Where does this debt come from? What should be done about debt?
- How are the World Bank and the IMF part of "corporate globalization"?
- Who makes decisions at the World Bank and IMF?
- What is structural adjustment?
- Hasstructural adjustment made a difference?
- What have the IMF and World Bank done to make structural adjustment more palatable?
- What is an example of a destructive World Bankproject?
What is the World Bank?
Created at the Bretton Woods Conference in 1944,
the World Bank Group is comprised of four agencies
that make loans or guarantee credit to its 184 member countries. In
addition to financing projects
such as roads, power plants and other infrastructure projects, the Bank
also makes loans to restructure a
country's economic system by funding structural adjustment programs
(SAPs). The Bank manages a
loan portfolio totaling over US$250 billion.
Its component agencies are:
(1) the International Bank for
Reconstruction and Development (IBRD), which raises capital
through bond issues on international capital markets (with the
guarantee of the Bank's
governmental shareholders) makes loans to governments at rates somewhat
(2) the International Development
Association (IDA), founded in 1960, which makes very low
interest loans (.25%, payable over 40 years) to low-income countries;
(3) the International Finance
Corporation (IFC), founded in 1956, which makes both
loans and equity investments to encourage private sector development in
developing countries; and
(4) the Multilateral Investment
Agency (MIGA), created in 1985, which provides "political
risk insurance" to encourage
private sector development in developing countries.
A fifth agency, the International Center
for the Settlement of Investment Disputes (ICSID), is not
involved in finance directly, but instead serves as a tribunal for
addressing disagreements between
corporations or investors and national governments.
Employees of the World Bank Group frequently
the IBRD and IDA as "the World Bank,"
which fosters the inaccurate impression that the IFC and MIGA are
somehow separate entities. The rivalry
between the different parts of the Bank fades into irrelevance once one
is a few blocks from Pennsylvania Avenue in Washington, DC.
How has the debt crisis led to the
structural adjustment? Where does this debt come from? What should be
done about debt?
Most of the world's developing countries have very
high external debt levels. It is that debt which has
forced governments to seek loans from the IMF and
World Bank. External debt thus has two debilitating
impacts on countries: 1) payments on the debt,
which can approach 50% of an annual budget in
some cases, and deprive desperately impoverished
countries of the funds needed to address the
problems of the some of the world's most vulnerable
peoples; and 2) the debt forces governments to
become ensnared in the borrow-and-pay treadmill of
the IMF and World Bank, and, worse, subjects them
to the structural adjustment conditions which further
impoverish their populations.
Much of this debt dates back to 1970s, when it
was lent irresponsibly by commercial banks and
borrowed recklessly by governments, most of which
were not popularly elected and which no longer hold
power. The advent of the debt crisis, which occurred
in the early 1980s due to a worldwide collapse in the
prices of commodities that developing countries
export (e.g., coffee, cocoa) and to rising oil prices and
interest rates, forced these countries into a position
where they were unable to make payments. Yet
there's no such thing as bankruptcy protection for a
country, regardless of the circumstances. A country
always has some natural resources, or cheap labor to
offer, which will produce some revenues that can be
claimed by creditors.
While the international financial institutions claim they cannot
"afford" to write off the debts owed them, it is the case that the IMF
has gold reserves totaling over $30 billion, and that the IBRD alone
had a net income of over $5 billion in 2003. At any rate, the solvency
of the institutions is a much smaller concern than the solvency of the
people who have been tyrannized by the debt for decades. It is
incumbent upon those who control the institutions and claim to be
working for poverty reduction that the greatest tool for restoring
stability and economic balance to the most impoverished countries would
be the removal of the crippling and distorting debt burden. Recognition
of this principle would force them to take the loss on debts that any
other financial institution would have had to write
off years ago. At the very least it would require a reprioritization,
meaning less funds for supporting
"political risk insurance" and equity investments for
multinational corporations â€“ whatever is
the institutions to satisfy themselves that they can
balance their accounts after writing off the debts.
How are the World Bank and the IMF part
It is no exaggeration to say that what we think of
the "globalized" economy - or, more precisely,
"corporate globalization" - was designed and imposed
by the IMF and World Bank, and continues to be
enforced by those institutions. It was the IMF and
World Bank which forced the economies of most of
the world's countries open, by using the leverage of
indebtedness to condition loans to desperate
governments on measures that would invite foreign
investors and multinational corporations to play
leading roles in developing country economies and
make those countries dependent on international
trade, regardless of the terms.
It is also no exaggeration to view the World
Trade Organization, created in 1995, as the child of
the IMF and World Bank. For decades, the wealthy
countries resisted the formation of such an
organization, which was first proposed at the Bretton
Woods conference where the IMF and World Bank
were created. The success of structural adjustment in
opening up developing countries to corporate
exploitation was key in convincing politicians,
investors, and corporate executives that the risks of
submitting themselves to a world trade body were
worth taking in exchange for being able to further
lock in the measures that had created such enormous
profit opportunities for them. Recent developments
at the WTO, such as the refusal of developing
countries to go along with U.S. and European
demands at the Cancún ministerial in September
2003, may have some of those who pushed for its
creation reconsidering now.
Structural adjustment programs, then, have not
"failed." While they have not produced the results
claimed for them - resolution of external debt
problems, growth, prosperity - by fostering the
corporate globalization model they have succeeded
spectacularly in creating profit opportunities for those
positioned to take advantage of their conditions -
mostly wealthy foreign investors and multinational
What is the IMF?
The International Monetary Fund (IMF), also
created at the Bretton Woods Conference, has a
narrow official mission: to monitor national
economies and make cash or credit available to
member states experiencing short-term balance-ofpayments
difficulties. However, the IMF has drifted
far from its original mandate, and since the late
1970s has gotten involved in countries with chronic
financial imbalances. Its main business now is making loans to
developing and transition countries
in financial crisis, and designing strict conditions
("structural adjustment programs") for those loans.
Many of the IMF's client countries now take out
consecutive loans, with the attendant conditions,
from the IMF and World Bank. IMF "bail-out"
packages, usually for larger middle-income countries,
differ from standard structural adjustment loans in
magnitude - they're bigger - and in urgency - they're
often assemble in a matter of days and weeks in the
face of a currency crisis. The conditions, however, are
very similar to those imposed on the regular clients of
Who makes decisions at the World Bank
Decisions at the World Bank and IMF are made by a
vote of the Board of Executive Directors, which
represents member countries. The Boards of the two
institutions are separate, but very similar in make-up
and character (the different components of the World
Bank Group technically have different boards, but in
practice the same people serve on them, with the
only difference being how much weight is accorded
votes, depending on which agency the board is
making decisions for).
Unlike the United Nations General Assembly,
where each member nation has an equal vote, voting
power at the World Bank and IMF is determined by
the level of a nation's financial contribution.
Therefore, the United States has between 15.5 and
18% of the vote on each board, with the seven largest
industrialized countries (the G-7) holding about
45%. Because of the scale of its contribution, the
United States has always had a dominant voice,
which is further amplified by the location of the
institutions in Washington (as mandated by the
Articles of Agreement, which specify that the
headquarters shall be in the capital of the country
making the largest capital contribution). Significant
changes in policy direction require a "super-majority"of 85%; the U.S.
so far has retained its veto power by making sure its voting power
never slips below 15%.
Although the institutions have no direct impact
on the wealthy countries which control it, they have
significant, even dominating, influence over the
economic policies of developing countries, which
have very little power within the institution. While
the U.S. and eight other countries have Executive
Directors which represent only one country, sub-
Saharan Africa has two directors, each representing
23 countries. Together the two African directors'
votes count for less than 5% of the total.
For all this talk of voting power, it should be kept in mind that the
Boards of the institutions rarely
take formal votes. Instead decisions are made by
"consensus," arrived at through discussions in which
the relative power of each of the participants is always
a significant factor in determining the final outcome.
Avoiding formal votes - and avoiding formal minutes
which would record who says what at board meetings
- is one way the boards evade accountability for their
By unwritten agreement, the President of the
World Bank is a U.S. citizen, selected by the President
of the United States, and the Managing Director of
the IMF is a Western European. This arrangement
was challenged, unsuccessfully, during the awkward
selection process of Horst Köhler as head of the IMF
in 2000. Köhler's surprise resignation in March 2004
to become President of Germany once again threw
the IMF into turmoil as it launched another search
for a new Managing Director.
What is structural adjustment?
Structural adjustment is the rather bland name
to the package of austerity policies that the IMF and
World Bank require an indebted country government
to adopt when it is forced to turn to them for
financing. The institutions have stopped using the
term in most cases (see note below on PRSPs), but it
is still the most widely used label for the damaging
macroeconomic "reforms" the IMF and World Bank
insist on from virtually every country that gets a
"policy-based" loan. Loans from the World Bank for
infrastructure projects generally do not come with
such wide-ranging conditions attached. Other names
for these policies are "the Washington consensus,"
and, in a more general sense, "neoliberal."
The basic package of policies that constitute
most structural adjustment programs has changed
little since the late 1970s, when the term was first
coined. The package became more sweeping and
standardized with the Latin American debt crisis of
the early 1980s, when Mexico, followed by other
countries in the region, was forced to come to the
IMF for an early version of what would become
called a "bailout" loan. The policies imposed on
Mexico as conditions for the bailout (which like later
such programs, bailed out foreign investors rather
than the citizens of the country itself) included the
core policies that the IMF would soon impose on
countries with debt problems around the world -
about 100 in total.
The ostensible aim of structural adjustment
policies is to enable a country to pay its debts (in
hard currency - dollars, euros, etc., which must be
earned through trade) and attain financial balance. Almost every
country that has taken out SAPs,
however, has gotten more deeply into debt as it
continues to take out new loans to pay off old debts.
SAP policies, in brief, are:
- Devaluation of currencies, to make exports cheaper
and thus raise hard currency. This move also makes
imported goods dramatically more expensive.
- Cuts in subsidies for basic foods and fuels, and for
"inputs" (fertilizer, etc.) for small farmers.
- Hikes in interest rates to control inflation.
Inflation control is necessary, but in many cases the
IMF has tightened credit so much as to force
thousands of small businesses and farms to fail.
- Liberalization of investment regulations, which
encourages foreign investment. This can take the
form of productive investments, but also of "hot
money" speculation, which can enter and leave
countries with destabilizing speed.
- Trade deregulation, including the slashing of
(taxes on imports) and quotas.
- Privatization of government-owned companies, in
the name of greater efficiency. Too often the
companies are sold at vastly undervalued prices,
sometimes in deals later revealed to be a product of
cronyism and corruption. Often the companies are
sold to foreign interests, with corresponding loss of
control of the national economy, and greater risk
that companies not maintaining high profits that
can be taken out the country will be closed.
Privatization usually leads to enormous pressures on
workers, including curtailment of labor rights such
as the right to organize, and layoffs.
- Cuts in basic services such as healthcare,
education, housing, and
- Cuts in government budgets leading to mass layoffs.
- An overall re-orientation of national economies
away from self-sufficiency and toward export
production. This means that farmers who once
grew food for local consumption are encouraged
instead to devote their most productive land to
"cash crops" such as flowers, tobacco, coffee,
cotton, tea, and cocoa, which can be sold to rich
countries for hard currency (though the obvious
impact of the law of supply and demand was
ignored, meaning that commodity prices have
collapsed with so many countries sending the same
goods to international markets). It means that
governments are encouraged to give up on
developing manufacturing capacity and instead told
to concentrate on providing low-wage labor for
niche positions in the global economy - often by
working in assembly plants producing goods for sale in wealthy
countries. And it means that
countries are encouraged to rapidly exploit their
natural resources, such as minerals, oil, and timber,
often at the expense of grave environmental
damage, rapid depletion of national assets, and
dislocation and disinheritance of local populations.
Has structural adjustment made a
Indeed. By subjecting most of the world's
countries to a common set of flawed policies, the
IMF and World Bank have created a new economic
orthodoxy at the same time as they have contributed
to a historic slowing of growth rates for the
developing world, dramatic increases in the gaps
between rich and poor (both between and within
countries), and a collapse of social services that has,
among many other things, exacerbated the impact of
the HIV/AIDS crisis in Africa, where many
countries' healthcare infrastructure was devastated by
The revolution in the global economy since the
onset of the age of structural adjustment 25 years
ago, together with the end of the Cold War, means
that where once there were great variations in
national economic programs, now virtually every
country has similar export-oriented, corporatefriendly
economic programs, vulnerable to the
vagaries of the global economy.
What have the IMF and World Bank done
make structural adjustment more palatable?
In 1999, the IMF and World Bank, aware of the
tremendously negative reputation of structural
adjustment programs, attempted to rename them,
without altering the basic substance of the policy
package. The name they chose, in fine Orwellian
fashion, was "poverty reduction." People around the
world continue to call the policies "structural
adjustment programs," or SAPs for short.
By adopting an ostensibly participatory process
in which civil societies and governments would work
with the institutions to compose their own
development programs, known as "Poverty
Reduction Strategy Papers." Although this process
has been exposed as deeply flawed, at best - a
purposeful fraud with the intent of co-opting civil
society organizations at worst - the institutions
continue to insist that countries getting loans from
the World Bank's IDA division or the IMF's Poverty
Reduction and Growth Facility (the new name of
the Enhanced Structural Adjustment Facility)
complete a PRSP.
What is an example of a destructive World
In 2000, the World Bank provided ExxonMobil and Chevron with millions
in support for a 600-mile pipeline
that carries oil from Chad to the coast of Cameroon. Throughout the
planning process there had been strong warnings from civil society
activists who were anticipating correctly that the oil money would
mainly be used for increasing repression of the
Chadian people. The World Bank, however, wanted to show its critics
that oil money can be used to benefit the poor.
Cutting through indigenous villages, hundreds of miles of rainforest,
and several wildlife sanctuaries, the pipeline has caused severe,
irreversible environmental damage. Oil consortium has taken land from
poor subsistence farmers without ensuring that compensation payments
will make up for lost livelihoods. Local authorities and the military
are known to extort money from villagers when they receive cash
compensation from the oil companies. Chadian human rights organisations
report that human rights activists trying to defend local peoples'
rights often receive death threats and have to flee the region.
Pollution is taking a toll on the health and crops of some of the
poorest people on earth, but none of the project sponsors are even
studying it, let alone resolving the problems.
In 1998 The government of Idriss Deby had passed a law allocating 85%
of the government's oil revenues to education, health and development,
and placing 10% "in trust for future generations" in order to convince
the Bank to fund the pipeline. Then, at the beginning of 2006, it
simply abolished the law, seized the fund set aside for future
diverted 30% of the total revenues into "general spending", in other
words, military purposes.
World Bank, embarrassed to see all the warnings come true,
froze its funds to the goverment. But the pipeline had already
and the project has opened doors for other foreign companies who want
to exploit Chad's natural resources, bringing further financial support
for the undemocratic regime . Meanwhile the Bank continues
to fund similar pipeline projects in other regions
of the world.
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