THIS YEAR’S annual meeting of the IMF and the World Bank has a special significance for the developing countries as the focus of the meeting is likely to be on how to lighten the debilitating debt burden of the third world.
The current debt relief plan of the multilateral aid agencies has totally failed to achieve its stated goal of providing an exit to the debt crisis of the poor nations. Opposition has grown the world over to repaying debts while tough austerity measures drive millions deeper into poverty. Pakistan is a case in point.
The two programmes,the 10-month IMF Standby Arrangement which ended in September 2001 and the on-going three-year Poverty Alleviation and Growth Facility (PRGF) which began in November 2001 have, over the last two years, only caused the poverty to deepen, investments to disappear, and unemployment to skyrocket.
We seemed to have saved just in time by 9.11 otherwise the country would have gone the way Argenita went by following the path chartered for it by the IMF/WB. The austerity measures prescribed by these two multilateral aid agencies in order to achieve macroeconomic stability has only resulted in making economic stagnation more acute.
Here is another example. The IMF/World Bank prescribed austerity measures for Ecuador had asked that country to raise the price of cooking oil by 80 per cent by November 2000, eliminate 26,000 jobs and cut real wages for the remaining workers by 50 per cent in four steps in a timetable specified by the Fund. By July 2000, Ecuador had to transfer ownership of its biggest water system to foreign operators, then Ecuador would grant British Petroleum’s ARCO unit rights to build and own an oil pipeline over Andes. But how did Ecuador, an OPEC member land in this crisis in the first place? Well, in 1983 the IMF forced the then Ecuador government to take over the large private debt the country’s elite owed to foreign banks.
It was in a way a bail-out plan for the US and local financiers who had extended themselves in Ecuador without a thought for how they were going to recover their money from an economy which was still in the process of developing. As a result, the government incurred a debt of $1.5 billion. And it was this loan for repaying which the country found itself agreeing to dictated price hikes in electricity and other necessities. And when even this did not work, a new plan was prescribed under which Ecuador was required to eliminate 120,000 jobs.
In Tanzania where about 1.3 million people are reportedly suffering from AIDS, the IMF and the World Bank are said to have prescribed user charges for the hospital appointments previously free. And since then the number of patients treated at Dar Es Salaam’s three big public hospitals has dropped by 53 per cent. This is probably being hailed by the champions of the IMF/WB as a success story. But the real story is, the patients simply stopped going to hospitals because they did not have the money to pay the users’ charges.
A similar situation arose when under pressure from the IMF/WB Tanzania started charging school fee.
The enrolment dropped from 80 per cent to 66 per cent. The IMF and the World Bank are said to have been effectively controlling Tanzania’s economy since 1985. When they took charge they found a nation mired in poverty, disease and debt.
The Fund and Bank experts quickly reduced trade barriers and government subsidies, started selling state industries to private sector. But the result was, in 15 years Tanzania’s GDP dropped from $309 to $210 per capita, literacy rate fell and the rate of abject poverty jumped to 51 per cent of the population.
The Fund and the Bank policies towards the poor indebted countries seem to have succeeded in only expanding poverty in these countries over the years. All those prescriptions (read conditionalities) contained in the Structural Adjustment Programmes of the Fund and the Bank which these countries accepted in return for paltry financial bail-out packages failed to do the needful. And when criticism against them rose to a crescendo, the multilateral aid agencies changed the label of their prescriptions from SAP to the PRGF.
These prescriptions are said to be based on what is euphemistically called ‘ country assistant strategy’ (CAS). There is said to be a CAS for every poor country, designed after careful in-country investigation. But here is an expose of this investigation by a Bank insider, Joseph Stiglitz as quoted by Greg Palast in his book “The Best Democracy Money Can Buy”:
“But according to insider Stiglitz, the Bank staff ‘ investigation’ consists of close inspection of a nation’s five-star hotels. It concludes with the Bank staff meeting some begging, busted finance minister who is handed a ‘ restructuring agreement’ pre-drafted for his ‘ voluntary’ signature (the author claims to have a selection of these). Each nation’s economy is individually analyzed then, says Stiglitz, the Bank hands every minister the exact same four step programme. Step 1 is Privatization— which Stiglitz said could more accurately be called ‘Briberization’. 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 per cent commissions paid in Swiss bank accounts for simply shaving a few billions off the sale price of national assets. And the US government knew it, charges Stiglitz, at least in the case of the biggest ‘ briberization’ of all, the 1995 Russian sell-off.
“The US Treasury view was, this was great as we wanted Yelstin re-elected. We don’t care if it’s a corrupt election. We want the money to go to Yelstin” via kick-backs for his campaign. Sitglitz is no conspiracy neither ranting about Black Helicopters.
The man was inside the game,a member of Bill Clinton’s cabinet as chairman of the president’s council of economic advisers. Most ill-making for Stiglitz is that the US-backed oligarchs stripped Russia’s industrial assets, with the effect that the corruption scheme cut national output nearly in half, causing depression and starvation. After birberization, step 2 of the IMF/World Bank one-size-fits-all rescue-your-economy plan is “ capital market liberalization”.
In theory, capital market deregulation allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money simply flowed out and out. Stiglitz calls this the ‘hot money’ cycle. Cash comes in for speculation in real estate and currency, then flees at the first whiff of trouble. A nation’s reserves can drain in days, hours.
And when that happens, to seduce speculators into returning a nation’s own capital funds, the IMF demands these nations raise interest rates to 30 per cent, 50 per cent and 80 per cent.
“ The result was predictable,” said Stiglitz of the hot money tidal waves in Asia and Latin America. Higher interest rates demolished property values, savaged industrial production and drained national treasuries. At this point, the IMF drags the gasping nation to Step 3: Market- based pricing, a fancy term for raising prices on food, water and domestic gas. This leads, predictably, to Step 3-1/2: what Stiglitz calls “ The IMF riot.”
The IMF riot is painfully predictable. When a nation is “ down and out, (the IMF) takes advantage and squeezes the last pound of blood out of them. They turn up the heat until, finally, the whole cauldron blows up”— as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998. Indonesia exploded into riots, but there are other examples—the Bolivian riots over water prices in April 2000 and, in February 2001, the riots in Ecuador over rise in domestic gas prices imposed by the World Bank.
You’d almost get the impression that the riot is written into the plan....Now we arrive at Step 4 of what the IMF and World Bank call their” poverty reduction strategy”: Free Trade.
This is free trade by the rules of the World Trade Organization and World Bank. Stiglitz the insider likens free trade WTO-style to Opium Wars. “ That too was about opening markets,” he said.
As in the nineteenth century, Europeans and Americans today are kicking down the barriers to sales in Asia, Latin America and Africa, while barricading their own markets against Third World agriculture. In the Opium wars, the West used military blockades to force open markets for their unbalanced trade.
Today, the World Bank can order a financial blockade that’s just as effective—and sometimes just as deadly. Stiglitz is particularly emotional over the WTO’s intellectual property rights treaty( it goes by the acronym TRIPS). It is here, says the economist, that the new global order has “ condemned people to death” by imposing impossible tariffs and tributes to pay to pharmaceutical companies for branded medicines.” They don’t care,” said the professor of the corporations and bank ideologues he worked with, “ if people live or die.”
