“Working for a World Free of Poverty”- The World Bank
“The International Monetary Fund (IMF) is an organization of 185 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.”- The International Monetary Fund
The world is so lucky to have such caring institutions as the World Bank and International Monetary Fund. If you can’t tell, that last statement was said in sarcasm. If one were to read these institution’s own boasting they would believe that world poverty has been reduced because of their influence, rather than partially created and continued by them. These institutions, commonly referred to in international development circles as the Bretton Woods institutions or International Financial Institutions (IFIs), have helped to ensure that many countries will remain in poverty through their loans and structural adjustment programs (SAPs) for years to come.
The World Bank and the IMF are responsible for supporting the economic and financial order between governments. They were developed in the 1940s as a way of financing economic development for war-torn Western Europe. Over time, they have extended outside of Europe to any poor or war-torn nations, lending over $330 billion since their inception.
The OPEC oil crisis of the 1970s caused major worldwide inflation, significantly raising the price of gas and increasing the cost of goods produced in the richer nations. Many economies of the poorer nations of the world could no longer afford to pay for their imports and began to run on major deficits, resulting in a significant balance of payment deficit. Due to deteriorating terms of trade, these economies needed to look for more resources to pay for their imports; because essentially they were receiving much less for their products, and paying much higher costs for any manufacturing.
Prior to the oil crisis, the IFIs had “assisted” many of the poorer nation’s economies by offering loans to their governments originally borrowed at minimal interest rates of about 1-2%. By the 1980s these loan’s interest rates had climbed to about 16%, and many of the countries were taking on increasing loans to help pass them through the crisis. The rise in the use of synthetics and new agricultural techniques during this time reduced the need for many of the raw materials and agricultural products; an economic staple of many of the world’s poorer nations. During the early 1970s, more than 80% of these nation’s external revenues were created by the exportation of raw materials, dropping to only 34% by 1993.
Many of the richer nation’s banks were required by the IFIs to open lines of credit for the poorer nations that were in distress, and these commercial banks began giving out more money in loans than they actually had. Many of the poorer countries were now left with extreme debt that was growing larger and larger each day as the interest compounded. Many countries owed millions of dollars per month in interest; money that they could sorely afford and in some cases amounts that surpassed the nation’s earnings. These payments were only touching the interest on the loans and barely cracking the surface of the actual debt, ensuring these countries would owe for the long-term.
By 1985, many Latin American countries were suggesting that they were going to default on their loans and just disown their debts. Scrambling to not bankrupt the richer countries’ commercial banks and cause a massive economic meltdown, the “generous” IFIs decided on a plan to help reduce the poorer nations’ debt; on the condition of structural adjustment. The debtor nations would be required to implement stabilization packages supervised by the IMF, that would dictate their government’s spending.
Several plans were implemented to help reduce debts, and failed miserably; leaving many nations with still massive and overwhelming debt. Interestingly, with all the debt reduction projects during this period, the debt of the poorer nation’s between 1984 and 1994 had not been reduced at all, and was in fact only steadily increasing. It was soon decided by those at the IFIs that state-run services in the debtor countries were the reason for the economic crises and that the solution was to be found in removing all state intervention and socialist/communist approaches to government in these nations. The IFIs began demanding packages of fiscal disipline, trade liberalization, exchange rate adjustments and privatization of state services in the debtor nations as a way to stop the crises.
The removal of trade restrictions, including import licenses, quotas, and tariffs in the debtor nations, allowed the lending nations’ governments to fix their prices and dominate the global markets. The IFIs insisted on the devaluation of the local currency in the debtor nations as an incentive for local producers to produce more export commodities. Massive public sector layoffs ensued, as the governments were required to reduce their spending. All public enterprises were to be sold off and export was to be promoted through incentives such as easier access to foreign exchange.
Many of these loans were (and are still to this day) granted to nations ruled by authoritarian depots who use much of the monies to secure their own position of power or build their armies. Overall inflation in many of the nations was reduced by the SAPs and the nation’s earning increased; reducing their debt to earning ratio. The social costs of these economic changes however, had a devastating effect on the populations. All public services were now gone, or were pay-for-use services. The number of people living in poverty in these debtor nations dramatically increased, as did unemployment.
After much world-wide protest, the IFIs decided they must try to reduce the debts to more sustainable levels and focus more on the poverty and social costs that their decisions were having. Several countries qualified for loan reduction initiatives to help reduce these social costs. A number of initiatives were tried and failed, and all now included a poverty reduction strategy paper (PRSP), a plan that would detail what the nations would do with the money they were now “saving” from loan payments. This allowed the richer nations to have a large say in the running of debtor nation’s governments. Many nations, including many of the world’s poorest, found they could not qualify for the loan forgiveness programs and so remained completely devastated with debt payments and running further and further into absolute poverty.
The debt initiatives had the effect of reducing some of the total stock of debt from the qualifying nations, however, it also resulted in successful litigation by commercial and bilateral creditors who sued some of these governments for their debt, despite their promised forgiveness by the IFIs. So the IFIs came up with new and even “better” plans, that would involve mandated country-driven and specific programs that were implemented with the purpose of benefiting the poor. In reality, the nations were often given little say into what programs would actually be implemented and were forced to democratize in a western way and create capitalist economies that would serve the richer nations. It had the desired effect. “Democracy” spread from 27.5% of the globe in 1974 to cover 61.3% of the world’s nations in 1995. By the late 1980s, the IFIs had decided that “good governance” was now to become a condition of any loan and much aid, institutionalizing the rule of law and democracy in debtor nations. Elections became staged affairs in order to meet conditions, often held in the face of intense structural and direct violence that suppressed any and all opposition.
Loans continue to be made, and debt forgiveness of only a handful of nations has had little effect on reducing the overall poverty experienced in these nations. The originally mandate and purpose of these financial organizations has been completely lost, as they are creating more devastation than they are repairing. The poorest populations are those who suffer the most. Many who once had governmentally funded education, water and extensive health services are now reliant on international aid and NGOs for even basic necessities. They are left with nothing and no hope for the future.
The colonial grips have changed. Instead of being held in servitude by imperial powers, regions are now being controlled by the IFIs and are forced to go along with the lender nation’s political agenda. The richer, more powerful nations continue to extract the resources of the poorer nations at a tremendous discount for themselves because of their financial situation, ensuring the poorer nations will always be their cheap supplier and be willing to bend to their demands for many years to come.