July 27, 2017

The Prague summit

In September 2000, Prague was the venue for the joint annual meeting of the World Bank and the IMF. This article describes how the “Maoist” economic prescriptions of these twin institutions create poverty and dependence among their client nations.

Editorial published in The Ecologist Special Report, September 2000.


As the World Bank and the International Monetary fund (IMF) prepare to hold their joint annual meeting in Prague in late September, they and their sister institution, the World Trade Organisation (WTO) find themselves in varying stages of crisis. All have plummeted to new depths in the esteem of the public and non-governmental organisation, and are more vulnerable than ever.

The IMF’s complicity in the Asian and Russian financial crises, the sudden resignation of its long-serving Managing Director, Michel Camdessus, and the widespread condemnation of its central policy prescription of structural adjustment have all seriously undermined the institution. The WTO has been dealt a body blow by the mass protests and developing country opposition that prevented the launch of a new world trade round in Seattle. The World Bank’s credibility has also hit a new low as it has been exposed for continuing to support projects that violate its own codes and stated goals, and has so visibly failed to be reformed, despite the best efforts of its energetic President.

At this key juncture, instead of genuinely addressing the problems they face, the people who run these institutions and their political allies – the vast majority of whom are from wealthy industrialised countries – have resorted to promising cosmetic changes and employing a form of emotional blackmail designed to preserve the status quo.

“We are the linchpins of poverty alleviation in the world”, they are effectively saying, “and if you continue to criticise us, it is the world’s poor that will suffer most.” Hence, WTO Director-General Mike Moore and The Economist reacted almost identically to the failure to launch a new round of trade liberalisation in December 1999: “Make no mistake”, they said, “the world’s poor are the real losers from Seattle…”

This is shameful deceit, and it is to expose it that we have produced this special issue of The Ecologist. With the help of leading thinkers and writers on developing country issues from around the world, we reveal the unambiguous reality of World Bank, IMF and WTO policies today, and make the case for fundamental change.

Poverty today

If the goals of the World Bank, IMF and WTO were to alleviate poverty – even according to their own narrow, monetary-based definition of the term – their policies have failed to do so. The world has more poor people that ever: 1.3 billion – over a fifth of the world population – now live on less than $1 a day and a further 1.6 billion – another quarter of the world’s population – survive on $1-2 a day.

Moreover, the plight of the citizens of many poor countries has become worse under the policies of economic globalisation prescribed by the World Bank, IMF and WTO. More than 80 countries now have per capita incomes lower than they were a decade or more ago, and as the United Nations Development Programme (UNDP) points out, it is often the countries that are becoming even more marginal which are highly ‘integrated’ into the global economy. While exports from Sub-Saharan Africa, for example, have reached nearly 30 percent of GDP (compared to just 19 percent for the leading industrialised countries of the OECD), the number of people living in poverty there has continued to grow.

Other indicators of poverty have also worsened under economic globalisation. According to the UNDP, financial volatility, job and income insecurity, crime, threats to health, food insecurity, loss of cultural diversity, community disintegration and environmental degradation have all increased. The greatest losers from all these trends are the poor.

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The Bretton Woods agenda

That this is so, should come as little surprise. The World Bank, IMF and WTO were not created with poverty alleviation primarily in mind. They were designed at the United Nations Monetary and Financial Conference at Bretton Woods, New Hampshire, in July 1944, to fulfil quite another agenda. To cite henry Morgenthau, then US Treasury Secretary and president of the conference, the purpose was “the creation of a dynamic world economy” to sustain the domestic American economy’s continuous expansion by ensuring it sufficient access to foreign markets and raw materials.

The IMF would be responsible for insuring that in periods of economic down-turn, nations would not introduce exchange and trade restrictions or competitive devaluations of their currencies to protect their domestic industries. To facilitate trade, the IMF would above all, ensure that currencies remained liquid and stable. The World Bank, it was originally envisaged, would make loans to war-damaged European nations to pay for investments in large energy and transport infrastructure projects, essential for their re-integration into the global economy. An International Trade organisation, meanwhile, would serve as the primary means of creating and enforcing global free trade agreements.

By the end of the Bretton Woods conference, the World Bank and the IMF had been founded and the groundwork was laid for the General Agreement on Tariffs and Trade (GATT) and eventually, in 1995, the creation of the World Trade Organisation. Although their roles evolved, their over-arching purpose remained. As Jose Louis Jamarillo, the former Columbian Ambassador to GATT and President of the Group of 77, declared after the birth of the WTO, what we have created is

“an institutional trinity which will dominate all economic relations across the world in the interests of the strongest.”

The decision making structures of all three countries, led by the United States, and influenced by their corporations, set the agenda. In the process, the poor are often actively undermined.

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Maginalising the poor

One of the World Bank’s central roles is to ensure developing countries have the physical infrastructure necessary to facilitate their integration into the global economy so as to enable the exploitation of their resources, cheap labour and consumers by Northern corporations.

To that end, it provides loans for the construction of roads, ports, mines, hydroelectric dams, oils wells, and pipelines and coal-fired [power stations, mostly built, once again, by Northern corporations – who received nearly $5 billion in direct loans and guarantees for this purpose from the Bank’s private sector arms last year alone. Revenues generated rarely reach the poor. Instead, the poor are often displaced from their homes, suffer loss or damage to their natural resource base and are placed in the front line of climatic destabilisation that the Bank’s support for fossil fuels is helping to cause.

The World Bank and the IMF also provide loans (totalling $18 billion from the Bank alone last year) to debt-ridden or near bankrupt developing countries in exchange for the introduction of structural adjustment reforms that remove all constraints on Northern corporations seeking to export/import raw materials and invest or locate there.

The predicament of these countries is exploited to exert enormous control over their governments which is used to ensure the bulk of public expenditure and economic activity is channelled into the debt repayments to Northern banks and investors. In the process, once again, the poor are hit the hardest, as jobs are cut, health and education budgets slashed, price supports removed and food and natural resources exported abroad.

The WTO meanwhile, is effectively imposing a legally and permanently binding programme of structural adjustment on the world. Far from constituting the best ‘rules-based’ means of ensuring that the weak are not pushed around by the strong, as their advocates claim, WTO agreements consist of sets of rules for the removal of laws that restrict trade and hence constrain corporate profits. These include laws that protect health, safety, the environment, nascent industries and small farmers.

Once again, it is the poor in the small industrial and agricultural sectors that are affected most, as they and their products are undermined by cheaper imports, often at the expense of the indigenous knowledge and wealth of the poor.

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Why then to governments want to be members?

Defenders of the World Bank, IMF and WTO often argue that these institutions cannot be as bad given that developing country governments are voluntarily lining up to join them and applying for their help. In reality, however, many do so under extreme duress. In order to be able to continue to pay crippling interest payments on debt and avoid insolvency, governments are forced to rely on IMF and World Bank structural adjustment loans and earn ever more foreign exchange. This in turn, requires doing everything possible to attract inward investment and to reorient economic activity towards production for export.

In such circumstances, membership of the WTO also becomes a necessity, as it opens up new export markets for its members. Moreover, the widespread culture of elite decision-making and disconnection between the interests of the ruling class and those of the majority mean that many governments come to power without telling their electorates what economic policy changes they intend to introduce. There has thus rarely been any direct democratic mandate or support for most World Bank, IMF or WTO policies anywhere. It is unlikely that there ever could, for most operate in direct opposition to the interests of the majority and the poor in particular.

The World Bank, IMF and WTO or course, claim they have changed, spending more on health and education in developing countries, re-christening the Structural Adjustment Fund the “Poverty Reduction Facility”, and marginally opening up Northern markets to developing country exports.

But these moves have done little to compensate for the damage caused by the driving goals of the three institutions which remain fundamentally unchanged. As this special issue shows, attempts at reform, most notably at the World Bank under its current President, have failed. The radical slimming down of the institutions recommended by the US Meltzer Report has been rejected outright. So incapable are the Bank and the fund’s managers and backers of rethinking their fundamentalist, market-driven approach that even respected internal critics are sacked.

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The way forward

So what is the way forward? The contributors to this special issue suggest various approaches ranging from radical reform to decommissioning. But how could these be achieved? One strategy could be to use the threat of securing sufficient public support for the severing of national contributions to the World Bank, IMF and WTO to exact far-reaching changes that might make them tolerable in the short term.

The World Bank and IMF would thus be forced to cease entirely from imposing policies of structural adjustment, however renamed, and in all contexts including that of debt relief. The Bank would be made to close its private sector divisions that dole out loans and guarantees to corporations and end lending towards most large-scale infrastructure projects, including fossil fuel developments.

The WTO meanwhile, would be gutted of all the agreements and rules that prevent countries protecting their small farmers, workers, traditional cultures and natural environments. All multilateral debt that is owed to the three institutions would be forgiven, and all three would be forced to undergo fundamental democratisation that would remove control over them by the G7 countries.

But to make these institutions truly compatible with the interests of the world’s citizens would require a more complete transformation of their goals away from fostering policies of economic globalisation, that serve primarily the interests of large corporations, towards promoting policies that facilitate localisation and environmental protection. The nurturing of vibrant local economies is the only sustainable way to generate and protect sufficiently secure livelihoods, food security, community cohesion, political accountability, a healthy environment and cultural diversity, which are the best remedies for poverty.

It is doubtful that the staff and culture of the World Bank, IMF or WTO – used as they are to adopting a veritably Maoist approach in their uniform prescriptions for development around the world – would be best placed or able to fulfil such new functions. Necessary institutions – whether global or regional – might have to be built from scratch and in such a way that they remain immune from the sort of corporate capture that seems to have befallen most global and indeed national institutions to date. Their exact design could be decided by a second Bretton Woods conference made up largely of citizen’s organisations from around the world.

Whatever is decided, it is time to reject the World Bank, the IMF and the WTO’s tired and recycled platitudes about poverty and reform, together with their absurd and self-serving claims that the poor would be the greatest victims if anything fundamental were to change. Such arguments no longer convince. The public is beginning to understand the sheer iniquity of the common agenda of these institutions and its terrible consequences for the vast majority of people on this beleaguered planet. A movement of change has begun as we have seen in Seattle and Washington DC, and it can only grow.

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