76 years ago, in Summer 1944, at Bretton Woods, New Hampshire in the USA, the World Bank was founded along with the International Monetary Fund (IMF). The World Bank, from its inception and on up to today, has been directed by a US national appointed by the occupant of the White House. In this article, Eric Toussaint, international spokesperson for the CADTM, makes an assessment of the World Bank and its alter ego the IMF and proposes to abolish them as well as the WTO in order to replace them with other global and democratic institutions.
The World Bank’s ongoing coup d’état
The list of governments resulting from military coups that are supported by the World Bank is an impressive one.
Among the better known examples are the dictatorship of the Shah of Iran after the overthrow of Prime Minister Mohammed Mossadegh in 1953; the military dictatorship in Guatemala put in place by the USA after the 1954 overthrow of the progressive government of democratically elected president Jacobo Arbenz; that of the Duvaliers in Haiti beginning in 1957; the dictatorship of General Park Chung Hee in South Korea from 1961; the dictatorship of the Brazilian generals starting in 1964; of Mobutu in the Congo and Suharto in Indonesia beginning in 1965; the military dictatorship in Thailand starting in 1966; the regimes of Idi Amin Dada in Uganda and General Hugo Banzer on Bolivia in 1971; the rule of Ferdinand Marcos in the Philippines beginning in 1972; those of Augusto Pinochet in Chile, the Uruguayan generals, and Juvénal Habyarimana in Rwanda starting in 1973; the junta in Argentina from 1976; the Arap Moi regime in Kenya starting in 1978; the dictatorship in Pakistan from 1978; Saddam Hussein’s coup in 1979; and the military dictatorship in Turkey starting in 1980. We could add Ben Ali in Tunisia from 1987 to 2011. And Mubarak in Egypt from 1981 to 2011.
Among the other dictatorships supported by the World Bank, we should also mention Somoza’s in Nicaragua until his fall in 1979 and Ceaucescu’s in Romania.
Some are still in place today: the dictatorship of Idriss Déby in Chad, that of Abdel-Fattah el-Sissi in Egypt, and many more.
Neither should we forget the Bank’s support for dictatorships in Europe – Franco’s in Spain and Salazar’s in Portugal.
Very clearly, the World Bank has methodically supported despotic regimes, whether or not they were the result of coups, who conducted or conduct antisocial policies and commit crimes against humanity. The Bank has shown a total lack of respect for the constitutional principles of some of its member countries. It has never hesitated to support criminal military putschists who are economically docile at the expense of democratic – but less submissive – governments. And with good reason: The World Bank does not consider respect for human rights to be part of its mission.
The World Bank’s support for the apartheid regime in South Africa from 1951 until 1968 must not be forgotten. The World Bank explicitly refused to apply a resolution of the General Assembly of the United Nations adopted in 1964, which required all the agencies of the UN to cease financial support for South Africa because the country was in violation of Charter of the United Nations. That support, and the violation of international law it implies, must not go unpunished.
Lastly, the World Bank, during the 1950s and 1960s, systematically granted loans to colonial powers and their colonies for projects that increased exploitation of natural resources and of peoples for the benefit of the ruling classes in the colonizer countries. It is in that context that the World Bank refused to apply a United Nations resolution adopted in 1965 calling on it to refrain from supporting Portugal financially and technically until the country’s government abandoned its colonialist policies. [1]
The debts contracted with the World Bank on decision of the colonial power by the African colonies of Belgium, Britain and France were subsequently imposed on the new countries at the time of their achieving independence.
The World Bank’s support for dictatorial regimes takes the form of financial support as well as technical and economic assistance. That financial support and that assistance have helped these dictatorial regimes maintain power in order to perpetrate their crimes. The World Bank has also contributed to seeing to it that these regimes are not isolated on the international scene, since the loans and technical assistance have always facilitated relations with private banks and transnational companies. The neoliberal model was gradually imposed in the world beginning with the dictatorship of Augusto Pinochet in 1973 in Chile and Ferdinand Marcos in the Philippines in 1972. Both regimes were actively supported by the World Bank. When such dictatorial regimes come to an end, the World Bank has systematically required any democratic government that succeeds them to take on the burden of the debts contracted by their predecessors. In short, the Bank’s financial complicity with dictatorships has been transformed into a burden for the respective peoples. And those peoples are forced to continue paying, even today, for the weapons purchased by the dictators and used to oppress them.
In the 1980s and 1990s, many dictatorships collapsed, some of them under the battering ram of powerful democratic movements. The regimes that replaced them have generally accepted the policies recommended or imposed by the World Bank and the IMF and have continued repaying debts despite their odious nature. The neoliberal model, after having been imposed with the aid of dictatorships, has been maintained thanks to the yoke of debt and ongoing “structural adjustments.” This is so because after the overthrow or collapse of the dictatorships, the democratic governments that replace them have continued applying policies that in fact run counter to attempts to implement a development model based on autonomy. The new phase of globalization that began in the 1980s at the time of the explosion of the debt crisis is generally accompanied by increased subordination of developing (Periphery) countries to the more industrialized (Core) countries.
The hidden agenda of the Washington Consensus
Since the start of the activities of the World Bank and the IMF, the major decisions of the Bank and the Fund have remained aligned with the orientations of the US government via a mechanism that is both simple to understand and complex to put in place. At times, certain European governments (in particular the UK, France and Germany) and that of Japan have had a voice, but such cases are rare. Friction sometimes emerges between the White House and the leadership of the World Bank and IMF, but a rigorous analysis of history since the end of the Second World War shows that until now, the US government has always had the last word where its direct interests are concerned.
Fundamentally, the hidden agenda of the Washington Consensus is a policy aimed both at guaranteeing that US dominance is maintained worldwide and at freeing capitalism from the limits that had been placed on it in the post-WWII period. Those limits were the result of a combination of powerful social mobilizations both in the South and in the North, the incipient emancipation of certain colonized peoples and attempts at finding an exit from capitalism. The Washington Consensus is also the intensification of the productivist model.
Over the recent decades, in the context of this Consensus, the World Bank and the IMF have strengthened their ability to exert pressure on a great many countries by taking advantage of the situation created by the debt crisis. The World Bank has developed subsidiaries (the International Finance Corporation – IFC, the Multilateral Investment Guarantee Agency – MIGA, the International Centre for Settlement of Investment Disputes – ICSID), weaving a tighter and tighter web.
An example: The World Bank grants a loan on condition that a water treatment and distribution system be privatized. As a result the public company is sold to a private consortium among whose members just happens to be the IFC, a subsidiary of the World Bank.
When the population impacted by the privatization revolts against the drastic rate increases and the reduction in the quality of services and the public authorities seek redress from the predatory transnational, the case is entrusted to the ICSID, which is both judge and jury.
The result is a situation where the World Bank Group has influence at all levels: 1) the imposition and financing of privatization (World Bank); 2) investment in the privatized company (IFC); 3) insurance and guarantees for that company (MIGA); 4) arbitration if there is a dispute (ICSID).
And that is exactly what happened in 2004–2005 at El Alto in Bolivia.
Collaboration between the World Bank and the IMF is also fundamental for exercising maximum pressure on public authorities. And to complete the process of putting the public sphere and public authorities under its control and further extending the dominance of the model, World Bank/FMI collaboration now extends to the World Trade Organization (WTO) since that entity’s creation in 1995.
This increasingly close collaboration between the Bank, the IMF and the WTO is part of the Washington Consensus agenda.
But there is a fundamental difference between that agenda as proclaimed by the Washington Consensus and its hidden version.
The agenda as stated is to reduce poverty through growth, the effects of a free market, free trade and minimum intervention by the public authorities.
The hidden agenda, the one that is actually applied, is to subordinate the public and private spheres of all human societies to the capitalist imperative of seeking maximum profit. Implementation of this hidden agenda results in reproducing poverty rather than reducing it and in increasing inequalities. It results in stagnation, if not deterioration, of the living conditions of a great majority of the world’s population, concurrently with greater and greater concentration of wealth. A further result is the continued deterioration of ecological balances, which endangers the very future of humanity.
One of the numerous paradoxes of this hidden agenda is that in the name of ending the dictatorship of the State and liberating the forces of the market, governments – allied with the transnationals – use the coercive action of multilateral public institutions (World Bank-IMF-WTO) to impose their model on the people.
The way out is a clean break
It is for these reasons that there needs to be a radical break with the Washington Consensus and the model applied by the World Bank.
The Washington Consensus must not be understood as a mechanism of power and a project that is limited to the government in Washington and its “infernal trio.” The European Commission, most European governments, and the Japanese government are committed to the Washington Consensus and have translated its program into their languages, constitutional projects and political programmes.
Breaking with the Washington Consensus, if that is limited to ending domination by the US via the World Bank–IMF–WTO troika, is not an alternative, because the other major powers are ready to take the place of the US in order to pursue similar goals. Let’s imagine for a moment that the European Union might supplant the US as worldwide leader; that would not fundamentally alter the situation of the peoples of the planet because it would amount to simply replacing one Northern capitalist bloc (one pole of the Triad – that is, North America, Western Europe, and Japan) with another.
Let’s imagine another possibility: The China–Brazil–India–South Africa–Russia bloc gains strength and supplants the Triad countries. If that bloc’s motivations are in line with the current attitude of the governments in place there and by the dominant economic system they submit to, again there would be no real improvement.
No, the Washington Consensus must be replaced by a consensus of peoples founded on rejection of capitalism.
The concept of the existence of a close link between development and the productivist model must be radically challenged. That development model excludes protecting cultures and their diversity; it exhausts natural resources and irremediably damages the environment. That model considers the protection of human rights to be at best a long-term goal (when in fact in the long term we will all be dead). Most often, human rights are perceived as an obstacle to growth. The productivist model considers equality an obstacle, if not a danger.
Break the infernal spiral of indebtedness
The attempt to improve living conditions for peoples via public indebtedness is a failure. The World Bank claims that in order to develop, countries [2] must rely on external debt and attract foreign investments. This debt serves mainly to purchase equipment and consumer goods from the industrialized countries. For decades the facts have demonstrated, over and over again, that this does not lead to development.
According to the dominant economic theory, development in the South is held back by a shortage of domestic capital (that is, local savings). Still according to dominant economic theory, countries who want to launch business projects or accelerate their development must rely on external capital via three channels: primo, contracting external debt; secundo, attracting foreign investments; tertio, increasing exportation to bring in the hard currency necessary for purchasing foreign goods that enable growth. The poorest countries supposedly also need to attract aid by conducting themselves in ways that gain the favour of the developed countries.
Reality contradicts that theory: in fact, the developing countries provide the capital to the industrialized countries, and to the economy of the USA in particular. The World Bank said so itself in a report published in 2003: “Developing countries, in aggregate, were net lenders to developed countries.” [3]
If popular political movements were able to gain governmental power in several developing countries and create their own development bank and their own international monetary fund, they would be quite able to do without the World Bank, the IMF and the private financial institutions in the highly industrialized countries.
It is not true that developing countries must resort to indebtedness to finance their development. Today, indebtedness serves essentially to continue the flow of debt repayments. Despite the existence of large foreign reserves, the governments and ruling classes of the South do not increase investments in local production and social spending.
We must break with the dominant view that sees indebtedness as an absolute need.
Further, countries must not hesitate to cancel or repudiate odious and illegitimate debts.
Cancelling odious debts
According to the odious debt doctrine that Alexander Sack formulated in 1927 a debt may be considered odious if it fulfils two conditions:
- The population does not enjoy the benefits of the loan: the debt was incurred not in the interests of the people or the State but against their interest and/or in the personal interest of the leaders or persons holding power.
- Lenders’ complicity: the lenders had foreknowledge, or could have had foreknowledge, that the funds concerned would not benefit the population.
According to Sack’s rule the democratic or despotic nature of a regime does not influence this general rule.
The father of the odious debt doctrine clearly states that “regular governments (may) incur debts that are incontestably odious.” Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by ‘the grace of God’ or ‘the will of the people’; whether it express ‘the will of the people’ or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.” [4]
Sack says that a debt may be considered odious if:
- the purpose which the former government wanted to cover by the debt in question was odious and clearly against the interests of the population of the whole or part of the territory, and
- the creditors, at the moment of the issuance of the loan, were aware of its odious purpose.
He continues: “Once these two points are established, the burden of proof that the funds were used for the general or special needs of the state and were not of an odious character would be upon the creditors.” [5]
This doctrine, which has been applied several times in history by various governments, is also useful for denouncing as odious the debts whose repayment is currently being demanded of countries of the South by the World Bank and the IMF.
Make use of legitimate loans and finance the State through socially just taxes
That being said, public indebtedness is not in itself a bad thing if it is conceived of in a radically different way than under the current system.
Public borrowing is quite legitimate if it serves legitimate projects and if those who contribute to the loan do so legitimately.
Public debt could be used to finance ambitious programmes of ecological transition instead of to enforce anti-social, extractivist, productivist policies that foster competition between nations.
Public authorities can use loans to:
- finance the complete closure of thermal and nuclear power plants;
- replace fossil energies with renewable sources of energy that respect the environment;
- finance a conversion from current farming methods, which contribute to climate change and use a lot of chemical inputs which are responsible for the decrease in biodiversity, favouring local production of organic food to make farming compatible with our fight against climate change;
- radically reduce air and road transport and develop collective transport and the use of railways;
- finance an ambitious programme of low-energy social housing.
A popular government will not hesitate to force corporations (whether national, foreign or multinational), as well as richer households, to contribute to the loan without drawing any profit from it, i.e. with zero interest and without compensation for inflation.
At the same time, a large portion of households in the working classes will easily be persuaded to entrust their savings to the public authorities to fund the legitimate projects mentioned above. This voluntary funding by the working classes would be remunerated at a positive actual rate, for instance 4%. This means that if annual inflation reached 3%, the public authorities would pay a nominal interest rate of 7%, to guarantee an actual rate of 4%.
Such a mechanism would be perfectly legitimate since it would finance projects that are really useful to society and because it would help reduce the wealth of the rich while increasing the income of the working classes.
There are also other measures that can be taken to finance the budget of the State in a legitimate way: establish a tax on large fortunes and very high incomes, levy fines on companies guilty of large-scale tax evasion, radically reduce military expenditures, end subsidies to banks and major corporations, increase taxes on foreign companies, in particular in the raw-materials sector, and yet others.
Peoples will liberate themselves
Today, in 2020, with the exception of Cuba’s, no government is raising the question of profoundly changing the rules of the game in favour of the people. The governments of China, Russia and the major developing countries (India, Brazil, Nigeria, Indonesia, Thailand, South Korea, Mexico, Algeria, South Africa, etc.) express no intention of changing, in practice, the world situation for the benefit of their peoples.
And yet, politically, if they wanted to do so, governments of the major developing countries together could constitute a powerful movement capable of imposing fundamental democratic reforms of the entire multilateral system. They could adopt a radical policy: repudiate debt and apply a set of policies that break with neoliberalism.
I am convinced, however, that that will not materialize. The radical scenario will not be put in place in the short term. The overwhelming majority of current leaders of developing countries are totally caught up in the neoliberal model. In most cases, they are in full allegiance with the interests of the local ruling classes, who have no chance of actually distancing themselves from (let alone breaking with) the policies conducted by the major industrial powers, which today includes China. Capitalists in the South remain within a rentier lifestyle, or at best they endeavour to increase their market shares. That’s true of the capitalists in Brazil, South Korea, China, Russia, South Africa, India, etc., who solicit their governments to obtain concessions from the industrialised countries during bilateral or multilateral trade negotiations. In addition, competition and conflicts between governments of developing countries, between capitalists in the South, are real and can exacerbate. The aggressive trade attitude of capitalists in China, Russia, India, South Africa and Brazil toward their competitors in the South causes stubborn divisions. Generally, they make arrangements (between themselves and between the South and the North) to impose a deterioration of the working conditions of working people in their countries under the pretext of increasing their competitiveness to the maximum.
But sooner or later the peoples will free themselves from the slavery of debt and oppression imposed on them by the ruling classes in the North and South. Through struggle, they will succeed in imposing policies that redistribute wealth and put an end to the productivist model that is so destructive of nature. Public authorities will then be forced to give absolute priority to guaranteeing fundamental human rights.
Exit the vicious cycle of indebtedness without entering a politics of charity
For that to happen, an alternative approach is required: the vicious cycle of indebtedness must be ended while avoiding the trap of a politics of charity aimed only at perpetuating a worldwide system dominated entirely by capital and by a few major powers and transnational companies. The solution is to set up an international system of redistribution of revenue and wealth in order to repair the centuries of looting to which the dominated peoples of the Periphery have been and are still subjected. These reparations, in the form of donations, would not give the industrialized countries any right to interfere in the affairs of the peoples receiving compensation. In the South, mechanisms for deciding and overseeing how these funds would be used need to be invented and put in the hands of the people concerned and their public authorities. That opens up a vast area of reflection and experimentation.
The mobilization of farmers and fishermen in Gujarat (western India) who are victims of the environmental and social effects of a coal-fired power plant financed by the International Finance Corporation (IFC), whose role within the World Bank Group is to finance private companies, led to an important ruling of the Supreme Court of the USA on 27 February 2019. The justices ruled that the International Finance Corporation (IFC) is longer entitled to the immunity given international organizations when financing commercial activities. This shows that popular action can get results.
Abolish the World Bank and the IMF and replace them with other multilateral institutions
We need to go farther and abolish the World Bank and the IMF and replace them with other international institutions that operate democratically. The new world bank and the new international monetary fund – whatever names they might be given – must have missions that are radically different from their predecessors’. They must guarantee adherence to international treaties on human rights (political, civil, social, economic and cultural) in the sphere of international credit and international monetary relations. These new worldwide institutions must be part of a worldwide institutional system overseen by a radically reformed United Nations. It is essential, and must be a priority, that developing countries associate to create regional entities with a shared bank and monetary fund as soon as possible. During the crisis in southeast Asia and Korea in 1997–1998, the creation of an Asian monetary fund had been envisaged by the countries concerned. The discussion was aborted following intervention by Washington. A lack of determination on the part of the governments concerned did the rest. In South America, under the leadership of the government of Hugo Chávez, the foundations of a Bank of the South were laid in 2008, but in the end the project did not become reality. In 2007–2009, the government of Ecuador stood up to its creditors and won a victory, but the other governments of the Left in the region did not follow.
The CoViD-19 epidemic has shown that the World Bank and the IMF have contributed to the deterioration of health systems
In 2020, the worldwide health crisis caused by the Coronavirus has shown the extent to which the policies dictated by the World Bank/IMF and applied by governments have deteriorated public health services and allowed the epidemic to ravage populations. If governments had rejected the Washington Consensus and neoliberalism and strengthened the essential instruments of a sound public-health policy regarding personnel employed, infrastructures, stocks of medicines, equipment, research, production of medicines and treatments and health coverage for populations, the Coronavirus crisis would not have reached the proportions it has.
If governments had broken with the logic of austerity of the World Bank and the IMF, a radical increase in expenditures for public health would have also had highly beneficial effects on the fight against other diseases that mainly affect countries of the Global South.
According to the latest World Malaria Report, published in December 2019, 228 million cases of malaria were detected in 2018 and the number of deaths from the disease is estimated at 405,000. Tuberculosis, meanwhile, is one of the ten leading causes of death in the world. In 2018, ten million persons contracted tuberculosis and one million died from it (including 251,000 HIV-positive individuals). These diseases could be fought successfully if only governments would devote the necessary resources.
Additional measures could successfully fight the malnutrition and hunger that are destroying the daily lives of one out of nine human beings (more than 800 million inhabitants of the planet). Approximately 2.5 million children die each year around the world of malnutrition, either directly or from diseases related to reduced immunity due to malnutrition.
Similarly, if investments were made to massively increase supplies of potable water and wastewater removal and treatment, the number of deaths from diarrhoeal diseases, which is as high as 430,000 per year (source: WHO 2019), would be reduced radically.
Whereas the illegitimate debts peoples are being forced to repay should be simply cancelled, the World Bank, the IMF and the majority of government leaders mention only postponement and new formulas for further indebtedness. CoViD-19 is being used to strengthen yet another new cycle of massive indebtedness with conditions that ramp up austerity even more and compromise the well-being of future generations.
Immediate suspension of repayment of public debts combined with an audit with citizen participation in order to cancel the portions that are illegitimate
An immediate suspension of the repayment of public debts must be combined with an audit with citizen participation in order to identify the portions of these debts that are illegitimate and cancel them.
One thing must be clear: if peoples are to be emancipated and guaranteed their rights as humans, the new financial and monetary institutions, both regional and international, must be at the service of a social project that breaks with capitalism, neoliberalism, extractivism and productivism.
As much as possible must be done so that a new and powerful social and political movement can assist in the convergence of social struggles and contribute to working out a program for breaking with capitalism by promoting anticapitalist, antiracist, environmentalist, feminist, internationalist and socialist solutions.
It is of fundamental importance to work toward: the socialization of banks with expropriation of their major shareholders; suspension of repayment of public debt until audits with citizen participation can be conducted in order to repudiate the illegitimate portion of the debts; imposition of a high crisis tax on the wealthiest individuals and entities; cancellation of illegitimate debts enforced against the working classes (student debt, abusive mortgage debts, abusive micro-credits, etc.); closing down of stock and security exchanges, which enable speculation; radical reduction of working hours (with wages maintained) in order to create a large number of socially useful jobs; a radical increase in public expenditures for health and education; socialization of pharmaceutical companies and the energy sector; relocation of as much production as possible and development of short supply circuits; and many more essential demands.
[Eric Toussaint is a historian and political scientist. He is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France. Article courtesy: CADTM (Committee for the Abolition of Illegitimate Debt).]
