[stop-imf] Bello: Close the IMF and World Bank

[Robert Weissman]

FOCUS ON TRADE 
Number 48, April 2000 

Focus-on-Trade is a regular electronic bulletin providing updates and 
analysis of trends in regional and world trade and finance, with an 
emphasis on analysis of these trends from an integrative, 
interdisciplinary viewpoint that is sensitive not only to economic issues, 
but also to ecological, political, gender and social issues.
 
Your contributions and comments are welcome. Please contact us c/o 
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http://focusweb.org. Focus on the Global South is an autonomous 
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Pushing Meltzer to the Max!

AS thousands of protestors descend on Washington for the 16 April 
action against the World Bank and the International Monetary Fund, 
they can take comfort in the fact that a growing number of people in 
high places share their views. 

In the latest issue of  The New Republic (17 April), former World 
Bank chief economist Joseph Stiglitz aired his unflattering assessment 
of the IMF, accusing the Fund of secrecy AND bad economics. (To 
Stiglitz's credit, secrecy is the greater sin.) And just last month, the US 
Congressional International Financial Institution Advisory Commission 
(the Meltzer Committee) released its findings, capturing headlines with 
its unanimous call to radically downsize the IMF and the Bank and to 
immediately cancel large amounts of debt. While the report was 
saying nothing more than what many critics have been saying for years 
-- that these institutions are deeply flawed and are doing more harm 
than good -- it has revived the languishing debate on the international 
financial architecture.   

In this issue of Focus on Trade, Walden Bello looks closely at the 
Meltzer Report, and concludes by calling on those gathering in 
Washington to pick up where the Meltzer Committee left off by calling 
for the Bank and the Fund to be closed down. 

Solidarity or Sanctions?
Trade and labour linkages is one of those issues guaranteed to 
provoke strong reactions, which is not surprising because it cuts to the 
heart of ideology. In this issue of Focus on Trade, Mike Waghorne 
from the international trade secretariat Public Service International 
writes a letter to the editor, Peter Waterman writes an letter to 
ICFTU general secretary Bill Jordan, Patrick Bond writes about the 
dilemmas facing civil society in South Africa (an everywhere else) and 
David Bacon writes about the many views on labour linkages inside 
the trade unions. Enjoy the debate but don't expect a happy ending!

In the final (and related) article, Walden Bello provides a stock-take 
of the 'third wave of democratisation.' Is it really happening, or is it 
just part of the globalisation hype?

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IN THIS ISSUE

Meltzer Report on Bretton Woods Twins Builds Case for Abolition 
but Hesitates
Walden Bello

Letter to the Editor
Mike Waghorne

Time for the ICFTU to move from anti-social (inter)national 
partnerships to a real global social partnership?
Peter Waterman

No time for reform
Patrick Bond

Can workers beat globalisation? 
David Bacon

Washington and the Demise of the "Third Wave" of Democratisation
Walden Bello

*****************************************************
Meltzer Report on Bretton Woods Twins Builds Case for Abolition 
but Hesitates
Walden Bello

During the heated debate on whether or not to raise the US quota in 
the IMF in 1998, the US Congress voted for the quota increase but 
attached several conditions, including the creation of an independent 
body to look at the missions and performance of the World Bank and 
the International Monetary Fund.
     
The report of the International Financial Institution Advisory 
Commission, better known as the "Meltzer Report" after its chairman 
Alan Meltzer, serves as a striking confirmation from the mainstream of 
what progressive critics of the Bretton Woods Institutions have been 
saying for the last 25 years. Among the most important claims in the 
corpus of critical literature that the report supports are the following:

- instead of promoting economic growth, the International Monetary 
Fund institutionalises economic stagnation;

- the World Bank is irrelevant rather than central to the goal of 
eliminating global poverty;

- both institutions are to a great extent driven by the interests of key 
political and economic institutions in the G-7 countries-particularly, in 
the case of the IMF, the US government and US financial interests;

- the dynamics of both institutions derive not so much from the 
external demands of poverty alleviation or promoting growth but to 
the internal imperative of bureaucratic expansionism or empire-
building.

There is little in the report that was not earlier documented in such 
works as Cheryl Payer's The Debt Trap, Bruce Rich's Mortgaging the 
Future, Susan George's Faith and Credit, and the Food First trilogy 
Aid as Obstacle, Development Debacle: The World Bank in the 
Philippines, and Dark Victory: The US, Structural Adjustment, and 
Global Poverty. But then the importance of the document lies not only 
in its critique but in the fact that a significant part of the establishment 
has embraced much of the progressive analysis, and, even more 
significantly, has made fairly radical proposals for the future of the 
Bretton Woods twins.

Criticisms of the IMF have found a very receptive global audience 
recently owing to the devastating performance of the Fund during the 
Asian financial crisis. To the credit of its authors, the Meltzer Report 
was not taken in by the World Bank's propaganda that, in contrast to 
the IMF, it has turned a new leaf. The report shows that the much 
vaunted Poverty Reduction Strategy or Comprehensive Development 
Framework articulated by ideological entrepreneur James Wolfensohn 
is largely a public relations effort to save the Bank and that, although it 
is billed as a new development paradigm, it is largely devoid of 
substance.

The IMF: No Redeeming Value

While diplomatic in its language when discussing the IMF, the report 
finds little of redeeming value in the institution. It shows that the Fund's 
foray into macroeconomic reform via structural adjustment 
institutionalised economic stagnation, poverty, and inequality in Africa 
and Latin America in the 1980's and 1990's-precisely what we had 
documented in detail in our 1994 book Dark Victory: the US, 
Structural Adjustment, and Global Poverty.

It confirms that the Fund's duty of ensuring a stable global financial 
order was derailed by its prescription of indiscriminate capital account 
liberalisation for developing countries, its habit of assembling financial 
rescue packages that simply encouraged moral hazard or irresponsible 
lending and speculative investment, and its prescribing tight fiscal and 
monetary policies that merely worsened the situation in the crisis 
countries instead of reversing it.

The report is on the right track when it recommends the closure of the 
structural and extended structural adjustment programs, now renamed 
the "Poverty and Growth Facility." And it is correct in recommending 
downsizing the IMF in both size and its scope of responsibilities, 
though as we shall argue below, it would do better to recommend an 
outright abolition of the Fund.

The report is, however, wrong in its recommendation that the IMF 
should serve as a "quasi-lender of last resort" to countries suffering a 
liquidity crisis. The IMF, by the Commission's own account, has 
handled this function badly in the past. Moreover, the Commission's 
recommending of strict conditions under which the IMF may extend 
credit contradicts its own criticism of "the use of IMF resources and 
conditionality to control the economies of developing nations."

Particularly objectionable is the Commission's proposal that the Fund 
provide liquidity assistance only to those countries that "permit 
freedom of entry and operation for foreign financial institutions" on the 
ground that these entities would, among other things, "stabilise and 
develop the local financial system." This recommendation is 
problematic for two reasons. First, foreign financial institutions such as 
hedge funds, which have taken full advantage of "free entry and 
operation," have helped precipitate one financial crisis after another. 
Second, forcing countries to adopt western-style free market norms 
governing ownership of foreign financial subsidiaries and their local 
operations violates the first core principle it proposes for IMF reform-
that is, "sovereignty-the desire to ensure that democratic processes 
and sovereign authority are respected in both borrowing and lending 
countries."

This contradiction between the logic of the analysis and the 
prescription reminds us that the Commission is, after all, a US 
government-appointed body, many of whose members come from the 
banking sector, conservative think tanks, and establishment 
universities who are very wary about placing significant restrictions on 
the free flow of finance capital globally, even when the evidence they 
are staring at underline the destructiveness of unchecked capital 
mobility.

 The World Bank: Hype versus Substance

When it comes to the World Bank, the report is equally devastating.  
The rhetoric about focusing on poverty alleviation, it says, is 
contradicted by the reality that 70 per cent of the Bank's non-aid 
lending is concentrated in 11 countries, while the Bank's 145 other 
member countries are left to divide the remaining 30 per cent. 
Moreover, 80 per cent of World Bank resources have gone, not to 
poor countries with poor credit ratings and investment ratings, but to 
countries that could have raised the money in international private 
capital markets owing to their having investment grade or high yield 
ratings.

In terms of achieving a positive development impact, the Bank's own 
evaluation of its projects shows an outstanding 55-60 per cent failure 
rate.  The failure rate is particularly high in the poorest countries, 
where it ranges from 65 per cent to 70 per cent. And these are the 
very countries that are supposed to be the main targets of the Bank's 
anti-poverty approach.

The picture that is drawn of the World Bank is that of a massive 
institution that is driven to lend more by institutional imperatives than 
actual need in the recipient countries, that is burdened by high failure 
rates both in its project lending and its program (adjustment) lending, 
that has poor monitoring capabilities of the sustainability of its 
projects, that competes with rather than supplements the regional 
development banks (Asian Development Bank, Inter-American 
Development Bank, and African Development Bank).  The stark 
reality is that of a dinosaur that is slowly sinking in a bog of its own 
making but which flags a "new approach" of "Poverty Reduction" or 
"Comprehensive Development" to mask a fundamental crisis of 
identity and direction.

Reform or Abolition?

The Meltzer Report's basic conclusion is that the IMF and the Bank 
are monolithic institutions that have outlived their usefulness. Now, 
institutions should be saved and reformed if their functioning, while 
defective, nevertheless broadly achieves their basic objectives. They 
should be abolished if they have become fundamentally dysfunctional 
in achieving their basic objectives. The IMF, in the Report's view, has 
become part of the problem rather than part of the solution in global 
development and financial governance. The World Bank likewise has 
become irrelevant rather than central to the alleviation of poverty. 
Despite adjustments here and there, the two institutions are 
imprisoned within paradigms and structures that cannot handle the 
multiple problems confronting the world economy during this phase of 
globalisation.

To borrow the language of Thomas Kuhn's classic Structure of 
Scientific Revolutions, both institutions are like paradigms in crisis, and 
the solution when a paradigm is in fundamental crisis is not to try to 
reform it with endless minute adjustments that merely prolong its 
inevitable demise, but to cut cleanly from it in favour of a simpler, 
more relevant, and more useful paradigm-in a manner similar to the 
way the founders of early modern science simply junked the old, 
hopelessly complex Ptolemaic paradigm for explaining the cosmos 
(the sun and other celestial bodies moving around the earth) in favour 
of the simpler Copernican paradigm (the earth moving around the sun).

In other words, rather trying to find a function for the Fund and 
assigning to it the role of being a lender of last resort, we would do 
better to scrap it totally and create a new institution that does not have 
the baggage of institutional failure and an obsolete institutional mindset 
and is thus better positioned to manage financial crises in this era. 
Rather than expect the highly paid World Bank technocrats who live 
in the affluent suburbs of Northern Virginia to do the impossible-
designing anti-poverty programs for folks from another planet: poor 
people in the Sahel - it would be more effective to abolish an 
institution that has made a big business out of "ending poverty," and 
completely devolve the work to local, national and regional institutions 
better equipped to attack the causes of poverty. And this task should 
not fall to the regional development banks so long as they are 
imprisoned by World Bank-type structures. 

The Meltzer Report does not go far enough. It does not follow the 
logic of its analysis to its inevitable conclusion: the abolition of the 
Jurassic Bretton Woods institutions.  It is up to the masses of people 
gathering in Washington, DC, on the occasion of the IMF-World 
Bank spring meetings in mid-April, to uncompromisingly deliver that 
message to the powers that be.

*Walden Bello is executive director of Focus on the Global South and 
professor of sociology and public administration at the University of 
the Philippines.

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