Committee for the Abolition of Illegitimate Debt

The Bush Administration’s choice of Deputy Secretary of Defense Paul Wolfowitz to head the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

has ignited a storm of international controversy. Coming on the heels of the nomination of anti-UN John Bolton for Ambassador to the United Nations, the selection of Wolfowitz is widely perceived as sending a strong message to the rest of the world.

And that message is decidedly not friendly. Wolfowitz is a major architect and symbol of the Bush Administration’s war in Iraq, its contempt for multilateral institutions, and general disregard for world public opinion.

But what will it mean for the future of the World Bank? Here in Washington, there is a deep sense of dread and malaise among World Bank staff. Naturally they do not want to be seen as just another instrument of U.S. foreign policy.

But most people are not aware how much the World Bank already plays that role. First of all, almost all of the World Bank’s policy-based lending is subordinated to the International Monetary Fund IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org (IMF). In other words, the Bank throws its (larger) lending weight behind the IMF’s macroeconomic policies, by refusing to lend in most cases unless the borrowing country meets IMF approval. The IMF, in turn, is dominated almost completely by the U.S. Treasury department. While the Europeans and Japanese could theoretically outvote the United States, they haven’t yet done so in the last 60 years.

This gives the U.S. Treasury control over a powerful creditors’ cartel, since the Fund and the Bank together are often able to persuade other multi-lateral lenders, rich country governments, and even the private sector not to lend if a country doesn’t meet with IMF/Treasury approval. In the last few years this power has eroded somewhat, as Argentina — one of these institutions’ largest borrowers — called the cartel’s bluff and won big. After defaulting on $100 billion of private debt, Argentina twice threatened default to the IMF itself — an almost unprecedented act of defiance — and surprised the experts by jump-starting their recovery with rapid growth and a lower debt burden.

But the IMF / World Bank cartel still has enormous influence over policy in most developing countries. The record of the last 25 years indicates that this influence has been overwhelmingly negative: outside of Asia, the vast majority low and middle-income countries have suffered a sharp slowdown in economic growth. There are almost no success stories to point to — the World Bank and IMF can hardly take credit for the Chinese growth spurt since 1980. But where these institutions have been heavily involved, the economic failure is striking: In Latin America, income per person has grown about 12 percent in the last 25 years, as compared with 80 percent in just the previous two decades (1960-1979). Africa has fared much worse, and the World Bank and IMF have been slow and stingy in providing even debt cancellation for the poorest countries — something that can be done with the stroke of a pen.

Wolfowitz will therefore be taking over an institution that, by any standard economic measure, has failed. But the Bank has refused to even consider this possibility. Much of its economic research is politically driven. For example, on the eve of a key Congressional vote on trade last year, the Bank published a study showing that NAFTA had increased growth in Mexico. Their main result stems from an economic modeling error; yet the report remains uncorrected, on their web site.

In short, despite liberal sentiments among many of its staff, the World Bank is not a liberal institution. In fact it is so illiberal in practice that some of the United States’ most prominent socially responsible investment funds Investment fund
Investment funds Private equity investment funds (sometimes called ’mutual funds’ seek to invest in companies according to certain criteria; of which they most often are specialized: capital-risk, capital development funds, leveraged buy-out (LBO), which reflect the different levels of the company’s maturity. (e.g., the Calvert group), largest unions (Service Employees International Union), and ten city governments have all pledged to boycott the World Bank’s bonds — which are commonly held by institutional investors Institutional investors Entities which pool large sums of money and invest those sums in securities, real property and other investment assets. They are principally banks, insurance companies, pension funds and by extension all organizations that invest collectively in transferable securities. — until it reforms some of its most abusive polices toward developing countries.

Paul Wolfowitz is unlikely to advance these needed reforms. But until the other 183 countries that are members of this institution have a voice in its decisions, the World Bank is unlikely to live up to its mission of reducing poverty and improving living standards for developing countries — no matter which American is formally in charge.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He can be reached at: (weisbrot at cepr.net).