Committee for the Abolition of Illegitimate Debt

The main purpose of this book is to demonstrate that the key objective of the policies pursued by 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.

since 1944 has been to strengthen the domination of certain countries over other, less-developed countries [1]. The Bank’s constant concern, the author tells us, has been to maintain US global leadership. In order to show how the World Bank has accomplished its goal the author has focused on three issues:

— The World Bank has never committed itself to promoting the development of developing countries.

— The World Bank has supported dictatorial regimes.

— The World Bank does not respect human rights. This can be seen in the cases of loans granted to colonial powers and the support given to the apartheid regime of South Africa.
This book therefore challenges the conventional and popular belief that the World Bank’s main objectives are development and the fight against poverty, and that its decisions are based purely on economic assessment and not on political considerations.

The World Bank was created in 1944 at the Bretton Woods conference [2] after three years of preparations, from 1941 to 1944. The main intention was to avoid another great crisis, similar to that of 1929 when international private capital markets crashed. At one level, its role was two-fold:

— To rebuild countries ravaged by World War II.

— To help developing countries.
However, on another level, its real function was to impose US economic and financial leadership. The World Bank did not concern itself with the development of developing countries at any time in its history. From 1946 to 1948, its role was limited to supporting the countries that had been devastated by WWII. France was the first country to which a loan was granted. Later, it played a marginal role as a financial supplier due to the fact that this function fell to the United States with the introduction of the Marshall Plan Marshall Plan A programme of economic reconstruction proposed in 1947 by the US State Secretary, George C. Marshall. With a budget of 12.5 billion dollars (more than 80 billion dollars in current terms) composed of donations and long-term loans, the Marshall Plan enabled 16 countries (notably France, the UK, Italy and the Scandinavian countries) to finance their reconstruction after the Second World War.  [3]. As the author says: “The World Bank’s lending policy to Europe was radically destabilized and curtailed by the introduction of the Marshall Plan in April 1948. The scope of the Plan far exceeded the Bank’s capacities.”

Nevertheless, at that time the World Bank had only two major concerns:
1) to undermine the increasing influence of socialism throughout the world. Above all, it was concerned about the Chinese Revolution of 1949 and the success of national liberalization movements that flourished mainly in Africa and Asia.
2) to concentrate on loans to developing countries that benefited developed countries and their corporations. Thus loans were granted to improve developing countries’ infrastructure, export capacity (above all in agriculture) and heavy industry, rather than to support sectors such as health and education.

Thanks to these policies, the United States, together with the other developed countries, were able to strengthen their leadership. World Bank policy on development since the 1970s proves this. This policy revolves on the notion of foreign indebtedness. The author shows how the idea “...that the shortage of savings is seen as a fundamental factor explaining why development is blocked...” exerted a great influence over the World Bank. If a country is not able to finance its investments with its own capital, it can resort to both foreign debt and foreign investment. The favorable conditions that the developing countries enjoyed at that moment such as the high prices of oil and raw materials, meant that these countries increased their borrowing. In certain countries such as Mexico, the loans granted by the World Bank quadrupled from 1973 to 1981 [4]. Governments of highly industrialized countries, private banks and international institutions like the World Bank and the IMF 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 competed in order to grant loans. But due to the rise in American interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. in 1979 and to the drop in raw materials, developing countries were not able to pay their debts (amortization plus interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. ) any longer. Private banks cut off almost all the loans and the international financial institutions (IFIs) (only to protect private banks mostly from the United States [5]) established unpopular reforms. These were the Structural Adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/ Lending (SAL) policies, which were set up in most countries in Asia, Africa and Latin America. The consequences of these unpopular reforms were economic stagnation, unemployment and increased poverty, to mention just a few.

In this indebtedness process, the author reminds the reader of two important points:

1) Loans granted to developing countries are used for buying both foreign capital goods and consumer goods.
2) Loans illustrate the influence that can be wielded over countries in debt. For example, the privatization of companies that were state property would never have happened if the countries had not been extremely indebted, to the point of needing new loans.

Over the last decades the World Bank has been presided over by Barber Conable (1986-1991), Lewis Preston (1991-1995), and James Wolfensohn (1995-2005). During this period of time - in the face of both the Structural Adjustment Lending failure in improving the life of the population and major social unrest - the World Bank did address some topics like poverty [6], environment, good governance, women’s rights and foreign debt. However, as the author says, these topics are not of basic interest to the World Bank, which continues to impose Structural Adjustment Lending in countries like Sri Lanka, Ecuador, Haiti, Ghana, the Democratic Republic of Congo and Chad.

For the World Bank to achieve its goals - that is to say, to maintain United States’ hegemony - it has used the indebtedness problem as a pretext for imposing antisocial reforms such as Structural Adjustment Lending in various countries. On other occasions, the World Bank has resorted to supporting dictatorial regimes established after a coup d’état. Forgetting that its loan policy be based solely on economic criteria, to the exclusion of all political considerations, the World Bank supported such United States’ allies as Indonesia (Suharto’s dictatorship, 1965-1998), Philippines (Marcos’ dictatorship, 1972-1986), Somoza’s Nicaragua and Brazil (dictatorship, 1964-1985) where the governments were led by dictators, while neglecting to support democratic governments like that of Salvador Allende in Chile.

The book also focuses on the human rights problem. According to the author: “The question of ‘human rights’ has never been a priority for the World Bank”. Human rights, such as the right to have enough food, to have education, employment, clothing or housing, or people’s rights to enjoy free determination, do not matter as long as rich countries can go on making profits in the capitalist system. Proof of this is the support that the World Bank gave to the apartheid regime in South Africa from 1951 to 1968, the loans granted to colonial powers to further exploit people under domination, or the introduction of Structural Adjustment Programmes. On this point the author quotes a report read before the United Nations Human Rights Commission:

“For almost 20 years, the international financial institutions and the governments of creditor countries have played an ambiguous and destructive game which consists in remote-controlling the economies of the Third World and imposing unpopular economic policies on powerless countries, on the pretext that the bitter pill of macro-economic adjustment will in the end allow these countries to achieve prosperity and freedom from debt. After two decades, many countries are worse off than when they brought in the structural adjustment programmes enforced by the IMF and the World Bank. These drastically austere programmes have exacted a high social and ecological price and in many countries the human development index has taken a dramatic plunge.”

The main conclusion of this book is that World Bank policy is concerned only with supporting and enforcing United States world leadership. That is why the World Bank makes no effort to promote development or the respect of human rights.
However, the World Bank has responsibilities and duties, and should be called to account for the devastating consequences of its policies on the people of developing countries. The time has come for the World Bank to answer for its actions before a court of law.