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Series: 1944-2020, 76 years of interference from the World Bank and the IMF (Part 6)
SUNFED versus World Bank
by Eric Toussaint
12 March 2020

In 2020, the World Bank (WB) and the IMF are 76 years old. These two international financial institutions (IFI), founded in 1944, are dominated by the USA and a few allied major powers who work to generalize policies that run counter the interests of the world’s populations.

The WB and the IMF have systematically made loans to States as a means of influencing their policies. Foreign indebtedness has been and continues to be used as an instrument for subordinating the borrowers. Since their creation, the IMF and the WB have violated international pacts on human rights and have no qualms about supporting dictatorships.

A new form of decolonization is urgently required to get out of the predicament in which the IFI and their main shareholders have entrapped the world in general. New international institutions must be established. This new series of articles by Éric Toussaint retraces the development of the World Bank and the IMF since they were founded in 1944. The articles are taken from the book The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus, Mumbai: Vikas Adhyayan Kendra, 2007, or The World Bank : A critical Primer Pluto, 2007.

From the beginning of World Bank operations, the governments of developing countries, starting with Latin America and followed by India, criticized the fact that their countries enjoyed no aid facilities similar to those of the Marshall Plan, which was restricted to Europe. Indeed, World Bank loans were granted at current market interest rates, while Marshall Plan aid was mainly given in the form of grants. A small proportion of Marshall Plan aid was in the form of interest-free loans or loans with interest rates lower than those of the market.

In 1949, an Indian economist proposed creating a new international organization within the framework of the UN. He suggested it be called the “United Nations Administration for Economic Development”. Some years later, the same idea took shape within ECOSOC, and SUNFED (Special United Nations Fund for Economic Development) was set up. From 1950 to 1960, several Third World countries, as well as the USSR and Yugoslavia, waged a systematic campaign within the UN to consolidate and reinforce SUNFED. For the US government and the governments of the other major industrial powers, the idea of a special fund controlled by the UN and separate from the World Bank was unacceptable.

Among the reasons behind the developing countries’ demand for a specialized UN agency to finance their development was the question of voting rights. They wanted a UN specialized agency in order to ensure that the “one country, one vote” rule was applied, as opposed to the census-type rule applied within the Bank. The same reason – but in reverse – was behind U.S. and other major powers’ opposition to the proposal: the small number of rich countries were afraid of becoming minority voters.

As recounted by the Bank historians, Mason and Asher, and later by Catherine Gwin, in 1954 the United States made a first counter-proposal which the Bank put into practice in 1956 with the creation of the International Finance Corporation (IFC), whose role was to grant loans to private sector companies in developing countries [1]. This new initiative failed to quell dissatisfaction and the developing countries’ campaign in favour of SUNFED gained strength: in 1958, this Special United Nations Fund was authorized to finance pre-investments in developing countries.

Unfortunately, the Third World camp quickly became divided. India, which had originally supported SUNFED, switched allegiances and declared itself favourable to the second U.S. counter-proposal. This proposal involved the creation of an International Development Association (IDA), linked to the World Bank, as an alternative to SUNFED [2]. The pro-Washington Indian lobby was convinced that India would benefit from IDA since the major powers predominating in the Bretton Woods institutions would understand the necessity of giving India special treatment in view of its strategic position. And India was right: in the first year of IDA activity, it received 50 % of IDA loans.

By proposing the creation of IDA, the U.S. government had a dual objective: on the one hand to prevent the United Nations continuing to reinforce SUNFED and thereby satisfying the needs of developing countries; on the other hand to find a way of using the currency reserves of developing countries that the U.S. Treasury had been piling up since 1954 through the sale of its agricultural surpluses under Public Law 480 [3]. Several authors agree that it was Senator Mike Monroney of Oklahoma who first floated the idea: he put a resolution before the Senate for the establishment of an IDA in cooperation with the World Bank and proposing that non-convertible currency reserves should be paid into this agency in order to grant long-term, low interest loans that would be paid back in local currency. Basically it meant that loans would be made to poor countries so that they could buy North-American agricultural surpluses [4]. Eugene Black, president of the World Bank, would later say: “IDA was really an idea to offset the urge for SUNFED” [5]. It is worth quoting Mason and Asher here: “As an international organization affiliated with the World Bank, IDA is an elaborate fiction. Called an « association » and possessed of Articles of Agreement, officers, governmental members galore, and all the trappings of other international agencies, it is as yet simply a fund administered by the World Bank.” [6]

The United States provided 42 % of IDA’s initial funding, thus ensuring U.S. predominance within the agency.

At the same time that IDA was founded, the DAC (Development Assistance Committee of the OECD) was being set up in Paris. This was a structure designed to “coordinate” bilateral development aid from the most highly industrialized countries. This spelt the final demise of SUNFED, the United States having imposed institutions where U.S. control could be guaranteed.

IDA financing

IDA does not borrow on the financial markets. The money it lends comes from donations made regularly by member countries (mainly the most wealthy industrial countries, and also the Petroleum Producing Countries (OPEC) since the 1970’s, and from the repayments which it receives.

Every three or four years, the contributing countries haggle over the kitty. It is the stuff of great debates in the U.S. Congress, which is where the payouts are decided. Bargaining proceeds smartly between Congress, the Washington government and the U.S. presidency of the World Bank/IDA. Yet the amounts at stake are actually very modest. What is really important is to ensure that money loaned by IDA comes back to the donors in the form of purchases (linked aid) [7].

Footnotes :

[1Mason Edward S. and Asher, Robert E. 1973. p.384-385 ; Gwin, Catherine. in Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. p.206 ; Van de Laar, Aart. 1980. p.57.

[2Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1127

[3Van de Laar, Aart. 1980. p.57; Gwin, Catherine , in Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. p.206; Mason Edward S. and Asher, Robert E. 1973. p.386-387.

[4Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1128

[5Mason and Asher, p.386.

[6Mason and Asher, p.380-381.

[7Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1149.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.