printer printer Click on the green icon on the right
Recalcitrant Reformers Require Tougher Tactics
by Patrick Bond
7 January 2007

CALL IT INSTITUTIONAL change-management fatigue. Or an unlimited
spin-doctoring capacity by clever public relations officials. Or naivety on the
part of those NGOs, environmentalists, trade unionists and Third World
activists who cheered the appointment of Renaissance Man James Wolfensohn
as World Bank president in 1995. Whatever the excuse, the bottom-line is obvi-
ous: no substantive changes at the bank and International Monetary Fund
(IMF). And yet the need for a radical transformation could not be more obvi-
ous, in the wake of the late 1990s legitimacy crisis, itself a function of at least
four managerial and economic factors that still have not been tackled properly:
■ The institutions’ ‘democratic deficit’, which made them unsuitable for
genuine global governance
■ The continued reliance upon the neo-liberal ‘Washington Consensus’
approach to public policy
■ The bank’s ongoing orientation to controversial mega-projects
■ Both agencies’ failure to cancel Third World debt and cool international
financial speculation born of liberalised capital markets.
But we have to be frank about what drives these institutions, even when their
credibility is at an all-time low: lubrication of private capital accumulation and
stabilisation of geopolitical tensions through subsidised credits (often ‘bail-
outs’ for earlier commercial lenders). So the four factors were not really failures
- they were and are integral to the workings of the international economy.
Did reformers understand this problem, and did they adjust their plans accord-
ingly? Confusingly, hopes were raised in part because of the 1997-99 tenure of
Joseph Stiglitz as chief economist. Simultaneously, other catalysts for change
included commissions on structural adjustment, dams and extractive industries.
However, the internal procedural changes, rhetorical shifts, research reports,
individual initiatives, and multi-stakeholder forum exercises that emerged
since the short-lived Stiglitzian glasnost did not fundamentally affect opera-
tions. The view from the inside is revealing, as staff in the Middle East and
North Africa section complained in a leaked 1999 memo to Wolfensohn:
The World Bank is increasingly being drawn into activities
which are politically sensitive (participatory processes,
involvement of civil society, corruption and so on). There is no
doubt about the importance and relevance of these for devel-
opment and success of World Bank assistance, but staff are
not well prepared to handle these issues which creates more
anxiety and stress.

Yet because the legitimacy crisis has continued growing, it has been rhetori-
cally important for the bank and the fund to claim they are now ‘post-
Washington’ in their ideology. In March 2002, midway through the United
Nations Financing for Development (FFD) summit in Mexico, the bank, fund
and German officials began promoting the idea of a new ‘Monterrey
Consensus’, which would usher in an era of fair global finance. Even John
Williamson has argued in the IMF’s own magazine that his celebrated 1990
definition of the Washington Consensus was misunderstood and manipulated
by leftist critics.
The institution’s 60th birthday provides a chance to review the reform agen-
da, and to ask whether the late 1990s challenge from high-profile critics -
Stiglitz and other enlightened economists, some Third World governments
and protest movements - was as effective as it could have been. Were issues
posed by reformers - debt relief, community and NGO participation in neo-
liberal programme design, democratic governance, global financial regulation,
and commissions dealing with structural adjustment, dams and energy - the
correct ones to tackle?
And if all these reforms were foiled by institutional lethargy or worse, is it
appropriate to consider an entirely different strategy, based on Third World
states removing themselves from influence by the bank and IMF? Is collective
default feasible, and should Northern supporters assist the process by refus-
ing to buy bonds issued by the World Bank?

Debt Relief Deferred

Within a year of Monterrey, the World Bank made an embarrassing conces-
sion, regarding its prize reform: the highly indebted poor countries (HIPC)
debt relief initiative. The bank acknowledged longstanding criticisms that its
staff ‘had been too optimistic’ about the ability of countries to repay under
HIPC, and that projections of export earnings were extremely inaccurate, lead-
ing to failure by half the HIPC countries to reach their completion points.
Paradoxically, the bank blamed failure upon ‘political pressure’ to cut debt
further, as the key reason repayments were still not ‘sustainable’.
HIPC was a mirage from the outset, as even the moderate London lobby
group Jubilee Plus admitted in its September 2003 progress report:
According to the original HIPC schedule, 21 countries should
have fully passed through the HIPC initiative and received
total debt cancellation of approximately $34.7 billion in net
present value terms. In fact, only eight countries have passed
Completion Point, between them receiving debt cancellation
of $11.8 billion.

Add a few other countries’ partial relief via the Paris Club ($14 billion) and
it appears that the grand total of debt relief thanks to the 1996-2003 exercise
was just $26.13 billion. There remained more than $2 trillion of Third World
debt that should be cancelled, including not just HIPC countries but also
Nigeria, Argentina, Brazil, Mexico, South Africa and other major debtors not
considered highly-indebted or poor in the mainstream discourse.
Inadequate financial provision for HIPC in Western capitals probably
reflects the merits of using debt as a means of maintaining control over Third
World economies. An ‘enhanced HIPC’ was introduced to give the appearance
of concern, and at the G8’s Evian Summit in 2003, the world’s leaders agreed
with pleas by African representatives to relook at the programme. Yet no fun-
damental changes or substantial new funds were mooted. Proposals to write
off further debt owed by Ethiopia and Niger in April were, at press time, like-
ly to be vetoed by the US Treasury.

Poverty ‘Reduction’ Strategy Papers

In 1999, HIPC was accompanied by a renaming of the structural adjustment
philosophy: Poverty Reduction Strategy Papers (PRSPs). More than two years
later, at Monterrey, South Africa’s finance minister Trevor Manuel - who
joined former IMF managing director Michel Camdessus as special envoys of
UN secretary general Kofi Annan - argued that PRSPs were ‘an important tool
for developing countries to reduce their debt burdens ... a thorough and use-
ful PRSP requires time, resources and technical capacity.’ He suggested the
Bretton Woods Institutions increase their role, to ‘provide more technical assis-
tance to meet those particular challenges’.
In contrast to Manuel’s desire for PRSP expansion, civil society resistance to
structural adjustment increased across the Third World, including Manuel’s
home continent, sometimes in the form of ‘IMF riots’. A May 2001 Jubilee South
conference of the main African social movements in Kampala concluded:
In addition to the constraints placed on governments and civil
society organisations in formulating PRSPs, the World Bank
and IMF retain the right to veto the final programs. This
reflects the ultimate mockery of the threadbare claim that the
PRSPs are based on ‘national ownership’. An additional seri-
ous concern is the way in which PRSPs are being used by the
World Bank and IMF, directly and indirectly, to co-opt NGOs
to ‘monitor’ their own governments on behalf of these insti-
tutions.

The latter gambit had begun to fail by the time the FFD convened in
Monterrey. Even the World Bank’s best African case, Uganda, heard its
National NGO Forum report: ‘Among CSOs there is growing concern that per-
haps their participation in the endeavour has amounted to little more than a
way for the World Bank and IMF to co-opt the activist community and civil
society in Uganda into supporting the same traditional policies.’

Democratic Governance ?

Barely acknowledging the power imbalances in the global system, the
Monterrey Consensus offered only timid suggestions for global governance
reforms. The bank and IMF took nearly a full year to come forward with a
plan, which, as it turned out, was an insult to the concept of democratic glob-
al governance.
The Bretton Woods Institutions’ nearly 50 sub-Saharan African member
countries are represented by just two directors, while eight rich countries
enjoyed a director each and the US maintained veto power by holding more
than 15 per cent of the votes. (There is no transparency as to which board
members take what positions on key votes.) The leaders of the bank and IMF
are chosen from, respectively, the US and EU, with the US treasury secretary
holding the power of hiring or firing.
In this context, some reformist gestures were needed for the sake of appear-
ance. Nevertheless, the Financial Times reported that the 2003 bank/fund strat-
egy emanating from the IMF/bank important development committee
(chaired by Manuel) offered only ‘narrow technocratic changes,’ such as
adding one additional representative from the South to the 24-member board.
For the US, even those mild-mannered reforms were too much, and the Bush
regime’s executive director to the bank, Carol Brooking, opposed reforms and
instead suggested merely a new fund for extra research capacity aimed at the
two institutions’ Third World directors. Asked about the democracy deficit at
the September 2003 annual meeting in Dubai, Manuel merely remarked, ‘I
don’t think that you can ripen this tomato by squeezing it’.


Fanning Financial Fires

A final example of Monterrey’s amplification of the self-destructive tendencies
of international finance was the conference’s call for ‘liberalising capital flows
in an orderly and well sequenced process’. The Asian financial crisis had ear-
lier stalled the persistent arm twisting efforts of US treasury secretary Larry
Summers to force through an amendment to the IMF articles of agreement
which would end all exchange controls everywhere.
When Ethiopian Prime Minister Meles Zenawi had resisted Summers’ gam-
bit in 1997, according to Stiglitz, the IMF cut off the cheaper loans it had earli-
er made available. Cross-conditionality also made Ethiopia ineligible for other
low-interest loans and grants from the World Bank, the European Community,
and aid from bilaterals.
Stiglitz waged war within the bank and Clinton regime, finally winning con-
cessions, but he learned a lesson: ‘There was clear evidence the IMF was
wrong about financial market liberalisation and Ethiopia’s macroeconomic
position, but the IMF had to have its way.’ Zenawi poignantly implored, at a
mid-2003 Economic Commission for Africa meeting, ‘While we will not be at
the high table of the IMF, we should at least be in the room where decisions
are made.’
The only reform project to deal with financial speculation was a bail-out
mechanism which might save Wall Street from its own worst excesses, but also
allow a ‘workout’ system for countries that had urgent repayment difficulties.
In mid-2003, a debt arbitration mechanism was finally proposed by the IMF’s
current acting managing director, Anne Krueger, a Bush appointee. However,
the plan came to naught, for as the The Guardian’s Larry Elliott explained:
Billions of dollars from the bail-outs ended up in the coffers of
the big finance houses of New York and George Bush was told
not to meddle with welfare for Wall Street. The message was
understood: the US used its voting power at the IMF to stran-
gle the bankruptcy code at birth.

Reforming from the Outside?

Under the prevailing balance of power, the top-down reform processes dis-
cussed above could not have worked. But what of other efforts at reform from
the outside (ostensibly from below), particularly via international commis-
sions in which the World Bank plays a crucial hosting and financing role?
The three major recent processes in which well-meaning civil society advo-
cates went inside the bank were the World Commission on Dams, the
Structural Adjustment Participatory Review Initiative (Sapri) and the
Extractive Industries Review. In the first case, a bank water expert, John
Briscoe, actively lobbied Southern governments to reject the findings of a vast,
multi-stakeholder research team in 2001. According to Patrick McCully of
International Rivers Network, ‘The World Bank’s singularly negative and non-
committal response to the WCD Report means that the bank will no longer be
accepted as an honest broker in any further multi-stakeholder dialogues.’
As for Sapri, hundreds of organisations and scholars became involved in
nine countries: Bangladesh, Ecuador, El Salvador, Ghana, Hungary, Mexico,
the Philippines, Uganda and Zimbabwe. They engaged in detailed analysis
from 1997 to 2002, often alongside local bank and IMF officials. Bank staff
withdrew from the process in August 2001. In April 2002, when the research,
a 188-page report, ‘The Policy Roots of Economic Crisis and Poverty’, was
tabled for action, civil society groups found that the bank ignored it.
The third case, the Extractive Industries Review (EIR), also nearly went off the
rails when in April 2003 an incident in Bali, Indonesia delegitimised the exer-
cise before a final report was drawn up. A meeting between the bank, interna-
tional mining industry and civil society ended in an uproar when 15 environ-
mental and human rights groups left in protest. According to the New York
Times, ‘The group of reviewers set up by the bank had already circulated its
draft conclusions supporting the bank’s oil, gas and mining investments, even
though conferences organised to gather information from concerned groups
and individuals in Asia, the Middle East and Africa had not yet taken place.’
In the meantime, the bank approved loans for two infamous pipelines,
Chad-Cameroon and Caspian, despite objections from the environmental, human
rights and social justice communities. By late 2003, civil societies indignation
meant that the EIR leader, former Indonesian environment minister Emil Salim,
encountered another legitimacy crisis for World Bank participation politics.
In response, Salim ensured the critique by social movements and environ-
mentalists made it into the December 2003 draft report, including the recom-
mendation that public funds should not be used to facilitate private fossil-fuel
profits. The recommendations would have meant an end to World Bank coal
lending by 2008; mandatory revenue sharing with local communities; exten-
sive environmental and social impact assessments; ‘no go’ zones for mining or
drilling in environmentally sensitive areas; no new mining projects that dump
tailings in rivers; obligatory environmental restructuring; and increased
renewable energy investments.
No one was surprised when lead bank energy staffer Rashad Kaldany dis-
agreed with the recommendations. Several major environmental NGOs blast-
ed the institution:
One of the bank’s most important environmental reforms of
the 1990s was its more cautious approach to high-risk infra-
structure and forestry projects. This policy is now being
reversed. The World Bank recently announced that it would
re-engage in contentious water projects such as large dams in
what it refers to as a ‘high risk/high reward’ strategy. In 2002,
the bank dismissed its ‘risk-averse’ approach to the forest sec-
tor when it approved a new forest policy. The World Bank is
also considering support for new oil, mining, and gas projects
in unstable and poorly governed countries, against the rec-
ommendations of its own evaluation unit.

Starting from Scratch?

Civil society enthusiasts of such commissions should have been warned by
well-meaning insiders who also failed to move the reform agenda forward.
From a vantage point in the chief economist’s office during the late 1990s and
early 2000s, David Ellerman saw more than his share of reform gambits.
Finally, Ellerman threw up his hands:
Agencies such as the World Bank and the IMF are now almost
entirely motivated by big power politics and their own inter-
nal organisational imperatives. All their energies are con-
sumed in doing whatever is necessary to perpetuate their
global status. Intellectual and political energies spent trying
to ‘reform’ these agencies are largely a waste of time and a
misdirection of energies.

Persuasion by reformists within the chief economist’s office did not affect the
institution, agreed William Easterly, a former senior staffer:
There’s a big disconnect between World Bank operations and
World Bank research. There’s almost an organisational feud
between the research wing and the rest of the bank. The rest
of the bank thinks research people are just talking about irrel-
evant things and don’t know the reality of what’s going on.

Abuse of power and dogmatic ideology were Stiglitz’s long-standing justifi-
cations for his August 2002 call to consider replacing the IMF:
I’m beginning to ask, has the credibility of the IMF been so
eroded that maybe it’s better to start from scratch? Is the insti-
tution so resistant to learning to change, to becoming a more
democratic institution, that maybe it is time to think about
creating some new institutions that really reflect today’s real-
ity, today’s greater sense of democracy. It is really time to re-
ask the question: should we reform or should we build from
start?

At the same time, a Columbia University colleague of Stiglitz, Jeffrey Sachs,
began arguing that low-income countries should not repay World Bank and
IMF loans, and should redirect debt servicing directly towards health and
education. Decapitalisation of the Bretton Woods Institutions through a new
wave of sovereign defaults would be a sensible and direct closure tactic.
After all, Sachs insisted, no one:
in the creditor world, including the White House, believes
that those countries can service these debts without extreme
human cost. The money should instead be rerouted as grants
to be spent on more demanding social needs at home. Poor
countries should take the first step by demanding that all out-
standing debt service payments to official creditors be
reprocessed as grants for the fight against HIV/AIDS.

The idea was not as outlandish as it appeared at first blush, according to the
Boston Globe, for during the 1980s Bolivia and Poland both got away with this
strategy: ‘Because the two countries used that money for social causes both
were later able to win debt forgiveness.’
Default may be the logical option, since so few HIPC resources are being
allocated for debt relief. Argentina, Nigeria and Zimbabwe may have been the
highest-profile defaulters since 2000, but there are many more that will even-
tually feel pressure from the grassroots, conduct a cost-benefit analysis, and
decide that default - combined with internal financing of development using
local currency to meet basic needs - is the common sense approach.

Solidarity and Strength

In parallel to Third World governments becoming more militant, pressure on
the institutions from their main shareholders - Northern citizens via their gov-
ernments - will be vital. An extraordinary new tactic will assist: the World
Bank Bonds Boycott. US groups like the Center for Economic Justice and
Global Exchange have been working with Jubilee South Africa and Brazil’s
Movement of the Landless, among others, to ask: is it ethical for socially-con-
scious people to invest in the World Bank by buying its bonds (responsible for
80 per cent of the bank’s resources), hence drawing out dividends which rep-
resent the fruits of enormous suffering?
In even the conservative belly of the global economic beast, the USA, organi-
sations endorsing the boycott included important US cities such as San
Francisco, Milwaukee, Boulder and Cambridge; major religious orders; the most
important social responsibility funds; and major trade union pension/invest-
ment funds. During late 2003, the world’s largest pension fund, TIAA-CREF,
sold its World Bank bonds as campaigners made it a special target.
Bank Boycott activists understand that the institutions’ waning legitimacy -
and hence threats to funding by socially-responsible investors and eventually
angry taxpayers - is the only target that most Third World social movements
can aim at. They have done so in recent years with an increasingly militant
perspective that worries not about the fund and bank’s ‘failure to consult’ or
‘lack of transparency’ or ‘undemocratic governance’ - all easy populist cri-
tiques, whose reformist ambitions are terribly weak. (What difference, after
all, would it make if Trevor Manuel were the first non-European IMF MD?)
Most of the attention that the leading activists pay to the Washington
Consensus ideology is to the core content: commodification, whether in rela-
tion to water, electricity, housing, land, anti-retroviral medicines and health
services, education, basic income grant support or other social services, ideal-
ly all at once and in cross-sectoral combinations. It is there, in grassroots
movements to decommodify the goods and services which the World Bank
and IMF increasingly put out of reach, that the only feasible alternative strat-
egy can be found.
Patrick Bond - Pambazuka News 170, 19 Aug 2004
A longer version of this article appeared in Capitalism, Nature, Socialism, June 2004.


Patrick Bond

is professor at the University of Johannesburg Department of Sociology, and co-editor of BRICS and Resistance in Africa (published by Zed Books, 2019).