Éric Toussaint, “The IMF and the WB bear a great responsibility in weakening countries that have to face external shocks”

5 April by Dora Villanueva

After three years of Covid-19 pandemic, the world is facing “a genuine international debt crisis (…) nearly 80 countries of the South are close to defaulting” or are actually defaulting, Éric Toussaint, spokesperson for the Committee for the Cancellation of Illegitimate Debts, tells the Mexican daily, La Jornada. Yet, he adds, neither the International Monetary Fund (IMF) nor the World Bank (WB) have in any way helped countries of the South to protect themselves from another external shock, after the pandemic and the war.

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.

has always acted on double standards: it rations poor countries and rewards the wealthy by promoting expansionary financial policies. This, even though at the beginning of the economic crisis triggered by the pandemic it mentioned in very general terms the need for a more flexible financial approach at a global level: Use and increase public spending, it urged then. Who can afford this? “In fact, very few countries can make full use of public expenditure without running into problems”, explains Moritz Cruz, a researcher with the Institute for Economic Research at the National Autonomous University of Mexico (UNAM).

“The others – i.e. practically all the countries of the South: Africa, Latin America, South-East Asia – face issues of revenue and expenditure and the only way they can finance the latter is to ask for loans,” says Cruz. Both researchers show that the change in discourse among international bodies during the deepest depression since the 1930s has not modified their practices. They point out that these bodies, particularly the IMF, condition their loans on the obligation for a country to adopt an economic model in which neither the State nor public spending play a significant role.

See also: From Lebanon to Sri Lanka through Latin America and Egypt : Public debt today and in the history of capitalism

In the first months of the pandemic, the discourse of the international financial bodies was invalidated by a crisis that, for the first time in almost a century, did not result from financial speculation but erupted in the real economy because production had been stopped; it did not fit the financial discipline that had been erected into a dogma over the previous thirty years.

As in 2008, the International Monetary Fund (IMF) called for a financial bailout by the United States but this time insisted on increased public spending – which had been formerly branded as bad in the name of budgetary consolidation. Some of those economists even suggested “war policies”, “invasive actions on the part of States to ensure essential supplies”, favouring public contracts for critical products, or even “selective nationalizations”: (https://www.jornada.com.mx/2020/04/02/economia/019n1eco) while encouraging more social aid to households and more funding for research on vaccines, which would eventually result in the privatization of the pharmaceutical industry.

The IMF does warn about risks of defaulting, especially on the part of poorer countries, but it does not propose to facilitate payment by some middle-income countries, whose debts have increased because of the rise in 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.

Three major rating agencies Rating agency
Rating agencies
Rating agencies, or credit-rating agencies, evaluate creditworthiness. This includes the creditworthiness of corporations, nonprofit organizations and governments, as well as ‘securitized assets’ – which are assets that are bundled together and sold, to investors, as security. Rating agencies assign a letter grade to each bond, which represents an opinion as to the likelihood that the organization will be able to repay both the principal and interest as they become due. Ratings are made on a descending scale: AAA is the highest, then AA, A, BBB, BB, B, etc. A rating of BB or below is considered a ‘junk bond’ because it is likely to default. Many factors go into the assignment of ratings, including the profitability of the organization and its total indebtedness. The three largest credit rating agencies are Moody’s, Standard & Poor’s and Fitch Ratings (FT).

Moody’s : https://www.fitchratings.com/
–Standard & Poor’s, Fitch and Moody’s– initiated pressure on public debt: they were quick to downgrade the ratings for the risk of non-payment by borrowing countries. Even if they wanted to borrow in order to increase public spending and thus help their population, dozens of countries were denied credit, and if they could get it, it was only at very high 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. rates. For instance, Fitch Ratings lowered 33 sovereign ratings for the first half of 2020, among which that of Mexico, more than at any other time.

« The IMF and the WB World Bank
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.

bear a huge responsibility in weakening the capacity of countries to resist external shocks such as increased prices of staple foods and energy. »

"The model (imposed by the IMF and the WB) has a huge responsibility in weakening the capacity of countries to resist external shocks such as increased prices of staple food and energy (…). The large majority of countries, including Mexico, were not able to resist the pandemic”, Éric Toussaint insists. Part of the problem lies in the conditions imposed by those bodies when they grant credit, among which are: a maximum opening of the economy to imports, more exports, extraction of their raw materials. This is a disguised form of colonialism which consists in obtaining resources from other nations to finance the wealth of a few, Moritz Cruz claims.

One of the consequences of this opening, Toussaint explains, is the abandonment of the local pharmaceutical industry and of the production of generics, with the exception of India and Cuba - the latter being neither a member of the IMF nor the WB and having a “high level pharmaceutical industry”. Claiming that “States do not have the capacity to produce”, these bodies favoured governments’ disinvesting in local pharmaceutical industry and granting monopoly to the private sector, he added.

People died who might have survived, were it not for the policies imposed by the IMF and the WB

“The number of people who died is not only attributable to the absence of vaccines, but also to the weakening of public hospital capacities after thirty years of shrinking public spending in health care Care Le concept de « care work » (travail de soin) fait référence à un ensemble de pratiques matérielles et psychologiques destinées à apporter une réponse concrète aux besoins des autres et d’une communauté (dont des écosystèmes). On préfère le concept de care à celui de travail « domestique » ou de « reproduction » car il intègre les dimensions émotionnelles et psychologiques (charge mentale, affection, soutien), et il ne se limite pas aux aspects « privés » et gratuit en englobant également les activités rémunérées nécessaires à la reproduction de la vie humaine. . (…) People died who might have survived, were it not for the policies imposed by the IMF, the neoliberal model, and the World Bank,” Toussaint explains. They supported a “self-fulfilling prophecy”: they intervened to dismantle national industries and the public health service, and then said that only private initiative was able to produce vaccines.

Public money, especially in the US, was used to develop vaccines, while the business of new patents increased the value of six major pharmaceutical companies by $275 billion: AstraZeneca, Johnson & Johnson, Pfizer, Moderna, BioNTech and Novavax, which were quoted at $947.538 billion by the end of 2022.

See also : Coronavirus: Global Collective Commons vs Big Pharma

Moritz Cruz emphasizes that the international institutions today are back to their old habits: promoting financial austerity policies that slow down growth, without negotiating first a large-scale cancellation of public debt, “which would be essential” to speed up recovery. He specifies: “It is a vicious circle: you use policies that slow down growth, you increase poverty, inequalities, unemployment, and then you must pay again, and ask for a new credit line. It is a problem without a solution since the one thing you are not allowed to do is stop paying.”


On the one hand, with technological progress, almost 30% of Latin American workers were able to work from home, and on the other hand the container crisis and the bottleneck linked to the partial reopening of China have caused an increase of 400% in the cost of maritime transport from that country to North America, and of 600% to Europe, which has led to an increase in the prices of certain products.

The need to relocalize production chains, vividly exposed by the pandemic and known as nearshoring or reshoring, has fissured the IMF definition of globalization as the free movement of ideas, people, goods, services and capital across national borders, leading to greater economic integration –, and has left instead geoeconomic fragmentation with production concentrated in blocks of neighbouring countries.

The IMF has published several articles against this trend. Harold James, a historian of the institution, emphasized that this interdependence can be attributed to the rise in prices “while there is a historical model of globalization which leads to disinflation. (…) Historically speaking, the first answer to looming volatility is to run in the opposite direction and look for mor self-reliance. Yet this endeavour is rarely successful. It increases costs and feeds inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. . (…); globalization is the true law to reduce inflation”.

Globalization favoured the emergence of China as an economic power, but it is also a process in which Western (North American and European) transnational corporations have benefited from the low cost of subcontracting in China, as they do in Mexico, and have thus lowered their production costs and increased their profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. rates, Toussaint further explains. For those companies, the highest risk of fragmentation is the cost of wages, for in countries of the North, they have to guarantee better working conditions. This is why the IMF, the WB and the World Trade Organization, “international institutions that are totally subjected to the interests of transnational corporations of the North”, are against it.

See also : The CADTM condemns the nomination of Ajay Banga as future president of the World Bank and calls for a replacement of this institution

In the financial sector, Moritz Cruz indicates that the outcome of the globalization policies that determine international loans “was highlighted by the crisis. Few people benefited: just the large countries of the North, the major powers, which grow wealthier while the rest of the world faces serious problems.

The UNAM researcher concludes that the IMF will not change tack as long as it is run by the US, maintaining the hegemony of the dollar in international trade and public debt, and as long as developing countries have no access to currencies that make it possible for them to deal with their balance Balance End of year statement of a company’s assets (what the company possesses) and liabilities (what it owes). In other words, the assets provide information about how the funds collected by the company have been used; and the liabilities, about the origins of those funds. of payment problems and avoid knocking on the door of an institution that in this context presents itself as “the ultimate saviour”.

See also : Call for a Global Counter-Summit of Social Movements to the IMF and WB Annual Assemblies to be held in Marrakech from 9 to 15 October

Source : La Jornada

Translated from Spanish into French by Lucile Daumas and from French into English by Christine Pagnoulle and Vicki Briault Manus.

Dora Villanueva

es reportera en el área económica para el periódico mexicano La Jornada.

Other articles in English by Dora Villanueva (2)




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