How the IMF and World Bank Turned a Pandemic into a Public Relations Stunt

13 October 2020 by Walden Bello

(CC - World Bank)

The IMF and the Bank would like the global South to believe that they are indispensable. They are not.

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.
and the World Bank 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.

hold their annual fall meetings this week in the midst of a pandemic that has blazed a path of massive disaster through countries of the global South. Covid-19 has presented the Bretton Woods twins, on the seventy-sixth anniversary of their founding, with a grand opportunity, not to save the world, but to salvage their tattered reputations.

Before the onset of Covid-19, the IMF’s image was at its nadir. Under Christine Lagarde, the former managing director, the Fund had served as a member of the so-called Troika Troika Troika: IMF, European Commission and European Central Bank, which together impose austerity measures through the conditions tied to loans to countries in difficulty.

, alongside the European Commission and the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

, that had imposed what can only be described as savage austerity programs on Ireland and Greece in the aftermath of the 2008 global financial crisis. The IMF’s role in saving European banks by squeezing the Irish and Greek peoples of the resources to repay their loans had shown that it had not changed its approach from the one it applied to the Asian economies following the Asian financial crisis of 1997-98: cut government budgets, fire people, and channel savings from this draconian process to pay off private-sector creditors. These “pro-cyclical” measures were to be adopted even if they prevented an early return to growth and caused widespread pain to people.

Newly appointed Managing Director Kristalina Georgieva leaped at Covid-19, presenting the IMF with a public relations bonanza. She boasted of a $1 trillion war chest that the Fund was willing to disburse to meet the challenge of what she called a “once in a lifetime pandemic.”

There was only one problem: many Fund members who badly needed the cash were not biting. For instance, a “debt relief” program for about 25 African countries to the tune of $20 billion found few takers, with only four countries, Cameroon, Côte d’Ivoire, Ethiopia, and Senegal, making applications. The African countries were being very careful, and the reason was not only because they had witnessed the the IMF put Greece, Ireland, and other European countries through the wringer. They were also apprehensive after reading the fine print. They discovered that 1) that the Fund was offering loans, not grants; 2) that the “debt relief” initiative it was offering was not really relief but a restructuring of the loans owed to rich country governments by debtor countries so they could make their debt payments later; and 3) that accepting a loan would subject a country to the same dreaded Fund conditionalities and surveillance that accompany regular IMF loans.

Getting a loan or “debt relief” from the Fund and its partners, in other words, was likely to put the recipient into a similar situation as Ireland, Greece, South Korea, Thailand, and so many other countries: what Cheryl Payer so aptly called the “debt trap” in her classic book on the IMF.

When asked why the IMF and the World Bank didn’t just cancel the massive debt of developing countries in light of the catastrophic economic impact of Covid-19, the IMF’s Georgieva offered the lame excuse that its articles of association did not allow that while the new World Bank president, David Malpass, admitted frankly that the financial markets did not like debt write-offs, and Wall Street would indirectly punish the Bank’s clients in the future by charging higher 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. on borrowings made by the Bank for its projects. Malpass knew what he was talking about since he had served as chief economist of the investment bank Bear Stearns, which imploded during the first weeks of the 2008 financial crisis.

A Crisis-Ridden Institution

The Bank enters the fall meetings with its own set of reputational problems. Global poverty, the ending of which it has proclaimed to be its raison d’etre, was on the increase, even before Covid-19. This was especially acute in Africa, owing partly to the conditions created by its neoliberal “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).

loans” and those of the IMF.

Although a Bank-commissioned study sounded the alarm about an earth experiencing an average temperature rise of 4 degrees centigrade by the turn of the century, the agency laid itself open to charges of hypocrisy since it continued to promote investment in scores of carbon emission-intensive coal-fired plants throughout the globe.

It is deeply involved in the imbroglio around the UN’s “Reducing Emissions from Deforestation and Forest Degradation” initiative or REDD+, many of whose projects it funds, with indigenous peoples on all continents calling the program a recipe for the dispossession of forest-dependent communities.

These reputational problems are compounded by a major credibility problem, which is the collapse of its advocacy of neoliberalism, trade liberalization, and globalization owing to the fact that these policies and trends have centrally contributed to greater poverty, greater inequality, climate change, and global economic stagnation. The Bank continues to support trade liberalization and globalization, but its advocacy is now more muted since, as the Latin saying goes, Contra factum non esse disputandum—that is, one cannot argue against the facts.

Some of those prominently identified with the Bank’s neoliberal advocacy have indeed recanted, among them Oxford economics guru Paul Collier, who served as director of the Research Development Department of the Bank from 1998 to 2003. In a chapter in his latest book, The Future of Capitalism, that is laced with mea culpas, Collier admits that it was not only he who was wrong in his defense of globalization and free trade, but the whole economics profession was guilty:

The profession has been unprofessional, fearful that any criticism would strengthen populism, so that little work has been done on the downsides of these different processes [of globalization]. Yet the downsides were apparent to ordinary citizens, and the effect of economists appearing to dismiss them has resulted in widespread refusal of people to listen to “experts.” For my profession to re-establish credibility we must provide a more balanced analysis, in which the downsides are acknowledged and properly evaluated with a view to designing policy responses that address them. The profession may be better served by mea culpa than by further indignant defenses of globalization.

Feudalism in the Era of Late Capitalism

The Bretton Woods institutions come into the 2020 fall meeting suffering from not only numerous policy crises and a shattered intellectual paradigm. There is also the longrunning, debilitating dispute over governance reform. Despite some 50 years of trying, the countries of the global South have not been able to get the dominant powers in both institutions to accept even a modicum of reform.

At the IMF, the United States holds 16.5 percent of voting power, which continues to give it an effective veto over any change in the articles of association or in major policies of the Fund. Next to the United States, Europe is the Fund’s most powerful bloc, though key developing countries now have collectively a greater weight in the world economy. The four big BRICs (Brazil, Russia, India, China) have a combined share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of world gross domestic product GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
of 24.5 percent, compared with the 13.4 percent share of the four big European economies (Germany, France, Britain, Italy). But the four BRICs countries have a combined share of votes of only 10.3 percent, compared with the four European nations’ share of 17.6 percent. In fact, long-promised voting power shifts from developed to developing countries have been very marginal, coming to only 2.6 percent, according to analysts Robert Wade and Jakob Vestergaard.

As in the case of the Fund, the flaws, both in policy and theory, of the World Bank cannot be dissociated from the realities of power at the institution. The United States is the primordial power at the Bank, where it exercises 15.7 percent of voting power, which gives it effective veto power over major policy decisions owing to its being able to count on its influence on European countries. In a “realignment” of the voting shares at the Bank a few years ago, the progressive Bretton Woods Project has pointed out, Africa’s vote rose less than 0.2 percent, and domination by the rich North remained formidable, with high-income countries clinging to almost 61 percent of the vote, middle-income countries getting under 35 percent, and low-income countries just 4.46 percent.

The Bank and Fund have also been labeled anachronistic feudal institutions in the era of late capitalism, with Europe unwilling to give up its “right” to name the managing director of the IMF and the United States refusing to give up its privilege of naming an American as head of the Bank.

Time to Split?

Serious calls for reform at the World Bank and the IMF first emerged 50 years ago. Cheryl Payer’s classic The Debt Trap served as the eye-opener for a generation that saw the promise of economic independence following decolonization begin to crumble with the emergence of a new form of colonialism in which the Fund was a prominent agent. The World Bank also emerged as a global actor, but its potential for bringing about a better world was dissipated by its support of dictatorships like like those of Marcos in the Philippines and Suharto in Indonesia during Robert McNamara’s tenure and its deployment, along with the IMF, as a tool for the neoliberal transformation of developing countries during the Reagan administration and after.

After 50 years, the absence of change in either policy or intellectual paradigm has been paralleled by the glaring lack of reform in the governing structures of the Bretton Woods twins. The minuscule shift of voting power in the IMF–2.6 percent from developed to developing countries–is emblematic of how little change has taken place in the governing of both institutions. Given this, many are asking: does it make sense for developing countries to expect change at the IMF and World Bank during the seventy-sixth anniversary of the latter’s founding? Indeed, is it rational for them to remain within the two institutions, imprisoned in ever increasing and permanent debt to both institutions?

Perhaps this is the time for developing country governments to begin exploring an exit strategy, to begin to seriously talk to one another about leaving and creating alternative institutions of global economic governance based on genuine mutual respect, equality, and cooperation.

“South-South Cooperation” is an ideal that has been floating around for decades. It is perhaps time for the global South to make the resolution to push for the material realization of that ideal. There are new geopolitical and geoeconomic realities that make this enterprise no longer a pipe dream. The weight of the West in the global economy has declined significantly. The United States, the hegemonic power in the Bretton Woods institutions, is in its deepest political quandary in years. he so-called Western alliance is fraying owing to conflicts among its principals.

Then there is China.

China is admittedly as much motivated by national interest as other global powers, and many in the global South are of the opinion there are disturbing signs that it is following in the path trodden by the imperial West. But its competition with the United States is one the countries of the global South can use to their advantage. While presenting dangers, the U.S.-China conflict also offers opportunities for countries in the global South to carve out significant political and economic space for the pursuit of progressive policies and the creation of progressive institutions: a zone of increasing independence of both superpowers.

The ability of the developing country bloc at the World Trade Organization to successfully resist significant new initiatives in trade liberalization and weaken the collective strength of the rich country bloc offers an example of what a relatively united global South can achieve amid Western disarray. The era unfolding has similarities to the 1960s and 1970s, when the Cold War between the Soviet Union and the United States was a key factor in the emergence of the Non-Aligned Movement Non-Aligned Movement
The Non-Aligned Movement is a group of countries who, beginning in the 1950s, promoted a policy of neutrality towards the blocs led by the two superpowers – the USA and the Soviet Union –, who were by then fully engaged in the Cold War. In April 1955, a conference of Asian and African countries was held in Bandoeng (Indonesia) to promote unity and independence for the Third World, decolonization and an end to racial segregation. The initiators were Tito (Yugoslavia), Nasser (Egypt), Nehru (India) and Sukarno (Indonesia). The actual birth of the Non-Aligned Movement occurred in Belgrade in 1961. Other conferences would follow in Cairo (1964), Lusaka (1970), Algiers (1973) and Colombo (1976).
The work of the Non-Aligned Movement, which includes 120 countries, has had limited impact in recent years.
, the acceleration of decolonization, and the coming to power of national liberation movements throughout what was then called the Third World.

The IMF and the Bank would like the global South to believe that they are indispensable. They are not, and the first step toward liberation from their clutches is to embrace that truth.

Walden Bello

is senior analyst at the Bangkok-based Focus on the Global South and the International Adjunct Professor of Sociology at the State University of New York at Binghamton.



8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80