Committee for the Abolition of Illegitimate Debt

After WW2, 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 and 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.

became the leading agencies for international cooperation and action on the world economy. They were institutions that sprang out of the Bretton Woods agreement of 1944, that set the future world economic order to be established at the end of WW2. At the time, the then US president Franklin Roosevelt offered these prophetic words: “The point in history at which we stand is full of promise and of danger. The world will either move toward unity and widely shared prosperity or it will move apart into necessarily competing economic blocs.”

Roosevelt was referring to the division between the US and its allies and the Soviet Union. That ‘cold war’ came to an end with the collapse of the latter in 1990. But now 35 years later, Roosevelt’s words have a new context: between the US and its allies and an emerging bloc of ‘Global South’ nations.

The world economic order agreed at Bretton Woods established the US as the hegemonic economic power in the world. In 1945, it was the largest manufacturing nation in the world, it had the most important financial sector, the most potent military forces – and it dominated world trade and investment through the international use of the dollar.

John Maynard Keynes was heavily involved in the Bretton Woods deal. He commented that his “foresighted idea for a new institution to more equitably 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. the interests of creditor and debtor countries was rejected”. Keynes’ biographer, Robert Skidelsky summed up the outcome. “Naturally, the Americans got their way because of their economic power. Britain gave up its right to control the currencies of its former empire, whose economies now came under the control of the dollar, not sterling.” In return, “the Brits got credit to survive – but with 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. charged. Keynes told the British parliament that the deal was not “an assertion of American power but a reasonable compromise between two great nations with the same goals; to restore a liberal world economy. “The other nations were ignored, of course.

The US and its allies in Europehave have dominated the IMF and the World Bank ever since, both in personnel and in policies. Despite some very minor reforms to its voting and decision-making over the past 80 years, the IMF continues to be run by the G7, giving almost no voice to other countries. There are a total of 24 seats on the IMF board, with the UK, US, France, Germany, Saudi Arabia, Japan and China each having individual seats – and the US having the power to veto any big decisions.

As for economic policy, the IMF is perhaps most notorious for the imposition of ‘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/ Programmes’. IMF loans were ‘given’ to countries in economic distress on the condition that they agreed to balance their deficits, squeeze public spending, open their markets and privatise key sectors of the economy. The single most widely recommended IMF policy is still to cut or freeze public sector wage bills. And the IMF still refuses to call for progressive taxes on the income and wealth of the richest individuals and corporations. As of 2024, 54 countries are now in a debt crisis and many are spending more on servicing their debt than on financing education or health. Some of the worst cases have been highlighted on this blog.

The World Bank’s criteria for loans and aid to the poorest nations also remains within the mainstream economic view that public investment is made merely to encourage the private sector to take up the task of investment and development. The World Bank economists ignore the role of state investment and planning. Instead, the Bank wants to create “markets globally contestable, reduce factor and product market regulations, let go of unproductive firms, strengthen competition, deepen capital markets”.

Kristalina Georgieva has just been endorsed for a second term as IMF chief. And she now talks of ‘inclusive’ economic policies. She says she wants to increase ‘global collaboration and reduce economic inequality’. The IMF claims it now cares about the negative consequences of fiscal austerity, often citing how social spending should be protected from cuts through conditions that stipulate spending floors. Yet, an Oxfam analysis of seventeen recent IMF programs found that for every $1 the IMF encouraged these countries to spend on social protection, it told them to cut $4 through austerity measures. The analysis concluded that social spending floors were “deeply inadequate, inconsistent, opaque, and ultimately failing.”

Until recently, the IMF reckoned faster growth depended on higher productivity, free flows of capital, globalization of international trade and ‘liberalisation’ of markets, including labour markets (meaning weakening labour rights and unions). Inequality did not come into it. This was the neo-liberal formula for economic growth. But the experience of the Great Recession on 2008-9 and pandemic slump of 2020 seems to have delivered a sobering lesson to the IMF’s economic hierarchy. Now the world economy is suffering from “anemic growth”.

So the IMF is worried. Georgieva said the reason that the major economies are experiencing slowing and low real GDP 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. growth is soaring inequality of wealth and income:“We have an obligation to correct what has been most seriously wrong over the last 100 years – the persistence of high economic inequality. IMF research shows that lower income inequality can be associated with higher and more durable growth.” Climate change, rising inequality and increased geopolitical ‘fragmentation’ also threaten the world economic order and the stability of the social fabric of capitalism. So something must be done.

During the Long Depression of the 2010s, globalisation has fragmented along geopolitical lines—around 3,000 trade-restricting measures were imposed in 2023, nearly three times the number in 2019. Georgieva is worried: “Geoeconomic fragmentation is deepening as countries shift trade and capital flows. Climate risks are increasing and already affecting economic performance, from agricultural productivity to the reliability of transportation and the availability and cost of insurance. These risks may hold back regions with the most demographic potential, such as sub-Saharan Africa.”

Meanwhile, higher 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. and debt-servicing costs are straining government budgets—leaving less room for countries to provide essential services and invest in people and infrastructure.

So Georgieva wants a new approach for her new five-year term. The previous neoliberal model for growth and prosperity must be replaced with ‘inclusive growth’ that aims to reduce inequalities and not just boost real GDP. The key issues now should “inclusion, sustainability, and global governance, with a welcome emphasis on eradicating poverty and hunger.”

But can the IMF or the World Bank really change anything, even if Georgieva wants to, when the US and its allies control these institutions? IMF loan conditionalities have hardly altered. There’s some debt relief maybe (ie some restructuring of existing loans), but no cancellations of onerous debt. As for interest rates on these loans, the IMF actually imposes hidden extra penalty rates on very poor countries unable to meet their repayment obligations! After a growing outcry against these penalties, these rates have recently been reduced (not abolished), thus lowering costs for debtors by (only) $1.2bn annually.

Christine Lagarde, the head of 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.

ECB : http://www.bankofengland.co.uk/Pages/home.aspx (ECB ECB
European Central Bank The European Central Bank is a European institution based in Frankfurt, founded in 1998, to which the countries of the Eurozone have transferred their monetary powers. Its official role is to ensure price stability by combating inflation within that Zone. Its three decision-making organs (the Executive Board, the Governing Council and the General Council) are composed of governors of the central banks of the member states and/or recognized specialists. According to its statutes, it is politically ‘independent’ but it is directly influenced by the world of finance.

https://www.ecb.europa.eu/ecb/html/index.en.html ), was the previous IMF chief. She made an important ‘keynote’ speech last spring to the US Council of Foreign Relations in New York. Lagarde talked nostalgically of the post-1990s period after the collapse of the Soviet Union, supposedly heralding a new prosperous period of global dominance by the US and its ‘alliance of the willing’. “In the time after the Cold War, the world benefited from a remarkably favourable geopolitical environment. Under the hegemonic leadership of the United States, rules-based international institutions flourished and global trade expanded. This led to a deepening of global value chains and, as China joined the world economy, a massive increase in the global labour supply.”

These were the days of the globalization wave of rising trade and capital flows; the domination of Bretton Woods institutions like the IMF and the World Bank dictating the terms of credit; and above all, the expectation that China would be brought under the imperialist bloc after it joined the World Trade Organisation WTO
World Trade Organisation The WTO, founded on 1^st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

(WTO) in 2001.

However, it did not work out as expected. The globalization wave came to an abrupt end after the Great Recession and China did not play ball in opening up its economy to the West’s multi-nationals. That forced the US to switch its policy on China from ‘engagement’ to ‘containment’ – and with increasing intensity in the last few years. And then came the renewed determination of the US and its European satellites to expand its control eastwards and so ensure that Russia fails in its attempt to exert control over its border countries and permanently weaken Russia as an opposition force to the imperialist bloc. This led to the Russian invasion of Ukraine.

This brings us to the rise of the BRICS BRICS The term BRICS (an acronym for Brazil, Russia, India, China and South Africa) was first used in 2001 by Jim O’Neill, then an economist at Goldman Sachs. The strong economic growth of these countries, combined with their important geopolitical position (these 5 countries bring together almost half the world’s population on 4 continents and almost a quarter of the world’s GDP) make the BRICS major players in international economic and financial activities. bloc of countries. BRICS is the acronym for Brazil, Russia, India, China and South Africa, the original members. Now in Kazan, there will be the first meeting of BRICS-plus with its new members: Iran, Egypt, Ethiopia, the UAE (and maybe Saudi Arabia).

There is much optimistic talk among the left that the emergence of the BRICS grouping will change the balance of economic and political forces globally. It’s true that the five BRICS nations now have a combined GDP larger than that of the G7 in purchasing power parity terms (a measure of what GDP can buy domestically in goods and services). And if you add in the new members that makes the gap even larger.

But there are caveats. First, within the BRICS, it is China that provides the bulk of the BRICS GDP (accounting for 17.6 per cent of global GDP), followed by India at a distant second (7 per cent); while Russia (3.1 per cent), Brazil (2.4 per cent), and South Africa (0.6 per cent) together made up just 6.1 per cent of world GDP. So this is no equally shared economic power within the BRICS. And when we measure GDP per person, the BRICS are nowhere. Even using PPP-adjusted international dollars, the United States’ per-capita GDP amounts to $80,035, more than three times that of China, which amounts to $23,382.

The BRICS+ group will remain a much smaller and weaker economic force than the G7 imperialist bloc. Moreover, the BRICS are very diverse in population, GDP per head, geographically and in trade composition. And the ruling elites in these countries are often at loggerheads (China v India; Brazil v Russia, Iran v Saudi). Unlike the G7, which has increasingly homogenous economic objectives under the firm hegemonic control of the US, the BRICS group is disparate in wealth and income and without any unified economic objectives – except maybe to try and move away from the economic dominance of the US and in particular, the US dollar.

And even that objective is going to be difficult to achieve. As I have pointed out in previous posts, even though there has been a relative decline in US economic dominance globally and in the dollar, the latter remains the most important currency by far for trade, investment and national reserves. Approximately half of all global trade is invoiced in dollars and this 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. has hardly changed. The USD was involved in nearly 90% of global FX transactions, making it the single most traded currency in the FX market. Approximately half of all cross-border loans, international debt securities, and trade invoices are denominated in US dollars, while roughly 40 percent of SWIFT messages and 60 percent of global foreign exchange reserves are in dollars.

The Chinese yuan continues to make gradual gains and the renminbi’s share in global FX turnover has increased from less than 1% 20 years ago to more than 7% now. But the Chinese currency still only represents 3 percent of global FX reserves, up from 1 percent in 2017. And China doesn’t appear to have changed the dollar share of its reserves in the last ten years.

John Ross made similar points in his excellent analysis of ‘de-dollarisation’. “In short countries/companies/institutions engaging in de-dollarisation either suffer, or run the risk of suffering, significant costs and risks. In contrast, there are no equivalent immediate upside gains from abandoning the dollar. Therefore, the great majority of countries/companies/institutions will not de-dollarize unless forced to. The dollar, therefore, cannot be replaced as the international currency unit without an entire change in the global international situation for which the objective international conditions do not yet exist.”

Moreover, multilateral institutions that could be an alternative to the existing IMF and World Bank (controlled by the imperialist economies) are still tiny and weak. For example, there is the BRICS’ New Development Bank set up in 2015 in Shanghai. The NDB is headed up by Brazil’s former leftist President Dilma. There is much noise that the NDB can provide an opposite pole of credit to the imperialist institutions of the IMF and World Bank. But there is a long way to go in doing that. One ex-official of South African Reserve Bank (SARB) commented: “the idea that Brics initiatives, of which the most prominent thus far has been the NDB, will supplant Western-dominated multilateral financial institutions is a pipe dream”.

And as Patrick Bond Bond A bond is a stake in a debt issued by a company or governmental body. The holder of the bond, the creditor, is entitled to interest and reimbursement of the principal. If the company is listed, the holder can also sell the bond on a stock-exchange. put it recently: “The “talk left, walk right” of BRICS’ role in global finance is seen not only in its vigorous financial support for the International Monetary Fund during the 2010s, but more recently in the decision by the BRICS New Development Bank – supposedly an alternative to the World Bank – to declare a freeze on its Russian portfolio in early March, since otherwise it would not have retained its Western credit rating of AA+. ” And Russia is a 20% equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. holder in NDB.

The BRICS is a motley group of nations with governments that have no internationalist perspective, certainly not one based on working-class internationalism, led as many are by autocratic regimes where working people have little or no say; or by governments still tied heavily to the interests of the imperialist bloc.

Let’s go back to Bretton Woods and Roosevelt’s prophecy. Many modern Keynesians hold up the Bretton Woods agreement as one of the great successes of Keynesian policy in delivering the sort of global cooperation that the world economy needs to get out of its current depression. What is needed, you see, is for all the world’s major economies to get together to work out a new agreement on trade and currencies with rules to ensure that all countries work for the global good. Two Keynesians from the Democrat party in the US recently reckoned that “a different kind of worldview has never been clearer. This is revealed by a look at any of the problems of our age, from climate to inequality to social exclusion… Designing a new global economic framework requires a global-scale conversation.”

Indeed, but is it really possible in a world controlled by an imperialist bloc led by an increasingly protectionist and militarist regime (with Trump on the horizon) that it can be resisted by a loose amalgam of governments which are often exploiting and suppressing their own people? In such a situation, hopes for a new coordinated world order in global money, trade and finance is ruled out. A new and fair ‘Bretton Woods’ is not going to happen in the 21^st century – on the contrary.

Back to Lagarde: “the single most important factor influencing international currency usage is the strength of fundamentals.” In other words, on the one hand, the trend of weakening economies in the imperialist bloc facing very slow growth and slumps during the rest of his decade; and on the other, continued expansion of China and even India. This means that the heavy military and financial dominance of the US and its allies stands on the chicken legs of relatively poor productivity, investment and profitability. That’s a recipe for global fragmentation and conflict.