India and the Bretton Wood Institutions

10 March 2005 by Ajit Muricken


October 2004 marks the 60th founding Anniversary of the Bretton Wood Institutions (BWIs). The anniversary will be celebrated with great pomp, by the Bank officials, G7 countries and other beneficiaries of the BWIs. The people of the South have a different agenda; a loud call for their “retirement”.

There has been no evidence of any such move on the part of these institutions to take a bold decision to retire. On the other hand these institutions not only wish to continue but have shown remarkable resilience to change and reform in spite of tremendous pressure internally and externally.

1. The Bretton Woods institutions founded in 1944 began with a mission quite distinct from their latter - day involvement in restructuring and reshaping the Southern economies along the neo-liberal agenda. 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
’s role was defined as the ‘guardian of global liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. ’. In functional terms, it was meant as a watch dog, monitoring of member countries, maintenance of stable exchange rates and providing facilities on which these countries could periodically draw to overcome cyclical 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 difficulties. In the early 70’s however after the US delinked the dollar off the gold standard, a new era of floating exchange rates was created that made the IMF’s original mission superfluous. Subsequently, what unfolded over the years in essence was a strategy to discipline the Third World by the US administration through a new lending approach referred as “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/
’. Thus, from mid 1980s, the IMF imposed ‘“structural adjustment’” policies became the vehicle for a programme of free market liberalization that was applied across the board to Third World economies suffering major debt problems.

The shift in IMF’s role from serving as the guardian of global liquidity management, to policing as a fiscal disciplining mechanism controlled and managed mainly by the US that shapes the structure and mission of the BWI’s along Western market oriented lines has had a major impact on Southern economies. The institution has been important arm of US global policy by exercising the financial and political leverage Leverage This is the ratio between funds borrowed for investment and the personal funds or equity that backs them up. A company may have borrowed much more than its capitalized value, in which case it is said to be ’highly leveraged’. The more highly a company is leveraged, the higher the risk associated with lending to the company; but higher also are the possible profits that it may realise as compared with its own value. at its disposal.

2. Structure of unequal relationship

The decision making structures of the BWIs are devoid of democratic legitimacy and their constitutions are antidemocratic. Their allegiance to a very limited number of countries (of which only one, the United States, has the veto on any decision it may wish to block, even if all 183 other members wanted it to go forward) and the distribution of power within their ranks are incompatible with any truly democratic reform.

The developing countries have been disadvantaged by the policies of the BWI. A major reason for this is that they have been marginalized in the formal decision-making systems of these institutions, by the size of capital subscription. The five largest economies as a group have 45-47 percent of the votes as against the developed countries. They have the voting power to block all decisions requiring a majority and makes the decision making process unjust and undemocratic. The decision making processes are dominated at all stages by creditors who decide on the conditions for repayment, who closely monitor the implementation of conditions, and determine whether to offer rescheduling, or write off loans. Creditors act as plaintiff, judge and jury in their relations with debtors—with the IMF, as the agent of all creditors, playing the lead role. There is no independent assessor, arbitrator or ‘receiver’. For many of the poorest countries, debts represent an unpayable burden. According to 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.

, actual debt service Debt service The sum of the interests and the amortization of the capital borrowed. payments are roughly half of those scheduled. In any normal creditor/debtor relationship these bad debts would be written off. Not so with sovereign debt Sovereign debt Government debts or debts guaranteed by the government. .

3. Crisis of legitimacy

Since 1998 these Institutions have been undergoing a profound crisis of legitimacy. The effects of SAP (Structural Adjustment Programme), the programme of promoting sweeping privatization with an ideological preference for the market logic of profitability and efficiency and the privatization of essential services which creates inequality in access to health education and social economic exclusion due to policies imposed on periphery countries by the BWI has obviously cost these institutions their credibility on a massive scale within the countries concerned. The growing success of protest indicates that these institutions have been widely discredited which is why they must be dismantled.

Against these criticisms and protest from the Third World, the IFIs give the impression that they are reforming. This is a myth. There has been no shift in their two pillars of power: The neo-liberal ideology, which underpins their policies and programmes, and the voting power of the G7 countries used as weapons of influence in defining the policies of the IFIs.

The institutions are well entrenched in the economic and political life of the South. They continue to function on the direction of the G7 advanced economies of the North and not those of the 184 countries who are also shareholders. These institutions are everywhere with huge loans to governments with their conditionalities in a number of development projects - with their experts, consultants, executives, workshops and training programmes, development strategies and taking control over the planning and policy-making bodies of the National Governments and have now become “a virtual government”.

The World Bank now maintains that it has moved away from the Washington Consensus to the post Washington Consensus. The term SAP is being done away with and is being replaced by poverty reduction and development strategy, and soon development policy lending with partnership and participation as their new slogans.

Beneath the hollow rhetoric of poverty alleviation, the Poverty Reduction Strategy Paper Poverty Reduction Strategy Paper
PRSP
Set up by the World Bank and the IMF in 1999, the PRSP was officially designed to fight poverty. In fact, it turns out to be an even more virulent version of the structural adjustment policies in disguise, to try and win the approval and legitimation of the social participants.
(PRSP) is upheld by the WB and the IMF as a comprehensive program for structural adjustment in the name of the poor. The policy material puts emphasis on rapid growth, the deregulation of monetary policy, the tearing down of the state sector in favour of private enterprises, deregulation of export-oriented growth and commercialization of land resource right.

Of the various elements, which made up the original Washington Consensus, the fundamental elements that constitute its core strategy aggressively pursued are:
- Liberalization
- Privatization and
- Fiscal austerity leading to cuts in public spending

“Structural Adjustment has now been applied in more than 70 countries and has had such pervasive effects many of them widely acknowledged negative. “Structural adjustment programmes in these countries failed to achieve all their macroeconomic goals, and imposed severe social costs. Wealth became increasingly concentrated. Health and education suffered, even though they are the building blocks of human development, and essential to an assault on poverty. Safety nets were often used as tools of political patronage, and had a limited reach. One crucial missing factor was policies that would radically improve opportunities for income generation by the poor. The international environment - for example of third world debt and terms of trade - remained unresolved, and the burden of adjustment was placed entirely on developing countries.”

The Indian Experience

The immediate compulsion for India adopting SAP was the balance of payment crisis that forced the government to initiate a series of economic reforms in July 1991. India accepted these loans to service its foreign debt. Since then a series of policy measures that include devaluation Devaluation A lowering of the exchange rate of one currency as regards others. , liberal industrial policy, disinvestment policy, open foreign investment policy, liberalization of imports and privatization of domestic economy were based on the World Bank’s Memorandum titled “Trade Reforms in India”.

The prescriptions of the Bank included measures like the devaluation of the local currency, liberalization of the industrial policy, liberalization of imports and privatization of domestic economy including natural resources. These measures have only inserted the Indian economy into the Global Economic Order and placed it firmly (of course as a subsidiary entity) in the system of the new international division of labour. This process of liberalizing and opening the economy - sector after sector - to global capital rapidly changed the economic structure of the country.

Several studies on the adverse impact of SAP has shown that local industrial and agricultural sectors were unable to withstand the stiff competition from the inequitous global capital. It has also shown there is a clear link between IMF intervention and the crisis in the social sector, particularly increasing unemployment and impoverishment. The debt servicing has severely affected the states capacity to mitigate the negative fallout of SAP.

With the implementation of NEP, the Bank not only controls specific projects and sectors of the economy but, now commands the entire macro-economic policy including future directions. The entire policy package makes a significant departure from the past. The long cherished principles of growth with justice, social responsibility and accountability, equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. and self-reliance have been rendered obsolete with the new slogans of “liberalization”, “privatization”, “globalization”, “efficiency” and “competitiveness”.

SAP and Women

The empirical evidence amply substantiate the case of female marginalization. This was generally the trend even before SAP. SAP has accentuated this process further.

The New Economic Policy is reinforcing trends of the informalisation of the female workforce, subcontracting and piece-rate production by MNCs greater utilisation in the informal sector, and increasing the number of women in the reserve army of labour. Other consequences of the Structural Adjustment Programme for women are of course unemployment, retrenchment, marginalisation in the labour force, increase in girl-child labour, prostitution and relegation to the low-wage and unorganised sectors, increased drudgery for poor women in acquiring necessities such as fuel and water.

Livelihood resources for women have clearly dwindled and new ways of curtailing their consumption have emerged even as the commodity market expands and proliferates. At the same time women have become the objects of numerous development and micro-credit policies. This period has seen a feminisation of subsistence agriculture as men move into wage work.

Subversion of Democracy and National Sovereignty

The democratic process itself is undermined as the real power to make crucial economic decisions are increasingly taken away from elected representatives. The formal parliament is sidelined and is replaced with a virtual parliament with representatives of TNC, IFIs, ADB and Corporate Houses.

WB/IMF have long ago realized the importance of nurturing bureaucracy and political leaders for them to have a strong leverage in Indian mainstream decision making.

The impact of this process is that the National Governments are loosing ability to initiate policies in the interests of workers, consumers, and the environment, as well as are unable to pursue fiscal, monetary, and industrial or planning policies that once assured relatively stable and equitable growth and national economic development.

Consider for example its latest strategy for India viz. the India Country Assistance Strategy (CAS). It identified the operations that the bank intends to finance in India for the period 2005 to 2008. Country Assistance Strategy imposes conditionality of reform and privatisation of key sectors without justification as basis of extending lending to central and state governments. Through such strategies and with its privatisation policy the World Bank is shaping India’s policy, economic and social environment. However, on August 7, 2004 representatives of social movements, and civil society organizations in Delhi issued a statement explicitly rejecting the strategy, as CAS is an affront to the social justice and democratic traditions and to national sovereignty. This illustrates how the bank consolidates its positions and institutionalises its control of the policy instrument in promoting its own economic growth model.

The second generation of economic reforms in India: After having successfully created a congenial ground for global capital to penetrate the national economy the reforms are now focusing more on trade in services and privatization of natural resources especially of water. In the rush to attract foreign investment, environmental regulations are now being liberalized. The failure to make environmental protection and sound natural resource management policy is now leading to unsustainable rates of resource exploitation.

The World Bank, the IMF, ADB and a few TNCs are now aggressively pursuing the agenda of water privatisation, by re-shaping institutional structures to ensure that investing in “water market” is a 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. -making enterprise under the cover of altruistic principle of providing water and sanitary services to the millions of have-nots.

The agenda of the World Water Council with its World Water Vision suggest a paradigm shift from water being a common good, to it being treated like any other tradable good. Its use and distribution is determined by the market logic of profit. Adoption of full-cost pricing for water services as the “single most immediate and important measure” and the only way people can be made to realise the value of such a precious natural resource. The vision of these multilateral organisations that have a strong participation of the private sector - multinational corporations - advocates a globalisation of the water sources and a global control over management, utilization and supply of this resource. It also seeks to perpetuate, without question, the inequality in the access to water. This inequality, inherent in the logic of the water market, is a curtailment of the human rights of a large majority of the people in the world.

The current reforms in the water sector in the South have to be seen in relation to the GATS negotiations, scheduled to be finalised in January 2005. Countries all over the world, many under pressure from the World Bank and other financial institutions, are currently redrafting their water legislations to comply with the demands made in the framework of the GATS negotiations. After having agreed to open up their water sector as part of the GATS negotiations, it will be almost impossible for countries to reverse this decision and re-nationalise their water sectors.

The impact of this form of privatisation, however, has long term consequences for the poor and the marginalised. These include:

very high charges for services and utilities
cutting down or eliminating water service deliveries in areas which are not considered profitable or commercially viable

in this new scheme of things women will be most affected having to bear the burden of coping up with water stress

the bigger risk and damages to the environment promotion of private monopolies and further concentration of natural assets and resources for elite consumption.

National Water Policy

In 2002, the government of India concerned with the water crisis in the country formulated National Water Policy 2002, which was a modified version of the 1987 water policy. The major change in the new water policy document from the earlier one is marked by the section on privatisation that toes the international line on water privatisation for the people.

The underlying policy assumption is that private sector participation will bring in the much needed financial resources, managerial skills and technology to the water service sector. This worldview as a solution to the water crisis proposes a model for water management that relinquishes all control over water resources to the private sector through commercialisation and privatisation of water resources. The institutionalisation of this type of model will inevitably lead to the cartelisation of India’s fresh water resources and ecological devastation affecting the livelihood of rural communities and the urban poor entirely dependent on public utilities of water services by the State for their daily needs.

Priorities and concerns for social justice, equity, and sustainability or the environment have not, however, been reflected in the actual policy measures that the document puts forth. Further, the policy does not take into account factors like the fall in the water table and the deterioration of the quality of both surface and the ground water. It appears that all the problems related to this water crisis are reduced to one remedy only viz. privatisation - as the sole reason and solution.

BWI Reform or Transformation?

There are various debates going on in India with regard to the relevance and the future of these Bretton Wood Institutions. These debates are shaped and positions taken are along the following ideological lines viz. the right wing orthodoxy of neo-liberalism, the liberal and radical left positions respectively. These are as follows:
First: the neo liberal position argues that the continued presence of these institutions are vital for the economic growth of the country and that there is no alternative to these institutions especially in a world where the nation states are getting denationalised and vertically getting integrated into the global capital. An isolationist policy is therefore suicidal. There is also the ideological make believe propaganda that there is no alternative to the IMF/World Bank. The theory of the “TINA” syndrome has become the ruling ideology of the dominant and aspiring middle class and the intelligentsia who provide legitimacy to this neo-liberal position and make believe that these institutions are beneficial in the long run to overcome poverty and underdevelopment. This position is grounded in the changing character of State and class in India. One section of the Indian National Bourgeoisie has abandoned their post-colonial economic vision of national capital formation and national markets and is now increasingly tied up with Global Capital and Market. The scrapping of controls on expansion meant that Indian firms could aspire to global economies of scale, while the lifting of controls on the outward movement of capital meant that it was easier for Indian businesses to think of internationalising their own operations. A company which wants to break into a new market abroad has to be able to withstand a period of initial losses before it can establish itself; to cover those losses it needs substantial reserves of foreign exchange, without which it cannot even think of expanding in this way. Even more obvious is the need of foreign exchange for companies, which are planning to invest abroad. For those companies, which were all set to become Indian multinationals, liberalisation was imperative to their future expansion and it believes that IFIs will create the necessary enabling condition in the Global Market.

Second: the Liberal Position posits the argument that these institutions should be given a chance for midcourse correction. In an increasingly interdependent world with most countries of the South adopting market friendly policies access to finance from these institutions are essential for economic growth and development. In accessing the banks resources, the logic that is presented is that the borrowing countries can also shape the bank’s perceptions to meet the countries changing needs and work out arrangements, which are mutually acceptable to both the borrower and the lender. The bank “needs” us more than we “need” the Bank. IFIs are essential for long-term action to bring stability to the monetary system. Through pressure tactics and greater bargaining these institutions can be reformed.

Third: The left radical position. This position maintains that the current surge of globalisation is spear-headed by institutions such as the WB, IMF and TNCs i.e. capitalist institutions and these institutions are becoming agents of imperialism and symbol of subjugation. This position further maintains that these institutions have lost all credibility today and have outlived their historical mission as they had been created to manage the international payment system and help Europe reconstruct. The World however has changed very much since then and the IMF-World Bank economic orthodoxy has not resolved the economic recovery of the borrowing countries, with deep inequalities and poverty continuing to persist. These institutions are incapable of effectively managing today’s international financial system - in particular their instability and volatility of exchange rates and exchange flows. The essence of the problem is international capital flows without any international control. The rationale for the formation of the BWIs was to regulate finance and trade. In fact, globalisation today has accentuated this crisis and is still without a solution in sight.

After all, any economic order is a human construct based on class 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. , social creation and governed by social relations. Dynamics of human spirit and social processes are far too complex to be determined by any given single economic theory. Based on this analysis the left position argues that there is now the urgency for a new financial order and therefore these institutions must be left behind and replaced by new ones that are based on principles of equity, justice and accountability with democratic systems and processes.

Principle of Caution

While critiquing the role of the Bretton Wood Institutions especially by the NGOs of the North there is a tendency for them to fall into the trap of the single issue based and selective approach leading to the cause effect reductionism i.e. that these institutions are solely responsible and forced all the states to adopt the neo-liberal ideologies and policies (though this is partly true but not the whole truth). The principle of caution implies that our critique of these institutions should not lead us in legitimising or justifying the major responsibility of the G7 countries and large corporations in using these institutions as instruments for their hegemonic designs and agendas for capitalist economic growth.

Struggles and Resistance against B W I’s Policies

As the sense of insecurity among the people grows, alongside persisting poverty, unemployment, increasing injustice and social exclusion it pushes the poor and deprived into a culture of protest, anger and violent civil upsurges. Various mass organisations in the country in recent past have risen against the BWIs policies of privatisation of natural resources. These policies are aimed at initiating reform in the water sector in developing countries by re-shaping institutional structures to ensure the entry of transnational corporations in the Water Market.

The increased awareness of water scarcity and the privatisation of their dwindling natural resources have given rise to new social movements, initiated by the affected communities across the country, and form the major arena of struggle in the country today. The dimension of these new struggles have economic, ecological and social dimension aimed to protect livelihoods, defend basic rights and reject the commodification of water and water resources whilst safeguarding common heritage and natural resources against the onslaught of economic globalism.

These struggles and resistance are inspired by a common ideological commitment that natural resources like water belong to the earth and for all species for all time and must therefore continue to remain a common property resource whilst reclaiming the control of common heritage for future generations. This ideological vision is aimed at recovering the “holistic vision” based on the traditional world view which is now under the threat of the global capital. The age of capital brings about rapid and tumultuous changes not only in social relations of human beings but also in relations of human beings with themselves and with nature. The original harmony and unity with nature is then altered into extractive and exploitative relationship that seeks to consume, subjugate, and enslave nature. In short, this begins a process of commercialisation and privatisation of what was originally a natural resource - an element of the environment.

These struggles emerged as a major rallying point in defending the communities’ right to water and life. Realizing the fact that these struggles cannot be won at the local level of the community alone because of the increasing globalised nature of the water market, and its monopolization by the Transnational Corporations, these local struggles are increasingly acquiring international linkages. This makes it imperative to build up a global perspective and strategies to strengthen solidarity action across the globe.




Ajit Muricken

Ajit Muricken était un militant actif du réseau international CADTM. C’est lui qui a créé la branche indienne du CADTM à partir de 1998 avec le centre de recherche et d’action, nommé VAK en Inde, qu’il a dirigé.
Il est décédé brutalement le 14 mars 2016.
Ajit a consacré sa vie au combat social en donnant la priorité à des valeurs fondamentales : l’internationalisme, le refus du système des castes, le refus des intégrismes religieux, la paix, le combat pour l’émancipation sociale et humaine, l’interculturalité…

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