Operation Corporate Freedom: The IMF and World Bank in Iraq

5 April 2006 by Basav Sen , Hope Chu

While the three-year U.S. occupation of Iraq faces a quagmire in operations, the economic forces of 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.

(IMF) 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.

are moving full speed ahead implementing various economic reforms that will cause U.S.-based corporations - Bechtel, Halliburton, and others - to proclaim, “Mission Accomplished!” As the Bush administration touts its rhetoric of freedom and liberation, the IMF and World Bank are busily “liberating” Iraq’s resources - oil and labor - and “freeing” Iraq’s markets. The recent rise in fuel prices in Iraq and the subsequent riots are just a glimpse of what the future holds for Iraq under IMF and World Bank plans.

Stage One: Debt cancellation for Iraq, increased control for the IMF

Shortly after the start of the US occupation of Iraq, the Bush administration sent former Secretary of State James Baker on a pilgrimage to the capitals of other wealthy countries to seek cancellation of Saddam Hussein’s odious debts. In a move that seemed inexplicable at first, the Bush administration was using the principle of odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
to ask for cancellation of Iraq’s Saddam Hussein-era debt.

Now, the political motivations behind this unexpected move are clear. The cancellation of Iraq’s debt is a Trojan horse for the IMF, World Bank, and WTO WTO
World Trade Organisation
The WTO, founded on 1st 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.

to enter Iraq and start restructuring the economy further, continuing where Paul Bremer’s Coalition Provisional Authority (CPA) left off. In a move reminiscent of the Heavily Indebted Poor Countries Heavily Indebted Poor Countries
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
(HIPC) program, not only debt but debt relief is being used as a tool to restructure Iraq?s economy.

The Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

of Creditors, a cartel of most of the world?s major creditors (including all the G8 G8 Group composed of the most powerful countries of the planet: Canada, France, Germany, Italy, Japan, the UK and the USA, with Russia a full member since June 2002. Their heads of state meet annually, usually in June or July. governments and the governments of other wealthy countries), agreed on November 21, 2004, to cancel 80% of Iraq’s debt of about $39 billion to Paris Club members, in three steps. The terms of the cancellation are that:
— 30% of the debt would be cancelled outright;
— 30% would be cancelled “as soon as a standard IMF programme is approved,” according to the Paris Club press release announcing the move, essentially conditioning debt cancellation on the subjugation of Iraq’s economic policy to the IMF;
— Another 20% would be cancelled after three years, subject to the IMF Board?s review of Iraq’s implementation of the terms of the agreement, further binding Iraq to IMF conditions.

Two things about the Paris Club “deal” are noteworthy. First, Iraq’s debt to the IMF is only about 1% of its total Paris Club debt, and yet the IMF gets to determine the conditions for most of the debt cancellation being offered to Iraq. This shows that the political clout of the IMF is way out of proportion to its financial clout.

Secondly, the Paris Club made it clear that the offer of debt cancellation was because of “the exceptional situation of the Republic of Iraq and... its limited repayment capacity over the coming years.” While the initial rhetoric of the Bush administration had focused on the principle of odious debt, the Paris Club was careful not to set a precedent for acknowledging this principle, lest they face pressure in the future to cancel the debts of other repressive regimes such as the apartheid regime in South Africa, the Suharto dictatorship in Indonesia, the notorious Duvaliers of Haiti, or the Mobutu regime in Congo. Denying the odious nature of the debt also provides the Paris Club political cover to keep 20% of Iraq’s debt off the table. Even the Iraqi National Assembly, a body that rarely contradicts the United States, has publicly condemned the Paris Club deal for failing to recognize the odious nature of Iraq’s debt and consequently requiring Iraq to repay a fifth of it.

In this manner, a move that appears on the surface to be beneficial for Iraq - debt cancellation - is being used as a tool of control by the World Bank, the IMF and the wealthy creditor countries. What is more, it is a tool of control that will last long after the withdrawal of U.S. combat forces.

Stage Two: The rule of the Coalition Provisional Authority

In this context, it is worthwhile to review how the Coalition Provisional Authority restructured Iraq’s economy. (See World Bank Brings Market Fundamentalism to Iraq, Economic Justice News, September 2004) Paul Bremer passed a series of Executive Orders (without any accountability to Iraqi people) that, among other things:
— Laid off 500,000 government workers ? 400,000 of them employees of the Iraqi Armed Forces ? in a country with a workforce of 6.5 million. This lay-off thus represented nearly 8% of the workforce.
— Changed laws governing foreign investment to “make Iraq one of the most liberalised economies in the developing world and go beyond even the laws in many rich countries,” according to the Financial Times. (CPA Order No. 39)
— Made it illegal for Iraqi farmers to plant saved seeds and to exchange knowledge freely. Now they are allowed to plant only “protected” crop varieties which remain the property of the multinational seed companies. Previously, the Iraqi constitution did not allow patenting of plants. The CPA, however, changed the law to allow “intellectual property” control over plant varieties. (CPA Order No. 81)

Every single one of these policies fit the neoliberal framework, and sound as if they were World Bank and IMF conditions. But they aren’t. Even before the IMF and World Bank made their entry into Iraq to any significant extent, the US occupation was unilaterally coercing Iraq to conform to policies identical to what these institutions would have required - and at a more accelerated pace. There are more ways to restructure economies than through loan conditions. What Iraq has undergone under the CPA can best be described as a 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/
program imposed at gun-point.

Stage Three: Economic occupation by the IMF and World Bank

Not content with the extent to which Iraq’s economy has already been restructured on neoliberal lines by the U.S., the IMF and World Bank have more designs for the Iraqi economy, and are using debt cancellation as 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. to compel Iraq to comply with their conditions. In addition, they have begun normalizing their relations with Iraq, thereby strengthening their hand in the country.

The IMF made its first-ever loan to Iraq in September 2004. In July 2005, the World Bank made its first loan to Iraq since 1973. This was followed by a $100 million World Bank loan for the education sector last November, and an IMF Standby Arrangement in December. The cancellation of Iraq’s debt under the Paris Club plan, referred to earlier, is conditioned on Iraq entering into this Standby Arrangement, and implementing it to the satisfaction of the IMF.

Timing the IMF deal immediately after the elections is a move that appears designed to prevent Iraqis from having a say in the deal. If the deal had been signed before the elections, it would have been an election issue. “The timing of the decision spared politicians from voters’ wrath,” the Washington Post pointed out in a December 28 story.

The recent increase in domestic fuel prices was a requirement of the Standby Arrangement with the IMF, under which prices of petroleum products are to rise to the levels of corresponding products in other countries of the region by 2007. The price increases required by the IMF are staggering: the initial increases implemented in December on the eve of signing the Standby Arrangement were 400% for regular gasoline and kerosene (from 20 dinars to 100 dinars per liter, and from 5 dinars to 25 dinars per liter, respectively), and 800% for diesel (from 10 dinars to 90 dinars per liter), with further quarterly increases planned through September 2006. The IMF makes clear its intentions of keeping tabs on the price increases: “Progress in adjusting petroleum product prices will be assessed in the context of the programs? (quarterly) reviews,” according to the language of the Standby Arrangement.

Fuel is an input to the retail price of most goods, since they need to be transported. Inevitably, the prices of most goods, including food, have risen sharply as a consequence of the increase in fuel prices.

Other conditions imposed by the IMF and World Bank on Iraq include the following:

— Privatization of all state-owned enterprises in Iraq except oil. This IMF-imposed condition will lead to the lay-offs of an estimated 145,000 workers. It will also provide foreign corporations with control of vital sectors of Iraq?s economy. As for the oil industry, while it will not be totally privatized, legal changes are underway to provide for partial foreign ownership. Former Finance Minister Adel Abdul Mehdi (who is now one of Iraq?s two Vice-Presidents) admitted that these legal changes would be “very promising to the American investors and to American enterprise, certainly to oil companies.” The IMF calls for “expanding the participation of the private sector in the domestic market for petroleum products” in its press release announcing the Standby Arrangement.

— An end to food subsidies. Subsidized food rations have been a lifeline for 60% of Iraq’s population, and often their only protection against starvation, but the IMF and World Bank want to eliminate them. The elimination of subsidized food distribution will facilitate the control of Iraq’s market for food by corporate agribusiness.

— Liberalization of food prices. The World Bank wants to eliminate regulations that keep food prices under control. “Liberalization” of food prices has led to severe food shortage, even famine, in many countries, most recently in Niger and Mali.

— Further layoffs and/or wage and benefit freezes in the public sector. The Standby Arrangement requires a ceiling on the Iraqi government’s non-security/defense wage bill, as a “performance criterion” (i.e. a criterion that will be used by the IMF to evaluate Iraqi compliance with its conditions). It is significant that the only sector of government expenditure that is exempted from the IMF payroll budget ceiling is defense! The IMF celebrates the fact that the Iraqi government withdrew legislation in the National Assembly requiring pensions to be set at 80% of final salary ? making it clear that neither the existence of a democratic process in Iraq, nor retirement security for senior Iraqis, are any concern to the IMF.

The Iraqi reaction to IMF and World Bank policies in general, and to the recent fuel price increases in particular, has been one of near-unanimous disapproval. Thousands have demonstrated against the fuel price increases throughout the country; the Oil Minister, Ibrahim Bahr-al-Uloum, resigned in protest in early January (and has been replaced by the notoriously corrupt Ahmed Chalabi); and some provinces, including oil-rich Basra, have refused to implement the price increase. A number of Iraqi labor unions issued a joint statement on January 16 (see below), condemning the oil price increase, and unequivocally rejecting the entire IMF and World Bank agenda of privatization and deregulation.

Paul Wolfowitz: Master and Commander

The economic restructuring of Iraq to benefit foreign investors was most likely one of the main motivations for the U.S. invasion and occupation of Iraq ? or at least a highly profitable windfall. The fact that Paul Wolfowitz, the newly appointed president of the World Bank, was one of the major architects of the invasion only heightens the probability of a conscious plan on the part of the Bush administration. With the goal of maintaining U.S. control over the resources of Iraq after the occupation, installing Wolfowitz ? a leading member of the Project for a New American Century and already on record as an advocate of expanding U.S. influence and dedicating foreign policy to the service of U.S. interests ? at the head of the World Bank makes perfect sense.

It is clear that the consequences of the U.S. occupation, and of the subsequent economic occupation and restructuring of the country in the interests of foreign investors by the IMF and World Bank, will last well after the withdrawal of U.S. troops. Getting US troops out of Iraq, while an important first step towards winning self-determination for Iraq, is exactly that ? a first step. If the U.S. anti-war movement is serious about standing in solidarity with the people of Iraq, and challenging the deep-rooted economic motivations of an interventionist U.S. foreign policy in Iraq and around the world, then it needs to make resistance to the neoliberal economic agenda of so-called international institutions a central plank of its campaign.

By Basav Sen, Mobilization for Global Justice, and Hope Chu, 50 Years is Enough Network.


A Joint Statement Concerning the Programs of the World Bank and International Monetary Fund in Iraq by Iraqi Trade Unions

The Iraqi economy has been severely affected by decades of sanctions, wars and occupation. The Iraqi trade unions and federations believe in the capacity of the country with all its oil and mineral resources to provide a decent living standard for Iraqis.

The federations and unions consider that the wars and occupation have caused a dramatic decrease in the living and social standards of Iraqis and especially of workers.

The federations and unions stress the importance of complete sovereignty for Iraq over its petroleum and natural resources so as to develop them in a way that assures a complete reconstruction of the country. We wish to stress the following points in regard to the policies of the IMF and World Bank in Iraq:

1. Increasing transparency and additional representation for Iraq in the decision-making structures of the IFIs.

2. To stop imposing structural adjustment conditions for loans.

3. Agreeing to provide funding for public services and state-owned enterprises without demanding their privatization.

4. Canceling debts owed by Iraq that have resulted from the policies of the former regime.

5. Rejecting the reduction of spending on social services especially the elimination of government support for the food distribution system or the reduction of the number of items covered.

6. Strongly rejecting the privatization of publicly owned entities and especially of the oil, education, health, electricity, transportation and construction sectors.

7. Rejecting the increase in the price of petroleum products, considering the negative impact of the increase on the living standards of Iraqis.

8. Adopting a new labor law and a pension and social security law that assure workers’ rights and are in conformity with international labor standards and human rights conventions. The World Bank and the IMF must also respect these standards .

The unions and federations that have signed this statement announce the formation of a permanent coordinating committee that will make its positions known to the Iraqi Government and to the IFIs. They also demand that the IFIs engage in dialogue, discussion and negotiations with the trade union federations regarding their policies in Iraq.

Finally, they request the assistance of international trade union organizations to provide all possible support to the above-mentioned demands.


General Federation of Iraqi Workers
Oil Unions Federation in Iraq / Basra
Federation of Workers Councils and Unions in Iraq
Kurdistan General Workers Syndicate Union / Erbil
Iraqi Kurdistan Workers Syndicate Union


For more on the specifics of a new IMF stand-by agreement with Iraq, go to:

An earlier version of this article appeared in Economic Justice News (www.50years.org), Volume 8 No. 3, September 2005. We’ve updated it in advance of the 3rd anniversary of the US-led invasion and occupation of Iraq.




8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80