Series: 1944-2019, 75 years of interference from the World Bank and the IMF (Part 18)

Presidents Barber Conable and Lewis Preston (1986-1995)

10 August by Eric Toussaint


Sardar Sarovar dam, Narmada river, India, 2006 (CC- Wikimedia)

In 2019, the World Bank (WB) and the IMF will be 75 years old. These two international financial institutions (IFI), founded in 1944, are dominated by the USA and a few allied major powers who work to generalize policies that run counter the interests of the world’s populations.

The WB and the IMF have systematically made loans to States as a means of influencing their policies. Foreign indebtedness has been and continues to be used as an instrument for subordinating the borrowers. Since their creation, the IMF and the WB have violated international pacts on human rights and have no qualms about supporting dictatorships.

A new form of decolonization is urgently required to get out of the predicament in which the IFI and their main shareholders have entrapped the world in general. New international institutions must be established. This new series of articles by Éric Toussaint retraces the development of the World Bank and the IMF since they were founded in 1944. The articles are taken from the book The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus, Mumbai: Vikas Adhyayan Kendra, 2007, or The World Bank : A critical Primer Pluto, 2007.

Barber Conable’s term of office (1986-1991)

The Republican Congressman Barber Conable succeeded the banker Allan W. Clausen for a term that started in July 1986 and ended in August 1991. James Baker, Secretary of the Treasury, and Ronald Reagan chose him because of his thorough knowledge of all the mysteries of the US Congress. Indeed the Executive had its hands full with its parliamentary majority since several Republican representatives questioned the weight of the WB 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.

in US foreign policy (see ch. 5). Barber Conable had twenty years’ experience in Congress and had chaired the Committee on finance. James Baker and Ronald Reagan wanted Barber Conable to appease the recalcitrant Republicans and persuade them to let the White House steer the World Bank. The issue was complex and Conable soon found himself in a precarious situation. While he wished to expand the WB’s activities, the White House made some concessions to the recalcitrant elements, limited the resources granted to the WB and demanded that Barber Conable reduce its expenditures. When he did this a number of senior executives and all of the staff turned against him. In 1987 the internal reorganisation of the Bank was a veritable game of musical chairs. Several top managers resigned. [1]

Barber Conable (CC - Wikimedia)

Barber Conable also met other obstacles. Several of the Bank’s large-scale model projects were challenged by the concerned people and by environmental associations. The three projects that prompted the most determined protests were the Polonoroeste programme in Brazilian Amazonia, [2] the various dams on the Narmada river in India, the transmigration project and the Kedung Ombo dam in Indonesia. [3] The largest demonstration occurred in India where some 50,000 people from all parts of the country marched in the city of Harsud (Madhya Pradesh) in September 1989. A fourth WB programme also raised strong opposition from Human Rights organisations, namely the Ruzizi II hydroelectric project that concerned Zaire (as the DRC was then called) and Rwanda and involved the displacement of some 2,500 farmers without any significant compensation. [4] Barber Conable promised that the WB would in the future take the environmental impact into account and would see to it that affected people would receive decent compensation. [5] This was truly a titanic task since in India alone the WB financed 32 projects involving the displacement of some 600,000 people from 1978 to 1990. [6]

In 1988 the WB and 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
annual assembly in West Berlin was greeted by 80,000 demonstrators who denounced their anti-social policies. This was the first mass demonstration against the Bretton Woods institutions.

The uprisings triggered by the policy 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/
and the consequent deterioration in the ’adjusted’ peoples’ standards of living in the concerned countries led the WB to broach the issue of poverty after ten years of silence. The World Development Report 1990 is entirely devoted to it.

It was also with Barber Conable as President that the Bank started to systematically refer to “good governance”. In 1990 he told a number of African governors of the Bank: “Let me be frank: political uncertainty and arbitrary rule in so many sub-Saharan African countries are major obstacles to their development.... In saying this, I’m not talking politics. Rather, I’m speaking as a defender of increased openness and responsibility, of respect for human rights and the rule of law. Governability is linked to economic development. Donor countries are increasingly indicating that they will cease to back inefficient systems which do not meet the population’s basic needs.” [7]

This change in the Bank’s policy reflects the change in Washington’s policy towards the end of the 1980s. It is analysed in the chapter on Korea. The Bank’s discourse on respect for the law and human rights was never evidenced in the conditionalities it imposed on countries under structural adjustment. Indeed its discourse did not prevent it from supporting, for example, Suharto’s dictatorship in Indonesia until 1998.


Lewis Preston’s term of office (1991-1995)

Lewis Thompson Preston (CC - wikispooks)

With the appointment of Lewis Preston as president of the World Bank in 1991, President George Bush again placed a first-rate banker at the helm of the institution. Lewis Preston had up to then been CEO of J-P Morgan and Co. He had had a remarkable career at the head of this leading New York bank, allowing him to take full advantage of the debt crisis that broke in 1982.

Lewis Preston’s mandate began in June 1991 with the huge political and financial scandal of the Bank of Credit and Commerce International’s bankruptcy, which came close to directly implicating the World Bank. Specializing as it did in money laundering, the BCCI was closed by order of the British authorities in July 1991. Its closure is said to have induced the loss of some USD 20 billion for 2 million small savers. The BCCI was convicted of the following crimes: involvement in money laundering, bribery, support of terrorism, arms trafficking, the sale of nuclear technologies, the commission and facilitation of tax evasion, smuggling, illegal immigration, and illicit purchases in the banking and real estate sectors. The BCCI was present in 78 countries with over 400 branches, and was closely related to the CIA. [8] Bruce Rich writes that the World Bank had occasionally used the BCCI for the disbursement of loans in African countries. He also establishes that several of the Bank’s senior officers had close relationships with the BCCI’s senior officers. [9]

Lewis Preston gave his first major speech on the occasion of a huge media circus staged by the WB and the IMF in Bangkok for their joint annual meeting in October 1991 (this was the first meeting held in a Third World country since Seoul in 1985). Fifteen thousand bankers and political leaders from all over the world met there for three days. The cost for the Thai authorities amounted to dozens of millions in USD. Lewis Preston gave an enthusiastic speech supporting globalization and asserting that the Bank was close to poor people, attentive to environmental issues, and committed to improving the lot of women. Here is a short excerpt: “Poverty reduction, to which I personally am fully committed, remains the World Bank Group’s overarching objective (…) The World Bank Group takes into account the 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. of the poor so that growth is equitable; environmental aspects so that development is sustainable… and the role of women who are vital to the development effort”. [10] The future is bright, since the world is now one after the fall of the Berlin wall. [11] The challenge posed by the Bank was to include all East European countries in the globalized world. A few hundred yards away from where the meeting was held 20,000 people demonstrated against the new dictatorship that had been established eight months earlier [12], and demanded a return to democracy.

Lawrence Summers: Shouldn’t the World Bank be encouraging more migration of the dirty industries to the lesser developed countries [...] The economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable and we should face up to it

In December 1991 Lawrence H. Summers, the WB’s chief economist, wrote a confidential memorandum on the 1992 World Development Report (which was being drafted). The Report was entirely devoted to the environment in view of the Earth Summit due to be held in May 1992. Summers argued for exporting polluting industries to countries of the South, which are largely underpolluted, as a rational means of creating industrial development while alleviating the pressures of pollution in the North. Here are some excerpts from Lawrence Summers’ memorandum: “Shouldn’t the World Bank be encouraging more migration of the dirty industries to the lesser developed countries”, “The economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable and we should face up to it”. [13] A favorable wind took this document to the environmental organisation Greenpeace, which immediately made it public. The British neoliberal weekly The Economist published it at the end of December 1991, [14] just when Lewis Preston was beginning his first tour in Africa. He was set upon by journalists asking whether he approved of his chief economist when he wrote: “I’ve always thought that under populated countries in Africa are vastly under-polluted.” [15]

In February 1992 Willi Wapenhans, the Bank’s vice-president, handed Lewis Preston a confidential assessment report on all projects financed by the Bank (almost 1,300 projects in progress in 113 countries). Its conclusions were alarming: 37.5% projects prove unsatisfactory when completed (as against 15% in 1981), only 22% of the financial commitments conform to the Bank’s instructions.

In May 1992, a few days before the beginning of the Earth Summit, the Bank’s management received the results of the independent survey on the Narmada River dam in India. Lewis Preston had entrusted U.S. Representative Bradford Morse with coordinating the survey. The report considers that the dams and its canals will result in 240,000 displaced persons, not 100,000 as originally foreseen. Such conclusions caused panic in the WB’s management. The report had to be kept secret until the Earth Summit was over. This goal was achieved.

The WB did very well out of the Earth Summit in Rio de Janeiro attended by 118 heads of state. The event was relayed by some 9,000 journalists. At the end of it the Bank was entrusted with the management of the GEF (Global Environment Facility), i.e. the global funds for the environment through which the majority of amounts of money related to the implementation of Agenda 21 adopted at the end of the global meeting were to transit.

The WB would also support the transition of countries from the former Eastern bloc to a capitalist economy. This resulted in a large-scale sell-off of public companies that were privatized and given over to a new class of mostly mafiosi capitalists. Joseph Stiglitz, the WB’s chief economist from 1997 to 2000, shows very clearly that the Bank’s policy in Russia was far removed from the good governance it otherwise advocated. About the time when Lewis Preston was president of the Bank he writes: “It is not surprising that many of the market reformers showed a remarkable affinity to the old ways of doing business: in Russia, President Yeltsin, [16] with enormously greater powers than his countreparts in any Western democracy, was encouraged to circumvent the democratically elected Duma (parliament) and to enact market reforms by decree.” [17] Public companies were sold for peanuts. “…pressured by the United States, the World Bank and the IMF to privatize rapidly, [the Russian government] had turned over its state assets for a pittance.” [18] Privatization was a large-scale looting of the country for the benefit of oligarchs who invested part of their pilferage in the West in order to launder it and remove it from the reach of the law. “Privatization accompanied by the opening of the capital markets, led not to wealth creation but to asset Asset Something belonging to an individual or a business that has value or the power to earn money (FT). The opposite of assets are liabilities, that is the part of the balance sheet reflecting a company’s resources (the capital contributed by the partners, provisions for contingencies and charges, as well as the outstanding debts). stripping. It was perfectly logical. An oligarch, who has just been able to use political influence to garner assets worth billions, after paying only a pittance, would naturally want to get his money out of the country.” [19]

During Lewis Preston’s mandate the World Bank and the IMF celebrated in great style their fiftieth anniversary in Madrid. On this occasion a large coalition of social movements (among them the main TU in Spain, UGT and Worker’s Commissions), third world movements and NGOs came together under the name The other voices of the earth and organized a four day conference with many debates and a demonstration by some 20,000 people who chanted “Fifty years is enough.”

The end of Lewis Preston’s term was marked by the tequila crisis that hit Mexico from December 1994. Mexico was the first in a series of financial crises that would hit other emerging countries during the term of the next president, James Wolfensohn.



Footnotes

[1KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1199-1201.

[2Chico Mendès, one of the leaders of the Brazilian protest, was assassinated in December 1988 by hired assassins in the pay of big landowners who profit from World Bank subsidies.

[3RICH, Bruce. 1994. Mortgaging the Earth, Earthscan, London, p. 145-170.

[4RICH, Bruce. 1994. Mortgaging the Earth, Earthscan, London, p. 150.

[5The World Bank’s policy on the environment will be analyzed in my next book on the World Bank entitled L’horreur productiviste, to be published in 2007.

[6RICH, Bruce. 1994. Mortgaging the Earth, Earthscan, London, p. 252.

[7Quoted by LANCASTER, Carol. 1993. “Governance and development: The views from Washington”. IDS Bulletin 24, p. 10

[8See the complete report devoted to the BCCI in 1992 by Senators John Kerry and Hank Brown. http://www.fas.org/irp/congress/1992_rpt/bcci/
See also : http://en.wikipedia.org/wiki/Bank_of_Credit_and_Commerce_International

[9RICH, Bruce. 1994. Mortgaging the Earth, Earthscan, London, p. 21-22.

[10Address by Lewis T. Preston to the Board of Governors of the World Bank Group, World Bank press release, 15 October 1991.

[11It should be added that at the time when Lewis Preston was making his address, the end of the USSR was being sealed. The final thrust in favour of the dissolution of the USSR came from Boris Yeltsin in August 1991 in Moscow. The USSR was dissolved in December 1991.

[12RICH, Bruce. 1994. Mortgaging the Earth, Earthscan, London, p. 24.

[13Lawrence H. Summers, World Bank office memorandum, 12 December 1991, quoted by RICH, Bruce. 1994. Mortgaging the Earth, Earthscan, London, p. 247.

[14The British daily paper Financial Times devoted a long article to the subject, written by Michael Prowse, on 10 February 1992; its title was “Save the Planet Earth from Economists”)

[15Lawrence H. Summers, World Bank office memorandum, 12 December 1991, quoted by RICH, Bruce. 1994. Mortgaging the Earth, Earthscan, London, p. 247.

[16Boris Yelstin was president of Russia from 1992 to 1999. The situation that Joseph Stiglitz describes occurs in 1993.

[17STIGLITZ, Joseph E. 2002, Globalization and its Discontents, Allen Lane, p. 136.

[18Idem, pp. 144-5.

[19Ibid., p. 144.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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