Series: 1944-2020, 76 years of interference from the World Bank and the IMF (Part 6)

SUNFED versus World Bank

12 March 2020 by Eric Toussaint


In 2020, the World Bank (WB) and the IMF are 76 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.


  1. The World Bank: an ABC
  2. The International Monetary Fund (IMF): an ABC
  3. Concerning the founding of the Bretton Woods’ Institutions
  4. The WB assists those in power in a witch-hunting context
  5. Early conflicts between the UN and the World Bank/IMF tandem
  6. SUNFED versus World Bank
  7. Why the Marshall Plan ?
  8. Why the 1953 cancellation of German debt won’t be reproduced for Greece and Developing Countries
  9. Domination of the United States on the World Bank
  10. World Bank and IMF support to dictatorships
  11. The World Bank and the Philippines
  12. The World Bank’s support of the dictatorship in Turkey (1980-1983)
  13. The World Bank and the IMF in Indonesia: an emblematic interference
  14. Theoretical lies of the World Bank
  15. The South Korean miracle is exposed
  16. The debt trap
  17. The World Bank saw the debt crisis looming
  18. The Mexican debt crisis and the World Bank
  19. The World Bank and the IMF: the creditors’ bailiffs
  20. Presidents Barber Conable and Lewis Preston (1986-1995)
  21. James Wolfensohn switches on the charm (1995-2005)
  22. The Meltzer Commission on the IFI at the US Congress in 2000
  23. The World Bank’s accounts
  24. From Paul Wolfowitz (2005-2007) to David Malpass (2019-...): the US President’s men control the World Bank
  25. World Bank and IMF: 76 Years is Enough! Abolition!
  26. The World Bank, the IMF and the respect of human rights
  27. The IMF and the World Bank in the time of Coronavirus: the failed campaign for a new image
  28. The World Bank did not Foresee the Arab Spring Popular Uprisings and still Promotes the very same Policies that triggered them

From the beginning of 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.

operations, the governments of developing countries, starting with Latin America and followed by India, criticized the fact that their countries enjoyed no aid facilities similar to those of the Marshall Plan Marshall Plan A programme of economic reconstruction proposed in 1947 by the US State Secretary, George C. Marshall. With a budget of 12.5 billion dollars (more than 80 billion dollars in current terms) composed of donations and long-term loans, the Marshall Plan enabled 16 countries (notably France, the UK, Italy and the Scandinavian countries) to finance their reconstruction after the Second World War. , which was restricted to Europe. Indeed, World Bank loans were granted at current market 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.
, while Marshall Plan aid was mainly given in the form of grants. A small proportion of Marshall Plan aid was in the form of 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. -free loans or loans with interest rates lower than those of the market.

In 1949, an Indian economist proposed creating a new international organization within the framework of the UN. He suggested it be called the “United Nations Administration for Economic Development”. Some years later, the same idea took shape within ECOSOC, and SUNFED (Special United Nations Fund for Economic Development) was set up. From 1950 to 1960, several Third World countries, as well as the USSR and Yugoslavia, waged a systematic campaign within the UN to consolidate and reinforce SUNFED. For the US government and the governments of the other major industrial powers, the idea of a special fund controlled by the UN and separate from the World Bank was unacceptable.

Among the reasons behind the developing countries’ demand for a specialized UN agency to finance their development was the question of voting rights. They wanted a UN specialized agency in order to ensure that the “one country, one vote” rule was applied, as opposed to the census-type rule applied within the Bank. The same reason – but in reverse – was behind U.S. and other major powers’ opposition to the proposal: the small number of rich countries were afraid of becoming minority voters.

As recounted by the Bank historians, Mason and Asher, and later by Catherine Gwin, in 1954 the United States made a first counter-proposal which the Bank put into practice in 1956 with the creation of the International Finance Corporation (IFC), whose role was to grant loans to private sector companies in developing countries [1]. This new initiative failed to quell dissatisfaction and the developing countries’ campaign in favour of SUNFED gained strength: in 1958, this Special United Nations Fund was authorized to finance pre-investments in developing countries.

Unfortunately, the Third World camp quickly became divided. India, which had originally supported SUNFED, switched allegiances and declared itself favourable to the second U.S. counter-proposal. This proposal involved the creation of an International Development Association (IDA), linked to the World Bank, as an alternative to SUNFED [2]. The pro-Washington Indian lobby Lobby
Lobbies
A lobby is an entity organized to represent and defend the interests of a specific group by exerting pressure or influence on persons or institutions that hold power. Lobbying consists in conducting actions aimed at influencing, directly or indirectly, the drafting, application or interpretation of legislative measures, standards, regulations and more generally any intervention or decision by the Public Authorities.
was convinced that India would benefit from IDA since the major powers predominating in the Bretton Woods institutions would understand the necessity of giving India special treatment in view of its strategic position. And India was right: in the first year of IDA activity, it received 50 % of IDA loans.

By proposing the creation of IDA, the U.S. government had a dual objective: on the one hand to prevent the United Nations continuing to reinforce SUNFED and thereby satisfying the needs of developing countries; on the other hand to find a way of using the currency reserves of developing countries that the U.S. Treasury had been piling up since 1954 through the sale of its agricultural surpluses under Public Law 480 [3]. Several authors agree that it was Senator Mike Monroney of Oklahoma who first floated the idea: he put a resolution before the Senate for the establishment of an IDA in cooperation with the World Bank and proposing that non-convertible currency reserves should be paid into this agency in order to grant long-term, low interest loans that would be paid back in local currency. Basically it meant that loans would be made to poor countries so that they could buy North-American agricultural surpluses [4]. Eugene Black, president of the World Bank, would later say: “IDA was really an idea to offset the urge for SUNFED” [5]. It is worth quoting Mason and Asher here: “As an international organization affiliated with the World Bank, IDA is an elaborate fiction. Called an « association » and possessed of Articles of Agreement, officers, governmental members galore, and all the trappings of other international agencies, it is as yet simply a fund administered by the World Bank.” [6]

The United States provided 42 % of IDA’s initial funding, thus ensuring U.S. predominance within the agency.

At the same time that IDA was founded, the DAC (Development Assistance Committee of the OECD OECD
Organisation for Economic Co-operation and Development
OECD: the Organisation for Economic Co-operation and Development, created in 1960. It includes the major industrialized countries and has 34 members as of January 2016.

http://www.oecd.org/about/membersandpartners/
) was being set up in Paris. This was a structure designed to “coordinate” bilateral development aid from the most highly industrialized countries. This spelt the final demise of SUNFED, the United States having imposed institutions where U.S. control could be guaranteed.


IDA financing

IDA does not borrow on the financial markets. The money it lends comes from donations made regularly by member countries (mainly the most wealthy industrial countries, and also the Petroleum Producing Countries (OPEC OPEC
Organization of Petroleum-Exporting Countries
OPEP is a group of 11 DC which produce petroleum: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela. These 11 countries represent 41% of oil-production in the world and own more than 75% of known reserves. Founded in September 1960and based in Vienna (Austria), OPEC is in charge of co-ordinating and unifying the petroleum-related policies of its members, with the aim of guaranteeing them all stable revenues. To this end, production is organized on a quota system. Each country, represented by its Minister of Energy and Petroleum, takes a turn in running the organization. Since 1st July 2002, the Venezuelan Alvaro Silva-Calderon is the Secretary General of OPEC.

OPEC : http://www.opec.org/opec_web/en/
) since the 1970’s, and from the repayments which it receives.

Every three or four years, the contributing countries haggle over the kitty. It is the stuff of great debates in the U.S. Congress, which is where the payouts are decided. Bargaining proceeds smartly between Congress, the Washington government and the U.S. presidency of the World Bank/IDA. Yet the amounts at stake are actually very modest. What is really important is to ensure that money loaned by IDA comes back to the donors in the form of purchases (linked aid) [7].


Footnotes

[1Mason Edward S. and Asher, Robert E. 1973. p.384-385 ; Gwin, Catherine. in Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. p.206 ; Van de Laar, Aart. 1980. p.57.

[2Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1127

[3Van de Laar, Aart. 1980. p.57; Gwin, Catherine , in Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. p.206; Mason Edward S. and Asher, Robert E. 1973. p.386-387.

[4Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1128

[5Mason and Asher, p.386.

[6Mason and Asher, p.380-381.

[7Kapur, Devesh, Lewis, John P., Webb, Richard. 1997. The World Bank, Its First Half Century, Volume 1, p. 1149.

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 Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), 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, 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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