Committee for the Abolition of Illegitimate Debt

The succession of crises that swept over the so called emerging countries in the nineties and the ensuing disastrous IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org and 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.

interventions provoked a world wide debate concerning the future and the role of these Bretton Woods’ institutions. A number of establishment intellectuals played a part in these discussions for instance, Allan Meltzer, Paul Krugman, Joseph Stiglitz and Jeffrey Sachs. At the same time, Congress in Washington has never been keen to provide additional financial means to the IMF to overcome such crises. All it ended up in doing was setting up an ad hoc bipartisan [1] commission. This commission, entitled the ‘International Financial Institutions Advisory Commission’ delivered its report (The Meltzer Report) at the start of 2000. The report focused on seven multilateral institutions: the IMF, the World Bank, the Inter-American Development Bank, the Asian Development Bank, the African Development Bank, the WTO WTO
World Trade Organisation The WTO, founded on 1^st January 1995, replaced the General Agreement on Trade and Tariffs (GATT). The main innovation is that the WTO enjoys the status of an international organization. Its role is to ensure that no member States adopt any kind of protectionism whatsoever, in order to accelerate the liberalization global trading and to facilitate the strategies of the multinationals. It has an international court (the Dispute Settlement Body) which judges any alleged violations of its founding text drawn up in Marrakesh.

and the Bank of International Settlements. This study is only concerned with the report’s conclusions concerning the IMF and the World Bank.

The Commission was comprised of eleven experts (six Republicans and five Democrats), parliamentarians, academics and bankers. Among them were Allan H. Meltzer (its president), Edwin Feulner (president of the extremely reactionary Heritage Foundation and former president of the Mont-Pèlerin Society) on the Republican side and Jeffrey Sachs, Fred Bergsten, Jerome Levinson on the Democrats’. A large part of the Commission’s work, including documentation of its internal disagreements, is available on the internet. [2]

All the Commission’s meetings and hearings were held in public and since its work casts an interesting light on the terms of debate in Washington, it is worth scrutinizing in some detail.

A short resolution was adopted unanimously by the Commission whilst the entirety of the report was approved by eight votes to three. The three votes against were Democrats (Fred Bergsten, Jerome Levinson and Esteban Edward Torres). Two Democrats (including Jeffrey Sachs) voted with the Republicans.

The resolution adopted unanimously reads as follows “(1). The IMF, the World Bank and the Regional Development banks should write off in their entirety all claims against Heavily Indebted Poor Countries Heavily Indebted Poor Countries
HIPC 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. (HIPCs) that implement an effective economic and social development strategy in conjunction with the World Bank and the regional development institutions, and (2). The IMF should restrict its lending to the provision of short term liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. . The current practice of extending long-term loans for poverty reduction or other objectives should end.”

The report is over a hundred pages long. Essentially, its recommendation is not that these multilateral institutions be abolished or somehow combined, but, instead, that they should be profoundly reformed. The report contains some extremely critical points concerning the political management of the IMF and the World Bank and also severely lambastes the WTO. It proposes that the World Bank should completely stop its loans to those countries that have already got access to financial markets and that it restrict itself to giving aid only to those countries that do not.

In a similar vein, the report states that the IMF must no longer grant short term loans and that it ought to give up its mission of combatting poverty, a mission that should only be the preserve of the World and Regional Banks. It goes on to say that the bank should henceforth be renamed the World Development Agency. The report also denounces the governments of the rich countries, the IMF and the World Bank for short-circuiting decision making bodies and legislative powers. In similar vein, it criticizes the WTO for abusing its powers, commenting that the WTO does not have the automatic right to impose its rules on member states. Instead, each of these WTO decisions must be endorsed by the Parliaments of each member state.

Below are some of the more outstanding comments of the report. They start in a congratulatory fashion, praising the US’s role in the world, and go on to confirm the commission’s neo-liberal credentials.

“These institutions, and the U.S. commitment to maintain peace and stability, have had remarkable results. In more than fifty postwar years, more people in more countries have experienced greater improvements in living standards than at any previous time”.

“Our former adversaries are now part of the expanding global market system”.

“The United States has been the leader in maintaining peace and stability, promoting democracy and the rule of law, reducing trade barriers, and establishing a transnational financial system”.

“The Commission believes that to encourage development, countries should open markets to trade, and encourage private ownership, the rule of law, political democracy and individual freedom.”

What these Republican and Democrat establishment figures have to say here will cause few raised eyebrows. But it is the rest of the report that is more surprising. The Commission criticizes the actions of the IMF, of the G7 governments and takes issue with the shock policies imposed by the IMF and World Bank.

Critique of the IMF intervention in the 1982 Mexico debt crisis

“In August 1982 the Mexican government announced that it could not service its external debts. The IMF organized and supervised the administration of a plan to reschedule the private commercial debts that the Mexican government had incurred over the previous decade. IMF lending did not channel net new funding to Mexico. Rather it lent the money to enable Mexico to service the debt. Mexico’s debt increased, but it avoided default. The IMF made its loans conditional on the implementation of a package of long-term economic reforms. Many of the conditions required sacrifices by the local population, loss of jobs and deep reductions in living standards. Other developing countries, particularly in Latin America, found that net private capital inflows declined or became negative. “

Critique of the SAP imposed by the IMF

“Transformation of the IMF into a source of long-term conditional loans has made poorer nations increasingly dependent on the IMF and has given the IMF a degree of influence over member countries’ policymaking that is unprecedented for a multilateral institution. Some agreements between the IMF and its members specify scores of required policies as conditions for continued funding. These programs have not ensured economic progress. They have undermined national sovereignty and often hindered the development of responsible, democratic institutions that correct their own mistakes and respond to changes in external conditions”.

The report criticises the IFI intervention during the 1994 Mexican crisis

“After the IMF, the U.S. Treasury, and the foreign creditors had been repaid, however, the Mexican taxpayer was left with the bill. The cost of the banking system bailout is currently estimated at roughly 20 percent of Mexico’s annual GDP GDP
Gross Domestic Product Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another. . Real income per capita in 1997, despite ups and downs, was no higher in 1997 than twenty years earlier. Real wages of the lowest paid workers, those receiving the minimum wage, have fallen 50% since 1985. Mexico’s total (public and private) external debt, expressed in 1996 U.S. dollars, has grown fivefold over the period since 1973, or fourfold when expressed on a per capita basis. Real wages are lower and the burden of financing the debt is much higher for each Mexican worker”.

“Critics also claimed that, by preventing or reducing the losses borne by international lenders, the IMF’s 1995 Mexican program sent the wrong message to international lenders and borrowers. By preventing or reducing losses by international lenders, the IMF had implicitly signalled that, if local banks and other firm institutions incurred large foreign liabilities Liabilities The part of the balance-sheet that comprises the resources available to a company (equity provided by the partners, provisions for risks and charges, debts). and governments guaranteed private debts, the IMF would provide the foreign exchange needed to honor the guarantees Guarantees Acts that provide a creditor with security in complement to the debtor’s commitment. A distinction is made between real guarantees (lien, pledge, mortgage, prior charge) and personal guarantees (surety, aval, letter of intent, independent guarantee). . Economists give the name “moral hazard Moral hazard The effect on a creditor’s or an economic actor’s behaviour when they are covered against a given risk. They will be more likely to take risks. Thus, for example, rescuing banks without placing any conditions enhances their moral hazard.

An argument often used by opponents of debt-cancellation. It is based on the liberal theory which considers a situation where there is a borrower and a lender as a case of asymmetrical information. Only the borrower knows whether he really intends to repay the lender. By cancelling the debt today, there would be a risk that the same facility might be extended to other debtors in future, which would increase the reticence of creditors to commit capital. They would have no other solution than to demand a higher interest rate including a risk premium. Clearly the term “moral”, here, is applied only to the creditors and the debtors are automatically suspected of “amorality”. Yet it is easily demonstrated that this “moral hazard” is a direct result of the total liberty of capital flows. It is proportionate to the opening of financial markets, as this is what multiplies the potentiality of the market contracts that are supposed to increase the welfare of humankind but actually bring an increase in risky contracts. So financiers would like to multiply the opportunities to make money without risk in a society which, we are unceasingly told, is and has to be a high-risk society… A fine contradiction. ” to the incentive inherent in such guarantees”.

“Cutting government expenditure, raising taxes and interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation. and closing banks aggravated the crises”.

 The Commission also criticises the IMF in the pay of the G7

“The G7 governments, particularly the United States, use the IMF as a vehicle to achieve their political ends. This practice subverts democratic processes of creditor countries by avoiding parliamentary authority over foreign aid or foreign policy and by relaxing budget discipline.”

 The IMF in the pay of the rich

“Numerous studies of the effects of IMF lending have failed to find any significant link between IMF involvement and increases in wealth or income. IMF-assisted bailouts of creditors in recent crises have had especially harmful and harsh effects on developing countries. People who have worked hard to struggle out of poverty have seen their achievements destroyed, their wealth and savings lost, and their small businesses bankrupted. Workers lost their jobs, often without any safety net to cushion the loss. Domestic and foreign owners of real assets suffered large losses, while foreign creditor banks were protected. These banks received compensation for bearing risk, in the form of high 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. rates, but did not have to bear the full (and at times any of the) losses associated with high-risk lending. The assistance that helped foreign bankers also protected politically influential domestic debtors, encouraged large borrowing and extraordinary ratios of debt to equity Equity The capital put into an enterprise by the shareholders. Not to be confused with ’hard capital’ or ’unsecured debt’. ”.

 The Commission disapproves of the IMF’s policies in Latin America

“The Commission does not approve of the IMF’s policies in Latin America in the 1980s and in Mexico in 1995, or in many other cases. IMF loans to these countries protected U.S. and other foreign banks, financial institutions, and some investors at great cost to the citizens of the indebted countries. The loans delayed resolution of the 1980s crises by permitting lenders and borrowers to report the debt as fully serviced. (…) The Commission believes that lenders who make risky loans or purchase risky securities should accept the true losses when risks become unpleasant realities”.

The Commission criticises the interlinked World and Regional Banks

“There is a wide gap between the Banks’ rhetoric and promises and their performance and achievements. The World Bank is illustrative. In keeping with a mission to alleviate poverty in the developing world, the Bank claims to focus its lending on countries denied access to the capital markets. Not so; 70% of World Bank non –aid resources flow to 11 countries that enjoy easy access to the capital markets”.

“The total resource flow to public-sector activities in countries without capital market access, but with stabilizing policies and institutions, was $2.5 billion for the seven years 1993-1999. This is less than 2% of World Bank Group financing, excluding aid”.

The Future of the World Bank group according to Meltzer

The World Bank’s role as lender would be significantly reduced.

The Commission adds that above all the Bank will have to make donations. Moreover, the Commission thinks the World Bank no longer has a ‘raison d’etre’.

“The International Finance Corporation should become an integral part of the redefined World Development Agency. Its capital base would be returned to shareholders as existing portfolios are redeemed.”

“MIGA should be eliminated. Many countries have their own political insurance agencies. In addition, private-sector insurers have entered the market.”

The IMF’s role redefined according to Meltzer

“The mission of the new IMF. The Commission recommends that the IMF be restructured as a smaller institution with three unique responsibilities :

a) to act as a quasi-lender of last resort to solvent emerging economies by providing short-term liquidity assistance to countries in need ;

b) to collect and publish financial and economic data from member countries, and disseminate those data in a timely and uniform manner ;

c) to provide advice (but not impose conditions) relating to economic policy as part of regular “Article IV” consultations with member countries.

The IMF’s Poverty and Growth Facility should be closed.

The IMF would not be authorized to negotiate policy reforms.

IMF loans should have a short maturity (e.g., a maximum of 120 days, with only one allowable rollover”

The Democrats’ Minority Report

The three democrats who voted against the report (Fred Bergsten, Jerome Levinson and Esteban Torres) considered that this was far too harsh on the IFI and the WTO, regarding it as likely to impinge too greatly on their respective powers and remits and Levinson even went as far as to write a twenty page defence of them. In this alternative vision to that of the rest of the Commission, he emphasized the Democrats’ involvement with the trades union movement – the AFL – CIO. However, he did condemn the World Bank’s and the IMF’s hostility to workers’ rights. Indeed, both the World Bank and the IMF have made sure that workers and workers alone have paid the price of financial crises. Levinson should be very well aware of this, having been in Brazil at the time of the military coup, itself backed by the US, the World Bank and the IMF [3].

He summarizes correctly how the holders of capital and governments provoke and use crises which have then led to systematic attacks on the working class. The following extract from the Meltzer Commission’s report is revealing in this respect.

“The syndicated bank lending of the decade of the 70’s, the tesobono and East Asian financing fiascos, all have common characteristics : in each instance, banks and investors, awash with liquidity, seek a higher financial return than they can obtain in their home bases; without “due diligence”, they invest (tesobonos), or loan (East Asia, 1970s, syndicated bank loans) to governments or banks and corporations in the developing countries; much of the resources are not used for productive investments; a combination of external and internal shocks leads to an international crisis, which is perceived to put at risk the international financial system.

The IMF and the World Bank are charged with overseeing the workout; the financial institutions, who were equally responsible for the crisis by their imprudent lending or investing, are bailed out and rewarded : they are enabled to buy into local banks and financial institutions at bargain basement prices (Mexico and East Asia); the debtor countries are counselled to export their way out of the crisis, which, in practice, means flooding the U.S. market with goods and services because that is the only market that is effectively open to them ; and, in order to make their goods more internationally competitive, the IMF and World Bank require governments in the debtor countries to adopt labor market flexibility measures-making it easier for companies to fire workers without significant severance payments, weakening the capacity of unions to negotiate on behalf of their members, all for purpose of driving down labor costs and benefits. Workers in both the industrialized and developing countries, particularly in the unionized part of the labor market, bear a disproportionate part of the burden of adjustment . (…)

Levinson also quotes Joseph Stiglitz (former Chief Economist at the World Bank) who argues in the same vein: “Even when labor market problems are not the core of the problem facing the country, all too often workers are asked to bear the brunt of the costs of adjustment. In East Asia, it was reckless lending by international banks and other financial institutions combined with reckless borrowing by domestic financial institutions – combined with fickle investor expectations – which may have precipitated the crisis ; but the costs in terms of soaring unemployment and plummeting wages were borne by workers .”

Jerome Levinson is scathing towards the World Bank’s hypocrisy. When this learned institution is asked to promote workers’ rights, he notes, it apologizes saying that it is forbidden by Section 10 Article IV of its constitution to take any political factors into account. Yet when it comes to setting conditionalities, he goes on to argue, it is quick enough to impose the maximum amount of labour flexibility thus making it easier to sack people, weaken the negotiating power of trades unions and reduce the incomes of urban workers.

It must be stressed however, that Levinson is fully in favour of pro-market economic liberalism and privatization. He regards such measures as necessary, but believes that for them to work, they have to be accompanied by a trades union counter-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. . Levinson’s vision is close to that advocated by Tony Blair in Great Britain or Gerhard Schroeder in Germany.

The Meltzer Commission in Context

In a study published in 1998, Anne Krueger, who was Chief Economist at the World Bank from 1981 to 1987, underlined the differences between the 1970s and the end of the 1990s. Her article is useful for understanding certain terms of the debate. She indicates that at the start of the seventies, the United States forced the World Bank and the IMF to switch from bilateral to multilateral aid [4]. According to Krueger, from then on, private capital flows, encouraged by the spread of liberalization, proved dominant and reduced the World Bank’s and the IMF’s room for manœuvre. Moreover, the Cold War had finished. She notes, “Up until the end of the Cold War, political support for IMF and World Bank aid programs came from two groups: those from the right who were concerned about security issues and those from the left who supported development objectives from a humanitarian point of view. With then end of the Cold War, political support from the right slipped away and the Bank’s efforts to extend its activities into new areas can be seen as its seeking out a wider base of political support.” [5] According to her, the World Bank tends to do too much. “Many of the criticisms levelled at the Bank’s lack of organisation can be traced back to its tendency to over-reach itself in all the countries it is concerned with. In becoming involved in environmental issues, cooperating with NGO’s, attempting to combat corruption and so on, the bank can be considered to have exceeded its basic competencies. In doing so, it has gone beyond its remit.”

As far as the future of the bank is concerned, Anne Krueger believes it has three options: “1) to withdraw gradually from economically middling nations and limit itself to ‘helping’ exceptionally poor countries whilst maintaining its overall development role; 2) To pursue its activities in all its client countries but to concentrate solely on ‘soft issues’ of development such as environmental preservation, women’s rights and the encouragement of NGO’s; 3) Shut up shop”. [6]

Whilst Krueger is not convinced by the latter option and is open to persuasion on the first two, she notes that something must be decided sooner or later. She is also clear as to the Bank’s operational factors: the change to a ‘one country – one vote’ system must be resisted. Krueger maintains that, though a merger between the World Bank and the IMF cannot be ruled out, this would be unwelcome as it would mean redrafting a new constitution along this ‘one country – one vote’ line, something she believes must be avoided [7]. The whole affair must remain in the control of the major powers.

The Context of the Meltzer Commission

In order to understand the Meltzer Commission’s proposals, one must, of course, put them in their international context: namely the successive financial crises of the peripheral countries and the superseding catastrophic intervention of the IMF and the World Bank. But this would only be scratching the surface, since the real determining factor was the U.S. national context. It must be borne in mind that, at the time of the commission, the Republican majority was conducting a fierce campaign against Bill Clinton’s Democrat Administration. This element of internal politics is crucial in understanding why and how the Commission attacked the executive so ruthlessly and exploited the IMF in order to intervene in world affairs, all without Congressional agreement [8]. Furthermore, a number of the commission’s political goals were linked to the need to split the Democrat appointees at the heart of the commission, in order to win enough of them over to the opinion of Meltzer and his colleagues. It was also a matter of hitting the Clinton Administration and its electoral and political base at one of their most sensitive points.

The Meltzer Commission’s position towards Washington‘s policy

There are areas of agreement between the commission and Washington. Since the start of his presidency in 2001, G. W. Bush’s political strategy has been to move in the direction of the Meltzer Commission recommendations.

1. There is fundamental agreement between them over the pursuit of a neo-liberal agenda: “The Commission believes that in order to encourage development all countries must open up their markets, promote private property, respect for the law, political democracy and individual freedom”. These points are considered essential.

2. Both see the necessity of retaining existing international financial institutions: “These institutions together with American involvement in the world have had remarkable results in terms of keeping the peace and maintaining stability”.

3. There is of course agreement over keeping and strengthening U.S. dominance over theses institutions.

4. There is agreement over cancelling all or nearly all the debt of the HIPCs and other poor countries, as long as these nations follow the neo-liberal agenda and conform to the interests of the United States. The thinking behind this is quite simple: these countries are of no use to the US if their debts stop them from buying US goods and services. So, in order to prevent this, it would be better to write off or to substantially reduce these debts.

5. It is in the US interest to pressurize the World Bank into giving aid to poor countries, and to do so itself, since it is certain that these countries will spend the money on goods primarily from the most industrialized nations. Poor nations immediately spend what they are given on goods from the North because they themselves do not produce enough of what they need. This has been the impact of liberalization and competition over the last 25 years on local producers and firms in developing countries.

6. Corruption in recipient countries must be rooted out in order to ensure that the maximum amount of aid money ends up being spent on products from the North.

7. The politics of aid also has the advantage of keeping recipient countries in a state of dependence on donor countries.

8. The amounts of money involved in aid and donations are trifling to countries like the United States. It is far less, for instance, than the $400 billion spent so far on the ‘War against Terror’ in Iraq and Afghanistan between September 2001 and April 2006.

How the Meltzer Commission views the Politics of Aid

The Commission concludes that loans should be largely replaced by recourse to donations. The example given by the Commission, though, clearly shows that the aim of this strategy is that the donor country becomes involved in the decision-making processes of HIPCs and thus short-circuit their national politics.

“Example: A country with $1,000 per capita income qualifying for 70% grant resources decides that vaccination of its children against measles is a desired goal. If the development agency confirms the need, the government would solicit competitive bids from private-sector suppliers, non government organizations such as charitable institutions, and public sector entities such the Ministry of Health. Suppose the lowest qualifying bid is $5 per child vaccinated, the development agency would agree to pay $3.50 (70%) for each vaccination directly to the supplier. The government would be responsible for the remaining $1.50 (30%) fee. Payments would only be made upon certification by an agent independent of all participants – the government, the development agency and the supplier of vaccinations. Under a system of user fees, grants are paid after audited delivery of service. No results, no funds expended. Payments would be based upon number of children vaccinated, kilowatts of electricity delivered, cubic meters of water treated, students passing literacy tests, miles of functioning roads. (…) Execution is substantially free of political risk. The supplier of the service, not the government, receives the payment”.

And later in the text

“>From vaccinations to roads, from literacy to water supply, services would be performed by outside private-sector providers (including NGOs and charitable organizations) or public-sector entities, and awarded on competitive bid. Quantity and quality of performance would be verified by independent auditors. Payments would be made directly to providers; Cost would be divided between recipient countries and the development agency. The subsidy would vary between 10% and 90%, depending upon capital-market access and per capita income”.

Even if the arguments contained in the Meltzer report are useful in describing the overall effects of the IMF’s and the World Bank’s actions, the solutions it extols would be as disastrous as they are unconvincing. To use donations and aid as a new way of entrenching the commodification of essential services, such as health, water services and education, as the report does, is a policy that has to be rejected. It is unacceptable for donor countries to use aid as a way of imposing their demands and wishes on recipient nations.

A very different approach is needed. Some way must be found of breaking the wretched cycle of debt whilst avoiding a politics of charity - something which would only perpetuate the current global system dominated by capitalism, the major powers and trans-national corporations. This alternative would create an international order that could redistribute wealth so as to compensate for the wholesale plunder which people of the Periphery have endured in the past and still endure today. Such reparations in the guise of aid should, under no circumstances, give the more industrialised countries 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. over the internal political affairs of the nations they are compensating. This new strategy would be aimed at creating decision-making bodies that would control the destination of aid but leave how it is utilized in the hands of the populations and public authorities concerned. This would necessarily open up a huge space of reflection and experimentation.

Furthermore, in opposition to the Meltzer Commission, who wants to retain the IMF and the World Bank with slight reforms, it is a contention of this book that these bodies must be abolished and replaced with different global institutions that would operate democratically. The ‘New World Bank’ and the ‘New Monetary Fund’, to give them their new titles, would have radically different remits from their predecessors – they would, for instance, guarantee the fulfilment of international treaty obligations in terms of political, civil, social, economic and cultural rights as well as in the domains of international monetary and credit relations. These new institutions must play a role in a global institutional system headed by a radically reformed United Nations. It is an absolute priority that developing countries mobilise themselves as soon as possible into regional entities, equipped with banks and monetary funds in common. The establishment of an Asian Monetary Fund for the countries affected had been suggested in the wake of the near economic melt-down there in 1997-98, yet all such talk was quashed under pressure from the US and the IMF. However, with a little help from the Venezuelans, debate has started in Latin America and the Caribbean about the possibility of setting up a ‘Bank of the South’. Obviously, if one is striving for emancipation and the full respect of human rights, these new, more regional, financial institutions must be subservient to a social movement totally opposed to capitalism and neo-liberalism.