Committee for the Abolition of Illegitimate Debt

Geographies in movement – Can you briefly recall the origin and the official role of the World Bank World Bank
WB The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

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Éric Toussaint – It is an institution created in 1944, but which began operating the following year, with an initial mandate to issue loans for the rebuilding of Europe. Beginning in 1948, however, the USA preferred to use 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 made use of grants rather than loans). As a result, it took on the role of development bank. At the time, a large part of Africa and part of Asia were still under colonial rule. Thus, its clients were largely colonial powers such as the UK, France, Holland, Belgium and Portugal, on the one hand, or else South American governments and newly decolonized countries of the Indian subcontinent.

Already in this early period, for the World Bank as for most Western governments, “development” meant integrating countries of the Global South into the Centre-Periphery model and providing them with infrastructures (ports, railways, electric power plants, etc.) to be used for exporting their raw materials to the worldwide markets. Until 1962, not one single loan was granted for a school, a hospital or a sewer system.

GEM – You show that, from its inception and throughout its existence, the Bank put ideology at the core of its lending policy, but not in its statutes. Can you expand on that with concrete examples?

ÉT – As you say, the Bank made its political goals the priority in its choices of loans. The very first one, to France in 1947, was granted on condition that the French Communist Party be barred from the De Gaulle government. And as a matter fact the loan was granted the day after the Communists left the government.

In 1953, the bank supported the USA and the UK in overthrowing the Mossadegh government in Iran because it wanted to nationalize a part of the country’s oil production. The following year, in Guatemala, it backed the military coup against President Jacobo Árbenz Guzmán, who wanted to conduct agrarian reform and re-appropriate land from the United Fruit Company.

These few examples (among others that I document in the book) demonstrate that the World Bank, more than anything, is an instrument for serving the geostrategic interests of the major powers. And that despite the fact that its own statutes stipulate in black and white that politics must not be a factor in its loan policy. The facts are in total contradiction with that idea.

GEM – Since its origins and until today, the USA has had strong influence over the World Bank.

ÉT – Yes. All its presidents, from 1944 to today, have been US citizens designated personally by the US president (without any deliberation in Congress) and whose appointment is ratified by the Bank’s management.

The Bank has 189 members and is a specialized agency of the United Nations. But in actual practice it does not apply the UN’s rules. Instead of the “one State, one vote” principle, a country’s voting rights are granted as a function of its share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. in the institution’s capital. That share is determined by decision of a handful of countries. In 1947, the UK, the USA and France amongst themselves controlled more than 50% of the votes. Japan and Germany joined the circle in 1952.

Since then, Bank management has been forced to make concessions to certain members. In 1973, when Nixon decided to go to Beijing to sign a series of agreements with Mao’s China (one motivation being to prevent China’s support for governments hostile to Washington), the head office in the country was transferred from Taiwan to continental China (a situation which still exists today). But China still holds only 4.8% of the voting rights, while the USA holds 15.5%. Saudi Arabia, a strategic ally of the United States, with a population of 35 million, has the privilege of holding a seat on the Bank’s management exclusively for itself and has 2.7% of the votes, whereas the 48 States of Sub-Saharan Africa, where more than a billion people live, have a total of two directorial seats and a total of less than 3.9% of the votes. In short, the distribution of voting rights depends largely on negotiations and above all on the interests the USA may have in other countries.

Even worse, the distribution of votes as it stands gives the USA de facto veto power. At the Bank’s inception, the USA held 36% of all votes, whereas a qualified majority required 65%. Gradually as new countries gained independence and new members joined, the US has agreed to reduce its share to 15.5%, on condition that the qualified majority be increased… to 85%.

In addition, no president of the World Bank has ever had any experience with development. They have all been either bankers (the current president worked for a major bank that failed in 2008), or military strategists like Robert McNamara, who organized the US intervention in Vietnam, or Paul Wolfowitz, an inventor of the doctrine of preventive war and one of the people responsible for the invasion of Iraq in 2003.

Finally, a geographical detail that is revelatory: the head office of the World Bank (like that of the IMF IMF
International Monetary Fund Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

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

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

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

http://imf.org ) is located in Washington DC, a few hundred metres from the White House.

GEM – Where economic matters are concerned, you show that the Bank’s presumed models have in reality conducted policies that are in contradiction with the ones it usually recommends. One example is the case of South Korea, to which you devote a good deal of time.

ÉT – Yes, and for that country, geography also provides a key to comprehension, and in particular its strategic position (it was the apex of a bloc made up of communist China and the USSR, directly across from Japan, an ally of the West).

After the Korean War, there was sympathy for the communist model among the people. The USA saw that as a danger and supported the establishment of a brutal dictatorship – one which nevertheless did implement social policies, in particular a radical agrarian reform (a maximum of three hectares per family). This reform was fairly “easy” to implement since much land had been expropriated from the Japanese occupier (and so did not belong to US companies, as was the case in Guatemala). For that reason, the reform was not a threat to North American interests.

South Korea’s economic policy was also characterized by a high level of taxation on the peasantry as well as large public investments in the shipbuilding and steel industries. This intervention by the State, which was diametrically opposed to “free-market” liberalism, was accompanied by a policy of grants (rather than loans) similar to that of the Marshall Plan.
In short, until the 1990s South Korea never followed the World Bank’s recommendations, and in fact was indeed authorized not to follow them, despite a few loans granted beginning in the 1970s. If the country had conducted the policies being pushed by the Bank, its economy would surely never have conquered world markets with its major brands, which have now become powerhouses.

Note that the same indulgence was shown to the island of Taiwan, which also conducted interventionist and protectionist policies in total contradiction with the neoliberal precepts the World Bank is so fond of.

GEM – Why does the Bank remain more in the shadows more than the IMF?

ÉT – There’s no doubt that it’s because it has operated essentially in the Global South. The IMF is more in the spotlight because of its operations in the North over the past 15 years – in countries of the Eurozone like Greece, Ireland, Portugal, Cyprus, and the three Baltic states, and also Iceland, which is outside the EU –, and because its policy is aimed above all at seeing to it that the countries concerned can repay their debts to the major private banks (often Western ones, as it happens). As for the World Bank, it grants longer-term loans in a more structural way. Having said that, the two institutions function in tandem, and as a matter of fact they meet twice a year.

But even if the Bank is less in the spotlight, the effects of its actions are just as real. It lends support to the extractive industries, to projects to build thermal power plants, and to many dictatorships. It was supportive of the North African authoritarian regimes before they were shaken by the Arab Spring. Under the pretext of integrating gender in its policies, it is tossing millions of women into the jaws of the market. In short, in the countries of the South, the populations suffer from the effects of its policies every day... and they intend to be less quiet about it. Especially since many of their governments crow about the loans they’ve received.

Finally, until recently, the Bank was producing a report entitled Doing Business in which it drew up a classification of countries as a function of their attractiveness to foreign investors. Unsurprisingly, certain Bank-supported measures such as facilitating job cuts or reducing corporate taxes were earning countries a more favourable rating. So the Bank’s theoretical influence is far from insignificant.

GEM - What future do you see for the World Bank?

ÉT - From the point of view of the institution itself, things are going well, despite the numerous skeletons in its closet (aside from the ones already discussed, we could mention its support for Mobutu in his policy of pillage in Congo-Kinshasa, its backing of Ceausescu’s dictatorship in Romania, or its responsibility in the genocide policy in Rwanda).

And at the same time, the overwhelming majority of the governments of the South meekly follow its recommendations and remain entangled in neoliberal ideology. Until peoples rid themselves of these governments, the World Bank will continue to exist and operate. The popular revolts of recent years (in Tunisia, Egypt, Lebanon, Sri Lanka, etc.) unfortunately have not led to a profound change in regimes, and we are seeing little change in economic policy. If these popular movements don’t succeed in bringing other forces to power who will implement a different development model, the World Bank has a fine future ahead of it.

Éric Toussaint, The World Bank: A Critical Primer, London: Pluto Press, 2008 (new edition in preparation).