Time for the World Bank to shut up shop

3 May 2007 by Eric Toussaint , Damien Millet

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.

is going through the worst period of its history. Its situation has never been so precarious. Rejected by a growing number of social movements, its credibility has been further undermined by revelations of nepotism on the part of its president, Paul Wolfowitz. At the same time, it is coming under fire from several Latin American governments that are setting up a Southern Bank with radically different perspectives. Could the deathblow be on the way ?

The fiasco of its actions over the last 60 years is clearly what has done the World Bank most damage. It will need to answer for a number of acts of which the following is not an exhaustive list:

- during the Cold War, the World Bank used indebtedness to achieve geopolitical ends, systematically supporting the allies of the Western bloc, particularly dictatorial regimes (Pinochet in Chile, Mobutu in Zaire, Suharto in Indonesia, Videla in Argentina, the apartheid regime in South Africa, etc.) which violated human rights and embezzled considerable amounts of money, and it still supports such regimes today (Deby in Chad, Sassou Nguesso in Congo-Brazzaville, Biya in Cameroon, Musharraf in Pakistan, etc.);

- at the turn of the 1960s, the World Bank transferred the debts contracted by the former colonial powers to several newly independent African countries (Mauritania, Gabon, Algeria, Congo-Kinshasa, Nigeria, Kenya, Zambia, etc.), in total contravention of international law;

- a very large part of the loans granted by the World Bank served to carry out policies which caused considerable social and environmental damage (huge and often inefficient dams, extractive industries like open-cast mines and pipelines, export agriculture at the expense of food sovereignty, etc.), with a view to facilitating cheap access to the rich natural resources of the South;

- after the 1982 debt crisis, the World Bank supported the 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/
policies promoted by the major powers and 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.

, leading to drastic cuts in social spending, abolition of subsidies on basic necessities, massive privatizations, taxation that worsened inequality, forced liberalization of the economy and unfair competition between local producers and the big multinational corporations - all measures which seriously deteriorated people’s living conditions and amount to nothing less than economic colonization;

- the World Bank has carried out policies that have reproduced poverty and exclusion instead of fighting them, leaving the countries that applied them to the letter mired in deep hardship. In Africa, the number of people having to survive on less than 1$ a day has doubled since 1981, over 200 million people suffer from famine and for 20 African countries, life expectancy has fallen below the age of 45;

- despite resounding announcements, the problem of Third World debt subsists, since far from total cancellation, the World Bank contents itself with skimming off the top of the debt of a few docile countries, never touching the actual mechanism itself. Instead of signalling the end of relentless domination, debt reduction is just a smoke-screen hiding the draconian economic reforms demanded in exchange, in a continuation of structural adjustment.

In such conditions, the situation has become explosive. One recent event threatens to light the fuse: the current president of the World Bank, Paul Wolfowitz, has admitted to intervening personally to obtain a high salary increase (+45%!) for his partner. The World Bank set up an ad hoc Committee which has just heard him in the course of an enquiry ordered for violation of house regulations.

There have been numerous declarations demanding his resignation: from the World Bank association of staff and former executives; from one of the Executive Directors, the New-Zealander Graeme Wheeler; from high-ranking officials of the U.S. Democrats such as John Kerry; from international networks like the CADTM; the European Parliament, etc. But the U.S. government continues to support him through thick and thin and by clinging to his post, Wolfowitz is dragging the World Bank down with him.

A month after these revelations, no solution has been found. The World Bank’s past is far too problematic for the status quo to be acceptable. Now there can only be one possible way out: the abolition of the World Bank and its replacement within a new international institutional architecture. A global development fund, within the United Nations, could be connected to regional development banks in the South, directly run by the governments of the South, using democratic process and transparency.

The way ahead is clear and two bombshells have just been dropped on the neoliberal establishment. Venezuela announced on 30 April that it is leaving the IMF and the World Bank. A few days earlier, Ecuador decided to expel the permanent representative of the World Bank, Eduardo Somensatto. For the Ecuadorian president, Rafael Correa, has a good memory. In April 2005, when he was the Minister for the Economy, he had attempted to reform the way petroleum resources were used so that some of the money, instead of going to repay the debt, should be used for social spending, in particular for the Amerindian population. In reprisal, the World Bank blocked a loan of 100 million dollars and pressure from Washington forced Correa to resign. Offended, he declared that « no-one has the right to punish a country for changing its laws ».

Rafael Correa was democratically elected president of Ecuador in November 2006 and has just carried the referendum for calling a constituent assembly with a clear majority. By expelling the representative of the World Bank, he has reasserted the dignity and sovereignty of Ecuador in the face of an institution that has taken the liberty of systematically violating its own statutes, which prohibit it from interference in the domestic affairs of any member State.

Several Latin-American countries (Argentina, Bolivia, Brazil, Ecuador, Paraguay, Venezuela) are laying the foundations for two fundamentally new institutions: a Monetary Fund of the South and a Bank of the South. Various experts, including several members of the CADTM, have taken part in these discussions which aim to modify significantly the global 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. of power, on the ruins of the World Bank.

Damien Millet, president of the CADTM France (Committee for the Abolition of the Third World Debt, www.cadtm.org), author of L’Afrique sans dette, CADTM/Syllepse, 2005.
Eric Toussaint, president of the CADTM Belgium, author of The World Bank : the Never-ending Coup d’Etat, 2007, VAK, Mumbai.

Translated by Vicki Briault and Judith Harris.

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.

Damien Millet

professeur de mathématiques en classes préparatoires scientifiques à Orléans, porte-parole du CADTM France (Comité pour l’Annulation de la Dette du Tiers Monde), auteur de L’Afrique sans dette (CADTM-Syllepse, 2005), co-auteur avec Frédéric Chauvreau des bandes dessinées Dette odieuse (CADTM-Syllepse, 2006) et Le système Dette (CADTM-Syllepse, 2009), co-auteur avec Eric Toussaint du livre Les tsunamis de la dette (CADTM-Syllepse, 2005), co-auteur avec François Mauger de La Jamaïque dans l’étau du FMI (L’esprit frappeur, 2004).

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