Breaking away as the only way out

by Éric Toussaint

The World Bank’s ongoing coup d’état

The list of governments in power as a result of military coups and supported by the World Bank is impressive. Among the best known examples are the Shah’s dictatorship in Iran after Prime Minister Mossadegh was overthrown in 1953, the military dictatorship in Guatemala which the United States set up after the democratically elected president Jacobo Arbenz was overthrown in 1954, the Duvaliers in Haiti from 1957, General Park Chung Hee in South Korea from 1961, the Brazilian generals’ dictatorship from 1964, Mobutu in the Congo and Suharto in Indonesia from 1965, the Thai army leaders from 1966, Idi Amin Dada in Uganda and General Hugo Banzer in Bolivia in 1971, Ferdinand Marcos in the Philippines from 1972, Augusto Pinochet in Chile, the Uruguayan generals and Habyarimana in Rwanda from 1973, the military junta in Argentina from 1976, Arap Moi’s regime in Kenya from 1978, a dictatorship in Pakistan from 1978, Saddam Hussein’s coup in 1979 and the Turkish military dictatorship from 1980.

Among other dictatorships that have been supported by the World Bank we should also mention the Somozas in Nicaragua and Ceaucescu in Romania. Some are still in power today: the dictatorial regime in China, Deby’s dictatorship in Chad, Ben Ali in Tunisia, Musharaf in Pakistan, among many others. We should also remember the WB’s support of dictatorships in Europe: General Franco in Spain and General Salazar in Portugal [1].

The World Bank has systematically supported despotic regimes, whether resulting from military coups or not, that carry out anti-social policies and perpetrate crimes against humanity. The Bank has displayed an utter lack of respect for the constitutional standards of some of its member countries. It has never shied away from supporting a military coup or downright criminals that would implement its policies against democratic governments, and this for the very good reason that it does not consider defending human rights to be part of its mission.

Its support of the apartheid regime in South Africa from 1951 to 1968 should not be forgotten. The World Bank explicitly refused to implement the UN resolution that had been voted by the General Assembly in 1964, deciding that no UN agency was to further contribute any financial support to South Africa since that country was in violation of the UN Charter. This lasting support and the violation of international law it implies must not remain unpunished. Finally in the 1950s and 1960s, the World Bank consistently granted loans to colonial powers and their colonies for projects that increased the exploitation of the colonies’ populations and natural resources for the benefit of the ruling classes in the mother country. It was in this context that the World Bank refused to implement a UN resolution voted in 1965 urging it not to give any financial or technical support to Portugal as long as it did not give up its colonies.

The newly independent countries were made to take on debts that Belgian, British and French colonies had contracted with the World Bank on the basis of decisions made in the mother country.

The World Bank’s support for dictatorial regimes takes the form of financial aid as well as technical and economic assistance. Such support has enabled these regimes to stay in power and perpetrate more crimes. The World Bank has also prevented these regimes from being internationally isolated since such loans and technical assistance have always facilitated contacts with private banks and transnational corporations. The neoliberal model has gradually taken hold across the world since Pinochet’s dictatorship in Chile in 1973 and that of Ferdinand Marcos in the Philippines in 1972. Those two regimes were actively supported by the World Bank. When such regimes were eventually brought down, the World Bank systematically obliged the democratic regimes that took over to pay back the debts contracted by their predecessors. In short, the WB’s financial aiding and abetting of dictatorships has become a burden for the people of those countries, who now have to pay for weapons bought by dictators to oppress them.

In the 1980s and 1990s a large number of dictatorships were brought down, some under the impact of powerful democratic movements. The regimes that took over generally accepted the policies recommended or imposed by the World Bank and the IMF, and continued to repay debts, however odious. The neoliberal model was first imposed with the help of dictatorships and has since been maintained by the burden of debt and permanent structural adjustment. Indeed, since the demise of many dictatorships, democratic governments have continued to carry out policies that defy attempts to set up a more autonomous development model. The latest phase of globalisation, that started in the 1980s with the debt crisis, has generally entailed increased subordination of developing countries (the Periphery) to industrialised countries (the Centre).

The hidden agenda of the Washington Consensus

Since the WB and the IMF started their activities, the United States have used a mechanism that is both easy to understand and difficult to set up to control their policies. There have been occasions when a European government (the United Kingdom, France or Germany in particular) or Japan could make themselves heard, but they are few and far between. The White House and the leaders of the World Bank and the IMF do not always see eye to eye, yet when we examine history since the end of World War II it appears that the US government has indeed had the last word on matters with which it is directly concerned. The hidden agenda of the Washington Consensus aims both at maintaining US hegemony and freeing capitalism of the shackles it had to accept in the wake of World War II. These limitations resulted from powerful social mobilisation in countries both North and South, from nascent emancipation movements in the colonies, and from attempts to reject capitalism. The Washington Consensus also involves intensifying the productivist approach.

Throughout recent decades, the Washington Consensus has enabled the World Bank and the IMF to increase their leverage on many countries, profiting from the situation created by the debt crisis. The World Bank has developed its branches (the International Finance Corporation - IFC, the Multilateral Investment Guarantee Agency - MIGA, the International Center for the Settlement of Investment Disputes - ICSID) so as to weave a tighter and tighter web. For instance, the World Bank will only grant a loan on condition that the water and sanitation services be privatised. As a consequence, the public companies are sold to a private consortium, in which the IFC, a branch of the WB, happens to be a partner. When the people who suffer under such privatisation rise up against the sharp increase of prices and lower quality services, and when the government turns against the predatory transnational corporation, the dispute is settled with the ICSID, which is thus both judge and judged. We thus reach a situation in which the World Bank Group controls all levels: first, it enforces and finances privatisations (World Bank); secondly, it invests in the private company (IFC); thirdly, it guarantees the company (MIGA); lastly, it settles any disputes (ICSID). That is exactly what happened at El Alto (Bolivia) in 2004-2005. Cooperation between the World Bank and the IMF is also essential in order to exert maximum pressure on public authorities and to complete their control of the public sphere. To be able to further generalise the neoliberal model these two institutions have closely collaborated with the World Trade Organization (WTO) ever since its foundation in 1995. Such increasingly close collaboration between the World Bank, the IMF and the WTO is part of the agenda of the Washington Consensus.

There is an essential difference between the declared agenda of the Washington Consensus and its hidden version. The official agenda aims at reducing poverty through growth, free interaction of market forces, free trade, and limited intervention from public authorities. The hidden agenda (the agenda which is actually carried out) aims at subjecting public and private sectors to the logic of maximum profits in a capitalist context. Such an agenda results in the reproduction, not reduction, of poverty, and increased inequality. It also involves the stagnation or even the degradation of living standards for a large majority of the world population, combined with an ever greater concentration of wealth. It further involves the continuing degradation of the environment, which jeopardises the very future of humankind. One of the many paradoxes of the hidden agenda is that for the sake of doing away with state dictatorship and liberating market forces, governments, in their subservience to transnational corporations, use the coercitive action of multilateral public institutions (World Bank-IMF-WTO) to impose their model on populations.

Breaking away as the only way out

This is why it is imperative to radically break away from the Washington Consensus and from the model imposed by the World Bank. The Washington Consensus should not be understood as some power mechanism or project that serves only the Washington government and its satellites. The European Commission, most European governments, and the Japanese government all subscribe to the Washington Consensus and have translated it into their own languages, constitutional projects, and political agendas. Breaking away from the Washington Consensus, if it only means putting an end to US leadership as it is relayed by the World Bank, the IMF and the WTO, would not in itself provide a real alternative since other world powers are ready to take over, with similar objectives. Should the EU get stronger than the USA on a global scale, this would not improve the predicament in which the peoples on the surface of the earth find themselves, since it would merely mean replacing one capitalist block in the North (one of the poles of the Triad) with another. Let us imagine another possibility: the formation of a block made up of China - Brazil - India - South Africa - Russia that would become stronger than the countries of the Triad. If this block were motivated by the current logic of their present governments and by the economic system that underpins their functioning, there would be no significant improvement either. We have to replace the Washington Consensus with a consensus of peoples founded on a rejection of capitalism.

We must also radically question the notion of development which is intrinsically bound to a productivist model. Such a development model rules out the protection of cultures and their diversity; it exhausts natural resources and damages the environment in ways that cannot be remedied. It sees the promotion of human rights as at best some long-term objective (and in the long term we will all be dead); too often the promotion of human rights is perceived rather as an obstacle to growth. This model sees equality as an obstacle or even a stumbling block.

Getting out of the diabolical spiral of indebtedness

Attempts to improve people’s living conditions through public debt have clearly failed. The World Bank claims that in order to develop, developing countries [2] must contract external debts and attract foreign investments. These loans are to be used to buy equipment and commodities from industrialised countries. Day after day, year after year, for decades, we have seen that this does not lead to development.

According to the dominant economic theory, the development of the South has been delayed because of a shortage of domestic capital (not enough local savings). Still according to the same economic dogma, countries that wish to launch or accelerate their development must call upon external capital flows through three kinds of policies: first, contracting loans; secondly, attracting foreign investments; thirdly, increasing exports to get the hard currency needed to buy the foreign commodities required for growth. The poorer countries can also attract donations by showing themselves to be good pupils of the developed countries.

This theory is contradicted by facts: developing countries provide industrialised countries with capital, the US economy in particular. The World Bank even acknowledges this: “Developing countries, in aggregate, were net lenders to developed countries [3].” In 2004-2005, fairly low interest rates combined with decreasing hazard premiums and increasing prices for raw materials resulted in a sharp increase in the developing countries’ currency reserves. By the end of 2005 they exceeded USD 2,000 bn. [4], an unprecedented amount that is higher than the sum total of the developing countries’ public external debt! If we add to this the money that these countries’ capitalists have deposited in banks located in industrialised countries, that is some USD 1,500 bn., we can claim that developing countries are not debtors but definitely the creditors. If they set up their own development bank and their own International Monetary Fund, they could easily do without the World Bank, the IMF and the private financial institutions of the industrialised countries.

It is not the case that developing countries have to contract debts to finance their development. Nowadays their loans are mainly used to make it possible for them to keep up their debt repayments. Despite extensive currency reserves, governments and local ruling classes in the South do not increase investment or social expenditure, with one exception within the capitalist world: the Venezuelan government. The regime carries out a policy that aims to use oil revenue to help the most exploited classes, thus incurring radical opposition from the local ruling classes and the United States. How long can this last?

Never before has the situation been so favourable to developing countries from a financial perspective, yet nobody mentions a change in the rules of the game. This is because the current governments in China, Russia and the main developing countries (India, Brazil, Nigeria, Indonesia, Thailand, South Korea, Mexico, Algeria, South Africa) have no intention to change the world situation to the benefit of their people.

However, on a political level, if they wanted to, the main developing countries could form a powerful movement that would be able to introduce fundamental democratic reforms into the multilateral system. They could opt for the radical policy of calling off the debt, and implement a set of policies that break away from neoliberalism. The international context is favourable since the major world power is currently bogged down in the war in Iraq and the occupation of Afghanistan; it is facing strong resistance movements in Latin America which lead either to humiliating failures (Venezuela, Cuba, Ecuador, Bolivia...) or a dead-end (Colombia).

I am convinced that this will not happen: the radical scenario will not be implemented in the short term. The overwhelming majority of current leaders in developing countries wholeheartedly adhere to the neoliberal model. In most cases they collude with the interests of the local ruling classes that can imagine no real distance, let alone break, from the policies enforced by the industrial powers. Capitalists in the South snugly live off their annuities or at most try to expand their share of the market. This applies to capitalists in countries like Brazil, South Korea, China, Russia, South Africa or India who want their governments to get this or that concession from more industrialised countries in the context of bilateral or multilateral trade negotiations. Moreover, competition and conflicts exist among governments of developing countries, and among capitalists of the South, and these can easily intensify. The trade aggressiveness of capitalists in China, Russia or Brazil towards their competitors of the South leads to deep divisions. As a rule they agree (both among themselves and with the North) to impose worse working conditions on workers in their countries, claiming that this is necessary to stay competitive.

But sooner or later, peoples will free themselves from the enslavement of debt and the oppression they are subjected to by the ruling classes in the North and South. They will fight for a fairer distribution of wealth and an end to the productivist model that destroys nature. Governments will then have to give absolute priority to meeting basic human needs.

To achieve this, an alternative approach is required: we have to get out of the diabolical spiral of indebtedness without falling into policies based on charity, that ultimately perpetuate a global system dominated by capital, a few powerful countries and transnational corporations. We have to set up an international system to redistribute revenue and wealth to compensate for the secular looting the colonised people were and still are the victims of. Such compensation in the form of donations does not give industrialised countries the right to meddle in the affairs of recipient countries. In the South, mechanisms must be invented to decide on how funds are to be used and how the populations and local public authorities concerned can check what actually occurs. This certainly is food for thought and experimentation.

On the other hand, the World Bank and the IMF need to be replaced by other global institutions based on democratic accountability. The new World Bank and the new International Monetary Fund, whatever their new names may be, must have radically different missions from those of the former institutions; they must make sure that international treatises on (political, civic, social, economic and cultural) human rights are actually carried out through their action in the fields of international credit and international monetary relations. These new global institutions must be part of a global institutional system controlled by a thoroughly reformed United Nations Organisation. It is an essential priority that as soon as possible, developing countries get together into regional entities with a common Bank and a common Monetary Fund. During the South-East Asian and Korean crisis in 1997-1998, the idea of an Asian Monetary Fund had been considered by the countries concerned. The project had failed because of Washington’s intervention coupled with the local governments’ lack of political will. In Latin America and the Caribbean a debate was launched by the Venezuelan government in 2005-2006 on the possibility of building a Bank of the South. It will be interesting to see what comes out of it.

One thing must be clear: if what we want is for the peoples of the world to be emancipated and for human rights to be fully respected, the new financial and monetary institutions, whether global or regional, must serve a social model that breaks away from capitalism and neoliberalism.
Notes:

[1] The World Bank granted loans to Portugal until 1967.

[2] The words used to define the countries that have received the WB’s development loans have changed over the years. They were first called backward areas, then underdeveloped countries, and now are known as developing countries, some of which are emergent countries.

[3] World Bank, Global Development Finance 2003, p. 13. In the 2005 issue of Global Development Finance, p. 56, we can read : “Developing countries are now capital exporters to the rest of the world.” World Bank, GDF 2005, p. 56.

[4] Source : World Bank, Global Development Finance 2006, Washington DC, May 2006.

Source: http://www.cadtm.org

Translated by Christine Pagnoulle.