Global Poverty and Macro-Economic
excerpted from the book
The Globalization of Poverty and
the New World Order
by Michel Chossudovsky
Global Research, 2003, paperback
[first edition 1997]
Since the early 1980s, the "macro-economic stabilization"
and structural adjustment programs imposed by the IMF and the
World Bank on developing countries (as a condition for the renegotiation
of their external debt) have led to the impoverishment of hundreds
of millions of people. Contrary to the spirit of the Bretton Woods
agreement, which was predicated on "economic reconstruction",
and the stability of major exchange rated the structural adjustment
program has contributed largely to destabilizing national currencies
and ruining the economies of developing countries.
Internal purchasing power has collapsed,
famines have erupted, health clinics and schools have been closed
down and hundreds of millions of children have been denied the
right to primary education. In several regions of the developing
world, the reforms have been conducive to a resurgence of infectious
diseases including tuberculosis, malaria and cholera.
Internal purchasing power has collapsed, famines have erupted,
health clinics and schools have been closed down and hundreds
of millions of children have been denied the right to primary
education. In several regions of the developing world, the reforms
have been conducive to a resurgence of infectious diseases including
tuberculosis, malaria and cholera.
In the wake of the Cold War, macro-economic restructuring has
supported global geopolitical interests including US foreign policy...
the structural adjustment program has, since the 1990s, been applied
also in the developed countries.
... Monetarism is applied on a world scale
and the process of global economic restructuring strikes also
at the very heart of the rich countries. The consequences are
unemployment, low wages and the marginalization of large sectors
of the population. Social expenditures are curtailed and many
of the achievements of the welfare state are repealed.
Under IMF jurisdiction, the same "menu" of budgetary
austerity, devaluation, trade liberalization and privatization
is applied simultaneously in more than 150 indebted countries...
A "parallel government", which bypasses civil society,
is established by the international financial institutions (IFIs).
Countries which do not conform to the IMF's "performance
targets" are blacklisted.
... the structural adjustment program
requires the strengthening of the internal security apparatus
and the military intelligence apparatus: political repression
- with the collusion of the Third World elites - supports a parallel
process of "economic repression".
... Structural adjustment promotes bogus
institutions and a fake parliamentary democracy which, in turn,
supports the process of economic restructuring.
Structural adjustment programs affect directly the livelihood
of more than four billion people. The application of the structural
adjustment program in a large number of individual debtor countries
favors the internationalization of macroeconomic policy under
the direct control of the IMF and the World Bank acting on behalf
of powerful financial and political interests (e.g. the Paris
and London Clubs, the G7).
The Washington-based international bureaucracy has been entrusted
by international creditors and multinational corporations with
the execution of a global economic design, which affects the livelihood
of more than 80 percent of the world's population.
... The restructuring of the world economy,
under the guidance of the Washington-based financial institutions,
increasingly denies individual developing countries the possibility
of building a national economy: the internationalization of macro-economic
policy transforms countries into open economic territories and
national economies into "reserves" of cheap labor and
The rich countries (with some 15 percent of the world population)
control close to 80 percent of total world income.
In Peru - in the aftermath of the IMF-World Bank sponsored Fujishock
implemented by President Alberto Fujimori in August 1990 - fuel
prices increased 31 times overnight, whereas the price of bread
increased 12 times. The real minimum wage had declined by more
than 90 percent (in relation to its level in the mid-1970s).
[The] global market system is characterized by a duality in the
structure of wages and labor costs between rich and poor countries.
Whereas prices are unified and brought up to world levels, wages
(and labor costs) in the Third World and Eastern Europe are as
much as 70 times lower than in the OECD countries.
The inauguration of the World Trade Organization (WTO) in 1995
marked a new phase in the evolution of the post war economic system.
Anew triangular division of authority among the IMF, the World
Bank and the WTO has unfolded.
... The deregulation of trade under WTO
rules, combined with new clauses pertaining to intellectual property
rights, enable multinational corporations to penetrate local markets
and extend their control over virtually all areas of national
manufacturing, agriculture and the service economy.
The Articles of Agreement the WTO provide what some observers
have entitled a "charter of rights for multinational corporations"
derogating the ability of national societies to regulate their
national economies threatening national level social programs,
job creation policies, affirmative action and community based
initiatives. The WTO articles threaten to lead to the disempowerment
of national societies as it hands over extensive powers to global
The process of actual creation of the WTO ... is blatantly illegal.
Namely, a totalitarian intergovernmental body has been casually
installed in Geneva, empowered under international law with the
mandate to police country-level economic and social policies,
derogating the sovereign rights of national governments.
The articles of the WTO are not only in contradiction with pre-existing
national and international laws; they are also at variance with
"The Universal Declaration of Human Rights". Acceptance
of the WTO as a legitimate organization is tantamount to an "indefinite
moratorium" or repeal of the Universal Declaration of Human
... WTO rules provide legitimacy to trade
practices which border on criminality, including: "intellectual
piracy" by multinational corporations; the derogation of
plant breeders rights - not to mention genetic manipulation by
the biotechnology giants, and the patenting of life forms including
plants, animals, micro-organisms, genetic material and human life
forms under the TRIPs agreement.
Under WTO rules, the banks and multinational corporations (MNCs)
can legitimately manipulate market forces to their advantage leading
to the outright re-colonization of national economies. The WTO
articles provide legitimacy to global banks and MNCs in their
quest to destabilize institutions, drive national producers into
bankruptcy and ultimately take control entire countries.
G7 governments and global institutions, including the IMF, the
World Bank and the World Trade Organization casually deny the
increasing levels of global poverty; social realities are concealed,
official statistics are manipulated, and economic concepts are
turned upside down.
The dominant economic discourse has(also) reinforced its hold
in academic and research institutions throughout the world. Critical
analysis is strongly discouraged; social and economic reality
is to be seen through a single set of fictitious economic relations,
which serve the purpose of concealing the workings of the global
economic system. Mainstream economic scholarship produces theory
without facts ("pure theory") and facts without theory
("applied economics"). The dominant economic dogma admits
neither dissent from nor discussion of its main theoretical paradigm:
the universities' main function is to produce a generation of
loyal and dependable economists who are incapable of unveiling
the social foundations of the global market economy.
Mainstream economic scholarship produces theory without facts
("pure theory") and facts without theory ("applied
economics"). The dominant economic dogma admits neither dissent
from nor discussion of its main theoretical paradigm: the universities'
main function is to produce a generation of loyal and dependable
economists who are incapable of unveiling the social foundations
of the global market economy.
The World Bank "estimates" that 18 percent of the Third
World is "extremely poor" and 33 percent is "poor".
In the World Bank's authoritative study on global poverty, the
"upper poverty line" is arbitrarily set at a per capita
income of US$ 1 a day corresponding to an annual per capita income
of US$ 370 per annum.' Population groups in individual countries
with per capita incomes in excess of US$ 1 a day are arbitrarily
identified as "non-poor".
The World Bank arbitrarily sets a "poverty threshold"
at one dollar a day, labelling population groups with a per capita
income above one dollar a day as "non-poor'.
... The one dollar a day standard has
no rational basis; population groups in developing countries with
per capita incomes of 2, 3 or even 5 dollars a day remain poverty
stricken (i.e. unable to meet basic expenditures on food, clothing,
shelter, health and education).
... The entire "one dollar a day"
framework is totally removed from an examination of real life
situations. No need to analyse household expenditures on food,
shelter and social services; no need to observe concrete conditions
in impoverished villages or urban slums. In the World Bank framework,
the "estimation" of poverty indicators has become a
numerical exercise, which usefully serves to conceal the globalization
[In] India according to official data more than 80 percent of
the population have a per capita income below one dollar a day.
In the West, methods for measuring poverty have been based on
minimum levels of household spending required to meet essential
expenditures on food, clothing, shelter, health and education.
The debt burden of developing countries has increased steadily
since the early 1980s despite the various rescheduling, restructuring
and debt-conversion schemes put forward by the creditors. In fact,
these procedures, when combined with IMF-World Bank policy-based
lending (under the structural adjustment program), were conducive
to enlarging the outstanding debt of developing countries, while
ensuring prompt reimbursement of interest payments.
The total outstanding long-term debt of
developing countries (from official and private sources) stood
at approximately US$ 62 billion in 1970. It increased sevenfold
in the course of the 1970s to reach $ 481 billion in 1980. The
total debt of developing countries stood at close to $ 2 trillion
(1998) - a 32-fold increase in relation to 1970.
There is a close, almost symbiotic, relationship between debt-management
policy and macro-economic reform. Debt management is confined
to ensuring that individual debtor nations continue formally to
abide by their financial obligations. Through "financial
engineering" and the careful art of debt rescheduling, repayment
of the principal is deferred while interest payments are enforced;
debt is swapped for equity and "new" money is "lent"
to nations on the verge of bankruptcy to enable them to pay off
their (interest arrears on "old" debts so as to temporarily
... The objective consists in enforcing
the legitimacy of the debt-servicing relationship while maintaining
debtor nations in a straitjacket, which prevents them from embarking
upon an independent national economic policy.
... Countries which refuse to accept the
fund's [IMF] corrective policy measures faced serious difficulties
in rescheduling their debt and/or obtaining new development loans
and international assistance. The IMF also ha the means of seriously
disrupting a national economy by blocking short-term credit in
support of commodity trade.
The exchange rate is by far the most important instrument of macro-economic
reform: currency devaluation (including the unification of the
exchange rate and the elimination of exchange controls) affects
fundamental supply and demand relations within the national economy.
... The social impact of the IMF-sponsored
devaluation is brutal and immediate: the domestic prices of food
staples, essential drugs, fuel and public services increase overnight.
While the devaluation invariably triggers inflation and the "dollarization"
of domestic prices, the IMF obliges the government (as part of
the economic package) to adopt a so-called "antiinflationary
program". The latter has little to do with the real causes
of inflation (i.e. the devaluation). It is predicated on a contraction
of demand, requiring the dismissal of public employees, drastic
cuts in social-sector programs and the deindexation of wages.
... Devaluation leads to a "realignment
of domestic prices" at the levels prevailing in the world
market. This process of "dollarization" of domestic
prices leads to abrupt price hikes in most commodities, including
food staples, consumer durables and gasoline and fuels well as
most inputs an raw materials used in production (e.g. farm inputs,
The IMF tightly monitors and provides resources for the restructuring
of the Central Bank. The IMF requires so-called "Central
Bank independence from political power as a remedy against the
inflationary bias of governments". In practice, this means
that the IMF, rather than the government, controls money creation.
The agreement signed between the government and the IMF prevents
the funding of government expenditure and the provision of credit
by the Central Bank through money creation, - i.e. the IMF, on
behalf of the creditors, is in a position virtually to paralyze
the financing of real economic development.
... With regard to the social sectors
the IFIs [IMF, World Bank, WTO] insist on the principle of cost
recovery and the gradual withdrawal of the state from basic health
and education services... The austerity measures in the social
sectors - requiring a shift from regular to targeted programs
has largely been responsible for the collapse of schools, health
clinics and hospitals.
... The budget targets imposed by the
Bretton Woods institutions [World Bank, IMF, WTO], combined
with the effects of the devaluation, trigger the collapse of public
investment... the state is no longer permitted to mobilize its
own resources for the building of public infrastructure, roads
or hospitals, etc..
Structural adjustment constitutes a means for taking over the
real assets of indebted countries through the privatization program,
as well as collecting debt-servicing obligations. The privatization
of state enterprises is invariably tied to the renegotiation of
the country's external debt. The most profitable parastatals are
taken over by foreign capital or joint ventures often in exchange
for debt. The proceeds of these sales deposited in the Treasury
are channeled towards the London and Paris Clubs [powerful international
economic and political interests]. International capital gains
control and/or ownership over the most profitable state enterprises
at a very low cost.
The IMF insists on the "transparency" and "free
movement" of foreign exchange in and out of the country (through
electronic transfers). This process enables foreign companies
freely to repatriate their profits in foreign exchange.
... the liberalization of capital movements
encourages the "repatriation of capital flight", namely,
the return of "black" and "dirty money" which
had been deposited by the Third World elites since the 1960s in
offshore bank accounts. "Dirty money" constitutes the
proceeds of illegal trade and/or criminal activity whereas "black
money" is money which has escaped taxation.
... The liberalization of capital movements
serves the interests of the creditors. It constitutes a means
for channeling "dirty" and "black money" deposited
offshore towards the servicing of the external debt, while providing
the privileged social classes with a convenient mechanism for
laundering large amounts of money which were obtained illegally.
The solution to the debt crisis becomes the cause of further indebtedness.
The IMF's economic stabilization package is, in theory, intended
to assist countries in restructuring their economies with a view
to generating a surplus on their balance of trade so as to pay
back the debt and initiate a process of economic recovery. Exactly
the opposite occurs. The very process of "belt-tightening"
imposed by the creditors undermines economic recovery and the
ability of countries to repay their debt.
... IMF-World Bank reforms brutally dismantle
the social sectors of developing countries, undoing the efforts
and struggles of the post-colonial period and reversing "with
the stroke of a pen" the fulfillment of past progress. Throughout
the developing world, there is a consistent and coherent pattern:
the IMF-World Bank reform package constitutes a coherent program
of economic and social collapse. The austerity measures lead to
the disintegration of the state, the national economy is remolded,
production for the domestic market is destroyed through the compression
of real earnings and domestic production is redirected towards
the world market. These measures go far beyond the phasing out
of import-substituting industries. They destroy the entire fabric
of the domestic economy.
IMF-World Bank reforms brutally dismantle the social sectors of
developing countries, undoing the efforts and struggles of the
post-colonial period and reversing "with the stroke of a
pen" the fulfillment of past progress.
Throughout the developing world, there is a consistent and coherent
pattern: the IMF-World Bank reform package constitutes a coherent
program of economic and social collapse. The austerity measures
lead to the disintegration of the state, the national economy
is remolded, production for the domestic market is destroyed through
the compression of real earnings and domestic production is redirected
towards the world market. These measures go far beyond the phasing
out of import-substituting industries. They destroy the entire
fabric of the domestic economy.
The global economic system feeds on cheap labor.
The world economy is marked by the relocation
of a substantial share of the industrial base of the advanced
capitalist countries to cheap-labor locations in developing countries.
The development of the cheap-labor export economy was launched
in SouthEast Asia in the 1960s and 1970s largely in "labor-intensive
manufacturing". Initially limited to a few export enclaves
(e.g. Hong Kong, Singapore, Taiwan and South Korea), the development
of offshore cheap-labor production gained impetus in the 1970s
Since the late 1970s, a "new generation"
of free trade areas has developed with major growth poles in SouthEast
Asia and the Far East, China, Brazil, Mexico and Eastern Europe.
The worldwide development of cheap-labor industries ... is predicated
on the compression of internal demand in individual Third World
economies and the consolidation of a cheap, stable and disciplined
industrial labor force in a "secure" political environment.
This process is based on the destruction of national manufacturing
for the internal market ... in individual Third World countries
and the consolidation of a leap-labor export economy.
The "hidden agenda" of the SAP [structural adjustment
program]: the compression of wages in the Third World and Eastern
Europe supports the relocation of economic activity from the rich
countries to the poor countries
The globalization of poverty endorses the development of a worldwide
cheap-labor export economy; the possibilities of production are
immense given the mass of cheap impoverished workers throughout
Consumer demand is limited to approximately 15 percent of the
world population, confined largely to the rich countries together
with small pockets of wealth in the Third World and the countries
of the former Soviet bloc.
Under the close watch of the World Bank and the IMF, "non-traditional"
exports are promoted simultaneously in a large number of developing
countries. The latter now joined by cheap-labor producers in Eastern
Europe are forced into cutthroat competition. Everybody wants
to export to the same European and North American markets: oversupply
obliges Third World producers to cut their prices; the factory
prices of industrial goods tumble on world markets in much the
same way as those of primary commodities. Competition between
and within developing countries contributes to depressing wages
and prices. Export promotion (when applied simultaneously in a
large number of individual countries) leads to overproduction
and the contraction of export revenues. Ironically, the promotion
of exports leads ultimately to lower commodity prices and less
export revenue from which to repay the external debt.
Structural adjustment transforms national economies into open
economic spaces and countries into territories... "reserves"
of cheap labor and natural resources.
With the phasing out of manufacturing, a "rentier economy"
which virtually does not produce anything has developed in the
... In the international garment trade,
for instance, an international fashion designer will purchase
a Paris-designed shirt for US$3 to $4 in Bangladesh, Vietnam or
Thailand! The product will then be resold in the European market
at five to 10 times its price: the GDP of the importing Western
country increases without any material production taking place.
[In Bangladesh] the factory price of one dozen shirts is US$36
to $40 (fob). All the equipment and raw materials are imported.
The shirts are retailed at approximately US$22 a piece or US$266
a dozen in the United States. Female and child labor in Bangladeshi
garment factories is paid approximately US$20 a month, at least
50 times less than the wages paid to garment workers in North
America. Less than two percent of the total value of the commodity
accrues to the direct producers (the garment workers) in the form
of wages. Another one percent accrues as industrial profit to
the "competitive" independent Third World producer.
Whereas Third World enterprises operate under conditions which
approximate "perfect competition", the buyers of their
products are trading companies and multinational firms. The net
industrial profit accruing to the "competitive" Third
World entrepreneur is of the order of one percent of the total
value of the commodity. Because Third World factories operate
in a global economy marked by oversupply, the factory price tends
to decline, pushing industrial profit margins to a bare minimum.
of Poverty and New World Order