IMF and WorId Bank:
from Global Exchange newletter - February 2000
Fifty years before the WTO was even created, the World Bank
the International Monetary Fund (IMF) began designing a global
economy that puts the interests of corporations before the interests
of people and the planet. In many ways these two institutions
are the architects of corporate globalization-their free-market,
export-driven policies spawned the WTO. To fully understand how
the global economy works, and whose interests it ultimately serves,
it's necessary to know how these very powerful and secretive institutions
First, where did they originate?
The World Bank and IMF were created near the end of World
War 1I by the US and British governments. At that time, a big
problem for the US and British elites was that during the war
the business class of Europe was either supporting the Nazis or
fleeing Europe with all the money they could carry. On the other
hand, socialists, communists and anarchists enjoyed popular support
since they had led the resistance to Nazi occupation.
In order to prevent leftists from coming to power in Western
Europe, the US and Britain needed to create international institutions
that would promote free-market policies and strengthen the power
of the corporate sector
After an initial focus on Western Europe, the World Bank shifted
its lending to finance railroads, bridges, and other infrastructure
in the Global South.
The IMF was established to smooth global commerce by making
foreign currency exchanges easier and using its reserve of funds
to lend to countries experiencing temporary cash-flow problems
so they could continue trading without interruption.
The unwritten goal of the IMF and World Bank was to consolidate
wealth and power in the hands of a few, knowing that this concentration
would help maintain existing power relations.
What role do tthe IMF and World Bank play now?
TheWorld Bank and the IMF are the world's largest public lenders.
The Bank manages a loan portfolio totaling US $200 billion and
last year loaned a record US $28.9 billion to over 80 countries.
The IMF supplies member governments with money to help them overcome
short-term credit crunches.
To really understand how these institutions work, think of
them as the world's biggest loan sharks. When the Bank and IMF
lend money to debtor countries, the money comes with strings attached.
The strings come in the form of policy prescriptions that are
usually referred to as "structural adjustment. "
What is Structural Adjustment?
Structural Adjustment Policies (SAPs) restructure a country's
economy to ensure that its debts are repaid. SAPs require that
debtor governments open their economies to penetration by foreign
corporations, allowing access to the workers and natural resources
of the country at bargain basement prices.
Among other things, Structural Adjustment Policies generally
require a country to:
* slash government spending, which usually means cutbacks
for health care, education, child care, and environmental protection;
* attract foreign investment by removing tariffs and weakening
labor laws and environmental protections;
* sell off publicly owned assets such as mines, mills, forests,
telephone, water and electricity companies-a process known as
* focus resources on growing export crops for industrial countries,
rather than supporting family farms and growing organic food for
local consumption; and
* devalue the currency to promote exports.
Sometimes structural adjustment prescriptions include ending
government subsidies on heating oil, gasoline and basic food items
such as bread or rice, which raises the cost of living for poor
people. In Haiti, the World Bank went so far as to oppose increasing
the minimum wage-this in a country where more than 70% of the
population lives on less than $1 a day.
The Bank and the IMF say these policies are necessary market
reforms. In fact, they are poison pills for the poor majority
in debtor countries. The record shows these policies to be a dismal
failure: Real growth has been slow and poverty has increased.
Many grassroots groups in the Third World talk about the 'recolonization'
of their countries as they steadily lose control over their own
land, factories and services. As Martin Khor of the Third World
Network explains: "Structural adjustment is a policy to continue
colonial trade and economic patterns developed during the colonial
period, but which the Northern powers want to continue in the
post-colonial period. The World Bank and the IMF are playing the
role that our ex-colonial masters used to play."
How does the WTO relate to the World Bank and the IMF?
The WTO was created in 1995 to enforce and extend GATT (the
General Agreement on Tariffs and Trade). A tariff is a tax that
is only paid by transnational corporations when they move goods
across a national border. Through decades of pressure on national
governments to lower their
World Bank continued taxes on transnational corporations,
GATT transferred trillions of dollars from governments to large
corporations. This reduction in taxes led to the bankrupting of
governments around the world. Governments of both rich and poor
countries responded to this fiscal crisis in two ways: (l) borrowing
huge amounts of money from the World Bank, IMF and commercial
banks, and (2) cutting social programs in order to reduce budget
Growing government debt gave bankers increasing influence
over government economic policies
and greatly increased the muscle of the IMF and World Bank.
These institutions say to Third World elites: "If you want
new loans to make payments on your debts and keep yourself in
power, you better implement the structural adjustment policies
we recommend." Complying with the free trade rules of GATT/
WTO is often a large part of SAPs, and SAPs lock in dependency
to export markets.
How have the Bank and the Fund affected the environment?
These institutions have a terrible record of environmental
destruction. From a hydroelectric dam in India that displaced
thousands of people to road-building and agricultural colonization
in the Brazilian Amazon, the Bank's history has been characterized
by misguided and massive development debacles-debacles that continue
today despite the objections of environmental groups around the
The Bank's proposal to support a 600-mile pipe
line that will carry oil from Chad to the coast of Cameroon
is a perfect example of the Bank's disregard for environmental
concerns. The massive oil development project will pass through
or close to important ecological areas that are home to indigenous
tribes and endangered species. Even if the best available technology
were adopted, 2,000 gallons a day could leak without being detected.
Equally disturbing, the oil companies planning the project-Shell
and Exxon-each have terrible environmental records. In 1997, the
Wall Street Journal reported Exxon's chairman as advising developing
countries to avoid environmental controls if they wanted to secure
What do the Bank and the Fund have to do with sweatshops?
IMF and World Bank policies encourage countries to center
their economic development strategies around production for export
to the developed world. These policies typically include encouraging
countries to keep wages low and unions out of the workplace, so
as to ensure the cheapest exports possible. The kind of production
encouraged is often based on imported inputs and dependent on
Isn't the economic growth created by the "free market"
policies of the IMF and World Bank creating prosperity around
No. That's largely because growth, as it's conventionally
measured by the Bank and the Fund, is not an accurate gauge of
For a more complete answer to this question, it's useful to
look at the period of worldwide economic growth from 1960 to the
present. During that period, the global economy experienced rapid
growth in all the major economic indicators-foreign direct investment,
international trade, international debt, and Gross National Product
(GNP). But did inequality in the world get better or worse during
that period? It got far worse. All of these facts were underscored
by a report released in 1999 by the United Nations Development
Program (UNDP) which showed that corporate globalization has prioritized
profits above people.
The Bank and the Fund measure economic growth by a country's
annual percentage increase in GNP. GNP counts all goods and services-no
matter how destructive and harmful-as positive numbers. For example,
when the Exxon Valdez ran aground in Alaska and spilled millions
of barrels of oil, it created many positive contributions to GNP
The cleanup efforts, the lawsuits, and increased health and environmental
expenses all added to the GNP of the United States.
If we were including social and environmental criteria in
our GNP formulations, the effects of irresponsible, harmful behavior
such as clear-cutting, cigarette smoking, and toxic waste dumping
would be negative numbers. These numbers would subtract from our
measure of economic well-being-not add to it as they do now-and
give us a more complete picture of growth and prosperity. Because
the IMF and the World Bank rely so heavily on the narrow minded,
free-market economic criteria for measuring prosperity, they are
systematically raising corporate interests above the interests
of poor communities and the environment.
Who makes decisions at the WB and IMF?
Decisions at the World Bank and IMF are made by a vote of
the Board of Executive Directors, which represents member countries.
Unlike the United Nations, where each member nation has an equal
vote, voting power at the World Bank and IMF is determined by
the level of a nation's financial contribution. Therefore, the
United States has roughly 17% of the vote, with the seven largest
industrialized countries (G-7) holding a total of 45% of the votes.
Because of the scale of its contribution, the United States has
always had a dominant voice and has at all times exercised an
effective veto. At the same time, developing countries have relatively
little power within the institution. Furthermore, the President
of the World Bank is by tradition an American, and the IMF President
is a European; the developing world has no say about who will
run these institutions.
How do corporations benefit from Bank and Fund policies?
Development projects undertaken with World Bank financing
typically include money to pay for materials and consulting services
provided by Northern countries. US Treasury Department officials
calculate that for every US $I the United States contributes to
international development banks, US exporters win more than US
$2 in bank-financed contracts.
The Bank tends to finance large, expensive projects-which
almost always require the materials and technical expertise of
Northern contractors-and ignores smaller-scale, locally appropriate
alternatives. A good example is the Bank's proposal to provide
Exxon and Shell with financing for the Chad-Cameroon oil pipeline.
Because of rampant corruption in Chad and Cameroon, the poor communities
most affected by the development are unlikely to see its benefits.
But the pipeline will surely earn big profits for these two companies.
The World Bank and IMF also promote corporate welfare with
their the structural adjustment policies, which put commercial
interests above community interests through deregulation, privatization,
and "free" trade.
IMF, World Bank, Structural