The IMF and World Bank's
by Sarah Anderson
Dollars and Sense magazine, January/February
Medieval doctors always prescribed the same "cure";
no matter what the ailment, they applied leeches to patients and
bled them. For the past decade and a half, critics have likened
the World Bank and the International Monetary Fund (IMF) to these
doctors. The two institutions have thrown millions of people deeper
into poverty by promoting the same harsh economic reforms - including
privatization, budget cuts, and labor "flexibility"
- regardless of local culture, resources, or economic context.
Strapped with heavy debts, most developing countries have reluctantly
accepted these reforms, known as structural adjustment programs
(SAPs), as a condition for receiving IMF or World Bank loans.
In recent years, the doctors' harsh medicine has been exposed
in dozens of studies and in increasingly vocal street protests.
In response, the World Bank and the IMF have been attempting to
revamp their public image into that of anti-poverty crusaders.
While the World Bank has long claimed a commitment to helping
the poor, this is a real departure for the IMF, which has unrepentantly
elevated financial and monetary stability above any other concern.
Considering the two institutions' records, it is not surprising
that the sudden conversion from crude medieval doctors to institutional
Mother Theresas has provoked considerable skepticism.
MAIN ELEMENTS OF THE SAP FORMULA
Reducing the size of the state: The IMF requires that countries
privatize public companies and services and fire public sector
workers. While this may free up more funds to pay off loans, domestic
capacity is crippled as a result. In Haiti, for example, the IMF
admits that privatization of schools has seen extreme deterioration
in school quality and attendance that will likely hamper the country's
human capacity for many years to come. For example, only 8% of
teachers in private schools (now 89% of all schools) have professional
qualifications, compared to 47% in public schools. Secondary school
enrollment dropped from 28% to 15% between 1985 and 1997. Nevertheless,
the IMF recommends further privatization in Haiti.
Balancing the government budget: Even though rich country
governments commonly engage in deficit spending, the IMF and World
Bank believe this is a big no-no for poor countries. Faced with
tough choices, governments often must cut spending on health,
education, and environmental protection, since these don't generate
income for the federal budget. According to Friends of the Earth,
Brazil was pressured to slash funding for environmental enforcement
by over 50% after accepting an IMF bailout agreement in 1999.
Deregulating the economy: The World Bank and IMF continue
to push for the elimination of trade and investment barriers,
and for the export-orientation of poor countries' economies. Again,
if poor countries increase their foreign currency earnings by
boosting exports, they may be more able to repay international
creditors. The people, however, will not necessarily benefit.
The World Bank's own statistics show that, in many regions of
the world, increased exports are not associated with increased
personal consumption. For example, while export volume increased
by 4.3% in Sub-Saharan Africa between 1989 and 1998, per capita
consumption declined by 0.5%.
Weakening labor: The institutions have also ardently promoted
so-called "labor market flexibility" through measures
that make it easier to fire workers or undermine the ability of
unions to represent their members. In the spring of 2000, Argentine
legislators passed the harsher of two labor law reform proposals
after IMF officials spoke out strongly in support of it. The IMF,
backed up by the might of the global financial community, appears
to have carried more weight than the tens of thousands of Argentines
who carried out general strikes against the reform. Even though
a recently released World Bank study shows a correlation between
high rates of unionization and lower levels of inequality, the
Bank and Fund maintain that they cannot engage in promoting labor
rights because this would constitute interference in domestic
Although the Bank and Fund have promoted SAPs as a virtual
religion for nearly 20 years, they cannot even claim that they
have achieved a reduction in the developing world's debt burden.
Between 1980 and 1997, the debt of low-income countries grew by
544%, and that of middle-income countries by 481%.
THE IMF GETS A FACELIFT
In 1999, in response to increasing opposition, the IMF gave
its Enhanced Structural Adjustment Facility (through which it
made SAP loans) the new moniker of Poverty Reduction and Growth
Facility. Both the IMF and World Bank announced that under their
new approach, they would require governments seeking loans and
debt relief to consult with civil society to develop strategies
for poverty reduction. In addition, the institutions vowed an
increased commitment to debt relief for the poorest countries.
World Bank President James Wolfensohn expressed his pride in these
efforts by commenting that he comes in to work every day "thinking
I'm doing God's work."
Although most of the new poverty reduction initiatives are
in an early stage, the World Bank and IMF have given plenty of
evidence to support the skeptics:
Anti-poverty PR stunts: Non-governmental organizations (NGOs)
have raised strong criticism of the civil-society consultation
processes that are supposed to take place as governments develop
the required Poverty Reduction Strategy Papers. Sara Grusky of
the Washington-based Globalization Challenge Initiative (GCI)
doubts the value of "consultation" if countries will
still have to accept the standard policies to get the IMF's "seal
of approval." Carlos Pacheco Alizaga of Nicaragua's Center
for International Studies says that civil-society consultation
is restricted to narrow discussions of social policy. He argues
that the process "tries to dilute the central discussion
which is the lack of a new model of development for the impoverished
countries and the creation of a new world trade system that should
not be controlled by the rich countries of the north and the transnational
companies." As of October 2000, only two countries (Uganda
and Burkina Faso) had completed a Poverty Reduction Strategy Paper.
Another 13 had completed interim drafts, but in several cases
civil-society groups have reported either a complete lack of public
consultation or mere public relations stunts that excluded groups
more critical of Bank and Fund policies.
Debt rhetoric: A year ago, the World Bank and IMF initiated
a joint plan, called the "Heavily Indebted Poor Country"
(HIPC) initiative, to provide a measure of debt relief to certain
countries that agree to structural adjustment conditions. The
World Bank touts HIPC as an example of its "leadership to
relieve the unsustainable debt burdens that stand in the way of
development and poverty reduction." The IMF may be more candid
about HIPC's true goals. A statement on its web site identifies
the main objective not as poverty reduction but rather the reduction
of poor countries' debt burdens to levels that will "comfortably
enable them to service their debt" and "broaden domestic
support for policy reforms." As Soren Ambrose of the Alliance
for Global Justice puts it, "HIPC is just a cruel hoax designed
to trick developing countries into accepting more structural adjustment."
The World Bank and IMF have tried to tout the HIPC initiative
as a permanent solution to the debt crisis by concocting wildly
unrealistic predictions of the eligible countries' future economic
performance. (As of October 2000, only 10 of the 41 countries
had met the rigid HIPC criteria.) They estimate that export, GDP,
and government revenue growth will average 7-12% in nominal dollar
terms for the next 20 years - optimism that is completely unjustified
by the countries' past performance.
Ecuador eruption: There is perhaps no stronger evidence of
the continued havoc wreaked by IMF/ World Bank orthodoxy than
Ecuador. During the past year, indigenous groups, trade unions,
and others have organized mass protests against a harsh IMF reform
program that shifts the country's economic crisis onto the backs
of the poor. In the midst of a general strike against the program
in June 2000, a delegation of Ecuadoran human rights, women's,
and trade union groups came to Washington, D.C., to ask the World
Bank to postpone consideration of a new loan agreement conditioned
on further implementation of IMF reforms. The NGOs argued that
there had been a total lack of public consultation on the deal,
which required low levels of social spending and removal of subsidies
for basic goods, while ignoring the country's need for debt relief.
Despite their pleas, the World Bank approved the loan package
the following week.
Censorship: The dramatic resignations in the spring of 2000
of two high-level World Bank employees raised further doubts about
the institutions' commitment to poverty reduction and civil-society
participation. Former Chief Economist Joseph Stiglitz claims that
U.S. Treasury Secretary Lawrence Summers and IMF bigwigs succeeded
in pushing him out of the Bank in retaliation for his charges
that the Fund's policies helped precipitate and worsen the global
financial crises that erupted in mid-1997. Stiglitz pointed out
that while reckless international investors and domestic banks
caused the crises, the costs were borne by the workers.
Then in June, the editor of the World Bank's World Development
Report, Ravi Kanbur, broke his contract, reportedly in protest
over demands that he water down content that had been developed
through extensive civil-society participation. Once again, Summers
and other supporters of "free market" orthodoxy had
allegedly intervened to quash the report's calls for economic
redistribution, claiming that economic growth was the ultimate
solution for poverty.
Although the final report released in September 2000 contains
some strong language about the need to empower the poor, there
is no indication that the institutions are willing to consider
a substantial reform of their policies. One chapter, "Making
Markets Work Better for Poor People," attributes all problems
of economic collapse and poverty growth to deficiencies in "market
access." The report implies that those former Communist countries
that have been mired in economic collapse and stagnation should
have followed the examples of the countries that implemented reforms
"forcefully and early." This contrasts sharply with
the findings of many researchers that the most successful former
Communist countries were those that adopted a more gradual and
OLD LEECHES, NEW JARS
So far there is little evidence of a genuine conversion on
the part of the IMF and World Bank. They have not fundamentally
rethought their formula of "structural adjustment,"
nor their overall commitment to the "free market" model.
The medieval doctors have just repackaged their cruel ministrations
with warm and fuzzy labels. The challenge for critics is to keep
up the pressure, exposing this facade and unifying around a concrete
set of meaningful alternative goals and policies - real transparency,
real democracy, and a real commitment to fight poverty.
Sarah Anderson ;s the Director of the Global Economy Program
of the Institute for Policy Studies in Washington, D.C., and the
co-author (with John Cavanagh and Thea Lee) of Field Guide to
the Global Economy.
Monetary Fund (IMF), World Bank, and Structural Adjustment