The World Bank and the IMF were formed at the Bretton Woods Conference in 1944, called to establish a new global economic order at the end of World War Two. The influential economist John Maynard Keynes proposed a stable, fair world economy in which trade surpluses were automatically recycled to finance trade deficits. Instead the US pushed for a system based on the dollar and on the free movement of capital. The IMF and the Bank were designed to smooth out the wrinkles of currency and capital shortages.
The IMF was intended to oversee currency values and act as a kind of ‘credit union’ from which national governments could draw short-term loans when they were in balance-of-payment difficulties. It has evolved into an international judge of countries’ macroeconomic policies, offering loans conditional upon the adoption of a raft of free-market measures.
The IBRD (International Bank for Reconstruction and Development) is commonly known as the World Bank. It was designed to loan money to rebuild war-torn and ‘underdeveloped’ nations. Most of its money comes from bonds sold on the international markets; most of its money has tended to go into big infrastructure projects such as dams, power plants and roads. There are four other members of the World Bank Group.
The IFC (International Finance Corporation) was founded in 1956 to invest in or make loans to private companies operating in borrowing countries. It must make a profit and therefore can never benefit the poorest directly. 85% of its money goes into 15 countries that could attract investment on the international markets anyway.
The IDA (International Development Association) was set up in 1960 to make long-term low-interest loans to the poorest countries. This headed off attempts by newly independent Third World countries to establish an independent funding agency within the UN.
The ICSID (International Center for the Settlement of Investment Disputes) has since 1966 served as a tribunal settling disputes between governments and corporations.
The MIGA (Multilateral Guarantee Investment Agency) appeared in 1988. It provides political risk insurance to corporations undertaking projects in the developing world.1 (http://www.newint.org/issue365/pics/factsp1.gif)
Power and Control
Voting power in both the IMF and the World Bank is broadly based on economic power. The 30 countries of the OECD (Organization for Economic Co-operation and Development – broadly the rich world plus a select few) control almost two-thirds of the votes in both the IMF (63.55%) and the World Bank (61.58%). The G8 countries alone control almost half the votes (48.18% of the IMF, 45.71% of the Bank).
Practical power in both the Fund and the Bank rests with their Boards of Directors. There are 24 Directors on each Board. The 8 countries in the chart have their own Director on both Boards. Other member countries are divided into blocs, with one nation ‘representing’ them on the Board. Just 2 Directors represent sub-Saharan Africa on the IMF Board, for example, wielding 4.43% of votes between them.
Adjustment: Enemy of Growth
The US has by far the most powerful Director, with a 17.14% vote in the Fund and 16.39% in the Bank. The US has stated that it will not allow its voting power in the IMF to drop below 15%, which gives it a veto over all key decisions.2
The IMF and the World Bank claim that the structural adjustment programmes they have imposed on developing countries are in the service of long-term economic growth. In practice four decades of global experience tells a different story. As adjustment lending has ballooned, so economic growth has gone into reverse, the two graph lines acting as a mirror image (right).3
45% of the $25 billion that the World Bank lends each year is dispensed directly to Western transnational corporations.4
The Debt Disgrace
In 2000, the Joint Economic Committee of the US Congress found a failure rate of 55-60% for all World Bank-sponsored projects. In Africa, the failure rate reached 73%.5
The poorest nations of the world are drowning in debt. Current commitments to debt relief such as the much hyped Highly Indebted Poor Countries (HIPC) initiative, have achieved little.
Net Negative Transfer
In 1999, the HIPC countries repaid $1,680 million more than they received in the form of new loans.
For every dollar in grant aid to developing countries, more than 13 comes back in debt repayments.5
Hiccoughs in the HIPC
Between 1996 and 1999 the overall amount of debt-servicing payments from the HIPC increased by 25% (from $8,860 million in 1996 to $11,440 million in 1999).5
Cancel the Debt!
Between 1990 and 1996 HIPC debt increased by 30%. In 1996, the G7, the IMF and the World Bank announced a cancellation of up to 80% but in practice, far from diminishing, the debt continued its upward curve and climbed a further 4.7% in 5 years.5
The IMF, World Bank and the regional development banks (African Development Bank, Asian Development Bank, Inter-American Development Bank) hold a wealth of resources, approximately $633 billion in effective capital and $60 billion in reserves and provisions for loan losses.6
According to the US Government’s International Financial Institution Advisory Commission, these banks can easily marshal internal resources for total debt cancellation for HIPC countries as it represents just 5% of their effective capital.6
All monetary values are expressed in US dollars.
- Information from http://www.worldbank.org and Empty Promises, The 50 Years Is Enough Network, Washington, July 2003.
- http://www.imf.org http://www.worldbank.org
- William Easterly, The Elusive Quest for Growth, MIT Press, Cambridge, Massachusetts, 2002, p102.
- The Corner House, ‘Exporting Corruption: Privatization, Multinationals and Bribery’, June 2000.
- World Bank, ‘Global Development Finance’, 2001-03 and IMF ‘World Economic Outlook’ 1996-03. Joint BIS-IMF-OECD-World Bank statistics on external debt. http://www1.oecd.org/dac/debt/
- United States Government, ‘International Financial Institution Advisory Commission (Meltzer Commission) Final Report’, March 2000. http://www.house.gov/jec/imf/meltzer.htm
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