Pakistani people should read this article by Dr. Chossudovsky
Michel Chossudovsky
Professor of Economics in the Faculty of Social Sciences
University of Ottawa, Canada
There is little to rejoice as the international community celebrates the 50th anniversary of the Bretton Woods Conference which led to the establishment of the Washington-based international financial institutions. Since the early 1980s, the macro-economic stabilisation and structural adjustment programmes (SAPs) 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 rates, the adjustment programme has largely contributed to destabilising 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, 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 diseased including tuberculosis, malaria and cholera. Since the late 1980s, the IMF-World Bank economic medicine has been imposed on Eastern Europe, Yugoslavia and the former Soviet
Union with devastating consequences.
Since the mid-1980s, the impact of structural adjustment including the derogation of the social rights of women and the
detrimental environmental consequences of economic reform have been amply documented. While the Bretton Woods institutions
have acknowledged the social impact of adjustment no shift in policy direction is in sight. In fact, since the late-1980s, the
IMF-World Bank policy prescriptions (now imposed in the name of poverty alleviation) have become increasingly harsh and
unyielding. Moreover, these reforms - when applied simultaneously in more than one hundred countries - are conducive to a
globalisation of poverty a process which undermines human livelihood and destroys civil society in the South, the East and the North.
The IMF Menu
The same menu of budgetary austerity, trade liberalisation and privatisation is applied simultaneously in more than 100 indebted
countries. Debtor nations forgo economic sovereignty and control over fiscal and monetary policy, the central bank and the
Ministry of Finance are reorganised (often with the complicity of the local bureaucracies), state institutions are undone and an
economic tutelage is installed. 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. While adopted in the name of democracy and governance, the SAP requires the strengthening of the internal security apparatus: political repression - with the collusion of Third World elites - supports a parallel process of economic repression.
So-called governance and the holding of multi-party elections are added conditions imposed by the donors and creditors, yet the
very nature of the economic reforms precludes a genuine democratisation - that is, their implementation invariably requires (contrary to the spirit of Anglo Saxon liberalism) the backing of the military and of the authoritarian state. Structural adjustment promotes bogus institutions and a fake parliamentary democracy, which in turn supports the process of economic restructuring.
Throughout the Third World, the situation is one of social desperation and hopelessness of a population impoverished by the
interplay of market forces, and anti-SAP riots and popular uprisings are brutally repressed:
Caracas, 1989: President Carlos Andres Perez, after having rhetorically denounced the IMF for practising an economic
totalitarianism which kills not with bullets but with famine, declares a state of emergency and sends regular units of the infantry and the marines into the slum areas (barrios de ranchos) on the hills overlooking the capital. The Caracas anti-IMF riots had been sparked off as a result of a 200 per cent increase in the price of bread. Men, women and children were fired upon
indiscriminately. The Caracas morgue was reported to have up to 200 bodies of people killed in the first three days...and warned
that it was running out of coffins. Unofficially, more than a thousand people were killed;
Tunis, January 1984: The bread riots by unemployed youth protesting the rise of food prices;
Nigeria, 1989: The anti-SAP student riots lead to the closing of six of the country's universities by the Armed Forces Ruling
Council;
Morocco, 1990: A general strike and a popular uprising against the Government's IMF-sponsored reforms;
1993: The insurrection of the Chiapas Indians in southern Mexico, protest movement in the Russian Federation and the storming
of the Russian Parliament, and so on. The list is long...
Voices
The World Bank and IMF are public institutions created 50 years ago to solve monetary disequilibrium between countries and to
promote development. Unfortunately, the interests represented by them are farther and farther from these objectives. One of the
remarkable features of these institutions is their immunity to popular influence and their hostility to democracy. The evolution of a democratic process in Latin America is being threatened by the structural adjustment programs imposed by the World Bank and
the IMF.
Maria Clara Couto Soares,
IBASE, Rio De Janeiro, Brazil
Economic Genocide
Structural adjustment is conducive to a form of economic genocide which is carried out through the deliberate manipulation of
market forces. When compared to genocide in various period of colonial history (for example, forced labour and slavery), its
impact is devastating. Structural adjustment programmes directly affect the livelihood of more than four billion people. The
application of SAP in a large number of individual debtor-countries favours the internationalisation of macro-economic policy under the direct control of the IMF and the World Bank acting on behalf of powerful financial and political interests (for example, the Paris and London Clubs, the G-7). This new form of economic and political domination - a form of market colonialism - subordinates people and governments through the seemingly neutral interplay of market forces. The Washington-based
international bureaucracy is entrusted by the international creditors and multinational corporations with the execution of a global economic design which affects the livelihood of more than 80 per cent of the world's population. At no time in history has the free market - through the instruments of macro-economics operating at a world level - played such an important role in shaping the destiny of sovereign nations. The restructuring of the world economy under the guidance of the Washington-based financial
institutions increasingly denies individual Third World countries the possibility of building a national economy; the
internationalisation of economic policy transforms countries into open economic territories and national economies into reserves
of cheap labour and natural resources. The application of the IMF economic medicine trends to depress world commodity prices
further because it forces individual countries to gear simultaneously their national economies towards a shrinking world market.
Parallel with this remoulding of the global and national economies, the dominant economic discourse has, since the early 1980s, reinforced its clutch in academic and research institutions throughout the world; critical analysis is strongly discouraged, the dominant economic dogma admits neither dissent nor discussion of its main theoretical paradigm. Similarly, Third World
intellectuals are increasingly enlisted in support of the neo-liberal paradigm, the internationalisation of economic science
unreservedly supports the process of global economic restructuring. Moreover, whereas the IMF-World Bank sponsored reforms accentuate social and income disparities between and within nations, the realities of world poverty are increasingly concealed by the blatant manipulation of income statistics. The World Bank estimates for instance, that in Latin America and the Caribbean only 19 per cent of the population is poor: a gross distortion when we know for a fact that in the United States (with an annual per capita income of $20,000) one American in five is defined (by the Bureau of the Census) to be below the poverty line.
Policing Countries Through Loan Conditionalities
Because countries are indebted, the IMF and the World Bank can oblige them through the so-called conditionalities attached to
the loan agreements to redirect appropriately their macro-economic policy in accordance with the interests of the international
creditors. 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. While the circumstances of the adjusting countries differ markedly, the same economic recipe is applied worldwide. The adoption of the Fund's prescription
under the economic stabilisation package is not only conditional for obtaining loans from multilateral institutions, it also gives the greenlight to the Paris and London Clubs, foreign investors, commercial banking institutions and bilateral donors. The evidence
suggests that countries which refuse to accept the Fund's corrective policy measures face serious difficulties in rescheduling their debt and/or obtaining new development loans and international assistance. The IMF also has the means of seriously disrupting a national economy by blocking short-term credit in support of commodity trade.
Invariably, substantial reforms will be required prior to the negotiation of a structural adjustment loan. The government has to
provide evidence to the IMF that it is seriously committed to economic reform prior to the holding of actual loan negotiations.
This process is often carried out in the context of a so-called IMF Shadow Programme in which the IMF provides policy
guidelines and technical advice to a government without any formal loan support. The Shadow Programme applies to countries
whose economic reforms are considered (in IMF jargon) not to be on track (for example, Peru under Alberto Fujumori (1990-91)
or Brazil under Fernando Collor de Mello and Itmar France (1990-94). Satisfactory performance under the Shadow Programme
is considered necessary, prior to the formal negotiation of a loan agreement. Once the loan has been granted, policy performance
is rightly monitored on a quarterly basis by the Washington institutions. The disbursements can be interrupted at any time if the reforms are not on track, in which case the country is back on the black list with the danger of reprisals in the area of trade and capital flows.
In many indebted countries, the sovereign government is obliged under its agreement with the Washington-based institutions to
outline its priorities in a so-called policy framework paper (PFP). Although officially a government document determined by the
country, the PFP is written under the close supervision of the IMF and the World Bank according to a standard, pre-set format.
There is, in this context, a clear division of tasks between the two sister organisations. The IMF is involved in key policy
negotiations with regard to the exchange rate and the budget deficit. The monitoring of country's economic performance by the
IMF provides the basis of so-called IMF surveillance activities over members' economic policies. The World Bank, on the other
hand, is far more involved in the actual reform process through its country-level representative office and its numerous technical
missions. Moreover, the World Bank is also present in most of the line ministries; the reforms in health, education, industry,
agriculture, transportation, the environment, and so on are under its jurisdiction. Moreover, since the late 1980s, the World Bank
closely monitors the structure of public expenditure through the so-called Public Expenditure Review (PER). The composition of
expenditure in each of the ministries is under its supervision.
Destroying a Nation's Currency
Destroying the national currency is a key objective of the IMF-World Bank intervention: currency devaluation ordered by the
IMF is conducive to abrupt price hikes and a dramatic compression of real earnings while at the same time dramatically
depressing the cost of labour (expressed in dollars). The currency devaluation is usually demanded (as a precondition) prior to
the negotiation of a structural adjustment loan. In sub-Saharan Africa, the devaluation of the CFA franc imposed by the IMF and
the French Treasury in early 1994, rather than constituting a means of eradicating rural poverty as claimed by the donor
community, compressed (with the stroke of a pen) the real value of wages and government expenditure (expressed in hard
currency) by 50 percent while massively redirecting state revenues towards debt servicing...The impact of devaluation was brutal
and immediate: the domestic prices of food staples, essential drugs, equipment, and so on, have skyrocketed. It is worth recalling that in Nigeria in the 1980s, the steep price rise of soap which resulted from the devaluation of the naira was the cause of a high incidence of certain types of skin disease...
While the devaluation triggers inflation and the dollarisation of domestic prices, the IMF obliges the government to adopt a
so-called anti-inflationary programme. The latter is predicated on a contraction of demand instrumented through the dismissal of
public employees, drastic cuts in social sector programmes and the deindexation of wages. To achieve this objective, strikes are
outlawed and trade union leaders are arrested. (The levels of wages in indebted countries are as much as 70 times lower than in
the countries of the Organisation for Economic Cooperation and Development (OECD).
Engineering the Collapse of State Investment
The reforms also trigger the collapse of public investment. Precise ceilings are placed on all categories of expenditure, the state is no longer permitted to mobilise its own resources for the building of public infrastructure, roads or hospitals, and so on. That is, the creditors not only become the brokers of all major public investment projects, they also decide in the context of the Public Investment Programme (IP), established under the technical auspices of the World Bank, on what type of public infrastructure
should or should not be funded by the donor community. The control of public investment by the donors not only contributes to
the demobilisation of domestic resources but also to the enlargement of the external debt through the system of international tender (and competitive bidding) which allocates the entire execution of public works projects to international construction and engineering firms. Large amounts of money are skimmed off into a variety of consulting and management fees... Local construction companies (whether public or private) tend to be excluded from the tendering process although much of the actual
construction work will be undertaken by local companies (using local labour at very low wages) in separate sub-contracting deals
reached with the transnationals...
The World Bank Helps the Poor
The Bretton Woods institutions claim to be firmly committed to poverty alleviation. The so-called targeted programmes
earmarked to help the poor combined with cost recovery and the privatisation of health and educational services are said to
constitute a more efficient way of delivering social programmes. So-called sustainable poverty reduction under World Bank
guidance is predicated on slashing social sector budgets and redirecting expenditure on a selective and token basis in favour of the poor. The state withdraws; many programmes under the jurisdiction of line ministries will henceforth be managed by the
organisations of civil society under the umbrella of the Social Emergency Fund (SEF). The latter also finances the social safety
net - for example, severance payments and/or minimum employment projects earmarked for public sector workers laid off as a
result of the adjustment programme. An entirely separate and parallel organisational structure unfolds, various non-governmental organisations (NGOs) funded by international aid programmes have gradually taken over many of the functions of local level governments whose funds have been frozen as a result of the structural adjustment programme.
Small scale production and handicraft projects, sub-contracting for export processing firms, community based training and
employment programmes, and so on, are set up under the umbrella of the social safety net. A meagre survival of local-level
communities is ensured while at the same time containing the risk of social upheaval. The social emergency fund (established on
the Bolivia-Ghana model) constitutes an institutional mechanism for the management of poverty, while at the same time
dismantling the state's public finances. The SEF constitutes a useful policy framework for managing poverty and attenuating
social unrest at minimal cost to the creditors.
Voices
Since the lost decade of the 1980s, it has become painfully clear that the World Bank and the IMF are intended to benefit the
wealthy and they powerful, yet they continue to pretend that they are serving the community of nations. Of particular concern is
the way in which their structural adjustment programs run counter to their sectoral policies: thus their programs on reproductive
health and education are consistantly undermined by their macro-economic policies which destroy investments in public health
and education. Sustainable development will never be achieved until these contradictions are confronted.
Peggy Antrobus
University of the West Indies, Bridgetown, Barbados
In sub-Saharan Africa, targetting in favour of the so-called vulnerable groups has largely been responsible for the collapse of
schools, health clinics and hospitals, while providing a semblance of legitimacy to the Washington-based institutions. Freezing the
number of graduates of the teacher training colleges and increasing the number of pupils per teacher are explicit conditions of World Bank social sector adjustment loans. The educational budget is curtailed, the number of contact hours spent by children in school is cut down and a double shift system is installed: one teacher now does the work of two, the remaining teachers are laid off and the resulting savings to the Treasury are funnelled towards the Paris Club of official creditors... These initiatives (implemented in the name of poverty alleviation), however, are still considered to be incomplete: in sub-Saharan Africa, the donor community has recently proposed a new imaginative (cost-effective) formula which consists in eliminating the teachers' meager salary altogether (in some countries as low as $15-20 a month) while granting small loans to enable unemployed teachers to set up their own informal private schools in rural backyards of the urban slums. Under this scheme, the Ministry of Education would nonetheless still be responsible for monitoring the quality of teaching...
A similar approach prevails in the area of health. State subsidies to health are said to create undesirable, market distortions which
benefit the rich. Moreover, according to the World Bank's most recent estimate (contained in its 1993 World Development Report
entitled Investing in Health), an expenditure of $8 per person per annum is in any event amply sufficient to meet acceptable
standards of clinical services. Moreover, user fees for primary health care to impoverished rural communities should be exacted
both on the grounds of greater equity and efficiency. These communities should also participate in the running of the primary
health care units by substituting the qualified nurse or medical auxiliary (hitherto paid by the Ministry of Health) by an untrained and semi-illiterate health volunteer... The results: with the exception of a small number of externally funded showpieces, health establishments in sub-Saharan Africa have de facto become sources of disease and infection. The shortage of funds allocated to medical supplies including disposable syringes, as well as the price hikes (recommended by the World Bank) in electricity, water and fuel (for example, required to sterilise needles) increase the incidence of infection (including HIV transmission)... Whereas the World Bank concedes that the communicable disease control programmes of developing countries for diarrhoea, malaria and acute respiratory infections have deteriorated, the proposed solutions consist in the commercialisation (and commodification) of public health as well as the massive lay-off of doctors and health workers.
The 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 the pen the fulfilment of past progress. Throughout the developing world,
there is a consistent and coherent patter: the IMF-World Bank reform package constitutes a coherent programme of economic
and social collapse. The austerity measures lead to the disintegration of the State, the national economy is remoulded, production for the domestic market is destroyed through the compression of real earnings, 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...
Fifty years is enough! The world community must take cognizance of the deadly impact of macro-economic policy, applied in
over 100 developing countries by the Bretton Woods institutions...
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