Protests Keep Spotlight on IMF and World Bank Failures
half a century hardly anyone even knew these institutions existed, and they
operated in the shadows. Those days are over, although many of their most
important documents and deliberations remain secret.
Fund and the Bank operate a cartel for credit, much like OPEC runs an oil
cartel. Neither one is leak-proof, but they both confer considerable power on
the men who control them. While OPEC uses its monopoly power simply to raise oil
prices, these financial giants use theirs to influence and often dictate the
economic policies of dozens of countries.
IMF is the leader, and a country that falls out of its favor will not be
eligible for most credit from the larger World Bank, other multilateral lending
institutions, governments, and often private sources of credit as well. This
arrangement gives the Fund (together with the Bank) powers vastly greater than
they could ever derive from their own resources.
is even more concentrated in that the IMF is basically controlled by the US
Treasury Department. This fact illustrates what dinosaurs these institutions
really are. If the IMF did not exist, nothing like it could be created today. At
the very least the Europeans and Japanese would demand to have their say, as
they do in the WTO (which was created only five years ago); and the
underdeveloped countries, who are even more excluded from decision-making than
Europe and Japan, would demand a voice in shaping the policies that now
illustrate IMF policies with an example close to home: the United States is now
running a record current account deficit. (The current account measures foreign
trade plus other non-investment international transactions). At 4.5 percent of
our economy, this deficit is as big as the one that Brazil was running three
years ago when the IMF proposed an austerity policy as a loan condition. If we
were an IMF client, we would get rid of our trade deficit in the following
manner: the Fed would raise interest rates as high as necessary in order to
throw the economy into a recession. Our economy would shrink as borrowing for
housing and other large purchases dropped, people were thrown out of work, and
businesses cut back on their investment. As spending plummeted, so would the
purchase of imports, and our trade balance would improve.
Stiglitz, former chief economist at the World Bank and a likely candidate for a
future Nobel, has called this a "beggar thyself"-- as opposed to
"beggar thy neighbor"-- policy for getting rid of a trade deficit. He
resigned under pressure last year after criticizing these and other policies
that have caused enormous economic damage in countries such as Indonesia,
Russia, and Brazil in recent years.
IMF and World Bank policies have failed so miserably and so often, and because
these organizations are so completely unaccountable and anti-democratic, they
have few defenders outside of a narrow foreign policy elite. And their
opposition is growing by leaps and bounds. In addition to the protests here in
Prague, there will be demonstrations in 60 U.S. cities, backed by the 15
million-member AFL-CIO. Organized labor has increasingly come to see these
institutions as major adversaries, since they use their creditors' cartel to
enforce the global "race to the bottom" in wages and working
conditions that has hurt American workers as well. Two weeks ago the
Communications Workers of America took the unprecedented step of pledging to not
buy World Bank bonds, joining a worldwide movement to use the pension funds of
unions, churches, local governments, and universities to bring pressure on the
street heat is working. As the protesters like to chant, "This is what
democracy looks like."
Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, DC.