IMF and World Bank: Neo-Colonial Tool to Exploit Third World Countries.
"The United States has viewed all multilateral organisations including the World Bank, as instruments of foreign policy to be used in support of specific US aims and objectives…US views regarding how the world economy should be organised, how resources should be allocated and how investment decisions should be reached were enshrined in the Charter and the operational policies of the bank." The Brookings Institute
Since the creation of both the International Monetary Fund (IMF) the World Bank (WB) over 60 years ago, both have provided trillions of dollars in loans to poor countries. In addition to providing financial resources, the World Bank – along with the International Monetary Fund (IMF) – took the lead in making policy prescriptions to the third world, which it ensures are adopted by making them “conditions” for lending. The third world sits on debts of over $1.3 trillion, which has seriously hindered the third worlds abilities to provide for the basic needs of their citizens, and imposed “conditionality” interferes with governments’ rights to make sovereign decisions.
However both multilateral organisations have very little success stories to boast about and are now seen as tools, which destroy economies. The world banks notorious structural adjustment policies came to be so maligned that its name was changed to ‘poverty reduction and growth facility.’ The IMF’s bailouts, financial packages and reforms have also become notorious leaving many nations in poverty and with mountains of debt. Below is a list of some cases: -
- Argentina was considered by the IMF to be a model country in its compliance to policy proposals by the Bretton Woods institutions; however it experienced a catastrophic economic crisis in 2001, which was caused by IMF-induced budget restrictions — which undercut the government's ability to sustain national infrastructure in crucial areas such as health, education, and security. The IMF intervened to ensure its loans would be repaid and enforced a set of reforms to achieve this. Argentina was ordered to structurally change their economy to concentrate on exports in order to raise enough money to pay off their debts. Argentina was forced to remove all barriers to foreign trade and enter the global marketplace this resulted in the collapse of many local Argentine companies, as economically Argentina was not ready. Argentina was forced to request further loans to feeds its population which actually led to nation wide looting in 2001. In December 2001 on the verge of economic meltdown Argentina defaulted on its $93 billion debt.
- The fall of communism in 1990 and the break-up of the Soviet Union represented a wonderful opportunity for capitalist institutes to transform a huge centralist economy to a market orientated one. A total of $129 billion poured into Russia with $22 billion by the IMF and the World Bank implemented a number of its development schemes. The IMF and WB enforced its export policy as its does to all nations as a result all industry was developed to produce goods ripe only for export abroad, hence Russia would forever become reliant on worlds prices and world currency rates. Petroleum, natural gas, metals, and timber accounted for more than 80% of Russian exports, leaving the country vulnerable to swings in world prices. Hence when the crisis hit in 1997 Russia was so integrated into the global economy it wasn’t even able to protect itself. The crisis raised poverty from 2 million to 60 million, a 3000% increase. UNICEF noted that this resulted in 500,000 'extra' deaths per year.
- The World Bank in 1976 introduced a Transmigration program (Transmigration V) in Indonesia. This project was funded after the establishment of the Bank’s OESA (environmental) office in 1971. Transmigration V was the largest resettlement program ever attempted and designed ultimately to transfer, over a period of twenty years, 65 million of Indonesians 165 million inhabitants from the overcrowded islands of Java, Bali, Madura, and Lombok. The WB objectives were: relief of the economic and social problems of the inner islands, reduction of unemployment on Java, relocation of manpower to the outer islands, the strengthening of national unity through ethnic integration, and improvement of the living standard of the poor. The project was a resounding failure it failed as the new settlements went out of control; a local population fought with the migrators and the tropical forest was devastated (destroying the lives of indigenous peoples). Many of the settlements were established in inhospitable sites. The Funding continued through 1987, despite the problems noted and despite the Bank’s published stipulations (1982) concerning the treatment of groups to be resettled.
- Jamaica was also on the receiving end of an IMF solution. In 1978, one year after Jamaica first entered a borrowing relationship with the IMF, the Jamaican dollar was still worth more on the foreign exchange market then the US dollar; by 1995, when Jamaica terminated the relationship the Jamaican dollar had eroded to less than USD 2 cents. The help of the IMF became highly questionable in the crisis.
These examples along with numerous others clearly illustrate the failure of IMF and World Bank’s neo-liberal policies. However understanding their failure is much deeper then any reform or restructuring can fix, this can be understood if one looks at the origins and the allocation of decision making powers. It was the US after its new found dominant position after WW2 that decided international organizations were required to stabilize and maintain the international financial system and world development. The US with the most influence in the world at the time ensured the dollar became the central currency to which all currencies would be pegged even gold was pegged to the dollar; as a result what was created was a global economic system that traded in dollars. Thus the US global economic hegemony was secured, long term, through the vehicles of the IMF and World Bank, the US still today has the most voting rights in the World Bank amounting to 16.4% double then second placed Japan who has 7.9%. The US has similar veto rule with 17% of IMF voting rights. The US influence was outlined by Mark Weisbrot, director of the Washington-based Centre for Economic Policy Research, who said "The IMF is not really an independent actor; I don't think there's anyone in this town who would tell you with a straight face that it is not controlled by the US Treasury.”
As a result many moves are being undertaken in Latin America to remove the handcuffs of the IMF and World Bank which are now spreading to Africa and which the Muslim rulers should take lessons from and adopt. Poverty in Latin America has not been addressed; a report by the Centre for Economic and Policy Research found that poverty and inequality in Latin America increased between 1980 and 2005, when compared with the prior 20-year period.
As a result, there has been a clear backlash to the disastrous financial failure of the neo-liberal, “Washington Consensus” economic model, promoted and imposed by the IMF and the World Bank. Venezuela has announced it is to pull out of the World Bank and IMF, Ecuador has expelled the Bank’s representative, declaring him persona non grata. Ecuador’s new President, Rafael Correa, accused the World Bank of blackmail. IMF proposals resulted in more than half of Ecuador’s 13 million inhabitants living in poverty. This poverty was a direct result of an IMF policy, which required Ecuador to collect and distribute its oil revenue with debt payments given priority. The fund was initially structured to allocate 70% of resources to service Ecuador’s foreign debt.
The increasing frustration with traditional financing has led to a revolutionary move by the nations of Latin America. Earlier this year, Venezuela and Argentina launched the new “Banco del Sur” (Bank of the South), pledging more than $1 billion to get the institution up and running in the next few months. Several other countries have agreed to join: Brazil, Bolivia, Ecuador and Paraguay will also be founding members. Additionally, Nicaragua, several Caribbean countries and even a few Asian nations have expressed interest in participating in the new multilateral institution. The Bank of the South’s creation underscores the severity of the disenchantment with the traditional U.S.-dominated instruments for development finance. From the World Bank to the Inter-American Development Bank (IDB) (which provides financing exclusively in Latin America and the Caribbean), voting privileges are based on financial contribution, which makes the U.S. Treasury the single largest shareholder, bringing with it the largest share of the vote. In the IDB, the U.S. not only “owns” a whopping 30% of the vote, but it also holds veto power – an advantage to which no other member enjoys.
Africa is also following suit, Nigeria recently reached the end of a huge debt elimination programme, which has nearly put an end to its national debt. The program involved the auctioning of 1.76m oil warrants, with about 21% bought back. Buying back these warrants will save the country about $11m a year in interest payments. Nigeria will still pay just under $42m annually at current oil prices, but this is a drop in the ocean compared with its oil-related earnings and its debt being over nearly $30 billion only a few years ago. Angola in April cancelled all negotiations with the International Monetary Fund, on the grounds that it is quite able to maintain economic stability on its own. Angola successfully implemented its own economic programme while relying exclusively on its own resources. During the past few years, the Angolan economy has gone through massive growth and inflation has been brought under control by closing its economy to foreign companies, by being centrally driven and by not operating free markets. Similar policies are also coming from Tanzania.
In regards to the Muslim world it has also faced the brunt of IMF and World Bank led policies which apart from failing, benefit only the corrupt leadership resulting in the suffering of the ummah when the institutions intervene to secure their loans. The IMF delivered millions of dollars in loans every year to General Suharto and continued to support the corrupt economic practices of Suharto and his cronies, which alongside the general economic crisis in 1997 left half of Indonesia in poverty and with debts of $140 billion. Turkey experienced the same in 2000 when speculators moved their money out, resulting in the collapse of the Turkish lira. The IMF stepped in with a bailout package and Turkey today remains reeling with debts of $161 billion.
In the nations that comprise the Middle East and North Africa Overall, 14 percent of regional export earnings go to debt service. In Lebanon, debt service accounts for 47 percent of the government's budget. Jordan, Morocco, Tunisia and Turkey all spend more on debt service than they do on education; all spend twice as much on debt service than they do on health care. Sudan and Yemen are among the 41 countries identified as Heavily Indebted Poor Countries [HIPCs]. Pakistan continues reeling in external debts of $36 billion and still awaits debt write-offs for its unstinting support of America’s ‘global war on terror’. However, there is no political will by any of the Muslim rulers to work outside the international financial system even though Latin America is leading the way on how to do this.
The future Khilafah state will have a distinct set of policies in dealing with international organisations and will have far more political will than the Latin American nations. Its policies can be summarised as follows: -
- Many of the nations that turn to the IMF and WB do so as they have no answers to some of their economic woes. They have no experts or ideology to deal with their economic problems in consistent and coherent manner. The Khilafah will have a unique economic system, which answers questions on economic development.
- Most of the third world became the third world due to the colonial policies of France, Britain and the USA. This colonialism evolved over the last 80 years to indirect colonialism through loans and reforms via the IMF, world-bank, WTO and the GATT agreement, hence most of the third world is locked into agreements which has handcuffed them for the foreseeable future. The Khilafah can easily change this by telling the third world to default on their loans – which will result in the third world not being eligible to receive further money from the IMF and WB. However, the Khilafah can aid their development and become a lender of last resort with a separate set of policies showing the inadequacy of the capitalist liberal agenda.
- Defaulting is very useful tool to bring down the global financial system as the World Bank and the IMF borrow from external organisations who themselves borrow from other sources. By defaulting effectively the money loaned will need to be written-off resulting in billions of dollars disappearing with no hope of repayment, which means such organisations will have a huge cash-flow problem. This can only be done if the nations concerned have a self-sustaining economy not reliant on external powers, or able to turn to someone over then the colonial West – the Khilafah can play this role.
- China has managed to accumulate over a trillion dollars due to its trade surplus with the world and is contemplating becoming a lender to the third world in return for its thirst for oil, with no intention of taking over the economies of the nations concerned.
- The khilafah can set up the equivalent development bank providing not just aid and loans but expertise and technicians on how the Islamic economic system works, and with a few test cases can build a positive opinion about its model with no strings attached.
These are just a few policies and guidelines the future Khilafah may pursue. What must be understood is the current Muslim rulers are completely bankrupt on any clear set of polices on running there countries not just the economy. They have no will to change this status hence they sell there countries to the US led institutions. The Khilafah will truly be a new dawn to global finance and will completely change the status quo prevalent today in the world, removing the hegemony of the US and its colonial tools.
Africason is a Musician/independent recording artiste and a die-hard believer in Africa.
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