By Pip Hinman
Established 50 years ago, the World Bank is now one of the most powerful institutions in the world. It has established a worldwide bureaucracy which is forcing a social and ecological disaster on the poor and heavily indebted countries of the South. Ostensibly set up to promote development, it has in fact systematically presided over de-development.
Well-known author Dr Susan George (A Fate Worse Than Debt, Ill Fares the Land, How the Other Half Dies) is one of many prominent people questioning the World Bank's credibility. Last year, at an African Heads of Government meeting, United States black activist Jesse Jackson denounced the effects of the bank's policies on the poor in the South. "They no longer use bullets and ropes. They use the World Bank and the IMF", he said.
Ecological, political, solidarity and church groups are planning a range of actions before the International Monetary Fund and World Bank assemblies in early October in Madrid. The international campaign is called "World Bank: 50 Years is Enough".
Dr George plans to be there as well. George is a researcher for the Transnational Institute, a green think-tank in Amsterdam, and a member of the International Board of Greenpeace. She has written extensively on the causes of hunger in the Third World and the debt crisis and its social implications. She was also formerly a consultant to several United Nations agencies. George will be a keynote speaker at the International Green Left Conference from March 31 to April 4 at the University of New South Wales in Sydney.
This year, George and anthropologist Fabrizio Sabelli will launch their new book, Faith and Credit: The World Bank's Secular Empire. George explained to Green Left that the bank has developed in such a way that it is no longer accountable to any government.
"The Bank is acting more and more on its own. It has become an instrument, an organisation, even an empire, which substitutes for the G7 countries' lack of any sort of democratically defined policy."
Originally called the International Bank for Reconstruction and Development, the World Bank's charter was "to assist in the reconstruction and development of territories of member nations by facilitating the investment of capital for productive purposes" and "to promote the long-range balanced growth of international trade".
It was to do this by guaranteeing private investments as well as lending directly from its own capital. Reconstruction and development, according to the charter, were to be of equal priority.
According to Bruce Rich, senior attorney with the Environmental Defense Fund in Washington, it was generally expected that the bank's early activities would focus on European construction.
This, however, did not happen. War-torn Europe wasn't keen on the interest-bearing loans the bank was offering. Instead, the US Marshall Plan provided the capital for the postwar reconstruction of Western Europe.
Lacking demand for its projects, the bank set about creating some. From the 1950s, a primary focus of the bank's policy was "institution building". This took the form of promoting the creation of autonomous agencies within governments which it expected to be World Bank borrowers.
In the January-February issue of The Ecologist, Rich argues that "Such agencies were intentionally established to be relatively independent financially from their host governments, as well as minimally accountable politically — except, of course to the bank".
So, for example, with the financial assistance of the Ford and Rockefeller foundations, in 1956 the bank created the Economic Development Institute (EDI), which offered six-month training courses in "the theory and practice of development" for senior officials from borrowing countries.
"By 1971, more than 1,300 officials had passed through the EDI, a number of them already having risen to the position of prime minister or minister of planning or finance in their respective countries."
The creation of such patronage networks, Rich said, has been one of the bank's most important strategies for inserting itself into the political economies of Third World countries.
The political consequences of this strategy have been far-reaching. For example, Rich cites a case study prepared by the International Legal Center in New York on the bank's involvement in Colombia in 1949-72. It concludes that the autonomous agencies established by the bank had a profound effect on the political structure and social evolution of the country, weakening "the political party system and minimizing the roles of the legislature and the judiciary".
The bank is able to operate much like a surrogate government. George argues that it "has been given more or less a free hand to do what it likes [in the Third World] with so many countries now under structural adjustment".
This is despite Article IV, Section 10 of the bank's charter, which states: "The Bank and its Officers shall not interfere in the political affairs of any member nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be weighed impartially to achieve the purposes [of the bank] stated in Article 1."
As George reminds us, "Economic policies are not neutral. Contrary to received opinion, they can even kill."
The so-called developing — more accurately described as de-developed — countries eventually repay the IMF and World Bank much higher amounts than they initially receive in financial assistance.
Bank-designed austerity measures, euphemistically described as "structural adjustment programs", also tend to concentrate the country's wealth in the hands of a tiny elite at the expense of the majority.
Ask George if there is any truth in the bank's propaganda that structural adjustment programs are there to promote investment which will lead to growth, and she replies that "it's all just window dressing".
"In spite of the structural adjustment plans put in place by the IMF and the World Bank in more than 80 countries (including the republics of the former USSR), nowhere have we seen the promised growth and reduction of debt", George said.
"In spite of 10 years of austerity, the debt itself has grown by two-thirds in the countries of the Third World. For the poorest of these, it has grown by more than 120% and in sub-Saharan Africa it has more than doubled over the same period.
"These countries have been paying US$250,000 every minute to service the debt. Most African countries now pay more to service their debt than they invest in health and education.
"Structural adjustment was never designed to benefit people. That isn't the point of the programs. They exist to make sure countries pay back their debts and are integrated as tightly as possible into the world system." If the programs were supposed to benefit people, she argues, we'd have entirely different development models.
Early World Bank lending was never biased towards the social needs of borrowing countries, but towards what was easiest for the bank. Invariably, power and transportation projects, socially necessary or not, were considered convenient. Right up to today, half to two-thirds of the bank's projects involve the construction of dams and roads.
According to George there was a period between 1982 and 1988 when Third World countries could have waged a concerted campaign to cancel the debt. "I don't think that in 1993 there is the same political moment for the indebted countries. They missed that historic moment. They showed no sign of any unity, which could have really forced the North to negotiate."
She is pessimistic about the chances of a cancel the debt campaign now. "I would say that the social forces inside the indebted countries are not in any sort of shape to make demands about the debt. The [Third World] elites are, on the whole, happy with the arrangements that have been made. So, politically, it's an extremely difficult situation."
According to George, "the debt crisis is over for the banks and for the elites of most of the indebted countries". Since Mexico threatened to default on its debt 14 years ago, the banks have diversified their portfolios into other profitable operations. They now have no more than 3% invested in the Third World.
As for the Third World elites, they are not affected by the austerity policies, says George. When the currency is devalued, these elites often become more wealthy in their own countries because most of their money is outside the country in hard currencies.
"What we're left with is the suffering and the polarisation of those societies, which may or may not explode, but which have been weakened in every way."
However, there is no room to be complacent even in the affluent North. In The Boomerang Effect, published last year, George puts forward the argument that the effects of the unpayable debt on the South are starting to be felt by the North.
"It is totally false to say that the debt crisis bears no material relationship to us", she says, listing the disastrous ecological impact of export-oriented economies, a growing dependence on the drug trade and millions of jobs lost through the relocation of manufacturing to the Third World as just some of the many issues the North has to concern itself with.
The solution, George says, lies in building coalitions between non-governmental organisations and the peoples of the North and the South — exactly what the "50 Years is Enough" coalition has embarked on.
[Susan George will present "Under Construction: The Global Empire — Transnational Concentration of Power and Capital" on Thursday, March 31, at 7.30pm at the Clancy Auditorium, University of New South Wales.]