IMF, World Bank’s role in ‘structural adjustment programs’

The IMF was originally envisioned to promote steady growth and full employment by offering unconditional loans to economies in crisis and establishing mechanisms to stabilize exchange rates and facilitate currency exchange.

Much of that vision, however, was never born out. Instead, pressured by US representatives, the IMF took to offering loans based on strict conditions, later to be known as structural adjustment or austerity measures, dictated largely by the most powerful member nations.

Critics charge that these policies have decimated social safety nets and worsened lax labor and environmental standards in developing countries

Many scholars and activists contend that the Bank’s aggressive dealings with developing nations, which were often ruled by dictatorial regimes, exacerbated the developing world’s growing debt crisis and devastated local ecologies and indigenous communities.

Both IMF and World Bank policies remain a source of heated debate. Under a plan devised by President Reagan’s Secretary to the Treasury, James Baker, indebted countries were offered World Bank and IMF “servicing” loans in return for the “structural adjustments” of their economies. This meant that the economic direction of each country would be planned, monitored and controlled in Washington. “Liberal containment” was replaced by laissez-faire capitalism known as the “free market”.

In April 2001, Greg Palast conducted an interview with Joseph Stiglitz which was published in the British newspaper Observer and Guardian.

The World Bank talks of “assistance strategies” for every poor nation using careful country by country investigations. However, as reported in the article, “according to insider Stiglitz, the Bank’s ‘investigation’ involves little more than close inspection of five-star hotels.

It concludes with a meeting with a begging finance minister, who is handed a ‘restructuring agreement’ pre-drafted for ‘voluntary’ signature.” Stiglitz then tells Palast that after each nation’s economy is analyzed, the World Bank “hands every minister the same four-step program described as follows:

Privatization: Stiglitz tells Palast that some politicians were corrupt enough to go ahead with some state sell-offs: “Rather than object to the sell-offs of state industries, he said national leaders—using the World Bank’s demands to silence local critics—happily flogged their electricity and water companies.

‘You could see their eyes widen’ at the prospect of 10% commissions paid to Swiss bank accounts for simply shaving a few billion off the sale price of national assets.”

According to Palast, Stiglitz asserts that the US government knew about, at least in one case: the 1995 Russian sell-off: “‘The US Treasury view was this was great as we wanted Yeltsin re-elected. We don’t care if it’s a corrupt election, “said Stiglitz.

Capital market liberalization: According to Palast, Stiglitz describes the disastrous capital flows that can ruin economies as being “predictable,” and says that “when -the outflow of capital happens, to seduce speculators into returning a nation’s own capital funds, the IMF demands these nations raise interest rates to 30%, 50% and 80%.”

Market-based pricing: Palast writes that it is at this point that the IMF “drags the gasping nation” to this third points, described as “a fancy term for raising prices on food, water and cooking gas” which, Palast continues, “leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls, ‘The IMF riot.’”

These riots, which the article clarifies are “peaceful demonstrations dispersed by bullets, tanks and teargas,” cause further capital outflows, a situation which, as Palast points out, is not without a “bright” side: “foreign corporations … can then pick off remaining assets, such as the odd mining concession or port, at fire sale prices.”

Free trade: But a version dominated by “rules of the World Trade Organization and the World Bank,” which according to Palast, Stiglitz likens to the Opium Wars: “That too was about ‘opening markets’,” he said.

Palast writes that “As in the nineteenth century, Europeans and Americans today are kicking down barriers to sales in Asia, Latin American and Africa while barricading our own markets against the Third World’s agriculture.” noting that while even President Bush will claim that we want rules based on global mechanisms, the mainstream media often does not ask what the rules themselves are, and whether they are most appropriate.

Palast highlights Stiglitz’s problems with the IMF/World Bank plans, plans that the article describes as “devised in secrecy and driven by an absolutist ideology”: first, they are not open to discourse and dissent, and second, that they don’t work. Palast writes that “Under the guiding hand of IMF structural ‘assistance’ Africa's income dropped by 23%.”

Focusing on Africa, Khor points out that they require essential investments in health, education and infrastructure before they can compete internationally.

The World Bank and IMF instead required countries to reduce state support and protection for social and economic sectors. They insisted on pushing weak African economies into markets where they were unable to compete with the might of the international private sector.

These policies further undermined the economic development of African countries.” Take Tanzania for instance- imports values is much higher than exports values by 70 percent.

Data from World Integrated Trade Solution (2013) indicates that Tanzania overall exports value was $4,413 m and imports value was $ 12,525, creating a trade deficit of $ 8,112m.

By insisting that national leaders place the interests of international financial investors above the needs of their own citizens, the IMF and the World Bank have short-circuited the accountability at the heart of self-governance, thereby corrupting the democratic process.

The subordination of social needs to the concerns of financial markets has, in turn, made it more difficult for national governments to ensure that their people receive food, health care, and education—basic human rights as defined by the Universal Declaration of Human Rights.

The Bank’s and the Fund’s erosion of basic human rights and their perversion of the democratic process have made the institutions a clear and present threat to the well being of hundreds of millions of people worldwide.

The author is Tanzanian economist based in the UK.