Back to issue 11
International Socialist Review Issue 11, Spring 2000
World Bank: Plunder with a human face
by Ahmed Shawki & Paul D'Amato
THE MOTTO across the top of the World Banks site on the World Wide Web reads, Our dream is a world free of poverty. The site offers an overview of the banks history and purpose, which states in the section Why Do We Need a World Bank? the following: The World Bank is a development institution whose goal is to reduce poverty by promoting sustainable economic growth in its client countries. When he was the World Banks chief economist (before working in the Clinton administration), Lawrence Summers wrote a memo to senior World Bank staff in 1991 that revealed a different side of the Bank than the one expressed in its Web site masthead.
The memo read:
Just between you and me, shouldnt the World Bank be encouraging more migration of the dirty industries to the LDCs [less developed countries]?...
The economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that.
Ive always thought [that] underpopulated countries in Africa are vastly underpolluted; their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City.
The concern over an agent that causes a one-in-a-million change in the odds of prostate cancer is obviously going to be much higher in a country where people survive to get prostate cancer than in a country where under-five mortality is 200 per thousand.1
Though the World Bank apologized for the memo, Summers statements reveal far more about the practices of the World Bank than the saccharine sentiments on its Web site. Summers comments were not just idle thoughts. One of the results of the World Bank and the International Monetary Fund (IMF) pushing these neoliberal policies in Africa has been the use of Africa as a dumping ground for dangerous materials.
Trade liberalization involves the removal of most restrictions on imports to facilitate foreign investment. In order to attract foreign business, many African countries have created free trade zones, simplified the process of investment and introduced new industrial policies. Consequently, products that cannot meet Northern environmental guidelines are dumped in the continent, and pollution-intensive production like asbestos and pulp and paper have shifted their base to Africa. The suggestion by former World Bank chief economist Lawrence Summers...that African countries import toxic wastes and polluting industries is already commonplace in many African countries.2
A tool of U.S. policy
Created along with the IMF by the victors of the Second World War at Bretton Woods in 1944, the World Bank was promoted at first as an institution that could guarantee loans to help rebuild Europe and promote infrastructure development projects in less developed countries. But its role quickly became that of a direct lender toand creator ofdevelopment projects in poor and developing countries.
The Bank is run by its 182 member governments, but not on the basis of one country, one vote. Governments that provide it with more money get more votes. As the largest contributor to the Bank, the United States has the controlling interest, holding 15 percent of the Banks votes. The United States, Germany, France, the UK and Japan together control 40 percent of the votes. The World Bank gets its money from private-sector loans. But because the bank is backed by funds from member governments, it is able to get private loans at low rates, and then turn around and loan to poor countries at rates lower than they could if they were to go to private banks directly.
By tradition, the Banks president since 1944 has always been a U.S. citizen. One writer sums up the World Banks role:
The Banks major shareholders are Western-bloc industrialized countriesthe U.S., Britain, France, West Germany and Japan. Established in 1944 to aid postwar recovery, the Bank more recently has focused on promoting economic activities in Third World countries. Its main business, as one of its publications puts it, is to make loans for specific projects such as schools, dams, roads, crop production and fertilizer plants. Such loans have totaled billions of dollars.3
The World Bank developed a reputation during the Cold War as a supporter of military dictatorships and repressive regimes. It loaned $195 million to the Netherlands in 1947 while that country waged a war against Indonesian independence. The Bank lent millions to South Africa, and to Portugal while it waged bloody wars to retain its colonies in Angola and Mozambique. The Bank extended loans to military dictatorships in Chile, Argentina, the Philippines and Romania. Whereas the Bank cut off lending to Chiles democratically elected Allende government in 1972, it restored lending to Chile after Allende was overthrown and replaced in a violent coup by Gen. Augusto Pinochet. The Banks lending policies in Chile were not the only indicators of its role as a tool of U.S. foreign policy. After Robert McNamara served as U.S. Secretary of Defense, President Johnson appointed McNamara to be president of the World Bank.
Every year, the Bank takes on about 250 projects around the world. Their main purpose has been to build infrastructure that opens the untapped land and resources in a particular country up to greater exploitation by domestic and, especially, foreign capitalists. The Bank has historically embarked on large-scale projects that, in many cases, have had a severe environmental impact on those countries affected. For example, in 1981, the World Bank advanced $320 million to Brazil to finance a regional development program that involved building a paved highway and a series of secondary roads to encourage settlement and agricultural and forestry projects in West-Central Brazil. The Polonoroeste program produced drastic deforestation, land invasions into areas inhabited by the 9,000 Indians who lived in the region, and violent clashes between settlers and Indians. Thrust into the public spotlight for this fiasco, the World Bank made a show of demanding that Brazil meet certain conditions to protect the Indians and the environment. In only two months, the Bank declared itself satisfied and resumed disbursement of funds. Moreover, it proceeded to invest more than $300 million in an Amazon region project aimed at extracting iron orea project that threatens 5,000 Indians with flooding and invasion of their land. In 1991, the Bank judged one-third of its own projects a failure.
The World Bank and structural adjustment
Like the IMF, the World Bank has used its lending clout in recent decades to impose structural adjustment programs (SAPs) on countries that began sinking into debt in the 1970s. These policies have turned these countries into machines for transferring the wealth they produce to a handful of rich creditors in Europe, Japan and the U.S. In the words of one former Bank director, Not since the conquistadors plundered Latin America has the world experienced such a flow in the direction we see today.4
SAPs have forced cash-strapped governments to drastically cut social spending and sell off state-owned industries and utilities in order to pay off rising debt. The impact of the Banks structural adjustment loans has been mass public-sector layoffs, drastic spending cuts in basic social services, wage freezes and suppression of labor organizing, devaluation of currencies, promotion of export-oriented production and abolition of price controls on basic foodstuffs. In country after country, the gearing of the economy to the export of agricultural products like coffee and cotton has led countries formerly self-sufficient in food to import massive amounts of foodstuffs. The result has been that debt has increased and poverty has grown. By the World Banks own predictions, poverty in Africa was set to increase 50 percent between 1994 and 2000. The Ghanaian government, for example, spends five times more annually to pay its creditors than it spends on all of its social programs.
A kinder, gentler Bank?
The Asian financial meltdown has prompted the World Bank to reassess, at least verbally, its own and the IMFs structural adjustment policies. Its latest World Development Report expresses concern over growing income inequality and poverty caused by SAPs, and Bank President James Wolfensohn earlier warned that maldistribution of wealth threatens world stability.
The World Bank even issued a 200-page document at the end of 1998 that accused the IMFs policies of making the Asian crisis worse and suggested that international capital flows needed to be more regulated.
The World Banks blow-by-blow account of a series of cascading misjudgments places much of the blame on global investors who lent money with abandon to developing nations, and on Asian officials who were eager to accumulate cash. But it left little doubt that in the Banks judgment the IMF and the Clinton administration shared responsibility for mishandling the initial response to the crisis...
Stiglitz forgot to mention, however, the role the World Bank played in Indonesias crisis.
The Banks report argues that the strategy [to compel afflicted countries to raise interest rates] backfired, stabilizing the currencies at the cost of plunging countries into deep recessions with substantial unemployment. The report asserts that the interest rate increases spread the economic pain far beyond the banks, investment funds and real estate companies that had gotten the countries into trouble to begin with...
Some estimates are that levels of bankruptcy in Indonesia now are 75 percent, [then-World Bank Chief Economist Joseph] Stiglitz argued in late 1998, and, you know, you cannot have a country perform with 75 percent of its firms in bankruptcy.5
On July 14, 1999, the Wall Street Journal published a devastating article about the World Bank in Indonesia. The article, Speak No Evil: Why the World Bank Failed To Anticipate Indonesias Deep Crisis, describes how for decades the World Bank has manipulated economic reports to please and placate Suharto and his family, and to entice foreign capital to Indonesia.
A major factor precipitating the collapse of Indonesias economy was, according to the Journal, when the economy got dicey last year...capital fled, undermining Indonesias currency. Earlier this year, as Indonesias economy was diving, James Wolfensohn, the World Banks president, admitted that the World Bank was caught flat-footed by the dramatic failure of the Indonesian economy. In the Journal article, he states coyly, We were caught up in the enthusiasm of Indonesia. What he didnt reveal at the time, but what the article makes clear, is that the World Bank was caught up in more than enthusiasm. For example, government officials were allowed to soften reports critical of corruption: The soft approach was demanded by government officials who, under World Bank practice, got to alter reports before publication.
One consultant, Mari Pangestu, points out that corruption in Indonesia was never mentioned until 1997. She describes her reports as having been sanitized: Ive written reports where, when Ive gotten it back, I hardly recognized it. The World Bank was complicit in deceiving foreign banks and investors, and in hiding the billions loaned to Suharto family members and never repaid. Until the 1980s, Indonesias financial system was dominated by seven state banks that often channeled money to projects involving Suharto kin or friends. Those loans seldom were repaid.
The same Journal article recounts a telling incident concerning World Bank lies about the level of Indonesian poverty:
Jeffery Winters, a Northwestern University professor who was a U.S. Agency for International Development [AID] consultant in Jakarta in 1989 recalls an incident he says shows that Indonesia poverty numbers were pulled completely out of thin air. He recalls President Suharto insisting in public that poverty had dropped to 30 million, even though the World Bank was in the middle of a three-year study that showed 60 million poor. He says AID officials tried to forge a compromise between the World Bank and the Indonesian government. In the end, the bank report put the number at 30 million.
Some might view this as caught up in enthusiasm; others, as cooking the books.
But the Bank has done far more than cook the books. A recent investigative report by Mark Davis of Australias SBS TV Dateline program revealed that the Indonesian government used World Bank money to bankroll the pro-Indonesian death squads that rampaged through East Timor last year in a campaign of mass terror. Davis reported that (Australian) $12 million earmarked for welfare and development was diverted by the Indonesian Department of Finance to the militias.
According to Ben Fisher, of the World Banks Jakarta office, the institution was aware of the scam and sought assurances from the Indonesian government that it would end. However, despite government claims, it appears the scam continued. We did all we could short of stopping overall support, Mr. Fisher tells Davis, but when pressed on why the bank did not go further, he declared that it was a political question.6
Wages of sin
The political question involved is the simple fact that the World Bank has happily bankrolled many a dictatorial regime, applauding their ability to hold wages down and to provide a good business climate for investors.
A 1994 report from the World Bank, The East Asian Miracle, praises what it calls the High Performing Asian Economies (HPAEs), in particular their efforts to suppress labor organizing for workers rights. The report remarks dryly,
In Japan, Korea, Singapore, Taiwan and China (and to a lesser extent Malaysia), the government restructured the labor sector to suppress radical activity in an effort to ensure political stability. Governments abolished trade-based labor unions and pushed the creation of companyor enterprise-basedunions...
The report continues:
Labor movements in Indonesia and Thailand, while not subjected to systematic restructuring, were nonetheless routinely suppressed...
Singapore courted foreign investment in labor-intensive manufacturing by suppressing independent unions and assuring investors industrial peace.
Reorganization of labor from industry-wide unions into company unions has similarly reduced the marginal benefit and increased the marginal cost of collective action. Thus, in contrast with workers in many other developing economies, workers in the HPAEs are more likely to refrain from work stoppages and other disruptions and from lobbying government for mandated wage increases.
The study notes that the chief benefit achieved by investors from this kind of labor suppression is higher profits.7
Meanwhile, in India, the World Bank has invested hundreds of millions of dollars in an industry that depends heavily on indentured child labor. The World Bank has actively promoted the silk industry in India for well over a decade, providing more than $350 million in loans. Whereas the World Bank and the IMF have clambered to attach structural adjustment conditions to their loans that mandate policies to cut social services and increase poverty, the Bank is perfectly willing to attach no strings when it comes to child labor. The Indian silk industry relies on bonded child laborchildren forced to work in conditions of servitude in order to pay off debt of their economically strapped parent or parentsat all stages of production.
According to the Multinational Monitor:
In the Karnataka silk industry, there may be as many as 100,000 bonded children involved in every stage of silk production.
It is not unusual for children to begin working in the silk industry when they are five years old. These children earn very low wages, typically 10 rupees a day or less, and suffer occupational hazards and the threat of employer abuse. They are, in the words of R.K. Misra, who studied child labor in the sari industry of Varanasi, cage-birds...condemned from their very birth to be captive workers. Pomabhai is a 12-year-old boy. Both he and his older sister work in the silk industry; his other two siblings are in school and his father works as a waiter in a local hotel. When Pomabhai was eight, his father took a $126 advance in order to pay for his eldest daughters marriage; Pomabhai was taken out of school and put in the factory, and he has been working there ever since. I want to continue my education, he says. But first, we have to eat.
...The World Bank generally denies responsibility for, or complicity in, Indias bonded labor problem. Child labor has not been a major problem in Bank projects, says Durudee Sirichanya, a World Bank spokesperson. We have regularly appraised Indias silk projects, Sirichanya says, and the problem of child labor has not shown up in any of our reports.8
The IMF and World Bank have come under increasing pressure to cancel the debt in poor countries. The combination of political pressure and the scale of the debt crisisand the fact that some of the debt simply will not be repaidled the World Bank to drag the IMF in 1996 into the Heavily Indebted Poor Countries (HIPC) Debt Initiative. But the initiative is far from adequate. 50 Years is Enough, a U.S.-based organization dedicated to reforming the IMF and the World Bank, explains,
Unfortunately, rather than providing a good framework for addressing the problem of debt, the HIPC Initiative is structured such that it will provide almost no debt relief, tie countries more tightly to structural adjustment conditionality, limit eligibility to fewer than one-quarter of the countries that are severely indebted, not take effect in most countries until after the year 2004, and enable any of the parties to the Initiative (the World Bank, the IMF and the Paris Club) to back out of the initiative if the other parties do not or cannot fulfill its commitments. In addition, the US$500 million and US$250 million pledged by the World Bank and the IMF respectively is nowhere near sufficient for meaningful debt relief. 9
World Bank president James Wolfensohn dismissed Jubilee 2000, the UK-based organization that has pressured the IMF and the World Bank to cancel Third World debt, characterizing their call for debt cancellation as whimsical.10 The last thing the World Bank is interested in is forgiving all of the $2 trillion that developing countries owe. It may be willing to write off some debt that it never expects to get back, but it does so with heavy strings attached.
The World Bank may cover its tracks with words about ending poverty and criticize its twin, the IMF, but its policies have made world inequality and poverty worse, and helped to enrich the wealthy minority at the expense of us all. The April 16 protest against the World Bank and the IMF in Washington, D.C., will focus anger on these wretched institutions in the same way that the Seattle protest against the World Trade Organization cast a spotlight on corporate greed.
1 Quoted in Vandana Shiva, International Institutions Practicing Environmental Double Standards, 50 Years is Enough: The Case Against the World Bank and the International Monetary Fund, Kevin Danaher, ed. (Boston: South End Press, 1994), p. 102-03.
2 Patience Idemudia and Kole Shettima, World Bank Takes Control of UNCEDs Environmental Fund, 50 Years is Enough, p. 110.
3 Margie Snider, Fighting Poverty at the World Bank, 50 Years is Enough, p. 162.
4 Quoted in Asad Ismi, Plunder with a Human Face, Z Magazine, February, 1998.
5 David E. Sanger, U.S. and I.M.F. Made Asia Crisis Worse, World Bank Finds, New York Times, December 3, 1998.
6 Australian Documentary Details Indonesian Government Funding of the Militia, East Timor Action Network Web site, <http://www.etan.org/
news/2000a/4ausdoc.htm> (as of March 14, 2000).
7 Quoted in Eric Toussaint, Your Money or Your Life: The Tyranny of Global Finance (London: Pluto Press, 1999).
8 Lee Tucker and Arvind Ganesan, The Small Hands of Slavery: Indias Bonded Child Laborers and the World Bank, Multinational Monitor, January/February 1997 <http://www.thirdworldtraveler.com/IMF_WB/
SmallHands_MNM.html> (as of March 14, 2000).
9 50 Years is Enough Network Statement on the Highly Indebted Poor Countries (HIPC) Debt Initiative, <http://www.50years.org/factsheets/
hipc.html> (as of March 14, 2000).
10 World Bank boss dismisses debt campaign as ëwhimsical, Jubilee 2000 Coalition Web site, http://www.jubilee2000uk.org/news/worldbank030300.html (as of March 14, 2000).