The IMF and the Bank would like the global South to believe that they are indispensable. They are not.
By Walden Bello
The Covid pandemic has presented the International Monetary Fund and the World Bank, on the seventy-sixth anniversary of their founding, with a grand opportunity, not to save the world, but to salvage their tattered reputations.
Before the onset of Covid-19, the IMF’s image was at its nadir. Under Christine Lagarde, the former managing director, the Fund had served as a member of the so-called Troika, alongside the European Commission and the European Central Bank, that had imposed what can only be described as savage austerity programs on Ireland and Greece in the aftermath of the 2008 global financial crisis. The IMF’s role in saving European banks by squeezing the Irish and Greek peoples of the resources to repay their loans had shown that it had not changed its approach from the one it applied to the Asian economies following the Asian financial crisis of 1997-98: cut government budgets, fire people, and channel savings from this draconian process to pay off private-sector creditors. These “pro-cyclical” measures were to be adopted even if they prevented an early return to growth and caused widespread pain to people.
Newly appointed Managing Director Kristalina Georgieva leaped at Covid-19, presenting the IMF with a public relations bonanza. She boasted of a $1 trillion war chest that the Fund was willing to disburse to meet the challenge of what she called a “once in a lifetime pandemic.”
There was only one problem: many Fund members who badly needed the cash were not biting. For instance, a “debt relief” program for about 25 African countries to the tune of $20 billion found few takers, with only four countries, Cameroon, Côte d’Ivoire, Ethiopia, and Senegal, making applications. The African countries were being very careful, and the reason was not only because they had witnessed the the IMF put Greece, Ireland, and other European countries through the wringer. They were also apprehensive because 1) the Fund was offering loans, not grants; 2) the “debt relief” initiative it was offering was not really relief but a restructuring of the loans owed to rich country governments by debtor countries so they could make their debt payments later; and 3) accepting a loan would subject a country to the same dreaded Fund conditionalities and surveillance that accompany regular IMF loans.
Getting a loan or “debt relief” from the Fund and its partners, in other words, was likely to put the recipient into a similar situation as Ireland, Greece, South Korea, Thailand, and so many other countries: what Cheryl Payer so aptly called the “debt trap” in her classic book on the IMF.
When asked why the IMF and the World Bank didn’t just cancel the massive debt of developing countries in light of the catastrophic economic impact of Covid-19, the IMF’s Georgieva offered the lame excuse that its articles of association did not allow that while the new World Bank president, David Malpass, admitted frankly that the financial markets did not like debt write-offs, and Wall Street would indirectly punish the Bank’s clients in the future by charging higher interest on borrowings made by the Bank for its projects. Malpass knew what he was talking about since he had served as chief economist of the investment bank Bear Stearns, which imploded during the first weeks of the 2008 financial crisis.
A Crisis-Ridden Institution
The World Bank has its own set of reputational problems. Global poverty, the ending of which it has proclaimed to be its raison d’etre, was on the increase, even before Covid-19. This was especially acute in Africa, owing partly to the conditions created by its neoliberal “structural adjustment loans” and those of the IMF.
Although a Bank-commissioned study sounded the alarm about an earth experiencing an average temperature rise of 4 degrees centigrade by the turn of the century, the agency continued to promote investment in scores of carbon emission-intensive coal-fired plants throughout the globe.
It is deeply involved in the imbroglio around the UN’s “Reducing Emissions from Deforestation and Forest Degradation” initiative or REDD+, many of whose projects it funds, with indigenous peoples on all continents calling the program a recipe for the dispossession of forest-dependent communities.
These reputational problems are compounded by a major credibility problem, which is the collapse of its advocacy of neoliberalism, trade liberalization, and globalization owing to the fact that these policies and trends have centrally contributed to greater poverty, greater inequality, climate change, and global economic stagnation. The Bank continues to support trade liberalization and globalization, but its advocacy is now more muted since, as the Latin saying goes, Contra factum non esse disputandum—that is, one cannot argue against the facts.
Some of those prominently identified with the Bank’s neoliberal advocacy have indeed recanted, among them Oxford economics guru Paul Collier, who served as director of the Research Development Department of the Bank from 1998 to 2003. In a chapter in his latest book, The Future of Capitalism, that is laced with mea culpas, Collier admits that it was not only he who was wrong in his defense of globalization and free trade, but the whole economics profession was guilty:
“The profession has been unprofessional, fearful that any criticism would strengthen populism, so that little work has been done on the downsides of these different processes [of globalization]. Yet the downsides were apparent to ordinary citizens, and the effect of economists appearing to dismiss them has resulted in widespread refusal of people to listen to “experts.” For my profession to re-establish credibility we must provide a more balanced analysis, in which the downsides are acknowledged and properly evaluated with a view to designing policy responses that address them. The profession may be better served by mea culpa than by further indignant defenses of globalization.”
The author: Walden Bello is senior analyst at Focus on the Global South. This article is excerpted under a CC-BY-US-3.0 US license from Foreign Policy in Focus, 12 Oct. 2020.
Top illustration: World Bank Facade by Victorgrigas CC-BY-SA 3, Dollars by Alexander Mils from Pexels
Ben Parker writes of “The debt crisis looming for poor countries” on The New Humanitarian. This and the above story are both from October; we have not seen news of any significant changes since then.