THE IMF AND WORLD BANK : CRISIS TIME

By Roberto Savio and - - Reprint | | Print |

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ROME, Jun 4 2007 (IPS) - After many years of a sustained campaign against the UN, the so-called Bretton Woods twins –the International Monetary Fund and the World Bank– now find themselves in political and economic crisis, writes Roberto Savio, founder and president emeritus of IPS news agency and founder of the International Committee of the World Social Forum. In this article, Savio writes that the World Bank finds itself in a financial crisis from which it would not be able to rescue itself even without the corruption charges against Wolfowitz: it would need to come up with at least USD 16 billion in operating capital. The situation of the IMF is even worse. Its income has dropped from USD 3.19 billion in 2005 to USD 1.300 billion in 2006, and is projected to drop by half in 2007 as fewer and fewer countries request its loans, which come with onerous conditions. With the UN essentially relegated to development policy and the Bretton Woods institutions faced with radical rethinking, we must ask whether the dramatic issues such as climate change will be enough to create a new sense of awareness that a lawless market is incapable of solving the problems of international governance for all citizens, rich and poor.

But now, after a decade of continuous accusations of corruption, inefficiency, and waste by the UN (which was required to cut its budget by a third despite the fact that it runs on less that the New York City Fire Department) the spotlight has now swung from the Big Apple to Washington. In the end, the major assault on the UN boiled down to two matters: the son of Kofi Annan made about 80,000 dollars in a dubious manner, and the functionary who ran the Oil-for-Food programme, Benon Savan, somehow ended up with 140,000 extra dollars in his personal account.

In truth, the Oil-for-Food kickback scandal involved 12 billion dollars, and the operation was in the hands of the countries that participated in the programme and in particular US companies.

This sudden loss of immunity is due to three causes which, though separate, ultimately came together in the media carnival that engulfed the ex-president of the World Bank, Paul Wolfowitz.

The first has been building since the fall of the Berlin Wall and the subsequent revenge of savage capitalism set in motion by neoliberal globalisation, which made the market the sole valid criterion for international relations and imposed austere new budgetary and spending regimes on each country. The conceptual basis of this form of globalisation is the so-called Washington Consensus, which served as the guide for the US government and the Bretton Woods creations to postulate a thorough revision of monetary and economic policy and impose structural adjustment on countries to minimise the role of the state, privatise everything possible, eliminate non-productive social spending (such as healthcare and education) and tariffs in order to open the door to foreign investment. This policy, embraced with considerable ideological fervor, is now recognised as the principal cause of the Asian monetary crisis of 1997.

Whereas previously only civil society organisations, unions, and certain forces on the left denounced the ravages caused by the Washington Consensus, criticism by the Nobel-winning ex-chief economist of the World Bank Joseph Stiglitz put a crack in the establishment’s appearance of unity. And the fact that the only Asian country to escape crisis was Malaysia, whose prime minister, Mahathir Mohamad, refused to impose the IMF’s prescriptions, forced the Fund to recognise its error.

The second cause is the campaign against multilateralism launched by the Bush administration, which struck the Bretton Woods institutions on the rebound. That mouthpiece of the private against the public sector, the Wall Street Journal, initiated a campaign alleging that with the rise of globalisation and the market as the sole parameter of international relations, these institutions were no longed needed.

The third cause is the fact that civil society is now a reality, albeit one without a real structure. The World Social Forum is just the tip of the iceberg: there are at least two million non-governmental organisations comprising more than 100 million citizens. It is a world of committed idealism and solidarity that is increasingly important in international relations and that provides a level of constant radical criticism of these institutions, accusing them of a lack of transparency, mistaken policies, and skewed voting mechanisms in which Washington holds a disproportionate amount of influence.

The World Bank finds itself in a financial crisis from which it would not be able to rescue itself even without the corruption charges against Wolfowitz: it would need to come up with at least USD 16 billion in operating capital.

The situation of the IMF is even worse. Its income has dropped from USD 3.190 billion in 2005 to USD 1.300 billion in 2006, and is projected to drop by half in 2007. The reason for this is that fewer and fewer countries are requesting its loans, which come with onerous conditions. Nations like Argentina and Brazil have liquidated their debts and almost half of the Fund’s outstanding credit is held by one country, Turkey. For this reason, the interest it receives on its loans is greatly reduced. To top it off, on May 5, China, Japan, South Korea, and the ten countries of the Association of South East Asian Nations (ASEAN) created a fund for the mutual prevention of financial crises backed by their own huge monetary reserves, thus eliminating any need of the IMF on their part. A few days later, the MERCOSUR countries signed onto the Venezuelan proposal for a South American bank that is pursuing a similar project. The IMF, isolated and running a deficit, will now have to apply to itself the sort of structural adjustment it inflicted on countries of the Third World.

The Bretton Woods crisis is the last act in the general crisis of the international financial architecture. At the end of WWI, under the leadership of the United States, the League of Nations was created. At the end of WWII, also guided by Washington, the United Nations and the Bretton Woods twins were created. After the Cold War, the US changed course and dedicated itself to imposing globalisation and resisting any reform of the international system.

Today the crisis has come home and is wreaking havoc. It is clear that governability is impossible for a financial sector that is 20 times larger than the total production of goods and services and lacks mechanisms of self-control and government. With the UN essentially relegated to development policy and the Bretton Woods institutions faced with radical rethinking, we must ask whether the dramatic issues such as climate change will be enough to create a new sense of awareness that a lawless market is incapable of solving the problems of international governance for all citizens, rich and poor. (END/COPYRIGHT IPS)