Rigged rules, rigged aid

Mahtab Haider*, NewAge

Every year Bangladesh pays an average of $710 million to its foreign creditors. For every dollar in foreign grant aid received, the government spends over $1.5 in debt service to foreign creditors annually, a 2003 study revealed. These debt servicing payments come at a cost. In 2003, the debt service bill of $672 million exceeded the total government spending on health that year by nearly $200 million and was about two-thirds of the government’s total spending on education. While there is no denying that Bangladesh is heavily dependent on foreign aid and loans to finance its annual budget, it is also true that aid agencies and multilateral lenders in the West have to carry a lion’s share of the blame for Bangladesh’s burden of debt. Between 1980 and 2004, Bangladesh’s total outstanding international debt quadrupled. What is of immense significance in that statistic is that it was between 1980 and 1990 – during a decade of military dictatorships characterised by rampant corruption and political oppression – Bangladesh’s debt figure tripled from $3,921 million in 1980 to $12,439 million in 1990. The bulk of this surge in lending to the autocratic regimes came from the International Development Association, the soft-loan window of the World Bank. Can the World Bank and the IMF morally impose the burden of this debt on the Bangladeshi people, when in fact that money provided valuable succour to an autocratic regime that the people were struggling to topple at the time? Today, nearly two decades later, Bangladesh is still paying back loans that the dictatorial regime of General Ershad availed from the World Bank and the IMF in the 1990s, much of which was pillaged and squirreled away to foreign bank accounts.

The injustice in the way the global aid machine has operated until now is not unknown in the corridors of power either in the World Bank or the IMF or even the governments that wield influence over the Bretton Woods twins. And it would be unfair to portray all the officials of the bank and the fund as part of a singular conspiracy to oppress the poor of the world. Since the mid-1990s there have been efforts – some serious, some for window dressing – to change the system so that a semblance of justice is restored to it. When they met at Halifax for the 1995 summit, G8 leaders agreed that some of the world’s poorest countries were mired in so much debt – the majority of it owed to the bank and the fund – that to avoid a serious economic crisis, ‘the Bretton Woods institutions [must] develop a comprehensive approach to assist countries with multilateral debt problems.’ In 1996 the World Bank and the IMF got their opportunity to atone for sins of the past when they jointly initiated the Heavily Indebted Poor Countries initiative, which aimed ‘to reduce the external debt of eligible countries as part of a strategy to achieve debt sustainability.’ But even though erstwhile World Bank president James Wolfensohn had planned for this debt relief to be available to countries without any conditions attached, the first deputy managing director of the IMF, Stanley Fischer, and his boss Michael Camdessus torpedoed that effort and the conditionalities were reinstated.

In 1999 at the G8 summit in Cologne, it was decided that 42 countries would qualify for about $100 billion in debt cancellation under the initiative. The debt sustainability was calculated on the basis of exports that the country in question was generating and not on its ability to direct enough resources towards payments without hampering its development. Although Bangladesh is saddled with over $20 billion (2003) in foreign debts equal to a third of its national income and over 300 per cent of annual government revenues, it was left off the list of countries that qualified for debt cancellation. The HIPC initiative aims to reduce debt to 150 per cent of export income (in net present value). Bangladesh’s debt-to-export ratio in 2006 stood at 146 per cent, which was deemed low enough for the multilateral lenders to offer no debt relief, although the country met the other two criteria to warrant qualification. Since 2000, Bangladesh has paid almost 10 per cent of its export income in foreign debt servicing. It is ironical that after World War II, the Allies capped the percentage of German export revenues used for debt servicing to 3.5 per cent. Funnily enough, one of the conditions attached to availing HIPC debt cancellations is that the country has to implement the IMF’s poverty reduction growth facilities, which even the IMF’s own staff admit, is a re-branding of the disastrous ‘structural adjustment policies’ that beggared numerous Latin American economies in the 1980s. As for the HIPC initiative, after a decade since it was conceived, it has only managed to worsen the plight of those countries that qualified for cancellation. The export projections used to make the HIPC calculations on debt sustainability were often overstated, and the countries in question relied on such a small basket of export goods (mostly primary goods) for their foreign exchange earnings that minor volatilities in exports led to major crises. Uganda, for which coffee makes up the bulk of its exports, saw the price of coffee drop from $2,000 per tonne to $300 a tonne in one year. HIPC calculations had assumed the price of coffee would remain stable. No sooner had Uganda graduated from the HIPC club, having implemented all the prescribed structural adjustments, the country’s foreign debt became unsustainable all over again.

But a bigger question needs to be asked about the aid process before the issue of debt cancellation is discussed. Is the motive behind aid, grants and soft loans really as altruistic as it is portrayed to be by those who advocate their usefulness in ending poverty in Sub-Saharan Africa or Southeast Asia? Are the policy prescriptions that the World Bank and the IMF ‘offer’ really in the sole interest of the ‘beneficiary’ countries? While the World Bank and the IMF repeatedly prescribe more transparency and accountability in the way third world governments operate, how accountable and free of corruption are their own operations and actions? Since the missionary zeal of the first world to improve the plight of his fellow man is so well established and unquestionable in the psyche of the third world elite, an inquiry into the politics of global aid could prove useful.

An event that made headlines in the international press in March this year was Beijing’s announcement that it was sanctioning $9 billion of aid to modernise Nigeria’s railway network. This was intriguing because the World Bank was already engaged in negotiations with the Nigerian government for a $5-million loan to reform the country’s ‘corrupt and inefficient’ railways. In exchange for this loan, the bank, in line with its agenda to push privatisation, was asking the Nigerian government to allow private companies to enter the railway sector and ‘clean up’ the mess. Without warning (although the Nigerian government must have been in secret negotiations with China over this), Beijing not only announced its decision to give Nigeria an exponentially higher sum of money ($9 billion) for the same purpose, it also announced that this was a ‘no bids, no conditions, and no-need-to-reform’ act of ‘philanthropy’.

What is even more intriguing is that when it comes to China’s recent aid record, Nigeria’s is not an isolated case. China’s largesse to African nations has boomed in recent years from $700 million a year in 2003 to nearly $3 billion a year in 2005 and 2006. In Indonesia, the Chinese government is helping to advance the country’s electrical grid network by bankrolling a number of Chinese-built power plants, and in the Philippines, the Asian Development Bank’s plans to finance a new aqueduct with a series of soft loans has been scuppered by China’s willingness to finance the project at a lower interest rate, faster disbursement and fewer questions asked.

In an article published in the International Herald Tribune (February 15, 2007), Moisés Naím, editor of the Foreign Policy magazine, questions the possible motives behind the growing pot of aid and loans that new economic powerhouses like China, Venezuela and Iran are making available to the third world as of the past few years.

A study by the Centre of Economic Investigations, an economic think-tank in Caracas, notes that Venezuelan president, Hugo Chávez, ‘has spent more than $25 billion abroad since taking office in 1999, about $3.6 billion a year.’ Over 30 countries, some of them as distant as Indonesia are beneficiaries of Chávez’s generosity. Last year the Chávez regime also purchased $2.5 billion of Argentina’s debt with the IMF, allowing Argentina to repay its full debt with the IMF and end nearly three decades of Washington’s economic meddling that worsened the abject poverty of resource-rich Argentina.

Sitting on the biggest oil reserves outside of the Middle East, Chávez has also been criticised by the West for throwing a lifeline to Fidel Castro’s regime in Cuba by supplying nearly 100,000 barrels of subsidised oil a day – a deal Cuba repays with doctors and other services. Analysts say that modern-day Venezuela’s aid and grants to Cuba is almost at par with that of the Soviet Union’s.

Indeed even the poor of the first world have been beneficiaries of what is being described as Caracas’s ‘oil diplomacy’, as Chávez is providing heating fuel as aid to poor families in Maine to Philadelphia in the US, and recently agreed to subsidise oil sales for the city of London in exchange for the city’s mayor Ken Livinston’s promise that he would use the savings to subsidise bus travel for the city’s needy.

‘The savings [for the city of London] – which would cut fuel costs by 20 per cent…and could amount to about $32 million – are to be directed toward cheaper bus travel for up to 250,000 Londoners living on income support. Those who qualify will get a half-price discount on bus fares,’ reported the UK’s Guardian newspaper on February 21.

Meanwhile, the new Iranian regime is reportedly continuing its aid to Hezbollah in Lebanon and to Hamas in Palestine.

The question that naturally arises out of these new trends in foreign aid is: What might possess the governments of China and Venezuela – countries struggling with poverty – to offer such largesse across the world, even to countries more prosperous than their own?

Venezuela’s ambassador to Nicaragua, explaining his country’s large aid packages in the region, announced recently, ‘We want to infect Latin America with our model.’ Fuel-hungry China is looking to expand its influence with Nigeria whose proven oil reserves stood at 36 billion barrels in a 2005 estimate. China’s economy is expected to grow at a whopping 8 per cent until 2010, and in order to sustain that growth the government needs to secure a steady supply of fuel, be it from Nigeria or Indonesia or both. China’s central bank is also sitting on the largest foreign exchange reserve in the world right now, approximately $1.06 trillion, and Beijing wants to use this excess liquidity to advance its geopolitical interests across the world, propping up friendly regimes, no matter how dictatorial, and copy-cat economies, no matter how inefficient.

Naím terms it ‘rogue aid’, an allusion to US president George W Bush’s description of North Korea, Iran and Venezuela as ‘rogue states’. According to Naim, Venezuela’s aid to Cuba has ‘dashed hopes for Cuba’s opening as a result of Fidel Castro’s demise and the island’s bankruptcy [and] Cubans will be forced to wait even longer for the reforms that will bring opportunities for prosperity and freedom.’ He draws the examples of Iran’s support of Hezbollah and Hamas and Saudi Arabia’s support of Islamic schools in Pakistan to show such aid could be reshaping the world ‘into a place very unlike the one where we want to live.’

‘The goal of these donors is not to help other countries develop…rather, they seek to further their own national interests, advance an ideological agenda or even line their own pockets. Rogue aid providers couldn’t care less about the long-term well-being of the population of the countries they aid,’ writes Naím. ‘In place of those programmes, rogue donors offer to underwrite a world that is more corrupt, chaotic and authoritarian. That sort of aid is in no one’s interest, except the rogues.’

For those of us who live in a country which has for decades had to rely on foreign aid to finance balance of payments and budget deficits, the question that really needs to be asked is: Was foreign aid – no matter whether it came from the US or Europe or China – ever different in nature?

At no time in modern human history have loans and aid been offered more generously as the era of the Cold War. As one country after another in Asia’s south and far east either braced Soviet-style or China-style socialist or communist economic systems, 50 per cent of all US aid (loans and grants) were going to countries like South Korea, Vietnam and Thailand, India, Pakistan and Iran to resist the ‘red wave.’ In 1952 when the US noted rising Soviet penetration in Europe, $13.3 billion went to countries in eastern European states to prevent them from switching allegiance to the USSR. So apprehensive was the US that the Soviets would find a foothold in their backyard, Latin America, that it, along with the World Bank, which has traditionally served US geopolitical interests, lent heavily to Latin American governments, pushing the region’s external debt from $12.6 billion in 1960 to $28.9 billion in 1970, a 230 per cent increase in a decade.

And there was no pretence in the way this was done. A US National Security Council memo from 1965 reads: ‘USAID [the US government’s aid agency] should be used as a political weapon with major assistance going to African friends of the US.’ Another USAID brochure states, ‘The principal beneficiary of American foreign assistance programmes has always been the United States. Close to 80 per cent of USAID’s contracts and grants flow back to American firms,’ (quoted in Berrios, Contracting for Development). While the USAID makes no secret of this aim, most aid agencies and multilateral lenders do. In fact, as economist Salim Rashid points out, the fact that aid from national entities is often driven by the altruism of common people, governments are held accountable – at least to some extent – for how the aid money is spent. When it comes to multilateral lenders such as the World Bank, the IMF and the Asian Development Bank, the lack of a questioning constituency makes them the more likely violators of the mission.

During the Cold War, the battle for influence was a three-way fight which included China’s struggle with the Soviets to support and establish Beijing-friendly regimes across the world. In 1965, during the US war in Vietnam, while Moscow was funding Hanoi’s purchases of arms to fight the South Vietnamese funded by the US, Beijing offered Hanoi a massive $1.6 billion loans if it agreed to abandon all ties with Moscow.

Much of the weapons used in Angola’s civil war – which cost over 500,000 lives and is the longest running civil war in African history – were bought with rival funds that the US and Soviets made available to the rival warring factions. While the Soviets gave the MPLA faction loans to buy weapons, their enemies, the FNLA and UNITA rebels, were bankrolled by the US government.

Perhaps one of the most tragic examples of how Western aid – used to advance its geopolitical interests – resulted in the loss of hundreds of thousands of lives is borne out by the Saddam-era Iraq. Saddam Hussein was lent over a $100 billion by the US through proxy loans channelled through the Arab states to support his invasion of Iran. While the Europeans lent to Saddam’s government in order to bankroll his purchase of weapons from Europeans manufacturers, the US had specific geopolitical interests in mind when it secretly channelled hundreds of millions of dollars from the US Department of Agriculture to finance Iraq’s secret rearming, in order to gain leverage for the rescue of fifty or so US hostages that Iran was holding from the revolution that overthrew the Shah.

On February 5, 2003, the then US secretary of state, Colin Powell, presented a dossier to the UN Security Council to build the case for why the US and its allies should use force to neutralise the Saddam Hussein regime in Iraq. One of the ‘chemical weapons plants’ that Powell claimed was a key component of Iraq’s chemical weapons arsenal was the ‘Chlorine Plant Faluja 2’ located 50 miles outside of Baghdad. It is an irony that 17 years before, in 1985, it was the British government that had financed the $28 million plant for Saddam’s regime. When senior British bureaucrats, in the Ministry of Defence no less, flagged the possibility that Saddam’s regime might manufacture the chemical weapon mustard gas at the plant, the then British trade minister, Paul Channon, remarked that withdrawing the financing would do Britain’s other trade interests in Iraq – mainly weapons sales – ‘no good’.

But what about the benign aid that does not finance chemicals weapons plants or prop up dictatorships? What about the kind of aid that targets environmental degradation or rural livelihoods diversification. What about the money the United Nations spends in the third world to educate more children or protect them from abuse? How could aid like that possibly harm the beneficiary country? While it must be conceded aid has financed a remarkable degree of progress in Bangladesh, be it in rural access to public health services or tackling infant mortality, the conventional process of aid has had an insidious effect on governance that is often difficult to identify and quantify.

In 2004, Robert McNab, an assistant professor at the Defence Resources Management Institute in the US, and Stephen Everhart, who is a chief economist at the Overseas Private Investment Corporation, a US government agency, studied the possible effects that the conventional aid process can have on a country’s social and economic fabric. The results of their empirical study confirm what could be described as ‘intellectually commonplace’ conclusions about the effects of aid.

In the 2004 book Rotting from the head (UPL), McNab and Everhart write, ‘We found that international aid directly increases corrupt activities and retards the rate of economic growth. We also found evidence to support the hypothesis [that] international aid through increased levels of corruption, lowers the quality of governance. Coupled with the empirical finding that the quality of governance and economic growth are positively related, this result provides evidence of an indirect channel of international aid and corruption through governance to economic growth.’

In an essay titled ‘Corruption, International Donors, and Governance’, McNab and another economist Francois Melese write: ‘Politicians of developed countries provide financial and political support to the donor organisations to further their own foreign policy objectives. For the donor organisations, soliciting and disbursing aid provides a rationale for their existence and employment of their personnel. Politicians in the developing and transitional countries view international aid as a means of garnering and maintaining political support. International donor organisations, in effect, capture local politicians who thus have an incentive to support the agenda of the international organisation over the local needs and preferences of their constituents.’

The authors go on to point out how working with and cooperating with international donor organisations comes with strong financial and reputational incentives. Emerging democracies are particularly susceptible to these temptations and pressures as resources are typically quite scarce and aligning oneself with donor organisations offers a degree of control or influence over aid flows. This especially applies to the bureaucracy where anyone who criticises international aid agencies may find himself alienated and cornered because of the influence the donors wield over political lobbies, whereas currying favour with donors cannot only lead to financial rewards but also improved career prospects. The agencies themselves are often protected by secrecy clauses that restrict the access the press (and thus the public) have over information on expenditures. The result is, as empirical studies have confirmed, that countries that receive lower levels of international assistance relative to the GDP over time grew faster than countries with higher levels of assistance (Easterly, 2002).

One of the agencies that exercises a great deal of secrecy over detailed information on its actions and operations is the World Bank. It is rarely that information of ongoing corruption or irregularities in the bank’s operations come to the press. A major factor in the immunity that the bank enjoys lies in its ability to co-opt sections of the press, the bureaucracy and civil society in third world countries through a combination of no-questions-asked funding, scholarships and possibly even bribes.

The newspaper The US News and World Report, in its April 3, 2006 issue, revealed that more than 20 per cent of the $20 billion a year that the bank disburses in loans and grants worldwide, is associated with corrupt practices. ‘Traditionally [World Bank] staffers have been rewarded with promotions and salary increases for pushing money into projects – not for reporting corruption,’ the report observes.

For an idea of the kind of rampant corruption that goes on inside the bank, one need only refer to the observations of Steve Berkman, a former manager with the bank’s African projects. In the US News and World Report story, Berkman points out how, in the 1990s, while reviewing the expenses of one of the bank’s education projects in Nigeria, he came across an invoice of $2,200 paid by the bank for 18 cups of tea. ‘We paid $2,200 for 18 cups of tea,’ and when brought to the attention of the authorities, ‘the bank did nothing,’ Berkman told reporters. He added that it makes no sense that an institution with so much financial acumen can’t estimate its losses due to corruption. ‘They [the World Bank] can tell you how many steps a woman takes from a hut to the village water well, but they can’t tell you something like that?’ Berkman asked journalists.

It is perhaps forgivable that in the day-to-day operations of an institution as large as the World Bank, there will be some negligible theft, pilferage and corruption, but the scale at which it evidently takes place at the World Bank even forces the bank’s own senior officials to question its acceptability. According to Glen Ware, a former senior bank investigator, the World Bank’s internal investigation team has explored some 2,000 allegations of internal corruption in the past six years, and found ‘a recurring pattern of bribery, kickbacks, front companies [and] shell companies’. Investigators at the bank told the US News journalists that for the bank’s projects in African states Guinea-Bissau and Senegal, ‘the going rate to win a contract [from the bank] has been a 10 per cent kickback.’ In Indonesia, they discovered the kickback rate to be 15 per cent up front, and 15 per cent later.

The World Bank’s upper-echelon leadership has through the past decade played a crucial role in frustrating the efforts of its own Department of Institutional Integrity in investigating corruption within the bank. Until recently, the INT unit had a backlog of over 400 pending investigations for an office staffed by only 22 investigators. In 2005, Maarten de Jong, the unit’s director, imposed a further budgetary limitation on his investigators when he imposed a freeze on international travel on the INT unit’s staff, making it almost impossible for them to uncover the evidence of the bank’s corruption in borrowing countries.

Why would de Jong and other World Bank bosses be so blatant in their efforts to resist scrutiny of the bank’s projects? For the very same reasons that the bank is so secretive, keeping its audit reports and other internal documents about its operations and projects under wraps, when it must spend hundreds of thousands of dollars in maintaining a state-of-the-art website that promotes good governance and transparency. For the very same reason that the bank is yet to release or implement its scandalous Vaughn Report, even a year after it was submitted, detailing how the bank can provide whistleblowers within its ranks protection to speak freely about corruption.

The bank spends $150 million annually on consultants, some of whom have, in the past, earned as much as $4,000 a day, according to published reports. And although contractors and consultants in each country get an inkling of the kind of corruption that goes on in each country office, no one but the bank’s top Washington bosses can even begin to visualise the big picture. But the bank’s bosses don’t take kindly to those who attempt to practise the same transparency that the bank advocates among its client governments. As Robert Holland, the bank’s executive director for the United States recently observed, ‘I am bound by a disclosure policy that I strongly disagree with. It bars me from telling you what happened in board meetings, or even disclosing statements that I made at board meetings about matters of critical interest to developing nations.’

An insight into the culture of kickbacks, payoffs, bribery, embezzlement and collusive bidding in World Bank projects worldwide has recently come to light with the highly-publicised investigation into the wealth of Leslie Jean-Robert Pean, once a manager in the bank’s Africa operations. An economist by training, Pean had landed a job at the Washington headquarters of the World Bank in 1989 after going bankrupt in the early 1980s. By the time he lost his job at the bank in a corruption scandal, Pean was the owner of a $655,000 house in Virginia, had financed another $300,000 house for a woman friend in Africa, and admitted to investigators that he had another $2.5 million of ‘family money’ tucked away in a Swiss bank account. According to a bank report, Pean was fired ‘for accepting bribes from a consulting firm in exchange of influencing the retention of a consultant on a bank-financed project.’

Pean was the chief architect of the bank’s $600 million AGETIP project, which was responsible for managing the contracts of public works projects such as parks, roads and sidewalks in African nations. An audit of the project in 1999 revealed, what one bank official described as ‘large-scale theft.’ This should have been clear to the bank’s bosses years before, since internal documents dating back to 1995 reveal how one ‘local entrepreneur’ in Senegal had complained that Pean was receiving kickbacks ‘wrapped in gift paper’ from a consultant of the AGETIP project there. The bank took until 1997 to start investigating the allegations, the same year that a top bank official congratulated Pean, in writing, on his ‘excellent’ work with the AGETIP project. The investigation was closed soon after, when the banks audit team turned up ‘nothing to indicate any wrongdoing on the part of Mr Pean.’ But as other audit teams investigated more than two dozen AGETIP projects, they uncovered indications of widespread theft including overpayments to consultants, bid rigging, and disbursement of funds for services never rendered. When these developments were reported in the press last year, Pean, who has ironically authored a book on corruption in Haiti, had his lawyer issue a threat that will surely prevent his former bosses at the World Bank from prosecuting him. ‘If he was involved, there were other people in the bank involved, and I could name a few of them,’ his lawyer Stephen Scott told reporters. ‘I am not going to do so because that would be potentially slanderous. If there was anything going on, he wasn’t alone,’ Scott added.

While the bank has a policy in writing, and even a committee for imposing sanctions on consultants and contractors who have a record of theft and corruption, even this has been made ineffective by powerful quarters within the institution. In 1999, Lahmeyer International, a German engineering contractor, was indicted in a massive bribery scandal in a dam project in the African state of Lesotho. But in 2002 the bank’s committee decided that the evidence against Lahmeyer was not enough. A year later, the company was convicted in Lesotho of paying up to $500,000 in bribes and still the bank failed to ban Lahmeyer from securing its contracts. Reports suggest that until recently Lahmeyer held over $5 million in contracts from World Bank projects.

It’s not just the World Bank that is culpable on the grounds of corruption. Two major environmental projects, the $26 million Sustainable Environment Management Programme, initiated by the United Nations Development Fund in Bangladesh, and, the Sundarban Biodiversity Conservation Project, financed by a $77.5 million loan from the Asian Development Bank, are both accused of allowing major corruption and embezzlement to continue most likely within full knowledge and complicity of the UNDP and the ADB respectively. Eighteen months after the SEMP was launched in 1999, a parliamentary standing committee deliberated on its progress and called for an investigation into allegations of large-scale misuse of funds. A subsequent investigation into the allegations is believed to have revealed that most of the allegations were true. As for the SBCP, which was eventually abandoned in 2003, only three years after it was launched, with over 50 per cent of its total budget spent on foreign consultancy services. New Age reported top officials at the Ministry of Environment and Forests as claiming that some of those consultants were paid as much as $15,000 per month. Needless to say, although the project was abandoned because the money had been spent and the ADB was not satisfied with the progress, it is the Bangladesh government that is now saddled with the task of paying back this $77.5 million debt.

If the aid-grant-loan process that is so revered by the first world citizenry as a means to battle worsening global poverty is to become effective it will become imperative for the agencies that disburse this aid to become more transparent and accountable for their actions and operations. Why is it that the donors are allowed to form cartels such as The Paris Club, and third world nations are never allowed to negotiate as a group? Most importantly, as has been repeatedly pointed out by economists, third world governments and even donors such as the UK’s Department for International Development, the one-size-fits-all conditions attached to lending must be removed, and if any conditions must be imposed, they must be tailored to the needs of individual countries.

In the past borrower countries have been burdened with as many 100 conditions they needed to fulfil in order to avail loans from the fund and the bank. The one-size-fits-all list of reforms that the fund and the bank prescribes feature currency devaluations, trade liberalisation, raising taxes, allowing the prices of basic services and commodities to go up, curtailing public expenditure, selling off state-owned enterprises, cutting public-sector jobs, and relaxing barriers to the movement of foreign capital.

The results have been plain to see across continents. According to research published in 1988, in Latin America, economic growth diminished by 50 per cent between 1980 and 2000 when structural adjustments were being administered at the advice of the fund and the bank compared to the 1960-1980 pre-structural adjustment period. It was also the period when the disparity between the rich and the poor in Latin America widened considerably. Similarly in Sub-Saharan Africa – now the subject of noble and charitable debt relief causes – the incomes of the poorest 20 per cent of the population fell by 2 per cent a year between 1980 and 2000, according to UN data, the decades when structural adjustments were the dominant policy mantra. As James Vreeland noted in his 2003 book The IMF and Economic Development (Cambridge University Press, 2003), ‘the single most consistent effect the IMF seems to have is its ability to redistribute income away from the workers.’ Consequently, growth in Sub-Saharan Africa fell by 0.8 per cent a year during those two decades compared to the 2.3 per cent annual growth that the region was achieving between 1960 and 1980.

During those decades, it was only China, India and Korea that refused to pander to IMF diktats and that attained the highest levels of growth, eventually emerging as economic giants. The calculations are simple enough. The fund and the bank insist that developing countries must open up their markets to free trade even though it was tariffs and subsidies and other non-tariff barriers to trade that helped the developed countries of today achieve their economic growth and stability.

By the end of the decade of the 1990s, the poorest countries of the world were so battered by the IMF’s structural adjustment programmes on one hand and their indebtedness to the fund and the bank on the other that a way out of chronic poverty and indebtedness seemed almost impossible. Total developing country debt owed to multilateral lending institutions rose from $61 billion in 1980 to $313 billion in 1994. And all that their debts had produced, thanks to structural adjustment policies, was more debt. Indebtedness stifled private investment growth and drew away billions of dollars from public expenditure to loan servicing. Tanzania spent $155 million in debt servicing in 1993-1994, twice of what it had invested in its water and sanitation projects despite the fact that half its population had no access to safe water.

Of course, the structural adjustment doctrine became so discredited that the fund and the bank abandoned the mantra at the turn of the century. The US newspaper Wall Street Journal –typically a proponent of right wing neo-liberal economics – went so far as to write in a 1999 editorial that the IMF ‘is impoverishing people in a way that is morally indefensible and politically unsustainable.’ But the list of conditions that Bangladesh must fulfil in order to qualify for the PRGF loan proves that it is only the title of the mantra that has changed, the policy advice remains the same. In fact, as Vreeland notes in his book, the IMF’s own staff admits that the 1979 policy guidelines still remain essentially in place to this day.

When the World Bank and the International Monetary Fund were created at the Bretton Woods locale of New Hampshire in the US in 1944, one of the men who took the lead in the discussions that would shape the institutions was British economist John Maynard Keynes. It was Keynes’ vision that the fund would be a lender of the last resort to countries faced with balance of payments crisis, but that it would impose few or no restrictions or conditions when it disbursed loans to problem economies. In Keynes’ opinion the fund would become a place where some who had surplus funds would leave their savings, and other who were running deficits would borrow, all in the interest of preserving stability in the global economy. Over six decades later, the Bretton Woods twins need to find a way to return to that Keynesian vision if they truly are committed to development of the world’s poor.

*Mahtab Haider is senior assistant editor, New Age

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One Response to Rigged rules, rigged aid

  1. Rich says:

    The author states “it would be unfair to portray all the officials of the bank and the fund as part of a singular conspiracy to oppress the poor”. Absolutely, they are not the only ones, but clearly constitute a Lion’s share of the problem.
    Keynesian’s vision may have been honorable (at that time in history), but today’s world leaders have no incentive within their mind set to actually help the world’s poor.
    Their Lust for Greed and Power prevent a humanitarian reflection, that is, until it hits them!

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