Development Bankruptcy

by Andrew Grossman

The World Bank and the International Monetary Fund (IMF) are outdated, unnecessary institutions whose strategies often work counter to those of the peoples they are trying to “develop.” We have the opportunity to put an end to their fruitless policies; we should take it.

Much credence can be given then to the aims of the protestors who descended on Washington to disrupt both institutions' annual meetings—although their motives, means, and rhetoric may be questionable. Ostensibly, the Mobilization for Global Justice leads the fight against global capitalism, a term meant to encapsulate the individuals, companies, and governments who've prospered in the world economy, presumably to the detriment of the less fortunate.

Fortunately, though, the Washington demonstration was against the dual powers of development, the IMF and the World Bank, whose efforts are especially deserving of such criticism.

Both institutions were founded in 1944 at Bretton Woods. The IMF was created to protect against currency fluctuation, measured against the now-defunct gold standard. The World Bank's mission was to supply capital when other lenders were hesitant to do so. In the intervening years, the IMF has changed roles and become the lender of last resort for troubled governments. The World Bank continues to finance specific development projects in nearly every developing country.

Neither, though, has fulfilled its mission to aid the world's underdeveloped nations. Of the 66 countries that have received World Bank loans for over 25 years, 37 have economies that have grown by less than one percent annually over that duration. Twenty are actually poorer than before their first loan.

Results have also been elusive for the IMF. Eighty-nine countries have received IMF loans since 1965. Forty-eight are no more prosperous than when they first received their loans; thirty-two of those 48 are actually poorer. Sense a trend?

As the protestors have been quick to note, the two development banks have more than purely financial impacts on borrowing nations.

The IMF, by making loans directly to governments, has many times worked to shore up unstable regimes, providing funds later spent on weapons, oppressive militias, dubious patronage relationships, and imported luxuries. Mobuto Sese Seko (formerly of Zaire—now the Congo), Ferdinand Marcos (formerly of the Philippines), and Idi Amin (formerly of Uganda) all benefited from IMF loans. All three countries are still paying back loans taken out by their former despots.

World Bank loans have aided strapped governments similarly, allowing them to free up funds for their own nefarious purposes. In short, funds from both banks have propped up a succession of authoritarian Third World dictators by enabling them to maintain absolute control over their militaries and citizens. More than several of these dictators have even become quite wealthy, such as the General Sani Abacha of Nigeria, now deceased, who ruled the country with an iron fist while embezzling billions that his family is still trying to sneak out of the country, stuffed into overloaded suitcases. Development funds have financed the retirements, via Swiss bank accounts, of many deposed dictators.

As you might imagine, Abacha's countrymen weren't so fortunate. Nigeria owes $37 billion in foreign debt. The very people victimized by “development lending” are the ones saddled with debt—totaling over $200 billion in Africa alone. Up to 20 percent of these countries' GNPs is allocated every year just to cover interest on borrowed funds, and so their people face heavy-handed tax schemes, impoverishing further the poorest and discouraging the development and improvement the loans were originally meant to initiate.

Foreign banks are rightly skittish now about lending to upstart businesses in these countries—the burden of national debt repayment is a barrier to success, making the risk of default too high.

Doug Bandow, editor of the book Perpetuating Poverty, sums up the current state neatly: “The issue is not just waste of aid money. The real problem is not foreign aid but foreign hindrance by these institutions.” This situation shouldn't be allowed to deteriorate further, for the sake of the billions of people who would suffer, even starve, in the case of a major default. Further development loans may make the Third World's debt simply intractable and its rampant poverty permanent.

Protestors and activists flooded Washington with anti-capitalist rhetoric and other dubious propaganda but, unlike in Seattle, they've chosen an issue that begs for redress. Our support should be with them for the damage they may inflict on the IMF and World Bank. The US is, after all, the biggest backer of the development banks, and we have the opportunity, through this unlikely coalition, to shut them both down. Anything less would be inhumanitarian.