Leading international financial institutions (IFIs) such as the International Monetary Fund and the World Bank have joined calls to end inequality, and with their resources and influence, seek to shape the discourse.
Leading international financial institutions (IFIs) such as the International Monetary Fund and the World Bank have joined calls to end inequality, and with their resources and influence, seek to shape the discourse. They have begun to position themselves as advocates, technical advisers and funders supporting efforts towards more equitable development outcomes. They have even admitted the failings of the trickle-down strategy they have advocated for decades and are now promoting inclusivity as important to growth. Expectedly, nothing is said of how IFIs promoted the very conditions that led to such stark inequalities within and across countries, and the continuing role they play in advancing the same neoliberal models that dispossess and impoverish peoples while facilitating the accumulation of wealth by a tiny few.
In the 80s and the 90s, the IMF-WB foisted measures called structural adjustment policies (SAPs) on developing countries, as conditionalities for the loans they were seeking or for debt restructuring. Hinged on reducing the role of states to give free rein to market forces and private enterprise, SAPs entailed liberalizing economies and trade, attracting foreign investments, resource extraction, prioritizing export demand over domestic needs, privatization and financial deregulation, among others.
The results of SAPs, or what has been called the largest transfer of wealth from the peripheries to the center, proved devastating for developing peoples. Weakening labor laws and keeping wages low formed part of the Fund strategy to attract foreign investors. Imports, rather than exports eventually grew in merchandise value, thus causing trade and current account deficits which in turn led to higher foreign borrowings. Trade liberalization further eroded domestic productive capacity, causing widespread unemployment. Inequalities worsened, with growth increasingly concentrated in the hands of big business and landed elites.
While governments complied with IFI conditionalities to adopt austerity measures, essential services such as water and health were sold off to the private sector, subjecting these to the full cost recovery and profit-driven motives of corporate investors. Deemed a core element of structural reform, privatization of social services tripled in Asia and further deepened the divide between those who could and could not afford access to potable water and sanitation services. Metro Manila’s water services, for instance, have risen more than a thousand times since privatization was undertaken in 1995, with support from the Asian Development Bank (ADB). The same adverse impacts on low income households unfolded in Jakarta whose water privatization undertaking in 1997 the World Bank and ADB supported.
Also in line with “free” markets, structural adjustment reforms in the financial sector loosened foreign exchange and capital account controls, which consequently fuelled speculative trading and short term capital flows, enabled crony capitalism and wrought wide-ranging havoc to national economies. Countries grown dependent on exports of a few cash crops reeled from the fall in commodity prices, such as in the food and agricultural sectors. The year 1997 would turn out to be a watershed year for the IMF, as the Asian financial crisis erupted and eroded the Fund’s legitimacy. Some Two hundred million newly poor people emerged from the crisis. Subsequent crashes such as 2008’s financial crisis continue to shatter the IFIs’ delusion that the market, left to its own devices, could generate income for people and societies.
Some of the most damaging impacts on people and the environment in Asia can be traced to World Bank-funded projects. Popular resistance forced the World Bank to withdraw financial support for the Sardar Sarovar Hydropower Dam in India, which would have flooded more than 37,000 hectares of forest and agricultural land, but not before displacing an estimated 40,000 people. Growing opposition to big dams led to the setting up of the World Commission on Dams with the Bank as co-convenor, but the World Bank would eventually ignore more than a thousand reports of negatively affected communities and turn its back on the guidelines issued by the Commission.
This was also the fate of the Structural Adjustment Participatory Review Initiative – a process entered into by the Bank together with civil society and government – whose report and recommendations received no policy commitments from the World Bank and were eventually put aside. Other attempts of the IFIs to recover their tarnished image include the Poverty Reduction Strategy Programs and the Poverty Reduction Growth Facility but they did not depart substantively from the previous mold of private sector-led growth and open markets, save for highlighting safety nets to support those who would inevitably fall through its fundamental cracks.
Multinational corporations – a major actor in siphoning financial resources from developing countries where they make their profits and in deepening economic inequalities – find ample support in the World Bank through its specialized branches – the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA) and International Centre for the Settlement of Investment Disputes (ICSID). The IFC facilitates the access of big business to almost risk-free financing and investment opportunities in countries, like drawing up the privatization plan for water privatization in Manila. MIGA, for its part, shields corporations from political risk, and is aided by the ICSID, a shadowy court mediating state-investor conflicts away from public eyes.
Other than saying SAPs are a thing of the past, no serious reckoning appears to be forthcoming from the IFIs, even as adverse consequences reverberate today and basically the same neoliberal structural reforms are actively pursued, albeit couched in development and human rights language. For one, privatization, discredited for marginalizing those without the means to pay, has given way to so-called Public-Private Partnerships. Export-oriented economic growth is now cosmetically qualified as “inclusive”. But the fundamentals and the sham remain unchanged.
The crisis of climate change, for instance, which further widens the divide between those with the resources to survive it, and those in the millions without, finds the World Bank an active player in intensifying it further. In 2013, its policy paper on “new energy directions” called for an end to coal financing, and yet it remains a financier of the booming Asian coal industry, through the IFC. The US-based Inclusive Development International found that 52 coal-fired power plants and coal mining projects in Bangladesh, India, the Philippines and Vietnam, are financed by private commercial banks which are supported by the IFC.
It should not be forgotten that this is simply the World Bank’s continuing past of exacerbating poverty and inequality. Between 1994 and 2012, the World Bank Group ranked second internationally in financing coal-fired power plants. IFC lending amounted to $2.467 billion for 17 projects; MIGA, $393 million for 4 projects, and the IBRD/IDA, $2.455 million for 8 projects (Coalswarm and the World Resources Institute).
On the part of the IMF, recent studies and reports address issues on labor rights, gender equality, corporate tax abuse and other areas outside its core mandate, and even went as far as admitting flaws in the neoliberal paradigm. However, these are always qualified as staff opinions and predictably, have not as yet found expression in any move to translate them into concrete policy. What is clear is that in Fund surveillance mission reports, the neoliberal agenda remains the main driving force, with big business, banks, foreign investors, corporations and other private sector entities continuing to enjoy pride of place as sources and drivers of growth. It certainly persists in pressing for keeping wages low, adopting more regressive taxes such as the Value Added Tax and lowering corporate income tax rates.
On the occasion of the 2017 Annual Meetings of the World Bank and the IMF, we in the Asian Peoples’ Movement on Debt and Development reiterate our position that the International Monetary Fund, together with the World Bank and other IFIs, northern governments, private banks and financial companies bear major responsibility – institutionally and historically – for the persistent conditions of poverty and deprivation in the Global South.
Thus, while we press for lenders to institute substantive changes, such as upholding human rights, we continue to be firmly critical of the Fund, both for its historical accountability (still unrecognized, thereby evading the South’s demand for reparations and restitution) and its institutional mandate and organisation which remain in the service of advancing a discredited neoliberal model of the economy and finance. Well aware of their double-speak, we are wary of IFI pronouncements, such as on gender equality, labor rights, corporate tax dodging, clean energy and climate resilience. We cannot but see these as part of efforts to prove their relevance and reclaim their credibility at a time when the development and economic growth models they espouse are being debunked by sharply growing inequalities, enduring extreme poverty, precariousness and uncertainty. Changes required of the IFIs are much more fundamental and comprehensive, starting with their very governance structures that favour rich North countries.
The need remains for thoroughly transforming the international financial architecture and its structures into a global system of sovereign, democratic and responsible financing. This means, among others, constituting new international financial systems based on the framework and principles of human rights; internationally established social, economic and environmental standards; sovereignty and self-determination, national ownership and fiscal space; public consent and transparency; and global pacts on integrity and against corruption, and for the purpose of effecting just and swift transition to low-carbon, equitable, democratic, gender-fair and sustainable development compatible with the limits and well-being of the planet.