Sunday September 26, 2021

Is the IMF the cure?

May 07, 2019

The pundits of global finance capital and their stooges in Pakistan have once again come up with the idea of prostrating in front of the idols of capitalism, which is sure to play havoc with the lives of millions of Pakistanis. Our policy to appease the IMF and the World Bank is likely to unleash a wave of liberalization, privatization and deregulation that will lead to more unemployment, poor living standards and substantial cuts in public spending.

Before one starts heaping eulogies on the two global bodies, one needs to critically assess the purpose of their creation and the miracles that their policies have demonstrated in several parts of the world. These institutions were created in the 1940s by the most democratic countries of the world that ended up setting up the most undemocratic ways to run these global organizations. The US's voting share in in the IMF is 17.16 percent and in the World Bank 16.41 percent. Japan holds the next highest voting shares with 6.27 percent and 7.87 percent respectively. Washington also has the unique privilege of appointing the president of the World Bank and is the only country entitled to a permanent place among the Bank’s executive directors.

So, it is no surprise that these institutions were employed as a tool to serve the interests of the global hegemon, punishing states that dared to challenge the rapaciousness of Western capitalism. For instance Salvador Allende, the first elected socialist leader of Chile, infuriated the US and its Western allies by asserting that his country should take care of its own natural resources and run the economy. This did not go down well with the arrogant modern imperial powers that are then said to have forced the World Bank to stop giving loans to the elected government in 1972, triggering an economic chaos that culminated in a military coup. Soon after the coup, the doors were opened for military dictator General Pinochet, whose brutal regime not only assassinated Allende but also decimated up to 130,000 Chileans in a 17-year despotic rule. The World Bank showered $350.5 million between on Chile 1973 and 1976, almost 13 times the $27.7 million it gave during the three-year Allende presidency.

Integration of the developing countries' economies was also one of the main purposes of these institutions. To achieve this, they came up with the idea of the Structural Adjustment Programme that sought to pressure the Third World countries into privatizing industries and the service sector, cutting in government spending, liberalizing capital markets (which leads to unstable trading in currencies), promoting market-based pricing (which tends to raise the cost of basic goods) and raising interest rates.

The World Bank instituted its SAPs in 1980 and the IMF imposed them in 1986. According to a research paper by Asad Sami, during 1980-93, 70 developing countries were subjected to 566 stabilization and structural adjustment programmes – with disastrous consequences. The author claims that between 1984 and 1990, Third World countries under SAPs transferred $178 billion to Western commercial banks. The enormous capital drain prompted Morris Miller, a Canadian former World Bank director, to remark, “Not since the Conquistadors plundered Latin America has the world experienced such a flow in the direction we see today." Such policies led to the stagnation of growth in developing countries besides doubling their debt burden to over $1.5 trillion by the end of the 1980s, doubling again to $3 trillion by the end of the 1990s.

The ruling elite of the Western capitalist world ruthlessly exploited the developing countries, especially those of Latin America and Africa. To understand how such policies ruined the lives of millions across the world, one needs to see what happened in Peru, Mexico and other parts of the globe. In 1990, an IMF-sponsored stabilization package produced catastrophic consequences in Peru. Within no time fuel prices increased 31 times – by 2,968 percent – and that of bread 12 times – by 1,150 percent. The prices of most basic food staples increased by six or seven times – 446 percent in a single month – yet wages had already been compressed by 80 percent in the period prior to the adoption of these measures in August 1990. IMF SAPs were first imposed on Mexico in 1982 and by 1992 infant deaths due to malnutrition tripled, the minimum wage fell by 60 percent and the percentage of the population living in poverty rose from less than half to more than two-thirds.

Such policies also hit Africa. The situation of the continent was not rosy prior to the arrival of the international monetary institutions in 1980 but even then during 1960-1980, Sub Saharan Africa’s GDP per capita grew by 36 percent. Between the 1980s and 2000s, it actually fell by 15 percent. Dictation by the international monetary institutions led to the rise of rampant poverty and by 2015, 413 million people were living on less than $1.90 a day. Despite following these anti-people policies, the average life expectancy for Sub Saharan Africa is only 47 years (the lowest in the world), a drop of 15 years since 1980. Forty percent of the population suffers from malnutrition that causes low birth weight among infants and stunts growth in children.

Advocates of a free market economy could brag about the increasing trade that the mineral rich continent witnessed from 1989 to 1999. It is estimated that Sub Saharan Africa’s trade as a percentage of GDP (a key indicator of globalization) increased from 78.1 percent to 95.6 percent; in dollar terms, trade grew from $175 billion in 1990 to $187 billion in 1999; for the same period, foreign direct investment jumped from $923 million to $7.9 billion in 1999.

But contrary to the tall claims of international monetary institutions, export expansion and rising foreign investment in Africa neither increased growth nor reduced poverty or debt. In reality, most African exports are raw materials, and non-oil commodity prices dropped by 35 percent on average from 1997 and 2004. Tax holidays and profit repatriation might have helped foreign companies to accumulate immense wealth but made very little difference to the lives of millions of Africans.

Per capita income, one of the tools to measures the development of a country, also fell between 1980 – when SAPs were imposed on 36 of Sub-Saharan Africa’s 47 countries – and 2004. It fell for most Sub Saharan countries by 25 percent during the 1980s and for 18 countries these incomes were lower in 1999 than in 1975. In 1960, Sub-Saharan Africa’s per capita income was about one-ninth of that in high-income OECD countries; by 1998, it had deteriorated dramatically to about 1/18.

Africa’s external debt has increased by more than 500 percent since 1980, to $417 billion in 2017. SAPs have transferred more than $229 billion in debt payments from Sub-Saharan Africa to the West since 1980. Africa spends four times more on debt interest payments than on healthcare. This combined with cutbacks in social expenditure caused healthcare spending in the 42 poorest African countries to fall by 50 percent during the 1980s. More than 200 million Africans have no access to health services as hundreds of clinics, hospitals and medical facilities have been closed.

To be continued

The writer is a freelance journalist.

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