Monsters: The World Bank, the IMF and the Aliens Who Ate Ecuador
Get this: I was standing
in front of the New York Hilton Hotel f| during the big G7 confab in 2000, the meeting of presidents, f prime ministers and
their financiers, when the limousine carrying International Monetary Fund director Horst Kohler zoomed by and hit a bump.
Out of the window flew a report titled "Ecuador Interim Country Assistance Strategy." It was marked "Confidential. Not
for distribution." You may suspect that's not how I got this document, but you can trust me that it contains the answer to
a very puzzling question.
Inside the Hilton, Professor Anthony Giddens
explained to an earnest crowd of London School of Economics alumni that "Globalization is a fact, and it is driven by
the communications revolution."
Wow. That was an eye-opener!
The screeching green-haired freakers outside the hotel demonstrating against the International Monetary Fund had it all wrong.
Globalization, Giddens seemed to say, is all about giving every villager in the Andes a Nokia Internet-enabled mobile phone.
(The man had obviously memorized his Thomas Friedman.) Why on earth would anyone protest against this happy march into
the globalized future?
So I thumbed through
my purloined IMF "Strategy for Ecuador" searching for a chapter on connecting Ecuador's schools to the World Wide Web.
Instead, I found a secret schedule. Ecuador's government was ordered to raise the price of cooking gas by 80 percent
by November 1, 2000.* Also, the
government had to eliminate twenty-six thousand jobs and cut real wages for the remaining workers by 50 percent in four
steps and on a timetable specified by the IMF. By July 2000, Ecuador had to transfer ownership of its biggest water system
to foreign operators, then grant British Petroleum rights to build and own an oil pipeline over the Andes.
That was for starters.
In all, the IMF's 167 detailed loan conditions looked less like an "Assistance Plan" and more like a blueprint for
a financial coup d'etat.
The IMF would counter
that it had no choice. After all, Ecuador was flat busted, thanks to the implosion of the nation's commercial banks.
But how did Ecuador, once an OPEC member with resources to spare, end up in such a pickle?
For that, we have to
turn back to 1983, when the IMF forced the nation's government to take over the soured private debts Ecuador's elite owed
to foreign banks. For this bailout of U.S. and local financiers, Ecuador's government borrowed $1.5 billion from the IMF.
For Ecuador to pay
back this loan, the IMF dictated price hikes in electricity and other necessities. And when that didn't drain off enough cash,
yet another "Assistance Plan" required the state to eliminate 120,000 workers.
trying to pay down the mountain of IMF obligations, Ecuador foolishly "liberalized" its tiny financial market, cutting
local banks loose from government controls and letting private debt and interest rates explode. Who pushed Ecuador into
this nutty romp with free market banking?
Hint: The initials
are I-M-F—which made liberalization of the nation's banking sector a condition of another berserker assistance
plan. The facts of this nasty little history come from yet another internal IMF report that flew my way marked "Please
do not cite." Pretend I didn't.
How the IMF Cured AIDS
The IMF and its sidekick,
the World Bank, have lent a sticky helping hand to scores of nations. Take Tanzania. Today, in that African state, 1.3
million people are getting ready to die of AIDS. The IMF and World Bank have come to the rescue with a brilliant neo-liberal
solution: require Tanzania to charge for what were previously free hospital appointments. Since the Bank imposed this
requirement, the number of patients treated in Dar es Salaam's three big public hospitals has dropped by 53 percent. The Bank's
cure is working!
The IMF World Bank
helpers also ordered Tanzania to charge fees for school attendance, then expressed surprise that school enrollment dropped
from 80 percent to 66 percent.
Altogether the Bank
and IMF had 157 helpful suggestions for Tanzania. In April 2000, the Tanzanian government secretly agreed to adopt them all.
It was sign or starve. No developing nation can borrow hard currency from any commercial bank without IMF blessing (except
China, whose output grows at 5 percent per year by studiously following the reverse of IMF policies).
The IMF and World Bank
have effectively controlled Tanzania's economy since 1985. Admittedly, when they took charge they found a socialist nation
mired in poverty, disease and debt. The IMF's love-the-market experts wasted no time in cutting trade barriers, limiting government
subsidies and selling off state industries. The World Bank's shadow governors worked wonders. According to World
Bank watcher Nancy Alexander of Citizens' Network on Essential Services (Maryland), in just fifteen years Tanzania's GDP dropped
from $309 to $210 per capita, literacy fell and the rate of abject poverty jumped to 51 percent of the population.
Yet, the World Bank did not understand why it failed to win the hearts and minds of Tanzanians for its free market game plan.
In June 2000, the Bank reported in frustration, "One legacy of socialism is that most people continue to believe the
State has a fundamental role in promoting development and providing social services."
When Larry Landed
It wasn't always thus,
this affection for pricing, not people. The World Bank and IMF were born in 1944 with simple, laudable mandates—to fund
postwar reconstruction and development projects (the World Bank) and lend hard currency to nations with temporary balance-of-payments
deficits (the IMF).
Then, beginning in
1980, the Banks seem to take on an alien form. In the early 1980s, Third World nations, hemorrhaging after the fivefold increase
in oil prices and a like jump in dollar interest payments, brought their begging bowls to the IMF and World Bank. But instead
of debt relief, they received Structural Assistance Plans listing an average of 114 "conditionalities" in return for
loans. While the particulars varied from nation to nation, in every case the rollover of debts dangled from edicts to remove
trade barriers, sell national assets to foreign investors, slash social spending and make labor "flexible" (read "crush your
Some say the radical
and vicious change in the Banks' policies after 1980 resulted from Ronald Reagan's election that year as president, the quickening
of Mrs. Thatcher's powers in England and the ascendancy of "neo-liberal" (free market) policy. My own theory is that the IMF
and World Bank were taken over by a space alien named Larry. It's obvious that "Larry" Summers, once World Bank chief economist,
later U.S. treasury secretary, is in reality a platoon of extraterrestrials sent here to turn much of the human race into
a source of cheap protein.
So what have the aliens
accomplished with their structural assistance free market prescriptions? Samuel Brittan, the Financial Times'
globalization knight errant, declares that new world capital markets and free trade have "brought about an unprecedented increase
in world living standards." Brittan cites the huge growth in GDP per capita, life expectancy and literacy in the less-developed world from 1950 to 1995.
Now hold on a minute.
Before 1980, virtually every nation in his Third World survey was either socialist or welfare statist. They were developing
on the "Import Substitution Model" by which locally owned industry was built through government investment and high tariffs,
anathema to the free marketeers. In
those Dark Ages (1960-80) of increasing national government control and new welfare schemes, per capita income grew 73 percent
in Latin America and 34 percent in Africa. By comparison, since 1980, the Reagan/Thatcher model has seen Latin American growth
come to a virtual halt—growth of less than 6 percent over twenty years— and African incomes decline by 23 percent.
Now let's count the
corpses: From 1950 to 1980, socialist and welfare statist policies added more than a decade of life expectancy to virtually
every nation on the planet. From 1980 to today, life under structural assistance has gotten brutish and decidedly shorter.
Since 1985, in fifteen African nations the total number of illiterate people has risen and life expectancy fallen—which
Brittan attributes to "bad luck, [not] the international economic system." In the former Soviet states, where IMF and
World Bank shock plans hold sway, life expectancy has fallen off a cliff—adding 1.4 million a year to the death rate in Russia alone. Tough luck, Russia!
Admittedly, the World
Bank and IMF are reforming. No longer do they issue the dreaded "Structural Assistance Plans." No, they now call them "Poverty
Reduction Strategies." Doesn't that make you feel better?
In April 2000, the
IMF reviewed the fruits of globalization. In its "World Outlook" report, the Fund admitted that "in the recent decades, nearly
one-fifth of the world population has regressed. This is arguably," the IMF concedes, "one of the greatest economic failures
of the 20th Century." And that, Professor Giddens, is a fact.
* 'It annoys me something fierce when I expose some institution and they don't respond with a complaint, comment or
a lawsuit. But from the IMF and World Bank honchos—nothing. Turns out I hadn't looked on the right continent: in fact,
the World Bank wrote a long response to this expose and published it in an African newspaper. That was odd. Odder still,
in defense of their wacko, destructive plans for Ecuador, they simply denied the documents existed. Figure 4.1 shows
a page from one of the documents that doesn't exist.