The Overseas Financial Institutions

CRITICISM OF THE INTERNATIONAL and REGIONAL FINANCIAL INSTITUTIONS

Kevin J. Barr

Thousands of protestors at the recent Asian Development Bank’s 45^th General Meeting in Manilla held posters calling the ADB “Asia’s Destructive Bank – Promoting Poverty in Asia and the Pacific”. 

At the same time the Asian Pacific Research Network (APRN) – a very credible organisation – issued a statement challenging the Asian Development Bank...

 “to promote rights and not just growth, genuine development and not just destruction”. The statement went on: "Development must enable the poor to claim their political, economic, social and cultural rights. ... History shows that ADB projects have beenin the interest of business and have resulted in spiralling poverty,marginalisation and worsening environmental degradation.”

Many people all over the world are facing growing poverty and inequality. They are crying out for greater social justice. It is apparent that the economic system of neo-liberalism at the basis of globalisation has not delivered social justice. It is this economic system which has driven the policies of the International Financial Institutions (IFIs) such as the World Bank and the International Monetary Fund (IMF) and the Asian Development Bank – especially through the structural adjustment policies they imposed on developing countries which were unable to repay their debts. These policies (such as reducing the size of government, cutting social expenditure on health and education, tax “reforms” and labour “reforms” as well as the opening up of markets and privatising public services) were supposed to help these countries out of poverty and assist their development. Instead they succeeded in deepening the debts and creating a greater dependence on the wealthy nations of the world.

Over the years many developing countries (including Fiji) have been following (or advised/forced to follow) the policy directives of the World Bank, the IMF, and the ADB despite the fact that these policies have created greater poverty and inequality in other countries. The findings of the Melzer Commission of the US Congress (2000) are worth repeating and remembering: 
 

“ Neither the World Bank nor the regional banks are pursuing the set of

activities that could best help the world move rapidly toward a

world without poverty or even the lesser, but more fully achievable goal

of raising living standards and the quality of life, particularly in the

poorest nations of the world.”

Arundati Roy in her book The Ordinary Person’s Guide to Empire has this to say:

“For all the empty chatter about democracy, today the world is run by three of the most secretive institutions in the world: the International Monetary Fund, the World Bank and the World Trade Organisation, all three of which, in turn are dominated by the United States. Their decisions are made in secret. The people who head them are appointed behind closed doors. Nobody really knows anything about them, their politics, their beliefs, their intentions. Nobody elected them. Nobody said they could make decisions on our behalf. A world run by a handful

of greedy bankers and CEOs who nobody elected can’t possibly last.”

Kalvajit Singh (2005) agrees and says that while these institutions preach democracy and good governance to others they do not practice them.

Some have noted that the recent scandal surrounding Straus Khan former head of the IMF was very symbolic. He was accused of attempting to rape a Hotel maid. It seems that the charge was withdrawn. However many would say that the IMF has been instrumental in raping many poor countries for a very long time and that charge has not been withdrawn.

At last year’s Fiji Update in Lautoka a former World Bank employee praised Fiji for following a WB/IMF suggestion/directive to devalue its currency by 20% saying how it had helped to improve foreign reserves. One lecturer from USP challenged this saying that the devaluation had caused great hardship to the ordinary and poorer people of the country because it had the purchasing power of their wages and had increased the price of food by over 30%. The former WB gentleman said with some distain that it had been a good macro-economic policy and improved the economic situation of Fiji and it didn’t matter how it affected the people in the short term. The policy was not concerned with its effects on the people but its effects on the economy. Everyone in the room was aghast! It seemed clear that in the thinking of this economist, economic principles and theories must take precedence over their consequences for the people.

The economic jargon used by the IFIs often implies that the economy is some impersonal force out there that has to be obeyed or some sort of monster that must be fed or else …. We hear of “requirements” and “demands” and we want to ask “whose requirements?” and “whose demands?” We hear of “distortions” and we want to ask “distorted by whose standards?” The language is so passive and impersonal that one gets the impression that economists need to hide behind this formal jargon because they would be embarrassed to say clearly and simply what the consequences of their policies are on real live people. The jargon evades honesty. It does not talk about people and says nothing about who profits and who suffers. It veils individual and corporate greed and self interest.

In the current rhetoric about the economy little is said about the needs of people. Economic growth is the priority and people don’t rate a mention. Little is said about how economic growth will translate into human development. The old “trickle down” theory is now recognised as nothing but a myth. The economy of every country is meant to be at the service of the people and their basic needs. However neo-liberal economic theory based on economic rationalism seeks to serve the interests mainly of the rich and their demands for greater profits.

It seems that there is a fanatical fundamentalism behind the extreme form of neo-liberal capitalism running rampant in our world today. It seeks to produce ever more money for those with the most wealth with no limits or regulations. Everything is subjugated to corporate profit. The demands of individual greed and unlimited profit have been allowed to dominate the business world and governments are often forced to bow to the powerful lobbies of corporations and business elites. Worldwide there is a very unequal distribution of wealth and development. Some say that our current economic system is one of the most unjust the world has ever seen. The Common good, social justice, compassion and concern for the poor are not values in a market-driven economy dominated by greed.

The IMF policy of “Poverty reduction through ... “ and the ADB policy of “Poverty alleviation through private sector development” sound great. Yet in reality they show little real concern for poverty but show great concern for private sector development. They promote the interests of investors and advise governments to venture into privatisation (or corporatisation) of public assets such as water, electricity, education and even prisons or at least into public-private partnerships (PPPs). In many ways they encourage what some have called “crony capitalism” often described as a close relationship between businessmen and the government in such a way that the success of the business sector is not so much determined by a free market and the rule of law but is dependent on the cosy favouritism that is shown to it by the ruling government in the form of tax breaks, grants, low wages, restrictions on worker’s unions and other government “incentives”. It usually depends on close relationships that exist between business people (and their lobbies) and government ministers or officials.

These trends are very worrying if one is concerned about social justice, poverty, inequality, just wages and the rights of workers because they place the interests of investor capital above those of labour and the interests of the rich above those of the poor. They favour those with capital and business interests and help to maintain certain small groups in positions of wealth, power and privilege. But they have little to offer to the poor and ordinary people in Fiji except greater poverty, low-wage employment and very uncertain and questionable “trickle-down” benefits. Only by broadening its horizons to include more than the particular interests of specific individuals or groups can a society establish socially just and stable foundations.

In his recent book entitled Poverty and Power (2008) Duncan Green from Oxfam writes at length about the IFIs:

“For much of the last 25 years the IMF and the World Bank have been

pursuing nothing less than a radical overhaul of the way that developing

countries run their economies. That role has been controversial and, in

many eyes, profoundly destructive ..... “

He argues that overcoming the scourges of poverty, inequality and environmental disaster requires a radical redistribution of power, opportunities and assets and that the driving force for this radical change must come from active citizens and effective states. In other words the people themselves must be empowered to raise their voices and fight for justice and hold the state and the private sector to account. At the same time the State must be restructured in order to make sure that development is people-centred. Leaders, organisations and individuals must act together to bring about a secure, just and sustainable world.

Years ago in his book A History of Economics (1989) the celebrated economist, Kenneth Galbraith, attacked those economists who claimed no responsibility for the social consequences of their theories. They justified themselves by claiming that their principles and theories had independent “scientific” validity and had nothing to do with moral principles or ethical questions. He writes:

“The detachment and the justifying commitment to scientific validity as opposed to social concern are especially influential in our own time. When acting in his professional role, the economist does not contend with the justice or the benignity of classical or neo- classical economics. To proclaim economic injustice or failure is, scientifically speaking, off limits. ... The pretension of economics that it is a science is rooted in the need for an escape from blame for the inadequacies and injustices of the system.”

The outcries of so many people in our world today are reminding us that economic policies have moral consequences and the economic theories on which they are based are underpinned by philosophical values which can be evaluated by ethical standards.

The bankruptcy of neo-liberal economics and its globalising exponents – particularly the World Bank and the IMF – needs to be acknowledged. We can no longer tolerate growing inequality and poverty and the dominance of wealthy elites. As Mahbub ul Hag (1998) observed:

“We cannot leave intact the model of development that produces persistent poverty and wistfully hope that we can take care of poverty downstream through limited income transfers or discrete poverty reduction programs. ... A few technocratic programs downstream are not the real answer. The real answer lies in changing the very model of development, from traditional economic growth to human development, where human capabilities are built up and human opportunities enlarged, where people become the real agents and beneficiaries of economic growth rather than remain an abstract residual of inhumandevelopment processes.”