The Prague Castle Debate

Mar 08

I would like, first of all, to thank President Havel for staging this debate today, and President Robinson for chairing it.

I never thought I would be seating so close to Jim Wolfensohn. I guess this is what you call combat in close quarters.

The
International Monetary Fund and the World Bank have avoided a real
debate with their critics in civil society for a long time. Today, the
representatives of these two institutions are here, partly because of
President Havel's moral suasion, partly because they realize that, with
their two institutions suffering an unparalleled crisis of
legitimacy-the worst in their 56-year history, in fact-the old strategy
of denial and non-confrontation no longer works.

In this brief
presentation, let me tackle four myths propagated by the Bank and the
Fund, and end with questions to Mr. Kohler and Mr. Wolfensohn:

Myth No. 1: The World Bank and IMF are proponents of "good governance."

Fact:
For the greater part of the last 30 years, the Fund and the Bank have
been intimately associated with very corrupt governments and human
rights violators. What did the Brazilian military dictatorship,
Ferdinand Marcos, Gen. Pinochet, the PRI government in Mexico, and the
Suharto regime have in common?

They were all governments or
heads of governments that were designated by the World Bank as
"countries of concentration"–that is, countries to which the flow of
Bank resources was greater than to other countries of similar size and
income.

Over the last 30 years, over $30 billion in World Bank
funds found its way to the Suharto dictatorship. According to several
reports, including a World Bank internal report in 1999, the Bank
tolerated corruption, accorded factual status to false government
statistics, legitimized the dictatorship by passing it off as a model
for other countries, and was complacent about the state of human rights
and the economy. This happened under your watch, Mr. Wolfensohn, and
the people of Indonesia will never forgive the Bank.

Myth No. 2: The IMF and the World Bank are concerned with the degradation of the environment.

Fact:
Again and again, studies of the impact of IMF-World Bank structural
adjustment programs have shown that, by institutionalizing stagnation
and high poverty levels, they have been among the biggest contributors
to environmental degradation in developing countries. In my country,
the Philippines, for instance, so deep was the crisis triggered in the
mid-1980's by structural adjustment in both the countryside and the
cities that the population flow shifted away from the cities to open
access forests, watersheds, and artisanal fisheries, severely
destabilizing them in the process. Studies show that by the early
nineties, the top 15 Third World debtors–all of which were subjected
to structural adjustment–had tripled the rate of the exploitation of
their forests since the late 1970s, a phenomenon that was undoubtedly
caused by the adjustment program's pushing countries to rapidly
increase their export earnings to pay off the foreign debt.

It
is not sensitivity to the environment that is demonstrated by Mr.
Wolfensohn and the World Bank management's unyielding support for the
Chad-Cameroon Pipeline, which will seriously damage ecologically
sensitive rainforests like Cameroon's Atlantic Littoral Forest. It is
not concern for the environment that was revealed by the World Bank's
violation of its own rules on environmental assessment, involuntary
resettlement, indigenous peoples, and environmental assessment in its
failed attempt to push through the China Western Poverty Project that
would have transformed an arid ecosystem supporting Tibetan and
Mongolian sheepherders into land for settled agriculture for Chinese
migrants.

A look at the Bank's loan portfolio would reveal the
reality behind the rhetoric: loans for the environment as a total of
the Bank's total loan portfolio declined from 3.6 per cent in FY 1994
to 1.02 per cent in 1998; funds allocated to environmental projects
declined by 32.7 per cent between 1998 and 1999; and more than half of
all lending by the World Bank's private sector divisions in 1998 was
for environmentally harmful projects like mining, roads, and power.

Indeed,
so marginalized is the Bank's environmental staff within the
bureaucracy that Herman Daly, the distinguished ecological economist,
left the Bank staff because he felt he and other in-house
environmentalists were having very little impact on Bank policy.

Myth No. 3: The Fund and the Bank are dedicated to combating poverty.

Fact: The opposite is true: the IMF and the Bank are central to creating poverty.

Structural
adjustment programs imposed on over 90 developing and transition
economies in the last 20 years have institutionalized economic
stagnation, increased poverty, and exacerbated inequality in these
areas. A recent World Bank study, in fact, admits that poverty worsened
in the 1990's in Eastern Europe, Subsaharan Africa, Latin America and
the Caribbean, and South Asia-all regions which have come under the
sway of World Bank-IMF adjustment programs. Indeed, so bad was the
record of adjustment programs that the IMF renamed the Extended
Structural Adjustment Facility (ESAF) the Poverty Reduction and Growth
Facility during the World Bank-IMF meeting in September 1999. So devoid
of success was the structural adjustment approach that Larry Summers,
the US Treasury Secretary, who, as chief economist of the Bank in the
early 1990's, was a partisan of adjusment, admitted to the US Congress
last year that it was time to shelve the "IMF-centered" macroeconomic
approach because it just was not working.

Recently, the IMF
has been busy creating poverty in East Asia. There is now a consensus
that the harsh program of high interest rates and budget cutbacks
imposed by the Fund turned an economic crisis into a full-blown
recession that saw negative growth rates in Thailand, Indonesia, and
South Korea accompanied by a sharp rise in unemployment and the poverty
rate. At least 1 million people fell into poverty in Thailand and 21
million in Indonesia. In Korea, the trend of declining poverty rates
between 1975 and 1995 was sharply reversed in 1998, and the recession
led to a suicide rate in 1998 that was 59.4 higher than in 1997.

As
for the World Bank, the truth about Mr. Wolfensohn's crusade to end
global poverty was revealed by the findings of the bipartisan Meltzer
Commission mandated by the US Congress to look at the record of the
Bretton Woods institutions: 70 per cent of the Bank's non-grant lending
is concentrated in 11 countries, with 145 other member countries left
to scramble for the remaining 30 per cent; 80 per cent of the Bank's
resources are devoted not to the poorest developing countries but to
the better off countries that have positive credit ratings and can
raise their funds in private capital markets; the failure rate of Bank
projects is 65-70 per cent in the poorest countries and 55-60 per cent
in all developing countries.

So why does the Bank continue to
pontificate about going about its "noble mission" to end poverty?
Because it has learned from Joseph Goebbels that a lie repeated often
enough eventually attains the status of truth.

Myth No. 4. The Fund and the World Bank are actively soliciting the help of civil society.

The
truth is that the World Bank and IMF are mainly interested in using
civil society to legitimize their unchanged approaches via
consultations that are really monologues. The Bank and the Fund are
more interested in splitting civil society opposition to their
projects, and they do this by branding some civil society groups as
"reasonable NGO's" and their more militant critics as "unreasonable
NGO's" interested only in "closing down discussion." Certainly,
dialogue with NGO's was not the intent of Mr.Wolfensohn when he avoided
debate on the merits and demerits of the Chad Cameroon Pipeline in
favor of a strategy of name-calling by branding opponents of the
project as the "Berkeley Mafia."

Let me end by addressing the
question: Are the Fund and the Bank capable of reform? I think we will
know the answer from Mr. Kohler and Mr. Wolfensohn's answers to the
following questions:

  • Mr. Kohler, do you propose to
    give greater decisionmaking power in the IMF Board to the developing
    countries? Will you do this by diluting the voting power of the United
    States and the European Union countries that now dominate the board?
  • Mr. Kohler, will you propose ending the medieval and non- transparent practice of the IMF always being headed by a European?
  • Mr.
    Wolfensohn, will you advocate doing away with the equally medieval and
    non-transparent tradition of always having an American head the World
    Bank? I would like to remind the audience that had Mr. Wolfensohn not
    given up his Australian citizenship to become an American, he would
    never have become head of the Bank.
  • Mr. Wolfensohn, why did
    you not stand by your chief economist Joe Stiglitz and allow that
    powerful voice of reform to be pushed out of his staff position and
    later from his advisory role by influential conservative forces both
    within and without the Bank?
  • Mr. Wolfensohn, what about
    Ravi Kanbur, who headed the World Development Report Project? Why did
    you not stand by this advocate of reform and allow the conservative
    forces in the Bank to stonewall him and leave him no other option but
    resignation?

So far, what we have been told here
today is that Mr. Wolfensohn feels good about going to work everyday
and that Mr. Kohler also has a heart. This frothy stuff is not the
response that we in civil society are looking for today. We want hard
answers to hard questions.

Please. 

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