29.06.2005

Behind the smokescreen

Does the World Bank aid the development of poor countries? José Là³pez examines its workings

In the period 1999-2004 the World Bank, according to its own annual report for 2005, received from poor countries $18 billion more than it disbursed to them. This begs the question: who are the real beneficiaries? It is not difficult to reply to that question, as one only need refer to the report and compare the World Bank's own excellent financial health with the critical financial state of most of its poor clients. However, the difficulty lies in the ideological smokescreen behind which the capitalist system's beneficiaries are concealed. In the World Bank's case, despite every attempt to call attention to its real exploitative nature, it continues to be largely portrayed in the international media and in statements of government officials - not least Messrs Blair and Brown - as a 'development' agency. So how does the World Bank work? Power machine The World Bank is the name that has come to be used for the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) taken together. The first provides loans, in World Bank jargon, to 'middle income' countries, such as China, Brazil, Argentina and Russia. The IDA targets the poorest of the underdeveloped counties with long-term, interest-free credit, but with fees and preconditions attached. In the World Bank system, as in the USA, there is no such thing as a free lunch. Everything has its price. The bank intervenes all over the world with the aim of looking after the interest of its main 'shareholders': ie, the USA, Japan, Germany, the UK and France. Today the World Bank, together with the International Monetary Fund, attempts to control the economic life of its 184 member-states through a close and efficient vetting of each country's economic performance and political agenda. Its main function is to ensure a capital-friendly atmosphere for the private sector worldwide rather than financing development projects for the poor countries. The IBRD/IDA claims it is "not a bank, but rather a specialised agency". This is rubbish. The World Bank is run like any Wall Street financial corporation. Its main objectives are, first, to produce profit on behalf of the main shareholders; second, to oversee (along with its twin sister, the IMF) the global capitalist order; and, third, to provide credit for the buying of industrial goods and services consumed in the underdeveloped world: ie, help expand the market for the industrialised countries. The World Bank and IMF have immense power, as part of the complex machinery of capitalist financial control, formed by the national central banks, the Paris and London creditors' clubs and regional development organisations like the European Bank for Reconstruction and Development (created to speed up privatisation in the former Stalinist economies of eastern Europe), the Asian Development Bank, the Inter-American Development Bank and the African Development Bank. The World Bank rewards with extensive credit those member-countries that comply with US-inspired neo-liberal polices and are friendly to private and particularly foreign capital. Where countries do not comply with such policies, credit facilities are simply withdrawn. The blessing of the World Bank is a sine qua non for poor countries wishing to go to the financial market, which is why they subject themselves to such tough conditions. In most cases, to do business with the Bretton Woods institutions also opens the door to private, bilateral (US, British, French, Japanese, and other OECD country aid agencies) and multilateral financing institutions. However, if a country has a special asset like oil, it may be able to go directly to private international bankers, bypassing the IBRD/IDA. That is currently the case with Angola, for example. The World Bank had earmarked for that country a total of about $500 million to finance reconstruction - provided it complied with a series of conditions. These were more transparency in the use of oil revenue, the implementation of a privatisation programme and other stipulations that the corrupt Angolan government would not have been able to meet. But Angola can use its oil production as a guarantee for credit on the international banking market. Thus, it recently negotiated a loan of $2 billion (four times more than what the World Bank was prepared to offer) from the China Eximbank, with interest charged at the London Interbank Offered Rate (Libor) plus one percent. This episode also shows how China is attempting to increase its exports to poor countries in order to compete with the USA, Japan and the European Union. World Bank loans The two most visible consequences of World Bank interventions are the setting up of projects that, most of the time, have little to do with poor countries' needs, and, secondly, an increase in the foreign debt of those countries. A third consequence, less visible, is the implementation of favourable policies towards international capital. The debt acts as the main form of control. Through a 'credit/debt/more credit to service the debt' vicious circle, the World Bank imposes its rule. And in any given period it gets back more that it puts in. The bank performs these controlling and marketing tasks from Washington DC, through its 9,300 staff members (6,300 at headquarters and 3,000 more in other locations around the world. The World Bank is a large, bureaucratic, hierarchical institution. The number of 'shares' each of the 184 member-countries has is based roughly on the size of its economy. The United States is the largest single shareholder, with 16.41% of votes, followed by Japan (7.87%), Germany (4.49%), the United Kingdom (4.3%) and France (4.31%). The rest of the shares are divided among the other 179 member-countries. However, the power of the latter is so diluted that they hardly count for decision-making purposes. It all rests in the final analysis on the US treasury, which appoints the World Bank president and main officers. Shareholder states are represented by the board of governors, as in any capitalist corporation. Generally, these governors are the ministers of finance from the member-countries - eg, Gordon Brown for the UK. Theoretically, they are the World Bank policy-makers, but in reality ultimate power rests with the US treasury, which reviews a priori every project discussed by the World Bank board. Because these ministers meet only once a year, they delegate specific duties to their representatives, who work from the Washington headquarters. The five largest shareholders - the USA, Japan, Germany, the UK and France - each appoint their own executive director, while the other 179 member-countries are represented by a further 19 executive directors in all. It is obvious that the decisions at the World Bank are biased towards the interests of the big five. Market of five billion people Of the six billion people in the world today, the one billion in the wealthy countries account for 80% of the world's gross domestic product. These wealthy countries do not receive finance from the World Bank, but they supply most of the goods and services consumed by Word Bank projects in the poor countries. Therefore, most of the loans from the World Bank do indeed come back to the wealthy countries. These countries spend $700 billion a year for military purposes and $325 billion to subsidise their agriculture (which ensures that the poor counties remain non-competitive in agriculture, and in consequence they import subsidised wheat, corn and rice from the USA, which they could otherwise produce for themselves), but only $68 billion on so-called 'development aid', which is chained through the bilateral aid programmes. The other five billion people, who account for 20% of the world's gross domestic product, are, in effect, the target market for World Bank loans and projects. They use these loans to buy industrial goods and services. The technical assistance to implement the projects is provided mostly by consultants from large international corporations - KPMG, Deloitte, Ernst and Young, etc. A so-called 'expert' working on a Work Bank project can receive $1,000 per day, plus accommodation in a Hilton or other global chain hotel, and typically drives a powerful 4x4 Toyota or Land Rover. All this paid for by the five billion poor people. When a project is completed, no one knows whether it is going to produce any added value to finance repayment of the loan. But one thing is certain: the debt of the World Bank will be paid. Because the debt owed to international banks, and specially to the World Bank, is sacred. It is guaranteed by the national treasury of the receiving country. Today a poor country might put aside, say, five or six percent of its national budget for health, education and other social expenditure. But it can pay 20%, 30% or more of the national budget to service its external debt. This situation has become so scandalous and impossible to maintain that it has produced the ongoing international circus over the cancellation of the debt for some extremely poor countries (provided they comply with World Bank neoliberal policy, of course). Never ending debt In 2004, the external debt of poor countries receiving World Bank loans increased by at least the equivalent of those loans: ie, $20.1 billion. According to the World Bank annual report, last year it lent $11 billion to finance 87 new operations in 33 middle-income countries (countries with per capita income of less than $5,115). That works out at an average of $126 million per project. The IDA, which targets so-called 'low income per capita counties', provided $9 billion for 158 new operations in 62 countries ($57 million per project). Only 20% of World Bank projects were directed to Africa, the region that is most in need of support. In addition, only seven percent of World Bank loans went to agriculture, fishing and forestry. And those are the sectors where the poor are. The World Bank projects are certainly not targeted at the subsistence farmers and the urban poor who make up about 90% of Africa's population. Serving the rich If one considers the three main spheres of regulation - the market, the state and the community - the World Bank intervenes in the first two, most notably the state, which accounts for most borrowing. But most of the world's poor are hardly touched by the large, expensive and capital-intensive World Bank machine. In conclusion, the World Bank serves to increase the gap between rich and poor - within each country and between countries and continents. This is most marked in Africa. Not only have the African masses become relatively poorer compared to the local elite, but the continent is drifting away from the capitalist mainstream and is lagging further behind in all social and economic indicators. The World Bank's policy - the 'small state', privatisation and liberalisation tout court - has speeded up the process of social breakdown and disintegration within most African states. This is for the simple reason that, as a typical capitalist bank, it not designed to reach the poor. It is a tool of income concentration for its rich shareholders: the USA, Japan, Germany, UK, France and the other industrialised countries. Meanwhile impoverishment intensifies worldwide. Under the institutions of global capital, such as the World Bank and the IMF, it is impossible to 'Make Poverty History'. The poor people themselves need to find their own way out l