Global Policy Forum

The World Bank and the IMF are beyond Reform.
Shut them Down.

By George Monbiot

A few months ago I used this column to argue that the World Bank was destroying health and education in the developing world. In Zambia, for example, the conditions the bank had attached to its loans - cuts in state spending and the privatisation of services - had contributed to a 25% increase in infant mortality since 1980 and, as parents now have to pay to have their children educated, a disastrous decline in school enrolment.

The bank, oddly enough, didn't seem to be too happy about my analysis. "It is simply false," Mats Karlsson, one of its vice-presidents wrote, "to claim that the World Bank is further impoverishing people." It was, he insisted, lending developing countries more money for health, education and poverty reduction than ever before.

This is perfectly true. This year, for example, the World Bank will be handing out some $1.9bn for schools in poor countries. It will also be destroying schooling worth many times this amount by continuing to insist that countries put debt repayments ahead of public spending. It has yet to explain why on earth it is making dollar loans for schools in the first place, when nearly all their costs are incurred in local currencies. Only if local provision is to be replaced by foreign contractors, or if children are to be given computers before they are taught to read or write, does lending hard currency for basic education make sense. First they break your legs, then, by way of compensation, they offer you a pedicure.

At their grand summit in Prague at the end of this week, the World Bank and the International Monetary Fund will insist, as the IMF's former managing director has claimed, that they are now "the best friends of the poor". The bad old days of "structural adjustment" - forcing all the countries they deal with to accept precisely the same neoliberal prescriptions - are over. Instead of being obliged to accept policies imposed by the first world, debtor nations will now be allowed to devise their own "poverty-reduction strategies".

This sounds fine, until you discover that, as the World Development Movement has documented, the recipient countries can request whatever they want as long as it's neoliberalism. As one senior bank official pointed out, the new scheme is a "compulsory programme, so that those with the money can tell those without the money what they need in order to get the money".

To me, the abiding mystery surrounding the World Bank and the IMF is why anyone still believes that they are capable of reform. The New Economics Foundation concludes its devastating critique of the two bodies by suggesting only that they should "undergo democratic overhauls". Even the Guardian's usually far-sighted economics editor, Larry Elliott, has argued that those who believe the World Bank and IMF are inherently corrupt "are not only wrong, but are giving succour to extremists on the right who oppose all but minimalist government and despise internationalism". There is, most commentators agree, no alternative to the existing global financial system.

This is not a consensus that John Maynard Keynes would have joined. In 1944, he warned that a financial system which imposed penalties and strictures on debtor nations but not creditor nations would ensure that the rich became richer and the poor became poorer. He proposed a global financial institution which would charge interest on both debt and credit. Creditor nations would thus be encouraged to spend their surpluses in debtor nations, automatically correcting imbalances in trade.

The US proposed an alternative system. Help for debtor nations would be confined to a fund and a bank which lent them money when they got into trouble. These would both be based in Washington and effectively controlled by the creditors. As Keynes foresaw, the US proposal would ensure both that debtor nations fell further into debt and that creditors - the US in particular - could exercise ever-greater economic and political power over them. But the US told Britain that if we didn't accept its proposal, we wouldn't get our war loan.

The World Bank and the IMF, in other words, were conceived as the policemen for a coercive and grossly unbalanced world order. The idea that they could deliver anything but disaster for the world's poor is laughable. If, as they will claim in Prague, they want to help build a fairer world, then they must start by closing themselves down.

George Monbiot kindly refers to our recent critique of the democratic deficit at the IMF and World Bank as "devastating" (Helping the poorest to get poorer, September 20). But he seems disappointed that we merely conclude that a new constitutional settlement for the world economy needs to be grown from the roots up, and that we need to force financial institutions through a process of fundamental democratic reform.

Having criticised virtually every aspect of the IMF and World Bank, to stop short of calling for their outright abolition is made to appear to be arguing in their favour. I'd like to thank George for giving me the vicarious thrill of ideological cross-dressing.

Just because the fund and bank are not doing their jobs (or because they are doing the wrong job) doesn't mean that we don't need international institutions to iron out the vast inequalities of the global economy. Or agencies to prevent any further meltdowns in the anarchic financial markets, and the human misery they produce.

Economic policies should be shaped at the local level using initiatives such as citizens' juries and issue forums. At the World Bank they know that only genuine local participation makes projects and policies work - yet all the big decisions are still taken by an aristocratic economic minority on their board.

Economic democracy has become one of the central struggles of our time. The fund and bank's limited and misguided economic mission should take a back seat to the environment and human development targets agreed internationally. If the global economy was an ungoverned free-for-all the poorest people would suffer most. The answer to many of our problems, as we say in the title of our report is: It's democracy, stupid. All we are doing, of course, is asking for the moon. But it is preferable to jumping into a black hole.

Andrew Simms is head of the global economy programme, New Economics Foundation

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.