July 5, 2001
Developing countries that approach the International Monetary Fund (IMF) for financial aid have to accept onerous terms and often end up losers, while the big winners are the Western banks and the US Treasury, a report said. Columnist Gregory Palast said in London's Observer News Service that he came to the above conclusion after interviews with former World Bank chief economist Joseph Stiglitz and poring over confidential IMF documents which he managed to secure.
Palast said when a financially troubled government approached the IMF for a rescue package, the world agency would invariably impose on the hapless government four conditions: privatisation, capital market liberalisation, market-based pricing, and free trade. He quoted Stiglitz as saying IMF's privatisation process could more accurately be described as "briberization."
Palast said that rather than objecting to the sell-offs of state industries, national lenders using the World Bank's demands to silence local critics happily flogged their electricity and water companies. As for capital market liberalisation, he said although in theory the process allowed investment capital to flow in and out, the money often simply flowed out as in the case of Indonesia and Brazil. Stiglitz called this "hot money cycle."
Palast said the IMF demanded these nations raised their interest rates to 30%, 50% and 80%, when funds fled. As a result, the higher interest rates demolished property values, savaged industrial production and drained national treasuries. "At this point, the IMF drags the gasping nation to step three: market-based pricing a fancy term for raising prices on food, water and cooking gas.
"This leads, predictably, to step three-and-a-half: what Stiglitz called 'the IMF riot'," Palast said. "The IMF riot is painfully predictable. When a nation is down and out, the IMF takes advantage and squeezes the last blood out of them. They turn up the heat until, finally, the whole cauldron blows up as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998," he added.
The fourth IMF prescriptive step, free trade, was played by the rules of the World Trade Organisation and the World Bank, and Stiglitz likens it to the Opium Wars. "That too was about opening markets," he said. While in the Opium Wars, the West used military blockade, the World Bank could order a financial blockade, which is just as effective and sometimes just as deadly, Palast said.
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