The Globalization of Poverty: Impacts of IMF and World Bank Reforms

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The Globalization of Poverty: Impacts of IMF and World Bank Reforms

By Michel Chossudovsky

Zed Books Ltd. London and New Jersey. 1997. Paperback. 288 pp. ISBN: 1856494020.

Reviewed by Leo Vox

This book may be ordered online through Hunger Notes' bookstore.

In countries as diverse as Russia, India, and Rwanda, Michel Chossudovsky's The Globalization of Poverty takes severely to task the structural adjustment programs of the World Bank and International Monetary Fund. Readers uninitiated in criticism of the International Financial Institutions might perhaps be put off by Chossudovsky's polemical treatment of the Bank and the Fund. They would be mistaken, for the author joins with his rhetorical style truly remarkable insights into the workings of Bank and Fund adjustment programs in 10 countries over more than a decade.

Chossudovsky's thesis-- that Bank and Fund loan programs create economic strait jackets, which do more to impoverish the recipients and cast them in the yoke of international division of labor than to promote economic growth-- is not entirely new to Bank and Fund criticism. The strength of the book is the diversity and detail of the country studies and the author's seeming first-hand experience in several of them.
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A structural adjustment loan is a quick disbursing loan in foreign exchange, usually used to repay prior international debt, and for which a number of economic policy reforms are most often required. Balancing domestic tax receipts and spending, freeing prices from government control, freer labor markets and a private sector-oriented investment code are some of the reforms frequently required and which are thought to make the economy more efficient.

Meant to balance national budgets, rectify market imbalances and make theeconomy more competitive, the real effect of these policies, according toChossudovsky, is to impoverish the working and middle classes and cause theeconomy to plunge into a serious economic depression due to shrinking internal demand. In example after example, the book explores the deleterious effects of structural adjustment programs on the working poor through the mechanism of rising prices, falling exchange rates, higher taxes and reduced welfare programs, which Chossudovsky claims result ineluctably from the very reforms insisted upon by the World Bank and International Monetary Fund. The raising of taxes to "balance" the budget, the reduction in social programs for the same fiscal reasons resulting in disinvestment in education and health, rising market prices as a result of "freeing" them, are some of the policy effects Chossudovsky documents andcriticizes.

In addition to the more direct effects of Bank and Fund "reforms," the author accuses the institutions of promoting anti-labor policies by "freeing" up wages, as they argue for reduction or abolition of the minimum wage in the guise of enhanced competition, and for "freeing up" labor markets through anti-union provisions in local laws. As the author documents, rather than the more "efficient" use of labor that they ostensibly promote, more often than not these programs result in greater exploitation of children, women, migrants, and the poor, generally.

Alliances of local elites with the lender community often result in acceptance of the international prescriptions with otherwise scant domestic constituencies. Chossudovsky documents cases so egregious that even national policies are drafted at Bank and Fund headquarters before being forwarded for local signature. All this would seem to result from the burden of debt from which countries are unable to escape, which Bank and Fund programs caused in the first place, and which, under structural adjustment, now provide not relief but modest downsizing. Under structural adjustment the book explains how old debt is replaced with the new debt of a structural adjustment program, with its additional burden of all theexternally imposed conditions on the local economy. According to Chossudovsky, many of these conditions are hardly appropriate to local conditions, have no local base of support, certainly not among the poor or middle classes, and serve more to impoverish the country and create cheap labor for export of wealth to the developed countries than to extract the country from its situation.

In one of its few failings of insight, the book does not complete its critique of the international lending mechanism. It is not the claim that legitimate debt should be repaid, which is at the core of this critique, but the legitimacy and soundness of the debt itself. Unlike mortgage debt or business debt, created by two parties privy to risk and gain with limited liability as a fence around the transaction, with Bank and Fund debt there is no collateral, no structured investment, and a sovereignguarantee of repayment. Such conditions all too often imply that international institutions will insist upon loan repayment by the mass of working poor.

As Chossudovsky's very informed country case studies show, the Bank and Fund are not dupes to local elites but willing partners in this exchange. The exchange of non-performing loans for structural adjustment loans with their ensuing policy conditionality allows the International Financial Institutions (IFIs), through the mechanism of sovereign guarantee commitments, to extend the system's dominion and consequently their own power through the structures of finance. A country that doesn't repay a Bank or Fund loan, even for a totally bankrupt project, will be excluded from future international loans and trade. Here Chossudovsky's examples, especially what happened to Peru in the late 1980s as a result of President Garcia's policy of limiting debt repayments to what could be afforded, are particularly illustrative. IFI loans are the only types of loans for which such draconian practices prevail. For ordinary commercial bank loans, collateral is split at the end of the day, once a borrower is unable to repay. Under the "poor pay all" system of international lending, economic impoverishment, child labor and human suffering are, unfortunately, only too likely outcomes. There are many positive aspects to the structural adjustment programs as well, especially those providing enhanced economic freedoms, and these are among the aspects of the programs its defenders would stress. Unfortunately, by the time these are put in place it is very much too late for many to have very significant effects.

Where the average reader may have the most difficulty with the book's thesis is in following the arguments to their implicit conclusion of willful intent. Michel Chossudovsky is Professor of Economics at the University of Ottawa. As many economists he seems to believe that individual and institutional acts can be treated as rational constructs with a particular purpose in mind. Alas, in dealing with the Bank and the Fund and their staffs the purpose he attributes to them as final arbiter of an international system of wealth, class and the transmission of political power is little understood generally and most significantly, littleunderstood by those who are its primary agents. How does the system defend its actors from its own logic? Here we might be of some help.

The staffs of the IFIs are hardly the villains who deliberately promote child labor, wreak havoc with the fragile economies of Rwanda, India and Bangladesh, deval‎ue currencies and force the repeal of minimum wage laws, as one might conclude from Chossudovsky's analysis. The staffs of these institutions are for the most part hopelessly middle-class creatures who by dint of being somewhat overpaid have become zealous defenders of a system which they understand only in part. A system which goes in large measure to assure the wealth, power and its counterpart poverty, from which they profit, but of which they are also, to a lesser extent, the victims. Staffs and defenders of the IFIs would point to the good intentions of the programs, sound technical foundations, the moral soundness of debt repayment and that local corruption and mismanagement are not the fault ofthe Bank and the Fund. All this may be true at the same time that the IFIs have played an important role in the repartitioning of wealth between the industrialized and underdeveloped world.

Quite recently, the G-7 has pledged to forgive a portion of multilateral debt whose repayment has become increasingly onerous, as well as unlikely. While it remains to be seen whether our Congress will vote the funds to implement this accommodation, at a time when the system remains overwhelmingly intact, The Globalization of Poverty is a good reminder of where it has taken us.

Leo Vox is the pen-name for an economist from the United States Agency for International Development.

The following excerpt is from: The Globalization of Poverty; Ch. 6, pp. 125-35:

“India: The IMF's "Indirect Rule”

World Bank structural adjustment loans and IMF loans were signed shortly after the assassination of Rajiv Gandhi in November, 1991. Earmarked for repayment of six months of debt servicing of India's external debt totaling $80 billion, the loans helped stem a crisis of confidence on the part of international lenders. Policy conditionality on which the loans were predicated, while held tightly as a "state secret", is reported to have been wide sweeping in its scope. Ensuing measures to address balance of payments difficulties, reduce the fiscal deficit and relieve inflationary pressures may have had just the opposite effect. The economy suffered from "stagflation", the price of rice increasing by more than 50 percent in the months following the 1991 measures and the balance-of-payments continued to deteriorate as rising import costs were not able to be offset by a decline in imports of essential commodities or an increase in exports. The negative effects of the program on internal demand pushed a large number of firms into bankruptcy. The program resulted in dismissal of roughly one-fifth of the public sector work force with only a very modest "safety net". More "liberal" labor legislation may have marginalized further lower wage employees and landless farm workers as wages for these groups came under pressure while consumer prices rose.

While in recent years India has returned to economic growth in the neighborhood of 5 percent per annum, the program may well have contributed to a two-tier economy of increasing poverty for some and growing opportunity for others.”



The Globalization of Poverty and the New World Order

by Michel Chossudovsky

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In this new and expanded edition of Chossudovsky’s international best-seller, the author outlines the contours of a New World Order which feeds on human poverty and the destruction of the environment, generates social apartheid, encourages racism and ethnic strife and undermines the rights of women. The result as his detailed examples from all parts of the world show so convincingly, is a globalization of poverty.

This book is a skilful combination of lucid explanation and cogently argued critique of the fundamental directions in which our world is moving financially and economically.

In this new enlarged edition –which includes ten new chapters and a new introduction– the author reviews the causes and consequences of famine in Sub-Saharan Africa, the dramatic meltdown of financial markets, the demise of State social programs and the devastation resulting from corporate downsizing and trade liberalisation.

Michel Chossudovsky is Professor of Economics at the University of Ottawa and Director of the Centre for Research on Globalization (CRG), which hosts the critically acclaimed website www.globalresearch.ca . He is a contributor to the Encyclopedia Britannica. His writings have been translated into more than 20 languages.

Published in 11 languages. More than 120,000 copies sold Worldwide.

In these unprecedented economic times, the world is experiencing as a whole what most of the non-Industrialized world has experienced over the past several decades. Michel Chossudovsky takes the reader through a nuanced examination of the intricacies of the global political-economic landscape and the power players within it; specifically, looking at how the World Bank and IMF have been the greatest purveyors of poverty around the world, despite their rhetorical claims to the opposite. These institutions, representing the powerful Western nations and the financial interests that dominate them, spread social apartheid around the world, exploiting both the people and the resources of the vast majority of the world’s population. As Chossudovsky examines in this updated edition, often the programs of these International Financial Instittutions go hand-in-hand with covert military and intelligence operations undertaken by powerful Western nations with an objective to destabilize, control, destroy and dominate nations and people, such as in the cases of Rwanda and Yugoslavia.

To understand what role these international organizations play today, being pushed to the front lines and given unprecedented power and scope as ever before to manage the Global Economic Crisis, one must understand from whence they came. This book provides a detailed, exploratory, readable and multi-faceted examination of these institutions and actors as agents of the ‘New World Order,’ for which they advance the ‘Globalization of Poverty.’

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“In its entirety, the book can and should be read by all with an interest in world peace and the causes of poverty.” Frances Hutchinson, The Ecologist

“This concise, provocative book reveals the negative effects of imposed economic structural reform, privatization, deregulation and competition. It deserves to be read carefully and widely.” Choice, American Library Association (ALA)

“The current system, Chossudovsky argues, is one of capital creation through destruction. The author confronts head on the links between civil violence, social and environmental stress, with the modalities of market expansion.” Michele Stoddard, Covert Action Quarterly

“This detailed study by an economics insider shows the consequences of “reforms” in various parts of the world, reveals a clear pattern of callous neocolonialism. Definitely red-pill material.” Richard K. Moore, Whole Earth.

“As Michel Chossudovsky, author of The Globalisation of Poverty, has pointed out, an entirely undemocratic world body “has been casually installed in Geneva, empowered under international law with the mandate to ‘police’ country level economic and social policies”. This amounts to a “repeal of the Universal Declaration of Human Rights”, providing “legitimacy to trade practices which border on criminality [including] the patenting of human life forms”. John Pilger, New Statesman.

“More than just an austerity program, Chossudovsky believes the conditions the IMF demands of countries – with little choice but to accept – are draconian…He also believes the IMF is getting its direction from the wealthy Wall Street investment banks which act as informal policy advisers and more formally, help structure and deliver bailout packages. “There are powerful financial actors behind this,” he says. While Chossudovsky, author of The Globalization Of Poverty, is careful not to suggest a conspiracy, he says large multinational corporations and investment houses benefit from the chaos in countries like South Korea and Indonesia once their currencies are deval‎ued.” Laura Eggertson, The Toronto Star

“Michel Chossudovsky is one of the leading intellectuals of the antiwar movement, perhaps the best, as I find he works his tail off in documenting the material he presents and is rigorous in his analysis.” Jude Wanniski, Polyconomics.

“Chossudovsky gives us a clear analysis of how the International Monetary Fund has well served this corporate plan. He gives us case studies of the ”restructuring” and subsequent impoverishment of the people in countries like Somalia, Peru and Russia. He lays out the blueprint for the rest of the world.” Briarpatch

“… I recommend to all interested in our political and financial future, unemployed or in work, to buy or borrow, one of the most informative books on the consequences of global poverty, written by Michel Chossudovsky.” Stan Kent, Scunthorpe Evening Telegraph

“University of Ottawa economist Michel Chossudovsky calls our era a global ”cheap labour economy”. The underlying problem is only made worse by IMF-sponsored reforms that impoverish millions of people. Economic Justice Report

“Michel Chossudovsky, offers in his book The Globalisation of Poverty an impressive presentation of the destructive effects macroeconomic restructuring has had on Yugoslavia and its 24 million people.” Paul Surlis, National Catholic Reporter

Read Review of First Edition

Read Review of First Edition (Covert Action Quarterly)

Reviews by readers who purchased the First Edition

Reviews by readers who purchased the Second Edition

Recent Amazon Reviews of the Second edition

“Battling Mainstream Economics” by Juliet ONeill (Biographical sketch of Michel Chossudovsky), Ottawa Citizen

Read mainstream media review: The Voice of America (VOA)

Links to Michel Chossudovsky’s writings (Google Search)

See also Michel Chossudovsky’s book entitled America’s War on Terrorism, 2nd Edition

Michel Chossudovsky is the 2003 Recipient of the Human Rights Prize of the Society for the Protection of Civil Rights and Human Dignity, Berlin, Germany.

Globalization of Poverty, (German edition) was classified No. 2 in the Top Ten “best” non-fiction titles in Germany, July 2002, by a panel of writers, journalists and scholars.

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The original source of this article is Global Research

Copyright © Prof Michel Chossudovsky, Global Research, 2011


IMF and Economic Colonialism

https://www.bibliotecapleyades.net/sociopolitica/sociopol_globalbanking208.htm


https://humanitycollege.org/category/imf-and-economic-colonialism/