By Greg Palast
15 October, 2003
protesters in the streets of Seattle were ridiculed for their belief
that the World Bank, the International Monetary Fund, and the world's
finance ministers enter into secret agreements to impoverish developing
nations. Here, in fact, is one such agreement: Argentina's "Country
Assistance Strategy Progress Report" from June 2001. This document,
nominally produced by the World Bank, represents the interlocking directives
of both the Bank and the IMF, as well as, indirectly, the wishes of
both institutions' largest patron, the United States Treasury Department.
Marked "Confidential" or "Official Use Only," these
reports are seldom publicized to the citizenry bound up in their stipulations.
And yet for the 100-plus that rely on IMF and World Bank loans-countries
such as Argentina, Tanzania, Ecuador, Sierra Leone-such agreements serve
as de facto legislation, meticulous in detail and ideological in thrust.
Although couched as loan conditions or as helpful development advice,
these reports more closely resemble the minutes of a financial coup
To reduce its deficit
per IMF decree, Argentina had cut $3 billion from government spending-a
cut that was necessary, the authors note here, to "accomodat[e]
the increase in interest obligations." These obligations, the report
did not need to add, were largely to foreign creditors, including the
IMF and World Bank themselves. Since 1994, in fact, Argentina's budget
deficits had been entirely attributable to interest payments on foreign
loans. Excluding such payments, spending had remained constant at 19
percent of GDP. Despite the visible harm caused by cuts, the new plan
ordered more. This, the report promised, would "greatly improve
the outlook for the remainder of 2001 and 2002, with growth expected
to recover in the later half of 2001." The Bank was slightly off
the mark. By December 2001, Buenos Aires' middle class, unaccustomed
to hunting the streets for garbage to eat, joined the poor in mass demonstrations.
How had Argentina
arrived at such an impasse? In the 1990s the nation was the poster child
for globalization, having followed without question the IMF and World
Bank program. The "reform" plan for Argentina, as for every
nation, has four steps. The first of these, capital market liberalization,
was achieved by 1991's "Convertibility Plan," which pegged
the Argentine peso in a one-to-one relationship with the U.S. dollar.
This peg was designed both to keep inflation low and to make deficit
spending difficult, in hopes of attracting and comforting foreign investors.
Liberalized markets free capital to flow in and out across borders.
But once Argentina's economy began to wobble, money simply flowed out....
The second step
in the IMF/World Bank regimen is privatization. Both at the urging of
lenders and out of financial necessity, Argentina throughout the nineties
sold off what Argentines now ruefully call "las joyas de mi abuela,"
grandmother's jewels: the state's oil, gas, water, and electric companies
and the state banks. It was quite a fire sale. Vivendi of France won
rural water systems; Enron of Texas the pipes of Buenos Aires; Fleet
of Boston took the provincial banks....
In 1994, at the
World Bank's urging, Argentina partially privatized even its social
security system, diverting much of it into private accounts. The U.S.-based
Center for Economic and Policy Research calculated the revenue loss
from this decision alone to be almost equal to the nation's budget deficit
during the period.
The third prong
of the laissez-faire putsch is market-based pricing. In Argentina, the
main target of this initiative has been labor, that most inflexible
of commodities. "A major advance was made to eliminate outdated
labor contracts," states this report, noting approvingly that "labor
costs" (i.e., wages) had fallen due to "labor market flexibility
induced by the de facto liberalization of the market via increased informality."
Translation: workers who lost unionized jobs were forced into ad hoc
arrangements, with far less protection. Here, the report asks the government
to decentralize collective bargaining, a move that would reduce union
Far from achieving
this goal of "unemployment in single digits," the World Bank
and IMF saw the jobless figure in the Buenos Aires area rise from 17
percent to a staggering 22 percent in the year after the report's issuance.
The violence and looting that rocked that rocked the city in December
2001 thus represents a stage in the "austerity" process that
Stiglitz terms the "IMF riot." When a nation, he said, "is
down and out, [the IMF] takes advantage and squeezes the last pound
of blood out of them. They turn up the heat until, finally, the whole
cauldron blows up."....
Step four of the
IMF/World Bank program is free trade. The loan terms of the two institutions
had required Argentina to accept "an open trade policy." As
recession set in, Argentina's exporters-whose products were effectively
priced, via the peg, in U.S. dollars-were forced into a spectacularly
unequal competition against Brazilian goods priced in that nation's
devalued currency. Argentina grows a special kind of long-grain rice
favored by Brazilians, and yet even as Brazil faced a hunger crisis
tons of rice went unsold....
Before 1980, when
the World Bank and IMF set out to rearrange the economies of developing
nations, nearly all of them adhered to Keynesianism or socialism. Following
the "import-substitution model," they build locally owned
industry through government investment, behind a protective wall of
tariffs and capital controls. In those supposed economic dark ages,
spanning roughly from 1960 to 1980, per-capita in-come grew by 73 percent
in Latin America and by 34 percent in Africa. By comparison, since 1980,
Latin American income growth has slowed to a virtual halt-to less than
6 percent over twenty years-while African incomes have declined by 23
percent. The IMF itself, in a statement accompanying its April 2000
"World Economic Outlook" report, noted that "in recent
decades, too many countries, and nearly one-fifth of the world population,
have regressed? This is arguably one of the greatest economic failures
of the 20th Century." On this, at least, the IMF had it right.
Greg Palast is
author of the New York Times bestseller The Best Democracy Money Can
Buy: An Investigative Reporter Exposes the Truth About Globalization,
Corporate Cons and High-Finance Fraudsters. You can view Palast's reports
for BBC Television's Newsnight and his columns for the Guardian papers
of London at www.gregpalast.com