IMF
And World Bank Face
Declining Authority As Venezuela Announces Withdrawal
By Mark Weisbrot
04 May, 2007
McClatchy-Tribune / CEPR
Venezuela's
decision this week to pull out of the IMF and the World Bank will be
seen in the United States as just another example of the ongoing feud
between Venezuelan President Hugo Chavez and the Bush Administration.
But it is likely to be viewed differently in the rest of the world,
and could have an impact on both institutions, whose power and legitimacy
in developing countries has been waning steadily in recent years.
Other countries may follow. President Rafael Correa of Ecuador announced
last week that it was kicking the World Bank's representative out of
the country. It was an unprecedented action, which President Correa
punctuated by stating that "we will not stand for extortion by
this international bureaucracy." In 2005, the World Bank withheld
a previously approved $100 million loan to Ecuador to try to force the
government to use windfall oil revenues for debt repayment, rather than
the government's choice of social spending.
This is the way these two
institutions have operated for decades. With the IMF as leader, and
the U.S. Treasury department holding veto power, they have run a "creditors'
cartel" that has been able to exert enormous pressure on governments
over a wide variety of economic issues. This pressure has not only generated
widespread resentment, but has also often led to economic failure in
the countries and regions where the IMF and World Bank have had the
most influence. Over the last 25 years Latin America has had its worst
long-term economic growth performance in more than a century.
Venezuela also has specific
grievances against the IMF, which are likely to generate sympathy in
other developing countries with democratic, left-of-center governments.
On April 12, 2002, just hours after Venezuela's democratically elected
government was overthrown in a military coup, the IMF stated publicly
that it was "ready to assist the new administration [of Pedro Carmona]
in whatever manner they find suitable."
This instantaneous show of
financial support for a newly installed dictatorship - one which immediately
dissolved the country's constitution, general assembly, and Supreme
Court - was unprecedented in the IMF's history. Typically the IMF does
not react so quickly, even to an elected government. It is no wonder
that this move was seen in Venezuela and elsewhere as an attempt by
the IMF to support the coup itself. Washington, which dominates the
Fund, had advance knowledge of the coup, supported it, and funded some
of its leaders - according to U.S. government documents.
In additions, Venezuela has
not been happy with the IMF's consistently under-projecting its economic
growth in recent years, as the Fund has also done with Argentina. The
IMF's forecasts are widely used and can therefore influence investors.
But the resentment against
the IMF and World Bank, and demands for change, are worldwide. The scandal
over Paul Wolfowitz's leadership at the World Bank, which is about to
topple the Bank's most unwanted president ever, is just the tip of the
iceberg. Last month the IMF's Independent Evaluation Office stated that
since 1999, nearly three-quarters of aid to the poor countries of Sub-Saharan
Africa are not being spent. Rather, at the IMF's request, it is being
used to pay off debt and accumulate reserves. This is a terrible thing
to do to some of the poorest countries in the world, who desperately
need to spend this money on such pressing needs as the HIV/AIDS pandemic.
Venezuela's decision is likely
to strengthen the hand of developing nations within the IMF and World
Bank who are demanding serious reforms. Right now the United States,
with less than 5 percent of the world's population, has more votes in
the IMF than countries representing the majority of the planet. The
world's developing countries, which bear the brunt of these institutions'
mistakes, have little or no voice in their decision-making. Venezuela's
move - and any other countries that follow - will show the IMF and World
Bank that the option of quitting these institutions altogether is a
real one.
Whether this will spur reform
that can actually change the colonial relationship that these institutions
maintain with their borrowers remains to be seen. More likely, they
will simply continue to become less relevant to the developing world,
as has happened drastically over the last decade.
Mark Weisbrot is Co-Director
of the Center for Economic and Policy Research, in Washington, DC
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