How the International Monetary Fund and the World Bank Undermine Democracy and Erode Human Rights:
Five Case Studies
|Also available as a
Published by Global Exchange
The policies of the International Monetary Fund and the World Bank have systematically undermined democratic principles and eroded human rights protections in dozens of countries around the globe.
By insisting that national leaders place the interests of international financial investors above the needs of their own citizens, the IMF and the World Bank have short circuited the accountability at the heart of self-governance, thereby corrupting the democratic process. The subordination of social needs to the concerns of financial markets has, in turn, made it more difficult for national governments to ensure that their people receive food, health care, and education -- basic human rights as defined by the Universal Declaration of Human Rights. The Bank's and the Fund's erosion of basic human rights and their perversion of the democratic process have made the institutions a clear and present threat to the well being of hundreds of millions of people worldwide. The institutions, Global Exchange strongly believes, must be abolished and redesigned from scratch through a genuinely democratic, inclusive and transparent process involving all of the world's nations.
For more than 50 years, the IMF and the World Bank have advanced a form of economic "development" that prioritizes the concerns of wealthy lenders and multinational corporations in the industrialized north while neglecting the needs of the world's poor majority. The institutions work as a kind of international loan shark, exerting enormous influence over the economies of more than 60 countries. In order to get loans, international assistance, and debt relief, countries must agree to conditions set by the Bank and Fund. Under the guise of promoting "free trade," market liberalization, and financial stability, these two institutions have forced cuts in health care, education and other social services for millions of people across the planet, thereby deepening poverty and increasing inequality. By elevating concerns about macroeconomic financial stability above all other competing values, the institutions have created a human rights catastrophe.
The Universal Declaration of Human Rights, adopted by the United Nations General Assembly in 1948, is the foundation of modern international human rights defense and promotion. The Declaration is built on the principle that human rights come from the "inherent dignity" of every person. This dignity, and the rights to freedom and equality which derive therefrom, are inalienable.
Though best known as guarantor of liberties such as freedom from repression, freedom of expression and freedom of association, the Declaration places as much importance on the guarantee of economic rights as it does on the protection of political and civil liberties. The Declaration is unequivocal and explicit in its demand that economic security is just as central to human dignity as freedom of conscience.
For example, the Declaration establishes "the right to work, to free choice of employment, to just and favorable conditions of work and to protection against unemployment" as a basic human right. The "right to equal pay for equal work" as well as a worker's "right to form and to join trade unions for the protection of his interests" are considered central to human dignity. Basic, and free, education is also established as a universal human right. More broadly, the Declaration asserts: "Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control."
Together, the economic security articles of the Declaration underscore that political rights can be enjoyed only when basic human needs have been satisfied. Without economic security, freedom of conscience -- the liberty to grow as an individual -- is impossible. As Article 22 states: "Everyone ... has the right to social security ... [and] the economic, social and cultural rights indispensable for his dignity and the free development of his personality."
In dozens of countries around the world, the IMF and the World Bank have violated that "right to social security." The institutions have forced debtor countries to cut social spending on health, education, and other public services. They have pressured poor nations to charge their own citizens for the use of public schools and public hospitals. And they have demanded that countries keep their wage levels low, a policy which harms ordinary citizens but benefits multinational corporations.
In compelling countries to adopt such policies, the IMF and the World Bank have not only threatened communities' right to social security -- they have also undermined countries' democratic systems. Democracy rests on the principle that government officials and elected representatives are servants of the citizenry at large. Elected leaders' ultimate accountability is to the people they serve. The Bank and the Fund have severed that chain of accountability by making national leaders more concerned with the interests of international investors than with the needs of their own people. As soon as government officials begin worrying more about what Wall Street will think than what their own people think, democracy has been perverted.
Since 1976, at least 100 protests against Fund and Bank policies have occurred in dozens of countries around the world (see Appendix 1). Clearly, ordinary citizens are outraged with the institutions' policies. The continued adoption of those policies reveals the democracy disconnect fostered by the IMF and the World Bank.
The IMF's and World Bank's history of socially irresponsible and environmentally unsustainable policies are too long to present in a brief statement. It is necessary, then, to focus on just a few examples of how these institutions' policies have threatened human rights and democracy throughout the world.
In Haiti and Mexico, the Fund and the Bank have actively worked to keep wages low, making it more difficult for ordinary citizens to support themselves. Throughout Africa, the IMF's and World Bank's imposition of "user fees" for health services and the institutions' resistance to meaningful debt relief have worsened the AIDS crisis ravaging that continent. In Colombia, the IMF has demanded social service cuts even as the country suffers from recession and civil war. In Brazil, as in many other countries, the World Bank has meddled in domestic politics by inserting itself into one side of a heated social debate. And in all of these places, as in many more not mentioned here, the institutions have directed the most political of decisions -- the allocation of national resources -- thereby undermining national democracies.
Once again we have to say, "Enough!" The IMF and World Bank say their policies are designed to succeed in the "long run." But after more than 20 years of managing dozens of economies, the institutions have created more inequality, more environmental destruction, and no real security. It is long past time for the US and the other wealthy nations that enjoy de facto control over the institutions to call for the abolition of the IMF and the World Bank and to begin work to create multilateral financial institutions that are truly committed to human rights and democracy and which can effectively respond to the new realities of the 21st century. Policy makers everywhere must recognize that another world is possible.
Mexico: A "model student"?
For nearly 20 years, Mexico has followed almost every economic policy mandate from the International Monetary Fund and the World Bank. Mexico's compliance with IMF dictates has been so reliable, in fact, that in 1994 the IMF and the World Bank lauded the country as a "model student" that other Latin American countries should emulate. Some model. Since Mexico first adopted the IMF prescriptions of trade "liberalization," privatization and deregulation, real wages have fallen, poverty and inequality have increased, and the country's massive debt burden has grown.
Mexico's experience with IMF policies offers a clear example of how the Fund sacrifices the well being of ordinary people to suit the interests of international investors. In an effort to head off short- term financial crises -- and calm investors' fears -- the IMF has undermined Mexico's chances of creating a stable, well-balanced economy.
The IMF Arrives in Mexico
Many US citizens assume that Mexico's entry into the new global economy occurred when the country signed the North American Free Trade Agreement (NAFTA) in 1993. But Mexico's economy was opened up to the forces of corporate-led globalization long before NAFTA went into effect. Before anyone had heard of NAFTA, the IMF was already setting Mexico on the structural adjustment path.
In 1982, a fall in international oil prices combined with a rise in interest rates in international financial markets forced Mexico to announce that it was on the verge of defaulting on its foreign debt. The "debt crisis" of 1982 also impacted countries throughout Latin America, Africa and Asia, giving the IMF the chance to determine the fiscal and monetary policies of countries around the world.
Mexico asked the IMF for assistance, and the Fund obliged with a $3.9 billion credit package. The IMF's 1982 assistance package was strictly quid-pro-quo. To receive the new loan -- and the Fund's all-important seal of approval, which opens the door to other public and private credit -- Mexico would have to embark on a series of market reforms. Public spending would have to be cut, government enterprises would need to be privatized, industry would have to be deregulated, and the country would have to open up to more foreign trade and investment. Subsequent agreements with the IMF in 1986 and 1989 further cemented this policy path.
In an effort to boost foreign investment in Mexico and decrease the country's imports -- which would hopefully lower the country's trade (or current account) deficit -- the IMF in the late 1980s sought to contract economic activity and stabilize wages. The IMF worked with the Mexican government and the country's businesses and government-controlled labor unions to establish a set of social pacts, or "Pactos," to keep wages in check. Workers' earnings were indexed to "expected" levels of inflation. Unfortunately for Mexican workers, inflation rose more than expected. Between the implementation of the first Pacto in December 1987 and May 1994, the minimum wage increased by 136 percent, while the cost of a basic basket of consumer goods rose by 371 percent.
That sort of decrease in real earnings would lead Mexicans to call the 1980s the "lost decade." During the 1980s, real wages (adjusted for inflation) declined by more than 75 percent, and between 1981 and 1990 workers' share of national income fell from 49 to 29 percent. Government investments in education, research and development, and infrastructure were reduced. The IMF policies, which supposedly were intended to make Mexico more internationally competitive, were actually doing the opposite by limiting investment in the very areas needed to make a country more productive. It was a development "strategy" doomed to fail.
The Cost of Privatization
While ordinary wage earners saw their incomes plummet, they were confronted with increasing consumer prices. Since 1983, Mexico has sold off nearly 1,000 public enterprises. These privatizations were intended to inject come cash into government coffers. While the sell-offs did, in the short term, earn the government new money, the privatizations hurt ordinary consumers. The privatization of Telmex, the country's phone system, is just one example of how the IMF privatization agenda hurt average citizens more than it helped them.
In 1990 President Carlos Salinas de Gortari sold off the country's profitable phone system, Telmex. The World Bank provided substantial technical assistance to the Mexican government to help with the sale. The winners were multinational communication corporations Southwestern Bell and France Telecom. Mexican phone users were the losers. In the months before the sale -- in an attempt to make the Telmex a more attractive buying prospect -- the government increased rates on local calls from 16 pesos per minute to 115 pesos per minute.
In a 1992 report, the World Bank admitted that "the privatization of Telmex, along with its attendant price-tax regulatory regime, has the result of 'taxing' consumers -- a rather diffuse, unorganized group -- and then distributing the gains among more well-defined groups, shareholders, employees, and the government." The Bank predicted that rates would decrease in the long run. But the long run still hasn't arrived. Although rates on international calls have dropped, that decrease has been offset by a rise in the cost of long distance calls within Mexico.
Other privatizations have been equally distressing for average Mexicans. The World Bank has concluded that privatization contributed to a "worsening of the already skewed and concentrated pattern of ownership distribution in the economy." A glaring example of this is corn, Mexico's traditional staple crop. For years, small scale farmers have seen government support evaporate as the IMF demanded an end to tariffs and import quotas on the grain and an elimination of government assistance with marketing and distribution of locally grown products. In recent years, a flood of subsidized US corn has caused a 45 percent decrease in the prices corn farmers receive for their commodity. This has pushed millions of farmers off their land and into the urban ghettoes or toward the US. And yet -- because of the monopolistic control of the Mexican corn processing industry -- consumer prices have not gone down. In fact, tortilla prices have actually increased in the last 15 years.
A "Success" Built on Sand
By the early 1990s, after the "lost decade," the Mexican economy started to show signs of improvement. Inflation came down, and some economic growth occurred. But it was a success built on sand. The Mexican economy was relying more and more on foreign capital flows, most of which were short-term portfolio investments. The increasingly volatile capital flows boosted the Mexican peso, a benefit for foreign investors, but it worsened the country's trade deficit by making Mexican exports more expensive.
By mid-1994, foreign investors -- assuming the Mexican government would devalue the peso to make exports more competitive -- began pulling their money out of Mexico. In December 1994, Mexican officials were forced to devalue the peso. In January 1995, the government again asked the IMF for assistance. The IMF lent the country $7.75 billion, and the US Treasury loaned another $18 billion. A new round of privatizations were prescribed to raise quick cash and pay off the loans. Under the 1995 agreement with the IMF, transportation, banking and finance, railways and the petrochemical industries were all to be sold off. Once again, the IMF was offering policies that responded to the short term financial concerns of international investors rather than to the basic needs of or ordinary Mexicans.
The1995 peso devaluation -- combined with an IMF-mandated rise in interest rates designed to lure investors back to Mexico -- sparked the worse depression in Mexico in 60 years. Unemployment doubled. More than 12,000 Mexican businesses filed for bankruptcy. And millions of families dropped below the poverty line.
As the Mexican economy came virtually to a standstill, the IMF blamed the Mexicans, complaining that human error and mismanagement of financial variables had led to the crisis. The IMF's attempt to shift blame for the economic collapse seemed to many Mexicans an insult. The country had followed all of the Fund's prescriptions. The peso devaluation, after all, was due in large part to the short-term capital flooding the country, and that flood was precipitated by the deregulation of the country's financial markets which the Fund had demanded.
Trading Away the Future
Even as its economy was shrinking, Mexico was implementing the other pillar of the IMF's structural adjustment package -- trade liberalization. In 1994, NAFTA went into effect, creating a giant "free trade" block among Mexico, the US and Canada. The agreement contained many "reforms" the IMF had long been asking for, among them a provision allowing 100 percent direct foreign ownership of Mexican companies. NAFTA also modified Article 23 of the Mexican Constitution, which had protected communal property, known as ejidos, from being broken up. The article was another long-time object of IMF and World Bank ire. The constitutional change removed many people's guarantee that they would have access to land, thereby putting more people in financial jeopardy.
In the years following the 1995 crash, Mexico did enjoy some steady macroeconomic growth. But the benefits were not evenly spread. The number of Mexicans living in "severe" poverty (surviving on less than $2 a day) has grown by four million since NAFTA began. Wages, instead of increasing, have declined. Mexican manufacturing workers are today earning almost 10 percent less than they did before NAFTA. The 1990s, just like the ten years before, were a "lost decade."
Today, after two decades of following IMF prescriptions and seven years of the NAFTA experiment, Mexico remains a country racked by poverty and inequality. A majority of Mexicans live below the poverty line. Even the World Bank concedes that 15 years of trade liberalization in Mexico have not succeeded in closing the gap between rich and poor. In almost every social sector -- health, nutrition, housing, education -- virtually all of the key indicators show serious deterioration over the last 15 years. Today one can speak not just of a lost decade, but of a lost generation.
The Same Old Policies
And what about the debt burden that started Mexico down the structural adjustment path? It has gotten even worse. In 1982, Mexico's total foreign public debt was $57 billion. In 1993 it amounted to $80 billion. By 1997, the country owed $99 billion in public debt. This stranglehold of debt continues to force Mexico to attract foreign investment by any means necessary, including trading away the basic rights of its workers and failing to enforce environmental regulations.
Despite the failures of this "model student," the World Bank and IMF are still prescribing the same old policies for Mexico. In May 2001, the World Bank offered specific recommendations to Mexican President Vicente Fox on the country's labor policies. The Bank said that if Mexico wanted to attract more foreign investment, it would need to increase the "flexibility" of Mexican labor. The Bank suggested that Mexico eliminate its regulations regarding mandatory severance pay, collective bargaining, obligatory benefits for workers, company-sponsored training programs, and company payments to social security and housing plans.
President Fox said the recommendations were "very much in line with what we have contemplated." But a leading Mexican industrialist, Claudio X. González, who heads Mexico's most influential business organization, was surprised by the Bank plan.
AIDS in Africa: Dying of Debt
The immune disorder AIDS rep resents one of the greatest threats to health and social stability in the history of humanity. Today an estimated 36.1 million people around the world are living with HIV-AIDS. The vast majority of those infected, 25.3 million people, live in one of the globe's most impoverished regions -- Sub-Saharan Africa.
The countries of Sub-Saharan Africa are experiencing a pandemic rivaled only by the plague that devastated Europe in the 14th century. The statistics are staggering. In South Africa one in five people has HIV-AIDS, and in Zimbabwe one in four. One in seven Kenyans have the virus. In Botswana, the country with the highest rate of infection in the world, more than one-third of all adults are HIV positive. Seventeen million people in Sub-Saharan Africa have died since the pandemic began; 2.4 million people died in 2000 alone. If current trends continue, the number of AIDS orphans in Africa may exceed 40 million by 2010.
Policy makers in the West have offered a variety explanations for the disaster. They say that African leaders have failed to respond quickly or effectively enough to the pandemic. They suggest that "African promiscuity" is to blame. To be sure, many African governments could have done more, and today can be doing more, to stop the disease's spread. But Western leaders' explanations -- which rely on a racist notion of African "otherness" -- are simply a way for wealthy governments to avoid responsibility for what is certainly the greatest health and humanitarian emergency of our time. The fact is that Africans are dying in horrendous numbers because they are poor -- and that poverty has been greatly exacerbated by the policies of the IMF and the World Bank, two institutions controlled by the world's wealthy nations.
Sub-Saharan nations' continuing debt burden is one of the central causes of the AIDS crisis and also a major obstacle to treating the disease. The region's poverty makes its citizens more susceptible to contracting AIDS. Treatment efforts are frustrated by debtor countries' inability to pay for health care services because they are spending so much money on interest payments. By refusing to cancel the debts of AIDS-ravaged countries and by continuing to force poor nations to adopt cutbacks in government services, including health services, the IMF and the World Bank are contributing to the deaths of millions of people. People are literally dying of debt.
The Sub-Saharan debt crisis and IMF-mandated structural adjustment policies have helped to spread AIDS throughout the region. In the 1980s and 1990s, scores of indebted African nations agreed to structural adjustment policies such as eliminating subsidies on basic foodstuffs, removing assistance to farmers, and re-orienting their agricultural economies to export production. These "reforms" had two effects: they jeopardized people's food security and they created a new class of migrant workers. The elimination of food subsidies in Zimbabwe, for example, led to a tripling of food prices in the early 1990s, which forced people to cut back on what they ate. The reorganization of agricultural land led to a displacement of farmers, who then moved to the cities to work or became temporary laborers. The combination of an increase in malnutrition and an increase in migration and urbanization created a situation under which Africans were both more vulnerable to the disease and more likely to spread it. "Structural adjustment raises particular problems for governments because most of the factors which fuel the AIDS epidemic are also those factors that seem to come into place in structural adjustment programs," Dr. Peter Piot, Director of the United Nations' AIDS program, has said.
Sex isn't the sole determinant of whether a person will contract the HIV virus; sexual behavior alone cannot explain HIV prevalence as high as 25 percent of the adult population. After all, how much sex are we talking about that would produce, in the absence of other factors, prevalence of HIV in Botswana that is more than 50 times that of the US, 80 times that of France, and 1,000 times that of Cuba? The science here is unequivocal: An individual's overall health also affects their chances of contracting the virus, and already ill and/or malnourished people are more likely of becoming HIV-positive. From 1970 to 1997, Sub-Saharan Africa was the only region in the world to experience a decrease in food production, a decrease in calorie supply, and a decrease in protein supply per capita. In three structurally adjusted countries -- Zimbabwe, Kenya, and Malawi -- protein supply fell by more than 15 percent. Protein-energy malnutrition weakens every part of the immune system, making people more vulnerable to viruses such as HIV and more conventional sexually transmitted diseases such as gonorrhea, which further speed the transmission of HIV.
Even as structural adjustment policies have increased malnutrition and community instability in Sub-Saharan Africa, they have made it harder for African governments to respond to the growing AIDS crisis. Governments with overwhelming foreign debt payment obligations must cut back on what they might otherwise allocate to health care and HIV-AIDS prevention. Export earnings that go to service foreign debts are not available to pay for imports of pharmaceuticals and other health equipment.
At least 23 African countries spend more money on debt repayment than they spend on healthcare. Four countries suffering from massive HIV infection rates show the deadly forces at work.
- Eight percent of Tanzanians are HIV positive. In 1998 the country spent 1.3 percent of its Gross Domestic Product (GDP) on health care. It spent 3.1 percent of its GDP on debt payments.
- Fourteen percent of adults in Kenya have HIV. In 1998 Kenya spent more than three times as much servicing its debt than it did providing public health care services. Although the World Bank and the IMF consider Kenya a "highly indebted poor country" (or HIPC), the institutions consider that no debt relief is required. In Kenya there are 22,000 people for every one doctor.
- One out of every four Zimbabweans have HIV. In 1998 Zimbabwe spent 10.3 percent of its GDP on debt payments. It spent 3.2 percent of its GDP on health care. Unicef has reported that between 1990 and 1993, the quality of health care services in Zimbabwe dropped by 30 percent. The World Bank and the IMF do not classify Zimbabwe as a country eligible for debt relief.
- In Malawi, 16 percent of adults are infected with HIV. Between 1995 and 1998, Malawi spent twice as much on its debt payments as it did on its health care. In Malawi, there is only one doctor for every 50,000 people.
The IMF's and World Bank's imposition of "user fees" -- that is, fees for public services -- has made it even more difficult for governments to treat the AIDS pandemic by lowering attendance at health clinics. For example, the introduction of fees for patients at Nairobi's Special Treatment Clinic for Sexually Transmitted Diseases (STDs) resulted in a decrease in attendance of 40 percent for men and 65 percent for women over a nine-month period. In Dar es Salaam, Tanzania the three public district hospitals saw attendance drop by 53.4 percent between the second and third quarters of 1994, when user fees were introduced.
Whether someone lives or dies of AIDS depends largely on where he or she lives. The 25 million HIV-positive people in Sub-Saharan Africa are living with a death sentence not because the drugs to treat them do not exist, but because government officials in the world's wealthy countries don't have the political will to put human life above corporate profit.
The international response to the AIDS crisis must focus on two key areas -- treatment and prevention. For these challenges to be met, several steps be taken. Wealthy countries need to make a greater financial contribution to fighting the disease, pharmaceutical corporations must work to provide drugs at prices poor people can afford (currently one-tenth of one percent of Africans have the money to buy life-prolonging AIDS drugs), and international intellectual property rights rules must be loosened. Perhaps most important, countries' debts must be cancelled unconditionally. Until that happens, African societies will be unable to respond to the disease that threatens to destroy them.
The World Bank's Land "Reform" in Brazil: Unconstitutional Meddling
According to conventional mac roeconomic measures, Brazil is a wealthy country. Well endowed with natural resources, Brazil, the biggest country in South America, has the ninth largest Gross Domestic Product (GDP) in the world. Yet the country remains wracked by poverty and inequality. UN figures show that 20 percent of the population controls 80 percent of the nation's wealth, and according to government statistics the wealthiest one percent of the populace accounts for half of the national income. At least half of the country's workforce in this country of 165 million people earns less then the minimum wage of $77 per month. Perhaps President Fernando Henrique Cardoso, a former left wing radical and now a neo liberal champion, has put it best: Brazil is not a poor country, it is an unjust one. As Brazil demonstrates, wealth alone -- wealth without equity -- is not prosperity.
The inequities of Brazilian society are particularly stark when it comes to land distribution. The country's legacy of colonialism has left three percent of the population holding nearly two-thirds of Brazil's arable land. According to the Brazilian government, 30 percent of Brazilian farmers own just 20 acres of land or less. In contrast, the country's largest farms, those of 2,000 acres or more, comprise only 1.6 percent of all farms but sit on 53.2 percent of the usable land. Another 4.8 million rural families -- approximately 25 million people in a country with a total population of 167 million -- have no land at all and survive as temporary laborers.
Perhaps worst of all, much of Brazil's more than 1.2 billion acres of arable land lies unused. At least 40 percent of agricultural land lies fallow or, at best, is used only for cattle grazing. Among the largest farms -- those geared for the export market or held only for speculative reasons -- an estimated 88 percent of the land is permanently idle. The twin injustices of land concentration and idle farms are largely responsible for the chronic poverty that plagues Brazil.
In 1997, the World Bank began a pilot program to address land distribution in Brazil. Called the "Land Bank," Cedula da Terra in Portuguese, the project is intended to help landless families gain parcels through access to credit and technical assistance. What may appear a well-meaning effort, however, is wrought with troubles. In developing the Cedula, the Bank never consulted with the Brazilian citizens' groups leading the country's land reform movement. In failing to conduct such consultations, the Bank placedits enormous weight behind a single social actor—landowners—in a hotly contested political issue. To add injury to insult, it now appears that the Bank’s project may even worsen rural inequalities in Brazil.
The Land Bank experience is just one example of how the Bank inappropriately inserts itself in domestic politics, in the process short circuiting the democratic system. As an analyst at the Environmental Defense Fund has said, “This project is possibly the most cynical imitation of a development project that I've ever seen, in a very competitive field.”
A Long History of Failures
The Cédula project is not the first time the IMF and the World Bank have interfered in Brazil. In the 1970s, the institutions lent billions of dollars to the military dictatorship then controlling the country. The loans were used to pay for massive infrastructure projects such as dams, many of which failed to meet even the goals set by the institutions themselves. By the 1980s, the country was borrowing new money to pay off the old loans. Brazil’s “lost decade” saw a massive transfer of wealth outside of the country as the government paid $148 billion—$90 billion just in interest, the rest in principal—between 1980 and 1989 to foreign lenders. Much of this money went to recover the costs of Bank-initiated projects that were unsuccessful. In 1991, the Bank itself estimated that 55 percent of its Brazilian projects had failed.
In the 1990s, under a succession of civilian governments, the IMF and the World Bank compelled Brazil to institute their structural adjustment policies. Industries were deregulated, government enterprises sold off, and government spending reduced and taxes raised. In the late 1990s, President Cardoso greatly accelerated the neo-liberal reforms demanded by the IMF. The profitable government phone system and a profitable publicly owned mining company were sold to multinational corporations. Government spending on social services was reduced even further.
In November of 1999, Cardoso’s administration put Brazil even more at the mercy of the IMF when he agreed to a $41.5 billion loan package. At that time a financial crisis was sweeping Russia, and the IMF, concerned that the “contagion” would spread to Brazil and destabilize the entire global financial structure, was putting pressure on Brazil not to devalue its currency, the real. The IMF forced the Brazilian treasury to dramatically increase interest rates—which at one point hit 41 percent—to keep the real strong. In the end, it didn’t work. The high interest rates sent the Brazilian economy into a recession, and Cardoso eventually had to devalue the currency anyway. Essentially, the IMF forced Brazil to spend billions of dollars to prevent the inevitable.
The IMF had predicted that if Brazil devalued the real hyperinflation would occur. That never happened. But sending interest to stratospheric levels did greatly burden ordinary Brazilians. The higher lending rates forced thousands of rural foreclosures. According to the Brazilian government, between 1995 and 1999 an estimated 4 million Brazilians left the countryside for the cities. The Cardoso administration’s and IMF’s insistence on ensuring investor confidence worsened the maldistribution of land.
Taking Political Sides
The Brazilian Constitution of 1988—recognizing that excessive land concentration not only contributes to poverty but also hinders sustainable development—explicitly states that land must be used for the benefit of society. Other laws that establish mechanisms for progressive land distribution allow the government to expropriate unused or over-large landholdings and then pay back the owners through the issuance of government bonds. Since the mid 1980s, citizens groups in Brazil—led by the Landless Workers Movement (MST is the Portuguese acronym), the Confederation of Agricultural Workers, and the Catholic Church—have used such laws to push for land redistribution.
In just 15 years, these groups, the MST in particular, have succeeded in securing land titles for 250,000 families through the non-violent occupation of unused land. That grassroots energy has also moved the Brazilian government to take stronger action. The current administration has distributed more than 28 million acres of land, and Cardoso officials concede this wouldn’t have happened without pressure from the MST and its allies.
In 1997, the World Bank decided it wanted to become involved in land reform in Brazil. But instead of taking a neutral posture that supported land reform as such, Bank officials supported the government and the landowners against the MST and the civil society organizations aligned with it. By doing so, it has corrupted the democratic process.
Land reform is one of the most emotional political issues in Brazil today. Heated rhetorical sparing between the MST and the national government is common. In the countryside, the political struggle has turned physical. State governments, usually allied with local landed elites, routinely repress MST activities. Police beatings of MST activists are not unusual, and some people have been killed. The MST and the government, then, are political adversaries.
From the outset of its involvement in Brazilian land reform, the Bank has supported the interests of one side a political struggle. The Bank planned its land reform project without consulting or informing any of the national citizens’ organizations working on land issues. The Bank and the Brazilian government even refused to negotiate with rural workers when they made specific proposals.
The land reform mechanism pushed by the MST and reluctantly pursued by the Cardoso administration relies on the idea that land can be confiscated even against the wishes of the owner if it is not being used. In contrast, the World Bank’s system relies on free-market principles. Under the World Bank's plan, land reform is privatized: the landless apply for loans from the Brazilian government with which they can purchase land from landowners at market prices. However, no landowners will be forced to sell, no matter how much of their property is lying unused.
The Cédula is just now reaching the point where a complete analysis of its success can occur. But already preliminary evidence suggests that the program is doomed to failure. First, the majority of borrowing farmers don’t even fully understand that they have taken out a loan—and even fewer know the terms of their loans. The tough terms of the loans— interest rates on the loans can be as high as 18 percent—make it likely that many poor farmers will lose the land again within a few years. Also, under the Land Bank program, there is only a three-year grace period (an earlier government program had a five-year grace period), and little way to get credit for supplies or seeds. Landless advocates also fear that the Land Bank, which is planning on distributing $2 billion loans over ten years, could contribute to an inflation in land prices.
Most disturbing for landless advocates, many Brazilians perceive that the Bank’s program is not simply a complementary alternative to the constitutionally guaranteed land reform; rather, many people believe the Bank’s market-based approach to land reform is a substitute for other kinds of land distribution. That perception meets neatly with the political agenda of landowners and some government officials who want to eliminate the existing means of land reform. It also, of course, goes against the interests of the MST and its allies, who want to pursue land reform via the constitutionally sanctioned means of expropriation. Essentially, then, the Bank has sided with the political agenda of a particular group. By failing to even consult with those at the forefront of Brazilian land reform, the Bank inserted itself into the one of the country’s most heated political debates.
Officials at the World Bank do not seem interested in ever holding such consultations. In 1998, the Forum for Land Reform, an umbrella organization of Brazilian NGOs, and Rural Justice, another NGO, asked the Bank’s Inspection Panel to investigate how the Cédula was developed. In June 1999, the Bank turned down the request on the grounds that the complaint was based on “philosophical differences.” The groups appealed the decision through a second request. The Inspection Panel has not responded to the second request.
Colombia and the IMF: Policies that Worsen Problems
Colombia’s relationship with the International Monetary Fund is similar to the relationship between a poor, sick patient and a costly doctor. The patient, badly in need of help, goes to the doctor for treatment. The doctor in return prescribes the patient a very expensive, controversial medication. The patient agrees, knowing that they cannot afford it, but, feeling desperate, consents to the treatment. Eventually, the patient develops terrible side effects to the treatment, and also discovers that the original problem has worsened. The patient—poorer, sicker and more desperate—needs more “medicine” than ever before.
Two years of financial “infusions” from the IMF are affecting Colombia in the same way. The South American country’s experience with IMF policies illustrates how the Fund caters to the interests of international investors and the Colombian elite, while harming the well being of ordinary Colombians in the process.
Ignoring massive public protests against the IMF-mandated reforms, the lending institution’s policies have systematically cut health care, education and other social services for millions of Colombians, laying off tens of thousands of workers in the process.
The IMF’s relationship with Colombia has deepened poverty and inequality there, while claiming to do the opposite—all in the name of “free” trade, market liberalization and financial stability.
Equally as damaging to Colombian society is the way that the government has imposed the IMF-mandated economic strategy. Characterized by undemocratic and authoritarian practices, the government silences grassroots opposition, undermining the legitimacy of Colombian democracy.
The 1990s—from Optimism to Emigration
Colombia in the early 1990s was a land of renewed optimism and hope. The 1980s—referred to by many as a “lost decade” in Latin America because of region-wide economic woes—passed with Colombia riding relatively high on one of the hemisphere’s most stable and strong economies. A new constitution had been written that included more of Colombian society than ever before. Some of the nation’s guerilla groups, weary of war, decided to involve themselves in the political process, forming political parties. Social peace, for so long an abstract, seemed tangible.
Considering this, perhaps not even the most hopeless of pessimists could have imagined the nightmare that Colombians have lived through during the last decade. The economy has fallen into its worst recession of the century, with official unemployment hovering around 20 percent. The country’s bloody civil war claimed more than 100,000 lives. As a result, Colombians began to lose the hope that had buoyed them through the early 1990s. Between 1996 and 2000, 1,072,000 Colombians, sensing the worst was yet to come, left their homeland behind.
Colombian Neoliberalism—A Future for Whom?
Not coincidentally, it was in the late 1980s and early 1990s that Colombia began to experiment with neoliberal economic policies. Beginning with President Barcos (1986-1990), and continuing during the administrations of Gaviria (1990-1994), Samper (1994-1998) and Pastrana (1988-present), the Colombian elite wholeheartedly imposed the neoliberal economic model.
Gaviria, who 25 percent of Colombians blamed for the economic depression in a recent poll, proudly proclaimed to his countrymen in 1991, “Welcome to the future,” referring to the new constitution and the neoliberal economic opening. Ten years later, during a recent development forum, the same man who boasted with such optimistic pride quizically answered questions regarding Colombia’ s economic downturn. “I have to confess that the evolution of the country after my government has left me perplexed, like many other Colombians.”
Yet, while Gaviria scratches his head trying to figure out what happened, most Colombians—those who cannot afford the same luxury of economic theorizing—are jobless and hungry.
The debate surrounding who and what is to blame for Colombia’s economic downturn points to various causes. Some blame the constitution of 1991, whose new laws turned out to be costly to create and enforce. Some say neoliberalism and the uncontrolled opening-up of the Colombian economy to foreign investment are at fault. The other usual suspects are the reevaluation of the Colombian peso, and bad management of public spending by the state, among others.
Whatever the reasons, Colombia’s economy slid into dire straits. And the Colombian elite, needing a bailout, went knocking on the IMF’s door, hat in hand.
Plan Colombia and the IMF
After the scandal-ridden Samper presidency, Andrés Pastrana Arango was elected in 1998 with a mandate of peace. Recognizing the nation’s increasingly desperate social, economic and political situation, the Pastrana administration developed Plan Colombia. The Colombian and US governments ostensibly describe Plan Colombia as a $7.5 billion integrated strategy to meet the most pressing challenges confronting Colombia today—promoting the peace process, combating the narcotics industry, reviving the Colombian economy, and strengthening the democratic pillars of Colombian society.
Falsely billing its support of Plan Colombia as part of the “War on Drugs,” the US government has thrown its weight behind the plan with billions of dollars of mostly-military aid, lying to US citizens in the process. The US emphatically characterizes the aid as counternarcotic, instead of counterinsurgent—a semantic tongue twister that Colombians know to be untrue.
Although not directly related to Plan Colombia, the IMF’s Colombia loan fits in to Plan Colombia as part of the larger strategy to revive the Colombian economy.
In 1999, Colombia appealed to the IMF for a loan for the first time in its history. The Fund obliged with a three-year credit worth $2.7 billion and its customary mandate—a structural reform agenda of austere fiscal policies that includes measures to streamline the revenue sharing system, reform the public pension systems, and downsize the public sector.
Failing to implement an economic alternative that protects ordinary Colombians, the Colombian state tightened its fiscal belt by cutting public spending—a move that hit the poorer segments of society the hardest. In the words of one Colombian economist, “What’s the alternative? Increase the taxes on your elite? Do it if you can.”
Most damaging to the average Colombian are the severe cutbacks in public investment in basic social services—health care, education and social security. It is a painful practice that one Colombian congressperson likened to “conducting a complex surgery without the use of anesthesia.”
Colombian Grassroots Opposition to IMF Economic Reforms
To implement the IMF’s demands, the Colombian government needed to pass special legislation, including changes to the constitution.
Many Colombians, not keen on the idea of having their well being on the fiscal operating table, have organized in nationwide protests against the various legislative changes.
In March 2001, hundreds of thousands of Colombian state workers went on a 24-hour strike to demonstrate against economic policies that resulted in mass layoffs and reduced social benefits. The layoffs are expected to total around 100,000 government employees.
Starting May 15, 2001, more than125,000 heath care workers and 300,000 public school teachers went on a month-long nationwide strike to protest against the ley de transferencias, or transfers law, a bill that would cap the federal money to departments [states] and municipalities for education, healthcare and other social needs.
Critics of the law warned that its implementation would result in the loss of 1,416,000 places for students in the public school system, adding to the estimated 3 million Colombian youths that are already outside the system. They also claimed that some 2.5 million more Colombians would be excluded from public health care.
Upon the bill’s passage on June 20, 2001, Colombia’s largest teachers’ and health care workers’ unions, FECODE and ANTHOC, publicly declared, “Since the time of Pastrana’s development plan, no other initiative has created such a movement of opposition. But, it appears that the requirements of the IMF and financial capital supersede the interests of the nation and of the Colombian people.”
Next up for surgery is the pension system. The controversial reform is another Colombian commitment to the IMF and is expected to galvanize the Colombian public in even more anti-Fund protests.
The Authoritarianism of the Colombian State
As the Colombian state adopts neoliberal economic strategy, it has become more authoritarian. Increasingly gaining more power to fight the US-sponsored “drug war” and the 40-year-old guerrilla insurgency, the government has used those powers to continually repress democratic liberties.
Laws like the recently passed ley de guerra , or war law, have granted the Colombian military more room to unilaterally crack down on “guerilla terrorism.” Colombian and international NGOs, basing their concerns on past experiences, worry that such increased military powers will also be used to silence any voices of dissent that challenge the will of the Colombian government.
By heavily relying upon the force of its US-sponsored military, Colombia risks exacerbating the level of violence and state authoritarianism. This is a misguided approach that is likely to repress the sectors of the population that that are suffering the most from Colombia’s neoliberal economic policies.
By silencing dissent like the IMF protests, and closing in on the political space that civilians are allowed to participate in, another result of Colombia’s authoritarianism may be to further undermine the democratic process, and worsen Colombia’s social, economic and political woes.
Haiti: Suffering from “Competitiveness”
For the last two decades, the Caribbean nation of Haiti has dutifully followed the prescriptions of the International Monetary Fund and the World Bank. And yet today Haiti remains the poorest country in the Western Hemisphere. Approximately 70 percent of Haitians are unemployed. Only four out of ten Haitians enjoy access to clean drinking water, and the country suffers from one of the worst life expectancy rates in the world; Haitian men can expect to live 47 years, Haitian women 51 years. Most Haitians cannot read. Fifty percent of Haitian children younger than 5 suffer from malnutrition. Per capita income is just above $1 a day.
The IMF’s policy mandates for successive Haitian governments—whether military or civilian—have focused on a single goal: increasing exports. Haiti’s exports have, in fact, increased dramatically under the IMF’s tutelage. But that “success” has come a high price. In an effort to attract foreign investment to Haiti at any cost, the IMF has forced to Haiti to keep wages at poverty levels. While this has been a boon for multinational corporations, it has not led to prosperity for ordinary Haitians. Even coveted jobs in Haiti’s garment factories provide just barely enough money for people to survive. At the same time, the IMF and World Bank’s insistence on cutting assistance to small farmers has ruined the country’s agricultural sector, making Haitians dependent on imported food. The IMF’s and World Bank’s legacy in Haitian is largely one of lower wages than ever before and widespread food insecurity.
The international agencies’ involvement in Haiti began with a disaster. In 1982, a program was begun to replace the ubiquitous Creole pig—owned by about 85 percent of rural households—with North American pig breeds. The Creole pig used to serve as a sort of savings account for many Haitian farmers, with families selling their pigs on special occasions—weddings, funerals—and emergencies. But foreign agriculture “experts” determined that the pigs were chronically ill, and fearing that the pig illness would spread north, virtually every Creole pig in the country was killed in a period of 13 months. The new, imported pigs from Iowa were a poor replacement. They couldn’t tolerate the tropical environment and needed special roofed pigpens. Unless the pigs had clean drinking water—which even most Haitian people don’t have—they became sick. They required imported feed, which ordinary farmers couldn’t afford. The re-population was a complete failure. According to one observer, Haitian peasants lost approximately $600 million in capital. Protein consumption in rural Haiti dropped dramatically.
The pig program was just one part of a larger World Bank plan to overhaul Haiti’s agricultural system. In an effort to transform Haitian agriculture from a concentration on local consumption to an emphasis on foreign export, the Bank encouraged Haitians to plant cacao and coffee. Farmers were supposed to grow cash crops for export and then use their earnings to buy food. But the prices of coffee and cacao fluctuate wildly, and as worldwide commodity prices declined, Haitian farmers found themselves unable to make a living.
The transformation from an agricultural system geared toward domestic consumption to an export-oriented system soon led to a decrease in food production. The fall in local production was exacerbated in 1986, when the IMF demanded that the country lower import tariffs on rice and end support for rice farmers. Rice from the US—generously subsidized by American taxpayers—soon flooded the country, driving down prices and pushing farmers to the edge of bankruptcy. By 1988, many rice farmers had simply stopped working their land.
The experience of the Haitian rice farmers reveals a striking hypocrisy in the IMF mandates. While the Haitian government—strapped by debt and strangled by poverty—was forced to end its subsidies to rice farmers and lower its tariffs, the US was not compelled to take the same steps. Consequently, US rice soon dominated the Haitian market. Today, Haitians are in the unenviable position of being dependent on foreign exports for one of their main food staples. A single US corporation, Early Rice, sells almost 50 percent of the rice sold in Haiti. As one Haitian farmer has said: “The introduction of American rice hurt us terribly. But if it wasn’t for this rice, Haitians would die of hunger.”
Lowering Wages to Increase “Opportunity”
While acknowledging that its policies may lead to social disruptions in the short run, the IMF argues that its policies will benefit ordinary people in the long run. Poor countries, the IMF says, need to strive to specialize in a few key export-oriented industries and maximize their comparative advantages. Haiti’s comparative advantage, the IMF says, is in the area of labor—and the institution has done all it can to keep that labor cheap.
The 1980s saw a severe drop in Haitians’ earnings. By 1989 a full time minimum wage in Port-au-Prince provided less than 60 percent of a family’s basic needs—food, shelter, clothing, etc. In the 1990s, the IMF sought to keep wages steady to make Haiti competitive and attract foreign investment to the country. In 1991 and 1994, the IMF conditioned loan assistance on wage restraint. Then, in 1996, the IMF gave the Haitian government technical assistance to revise its labor code. Haitian labor law had required an increase in the minimum wage if inflation were to exceed 10 percent. The IMF had that law changed, even as inflation hit 30 percent. The IMF also mandated a three-year freeze on government wages. If the government wanted to raise civil servants’ earnings, it would have to offset those raises with firings. The move injected new instability into the already- cutthroat labor market.
Even as the IMF demanded sacrifices from Haitian workers, it pressured the country’s government to give bonuses to foreign investors. At the urging of the Fund and the World Bank, Haiti reduced telephone, electricity and customs fees for foreign companies. The new corporate incentives, combined with the attraction of rock bottom wages, have in fact attracted thousands of manufacturers to Haiti. Yet, unfortunately for average Haitians, the foreign investors contribute very little to the country’s economic stability. This is due to the fact that goods to be assembled are shipped from the United States, pieced together, and shipped out again, and few, if any, Haitian goods are used in the process. In addition, much of the tax-free profits made from the assembly sector are repatriated by U.S. investors, not reinvested in Haiti.
As the IMF and World Bank demanded that Haiti offer generous benefits to multinational corporations, it forced the government to cut its budget. In 1997 IMF demanded that the Haitian government reduce its spending by 50 percent, despite the fact that Haiti already had just one-eighth the number of public employees as its neighbor of comparable population, the Dominican Republic. The cuts in public spending made it even more difficult for the government to provide essential services. In fact, during the 1990s Haiti has spent more money servicing its debt than it has on health or education.
The IMF and World Bank programs in Haiti have been a boon for multinational corporations. US agri-business has reaped new profits from Haiti’s lowering of its tariffs and the elimination of its farmer subsidies. The apparel industry has taken advantage of the low wages and manufacturing incentives to exploit Haiti’s desperate workforce. The Haitian people, meanwhile, struggle to survive.