Pakistan’s government has raised gas prices by 200 percent less than a year after it was elected promising to “eradicate poverty”.
It was the price for a £5 billion loan from the International Monetary Fund (IMF).
There could be no more fitting way to mark the 75th birthday of the IMF and World Bank this month.
The two institutions came out of the Bretton-Woods conferences in July 1944 and have been key to liberal capitalist order.
The IMF has been at the forefront of forcing free market shock therapy onto countries since the 1970s. It has championed capital’s right to roam the world in search of profit, no matter the consequences.
And throughout its history it has been used by the US to project its power against rivals, allies and weaker countries.
When capitalist states run into a debt crisis, the IMF is supposed to act as a “lender of last resort” by providing a financial lifeline.
These bailouts always comes with strings attached—and working class people are made to pay for the bankers’ and bosses’ mistakes.
Susan George, a leading figure in the anti-capitalist movement in the 2000s, described this process in The Lugano Report—on preserving capitalism in the 21st century.
“Heavily indebted countries have had little choice but to apply structural adjustments programmes devised by the Bank and the Fund,” she wrote.
“Like it or not, dozens of these countries have liberalised their economies, privatised their state-owned companies, abolished exchange controls, increased their participation in world markets.”
The IMF’s biggest bailout agreement, worth £57 billion, was with Argentina last June.
It is a textbook case of how the IMF uses debt crises—often caused by free market policies—to push through free market policies that shaft ordinary people.
The Argentinian economy effectively collapsed in 2001 under the pressure of a triple crisis of banking, sovereign debt and its currency.
The IMF had lavished the government with cheap loans as a reward for opening up the economy to multinational corporations.
A rising wave of resistance by workers and students saw a new social democratic government brought into office.
It implemented a package of reforms that reduced inequality and paid off all of previous IMF debts. But it didn’t fully break with free market economics or take on the power of the rich.
And it heavily relied on the “commodity boom”—a sharp rise in oil, gas, food and other fuel prices.
Crunch time came when the global financial crisis hit and the commodity boom ended in 2008.
As the situation spiralled, the IMF and the new right wing president saw an opportunity to push through free market reforms again. The impact has been devastating. Inflation and unemployment have all increased sharply—while Gross Domestic Product (GDP) tumbled by 6 percent in the first four months of this year.
And, most starkly, the poverty rate has jumped from 27.3 percent before the bailout to 32 percent by the end of last year.
The IMF’s policies towards Latin American countries shows one of its main purposes. It has reinforced the pecking order in imperialism, the global system of competing capitalist states.
Voting rights on the IMF executive board are allocated on the basis of financial contributions.
The US has 16.52 percent of voting rights, closely followed by Japan, Germany and Britain.
In contrast one group of African countries led by Rwanda, which represents around 225 million people, has 1.62 percent of voting rights.
Davison Budhoo, a senior economist at the IMF, designed structural adjustment programmes for Latin America and Africa in the 1980s.
He admitted, “Everything we did from 1983 onward was based on our new sense of mission to have the south ‘privatised’ or die.
“Towards this end we ignominiously created economic bedlam in Latin America and Africa in 1983-88.”
One particularly damning example is Zambia. The World Bank and the IMF demanded cuts in public spending.
The results were brutal. In 1980 the infant mortality rate was 97 deaths for every 1000 births. By 1999 it stood at 202 deaths for every 1,000 births.
The structural adjustment programmes grew rapidly after the collapse of the Stalinist dictatorships in Russia and Eastern Europe.
And the US has also used it as a mechanism to force policies onto its allies.
The IMF played a devastating role in the Asian crisis of 1998 and more recently in Europe.
The IMF, the European Central Bank and European Commission—known as the “Troika”—forced through punishing austerity after bankers caused a crisis in Greece.
Christine Lagarde, the IMF managing director saw it as “payback” time for Greek and European countries. She said they should “help themselves collectively by paying their taxes”.
Lagarde pays no tax on her annual income of over £300,000. Now she is off to dole out more misery at the European Central Bank.
The IMF and World Bank have always been rotten.
Yet some left wingers, who are deeply hostile to “neoliberalism”, think it had the potential to be progressive at the beginning.
Naomi Klein, author of The Shock Doctrine—the Rise of Disaster Capitalism, wrote that the IMF and the World Bank “were given the explicit mandate to prevent future economic shocks and crashes like the one that had so destabilised Weimar Germany.”
She argues that Margaret Thatcher and Ronald Reagan were able to “harness these institutions for their own ends”.
Yet the problem goes much deeper. The Bretton Woods conference was part of the US mission to shape the world after the Second World War had ended.
It had ambitions to inherit the British Empire, in particular the oil fields of the Middle East.
And it was in pole position to do this as its economy had boomed while Europe’s old imperial powers had been devastated.
During the Great Depression of the 1930s the US had pursued protectionist policies, such as taxing imports.
Sometimes they would devalue their currencies, which makes exports cheaper and imports more expensive, in order to compete with rivals.
After the war the Western allies didn’t want to see a return to protectionism and open economic warfare among one another.
Some rulers pushed the need to unite behind US leadership to take on their new imperialist rival Stalinist Russia.
The Bretton Woods system saw countries agree to peg their currency to the dollar, which in turn was pegged to the price of gold.
The US would take charge of fixing the price of gold and the supply of dollars.
The IMF’s 1950 report says, “In the period ahead the Fund will take an increasingly active role in encouraging the relaxation of exchange restrictions”.
While the IMF talked of a multilateral system, this was in fact a system that favoured the US because of the dollar’s dominance.
This was shown early on in the 1949 devaluation.
The US had agreed to loan money to the near bankrupt British state, but on condition that the dollar and pound could be traded without restrictions.
This depleted the British government’s currency reserves, which are used to back exchange rate prices.
This weakened the British economy to the extent that by 1949 the US was demanding more benefits for US trade.
Stafford Cripps, chancellor in the 1945 Labour government, responded to this by giving in. He devalued the pound by an unprecedented 30 percent.
The Manchester Guardian newspaper reported, “The first effect of devaluation on prices at home is that the 4d. loaf will cost 6d. after about 14 days.”
It combined with the austerity drive with wage restraint and public spending cuts in Britain and internationally helped the US position.
A 1950 IMF report boasted, “The decision of the United Kingdom to devalue sterling was the signal for a general worldwide adjustment of exchange rates in relation to the U.S. dollar”.
By 1971 the US had become a debtor economy, so the fixed exchange rates no longer benefited its economy.
It ended the Bretton Woods system, but the IMF reinvented itself as a leading neoliberal institution.
The relative decline of US economic power has seen the IMF try to give some more power to rising powers such as China and reinvent itself again.
But no amount of structural adjustments to the IMF will make it work for the majority of people. It’s time to scrap it.
- Aid, governance and exploitation by Charlie Kimber
- 10 reasons to protest against the IMF
- The Lugano Report by Susan George
Available at Bookmarks, the socialist bookshop. Phone 020 7637 1848 or go to bookmarksbookshop.co.uk