The World Bank : A critical Primer

12 March 2008 by Eric Toussaint

The World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

is a controversial organisation. It is widely viewed with suspicion, as the international economic arm of the US, in thrall to the President who is responsible for appointing the head of the Bank.

Eric Toussaint gives a highly readable account of just why the World Bank has become so powerful. In short, clear chapters he shows how the bank operates, who funds it, and what it sets out to promote.

The Bank’s main purpose is to grant loans to all the newly independent states of the developing world, to help them on their journey to recovery after colonial occupation. In reality, the conditions imposed on these states — including enforced privatisation of all public services, and enforced neo-liberal rules on trade — mean that the Bank has become the new colonial authority in everything but name.

This is a perfect book for anyone looking for a critical introduction to the history of the Bank and its role in world affairs.

Eric Toussaint is the spokesperson of the Committee for the Abolition of Illegitimate debt (CADTM).

The international network of the Committee for the Abolition of Illegitimate Debt (CADTM) is a constellation of associations, organisations, collectives, individuals and movements active in all corners of the world, from a wide variety of cultures, practices and horizons and united by a shared will to combat neo-liberal globalisation and counter it with “another world” based on solidarity, equality and social justice, one they are helping to create daily in their own way, locally, regionally and/or internationally.

  • Gino Alzetta (World Bank Executive Director for Austria, Belarus, Belgium, Czech Republic, Hungary, Kazakhstan, Luxembourg, Slovakia, Slovenia and Turkey):
    “Eric Toussaint’s new book is very ‘engagé’, therefore provocative. The meticulous and excellent research which supports this book is, unfortunately, somewhat obscured by an excessive ‘devilization’ of the World Bank. This set aside, interesting reading.”
  • A summary of the book by Victor Isidro (UNAM, Mexico D.F.): www.cadtm.org
    The main conclusion of this book is that World Bank policy is concerned only with supporting and enforcing United States world leadership. That is why the World Bank makes no effort to promote development or the respect of human rights... The time has come for the World Bank to answer for its actions before a court of law.
  • Alex Wilks’s comments (Coordinator European Network on Debt and Development):
    The case against the World Bank, set out in no uncertain terms. Clear where he stands, Eric Toussaint displays his encyclopaedic knowledge of the World Bank’s economic and political impacts. Serious students of international financial institutions will find detailed accounts of the Bank’s history and the very heavy baggage it bears today. An impassioned and comprehensive expose of the power plays, misdemeanours and negative impacts of the world’s most powerful development institution.
  • Book Review from the April 2008 issue of the Socialist Standard by Janet Surman (socialiststandardmyspace.blogspot.com):
    Throughout this comparative study of official World Bank statements and internal memos, Eric Toussaint lays bare the absolute conflict between the public and private ideologies, time after time revealing the imperative of achieving US political aims above all other considerations. It is a very interesting book making the facts and figures of economics accessible to the layperson through ample explicit tables and clear explanations with minimum use of jargon.

Contrary to common belief, the mission of the World Bank under the umbrella of the UN was not and is not to reduce poverty but (1) to rebuild Europe post second world war and (2) to promote the economic growth of the South through development. As a part of the World Bank Group the World Bank is (supposedly) bound by the UN Charter and according to the International Court of Justice it is the duty of the World Bank to respect human rights and customary law in general. However, nowhere is this obligation seen to be incorporated in the implementation of their policies; in fact examples abound as to how readily and easily these obligations have been circumvented or simply disregarded. In strict violation of a UN right of people to self-determination the World Bank granted loans in the 1950s to Belgium, France and Britain to finance projects in their colonies, mostly for mining for the benefit of the colonial powers and then, following independence, the debt was transferred to the newly emerging nations. This “odious debt” is a violation of international law which Toussaint describes as having been imposed on “the Bank, with the connivance of its main colonial shareholders and the blessing of the US”.

The Bank’s mandate was to be purely economic, not to be involved in politics but even the first loan it granted in 1947, to France, was held up by the US government until Communist Party members were ousted from the coalition government. One chapter is specifically devoted to examples showing that the policy of granting loans is first and foremost determined by the US government often on the basis of purely political objectives. From the 1990s the US influenced against granting loans in areas that would compete with US products. Where oil was concerned drilling was encouraged, refining, not. In essence, more primitive accumulation, showing no regard for environmental concerns or human rights and contrary to the UN Charter. The over-riding message is the blatant, systematic disregard for the founding principles of the Charter.

As to the answers to criticisms of the Bank’s succession of errors or bad management Toussaint reveals them to be “a deliberate part of a coherent, carefully thought out, theoretical plan, taught with great application in most universities.” The strategy, in a nutshell, is that providing infrastructure should fall on the state sector and anything that might prove profitable should be given to the private sector (preferably favouring multinational corporations), i.e. privatisation of profits combined with the socialisation of the cost of anything not profitable. Within the indebted country failing private companies would have their debt transferred to the state (as the military junta in Argentina transferred $12 billion of private debt to the state). Thus the capitalists in developing countries escape their debt, having it paid instead by the Treasury at the expense of the workers (Toussaint’s analysis). In Argentina in the 80s (just one typical example) even subsidiaries of transnational corporations indebted to their parent companies had their debts transferred to the Argentina Treasury; Renault, Mercedes-Benz, City Bank, Chase Manhattan, Société Générale etc. etc., all transferred their debt and as the government had no access to their accounts, one might raise an eyebrow!

Describing the demise of Mexico in the 80s Toussaint is of the opinion that “Mexico has lost control of its destiny which, historically, has been the US’s objective since the nineteenth century.” By the end of the 90s all six major developing regions showed negative net transfer meaning simply that their debt to the World Bank was continuing to grow because they couldn’t keep up with the payments. Reports and internal memos reveal the Bank saw the crisis on the horizon but their “double discourse” informed the public and indebted countries that there was nothing to worry about. When the subject of Debt Reduction was eventually raised (in 1989) by the US government the Bank complied. This consisted of indebted nations buying US Treasury bonds in exchange for a reduction of their debt; in effect now the indebted countries were financing the policy of indebtedness of the US itself. As for the Bank’s own accounts, since its founding in 1946, they have consistently produced positive net results. Since 1985 each year has exceeded $1billion in profits whilst all developing countries’ net transfers since 1987 have been negative, resulting in increasing debt.

Eric Toussaint is President of the Committee for the Abolition of Third World Debt (CADTM) whose mission is “to contribute to the emergence of a world based on the sovereignty of its peoples, on international solidarity, equality and social justice” with which we can broadly agree. Throughout the book he promotes “a break with the capitalist system” and tells us that “a system of redistribution of wealth is needed.” Point 30 of 31 indictments of the World Bank says “a new international, democratic institution must urgently be found to promote a redistribution of wealth and to support people’s efforts towards development that is socially just and respectful of nature.” Then he goes on to talk of 21st century socialism without addressing what this means except to break away from the Washington Consensus, the World Bank and the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
in favour of new financial and monetary institutions and to point to possible alternatives such as Venezuela, Bolivia and Ecuador.


Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.


Other articles in english by Eric Toussaint (573)

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Other publications in English :

  • Greece 2015: There was an alternative
    6 October 2020 - Eric Toussaint
  • Impact of European policies on the Global South and possible alternatives
    8 September 2020 - ReCommons Europe
  • Package of common demands on debt and the need for citizens’ control on finance at European level - Executive summar
    3 August 2020 - CADTM, Collective
  • The Debt System, A History of Sovereign Debts and their Repudiation
    24 September 2019 -
  • ReCommonsEurope: Manifesto for a New Popular Internationalism in Europe
    26 May 2019 - Eric Toussaint, Esther Vivas , Catherine Samary, Costas Lapavitsas, Stathis Kouvelakis, Tijana Okić, Nathan Legrand, Alexis Cukier, Jeanne Chevalier, Yayo Herrero

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

35 rue Fabry
4000 - Liège- Belgique

00324 226 62 85
info@cadtm.org

cadtm.org