The U.S. Pushes World Bank and IMF to Be Supports for Global Corporations

A gathering of leaders from the industrial and developing worlds at Cancun, Mexico in late October received a great deal of media attention. A more significant conference held in Washington, D.C. three weeks earlier got relatively little play; its ominous results scarcely discussed. That conference: the annual meeting of the governors of the International Monetary Fund and the World Bank.

The International Monetary Fund and the World Bank are currently comprised of 145 and 141 member countries, respectively. Each year, finance ministers from every member country convene in Washington to discuss the policies the IMF and the World Bank should adopt over the next year. Unlike the U.N. general assembly, however, voting power in these institutions is unequal. Rather than one country, one vote, decisions are made according to how much money each country contributes to these institutions. The U.S. accounts for 21% of the contributions; as a result, it holds 21% of the total votes.

This year, the influence of the U.S. was greater than ever, with the Reagan administration calling the tune, and the IMF and the World Bank marching in time.

Over the objections of the developing countries, both institutions firmly endorsed Reagan's restrictive monetary policy, and agreed to apply it worldwide. They also agreed to follow the Reagan administration's wishes that developing countries receive loans from the institutions only if the countries adopt economic policies that open the country to Western trade and investment.

And the World Bank, under its new president A.W. Clausen (formerly president of Bank of America), indicated that it will do everything in its power to aid multinational corporations, regardless of the needs and requests of developing nations.

"The results have to be horrible," says Michael Moffitt, international economist at the Institute for Policy Studies in Washington, speculating on the consequences of the meeting. "I see income distribution getting worse. There will be an increase in hunger and probably even of starvation."

Developing countries, U.S. adversaries and allies alike, denounced Western economic policy with a single voice.

At the traditional pre-meeting huddle of finance ministers from the developing countries, this year held on September 25 in Washington, the third world member countries issued a communique which "deplored the apparent unwillingness of developed countries to pursue policies supportive of international development and growth."

Specifically. the ministers objected to "the undue emphasis industrial countries have placed on restrictive monetary measures." According to the communique, this policy has raised interest rates and debt burdens for developing countries and has brought about "a worsening in their terms of trade which, in effect, has resulted in a transfer of resources from developing to developed countries."

The West, led by the U.S., did not see things the same way, coming out with a ringing endorsement of Reaganomics. "No significant shift in the present policy stance was warranted," concluded the communique that ministers from industrial countries drew up in their pre-meeting huddle on September 26. "The pursuit of cautious monetary and fiscal policies to subdue inflation (is) a prerequisite for restoring conditions for sustainable growth of incomes and employment," the industrial Western powers told the developing world.

The managers of the International Monetary Fund, the institution traditionally more involved with macroeconomic planning, agreed with the industrial countries. "It is essential not to relax the efforts to combat inflation, but rather to press on with determination," said Jacques de Larosiere, chairman of the executive board and managing director of the IMF, when he presented the 36th annual IMF report on September 29.

Larosiere did admit, however, that this restrictive economic policy was likely to exact a toll in human suffering, most of all for low-income developing countries. "It is in these countries that adjustment is particularly costly in human terms," said Larosiere. But this problem did not seem to bother him greatly: "On the whole, this scenario-while far from ideal-would have the great merit of bringing about needed adjustments throughout the world economy, and it would pave the way for a markedly better economic performance in the second half of the 1980s."

"This approach reminds me of the legendary figure who cut off his victims' legs to fit them to the length of the bed," said long-time ally of the World Bank and IMF, Cesar Virata, prime minister and minister of finance for the Philippines, in a speech he gave on October 1 at the annual meeting.

The International Monetary Fund: Hanging Tough

The most important issue relating to the IMF that was discussed at the annual meeting this year concerned "conditionality," the measures the Fund insists that a borrower adopt. Here, too, the U.S. won a victory.

The IMF's usual austerity measures include cutting back on price controls and subsidies on consumer goods.

Ten days before the meeting began, U.S. Treasury secretary Donald Reran let the word out that the U.S. wanted the IMF to be "more strict," to impose "greater conditionality."

The developing countries took the opposite view, stating in their communique that they "regretted the tendency in those institutions to tighten their conditionality and harden their terms." The third world ministers also addressed the U.S. position head on, expressing "concern over the the suggestion of some important industrial countries that these institutions should adopt even stricter conditionality than at present in their lending program."

The International Monetary Fund denied the U.S. charge that conditionality had been easing. "During the past two years, some three fourths of the Fund's new lending commitments have involved high conditionality, under programs requiring rigorous adjustment policies," managing director Larosiere told the IMF's executive board of governors. But the Fund's position for the future was clear: there would be no relaxation whatsoever. "I have resisted and will continue to resist going into easy financing," Larosiere said at a closing press conference on October 2.

This appeared to satisfy U.S. treasury secretary Regan, who reversed himself on the question of conditionality a few days prior to the meeting, saying the IMF had "strengthened" its conditions over "recent weeks," though claiming that it had been "lax" in "some cases" over the past few years.

In any event, says Moffitt, who attended the joint conference, there will be "much more adjustment and much less resources relative to needs."

Some third world countries share Moffitt's fears. The African members, in their official statement at the meeting-, said "It is doubtful whether additional adjustment can be achieved without the risk of pushing some of the countries closer to the brink of social disintegration."

The World Bank: Another IMF?

Traditionally, the IMF has governed short-term balance of payments crises and insisted on macroeconomic reforms, while the World Bank focused on long-term microdevelopment projects. This is changing now, as the World Bank is assuming more the role of macroeconomic supervisor.

What is more, under former president Robert McNamara, the World Bank had a different philosophy on economics and development from that of the IMF, according to Moffitt. The Bank under McNamara practised a "kind of standard Keynesianism," he says, but Clausen is a "monetarist," as is the IMF. "Under McNamara," argues Moffitt, "at least there was a core of people critical of orthodox development theory, people who saw the need for a visible public sector." No longer, says Moffitt. "All of that has been thrown out the window."

"What Clausen is going to do is make the Bank another IMF," concludes 'Moffitt, "and I think it's really going to be disastrous."

On this question of the Bank's future policies, Clausen himself told the World Bank's board of governors on September 29, that it was important to drastically alter the economic policies of developing countries in such a way as to make them more accessible for foreign capital. "Structural adjustment for these countries to the realities of the global economy means in practice," Clausen said, "more appropriate policy responses, more effective price incentives, improved market signals, increased export activity, and overall better use of both material and human resources."

Clausen was not content to prescribe. He intends to force-feed the dubious medicine. "The Bank will direct its project and sector lending, and its wide range of technical assistance, to help our developing countries make these adjustments," he said.

The one "participant" in the "development process" that Clausen was most concerned about was not the oil-importing less developed countries suffering under enormous strains, but the multinational corporations. "I believe there is more that can and should be done to assist all participants in this process," Clausen said in his address, "particularly those in the private sector."

For example, much to the chagrin of the poorer developing countries, the World Bank has dropped the idea of an energy affiliate, under pressure from the U.S. (see MM, September, 1981). Currently, however, an idea for a different kind of an affiliate-supported by the U.S.-is gaining favor with the World Bank: an international insurance affiliate to protect multinational investment.

"Renewed interest has recently been expressed in a multilateral investment insurance mechanism to complement the activities of others," Clausen said in his speech. "I believe that this whole' issue now merits fresh attention, and if there is widespread support in principle for the idea, we in the Bank are prepared to join an effort to see if such a mechanism can be established."

Where's the Alternative?

The gloomy messages of the annual IMF-World Bank meeting and the obstinate position of the U.S. were not appreciated by the developing country delegates, but with one notable exception, their reaction was muted.

Philippine prime minister and minister of finance, Cesar Virata, acting as chairman of the developing country forum, responded to U.S. requests for stiffer conditionality by threatening a third world walkout. When asked at a press conference on September 25 what would happen if such conditionality were imposed, Virata responded: "You will see disorganization in this institution; people will withdraw because they are not getting commensurate resources for the conditionality they have to comply with."

The problem with Virata's threat is that developing countries have no place to go, says Moffitt. "These countries have no choice," he says. "If you get out of the Fund, you can't get money from the (World) Bank," which then makes it more difficult to get commercial lending.

"The only possible alternative," Moffitt believes, "is to set up another institution. The only way that can possibly happen is if it is financed by four or five of the OPEC surplus countries." But Moffitt isn't optimistic about this possibilty. The OPEC countries have "so far been unwilling to do it," he says. "They pretty much function the same way as the U.S., West Germany, and Japan." And those inclined to the East have little reason to cheer. "The Soviets are not a source of hard currency assistance," Moffitt notes, pointing out that the combined indebtedness to the West of the Eastern bloc countries now stands at $73 billion.

"There just is no alternative," says Moffitt.