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Protests Keep Spotlight on IMF and World Bank Failures


purposes; as in the Washington DC demonstrations last April, the organizers and

protesters are committed to non-violence. The real danger is that of

embarrassment for the IMF and the Bank. They are fighting to preserve their

legitimacy, which has been badly damaged over the last three years.

For

half a century hardly anyone even knew these institutions existed, and they

operated in the shadows. Those days are over, although many of their most

important documents and deliberations remain secret.

The

Fund and the Bank operate a cartel for credit, much like OPEC runs an oil

cartel. Neither one is leak-proof, but they both confer considerable power on

the men who control them. While OPEC uses its monopoly power simply to raise oil

prices, these financial giants use theirs to influence and often dictate the

economic policies of dozens of countries.

The

IMF is the leader, and a country that falls out of its favor will not be

eligible for most credit from the larger World Bank, other multilateral lending

institutions, governments, and often private sources of credit as well. This

arrangement gives the Fund (together with the Bank) powers vastly greater than

they could ever derive from their own resources.

Power

is even more concentrated in that the IMF is basically controlled by the US

Treasury Department. This fact illustrates what dinosaurs these institutions

really are. If the IMF did not exist, nothing like it could be created today. At

the very least the Europeans and Japanese would demand to have their say, as

they do in the WTO (which was created only five years ago); and the

underdeveloped countries, who are even more excluded from decision-making than

Europe and Japan, would demand a voice in shaping the policies that now

victimize them.

To

illustrate IMF policies with an example close to home: the United States is now

running a record current account deficit. (The current account measures foreign

trade plus other non-investment international transactions). At 4.5 percent of

our economy, this deficit is as big as the one that Brazil was running three

years ago when the IMF proposed an austerity policy as a loan condition. If we

were an IMF client, we would get rid of our trade deficit in the following

manner: the Fed would raise interest rates as high as necessary in order to

throw the economy into a recession. Our economy would shrink as borrowing for

housing and other large purchases dropped, people were thrown out of work, and

businesses cut back on their investment. As spending plummeted, so would the

purchase of imports, and our trade balance would improve.

Joseph

Stiglitz, former chief economist at the World Bank and a likely candidate for a

future Nobel, has called this a "beggar thyself"– as opposed to

"beggar thy neighbor"– policy for getting rid of a trade deficit. He

resigned under pressure last year after criticizing these and other policies

that have caused enormous economic damage in countries such as Indonesia,

Russia, and Brazil in recent years.

Because

IMF and World Bank policies have failed so miserably and so often, and because

these organizations are so completely unaccountable and anti-democratic, they

have few defenders outside of a narrow foreign policy elite. And their

opposition is growing by leaps and bounds. In addition to the protests here in

Prague, there will be demonstrations in 60 U.S. cities, backed by the 15

million-member AFL-CIO. Organized labor has increasingly come to see these

institutions as major adversaries, since they use their creditors’ cartel to

enforce the global "race to the bottom" in wages and working

conditions that has hurt American workers as well. Two weeks ago the

Communications Workers of America took the unprecedented step of pledging to not

buy World Bank bonds, joining a worldwide movement to use the pension funds of

unions, churches, local governments, and universities to bring pressure on the

Bank.

The

street heat is working. As the protesters like to chant, "This is what

democracy looks like."

Mark

Weisbrot is co-director of the Center for Economic and Policy Research in

Washington, DC. 

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