On Thu, 11 Oct 2001 00:42:02 -0400
TODAYS WINNER OF THE NOBEL PRIZE IN ECONOMICS
The World Banks former Chief Economists accusations are eye-popping - including how the IMF and US Treasury fixed the Russian elections
by Greg Palast The Observer, London October 10, 2001
"It has condemned people to death," the former apparatchik told
me. This was like a scene out of Le Carre. The brilliant old
agent comes in from the cold, crosses to our side, and in hours of
debriefing, empties his memory of horrors committed in the name of a political ideology he now realizes has gone rotten.
And here before me was a far bigger catch than some used Cold War
spy. Joseph Stiglitz was Chief Economist of the World Bank. To
a great extent, the new world economic order was his theory come
to life.
I "debriefed" Stigltiz over several days, at Cambridge University,
in a London hotel and finally in Washington in April 2001 during
the big confab of the World Bank and the International Monetary
Fund. But instead of chairing the meetings of ministers and central
bankers, Stiglitz was kept exiled safely behind the blue police
cordons, the same as the nuns carrying a large wooden cross, the
Bolivian union leaders, the parents of AIDS victims and the other
anti-globalization protesters. The ultimate insider was now on
the outside.
In 1999 the World Bank fired Stiglitz. He was not allowed quiet
retirement; US Treasury Secretary Larry Summers, Im told, demanded
a public excommunication for Stiglitz having expressed his first
mild dissent from globalization World Bank style.
Here in Washington we completed the last of several hours of
exclusive interviews for The Observer and BBC TVs Newsnight about
the real, often hidden, workings of the IMF, World Bank, and the
banks 51% owner, the US Treasury.
And here, from sources unnamable (not Stiglitz), we obtained a
cache of documents marked, "confidential," "restricted," and "not
otherwise (to be) disclosed without World Bank authorization."
Stiglitz helped translate one from bureaucratise, a "Country
Assistance Strategy." Theres an Assistance Strategy for every
poorer nation, designed, says the World Bank, after careful in-country
investigation. But according to insider Stiglitz, the Banks staff
investigation consists of close inspection of a nations 5-star
hotels. It concludes with the Bank staff meeting some begging,
busted finance minister who is handed a restructuring agreement
pre-drafted for his voluntary signature (I have a selection of
these).
Each nations economy is individually analyzed, then, says Stiglitz,
the Bank hands every minister the same exact four-step program.
Step One is Privatization - which Stiglitz said could more accurately
be called, Briberization. Rather than object to the sell-offs of
state industries, he said national leaders - using the World Banks
demands to silence local critics - happily flogged their electricity
and water companies.
"You could see their eyes widen" at the prospect of 10% commissions
paid to Swiss bank accounts for simply shaving a few billion off
the sale price of national assets.
And the US government knew it, charges Stiglitz, at least in the
case of the biggest briberization of all, the 1995 Russian sell-off.
"The US Treasury view was this was great as we wanted Yeltsin
re-elected. We dont care if its a corrupt election. We want the
money to go to Yeltzin" via kick-backs for his campaign.
Stiglitz is no conspiracy nutter ranting about Black Helicopters.
The man was inside the game, a member of Bill Clintons cabinet as
Chairman of the Presidents council of economic advisors.
Most ill-making for Stiglitz is that the US-backed oligarchs stripped
Russias industrial assets, with the effect that the corruption
scheme cut national output nearly in half causing depression and
starvation.
After briberization, Step Two of the IMF/World Bank one-size-fits-all
rescue-your-economy plan is Capital Market Liberalization. In
theory, capital market deregulation allows investment capital to
flow in and out.
Unfortunately, as in Indonesia and Brazil, the money simply flowed
out and out.
Stiglitz calls this the "Hot Money" cycle. Cash comes in for
speculation in real estate and currency, then flees at the first
whiff of trouble. A nations reserves can drain in days, hours.
And when that happens, to seduce speculators into returning a
nations own capital funds, the IMF demands these nations raise
interest rates to 30%, 50% and 80%.
"The result was predictable," said Stiglitz of the Hot Money tidal
waves in Asia and Latin America. Higher interest rates demolished
property values, savaged industrial production and drained national
treasuries.
At this point, the IMF drags the gasping nation to Step Three:
Market-Based Pricing, a fancy term for raising prices on food,
water and cooking gas. This leads, predictably, to Step-Three-and-a-Half:
what Stiglitz calls, The IMF riot.
The IMF riot is painfully predictable. When a nation is, "down
and out, [the IMF] takes advantage and squeezes the last pound of
blood out of them. They turn up the heat until, finally, the whole
cauldron blows up," as when the IMF eliminated food and fuel
subsidies for the poor in Indonesia in 1998.
Indonesia exploded into riots, but there are other examples - the
Bolivian riots over water prices last year and this February, the
riots in Ecuador over the rise in cooking gas prices imposed by
the World Bank. Youd almost get the impression that the riot is
written into the plan.
And it is. What Stiglitz did not know is that, while in the States,
BBC and The Observer obtained several documents from inside the
World Bank, stamped over with those pesky warnings, "confidential,"
"restricted," "not to be disclosed." Lets get back to one: the
"Interim Country Assistance Strategy"
for Ecuador, in it the Bank several times states - with cold accuracy
- that they expected their plans to spark, "social unrest," to use
their bureaucratic term for a nation in flames.
Thats not surprising. The secret report notes that the plan to
make the US dollar Ecuadors currency has pushed 51% of the population
below the poverty line. The World Bank "Assistance" plan simply
calls for facing down civil strife and suffering with, "political
resolve" - and still higher prices.
The IMF riots (and by riots I mean peaceful demonstrations dispersed
by bullets, tanks and teargas) cause new panicked flights of capital
and government bankruptcies. This economic arson has its bright
side - for foreign corporations, who can then pick off remaining
assets, such as the odd mining concession or port, at fire sale
prices.
Stiglitz notes that the IMF and World Bank are not heartless
adherents to market economics. At the same time the IMF stopped
Indonesia subsidizing food purchases, "when the banks need a
bail-out, intervention (in the market) is welcome." The IMF scrounged
up tens of billions of dollars to save Indonesias financiers and,
by extension, the US and European banks from which they had borrowed.
A pattern emerges. There are lots of losers in this system but
one clear winner: the Western banks and US Treasury, making the
big bucks off this crazy new international capital churn. Stiglitz
told me about his unhappy meeting, early in his World Bank tenure,
with Ethopias new president in the nations first democratic election.
The World Bank and IMF had ordered Ethiopia to divert aid money to
its reserve account at the US Treasury, which pays a pitiful 4%
return, while the nation borrowed US dollars at 12% to feed its
population. The new president begged Stiglitz to let him use the
aid money to rebuild the nation. But no, the loot went straight
off to the US Treasurys vault in Washington.
Now we arrive at Step Four of what the IMF and World Bank call
their "poverty reduction strategy": Free Trade. This is free
trade by the rules of the World Trade Organization and World Bank,
Stiglitz the insider likens free trade WTO-style to the Opium Wars.
"That too was about opening markets," he said.
As in the 19th century, Europeans and Americans today are kicking
down the barriers to sales in Asia, Latin American and Africa,
while barricading our own markets against Third World agriculture.
In the Opium Wars, the West used military blockades to force open
markets for their unbalanced trade. Today, the World Bank can
order a financial blockade just as effective - and sometimes just
as deadly.
Stiglitz is particularly emotional over the WTOs intellectual
property rights treaty (it goes by the acronym TRIPS, more on that
in the next chapters). It is here, says the economist, that the
new global order has "condemned people to death" by imposing
impossible tariffs and tributes to pay to pharmaceutical companies
for branded medicines. "They dont care," said the professor of
the corporations and bank loans he worked with, "if people live or
die."
By the way, dont be confused by the mix in this discussion of the
IMF, World Bank and WTO. They are interchangeable masks of a single
governance system.
They have locked themselves together by what are unpleasantly
called, "triggers." Taking a World Bank loan for a school triggers
a requirement to accept every conditionality - they average 111
per nation - laid down by both the World Bank and IMF. In fact,
said Stiglitz the IMF requires nations to accept trade policies
more punitive than the official WTO rules.
Stiglitz greatest concern is that World Bank plans, devised in
secrecy and driven by an absolutist ideology, are never open for
discourse or dissent.
Despite the Wests push for elections throughout the developing
world, the so-called Poverty Reduction Programs "undermine democracy."
And they dont work. Black Africas productivity under the guiding
hand of IMF structural "assistance" has gone to hell in a handbag.
Did any nation avoid this fate? Yes, said Stiglitz, identifying
Botswana. Their trick? "They told the IMF to go packing."
So then I turned on Stiglitz. OK, Mr Smart-Guy Professor, how
would you help developing nations? Stiglitz proposed radical land
reform, an attack at the heart of "landlordism," on the usurious
rents charged by the propertied oligarchies worldwide, typically
50% of a tenants crops. So I had to ask the professor: as you were
top economist at the World Bank, why didnt the Bank follow your
advice?
"If you challenge [land ownership], that would be a change in the
power of the elites. Thats not high on their agenda." Apparently
not.
Ultimately, what drove him to put his job on the line was the
failure of the banks and US Treasury to change course when confronted
with the crises - failures and suffering perpetrated by their
four-step monetarist mambo. Every time their free market solutions
failed, the IMF simply demanded more free market policies.
"Its a little like the Middle Ages," the insider told me, "When
the patient died they would say, well, he stopped the bloodletting
too soon, he still had a little blood in him."
I took away from my talks with the professor that the solution to
world poverty and crisis is simple: remove the bloodsuckers.
*
A version of this was first published as "The IMFs Four Steps to
Damnation" in The Observer (London) in April and another version
in The Big Issue - thats the magazine that the homeless flog on
platforms in the London Underground.
Big Issue offered equal space to the IMF, whose "deputy chief media
officer"
wrote:
"... I find it impossible to respond given the depth and breadth
of hearsay and misinformation in [Palasts] report."
Of course it was difficult for the Deputy Chief to respond. The
information (and documents) came from the unhappy lot inside his
agency and the World Bank.
At [
www.GregPalast.com] you can read more about globalization
- and view Palasts reports for BBC Television's Newsnight, including his broadcast interview with Joe Stiglitz (Meirion Jones, Producer). We will soon post a complete transcript of the 90-minute interview.