To some degree, next week’s Annual Meetings of the Bretton Woods Institutions (BWIs) in Marrakech will be focused on the tragic earthquake and flooding damage in Morocco and Libya, respectively – in turn reflecting a lack of durable infrastructure, especially in the latter case after the state was crippled by NATO regime-change excesses in 2011 and Derna’s fragile dams were not maintained. The reconstruction funding needs are enormous, but are the BWIs appropriate allies, given their record?
In late August, the BRICS+ gathering in Johannesburg, South Africa, raised near-universal concern (or even misplaced hope) that some of the world’s most tyrannical regimes are uniting and potentially facing off against the ‘West’ in part because of the BWIs’ heavy-handed loan conditionality. Five of the six new members are from the Middle East and Horn of Africa, including dangerously indebted Egypt and Ethiopia, while another new member, Argentina, is under Washington’s austerity thumb. And that perception will probably compel a more active reengagement of BRICS+ regimes by a new down-to-business World Bank President, Ajay Banga, and by International Monetary Fund (IMF) Managing Director Kristalina Georgieva, who reflect a long-standing global-apartheid policy in which only U.S. and European citizens get Bank and IMF leadership, respectively.
Banga’s own decade-old history in Johannesburg’s Soweto township featured a Mastercard partnership with a Bank-owned ‘financial inclusion’ firm (Cash Paymaster Services) that in 2020 was forced into receivership after failing to pay fines for extensive fraud against the state (via a corrupt welfare minister) and millions of the society’s poorest (see Observer Summer 2023). Likewise, Georgieva was a top World Bank official before moving to the Fund in 2019 and was mainly remembered for her alleged role in ‘torturing data’ in the Bank’s Doing Business reports on behalf of China’s Foreign Direct Investment program. The alleged statistical fraud was so severe that she was nearly forced to resign from IMF leadership in 2021. In the same spirit, her IMF managing director predecessors include Rodrigo Rato, who was jailed for financial fraud in 2017, Christine Lagarde who was convicted in a French political bribery case in 2016, and Dominique Strauss-Kahn who resigned after his sexual attack in a New York hotel in 2011 and was prosecuted (although the case was dropped, a civil claim by the victim, a hotel cleaner, was later settled out of court).
What is it about Washington’s hallowed international financial hallways that makes it so difficult for BWIs bureaucrats to break the pattern of intra-elite corruption? To be sure, the extreme pressure of geopolitics often suffocates financial ethics, for as establishment economist Rudiger Dornbusch remarked in 1998, “The IMF is a toy of the United States to pursue its economic policy offshore,” a problem that won’t go away while Washington both retains veto power over Bank and Fund policies and projects and props up favored dictators (see Inside the Institutions, IMF and World Bank decision-making and governance). The recent scandal in which the US exercised its power at the IMF to fast-track a $2 billion loan to Pakistan, in exchange for the latter’s $900 million urgent weapons supply to Ukraine, is only the latest case.
But there is a deeper reason for sustained corruption: Neoliberal ideology. From North Africa to South Africa, financial deal-making with explicitly corrupt governments is hard-wired into the Bank and IMF, even while the BRICS’ own ‘alternative’ institution, the New Development Bank, appears to have exactly the same problem in relation to its dozen South African portfolio credits. Additionally, the (still-notional) BRICS Contingent Reserve Arrangement empowers the IMF because if a country wants to borrow more than 30 percent of its quota, it must first sign up for a structural adjustment program – designed at 18th & H Streets NW in Washington DC. The BRICS institutions are not actually alternatives after all, but amplifiers of malgovernance, given the political pressure to conform to both borrower desires – e.g. Vladimir Putin’s crony capitalism or South African parastatal agencies’ service to the minerals-energy complex – and the inevitable New York credit rating agency squeeze (see Observer Summer 2020). That, in turn, ironically compelled the New Development Bank to join Western financial sanctions against its own 18 per cent-shareholder in Moscow immediately after the February 2022 invasion of Ukraine and maintain them even under the 2023 Bank presidency of Putin’s ally, Dilma Rousseff.
Lessons of the Arab Spring unlearned in Washington
A dozen years ago, IMF and Bank back-scratching patronage appeared on the verge of collapse in North Africa. In 2011, millions of pro-democracy protesters in Tunisia, Egypt, Libya and Algeria ran up against brutality inflicted by tyrannical, ultra-corrupt regimes. Behind the scenes in each case were World Bank and IMF officials who supported (and often financed) economic injustice, even as austerity put unbearable pressure on society. Most notorious was Strauss-Kahn, who in 2008 was feted by Tunisian tyrant Zine El Abidine Ben Ali. The IMF head was given the Order of the Tunisian Republic for his “contribution to the reinforcement of economic development at the global level.” Strauss-Kahn was effusive in return, terming Ben Ali’s economic policy “the best model for many emerging countries. Tunisia is making impressive progress in its reform agenda and its prospects are favorable.”
Codifying Strauss-Kahn’s praise for Ben Ali, two of his economists – Joël Toujas-Bernate and Rina Bhattacharya – enthused in IMF Survey Magazine in 2010 how Tunisia’s dictator had promoted “wide-ranging structural reforms aimed at enhancing its business environment and improving the competitiveness of its economy.” They praised his “prudent macroeconomic management,” an “export promotion strategy,” various free trade agreements and, in finance, moves toward liberalization that would “transform Tunisia into a banking services hub and a regional financial market.”
In social policy, Toujas-Bernate and Bhattacharya applauded the Tunis authorities for “reforms to labor market policies, the educational system, and public employment services that will serve to facilitate labor mobility and reduce mismatches between demand and supply in the labor market. The implementation of these reforms will be supported by several World Bank Development Policy Loans”. In “reforming the social security system” (i.e. cuts that might “buttress the pension system’s financial sustainability”) and attempting to cut “subsidies of food and fuel products,” Ben Ali won praise for “undertaking reforms to make the tax regime more business-friendly” including commitments “to reduce tax rates on businesses and to offset those reductions by increasing the standard Value Added Tax (VAT) rate,” i.e., a profoundly regressive approach to taxation.
The 17 December 2010 suicide-by-immolation of an immensely frustrated informal trader, Mohamed Bouazizi – after his fruit and vegetable stand was confiscated, reflecting Washington’s instructions to squeeze tax receipts from the poor – catalyzed the Arab Spring revolt that pushed Ben Ali out just a month later.
WikiLeaks revealed how even the US State Department was appalled by the families of Ben Ali and his wife Leila Trabelsi, who controlled half the national economy and who, as Rob Prince put it, were “dominating the IMF-pressured privatizations that have marked the country’s economic transition.”
In July 2019, Tunisia’s Truth and Dignity Commission sent memoranda to the World Bank and the IMF, as well as to France, seeking reparations for Tunisian victims of human rights violations, claiming that the IMF and World Bank bear “a share of responsibility” in social unrest linked to structural adjustment policies.
As for Muammar Gaddafi’s reign in Libya, the IMF in October 2010 celebrated the regime for “reducing civil service employment” by a planned 340,000 workers, while recommending “that the retrenchment program be accelerated.”
In February 2011, the IMF promoted “an ambitious program to privatize banks” and “commended the authorities for their ambitious reform agenda, and looked forward to the effective implementation of the many important laws passed in the last year, complemented by policies aimed at adapting the labor force to the economic transformation.”
New York Times reporters Pierre Briancon and John Foley observed how “the fund’s mission to Tripoli had somehow omitted to check whether the ‘ambitious’ reform agenda was based on any kind of popular support. Libya is not an isolated case. And the IMF doesn’t look good after it gave glowing reviews to many of the countries shaken by popular revolts in recent weeks,” including Bahrain, Algeria and Egypt. The Times journalists’ worry was that “the toppling of unpopular regimes will make it difficult for their successors to adopt the same policies. In the future, the IMF might want to add another box to check on its list of criteria: democratic support”.
But because that concept was utterly foreign, neither the IMF nor the Bank seemed to have any idea that promoting neoliberalism in corrupt regimes so openly would generate political instability. A February 2011 World Bank report, Africa’s future and the World Bank’s support to it claimed that both Tunisia and Libya were ‘low risk’ in a map of “fragile and conflict-affected states”, even after Ben Ali was ousted by popular demand and Libya was breaking apart.
And in Egypt, where Hosni Mubarak’s dictatorship and military-capitalist regime was borrowing heavily, the IMF’s Article IV Consultation praised Cairo in 2010 for “key fiscal reforms – introducing the property tax, broadening the VAT, and phasing out energy subsidies.” Mubarak’s “fiscal and monetary policies of the past year have been in line with staff’s advice. The authorities remain committed to resuming fiscal consolidation broadly in keeping with past advice to address fiscal vulnerabilities.” There was still a need, the IMF argued, for “decisive action” in, “resuming privatization and increasing the role of carefully structured and appropriately priced Public Private Partnerships.”
From 25 January to 11 February 2011, millions of angry citizens went to the streets and Tahrir Square, forcing Mubarak to resign. He was then repeatedly convicted and jailed for blatant “presidential palaces” embezzlement of state funds, which somehow had gone unnoticed by the IMF and Bank.
Patrick Bond is professor of sociology at the University of Johannesburg in South Africa.
Source: CounterPunch