World Bank and IMF support to dictatorships

After the Second World War, in a growing number of Third World countries, policies diverged from those of the former colonial powers. This trend encountered firm opposition from the governments of the major industrialised capitalist countries whose influence held sway with the World Bank (WB) and the IMF. WB projects have a strong political content: to curtail the development of movements challenging the domination/rule of major capitalist powers. The prohibition against taking “political” and “non-economic” considerations into account in WB operations, one of the most important provisions of its charter, is systematically circumvented. The political bias of the Bretton Woods institutions is shown by their financial support to dictatorships ruling in Chile, Brazil, Nicaragua, Congo-Kinshasa and Romania.

Anti-colonial and Anti-imperialist movements in the Third World

After 1955, the spirit of the Bandung Conference (Indonesia) [1] spread a mighty wind across much of the planet. It followed in the wake of the French defeat in Vietnam (1954) and preceded Nasser’s nationalisation of the Suez Canal. Then came the Cuban (1959) and Algerian (1954-1962) revolutions and the renewed Vietnamese liberation struggle. In more and more Third World countries, policies implemented were a rejection of the former colonial powers. This often meant import substitution and the development of policies turned towards the internal market. This approach met with firm opposition from the governments of the major industrialised capitalist countries, who held sway at the WB and the IMF. A wave of bourgeois nationalist regimes carrying out populist policies (Nasser in Egypt, Nehru in India, Peron in Argentina, Goulart in Brazil, Sukarno in Indonesia, N’Krumah in Ghana…) and outright socialist regimes (Cuba, People’s Republic of China) appeared on the scene. In this context, WB projects have an underlying political purpose: to thwart the development of movements challenging domination by major capitalist powers.

World Bank intervention powers in national economies

As early as the 1950s, the WB established a network of influence that was to serve it greatly in later years. In the Third World, the WB sought to create demand for its services. The influence it enjoys nowadays is to a large extent the outcome of the networks of agencies it built up in States that became its clients and, by so doing, its debtors. The WB exercises a real policy of influence to support its network of loans.

From the 1950s onward, one of the primary goals of WB policy was “institution building”. This most often meant setting up para-governmental agencies based in the WB’s client countries. [2] Such agencies were expressly founded as relatively financially independent entities with respect to their own governments and outside the control of local political institutions, including national parliaments. They became natural relays for the WB and owed it a great deal, including their very existence. And in some cases, their funding.

Establishing such agencies was one of the WB’s primary strategies to get a foothold in the political economies of Third World countries.

These agencies, operating according to their own rules (often developed on the basis of WB suggestions) staffed with WB-backed technocrats, were used to create a stable and trustworthy source for the WB’s needs: “viable” loan proposals. They also provided the WB parallel power bases through which it succeeded in transforming national economies, and entire societies, without going through the bother of democratic control and open debates.

In 1956, the WB founded the Economic Development Institute with significant backing from the Ford and Rockefeller Foundations. The Institute offered six-month training courses to official delegates from member countries “Between 1957 and 1971, more than 1300 officials had passed through EDI, a number of them already having risen to the position of prime minister or minister of planning or finance in their respective countries”. [3]

This policy had disturbing implications. The New-York based International Legal Center (ILC) study of WB policy in Colombia from 1949 to 1972 concluded that the independent agencies founded by the WB had a profound impact on the political structure and social development of the entire region, undermining the political party system and minimising the role of the legislative and judicial branches.

From the 1960s on, the WB has certainly found singular and novel means of continual involvement in the internal affairs of borrower countries. And yet, the WB vigorously denies that such involvement is political. It insists on the contrary that its policies are unrelated to power structures and that political and economic matters are separate spheres.

How political and geopolitical considerations influence WB lending policy

Article IV section 10 stipulates: “The WB and its officers shall not interfere in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions, and these considerations shall be weighed impartially in order to achieve the purposes (set by the WB) stated in Article I.”

Nevertheless, the WB has found many systematic means of getting round the prohibition on taking “political” and “non-economic” considerations into account in its operations, one of the primary stipulations of its charter. From its very beginnings, the WB refused loans to post-liberation France as long as there were Communists in the government. The day after they left the government in May 1947, the loan France had requested, blocked until then, was granted. [4]

The WB has repeatedly contravened article IV of its own statutes. In truth, the WB has made many choices based on political considerations. The quality of governments’ economic policies is not the determining element in its choices. The WB has often lent money to the authorities in countries despite the dismal quality of their economic policies and a great deal of corruption: Indonesia and Zaire are two cases in point. Specifically, WB choices relative to countries that play a major political role in the eyes of its major shareholders are regularly linked to these shareholders’ interests and outlooks, starting with the United States.

From 1947 to the collapse of the Soviet bloc [5], WB and IMF decisions were determined in large part by the following criteria:

• avoid shoring up self-reliant models;
• provide funding to large-scale projects (WB) or policies (IMF) enabling the major industrialised countries to increase exports;
• refuse to help regimes seen as a threat by the United States government or other important shareholders;
• attempt to modify the policies of certain governments in the so-called socialist countries so as to weaken the cohesion of the Soviet bloc. This is why support was granted to Yugoslavia, which had dropped out of the Moscow-dominated bloc from 1948, or to Romania from the 1970s at the time when Ceaucescu was attempting to distance himself from the Comecon and the Warsaw Pact;
• support strategic allies of the Western capitalist bloc and in particular of the US, (i.e.: Indonesia from 1965 to the present day, Mobutu’s Zaire, the Philippines under Marcos, Brazil under the dictators after the 1964 coup, dictator Somoza’s Nicaragua, Apartheid South Africa);
• attempt to avoid or to limit as far as possible, closer links between Third World countries and the Soviet bloc or China: for example, by distancing the USSR from India and Sukarno-era Indonesia.

To carry out this policy, the WB and the IMF have generalised a tactic: greater flexibility towards right-wing governments (less demanding in terms of austerity measures) facing a strong left opposition than to left-wing governments facing strong opposition from the right. Concretely, that means the IFI are more demanding and make life more difficult for left-wing governments to weaken them and ease the right’s path to power. According to the same logic, the IFI have made fewer demands on right-wing governments facing a left-wing opposition to avoid weakening them and preventing the left from coming to power. Monetarist orthodoxy has variable geometrics: the variations depend on many political and geopolitical factors.

Some concrete cases – Chile, Brazil, Nicaragua, Zaire and Romania – provide cases in point: these are choices by both the WB and the IMF since these choices are determined, overall, by the same considerations and subject to the same influences.

The IMF and WB did not hesitate to support dictatorships when they (and other major capitalist powers) found it opportune. The author of the Human Development Report published by UNDP (1994 edition) says so in black and white: “But rhetoric is running far ahead of reality, as a comparison of the per capita ODA received by democratic and authoritarian regimes shows. Indeed, for the United States in the 1980s, the relationship between aid and human rights has been perverse. Multilateral donors also seem not to have been bothered by such considerations. They seem to prefer martial law regimes, quietly assuming that such regimes will promote political stability and improve economic management. After Bangladesh and the Philippines lifted martial law, their shares in the total loans given by the WB declined”. [6]

IFI political bias: examples of financial support to dictatorships

Support to General Augusto Pinochet’s dictatorship in Chile
Graph 1. CHILE: The multilateral disbursements

In 1947, Romania was brought into the Soviet bloc. In 1972, Romania was the first Soviet satellite country to join the WB.

Since 1965, Ceaucescu had been Secretary-General of the ruling Communist Party. In 1968, he criticised the USSR’s invasion of Czechoslovakia. Romanian troops did not take part in the Warsaw Pact operation. This distancing from Moscow clearly made up Washington’s mind to contemplate closer ties with the Romanian regime, through the WB.

As early is 1973, the WB undertook negotiations with Bucharest to determine a loan policy; very soon this reached a very appreciable level. In 1980, Romania became the eighth most important WB borrower. WB historian Aart van de Laar tells a significant anecdote from 1973. Early that year, he attended a meeting of the WB directors, with the beginning of loan grants to Romania on the agenda. Certain directors were sceptical of the lack of thorough studies on Romania, but Robert McNamara declared he had great trust in the financial morality of socialist countries in terms of debt reimbursement. The story goes that one of the WB Vice-Presidents attending piped up to ask whether Allende’s Chile had perhaps not yet become socialist enough. [17] This met with McNamara’s stony silence.

WB choices did not depend on reliable economic criteria. First, while the WB has regularly refused loans to countries that had failed to repay old sovereign debts, it began lending to Romania although the latter had not settled disputes over outstanding debts. Secondly, most of Romania’s economic exchanges took place within the Comecon in non-convertible currency. How could the country reimburse debts in hard currency? Thirdly, from the outset Romania refused to hand over the economic data the WB required. Political considerations were obviously the reason for the WB developing close relations with Romania. The lack of internal democracy and systematic police repression were no greater a stumbling block for the WB in this case than in others.

Romania became one of the WB’s biggest clients and the latter financed large-scale projects (open-face coal mines, thermal electric generators) whose negative impact in environmental terms was patently obvious. To operate the open-face coal mines, the Romanian authorities displaced former farming communities. In another field, the WB supported the population planning policy whose aim was a higher birth rate.

In 1982, when the debt crisis came to the fore internationally, the Romanian regime decided to impose shock therapy on its people. Romania slashed its imports to the bone to come up with the surplus in hard currency to pay off its foreign debt as soon as possible. “Romania was, in a sense, a “model” debtor, at least from the creditors’ point of view” [18] .

Conclusion

Contrary to section 10 of article 4 of the World Bank charter, the latter and the IMF have systematically lent to States in order to influence their policies. The examples given in this study show that the political and strategic interests of the major capitalist powers are determining factors. Regimes with the backing of major capitalist powers have received financial aid even though their economic policies did not meet official International Financial Institution (IFI) criteria or they failed to respect human rights. Furthermore, regimes seen as hostile to the major powers were deprived of IFI loans on the pretext that they were failing to respect the economic criteria set by these institutions.

These policies of the Bretton Woods institutions, far from being abandoned at the end of the Cold War, continue to the present day. They have supported Mohammed Suharto’s Indonesia until his fall in 1998, Idriss Deby’s Chad until the present day, Tunisia under Ben Ali until he was deposed in 2011, Egypt under Mubarak until he was ousted in 2011 and now under Marshal Al-Sissi…

Translated by Marie Lagatta and Sushovan Dhar in collaboration with Vicki Briault.

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