by ERIC TOUSSAINT
In 2019, the World Bank (WB) and the IMF will be 75 years old. These two international financial institutions (IFI), founded in 1944, are dominated by the USA and a few allied major powers who work to generalize policies that run counter the interests of the world’s populations.
The WB and the IMF have systematically made loans to States as a means of influencing their policies. Foreign indebtedness has been and continues to be used as an instrument for subordinating the borrowers. Since their creation, the IMF and the WB have violated international pacts on human rights and have no qualms about supporting dictatorships.
A new form of decolonization is urgently required to get out of the predicament in which the IFI and their main shareholders have entrapped the world in general. New international institutions must be established. This new series of articles by Éric Toussaint retraces the development of the World Bank and the IMF since they were founded in 1944. The articles are taken from the book The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus, Mumbai: Vikas Adhyayan Kendra, 2007, or The World Bank : A critical Primer Pluto, 2007.
The 1946 US decision to grant the Philippines its independence inaugurated a period of prosperity in the country. For a number of geo-strategic reasons, in the wake of the Second World War the Americans were willing to let the Philippine government pursue policies that they ruled out elsewhere.
The Philippine government was allowed to implement independent policies that fostered the country’s economic development. However, American tolerance was short-lived. From 1962 onwards, and with the backing of the IMF and the World Bank, the Conservatives (who had won a majority of seats in the Philippine Congress in the 1959 elections) imposed radically different policies. These new policies sparked massive capital flight, crippling debts, devaluation, and a drop in wages for the population. It was in this context of crisis that Ferdinand Marcos declared martial law in 1972. The dictator earned the admiration of the World Bank for pursuing policies very much in line with Washington’s expectations. Massive corruption increased popular discontent and brought about the downfall of Ferdinand Marcos and his replacement by Corazon Aquino in 1986. Aquino was the leader of the democratic opposition but was also closely connected to the plantation owners. She carried out intransigently neoliberal economic policies bearing the unmistakable imprint of the World Bank. To be sure, this was a great disappointment to the people.
The Philippines remained a Spanish colony until 1898, when Spain was defeated in a war declared by the United States. The US then occupied the country itself; this occupation was interrupted by the Japanese occupation during the Second World War. In 1946, the US granted the Philippines independence in exchange for its acceptance of a number of conditions: a fixed exchange rate between the Philippine peso and the American dollar to protect US companies against the effects of devaluation; free- trade agreements, and so forth. At the beginning, the arrangement worked relatively well since the US was bringing in a large amount of dollars to the Philippines, primarily through its strong military presence in the country.
However, in 1949 the flow of dollars slowed down dramatically. The Philippine government established strict exchange controls to avoid a heavy drain on the currency. Private companies were forbidden to borrow money from foreign investors. The US government and the IMF tolerated this measure in order to stay on good terms with their Philippine ally. The introduction of controls over currency exchange, capital flows and imports sparked an economic boom in the country, driven in particular by the growth of industry. This period of economic growth ended twelve years later, in 1962, when the control measures were abandoned under pressure from the United States, the IMF and the World Bank.
During the 1950s, the manufacturing sector grew annually from 10 to 12%, the annual inflation rate was kept below 2%, foreign-exchange reserves were strong and the external debt was extremely low. However, this was not to everyone’s liking; American and other foreign companies complained about having to reinvest all their profits in the country’s economy. Capitalist export firms were forced to deposit their hard-currency export earnings in the Central Bank, which returned them in pesos at an unfavorable rate. This was a source of enormous revenue for the state. In 1954, bolstered by its success, the Philippine government demanded that the US alter the rules of the game laid down in 1946 at the time of independence. Washington submitted to this demand, which strengthened the position of the Philippine authorities.
Of course, one has to be careful not to idealize the achievements of the Philippines in this period. It remained a profoundly unequal capitalist society, and industrialization did not go much beyond assembly and light manufacturing. Nevertheless, the situation of the 1950s was certainly promising in comparison with all that has transpired since 1962. Indeed, it was these promising developments that triggered the united offensive led by the US, the IMF and the World Bank — together with the most conservative sectors of the Philippine ruling classes — aimed at putting an end to the experience.
In 1962, the Conservatives, who had won a majority in the Philippine Congress after the elections of 1959, eliminated controls on capital movements. The IMF and the US government showed their approval by immediately granting a loan of 300 million dollars. The elimination of controls led to massive capital flight towards foreign countries; the resulting deficit was financed by one set of external loans after another. The external debt increased sevenfold between 1962 and 1969 — from 275 million to 1.88 billion dollars!
Transnational corporations and Philippine exporters of agricultural products and raw materials rejoiced as their profits jumped. On the other hand, the manufacturing sector oriented toward the domestic market rapidly declined. In 1970, the peso had to be sharply devalued. The incomes and earnings of small producers slumped.
It was in this context of a crisis of the policies supported by the United States, the IMF, the World Bank and the Conservatives, that Ferdinand Marcos set up a dictatorship in 1972. His objective was to consolidate neoliberal policies through force.
One year later, on the other side of the Pacific, Augusto Pinochet took power in Chile with exactly the same objectives, the same overlords and the same backing!
The role of the World Bank
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