Global Policy Forum

The Prague Castle Debate:


By Walden Bello

Focus on Trade #55
October 2000

On September 23, 2000, President Vaclav Havel of the Czech Republic hosted an historic debate between the heads of the Bretton Woods institutions and their civil society critics. The event took place at the historic Prague Castle-immortalized in Franz Kafka's allegoric tale The Castle-a few days before the World Bank-IMF annual meeting in the Czech capital. Attended by about 300 invited guests from governments, the multilateral institutions, the academy, and civil society, the event quickly turned into a heated exchange. The Washington Post reported that "although [the NGO's ] complaints have been heard before, they rarely have been delivered in a setting at once so intimate and so public. And not surprisingly, Wolfensohn and Koehler took it all a bit personally." On one side were Horst Kohler, IMF managing director, World Bank President James Wolfensohn, George Soros, the financier, and Trevor Manuel, South Africa's finance minister. On the other side were Katrina Liskova, a representative of militant Czech NGO's, Ann Pettifor, head of Jubilee 2000 in the United Kingdom, and Walden Bello, executive director of Focus on the Global South. The debate was chaired by Mary Robinson, the United Nations Human Rights Commissioner and former President of Ireland.

The following is an edited composite version of the Focus director's two lengthy interventions during the debate. Data presented by Bello to support his points were taken from a variety of publications and reports.

I would like, first of all, to thank President Havel for staging this debate today, and President Robinson for chairing it. I never thought I would be seating so close to Jim Wolfensohn. I guess this is what you call combat in close quarters. The International Monetary Fund and the World Bank have avoided a real debate with their critics in civil society for a long time. Today, the representatives of these two institutions are here, partly because of President Havel's moral suasion, partly because they realize that, with their two institutions suffering an unparalleled crisis of legitimacy-the worst in their 56-year history, in fact-the old strategy of denial and non-confrontation no longer works.

In this brief presentation, let me tackle four myths propagated by the Bank and the Fund, and end with questions to Mr. Kohler and Mr. Wolfensohn:

Myth No. 1: The World Bank and IMF are proponents of "good governance."

Fact: For the greater part of the last 30 years, the Fund and the Bank have been intimately associated with very corrupt governments and human rights violators. What did the Brazilian military dictatorship, Ferdinand Marcos, Gen. Pinochet, the PRI government in Mexico, and the Suharto regime have in common? They were all governments or heads of governments that were designated by the World Bank as "countries of concentration"--that is, countries to which the flow of Bank resources was greater than to other countries of similar size and income.

Over the last 30 years, over $30 billion in World Bank funds found its way to the Suharto dictatorship. According to several reports, including a World Bank internal report in 1999, the Bank tolerated corruption, accorded factual status to false government statistics, legitimized the dictatorship by passing it off as a model for other countries, and was complacent about the state of human rights and the economy. This happened under your watch, Mr. Wolfensohn, and the people of Indonesia will never forgive the Bank.

Myth No. 2: The IMF and the World Bank are concerned with the degradation of the environment.

Fact: Again and again, studies of the impact of IMF-World Bank structural adjustment programs have shown that, by institutionalizing stagnation and high poverty levels, they have been among the biggest contributors to environmental degradation in developing countries. In my country, the Philippines, for instance, so deep was the crisis triggered in the mid-1980's by structural adjustment in both the countryside and the cities that the population flow shifted away from the cities to open access forests, watersheds, and artisanal fisheries, severely destabilizing them in the process. Studies show that by the early nineties, the top 15 Third World debtors--all of which were subjected to structural adjustment--had tripled the rate of the exploitation of their forests since the late 1970s, a phenomenon that was undoubtedly caused by the adjustment program's pushing countries to rapidly increase their export earnings to pay off the foreign debt.

It is not sensitivity to the environment that is demonstrated by Mr. Wolfensohn and the World Bank management's unyielding support for the Chad-Cameroon Pipeline, which will seriously damage ecologically sensitive rainforests like Cameroon's Atlantic Littoral Forest. It is not concern for the environment that was revealed by the World Bank's violation of its own rules on environmental assessment, involuntary resettlement, indigenous peoples, and environmental assessment in its failed attempt to push through the China Western Poverty Project that would have transformed an arid ecosystem supporting Tibetan and Mongolian sheepherders into land for settled agriculture for Chinese migrants.

A look at the Bank's loan portfolio would reveal the reality behind the rhetoric: loans for the environment as a total of the Bank's total loan portfolio declined from 3.6 per cent in FY 1994 to 1.02 per cent in 1998; funds allocated to environmental projects declined by 32.7 per cent between 1998 and 1999; and more than half of all lending by the World Bank's private sector divisions in 1998 was for environmentally harmful projects like mining, roads, and power.

Indeed, so marginalized is the Bank's environmental staff within the bureaucracy that Herman Daly, the distinguished ecological economist, left the Bank staff because he felt he and other in-house environmentalists were having very little impact on Bank policy.

Myth No. 3: The Fund and the Bank are dedicated to combating poverty.

Fact: The opposite is true: the IMF and the Bank are central to creating poverty. Structural adjustment programs imposed on over 90 developing and transition economies in the last 20 years have institutionalized economic stagnation, increased poverty, and exacerbated inequality in these areas. A recent World Bank study, in fact, admits that poverty worsened in the 1990's in Eastern Europe, Subsaharan Africa, Latin America and the Caribbean, and South Asia-all regions which have come under the sway of World Bank-IMF adjustment programs. Indeed, so bad was the record of adjustment programs that the IMF renamed the Extended Structural Adjustment Facility (ESAF) the Poverty Reduction and Growth Facility during the World Bank-IMF meeting in September 1999. So devoid of success was the structural adjustment approach that Larry Summers, the US Treasury Secretary, who, as chief economist of the Bank in the early 1990's, was a partisan of adjusment, admitted to the US Congress last year that it was time to shelve the "IMF-centered" macroeconomic approach because it just was not working.

Recently, the IMF has been busy creating poverty in East Asia. There is now a consensus that the harsh program of high interest rates and budget cutbacks imposed by the Fund turned an economic crisis into a full-blown recession that saw negative growth rates in Thailand, Indonesia, and South Korea accompanied by a sharp rise in unemployment and the poverty rate. At least 1 million people fell into poverty in Thailand and 21 million in Indonesia. In Korea, the trend of declining poverty rates between 1975 and 1995 was sharply reversed in 1998, and the recession led to a suicide rate in 1998 that was 59.4 higher than in 1997.

As for the World Bank, the truth about Mr. Wolfensohn's crusade to end global poverty was revealed by the findings of the bipartisan Meltzer Commission mandated by the US Congress to look at the record of the Bretton Woods institutions: 70 per cent of the Bank's non-grant lending is concentrated in 11 countries, with 145 other member countries left to scramble for the remaining 30 per cent; 80 per cent of the Bank's resources are devoted not to the poorest developing countries but to the better off countries that have positive credit ratings and can raise their funds in private capital markets; the failure rate of Bank projects is 65-70 per cent in the poorest countries and 55-60 per cent in all developing countries.

So why does the Bank continue to pontificate about going about its "noble mission" to end poverty? Because it has learned from Joseph Goebbels that a lie repeated often enough eventually attains the status of truth.

Myth No. 4. The Fund and the World Bank are actively soliciting the help of civil society.

The truth is that the World Bank and IMF are mainly interested in using civil society to legitimize their unchanged approaches via consultations that are really monologues. The Bank and the Fund are more interested in splitting civil society opposition to their projects, and they do this by branding some civil society groups as "reasonable NGO's" and their more militant critics as "unreasonable NGO's" interested only in "closing down discussion." Certainly, dialogue with NGO's was not the intent of Mr.Wolfensohn when he avoided debate on the merits and demerits of the Chad Cameroon Pipeline in favor of a strategy of name-calling by branding opponents of the project as the "Berkeley Mafia."

Let me end by addressing the question: Are the Fund and the Bank capable of reform? I think we will know the answer from Mr. Kohler and Mr. Wolfensohn's answers to the following questions:

- Mr. Kohler, do you propose to give greater decisionmaking power in the IMF Board to the developing countries? Will you do this by diluting the voting power of the United States and the European Union countries that now dominate the board?

- Mr. Kohler, will you propose ending the medieval and non- transparent practice of the IMF always being headed by a European?

- Mr. Wolfensohn, will you advocate doing away with the equally medieval and non-transparent tradition of always having an American head the World Bank? I would like to remind the audience that had Mr. Wolfensohn not given up his Australian citizenship to become an American, he would never have become head of the Bank.

- Mr. Wolfensohn, why did you not stand by your chief economist Joe Stiglitz and allow that powerful voice of reform to be pushed out of his staff position and later from his advisory role by influential conservative forces both within and without the Bank?

- Mr. Wolfensohn, what about Ravi Kanbur, who headed the World Development Report Project? Why did you not stand by this advocate of reform and allow the conservative forces in the Bank to stonewall him and leave him no other option but resignation?

So far, what we have been told here today is that Mr. Wolfensohn feels good about going to work everyday and that Mr. Kohler also has a heart. This frothy stuff is not the response that we in civil society are looking for today. We want hard answers to hard questions. Please.

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.