danielle sabai committee for the abolition of third word debt

Danielle Sabai Committee for the Abolition of Third Word Debt

What are the missions of the Word Bank, the International Monetary Fund and other IFIs ? Reading their documents, one could think that the International Financial Institutions are committed to eradicate poverty. World Bank for more than 60 years, has partnered with governments worldwide, reducing poverty by providing financial and technical help.

Missions of the IFIs : Eradicate Poverty ? ADB ADBs corporate vision under Strategy 2020 will continue to be an Asia and Pacific Free of Poverty. The percentage of people living on less than 1$ a day could fall to 2% by 2020. IMF The IMF is an organization working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Missions of the IFIs : Eradicate Poverty ? Results are far from satisfactory. According to the latest ADB report (April 2013) : More than 600 million people in the Asia and the Pacific region live in absolute poverty (less than 1,25$ a day) One of every two individuals in the region (1.7 billion people) remain poor (less than 2$ a day).

Missions of the IFIs : Eradicate Poverty ? Child malnutrition is high: almost half of the children in Afghanistan, Bangladesh, India and Nepal are undernourished. 1.9 billion people in the Asia and the Pacific region do not have access to basic sanitation.

Missions of the IFIs : Eradicate Poverty ? Rapid economic growth has favoured rising income with a resulting decline in absolute poverty but : This growth is not reaching all groups of the population. Economic inequality has increased in the past 10 years. The income and expenditures of the richest have grown considerably faster than those of the poor. (ADB)

Missions of the IFIs : Eradicate Poverty ? Two observations are manifest : It is hard to find a trickle-down effect. The rich are getting richer and the poor are increasingly dispossessed and marginalised. The situation is worsening in countries that have implemented policy prescriptions from the WB and the IMF.

Do the IFIs really promote development? The mission of the IFIs is not to reduce poverty but to promote economic growth of the South and possibly through development. The development is an alibi of the IFIs to cover up the objective of an unlimited accumulation of capital to the benefit of a minority.

Do the IFIs really promote development? What is at stake ? A unique, globalised, free market. It means : The liberalization of the developing countries markets Opening their markets in order to give multinational corporations unprecedented access to cheap land, resources and labour.

Do the IFIs really promote development?

How do the financial Institutions proceed? Loans to countries + Structural Adjustment Programs = Money + Neoliberal policies

How do the financial Institutions proceed? The Structural Adjustment Programs have two components: 1) To stabilize the economy of the borrowing country by: Devaluation of the currency and suppression of exchange control Fiscal discipline Liberalization of prices, suppression of subsidizes.

How do the financial Institutions proceed? 2) Structural (counter) reforms which aim at liberalizing the economy of the borrowing country: Free circulation of capital and merchandize, privatization of banking, land and enterprises. Priority to the production for exportation, deregulation of labor market, limitation of the power of trade-unions. Fiscal reforms by the generalization of the VAT that impacts the poorer more severely, no taxes on Capital

How do the financial Institutions proceed? Opened up to global capital, the economic structure of the country - sector after sector - rapidly changes. The country remain sources of raw materials, pools of cheap labour to serve the interests of the industrialized countries.

What are the consequences of Structural Adjustment Programs? In the two regions with the longest experience in structural adjustment: Per capita income has stagnated (Latin America) or plummeted (Africa). Structural adjustment has contributed to rising income and wealth inequality in the developing world.

How SAP increase poverty? Privatization Layoffs and pay cuts for workers in the privatized enterprises The sell-off of government-owned enterprises to private owners, often foreign investors. Cuts in government spending Reduce the services available to the poor, including health and education services

How SAP increase poverty? Imposition of user fees Charges for the use of government-provided services like schools, health clinics and clean drinking water. For very poor people, even modest charges may result in the denial of access to services. Promotion of exports Countries undertake a variety of measures to promote exports, at the expense of production for domestic needs. In the rural sector, the export orientation is often associated with the displacement of poor people who grow food for their own consumption, as their land is taken over by large plantations growing crops for foreign markets.

How SAP increase poverty? Higher interest rates Exert a recessionary effect on national economies, leading to higher rates of joblessness. Small businesses, often operated by women, find it more difficult to gain access to affordable credit, and often are unable to survive. Trade Liberalization The elimination of tariff protections for industries in developing countries which often leads to mass layoffs.

How SAP increase poverty? The vast majority hardly benefit from the loans. In countries of the South, most loans were contracted by dictators, strategic allies of the great powers of the North. A sizeable proportion of the sums borrowed were embezzled by corrupt regimes.

The destruction of the environment The development of exports leads to : The overexploitation of natural resources Large scale production which totally destroys the natural ecosystems, threatening the traditional way of life of peoples, farmers and reducing their source of income.

The destruction of the environment Huge energy or infrastructure projects are very often inappropriate and built with total disregard for the impact on the environment. Big projects often destroy the places where ethnic minorities are living in a sustainable way with nature. These communities are force to migrate to cities, They increase the number of poor dwellers living off the informal economy or supplying cheap labour to national or multinational capitalist enterprises.

The destruction of the environment Pillage of genetic material Excessive exploitation of natural resources Colossal attacks against the environment = Disastrous effects on the countries of the periphery.

The mechanisms of debt cycle Subject the developing country that borrow to the IFIs to their demands. Most of the economic policy of the borrowing countries is decided outside. Debt repayment sucks up part of the social surplus produced by the workers of the South and directs this flow of wealth toward the holders of capital in the North. The ruling classes of the South take their commission. The national economies they head stagnate or regress and the populations of the South grow poorer.

The IMF and the Asian financial crisis The Asian meltdown in 1997 was caused in large part by South Korea, Thailand, the Philippines, Malaysia and Indonesia's heavy reliance on short-term foreign loans and openness to hot money. This reliance came from advice proffered by the U.S. Treasury Department, the IMF and other international sources of "expertise".

The IMF and the Asian financial crisis In 1997,private enterprises in Asian nations seemed not able to meet their payment obligations International currency markets panicked Currency traders sought to convert their Asian money into dollars The Asian currencies plummeted That made it harder for the Asian countries to pay their loans Imports became suddenly very expensive

The IMF and the Asian financial crisis The IMF treated the Asian financial crisis like situations where countries could not meet their balance of payment obligations. But the Asian crisis differed from the normal situation of countries with difficulties paying off foreign loans. The Asian governments were generally not running budget deficits. Inflation was low.

The IMF and the Asian financial crisis Yet, the Fund instructed them to cut spending - a recessionary policy that deepened the economic slowdown The Fund failed to manage an orderly roll over of short- term loans to long-term loans, which was most needed The Fund forced governments, including in South Korea and Indonesia, to guarantee private debts owed to foreign creditors.

The IMF and the Asian financial crisis Malaysia refused IMF assistance and advice. Malaysia imposed capital controls in an effort to eliminate speculative trading in its currency. Malaysia generally suffered less severe economic problems than the other countries embroiled in the Asian financial crisis.

The IMF and the Asian financial crisis The result of the Fund's incompetence has been intensified and needless human suffering : In South Korea, unemployment skyrocketed from approximately 3 percent to 10 percent. "IMF suicides" became common among workers who lost their jobs and dignity. In Indonesia, the worst hit country, poverty rates rose from an official level of 11 percent before the crisis to 40 to 60 percent in varying estimates. GDP declined by 15 percent in one year.

The IMF and the European Crisis The epicenter of the crisis that began in the United States in 2007 shifted to Europe in 2010. By 2010, the crisis of the private banking sector had turned into a crisis of the sovereign debt. Greece, Ireland and Portugal are the first three countries in the Euro Zone to agree to bailout austerity plans with the so-called Troika -The European Commission (EC), the European Central Bank (ECB) and the IMF Austerity policies = Structural Adjustment Programs

Where does the Greek Debt Come From ? Private sector debt First surge with the integration of Greece into the Euro Zone in 2001 Second debt explosion in 2007 : Financial rescue granted to banks by the US Federal Reserve, European governments and the European Central Bank recycled by bankers to Greece and other countries like Spain and Portugal

Where does the Greek Debt Come From ? The public debt Debt inherited from the dictatorship of the colonels Borrowing since the 1990s to fill the void created in public finances by lower taxation on companies and high incomes Purchase of military equipment, mainly from France, Germany and the United States Organization of the Olympic Games in 2004 Spiraling of public debt fuelled by bribes from major trans-nationals to obtain contracts.

why the IMF loans money to European countries? Big capital interests has driven the new wave of European integration The advent of the euro associated with : The establishment of rigid fiscal norms (a budget deficit of no more than 3% of the Gross Domestic Product(GDP), 60% for outstanding debt) and The ECB chart: formal independence from the State, a single objective ( inflation control) and a ban on the financing of public deficits. One currency = No possibility for European countries to control the exchange rate Wages become the only variable of adjustment

why the IMF loans money to European countries? To bail out private banks, the United States and Europe used public funds. This was followed by the creation of an enormous sovereign debt crisis The ECB is not allowed to finance directly the Member States The IMF fund part of the sovereign debt of these States

Some figures with the example of Greece Long term loans on the financial market : Interest rates are between 12% and 17% ECB lends money to private banks at 1% from May 2009 to April 2011, 1.5% today Private banks provide sovereign bonds to indebted countries : Interest rates range from 3.75 to 5% (issue for less than a year) If they are bonds maturing after 3, 5 or 10 years banks receive even more. The spread is of approximately 4% for the private banks

Some figures with the example of Greece Countries such as Germany, France and Austria also enriched themselves on the burden and suffering of the people of countries like Greece. They borrow at 2% on the markets and then lend at 5% or 5.5% to Greece and 6% to Ireland. The same can be said of the IMF, which borrows at a low interest from its members and makes loans at much higher rates to Greece, Ireland and Portugal.

The brutal austerity policies applied in Greece, Portugal, Spain and Ireland considerably worsened the crisis in 2012 Greece Since the start of the crisis, the drop of Greek GNP has reached 20%. The purchasing power of the great majority of the population has been reduced by 30% to 50% Unemployment and poverty have literally exploded. Greece has seen in two years some 2000 suicides.

Worsening of the Crisis Ireland Bank rescue package has sucked 40% of GNP from the economy (close to 70 billion Euros out of 156 billion Euros in 2011) The economy has shrunk by 20% One in three young workers has lost his jobs Lay off 37,500 public sector servants by 2015.

Worsening of the Crisis Spain Youth unemployment is up to 50%. 350,000 families have been expelled from their homes, and yet must keep on paying their home mortgage until the end! The number of families in which everyone is unemployed is 1.7million (10% of all Spanish families).

Worsening of the Crisis Portugal Austerity measures have been of such violence, and the economic situation so degraded One million people rallied spontaneously on 15 September 2012. This was the biggest demonstration since the first of May 1974, which celebrated the victory of the Carnation Revolution.

The deconstruction of the social model The ECB board, the European Commission, the governments of the strongest EU economies, the boardrooms of the banks and other big companies are doing a war against the people of Europe They dont want a quick return to growth, nor the reduction of inequalities in the euro zone and the EU, in order to create a more coherent structure that would favor the return of prosperity.

The deconstruction of the social model Two of their principal objectives are: Avoiding banking and financial crash that could be worse than that of 2008 To carry out the greatest aggression of Capital against Workers, on a European scale since the Second World War. By repeated onslaught to stable employment, and the capacity of workers to organise, they want to dramatically push down direct and indirect wages while at the same time maintaining enormous disparities, within the EU, so as to sharpen the blade of labor competition.

Conclusion The IMF and the other IFIs should be dismantled and replaced by a new, truly democratic institution, with monetary stability and the respect of fundamental human rights as its primary objectives. European mobilisation against illegitimate debt, austerity plans and the Fiscal Compact are on the increase, in solidarity with the Greek people along with all other peoples under attack. This would be a suitable response, likely to bring about real social transformation breaking away from neo- liberalism.

Sources CADTM http://cadtm.org/English The Debt Crisis : From Europe to Where ? Essential action (on the Asian Financial Crisis) http://www.essentialaction.org/imf/index.html

danielle sabai committee for the abolition of third word debt

Documents