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In pursuing its objectives, the IMF never resorts to the use of weapons or soldiers.
It simply applies the mechanisms of capitalism, specifically those of credit. Its strategy is as simple as it is effective:
Because of its global status as "lender of last resort" governments usually have no choice but to accept the IMF's offer and submit to its terms - thus getting caught in a web of debt, which they, as a result of interest, compound interest and principal, get deeper and deeper entangled in.
The resulting strain on the state budget
and the domestic economy inevitably leads to a deterioration of
their financial situation, which the IMF in turn uses as a pretext
for demanding ever new concessions in the form of "austerity
programs".
Its measures have contributed decisively
to the fact that global inequality has assumed historically
unprecedented levels. The income difference between a sun king and a
beggar at the end of the Middle Ages pales compared to the
difference between a hedge fund manager and a social welfare
recipient of today.
Despite all criticism and despite the strikingly detrimental consequences of its actions, it still enjoys the unconditional support of the governments of all leading industrial nations.
It is the purpose of this book to answer
these questions.
The Bretton Woods
Conference - Starting out with Blackmail
The official aim of the conference, held for three weeks in the luxurious "Mount Washington" hotel, was to define the basic features of an economic order for the post-war period and to provide the cornerstones of a system that would stabilize the world economy and prevent a return to the situation that had existed between the two world wars.
The 1930s in particular were distinguished by high inflation, trade barriers, strongly fluctuating exchange rates, gold shortages and a decline in economic activity by more than 60 %.
Furthermore, social tensions had
constantly threatened to break down the established order.
A recorded comment from the head of the British delegation, the economist Lord Keynes, sheds light on the former elite's attitude towards the interests and concerns of smaller countries:
It did not take long before their contemptuous attitude rebounded on Lord Keynes and his compatriots.
During the course of the conference, it became increasingly clear how much the global balance of power had shifted to the disadvantage of Great Britain. Excessive war spending had turned the country, already severely weakened by the First World War, into the world's biggest debtor and pushed it to the brink of insolvency.
Great Britain's economy was on its knees
and the rise of the liberation movements around the world already
heralded the final breakup of its once global colonial empire.
In contrast to most European countries
its infrastructure was intact and while its delegation engaged in
negotiations at Bretton Woods, the US army's general staff planned a
nuclear assault on the Japanese cities of Hiroshima and Nagasaki in
order to emphasize America's claim to global dominion.
Representing a country with substantial
balance of payments problems, he had proposed an "international
payments union" that would have given countries suffering from a
negative balance of payments easier access to loans and introduced
an international accounting unit called "Bancor"
which would have served as a reserve currency.
The leader of their delegation, economist Harry Dexter White, in turn presented his own plan that was finally adopted by the conference. This "White Plan" conceptualized a world currency system never before seen in the history of money.
The US dollar was to constitute its sole center and was to be pegged to all other currencies at a fixed exchange rate while its exchange relation to gold was to be set at $ 35 per ounce of fine gold.
The plan was supplemented by US demands
for the establishment of several international organizations
designed to monitor the new system and stabilize it by granting
loans to countries facing balance of payments problems.
Also, time seemed ripe for replacing
the
City of London by Wall Street, thus
establishing the US in its new position as the focal point of
international trade and global finance.
By fixing all exchange rates to the US
dollar, Washington deprived all other participating countries of the
right to control their own monetary policy for the protection of
their domestic industries - a first step towards curtailing the
sovereignty of the rest of the world by the now dominant United
States.
Member countries were not to be treated equally or assigned voting rights according to the size of their population, but rather corresponding to the contributions they paid - which meant that Washington, by means of its financial superiority, secured itself absolute control over all decisions.
The fact that South Africa's racist
apartheid dictatorship was invited to become a founding member of
the IMF sheds a revealing light on
the role that humanitarian considerations played in the process.
The true goals of the IMF were therefore obfuscated with great effort and glossed over by empty rhetoric about "free trade" and the "abolition of protectionism". The New York Herald-Tribune spoke of the,
The IMF's first task was to scrutinize all member states in order to determine their respective contribution rates.
After all, the Fund was to exert a
long-term "monitoring" function for the system's protection. The US
thus claimed for itself the right to be permanently informed about
the financial and economic conditions of all countries involved.
Less than two weeks later Downing Street
gave in to Washington's blackmail and consented.
On this occasion, Lord Keynes and his compatriots were once again left empty-handed: Contrary to their proposal to establish the headquarters of the IMF, which had in the meantime been declared a specialized agency of the United Nations, in New York City, the US government insisted on its right to determine the location solely by itself.
On March 1, 1947, the IMF finally took
up its operations in downtown Washington.
The IMF finally received a starting capital of $ 8.8 billion from shares of its member states who paid 25 % of their contributions in gold and 75 % in their own currency.
The United States secured itself the
highest rate by depositing $ 2.9 billion. The amount was twice as
high as Great Britain's and guaranteed the United States not only
double voting rights, but also a blocking minority and veto rights.
Seven were elected by the members of the
IMF, the other five were appointed by the largest countries, led by
the US. The offices of the IMF as well as those of its sister
organization, the World Bank, were set up on Pennsylvania Avenue in
Washington within walking distance from the White House.
These official terms make it seem as if the IMF is an impartial institution, placed above nations and independent of political influences, its main objective consisting in running the global economy in as orderly a manner as possible, swiftly correcting malfunctions.
This is no coincidence. This impression
was intended by the authors and has in fact achieved its desired
effect: It is exactly this notion that has been conveyed to the
global public for more than six decades by politicians, scientists
and the international media.
To conceal these intentions even more
effectively, the founding fathers of the IMF in 1947 started a
tradition which the organization has held to this day - appointing a
non-American to the post of managing director.
As finance minister of his country during World War II, the trained economist had helped the British cover their war expenses by lending them Belgian gold. He had aided the war effort by supplying his government's allies with cobalt and copper from the Belgian colony of Congo and supporting the US government with secret deliveries of Congolese uranium for its nuclear program.
In 1944 he had carried out a drastic
currency reform (later known as the "Gutt operation") that had cost
the working population of Belgium large amounts of their savings.
He also paved the way for major US banks
seeking to deal in credits on an international scale and opened up
markets all over the world for international finance capital
searching for investment opportunities.
Still relying on the socialization of the means of production by the Russian Revolution of 1917, Stalin's officials sealed off the so-called "Eastern bloc" from the West in order to introduce central economic planning in these countries.
The Soviet bureaucracy's primary objective, however, was not to enforce the interests of working people, but to assure the subordination of the Eastern Bloc under its own interests for the purpose of pillaging these countries.
In any case, the fragmentation of Eastern Europe meant that,
...and several other markets became
blank areas for international financial capital.
Implementing their policy of
"containment" of the Soviet Union's sphere of influence, the US
tacitly accepted the loss of four million lives only to deliver a
clear message to the rest of the world: that the largest economic
power on earth would no longer remain passive if denied access to
any more global markets.
Although IMF lending played only a minor role during this time, the organization's leadership did not remain inactive.
On the contrary: the second IMF chief
Ivar Rooth, a former Governor of the Swedish Central Bank and
ex-Director of the Basel Bank for International Settlements (BIS),
set out on a course that was to acquire major significance in the
later history of the organization - introducing conditionality, i.e.
establishing obligatory requirements for granting loans.
Former colonies, mainly in Africa, were
fighting for their independence, and in the Middle East the Suez
crisis was looming - providing the US with an opportunity to advance
its own interests in the IMF more forcefully.
Starting in 1958, they obliged the
governments of debtor countries to draw up "letters of intent" in
which they had to express their willingness to undertake "reasonable
efforts" to master their balance of payments problems. This made it
seem as though a country had itself proposed the measures that were
actually required by the IMF.
As a next step, loans to be disbursed were sliced into tranches ("phasing") and thus made conditional upon the respective debtor country's submissiveness. In addition, the IMF insisted (and still insists) that agreements between the IMF and its debtors should not be considered international treaties and therefore should not be subject to parliamentary approval.
Finally, the IMF decreed that any
agreements with it were not intended for the public eye and had to
be treated as classified information - a scheme that applies
to this day.
They also contributed to the growing
power of the IMF, because
the World Bank, most governments
and the vast majority of international commercial banks from now on
only granted loans to those countries which, on the basis of the
fulfillment of the IMF's criteria, had received its "seal of
approval".
The meeting took place in the offices of French Finance Minister Pierre Pflimlin, who also chaired it.
It did not remain the only one of its kind. In subsequent years, meetings between IMF representatives, creditors and debtors were held frequently in the same place, gradually developing into fixed monthly conferences that were to become known as the "Paris Club".
A scope of extremely important decisions were taken within this framework - without parliamentary consent and hidden from the eyes of the public.
Commercial banks around the world soon
recognized the importance of these conferences, and therefore
started their own "London
Club", whose meetings usually took (and still take) place
simultaneously with those of the Paris Club.
Countries that had been plundered for decades by colonialism and lay in tatters economically, now had to find their proper place in the world and especially in the world economy under rapidly changing conditions.
Their governments therefore needed
money. Since most of these countries offered commercial banks too
little security due to social tensions, political unrest and barely
existing infrastructure, the IMF took advantage of the situation and
offered its services as a creditor.
In 1969, 44 out of 115 members were African.
Although they made up more than one
third of the overall organization, their voting rights that same
year amounted to less than 5 %.
Chile 1973 -
Embarking upon the Path of Neoliberalism
It was the internal disintegration of the Bretton Woods system that brought about the end of that period.
As a result of rising US investment abroad and escalating military spending - particularly for the Vietnam War - the amount of dollars globally in circulation had continually increased.
All attempts by the US government to
bring this proliferation under control had failed because US capital
had blended with foreign capital and no nation on earth was capable
of reining in this massive concentration of financial power.
At the same time the imbalance between the global dollar supply and US gold reserves stored in Fort Knox assumed such dimensions that even raising the gold price to $ 38.00 and then to $ 42.20 could no longer guarantee its exchange against an ounce of gold.
On August 15, 1971, US President
Nixon pulled the brakes and severed the link between gold and
the dollar, displaying the typical arrogance of a superpower by not
consulting a single ally.
This led to a devaluation of the dollar, ranging from 7.5 % against the weak Italian lira to 16.9 % against the strong Japanese yen.
In February 1973, the dollar was
devalued again, but it soon became clear that the system of fixed
exchange rates could no longer be upheld. In March 1973, the G10 and
several other industrialized countries introduced the system of
flexible exchange rates to be established by the central banks -
without consulting a single country outside the G 10 and despite the
fact that the new regime blatantly contradicted article 6 of the
founding document of the IMF on fixed exchange rates and monetary
stability.
The only role left for it was that of a
lender in charge of the allocation of funds and their
conditionality, entitled to inspect the accounts of applicants and
thus exercise direct influence on their policies. However, it was
exactly this function for which extremely favorable conditions would
soon arise.
This led to a huge increase in the profits of oil companies and oil-producing countries.
These gains ended up in commercial banks, which in turn tried to use them for profitable investments. As the global economy slipped into a recession in 1974 / 75 and investment opportunities in industrialized countries dwindled, the lion's share of the money took on the form of loans to third world countries in Asia, Africa and South America, which - due to their increased expenditures after the rise in oil prices - urgently needed money.
The IMF itself responded to the
increased credit needs of developing countries by introducing the
"Extended Fund Facility" in 1974, from which member countries could
draw loans of up to 140 % of their quota with terms of four and a
half to ten years.
Whether it went straight into the
pockets of dictators such as Mobutu in Zaire, Saddam
Hussein in Iraq or Suharto in Indonesia - who either
squandered it, transferred it to secret foreign accounts or used it
for military purposes, in each case driving up the national debt -
did not matter to the IMF and the banks as long as they received
their interest payments regularly.
The United States slipped into another
recession, which meant that fewer raw materials were needed due to
lower economic activity.
A payment default of this magnitude
would have led to the collapse of many Western banks and therefore
had to be prevented at all costs.
In doing so, it was able to draw on two
different experiences gained in the preceding years.
Pinochet had immediately reversed Allende's nationalizations, but found no remedy against galloping inflation.
In an attempt to regain control of the situation, he had turned to a group of 30 Chilean economists (known as the "Chicago Boys" because they had studied at the Chicago School of Economics under Nobel Prize winner Milton Friedman) and proposed to them a clearly defined division of labor:
Within a few weeks an extensive catalog of measures was developed.
It called for a drastic limitation of money supply, cuts in government spending, layoffs in the public sector, privatization in health care and education, wage cuts and tax increases for working people, while at the same time lowering tariffs and corporate taxes.
The program was openly referred to as a
"shock therapy" by either side.
They drove up unemployment, which had stood at 3% in 1973, to 18.7% by the end of 1975, simultaneously pushing inflation to 341% and plunging the poorest segments of the population into even deeper poverty.
The impacts of the program actually aggravated the problem of social inequality for decades to come:
During his bloody coup, Pinochet had fully relied on the active support of the CIA and the US Department of State under Henry Kissinger.
When implementing the toughest austerity
program ever carried out in a Latin American country, the "Chicago
Boys" received the full backing of the IMF. Regardless of all human
rights violations, IMF loans to Chile doubled in the year after
Pinochet's coup, only to quadruple and quintuple in the following
two years.
Great Britain's inexorable economic decline over two and a half decades had made the country the IMF's largest borrower.
From 1947 to 1971, the government in London had drawn loans totaling $ 7.25 billion. After the recession of 1974/75 and speculative attacks on the pound, it had come under even greater pressure.
When in 1976, the British government once again turned to the IMF for help, the United States seized the opportunity to demonstrate their power.
Allying themselves with the resurgent Germans, they forced the Labour government under Prime Minister Harold Wilson to limit public spending, impose massive cuts in social programs, pursue a restrictive fiscal policy, and refrain from import controls of any kind.
This drastic intervention represented a
hitherto unknown encroachment on the sovereignty of a European
borrower country, resulting in the fact that no leading Western
industrialized country ever again applied for an IMF loan...
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