The World Bank (or specifically the International Bank for Reconstruction and Development) and the International Monetary Fund have their origins in the Bretton Woods agreement during WWII. The stated aims are: “The nations should consult and agree on international monetary changes which affect each other. They should outlaw practices which are agreed to be harmful to world prosperity, and they should assist each other to overcome short-term exchange difficulties.”
In practice US dominance of the system means it has been a means of spreading policies of opening up internal markets to foreign (ie US) trade and removing “barriers” to this trade. Countries faced with renegotiating debts would be obliged to follow the latest IMF ideas of how “prosperity” could be increased. Abandoning social policies in favor of selling off national assets became the norm in the Reaganomics/Thatcherite vision.
Particularly in South America, the two became an arm of US foreign policy. Withholding credit could bring down governments. Now all this is being challenged.
The problems for the IMF and World Bank relate to an unexpected consequence of their efforts, the movement of mass manufacturing of low value items from the “North” to the “South” as the poverty wages they promoted led to corporations finding that they could “prosper” by exploiting new sources for goods. In turn, at various times the raw goods those countries traditionally sent for processing fluctuated in price but trended upwards. As these countries became relatively wealthier, their money went into repaying those IMF loans.
While the IMF is a “banker of last resort”, other groupings such as the Inter-American Development Bank stepped in to provide loans with slightly better provisions but still under US control (the IDB has a 30% US shareholding) and with the consequent emphasis on free trade. IMF lending peaked at $81 billion in 2004 to around $11.8 billion today and the largest single borrower, Turkey owes around 75% of that. Lending to Latin America has crashed even faster than that:
IMF lending in the area has fallen to $50 million, or less than 1 percent of its global portfolio, compared with 80 percent in 2005.
So what has happened? In short, Hugo Chavez and oil revenue. He has used this to purchase bonds from other South American countries, thus giving them a cheaper source of loans to improve their own infrastructure and social services. He is also proposing to set up a “Banco del Sud” (not to be confused with the domestic Venezuelan bank of the same name) to challenge the other international lenders currently in the area. This from the Financial Times at the start of March
(W)ith backing from Argentina, Bolivia, Ecuador, Paraguay, and possibly Nicaragua and Brazil, traditional multilateral lenders are facing up to the possibility of a competitor.
Venezuela and Argentina have long bridled against what they see as US domination of the western hemisphere’s multilateral lending institutions, and want more control over the region’s development.
“The south needs to take care of its own problems,” said one senior Argentine banker.
Officially both its potential rivals, the Inter-American Development Bank – in which the US has a 30 per cent stake – and the smaller Andean Development Corporation, have welcomed the development, arguing that with plenty of money around and many pressing infrastructure and social needs, there would be plenty of business.
But privately there are concerns. One insider at the IDB said the bank could reinforce regional divisions that have arisen as a result of the radicalisation of Venezuela and the growth of an anti-American camp – backed since last year by elections in Bolivia, Ecuador and Nicaragua.
He says the Bank of the South, especially if Brazil were to join, would represent the biggest threat to the IDB since Latin America suffered a series of debt defaults in the 1980s. “With the money of Venezuela and political will of Argentina and Brazil, this is a bank that could have lots of money and a different political approach. No one will say this publicly but we don’t like it.”
He fears the Washington-based multilateral could, in a worst-case scenario, be reduced to an institution backed mainly by the US and its closest regional allies, Mexico and Colombia.
Once BdS is formally set up and starting to make loans, possibly as early as next year, there will be two blocks. One loyal to the US institutions and centered on Mexico and Columbia and the other a broadly left-wing group of countries joining together to reject the Monroe Doctrine and its implied dominance of US policy in the region.
This goes a long way to explain the NeoCons hatred of Chavez. It is not the threat of withholding oil supplies they fear. It is his using the income his country gets from it to free his allies from the dominance of US foreign policy and economic control through IMF and World Bank loans.