Developing countries were rapidly plunging into immense and unplayable debts during the undemocratic and fascist dictatorships of the 1960’s and 1970’s. These debts served multinational corporations in two significant ways:  first, the lack of developmental forces in developing countries hampered their potential to develop their manufacturing industries, while subsidized multinational corporations flooded the local market with their products. Second, income that ought to have been put towards investment in local development was instead pumped into international banks which finance multinational corporations.

IMF programs are the core factor segregating the rich from the poor, due to their direct involvement in preventing the development of afflicted countries and for their stubborn insistence on implementing policies which go against all economic sense and have consistently failed worldwide. IMF programs bailed out banks and businesses who lent money to or did business with dictators, and imposed structural changes that further destroyed economic development in these economies.

IMF interventions follow the same pattern of colonization of military interventions that preceded them, which ratified totalitarianism by forcing developed countries into paying debts incurred by their dictators. Eric Toussaint comments in an article for “The Committee For The Abolition of Third World Debt” that “contrary to section 10 of article 4 of the World Bank charter, the latter and the IMF have systematically lent to dictatorial states in order to influence their policies. Brazil’s president Joao Goulart’s was overthrown by the military in April 1964 after announcing a radical land reform and proceeded to nationalize petroleum refineries.  World Bank and IMF loans that had been suspended for three years resumed right after the coup.  In the Republic of Congo, the Mobutu dictatorship borrowed approximately $5 billion between 1965 and 1981. Political lending has continued to the present day: loans to Yelstin’s and Putin’s Russia, to Suharto’s Indonesia until his fall in 1998, to Chad under Idriss Déby, to the People’s Republic of China, and to Iraq under foreign occupation”^[i].

Argentina’s brutal dictators –at the head of the coup to “fight communists” and of the IMF programs that followed under the pretense of increasing “market freedom” – were responsible for the destruction of local businesses to unprecedented degrees. As Martin Kanenguiser exposes in La Maldita Herencia,  there were 126,388 local industries in 1974, two years prior to the Videla dictatorships; but by 1985, there were 109,376 industries, which decreased to 93,025 by 1993^[ii]. This is a disastrous track record for a brand that positions itself as “business friendly”.  By the time of the Argentinean economy’s collapse in 2001, 59% of the local population lived below the poverty line in a country previously considered one of the most industrialized in the world.

The odious debt proved in most instances undemocratic not just because of  the totalitarian form in which thegovernment was occupied, but, as in the case of Argentina, because public debt was fictional and had only served as subsidies for multinational corporations. In several cases, the debt was acquired by multinational corporations and the ruling elite, but the undemocratic government transferred it to the public. Authors Eduardo Basualdo and Daniel Azpiazu explain that “Argentina’s major private debtors performed only 4.7% of all operations but amounted to 77.3% of the total private debt. That is $16.5 billion out of $21.3 billion. Within this small group, there were 106 multinationals that received $7.1 billion, which represent 43.4% of the greatest debtors and 33.4% of the total private debt,”^[iii]. Fernando (Pino) Solanas explains in his documentary Social Genocide that in many cases these loans came from their head office!^[iv]. In 1982, just before Argentina’s dictatorship collapsed, Domingo Cavallo, president of Argentina’s central bank, announced that the state would absorb private debts estimated at $20 billion. Naomi Klein reveals in The Shock Doctrine that some of the companies whose debts were passed on to the public included Ford Motor Argentina, Chase Manhattan, Citibank, IBM and Mercedes-Benz.^[v] The World Bank estimates that another $10 billion of the money borrowed by army generals went to military purchases of means intended to repress the colonized population.

The indebtedness of the biggest Latin American countries- where of 21 countries, 18 suffered military coups during the 1970’s- had reached US$320,000 million by 1984. By 1994, the debt reached $564,399^[vi].  Michel Chossudovsky exposes in The Globalization of Poverty that “the developing world’s outstanding long-term debt has increased 32-fold from US$62 billion in 1970 to close to $2 trillion by 1998”^[vii].

The astronomical increase in debt is largely owed to the 1981 decision by Federal Reserve chairman, Paul Volcker, to increase interest rates to 21 percent.  This signified higher interest payments on foreign debts, most of which were met with by way of loans with conditionalities.  As Michel Chossudovsky explains, “[q]uick disbursing loans serve to pay the interest from outstanding loans while the principal remains the same. For example, if a developing country has a total debt stock of US$10 billion and owes $1 billion in annual debt and the country is unable to meet these obligations due to its poor economic performance and decreasing exports, a quick disbursing loan of $500 million is granted in the form of balance of payments support enmarked for the purchase of commodity imports. The loan acts as a catalyzer because it allows the country’s foreign exchange earnings from exports to be redirected towards interest payments, thereby enabling the government to meet the deadlines of commercial and official creditors. The loan is fictitious because it is immediately reappropiated by the official and/or commercial creditors, while resulting in a a net outflow of US$500 million and an increase in the debt stock because a new loan was used to pay back the interest portion of debt servicing and not the principal”^[viii].

Kevin Danaher shows in Fifty Years is Enough that “[t]he developing countries paid $1.3 trillion in debt from 1982 and 1990, but their debt has increased 61% on that period. Brazil, for example, has paid $148 billion of debt, of which $90 billion was interest. While the debt was at $64 billion in 1980, having paid $148 billion of debt, Brazil still owed $121 billion by the end of the 20th century”^[ix].  Stephen Lewis writes in Race Against Time that “between 1970 and 2002, Africa acquired $294 billion of debt when it had paid back $260 billion over the same period. At the end of it all, Africa continued to owe upwards of $230 billion in debt”^[x].

Unable to pay for illegal debts with high interest rates, the United States and its Neoliberal allies enforced IMF loans that came with a package of Structural Adjustment Programs. These programs destroyed local development further and were crucial for the expansion of corporate monopolies worldwide.

#1 PRIVATIZATION:

One of the main conditions implemented under SAP was that countries had to privatize their state enterprises. The IMF, following extremist right-wing ideologies, maintained that countries ran into fiscal troubles due to the prevalence of big government, and hence that privatization would induce economic growth by the simple merit of “freeing the economy”, thus enabling countries to pay their debts. The IMF remedy proved invariably ineffective, being that their diagnosis ignored the truth about how these totalitarian debts were incurred and who they benefited. Furthermore, rather than transferring industries from the state to private businesses in a honest attempt to optimize economic efficiency, privatization served as asset-stripping by having international corporations and the bourgeois paying much lower prices than the market price. Rather than fostering competitive markets, privatization transferred public monopolies to private ones.

Paul Blustein states in And The Money Kept Rolling In (and Out) that “[b]y 1994, Argentina had approximately sold 90 percent of all state enterprises, including the telephone, electricity, gas, and water utilities; trains; factories; luxury hotels; and even the concession for running the Buenos Aires zoo^[xi].  Ricardo de Dicco exposes that “[i]n 1991, Jose Estenssoro became president of YPF, Argentina’s state oil company, and estimated different values for the company, starting at $4,000 million, then $8,000 million, and then admitting that it could reach $12,000 million, while Deputy Moises Fontela valued the company at over $35,000 million in 1992, taking into account the reserves and intangible assets. Gustavo Calleja, former sub-secretary of Combustibles de la Nacion  and Jose Francisco Freda, former director of Combustibles de la Secreatria de Energia de la Nacion, estimated a more moderate value at $40 a share, or $14,120 million. The financial engineering of the privatization of YPF was performed by First Boston and Merrill Lynch, which received $121 million in commission. In 1993, the value of the company was finally set at $6,707 million and 43.5% of YPF was sold at $19 a share”^[xii].

So how does a company get so undervalued? In 1976, YPF had $372 million in foreign debt. By the end of the military dictatorship, only 6 years later, that amount had increased to $6 billion- an astounding sum for an oil company to incur under a  “capitalist-minded” government. Alejandro Olmos exposed in 1999 that “General Luis Pagliere, who formed the company’s board during the military dictatorship, declared that YPF was obliged to lose money by instructions from the Minister of Economy.  The price of oil sold to Shell and Esso represented 50% of the extraction costs”^[xiii].  In short, YPF was managed so as to lose money and incur debt later to be sold to the private sector, while providing multinationals with cheap resources in the process.

The wave of privatization also washed over the land and the valuable resources in it. As Andres Klipphan and Daniel Enz report, “[b]y 2006, 40 million acres of the best land for harvest was on sale and 24 million acres were already sold to transnational groups.  Douglas Tompinks, who founded the North Face and Espirit clothing lines owns approximately 403.845 acres in Argentina, for which he only paid $16 million, or $40 an acre. This land includes 145.345 acres of the richest Santa Cruz province, with vast amounts of clean drinking water, minerals, and oil, 150,000 acres of the Ibera Reserve and 100,000 outside its perimeter. Ted Turner, founder of CNN, owns a total of 70,000 acres in the most beautiful areas of Chubut and Neuquen. At one time he paid only $5,400,000 for 37,000 acres, at least 3 times below market price.”^[xiv] [A6] The authors also point out that Nestor Kitchner, the late ‘anti-Neoliberal’ president, was the governor of Santa Cruz at the time this province sold thegreatest amount of land to foreign citizens than ever before throughout the duration of the Menem Government. Nestor Kitchner also played a highly influential role in the sale of YPF at below market price.

In its most extremist form, IMF programs imposed privatization worldwide in areas that included health care, education, public transportation, and services such as clean water. Privatization created contractionary economic effects by increasing rates of unemployment, fares charged for services, and money moved out of the country.

Privatization has proven to be inefficient in economic sectors such as water services, health care, education, and transportation. In the documentary ‘Flow’, Jean-Luc Touly, a 30 year accountant at Vivendi/Veolia Corp declares that “they say we are the ones who will end poverty with regards to access to water but how could Vivendi shareholders wait 10 to 15 years to bring water to people who can’t pay for it?”^[xv] Maude Barlow concurs in that “[y]ou cannot deliver the same amount of good quality water or health care or education or anything else to a population that needs it if you are also providing profit for your investors.”^[xvi]  Under pressure of the World Bank, Bolivia privatized its water company to Betchel, which meant that families who earned $60 a month saw their water bill hike by 200%, to a sum of $15 a month, practically overnight.

Maude Marlow and Tony Clark report in their work Blue Gold that “by 1996, Aguas Argentinas, the Suez-led water consortium, was garnering profits of 28.9 percent of revenues, and by 1996 and 1997 these figures were 25.4 percent and 21.4 percent, respectively. These profit margins were two and a half to three times those of water enterprises in England and Wales, which averaged 9.6 percent in 1998-99 and 9.3 percent in 1999-2000.” ^[xvii]

Clean water is a necessity, and providing the poor with this necessity ought to be an investment on the government’s part, not a cost. Marlow, in a detailed  study by Public Services International Research Unit (PSIRU) of the world’s largest public water utility, Brazil’s SABESP, reveals how a public company can be run at maximum efficiency when it is not required to maximize profits for its shareholders.  He comments: “In 1995 alone, the population in the service area supplied with treated water increased from 84% to 91%, the population receiving sewage services increased from 64%to 73%, and non-functioning accounts plunged to 8%… Overall, the operating costs of the public water utility were reduced by 45% and SABESP is now in a position to finance its investment programs through loans and its own funds. At the same time, SABESP has expanded its environmental responsibilities, including participation in the clean up of the Tiete River, considered to be the largest environmental project of its kind in Latin America.”^[xviii]

In many economic sectors, there exist much more efficient ways than heavily centralized systems run by multinational corporations headquartered abroad. A Water Health UV filtration system is used in a small town in India for which people pay only $2 per year for 10 liters of water a day, which generates revenue for the local person who maintains the system, and enables people to pay less for medicines and raising their food. In Ghopalpura Village, a forest was planted in the middle of the Rajasthan desert by the local community. Under the tutelage of Mr. Mangu Mina, who lectured on the use of ancient techniques for collecting water, the community united and worked together to create a natural system which enabled the area to thrive with much flora and fauna. So successful was the enterprise, that the community even started selling vegetables to urban centers.^[xix] The Ghopalpura Village case illustrates that localization is at the heart of development, dynamic trade, and efficient use of resources.

Milton Friedman writes in Capitalism and Freedom that  a private monopoly is preferable to a public one. In theory, the profit motif should make private enterprises more efficient than public ones; the reality, however, is that industries become even more inefficient when state monopolies are transferred to private monopolies. Private monopolies are in a position to abuse labourers and consumers with impunity and without fearing the consequences in the next election, nor are they  required to reinvest their profits into infrastructure that might guarantee better services. In the worst cases, where a private monopoly is owned by a foreign entity, further contractionary economic effects are produced when profits are taken out of the local economy.

Joseph Stinglitz describes in Globalization and Its Discontents how a process of rapid privatization brought Russian and East Asian economies to a halt. Stinglitz maintains that rapid privatization explodes the unemployment rate, while new private enterprises downsize the workforce to increase profits.  Alternatively, he argues, the public sector may over-employ the workforce for political reasons and state security; albeit, without an employment safety-net properly emplaced, laid off workers become a burden to an already failing economy^[xx]. Asjobs becoming scarcer and costs for necessary services increase, spending on the local economy in turn decreases, which  accounts for why thousands of local industries have seen themselves forced to shut down during the past decades in developing countries worldwide.   Bernard Sanders writes in an article titled “IMF ‘Salvation’ in Russia?” that “[b]etween 1992 and 1995, Russia’s GDP fell 42 percent and industrial production fell 46 percent… Real income has plummeted 40 percent since the Soviet Union collapsed in 1991. A quarter of all Russians are living below the subsistence level during the 1990’s. Three-quarters barely survived on an average income of $100 per month.”^[xxi]

This form of colonial deindustrialization is destructive to the foundations of capitalism. To add insult to injury, when a multinational enters into an agreement over the concession of natural resources or local industries with a developing country, the World Bank takes to invest in large projects such as dams and oil pipes in order to serve as a last-resort insurer, should the political situation within that country drastically change and the multinationals who had previously benefited from its brutal government lose their rights to profit once this one is overturned.  Point in fact: “Uganda’s Bujagali Dam project and Tanzania’s Bulyanhulu Gold Mine are supported by the World Bank’s International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA)… In Uganda, the World Bank insists that the $500 million Bujagali hydro-electric Dam project is a key investment.”^[xxii]

Similarly, Emad Mekay comments that “the 678-km pipeline from the Western Niger Delta to Benin, Togo and Ghana, is run by a consortium of oil giants led by Chevron-Texaco and Royal Dutch Shell. In November 2004, the World Bank’s insurance arm, the Multilateral Investment Guarantee Agency (MIGA), approved 125 million dollars in guarantees supporting the construction of the pipeline. MIGA is the World Bank agency that promotes foreign direct investment in developing countries by providing insurance to private corporations.”^[xxiii]

Madjiasra Nako from the Associated Press reports that in Chad, where 80% of the population earns less than $1 a day, “[t]he production and export of petroleum are overseen by the ExxonMobil-led consortium. The companies agreed to invest the money after the World Bank gave the project its blessing and after Chad passed a World Bank-backed oil revenues law that required most of the money to be allocated to health, education and infrastructure projects.”^[xxiv] The environmental organization ‘Friends of the Earth’ claims “there is no evidence that profits from the pipeline will be invested in projects aimed at development or poverty alleviation. In fact, experience in neighboring African countries, such as Nigeria and Congo, proves otherwise.  According to news reports, in 1991 Deby used money from the pipeline project to purchase $3 million in weapons.”^[xxv]

#2 EXPENDITURE CUTS

The IMF, in accordance with its extremist right-wing position, forced countries to cut public expenditure in order to balance their budgets and ensure the repayment of illegal debts. The economic reality of developing countries consisted in an urgent need to lift demand by re-investing in education, infrastructure, health, and loans to small businesses that had been financially reduced to rubble during dictatorial rule. As with privatization, the remedy magnified the devastating situation due to a fundamentally flawed diagnosis of the illness . Further cuts to public investment left economies worldwide spiralling downwards.

The harshest blows were taken by countries of the African continent, where spending on health care decreased 50% and spending on education decreased by 25%. As Richard Peet exposes in The Unholy Trinity: “The policies dictated by the World Bank and IMF exacerbated poverty, providing fertile ground for the spread of HIV/AIDS and other infectious diseases. Cutbacks in health budgets and privatization of health services eroded advances in health care made after independence and weakened the capacity of African governments to cope with the growing health crisis. The dramatic drop in health expenditure in the 1980s and 1990s resulted in the closure of hundreds of clinics, hospitals and medical facilities. Those still open were left under-staffed and lacking essential medical supplies. Consequently, during the past two decades the life expectancy of Africans has dropped by 15 years.”

AIDS, tuberculosis, and malaria collectively take six million lives every year. In Race Against Time, Stephen Lewis states that these illnesses, which could be prevented with proper funding, have left millions of children orphaned and without the emotional, social, and economic support to get out of poverty. Lewis highlights that in Zambia, “23 percent of all children are orphans now; inevitably, a significant number will find themselves in sibling families. In Swaziland, it’s estimated that up to 15 percent of the entire population are orphans.”

A common fallacy  propagated by corporate media maintains that the poor are poor because they are lazy; but in country after country, poverty proves to be the result of violent corporate takeovers that have left entire populations bereft of both the material as well as the intellectual means to make optimal and sovereign decisions. How could it be expected of families who make less than $30 a month to pay for education, health care, transportation, or any other kind of service that is indispensable for the development and well-being of a nation? As Lewis expounds: “When Malawi eliminated school fees, enrollment increased by more than 50 percent. In the case of Uganda, enrollment went up by nearly 70 percent, from 3.4 to 5.7 million students. In 1999, when Cameroon eliminated school fees, the primary gross enrollment rate went up some 15 percent. But Tanzania topped them all: when it abolished fees in 2001, the numbers went up l00 percent, from 1.5 to 3 million students in one year.”

What really happens under Structural Adjustment Programs is that local governments decrease expenditure as a form of investment for economic growth, while spending actually remains constant or increases because the government is forced to pay for suffocating and unlawful debts that never get paid due to the high interest rates and new ineffective economic structures put in place. This means that the population must continue to pay taxes to the government, while also  being obligated to pay for products and services that are now delivered by the private sector at higher fees. In turn, contractionary economic effects impact local industries further as a result of lower local demand.

As will be expounded in the succeeding final chapters, though countries were forced to cut expenditures in key areas of development, military spending actually increased during the past two decades.  The perfectly un-reasonable request of askinga country to starve and sell off their bountiful resources in order to pay off international banks that funded dictatorships and to invest in multinational corporations requires plenty of guns.

#3 TRADE LIBERALIZATION

The first impact that trade liberalization has on indebted countries is that, with slashing tariffs, the countries in question become subjected to a flood of imports at times when multinational corporations had already obtained a competitive advantage over local industries, which, in all cases, they had already intentionally been crippling for decades.

Trade liberalization did not just provide corporations with access to new markets, but also allowed multinational corporations to acquire private enterprises in significantly advanced nations such as South Korea, Thailand, Russia, Argentina, and Brazil for a fraction of their price, at a time when all economic forces where conspiring against local industries. In 1998 alone, 60 countries introduced 145 regulatory changes and 94% of them created more favorable conditions for FDI^[xxvi].  IMF conditionalities ignited a wave of mergers and acquisitions that concentrated the global economy in the hands of a few multinational corporations in the 1990’s, and it was specifically a wave of cross-border mergers and acquisitions that “accelerated after 1996 and reached a peak of $828 billion in 2000.” ^[xxvii]  In particular, U.S. firms were responsible for 40% to 50% of cross-border takeovers^[xxviii].

This short quote from  Naomi Klein’s Shock Doctrine should serve to settle any doubts that may still exist regarding the colonialist nature of IMF interventions:  “In arguing why Congress should authorize billions to the IMF for the Asia makeover, the U.S. trade representative Gharlene Barshefsky offered assurances that the agreements would create new business opportunities for US firms….”^[xxix] Indeed, a report by the Hong Kong Institute for Monetary Research shows that Cross-Border M&A grew from US$ 10 billion in 1990 to US$ 150 billion in 2006 in Asia with a significant increase following the crisis of 1997-98, as M&A sales jumped from US$7 billion between 1994-96 to US$ 21 billion between 1997-99. The report also notes that acquisitions rose sharply in Indonesia, Korea, and Thailand ^[xxx], the three Asian tigers where the IMF-manufactured crisis hit hardest.

In South Korea, IMF conditionalities forced legislation to allow for 100% ownership by foreign merchant banks. In turn, JP Morgan bought a stake in Kia Motors;  Carlyle bought Daewoo’s telecom division and other companies; Samsung was sold for parts to Volvo, SC Johnson & Son, and General Electric; LG was sold for parts to GE and Powergen; and Daewoo’s $6 billion worth, was sold off to GM for just $400 million.^[xxxi] The Hanwha Group sold its oil refineries to Royal Dutch/Shell and half its chemical joint venture to BASF of Germany^[xxxii]. Procter & Gamble and Hewlett Packard were also among the multinationals that went on a shopping spree.^[xxxiii]

In Latin America, ownership of the largest 500 companies by multinationals went from 28% in 1991 to 39% in 2001.^[xxxiv]   Since multinationals in automotive, pharmaceutical, and consumer goods had already snapped a large market share in Latin America, the largest growth in M&A of privately owned enterprises occurred in the food and banking sectors. Respectively, “the value of food and beverage acquisitions rose from $66 million to $340 million in just two years”.^[xxxv] Banco Santander Central Hispano (Spain) made 26 acquisitions valued at over  $13 billion and Banco Bilbao Vizcaya  Argentaria (Spain) made 12 acquisitions valued at over  $6 billion in six of the largest Latin American markets.^[xxxvi]

In cases of poor “third-world” nations – capable of importing few, if any, quality goods, and with no industry to sellout- trade liberalization translated into allowing multinationals in the energy, mining, and agricultural sectors to reap valuable resources. Trade liberalization also translated to creating Free Trade Zones in strategic countries with a vast source of cheap labour. The impacts of trade liberalization on societies and environments will be examined more thoroughly in the next chapter.

To conclude, Structural Adjustment Programs were never intended to help countries develop, being that privatization, expenditure cuts, and trade liberalization policies were contradictory to any reasonable path for economic growth. As discussed in Chapter 1, tariffs on imports can help poor countries develop their infant industries until they are able to compete on the global market. Temporary tariffs and other regulations benefit the global market as much as they benefit local development because they allow local wages to increase. Higher demand leads to a greater supply of quality products, which means greater competition, which in turn improves both resource efficiency and the quality of products and services that consumers receive.

Temporary and effective tariffs create more dynamic trade in the long term.  When poor countries reach a significant level of local development, trade within neighboring countries increases andrelations between them are able to flourish, by benefiting from an arrangement that allows for sharing cultures, climates, and infrastructures which enable them to become mutually dependent on commerce. Regional trade enhances their competitive advantages over non-neighbouring businesses and creates dynamic regions that provide the global economy with diversity of choice and improves global resource efficiency through decentralization. By contrast, when totalitarianism destroys local economies, whole regions turn to specializing on exporting their resources and enslaving their population.