The Roots of Corporate Globalization in IMF/World Bank "Structural Adjustment" Policies

By Soren Ambrose
The Public Eye - Summer 2004 - Vol. 18, No. 2


This year marks the 60th anniversary of the International Monetary Fund (IMF) and the World Bank. Although they have always been located in Washington, DC, people in the United States very often do not know much about what they do. People in Africa, the Caribbean, Latin America, and Asia know a great deal about them, however. When a delegation from either institution arrives in a country in any of these regions, it's often front-page news; when economic crises hit, people protest outside the local offices of the IMF/WB. When unrest breaks out it is often referred to as an "IMF riot."

The institutions did not seem destined for such notoriety at their founding in the waning days of World War II. They were designed as multilateral institutions – owned by their member governments and operating in their collective interest. The IMF was assigned to prevent the sort of global economic crisis that engulfed the world during the Great Depression of the 1930s: it would monitor a new system for valuing national currencies, the dollar-gold standard, to maintain international economic stability; make short-term loans to countries experiencing balance-of-payments problems; and compile an annual report on each member country's economy. The International Bank for Reconstruction and Development – which came to be called the World Bank – was established to provide funds for the reconstruction of Europe and East Asia after World War II. However, the U.S. Marshall Plan eclipsed its part in that effort, and it turned to financing infrastructure projects in Latin America and newly independent countries like India and Indonesia.

The Grim Reapers

The seeds of what the IMF and World Bank have become were sown from the very beginning in an imbalance of power and lack of democratic governance, even though it was not until the 1970s that the institutions became really controversial. Their constitutions (called "Articles of Agreement") guaranteed that the wealthiest countries would always retain control of the institutions' policies: votes on the board are allotted on the basis of how much money each country donates and a government cannot decide to pay more and get more votes – the proportions were and still are carefully managed. Today, the G8 countries (the U.S., Japan, Germany, France, the U.K., Italy, Canada, and Russia) control about 50% of the total votes, and any changes to core policies require an 85% super-majority vote. The United States has always ensured that its percentage of total votes on each board remains above 15% giving it virtual veto power. By unwritten agreement, the head of the World Bank is always a U.S. citizen, chosen by the President of the U.S., and the head of the IMF is always from Western Europe. The institutions are headquartered in the capital of the country making the largest contribution (hence Washington, DC). These percentages and customs have remained in place even as the membership of the institutions has expanded through the era of decolonization and the collapse of the Soviet Union; they now have over four times as many members (184) as they did when they started out.

During the IMF's first 30 years, this lopsided arrangement was not quite so glaring as it later became. In fact, most of its loans were made to industrialized countries, many of them among the largest shareholders. At that time the IMF was akin to a credit union for governments, a convenient and cheap source of capital for bandaging minor balance-of-payments difficulties. After the suspension of the dollar-gold standard in 1973, the IMF was a Washington bureaucracy looking for a function and by the late 1970s the industrialized countries no longer found the relatively small loans it could offer useful. A constellation of events in that decade – rapid expansion of lending by both private and public creditors to countries in Latin America, the OPEC (Organization of Petroleum Exporting Countries) oil price shocks of 1973 and 1979, and the dramatic rise in interest rates initiated by the U.S. Federal Reserve at the end of the decade – combined to severely exacerbate pressures on developing countries with substantial debt burdens. Suddenly, governments in Africa, Latin America, the Caribbean, and Asia faced difficulties in servicing their debts and, eventually, in attracting new loans, while large banks were fretting that their largest debtors might default on their loans.

Although the IMF had not been involved in developing countries before, and had no particular expertise in development, it was called upon to assemble "bailout packages" for the countries in the deepest crises. With the electoral victory of Margaret Thatcher and Ronald Reagan (who led the New Right), both neoliberal right-wing ideologues, in the United Kingdom and the United States respectively, the IMF, and soon after the World Bank, were pressed into service as advocates of their "free trade" agenda. The bailouts, the first of which went to Mexico, followed by Argentina and Brazil, were accompanied by stringent conditions. The conditions, it was promised, would ensure that the recipient countries got out of their debt traps and would restore their prosperity.

The first, obvious, problem with that promise was that the funds being lent to the governments were not intended for the countries themselves, but to pay off foreign creditors. The money no sooner arrived than it was remitted back abroad; what remained was a massive new debt for the national government. Neither those countries, nor those that got later versions of the same programs, have ever emerged from their debt problems. On the contrary, the debt problems have only intensified as the cycle of borrowing new money to pay off old loans drives up debt totals. Mexico's debt, for example, had tripled from its 1982 levels when it found itself in a new crisis in 1994, requiring another IMF bailout loan of $50 billion.

Secondly, the conditions were predicated on the theories of neoliberalism, the "free market" doctrine of Thatcher and Reagan, which exalts the "invisible hand" of market capitalism – the idea that the best economic outcomes result if markets are left to determine their own course, without government intervention. Until the neoliberal revolution of 1980, the Keynesian precept that government intervention was required to direct markets toward the greater good dominated both the West and large parts of the Third World. Most economists in industrialized economies fall somewhere between John Maynard Keynes and Milton Friedman, the leading proponent of the free market approach. But Friedman and his followers who adopt an extremist line, advocating as much erosion of government influence as possible, gained particular influence with right-wing politicians in both the United Kingdom and the United States. Their approach has recently come to be called "market fundamentalism," since it sees "freer" markets as the solution for every economic problem, actively twists evidence to conform to its theories, and refuses to accept any deviation from its doctrine, even in the face of evidence that it does not deliver on its promises. Adherence to market fundamentalism is more a matter of faith than reason, and in the absence of much proof, its dogmatism has only gotten fiercer.

The emphasis in the bailout conditions was on opening up economies to foreign investment and market participation, with a corresponding deregulation of all aspects of the economy. This mandated a retreat from policies of "import substitution" then popular in Latin America, Asia, Africa, and the Caribbean – the practice of fostering industrial development by encouraging local manufacturing to produce goods that had previously been imported. Tariffs and other controls on trade that went along with import substitution were anathema to the neoliberal outlook, since it inhibited the free movement of markets and contradicted the doctrine of "comparative advantage," which holds that the invisible hand works best when everyone produces and sells those things which they can provide most efficiently.

The IMF had found its new niche, serving as a de facto "lender of last resort" – the last source of capital or credit when confidence in creditworthiness is eroded – for indebted countries in the South. It would not restrict itself to countries in acute financial crisis, like the large Latin American economies were, but would offer its assistance to any country in that region or in Africa, the Caribbean, and Asia experiencing difficulties with debt and obtaining credit on international markets. Rather than the 6-month loans it used to make for simple balance-of-payments difficulties, it made its most common instrument a loan that was disbursed in installments (called "tranches") over 3 years, and was repayable over 10 or 20 years. These loans and the policy conditions (or, in IMF parlance, "conditionalities") attached to them were called "structural adjustment programs" or SAPs. (Recognizing the negative connotation that term has since acquired, the institutions have tried to rename the programs, most egregiously with the Orwellian term "poverty reduction and growth.")

Adjusting Unconditionally

The conditions imposed on desperate governments signing up for SAPs differed little from those applied to Mexico in its 1982 bailout, though the scope was gradually widened and details refined. Indeed, the conditions imposed with middle-income country bailouts in the 1990s and the new century – in Mexico, Thailand, Indonesia, South Korea, Brazil, Russia, and Argentina – also mirrored those of SAPs, which themselves were remarkably similar to one another, whether applied in Africa, Asia, the Caribbean, or Latin America. The IMF is essentially a one-size-fits-all factory. To the extent that documents occasionally surface with the wrong country's name in sections, when a "search and replace" job at the Washington headquarters goes awry.

These conditions have to date been imposed on over 100 countries, not only by the IMF in its 3-year programs, but in numerous World Bank policy (as opposed to infrastructure) programs, which follow up on the IMF packages and now constitute up to half of the Bank's lending. Few governments are convinced of the benefits of SAPs, but once they have run out of places to get credit, they have little choice if they wish to remain part of the global economy. The IMF's coercive power comes not only from its "lender of last resort" function, but also from the fact that it has been assigned, informally, a "gatekeeper" role. If a country does not have an IMF agreement which it is successfully adhering to (in the IMF's judgment), it cannot get loans, aid, debt relief, or credit from any other multilateral institution, aid agency, government, or private financer.

Many of the structural adjustment conditions imposed by the IMF and World Bank on countries in Latin America, Africa, and Asia have been imposed domestically in the United States since the Reagan Administration. Further, market fundamentalism and neoliberal ideology are not the sole preserve of the political Right in the United States, or, for that matter, in many parts of Western Europe. The Democratic Leadership Council—that Bill Clinton led before becoming president—representing the "New Democrats" within the Democratic Party and the "New Labour" wing of the Labour Party in Britain, for example, have implemented, defended, and even extended many of the prescriptions the conservative Reagan and Thatcher Administrations first introduced in the 1980s. These have included further reducing or eliminating government regulations, including environmental protections; further shifting the tax burden from the wealthy to the middle and working classes while cutting government spending, ostensibly due to budget shortfalls; privatizing of public resources including education and other municipal services; and cracking down on organized labor.

The standard list of structural adjustment conditions imposed by the IMF and the World Bank on their borrowers includes:

1. Reduction of Government Expenditures. Across Africa, Asia, Latin America, and the Caribbean, the government has been the leading source of employment and channel for capital, since an undeveloped economy has fewer people with disposable investment income. But market fundamentalists define governments as inefficient economic actors, and so prioritize reducing their economic role. Privatization (see below) is one of the hallmarks of this approach, but so is reducing all government expenditures. A second justification for cutting government costs is to free up money that can be used for repaying external debts. These budget cuts take two related forms:
    a. Cuts in Social Spending: Slashing government-supported programs for healthcare, education, housing, food security, etc. Private providers of these services usually charge fees that put them far out of reach of the impoverished majorities in these societies. Much of the burden of replacing these eliminated services falls on women, who are already over-extended. At the World Bank's suggestion, or sometimes requirement, countries have tried to defray costs for providing what services are left by adding "user fees," which have a demonstrated record of discouraging school attendance and usage of clinics. After campaigns in several African countries and the United States, the Bank reversed its stance on user fees for primary education, but not for health care.
    b. Shrinking of Government: Reducing government budgets means not just cuts in programs, but massive layoffs and reduction of government capacity. Given the government's relatively larger role in Asian, African, Latin American, and Caribbean countries, mass layoffs of government employees have a dramatic impact on the middle and working classes, and often go deeper, since a person employed in the formal sector often supports many family members. Reductions in government activities also have an impact on the rest of the economy, much of which relies on doing business with government agencies. Additionally, fewer government staffers are able to monitor and regulate businesses' adherence to labor, environmental, and financial rules and regulations.

2. Increase in Interest Rates. The IMF is dedicated above all to limiting inflation. Charging higher interest rates for credit is the classic way to control inflation. As Joseph Stiglitz has pointed out, the IMF's charter calls for it to guard economic stability and work toward full employment. It has chosen to interpret stability narrowly as low inflation, and has jettisoned any concern with employment. In many cases, say Stiglitz and other mainstream economists, a moderate rate of inflation is perfectly acceptable if it means a greater rate of employment.
     High interest rates have the effect of strangling an economy: small and medium-sized businesses and farmers cannot afford credit, and so are often forced out of business. Small farmers forced to sell their land end up working as sharecroppers or landless labor, or are forced onto more marginal lands, leading not only to less productive agriculture but environmental devastation. Additionally, rural people are forced to move to urban areas already swollen with other economic migrants who are also desperate to take any jobs, regardless of the pay, whether in sweatshops, the informal economy or in illicit activities.
     For foreign investors, however, the policy has a real pay-off. Higher interest rates on credit usually imply higher interest paid on government bonds, which can lead to an influx of "hot money" – short-term investments by profit-seeking investors. Hot money often has a destabilizing impact since it can be withdrawn quickly, it is not suitable for productive investments, and a sudden rush for the exits can leave a government struggling to find the cash to pay off bondholders. It was precisely this scenario that threw Mexico into its 1994 "peso crisis," as U.S. investors, tempted by an increase in U.S. interest rates, wanted to cash in their dollar-denominated bonds simultaneously.
     High interest rates were among the most controversial measures the IMF imposed on the East and Southeast Asian economies (South Korea, Indonesia, Thailand) during the 1997-98 regional crisis. IMF policies were widely blamed for exacerbating and prolonging the social impact of the crisis. Indeed, the IMF's insistence on fighting inflation in East and Southeast Asia when there wasn't really any inflation to fight marked a turning point at which policymakers and academics started to question the IMF's policies.

3. Privatization: It is an article of the market fundamentalist faith that the private sector does things better and more efficiently than the public sector. In most countries in the Caribbean, Asia, Africa, and Latin America, almost all of who came out of the colonial experience, many of the largest and most vital companies were partially or wholly government-owned. This was identified as a weakness by the IMF, which since the earliest bailout packages has urged countries to privatize enterprises that were publicly owned. While in some cases public sector companies were performing poorly, the blanket solution of privatization has proven to be a cure worse than the disease. Because local investors rarely have sufficient resources to both buy and then operate privatized enterprises, the privatization boom has led to the transfer of a vast amount of national resources into foreign hands. Foreign investors often transfer out locally generated income rather than spend or save it within the country. Foreign-owned corporations are also more likely to shirk pledges to maintain previous levels of services, and more likely to shut down facilities when difficulties emerge. In Argentina, for example, most of the banking sector was privatized to foreign owners during the 1990s; when the financial crisis reached its peak in 2001, many of the banks simply shut their doors and left Argentina.
     ;The sell-off of national assets has also spurred an outburst of corruption in many countries: rules for fair bidding processes are ignored; secret deals with investors close to the government, whether foreign or domestic, are made, and prices far below the value of the assets are charged. And for the people working in the privatized companies, the process has usually meant mass layoffs and for consumers it has often meant a reduction in services and higher costs. For instance, people in rural areas lose services such as telephones, which are deemed no longer "economical" for a private telecommunications company to provide. Private investors frequently ignore labor rights, such as the right to organize a union, with a wink from the governments.
     In recent years, the emphasis on privatization has grown more intense, with the IMF cutting off funds or promised debt relief to governments that do not adhere to timetables established by the institution's programs. The World Bank has taken the lead in encouraging, and often requiring, borrowing countries to privatize the most basic, essential services, such as healthcare, education, and water provision. Activists in the affected countries, for instance Colombia, have responded with militant campaigns to retain public control of these most fundamental services, but the Bank, with U.S. urging, continues to push the privatization agenda.

4. Investment Liberalization: IMF and World Bank programs have long required countries to open up to foreign investors, which in practice means eliminating laws limiting foreign ownership of resources, businesses, or enterprises in certain sectors. Taxes on money repatriated to the company's home country are also to be dropped or significantly reduced. This, of course, is one of the bedrocks of corporate globalization: the facilitation of foreign corporations doing business anywhere in the world. As countries compete for foreign investment, they begin a "race to the bottom" similar to the spectacle of U.S. cities bidding for a baseball team: promises of deeper and longer tax holidays or exemptions, lower wages, more restrictions on labor unions, lax enforcement of environmental regulations, all of which is bad for workers and the environment, and severely limits benefits of foreign investment.
     Investment liberalization has been key to shifting large parts of national economies into foreign hands. One of the most notorious examples of the use of the IMF to extract concessions came with the 1998 IMF bailout package for South Korea, where the first condition insisted upon was the revocation of a law prohibiting foreign ownership of financial institutions. The IMF insisted that the South Korean government allow 50% ownership of banks within one year, and 100% in two years. This "reform" had been the chief demand of the United States in trade talks between the two countries for ten years.

5. Trade Liberalization: Another bedrock of corporate globalization is the removal of what market fundamentalists call "trade barriers," and others call trade regulation. Tariffs – taxes on imports designed both to raise revenue and protect domestic industries from competition – are the main target of the IMF/World Bank conditions. Their elimination invites foreign competition into domestic markets, and, together with investment liberalization, leads to the destruction of local businesses and layoffs. It also has the effect of ruining markets for local farmers, as in Haiti and Jamaica (among many other countries), where the dumping of subsidized U.S. rice imports and powdered milk drove Haitian rice growers and Jamaican dairy farmers into bankruptcy.
     The World Trade Organization (WTO) was founded in 1995, after most of Latin America, Asia, Africa, and the Caribbean had been thoroughly transformed by IMF-mandated investment and trade deregulation. Only then, when countries in those regions were dependent on trade with wealthy countries, were industrialized country governments and business interests willing to enter into a formal system of negotiation and conflict resolution on trade issues. It is no exaggeration to say, then, that the WTO is the child of the IMF and the World Bank.
     In recent years the hypocrisy of industrialized countries with regard to agricultural trade has been in the spotlight at the WTO. The United States, Japan, and the European Union subsidize their producers and maintain tariffs on all sorts of imports, while the IMF and World Bank have made sure that developing countries have eliminated theirs. In the case of cotton, for example, the United States provides $3 billion in support to a few thousand cotton farmers, who make enormous profits, and effectively closes off opportunities to farmers in Benin, Burkina Faso, Mali, and other West African countries.
     The World Bank has recently spent a great deal of energy scolding wealthy countries for this gross hypocrisy. It should be remembered, however, that the Bank was forcing trade liberalization on its client countries in Latin America, Africa, and Asia for 25 years, fully aware that the global trading system was stacked against them. As it criticizes wealthy governments, the World Bank should hold itself accountable for giving disastrous "advice" (the kind that could not be ignored) to so many vulnerable countries.

6. Elimination of Subsidies for Basic Goods: African, Latin American, Caribbean, and Asian governments are usually not able to afford the kinds of subsidies that industrialized countries routinely lavish on their farmers and corporations. But many have instituted price controls on basic goods and staples – bread, cooking oil, fertilizer, and petroleum – as a way of ensuring peoples' basic survival. This is seen as an inexcusable market distortion by market fundamentalism, and it is one of the first things IMF and World Bank conditions routinely target, and that industrialized country governments bring pressure to bear on. The sudden jump in the cost of living that accompanies the elimination of subsidies is often the first tangible pain felt by people in borrowing countries, and is the most frequent provocation for civil unrest ("IMF riots" are sometimes called "bread riots.")

7. Re-orientation to Export Economy: The whole thrust of structural adjustment conditions is to integrate countries in Asia, Latin America, Africa, and the Caribbean into the world economy – to encourage them to earn hard currency to service debts and to rely on foreign trade rather than aspirations to self-sufficiency. The doctrine of comparative advantage can only be fully realized when every country produces what it can most efficiently, and obtains other products and services through international trade. For developing countries, that has meant producing what the industrialized countries cannot profitably. What they can uniquely supply is agricultural commodities that grow best in tropical conditions (since most of these countries are in the tropics) and cheap labor from the impoverished, often displaced, and jobless population.
     The World Bank and IMF, which required so many countries to open up to foreign investors and businesses, advised countries, particularly in Latin America, that they could exploit their advantage in providing cheap labor by building "free trade" or "export production" zones – fenced-off industrial parks where normal taxes, labor, and environmental laws do not apply, and where the goods produced (mostly apparel) are designated for sale only in industrialized countries. As the antisweatshop movement has demonstrated, this has led to widespread abuses of workers and labor rights, as well as wholesale violation of environmental regulations. It has also proved to be a volatile arrangement, with factories moving suddenly from one country to another in search of lower wages – a practice that has exposed the emptiness of the frequent promises of steadily increasing wages, more progress for labor organizing, and sustainable livelihoods.
     In agricultural countries, acting on IMF/World Bank advice, farmers were offered incentives – credit, fertilizer, seed, etc. – to use their best land for producing cash crops instead of food. Soon many more countries were growing greater quantities of coffee and other cash crops. The prices fell when the most basic principle of market capitalism, the law of supply and demand, kicked in. From 1980 to 2000, world prices for 18 major commodities fell 25% in real terms; among the steepest were some of those most heavily relied on by the most impoverished countries: cotton (47%), coffee (64%), cocoa (71%) and sugar (77%). One of the paradigmatic instances of this phenomenon was the World Bank's encouragement to Vietnam to start coffee production. Vietnam quickly became the world's second biggest producer, after Brazil, and in the last three years coffee prices have plunged so low that farm families were starving to death in long-time coffee-producing areas in Nicaragua; coffee farmers in Kenya were not bothering to take their crop to market; and in Ethiopia, the birthplace of coffee, the famine of 2002-03 was blamed in large part on the impoverishing impact of the coffee crisis.
     The environmental impact cannot be ignored either: in addition to the toxic wastelands produced by free trade zones, shifting food production to more marginal lands has contributed to soil erosion, which in turn creates greater vulnerability to floods, hurricanes, and other natural disasters. A third kind of export production, which existed prior to IMF and World Bank involvement but which has accelerated to earn hard currency, is the extractive sectors of minerals and oil. The World Bank is a major funder of oil and mining production, which have tremendous negative environmental and social consequences and have been shown to fail to deliver "poverty reduction."
     The promise was that countries would be able to earn hard currency by selling their increased exports to industrialized countries, and using the proceeds to pay off debts and buy the food and manufactured goods they were no longer producing on international markets. Instead, falling prices and over-competition have meant countries in Africa, the Caribbean, Latin America, and Asia have found themselves mired deeper in debt, unable to afford much of anything, and with significantly reduced capacity to produce for their own people.


Is it possible that the World Bank or the IMF do not know the law of supply and demand? Is it possible they thought it would be suspended for their client countries? It seems unlikely. It is such blatant transgressions against common sense and human security that have convinced many people in the Global South and an increasing number of their allies in the Global North that the World Bank and IMF have priorities other than their oft-stated ones of eliminating poverty, maintaining economic stability, and contributing to sustainable development. It is not necessary to believe that the IMF and World Bank are out to deliberately impoverish non-Western countries in order to come to this conclusion. It is only necessary to recognize that the institutions prioritize the interests of the industrialized countries – and their corporations – that control the majority of votes on their boards: getting debts paid regularly; a guaranteed supply of low-cost products and commodities; access to more markets and less competition. After those requirements are fulfilled, the institutions can start looking toward development, stability, and poverty reduction. Of course by that time, the measures required for the higher priorities have made those loftier goals unattainable.

Critics often refer to structural adjustment policies "failing" for 25 years. Indeed, they have utterly failed to keep any of the promises made to ease debt burdens, restore economic stability and affluence, or foster equitable and sustainable development. This can hardly be surprising, given that a generation of structural adjustment policies have succeeded in destroying borrowing countries' food security, productive capacity, regulatory powers, and eliminating citizens' economic choices. But it is surely implausible to suggest that the two most powerful multilateral financial institutions, staffed by thousands of economists, and the finance ministers and central bankers of the world, who sit on the institutions' Boards of Governors, would have countenanced such abject "failure" for so long. Even the most zealous market fundamentalist, taking an objective look at the results of structural adjustment, should have no choice but to admit that ordering countries in Latin America, Africa, the Caribbean, and Asia to put their faith in markets has been a disaster for them.

All that it takes to restore logic is to realize that the stated goals should be viewed only as window-dressing. Structural adjustment policies have in fact worked spectacularly well for corporations, and for politically and financially powerful interests in the industrialized countries and elsewhere. They have been the foundation of what today is called corporate globalization, a juggernaut that is hard to stop, given that most of the world's most powerful and wealthiest forces are united in the effort to preserve and expand it. And, while the impact of similar policies within the United States has adversely affected the poor and working classes in this country, the U.S. elite is still able to evoke support for the "American Way of Life," which is sustained by structural adjustment overseas.

Fortunately, people's movements in Latin America, Asia, Africa, and the Caribbean, and increasingly in the industrialized world have been fighting structural adjustment and its outcomes for decades. The recent "collapse" of WTO talks in Cancún, Mexico, in September 2003, represents a potential turning point. Latin American, Asian, African, and Caribbean governments, for a variety of reasons including serious pressure from people's movements, united to say "no more" to significant parts of the agenda of market fundamentalism. Together with the missteps of the Bush Administration, which has more firmly than ever linked the U.S. government to the corporate "me-first" attitude in the minds of people around the world, Cancún heralds a new world of possibilities as developing countries stop submitting to the self-interested dictates of the industrialized world.

Soren Ambrose is Senior Policy Analyst at the 50 Years Is Enough: U.S. Network for Global Economic Justice. He can be reached at

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