Defunding the Fund, Running on the Bank

Monthly Review, July, 2000 by Patrick Bond

This latter argument deserves elaboration--because if local, national, and regional development finance is appropriate, then the technical (not political, moral, environmental) reasons to have a Fund and Bank evaporate. Such was the viewpoint of the African National Congress (ANC) in its 1994 Reconstruction and Development Programme (RDP), in a sentence won only after much left-wing lobbying--"The RDP must use foreign debt financing only for those elements of the programme that can potentially increase our capacity for earning foreign exchange." (The ANC broke more than one such promise, but it is the principle here that is worth careful reflection.)

The motivation for rejecting hard-currency loans for "development" was the ANC left's fear of the rising cost of repayment on foreign debt, once the currency declines, and the use of hard currency to pay not for initiating a basic education project but instead for repaying illegitimate apartheid debt; importing luxury goods for the rich; and replacing local workers with inappropriate, job-killing, dependency-inducing technology from abroad. In sum, why take a U.S. dollar loan for building and staffing a small rural school that has virtually no foreign input costs?

If real development comes from local resources (only a tiny fraction of basic-need inputs in most developing countries require foreign loans), and if the hard currency needed to import petroleum or other vital inputs can usually be readily supplied by export credit agencies (competing against each other, in contrast to centralized financial power and coordination in Washington), the basic rationale for the World Bank falls away. And instead of relying upon the Fund to maintain a positive balance of payments when fickle international financial inflows dry up or run away frightened, third-world countries that in the future climb out from under the heel of the Fund and Bank could realistically impose Malaysian-style exchange controls and tax unnecessary imports. They would also have more freedom to default on illegitimate debt.

In short, the South ultimately shouldn't need a dollar-denominated Fund and Bank for development. Indeed, it is probable that only when Washington's institutional power fades that local, national, and perhaps regional development finance officials can reacquire the ability they once enjoyed, a few decades ago, to tame their own financial markets. (Such "financial repression entailed state interest-rate subsidies, directed credit, prescribed asset requirements on institutional investors, community reinvestment mandates, and other means of socializing financial capital.)

The one remaining point to make is the easiest, most practical answer in this article--is defunding actually feasible? The same question was asked of anti-apartheid financial sanctions advocates, and answered in the affirmative in 1985, just a few years after campaigning became serious. In addition to defunding the Fund through popular pressure on Congress (where an upcoming authorization vote may be a close call)--and indeed all parliaments--to deny further resources, activists returning from A16 began taking advantage of the Bank's extreme reliance upon international bond markets. Nearly 80 percent of Bank funds for lending comes from bonds, making them the most compelling pressure point and local handle for the medium-term struggle. To this end, a "World Bank Bond Boycott"--initiated by Haitian, South African, Brazilian, and many other activists and debt campaigners across the world--was launched on April 10 with help from two U.S. groups, the Center for Economic Justice and Global Exchange. Berkeley City Council offered the initial commitment that its municipal fund managers won't buy Bank bonds. All investors of conscience--pension funds, churches, university endowments, individuals--are being asked not to profit from poverty and ecological destruction by increasing their portfolio's World Bank bond holdings. A frightened Washington Post lead editorial on April 11 called the Bond Boycott "crazy." In coming months, activists will prove establishment concerns entirely justified, as they did with the financial sanctions that helped sink the Botha and de Klerk regimes in Pretoria.