The Spring meetings of the WB and the IMF are taking place this weekend. What is at stake?
These two institutions are going to review the international situation and the impact of their initiatives. This year they will have to meet major challenges, because never before have they been in such a difficult position. Their incomes are falling to such an extent that the IMF cannot even support the salaries of its 2,500 or so senior officers, who are highly paid to give poor countries the invaluable advice that they had better pay their own civil servants less. The WB suffers from the fact that middle-income countries such as Brazil or Mexico do not call on it as often as used to be the case. Indeed it can only survive thanks to the interests paid on loans contracted by such countries.
So much for the symptoms. But the essential reason for the difficulties these institutions are facing is that the currency reserves of Developing Countries (DC) have never been so high. The fall in US interest rates that was decided on by the US to boost its economy after the 2000-2001 stock market crisis and depression led to a global fall in interest rates, which improved the situation of indebted countries. Moreover, as this consequently encouraged household consumption, from 2002 to 2004 the US also increased imports from China — a country that needs raw materials. The price of raw materials and the quantities exported by poor countries then increased sharply. As a consequence 135 out of 165 DC saw their currency reserves increase and the consolidated reserves in DC now reach USD 3,000 bn against 160 bn in the Euro zone countries and less than 40 bn in the US.
But since the IMF and the WB are supported by rich countries, their predicament can only be short-lived. . .
Two major initiatives point in the opposite direction. China tends to replace these institutions in that it lends money for instance to African countries, to consolidate its trade relations. The other initiative has occurred in South America: Argentina and Venezuela, soon joined by Brazil, Ecuador, Bolivia, and Paraguay, set up a Bank of the South with an initial stock of USD 7bn. It will finance the industrial facilities to process hydrocarbons that Bolivia needs to nationalise its oil and gas. La Paz will not have to call on the Inter-American Development Bank, which is a branch of the WB, nor on the IMF. Ecuador has decided to decrease the share of its budget that is devoted to paying back its external public debt from 38 % in early 2007 to 11 % in 2010. It has already reached 28 %. The country has also announced that it would stop paying back debts that it deems illegitimate. Simultaneously the share of the budget allocated to social spending should increase from 12 % in 2007 to 38 % in 2010.
What you are presenting here sounds like an uprising. . .
It is indeed the first time in 25 years that such a far-reaching phenomenon can be observed. It is an historic turn. But major industrial powers together with China want the price of raw materials to decrease. And the Fed has raised its interest rates again to draw capital flows that went to DC and to reduce the US deficit. The European and Japanese Central Banks follow suit. If the price of raw materials does indeed fall, then the currency reserves of DV will dwindle. This is a race against time: will countries of the South make the necessary moves to lastingly swing the balance of power in their favour? I would say that there is a fifty-fifty chance that within two, three, or six years we will face another debt crisis. Countries of the South should stop paying back illegitimate debts and calling upon external funding.
Isn’t there a weakening of support from the proponents of another world order (“alter-globalists”) ?
The number of people marching in the streets fell for a very simple reason: last year, the WB held its last large meeting in Singapore, where any convergence of more than six people is forbidden; and in the US the priority for left-wing activists is stopping the war in Iraq. But for the G8 meeting in Rostock, Germany, that is to start on June 5, we think we may have 100,000 people marching on June 2, which will be followed by roadblocks and civil disobedience actions.
The interview was first published in Politis 947, 12-18 April 2007. The English translation by Christine Pagnoulle first appeared in the Web site of the Committee for the Cancellation of the Third World Debt (the CADTM – Comité pour l’annulation de la dette du Tiers Monde) on 14 April 2007.