Your Money or Your Life PDF

Eric Toussaint
Your Money or Your Life!

The Tyranny of Global Finance
Translated by Raghu Krishnan

with the collaboration of Vicki Briault Manus
.A.
P l u t o WW W1 P r e s s
LONDON STERLING, VIRGINIA 4 1
Ur^ Mkukl na Nyota Publishers
DARES SALAAM
Disclaimer:
Some images in the original version of this book are not
available for inclusion in the eBook.
First published in French by CADTM (Belgium), CETIM (Switzerland),

Editions Luc Pire (Belgium) and Editions Syllepse (France), 1998,
as La bourse ou la vie: Lafinancecontre lespeuples
First English language edition published 19 9 9 by Pluto Press

345 Archway Road, London N6 5AA
and22883 Quicksilver Drive, Sterling, VA 20166-2012, USA
and by Mkuki na Nyota Publishers, 6 Muhonda Street,
Kariakoo, PO Box 4246, Dar es Salaam, Tanzania
Copyright 1998, CADTM, 29 rue Plantin, 1070 Brussels, Belgium
This translation Raghu Krishnan 1999
The right of Eric Toussaint to be identified as the author of
this work has been asserted by him in accordance with
the Copyright, Designs and Patents Act 1988
British Library Cataloguing in Publication Data
A catalogue record for this book is available from
the British Library
ISBN 0 7453 1417 1 hbk (Pluto Press)

ISBN 0 7453 1412 0 pbk (Pluto Press)
ISBN 9976 973 54 3 pbk (Mkuki na Nyota Publishers)
Library of Congress Cataloging in Publication Data

Toussaint, Eric.
[Bourse ou la vie. English]
Your money or your life! : the tyranny of global finance / Eric
Toussaint; translated by Raghu Krishnan with the collaboration of
Vicki Briault Manus.
p. cm.
Includes bibliographical references and index.
ISBN 0 - 7 4 5 3 - 1 4 1 7 - 1 hbk
1. Debts, ExternalDeveloping countries. 2. International
Monetary FundDeveloping countries. I. Title.
HJ8899.T6813 1999
336.3'435'091724dc21 99-13344
CIP
Designed and produced for Pluto Press by

Chase Production Services, Chadlington, Oxford, OX7 3LN
Typeset from disk by Stanford DTP Services, Northampton
Printed in the EC by T.J. International Ltd, Padstow
Contents
List of Tables and Figures vii

Acknowledgements x
Foreword by Christian de Brie xi
Preface to English Edition xvii
Introduction 1
1. Globalisation and the Neo-Liberal Offensive 14
2. The Concentration of Capital 31
3. Globalisation and Exclusion: the Marginalisation of
the Third World and the Strengthening of the Triad 36
4. Financial Globalisation 47
5. Globalisation and the Growing Debt Burden 65
6. The Debt Crisis in Historical Perspective 70
7. The Third World Debt Crisis in the 19 8 Os and 19 9 Os 80
8. The Transfer of Wealth from the South to the North 93
9. The World Bank and the IMF: 50 Years is Enough! 112
10. The World Bank and the Third World Debt Crisis 127
11. Structural Adjustment Programmes 134
12. The Two Phases of Structural Adjustment 140
13. Neo-Liberal Ideology and Policies in Historical
Perspective 170
14. Debt in the 1990s: Latin America and Sub-Saharan
Africa 189
15. Case Studies 200
Argentina 200
Mexico 205
Rwanda 212
16. The Asian Crisis and its International Repercussions 218
VI/YOUR MONEY OR YOUR LIFE!
17. Towards an Alternative 238

18. Globalising Resistance 252
Chronology: The World Bank, the IMF and the Third World 265
Glossary 277
Bibliography 294
Index 314
List of Tables and Figures
TABLES
Table 1.1 Evolution of the Real Income of US Households 20
Table 1.2 Turnover or GNP In S billions
Table 2.1 Company Acquisition and Creation by F oreign 27
Capital in the US
Table 2.2 Some Examples of Global Concentration at the 32
End of the 1980s and in the 1990s
Table 3.1 Origin and Destination of FDI Flows in 19 9 0 33
(percentage of total world FDI) 37
Table 3.2 19 8 7-9 2 FDI Flows to Developing Regions 38
Table 3.3 Relative Share of the World Market in
Manufactured Goods 39
Table 3.4 The Share in Global Exports of the Three Main
Blocs of Developing Countries between 1950
and 1990 43
Table 4.1 Daily Value of Financial Transactions and the
Total Annual Value of Global Exports 53
Table 4.2 Finance Expanding More Quickly than GNP: Trade
and Foreign Direct Investment in OECD Countries
(1988 compared to 1980) 54
Table 5.1 Growth in Financial Assets, 1980-92 67
Table 5.2 Share of Financial Markets in Foreign Debt 67
Table 7.1 Nominal Interest Rates, Real Interest Rates and
Inflation 90
Table 8.1 Gross and Net Debt-end of 1995 104
Table 14.1 Evolution of External Debt in Latin America
and the Caribbean 190
Table 14.2 Evolution of sub-Saharan Africa's External Debt 195
VIII/YOUR MONEY OR YOUR LIFE!
Table 14.3 Evolution of the Balance of Trade In

sub-Saharan Africa 196
Table 14.4 Net Flow of Foreign Direct Investment in
Table 14.5 Profit Repatriation by MNCs Operating in
FIGURES
Figure 3.1 Distribution of Foreign Direct Investment 36
Figure 4.1 The Evolution of Financial Assets by Investor
Type, 1980-94 61
Figure 5.1 Share of Nine Most Indebted Third World
Countries in Total Third World Debt, 19 9 5 68
Dedication
This work is dedicated to my parents, Jose Toussaint (1920-9 7) and

Rose Clermont-Toussaint; to Ernest Mandel (1923-95), Marxist
activist in word and deed; and to Carl Cesar (age 10) of Muriqui, Rio
de Janeiro state, in the hope that he will have both the desire and the
right to go to school; and to all those women and men struggling for
their emancipation.
IX
Acknowledgements
My heartfelt thanks to Denise Comanne, without whom this work

would not have been possible. I also wish to thank the following
people for their help, their criticism and their encouragement, under
standing and patience: Ivan, Tristan and Jose Toussaint; Rose
Clermont-Toussaint; Frans Maggio; France Arets; Annick Honorez;
Pierre Galand; Didier Brissa; Brigitte and Isabelle Ponet; Dalhia
Luksenburg; Anne-Marie Raison; Luc Pire; Philippe Tombal; Roland
Pfefferkorn (Universite de Strasbourg); Michel Chossudovsky
(Universite d'Ottawa); Patricia Camacho (Mexico); Bruno and Nadji
Linhares (Brazil); Gustavo Codas (CUT-Brazil); Ernesto Herrera, Aldo
Gili and Marita Silvera (Uruguay); Alejandro Olmos (Argentina);
Pierre Cours-Salies (Universite de Paris VIII); Christian de Brie (Le
Monde diplomatique); Michel Husson (IRES); Jacques Bournay, Gus
Massiah (AITEC); Bernard Teissier (ENSSIB, Lyon I); Florian Rochat
(CETIM-Switzerland); Robert Went (University of Amsterdam and
IIRE); Samir Amin and Amady Ali Dieng (Forum Tiers Monde,
Dakar); BintaSarr(APROFES-Senegal); friends at the AIRS (Algeria);
and the entire team at COCAD (Belgium).
This project was assisted by the CEDGVIII/B2. This institution is in
no way responsible for the ideas expressed by the author.
Foreword
Contemporary history can be described as that of the conquest of the

world by an ever smaller number of huge conglomerates organised
into multinational corporations. These corporations are engaged in
a permanent war with one another to control markets with the
shared aim of subordinating all human endeavour to the logic of
private profit.
While the processes of capital accumulation and concentration
have long been with us, in recent times they have been dramatically
accelerated as a result of a number of technological upheavals.
Thanks to the transformation of data storage, processing and trans
mission techniques - computing, robotics, telecommunications - for
the first time in the history of human civilisation it is possible to
pursue planetary strategies in real time. In other words, it is possible
from a given location to track and evaluate continuously the
application of decisions anywhere else on the planet - and to adapt
the content, location, operating conditions and outputs of any type
of activity accordingly.
The effect of this technological revolution has been amplified by
two other upheavals, of a political nature.
The first is the challenge by multinational companies - in the name
of 'freedom' - to the sovereignty of governments and of their
regulatory role. This is especially the case in the fields of the economy
(currency, exchange, customs, interest rates, capital flows, monetary
policy, taxation and fiscal policy, the public sector) and social policy
(social programmes and labour laws, from the minimum wage to
family benefits, and also trade union rights, pension plans, healthcare
and education). This challenge has been legitimised by a particularly
aggressive brand of liberal ideology, and backed by the full weight of
xi
XII/YOUR MONEY OR YOUR LIFE!
those that hold the reins of economic and cultural power. No effort is
spared to promote the idea that private initiative is superior to public
intervention, contrasting the efficiency and profitability of the former
to the incompetence and wastefulness of the latter. Or the idea that
humans naturally prefer private initiative over collective solidarity.
Or the need to limit the state and government to the sole task of
upholding law and order, social control and the defence of personal
safety and private property. While this ideological campaign never
tires of insisting that a free country is one in which there is freedom
to do business, it remains curiously silent about the permanent
collusion between the state apparatus and big business lobbies. It
has, however, led to the implementation of policies of systematic
deregulation that seek to fulfil two wide-ranging objectives.
In the first place, there is the objective of progressively establishing
- sector by sector - a global space, or rather a world market, in which
the only law is that laid down by multinationals to regulate the
competition between them, a kind of chivalrous code for economic
warfare. The task of drawing up and overseeing such a code, for
example, has been devolved to the World Trade Organisation (WTO)
- a gargantuan organisation that renders null and void the
legitimacy of national states and governments.
The second objective is that of providing the best possible
opportunity for those with the requisite astronomical wealth - that
is to say, the multinational corporations - to take full advantage of
the potential created by the new technologies. This is especially so in
the financial sector - where the split-second transmission of capital
and the mushrooming of exchanges, brokerage houses, financial
products and speculative instruments have created a massive
financial bubble out of all proportion to economic realities. Between
SI,200 and 1,500 billion are traded each day on the markets, the
equivalent of one week of US GNP and 60 times the funds needed to
settle actual international transactions in goods and services. This
bubble could burst at any time and do irreparable damage, as has
already been the case in Mexico and, more recently, in Southeast
Asia. This financial bubble is the scene of the hottest investments and
the most risky speculative operations; it is also the destination of
choice for a significant proportion of the savings deposited in mutual
and pension funds, and for the liquid assets of banks and companies.
The second political upheaval was the fall of the Berlin Wall in
December 19 8 9, an event symbolic of the collapse through implosion
FOREWORD/XIII
of the bloc of socialist countries led by the Soviet Union. It was also
symbolic of the disappearance of an economic and political system
that put itself forward as the historic alternative to an increasingly
unpopular capitalism. The socialist sphere of influence put up no
resistance and displayed a kind of greed-induced naivete; it was
quickly conquered by the Western free market democracy model.
This has not been the case for a handful of countries in the process of
rapid transformation (such as Vietnam) or reduced to decrepit
museums of a long-gone era (such as North Korea). Nor has it been
the case of China, which intends to retain its political autonomy
behind a wall of market socialism in which there is a great deal more
market than there is socialism. The triumph of capitalism resulting
from the disintegration of its arch-rival put an end to the East-West
conflict, which had overdetermined international relations and the
fate of peoples and nations for some 50 years. This triumph also put
an end to the 'Third World', a term used to describe the often risky
attempt by countries of the South as a whole to use the superpower
conflict as a means to protect their economic and political indepen
dence. Above all else, this capitalist triumph over the Socialist Bloc
has confirmed the historic defeat of the working classes and of the
world proletariat. Henceforth, they will be condemned to limitless
exploitation by a brutal and arrogant capitalism that, at long last, has
been delivered from its age-old fear of world revolution.
This is the state of affairs as we embark upon an era in which the
world's new masters seek to establish a universal totalitarianism.
Indeed, this is the only possible way for the handful of all-powerful
economic warlords, who will soon own most of the planet, to
perpetuate their domination over many billions of victims. The
progressive establishment of this new order is being carried out in
three main areas.
In the first place, there is the near-monopoly of the ideology of the
ruling classes and of the neo-liberal discourse that legitimises their
rule. Be it the printed press, radio and TV, publishing, academic insti
tutions, think-tanks, or talks and seminars, there is very little in the
field of the production and dissemination of mainstream ideas that is
not directly or indirectly controlled by those in positions of wealth
and power. The scope for manipulation provided by the mass media,
their potential for 'manufacturing consent' and adapting their
message to each audience, gives them unlimited possibilities for
subjecting ever greater sectors of the population to their influence,
XIV/YOUR MONEY OR YOUR LIFE!
especially those most likely to become their victims. Fewer and fewer
people have the wherewithal to extricate themselves from the
dominant discourse. An overwhelming majority of intellectuals has
been won to the new dominant ideology. Before, the intelligentsia
were mobilised in opposition to the Establishment; now they have
become its well-paid guard dogs. A veritable caste of arrogant and
cynical intellectuals has emerged to defend the liberal faith, to declare
the 'end of history', to hunt down and burn at the stake all those who
dare contest the new doctrine. They monopolise the written and
spoken word, recite the free market mantra, and pull economic
'miracles' out of thin air. These new theologians and dedicated
scientists of the liberal faith do not hesitate to falsify history to erase
anything that might contradict their regurgitated 'truths', nor do
they baulk at manipulating statistics to give their pontificating a
scientific gloss. In this, they have continued a proud tradition of
totalitarian practices that began with the nationalist bourgeoisies
and was perpetuated by fascist and socialist regimes. From a very
young age, children are enrolled in the economic war, put forward
as the unavoidable choice between life and death - both at school and
in their sporting activities, where each is pitted against all and where
victors and the powerful are praised and losers and the weak are con
temptuously dismissed. For all this, however, no attempt is made to
pinpoint the exact purpose of this indefinite and perpetual war of the
kind described by George Orwell in 1984. The war's objectives, one's
allies and one's conquests are ephemeral, in a constant state of flux.
Secondly, there is the attempt to submit the whole of human
activity to the market order and the rule of profit. No sphere can
escape this process, neither the protection of privacy, nor the right to
breathe unpolluted air, nor the use of human genes. Everything can
become a commodity, including spirituality, and enter the circuits of
capital in order to be made profitable. The goal is that of granting
capital totalitarian control over human and biological life and
development. This shameful pillage of humanity's collective
inheritance has necessarily been accompanied by wide-ranging and
growing criminalisation. While the old order has been destroyed and
the rules governing relations between states and between states and
multinationals are no longer effective, the resulting vacuum has not
been filled by a new set of rules and corresponding sanctions for the
new order. Brutal competition between the various economic
warlords has, instead, been greased by generalised corruption. Not a
FOREWORD/XV
single country, not a single market, remains untouched. Not a single

oil contract, public works project or arms deal, not a single significant
market study or supply of goods or services, nothing takes place
without payment of commission along a complex and variable set of
guidelines in which all concerned parties become enmeshed. A chain
of offshore tax havens encircles the globe, in close proximity to the
major North American, European and Asian powers. Their banks
provide the logistical backup and launder misappropriated sums
totalling hundreds of billions of dollars. The same network serves to
finance the underground economy, in particular drug trafficking.
The banking sector is directly involved and makes a handsome profit
through this permanent symbiosis between organised crime and the
business world - whose natural affinities are legion.
Politics is the third area in which the new order is asserting itself.
The obligatory political model has become that of market democracy,
in which the legitimacy of government obtained through universal
suffrage is subordinate to the sovereignty of markets, always at the
ready to punish elected governments. As spaces for the peaceful
resolution of social conflicts, political institutions have been reduced
to shells of their former selves. They are mere window dressing,
keeping up the democratic illusion in governments that are less and
less so. Behind this fagade of virtual democracy, ever more sophisti
cated techniques of surveillance and social control are developed and
tumble into the hands of those holding the reins of capitalist power.
Unbeknownst to most citizens, networks of computerised files,
accessible to all for a price, encircle their personal and professional
lives. There has been a multiplication and growing specialisation of
public and private police services of all kinds. Cameras monitor public
and private venues; computers permanently track people's activities
and movements; specialised personnel (social workers, police)
monitor and control neighbourhood life, communities and age
groups considered to be dangerous or at risk. One day soon they will
be electronically (genetically?) tagged and tracked, as is already the
case in the world of prisons and crime prevention. Wherever social
control seems to be a waste of effort and too costly, vast rural and
urban zones and their populations are abandoned to the barbarism
of those patchwork and disparate zones of the planet where even the
heartless standards of 'globalisation' do not hold sway.
There is, however, nothing inevitable aboutthis process of globali
sation and the establishment of a totalitarian universe. The
XVI/YOUR MONEY OR YOUR LIFE!
destruction and hair-raising increase in social inequality that result

from this process have provoked a large number of pockets of
resistance scattered across the globe. Nowhere is it written that the
peoples of the planet are somehow predestined to a new form of
slavery. Through the course of human history, the aspiration of
peoples to freedom and justice has never failed. Of course, no
resistance will have long-lasting effects without an awareness of the
ways the capitalist system operates in the era of globalisation and a
sound understanding of its sophisticated techniques of domination.
Eric Toussaint has done a commendable job of contributing to the
development of just such an awareness and understanding. He has
helped us understand the question of debt, one of the main ways in
which the peoples of the world are exploited by those who hold the
reins of capitalist power. With the pedagogic approach of someone
unflinchingly dedicated to overcoming this exploitation, he places
the problem in its proper historical and geopolitical context. In so
doing, he has fulfilled his objective of 'contributing to the emancipa
tion of the oppressed, wheresoever on the planet they may be'.
Christian de Brie
Editorial staff member at Le Monde diplomatique
Preface
When this book is released in English by Pluto Press in the spring of

1999, it will have already appeared in six other languages: French,
Dutch, Spanish, German, Turkish and Greek. For a book that does not
hide its hostility to the neo-liberal project, this in itself is a sign of
renewed interest in global alternatives to mainstream thinking.
Meetings have been organised to launch the book in a number of
countries in Latin America, Africa and Europe. The meetings have
provided an opportunity to test the validity of the book's main
arguments. The results have been encouraging. As a result of the
exchange organised around the proposals advanced in chapter 17,
these proposals will be reworked in line with the thoughtful criticisms
and additions I have received.
A number of significant events have taken place since the book was
completed in May 1998. They provide the raw material necessary for
fine-tuning the book's main theses.
A GLOBAL AND SYSTEMIC CRISIS

In a number of key countries around the world, we have seen either
outright drops in production and consumption or significant drops in
their rate of growth.
The term 'systemic crisis' is fitting in so far as the economic strategy
of a number of big states, large private financial institutions and
industrial multinationals has been unsettled - due to the growing
number of sources of imbalance and uncertainty in the world
economic situation.
From the very start, the capitalist system has gone through a large
number of generalised crises. On occasion, its very survival was in
xvii
XVIII/YOUR MONEY OR YOUR LIFE!
doubt; but it has always managed to weather the storm. However,

the human cost of these crises - and of the ways in which the
capitalist system has emerged from them - is incalculable.
Capitalism may once again weather the storm. It is by no means
sure that the oppressed will be up to the task of finding a non-
capitalist solution to the crisis. Although victory is far from
guaranteed, it is imperative that the oppressed reduce the human
cost of the crisis and pursue a strategy of collective emancipation that
offers real hope for all humankind.
A WORLDWIDE FALL IN INCOME

Recent studies carried out by economists in government and UN
circles, have confirmed just how far buying power has dropped in
various parts of the world. The Clinton administration's former
Secretary of State for Labor, Robert Reich, for example, has said:
'Workers have less money to spend on goods and services [...] The
crisis is upon us'. He adds: 'The sluggishness of American income
levels is a highly sensitive matter, given the role played by household
spending in overall economic performance. [Household debt]
accounted for 60 per cent of available income at the beginning of the
1970s; it is now more than 90 percent [...] We have hit the ceiling'
(Robert Reich, 'Guerre a la spirale de la deflation', Le Monde, 21
November 1998).
The 1998 report of the United Nations Development Programme
(UNDP) gives some idea of the levels of household debt. In response
to the drop in real income, households have clearly opted to finance
a greater and greater share of their spending with debt. 'Between
1983 and 1995, as a share of available income, debt has risen from
74 to 101 per cent in the USA; from 8 5 to 113 per cent in Japan; from
58 to 70 per cent in France.' In absolute terms, US household debt
was 5.5 trillion (5,500 billion) dollars in 1997.
This phenomenon can also be found in the most 'advanced'
countries of the Third World. For example, in Brazil in 19 9 6, fully two
thirds of all families earning less than 300 dollars per month were in
debt - that is, one million of the 1.5 million families in this category.
According to the UNDP, bad cheques are a common method for
financing consumer spending in Brazil. Between 1994 and 1996,
the number of bad cheques rose six fold.
PREFACE/XIX
Robert Reich is quite right when he says that a ceiling has been
reached. A recession in the North and an increase in interest rates in
the South could lead to a huge drop in consumer spending in the
North and across-the-board bankruptcy of households in countries
of the periphery - in line with what we saw in the 1994-1995
Mexican crisis, and with what we have seen in the Southeast Asian
crisis ofl997-1998and the Russian crisis of 19 9 8.
Three examples illustrate this fall in income for the majority of the
world's population. First, the UNDP notes that in Africa, 'Consumer
spending has on average dropped 20 per cent over the last 25 years'.
Second, the UNDP notes that in Indonesia poverty could double as a
result of the 1997 crisis. According to the World Bank, even before
the crisis there were 60 million poor in Indonesia out of a total
population of 203 million. Third, according to Robert Reich, real
incomes continue to fall in much of Latin America. According to a
World Bank report released at the end of 1998 (Agence France
Presse, 3 December 1998), 21 countries experiences a fall in per
capita income in 1997. The same report estimates that in 1998, some
36 countries - including Brazil, Russia and Indonesia - will register
a drop in per capita income.
According to a 26 November 1998 press release issued by the
Russian undersecretary of the economy, unemployment was
expected to rise by 71 per cent between the end of 1998 and the
beginning of 2001 - from 8.4 million to 14.4 million.
STRAIGHT TALK ON THE CRISIS FROM CAMDESSUS AND

CLINTON
Up until early 1998, International Monetary Fund (IMF) director
Michel Camdessus had played down the scale of the Mexican and
Asian crises. By the time of the October 1998 joint World Bank-IMF
summit, however, he had come around to saying that the crisis was
indeed systemic. At that same gathering, Bill Clinton declared that the
crisis was the most serious one the world had experienced in 50 years.
ESTABLISHMENT ECONOMISTS CRITICISE POLICIES

DICTATED BY THE IMF, THE WORLD BANK AND THE G7
The severity of the crisis in a large part of the world economy has led
a number of Establishment economists to subject IMF and G7-
XX/YOUR MONEY OR YOUR LIFE!
supervised policies to harsh criticism. Jeffrey Sachs was a leading

exponent of shock-therapy policies in Latin America in the mid-
1 9 8 0 s - the most brutal examples of which could be found in Bolivia
- and in Eastern Europe at the beginning of the 1990s. By 1997,
however, he was pillorying IMF and US-inspired policies in Southeast
Asia. Unfortunately, this didn't stop him from overseeing the imple
mentation in Ecuador of a ruthless austerity package in late 1998.
In the mid-1990s, Paul Krugman argued that increased free trade
and global commerce would pave the way for growth in all those
countries that joined in the globalisation process. As the crisis
deepened and began to affect Brazil in 1998, Krugman suggested
that the Brazilian president put in place coercive measures, for at
least six months, to regulate capital flows. Robert Reich wondered
aloud why the Clinton administration and other world leaders
continued to defend tight-money and austerity policies at a time
when such policies created a deflationary spiral. For one thing, he
said Third World countries should not be forced to make huge cuts in
public spending and to increase interest rates before they are eligible
for loans (Le Monde, 21 November 1998).
In the June 1998 edition of Transition, in a broadside against the
Washington consensus, World Bank vice-president and chief
economist Joseph Stiglitz denounces the IMF's shortsightedness. He
argues that although there is indeed proof that high inflation can be
dangerous, there is no such proof that very low inflation rates
necessarily favoured growth. Yet, for the moment, the IMF (and the
World Bank, too, lest we forget) continue to promote the low-
inflation dogma, even if this means destroying any possibility of
economic recovery.
Nor have editorial writers at the Financial Times held back in their
criticisms of the IMF: 'The IMF's way of dealing with crises must also
change. Its standard remedy was not appropriate for Asia, where the
problem was mainly private-sector debt. Too much IMF money was
used to bail out foreign creditors' ('How to change the world',
Financial Times, 2 October 1998).
Making a major break with tradition, Stiglitz has even 'dared' to
criticise the role of the sacrosanct markets in Latin America: 'The
paradox is that the panicking market has, for reasons totally
unrelated to the region, demanded that Latin American investments
deliver unreasonably high interest and dividends to cover the
perceived risks. By driving interest rates up and stock prices down, the
PREFACE/XXI
markets risk doing severe damage to the Latin American economies'

('A Financial Taint South America Doesn't Deserve', International
Herald Tribune, 19-20 September 1998).
Of course, the authors of these remarks have not exactly been won
over to the cause of the oppressed. That being said, they do indeed
reflect the unease Establishment economists feel over the patent
inability of governments, financial markets and the international
financial institutions to get the global economy back on a path
towards growth.
A FLURRY OF CORPORATE MERGERS

The tendency towards concentration in the corporate sector has been
given a huge boost as we approach the twenty-first century. There
were more mega-mergers in 1998 than in any previous year - in
banking, insurance, oil, chemicals, pharmaceuticals, automobiles
and the media. This merger frenzy has amplified the power of a
handful of companies over whole sectors of the global economy. The
mergers have gone hand in hand with a renewed offensive on the
employment front; they invariably mean dismissals and downsizing
through 'voluntary' retirement.
At the same time, this striking increase in the concentration of
capital has not necessarily meant greater stability for the companies
that come out on top. Takeovers and mergers have proceeded with
such reckless abandon that the new mega-firms are not likely to be
any more resilient than other companies when confronted with
abrupt shifts in the world economy.
WEALTH CONCENTRATED IN FEWER AND FEWER HANDS

In its 19 9 7 and 1998 reports, the UNDP keeps a tab on how many of
the world's wealthiest individuals one would have to assemble to
come up with a total fortune of one trillion (one thousand billion)
dollars - keeping in mind that this sum is equal to the annual income
of nearly 50 per cent of the world population.
Using data from Forbes magazine's annual listing of the world's
wealthiest individuals, the UNDP calculates that in 1996 it would
have taken 348 of the world's mega-rich to put together one trillion
dollars. By 19 9 7, however, this figure was brought down to 2 2 5. At
this rate, in a few years the richest 150 people might well own as
XXII/YOUR MONEY OR YOUR LIFE!
much wealth as the total annual Income of three billion people! The
gap between holders of capital, on the one hand, and the majority of
the population, on the other, is growing wider and wider.
The UNDP also makes a radical critique of Thatcherism without
mentioning the Iron Lady by name: 'During the 1980s, the gap
[between rich and poor] in the United Kingdom widened by a degree
never before seen in an industrialised country.'
SO MUCH FOR PRIVATE-SECTOR EFFICIENCY

Neo-liberalism has been the dominant creed for some 20 years. One
of the major arguments made by neo-liberal opinion-makers has
been that the private sector is much more efficient than government
in economic matters. Yet 1997 and 1998 have been replete with
examples of private-sector inefficiency. The 1998 reports of the
World Bank and the Bank for International Settlements (BIS)
concede that it was the private companies of Southeast Asia that had
amassed unsustainable debt levels, not government. The same
reports say that the previous Third World debt crisis (from 1982
onwards) had resulted from excess public-sector debt. In other words,
once the private sector was given free access to international
financial markets, it (alongside the financial institutions of the North
that provided the loans) proved to be just as short-sighted and
reckless as government.
In the most industrialised countries, the 'hedge funds' that boosted
their financial fortunes over the last 15 years have also been reeling
of late. The best known example is that of Long Term Capital
Management (LTCM), a misnamed company if ever there was one. By
late September 1998, LTCM was on the verge of bankruptcy. It had
4.8 billion dollars in real assets, 200 billion dollars in leveraged funds
in its portfolio, and a notional value of 1.25 trillion (1,250 billion)
dollars in derivatives. It is worth noting that LTCM had been advised
all along by the two recipients of the 1997 Nobel Prize in Economics,
Myron Scholes and Robert Merton - two stalwarts of the 'science of
financial risk', rewarded for their work on derivatives. As its
bankruptcy loomed, even big international banks with conservative
reputations admitted to having made imprudently large loans to
LTCM. Had LTCM not been bailed out through the massive interven
tion of a number of big banks such as the Union des Banques Suisses
(the biggest bank in the world before Deutsche Bank and Bankers
PREFACE/XXIII
Trust merged in late 1998), Deutsche Bank, Bankers Trust, Chase

Bank, Barclays, Merrill Lynch, Soclete Generale, Credit Agricole and
Paribas, all these banks would have found themselves in a highly
vulnerable position. Indeed, beyond reckless loans to LTCM, they
have all increasingly become involved in speculative operations. In
the second half of 1998, many of these big banks registered
significant losses for the first time in years.
Finally, there is a long list of formerly state-owned companies that
have in no way performed any better in private hands. Huge private
industrial concerns have posted losses hand over fist as a result of
strategic errors, particularly in the information technology sector.
Further proof of private-sector inefficiency have been the
monumental errors made by such private rating agencies as Moody's
and Standard and Poors. They had nothing but praise for countries
now wallowing in crisis.
GOVERNMENT TO THE RESCUE

For the last 20 years, governments have said they would not come to
the rescue of struggling companies and have privatised major state-
owned concerns. Now, however, they have been rushing to bail out
private-sector companies that threaten to go under. Funds for these
rescue packages come from state coffers fed largely by taxes on
working people and their families.
Here, too, the past two years have been telling. On 23 September
1998, the head of the US Federal Reserve convened a meeting of the
world's top international bankers to put together a rescue package for
LTCM ('Fed attacked over LTCM bail-out', Financial Times, 2 October
1998; Le Monde diplomatique, November 1998). Around the same
time, the Japanese government was adopting a rescue plan for the
country's private financial system, involving nationalisation of a part
of private-sector debt - to the tune of 500 billion dollars to be
shouldered by the state.
Thanks to IMF and World Bank intervention in the Southeast
Asian crisis in 1997, some 100 billion dollars were pooled together
to enable the region's private financial institutions to continue
paying off their debts to private international lenders. Most of this
money came from the state coffers of IMF and World Bank member-
countries.
XXIV/YOUR MONEY OR YOUR LIFE!
The October 1998 IMF package to keep Brazil afloat was also
financed by public funds. The plan enabled Brazil to go on servicing
its external and internal debts to the international and domestic
private financial system. Private financial institutions categorically
refused to contribute to this so-called rescue package. Instead, the
IMF ensured that their debts would be paid off, and they cynically
decided to hang back and refuse to make new loans to Brazil. They
adopted exactly the same stance in the face of the 1982 crisis. The
time has surely come to put an end to such publicly-funded bailout
packages for private finance.
SO MUCH FOR THE ADVANTAGES OF FINANCIAL

DEREGULATION
Right up until 1997, the IMF, the World Bank, the BIS and (more
reluctantly) the United Nations Conference on Trade and
Development (UNCTAD) sang the praises of financial liberalisation
and deregulation. This, they declared, was the way forward for all
countries seeking economic growth. Southeast Asia's high growth
rates until 1997 were cited as living proof of the success to be had
from pursuing such an approach. Once the region was plunged into
crisis, the IMF, the World Bank and the BIS declared that the crisis
was primarily due to the weakness of the region's private financial
sector. This was the best argument they could find to obscure their
own responsibility for what has happened.
Of course, the argument is wrong, and UNCTAD has been honest
enough to say so. In the press release introducing its 1998 annual
Report on Trade and Development, UNCTAD notes a weakening of
Asia's private financial sector. This weakening, it says, is the result
of the combination of three factors: first, the liberalisation of capital
flows; second, high interest rates set by private financial institutions
to attract foreign capital and discourage the flight of domestic capital;
third, exchange rates fixing national currencies to the dollar.
Together, these factors produced a massive inflow of capital which
thoroughly destabilised domestic financial markets. In other words:
yes, the financial system was weak; but, no, this weakness was not a
vestige of the pre-deregulation period, as the IMF, the World Bank
and BIS would have it. On the contrary, it was the policy of deregu
lation that weakened financial markets. Simply put, the huge inflow
of short-term capital was not matched by a corresponding increase
PREFACE/XXV
in productive activities - which require long-term investments. As a

result, most short-term capital was invested in speculative activities,
in strict accordance with criteria of capitalist profit.
Southeast Asia's financial system was no weaker than those of
other so-called emerging markets. Instead, it was undermined by
deregulation measures which gave free rein to supposedly high-profit
short-term activities such as the quick buying and selling of (often
vacant) real estate. According to Walden Bello, 50 per cent of Thai
growth in 19 9 6 stemmed from real-estate speculation. Although the
IMF and the World Bank were supposed to be monitoring the
economic reform process in these countries, their unflinching defense
of neo-liberal precepts blinded them to the real problems at hand.
YET ANOTHER DEBT CRISIS

All but a handful of the countries of the periphery - which account
for 85 per cent of the world's population - have now to endure yet
another debt crisis. The immediate causes are: an increase in interest
rates (which are actually falling in the countries of the North); a fall
in all types of foreign capital inflows; and a huge drop in export
earnings (caused by the fall in the prices of most of the South and the
East's exports).
There has been a swift increase in the total debt owed by Asia,
Eastern Europe (especially Russia) and Latin America. Short-term
debt has increased, while new loans are harder to obtain and export
earnings continue to fall. In relative terms, Africa has not been as
hard hit by changes in the world situation: loans and investment by
the North's private financial institutions have been so dismally low
since 1980, things can hardly get any worse (except for South Africa).
With the 1997 Southeast Asian crisis spreading into Eastern
Europe and Latin America, private financial institutions have been
increasingly reluctant to make new loans to countries in the
periphery (whether in the Third World or the former socialist bloc).
Those countries which continue to have access to international
financial markets - and continue to make government-bond issues
in London and New York - have had to hike the guaranteed return
paid on their issues in order to find buyers.
Argentina's October 1998 bond issue on the North's financial
markets, for example, offered a 15 per cent rate of return - 2 . 5 times
the average rate of the North's government bond issues. Yet this has
XXVI/YOUR MONEY OR YOUR LIFE!
not been enough to lure the North and the South's private lenders
back from their preference for bonds from the North. As was the case
in the early 1980s, when the last debt crisis hit, credit has become
rare and dear for the periphery. Between 1993 and 1997, there was
a steady increase in foreign direct investment (FDI) in Southeast Asia
(including China) and the main economies of Latin America (drawn
by the massive wave of privatisations). This tendency faltered in
1998 and could well do so again in 1999: FDI in Southeast Asia fell
by more than 3 0 per cent between 1997 and 1998; and loans fell by
14 per cent between the first half of 19 9 7 and the first half of 19 9 8.
IMF-dictated measures in the countries of the periphery have led
to recession, a loss of some of the key pillars of national sovereignty,
and a calamitous fall in the standard of living. In some countries,
these measures have merely worsened conditions that were already
unbearable for much of the population.
While the incomes of domestic holders of capital in these countries
continue to rise, there has been a disastrous fall in those of working-
class households. This chasm is as wide or wider than at any time in
the twentieth century.
During the months of September and October 1998, for example,
holders of Brazil's internal debt were receiving nearly 50 per cent in
annual interest payments, with inflation hovering below 3 per cent.
Brazilian capitalists and multinational companies, especially those
based in Brazil, could borrow dollars at 6 per cent interest on Wall
Street and loan them to the Brazilian government at between 20 and
49.75 per cent! All the while, these same capitalists continued to
siphon most of their capital out of the country, to shelter themselves
from abrupt changes in the country's economic fortunes.
PROGRESSIVE AND RADICAL POLICIES ARE BOTH

NECESSARY AND FEASIBLE
Global public opinion began to shift in 1997 and 1998, in response
to the failure of policies imposed by a combination of neo-liberal
governments, domestic and foreign holders of capital and the multi
lateral financial institutions.
In the wake of the neo-liberal whirlwind, a large number of people
in Southeast Asia, Russia, Brazil, Mexico, Venezuela, Argentina,
Central America and Africa have seen a drop in their standard of
living.
PREFACE/XXVII
For the 400 million inhabitants of the former Asian 'dragons' and
'tigers', IMF has come to mean 'I'M Fired'. Across the planet,
including in Europe, a sizeable share of the population has begun to
challenge neo-liberal policies. In some cases, this has taken on con
tradictory and confused forms. In most countries, the weakness of the
radical Left and the slavish submission of the traditional Left to the
dictates of the market (that is, of holders of capital) have created an
opening for parties and movements that redirect the population's
consciousness and will to act against a series of scapegoats, be they
foreigners or followers of a different faith.
Successful resistance to the ongoing neo-liberal offensive is no easy
matter; but those engaged in struggle have a number of points in
their favour, including partial victories. The October 1998 decision
by the French government of Lionel Jospin to withdraw from negoti
ations on the Multilateral Accord on Investments (MAI) came about
in response to a broad campaign of opposition organised by an array
of movements, trade unions and parties in France, the USA, Canada,
the Third World and across Europe. To be sure, multinational corpo
rations and the US government will again attempt to push through
the MAI's objectives of total freedom for holders of capital. For the
moment, though, they have suffered a major reversal. It is indeed
possible to roll back such government and corporate initiatives
through campaigns and mobilisation.
Another sign of the changing times was the UNCTAD statement of
September 1998 in favour of the right of countries to declare a
moratorium on foreign-debt payments. UNCTAD said: 'A country
which is attacked can decide to declare a moratorium on debt-
servicing payments in order to dissuade "predators" and have some
"breathing room" within which to set out a debt restructuring plan.
Article VIII of the IMF's Statutes could provide the necessary legal
basis for declaring a moratorium on debt-servicing payments. The
decision to declare such a moratorium can be taken unilaterally by a
country in the face of an attack on its currency' (UNCTAD press
release, 28 August 1998).
Of course, UNCTAD is a small player in comparison to the G7, the
IMF, the World Bank and the World Trade Organisation (WTO). But
this forthright defiance of the so-called inalienable rights of money
lenders reveals that governments in the periphery are finding it
increasingly difficult to j ustify their support for the neo-liberal global
isation project.
XXVIII/YOUR MONEY OR YOUR LIFE!
The UNDP's 1998 report calculates that a 4 per cent tax on the
assets of the world's 225 wealthiest people would bring in 40 billion
dollars. This is the modest sum that would have to be invested annually
in 'social spending' worldwide over a period of ten years in order to
provide: universal access to clean water (1.3 billion people went
without such access in 19 9 7); universal access to basic education (one
billion people are illiterate); universal access to basic health care (17
million children die annually of easily curable diseases); universal
access to basic nutrition (two billion people suffer from anaemia);
universal access to proper sewage and sanitation facilities; and
universal access by women to basic gynecological and obstetric care.
Meeting these ambitious targets would cost only 40 billion dollars
annually worldwide over a period of ten years. The UNCTAD report
compares this figure to some other types of spending which
humankind could easily do without: in 1997,17 billion dollars were
spent on pet food in the USA and Europe; 50 billion dollars were spent
on cigarettes in Europe; 105 billion dollars were spent on alcoholic
drinks in Europe; 400 billion dollars were spent on drugs worldwide;
there was 780 billion dollars in military spending worldwide; and
one trillion (1,000 billion) dollars were spent on advertising.
1999 and 2000 are Jubilee years in the Judeo-Christian tradition
which culturally dominates the select club of G 7 countries. With yet
another debt crisis upon us, Jubilee tradition demands that we ener
getically call for the complete and total cancellation of the debts of the
countries of the periphery.
A host of other measures must be implemented urgently, such as:
a tax on international financial transactions (as called for by the
ATTAC coalition); an inquiry into the overseas holdings of wealthy
citizens of the countries of the periphery, leading to the expropriation
and restitution of these holdings to the peoples of the countries in
question when they are the result of theft and embezzlement; bold
measures to restrict capital flows; an across-the-board reduction in
the working week with corresponding hiring and no loss of wages;
land reform providing universal access to land for small farmers and
peasants; measures favouring equality between men and women.
Though incomplete and insufficient, these measures are a
necessary first step towards satisfying basic human needs.
Eric Toussaint
6 December 1998
Introduction
A growing number of the planet's inhabitants have access to little

more than the strict minimum necessary for survival. They are cut
off from knowledge and excluded from social life, denying them the
most basic form of human dignity. As a result, they lack self-
confidence and self-respect, they have little confidence in and respect
for others. It is very difficult to capture such things statistically, but
it would be no exaggeration to say that one billion people live in such
a state. A state that destroys all hope, a sub-human state. An unac
ceptable state of affairs.
I am haunted by the memory of the 'street children' of Cartagena
de las Indias in Colombia. At the crack of dawn, dressed in their rags,
having spent the night sleeping on the ground 'protected' only by a
piece of cardboard, they wake to begin their search for glue to sniff. I
encountered them in 19 9 2, they were between the ages of seven and
eleven. They had no right to food, to decent clothing, to a roof over
their heads, to healthcare, to education, to affection.
These children, and thousands like them, had sunk to sniffing glue
in order to quell the pangs of hunger that they felt day and night.
What can the word 'break-fast' possibly mean to them? They have no
breakfast, no lunch, no dinner.
When I offered them something to eat from a stand at the
Cartagena docks, they could only swallow what they took with great
difficulty. Their system was used to solvent fumes, not food. These
fumes soothe and destroy them at the same time. What is their life
expectancy? 20 years? 25 years? They are known as the desechables
to many in Colombia. Desechable is what you call a product which can
be thrown out after it has been used. These desechables, these
'disposable children', are murdered by the army and police forces of
1
2/YOUR MONEY OR YOUR LIFE!
Colombia, Brazil and the Philippines in order to 'clean up' their cities.
According to the 1997 report of the UN Development Programme,
there are 200,000 street children in Brazil. Hundreds of them have
been murdered by the 'upholders of law and order' in recent years.
The International Labour Office also calculates that some 250 million
children between the ages of five and fourteen are obliged to work in
order to survive (Le Soir, 13 November 1996 and 2 7 February 1997).
A significant number of these children become bonded labourers to
repay debt (Bonnet, in Schlemmer, 1996). In the countries of the
North, networks for the sexual abuse of children are frequently
uncovered. The bodies of these children are treated as goods to be
disposed of after use (Tondeur, 1996).
No self-respecting human being can be unmoved by such injustice.
We are moved to unite with others and do what we can, to put an end
as quickly as possible to this intolerable state of affairs.
Barbarism now reigns over a significant part of human civilisation.
This does not mean that those living in such conditions do not have
the will to change their lot. They are not barbarians! Hundreds of
millions of people struggle every day, have organised themselves into
movements for a better future. This book is dedicated to them. Their
creativity and their struggles have strengthened my belief in the
possiblity for emancipation.
Karl Marx declared long ago that the emancipation of the
oppressed can be achieved only by the oppressed themselves. The
fundamental objective must be that of contributing to this emanci
pation of the oppressed, wheresoever on the planet they may be.
SOME COMMENTS ON THE WAY THE BOOK HAS BEEN

ORGANISED
This introduction contains 45 theses, each of which provides a
synthesis of a section of the book. For reasons of space, we have not
included theses on the parts of the book devoted to neo-liberal
ideology, alternatives and counter-initiatives. Readers are
encouraged to read the theses, but if this seems an onerous task you
can move on directly to Chapter 1 and return to the theses upon
completing the book. You are also encouraged to consult the glossary
whenever an expression or acronym creates the slightest doubt. The
authors and works cited in the book, or consulted during its writing,
can be found in the bibliography at the end of the book. In the body
INTRODUCTION/3
of the text itself, whenever there is a quotation or one or more authors

is referred to, we have noted in parentheses the name of the author,
the year of publication of the work and, when appropriate, the page
number. You will also find an annotated chronology at the end of the
book on the relationship between the World Bank and IMF, on the
one hand, and the Third World on the other.
All comments, suggestions and criticisms are welcome, to make
the book easier to understand, to correct oversights and to rectify
mistakes that escaped the author's attention.
THE BOOK'S THESES

1. From the 1980s onwards, we have seen a worldwide process of
massive impoverishment on a massive scale resulting from a
series of deliberate policies collectively referred to as 'neo-
liberalism'. The book backs up this statement with a critical
analysis of statistics provided by, among others, the United
Nations Development Program (UNDP), the World Bank, the
IMF and the OECD; and with observations made by the author,
who has made several study trips through Third World
countries, Eastern Europe, North America and Western Europe
(Chapter 1).
2. Globalisation (see glossary) is part and parcel of the deregulation
of capital markets implemented by the governments of the main
economic powers and by the multilateral financial institutions
that serve them (the World Bank, the IMF, the Bank of
International Settlements; see glossary) (Chapter 1).
3. Globalisation has meant a growing financialisation (see
glossary) of the economy in every country in the world, to such
a degree that some writers speak of the 'tyranny' of financial
markets that considerably reduces the margin for manoeuvre of
government policy-makers. This does not mean, however, that
we have reached the point of no return. Financial markets can
be disciplined once again if governments decide to do so.
4. Globalisation is not a purely economic process. It has been dra
matically accelerated by the policies consciously pursued by a
growing number of governments in the wake of the Reagan and
Thatcher experiences in the early 1980s. Successive
governments have deliberately diminished the possibility of
public intervention in the economy (Chapters 1 and 4).
5. What is needed is a clear change of tack, placing the satisfaction

of human needs at the heart of government policy. To this end,
restrictive measures must be taken against the holders of capital.
The oppressed can become agents for revolutionary change.
Globalisation can be avoided; those who insist it cannot should
know that they can be removed from office (Chapters 17 and 18).
6. After almost 20 years of neo-liberal policies, economic growth
has not reached the levels of the three decades that followed the
Second World War. Development has not only slowed, the new
neo-liberal framework means that inequalities have increased
both within countries and between the countries of the centre
and those of the periphery (Chapters 1-4).
7. The type of globalisation underway has meant a recentring of
investments, production and trade towards the world's three
main industrial, financial and trade poles: North America,
Western Europe and Japan (Chapter 3).
8. The Third World and the former Eastern Bloc have been mar
ginalised, except for a small number of countries (Chapter 3).
Within these two regions of the world, accounting for 85 per
cent of our total population, there has also been a growing mar-
ginalisation of a majority of the population, concentrated in the
most dispossessed zones.
9. In the countries of the North, a growing minority have been
excluded from productive activity. They survive thanks only to
the mechanisms of collective solidarity (social security systems)
that were the fruits of struggles by the oppressed through much
of this century. Otherwise, they live off scraps and the
underground economy (Chapter 1).
10. In its current form, globalisation has meant both an opening of
borders for capital flows and a closing of the borders of industri
alised countries to the populations of the Third World and
former Eastern Bloc (Chapters 8 and 12).
11. Wealth is produced by human labour and nature. A growing
proportion of the surplus of human labour is being channelled
into the financial sphere by the holders of capital. They invest a
decreasing share of this surplus in the productive sphere. This
process cannot continue indefinitely. If a change in tack is not
made under pressure from below, it could last for some time and
be the source of repeated and increasingly damaging financial
crashes (Chapters 3, 4 and 16).
INTRODUCTION/5
12. Globalisation has been accompanied by a global offensive by

Capital against the labour of workers and small producers
(Chapter 1).
13. Globalisation has accelerated the process of centralisation of
capital in the hands of a few hundred companies. The power of
multinationals has grown and usually led to the emergence of
oligopolies (see glossary) (Chapters 2 and 3). Nevertheless, care
should be taken not to exaggerate this process. There is intense
competition between multinationals, they are not able to
establish global monopolies. One indication of the limits of glo
balisation is that multinationals have not broken ties with
national states. As a general rule, they continue to rely on the
backing of the state of their country of origin.
14. Unemployment in the North is not the result of massive transfers
of production from the North to the South or to Eastern Europe
(Chapter 3). Interesting in this regard are the unequivocal
results of two comprehensive working papers published in 19 9 7
by the highly respected National Bureau of Economic Research
(NBER). The NBER based its findings on the study of a large
sample of US multinationals and their subsidiairies, over a ten-
year period from 1983 to 1992. In only a marginal number of
cases have jobs from the headquarters of companies in industri
alised countries been replaced by jobs in their Third World
subsidiairies. At the same time, there is a lot of movement
between the Third World subsidiaries themselves. The authors
of the study note that 'the rise of investment in countries like
Brazil poses a much smaller threat to employment at company
headquarters in the USA than it does to employment in the sub
sidiaries of developing countries in Asia'. Further on, the
meticulous econometricians at the NBER compare the different
subsidiaries and conclude that 'the activities of subsidiaries in
developing countries are complementary to, and do not
substitute for, the activities of subsidiaries in the developed
countries.' Therefore, even between subsidiaries, we come
across the same phenomenon; workers are placed in a situation
of competition with one another, but only when the subsidiaries
are in countries where skill and productivity levels are
comparable. Nike provides a concrete illustration of these
academic findings. Before the Asian crisis, one of its main
contractors in Indonesia awarded its workers a 10.7 per cent
increase in wages. A Nike spokesperson worried that Indonesia

might be in the process of becoming 'too expensive for the
market'. Nike takes a similar approach to Vietnam, where in
1997 it dismissed 447 of its 6,000 workers, who had had the
audacity to struggle for a wage increase that would give them
more than the monthly minimum wage of S45 (Le Monde, 24
June 1997).
15. The crisis that has rocked S outheast Asia - specifically Thailand,
Indonesia, the Philippines and Malaysia - from the summer of
1997 onwards, shows the limits of a 'development' model based
on low wages, an open economy and export-oriented growth
that puts the internal market on the back burner. This model
goes hand in hand with a permanent tendency towards the
deepening of the current account deficit. As in the case of the
Mexican crisis in 1994, this problem is rooted in a basic
imbalance. Imports grow more quickly than exports, due to a
relationship of sustained dependence that leads such countries
to import most of their industrial goods and most luxury items
for the rich. Exports grow only in proportion to such a country's
ability to maintain 'attractive' wage levels, in a context of
competition from subsidiaries in other countries. Growth can be
very strong, but it is built on a destabilising leap forward that
presupposes an ongoing distortion of the country's socio
economic structure. The total liberalisation of capital inflows
and outflows puts these countries at the mercy of possible
massive and sudden outflows of capital in search of quick profits
or a safe haven. The crisis resulting from this capital outflow
increases government and domestic companies' short-term
need for liquidity. Debt rises very quickly (Chapter 16).
16. Beginning in the sixteenth century, the development of inter
national credit has followed close on the heels of the extension
of European capitalism across the planet (Chapter 6).
17. At the end of the nineteenth century and in the early part of the
twentieth century, the use of foreign debt as a weapon for
domination and destruction played a key role in the policies of
the main capitalist powers towards second-rank powers (China
and the Ottoman Empire) that could have become capitalist
powers themselves (Chapter 6).
18. During the 1930s external debt crisis in Latin America, 14
countries in the region unilaterally decided to suspend debt
INTRODUCTION/7
payments. This helped pave the way for economic success, with
14 governments of different political hues reacting simulta
neously and implementing policies focused more than ever on
domestic markets. During the 1980s debt crisis, the United
States and the other main capitalist powers imposed country-by-
country negotiations and came out on top (Chapters 6 and 7).
19. The Third World and Eastern Bloc debt crisis is closely
intertwined with the first stages of the deregulation of financial
markets in the second half of the 1960s (Chapters 5 and 7).
2 0. The Third World grew rapidly from the second half of the 1960s
until the end of the 1970s. Private banks, the World Bank and
governments in the North (especially through export credits)
pursued an active policy of low-interest loans, or even negative-
interest loans. For countries of the South at the time, borrowing
was therefore a very interesting proposition, especially as export
earnings were on the rise thanks to an increase in the volume of
exports to the North. Governments in the North encouraged
such borrowing in order to find outlets for their goods. For their
part, private banks held a considerable volume of capital on
deposit and were on the lookout for investments, even high-risk
ones (Chapters 5, 7, 9, 10, 14 and 16).
21. The Third World debt crisis, which began in 1982, was due to
the sudden increase in interest rates decided by the US Federal
Reserve at the end of 19 7 9, the drop in export earnings (creating
a trade deficit for the South) and the suspension of bank loans
(Chapter 7).
22. The governments of the North and South, the multilateral
financial institutions (IMF, World Bank) and the big private
banks managed the Third World debt crisis in such a way as to
force Third World and Eastern European countries - which had
acquired real industrial and even financial power - into a cycle
of dependence. The Southeast Asian crisis can be expected to
produce similar results (Chapter 16). As for the least developed
countries of the Third World, which had not gone through a
cumulative experience of industrialisation, their subordination
to the main industrialised countries has merely been deepened
(Chapters 10, 11, 14, 15 and 16).
23. The international lenders, the IMF, the World Bank, the Paris
Club (which brings together the North's governments in their
capacity as lenders; see glossary) and the London Club (which
brings together the North's private banks; see glossary) dictate

their conditions to debtor countries (Chapters 10, 11, 14, 15
and 16).
24. Structural adjustment plans are an instrument for reining in the
countries of the Third World (Chapters 10, 11, 14, 15 and 16)
and Eastern Europe. The logic of these plans has been exported
to the countries of the North, whose populations have also been
subjected to austerity plans (Chapter 13).
25. The effects of these plans have in general been disastrous. In
some cases they have intensified terrible social crises, leading to
a spiral of so-called ethnic and so-called religious conflicts, and
even to the break-up of entire states. The list is already very long,
the number of deaths exponential: Somalia, former-Yugoslavia,
Algeria, Rwanda, to name a few. While structural adjustment
programmes have not been the central factor in these crises,
they have been powerful catalysts (Chapters 11 and 15).
26. The repayment of foreign and domestic debt has been a
tremendous mechanism for transferring the wealth created (or,
rather, a part of this wealth: the surplus) by the workers and
small producers of Third World countries and the former Eastern
Bloc, to domestic holders of capital (the South and Eastern
Europe's capitalists) and to the North's capitalists (Chapter 8).
This is not a mere draining of the periphery's resources by the
centre. Rather, a class analysis reveals that this transfer of
wealth is part of the aforementioned generalised offensive of
capital against labour. This offensive aims specifically to re
establish the capitalists' rate of profit - known as 'company
performance' - in the long term.
27. Debt is one mechanism among others for subordinating the
peoples and governments of the periphery to the centre,
symbolised by the Group of Seven (G7) most industrialised
nations. Other such mechanisms include: unequal trade and the
deterioration of the terms of trade for the countries of the South;
the control of world trade by multinationals and the industri
alised capitalist countries; military domination by the Northern
powers; capital flight from the South to the North; the repatria
tion of profits stemming from the operations of multinationals
from the North in the South; the 'brain drain' from South to
North; protectionist barriers put up by the North against goods
INTRODUCTION/9
from the South; restrictions on the travel and migration of

citizens from the South to the countries of the North (Chapter 8).
28. Repayment of the public debt by the governments of industri
alised countries is analogous to Third World repayment of
foreign debt. The terms are different, however, since this is
largely debt contracted within the same country. Public debt
instruments are mainly bought by holders of capital. This debt
is paid back by states for whom such payments eat up an
increasing part of tax revenues, which largely come from
working people. This is another mechanism for transferring
surplus wealth (see glossary) created by workers towards
holders of capital (Chapter 8).
29. Internal public debt in the South has grown enormously,
especially in Latin America and Asia. Repayment is another
mechanism for transferring a part of surplus wealth to holders
of capital (Chapter 14).
3 0. The World B ank and the IMF are controlled by the main powers
of the capitalist centre. These institutions intervene daily in the
political life of debtor countries to decide the main orientation of
policies pursued by governments of the South and of Eastern
Europe (Chapters 9, 11, 12, 14, 15 and 16).
31. These institutions have a very powerful weapon for blackmail.
If the governments in question do not make payments on their
debts in line with the conditions dictated by the IMF, the World
Bank and the Paris and London Clubs, their line of credit will be
cut off. In such cases, there is a serious threat that all sources of
foreign financing will be closed off (Chapters 11,12 and 16).
32. Much of the debt in question is illegitimate (Chapter 15).
3 3. The peoples of the Third World amply repaid contracted debt
before the rise in interest rates at the beginning of the 1980s, for
which they are in no way responsible (Chapters 7, 8,14 and 15).
34. Yet the Third World is four times more indebted than it was at
the time of the 1982 crisis, for it had to borrow anew to pay the
higher interest rates (Chapter 8).
35. Real income from Third World exports has dropped even though
total volume has actually increased. The terms of trade (see
glossary) between the South and North have deteriorated for
the South (Chapters 7, 8,12, 14 and 16).
36. The biggest Third World debtors in the 1980s were Mexico,
Brazil and Argentina. The very character of their foreign debt
was transformed to the benefit of the North's private banks, with

the complicity of the governments in question. This was done
through the joint intervention of US government officials (the
Baker and Brady Plans), the cartel of private lender banks (the
London Club), the IMF and the World Bank. The banks signifi
cantly reduced the burden of these debts in their portfolios. They
protected themselves from bad debts by taking advantage of
various tax exemptions and cuts granted to them by most
governments of the North for the bad part of their portfolios.
Since the beginning of the 1990s, the North's private banks only
make short-term and high-interest loans, when they loan at all.
Indeed, much like other players in the financial markets
(pension funds, mutual funds, insurance companies, and so on),
they primarily purchase bonds and other paper issued by some
of the biggest debtor countries (Mexico, Brazil, Argentina and
Turkey) and guaranteed by the governments in question. This
phenomenon has been labelled the 'securitisation' of debt (see
glossary). As a result, private financial players can part with
debt paper as soon as risk appears, or when they feel their
investment can yield more in another sector or in another
country altogether (Chapters 5, 14 and 16). In the wake of the
East and Southeast Asian crisis, the big private financiers and
the IMF have obliged the governments in question to nationalise
a significant proportion of the debts of their private companies
and to issue government bonds on international financial
markets. They have been forced to do this in order to ensure the
repayment of emergency loans made by the major credit insti
tutions under the auspices of the IMF. Broadly speaking, the
Asian crisis is being handled in the same way as the 1980s Latin
American debt crisis. The process of 'securitisation' has been
given a major boost as a result. The adjustment now being
imposed on the peoples and economies of East and Southeast
Asia is just as brutal as what was done in Latin America, if not
more so. If you look specifically at the pace at which privatisa
tion is meant to take place, at the huge leap in unemployment
and at the partial loss of national sovereignty, it becomes clear
that the 'adjustment' is taking place much more swiftly than at
the beginning of the 1980s in Latin America.
3 7. The net result is that debtor countries are much more vulnerable
than before; their debt can be easily sold off. Overnight, these
INTRODUCTION/11
countries might find they are unable to raise the huge sums
required for repaying their debts and ensuring their balance of
payments. The Mexican crisis of December 1994 and the East
and Southeast Asian crises of 1997 and 1998 are proof of this.
38. The growing instability of the global financial system is
heightened by the ease with which market players can acquire
debt paper and currencies and dispose of them when they feel the
need. The 199 7 financial crisis in Southeast Asia subjected the
four 'dragon' economies (Thailand, Malaysia, Philippines and
Indonesia) to attacks from market players that speculated
against their currencies, creating a domino effect that subse
quently hit Hong Kong, South Korea and Brazil. This is further
proof of the systemic instability of the current order. As during
the 1994 Mexican crisis, IMF intervention was required to limit
the damage. But the IMF is not Santa Claus. It provides loans -
with a risk premium on its interest rates - that increase the
burden of foreign debt in the targeted countries. The IMF clearly
comes out on top in such operations.
3 9. There has been an overall increase of financial flows into a few
Third World countries since the beginning of the 1990s. Into
China, whose foreign debt rose by 12 3.2 per cent between 1990
and 1995. Into the four 'dragons' of S outheast Asia, whose debt
rose by 80 per cent between 1990 and 1995. Into the four
'tigers' (South Korea, Taiwan, Hong Kong and Singapore),
whose debt rose by 114.6 per cent between 1990 and 1995.
Finally, into Mexico and Brazil. In all these countries, a new debt
cycle has begun, whose features have already been described.
Until the summer of 1997, the four 'dragons' and South Korea
had no problems meeting their foreign debt obligations. The
crisis that hit during the second half of the year plunged them
into an entirely new situation. Debt servicing has become very
onerous, indeed almost unbearable. China might experience
similar difficulties in the near future (Chapters 5, 14 and 16).
40. There has also been a change in the form of debt in the highly
indebted poorest countries (HIPCs). Private banks are no longer
interested in such countries. The main lenders are governments
of the North (bilateral debt) and international financial institu
tions (the IMF, the World Bank and its regional associates: the
African Development Bank, the Asian Development Bank and
the Inter-American Bank for Development). Most debt payments
from the poorest and most indebted countries go to the interna

tional financial institutions, which take in more than they lend.
Such countries devote an increasing share of the Public
Development Aid they receive to paying off their multilateral
debt with the IMF and World Bank. To add insult to injury, a
portion of the loans made by the International Development
Association (IDA, one of the divisions of the World Bank; see
glossary) is immediately used to pay back the International Bank
for Reconstruction and Development (IBRD, the main division of
the World Bank; see glossary) and the IMF. The money from one
till at the World Bank - ostensibly earmarked to improve the lot
of the people in debtor countries -comes back to the World Bank
via another till through foreign debt repayment. As a general
rule, these sums never actually leave Washington, where the
IDA and IBRD (World Bank) and IMF headquarters are located
(Chapter 14). To top it off, Public Development Aid has fallen
precipitously as a result of government spending cuts in the
North.
4 1 . In the face of criticisms from sections of the social movements in
the North and South, the World Bank has decided to improve its
public image by providing loans for healthcare, education and
water treatment projects. Increasingly, these loans go to local
governments and non-governmental organisations (NGOs). In
addition, in 1996 the World Bank publicised a programme for
easing the debt burden of the HIPCs. This initiative received
enormous support in political and media circles. Its goal is to
make debt servicing more 'sustainable' for 41 countries
(Chapter 14). According to the UNDP, the World Bank and IMF
initiative (the HIPC initiative) involves a smaller investment
than it cost to build Euro Disney on the outskirts of Paris. The
'initiative' has been greeted with open arms by a number of
NGOs in the North and South, by the governments of the
concerned countries and by the media. However, it offers no real
solution to the problems of debt burden and the drastic cuts
being made in social spending in the debtor countries. The two
real objectives of the IMF and World Bank are, first, to ensure
that debtors can maintain regular debt payments and, second,
to keep the countries in question in their clutches.
INTRODUCTION/13
42. In its current form, globalisation is hastening environmental

decline, in spite of the decisions taken at the Rio World Summit
on the environment in 1992 (Chapters 8 and 10).
4 3. From the start, the foundations of liberal ideology have been sys
tematically contradicted by the facts. But the economic and
social crisis of the 1970s and 1980s has given this ideology a
new lease on life, thanks to the global offensive of capital against
labour (Chapter 13). That being said, is the neo-liberal machine
not now running out of steam?
44. There is an urgent need to formulate alternatives. The starting
point for such alternatives must be that of satisfying the priority
human needs of the vast majority of the world's population
(Chapter 17).
45. For these alternatives to begin to work in practice, the different
social movements have to come out of their respective corners.
We have to begin the arduous task of building a new kind of
internationalism and of rethinking a project for emancipation
(Chapter 18).
1
Globalisation and the

Neo-Liberal Offensive
THE DETERIORATION IN LIVING CONDITIONS:

EMPLOYMENT AND WAGES
During the 19 70s, the world economy began a long wave of slow
growth. This stood in stark contrast to the nearly 30 years of rapid
postwar economic growth that had come immediately before
(Mandel, 1972, 1978, 1982; Husson, 1996; Montes, 1996; Went,
1996).
During the period 1960-73, before the beginning of the long wave
of slow growth, the average annual rate of growth in the European
Union (known as the Common Market at the time) was 4.7 per cent,
in the United States 3.9 per cent and in Japan 9.6 per cent. Between
1982 and 1994, the respective growth rates were 2.1 per cent, 2.4
percent and 3.6 per cent (Montes, 1996).
The crisis that began in Southeast Asia will lead to even lower
growth rates in 1998. At the very best, the Japanese and South
Korean economies will grow by 1 per cent. The head of the US Federal
Reserve, Alan Greenspan, wondered if 'deflation might now be a
possibility' (Le Monde, 12 January 1998 and International Herald
Tribune, 9 January 1998). If this possibility were to become fact, there
could well be a simultaneous fall in prices, wages, household
consumption and industrial production. A new round of massive
dismissals in industry and services could take place the world over.
Even if such a sequence of events does not occur, it seems highly
unlikely that high levels of growth will be reached in the short term.
14
GLOBALISATION AND THE NEO-LIBERAL OFFENSIVE/15
Since the beginning of the crisis in the 19 70s, the world has
experienced a series of major changes that have progressively
eroded living conditions for a majority of the planet's inhabitants.
Mass unemployment has settled in for the long haul, the unequal
distribution of wealth has intensified and working-class wages have
fallen sharply.
MASS UNEMPLOYMENT
The Industrialised Capitalist Countries
Looking only at those countries that already belonged to the
Organisation for Economic Cooperation and Development (OECD; see
glossary) in 1993, in 1996 there were officially 3 7 million
unemployed. This is three times the figure in the early 1970s, in a
population with a near-zero growth rate. The average unemploy
ment rate in these countries has more than doubled, from 3.2 per
cent in 1960-73 to 7.3 per cent in 1980-94.
The number of unemployed in these countries rose by 10 million
between 1990 and 1994. In fact, the 3 7 million figure actually
underestimates the true situation because it does not account for a
number of different categories of the unemployed. The number of
unemployed in 1998 in OECD countries (taking into account only
those countries that belonged to the OECD in 1993) is actually
somewhere between 60 and 70 million.
The deregulation of the labour market is merely a mechanism for
shifting from 'declared' to 'disguised' forms of unemployment
through the creation of poorly paid and unproductive jobs. In 198 7,
according to the United Nations Conference on Trade and
Development (UNCTAD; see glossary), more than 6 million people
working in the service sector in the USA and more than 700,000 in
the United Kingdom belonged to this 'disguised' category of unem
ployment. While US and Japanese officials boast about their
successful fight against unemployment, the facts tell a different story.
UNCTAD estimates that in 1987 - the most recent year for which
reliable figures for comparison are available - the real unemploy
ment rate was 11.5 per cent in the US, more than 13.3 per cent in
Japan and more than 13.2 per cent in the UK (UNCTAD ,1995).
According to the 19 March 1993 Wall Street Journal, the economic
restructuring currently underway 'could lead to the elimination of
some 2 5 million ] obs in the United States, that is between one and two
million jobs per year for the next 15 to 20 years'. The same issue goes
on to quote the head of a consulting firm: 'We know how to explain
job loss but are unable to see where jobs will be created.'
In the Former Eastern Bloc Countries

Unemployment has skyrocketed since the beginning of the 1990s.
World Bank officials prescribe a necessary unemployment rate of 20
per cent for these countries. Indeed, at an April 1992 seminar held
in Turin on the Eastern European adjustment, one of the two World
Bank representatives presented the following hypothesis: '[perhaps
we should] judge our success in achieving adjustments in Central
and Eastern Europe by the extent to which unemployment rises
rather than by the extent to which we [are] able to keep unemploy
ment down' (George and Sabelli, 1994).
In late 1994-early 1995 the number of officially unemployed in
the Russian Federation was 1.69 million, but the real situation is
actually much worse. Based on different press and trade union
sources, Jean-Marie Chauvier has calculated that in early 1995
almost 12 million workers were unemployed, or 15.4 per cent of the
active population (Chauvier, 1995, unpublished). The World Bank
representatives' fondest wishes may yet be fulfilled!
In the Third World

Official figures systematically understate the reality of unemploy
ment. Our calculations reveal that somewhere in the vicinity of 1
billion j obs would have to be created to ensure properly paid work for
all. The implementation of structural adjustment programmes has
led to a steep increase in unemployment for a number of reasons.
First, there have been mass dismissals in the public sector. Second,
the domestic market has been sharply cut back, leading to
bankruptcy for many companies. In 1995 in Mexico, for example,
following the December 1994 crisis, 850,000 jobs were eliminated
(Toussaint, 1996c). Third, export-oriented policies in agriculture
have hit subsistence farming hard, accelerating the rural exodus of
huge numbers of the unemployed to the cities.
Millions of jobs have been lost as a result of the Southeast Asian
crisis that began in 19 9 7. It is estimated that, in 19 9 8, 3 million j obs
have been lost in Indonesia, 1.7 million in Thailand and 1 million in

Malaysia.
GROWING INEQUALITY IN THE DISTRIBUTION OF

WEALTH AND A DROP IN WORKING-CLASS WAGES
The unequal distribution of wealth has been greatly accentuated.
There has been a pronounced drop in revenue for those who are
dependent on waged work, for those who work the land and for those
condemned to unemployment. Those who live off revenues from
capital, on the other hand, amass an ever growing share of new
wealth. In the 30 years from 1960 to 1990, there was a doubling in
the ratio of inequality in the way wealth was shared out between the
richest and poorest sectors of the world's population. The wealthiest
20 per cent of the planet's inhabitants earn more than 150 times the
income of the poorest 20 percent (UNDP, 1992).
According to the United Nations Development Programme, 3.5
billion people taken together hold only 5.6 per cent of total global
wealth. The richest 358 people on the planet have an accumulated
fortune greater than the total annual wages of 45 per cent of the
world's poorest inhabitants (2.3 billion people) taken together
(UNDP, 1996). 'This is a comparison between assets and income, but
if a comparison of assets were possible, it would be even more striking.
Of course, the assets of the very poor are usually worth much less
than their annual income' (UNDP, 1996).
In the Third World

According to the World Bank, 1.3 billion people live on less than SI
per day, which means they live below the line of absolute poverty.
The World Bank has arbitrarily set SI as the threshold for absolute
poverty in all Third World countries outside Latin America, where it
is set at $2. Yet what would be the statistical impact of bringing this
measure more into line with the actual cost of living (or, rather, of
survival in this case)? If it were increased to S3 or S4 per day, for
example, it would provide a more accurate gauge of the real situation
of poverty and deprivation experienced by the majority of the
population in Third World countries.
The World Bank, however, has elected to obscure this harsh reality.
With the increase in the price of staples and basic services in Third
World countries, S3 or even S4 per day are not enough to find even
adequate food and shelter - never mind for education, health care
and culture. By setting the threshold of absolute poverty at SI per
day, the World Bank has consciously chosen to underestimate the
number of absolute poor. The World Bank argues that poverty is a
marginal phenomenon in the Third World, while in fact the ma] ority
of the population in most Third World countries live below the
threshold of absolute poverty. In Brazil - whose population exceeds
160 million - the prices of basic necessities in 19 9 7 were the same as
in France and Belgium, even though the legal minimum wage was
about SI00 per month. The World Bank estimates that 35 million
Brazilians, or a little more than 20 per cent of the population, live
below the absolute poverty threshold. In point of fact, according to
our calculations, the actual figure is 60 per cent of Brazilians, three
times higher than World Bank estimates. Treating poverty as a
marginal phenomenon is part of an attempt to deny the ruinous
failure of IMF and World Bank-imposed structural adjustment
policies. The egalitarian redistribution of wealth is an inescapable
measure for achieving genuine development. Falsifying statistics on
poverty is one way to deny the urgent need for measures going in
such a direction.
In Eastern European Countries

The UNDP and World Bank have set the poverty threshold at S4 per
day per person. According to the UNDP, 90 per cent of Bulgarians
were living below this threshold in 1997 (Le Monde, 5 March 1997).
In the Russian Federation, workers' real wages were estimated to
beat 70 per cent of their 1991 levels. The ratio of inequality between
the 15 million 'wealthiest' and the 15 million 'poorest' Russians was
9.05 in 1993; one year later it had risen to 16! Official sources say 23
per cent of the Russian population do not have enough to buy the
basic basket of groceries, worth some S33.75 dollars (135,000
roubles) per month. This is hardly surprising since the official
minimum wage is S5.13 (20,500 roubles) per month. In other
words, a person would have to make six times the minimum monthly
wage in order to afford the basic basket of goods.
Trade unions say the minimum required every month is actually

higher than the official figure. They say S42 (168,000 roubles) per
month are required to 'reproduce the labour force'.
In January 1995, teachers made on average S54 (216,900
roubles) per month, and workers in heavy industry S95 (3 78,600
roubles). Workers with dependants barely manage to 'reproduce the
labour force'.
The business paper Moscow Times estimates the cost of a basic
basket of goods for the nouveaux riches at S625 (2.5 million roubles)
per month. It calculates the cost of a higher-quality basket of goods
to be S2.000 (8 million roubles); this is enough to live comfortably
'without excess'. Yet even this amount of money is not enough to rent
an apartment in central Moscow, where rents vary between S1,000
and S2.000 per month. Nor is it enough to dine in the city's chic
restaurants and fancy nightclubs (our thanks to Le Monde
Diplomatique journalist Jean-Marie Chauvier for these figures).
Plunged into poverty by IMF-led structural adjustment, many
republics of the former Soviet Bloc are now classified as developing
countries by the World Bank, along with 'low' and 'middle-income'
Third World countries (see World Bank annual reports since 1993).
The republics of Central Asia now stand shoulder-to-shoulder with
Syria, Jordan and Tunisia. This change in classification is not merely
the result of a change in the way revenue statistics are handled.
Rather, it reflects the post-Cold War situation, in which market-
oriented reforms aim at the 'Third-Worldisation' of Eastern Europe
and the former USSR and at concentrating wealth and well-being in
a small number of 'developed' market economies.
In the Highly Industrialised Capitalist Countries

There has been an undeniable decline in wages for the majority of
people in these countries, too. US figures are quite striking in this
respect. While household income rose across the board between
1950 and 1978, this tendency was radically rolled back between
1978 and 1993. The great majority of Americans have seen their
wages decline, while the wealthiest social strata continue to
accumulate new wealth (see Table 1.1).
Under the Reagan administration, the wealthiest families (1 per
cent of all households) saw their average annual income rise by
nearly 50 per cent. According to the 18 April 1995 edition of the
International Herald Tribune, 'The wealthiest one per cent of American

households hold almost 40 per cent of the country's total wealth.' For
an analysis of inequality in France, Alain Bihr and Roland
Pfefferkorn's 1995 work Dechiffrer les Inegalites is extremely helpful.
Table 1.1 Evolution of the real income of US households
Between 1950 and 1978: %

the poorest 20% +140
the 2nd 20% +98
the 3rd 20% +105
the 4th 20% +110
the richest 20% +99
Between 1978 and 1993:

the poorest 20% -19
the 2nd 20% -8
the 3rd 20% -4
the 4th 20% +5
the richest 20% +18
Source: US News and World Report, 6 February 1995.
Between 1977 and 1992, the productivity of US workers rose by

30 per cent while real wages fell 13 percent (Decornoy, 1995).
In the European Union, the share of wages in Gross Domestic
Product (GDP) fell by nearly 10 per cent between 1981 and 1994
while capital gains rose. EU real wages had risen in the 1970s at an
annual rate of 4.5 per cent, in step with increases in productivity. In
the 1980s, real wages rose 0.9 per cent annually. Between 1991 and
1994, they rose 0.7 per cent annually, falling behind increases in
productivity (Montes, 1996).
THE UNDP VIEW ON DECLINING LIVING CONDITIONS IN

THE WORLD
The following are excerpts from the UNDP's 199 7 Report on Human
Development in the World (published in French in June 1997). All
references are to the UNDP report, unless otherwise stated.
The 199 7 UNDP report seeks to measure the reality of human
development on the backdrop of extreme poverty.
The Third World and Eastern Europe

Over the last 15 to 20 years, more than a hundred countries in the
Third World or the former Eastern Bloc have experienced a bigger
and more lasting collapse in growth and drop in the standard of
living than what industrialised countries went through during the
deep crisis of the 1930s, (p. 7)
In the 11 October 1996 edition of Le Monde, UNDP director James

Gustave Speth said, 'In fact, in more than a hundred countries per
capita revenue is lower today than it was 15 years ago. It is quite clear
that about 1.6 billion people are worse off than they were at the
beginning of the 1980s.' It is worth noting, of course, that the
beginning of the 1980s coincides with the generalisation of neo-
liberal policies across the globe.
The Third World

In the Third World, 1.3 billion people survive on less than S1 per day.
Between 1987 and 1993, 100 million more people joined the ranks
of those earning less than SI a day (p. 4).
160 million children suffer from moderate or serious malnutrition.
110 million children do not attend primary school, 275 million do
not attend secondary school (p. 33).
There are 1 billion illiterate people in the world, of whom 840
million are adults in the Third World. Of these, 538 million, or nearly
two-thirds, are women (p. 26).
840 million people go hungry every day or experience recurrent
food insecurity (p. 5).
One billion are not connected to clean water supplies (p. 5).
One third of people in the least developed countries do not reach the
age of 40 (p. 5).
2.5 billion people do not have access to proper sanitation facilities
(p. 32).
Eastern Europe
With the restoration of capitalism in the countries of the former
Eastern Bloc, the average rate of absolute poverty in the region -
based on a daily wage of S4 (p. 2 ) - h a s risen from 4 per cent in 1988
to 32 per cent in 1994 - an eight-fold increase. The total number of

people living in poverty went from 14 million to 119 million during
this same period (p. 3 7). Of these 119 million, 60 million live in
Russia (p. 3 7).
In Ukraine, average daily calorie intake plummeted from 3,500
calories in 1989 to 2,800 in 1994. Children are the hardest hit. In
Russia, there are 30 times more new cases of diphtheria among
children- 500 cases in 1989, 15,000 in 1993 (p. 31).
In Moscow, an estimated 60,000 children live on the streets
(p. 32).
In Bulgaria, the number of reported crimes has more than
quadrupled, totalling 223,000 in 1994 as compared to an annual
average of 50,000 in the 1980s (p. 34).
The Highly Industrialised Countries

In the industrialised countries, more than 100 million people live
below the threshold of absolute poverty - defined as the equivalent of
50 per cent of a country's mean individual disposable income (p. 2).
In 1971, there were 25 million poor in the US, according to the
then president of the World Bank, Robert McNamara (McNamara,
1973, p. 110). By 1985, there were 11.4 million more-36.4 million
poor, about 14 per cent of the total population (Poverty in the United
States: 1995, Department of Commerce, Bureau of Census, 1996).
In the US, more than 47 million people do not have health
insurance (p. 31).
In London, there are 400,000 homeless, according to official
figures (p. 32).
In the heavily industrialised countries, more than 5 million people
are homeless (p. 27).
More than 130,000 rapes are reported every year, this being only
the tip of the iceberg (p. 2 7).
In the US, 2 million people are victims of violent crimes every year
(p. 34).
An Innovation of the UNDP: The Creation of the Human

Poverty Index (HPI)
The team that worked on the 1997 edition of the UNDP report sought
to measure poverty in the Third World using criteria other than
income levels. It formulated a human poverty Index that looks at

more than just monetary criteria.
The criteria used are:
the percentage of people at risk of death before the age of 4 0;

the adult Illiteracy rate;
services made available by all sectors of the economy. To
determine the quality of these services, three factors are
examined: the proportion of people lacking access to clean
water supplies; those lacking access to healthcare services; the
proportion of children under the age of five suffering from mal
nutrition (p. 15).
Once formulated, the UNDP applied these criteria to a list of 78

Third World countries with reliable data. In spite of obvious
monetary poverty, some countries are able to cushion the effects of
this poverty by guaranteeing access to a number of services. 'At the
head of the list are Trinidad and Tobago, Cuba, Chile, Singapore and
Costa Rica, In that order. These countries have managed to reduce
human poverty to an HPI of less than 10 per cent. In other words,
thanks to these countries' specific efforts, less than 10 per cent of
their population suffers from human poverty' (p. 22). According to
this system of classification, Cuba - In spite of the US blockade - comes
second, rising 39 points from Its standing In a list of Third World
countries evaluated according to another UNDP Index, the Human
Development Index (HDI).
THE FEMINIZATION OF POVERTY AND THE OPPRESSION

OF WOMEN
The femlnlsatlon of poverty becomes apparent when one sees the
UNDP estimate that women account for 70 per cent of the 1.3 billion
people recognised as living below the threshold of absolute poverty.
Workforce participation Is Indeed a key factor, but women also
have to bear the burden of the household's and family's well-being.
Structural adjustment programmes and their array of social spending
cuts hit women harder than men. Women struggle dally to make up
for the difference between decreasing Incomes and Increasing prices.
Paying for medicine, food and school Is now a virtual Impossibility for
a large number of women and their children. Where opportunities
arise in difficult economic circumstances, patriarchal reflexes kick in

to restrict access by girls, young women and women to rights that are
essential for development and emancipation. Boys attend school
while girls help with the housework or go out to work to provide an
income supplement for the family. In India, 61 per cent of girls (above
the age of seven) and women are illiterate (UNDP, 1997, p. 55). In
Nepal, twice as many girls as boys go blind due to malnourishment.
In the Third World in general, more than half of all women suffer
from anaemia; in South Asia, anaemia affects 78 per cent of all
women (UNDP, 1997,p. 31). In the Zimbabwean capital Harare, the
number of women that die during childbirth doubled in the two years
following the implementation of a structural ad] ustment programme
which involved a 33 per cent cut in healthcare spending (UNDP,
1995, p. 44).
The capitalist system's tendency to reorganise the world economy
in its own interest has had direct repercussions on relations between
the sexes. An analysis of the methods used reveals that, on the one
hand, the capitalist system takes full advantage of a pre-existing form
of oppression: patriarchy. At the same time, it accentuates the
features of this oppression. Indeed, women's oppression is a weapon
that capitalists use to control the workforce taken as a whole, and
even to justify their policies by shifting the responsibility of social
welfare from the state and collective institutions to the 'privacy' of the
family.
Take the example of dowry in India. Many think that forms of
gender-based violence - dowry deaths and the abortion of female
foetuses - are somehow the 'remnants' of a 'backward' society. Yet
studies by Indian feminists prove that, on the contrary, it was the
development of capitalism in India that led to an increase and inten
sification of these forms of violence (Shah and Srinivasan, in Duggan
andDashner, 1994).
Based on current wage rates, the invisible non-monetary contri
bution of women is worth S11,000 billion. When one considers that
the total value of annual world production is S23.000 billion, it is
easy to understand women's contribution to humankind taken as a
whole (UNDP, 1995, p. 6). To top it off, this figure does not account
for persistent injustice in women's wage rates where their work is
indeed paid for.
Even considering those places where significant progress has been
made in this field, not a single country pays women at the same rate
paid to men. Some industrialised countries have even fallen way back
in the human development classification. Canada, for example,
dropped from first to ninth place; Luxembourg fell 12 places; Holland
16; Spain 26 (UNDP, 1995). Predominantly female professions are
undervalued (healthcare, teaching). As far as the social safety net is
concerned (unemployment insurance, for example), women were
the first to be excluded by austerity packages as 'live-ins' and long-
term unemployed. They are herded into jobs where wages are much
lower, such as in free market zones. In Mexico's maquiladoras, for
example, women's wages have plunged from 80 per cent to only 5 7
per cent of those of male workers. The fact that women work for a
pittance in such zones and in the informal sector is glorified by free
marketeers, starry-eyed over the absence of 'paralysing' state
regulations.
Official studies in the Chinese countryside carried out in 19 8 8 and
1989 reveal that women earn 20 per cent less than men. Private
firms in the cities pay women on average 5 6 per cent of a man's wage.
Women's right to work is impeded by a multitude of government
measures. Women, of course, have the 'option' of part-time work,
which could be anything from half-time down to a 'zero-hour'
contract in which the worker is at the employer's beck and call to
work from zero up to any number of hours. And this, in spite of the
fact that every opinion poll has shown that a majority of women
workers would like to work full-time. Cutbacks in funding for services
such as nurseries and daycare centres, and the privatisation of other
services like retirement homes dramatically increase the number of
obstacles for women that want to work full-time. 'Equality at work'
has been applied negatively to bring back night-shifts for women.
This is unacceptable as a point of principle and extremely difficult for
women in any case given their family responsibilities.
In the Third World, the World Bank - with the help of a number of
NGOs - finances a host of women's organisations and cooperatives.
It has decided all of a sudden that women are the key to development.
Although the World Bank is clearly trying to boost its public image,
it is only laying the groundwork for future misfortune. Take the
example of women-run tomato cooperatives in Senegal. They worked
very well until the day an Italian multinational decided to take over
the Senegalese market, crushing the defenceless cooperatives with
their competition and lower prices. The NGO concerned packed up
shop once 'its' project was 'complete', leaving the locals to deal with
the nagging question of the unpaid World Bank loan.
Another effect of the patriarchal system is that poverty goes hand-
in-hand with violence. Before birth, female foetuses are aborted;
during childhood, there is sexual abuse; domestic violence after
marriage. An estimated 4 million women are victims of domestic
violence in Germany. In Canada, New Zealand and the United
Kingdom, studies show that one women in six is raped during her
lifetime. In 19 9 7 in Spain, more than 60 women were killed by their
partners. Suicide among women is higher than among men. Violence
against women erupts in times of broader conflict; of this, events in
the former Yugoslavia and in Algeria provide ample evidence.
Violence is an integral part of women's lives.
'While women account for half of the electorate, only 13 per cent
of seats in parliament are occupied by women; and only seven per
cent of government posts' (UNDP, 1997).
This handful of statistics, though far from exhaustive, demon
strates more than ever the need for a specific struggle by women for
their emancipation. Let no one reduce this to a matter of 'biology'.
Rather, it is a matter of wide-ranging choices a society must make to
ensure development, the only way to create genuine personal choice
in a series of key areas. Women in the North have better lives than
their sisters in the South thanks to the underlying fabric of social
gains from previous decades. Women must take on the ideological,
political and economic system that erodes these gains or prevents
them from being adopted.
THE GLOBALISATION OF CAPITAL: THE GROWTH OF

MULTINATIONALS
As part of the long wave of slow growth that began in the 1970s, a
number of significant changes have occurred in the way the world
economy is structured. Many economists have called this 'globalisa
tion' (see glossary).
Multinational corporations have played a central role in this
process. They have increased their presence both in production and
trade (Adda, 1996; UNCTAD, 1994, 1997; Andreff, 1992 and
1996).
Today these corporations control 70 per cent of international trade
and 75 per cent of foreign direct investment. An estimated one third
of global trade In goods and services is made up of intra-firm trade

between multinationals and their subsidiaries. According to
UNCTAD's 1994 report, 3 7,000 multinationals (and their 200,000
subsidiaries) employed 73 million workers directly and about the
same number indirectly through their subcontractors. Their assets
were worth about S5.000 billion. More importantly, according to
the same study, the 100 biggest (non-bank) multinationals hold
S3,400 billion in assets, or nearly one-sixth of the estimated value of
all existing assets in the world. Two-thirds of this wealth is held in the
Table 1.2 Turnover or GNP in Sbillions (1992)
General Motors 132.4

Indonesia 126.4
Denmark 123.5
Exxon 115.7
Norway 112.9
South Africa 103.6
Ford 100.1
Turkey 99.7
Royal Dutch/Shell 96.6
Toyota 81.3
Portugal 79.5
IBM 64.5
Venezuela 61.1
Malaysia 57.6
Unilever 43.7
Pakistan 41.9
Nestle 38.4
Sony 34.4
Egypt 33.5
Nigeria 29.6
Five biggest MNCs 526.1

Middle East and Africa 454.5
South Asia 297.4
Sub-Saharan Africa 269.9
Source: Institut de Recherche des Nations unies pour le Developpement

social, States of Disarray, Geneva, 1995.
multinationals' small number of home countries. The 200 biggest

multinationals have a total turnover equivalent to more than a
quarter of the sum of the entire world's gross domestic products. The
main multinationals have a turnover that is higher than the GDP of
a large number of countries.
Table 1.2 compares the turnover of the biggest multinationals with
the GNP of a few countries and regions in the world.
THE POLITICAL FACTOR

Globalisation cannot be understood merely by looking at the increase
in the weight of multinationals. The political factor has also been
essential. Without the active political intervention of the Reagan and
Thatcher governments, and then of all the governments that chose
to follow their lead, multinational corporations would not have been
able so swiftly and so radically to do away with the restrictions
hitherto preventing them from acting as they pleased, from exploiting
economic, human and natural resources as they saw fit (Chesnais,
1996).
This political intervention was carried out with four key objectives
in mind. First, the liberalisation of international capital flows and the
opening of domestic markets to international competition. Second,
the privatisation of state-owned companies and public services.
Third, the deregulation of the labour market and the dismantling of
the social safety net. Fourth, maintaining and improving competi
tiveness through the pursuit and achievement of the first three
objectives.
The line of thinking that justified this political intervention has
been summed up by the Lisbon Group:
No matter the targeted sector (expanding or in decline, hi-tech or

not), or the size, strength and level of development of the country
in question, the argument has always been the same. Privatisation
is urgent, they say, in order to increase the competitiveness of an
industrial sector, a company or an economy in the throes of glo
balisation. In addition, all markets must be liberalised in order for
local industry and companies operating on a global scale to be
competitive on international markets. Finally, industrial sectors
and markets have to be deregulated in order to accelerate the pri
vatisation process, and in the process increase the competitiveness
of local companies and the national (or regional) economy as a

whole.
Since these pressures are applied in most fields and, for the first
time, in almost every single country, everyone is trying to out-
compete everyone else and to be competitive the world over. In
such conditions, the near-universal ascendancy of competitive
capitalism as a normative system should not come as a surprise.
The bigger they are, however, the harder they fall. (Petrella, 1995)
Past Wage Concessions have not Created the Promised

Jobs
The dominant discourse sought to obscure another battle that still
rages today. The holders of capital have launched repeated attacks to
lower wages (and employer payroll taxes) and create more flexible
work schedules - all in order to intensify the rate of utilisation of the
productive apparatus (machines).
In spite of worker resistance, employer attacks have scored
significant victories. Mass unemployment has been created and used
by the dominant classes to roll back social gains in all fields.
The results speak for themselves. The gross profits of the big
industrial houses have increased over the last few years in almost all
the big capitalist countries, thanks to the combined effects of unem
ployment, the downward pressure on wage costs and the
introduction of new methods of production (Serfati, 1996). While it
is not easy to measure the rate of profit, we can take note of the
increase in the rate of capital profitability (to use OECD terminology)
on the basis of studies by official bodies. According to the OECD, the
rate of capital profitability in the private productive sector rose from
13 per cent in 1980 to 15.9 per cent in 1994. According to European
Union (EU) estimates, based on a profitability index where 100 is the
rate registered in the period 1961-73, profitability dropped to 71 in
the period 1974-85, and was back up to 88 in 1994 (Montes, 1996,
p. 142). According to the April 1997 edition oiFortune magazine, the
500 biggest companies in the world are all smiles; their 1996 profits
were up 2 3 per cent from 19 9 5 even though their turnover had only
increased by 8.3 per cent.
The official discourse justified 'today's wage concessions' on the
basis of the 'profits, jobs and prosperity' that were promised for
'tomorrow'. The profits came, the rest did not. The conditions for prof-
itability have been restored, but this growth will remain fragile for a
long time to come; and there is mass unemployment (Husson, 1996).
The weakness of effective demand - due to the reduction of both the
buying power of the majority of the world's population and of
government social spending - is one of the main reasons for the world
economy's persistently sluggish rate of growth (Toussaint, 1995b).
2
The Concentration of
Capital
A WAVE OF CORPORATE MERGERS AND TAKEOVERS

AND THE CONCENTRATION OF CAPITAL
Since the second half of the 1980s, there has been a large number of
corporate mergers and takeovers the world over. This wave has been
helped along by the neo-llberal policies described in Chapter 1. These
policies have meant privatisation and the elimination of government
controls on the acquisition of domestic firms by foreign capital. This
wave of mergers/takeovers can best be gauged by the rapid increase
in foreign direct investment (FDI) (see glossary).
Between 1985 and 1991, total FDI rose three times more quickly
than global trade. The vast majority of these investments have gone
into corporation takeovers and mergers. They have only been
responsible for a very small increase in productive capacity; usually
they involve property changing hands, leading to greater concen
tration of capital on an international level (Chesnais, 1994).
Table 2.1 shows that, in terms of value, foreign investment in the
United States has gone much more into buying up existing
companies than into creating new ones.
A study carried out by the US Federal Reserve has revealed that
more than a third of companies acquired between 1984 and 1989
were resold during the same period.
Table 2.2 shows that in a great number of economic sectors, a
handful of multinational corporations control the large part of
production (called a situation of oligopoly; see glossary). Though
oligopolies existed before, they have become much more common
since the 1980s.
31
Table 2.1 Company acquisition and creation by foreign capital in the

US
1983 1984 1985 1986 1987 1988 1989 1990 1991
Acquisition
by value (S billions) 5 12 20 31 34 65 60 55 17
bynumber 229 315 390 555 543 869 837 839 501
Creation
by value (S billions) 3 3 3 8 6 8 9 n/a n/a
bynumber 476 449 363 485 435 555 456 n/a n/a
Source: Survey of Current Business, May 1992. From Francois Chesnais,

1994, p. 70.
Banking, retail sales, tourism and mass media are further examples
of corporate concentration in the framework of globalisation.
In 1995, five advanced capitalist countries (US, Japan, France,
Germany and the UK) controlled 168 of the 200 biggest multina
tional corporations (Clairmont, 199 7). These 168 account for 85.9
per cent of the overall turnover of the 200 biggest corporations.
The Third World is virtually absent from such rankings. Only
China, Brazil, Venezuela and Mexico make a modest appearance,
with one multinational each. These four multinationals account for
only 1 per cent of the overall turnover of the 200 biggest corpora
tions. South Korea has indeed entered the select club of the major
industrial powers. However, its six multinationals account for only
2.3 per cent of the 200 biggest corporations' total turnover. It will be
interesting to see what happens to South Korea's multinationals
following the crisis that began in 1997. The main multinationals of
the industrialised countries are in favour of dismantling a number of
South Korean industrial houses organised into chaebols. It is
therefore not excluded that a number of South Korean multination
als will be cut back and lose their place in the Top 200 hit parade.
THE'GLOBAL VILLAGE'
The term 'globalisation' is sometimes linked to the idea of a 'global
village'. This gives globalisation a very user-friendly image.
Accelerated concentration in the mass media sector has given a
boost to this image makeover. Images we see on the television news
are in fact rebroadcast by television networks the world over. A huge
THE CONCENTRATION OF CAPITAL/33
Table 2.2 Some examples of global concentration at the end of the

1980s and In the 1990s
Glass automobile parts 1988 Three corporations account for 5 3

per cent of global production
Tyres 1988 Six corporations account for 85
Database management 1987 Five corporations account for 65
per cent of global production, 10
corporations for 100 per cent
Medical equipment 1989 Seven corporations account for 90
Instant coffee 1994 Two corporations account for 80
Grain 1994 Five corporations account for 77
per cent of total marketed
production
Bananas 1994 Three corporations account for 80
production
Tobacco 1994 Four corporations account for 87
production
Image banks 1994 Three corporations control 80 per
cent of the world market
Cars 1994 Ten corporations account for 76
per cent of global production (the
five biggest account for 50 per
cent)
Telecommunications 1997 Four corporations account for 70
and related equipment per cent of global sales
Civilian aeronautics 1998 Two corporations (Boeing and
Airbus) account for more than 95
Microprocessors 199 7 One corporation (Intel) controls
60 per cent of the market
Source: author, based on Petrella (1995) and Chesnais (1997).

majority of these television images are produced, chosen and

marketed by three image banks that control 80 per cent of the market
(see Table 2.2). In an era in which an event is not judged to have
occurred unless it has appeared on television, these image banks have
tremendous power.
What is not shown on television simply does not exist. The way an
event is shown also plays a big role, as does the spoken commentary.
We have an increasingly one-dimensional and monolithic 'world
view', of which CNN provides a very good example.
The effects are staggering. African television audiences see the
situation on their continent through the eyes of local networks that
are fed their material by international news agencies and image
banks. In other cases - and this is hardly much better - the former
colonial powers' television networks provide material to African
stations. France's former colonies in Africa are submerged in footage
from France's public networks, free of charge. Africa's public
networks do not have the means to provide their own footage. A
reporter from Cote d'lvoire once quipped that it was easier to get
footage on the condition of farmers in the northeast of France than
on farmers in his own country.
In this sense, the 'global village' fosters exclusion. The 'globalisa
tion of news' means excluding a part of the planet. In a village,
everyone knows their neighbours. In the 'global village' of the media,
they do not.
Entire regions of the planet only make the news when there is a
catastrophe of one sort or another. Dozens of television teams all
converge on one location at the same time to give viewers live
coverage of the catastrophe. The genocide of Tutsis and mass murder
of Hutu dissidents by the Rwandan army and the paramilitary militias
of the Habyarimana regime, in which about 1 million people died,
were not shown at the time they were carried out (April-May 1994).
Rwanda only really hit the screens in July-August 1994, when a
section of the Rwandan population fled the country en masse towards
former Zaire as part of the French army's Operation Turquoise.
Television coverage by French networks, broadcast through much of
French-speaking Africa, did not mention the support given by French
officials to those responsible for the genocide before, while and after it
happened. Indeed, French soldiers backed by African contingents,
especially from Senegal, were portrayed as saviours.
THE CONCENTRATION OF CAPITAL/35
Concentration in the written press and the establishment of

veritable global media empires (Maxwell, Murdoch, Hersant) have
snuffed out a large number of quality papers, a process also under
way in the former Soviet Bloc.
When you throw the concentration of film production and distri
bution companies into the mix, there really is not that much left. The
same big-budget movies are released almost simultaneously in all the
world's main cities. The same kind of values and ideological content
flood the world with a speed and power never dreamed of in the past.
Those with political and economic power have always used big
media to push their policies and interests, even when this involves
military or repressive action. Television is fully harnessed in this
respect. The landing of American soldiers in Mogadishu on 9
December 1992 was timed to coincide with American 'prime time'.
A single perspective of the so-called humanitarian Somalia operation
was simultaneously broadcast across the globe.
3
Globalisation and Exclusion:

the Marginalisation of the
Third World and the
Strengthening of the Triad
Third World countries have been cast further onto the margins by the
rise in foreign direct investment (FDI) (see Figure 3.1).
Figure 3.1 clearly shows how sharply the flow of investment into
Third World countries has fallen in proportional terms. The fall is
Industrialised countries (%) Developing countries (%) Total value ($bn)
1967 69.4 5
1973 73.S 208.1
1980 78.0 {SS22.0SS 504.5

aaaaaaaa
1989 80.8 1402. S
Figure 3.1 Distribution of foreign direct investment
Source: US Department of Commerce, Bureau of Economic Analysis (from

Chesnais, 1994, p. 49).
36
GLOBALISATION AND EXCLUSION/37
even more striking once a distinction is made between different

categories of Third World countries. Of the world's 180 states, about
140 can be classified as part of the 'Third World'. Just ten of these,
primarily in Southeast Asia (including China), have received the
lion's share of FDI since 1990.
Between 1989 and 1993, China and a few countries in S outheast
Asia and Latin America took in 70 per cent of net private investment
in developing countries - a category that includes Eastern Europe
and Southern Europe (Portugal, Greece, Turkey). China (20 per cent)
and Mexico (13 per cent) have taken in one-third of the total, while
South Asia, the Arab world and sub-Saharan Africa have all together
taken in only 8 per cent (Adda, 1996).
Table 3.1 shows the crushing weight of the Triad zones as both FDI
sources and destinations. Investment between heavily industrialised
countries accounts for 78 per cent of total FDI, 2 7 per cent between
heavily industrialised European countries. The Third World (TW) is
utterly marginal to this process, taking in only 18 per cent of total FDI.
Table 3.1 Origin and destination of FDI flows in 1990 (percentage of

total world FDI)
IC US WE JA OT TW World
Industrialised countries (IC) 78 22 44 2 10 16 94

United States (US) 19 - 13 1 5 6 25
Western Europe (WE) 46 14 27 1 4 6 52
Japan (JA) 9 6 2 - 1 3 12
Others (OT) 4 2 2 - - 1 5
Third World (TW) 4 2 2 - - 2 6
World 82 24 46 2 10 18 100
Source: De Laubier, 1993, based on IMF figures and national sources; from
Adda, 1996.
Table 3.2 shows the unequal distribution of investment flows to

the Third World. East Asia and Latin America take in 79 per cent of
the total. Sub-Saharan Africa and South Asia, although more
populated, take in only 8 per cent. As such, in 1992, 60 per cent of
FDI in the Third World went to five countries: China, Mexico,
Argentina, Malaysia and Thailand. China alone took in S40 billion

of FDI between 1991 and 1993, second in the world only to the US.
Table 3.2 1987-92 FDI flows to developing regions (Sbn and %)
1987-89 1990-92 % of 1987-92
Total
Sub-Saharan Africa 5.1 4.3 6
North Africa 4.1 3.4 5
Middle East 2.1 3.4 3
South Asia 1.2 1.5 2
East Asia 21.2 45.6 43
Latin America 20.9 34.6 36
Eastern Europe 0.3 7.5 5
Total developing world 54.9 100.3 100
Source: WorldBank, World Debt Tables (1994); tallied by Adda, 1996.
In 1996, China took in S42 billion of FDI (UNCTAD, 1997). The

crisis that broke in 19 9 7 might lead to an overall drop in the share of
world FDI to developing countries.
INTRA-TRIAD INVESTMENT
US multinationals have been behind a number of mergers and
takeovers - in Western Europe, above all, but also in Japan. They
would have liked to go further in Japan, but there are strict limits on
foreign acquisitions of Japanese companies. The multinationals of
the different EU countries have been involved in a great many
takeovers and fusions within what is now the Single Market, on the
one hand, and in North America, on the other. They have had even
less success than the Americans in acquiring Japanese companies.
Since 1989-90, German multinationals have bought up a number
of companies in the former Soviet Bloc, especially in countries with
whom Germany shares a border. Japanese multinationals have
invested in North America, Europe and their zone of influence in
Asia. Japanese companies have thus outstripped their competitors by
penetrating key markets while protecting their own with
government backing. US multinationals have topped the Europeans
thanks to backing from their powerful government. As a result of

this process of fusion and acquisition, the international character of
the main multinationals has been given a boost, as has their
domination of the world market (Andreff, 1996; Chesnais, 1994;
Clairmont, 1997).
STRENGTHENING OF THE TRIAD

In the area of global trade, too, the relative weight of the Triad has
been increased while most of the Third World has been further mar
ginalised.
Table 3.3 highlights this general tendency in no uncertain terms.
Table 3.3 Relative share of the world market in manufactured goods
1980 1990
% %
Industrialised OECD countries 62.9 72.4

G7 countries 45.2 51.8
Triad countries 54.8 64.0
Restofworld 37.1 27.6
11 countries* 7.3 14.6
102 poorest countries 7.9 1.4
TOTAL 100.0 100.0
* Hong Kong, South Korea, Taiwan, Singapore, Turkey, Thailand, China,

Mexico, Malaysia, India, Israel.
Source: Data from Dgur Muldur, Les formes et les indicateurs de la globali
sation, FAST, Commission des Communautes Europeennes, Brussels, 1993
(Petrella, 1995, p. 135).
INCREASED DEPENDENCE FOR THE THIRD WORLD

Are Asia's Four 'Tigers' the Exception to the Rule?
Only a few Third World countries have emerged from dependence.
South Korea and Taiwan are without a doubt in this category. These
two countries obtained membership in the exclusive club of the
developed world thanks to policies that have nothing in common
with the prescriptions of the IMF and World Bank (Coutrot and
Husson, 1993;Ugarteche, 1997).
Hong Kong and Singapore are special cases. These two cities are
financial centres above all. Hong Kong has been returned to China,
its economic future is closely intertwined with the mainland's.
According to the World Bank, in 1990 South Korea, Taiwan, Hong
Kong and Singapore accounted for 61 per cent of Third World manu
facturing exports.
There are other Third World countries that seemed to be making
something of a leap forward, such as Mexico, Thailand, Malaysia,
Indonesia and the Philippines. The IMF and World Bank pointed to
these countries as examples - that is, until they were sent reeling by
a major crisis, in 1994 in the case of Mexico and in 1997-98 for the
others. These countries are in a very vulnerable position, due to a
combination of high external debt, a structural trade deficit and the
volatility of financial inflows and outflows since the beginning of the
1990s.
Increased Subordination of the Majority of Third World

Countries to the Imperialist Centre
Any simplistic reading of the current situation should, of course, be
avoided. The Third World has not been totally brushed aside by the
Triad. A number of Third World countries have built up a relatively
solid industrial base which is not about to disappear at the wave of a
magic wand. It is none the less striking to observe the unprecedented
degree of freedom to manoeuvre that multinationals from the
developed capitalist countries have obtained - thanks to privatisation
and other neo-liberal measures in the countries in question. What's
more, the external debt crisis in these countries has created a
situation in which the multilateral financial institutions (IMF and
World Bank) and the governments of the main industrial powers
have been able to dictate a series of measures in the form of structural
adjustment programmes (SAPs) (see Chapter 11). Strategic economic
sectors key to the development of these countries have been handed
over to the multinationals. The result has been a kind of regression,
a return to pronounced dependence and subordination in a number
of Third World countries that had attempted - not without success -
an incipient autonomy in economic development. This applies to
Mexico, India, Algeria, Brazil, Argentina and Venezuela. Countries
such as Malaysia, Indonesia, Thailand and the Philippines - often

described as four 'dragons' following in the footsteps of the four
'tigers' (South Korea, Taiwan, Hong Kong and Singapore) - did
experience real economic growth, but it was highly dependent on
the multinationals, low-cost exports and chronic external debt. These
countries are essentially suppliers of cheap labour (Salama and
Tissier, 1982); they are not set to develop autonomously along South
Korean lines. South Korea itself has been thrown off course by the
recent crisis, and at the end of 1997, had to accept an adjustment
package dictated by its competitors in charge of the IMF. The
unfolding crisis in the four 'tigers' - especially in South Korea - is an
opportunity for the main industrialised countries and their MNCs to
take a chunk out of their overly obtrusive South Korean competition.
As for most of Africa, Central America and the Caribbean, most of
South America and South Asia, there can be no mistaking their
increased marginalisation.
Three Regional Blocs within the Triad

Each Triad has its own regional bloc.
The US-Canada-Mexico Bloc

Established by the North American Free Trade Agreement that came
into effect on 1 January 1994, this bloc is clearly dominated by the
United States - which also seems to have successfully reimposed its
political and military world supremacy. This has gone in tandem with
real economic recovery. The dollar remains the main reserve
currency and the currency of choice for international transactions.
The world's central banks still hold about 60 per cent of their liquidity
in dollars (de Brunhoff, 1996). This affords the US the luxury of
shifting onto others a significant part of its public debts and trade
deficits. Mexico is obviously the weak link in the chain that holds the
NAFTA bloc together. The 1994 economic crisis enormously
increased Mexico's subordination to the US. The best symbol for this
state of affairs is that, since January 1995, Mexican oil revenues have
been used as collateral for the payment of the country's external debt.
A US judge can decide to freeze Mexican oil revenues in a bank
account if Mexico is unable to meet its foreign debt obligations.
Japan at the Centre of an East and Southeast Asian Bloc

Some commentators have raised the idea of an Asian-Pacific bloc -
or even an Asian-Oceanic bloc, pointing to the strong links between
Australia and New Zealand, on the one hand, and Japan, on the other
(Lafay, 1996).
Be that as it may, this bloc has Japan at its centre, with South Korea
and Taiwan kicking in as second-tier engines. Supplying cheap
labour to the bloc are Indonesia, Malaysia, Thailand and the
Philippines (Salama and Tissier, 1982). Whatever its successes, this
regional bloc has revealed its weaknesses since the outbreak of the
crisis in 1997. The major crisis in Japan itself has prevented it from
playing a more active role to stabilise the situation. The US and
Europe seem poised to make headway in the region thanks to massive
privatisation in South Korea and in the 'dragons'. They may even be
able to swoop in to take advantage of the clean-up of the financial
system in Japan, although this is unlikely.
The European Bloc

The European bloc is very different. The European Union (EU) is a
conglomerate of nation-states involved in an attempt to establish a
single currency and a supranational structure that performs
functions usually devolved to national states. The other blocs are
organised hierarchically around a single nation-state (the US, on the
one hand, and Japan, on the other) which remains the anchor for
multinational corporations born on its soil. The EU is more open to
foreign competition than the other two blocs of the Triad; it has less
of a presence in outside markets. It also has great difficulty finding a
dynamic way to organise what it considers to be its natural periphery
- the Mediterranean, Eastern Europe and the 70 countries of the
Africa-Caribbean-Pacific (ACP) zone which used to be European
colonies and have signed the Lome Convention (European
Commission, 1997; CLONG, 1997). The conflicting interests of some
EU member countries also make it difficult to pursue a common
project.
The Triad Takes Centre-Stage

Both the development of investment flows and the rise in interna
tional production and trade have put the Triad in the driver's seat.
Countries of the Third World and former Soviet Bloc far removed
from the three Triad centres are increasingly marginalised.

Multinationals determine where to make productive investments in
relation to the Triad's zones of influence: in Mexico rather than in
Ecuador or Costa Rica; in the Czech Republic or Hungary rather than
in Russia or Romania; in Turkey or Tunisia rather than in sub-
Saharan Africa; in Taiwan or China rather than in Pakistan. In
general, wage costs are not the overriding criteria. Proximity and
access to the targeted Triad market are far and away the key factors
in most cases. A country that can offer two or three - among
proximity, access and low wages - will be accorded priority status. In
1993, 68 per cent of Japanese investments in the Third World went
to East Asia and the Pacific region (40 per cent to China). Predilection
for these regions can be as much a curse as a blessing, leading as it
can to increased dependence. Mexico, for example, gets most of its FDI
from US companies, largely in the form of assembly plants for which
90 per cent of inputs are of US origin (Toussaint, 1994).
A country like Brazil continues to take in large sums of foreign
investment, but they go almost exclusively into the Sao
Paolo-Rio-Belo Horizonte triangle. This region has a population of
40 million, some of whom earn enough to provide a potential outlet
for non-perishable consumer goods (Salama and Valier, 1994). The
remaining population here and elsewhere in Brazil is of little interest
to foreign investors.
Global Commerce Dominated by the Industrialised

Countries
Table 3.4 The share in global exports of the three main blocs of
developing countries between 1950 and 1990
1950 1980 1990

% % %
Latin America 12.4 5.5 3.9

Asia 13.1 17.8 14.0
Africa 5.2 4.7 1.9
Source: Overbeek, 1994 (fromWent, 1996, p. 42).

Another source, the 1992 GATT report, provides figures that differ
from those in Table 3.4. The report says that industrialised countries
held a 7 2.4 per cent share of the global trade in commodities in 19 9 0
(see Table 3.3) as compared with the 22.9 per cent share of
developing countries. Eastern Europe had a 4.7 per cent share.
Trade between industrialised countries accounted for 55 per cent
of total global trade in commodities.
Trade between industrialised countries accounted for 76 per cent
of their total share in world trade.
In other words, not only do industrialised capitalist countries
dominate world trade (72.4 per cent); trade between them (76 per
cent of their total trade bill) is considerably greater than trade with
the rest of the world.
Furthermore, trade between developing countries accounts for
only 32.5 per cent of their total foreign trade (including between one
another). This shows how far developing countries' trade is
dominated by trade with the industrialised world (67.5 per cent).
Developing countries are thus at polar opposites from their industri
alised capitalist counterparts.
South-South trade (32.5 per cent) is much less important for the
South than North-North trade (76 per cent) is for the North.
The Scramble for MNC Investment

Third World and former Soviet Bloc countries abandoned policies
aimed at relatively autonomous development. This was the result, on
the one hand, of the external debt crisis and the exhaustion of their
development model; and on the other, of the increase in the power of
MNCs and prominence of policies dictated by the IMF, World Bank
and GATT (now World Trade Organisation - WTO). As a
consequence, these countries were driven to fight for a share of direct
investment from multinational corporations (MNCs).
They also went to war with one another - prodded along by the
IMF, World Bank and WTO - through policies aimed at 'export-
oriented development'. These policies have led to a generalised
collapse in the prices of products exported from the Third World (see
Chapters 7 and 8).
The United Nations Conference on Trade and Development
(UNCTAD) was created in 1964, at a time when a large number of
former colonies had just gained their independence and were
exerting pressure for steps towards a new global economic order. Yet
UNCTAD itself made an about-face at the beginning of the 1990s.
UNCTAD put itself at the disposal of MNCs and promoted the policy
of 'export-oriented development'. It began sending out reports to
Third World governments which explained how to go about
attracting investment and competing with one another. To all intents
and purposes, the 1993 UNCTAD report declared, 'Multinationals
are the only salvation!' (Decornoy, 1993). More recently, UNCTAD
has made some gestures inspired by its original objectives; its 1995
report calls for a one-off property tax, and a tax on international
financial transactions of the kind advanced by James Tobin (see
Chapter 17). In the latest twist, however, the 199 7 UNCTAD report
takes a hard neo-liberal line. The institution's general secretary,
Rubens Ricupero, declares, 'Governments must encourage liberal
trade and investment policies and a culture of competition, in order
to maximise their economy's potential' (UNCTAD, press
communique, 21 September 1997). This is a definite step backwards
compared to 19 9 5. The report is also excessively optimistic about the
prospects for FDI in Third World countries and its supposed potential
for lifting them out of dependence. When the 1997 report came off
the presses, FDI in China and the Southeast Asian 'dragons' had
already dropped significantly.
Multinationals take Shelter from the Market: Intra-firm

Trade
At least one-third of world trade takes place within individual multi
national corporations.
As a result, world trade statistics based on trade between countries
do not accurately reflect the reality of global trade.
MNCs loudly proclaim their free market mantras in favour of
unimpeded competition. This, of course, doesn't prevent them from
protecting themselves from such competition when and wherever
possible, especially when it comes to determining the price of their
inputs. They organise trade between their different operations based
on criteria that have little to do with free-market principles (see
section devoted to South-North transfers). 'Do as I say, not as I do.'
Incredible as it may seem, those who attempt to justify these
practices do not shy away from invoking the 'imperfections' and
'defects' of the market. One such analyst, Mr Casson (author of
Transaction Costs and the Theory of the Multinational Enterprise) lists the
various problems MNCs can solve by placing themselves outside the
ambit of the market. Casson explains that the market does not allow
for contact between seller and buyer; that it means ignorance of one
another's needs; there is no agreement on price, no confidence that
the ordered goods conform to the buyer's specific needs; there are
trade tariffs, taxes on profits made in the transaction, price controls;
there is no confidence that goods will be returned in case of non
payment, and the list goes on (from Chesnais, 1994).
Does our dear Mr Casson realise that he has in fact formulated a
rather trenchant overall critique of the free market system per se?
4
Financial Globalisation
INCREASE IN THE FINANCIAL ASSETS OF INDUSTRIAL

MNCs
Multinational corporations have adapted remarkably well to the new
global financial realities. No surprise, really, given their own
increased involvement in financial operations that are often far
removed from their largely industrial origins. A number of tradition
ally industrial companies now come closer to resembling financial
outfits that make ongoing decisions based on the profitability of
investments made in their various subsidiaries and sectors of activity.
To all intents and purposes, they are financial houses with an
industrial focus.
In such a situation, even the biggest industrial concerns see their
productive operations as one among many forms of capital valorisa
tion. The term 'global' is used to characterise the strategy of
multinational corporations; in the present context, it has two com
plementary meanings. On the one hand, it corresponds to the
planetary (even if largely concentrated in the US-Europe-Japan
Triad) scope of corporate activity. On the other hand, it reflects the
fact that corporate strategy is ever more clearly based on asset val
orisation - of both a financial and industrial nature, in broadly equal
parts (Serfati, 1996). Most industrial houses have set up enterprise
banks and credit establishments that handle their financial
operations. According to a study carried out by the MacKinsey firm
on 3 25 multinational corporations, such banks have been gateways
to success for those that have set them up.
47
A DRAMATISATION OF THE EFFECTS OF

FINANCIALISATION ON THE BIG INDUSTRIAL HOUSES
The scenario that follows Illustrates the kind of decisions that have to
be made to settle conflicts of interest within a company. The scene is
a board of directors meeting at General Motors, the world's top auto
company. The scene opens with the head of sales.
Mr Fenderbender. 'In recent months, we have observed an increase

in domestic sales for both our economy family models and our light
transport vehicles. The increase is due to a recovery in household
spending. The overall climate of increased economic growth,
greater job security linked to forecasts of continued expansion, and
wage increases obtained by workers in certain sectors - not "ours",
of course! - have convinced a number of households that now is
the time to replace their old cars. They were reticent just six
months ago, not any longer. The increase in household spending
has also had positive effects on the retail sector generally speaking.
As a result, small and medium-sized retailers are themselves
ordering light transport vehicles. Let's hope that the Clinton
administration sticks to its current expansionary policies.'
Attention now turns to Mr Greenbacks, head of GM's financial

division.
Mr Greenbacks: 'Unfortunately, I cannot share my esteemed

colleague's optimism. Household spending is up because interest
rates were slightly lowered in response to signals sent by the
Clinton administration to the Federal Reserve. True, households
can now take out consumer loans; nevertheless, this drop in
interest rates is not all good news for us. Indeed, 48 per cent of our
assets are now invested in the financial sector. The drop in interest
rates is a blow to the profitability of these investments on financial
markets. Let me remind you, dear members of the board, that you
decided to invest an increasing share of liquidities deriving from
vehicle sales in financial operations, so that the company's money
would not be left to stagnate. Of course, this is the way all big cor
porations the world over run their affairs.
'Keep in mind another point. If household spending continues
upward, if there is further expansion, we will be able to increase
FINANCIAL GLOBALISATION/49
our sale prices in step with the competition. That is as it should be.
But this will push up inflation. And increased inflation means a
symmetrical decrease in the yield of our financial investments in
the country.'
At this point, the chairman of the board takes the floor.
MrHedhonshow: 'If I understand correctly, we are caught in a trap.

The increase in sales has created an increase in profits from our
industrial division, but has also provoked a drop in profits from our
financial division. At the end of the day, we're just going round in
circles. Worse, if inflation picks up we might even register losses.
What do you suggest we do, Mr Greenbacks?'
Mr Greenbacks: 'I propose a compromise. We pocket the new profits
stemming from the increase in sales. Then we contact the other
companies, including the competition, and propose that we all put
pressure on the Clinton administration to nudge interest rates back
up in four months' time. My colleague in sales will have enough
time to offload all his stock of unsold vehicles and whatever is
manufactured at the present pace in the meantime. As a result, no
one new will have to be hired to increase production. We come out
ahead on all fronts, since inflation will be curbed and our capital
gains on financial markets will be only slightly cramped between
now and then.'
This is, of course, a highly simplified portrayal of corporate

dilemmas that are much more complicated in real life. It does,
however, provide some idea of key changes that have taken place in
the business world - in particular, the growing contradiction within
industrial houses between the interests of industrial and financial
capital. Decisions favouring one or the other division are made with
the optimisation of investment yield in mind. Companies seek to
resolve the contradiction illustrated in our mini-sketch above. For
this to happen smoothly, MNC strategists have to have near-perfect
knowledge of the market, of current, short-term and medium-term
tendencies. In actual fact, of course, they do not. Forecasting errors
regularly set MNCs back some distance, at which point they often
approach government for various forms of aid. They also demand
sacrifices from their workforce in order to keep their business afloat.
Small shareholders are also often called upon to pay for such
setbacks, as in the case of shareholders at the perpetually troubled

private consortium Eurotunnel.
COMPANY FINANCIALISATION: THE EXAMPLE OF

FRANCE
One of the features of globalisation is the increased financialisation
of MNCs. They increasingly resemble financial houses even if a
majority of their operations continue to be in industry. They offer a
variety of financial services and make significant forays into
exchange markets.
Between 1982 and 1989, the share of productive investment in
the operations of French corporations fell from 76 to 47 per cent.
Their strictly financial assets grew as a proportion of total assets, from
2.9 per cent to 35 per cent. This tendency was further accelerated
from 1989 onwards.
French companies have progressively expanded their involvement
in French financial markets. By April 1989, they had invested S45
billion; S107 billion by April 1992; and S143 billion by April 1995.
In 1993, the big French industrial houses engaged in financial
operations worth more than Ffr500 million (about S85 million)
every single day. Such exchange market operations are worth at least
five to ten times more than what companies actually need for settling
trade contracts.
Has productive investment declined as a result of this growing
company involvement in financial markets? Probably. Big companies
have a growing tendency to hold significant financial assets. By
1988,30 companies held more than 40 per cent of all financial assets
in France. The strictly financial dimension of capital flows has
developed by leaps and bounds. This has created tension in
companies between those who depend on industrial activities and
those who are more concerned with the 'ledger' that spells out what
will be paid out to shareholders in quarterly dividends (Serfati, 1996,
in Chesnais, 1996).
There are companies whose industrial operations have run
aground (Renault in 1997) while actually increasing their strictly
financial profitability. In February 1997, Renault announced the
shutdown of its Belgian operations (where more than 100,000
vehicles were manufactured each year); in response, its share price
surged 11.7 per cent upwards on the Paris stock market. This is
striking proof of the contradictory development of capital as a whole.
Company accounts determine profit by adding up revenues earned
on various types of capital. Profit is the measure of how far a company
is able to optimise its total capital holdings over a given period of time.
However, as far as the overall reproduction of capital is concerned,
things are not so simple. Indeed, financial revenues from various
types of money-capital investments are nothing more than the cream
skimmed off the surplus value (see glossary) that is created in the
productive sector of the economy (Serfati, in Chesnais, 1996;
Husson, 1996, 1997).
Loans provided by bankers and money taken in through stock and
bond issues can clearly be seen as complements to accumulation.
They allow the productive capital cycle to unfold unfettered by
serious financial constraints. But they are also pregnant with a
number of different conflicts over the sharing out of surplus value
created in the productive process. The main quarrel is over how
much of this surplus value will, on the one hand, be kept as profit by
the company and reinvested, and how much, on the other, will go
towards servicing debts (interest) and paying out dividends on
securities.
A BIRD'S EYE VIEW OF FINANCIALISATION AND DEREGU-

LATION
For the last 30 years, the growth of financial markets has been fed in
part by the profits big industrial houses have declined to reinvest in
production.
Significant proportions of surplus value created in production have
been diverted into the financial sphere since the 1980s. We are a far
cry from the predictions made by Keynes that rentiers living off their
interest would disappear through a process of 'euthanasia' (Keynes,
1936)! Labour and the productive cycle revolve more than ever
around the need to satisfy the demands of interest-bearing capital.
After the outbreak of the Mexican crisis in December 1994, IMF
head Michel Camdessus let slip, 'Globalised economy without
exchange controls makes the world a dangerous place' (Eco-Soir/Le
Soir, 17 February 1995).
But the IMF has itself pushed for the generalised deregulation of
capital flows, in particular through the elimination of exchange
controls.
For his part, the head of the investment strategy division of Banque
Bruxelles Lambert, Roland Leuschel, declared, 'We are a bit like an
airline pilot who knows she is going to crash but whose computer
controls no longer respond. The computer follows its own rules, that's
what the market is like' (Le Monde, 5 April 1995).
We are now beginning to feel the effects of financial deregulation.
This deregulation was systematically pursued by the governments of
the main industrial powers, the international financial institutions -
the IMF, World Bank, Bank for International Settlements - whose
policies these governments by and large dictate (which doesn't mean
the international institutions don't have some degree of autonomy),
and the MNCs.
Currency markets are the segment of the financial markets that
have registered the strongest growth. During the 1980s, the volume
of transactions increased ten-fold. Yet the main function of currency
trading is supposed to be that of providing currency to settle foreign
trade contracts. However, the total value of actual trade transac
tions was not even 10 per cent of the value of foreign currencies
traded on exchange markets. According to the latest study by the
Bank for International Settlements (BIS), more than SI,400 billion
change hands every day on currency markets (Chesnais, 1996).
While there is no disagreement over the amounts traded each day,
there are differences as to how much of this corresponds to
speculative transactions. Basing himself on BIS studies, F. Chesnais
(Chesnais, 1996) says that somewhere between 5 and 8 per cent
correspond to transactions linked to the 'real' international
economy. For his part, J. Adda (Adda, 1996)says, '95 percent of the
value of transactions carried out on exchange markets correspond to
financial operations with no connection to trade in goods and
services'. Also basing himself on BIS figures, D. Plihon (Plihon, 1996)
says, 'transactions on exchange markets of a purely financial nature
account for 50 times more total volume than those linked to global
trade in goods and services'. This would mean that less than 2 per
cent of the value of all transactions is linked to actual international
trade in goods and services!
Finally, Table 4.1 suggests that speculative operations easily

account for more than 90 per cent of the value of daily financial
transactions.
Table 4.1 Daily value of financial transactions and the total annual
value of global exports (Sbn)
A = annual value of daily financial transactions on exchange

markets (daily transactions x 250 business days)
B = total annual value of global exports
Year A B B/A (%)
1979 18,750 1,546 8.25

1984 37,500 1,800 4.80
1986 75,000 1,998 6.7
1990 125,000 3,429 2.66
1994 300,000 4,269 1.42
Source: table assembledby Robert Went (199 6, p. 13), based on figures from
Piot (1995, pp. 38-9).
The financial markets handle the billions and billions of dollars in

capital that move from one country to another everyday. As a
result, they have become the policeman, judge and jury of the
world economy, which is very worrying given their tendency to see
events and policies through the distorting prism of fear and greed.
(Financial Times, 30 September 1994).
Of course, the journalistic musings of the Financial Times do not go

far enough. It is significant in itself, however, that such comments
should appear in the flagship British financial daily, front-line
defender of the capitalist system. It shows that the heads of the main
capitalist countries (the G 7 or G10) and private financial institutions
- with multinational industrial houses, the IMF, World Bank, BIS
and GATT in tow - have, to a certain extent, played the role of
sorcerer's apprentices. This is why the image of a pilot whose controls
do not respond is so apt.
The over-accumulation of capital has been accompanied by a real
or potential (in terms of excess productive capacity) overproduction
of commodities. As a result, much of the capital accumulated from

new profits is not invested productively. This capital floods into real
estate and stock markets for speculation and for merger and takeover
operations. For a few years now, there has been huge growth in
speculation on currency rates, debt paper and various derivative
products.
Table 4.2 Finance expanding more quickly than GDP: Trade and
foreign direct investment in OECD countries (1988 compared to
1980)
GDP in OECD countries* +195%

Trade + 200%
Financial transactions on exchange markets + 850%
Foreign direct investment + 350%
* Provides a reliable index of production levels.

Source: Claude Serfati, in Alternatives Economiques, No. 23, first quarter
1995.
Governments and financial institutions have pulled out the stops

to get all legal obstacles to the free international circulation of capital
removed. Now they worry about the scale of speculative activities,
which threaten monetary stability (European Monetary System crisis
in 1992), sink major financial institutions into bankruptcy (Barings
in Britain and Cosmo in Japan, both in 19 9 5; again in Japan, in 19 9 7
at Yamaichi and 1998 at the Long Term Credit Bank) or plunge
entire countries into crisis (Mexico 1994-95 and Thailand,
Indonesia and South Korea in 1997-98). Yet they refuse to adopt
measures to restrict the free circulation of capital. The BIS reiterated
this refusal in its June 1995 report, as did the G 7 heads of government
following their June 1995 meeting in Halifax, and the IMF/World
Bank team during their Washington meeting in late April 1997. The
3 0 April 1997 edition of the French business daily Les Echos ran the
following completely contradictory leader:
The Interim Committee of the IMF, the institution's highest

decision-making body, gave the green light Monday evening in
Washington for the IMF to promote and organise the liberalisation
of capital flows, including in developing countries, (emphasis mine)
The article in question tells us that the IMF's leading body

recommended an amendment to its statutes to include the removal of
obstacles to capital flows as a specific objective. This led the G24,
which brings together Third World countries and non-GlO industri
alised countries (see glossary), to express its concerns about the
dangers of any hasty liberalisation that would oblige its members to
remove exchange controls and investment restrictions. Such restric
tions still existed at the time in South Korea and, to a lesser degree, in
Chile. In South Korea's case, measures dictated by the IMF and
accepted by S outh Korean officials in December 1997 eliminate these
restrictions. As for Chile, it had legislation that discouraged foreign
investment for a period of less than one year (see article by Carlos
Ominami, Chilean Minister of the Economy between 1990 and 1994,
in Urriola, 1996). This legislation was abandoned in September 1998.
THE MARKET: THE NEW FAITH

Practically all political leaders - whether from the traditional Left or
from the Right, from the North or the South - have a quasi-religious
faith in the market, especially in the financial markets. Or rather,
they themselves are the high priests of this religion. Every day in
every country, anyone with a television can observe masses said in
honour of the market-god - in the form of stock exchange and
financial market reports. The market-god sends his messages
through television anchormen and the financial editors of daily
newspapers. Today, this does not only happen in OECD countries, but
in most parts of the planet. Whether you are in Moscow or Dakar, in
Rio de Janeiro or Timbuctoo, you can receive 'market signals'.
Everywhere, governments have privatised and created the illusion
that the population would be able to participate directly in market
rituals (by buying shares) and reap the benefits in accordance with
how well one interprets signals sent by the market-god. In actual
fact, the small part of the working population that has acquired
shares has no say over market tendencies.
The reader will indulge me for a moment as I take a somewhat
more humorous approach to this sad state of affairs:
In a few centuries, the history books might say that in the 1980s
and 1990s a fetishist cult prospered. The dramatic rise of this cult
will perhaps be associated with two heads of state, Margaret
Thatcher and Ronald Reagan. It will be noted that, from the start,
this cult had the backing of governments and powerful private
financial interests. Indeed, for this cult to gain ground within the
population, public and private media found it necessary to pay
homage to it day in and day out.
The gods of this religion were the financial markets. Its temples
were known as Stock Exchanges. Only the high priests and their
acolytes could enter these temples. The faithful were called upon
to commune with their market-god on television, in the daily
papers, on the radio and at the bank.
Thanks to television and radio, even in the most remote parts of
the planet, hundreds of millions of people whose right to meet their
basic needs was denied, were also beseeched to celebrate the
market-god. In the North, in the papers read by a majority of
workers, housewives and unemployed, an 'investment' section
was published every day, even though the overwhelming ma] ority
of readers did not own a single share.
Journalists were paid to help the faithful understand signals sent
by the gods.
To heighten the power of the gods in the eyes of the faithful,
commentators periodically declared that the gods had sent signals
to governments to express their satisfaction or discontent.
The places where the gods were most likely to forcefully express
their moods were Wall Street in New York, the City in London, and
at the Paris, Frankfurt and Tokyo stock exchanges. To gauge their
moods, special indicators were devised: the Dow Jones in New
York, the Nikkei in Tokyo, the CAC40 in France and the Bel20 in
Belgium.
To appease the gods, governments sacrificed the Welfare State
to the stock markets. They also privatised public property.
Why were ordinary market operators given a religious aura?
They were neither unknown nor ethereal. They had names,
addresses. They were the people in charge of the 200 biggest
multinationals that controlled the world with the help of the G 7
and institutions such as the IMF, the World Bank and the World
Trade Organisation. Governments were no strangers to this
situation; from Reagan and Thatcher onwards, they relinquished
the means they had of controlling financial markets.
As a result, money could cross borders with not a single cent in
taxes being levied. More than SI,400 billion raced around the
planet every day. Less than 10 per cent of this amount was linked
to actual trade in goods and services. More than 90 per cent
concerned purely speculative currency trades and money
laundering (for drugs, for example).
Newspapers reported on a regular basis that Wall Street had
reacted favourably to the increase in unemployment and slow
downs in economic growth. It is difficult to underestimate how
much this period in history contributed to the spread of a kind of
ideology of death.
So much for the humorous interlude. Let us return to today's

unpleasant truths, as portrayed in two examples from the French
daily Le Monde.
The 9 October 1996 edition ran the following headline on page 17:
'The Dow Jones index momentarily crossed the 6,000-point mark.'
The author of the article goes on to say, 'The announcement on
Friday that 40,000 jobs had been lost in the US in the month of
September-in contrast to analysts' expectations that 160,000 would
be createdwas greeted with relief by traders.' Further on, 'Since the
beginning of President Clinton's term in office, the Dow Jones has
nearly doubled, directly contributing to the feeling of wealth and
economic well-being currently prevailing in the US' (emphasis mine).
In the 8 December 1996 edition, Eric Leser writes, 'December 6
was almost a Black Friday on financial markets. In the end, resistance
[sic!] on Wall Street and the release of US November unemployment
figures - judged to be satisfactory by analysts - limited the damage'
(emphasis mine). What exactly were these 'satisfactory' figures?
Further down in the article, Leser tells all: 'The US unemployment
rate went up five per cent in November, the number of jobs created
(118,000) was less than expected (175,000).'
The Bank for International Settlements and Submission to

the Markets
Even institutions with a reputation for being very serious have
become steeped in the new religious fervour. The Bank for
International Settlements (BIS), for example.
The 1995 BIS report is imbued with market devotion (BIS, 1995).
And I quote: 'If there were any remaining doubts concerning the
omnipresent influence of international capital markets, events over
the past year should have put an end to them' (p. 225). Rather than
seeking to 'regulate these markets', there Is a need to 'maximise the
disciplinary power' wielded by the markets. The BIS feels there is no
need for governments and the population to know what is going on
in the markets in order to control them; rather, it proposes the exact
opposite:
For the market [note that henceforward the market is endowed

with human attributes] to be able to make correct judgements of
government policy, with neither surprises nor brutal corrections,
it must have full information not only on current developments but
also on the ultimate objectives, mediating factors and economic
mechanisms of the policy being pursued, (p. 228)
The report is filled with examples of where 'the market' got it

wrong, but in general duplicitous governments are held responsible.
True, the BIS does occasionally criticise 'the markets' for their poor
judgement.
Take the case of Mexico, for example. 'As for Mexico, over a long
period the markets did not take into account the deterioration of the
country's external position. Suddenly, however, they withdrew, to
disastrous effect not only for Mexico, but also for a number of
developing economies.' The BIS, like the World Bank and IMF, had
sung the praises of Mexican government policy; with respect to both
its supposed ability to resolve the external debt problem and its policy
of economic modernisation through privatisation and deregulation
of the labour market. To add insult to injury, the BIS shows not the
slightest self-criticism and, as if it were some kind of revelation, points
out what any serious observer could have said before the crisis: 'If
Mexico was finally confronted with a number of difficulties, it was
because of rising external debt and decreased international competi
tiveness' (p. 226).
I had pointed this out in no uncertain terms before the crisis broke.
I had shown that debt was increasing in spite of the fact that over ten
years Mexico had paid back much more than its original debt; and
that capital had begun to leave the country beginning in March 1994,
at a time when most commentators were still waxing eloquent about
the 'Mexican miracle' (Toussaint, 1994; see also Husson, 1994).
When the financial crisis hit in 1997, comments from leaders of
the main industrialised countries and the multilateral institutions
they control went in the same direction. They roundly denounced the
head of the Malaysian government for criticising big investors on the
financial markets. Simultaneously, they called for neo-liberal
measures to buoy up these very same big financial players.
THE DIFFERENT STAGES OF FINANCIAL DEREGULATION

Right up until the end of the 19 70s, financial and monetary systems
were strictly limited on the national level. Nevertheless, the birth of
the eurodollar (see glossary) in the 1960s was a major event,
especially given the key role of the eurodollar as a factor in the Third
World debt crisis (Adda, 1996; Chesnais, 1996; Norel and Saint-
Alary, 1988). (See Chapter 7 on this question.)
The second key event in financial internationalisation began in
August 1971, when US President Nixon put an end to the Bretton
Woods system by discontinuing the dollar's convertibility into gold.
This led to the emergence of floating exchange rates, which signifi
cantly broke down the barriers between exchange markets (de
Brunhoff, 1996, in Chesnais).
From 1979 onwards, governments in the leading industrialised
countries effected measures that progressively phased out controls on
capital flows abroad. In other words, they liberalised - or opened up
to the outside - national financial systems.
This was done in three stages:
1. full opening up of exchange markets;

2. opening up of bond markets;
3. opening up of stock markets (1986).
In the 19 8 Os, all forms of administrative control over interest rates,

credit and capital flows were progressively eliminated. This was the
course chosen by the main leaders of the industrialised world, leading
to an orderly retreat of governments faced with the powerful
unfolding dynamic of financial integration. One by one, governments
threw in the towel when confronted with the huge new sums of
capital flooding across borders; they resigned themselves to making
the best of this new reality that they had helped create. They engaged
in fierce competition to attract capital in their direction; to this end,
they abandoned most taxes on capital gains.
THE MAIN PLAYERS ON FINANCIAL MARKETS

But who, after all, are the main players on financial markets?
The biggest hitters are a few dozen of the largely American and
British private pension funds, mutual funds and other types of
investment funds, the big insurance companies and the big multina
tional banks. These players are known as 'institutional investors'.
Throw in a few dozen big multinational industrial houses, and the list
is complete.
Indeed, the list is quite short.
A research group within the IMF carried out a confidential study
to determine who had been the main players in the attacks on the
European Monetary System in the summer of 1992. They found
them to be quite small in number - 30 to 50 banks and a handful of
security brokerages. These control the key currency markets. During
the 1992 crisis, 43 per cent of transactions in London and 40 per cent
of transactions in New York were carried out by the ten biggest banks
in these two markets. The findings of this IMF study were never
related at a press conference. Frangois Chesnais writes,
The Bank of France and the German Bundesbank closed ranks to

spend 300 billion dollars in defence of the European Monetary
System during the summer of 1992. But this sum was of little sig
nificance compared to the amounts that those determined to force
a change in exchange rates - and pocket major profits in the
process - were able to mobilise. (Chesnais, 1994)
In addition to speculation on exchange markets, another type of

operation has emerged: derivatives (Benies, 1995). The spring 1995
Barings bankruptcy drew public attention to this type of operation.
Even if they are called 'investment products', they have nothing to do
with production. They are purely speculative in nature.
There has been a spectacular boom in derivative trading. In 19 8 6,
S500 billion were involved; the total was S5.345 billion in 1992.
Among the main players on financial markets are private pension
funds. Their financial assets were worth S4.570 billion in 1994. To
achieve the desired result against a strong currency, it is enough that
they devote 10 per cent of total assets in a concerted one-off
speculative operation.
The Changing Face of Financial Investment 1980-94

As can be seen in Figure 4.1, banks are no longer the main players
on financial markets. They have been hugely outstripped by pension
funds, mutual funds and even insurance companies.
To whom do pension funds belong? Do they belong to a section of
the working population that, through investing its savings, has
become an integral part of the capitalist class? Certainly not. As Michel
Aglietta has pointed out, pension funds are not 'workers' property, but
rather the property of the capitalist class' (Aglietta, 1976).
Pension funds and other institutional investors are not oblivious to
industry. A significant portion of their massive financial holdings is
held in the form of company stock. The size of their share in a
11980 Dl990 1994*
5000
4500
4000
3500
3000
2500
2000
1500 --
1000
500
o -H4="H>H>'I
Pension Mutual Insurance
o Banks
J =
c iH
Foundations
Funds Funds
* End of third q u a r t e r .
Figure 4.1 The evolution of financial assets by investor type,

1980-94
Source: Merieux and Marchand (1996, p. 269) in Chesnais (1996,
p. 27)
company's stock varies, but it is usually large enough to have definite

influence over the decisions and strategies of the industrial concerns
in question.
Having bought up company stock on the various stock markets,
institutional investors carry tremendous weight in the overwhelm
ing majority of MNCs. To such a degree, in fact, that they can have a
decisive say over what these MNCs can or cannot do.
Institutional investors have a well-deserved reputation, according

to a Brussels operator. They are often responsible for major
movement at the Brussels exchange, he says. When they are
unhappy, they sell and go elsewhere in Europe. And this has an
immediate impact on share prices. (Eco-Soir, economic supplement
to the Belgian daily Le Soir, 17 February 1995)
Institutional investors demand quarterly dividends that are at least

on a par with the rate of interest. Fearful that pension funds and other
institutional investors will sell off their shares, companies often decide
to tone down productive investment and step up efforts aimed at
obtaining short-term profit.
Not that those in charge of industrial houses are any worse for
wear. The president of Elf Aquitaine, for example, declared, 'Share
prices are a measure of a company's virtue.' A few years later, this
same president, Loi'c Le Floc-Prigent, was under investigation by the
courts and arrested for embezzlement. He apparently had his own
very special notion of 'company virtue'.
Financial market players are driven by an inhumane logic. A drop
in the unemployment rate is now seen as a precursor to inflation, and
therefore of a drop in the yield of financial investments', notes Claude
Serfati. He adds, 'The social cost of keeping these rentiers happy is
very high indeed.' Of course, this applies to the North, South and East.
The Case of George Soros

In general, the identity of companies and multi-billionaires that
speculate is a well-kept secret. This creates an aura of mystery and
perpetuates the illusion that an untold mass of anonymous citizens
determine what happens on the world's markets. In fact, nothing
could be further from the truth.
George Soros is an exception to the secrecy rule. The Hungarian-

American Soros heads the Quantum Fund and was one of the driving
forces behind the attack on the European Monetary System in the
summer of 1992. He pocketed SI billion by speculating against the
British pound. Like a gambler, he also loses from time to time - for
example, in January 1994, when he lost S600 million. In 1995, he
published a book in which he describes how he has run his operation
in strict accordance with the relevant laws (Soros, 1995). In this
interview-style book, which he commissioned, he raises the alarm
over the dangers of unrestrained deregulation. The book is an
instructive read. On the occasion of its release in France, Soros
declared:
Many people feel that markets are the best way to share out
resources and create a balanced situation. I believe the opposite is
true. I do not believe in market perfection. Measures have to be
taken to stabilise the market, otherwise there will be dangerous
developments, especially since imbalances are cumulative. I feel
markets aren't sufficiently monitored and that there should be
tighter regulations. Broadly speaking, market mechanisms have
come to play too great a role in our societies. I am not a fan of
laissez-faire. (Le Monde, 2 November 1996)
Such declarations did not hold Soros back from playing - according
to the Malaysian prime minister - a vanguard role in attacks on
various Southeast Asian currencies, the Thai bhat and Malaysian
ringgit in particular. According to the Mexican daily El Financiero (2 8
July 1997), on 26 July 1997 Malaysian Prime Minister Mahathir
Mohammed openly accused Soros of secretly organising speculative
attacks which, from July onwards, led to a depreciation in the value
of Southeast Asian currencies. Soros denied any such involvement.
El Financiero relates other declarations from Mahathir:
He called on the international community to consider the

speculative attacks on Southeast Asian currencies a crime. 'This
will happen again, that is why we consider it to be a crime,' he said.
He said that as long as the international community did not take
steps against such activities, the currencies of developing countries
would continue to be sabotaged and their citizens would continue
to live in poverty.
In a Financial Times op-ed piece run on 1 January 1998, Soros talks

about the general Implications of the Southeast Asian crisis. He
makes a number of pertinent remarks:
The International financial system Is suffering from a systemic

crisis but we have difficulties recognising this. The elimination of
fixed exchange rates has unleashed an uncontrollable process that
has surpassed people's worst fears, Including my own. The rescue
packages assembled by the IMF are not producing any results. ...
The concerned countries have too much debt.... The private sector
Is Incapable of allocating International credit In the right doses. It
provides too much or too little. It doesn't have sufficient
Information for making balanced judgements. Above all, the
private sector Is not concerned with maintaining macro-economic
equilibriums In the borrower countries. Its goal Is maximising Its
own profits and minimising risk.
A few days later, Soros was the new South Korean president's guest
of honour. He said that, after withdrawing his South Korean
Investments In 1997 (which helped provoke the crisis), he was
planning new Investments In the country. This Is the way he
cynically applies the rule of 'maximum profit-minimum risk'. In
response to a journalist's question over who had been right - the
welcoming South Korean president or the angry Malaysian prime
minister - he replied In an equally cynical manner, 'One or the other
Is clearly mistaken' (International Herald Tribune, 3 January 1998).
To be sure, Soros and his Quantum Fund are not omnipotent. But
they often play a key role In times of crisis by spearheading
speculative attacks. At times, Soros blazes a trail for the really big
players - the pension funds, mutual funds, Insurance houses and
other Institutional Investors.
5
Globalisation and the

Growing Debt Burden
During the 1980s and the first half of the 1990s, there was a meteoric
increase in debt the world over. The share of Third World (and ex-
Soviet Bloc) debt in this overall debt has dropped. In 19 9 5, total Third
World external debt was SI,940 billion (OECD, 1996), while the US
public debt alone was S4.900 billion. According to the OECD, US
public debt accounts for 3 9 per cent of total OECD member country
public debt. The total public debt of European Union (EU) member
countries is more than S4.200 billion.
What has not declined, however, are the sacrifices imposed on the
majority of citizens in all countries in order to service these debts.
The phenomenon of globalisation described thus far and the debt
problem are inextricably linked. The process of globalisation began
in earnest in 1980 with the first wave of deregulation; the debt crisis
broke out around the same time, or perhaps even in October 1979
with the about-turn in US Federal Reserve policy under Volker (see
Chapter 7). The two developments were tightly intertwined. Post-
1982 debt-crisis management was very much part of globalisation;
it was an integral part of the realignment in the relationship of forces
between countries of the North and South. The countries of the South
entered a phase of heightened dependence.
Debt securitisation (see glossary) is another key element of the link
between the way in which the Third World debt crisis has unfolded
and other globalisation-related phenomena.
This securitisation concerns a significant part of OECD country
public debt along with both the external and internal debt of Third
65
World countries - at least for those that still have not been excluded
from International financial markets. Securitisation is a key feature
of globalisation.
WHAT IS SECURITISATION?
The term is used to describe the new place of privilege occupied by
security issues in market activity. Security issues are traditional inter
national bonds issued by a foreign borrower on the financial markets
and in the currency of a given lender country. Or they may be Euro
bonds denominated in a currency other than the market for which
they are issued. Or they may be international stocks. In addition,
former bank debt has been converted into tradable securities - thus
freeing banks from their responsibilities to developing countries in the
wake of the debt crisis.
The sharing out of risk is the main feature of this securitisation
trend. In numerical terms, above all, since the risk of loan default is
not borne solely by a small number of multinational banks closely
linked to one another. In qualitative terms, too, since each element
of risk linked to a given issue can itself be the object of another
financial instrument that can also be traded on the markets.
Negotiable futures contracts exist, for example, to hedge against
currency and interest rate fluctuation; there are also options, which
are negotiable on the market; the list of such products goes on and on
(Adda, 1996).
The growth in securitisation is clearly illustrated by Table 5.1.
There was a strong increase in financial assets between 1980 and
1992. The total was multiplied by 3.5, from S10,706 billion to
S35.483 billion. As shown in Table 5.1, international and
government bonds posted the strongest growth, even if in absolute
terms currency and stocks remain on top.
The big financial players invest a growing share of their holdings
in the government bonds of the major industrialised countries and of
those Third World countries that have achieved a certain level of
industrial development. These Third World countries, in fact, have
the highest external debts in absolute terms.
Here are the 19960ECD figures for the most indebted Third World
countries in absolute terms: Mexico, S134.4 billion in 1995; China,
S125.3 billion; Thailand, $116.3 billion; South Korea, $113.5
GLOBALISATION AND THE GROWING DEBT BURDEN/67
billion; Indonesia, S i l l . 5 billion; Brazil, S i l l billion; India, S96.4

billion; Argentina, S80.1 billion; Turkey, S67.8 billion.
Table 5.1 Growth in financial assets, 1980-92 (Sbn and %)
Asset type 1980* % 1991-92 % RG
Currency 4,839 43 11,288 32 1

International bonds 207 2 1,465 4 13
Government bonds 1,934 18 8,707 25 9
Company bonds 9 10 7
- bank 487 1,856
- non-bank 489 1,844
Stocks 2,750 28 10,323 29 6
TOTAL 10,706 100 35,483 100 5
* Expressed in 19 9 2 dollars.
** RG = average annual real rate of growth in %.
Source: McKinsey, 1994, inChesnais, 1996, p. 25.
Table 5.2 Share of financial markets in foreign debt (Sbn)
Country Total debt Owed to Financial Markets %
Mexico 134.4 73.8 54.9

China 125.3 67.4 53.7
Thailand 116.3 95.2 81.9
South Korea 113.5 102.4 90.2
Indonesia 111.5 48.3 43.3
Brazil 111.0 73.4 66.1
India 96.4 28.3 29.4
Argentina 80.1 50.6 63.2
Turkey 67.8 38.7 57.1
Total 956.3 578.1 60.5
Source: OECD, Quelques aspects de la dette exterieure a la fin de 1995, Paris,

1996.
It is worth noting that these figures actually underestimate debt

in a number of countries. For example, our research, based on
studies carried out by various academics, shows that Mexico's
external debt at the end of 1995 was actually SI64.6 billion. If you
include the government internal debt paper held by non-residents,
worth S11.6 billion dollars, you arrive at a total of S176.2 billion
Total Third World debt

81,940 billion (in 1995)
Rest of the
Third World
51%
Thailand
6%
China
6%
Figure 5.1 Share of nine most indebted Third World countries in

total Third World debt, 1995
Source: Infographie Philippe Tombal, Eric Toussaint, 1997.

GLOBALISATION AND THE GROWING DEBT BURDEN/69
(quoted in Macias Cardone, 199 7, p. 8). But since I do not have this
kind of independent research for all the countries in question, I have
used OECD figures. Suffice it to say that they should be handled with
some caution, especially in the case of East and Southeast Asia,
whose countries' debt has increased significantly since the second
half of 1997. For example, in early January 1998, South Korea's
external debt was calculated to be somewhere in the vicinity of S160
and 200 billion.
Of the nine countries in Table 5.2, seven have more than 50 per
cent of their debt held by the financial markets.
A growing number of Third World countries issue debt paper, in
the main financial markets of the highly industrialised countries, in
their own domestic securities exchanges, and even through private
and public banks present on their soil. Most of these issues involve
debt instruments that have the advantage of being extremely liquid;
the purchaser can offload them when necessary at a moment's notice
to a host of players on the secondary markets.
6
The Debt Crisis in

Historical Perspective
PUBLIC DEBT AND INTERNATIONAL CREDIT AND THE

ORIGINS OF INDUSTRIAL CAPITALISM: FROM THE
FIFTEENTH TO THE NINETEENTH CENTURIES
In the footsteps of Adam Smith and David Ricardo (Smith, 1776;
Ricardo, 1817), Karl Marx (Marx, 1867) spent considerable time
studying the creation of an international credit system and the role
of public debt in capitalist accumulation on a world scale. In the first
book of Capital, he devotes several pages of spirited analysis to the
subject.
In chapter 31 (Penguin edition), he particularly focuses on colonial
pillage, public debt and the international credit system as the sources
of primitive accumulation that made industrial capital prosper the
world over.
On the role of colonial pillage, it is worth quoting Capital.
Thankfully, Marx's analysis breaks with the Communist Manifesto's
presentation of capitalism as a civilising force in the periphery:
The discovery of gold and silver in America, the extirpation,

enslavement and entombment in mines of the indigenous
population of that continent, the beginnings of the conquest and
plunder of India, and the conversion of Africa into a preserve for
the commercial hunting of blackskins, are all things which char
acterize the dawn of the era of capitalist production, (ch. 31,
p. 915)
70
THE DEBT CRISIS IN HISTORICAL PERSPECTIVE/71
In the same chapter, Marx coins a phrase that makes a dialectic

link between the oppressed in the centre and those in the colonies: 'In
fact the veiled slavery of the wage-labourers in Europe needed the
unqualified slavery of the New World as its pedestal' (ch. 31, p. 925).
He concludes the chapter: 'capital comes dripping from head to toe,
from every pore, with blood and dirt' (ch. 31, p. 926).
According to Marx:
The different moments of primitive accumulation can be assigned

in particular to Spain, Portugal, Holland, France and England, in
more or less chronological order. These different moments are sys
tematically combined together at the end of the seventeenth
century in England; the combination embraces the colonies, the
national debt, the modern tax system, and the system of protection,
(ch. 31, p. 915)
He devotes several pages to colonial pillage and then examines the

question of international credit:
The system of public credit, i.e. of national debts, the origins of

which are to be found in Genoa and Venice as early as the Middle
Ages, took possession of Europe as a whole during the period of
manufacture. ... The national debt, i.e. the alienation
[ Verdusserung = alienation by sale] of the state - whether that state
is despotic, constitutional or republican - marked the capitalist era
with its stamp.... The public debt becomes one of the most powerful
levers of primitive accumulation. ... Along with the national debt
there arose an international credit system, which often conceals
one of the sources of primitive accumulation in this or that people.
... A great deal of capital, which appears today in the United States
without any birth-certificate, was yesterday, in England, the
capitalised blood of children, (ch. 31, pp. 919-20)
Twentieth-century Marxist scholars have expanded on this

question of global primitive accumulation (Amin, 1993; Gunder
Frank, 1971; Mandel, 1962, 1968). Ernest Mandel's 1968 article
'L'accumulation primitive et l'industrialisation du Tiers Monde'
('Primitive accumulation and the industrialisation of the Third
World') provides a particularly interesting summary. On the basis of
calculations made by other researchers, he estimates that, between
1500 and 1750, some 1 billion English pounds (gold sovereigns)

were transferred from the colonies to Western Europe. 'This is more
than the total value of capital invested by 1800 in all European
industrial companies' (Mandel, 1968, pp. 150-1).
DEBT CRISES IN THE NINETEENTH CENTURY AND EARLY

TWENTIETH CENTURY
Semi-Periphery and Financial Dependence
Use of foreign debt as a weapon of domination played a key role in the
policies of the main capitalist powers in the late nineteenth and early
twentieth centuries towards subordinate powers that could have
themselves become central capitalist powers. The Russian Empire,
the Ottoman Empire and China took in foreign investment to deepen
capitalist development. They took on heavy debts in the form of
government bonds issued in the financial markets of the main
industrial powers. In the cases of the Ottoman Empire and China, dif
ficulties meeting debt payments progressively led them to be placed
under foreign tutelage. European officials set up and oversaw special
debt repayment accounts in these countries. They had virtual control
over government revenues, which they ensured went towards
fulfilling international debt obligations. This loss of financial
sovereignty led the Ottoman Empire and China to negotiate their debt
away against port, railway and trade concessions. Russia, facing the
same fate, chose another path after the 1917 revolution: it repudiated
all debts taken on by the Czarist dictatorship (Adda, 1996).
Unlike China, the Ottoman Empire and Russia, Japan did not take
on foreign debt. As such, it is the only example of successful capitalist
development in the late nineteenth century by a country from the
'semi-periphery'. Japan experienced genuine autonomous capitalist
development in the wake of a bourgeois revolution (1868) which,
among other things, prevented Western finance from taking hold on
its soil while eliminating obstacles to the circulation of domestic
capital. By the late nineteenth century, Japan had emerged from its
autarchy of lore to become a rapidly expanding imperialist power.
Lest there be any misunderstanding, the point here is not to suggest
that the absence of foreign debt was the determinant factor in Japan's
successful run at capitalist development. This is not the place to go
into all the factors that enabled Japan's shift from feudalism to
capitalism (see Anderson, 1976).
Latin American External Debt Crises in the Nineteenth and

Twentieth centuries
Since gaining independence in the 1820s, the countries of Latin
America have gone through four debt crises (Vilas, 1993).
The first such crisis took place during the 18 2 Os, while the different
countries were attaining independence. The second one took place in
the 18 70s. During this crisis, Venezuela refused to meet its payments
and entered into direct conflict with US, German, British and French
imperialism. In 19 0 2, these countries sent a multilateral naval force
to blockade the port of Caracas. Thanks to this gunboat diplomacy,
Venezuela was forced to resume debt payments; these debts were not
paid off until 1943 (Medina, 1996).
This chapter will provide an analysis of the third Latin American
debt crisis, which took place in the 1930s. The fourth crisis, in the
1980s, will be taken up in a following chapter.
Is there a link between the outbreak and deepening of these four
crises, on the one hand, and the long waves of capitalism? The long
waves of capitalist development since the early nineteenth century
have been analysed by a number of authors - among whom Ernest
Mandel, who made a major contribution, especially with respect to
the role of political factors in the development and conclusion of long
waves (Mandel 1971, and especially 1978). Much work remains to
be done in this line of study.
The link between debt and long waves certainly makes for an
interesting subject of research. Indeed, at first glance, there seems to
be a very strong link:
between the first modern crisis of commodity overproduction

(1826), which opened the door to a long wave of slow growth
(1826-47), and the first Latin American debt crisis (which
began in the 1820s);
between the long depression of the industrialised economies
from 1873 to 1893 and the 1870s Latin American debt crisis;
between the 1930s worldwide depression and the Latin
American debt crisis. This time, however, the crisis opened the
way for higher levels of growth than in the crisis-ridden
economies of the centre. One key reason for this growth was the
decision by 14 Latin American countries to suspend debt
payments;
between the long wave of slow growth from 19 73-74 onwards
and the current Latin American (and Third World) debt crisis.
The 1930s Latin American Debt Crisis

In 1931, crisis struck after a decade in which substantial foreign
loans had been made to Latin America, primarily by the United
States. In fact, following the First World War, the US had replaced
Britain as the biggest exporter of capital to Latin America. Britain
held a significant portion of Brazilian and Argentinian debt, but the
US dominated the rest of the continent. Due to war reparation
payments it had to make after the First World War, Germany was a
diminished financial power. Yet, along with Britain, it had been Latin
America's main creditor until the early twentieth century.
At the time, the Latin American debt was made up of securities and
bonds issued on the financial markets of the main capitalist powers.
This is similar to the situation in the 1990s, and unlike that of the
19 70s and 19 80s, in which debt largely took the form of bank loans.
A number of factors explain the increased supply of loans from
Europe and the US after the First World War: Latin America's ruling
classes inspired enormous confidence, guided as they were by a
positivist philosophy of progress; there were great hopes in the
development of the continent; huge tracts of land had been devoted
to export-oriented production, especially of foodstuffs; massive infra
structure was developed: ports, railways and electricity; and finally,
progress in intercontinental transport afforded greater integration
into world markets. In the 1920s, investment boomed in the
continent's three biggest economies: Brazil, Argentina and Mexico.
This investment was financed by debt paper issued on US and
European markets. These countries accumulated huge debts; but all
concerned - lenders, borrowers, financial market operators - were
convinced that exports would indefinitely continue upward,
providing for solid growth and regular debt service payments. The
same reasoning held sway in the 1970s (see Chapters 7 and 9).
It is worth noting that, in 1914, half of industrial exports from the
imperialist centre went to countries that primarily produced and
exported foodstuffs and raw materials. A fundamental change has
taken place from at least as far back as the 1970s. Imperialist

countries largely export to one another.
In 1914, half of the periphery's exports went to only four countries
of the centre: Britain, Germany, France and Belgium. If Italy, Japan,
the US and Austria-Hungary are Included, 70 per cent of the
periphery's exports at the time are accounted for.
In 1928, Investment flows slowed down considerably due to the
saturation of financial markets by Latin American securities. Very
soon after the 1929 stock market crash, no more such paper was
Issued. With the financial tap closed tight, Latin American countries
could no longer meet their debt obligations.
The Suspension of External Debt Payments by 14 Latin

American Governments
On 1 January 1931, the Bolivian government announced It would
stop Its debt payments. A number of other countries followed suit
(Vilas, 1993;Ugarteche, 1997).By 1932,12 countries had partly or
fully suspended debt payments; by 19 3 5, there were 14.
The decision to suspend payment was based primarily on the fall
In the price of exported products (Flshlow, 1985) and on the drying
up of Investment from Imperialist countries (see above).
There Is a striking contrast with the situation 50 years down the
road. One-third of all Latin American countries unilaterally
suspended debt payments In the 1930s. In general terms, this
decision proved to have been the right one. Most of the countries that
ended debt payments experienced renewed economic growth In the
1930s In spite of the halt In foreign lending. Following the Second
World War, the multilateral world trading system was put back on
Its feet; yet this did not reopen private capital markets to Latin
American borrower countries. Alternative channels were put In
place at Bretton Woods In 1944. Multilateral government loans took
the place of financial markets. It was only 20 years later, In the
1960s, that private banks In the centre began lending directly to
Latin America.
For a while, then, Latin American countries kept the International
financial system at arm's length. Even those countries that had never
stopped debt payments realised It was unlikely that global financial
flows could work In their favour. Financial disarray In the US Itself
heightened such feelings. Furthermore, the war between the main
imperialist powers (1940-45) meant that the main lenders (Britain

and the US) could not muster the additional strength to recover their
unpaid Latin American debts by force.
Although a few countries that repudiated their debts could have
met their payments, they determined that the domestic social cost
would have been too high. Thanks to the suspension of payments, the
countries concerned were able to use these considerable financial
resources to pursue a policy of economic expansion. If they had
continued to service their debts, they would most certainly not have
been able to implement exchange controls and protectionist policies
against a variety of products from the North. These latter measures
led to real development thanks to a process of 'industrialisation
through import substitution' (see glossary). Countries produced
domestically many of the items previously imported from the North.
If these countries had not suspended foreign debt payments, they
would not have been able to undertake the wide-ranging public
works programmes which were to play a key role in the region's
economic recovery. Interestingly enough, a variety of very different
political regimes pursued this line of action (Vilas, 1993). As Carlos
Vilas has noted, however, such converging policies were not part of
some preconceived plan. Only later, especially with the creation of
CEP AL (Comision Economica Para America Latina - Latin American
Economic Commission), did industrialisation through import substi
tution become part of a common strategic vision. This approach
replaced that of export-driven industrialisation (Vilas, 1993).
Debt Repudiation and Economic Recovery

The following question must now be asked: How closely is economic
recovery linked to debt repudiation?
A study by David Felix (Felix, 1987) compares the evolution
between 1929 and 1939 of five countries, on the one hand, that
totally repudiated their debts (Brazil, Colombia, Chile, Mexico and
Peru) and Argentina, on the other, which only repudiated a part of
its debts. The study shows that the five showed better economic
results than Argentina.
Whether total or partial, repudiation led to a recovery of
production in the countries concerned.
Between 1929 and 1939, GNP in Brazil, Colombia and Mexico
rose more quickly than in the US, France and Canada. After 1932,
industrial growth in Mexico, Colombia and Chile was stronger than

in Argentina.
After the Second World War, the countries that had suspended
external debt payment entered into negotiations with the imperialist
countries and obtained substantial debt reductions along with
payment facilities.
Argentina's approach, however, was not rewarded by the
imperialist countries. Argentina's main economic partner in the
North was Britain, which had obtained credit from Argentina to pay
for products Britain needed for the war effort (Vilas, 1993). Yet after
the Second World War, and with help from the US, Britain pursued
a policy that knocked off only a marginal portion of Argentina's debt
(for a detailed description of this episode, see Olmos, 1990).
The US Attitude to Debt Repudiation

The US adopted an attitude of tolerance towards the 14 Latin
American countries that unilaterally suspended debt payments. It
was not to be so lenient 50 years later; indeed, the US decided to pull
out all stops to prevent a repetition of the 19 3 0s. Backed by the other
G 7 countries, the Americans went on the offensive with a number of
initiatives in the wake of the 1982 Mexican crisis. They instituted the
Baker and Brady Plans in close succession (Bournay, 1994). US
policy-makers had concluded that the American attitude in the
1930s had paved the way for too much autonomous economic
development in a number of countries in their traditional sphere of
influence. This time, the US rejected cancellation and dealt with
debtor countries on a case-by-case basis. This, after all, is the stuff
world leaders are made of.
At a conference on external debt at Bern in 19 8 5, Henry Kissinger
declared:
There is no painless way in which indebted countries will be able

to resolve their critical situation, but we should suggest some
amendments to the IMF adjustment programme. The solution will
require some sacrifice; I prefer that indebted countries fulfill their
external obligations to debtors with real assets, through a
handover of public property, (quoted in Olmos, 1990)
BOX 1 NICHOLAS BRADY PICKS UP A PERUVIAN

COMPANY FOR A SONG
A Former US Secretary of the Treasury Goes Offshore
Former US Secretary of the Treasury Nicholas Brady authored the
Brady Plan for putting a lid on the Latin American debt crisis
(Bournay, 1994). Did he deserve his early retirement? How can
someone with such business acumen remain on the sidelines? As
one of the most powerful officials in the US administration in the
1980s, he shone in his job as defender of the interests of the US and
the capital-holding sectors of the population. Yet now, unabashed,
he has turned to defending his own personal affairs. In 1994, with
the money set aside from a generous and well-earned government
salary, he created (with his own private company, Darby Overseas,
set up a year before with his main adviser at the US Treasury, Hollis
McLoughling) an international holding society in one of the most
well-known offshore tax havens in the world, the Cayman Islands
(just a stone's throw from the American coast). The Cayman
Islands are home to only 30,000 inhabitants; yet curiously
enough, there are 20,000 businesses registered there. Apparently,
Brady is not exactly tripping over himself to ensure that the US
Treasury receives its due in taxes!
Brady's company is called International Financial Holding
(IFH). Soon after its creation, IFH took over the fourth biggest
Peruvian bank, Interbank - which, until then, had been state-run.
Interbank was privatised in the final phase of the aptly named
Brady Plan. As if this were not enough to set the scandal mill
turning, the bank is apparently implicated in laundering proceeds
from the cocaine trade. Among the other illustrious figures at
Darby Overseas can be found one D. Marx, Argentinian Finance
Under-Secretary between 1976 and 1981. Marx was implicated in
the scandal over debt contracted by the Argentinian dictatorship
(Olmos, 1990). Another heavyweight at Darby Overseas is the
former Peruvian Minister of the Economy, who heads the private
Mexican-Peruvian consortium that snapped up Aeroperu.
When he conducted American financial policy in the 1980s,
Brady gave his name to the plan that led to the signing of a number
of bilateral agreements between US authorities and Latin
American governments on debt rescheduling and reduction. The
privatisation of state-owned firms was one of the central
components of the Brady method. The method has won over the
IMF and World Bank, who have since applied it the world over.
Indebted countries pay back debts by selling off entire sections of
their industrial apparatus, communication firms (telecommuni
cations, airlines, ports, and so on) and banking system.
Apparently never one to be lacking in chutzpah, Brady threw in
a further twist in the case of Mexican debt. The Mexican authorities
were forced to buy US Treasury bonds as a guarantee for new loans
from private banks in the North and from the IMF and World Bank.
In other words, among other methods for financing its gargantuan
debt, the US obliges Mexicans to loan it money through the
purchase of US Treasury bonds. Thanks to this loan to the United
States, the Mexicans are authorised to borrow on international
markets to finance debt repayment! Through it all, the Mexican
debt has risen from S95 billion in 1982 to nearly SI30 billion in
1994 and more than SI 70 billion in 1997.
Meanwhile, members of the Mexican ruling elite have not failed
to cash in on all the myriad financial transactions and privatisa
tion sell-offs. Indeed, by 1996, 24 Mexican families had joined the
ranks of the world's 100 wealthiest families, breaking all records
of speed - and greed. These 24 families own the means of
production responsible for creating 14 per cent of the country's
GDP. At the same time, some 3 5 million Mexicans live on less than
SI per day. Not for them, retirement to a dream home on the
Cayman Islands!
The 1997 UNDP annual report reveals that the richest Mexican
owns more wealth than the total annual wages of the poorest 17
million Mexicans taken together.
Source: Financial Times and research carried out by Michel Chossudovsky

and Eric Toussaint.
7
The Third World Debt Crisis

in the 1980s and 1990s
What was the origin of the crisis that began in August 1982?
Why did the North's private banks, the IMF, World Bank and the
governments of the most industrialised countries encourage the
countries of the South to take on so much debt?
Were they aware of the impending dangers?
How did the private banks deal with the crisis?
How did the IMF and World Bank grow stronger even though the
crisis could well have weakened them?
Why did the South's governments and companies take on so much
debt? Was there a valid reason or were they simply corrupt and
thirsting recklessly for short-term profit and personal enrichment?
Is the South really paying back its debts?
In the 1930s, 14 Latin American countries - including the most
powerful ones - unilaterally suspended foreign debt payments. Why
have the countries of the Third World not followed their example this
time?
Why have most, if not all, governments of the South agreed to pay
off debts for which they are very often not responsible? Do they have
a vested interest in doing so, or rather is there no other choice?
What does interest (rent) payment on borrowed money represent?
Is it merely another way in which wealth is transferred from the
South to the North? Or rather, are things more complex? Is it a
transfer of the surplus produced by workers and small producers in
the South to the holders of capital in the North and South, with the
South's governments picking up a commission in the process?
80
THE THIRD WORLD DEBT CRISIS IN THE 1980s AND 1990s/81
Most countries of the South have entered a new cycle of heightened

dependence. Has the handling of the debt crisis by the North's centres
of power been responsible for this state of affairs?
What is the origin of the World Bank and IMF? How have they
evolved since being created in the heat of the 1944 Bretton Woods
conference?
What is the nature of the structural adjustment programmes
imposed on the overwhelming majority of Third World and former
'socialist' countries?
Is there a link between the debt crisis, adjustment policies and
crises of the type seen in Rwanda (1994) and Algeria?
This is the series of questions for which the following chapters will
seek to provide some answers. The stakes are high, since the very
well-being of the majority of the world's population has been affected
by the debt crisis and structural adjustment policies.
THE DEBT SURGE OF THE 1960s AND 1970s

Between 1961 and 1968, the Third World's total external debt rose
from S21.5 billion to S47.5 billion (Mandel, 1972).
Between 1971 and 1980, the Third World's total external debt
was multiplied by eight - from about 70 to more than S560 billion
(see footnote).
Yet both the media and the international financial institutions
themselves only started talking about the Third World debt crisis
after August 19 8 2 - when the Mexican government announced that
it would no longer be able to meet its regular external debt payments.
This created serious problems for the international financial
system, especially for the North's private banks. From that point on,
there was talk of a Third World debt crisis.
Yet the crisis had its origins much earlier on.
1. The different international bodies (World Bank, IMF, OECD, UN Secretariat)

regularly publish reports on debt, but there are often significant differences between
their figures. These differences stem from (1) different methods of adding up incomplete
available figures; (2) differences in the nature of debt taken into consideration; (3)
different sample countries. For example, in its 1983 report, the OECD estimated that
total Third World debt was $552 billion in 1982, while the World Bank calculated it
at $59 6 billion. Subsequently, the OECD changed its method of calculation to include
short-term debt. As a result, its figure for 1982 jumped from $552 billion to $820
billion in its following report. The OECD changed its method of calculation again in its
1990report, further boosting the 1982 Third World debt figure to $854 billion. For
each year in the 1980s, there is a difference of at least $100 billion between IMF and
OECD figures! See Norel and Saint-Alary, 1988.
THE BIRTH OF THE EURODOLLAR MARKET AND THE

ORIGINS OF THE DEBT CRISIS
In the 1960s, a growing number of banks operating outside the US,
especially in Europe, began to accept deposits and provide loans in
dollars. This helped absorb and recycle the huge quantity of dollars
circulating around the world as an instrument for international
payments (Adda, 1996, vol. l,p. 94 and after; Chesnais, 1996, p. 14;
de Brunhoff in Chesnais, 1996, p. 47; Norel and Saint-Alary, 1988,
p. 41 and after). Eurodollars were dollars held on account by banks
with operations centred outside the US. This newcomer to the
financial markets signalled the beginning of the deregulation of
capital flows, since the banks in question were not subject to the
control of any state body - neither that of the US Federal Reserve nor
that of Western European governments. They were also outside the
ambit of inter-state bodies, with the IMF opting for non-interference.
In so doing, the IMF was not respecting its own statutes; article VI
explicitly calls for controls on capital flows.
Handling costs for Eurodollar-denominated financial products
were lower than those in other currencies, since 'Eurobanks' were
not obliged to set up mandatory reserves. This meant they could offer
high returns to depositors and competitive rates to borrowers, while
posting high profits themselves. All at a risk, however.
Early signs of the impending winding down of the long wave of
rapid growth included high levels of bank liquidity. The banks
received increasing amounts of capital, since the drop in profit levels
meant there were fewer and fewer attractive investments in
production. The beginning of the 19 70s saw a major upswing in
Eurodollar loans. They jumped 212 per cent between 19 70 and
1971, 58 per cent between 1971 and 1972, and 207 per cent
between 1972 and 1973.
INCREASE IN WORLD BANK LOANS

During the first 22 years of its existence, the World Bank provided
loan financing for only 708 projects, to the tune of S10.7 billion.
From 1968 onwards, however, loan totals skyrocketed. Between
1968 and 19 73, the World Bank loaned S13.4 billion for 760
projects (George and Sabelli, 1994; McNamara, 1973).
RECYCLED PETRODOLLARS
Many analysts and opinion-makers in the North have incorrectly
blamed the surge in Third World debt on the 1973 increase in the
price of oil, decided by the OPEC cartel of oil-producing countries from
the South. They have got their facts wrong. As we have just shown,
debt had increased significantly well beforehand. Two factors linked
to the oil shock did, however, accelerate indebtedness. First, most of
the revenues obtained by oil-producing countries were transferred by
the South's governments into the North's financial system. This
further heightened the excess liquidity of the North's banks. As a
result, these banks sought to loan money to the South even more
aggressively than they had done in the late 1960s and early 1970s.
Second, non-oil-producing countries of the South were hit by the
increase in their oil bill, creating a deficit in their trade balance. To
finance this deficit, they were forced to borrow in the North's
financial markets (Montes, 1996; Norel and Saint-Alary, 1988).
It is one thing to identify these two factors, quite another to blame
OPEC countries for the Third World debt crisis.
It should come as no surprise, however, that a number of analysts
have indeed blamed OPEC countries. It is an easy way to let decision
makers in the North off the hook. Beyond this, it is also a way to
blame OPEC for the 1974-75 world economic crisis.
At the time, Ernest Mandel warned against such an explanation for
the crisis (see in particular his article 'La hausse du prix du petrole n'a
pas provoque la 20eme crise de surproduction depuis la formation du
marche mondial du capitalisme industriel', Inprecor, 16 January
1975; Mandel, 1982; see also Norel and Saint-Alary, 1988). A reg-
ulationist economist such as Michel Aglietta has provided a similar
explanation (Aglietta et al., 1990).
THE RESPONSIBILITY OF THE NORTH'S BANKERS

The North's banks pursued increasingly audacious (and risky) loan
policies, especially with respect to Third World countries (to both
their governments and their private companies). Policy-makers in
Third World countries soon grew accustomed to a situation in which
banks 'offered' them loans at very low rates (between 3 and 8 per cent
until 1978) (Norel and Saint-Alary, 1988). When inflation was
factored in, interest rates were almost nil, and even negative at times.
Borrowing was therefore an attractive proposition. Any number of

the South's leading government officials and enterprise heads from
the time can be found to testify that representatives from the North's
banks descended upon the South to offer loans, tripping over one
another to offer the most attractive terms. By the time the crisis hit in
1982, more than 500 banks had made loans to Mexico, more than
800 to Brazil (Bournay, 1994).
EASY MONEY AND THE 1974-75 WORLD ECONOMIC

CRISIS
When global recession hit in 19 74-75, the North's governments
implemented the kind of pump-priming measures that were very
common at the time - the idea being to boost production through an
increase in demand. This is the overall framework within which the
policy of easy credit for the Third World was continued. Now, it was
the turn of the North's governments to offer attractive loans,
especially in the form of export credits for the South. These loans were
provided to Third World countries on condition that they make
purchases from the industries of the creditor countries - of industrial
goods and other products, including military hardware disguised in
one way or another. Such bilateral loans (from the North's
governments to those of the Third World) aim to boost Third World
demand for products from the North. As a result of this policy,
between 1976 and 1980, the South's total debt grew at an annual
rate of 20 per cent (Bournay, 1994).
WHAT WERE THE LOANS FOR?

The World Bank and the North's governments and banks provided
loans above all for large infrastructure projects - energy mega-
projects, for example.
Loans were also provided to finance the balance of payments deficit
of countries of the South. Export credits were provided to back the
North's exporting industries.
All these loans obeyed the same overall logic - that of strengthen
ing the link between the countries of the periphery and the world
market, and of further steering these countries towards export-
oriented production. In the South, this meant abandoning local food
crops and industrial undertakings aimed at meeting the needs of the
domestic market. It also meant abandoning projects aimed at

exporting high value-added products that could compete with those
manufactured in the North. The loans also sought to induce each
country of the South to specialise in the production of a few export
products. The least advanced Third World countries were the most
vulnerable; they specialised the most, thereby further heightening
their dependence. This was also the case for more developed countries
like Algeria, which was in the midst of a genuine industrial take-off.
It was driven to concentrate in large measure on oil and gas
extraction.
By steering the countries of the South to focus on the export of raw
materials and basic manufactured goods, the North put them in
competition with one another. This could only lead to a short-term
drop in the price of the products being exported. The only possible
consequence was a drop in export earnings and, above all, a deterio
ration in the terms of trade (see Chapter 8).
CORRUPTERS AND THE CORRUPTED

It is difficult to determine how large a share of these loans went
towards the personal enrichment of people holding public posts in the
South. Norel and Saint-Alary ask, 'How many bankers so much as
batted an eyelid when they saw that loans destined for Mexican or
Filipino state firms were actually deposited directly into the Boston
and Geneva accounts of highly placed government officials?' (Norel
and Saint-Alary, 1988). There is no shortage of examples of such
practices. By the time he was toppled after 20 years in power, the
Filipino dictator Ferdinand Marcos had accumulated a personal
fortune of some S10 billion. Yet his beginnings were relatively
modest. For their part, post-Marcos governments and the Filipino
people have inherited an external debt in the order of S30 billion.
The Mobutu dictatorship is another textbook case. In 1960,
Mobutu earned the salary of the army corporal that he was. Thirty
years later, his personal fortune totalled some S8 billion (estimates
vary since banks from South Africa and the North have refused to
reveal the extent of Mobutu's holdings). When the dictator was
toppled in May 1997, the new Congolese government and the
Congolese people owed external debts totalling nearly S13 billion.
These are not isolated cases. Such practices are part of the 'system'
and are now considered to be normal and legal.
Further on, we examine Argentinian debt under the 197 6-8 2 dic
tatorship. It is clear that there was systematic complicity between
the banks of the North, the IMF, US officials and the Argentinian dic
tatorship to steep the country in debts while enriching Argentinian
officials and the North's financial institutions.
A considerable share of money loaned by the North (almost 80 per
cent according to Vilas, 1993, and other writers) never reached the
target countries - let alone the people of these countries.
It is also possible to get an idea of the huge share of money loaned
to the South that made its way into Northern bank accounts, by
looking at Table 8.1 ('Gross and net debt - end of 19 9 5'). In the case
of Latin America, the table shows that the equivalent of two-thirds of
total debt has been deposited by Latin Americans into Northern bank
accounts. Without a doubt, a significant share of this money comes
from the funds loaned to Latin American countries and subsequently
embezzled by government officials and businesspeople from these
countries.
One also has to take into account the loan money used for projects
aimed at increasing the prestige of dictatorial and non-dictatorial
regimes. In Cote d'lvoire, for example, Houphouet-Boigny built a
replica of St Peter's Basilica in the village where he was born. Mobutu
had the Gbadolite Palace built in his home village. These examples
are just the tip of the iceberg.
Finally, account should be taken of the environmental and human
damage caused by the building of energy mega-projects and com
munications infrastructure. We should also keep in mind that most
of the spending on these projects went towards importing equipment
from the North and paying the salaries of experts from the North.
Very little money actually made it to the South. To top it all off, many
of these projects were never completed or work very much under
capacity since they were not drawn up in accordance with the real
needs of the countries in question.
Corruption also made headway within private business, where
individuals from both the North and the South filled their pockets. A
revealing example is that of Elf Aquitaine in Congo-Brazzaville. In
1997, the former Congolese president, Patrice Lissouba, opened up a
can of worms when he lodged a complaint against the Elf group for
involvement in a coup d'etat. This was the way Elf had chosen to
'punish' Lissouba for considering the idea of selling a series of oil wells
to an American oil company. Lissouba's complaint says: 'It would not
be difficult to find the account-book proof of Elf's financial support to

the coup d'etat. This is because the preparation and execution of such
a large-scale operation cost, directly or indirectly, somewhere
between 100 and 200 million dollars.' He denounces the financial
circuits (from which he himself benefited) that go through the Paris-
based FIBA bank, the Luxembourg-based SIBA and the Belgian bank
La Belgolaise (Le Monde, 27 November 1997). This scandal ties in
with the revelations of a study carried out in France, concerning the
payoffs made by Elf into the Swiss bank accounts of about 40 highly
placed French officials. The list of officials includes a former minister
of a right-wing government, a close associate of the former right-
wing Minister of the Interior Charles Pasqua, and a friend of former
President Frangois Mitterrand (Le Monde, 1 December 199 7).
In the world of corruption, it takes two to tango. Belgium (along
with Luxembourg) and France rank first and second in the list of
corrupting nations compiled by Johann Lambsdorff, professor of
economics at the University of Gottingen, for Transparency
International. A whole host of laws in the North explicitly allow
companies to account for commissions paid overseas and deduct
them from their taxable profits (Le Soir, 30-31 August 1997).
Furthermore, a portion of the aid 'granted' by France to countries in
its orbit returns directly into government coffers.
BOX 2 THE INGA DAM IN CONGO-ZAIRE

Long on the project books when Congo-Zaire was a Belgian colony,
the Inga hydroelectric complex got under way in 1965 after
General Mobutu took power. The project remained under the wing
of the president's office throughout. By late 1971, the project
needed new financing to reach completion. The first phase of Inga
absorbed S163 million, 125 per cent more than initial estimates.
By the end of 1980, the Inga central was using half its capacity;
almost none of the industrial projects destined to be powered by the
new complex had seen the light of day. Still, at that time, a group
of industrialists set about building Inga II, which was meant to
provide three times as much power as Inga I. Its initial estimated
cost was S360 million, it ended up costing S460 million. It was
financed by bank and commercial loans. The Belgian Societe
Generale de Banque provided the biggest bank loans - some S16 7
million at interest rates between 6 and 8 per cent. Problems with
silting up significantly increased Inga II's operating costs.

Furthermore, the industrial development that would have justified
the second complex never came about (Galand and Lefevre, 1996).
Inga did indeed generate electricity - transmitted through a
network of thousands of kilometres of power lines linking up
strategic industrial centres. Yet the worst thing about this whole
classic 'white elephant' tale, is that Inga was not designed nor used
to provide even a spark of electricity to power village water pumps,
to light local health clinics or to improve in any way the lot of the
hundreds of thousands of people living under the web of high-
voltage power lines. A study carried out at the request of the
Belgian Minister for Cooperation and Development makes the
origin of such risky ventures quite clear.
In the context of crisis in Western countries, excess liquidity in

the international monetary system - combined with the near-
total absence of controls over financial markets - led bankers to
redirect their financial surplus into the Third World. As such,
they became specialists in the transformation and recycling of
savings from the Third World into loans to the Third World. The
resulting debt was highly concentrated in a small number of
countries, and owed to a small number of largely American
lender banks.
Big American banks had already begun to loan to Third
World countries in the late 1960s. But the flood of petrodollars
onto international capital markets led to lending of epidemic
proportions, with door-to-door 'money salesmen' criss-crossing
the Third World in the hunt for borrowers. (E. Simons, B.
Verhaegen and J-C. Willame, Endettement, technologie et indus-
trialisation au Zaire, 1970-1981)
THE OCTOBER 1979 U-TURN

In the 1970s, global inflation reached levels that were intolerable
from the standpoint of the capitalist system (Adda, 19 9 6; de Brunhoff
in Chesnais, 1996). Real interest rates on loans, accounting for
inflation, were negative, which was damaging to creditors.
A radical U-turn was made in October 1979, under the guidance
of the head of the US Federal Reserve, Paul Volker, and British Prime
Minister Margaret Thatcher. Volker and Thatcher represented,
respectively, the biggest financial power and the country with the
biggest international currency market. Interest rates were sharply
increased. The primary objective of the 'second October revolution',
as some commentators called it, was to stamp out inflation in the US.
The result was an increase in interest rates on short-term loans to
unprecedented levels.
This policy was promoted worldwide from 1980 onwards by the
Reagan administration and Thatcher government. Neo-liberal
policies were progressively imposed the world over, leading to a
fundamental overhaul in the way national economies were financed
internally and externally. This change in financial policy had a major
impact on the most vulnerable countries (in the form of the Third
World debt crisis), and on employment, salaries, social spending and
the public debt in the developed capitalist countries.
THE FINANCIAL SUFFOCATION OF THE THIRD WORLD

The Effects of the Increase in Interest Rates
For Third World countries, this new policy meant a tripling of
payments on the same levels of debt. This is because the interest rates
they paid followed the upward march of the Prime and LIBOR rates
(see glossary). Loans contracted during the 19 70s contained a clause
whereby interest rates would be pegged to changes in the Prime and
LIBOR rates.
This evolution of interest rates can be seen very clearly in
Table 7.1.
In this table, the real interest rate is calculated by subtracting the
US inflation rate from the nominal interest rate. For our purposes, the
Prime Rate provides a good idea of the rates practised on interna
tional financial markets. Like the London LIBOR rate, it is used as a
reference for setting the rates on loans to the Third World.
The figures clearly show how low interest rates were in the 19 70s
(in both nominal and real terms). In 1974-75, real interest rates
were negative. The upward trend began in 1979-80 with a rise in
nominal rates. One of the objectives was a radical reduction of
inflation, beginning with the US. This drop in inflation began in
1981, leading to a strong surge in real interest rates which ultimately
asphyxiated financially the South's debtor countries.
Table 7.1 Nominal Interest rates, real Interest rates and Inflation
Prime Rate
Year Nominal Real US inflation
0/ 0/ 0/
/o /o /o
1970 7.9 2.0 5.9

1971 5.7 1.4 4.3
1972 5.2 1.9 3.3
1973 8.0 1.8 6.2
1974 10.8 -0.2 11.0
1975 7.9 -1.3 9.2
1976 6.8 1.1 5.7
1977 6.8 0.3 6.5
1978 9.1 1.4 7.7
1979 12.7 1.4 11.3
1980 15.3 1.8 13.5
1981 18.9 8.6 10.3
1982 14.9 8.7 6.7
1983 10.8 7.6 3.2
1984 12.0 7.7 4.3
1985 9.9 6.4 3.5
1986 8.3 6.4 1.9
1987 8.2 4.5 3.7
1988 9.3 5.2 4.1
1989 10.9 6.1 4.8
1990 10.0 4.6 5.4
1991 8.5 4.3 4.2
1992 6.3 3.3 3.0
1993 6.0 3.0 3.0
1994 7.7 5.1 2.6
Source: CEP AL in Dgarteche, 1996, p. 230.
(It should also be noted that real interest rates were higher
throughout the 1980s and 1990s than in the 1970s. This means
that new loans granted in the 1980s and 1990s to finance servicing
of 19 70s debts usually had higher real interest rates than those of the
loans they were meant to service.)
Even more damning is the study made by Sebastian Edwards,

World Bank economist and head of the bank's Latin American
economics division until 1996. Edwards calculates the real interest
rates used for Latin American loans by subtracting the inflation rate
for Latin American exports from the nominal LIBOR rate. This is an
astute calculation to make, since Latin America services its debts with
its export earnings.
Edwards writes,
in the case of Latin America, the real interest rate went from an
average of-3.4 per cent [a negative rate favourable to debtors]
between 1970 and 1980 to +19.9 per cent in 1981, +27.5 per
cent in 1982 and +17.4 per cent in 1983. (Edwards, 199 7)
The Shrinking of Export Markets and the Resulting Drop in

Earnings Created Trade Deficits for the Countries of the
South
In 19 8 0 - 8 1 , the first generalised recession since the one in 19 74- 7 5
caused export markets to contract (Mandel, 1982, pp. 214). Coupled
with the sharp fall in the price of raw materials from August 1982
onwards, this financially throttled the countries of the Third World.
These countries were hit by a drop in export earnings and an increase
in interest payments. This in turn created a trade deficit, which had
to be financed with new loans.
At the same time, credit sources were drying up as banks became
aware of the risks they had taken.
The earnings of oil-producing countries plummeted; petrodollars
were no longer available for recycling into loans.
The spectacular increase in the US budget deficit under Reagan
was financed by masses of capital that flooded into the US, and away
from Third World countries.
The US overtook Third World countries as the main borrower on
global financial markets, while West Germany and Japan overtook
OPEC as the world's main moneylenders.
Not surprisingly, the decision by banks abruptly to stop all loans to
Third World countries led to the very suspension of debt-service
payments that these banks feared.
In August 1982, Mexican officials announced that they were no
longer able to meet their international financial obligations. They
would soon be followed by other Third World governments the

world over.
The situation was soon contained, however, when the IMF and the
World Bank] ointly stepped In as the main Third World debt collection
agency. Within the Paris Club, which works closely with the IMF and
the World Bank, the North's creditor countries set about renegotiat
ing their bilateral loans with debtor countries. The London Club
oversaw the withdrawal of private banks from the Third World debt
market, and guaranteed that these banks' Interests would be fully
looked after.
Almost all the countries of the South agreed to debt repayment
plans that actually Increased the amounts to be paid over the medium
and long term.
8
The Transfer of Wealth from

the South to the North
One idea is deeply embedded in the public psyche: the North helps the
South. Still, former French president Frangois Mitterrand declared at
the July 1994 G7 meeting in Naples:
In spite of the considerable sums spent on bilateral and multilateral

aid, the flow of capital from Africa to the industrial countries is
higher than the flow from the industrial countries to developing
countries.
In fact, there is a massive transfer of the social surplus created by

the South's workers and small producers to the dominant classes of
the industrialised world and of the Third World countries themselves.
This chapter initially provides a general overview of the different
types of South-North transfers, then discusses the loss of potential
hard currency earnings incurred by the South as a result of the
North's protectionist policies. Finally, the chapter examines official
development assistance (ODA) from a variety of angles.
THE TRANSFER OF WEALTH

The transfer of wealth takes many converging forms.
Debt Repayment
Here are the UN's official figures: total developing country foreign
debtin 1980, S567 billion; in 1986, SI,086 billion; in 1992, S1.419
93
billion (Khor, 1994). By the end of 1995, the figure was SI,940
billion (SI.9 trillion).
According to the UN, between 1980 and 1992 interest payments
totalled S771.3 billion, to which should be added S890.9 billion in
repayment of principal. In other words, during these twelve years
Third World countries made SI,662.2 billion (SI.7 trillion) in debt
payments. During this period, they paid three times more than their
1980 debt - only to find themselves three times more in debt. The
external debt has become an eternal debt, with new loans serving
only to pay off old ones.
How is it that principal repayment could possibly be greater than
the amount originally owing in 1980? We come to the heart of the
transfer mechanism set up by the North's bankers, with the help of
the Paris Club and the IMF-World Bank duo. The IMF and the World
Bank actually take in more money than they give out in loans, and
have done so since 1986.
Year in, year out, debt servicing soaks up between SI60 and 200
billion (of which S 70 billion in principal repayment) go to private
banks, other institutional investors, the IMF, the World Bank and
the most industrialised countries. This is more than 3.5 times the
money disbursed in official development assistance (ODA - see end of
chapter). In 1994, Third World debt servicing totalled S200 billion
and has actually increased since.
Debt repayment works like a vacuum which sucks away a portion
of the social surplus produced by the South's working men and
women (be they waged workers, individual or families of small
producers, or service sector workers in the informal sector). It sends
off these vast sums to holders of capital in the North and to dominant
sectors in the South. The South's dominant classes grow rich off the
sums transiting through and out of their countries, while the
national economies they head stagnate or decline and the local
populations become impoverished.
BOX 3 A KEY PARALLEL: REPAYMENT OF THE NORTH'S

PUBLIC DEBT
While this is not the focus of this section of the book, it seems
appropriate to mention here the parallel between repayment of the
Third World debt and repayment of the public debt in the indus
trialised countries. Public debt repayment in the North is a
THE TRANSFER OF WEALTH FROM THE SOUTH TO THE NORTH/95
mechanism for draining off a portion of the earnings of workers

and their families in favour of holders of public debt paper - insti
tutional investors (banks, pension and mutual funds, insurance
companies) owned and controlled by capitalists.
This drain occurs thanks to the growing share of government
tax revenue used to pay off the public debt. This government tax
revenue, in turn, is earned primarily from taxes on workers' wages
and indirect sales and excise taxes, which proportionally hit low
and mid-range earners hardest.
Frangois Chesnais has made the same point:
Part of the increase in the size of the financial sphere is a result

of the following chain of events. First, wealth takes the form of
wages and fees or of farmers' and small-business earnings.
Second, this wealth is siphoned off by the state as taxes. Third,
the state transfers this wealth into the financial sphere as interest
and principal payments on the public debt. (Chesnais, 1996)
The Difference in Interest Rates from North to South

In the 1980s, bankers from the North made debtors in the South pay
risk premiums for the money they borrowed. These premiums were
tacked on to loans that enabled countries of the South to continue
servicing their debts. As for loans in the 19 70s, they were contracted
at a variable rate indexed to changes in the London LIBOR rate or the
New York Prime Rate. According to the United Nations Development
Programme (UNDP), this created major differences between rates in
the North in the 1980s and those applied to loans to the South:
'During the 1980s, while interest rates were 4 per cent in the indus
trialised countries, the effective interest rate paid by developing
countries was 17 per cent. On total debt worth more than SI,000
billion, this meant a special interest premium of SI20 billion
annually. This merely aggravated a situation in which net transfers
to pay the debt totalled S 5 0 billion in 19 8 9' (UNDP ,1992).
The 199 7-9 8 Southeast Asian crisis provoked a sharp increase in
the risk premiums the region's countries must pay to borrow the
money needed to pay off short-term debt. In June 1997, Thailand was
paying 7 per cent to its lenders; by December 1997 it was paying 11
per cent. By late 1997, Brazil and Russia, two countries at opposite
ends of the planet, had to double the yield on their debt issues in order
to remain attractive to foreign investors.
What influences changes in risk premiums? The level of investor
confidence in a borrower country's ability to pay off its debts.
Obviously, the economic crisis in Southeast Asia has reduced investor
confidence. Yet it was the very same investors who unleashed the
crisis by withdrawing their capital from the countries of the region.
These same lenders (including the IMF and the World Bank) are now
demanding a higher rate of return as a condition for bringing back
some of this capital.
Two American rating agencies, Moody's and Standard and Poor's,
specialise in 'country-risk' estimations. They have significant
influence on risk-premium levels. On 22 December 1997, Moody's
decided to downgrade South Korea by several notches in its 'country-
risk' tables. Until that date, South Korea had been given the same
ranking as reliable industrialised countries. Overnight, it became a
high-risk country on a par with the Philippines. Ever since, South
Korean debt paper has had the same risk rating as junk bonds.
We are seeing a repeat of the 1982 crisis, 16 years later, on the eve
of the new millennium. South Korea and the countries of the Third
World will henceforth pay higher interest rates than the North. The
phenomenon has been exacerbated by the 'flight to quality'. As a
result, since the end of 1997, institutional investors have preferred
debt issues from the most industrialised states over those from the
economies of the Periphery. This has sparked a generalised fall in the
rates offered by the North's governments.
The gap is widening still further between the interest rates paid by
the periphery and those found in the centre.
Deterioration in the Terms of Trade

The world market is characterised by the fact that the majority of
countries in the South have continued to be exporters of raw
materials and low value-added manufactured goods. Conversely,
these countries import high value-added industrial goods and
technology. They are also net importers of farm products destined to
feed the population and livestock - which livestock is largely exported
to the North.
The terms of trade are based on what a basket of goods exported by
the South can fetch in the North. According to the UN Secretariat, a
basket of goods from the South could buy 52 per cent less In 1992
than It could In 1980. In other words, a country In the South must
export twice as much to obtain in exchange the same quantity of
goods from the industrialised world.
OPEC member countries have seen their terms of trade plummet
even further. In 1992, the real price of crude oil was one-third of
what it was in 1981.
For sub-Saharan Africa, from 1986 to 1989 alone (just four years)
the fall in the terms of trade meant S55.9 billion in lost earnings.
Ninety per cent of exports from half the countries of Africa is made up
of raw materials.
Fifteen countries belong to the 'severely indebted middle-income
country' (SIMIC) category: Argentina, Bolivia, Brazil, Chile,
Colombia, Cote d'lvoire, Ecuador, Mexico, Morocco, Nigeria, Peru,
the Philippines, Uruguay, Venezuela and Yugoslavia. Between 1981
and 1989, the deterioration in the terms of trade cost them S247.3
billion.
Above and beyond this downward tendency and market sensitivity
to marginal fluctuations, industrialised countries have aggravated
the problem by manufacturing substitutes: synthetic fibres, artificial
sweeteners, and so on.
The most recent substitute, and not a minor one at that, would
allow countries of the North to label as 'chocolate' a product they
make that has virtually no cocoa in it. The European Commission
has authorised European chocolate makers to substitute cocoa butter
(produced in the South) with fat, totalling up to 5 per cent of the
product's net weight. The Commission realises that this would
trigger a fall in cocoa exports to the European Union (EU), leading to
an inexorable fall in the price of cocoa on the world market and
severe poverty for the South's cocoa farmers. But the European lobby
is very powerful. This is a clear example of EU protectionism against
the South.
Even when they export manufactured goods, countries of the
South generally lose out in trade with the North. Between 1980 and
1990, the price of the South's manufactured exports increased in
nominal terms by 12 per cent. During the same period, the G7's
manufactured exports rose 35 per cent in price (UNDP, 1992). In
real terms, the South's manufactured exports dropped in price, the
North's rose.
In 1972, Ernest Mandel and a handful of other economists

highlighted this deteriorating state of affairs. In his book Late
Capitalism, Mandel writes:
The share of the underdeveloped countries in world trade declines

- instead of growing or remaining constant - and the decline is
rapid. All private and public transfers of capital from the metro
politan countries cannot keep pace with the flow of values in the
opposite direction, and the countries of the so-called Third World
consequently suffer relative impoverishment in their transactions
with the imperialist countries. Obviously this impoverishment
cannot be accompanied by a growing share in world trade, i.e. by
a growing share in international purchasing power.
The Third World's rapidly declining share in world trade - from
approximately 32 per cent in 1950 to approximately 17 per cent
in 19 70 - naturally does not in any way imply that there has been
an absolute decline in the dependence of imperialist countries on
certain strategic raw materials .... But within the framework of the
capitalist world economy the contradiction between the use value
and exchange value of commodities is expressed in the fact that the
increased dependence of imperialism on the raw materials
exported by the colonial countries is accompanied by a relative
decline in the prices paid for these raw materials and a relative
decline in their value. (Mandel, 1978)
According to Augustin Papic, former member of the UN's

North-South Commission, the invisible transfer of wealth from the
South to the North - due to the deterioration in the terms of trade -
could total some S200 billion per year. That is, as much or more than
what is paid out annually in debt-service payments.
In late 1997, the Southeast Asian crisis provoked a general fall in
the prices of raw materials. It is difficult to predict how long this trend
will last. It will largely depend on the duration of the crisis in the region
and on whether it spreads outside the region (thereby causing global
deflation). The raw materials most severely hit have been copper, zinc,
nickel, aluminium, gold, platinum, oil and pulp for paper.
The deterioration of the terms of trade is a sign of the unequal
character of global trade. The most industrialised countries are in an
advantageous position in their trading relations with the South. A
study of France's foreign trade provides recent confirmation of this
state of affairs. A study published by the French statistical institute

INSEE, Le Commerce exterieurde la France (INSEE, 1997), shows that
in 19 9 6 France recorded a considerable trade surplus with low-wage
countries. France's trade with countries of the North is balanced, but
it recorded a surplus in 1 9 9 6 - 4 0 per cent thanks to its trade with
Africa, 2 5 per cent with the Middle East and 15 per cent with Eastern
Europe. Yet 80 per cent of France's trade is carried out with other
industrialised countries. In other words, the remaining 20 per cent
of the country's foreign trade - with the Third World and Eastern
Europe - generated France's trade surplus.
World Trade Controlled by the North's MNCs

The industrialised countries' MNCs control global transport, trade
and the distribution of goods and services. These companies take in
a large share of the earnings obtained through the sale of
commodities, since Third World countries must pay astronomical
amounts for the transport, insurance, packaging and marketing of
the products they export and import. The industrialised countries'
shipping companies belong to well-organised cartels and charge high
fees for transport services. In 1979, these companies controlled 74
per cent of the world's merchant fleet, while developing countries
controlled only 9 per cent. The rest was controlled by the Eastern
Bloc. One finds similar figures in the air freight industry.
Several studies have shown that Third World countries receive on
average only 10-15 per cent of the retail sale price of their products
in the North.
Profit Repatriation by MNCs Operating in Third World

Countries
Between 1980 and 1982, net repatriation of MNC profits totalled
SI22 billion.
In the 19 70s, the net inflow of foreign direct investment (FDI) into
'developing countries' was on average higher than the net outflow of
FDI earnings (dividends, royalties, fees) into North-based MNC
coffers. But with the onset of the Third World debt crisis, especially in
Latin America, MNCs reversed the trend by accelerating and
increasing earnings repatriation from 1981 to 1986.
Since MNCs do a lot of internal under-charging and over-charging,

it is difficult to determine the exact value of profit repatriation. There
are a number of creative accounting techniques for shifting a
company's profits to one of its production and marketing locations,
depending upon a variety of factors. Corporate tax rates are one such
factor, as is the need to repatriate profits to company headquarters in
the North. The same MNC might switch from one technique to the
next, at a particular time or place, depending on which one best
corresponds to its interests. Some MNCs (those in a monopoly or
oligopoly situation) handle everything from the extraction of raw
materials to their sale to the manufacturing and distribution sector.
For them, it matters not if profits appear on the books of the extraction
subsidiary, of the transport division or of the refinery. A share of the
total value that appears in the data of imperialist countries as domes
tically produced profit is, in fact, surplus created in the Third World.
One technique consists of an MNCs headquarters selling goods
and services to one of its Third World subsidiaries at prices above
world market levels.
Augustin Papic has calculated, for example, that pharmaceutical
MNCs make internal sales to their Latin American subsidiaries at
prices between 33 and 314 per cent above world market levels.
In Colombia, subsidiaries of multinational pharmaceutical
companies import products from company HO at prices 155 per cent
higher than usual export levels. Other examples include 40 per cent
price rises in the rubber industry, 26 per cent in the chemicals
industry and between 258 and 1,100 per cent more in the electronics
industry.
In the other direction, subsidiary exports to company headquarters
are tremendously under-priced. A study revealed that Mexican,
Brazilian and Argentinian MNC subsidiaries under-priced their
exports by about 50 per cent in comparison to local companies
(Mandel, 1978).
Over the last 15 years, the development of industrial free-trade
zones in a number of Third World countries - including China - and
the former Eastern Bloc has made it much easier for MNCs to
repatriate their profits. The structural adjustment programmes
imposed on debtor countries always have clauses that allow MNCs
freely to repatriate profits to company headquarters. Indeed, the
Multilateral Agreement on Investments (MAI) - under negotiation
between OECD countries since 19 9 7 - aims to remove definitively all

obstacles to profit repatriation.
Patents, Royalties, Intellectual Property Rights

Another net transfer of resources from the South to the North stems
from the payments the South must make to acquire or use technolo
gies from the North. This is part of what Ernest Mandel refers to as
'technological rent' in Late Capitalism (Mandel, 1978). MNCs are the
ones that benefit from this rent, thanks to the technological
advantage they have acquired. This advantage is not guaranteed
once and for all. MNCs are often engaged in intense research and
development and product development battles with one another (in
the computer industry, for example). While there are both winners
and losers in the North, the countries of the South are almost always
the losers. They cannot hold their own against the research and
development muscle of the MNCs and governments of the North (95
per cent of research and development is carried out in OECD
countries). The latest set of GATT agreements (laying the basis for the
World Trade Organisation) have further worsened the situation - on
the question of intellectual property rights, for example.
Intellectual Property Rights: The View from the South

Most Third World countries see genetic resources as part of their
collective heritage. For millennia, small farmers have selected seeds
to work the land in perfect harmony with their needs while respecting
nature. They have never claimed these seeds and the resulting
produce as their intellectual property.
Intellectual Property Rights: The View from the North

Biochemical and agrobusiness MNCs like Ciba-Geigy, Sandoz, Shell,
ICI, Cargill, Grace, to name the biggest ones, beg to differ. They scour
the planet to 'discover' seed varieties and claim all patent rights. In
this way, they stake their control over the patiently developed genetic
heritage of humankind.
The US and other developed capitalist countries have harnessed
the Third World's biological diversity to make millions of dollars in
profits, without returning a single dollar to the original 'owners' of
the seeds, the countries or local communities in question. For

example, a variety ofwild tomato was taken out of Peru in 1962, and
made S8 million per year for American canning companies thanks
to the variety's higher concentration in soluble solids. None of the
profit was shared with Peru, from where the genetic material
originated.
According to Vandana Shiva (Shiva, 1994), between 1976 and
1980 wild varieties taken from the South brought in S340 million
annually for the American agricultural sector. Wild seed varieties
have contributed some S66 billion to the American economy.
Since the beginning of the 1970s, agrochemical companies have
taken over more than 400 seed companies, mainly through the
toughening of legislation defending intellectual property rights.
MNCs work for homogeneity and uniformity through genetic
engineering, with the specific aim of dominating the markets. It is
easier for a laboratory-engineered variety of rice to be traded on
stockmarkets than for the innumerable strains of rice that correspond
to local conditions and tastes the world over. This is especially true
when the laboratory-engineered variety in question becomes private
property thanks to 'intellectual property rights'. It can then be the
object of a production monopoly, as can all its subsequent
generations. Indeed, a farmer who buys wheat seeds cannot use the
seeds from the harvest to replant for the following season.
Furthermore, the monopoly extends to an entire range of related
products. It is no coincidence, for example, that the only herbicide
tolerated by the variety in question is produced by the same MNC.
The thirst for 'captive' markets is so great that 'sterile' varieties of
seeds are created in order to oblige farmers to purchase a new batch
each year - since each batch loses its genetic characteristics with
each harvest. Thus, the circuit is complete: small farmers are no
longer producers and owners, but rather buyers and consumers.
They become slaves of patents and of the MNCs that hold them.
Property rights are said to improve the product and preserve bio
diversity. In fact, biotechnologies are used to harness properties that
have already been attained by nature - primarily in order to create
uniformity through the selective breeding of high-yield varieties.
Such uniformity is disastrous for crops. Plants become clones, all
share the same weaknesses. In 19 70-71, a rust infestation destroyed
15 per cent of the US's corn crops, whose genetic uniformity made
them very vulnerable. Similar devastation has occurred with 'Green

Revolution' varieties of rice in Asia.
'High-yield' varieties are also of dubious merit. International
programmes for eucalyptus plantations, for example, were clearly
designed to back the pulp and paper industry's need for rapid growth.
Eucalyptus yields almost nothing in biomass, needed to feed animal
life. Furthermore, in the eyes of a forestry expert, naturally diverse
tropical forests could even be described as 'unproductive'. Industry is
not interested in diversity, it only cares about the yield in profitable
natural resources.
MNC laboratories always defend technological changes of biodi
versity by saying that they 'improve' and increase 'economic value'.
The laboratory creation of seed varieties is seen as 'production', in
keeping with the logic of assembly-line production. The reproduction
of the required raw material by nature and the Third World's farmers
and forest dwellers is seen only as 'preservation'. The only 'value'
registered is that created through work carried out in the laboratory.
Centuries of innovation are totally devalued in order to grant
monopolistic control over life-forms solely to those using new tech
nologies for genetic modification. Bio-uniformity (as opposed to
biodiversity) is the unavoidable outcome of such an approach in a
context where domination and profit hold sway.
Capital Flight from South to North

The IMF itself estimates that in 19 8 8 alone some S180 billion fled the
economies of the 13 most indebted countries. Holders of capital in the
South shifted a share of their holdings onto the North's financial
markets, into numbered bank accounts in offshore locations, and
into real estate in the North.
If one subtracts such holdings from Third World foreign-debt
totals, a very different picture emerges (Table 8.1).
The figure for deposits in Western banks comes from quarterly
statistics of the Bank for International Settlements (BIS). Table 8.1
takes account of all bank and non-bank deposits from all the
countries of the regions in question, except for the offshore banking
centres in such places as the Bahamas, the Cayman Islands and Hong
Kong, for which only non-bank deposits have been included.
What does the table tell us? It might seem quite normal that
companies would make deposits in Northern banks for business
reasons. But foreign deposits are so great for Latin America, North
Africa and the Middle East - where they equal two-thirds of total
foreign debt - that it is safe to conclude that they largely correspond
to the fraudulent and personal enrichment of people from
government and business circles. Such people have embezzled a large
share of foreign money loaned to their countries (the Argentinian
example is striking). Some of these deposits also come from organised
crime, the drug trade in particular.
Table 8.1 Gross and net debt-end of 1995 (Sbn)
Region Gross Deposits Net Net/

debt debt Gross (%)
North Africa/Middle East 364 254 110 30.2

Sub-Saharan Africa 198 47 151 76.3
Latin America/Caribbean 529 366 163 30.8
Asia/Oceania 830 299 531 64.0
Total 1,921 966 955 49.7
Source: Jacques Bournay from BIS figures, 1997 unpublished.
Privatisation of the South's State-Owned Companies

Governments of the South have sold off and continue to sell off their
state-owned companies, of which a great number are bought by
private and public MNCs from the North. Given that these companies
are sold very much below their real value, there can be no doubt that
this, too, constitutes a transfer of wealth and strategic position from
the South to the North.
The 'Brain Drain' from South to North

Although the North has gradually closed its borders to the South's
citizens, some countries in the North - especially the US - have made
exceptions to allow for a brain drain from the South (and East).
Having received publicly funded training and professional
experience in their home countries, citizens from the periphery are
welcomed in the North. In some cases, the number of people involved
is quite staggering. Sudan, for example, has lost a large share of its
educated workforce. In 1987 alone, it lost 17 per cent of Its doctors

and dentists, 20 per cent of Its university teaching staff, 30 per cent
of Its engineers and 45 per cent of Its land surveyors. All these pro
fessionals went North (UNDP, 1992). A large number of scientists
from the former Eastern Bloc have gone to the US since the beginning
of the 1990s.
Losses Sustained by the South Due to Protectionism in the

North: Protectionism in the North Against Products From
the South
The capitalist governments of the North Impose restrictions on the
flow of goods by using tariff (duty) and non-tariff (quotas and
regulations on standards and quality) barriers. According to the
UNDP (UNDP, 1992, 1993, 1994), such restrictions cost the South
at least S40 billion every year, of which S 3 5 billion stem from restric
tions on manufactured Items (S24 billion due to the Multlflbre
Agreement) and S5 billion on primary goods (UNDP, 1992).
Concerning the Multlflbre Agreement, by 1987 almost half of
developing country textile exports were subject to restrictions, of
which 70 per cent were mandatory (UNDP, 1992).
As for farm products, the European Union (through the Common
Agricultural Policy), the US and Japan subsidise agricultural
production. This means farm product Imports from the South are less
attractive. The EU and US have become net exporters of farm products
to the rest of the world. Their subsidies to the agricultural sector
(largely to agrobusiness) make their products more affordable In the
South's markets than some locally produced Items (Hintjens, 1994).
As for manufactured products, 20 of the world's 24 most Industri
alised countries are globally more protectionist than they were at the
beginning of the 1980s. This protectionism largely concerns
products from developing countries. According to an UNCTAD study,
the average real rate of protection Is twice as high for developing
countries as for Industrialised countries. According to the World
Bank, this loss In potential goods and services exports costs
developing countries 3 per cent of their GNP, or an annual loss of S 75
billion (UNDP, 1992).
At the end of 1990, GATT member countries agreed on 284
arrangements limiting exports, many of which concerned products
exported by the Third World: agricultural products (59 arrange-
merits), textiles and clothing (51), steel and steel products (39),
electronics (3 7) and footwear (21) (UNDP, 1992).
Moreover, technology markets are also highly protected. Potential
losses could amount to some S20 billion (UNDP, 1992). Beyond the
theft by MNCs of Third World communities' ancestral heritage (see
section on intellectual property rights), the cost of acquiring techno
logical patents has risen sharply. Between 1981 and 1988, trade in
machine goods (and the related technology) between industrialised
countries grew at an annual average of 10.2 per cent. Such trade
grew only at an annual average of 1.5 per cent with developing
countries. As a result, most Third World countries have been left on
the margins of trade in technological innovation. Increased trade
between industrialised countries has boosted their own dynamism
and competitiveness, and prevented the rest of the world from
sharing in the fruits of research (UNDP, 1992).
Limits on the Right of the South's Citizens to Look for

Work in the North
We have already seen how the governments of the North skim off the
cream of the South and the East's 'brains'. At the same time, they
strictly limit the right of people from the South to sell their labour in
the North.
The 1992 edition of the UNDP's World Report on Human
Development clearly challenges restrictions on the freedom of
movement of people from the South to the North. Such restrictions
have been put in place by the governments of the industrialised
capitalist countries.
One of the major sources of lost revenue for the Third World is the
restrictions on the labour force. According to a prudent estimate from
the UNDP, the cumulative loss of hard currency remittances for
countries of the South, due to the suspension of legal immigration in
the 1980s, is in the range of S250 billion (UNDP, 1992).
Showing equal prudence, the UNDP 1992 report calls for the
abrogation of restrictive measures taken by governments of the
North to limit the free movement of people from the South to the
North. Were these measures to be lifted, the UNDP estimates that
every year 2 per cent of the Third World workforce would decide to
emigrate. If these workers earned the minimum wage, in line with the
poverty threshold in industrialised countries (about S5.000 per
year), their annual income would total some S220 billion. They
would send between S40 and 50 billion to their countries of origin,
the UNDP calculates that after five years such remittances could
reach a total of at least S200 billion per year (UNDP, 1992).
The UNDP rightly points out that the effects of these losses are
cumulative, given that the cost of opportunities denied in the present
increases with time.
Who are the Real Beneficiaries of Official Development

Assistance (ODA)?
The share of ODA that remains in developing countries is very

small. Almost all the money provided quickly returns to rich
countries in exchange for products purchased from them.
(Robert McNamara, president of the World Bank,
extract from speech given to World Bank governors,
30 September 1968; McNamara, 1973)
'Official Development Assistance' is made up of the grants and soft

loans (at favourable rates) provided by the public bodies of the OECD
and OPEC. It is sufficient for a loan to be made at below market rates
for it to be seen as assistance, even if every cent is paid back by the
borrower country.
Apart from food aid, there are three major categories towards
which such funds are directed: rural development, infrastructure and
non-project aid (financing for the budget deficit or balance of
payments of the assisted country). Non-project aid has been rising
fastest in recent years.
This aid is made conditional upon the reduction of the public
deficit, privatisation, ecological good conduct, policies aimed at the
poorest sectors of the population and democratisation, among other
things. All such conditions are laid down by the North's main
governments and the World Bank-IMF. They have a rather ques
tionable way of measuring democratisation and the fight against
poverty.
Aid is provided through three different channels: 22 per cent
comes in the form of multilateral aid (from international organisa
tions), 64 per cent is bilateral aid (from 'donor' countries) and 14 per
cent comes from NGOs.
ODA is usually 'tied aid'. This means that funds given or loaned will
be used to buy products or services from the donor country. This has
led some critics to say the bilateral ODA is actually assistance
provided by industrialised countries to their exporters. Such a
critique is backed up by the fact that contracts between companies
from the North and countries of the South are usually guaranteed by
government bodies (as with Ducroire in Belgium) or private concerns
acting on behalf of the government (as with the COFACE in France,
which was privatised in 1994). In the US, the analogous body is the
Eximbank, in Germany it is Hermes, and in Britain it is the ECGD. If
the aid recipient in the South defaults on payment, these bodies step
in to compensate the exporter from the North with public money. In
general, the compensation also goes down in the books as ODA.
ODA has dropped by more than 10 per cent since 1994
(AlternativesEconomiques, March 1997), even though the Northern
heads of state present at the 1992 Rio Summit had promised to
increase annual ODA by S125 billion (Toussaint and Comanne,
19 94, p. 4). That would have meant tripling annual ODA volume. In
fact, according to a 19 9 7 UNICEF report, ODA has sunk to its lowest
level for 45 years (Lajornada, 22 July 1997, Mexico City).
ODA provided by industrialised countries and multilateral institu
tions to the Third World is very low. In 1991, it totalled S4 7.2 billion.
This figure is obtained by calculating the difference between aid that
has been provided - S 5 7.2 billion - and the sums that have been paid
by Third World countries to reimburse previous aid, about S10
billion (World Bank, 1994). ODA is far less than debt servicing
payments made by Third World countries, which come to about 200
billion dollars annually.
The More a Country in the South Spends on Arms, the

More ODA it Receives
One of the most striking examples of 'tied' bilateral aid is that of the
arms trade.
The more arms a Third World country buys, the more aid it
receives from industrialised countries. Industrialised countries have
an iron grip on most of the global arms trade. The US alone controlled
72.6 per cent of this trade in 1993. These are government-to-
government sales, which account for the lion's share of arms
spending in the world (Lajornada, 3 August 1994). Following the US
come France, Britain, Germany, Russia (whose sales have been on

the decline since the collapse of the USSR) and China. These
economic giants all have public sector companies or MNCs in the
arms trade, constantly on the lookout to conquer new markets.
While companies in other sectors are being privatised one after the
other, the arms industry is quite happy to remain under state control.
Private arms manufacturers also derive tremendous advantages
from the military and economic power of their respective states,
which help them find customers for their killing machines.
Developing countries account for about 15 per cent of global arms
purchases. While this in no way justifies such spending, it is
important to keep in mind given the share of the world's population
(80 per cent) that lives in developing countries.
Contrary to what many in the North often hear and think, Third
World countries are not the world's main spenders on arms.
It is significant that 'countries that devote major spending to the
military (more than four per cent of GNP) receive about twice as
much ODA per capita as those whose arms spending is less (between
two and four per cent of GNP)' (UNDP, 1992).
In its 1994 report, the UNDP returns to this subject: 'Assistance

more frequently goes to strategic allies than to poor countries. ...
Until 1986, donor countries provided on average five times more
in bilateral aid to countries with high arms spending than to those
whose arms spending was low.
In 1992, [high arms spenders] were still receiving two-and-a-
half times more aid per capita than [low arms spenders]. (UNDP,
1994)
Israel, for example, an American strategic ally in the Middle East,

receives SI76 in US aid for each poor person while Bangladesh
receives only SI.70.
The authors of the 1994 UNDP report draw attention to the double
standards of the industrialised countries' governments:
Some donors argue that discrimination against countries with

high military spending would violate their national sovereignty.
This is a surprising argument given that donors are not so
reluctant to violate national sovereignty in a large number of other
government policy fields.
The report takes the example of demands made on aid recipients to

eliminate food subsidies, to devalue their currencies and to privatise
their state-owned companies. The report then says:
This contrast was particularly in evidence during the period of

structural adjustment in the 1980s. Many donors watched in
silence as dramatic cuts were made in social spending, while
military spending continued to climb. In sub-Saharan Africa,
military spending went from 0.7 per cent to 3.0 per cent of GNP
between 1960 and 1990. Thus, some developing countries
preferred to balance their budgets by compromising human lives
rather than by reducing their military spending.
At the end of the 1990s, the governments and arms industries of

the North have once again been prodding the countries of the South
to increase arms spending.
Indeed, at a time when arms spending is on the wane in the North,
governments and the arms industry are scouring the South for new
markets. 'The US arms industry is faced with a substantial drop in
defence spending, which has gone from 6.6 per cent of GDP in 1986
to 3.9 per cent in 1995. The US defence budget (including the
Department of Energy) has dropped from 3 6 0 billion dollars in 19 8 9,
to 320 billion dollars in 1992, to 270 billion dollars in 1995' (Jean-
Paul Hebert, Le Monde diplomatique, November 1995). It is worth
noting that the US defence budget, while lower than before, is still
greater than sub-Saharan Africa's total debt (which was S 240 billion
in 1997, for a total population of 590 million people). To react to the
general drop in military spending in the North (the same tendency can
be observed in EU countries), the North's arms manufacturers have
relied on their governments in their quest for new contracts in the
South and East. US arms manufacturers are ahead of the competition
in this respect. They controlled 48.9 per cent of Third World arms
purchases in 1991, 56.8 per cent in 1992 and almost 75 per cent in
1993. The competition is fierce. Governments come to the rescue of
their arms manufacturers by throwing their 'bilateral aid' to the
South into the balance. New arms import contracts are encouraged,
as a way to cushion the crisis of the North's arms industry. In fact,
there was an increase in international arms sales in 1996 - for the
second consecutive year, after eight years of uninterrupted decline (Le
Monde, 17November 1997). Gulf and Southeast Asian governments
account for two-thirds of total sales - with Taiwan, China and South
Korea topping the list of Third World arms importers.
Since 1996, there has been an intense debate in the US and Latin
American press on the arms trade. In 1977, at the time of the Latin
American dictatorships, US President Jimmy Carter placed an
embargo on arms sales to the region. This embargo has now come
under fire, since Latin American countries feel an urgent need to
upgrade their weaponry. The Chilean air force, for example, bought
20 second-hand Mirage jets from Belgium (Jornal do Brasil, 5 April
1997) at a time when the US would like nothing more than to sell
Latin American governments its brand-new F-16 jets. The US Chiefs
of Staff are currently consulting Latin American leaders; in 1997,
President Clinton authorised US military aviation companies to
explore the Chilean market. This is seen as a first step towards lifting
the embargo. One of Chile's neighbours, Argentina, has rightly
expressed concern over the proliferation of arms in the region.
This kind of US pressure is being felt in other parts of the world:
Arab countries, Asian countries and the new NATO members
(Hungary, Poland and the Czech Republic) have been barraged with
offers. This US offensive stops at nothing: the Pentagon has even
bought up Mig-29 and Suthoi-27, 30 and 3 7 jets from countries of
the former Socialist Bloc in order, on the one hand, to replace them
with US hardware and, on the other, to study Soviet era military
technology (Le Monde, 18 November 1997). The reasons are quite
straightforward: the US military-industrial complex is preparing to
unleash a new generation of arms. In the interim, the challenge is to
offload its stocks of military hardware from the previous generation.
Many countries are going to receive arms that will be technologi
cally obsolete in two to three years, when the countries in question
will have just begun paying for them. The new generation of arms
will give a strategic advantage to the US if ever there is a military
conflict, since the US will be a generation ahead and have complete
control over its adversary's military technology. The US will provide
their customers with spare parts and technical assistance for
outdated hardware, while progressively equipping itself with the
latest from the new generation.
To summarise: ODA is directly tied to the strategic interests of the
countries of the centre. It is tied in particular to arms sales, with the
arms industry seeking the 'state intervention' that alone can enable
or oblige Third World customers to buy its products.
9
The World Bank and the IMF:

50 Years is Enough!
BRETTON WOODS: THE IMF AND THE WORLD BANK ARE

BORN
On the evening of 30 June 1944, two special trains left Washington
and Atlantic City. They were both packed with hundreds of well-
dressed gentlemen (there were very few women) in fashionable suits
and ties. Their conversations were in so many languages that local
reporters referred to the trains as 'the Tower of Babel on wheels'.
Their destination was the locality of Bretton Woods, in the
picturesque hills of New Hampshire. They were on their way to the
UN conference on monetary and financial matters.
The meeting of 44 countries had been organised by US President
Franklin D. Roosevelt. The goal was to lay down the rules for a new
postwar international economic order.
The inaugural session of the conference was held in the grand
ballroom of the Hotel Washington, where there was more than
enough room for the hundreds of delegates.
US Secretary of the Treasury and conference chairman Henry
Morgenthau read out a welcome message from President Roosevelt.
Morgenthau's opening speech set the tone for the gathering and
reflected the guiding spirit behind it. He called for 'the creation of a
dynamic world economy in which the peoples of every nation will be
able to realise their potential in peace and enjoy, increasingly, fruits
of material progress on an earth infinitely blessed with natural riches'
(Rich, 1994).
112
THE WORLD BANK AND THE IMF/113
He stressed 'the elementary economic axiom that prosperity has no

fixed limits. It is not a finite substance to be diminished by division.'
And he concluded: 'The opportunity before us has been bought with
blood. Let us meet it with faith in one another, with faith in our
common future, which these men fought to make free.'
The 700 delegates rose as the orchestra played the 'Star Spangled
Banner'.
This consensual address obscured the heated debates that had
been going on for months between the heads of the British (above all
J.M. Keynes) and American (H. Morgenthau) delegations. The US
wanted to ensure definitively their supremacy in the world over the
British. The debate between the Americans and the British had begun
before American entry into the Second World War. Winston
Churchill had told President Roosevelt, 'I believe you want to abolish
the British Empire.... Everything you say is confirmation of this fact.
Yet we know that you are our only hope. And you know we know it.
Without America, the British Empire will perish' (quoted by George
and Sabelli, 1994). The US fulfilled its objectives, and the positions
put forward by J.M. Keynes - while officially praised - were actually
marginalised by H. Morgenthau.
The first weeks of the gathering were almost exclusively taken up
by the drafting of IMF statutes, which had been the subject of debate
for some months. The US's main objective was setting up a system to
guarantee postwar financial stability. It wanted to put an end to
competitive devaluations, restrictions on trade, import quotas and all
other measures inhibiting trade. The US wanted free trade without
discrimination against their products. This demand had to be met
since the US was the only Northern country at the time to have a
surplus of basic foodstuffs. The US was also after a favourable climate
for their investment in foreign countries; and the free access to other
countries' raw materials that they had been denied by European
colonial empires.
The International Bank for Reconstruction and Development - or
the World Bank, as it is known - was the first institution of its kind.
Its basic structure, as spelled out in the articles of its Charter, has
remained unchanged.
The Bank's main goals were 'to assist in the reconstruction and
development of territories of members by facilitating the investment
of capital for productive purposes' and 'to promote the long-range
balanced growth of international trade by encouraging international

investment' (Article I).
How the World Bank and the IMF are Run

According to the statutes, the highest governing body in the Bank is
the Board of Governors, each country is represented by a governor.
The Bank and IMF's governors are usually the different countries'
Ministers of Finance or central bank presidents.
In theory, the governors choose the Bank president. In fact,
however, the president has always been a US citizen and is chosen by
the US government, usually by the Secretary of the Treasury. The
head of the IMF is usually European. Annual meetings between the
Bank and the IMF are an occasion for all the governors of the two
institutions to gather in one place.
On a day-to-day basis, most of the governors' powers are delegated
to the Board of Executive Directors. In the beginning, the Bank had
twelve executive directors who represented the 44 founding member
countries.
The Bank's charter stipulates that each of the Bank's five biggest
shareholders nominate its own executive director, each of the
remaining directors represents a number of countries and is elected
by them. The Bank has continually picked up new members (in
1997, there were 180 member countries), and as a result there are
now 24 executive directors. The weight of each one's vote is
essentially proportional to the share of funds provided to the Bank by
the countries they represent.
The US vote accounted for 36 per cent of the total when the Bank
was founded; it has now been reduced to 17.5 percent. In 1997, the
ten richest industrialised countries controlled 5 2 per cent of all votes,
while 45 African countries together control only 4 per cent.
Executive directors live in Washington, meet often (at least once a
week) and must approve each loan and the Bank's main policies.
Day-to-day decisions require a simple majority on the Executive
Board, but any change to the constitutive charter requires the
approval of at least three-fifths of members and 8 5 per cent of total
vote shares (which means the US, with 17.5 per cent of votes, has a
veto on all changes to the statutes).
The World Bank's Beginnings: Foiled by the Marshall Plan

Keynes wanted the 'reconstruction' component of the Bank to make
it an institution that loaned capital to countries that had been
'devastated by the war, to help them rebuild their ruined economies
and replace lost or destroyed means of production'. As a result, it was
expected that the Bank would start by focusing on European recon
struction, and that its priority would be to back private investment.
It was expected that direct lending would be at best a secondary
activity.
Under US pressure, however, the Bank did not really participate in
European postwar reconstruction. The Marshall Plan, set up by the
US alone, occupied this function. The Bank made only four loans
worth a total of S49 7 million for reconstruction, while the Marshall
Plan pumped in S41.3 billion.
As an institution for reconstruction, the Bank was a failure. A war-
ravaged Europe did not need interest-bearing loans for specific
projects that took a long time to prepare. Rather, it needed quickly
disbursed grants and low or zero-interest loans in order to strengthen
its balance of payments position and purchase the basic goods of
which it was in such dire need.
The World Bank and Development

The ultimate objective of the Bank, as laid down in its statutes, was
also to assist in the 'development of the productive resources of
member-states, and thereby help to improve domestic productivity
and the conditions and standard of living of working people'.
In the decades subsequent to this failure in the phase of 'recon
struction', the Bank focused on the second component of its name -
'development'. But since it has always been firmly under the control
of the main capitalist powers, its conception of development has
never been concerned with efforts aimed at emancipating the peoples
of the Third World while ensuring egalitarian social development.
The ten most industrialised capitalist countries have always
controlled more than 50 per cent of World Bank shares (and votes) -
which means that, if ever the need arises, they can push through a
specific orientation. This has only happened on rare occasions, since
the main capitalist powers prefer compromises in which they retain
the upper hand and do not have to put things to a vote.
To finance development, the World Bank loans money to

governments. The form these loans have taken has changed over
time. But one key factor has not changed: the World Bank has never
let anyone get away with not paying off their debts.
Politics and Geopolitics

After 1955, the spirit of the Bandung Conference was alive in large
parts of the planet. The Conference took place after the French defeat
in Vietnam (1954) and came just before Nasser's nationalisation of
the Suez Canal. Thereafter came the Cuban (1959) and Algerian
revolutions and a new phase in the Vietnamese liberation struggle.
In growing parts of the Third World, import-substitution policies
were put in place, internal markets were developed. As a result, there
was decreased dependence on the most industrialised capitalist
countries. A wave of bourgeois nationalist governments (Nasser,
Nehru, Peron, Goulart, among others) implemented populist
programmes, while new revolutionary governments (Cuba, China)
pursued an even more radical course.
World Bank projects had a strongly political content: to prevent the
development of anti-imperialist movements by applying the lessons
learned in South Korea and Taiwan. At the time, however, the World
Bank had a relatively small amount of funds at its disposal. Its
financial power was only given a boost later, under Robert
McNamara (1968-81).
The World Bank and the Green Revolution

The World Bank's approach to development is heavily productivist.
The official aim of the Green Revolution of the 1960s was to increase
agricultural production in the countries of the South in order to meet
the food needs of local populations. But it had disastrous effects on the
environment, and has actually increased the dependence of the
countries involved on the agrobusiness MNCs.
The Violence of the Green Revolution

National governments and institutions of the international
community established centres in the Philippines (for Asia) and in
Mexico (for Latin America), whose mission was to seek out and select
high-yield varieties of grain. These varieties were expected to fulfil the

food requirements of the inhabitants of these countries - based on the
argument that, as a result of population growth, traditional varieties
were not able to meet rising demand. This was the motivation behind
the 'Green Revolution'.
This 'revolution' was not brought about by the people of the
countries in question, it was imposed on them. In India, the 1965
drought provided the ideal pretext. Growth curbs on Indian agricul
tural production show that there had been uninterrupted growth -
until 1965, where one finds a small drop caused by the drought. India
requested limited food aid from the US, but the opportunity was
exploited to impose a series of ecologically unsustainable techniques.
Indeed, from the beginning of the 1960s onwards, capitalists had
been promoting intensive 'chemical' export-oriented agriculture.
The World Bank claimed to have saved India from famine. This is
patently untrue. Although India was not exporting its farm products,
its subsistence crops were enough to meet the country's needs. In this
vein, it is worth recalling that the Great Famine of Bengal in 1943
(between 2 and 3 million dead) was not caused by a lack of food but
rather by an increase in the price of foodstuffs caused by inflation -
itself caused by the war effort and speculation on food stocks.
Vandana Shiva has clearly condemned the 'Green Revolution' as
the project that upset the fragile balance the country had achieved
over centuries. She says it is wrong to claim that traditional
structures were and remain unable to fulfil the country's food
requirements. She has put forward a well-supported argument to the
effect that the real problem in the countries of the Third World is the
distribution of land and wealth.
In fact, the 'Green Revolution' is the profitable path agrochemical
MNCs have chosen to respond to these problems with science and
technology- and, above all, without making any changes to agrarian
social relations. In other words: no land reform. Vandana Shiva has
noted that, as the 'Green Revolution' has grown in strength,
traditional community structures have become dependent on
technology that they neither created nor control. To be sure, this so-
called revolution has been a major boon to multinational
corporations.
The agrobusiness industries of the North have imposed various
seed varieties on countries like India. These varieties did produce
favourable results In the short term, but over time have been
disastrous in a number of ways.
First, they require ever greater purchases of inputs: chemical
fertilisers, pesticides, herbicides, and so forth, since these imposed
varieties of rice are genetically programmed to degenerate after a
generation.
Second, when the costs are added up, the performance of these
varieties is no better than those obtained through traditional
selection and improvement techniques. On the contrary.
Dependence, on the other hand, has grown enormously - on
machinery and fertilisers, all provided by the North's industries.
Finally, the 'Green Revolution' has produced a number of other
harmful effects. It was carried out to the detriment of communal
lands (forests, grazing lands). It has led to a severe impoverishment
of biodiversity, an increase in plant diseases (traditional varieties
were more resistant) and soil exhaustion (intensive crops have
removed certain vital micro-elements). It requires much greater
irrigation than traditional crops (and this, in regions where there are
real risks of drought); the massive use of inputs has salinated huge
tracts of land. As a result, the ecological balance has been irremedi
ably destroyed through the intensification of these monocultures.
Before the Green Revolution, the Ford Foundation had concluded
that land in Punjab was under-utilised. In fact, peasants and small
farmers had been using the land in a balanced way so as to avoid soil
exhaustion. Now that we are well into the disaster of the Green
Revolution, the Ford Foundation and World Bank have just
discovered the virtues of organic fertiliser - rather late in the day.
In a number of works, Vandana Shiva has decried the violence of
the Green Revolution. She places this entire episode within an
historical perspective that reveals what really lies behind the
'revolution'. She sees it as part of the plunder and exploitation of the
peasantry for the benefit of the trade and industry of the countries of
the centre. In the eighteenth century, Indian agriculture was
thriving. Until 1750, those who worked the land kept 700 of every
1,000 units produced. Of the remainder, only 50 left the village while
250 stayed in the village for the upkeep of the community. By the
nineteenth century, after 50 years of British colonial rule, this pattern
of distribution had been overturned. For every 1,000 units of
production, peasants had to hand over 600, of which 590 went to the
central authority, Britain. In spite of this tax grab on peasant
production, in spite of outside control of any surplus production, at

the time the peasantry could still keep 40 per cent of the harvest in
order to ensure the following year's production. Compared to the
Green Revolution, this actually appears rather generous. The real
objective of the Green Revolution was to limit the spread of the
Chinese Revolution. The Green Revolution burdened the peasantry
with debt, making them dependent. To produce 1,000 units,
peasants and small farmers are obliged to take on debts equivalent in
value to 3,000 units. They have to borrow to buy seeds (every year),
fertiliser, pesticides, herbicides, tractors (which often have to be
abandoned owing to the lack of spare parts), and so on. They rarely
produce enough to pay back their loans. After two growing seasons,
they sell their land to the banks and big landowners, and go to swell
the ranks of the urban slums.
BOX 4 THE UNDP PRAISES THE GREEN REVOLUTION

In spite of these arguments, backed by demonstrations of hundreds
of thousands of peasants and small farmers, the 1997 Report on
Human Development contains deplorable praise for 'progress'
made thanks to the Green Revolution. 'The first Green Revolution
has helped millions of small farmers and urban consumers get out
of poverty, thanks to technological breakthroughs in wheat, corn
and rice farming in high-potential agricultural areas' (UNDP,
1997). Yet only three years earlier, the Report had explained the
1943 famine in the following way: 'nature is doubtless responsible
for local food shortages, but it is human beings that turn these
shortages into large-scale famines. Hunger is not due to an absence
of food, but to a lack of means for acquiring this food' (UNDP,
1994). But now, the UNDP is calling for a second Green Revolution
- this time to benefit poor farmers in the poorest areas! This was the
very argument used by the World Bank to promote the first Green
Revolution.
The Power to Intervene in National Economies

Although the World Bank had only limited means at its disposal in
the period preceding McNamara's stewardship, it was able to set up
a network of influence that would be of great service later on. The
Bank set about creating demand for its services in the Third World.
The influence the Bank enjoys today derives in large part from the
patronage networks it established in countries that later became its
customers and, of course, its debtors. The World Bank pursued a
policy of active influence-peddling in order to build up its network
of debtors.
From the 1950s onwards, one of the Bank's main objectives was
to 'build up institutions'. This building programme usually involved
the creation of autonomous agencies within governments, agencies
which became long-term borrowers from the World Bank. Such
agencies were intentionally founded in such a way as to be relatively
independent financially from their governments and free from the
control of local political institutions. They became natural relays for
the Bank, to which they owed their very existence.
The creation of these patronage networks was a cornerstone of
World Bank strategy for getting involved in the economic policies of
Third World countries.
Obeying no rules but their own (often drawn up in keeping with
World Bank recommendations), staffed by big-name local
technocrats who shared World Bank aims, championed and admired
by the Bank, these agencies served to create a stable and reliable
source for what the Bank needed most: 'viable' loan proposals. They
also provided a parallel power base through which the Bank was able
to transform national economies - nay, entire societies - without
having to bother with the 'cumbersome' process of democratic
control and debate.
The implications of such a policy are most worrying. The
International Legal Center (ILC) in New York carried out a study of
the Bank's involvement in Colombia between 1949 and 1972. The
ILC report concludes that the Bank's autonomous agencies had a
profound impact on political structure and social development
throughout the region. They weakened 'the system of political parties
and the respective roles of the legislature and judiciary' (Rich, 1994).
By the 1960s the Bank had set up its own new mechanisms for
continually intervening in the internal affairs of borrower-countries.
The Bank, however, emphatically denies that such interventions are
political in nature. On the contrary, it insists that its policies in no way
impinge on power structures, and that political and economic
matters occupy two discrete spheres.
World Bank Support for Dictatorships

Article IV, section 10 of the World Bank statutes stipulates:
The Bank and its representatives shall not interfere in the political
affairs of any member-state. They are forbidden to be influenced in
their decision by the political character of the concerned member
or members. Only economic considerations can influence their
decision, these considerations will be weighed without bias, with
the goal of meeting the objectives (set by the Bank) stipulated in
article I.
The prohibition on looking at 'political' and 'non-economic' factors

in the Bank's operations - a key element of the institution's charter
- has been systematically violated.
When responding to charges that it plays political favourites, the
Bank has even pointed to articles from its charter that prohibit inter
ference in the political affairs of member-states. In fact, these parts of
its charter have often been little more than a smoke screen for World
Bank support of dictatorial regimes.
Indeed, article IV did not prevent the Bank from refusing loans to
Brazil and to Chile when their governments were not to its liking. In
the beginning of the 19 60s, the Bank denied credit to the democrati
cally elected Goulart government in Brazil. After the 1964 military
coup (which set up a military dictatorship that lasted for 20 years),
however, loan totals from the Bank went from zero to an annual
average of S73 million for the remainder of the 1960s, and to just
under S500 million per year in the mid-19 70s.
Under the democratically elected government of Allende
(1970-73), Chile did not receive Bank loans. After the 19 73 military
coup, under the Pinochet regime, the country suddenly became
creditworthy.
In the late 1960s and during the 1970s, under the presidency of
Robert McNamara, the Bank gained notoriety for backing anti
democratic regimes that tortured and murdered their own citizens.
In 1965, for example, the Bank openly defied a resolution from the
General Assembly of the United Nations calling on all UN-affiliated
agencies (including the Bank) to suspend financial assistance to the
South African apartheid regime. But the Bank argued that its article
IV legally obliged it to ignore UN resolutions. Even a personal plea
from UN Secretary General U Thant to then World Bank President

George Woods, was unheeded.
It was McNamara who Insisted that the Bank provide credit to the
brutal Indonesian dictatorship established In the wake of the 1965
massacre of more than 500,000 communists (McNamara, 1973).
Following McNamara's departure, the Bank pursued the same
policy, In line with US foreign policy.
Another UN Institution, the UNDP, also has a thing or two to say
about US and World Bank support for dictators:
In fact, aid provided by the USA In the 1980s Is Inversely propor

tional to respect for human rights. Nor have multilateral donors
[the World Bank and the IMF] seemed to be overly concerned with
such considerations [democracy]. Indeed, they seem to prefer
authoritarian regimes, they argue without batting an eyelid that
such regimes promote political stability and are better able to
manage the economy. When Bangladesh and the Philippines
ended martial law, their respective share In overall World Bank
loans fell. (UNDP, 1994)
World Bank Power Surges during Robert McNamara's

Stewardship
In 1968, Robert McNamara said: 'The only limitation on the
activities of the World Bank would be the ability of member-countries
to use our assistance In an efficient way and to pay back our loans
according to the terms and conditions that we determine'
(McNamara, 1973).
In 1969, he said: 'The International Bank for Reconstruction and
Development Is a body that makes Investments whose objective Is
development, It Is neither a philanthropic Institution nor a social
welfare agency' (McNamara, 1973).
The Bank's activities grew In number In the 1960s and particu
larly In the 1970s. From 1968 to 1981, under McNamara (US
Secretary of Defense during the Vietnam War), the World Bank was
engaged In a lending frenzy. McNamara made It clear that the career
prospects of loan officers were directly linked to the number of
projects In their portfolio.
The bigger a project, the greater the likelihood of receiving Bank
financing (George and Sabelll, 1994; Rich, 1994). This quantitative
approach, and the pressures applied on Bank associates for them to

draw up and promote expensive projects to borrower-countries, led
these countries to take on excessive debt.
During the first 20 years of its existence, the World Bank (IBRD and
IDA) loaned out a total of only S10.7 billion. During McNamara's
first five years as president, from 1968 to 1973, loan totals increased
at a near exponential rate. The Bank backed projects worth SI3.4
billion over these five years (George and Sabelli, 1994; McNamara,
1973).
McNamara had a near-fanatical belief in quantitative methods and
administrative models seen as universally valid and capable of
solving the whole range of problems. At the beginning of the 1960s,
he said: 'Running any department of an organisation is exactly the
same, whether one is dealing with the Ford Motor Company, the
Catholic Church or the Ministry of Defense ... At a certain stage, all
problems are the same.' In 1967, he said, 'Management is the way
social, economic and political change - indeed, change of all kinds -
is spread throughout society.'
McNamara saw himself as a 'development planner' (McNamara,
1973). In his eyes, the World Bank was playing a 'vanguard' role in
development assistance by planning it from start to finish.
The planning mechanism was central to his approach, as set out
in his 1973 book: the Bank should lay down effective methods for
'family planning and for the public administration responsible for
population control'; the Green Revolution begun in the mid-1960s
should be better planned across the board; planning for major public
works would provide work to the unemployed and build up infra
structure.
He also got the Bank to draw up plans for massive five-year loans
to borrower countries. These plans were detailed in the Country
Programming Papers, which set objectives and priorities for all the
Bank's lending to a given country, based on the work of 'economic
missions in the countries' and the reports they produced. These
economic reports and the overall country files j oined the ranks of the
Bank's most confidential documents, just a step below the Bank's
internal memoranda. In some cases, even government ministers of
the country concerned could not examine these major plans. In the
poorest and smallest countries, such secrecy was seen as proof that
their economic fate had been taken over by international trustees.
McNamara's point of view greatly amplified tendencies that

already existed in the Bank. These tendencies bolstered its institu
tional power while further neglecting the complex and distinct social
realities of countries lumped together in the 'developing countries'
category. Easily quantifiable objectives were defined to measure
progress. Complex social realities were reduced to so many sets of
target figures and group totals. Everything came to be seen in terms
of profitable undertakings, gradually increasing production and pro
ductivity, the evolution of earnings, and so on.
It was not too difficult to foresee the results of such an approach,
applied everywhere in an identical fashion. At best, it would be
ineffective; at worst, it was so inappropriate from a social and envi
ronmental angle as to condemn many projects to failure.
Development and the Security of the 'Free World'

It was also under McNamara's stewardship that the Bank began to
build up its 'new style' portfolio of projects aimed at combating
poverty. The main objective was rural development and agriculture
- a sector whose share ofBank loans rose from 18.5 per cent in 1968
to 31 percent (S3.8 billion) in 1981.
The World Bank joined the struggle against the spread of
communism in the Third World. It set up projects aimed at alleviating
poverty in both the cities and the countryside. These included
housing improvements, the installation of water pumps and power
lines. For the first time, health and education projects also accounted
for a significant share of the Bank's undertakings.
It was as part of his crusade against communism that McNamara
opted to tackle the scourge of absolute poverty. Never before had the
Bank seen its work for development as part and parcel of a
programme to alleviate poverty. But McNamara was convinced that
if steps were not taken against growing inequality in the distribution
of wealth in developing countries, from time to time there would be
popular uprisings threatening capitalist countries in the centre.
McNamara's time at the helm of the World Bank coincided with
the spread of struggles for liberation and revolution: the Portuguese
Revolution of 1974, freeing Africa's last colonies; final defeat for
American troops in Vietnam in 19 75; and the Nicaraguan
Revolution of 19 7 9. There were also major social and political crises,
even in the capitalist heartland: the Black civil rights movement and
the anti-Vietnam War movement in the US in the late 1960s and

early 1970s; the 1968 student movements in France, Germany and
Mexico; massive workers' strikes in France in May 1968, in Italy in
1969-70, and in the so-called socialist countries (the Prague Spring
of 19 6 8). McNamara was an old hand at such things, having himself
ordered mass napalm bombings of Vietnam.
These liberation movements were very much a spanner in the
works of the World Bank's 'development' plans. As a result, the Bank
pumped in increased credit to strengthen the Third World's economic
ties to the world market and its political ties to the capitalist world.
These new loans were part of a strategy aimed at 'containing' the
spread of the broad movement for emancipation.
In 1968, while he was still Secretary of Defense, McNamara
declared: 'Ernesto Che Guevara's death in Bolivia in the fall of 1967
delivered a severe blow to the hopes of the Castroite revolutionaries.
But this is not a sufficient response to the problem' (McNamara,
1968).
In 19 7 2, he made a very clear speech in this regard at the meeting
of World Bank governors:
Too little, too late, is history's most fitting epitaph for regimes that
have fallen in the face of the cries of the landless, unemployed,
marginalised and oppressed, pushed to despair. As such, there
must be policies designed specifically to reduce the poverty of the
poorest 40 per cent of the population in developing countries. This
is not just the principled thing to do, it is also the prudent thing to
do. Social justice is not only a moral obligation, it is also a political
imperative. (McNamara, 1973)
Thereafter, McNamara called for agrarian reform to provide land

to poor farmers and limit the land holdings of big landowners. He
proposed that reforms be made to the credit system of developing
countries, to give small farmers access to loans. He backed public
works projects aimed at improving the lot of the poorest sectors. In
short, McNamara wanted the multilateral public institution he
headed to pursue a growth strategy requiring that the World Bank
itself be given greater funds and power. McNamara was scarcely
interested in having the governments of the South themselves play a
role in redistributing wealth. Rather, he wanted the World Bank itself
to compensate for the ingratitude of the North towards the South, as

well as for the weakness of the South's governments.
McNamara's above-mentioned proposals were not implemented
anywhere by the World Bank. Furthermore, McNamara's
development plan never considered the potential of increased trade
between the countries of the South themselves. He never acknowl
edged the need to build up regional blocs in the South - blocs which
could create complementarities favouring a cumulative process of
regional growth that would reduce the South's dependence on the
North. The only relationship worthy of his attention was between the
countries of the South and those of the North - in which those from
the South always come off worse since it is the developed countries
that set the rules of international trade.
It is none the less noteworthy that McNamara's declarations and
proposals stood in sharp contrast to the aggressive neo-liberal turn
taken in the 1980s. In his own way, McNamara belonged to the old
school. This does not change the fact that he played a key role in
laying the groundwork for the neo-liberal offensive. The waning gap
between his words and his deeds was eliminated by the neo-liberals
- who jettisoned all talk of planning, state control and development.
10
The World Bank and the

Third World Debt Crisis
It is striking that the World Bank has no department that conducts

after-the-fact analyses of its forecasts in order to determine how
accurate they have been and, if necessary, what corrections could be
made in future.
Its nonchalant attitude towards Third World debt is very revealing.
It is nonchalant, but not entirely unaware of the problem. Indeed, as
far back as the beginning of the 19 70s, McNamara felt Third World
debt was a problem. He wrote:
By the end of 19 72, the debt totalled 75 billion dollars and annual
servicing was more than seven billion dollars. Debt servicing rose
by 18 per cent in 1970 and by 20 per cent in 19 71. The average
rate of increase of the debt since the 1960s has been almost twice
as high as the rate of increase in the export revenues that these
countries must use to service the debt. This situation cannot
continue indefinitely. (McNamara, 1973)
However, as a result of its policies, the World Bank actively

contributed to creating the conditions that led to the debt crisis.
It would be wrong to suggest that there has been some kind of plot
deliberately hatched by the Bank. The World Bank is one of the guilty
parties, but it did not premeditate the crime. Once the crime had been
perpetrated, however, it fully profited from it in both the figurative
and the literal sense. The Bank has raked in profits on the backs of the
indebted countries and seen its power grow by leaps and bounds.
127
WORLD BANK JUSTIFICATION FOR INCREASED

INDEBTEDNESS
Until 1973, McNamara argued that the growth-oriented
programmes of developing countries had to be backed. Government
assistance from the developed countries was totally insufficient, he
said, and these same developed countries were not dismantling dis
criminatory measures against imports from developing countries in
spite of promises to do so. McNamara even publicly criticised the
North's protectionism and the low level of official development
assistance (ODA) on numerous occasions (see McNamara, 1973).
The World Bank, he argued, should therefore lend increasing sums
to developing countries to help them achieve consistent growth rates
and earn sufficient revenues to pay back their debts. As a result, the
World Bank set itself the mission of providing as much credit as
possible to developing countries, as a way to make up for inadequate
levels of ODA.
This approach was clearly at odds with McNamara's own
warnings concerning debt levels whose rate of growth outstrips that
of export earnings.
From 1973 onwards, following the rise in the price of oil and other
raw materials, McNamara argued that developing countries could
use borrowed funds to develop their communications infrastructure,
increase electricity production and boost export-oriented activities.
His underlying assumption was that the price of these countries'
exported goods would continue to increase on the world market, or
remain stable at the very least. As a result, he forecast that their
export earnings would continue to rise thanks to increases in export
volumes. These increased earnings, he said, would enable developing
countries to service their debts (interest and principal) while
reinvesting a portion in the improvement of export-oriented
industries. This was expected to have a cumulative effect, leading to
or accelerating development while anchoring these countries firmly
in the camp of the Western countries. McNamara argued that debt
obligations were a powerful material incentive for developing
countries to modernise their export-oriented agricultural and
industrial sectors. This line of reasoning was repeated in a number of
his talks and writings. The virtuous circle of 'debt-increased
exports-debt servicing' would develop the South and boost world
economic growth. The actual course of events has given the lie to this
THE WORLD BANK AND THE THIRD WORLD DEBT CRISIS/129
approach: as we have seen, the prices of exported goods plummeted

in the 1980s at the same time that interest rates rose sharply. This
led to the financial asphyxiation of indebted countries. As for
McNamara, he stepped down as president of the World Bank in 19 81,
a few months before the crisis exploded in everyone's faces.
THE WORLD BANK'S TUNNEL VISION

Although the debt crisis only burst out into the open in August 1982,
there had been no shortage of ominous signs. Warnings had been
made. Still, the World Bank obviously underestimated the dangers of
the situation. One need only look at its 19 81 annual report on global
development: 'These trends suggest it will be more difficult for
developing countries to manage their debt, but they do not presage any
generalised problem. This analysis is confirmed in projections for the
balance of payments in the 1980s, based on various probable
scenarios' (emphasis mine).
The 1982 report was released ] ust a few weeks before the explosion
of the Mexican crisis. It provided an even more blinkered and
optimistic analysis of the situation (Edwards, 1995). In its 1983
report, the World Bank said that there were liquidity problems that
had only affected specific countries, and not entire regions or groups
of countries. Yet about 30 countries followed closely in Mexico's
footsteps. The 1984 report provided optimistic projections until 1990
in the relationship between Latin American export earnings and
debt-service payments. In fact, the exact opposite occurred (Edwards,
1995). For a number of years, the Bank continued to promote the
illusion that the debt crisis was above all a liquidity crisis, instead of
recognising that the debtor countries were actually insolvent. These
debtor countries were not simply experiencing liquidity problems,
they were in the midst of a fully-fledged crisis, of a long-term
structural nature.
In 19 8 6, with the debt of developing countries well in excess of one
SI trillion (SI,000 billion), the Bank said that by the mid-1990s this
debt total would at the very worst be on the order of S 8 64 billion. By
1995, however, total Third World debt was SI,940 billion - double
the forecast amount.
The IMF made exactly the same errors. In its quarterly report
Economic World Outlook of April 1982, the IMF said that, in spite of a
number of payment problems, Latin America would obtain major
loans from the international financial community. In its October

1982 report, the IMF said that recession would be avoided. In its
1984 reports, the IMF seconded the World Bank in calculating that
the ratio between debt servicing and export earnings would improve
for Latin America. In fact, the exact opposite occurred.
WRONG FORECASTS ON WORLD MARKET PRICES

The World Bank was ] ust as arbitrary and wrong in its forecasts of the
export revenues meant to rescue developing countries from debt. Its
1981 predictions for the price of African raw materials were out by
62 per cent for minerals and metals; by 156 per cent for oil; by 180
per cent for fats and food oils; by 103 per cent for beverages; by 60
per cent for lumber; and by 9 7 per cent for non-food agricultural
products (George and Sabelli, 1994). The Bank could have easily
foreseen that - with all countries of the South seeking to maximise
exports in order to meet debt obligations - the prices of the exported
products would drop.
In 1991, the Bank repeated the mistake. Its international economy
division continued to put out optimistic forecasts which, within two
years, were also revealed to be thoroughly groundless. Real market
prices were significantly lower than predicted: 47 per cent lower for
coffee; 56 per cent for cocoa; 74 per cent for sugar; 35 per cent for
rubber; and 52 per cent for lead, to name but a few.
The 1991 report persists in forecasting that raw material prices
would continue to rise during the 1990s, saying that the GNP of
developing countries would rise by 5 per cent annually between
1992 and 2002.
THE WORLD BANK AND THE DRAIN ON THE SOUTH'S

RESOURCES
World Bank leaders have calculated the return on funds deposited in
the Bank by industrialised countries as their participation in its
capital. The Bank's official publications say nothing about this, but
an idea of its profits is provided in specialised publications aimed at
the business community. The following is an extract from a speech
given to an audience of Belgian employers in 1986 by Jacques de
Groote, Belgium's executive director at the IMF and World Bank, and
published in the bulletin of the Belgian employers' federation. The

extract speaks for itself:
The advantages that Belgium, like all World Bank member

countries, acquires through its participation in the group's insti
tutions can be measured by looking at the flowback. The flowback
is the relationship between, on the one hand, total spending by the
International Development Association (IDA) and the World Bank
on a country's companies based on contracts secured by these
companies and, on the other hand, this country's contribution to
the World Bank and IDA. As a result, the flowback is the relation
ship between what companies obtain through the sale of
equipment and consulting services, and what Belgium contributes
to the World Bank and IDA. The flowback from the World Bank to
the industrialised countries is significant and continues to rise;
from late 1980 to late 1984, it has risen from seven to ten for all
industrialised countries taken together. Which means that for
every dollar put into the system, industrialised countries got back
seven in 1980 and 10.5 now. (FEB, 1986)
THE WAPENHANS REPORT ON THE WORLD BANK'S

FAILURES
Do the World Bank's loans at least produce satisfactory results? In
February 1992, the Bank's vice-president, Willi Wapenhans, carried
out a confidential study evaluating projects financed by the World
Bank-some 1,300 projects in 113 countries. The conclusions of the
study are shocking: 3 7.5 per cent of projects are evaluated as being
unsatisfactory upon conclusion (up from 15 per cent in 1981), with
only 22 per cent of financial commitments seen to be in line with
Bank directives.
Yet the Profits keep Rolling In

The Wapenhans Report also reveals the contradiction between the
World Bank as a financial institution and the World Bank as the
development agency it is supposed to be. The Bank seeks to conceal
the way it benefits from the transfer of resources from the South into
its coffers (SI 7 billion in 1992) by loaning out even more, thereby
increasing the debt burden still further (Ferie, 1994).
The Bank is a profitable undertaking. Between 1988 and 1991 its

annual operating surplus systematically hit the S1 billion mark; in
1992, it was SI.65 billion; by 1993, it had reserves totalling
S14 billion.
SPRING 1997 AND THE URGENT NEED TO LOAN

In the spring of 199 7, according to one of its Belgian administrators,
Luc Hubloue, unless the Bank urgently used its surplus of inactive
capital, it would be faced with the threat of a major scaling down of
its operations. According to Hubloue, the World Bank had a lot of
unused lending capacity. 'The World Bank should become more
attractive in order to "activate" remaining funds' (Agence Belga, 28
April 1997).
Hubloue suggested a number of ways for using the international
financial body's resources in a more productive fashion in order to
face up to increased competition from the commercial banks.
He argued that the Bank should be willing to co-finance projects,
primarily in those countries that already have access to private
capital. Such loans could be made within the framework of
investment programmes drawn up by the target country - thereby
reducing the Bank's project preparation time. He pointed out that
project preparation was a long and complex process that often lasted
two years. So long, he said, that some countries - such as Brazil -
preferred dealing with commercial banks, even when their interest
rates were higher.
A few months later, though, the capital of the IMF and World Bank
combined would not be enough to stave off financial catastrophe
in Asia.
SUMMER 1997: YET ANOTHER FINANCIAL CRISIS

1982, Mexican debt crisis. 1994, second Mexican crisis. 1997, crisis
unfolds in East and Southeast Asia. On each occasion, the World
Bank was unable to foresee the outbreak of crisis. Just as Thailand
and three other Asian 'dragons' began to feel the effects of the crisis,
the World Bank had this to say about them in its 1997 report on
global debt:
The debt situation remains healthy. Although growth of overall

debt has surpassed export growth, the ratio between total debt and
export earnings has been maintained at moderate levels. Total debt
was worth 99 per cent of annual export earnings in 1996, much
lower than the 146 per cent average in middle and low-income
countries. (WorldBank, 1997)
Yet any serious analysis of the figures provided by the Bank itself,
in the very same report, would have drawn a different conclusion.
Private sector debt had risen sharply in 19 9 6, without any guarantee
whatever on this debt. Short-term high-interest debt had also surged.
There had also been a significant increase in highly volatile portfolio
investment.
When the crisis finally hit, the World Bank proposed the same
remedies that have caused so much human suffering elsewhere and
failed to restore growth into the targeted economies.
11
Structural Adjustment
Programmes
'FLEXIBILITY'
It is noteworthy that the same single word appears indiscriminately
in economic policy recommendations - whether these are made to
industrialised countries, to the Third World or to countries of the
former 'socialist' camp. The neo-liberal turn has given rise to a near-
monolithic slate of recipes for all the countries of the world, whether
in the North or South. The watchword is 'flexibility'. In the North,
this has meant dismantling a number of key institutional safeguards
and gutting the social gains that, initially, went hand in hand with
the successes of postwar growth and, later, progressively became a
hindrance to capitalist profitability and accumulation. In the South,
it is state intervention as such that has become the target of the
'letters of intention' that debtor countries negotiate with the IMF,
which demands policies of social austerity (Coutrot and Husson,
1993).
While the IMF has had ties with the countries of the periphery for
a long time, it has focused much more attention on them, and seen
its power there grow, since the outbreak of the debt crisis in the
1980s. As for the World Bank, we have seen how it has played an
ever more important role in the periphery since the end of the 19 60s.
From the beginning of the 1980s onwards, the World Bank and
IMF have teamed up to manage the debt crisis and implement
adjustment policies.
They have at the same stroke become large-scale debt collectors.
134
STRUCTURAL ADJUSTMENT PROGRAMMES/135
One major paradox is that the IMF and World Bank have
continued to grow in strength and stature even though their stated
objective of restoring long-term growth has not been met and even
though their policies have actually heightened financial instability.
It is worth noting, however, that since the 1994 Mexican crisis, the
IMF has had the upper hand over the World Bank when it comes to
defining government policies. The IMF has come out even further on
top in the wake of the 199 7-9 8 Asian crisis. The World Bank remains
in charge when it comes to dealing with the poorest countries,
dealing with NGOs (in order to 'co-opt' them) and setting up
programmes for the poorest sectors of the population in countries of
the Periphery.
As for the other omnipresent word, 'adjustment', to what exactly
are countries of the South expected to 'adjust'? The world economy
is not a united whole, it has a hierarchy. Developing countries cannot
merely imitate policies pursued in industrialised countries at some
point in the past. It is clear, therefore, that structural adjustment of
these countries to the industrialised world cannot offer any real
prospects for development. Quite the opposite, in fact.
THE STATED OBJECTIVES OF ADJUSTMENT LOANS

The defining essence of adjustment loan objectives can be found in
Article 1 of the IMF Charter: priority must be given to 'balanced
growth of international trade'. As such, countries that always import
more than they export need financial support so that they are not
excluded from international commerce. Without loans, they cannot
buy. The IMF explains that such interventions not only enable these
countries to continue to participate in international trade; as a result
of structural adjustment programmes, they also lead them to increase
such participation (Lenain, 1993; Christin, 1995; Norel and Saint-
Alary, 1988).
IMF statutes also stipulate that it should 'adopt policies that aim to
help members resolve their balance of payments difficulties and to
ensure that the target countries take appropriate measures for the
temporary use that will be made of these resources'. It is on this basis
that the IMF intervenes directly in borrower countries to set their
economic policies.
Adjustment programmes are the best possible guarantee that a
country will continue to service its debts. Indeed, the central priority
of these programmes is export revenue. A high percentage of these

export earnings soon find their way back into IMF and World Bank
coffers - since they have priority over other lenders - and then into
those of the private banks (in the London Club) and those of Paris
Club member-states. Members of the London and Paris Clubs clearly
have a stake in working with the IMF and World Bank.
DEBT AND STRUCTURAL ADJUSTMENT

Once countries are in debt, the IMF and the World Bank can force
them (through a kind of economic blackmail) to reorient their macro-
economic policies in the way seen to be most in step with the interests
of international creditors.
The objective is that of imposing a relationship in which debt-
servicing becomes a matter of course, while keeping debtor nations
in a strait] acket that prevents them from embarking upon an
independent national economic policy (Chossudovsky, 1994).
Structural adjustment policies have been implemented on a grand
scale. Although conditions vary greatly from one 'adjusting' country
to the next, the same economic remedies are applied the world over.
Acceptance of the Fund's prescriptions - spelled out in economic
stability pacts - is not only a precondition for obtaining loans from
multilateral institutions, it is also a green light for the London and
Paris Clubs, for foreign investors, commercial banking institutions
and bilateral lending agencies (Lenain, 1993).
Not surprisingly, countries that do not accept the IMF's corrective
measures encounter tremendous difficulties in restructuring their
debts and obtaining new development financing and international
aid.
The IMF can also seriously undermine a country's economy by
blocking access to the short-term credit needed for financing ongoing
trade in basic goods.
The IMF and World Bank have increasingly been called upon by
holders of capital in the North to collect 'bad loans' owed to
commercial banks.
Fresh funds (in the form of short-term loans) were provided to force
developing countries to pay back their debts to commercial banks
and foreign governments. Fresh funds were provided to pay off old
debts (Chossudovsky, 1994).
The international financial institutions refinanced old debts, and

this became a method for forcing Third World countries to pay back
their debts as well as overdue payments on these debts.
For example, after the brutal repression of riots in 1989, the
Venezuelan government had its 'bad debts' turned into shares
guaranteed by the international financial institutions. Not a cent
from this IMF and World Bank rescue package actually remained in
the country.
More recently, the IMF, World Bank and Asian Development Bank
loans made to South Korea, Thailand, Indonesia and the Philippines,
have been aimed at repaying the short-term debt owed by these
countries (above all their private companies) to the big speculators
and institutional investors from the North and from within the
region.
MACROECONOMIC REFORM AND THE STRUCTURAL

ADJUSTMENT PROGRAMME
Loans from international financial institutions (including the
regional development banks linked to the World Bank) are provided
as balance of payments support - that is, short-term loans for
financing imports and debt-servicing. These loans are usually
provided on condition that a certain set of policies be implemented.
In other words, these are political loans that are provided by the inter
national institutions on condition that the government in question
adopt a programme of economic stabilisation and structural
economic reforms in line with their demands.
Agreements for such political loans explicitly call for a scaling-
down of internal undertakings. Unlike conventional loans, these
loans are never linked to investment projects.
(Author's note: I have based this section, and Chapter 12's
description of the two phases of adjustment, on Michel
Chossudovsky's account in La Pauvrete des nations (CADTM, 1994)
and The Globalisation of Poverty (1997). I have supplemented his
analysis with my own, for which additions I am solely responsible.)
Invariably, substantial reforms must already be under way before
any structural adjustment loan can be negotiated.
Governments must prove to the IMF that they are 'genuinely
engaged in implementing economic reform' before loan negotiations
can begin in earnest.
This process often unfolds in a framework known as the 'IMF's

secret programme'. The IMF lays down a series of policy guidelines
and gives technical advice to a government - without there being the
slightest backing in the form of a loan. The Indonesian government,
for example, had to close a number of large banks in November 1997
before it could receive the funds promised by the IMF. The forced
bankruptcy of these banks provoked wide-scale panic within the
population. The IMF had to recognise this tactical error at the
beginning of January 1998 (New York Times, 14 January 1998). It
then got the Indonesian dictator to sign an agreement of submission
to the IMF under the imperious gaze of Michel Camdessus, broadcast
live on national and international television.
A government is expected to carry out the 'secret programme' to
the IMF's satisfaction before formal negotiations on a loan agreement
can begin in earnest.
Once the loan is disbursed, the policy conditions are closely
monitored on a quarterly basis by the Washington-based institutions.
Loan payments are made in several instalments and can be
suspended if ever the required reforms no longer appear to be 'on
track'.
THE DIVISION OF LABOUR BETWEEN THE IMF AND

WORLD BANK
It should be noted that the IMF and the World Bank stand shoulder
to shoulder when it comes to implementing structural adjustment
programmes.
In a number of debtor countries, the government sets out its
priorities in what is known as a 'policy framework paper' or 'PFP'.
Officially, it is drawn up by the debtor country, but in fact this takes
place under the supervision of the Bretton Woods institutions.
There is a clear division of labour between the two Bretton Woods
sister institutions. On the one hand, the IMF takes care of key nego
tiations over structural matters, keeping in mind the exchange rate
and the budget deficit. On the other hand, the World Bank gets
directly involved in the structural reform through its local represen
tatives and its various technical missions. Moreover, the World Bank
also has people working in the key government ministries responsible
for laying down the specific framework of the structural adjustment.
Reforms to healthcare, education, industry, agriculture, transport
and the environment are all drawn up under the watchful eye of the
World Bank.
The Bretton Woods Institutions have a variety of lending
mechanisms at their disposal and are quite prepared to use them, on
condition that the country in question follow their policy recom
mendations.
12
The Two Phases of

Structural Adjustment
It can be argued that structural adjustment is divided into two

distinct phases. 'Short-term' macroeconomic stabilisation -
involving currency devaluation, price liberalisation and budget
austerity - is followed by the implementation of a number of more
fundamental structural reforms.
Often, however, these structural reforms are implemented at the
same time as the 'economic stabilisation'.
FIRST PHASE: SHORT-TERM ECONOMIC STABILISATION

Devaluation
Devaluation and the creation of a uniform exchange rate
(eliminating exchange controls and multiple exchange rates) are
vital tools in government policy. It is worth noting that devaluation
is explicitly carried out by the Bretton Woods institutions. The IMF
plays a central role in the decision to devalue.
The exchange rate determines both the real prices paid to the direct
producers and the real value of their earnings. These real earnings
are reduced as a result of price rises and the IMF-dictated de-indexing
of salaries.
In some cases, devaluation provides a basis for the short-term reac
tivation of the entire export-oriented commercial agriculture sector.
More often, however, profits go only to the big commercial operations
and agricultural and industrial exporters.
140
THE TWO PHASES OF STRUCTURAL ADJUSTMENT/141
In the run-up to these devaluations, the wealthy classes are given

enough time to convert their local currency into hard currencies
before the local currency is devalued. After the devaluation is carried
out, they convert their hard currency back into local currency. When
the CFA franc (currency used in 13 of France's former West African
colonies) was devalued in January 1994, those holders of capital who
had changed their money into hard currency in time saw the value
of their capital double in one fell swoop.
The short-term gains a country experiences after a devaluation
are inevitably erased once other competing Third World countries
are themselves forced to devalue. The Bretton Woods institutions
often demand a currency devaluation as a condition for entering into
negotiations on structural adjustment loans.
Budget Austerity
The IMF imposes very precise guidelines, taking stock of the budget
deficit and the breakdown of government spending. These guidelines
affect both operational spending and development spending. The
Bretton Woods institutions dictate the dismissal of public sector
employees and drastic cuts in spending on social programmes.
These austerity measures affect all categories of public spending.
When the debt crisis began, the international financial institutions
restricted their intervention to setting budget-deficit objectives that
would enable the country in question to meet its debt-servicing
obligations. Since the end of the 1980s, the World Bank has tightly
controlled the very structure of public spending through what is
known as the Public Expenditure Review. In this way, the breakdown
of each ministry's spending is supervised by the Bretton Woods insti
tutions. The World Bank recommends an 'effective transfer of costs'
from regular areas of spending to those 'with a specific objective'.
According to the World Bank, the goal of 'public spending
supervision' is to 'promote poverty reduction through effective and
efficient spending'.
The structure of investment spending is also forced to target a
'specific objective'. The Public Investment Programme, also under
the supervision of the World Bank, demands that governments
severely reduce the number of investment projects. The concept of
'investment to meet an imposed objective' is used to reduce spending
on basic economic and social infrastructure to the bare minimum.
As for spending on social programmes, the international financial

institutions have made a principle of recovering operating costs from
users (patients in healthcare and the parents of children in the
education system), and of gradually withdrawing the state from basic
healthcare and education services. In the area of social spending, the
concept of 'loans granted to meet an imposed objective' is applied to
what are known as 'vulnerable groups'.
Austerity measures in the social sectors have meant a shift from
funding for regular programmes towards programmes with imposed
objectives. This has been the main reason for the collapse of the
education sector, health clinics and hospitals. The process has
enabled the Washington-based institutions to step in and don the
mantle of saviours.
The Budget Deficit: A Moving Target

The IMF sees the budget deficit as a moving target. First it fixes a
budget deficit target of 5 per cent of GNP. The government meets this
objective. In subsequent negotiations - or within the same loan
agreement - the IMF reduces the target to 3.5 per cent of GNP,
arguing that the government's spending plans are inflationary. Once
the 3.5 per cent goal is reached, the IMF wants the deficit reduced to
1.5 per cent of GNP, and so on. The rationale behind this whole
exercise is obvious: ensuring that state revenues go towards servicing
the foreign debt (Chossudovksy, 1997).
Price Liberalisation
This measure aims at eliminating subsidies and/or price controls. It
has an immediate impact on real earnings, whether in the formal or
informal sector. The deregulation of prices on grains for household
use, and import liberalisation on food reserves from the North, are
key components of this process. Subsidised European and North
American agricultural products (Common Agricultural Policy
subsidies in the case of the European Union) invade local markets.
This reduces the earnings of local farmers, driving many of them to
bankruptcy. In fact, it is not rare for the North's agricultural
surpluses to be sold to the South at cut-rate prices.
Liberalisation programmes also have an effect on the prices of
imported goods and raw materials. When combined with currency
devaluation, liberalisation measures boost the local price of imported

inputs (fertilisers, herbicides, seeds, equipment, and so forth) and
have an immediate impact on the price structure in most areas of
economic activity.
Setting the Price of Petrol and Public Services

The price of petrol is set by the state under the supervision of the
World Bank. Increases in the price of petrol and public services (often
by several hundred per cent) destabilise local producers. High
domestic prices for petrol - often pushed up higher than the world-
market price - are felt throughout the cost structure of domestic
industry and agriculture. As a result, production costs are inflated
well above prevailing local prices for goods, driving many companies
to bankruptcy.
Periodic World Bank-imposed jumps in the price of petrol and oil
products (implemented alongside import liberalisation for basic
goods) create an 'internal transit tax', whose goal is to cut local
producers off from their own internal market.
In many developing countries, the high cost of petrol paralyses the
transport of goods within the country. The high cost of transport -
imposed by the international financial institutions - is a key factor
preventing small local producers from selling their products in city
markets, where there is direct competition with agricultural products
imported from Europe and North America.
Furthermore, the World Bank has been pushing for all government
services to be offered at cost or transferred to the private sector. Not
only healthcare and education (see below), but also communica
tions: roads, electricity and water.
The fact that even the poor are entirely prepared to pay for most infra-
structural services, makes it all the more possible to charge fees.
Private-sector participation in management, financing and
ownership will, in most cases, be necessary to give a commercial
edge to infrastructure use. (World Bank, 1994) (emphasis mine)
De-indexation of Salaries
The IMF imposes a reduction in real wages by de-indexing salaries
and liberalising the labour market. This means removing cost-of-
living adjustment clauses from collective agreements and eliminating

minimum-wage laws. Let us not forget that while real wages are one-
tenth or even one-twentieth of what is paid in the advanced capitalist
countries, structural adjustment programmes (S APs) boost the price
of basic household goods to levels seen in the developed capitalist
world. In some cases, the prices are even higher.
SECOND PHASE: STRUCTURAL ADJUSTMENT, THE REAL

THING
Implementing 'macroeconomic stabilisation' is the condition for
receiving IMF funds and a renegotiation of the external debt with the
Paris and London Clubs. It is always followed by the implementation
of 'necessary' structural reforms.
There is a division of labour between the IMF and the World Bank.
The 'necessary' economic reforms are 'encouraged' with structural
adjustment loans and sectoral adjustment loans from the World
Bank. The structural reform package has ten main components:
1. Trade Liberalisation
Protectionist tariff barriers are eliminated in order to make the
domestic economy more 'competitive'. In truth, trade liberalisation
destroys industrial production for the domestic market and 'liberates'
domestic capital from genuinely productive activities.
2. Liberalisation of the Banking System

This means privatising state-owned banks and deregulating the
commercial banking sector. The central bank loses control of
monetary policy; interest rates are set on the free market by
commercial banks. It is worth recalling that international
agreements have opened up domestic banking to foreign commercial
banks. The tendency is towards a weakening of domestic banking
institutions, whether state-owned or private.
The IMF also dictates large increases in interest rates, in both
nominal and real terms. This upward movement has a direct effect on
domestic prices. It leads to the collapse of a country's credit system,
for both agriculture and industry. Local businesses are depressed by
high interest rates; significantly tighter access to credit for the lower
classes - and even for the middle classes - means a plunge In

consumption. Short-term credit continues for foreign trade, but the
domestic banking sector grows further and further apart from the
real economy. The policy of high interest rates seen in countries such
as Mexico and Brazil has led to an accumulation of rentier capital
(interested only in speculative financial operations).
This capital 'liberated' for various non-productive activities also
gets entangled with trade in a variety of illegal items, giving a huge
boost to the amount of dirty money floating around. Thanks to
deregulation and the scrapping of exchange controls, it is also much
easier to launder this money.
3. Privatisation of State-owned Firms

There is always a link between the privatisation of state-owned
companies and the renegotiation of a country's foreign debt. The
most profitable of these companies are snapped up by foreign capital
or consortiums (involving foreign and domestic capital); the proceeds
from these sales go towards the Paris and London Clubs. In this way,
international creditors and MNCs come to control state-owned
concerns with practically no real investment (see the Argentinian
case later in the book). When a large number of countries sell their
state-owned firms at the same time, the selling price plummets.
In keeping with privatisation and the reform of the banking
system, the IMF demands a complete opening to capital flows. This
fulfils two objectives:
First, foreign countries are allowed to repatriate their profits to the
North in hard currency.
Second, thanks to the new climate of impunity, funds from secret
accounts (including large sums of dirty money) are 'repatriated' to
the South. Targeting the inter-bank market, these funds are soon
converted into local currency to purchase state-owned companies
and lands sold off as part of the Bretton Woods institutions' privati
sation programme.
4. Tax Reform
Reforms aim to undermine domestic production, on both the demand
and supply sides. The introduction of value-added taxes (VAT) and
sales taxes, alongside changes in the structure of direct taxation,
mean a greater tax burden for middle-income groups. Registering
small producers, as well as workers and vendors In the Informal

sector, Is part of World Bank policies aimed at increasing taxes.
One scholar who supports IMF fiscal policies presents them in the
following way:
The IMF encourages developing countries to undertake tax

reforms in order to improve the allocation of economic resources.
It therefore calls for the elimination of highly progressive income-
tax schedules, since they create costly distortions in the way
resources are allocated, open the door to tax fraud and boost
administrative spending on debt-collection. IMF-recommended
tax reforms also include an overhaul of taxes on foreign trade.
(Lenain, 1993)
Patrick Lenain was at one point an IMF official. His remarks need no
comment.
5. Land Privatisation
This policy involves issuing land titles while raising the ceiling below
which access to property is denied. Such measures concentrate land
in the hands of the wealthy few, while small farmers give up their
land or mortgage it - only to become tenant farmers (sharecroppers)
and seasonal agricultural labourers, or to ] oin the ranks of the urban
poor. The policy violates traditional land rights (in Africa and India,
for example) and undermines the gains of authentic revolutionary
transformations. In Mexico, for example, Article 2 7 of the
Constitution - which enshrined the rights of indigenous peoples and
poor farmers over collective lands known as ejidos (see Chapter 1 5 ) -
was reformed earlier in the 1990s. This kind of land counter-reform
has been the object of huge mobilisations of poor farmers in Egypt
since 1997.
Land privatisation is also a way to repay the debt. The public land
sell-off generates state revenues, which are channelled off to inter
national creditors. Additional dirty money is also repatriated and
laundered in the process, no questions asked.
6. Labour Market Reforms

The IMF and the World Bank recommend a loosening of labour
market regulations. They argue that institutional rigidities limit
labour mobility and therefore cause unemployment (Lenain, 1993;

Decornoy, 1995; Valier, 1996). In 1995, the World Bank devoted its
entire Report on Global Development to the question of work, with
the title Work in a Borderless Economy (World Bank, 1995). The report
does not beat about the bush; far from it:
The quest for greater worker mobility will often mean implement
ing measures that allow the process of] ob destruction - which will
include dismissals in the public sector - to follow its course [sid].
(World Bank, 1995)
The World Bank is fiercely opposed to establishing or maintaining

benefits for the long-term unemployed. Such benefits, goes the
argument, are themselves a cause of unemployment. This is how the
World Bank defines a 'voluntarist labour market policy':
[It is a] policy that seeks to help the unemployed find work and to
improve the future prospects of those already working. This
involves job-search assistance, training and job-creation
initiatives. [On the other hand], a passive policy seeks to support
the standard of living of those not working through monetary and
other forms of assistance. (World Bank, 1995)
On the subject of wages, the World Bank comes out clearly against
minimum wage legislation in Third World countries. It argues that
in places where a minimum wage exists, it is 'too high in relation to
the country's earnings and to other wages; even a small increase
would reduce employment' (World Bank, 1995). The conclusion is
categorical: 'The establishment of a minimum wage may be of some
use in industrialised countries, but it is difficult to justify in low and
middle-income countries' (World Bank, 1995).
7. Trade Unions
According to the World Bank, trade unions heighten the 'privileges'
of workers in the formal sector and, as a result, 'skew revenue distri
bution' to the detriment of that 'mass of workers who make up the
active population in the informal and rural sectors' (World Bank,
1995). The World Bank also finds that 'trade unions have on
occasion used their political power to oppose structural adjustment'
(World Bank, 1995). Nevertheless, the Bank Is generous enough to

tolerate the existence of unions: 'It is not necessary to refuse to
recognise the rights of workers for revenue growth to occur' (World
Bank, 1995).
8. Pensions
In recent years, the World Bank has turned its attentions to pension
reform. It actively promotes capitalisation-style pension systems
based on the development of private pension funds. Such funds have
grown in size and number in Brazil, Chile and Mexico - encouraged
by the World Bank and big capital. In Brazil, a number of them have
already run into problems; their managers are regularly implicated
in corruption scandals.
9. Poverty and the Social Safety Net

The Bretton Woods institutions have abandoned the goal of poverty
eradication, or even of generalised poverty reduction. It is now about
'managing poverty' to make it 'bearable'. At the same time as cuts are
made in social spending, programmes aimed at the poorest sectors
are put together. This is meant to be a more effective system, yet these
targeted programmes are combined with 'cost recovery' and the 'pri
vatisation' of healthcare and education (people must now pay for
medicine, medical consultations and school tuition).
The state has withdrawn from a number of sectors. A number of
programmes previously run by government ministries are now
managed by civilian organisations and NGOs which have taken on
the functions of local government. With funding frozen by structural
adjustment programmes (SAPs), small-scale production and
handicrafts, subcontracting for export houses, training in local
community groups, local employment schemes and other such
activities have been incorporated into the 'social safety net'. In this
way, local populations' fragile conditions for survival are maintained
while the danger of social upheaval is contained.
10. Good Governance

Although the World Bank denies it, since the beginning of the 1990s
the granting of loans has been explicitly linked to a series of political
conditions. Good governance is one such condition. Although the

implementation of SAPs absolutely requires a toughening of state
authoritarianism, a fagade of 'democratisation' is demanded as an
adjunct to the 'free' market.
Since the beginning of the 1990s, after SAP implementation
caused popular revolts in a number of countries, the World Bank has
made good governance a priority. No surprise here: governments
that implement SAPs lose their legitimacy in the eyes of the people,
in as much as they appear to have lost all autonomy in their relations
with the international financial institutions. The World Bank's
response is to wash their hands of the entire matter, holding the
defects of the governments concerned responsible for popular distur
bances. Good governance has become another way to keep debtor
countries in line.
In 1990, Barber Conable, World Bank president from 1986 to
1991, made the following declaration to a number of the Bank's
African governors:
Let me be frank: political uncertainty and arbitrary rule in so many

sub-Saharan African countries are major obstacles to their
development.... In saying this, I'm not talking politics. Rather, I'm
speaking as a defender of increased openness and responsibility, of
respect for human rights and the rule of law. Governability is
linked to economic development. Donor countries are increasingly
indicating that they will cease to back inefficient systems which do
not meet the population's basic needs, (quoted in Lancaster, 1993)
For the World Bank, good governance is advantageous in two

other ways. First, as a way to respond to ever more virulent interna
tional criticism: the Bank reassures its critics that funds provided to
governments are managed in such a way that the 'aid' reaches the
target groups, whether they be the poor or industrialists. Second, as
a strategy for establish a local network of non-governmental bases of
support to meet its objectives: local and foreign NGOs, the media,
religious institutions, chambers of commerce and employers' organi
sations. Governability has become such a priority for the Bank that
in 1992 it published a special report, 'Good Governance and
Development' (World Bank, 1992).
In 1985, Jean Leca provided the following definition of 'good
governance':
The conformity of the governed results from a process comple

mentary to that of the Instrumental exchange of resources: the
establishment of a reservoir of loyalty [author's note: within a
framework of submission] that allows for the temporary
acceptance of an unfavorable exchange. ... The legitimation of
power can be defined as a process through which those that govern
produce (or use) one (or more) system(s) of justification that enable
them to appeal, should the need arise, to other centres of social
power - to obtain effective obedience. (Leca, 1985)
In fact, the development of good governance has nothing to do

with democracy. Rather, it is a set of policies aimed at obtaining
consent from the oppressed. In many cases, talk of good governance
is a figleaf for bolstering executive power and undermining social
movements.
THE FEASIBILITY OF AUSTERITY POLICIES

The OECD's Book of Government ABCs
In a document meant for government eyes, Organisation for
Economic Cooperation and Development (OECD) official Christian
Morrison provides a number of recommendations. The document
makes one's blood boil, and requires little comment. Here are some
extracts (the subheads are my own):
First, on the objective of the report, called The Political Feasibility of
Adjustment (Morrison, 1996):
The Development Centre strives to identify and analyse the

problems that will arise in the medium term, both for OECD
member-countries and non-member countries, and to determine
trends in order to facilitate the development of appropriate policies.
This series of Economic Policy Notebooks provides the results of the
Centre's research work and is primarily meant for political leaders
and decision-makers concerned by its recommendations.
Economic stabilisation and adjustment policies may cause
social disturbances; they may even endanger a country's stability.
In this Economic Policy Notebook, the political consequences of such
programmes are analysed. From five in-depth studies and two key
country samples in Latin America and Africa, it can be observed

that the political costs in terms of strikes, demonstrations and riots
are very different from one stabilisation measure to the next. Our
research has allowed us to define what a politically effective sta
bilisation programme should look like. It is possible to obtain the
desired results while minimising political risks.
It is politically important to distinguish between stabilisation
and structural adjustment. Indeed, stabilisation programmes
involve a degree of urgency and therefore necessarily involve
many unpopular measures - such as sharp reductions in
household revenues and consumption through cuts in public-
sector wages, subsidies and employment in the construction
sector. On the other hand, structural adjustment measures can be
spread out over a number of years; each measure creates winners
and losers, in such a way that a government can easily obtain the
backing of a coalition of beneficiaries to defend its line of march.
In the case of an adjustment, a government can put down social
unrest to compensate for a drop in popularity stemming from
spending cuts. But this approach brings with it a number of costs
- increased dependence on the army and negative foreign reaction.
Timing
A clear three to six month time lag can be observed between the
announcement of stabilisation measures and the outbreak of
strikes, demonstrations and other social unrest. This lag is
interesting since it proves - contrary to the hypothesis of rational
expectations - that political reactions occur when measures are
implemented rather than when they are announced.
A Worthy Role Model: Hassan II
That said, there is an example of a government successfully

avoiding this risk, such as in Morocco in 1983-1985. There were
two reasons for this political success: caution (price rises were
moderate and gradual) and good public relations (for example, the
king proclaimed that the poor should be protected from the effects
of adjustment, using the slogan 'austerity yes, pauperisation no').
The Easiest to Impose
A restrictive monetary policy, of severe cuts in public investment

and operating costs, does not involve any risk for a government.
This does not mean that such measures do not have social and
economic consequences; but our reasoning here is based on the
sole criterion of reducing the risk of social unrest.
There is usually no reaction to cuts in public investment, even
when they are severe: a 40 per cent cut over three years in
Morocco; 40 per cent over two years in Cote d'lvoire; 66 per cent
between 1982 and 1985 in Venezuela; and 60 per cent over two
years in the Philippines.
Errors to be Avoided
It is more difficult to implement a programme that equally affects

all groups - that is, a socially neutral programme - than it is to
implement a discriminatory programme. It is easier to make some
groups bear the brunt of the adjustment while sparing others, on
whom the government can count for support.
Total Control is Best
In the face of adversity, the exceptional power of a head of state is

of vital importance to the success of an adjustment. To be sure,
governments have real capacities for resistance, thanks to the
forces of law and order. But when riots threaten a regime's
stability, the authority of a head of state is a maj or asset. This was
true in Morocco, Cote d'lvoire and Venezuela. In Venezuela, the
president enjoyed this authority in 1990 since the same party
controlled the presidency, the parliament and the main trade
union.
Massive Privatisation and Dismissal: A Realistic Agenda
Whether it is a matter of restructuring or privatisation, in many

countries the reform of state-owned companies has been met with
strong opposition, given that such reforms call into question a wide
variety of interests.
Nevertheless, in many cases governments manage to carry out

restructuring programmes which would be spurned in developed
countries. In 1987, for example, Bolivian president Paz took a
number of Draconian measures: two thirds of the state-owned tin-
mining company's work force was dismissed, given that the
company caused one third of the total annual public deficit. This
led to a series of strikes and demonstrations, but the government
stood its ground against the miners and remained in power for
another three years.
Use the IMF Threat
Let us recall that any adjustment is a politically risky affair. On the

one hand, the opposition will blame all the costs of an adjustment
on the government. On the other, if- fearing the opposition - the
government holds off on adj ustment until there is a financial crisis,
it will have much less margin for manoeuvre to confront a political
crisis. However, since no concessions are possible once a
commitment has been made to the IMF, the government can reply
to the opposition that it is duty bound to respect the IMF
agreement, whether it wants to or not.
A government can explain that, since the IMF has imposed, for
example, a 20 per cent reduction in the total wage bill, it has to
choose between massive dismissals and cuts in salary. It can say
that - in the interests of all concerned - it prefers the latter solution.
North and South: How to Undermine Trade Unionism
If state sector employees are well organised, they can put up

effective opposition to government decisions [to dismiss thousands
of workers or to privatise]. Any policy aimed at weakening these
forms of corporatism [NB Morrison uses the term 'corporatism' in
reference to the trade union movement] is a desirable one. From an
economic point of view, it means eliminating obstacles to growth;
politically, the government attains the sort of margin for
manoeuvre that can be precious in a period of adjustment. Some
will object that such a policy would encounter resistance; but it is
better for a government to wage this battle during a phase of
economic buoyancy than when it is weakened in times of crisis.
Such a policy can take several forms: minimum-service
guarantees, training of additional qualified staff, and, when

possible, privatisation and division into several competing
companies.
Measures to be Avoided
The first precautionary measure to take is that of avoiding lenient

policies in times of prosperity, since they create rights that are hard
to challenge later on.
Many inhabitants of slums and poor neighbourhoods feel
resentful and excluded in relation to the rest of the urban
population. Looting and pillage of shops in wealthy neighbour
hoods are outlets for these feelings. When a stabilisation measure
- subsidy cuts, for example - leads to a sudden increase in the cost
of basic items, these sectors of the population react with violent
displays of their desperation. Indeed, such measures brutally lower
their already very low standard of living to a point where the poor
have nothing left to lose.
Following the example of Morocco in 1983-84, the prices of
intermediate goods should be increased first, and not those of basic
items consumed by poor households. If the prices of basic goods are
increased, this should be done with moderation (less than 20 per
cent at a time) and spread out over time.
Teachers' Strikes: Innocuous were it not for the Kids
Teachers' strikes are of no direct concern to the government, but

can be indirectly dangerous in as much as they give young people
the time and opportunity to demonstrate.
A Winning Strategy for Cutting Salaries: Divide and Rule
As part of a discriminatory policy aimed at avoiding a united front

between all state sector workers, bonuses in only some
departments can be eliminated. Of course, it is not advisable to
eliminate bonuses to the army and police during difficult times
when their services may be called upon.
Politically, nothing is more dangerous than implementing all-
round measures to deal with macroeconomic problems. If state
sector salaries are reduced, for example, they should only be
reduced in one sector, while their nominal value is frozen in
another; it might even be advisable to increase them in some other

politically important sector.
This is Easy
There are a number of measures that create no political difficulties

whatever. For reducing the public deficit, major reductions in
public investment and reduced operations do not create political
risks. If operations are reduced, it is important that the quantity of
service not drop, even if this means reducing the quality. The
operating budget for schools and universities, for example, can be
reduced; but it would be dangerous to restrict the total number of
students. Families react violently when their children are denied
admission, but not when the quality of instruction gradually
declines; furthermore, the school can progressively and selectively
turn to families for help or eliminate this or that activity. This must
be done bit-by-bit, in one school but not in the neighbouring one,
in order to avoid generalised discontent.
For Strong Governments
If a government is to have the necessary margin for manoeuvre for

adjustment, it must be supported by one or two large majority-
backed parties, rather than a coalition of small parties. This means
that, in parliamentary elections, first-past-the-post constituency-
based systems are to be preferred over proportional systems - or
there should at least be some combination of the two. There are
also ways to strengthen the executive branch, such as provision for
temporary special powers and solely ex-post powers for the
judiciary- to prevent judges from blocking the implementation of
adjustment programmes ex-ante. Referenda can also be effective
government weapons on condition that it alone has the right to
initiate the referendum process.
OVERALL EFFECTS OF IMF AND WORLD BANK POLICIES

Social Consequences of Structural Adjustment
Programmes
Education
Educational institutions have deteriorated; some have closed down,
and teachers have either been dismissed for lack of funds or go for
months without being paid. This lack of operating funds has been
compensated by the establishment of tuition fees, and special charges
collected through parent associations and local communities. This
has meant the partial privatisation of essential social services and the
de facto exclusion of broad sectors of the population, especially in rural
areas.
Two explicit conditions for adjustment loans are: a freeze in the
number of diplomas awarded in teaching colleges; and an increase in
the number of students per teacher. Education budgets are being
slashed; children spend no more than a half-day at school. 'Two-way
flow classes' are created as a result, with each teacher taking separate
morning and afternoon classes (N'Diaye, 1995). Each teacher now
does the work of two; the money saved goes towards repaying
government debt.
These measures - carried out in the name of 'cost efficiency' - are
still seen as falling short of the mark. In sub-Saharan Africa, some
lenders have proposed a system whereby a teacher would lose his or
her salary in exchange for a small loan for setting up their own
'private school'.
In this system, however, the Ministry of Education would still be
responsible for maintaining the 'quality' of teaching.
In Africa, primary school enrolment had risen from 41 per cent of
eligible children in 1965 to 79 per cent in 1980. By 1988, however,
it had fallen back to 67 per cent (UNDP, 1992).
In Zambia, between 1990 and 1993, the government spent S3 7
million on primary education and SI.3 billion on debt servicing. In
other words, for every dollar invested in primary education, 35 left
the country to repay the debt. By 1995, the government was
spending six times less on primary education than ten years before.
In fact, 80 per cent of primary school expenses were borne by the
children's families.
Healthcare
The international institutions claim that state subsidies to healthcare
create undesirable 'market distortion' which 'benefit the rich'.
Moreover, in the name of'greater equity' and 'efficiency', they argue
that users of primary healthcare services should pay user fees, even
if they are from an impoverished rural community.
The World Bank also calculates that total annual spending of S8

per person Is more than enough to provide acceptable standards of
clinical care.
This has meant an across-the-board collapse of preventive and
curative medicine: medical supplies are lacking, working conditions
are horrendous and staff are poorly paid, if they are paid at all. Public
health facilities in sub-Saharan Africa, and some countries of Latin
America and Asia, have actually become breeding grounds for
sickness and infection. Indeed, lack of funding for medical supplies
(including syringes and bandages) and equipment and price
increases (recommended by the World Bank) for electricity, water
and fuel (necessary for sterilising instruments, for example) have
increased the likelihood of infection (including HIV).
Thanks to these Draconian austerity measures, there is now
tremendous social inequality in access to healthcare services. The
state has significantly withdrawn itself from health matters, the
already high percentage of people lacking healthcare has become
even higher, and even once eradicated infectious diseases are on the
increase. The rise in infectious disease is also linked to cuts in public
spending on preventive measures - such as improved sewers and
access to drinking water.
The infant mortality rate (IMR) is a reliable indicator of a country's
well-being. The implementation of SAPs in African countries has
entirely eliminated the advances made with great difficulty during the
previous 15 years. The most striking example is Mali, where the IMR
had dropped by 23 per cent between 1960 and 1980, and increased
by 26.5 per cent between 1980 and 1985. There are no IMR figures
for Madagascar in 1965; in 1980, however, its IMR was 71, rising to
109 in 1 9 8 5 - a 53 per cent hike between 1980 and 1985.
Nutrition and food security are two key factors in health. A UNICEF
study in ten countries on the effects of adjustment on health
concluded that children's nutrition had declined in eight of the ten
countries. In Zambia, between 1980 and 1984 - the very period
when SAPs were being implemented - death from malnutrition rose
by between 2 and 6 per cent for children between the ages of 0 and
11 months; and between 3 8 and 62 per cent for children between the
ages of 1 and 14 years.
By 1995, the Zambian government was spending 30 per cent less
on healthcare than ten years before. One consequence: infant
mortality has risen by 20 per cent in ten years.
The IMF and the World Bank say users should pay for healthcare
services. As a result, In Mozambique the number of consultations at
the Maputo hospital dropped by 24 per cent between 1986 and
1987. In Malaysia - even before the crisis that broke In 1997-98 -
40 per cent of the population could not afford private healthcare
services (Balasubramanlam, 1996).
As for maternal health, In Nigeria the number of women using the
capital city's main maternity ward for childbirth dropped from 6,535
In 1983 (beginning of SAP) to 4,377 In 1985 and 2,991 In 1988
(Bruno Dujardin, Antwerp Institute of Tropical Medicine).
Social Costs Described as 'Side-effects'

In macroeconomlc terms, these health and education measures lead
to the disintegration of a debtor country's human resources.
The UNDP's 1992 report says that:
As a result of the economic crisis of the 1980s and the SAPs

adopted In response, social spending has been sharply reduced In
a large number of heavily Indebted countries. This has had a direct
effect on the population's standard of living, Infant mortality,
school enrolment and nutrition. (UNDP, 1992)
Through the prism of IMF and World Bank Ideology, however, the
'social costs' of SAPs are a 'separate' matter. 'Undesirable side-effects'
cannot be blamed on the economic model. They belong to a 'separate
sector': the social sector. According to the IMF and World Bank, the
social costs are compensated for by the 'economic benefits' of macro-
economic stabilisation. 'Social costs' are short-term while 'economic
benefits' are long-term.
Economic Consequences of Adjustment Policies

Production for the domestic market Is severely depressed as a result
of reductions In real salaries, Import liberalisation, and tax and price
reform.
IMF measures are theoretically designed to help countries
restructure their economies In order to create a surplus In their trade
balance - thereby enabling them to repay their debts and embark
upon a process of economic reconstruction. In fact, the exact opposite
occurs. Austerity undermines a country's capacity for recovery and

prevents it from reducing its debt burden. The only thing it more or
less ensures is that interest payments on debt will be met.
IMF measures actually increase a country's debt burden:
loans granted on the basis of adjustment policies, in order to

repay old debts, increase both total debt and debt servicing;
in a context of trade liberalisation and the destruction of
domestic production, short-term loans are granted to enable
the country to continue importing goods from the world
market;
total import costs increase following currency devaluation;
there is little or no capital accumulation in sectors not directly
tied to the export sector.
Macroeconomic stabilisation and SAPs are powerful tools in the

service of an economic restructuring that adversely affects the living
standards of millions of people. SAPs are directly responsible for the
process of mass impoverishment described thus far. The implemen
tation of the IMF's and the World Bank's 'economic remedies' has led
to the slashing of real wages, and the strengthening of an export
economy that feeds off a low-wage workforce. The same 'recipe' of
budget austerity, trade liberalisation and privatisation has been
implemented simultaneously in more than 100 debtor countries in
the Third World and Eastern Europe, including former Soviet
republics and Vietnam.
Political Consequences
Most debtor countries lose part or all of their economic sovereignty,
along with control over economic and monetary policy. The central
bank and Ministry of Finance are reorganised; some state institutions
fall apart, paving the way for outside 'economic supervision'. The
local teams and missions of the IMF and World Bank come to form a
'parallel government' which overrides local organisations and the
national parliament.
Countries not respecting the IMF's 'performance goals' are
blacklisted. Sudan is on such a list today, as was Nicaragua between
1979 and 1990.
The IMF demands that the internal security apparatus be strength

ened: political repression - with the collaboration of Third World
elites - plays a supporting role for the parallel process of economic
repression. The tremendous despair of a people pauperised by the
market economy is a source of riots against SAPs and popular
uprisings. Funds and training are always set aside to ensure that
these acts of despair are brutally suppressed.
Structural adjustment is one of the main techniques for economic
constraint used by states in the centre against the periphery.
Structural adjustment - implemented in more than 100 countries
simultaneously - has a devastating social impact, negatively
affecting the living and working conditions of some four billion
individuals (Chossudovsky, 1994 and 1997).
The implementation of SAPs in many debtor countries leads to the
'internationalisation' of their macroeconomic policy, under the direct
control of the IMF and the World Bank - which represent powerful
financial and political interests (the Paris and London Clubs, the G7
and the closed circle of the main MNCs). This new form of political
and economic domination - a kind of market colonialism - oppresses
peoples and governments through the impersonal interaction (and
deliberate manipulation) of market forces. The Washington-based
bureaucracy is given the task of carrying out an overall economic
enterprise affecting the living and working conditions of more than
80 per cent of the world's population.
At no point in history has the 'free' market - given global reach
through macroeconomic processes - played such a huge role in the
destinies of 'sovereign' nations.
The restructuring of the global economy, under the watchful eye of
the Washington-based financial institutions, has increasingly denied
the countries of the Third World the possibility of building a national
economy. The internationalisation of economic policy has turned
these countries into economic open territory, and their national
economies into 'reservoirs' of cheap labour and raw materials.
Price Unification and Labour Market Compartmentalisation

While there are significant differences in the standard of living
between countries of the North and those of the South, the
devaluation of national currencies (see above) along with the deregu
lation of internal markets (through SAPs) lead to the dollarisation of
domestic prices. Domestic prices for food are increasingly aligned

with world market prices.
After the 'Fuji-shock' in Peru - dictated by the World Bank and the
IMF and implemented by President Alberto Fujimori in 1991 - the
price of petrol increased by 3,000 per cent overnight, that of bread by
1,100 per cent. Yet the minimum wage fell by more than 90 per cent
(compared to 19 7 5). In August 19 9 0, an agricultural worker in the
northern provinces made S 7.50 per month; at the same time, many
basic goods cost more in Lima than in New York (Chossudovsky,
1994).
This new global economic order - based on the internationalisa-
tion of goods prices and a fully integrated world market - operates
with two distinct 'labour markets', increasingly cut off from one
another. In other words, this global market system is characterised
by a dual structure for wages and labour costs, separating countries
of the periphery and those of the centre. While prices are unified and
aligned with those of the world market, wages (and the cost of labour)
in the Third World and Eastern Europe are on average 10-20 times
lower than those in OECD countries. Furthermore, with the closure
of US and Western European borders, the South's workforce can no
longer circulate freely and sell its labour in the countries of the North.
This fortifies the barriers separating labour markets on a global scale.
Reducing the Role of the State and Eliminating

Autonomous National Projects
The World Bank stresses the huge stakes involved in the quest to
reduce the role of the state:
Of the world's 2.5 billion workers, 1.4 billion live in countries

facing the difficult task of definitively emerging from a system of
state intervention, excessive protectionism and centralised
planning ... (World Bank, 1995)
In sub-Saharan Africa, Latin America and South Asia, most

countries have pursued differing degrees of autonomous
development that protected certain industries and discriminated
against agriculture. These strategies benefited a limited number of
privileged people (holders of capital and workers employed in the
protected sector). Privileges were often defended with intervention
of an institutional sort (bans on dismissal in Latin America,

excessive public-sector hiring in sub-Saharan Africa and South
Asia) instead of being based on an increase in demand for labour
or improvements in productivity. (World Bank, 1995)
Nothing is better for growth and improvements in the standard of

living of workers than developments of the market that encourage
companies and workers to invest in physical capital, new
techniques and training. Some countries attempted to help
workers with investment policies benefiting industry to the
detriment of agriculture - through protecting from international
competition the jobs of a small number of favoured workers in the
industrial sector, decreeing salary rises and creating excess jobs in
the public sector. These attempts have ended in failure, whether in
Latin America, the former Soviet Union or elsewhere. (World
Bank, 1995)
A number of observations can be made about these statements

from the World Bank.
First, there is systematic fudging to present workers in the formal
sector as being privileged on the same level as holders of capital. In
the world according to the World Bank, there is no class antagonism
between capitalists, on the one hand, and workers (whether small
farmers, factory workers, education and healthcare workers, or
unemployed), on the other. According to the World Bank, the real
antagonism is between those with 'privileges' (workers in the
protected sector, state sector employers and private employers
protected by the state), on the one hand, and the poor (the
unemployed, informal sector workers), on the other.
Second, the state played a negative role in most of the economies
of the South and East; its role must therefore be cut back.
Third, attempts at autonomous development all ended in failure.
Fourth, one can sense the glee of the report's authors over the vast
opportunities opened up for neo-liberal policies in regions as different
as Latin America, Africa, South Asia and the former Soviet Union.
This jubilation even takes on a ruthlessly vengeful tone in the
following passage on the countries of the former Soviet Bloc:
Considering themselves to be the champions of labour, they

guaranteed their workers periodic wage increases and cradle-to-
grave social protection - and therefore saw no need for free and
independent trade unions. (World Bank, 1995)
Need we point out that it is sheer demagogy for the World Bank to
mention the absence of free trade unions, given that it has supported
(and continues to support) any number of dictatorships, be it Chile
under Pinochet or Romania under Ceaucescu, just to name two
examples?
Clearly, the World Bank's main priority is eliminating state inter-
ventionism and attempts at autonomous development and planning.
Yet, as a general rule, countries in the periphery that have scored
successes have done so largely by relying on the active role of the
state. This is particularly true of countries not long ago seen as models
of success: South Korea, Taiwan, Malaysia, Thailand, Brazil and
Mexico. Whether run by the national bourgeoisie, sections of the
petty bourgeoisie or a dictatorial bureaucracy in the countries of the
so-called Socialist Bloc, the state played a key role in spurring real-if-
deformed development. The 'overdevelopment' of the state in the
countries of the periphery (leaving aside the Socialist Bloc) is a
function of the weakness of the local capitalist class. The state was a
crutch for a local bourgeoisie handicapped by long years of colonial
exploitation.
By shrinking the role of the state in the periphery, the World Bank
seeks to heighten these countries' dependence on big capital at the
centre.
For those seeking a progressive answer to this challenge, there are
a number of pitfalls to be avoided. It is wrong, for example, to defend
the state per se, as if its social content were neutral and its role globally
positive. In the capitalist countries of the South, the state is a force for
domination in the hands of the local exploiting classes. This state
organises the repression of people's movements and enables the
capitalist class to amass profits in peace. The neo-liberals should not
have a monopoly on criticism of the state.
Indeed, Karl Marx was not the only one to decry the exploitative
character of the capitalist state. The classical economist Adam Smith
wrote, 'Civil government, so far as it is instituted for the security of
property, is in reality instituted for the defence of the rich against the
poor, or of those who have some property against those who have
none at all' (Smith, 1776). The World Bank and the neo-liberals
might even be able to claim this passage as their own, on condition
that the last part be removed. In their demagogic world view, 'the
rich' are state sector workers; these workers use the state to exploit
the poor. But it is pure communist heresy to say that the state was set
up to defend the private property of the rich against those who have
none.
There is good reason to fight the state, and replace it. The
overthrow of the capitalist state comes as part of an authentic eman
cipatory revolution. This revolution must also end with the withering
away of the new state structures, which are established for a transi
tional period. The objective is indeed the elimination of the state - not
to give free rein to market forces; but rather to replace class dictator
ship with a free association of working people.
Which brings us to the following question: What do the World
Bank and the neo-liberals have in mind when they fulminate against
the state? Is it not the system of social security partially financed from
state funds? And overly accessible public education and healthcare
programmes? And labour laws that more or less protect workers
against unjust dismissal?
The main targets for neo-liberal wrath are the fragments of
democracy and collective solidarity that exist within the state, and
whose existence is guaranteed by the state. These fragments of
democracy and collective solidarity stem from a mix of social gains
secured through tremendous struggle by the oppressed, and
concessions made by the rulers to maintain social peace. We must
protect these fragments of democracy and solidarity.
The World Bank seeks to dismantle other areas of state authority.
It insists on the elimination of remaining legislation protecting
domestic markets in the countries of the South. It seeks to eliminate
the control that some states in the South still have over strategic
industries and natural resources. For the World Bank, these things
must be eliminated to allow for the totally free circulation of capital
- which can only bolster the supremacy of MNCs and the North's
economies.
In this respect, we must learn to handle certain lines of argument
with caution, lest we give credence to World Bank demagogy. The
World Bank argues, for example, that the privatisation of state-run
enterprises reduces corruption, increases company efficiency and
curtails corrupt state bureaucracy. Let us not jump from the frying
pan into the fire: there is surely no need, on the eve of the third
millennium, to demonstrate that private capitalist management is

inefficient and corrupt.
Rather, there is a need for strict control of public administration.
This means building active social movements and carrying out
thoroughgoing political and legal reforms.
BOX 5 THE CAUSES OF UNDERDEVELOPMENT AND

THE STRATEGIC SIGNIFICANCE OF NEO-LIBERALISM
A hierarchical world economy was progressively established
between the sixteenth century and the beginning of the twentieth
century. The different regions of the planet were linked through
the violence that accompanied Western European expansion. At
the beginning of the twentieth century, three centres of power
emerged as the world's dominant powers: the European continent
with Britain on top; the US (former British colonies until the end of
the eighteenth century) and Japan. Together they constitute the
'centre', in contradistinction to the 'periphery' which they
dominate.
This process involved the pillage of entire peoples by Europe's
colonial powers; it also destroyed advanced civilisations which
could otherwise have evolved in a pluralistic framework, in a
potentially non-capitalist direction. The Inca, Aztec (Galeano,
19 70), Indian (South Asia) and African civilisations were partially
or totally destroyed. It was not, however, for lack of resistance.
Karl Marx described Indian and Chinese resistance in the following
terms:
The obstacles that the internal solidity and articulation of pre

capitalist national modes of production oppose to the solvent
effect of trade are strikingly apparent in the English commerce
with India and China. There the broad basis of the mode of
production is formed by the union between small-scale
agriculture and domestic industry, on top of which we have in
the Indian case the form of village communities based on
common property in the soil, which was also the original form
in China. In India, moreover, the English applied their direct
political and economic power, as masters and landlords, to
destroying these small economic communities. In so far as
English trade has had a revolutionary effect on the mode of
production in India, this is simply to the extent that it has

destroyed spinning and weaving, which form an age-old and
integral part of this unity of industrial and agricultural
production, through the low price of English commodities. In
this way it has torn the community to pieces. Even here, their
work of dissolution is succeeding only very gradually. These
effects are felt still less in China, where no assistance is provided
by direct political force. (Marx, Capital, volume III, pp. 451-2)
The accumulation of capital also took place within the countries

of Europe; the bourgeoisie enriched itself through the impoverish
ment of other social classes (including the nobility). It expelled a
section of the peasantry from the lands peasants worked, to make
them work in factories. Thomas More described this process in
sixteenth-century England:
In this way, a starving miser fences in thousands of acres of land

within a single enclosure; honest tillers are chased from their
homes, some through fraud, others by violence, the happiest
through a series of annoyances and troubles that force them to
sell their properties.
Nor did this process occur without resistance in Europe. There

were very radical peasant revolts; the bourgeoisie had to oblige a
sizeable number of proletarians to work in the factories (hence the
laws against begging, punishable with forced labour).
Back to the international arena: the worldwide primitive accu
mulation of capital occurred not only through outright pillage but
also through unequal exchange. Marx describes this process in
Capital, volume III, in the section on foreign trade:
Capital invested in foreign trade can yield a higher rate of profit,

firstly, because it competes with commodities produced by other
countries with less developed production facilities, so that the
more advanced country sells its goods above their value, even
though still more cheaply than its competitors. In so far as the
labour of the more advanced country is valorized here as labour
of a higher specific weight, the profit rate rises, since labour that
is not paid as qualitatively higher is nevertheless sold as such.
The same relationship may hold towards the country to which
goods are exported and from which goods are imported: i.e. such
a country gives more objectified labour in kind than it receives,
even though it still receives the goods in question more cheaply
than it could produce them itself. (Marx, Capital, volume III,
pp. 344-5)
It should be noted that Marx is talking about the advantages

that capitalists secure from foreign trade, not only as a result of
unequal trade but also as a way to reduce production costs -
enabling the capitalist system to counterbalance the tendential fall
in the rate of profit.
Marx's analysis of the nineteenth century remains valid today
for understanding unequal exchange between countries with
different levels of productivity - in particular between industri
alised capitalist countries and the countries of the periphery.
Indeed, the most industrialised countries export to less industri
alised countries goods that can be sold at a lower price than what
it would cost the countries of the South themselves to produce
them. For example, when capitalists in the most industrialised
countries sell industrial goods to the countries of the South, they
can make surplus profit while still remaining competitive. The only
way for a country of the South to begin to produce industrial goods
without confronting competition from the North, would be to
subsidise domestic industry and erect protectionist barriers - in
the way the US did when it broke from the British Crown in the late
eighteenth century. Such an approach gives less industrialised
countries the time to reach a stage in the cumulative process of
industrialisation where they can produce goods at comparable
levels of productivity to their competitors in the North. This is what
South Korea managed to accomplish for certain types of goods.
Countries of the periphery have faced a twin difficulty: in the first
place, they were pillaged; and in the second, the only path left open
to them was that of entering the world market under the wing of
the centre's main powers. Countries electing to industrialise have
had to do so within the framework of a world market flooded with
Western industrial goods.
In other words, while the world market and global economy

powerfully stimulated the industrialisation of the West from the
sixteenth century to the nineteenth century ... since the end of
the nineteenth century the world market and global economy

have been among the biggest obstacles to the Industrialisation
of the Third World, precisely in so far as they act as a brake on
the accumulation of industrial capital. (Mandel, 1968)
To understand this brake on development, one also has to take

into account the social structure of societies in the periphery -
clearly analysing this structure with the precise features of each
country and bloc of countries in mind.
For example, there is a world of difference between two large
components of the periphery: Latin America and Africa. Latin
America has had formal independence since the nineteenth
century, the very point at which the colonisation of Africa began
in earnest. Latin America saw the beginnings of industrialisation,
in line with the first phase of the industrial revolution in Europe.
Whatever industrialisation exists in Africa - and in some countries
of sub-Saharan Africa there is none - goes back no further than the
first half of the twentieth century. Latin America's bourgeoisies
have a long history behind them; those of Africa are still in the
process of formation in a number of countries. Indeed, they often
trace their roots back no further than the new state apparatuses
which emerged in the wake of their countries' national indepen
dence in the 1950s and 1960s.
Even between these two continents, the differences are striking.
Yet they have enough in common (along with most of Asia) to
belong to the periphery.
The brake on development does not only stem from the
periphery's subordinate relationship to the centre; it also results
from the class structure of the countries of the periphery, and the
inability of the local bourgeoisies to unleash a cumulative process
of growth involving the development of the domestic market.
With this in mind, one can understand the strategic significance
of the neo-liberal onslaught of the last two decades of the twentieth
century. For the overwhelming majority of countries in the South
and from the former Socialist Bloc, the possibilities for autonomous
development are even smaller than during the previous historical
period. These countries' economies are more than ever before
faced with competition from the goods and capital of the countries
of the centre.
The drastic slimming regime - and even plain and simple

dismantling - imposed on the states of the periphery, aims to
eliminate obstacles to the expansion and two-way flows of capital
controlled by the countries of the centre. The objective of the
dominant classes in the North - with the complicity of the South
and the East's rulers - is crystal clear. This does not mean that
some governments in the periphery will not try to manoeuvre
their way to retain control over some strategic sectors of 'their'
economies. More importantly, nor does it mean that the oppressed
will not show a tremendous capacity for resistance - which could
take matters in a different direction: towards a socially just form
of development.
13
Neo-Liberal Ideology and

Policies in Historical
Perspective
Since the 19 70s, neo-liberal ideology has progressively come to

dominate economic and political thinking.
It is promoted by universities, the main economic ] ournals and the
major media outlets. Both right-wing and left-wing governments -
with perhaps a few exceptions - have adopted it. Neo-liberal ideology
appears to be all-conquering not only in the industrialised countries
of the North but also in Eastern Europe (including the Russian
Federation) and the countries of the Third World. Numerous Third
World regimes that previously promoted socialist-type (or even
'Marxist-Leninist') ideas of the pro-Moscow or pro-Beijing variety
are now on the neo-liberal bandwagon. Formerly progressive
thinkers such as Brazilian president Fernando Henrique Cardoso
have explicitly rejected their previous ideas as they rally to the neo-
liberal cause.
Purveyors of the current neo-liberal fashion identify with an
incoherent and eclectic set of economic and political ideas originating
with David Hume (1711-76), Adam Smith (1723-90), Jean-Baptiste
Say (1767-1832), David Ricardo (1772-1823) and even Immanuel
Kant (1724-1804).
Translator's note: in North American English, the terms 'neo-liberal' and, especially,
'liberal' are rarely used in the same way as they are in this chapter. In the US and
Canada, advocates o f neo-liberal' and 'liberal' economic policies are usually referred
to as 'neo-conservatives', 'fiscal conservatives' or simply as 'free marketeers'.
170
NEO-LIBERAL IDEOLOGY AND POLICIES IN HISTORICAL PERSPECTIVE/171
But before analysing the new neo-liberal fashion, it is worth taking

a look at what came immediately before it.
THE 1930s TO THE 1970s: LIBERALISM ECLIPSED

After having occupied centre stage in the nineteenth century and
the first third of the twentieth century, liberal thought was eclipsed
for the long period going from the middle of the 1930s to the end of
the 1970s.
During this time - from the 1930s in North and South America,
after the Second World War in Europe - policies involving strong
government intervention in the economy came to hold sway. This
was true of the US under Roosevelt's New Deal in the 1930s (see
glossary) and 30 years later under the Kennedy administration. It
was true of Britain under Beveridge (advised by J.M. Keynes) during
the Second World War and under subsequent Labour governments.
After the Second World War, it was true of France, Germany,
Holland, Belgium and the Scandinavian countries. Keynesianism
held sway, whether of the social democratic, 'socialist' or social-
Christian variety.
In the countries of Eastern Europe, a dogmatic and authoritarian
version of Marxism backed by bureaucratic regimes came to
dominate. Large-scale nationalisations of private companies followed
the establishment of 'people's democracies' after the Second World
War.
In a certain number of key Third World countries, developmental-
ist, nationalist and even socialist (China after the 1949 revolution)
policies came to the fore. Anti-communist regimes in the Third
World, such as in South Korea and Taiwan, carried out radical
agrarian reforms and built a strong industrial sector under the wing
of the state. This is the central (and usually obscured) reason for the
economic 'miracle' that took place in these two 'tiger' economies.
The policies that created the past successes of South Korea and
Taiwan stand in stark contrast to neo-liberal prescriptions. This point
cannot be overemphasised.
The eclipse of liberalism came about as a result of the prolonged
economic crisis that began with the Wall Street Crash in 1929, as a
result of the victory of fascism and Nazism, and as a result of their
defeat at the hands of the masses and Allied forces (US, USSR, Britain,
France). The war and the defeat of fascism opened the way for
concessions to the working class; for the crisis of the colonial empires
and the liberation struggles of dominated Third World peoples; for the
relative successes of industrialisation by import-substitution in Latin
America; for economic dynamism in India (after it won independence
from Britain in 1947), Algeria (after it won independence from
France in 1962) and Egypt (under Nasser in the 1950s and 1960s)
until the 19 70s; and for economic progress in the so-called socialist
countries (Eastern Europe after the war, the USSR from the 1930s
onwards).
The period had a number of striking features. First, a large number
of private companies came under public control ('nationalisations'),
beginning in Western Europe in the wake of the victory over the Nazis
and extending into the Third World until the mid-1970s. Second,
social welfare systems were set up and expanded as part of what
became known as the Welfare State. Such reforms were also carried
out in a number of Third World countries, such as Mexico in the
1930s under Lazaro Cardenas. Third, the economic model in place
was 'Fordist' - that is, involving the development of mass
consumption of durable goods in the industrialised countries. Fourth,
a social compromise was reached in these countries between the
leadership of the labour movement (parties and trades unions) and
'their' capitalist class. This compromise took the form of agreements
on 'social peace'.
These features arose and prospered within a framework of
sustained growth - in the developed capitalist countries, the Third
World and the so-called socialist countries.
These wide-ranging political and economic developments also
included a worldwide renewal of non-dogmatic Marxism in the
developed capitalist countries (the works of Ernest Mandel, Paul
Sweezy, Paul Baran, Andre Gunder Frank, to name but a few), and
in Cuba after the revolutionary victory (beginning with the works of
Ernesto Che Guevara in the 1960s). In Eastern Europe (Kuron and
Modzelewsky in the Poland of the 1960s, Karel Kosik, Rudolf Bahro
and others) a non-dogmatic Marxism emerged in opposition to the
ossified Stalinist variant.
It is also worth noting the emergence of the Marxist-influenced
dependency school of thought in Latin America (Theotonio Dos
Santos, Rui Mauro Marini, Fernando Henrique Cardoso). Finally,
there was the work of Samir Amin on de-linking.
LIBERAL IDEOLOGY RETURNS WITH A VENGEANCE

Liberal ideology returned with a vengeance in the 19 70s, in response
to the economic crisis in the main industrialised capitalist countries.
The crisis marked the beginning of a long wave of slow growth, or
even of a long depressive wave. The liberal counter-offensive
gathered steam with the Third World debt crisis in the early 1980s
and the implosion of the bureaucratic regimes of Eastern Europe at
the end of the 1980s.
This liberal (or neo-liberal) resurgence underlies and justifies the
massive worldwide offensive waged by capital against labour. This
offensive began in the second half of the 19 70s in the industrialised
capitalist countries. It continued with the progressive restoration of
capitalism resulting from the collapse of the bureaucratic regimes of
the East at the end of the 1980s. It included the crisis of the 'devel-
opmentalist' models in the countries of the South, which was
sharpened by the foreign debt crisis - leading to a new cycle of
heightened dependence for countries that had experienced partly
autonomous industrialisation (such as Mexico, Argentina, Brazil,
India and Algeria). South Korea may soon join the ranks of these
latter countries. As for the most dependent and least industrialised
countries (Central America; the Caribbean - save for Cuba; sub-
Saharan Africa; and South Asia - save for India), they never really
escaped dependence on the North's capitalist powers. They are now
fully under the thumb of the international financial institutions
(including Nicaragua and Vietnam, which had indeed experienced
authentic revolutions). Institutions such as the Economic
Commission for Latin America (CEPAL) and the United Nations
Conference on Trade and Development (UNCTAD) have slowly but
surelyjoined the neo-liberal chorus (true, this process has not always
been a smooth one: witness, for example, the 1995 UNCTAD report
quoted in this book). As for the Non-Aligned Movement (NAM), it has
not survived the Yugoslav crisis, the Third World debt crisis and the
overall neo-liberal offensive.
NEO-LIBERAL IDEOLOGY IS NOT A PRODUCT OF THE

CRISIS
Liberal (or neo-liberal) ideology is not a product of the crisis. It existed
long before the crisis broke. A variety of economists and political
leaders continued to identify with liberal ideas in spite of the pre

eminence of Keynesian and proto-socialist policies. A number of them
had been sharpening their theoretical wits over a long period of time,
during their long ideological battle with Keynesian ideas in the
North, 'developmentalist' ideas in the South (personified by such
people as CEP AL head Raul Prebisch), and with socialist and Marxist
ideas in general in various parts of the world.
THE THEORETICAL FOUNDATION OF THE DIFFERENT

NEO-LIBERAL CURRENTS
Methodologically speaking, it is not easy to define the main tenets of
neo-liberal thought. The same goes for Keynesian and Marxist
thought. Each one of these schools of thought has many different
currents. There are profound differences between the different
currents of liberalism, just as there are within Keynesianism and
Marxism. There have also been attempts to synthesise liberal and
post-Keynesian ideas, on the one hand, and liberal and post-Marxist
ideas, on the other.
In general, the liberal (and neo-liberal) school of thought is
grounded in a vast and eclectic body of works - including neoclassi
cal notions such as the quantitative theory of money, Say's law, the
theory of prices based on the interaction of supply and demand, and
the theory of comparative advantages.
Friedrich von Hayek (1899-1992) and Paul Samuelson are good
examples of why it is so difficult to define clearly the parameters of
neo-liberalism. Hayek currently enjoys enormous popularity as an
ultra-liberal, yet he rejects many key hypotheses of neoclassical
thought. Samuelson does not belong to the liberal school, yet in the
1950s pushed for a synthesis of neoclassical thought.
THE NEO-LIBERALS' PREDECESSORS

Adam Smith
Smith (An Inquiry in to the Nature and the Causes of the Wealth of
Nations, 1776) carried out a synthesis of the contributions of a
number of schools of economic thought, including that of the French
physiocrats. He opposed mercantilism, which had been responsible
over two centuries for protectionism and state intervention. The
main expressions of mercantilism were Colbertism in France,

Bullionism in Spain and the policies of Cromwell and Petty in
England. Adam Smith is best remembered for his allegory of the
'invisible hand'. According to Smith, each individual fulfils 'an
objective that is entirely independent from his intentions .... While
seeking only his personal gain, he often works in a much more
efficient way in society's interests than had society's interest been his
real motivation' (Smith, 1776).
For Smith, public spending should be limited to defence, justice
and public works when and where private entrepreneurs were not
willing to take charge themselves, 'given that, in these matters, profit
would never be enough to return monies spent' (Smith, 1776).
Adam Smith's ideas correspond to the strong development of
English capitalism in the eighteenth century and laid part of the
foundation for 'economic liberalism'.
We should recall that Smith has not only been a source of
inspiration for liberals (and neo-liberals). Some parts of his analysis
(and that of the mercantilists he fought) were taken on by Karl Marx
in his critique of political economy. Indeed, for Smith, 'Labour is the
true measure of value' (Smith, 1776). David Ricardo expanded on
this notion, and Marx further developed it while acknowledging his
debt to Smith and Ricardo. Unlike Smith, Marx also used a number
of the mercantilists' contributions (see Labica-Bensussan, 1982).
Smith also makes a number of statements which today's neo-
liberals would find extremely irritating:
English businessmen frequently complain about the high level of

wages in their country. They say that this high level is the reason
why they cannot sell their goods at prices that are as competitive
as in other countries. But they remain quite silent about their high
profits. They complain about the high profits of others but are very
quiet about their own. In many cases, the high profits made by
capital are much more to blame for price rises than are exorbitant
wages. (Smith, 1776)
This statement is truly heresy for today's neo-liberals, for whom

wages are always far too high, and the cause of inflation and poor
competitiveness.
Jean-Baptiste Say
In 1803, Say described a law whereby the role of money Is neutral In
the economy and 'supply creates Its own demand'. Therefore, no
crisis of overproduction Is possible In a free market economy.
Say's law Is a key reference for liberal (and neo-llberal) economists.
Yet It was proved wrong by events In Say's time, a point that has been
raised by a wide range of economists going from Malthus (1820,
Principles of Political Economy Considered According to their Practical
Application) to Slsmondl (1819, Nouveaux principes d'economie
politique ou de la richesse dans ses rapports avec lapopulatiori) and Marx.
David Ricardo
In Rlcardo's theory of competitive advantages (Ricardo, 1817,
chapter 7), he critically takes and enhances Smith's stance In favour
of free trade and an International division of labour. For Ricardo, a
country does well to specialise In those areas of production whose
relative costs are lowest - In other words, those areas where It has the
greatest comparative advantage. Unlike Smith, he goes on to say that
countries that have competitive advantages In all areas of production
should none the less specialise.
In a well-known example, Ricardo shows that If Portugal Is more

efficient than England In the production of both wine and fabric, It
should still abandon the latter If Its price advantage In wine
production Is greater. Inversely, England should specialise In the
production of fabric, where Its handicap Is the least great. (Adda,
1996;Montes, 1996)
Apart from Smith, Say and Ricardo, today's neo-llberals draw

Inspiration from other economists such as Jevons (The Theory of
PoliticalEconomy, 1871),Menger(GrundsatzedesVolkwirtschaftlehre,
1871) and Walras (Elements d'economie politique pure ou theorie de la
richesse sociale, 18 74-77).
These economists criticise both Rlcardo's (and Marx's) analysis of
value and his analysis of distribution. They developed a theory of
prices based on the principle of decreasing marginal utility.
Dominant economic thought refers to this theory as signalling the
'marglnallst revolution'.
Within this framework, Walras also developed a theory

postulating a system of general equilibrium. This theory is very much
in vogue among today's neo-liberals. In such a system, society is
defined as a natural mechanism (akin to a biological organism and
the solar system) within which individuals freely ensure the most
effective allocation of resources, thereby guaranteeing optimum
economic performance.
Finally, to complete the list of references for today's neo-liberals, we
must add the quantitative theory of money. This theory can be found
in Smith's and Ricardo's work and has been around since at least the
sixteenth century. It explains price movements as being a result of the
quantity of money in circulation.
Taken together, all these references are described by some
economists as forming a 'neoclassical' synthesis. As Michel Beaud
and Gilles Dostaler have pointed out, 'Through it all, real life has per
sistently contradicted the analysis of many classical and neoclassical
economists whereby the free functioning of the markets is enough to
guarantee the full use of resources and their optimum allocation'
(Beaud and Dostaler, 1995).
Marxist scholars, beginning with Marx and Engels themselves,
refuted the different component parts of this rather eclectic body of
theoretical work - at a time when Marxism influenced a large part of
the international working-class movement.
By his own admission, Keynes himself had originally championed
the liberal cause. Yet 75 years after Marx and Engels, he developed a
radical critique of a number of the central tenets of the classical
(liberal) economic creed. In response to Smith and Say, for example
(and like Marx), he highlights the important contributions of the
mercantilists (Keynes, 1936, chapter 23). However, he stood by the
liberal creed on a number of other matters - on such key questions,
for example, as the definition of real salaries as being equal to the
marginal productivity of labour (see Beaud and Dostaler, 1995).
MORE ON THE ECLIPSE OF LIBERALISM

As a result of the crisis of the 1920s and 1930s, anew wave of critics
tackled the neoclassical creed on a largely pragmatic basis. This new
wave was international; it involved political leaders and economists
belonging to various currents: enlightened bourgeois thinkers,
socialists and Marxists. In a context of mass unemployment and
depression, proposals came forward for major public works, for anti-
cyclical injections of public money, and even for bank expropriations.
Such proposals came from a wide variety of sources: Germany's
Doctor Schacht; the Belgian socialist Deman; the founders of the
Stockholm School, backed by the Swedish social democrats; Fabian
socialists and J.M. Keynes in Britain; J. Tinbergen in the Netherlands;
Frisch in Norway; the Groupe X-crise in France; Mexican President
Lazaro Cardenas (1935-40); Peronism in the Argentina of the
1930s; US President Roosevelt (elected in November 1932) and his
New Deal.
The entire range of proposals and pragmatic policies was partially
summed up in Keynes's 1936 work General Theory of Employment,
Interest and Money.
THE KEYNESIAN REVOLUTION

The preparatory work carried out by Keynes (1883-1946), laying
the groundwork for the General Theory, was driven by the need to find
a solution to the generalised crisis of the capitalist system. Moreover,
this solution had to be compatible with the continued survival of the
system. The work was partly the result of a wide-ranging collective
process wherein groups and individuals ended up in different
Keynesian currents, often very much at odds with one another. Some
leant more towards Marxist positions, such as the Englishwoman
Joan Robinson and the Pole M. Kalecki, who had actually formulated
the key components of the General Theory before Keynes. Others grew
progressively closer to the very tenets of liberalism and neoclassical
economics that Keynes decried.
In one of his writings, Keynes pays homage to the English
philosopher George Edward Moore, whom he credits with having
freed him from the prevailing morality of the day and having
'protected us all from that final reductio ad absurdum of Benthamism
known as Marxism' (quoted in Beaud and Dostaler, 1995).
Keynes had been politically active since the First World War. An
employee of the British Treasury, he actively participated in negoti
ations on the Treaty of Versailles, which marked the end of the war
in 1918. He resigned from the British delegation in protest at the
scale of reparations imposed on Germany. Soon after, he published
The Economic Consequences of the Peace (Keynes, 1919).
In the 1926 pamphlet The End of Laissez-faire, he writes: 'It is in no

way accurate to deduce from the principles of political economy that
enlightened personal interest always works in favour of the general
interest' (quoted in Beaud and Dostaler, 1995).
In the 1920s, Keynes condemned the policies of Winston
Churchill's Tory government. He opposed the liberal (neoclassical)
policies that provoked a miners' strike, followed by the 1926 general
strike.
Thereafter, he called for a policy of major public investment. He
supported the Liberal Party while maintaining friendly ties with the
Labour Party. In 1929, in the wake of Tory defeat, the new Labour
government appointed him to the McMillan Commission on the
economic situation. In 1930, he became an adviser to the same
government.
The economic crisis deepened following the 1929 Wall Street
crash, leading Keynes to produce an analysis of employment, interest
and money which strengthened his conviction that there should be
increased state intervention. To compensate for the shortfall in
demand, the state should increase spending in order to give a boost
to the economy and employment.
Thereafter he became involved in a major polemic with Hayek.
Although, like Keynes, Hayek had come to reject a number of the
ideas of Smith, Ricardo, Walras and Jevons, with Ludwig von Mises
(1881-1973) he fashioned a set of ultra-liberal ideas standing in
fierce opposition to the main tenets of the Keynesian revolution.
For Keynes and his confreres, the Great Depression was ultimately
caused by the collapse in investment. For Hayek and his supporters,
on the contrary, the economic crisis was caused by over-investment
rooted in slack monetary policies. For Keynes, consumption and
investment had to be sparked by strong state intervention. For Hayek,
state intervention reduced the funds available for private investment.
For Keynes, wages had to be increased to stimulate consumption. For
Hayek, they had to be lowered to ensure renewed full employment.
The polemic hit the pages of the British press in 1932 (The Times, 17
and 19 October 1932).
For Keynes, economic policy had to be geared towards reducing
the high unemployment rate and distributing revenues in a more
egalitarian manner. If the government did not pursue the objectives
of full employment and greater equality, he argued, there was a
serious danger that either fascism or Bolshevik communism would
win the day. Government policy had to be aimed at reducing high

interest rates, which channelled vital resources into the financial
sector. By lowering interest rates, the aim was to favour the
destruction of the rentier class, scourge of the capitalist system. At the
same time, however, Keynes states quite clearly that the conse
quences of his theory are 'moderately conservative':
while it highlights the vital importance of establishing certain

central controls in fields that today remain completely in the hands
of private initiative, it also leaves a great many fields of activity in
private hands. ... It does not actually call for a system of state
socialism that would subject most of the community's economic
life to its control. (Keynes, 1936)
Keynes's prescriptions were put into practice in many regions of

the world right up until the 1970s. They also strongly influenced a
number of economists, such as Samuelson, Galbraith, Tobin and
Prebisch.
PREPARING THE NEO-LIBERAL COUNTER-REVOLUTION

There was a swift reaction to the policies of state intervention aimed
at boosting demand and moving towards full employment. From the
beginning of the 1930s, Hayek and von Mises set out to demolish
Keynes's proposals.
Since 1945, in various academic and business circles, different

projects have emerged simultaneously to bring together the
qualified defenders of liberalism (neoclassical economics) with the
aim of organising a joint response to the advocates of state inter
vention and socialism. Three centres where this post-War
resistance was organised were: the Institut universitaire de hautes
etudes internationales (IUHEI) in Geneva, the London School of
Economics (LSE) and the University of Chicago. (Udry, 1996)
At the end of the Second World War, Hayek was teaching at the
LSE. In 194 7, he and von Mises founded the Societe du Mont-Pelerin.
The first meeting was held in April 1947 and brought together 36
liberal luminaries at the Hotel du Pare at Mont-Pelerin near Vevey in
Switzerland. The gathering was financed by Swiss bankers and
industrialists. Three major US publications (Fortune, Newsweek and

Reader's Digest) sent delegates. In fact, Reader's Digest had just run an
abridged version of one of Hayek's main works, The Road to Serfdom.
Among other things, that book said:
In the past, man's submission to the impersonal forces of the

market made possible the development of a civilisation which
otherwise would not have emerged. It is through submission that
we participate everyday in the building of something much bigger
than what we can all fully understand. (Hayek, 1944)
Right-wing economists and philosophers from different 'schools of

thought' participated in the gathering.
At the end of the meeting, the Societe du Mont-Pelerin was founded

- a kind of neoliberal Freemasonry, very well organised and
devoted to the dissemination of the neoliberal creed, with regular
international gatherings. (Anderson, 1996)
Among the organisation's most active members were Hayek, von

Mises, Maurice Allais, Karl Popper and Milton Friedman. It became
a think-tank for the neo-liberal counter-offensive. Many of its
members went on to win the Nobel Prize for economics (Hayek in
1974, Friedman in 1976 and Allais in 1988).
THE NEO-LIBERAL RESURGENCE

The neo-liberal current made the University of Chicago one of its
bastions. Friedman spent his entire academic career there, while
Hayek taught there between 1950 and 1961. Lateron, people began
to refer to the neo-liberals as the Chicago School, and spoke of
Friedman's 'Chicago Boys'. In 1970, Friedman declared that he had
seen through the victory of the 'counter-revolution in monetary
theory', defined by him as the 'renewed accent placed on the role of
the quantity of money' (Friedman, 1970). In his book The Counter
Revolution in Monetary Theory, Friedman argues that all variations in
the money supply are followed by corresponding changes in prices,
production and revenues. He says this law has been observed for
centuries and can be compared to the laws of natural science. He
concludes that the state cannot boost demand through the creation
of money, lest unemployment rise in the same proportions. He

proposes a constitutional amendment whereby the money supply
should change at a constant rate, equal to the long-term rate of
growth of national production (Beaud and Dostaler, 1995). His
contention that increases in the rate of inflation automatically lead
to a corresponding increase in unemployment has been disproved by
events. Indeed, in the Europe of the 1990s, the drop in inflation has
gone hand in hand with an increase in the rate of unemployment (or
its remaining at high levels). Nevertheless, Friedman's theory has
inspired neo-liberal policies implemented since the beginning of the
1980s and accentuated by the Maastricht Treaty.
Following in the footsteps of J.B. Say, Friedman argues that the
free functioning of the market is enough to ensure the optimum
allocation of resources and the full use of production capacity. This
view has been refuted by events, but this has not stopped it from
gaining wide currency as a matter of 'common sense'.
Friedman did not remain aloof from politics; he put himself
squarely in the reactionary camp. In 1964, he was economic adviser
to Republican presidential candidate Barry Goldwater. He held the
same post alongside Richard Nixon in 1968 and Ronald Reagan in
1980.
After the government of Salvador Allende was overthrown by a
military coup in Chile in 1973, he advised General Pinochet. He
supported the repression that was carried out and called for measures
of extreme austerity. Hayek also expressed support for the general's
dictatorial and bloodthirsty methods. In response to a Chilean jour
nalist's questions in 1981, he said: 'A dictator may rule in a liberal
way, just as it possible for a democracy to rule without the slightest
liberalism. My personal preference is for a liberal dictatorship rather
than a democratic government thoroughly lacking in liberalism'
(quoted in Salama and Valier, 1994). After ten years during which
his economic prescriptions were followed, Chile entered a recession
that saw GDP plummet by 15 per cent in 1982-83, with unemploy
ment at 30 per cent (Ominami in Urriola, 1996). Indeed, Chile was
only able to become something of an economic success story in the
1990s by breaking cleanly with the approach of the Chicago Boys.
While Ronald Reagan was inspired by Friedman, Margaret
Thatcher is a disciple of Hayek:
It was only in the middle of the 19 70s, when Hayek's works figured
prominently in the readings that Keith Joseph [Thatcher's
economic adviser and participant at Mont-Pelerin meetings] gave
me that I really grasped his ideas. It was only at that point that I
considered his arguments from the point of view of the type of state
dear to Conservatives (a limited government based on the rule of
law), as opposed to the point of view of the type of state to be
avoided (a socialist state where bureaucrats ruled unchecked).
(Thatcher, The Path to Power, 1995; quoted in Udry, 1996)
ROBERT LUCAS AND THE DENIAL OF INVOLUNTARY

UNEMPLOYMENT
The neo-liberal counter-revolution has added a whole new
dimension to reactionary ideas.
According to Robert Lucas, who describes himself as a partisan of
'new classical macroeconomics', involuntary unemployment does
not exist. For Keynes, the existence of involuntary unemployment
was a given. However, according to Lucas, unemployment is caused
by the choices a worker makes between work and leisure. Lucas
argues that any economist seeking to understand changes in the
labour market must postulate that workers make rational choices
between the amount of work time and leisure time. In other words,
an unemployed worker is a person who has chosen to increase leisure
time, even if this means his or her revenues fall or disappear.
In line with the classical orthodoxy targeted by both Marx and
Keynes, Lucas argues that there is a natural rate of unemployment,
and that it is counter-productive for governments to seek to influence
this rate with pump-priming job-creation measures.
Lucas is a professor at the University of Chicago; in 19 9 5, his con
tribution to the neo-liberal offensive was rewarded with the Nobel
Prize for economics.
He and his colleagues made a radical critique of Reagan's policies,
rightly arguing that they had strayed from monetarist orthodoxy.
They approved Reagan's monetarist plans to reduce the money
supply; but said that tax cuts and high military spending - which
could only widen the public deficit - were incompatible with this
objective. They backed cuts in social spending and opposed the
increase in military spending.
There was nothing ethical about their opposition to military

spending, yet it revealed the striking incoherence between Reagan's
monetarist convictions and his actual policies involving an increase
in the public deficit. He selectively applied Keynesian methods to get
the US out of recession with an increase in public spending. He did so
in a reactionary manner, channelling the increased public funds into
arms spending (and space research for the Strategic Defense Initiative
- or 'Star Wars' - project). As far as the interests of US imperialism
were concerned, Reagan's approach - much criticised by the neo-
liberal keepers of the faith - ended up serving them quite well. But the
social costs have been enormous.
BOX 6 THE ABSURDITIES OF NEO-LIBERAL AND NEO-

CLASSICAL THOUGHT
The Imperialism of Neoclassical Economics
(excerpts from Beaud and Dostaler, 1995)
Neoclassical theory has long been criticised for its reductionism,

which makes it unable to take into account the complexities of the
world in which we live. Paradoxically, some neoclassical theorists
linked to the Chicago School have reacted to this critique by
pushing their reductionism to the extreme - making their theory
the key to all knowledge of all social phenomena. The other social
sciences - such as sociology, political science, history and
psychology - are seen as superfluous.
According to this view of things, society is a collection of
independent agents (individuals, households and companies).
Each agent has free will; it is the interaction of the different
individual decisions that determines the course of economic, social
and political life. Each agent is subjected to a series of constraints,
both cognitive and material in nature. The resources available to
each agent (goods and services, productive resources, information)
are limited. Behaviour can be foreseen based on the hypothesis
that each agent will act rationally. This hypothesis, in fact, is the
core of neoclassical analysis.
The big step was taken by Becker (who won the Nobel Prize for
economics in 1992) and Mincer, both from the Chicago School.
They have applied this approach, based on the rational behaviour
of each independent agent, to all human activities. This enables
them to explain all human behaviour, including criminal

activities. Such activities, like all others, are seen to be the result of
a rational calculation, wherein profits (high and short-term) are
compared to costs (the danger of being apprehended and
punished). Becker and his colleagues have generalised this analysis
to include marriage, childbearing and rearing, divorce and the
division of household chores. In each case, it is a matter of making
a rational cost-benefit analysis. The emergence of such specialties
as the 'new economy of the family' (Becker 1968; Becker and
Landes 19 74) shows how wide the net of homo economicus and
rational choices has been cast.
In addition to being called 'revolutionary', these changes have
also been labelled 'imperialist' (Stigler 1984). The further afield
Becker and his colleagues travel, the less room there is for genuine
research in anthropology, psychology, political science, sociology
and all the social sciences and humanities. For this approach to
economics sees itself as a general theory for all human behaviour:
There is only one social science. What gives the economic

sciences their capacity for imperialist expansion is the fact that
our analytical categories - scarcity, cost, preference,
opportunity - are truly universally applicable.... In this way, the
economic sciences are the universal grammar of social science.
(J. Hirschleifer, 'The Expanding Domain of Economies', American
Economic Review, vol. 75, No. 6, 1985)
FREE MARKETS AND THE OPTIMUM ALLOCATION OF

RESOURCES
For the hand to remain invisible, the eye must be blind. (Bensaid,
1995)
Of course, it is easy to argue that there is no example of a fully free-

functioning market. This is obviously true in those countries where
the authorities and organised workers refuse neo-liberal dogmas and
have managed to defend their social welfare system and retain
reasonably stable employment and intact public services. Yet it is also
true in all those countries where neo-liberal policies have been
implemented most aggressively. The neo-liberals in power in the US
since 1980 have indeed cut back on what they see as obstacles to the
free functioning of the market - for example, by diminishing the
strength of the trade union movement and rolling back social welfare.
But they have also strengthened other such 'obstacles': through the
greater concentration of companies, creating oligopolies in certain
sectors; through the privatisation of state-owned companies,
eliminating any form of democratic control; through maintaining
protectionism against foreign competitors (tariff barriers and other
constraints on the free market); through strengthening the power of
financial players, leading towards a 'tyranny of the markets'; and
through restricting the free circulation of labour.
Meanwhile, in the case of the US, inequalities have increased and
poverty affects a larger share of the population. A significant share of
new jobs are poorly paid and short-term. The prison population has
gone from 250,000 in 1975 to 744,000 in 1985 and 1.6 million in
1996: according to prison authorities, 'a black man is seven times
more likely than a white man to go to prison' (Le Monde, 13 August
1997). Never before have their been so many economic activities of
a criminal character by company heads and public officials -
encouraged by the deregulation of capital flows.
In defence of their record, neo-liberals always retort that resources
are not optimally allocated since there is nowhere that the market
functions unfettered. The task, therefore, is to struggle against
obstacles to the market in view of achieving universal prosperity at
some point in the distant future.
In fact, in the name of the quest for a free market (the neo-liberal
promised land), the objective is to destroy the gains of workers and
the oppressed generally - gains which are described as so many
reactionary 'rigidities'.
NEO-LIBERAL SLEIGHT OF HAND: PORTRAYING THE

OPPRESSED AS OPPRESSORS
In fact, there is nothing new about this line of argument. The idea is
to single out the trade union movement and legislation defending
workers as oppressive mechanisms. These mechanisms, the
argument goes, were established by the privileged sectors of the
population that have well-paid jobs, against those who merely want
to accept the jobs they are offered.
In 1944, Hayek wrote in The Road to Serfdom:
Never has a class been so cruelly exploited as are the weakest

sectors of the working class by their privileged brothers - a form of
exploitation made possible by the 'regulation' of competition. Few
slogans have done as much damage as the 'stabilisation' of prices
and wages. By ensuring the wages of the few, the situation of the
many is made increasingly precarious. (Hayek, 1944)
To all intents and purposes, the World Bank said the same thing 50
years later in its 1995 report entitled 'The World at Work in a
Borderless Economy'. Here are a few excerpts (emphases mine):
Through the obstacles it places to job creation, overly restrictive

job-security regulations threaten to protect those in salaried
positions at the expense of excluded sectors, the unemployed and
workers in the informal and rural sectors. (World Bank, 1995)
Down with job security! It thrives at the expense of the oppressed!
There is good reason to fear that those who most benefit from social
security - usually well-off workers - do so at the expense of other
workers. (World Bank, 1995)
Down with social security!
There can be no doubt that trade unions often behave like

monopolies to secure improvements in wages and working
conditions for their members at the expense of holders of capital,
consumers and the non-unionised workforce. (World Bank, 1995)
Down with the trade unions!

Hayek and Friedman now have imitators in the East. Former Czech
prime minister Vaclav Klaus told the British weekly The Economist:
The Western European social system is too much a prisoner of rules

and excessive controls. The Welfare State, with all its generous
transfer payments unconditioned by criteria relating to the efforts
and merits of the people concerned, destroys the work ethic and
feelings of individual responsibility. Public sector workers are too
protected. The Thatcher revolution - that is, the liberal, anti-
Keynesian revolution - is in midstream in Western Europe. It has
to be taken to the other shore, (quoted in Anderson, 1996)
Klaus did indeed make it to the other shore, even if somewhat

drenched in the muck of financial scandal. He was forced to resign in
December 19 9 7 in a context of growing popular discontent.
In another document drawn up especially by the World Bank for
the Global Summit on Social Development, organised by the UN in
Copenhagen in March 1995, the Bank says that for Third World
countries:
Minimum wages, unemployment insurance, redundancy

payments and job-security legislation are of no use to rural and
informal workers, who account for the majority of the poor in
developing countries. (World Bank, 1995b)
This type of statement is in perfect harmony with those made by

another champion of neo-liberalism, Gilder, for whom: 'Social
security now erodes both work and the family, keeping the poor in
poverty' (Gilder, 1981). It is worth knowing that Gilder favours such
an approach for the entire planet, including the industrialised
countries! Such declarations recall something Malthus said: 'To be
sure, the Poor Laws can be seen as weakening the willingness and
ability of the common people for uplift. In this way, they weaken one
of the most powerful motives for work.'
In such a context, what possible message could neo-liberalism be
passing along to future generations? It is very straightforward. When
asked what he says to his children, IMF head Michel Camdessus
replied: 'Pull yourself up by your bootstraps!' (Le Soir, 14 February
1996).
Which all makes one wonder if neo-liberalism has run out of
steam. In 1997, extensive polls in Britain - cradle of the neo-liberal
offensive of the 1980s - revealed that a majority of people reject
Thatcherite values. This prompted the Financial Times to run the
banner headline: 'Thatcherism leaves fleeting legacy' (Le Monde, 28
November 199 7). In Belgium, in autumn 199 7, the daily Le Soir
published the results of a survey clearly indicating that the
Francophone Belgian population rejects an economic system
dominated by neo-liberalism. The hair-raising fiasco of neo-liberal
policies in Asia and Russia will in all likelihood accelerate this shift in
opinion among wide sectors of the global population.
14
Debt in the 1990s:

Latin America and Sub-
Saharan Africa
LATIN AMERICAN DEBT: CHANGE AND CONTINUITY

In contrast to what occurred during the crisis of the 19 3 Os, after the
1982 Mexican crisis Latin America's leaders resigned themselves to
negotiating separately with their private foreign creditors (who held
most of the region's external debt). The US was very much involved
in this process. Latin American leaders justified this approach by
saying that they had to prevent external lines of credit from being cut
off one after the other. In fact, Latin America has seen the worst of
both worlds: there has been a huge drain of wealth into the coffers of
private creditors - yet this has not prevented foreign banks from
cutting off their lines of credit. The Economic Commission for Latin
America (CEP AL) estimates the net transfer (see glossary) of capital
from Latin America to the North between 1983 and 1991 at more
than S200 billion. There has been a colossal transfer of wealth from
the countries of Latin America to the North's financial institutions.
Between 1982 and 1996, Latin America made S739.9 billion in
debt-servicing payments. Latin American debt has continued to grow
(see Table 14.1).
LATIN AMERICAN GOVERNMENT POLICY IN THE 1990s
The rate of poverty dropped in the 1950s and even more quickly
in the 1960s and 1970s. The 1980s were disastrous. In the 1990s,
189
Table 1 4 . 1 Evolution of external debt In Latin America and t h e

Caribbean (Sbn)
Year 1970 1975 1980 1985 1990 1995 1996
Latin America total

38 69 228 378 439 573 607*
Main debtor countries

Brazil n.a. 20 70 105 123 169 176
Mexico n.a. 17 51 98 102 164 168.5
Argentina n.a. 8 27 49 61 84 96.2
Venezuela n.a. 4 30 34 36 35 37
Peru n.a. 4 10 14 20 26 27
Colombia n.a. 4 7 14 18 21 22
Chile n.a. 4 11 20 19 21 25
Sub-total as share of total Latin American and Caribbean debt
n.a. 94% 90% 88% 86% 9 1 % 9 1 %
Medium-sized countries
Ecuador n.a. n.a. 6 n.a. 12 n.a. 14.5
Small countries
Bolivia n.a. n.a. 2.7 3.3 3.8 4.5 n.a.
Haiti n.a. n.a. 0.3 0.6 0.8 0.9 n.a.
El Salvador n.a. n.a. 1.2 2.0 2.2 2.1 2.3
Guatemala n.a. 0.6 1.0 2.7 2.6 2.1 3.0
Nicaragua n.a. 0.6 1.8 4.9 10.5 10.2 n.a.
Paraguay n.a. n.a. 0.8 1.7 1.7 1.4 n.a.
Source: CADTM, based on CEP AL and BIS figures.
*In its 19 9 7 report, the World Bank provides a figure for total Latin American
debt S49.5 billion higher than the one given here (S 6 5 6.5 billion as opposed
to the CEP AL figure of S607 billion),
n.a. = not available
only a few countries h a v e registered a fall in poverty (Chile,

Colombia). (UNDP, 1 9 9 7 )
From a theoretical perspective, privatising for efficiency's sake is

about as logical as saying t h a t you h a v e to put a n oven in direct
sunlight in order to bake bread. (Ugarteche, 1 9 9 6 )
DEBTINTHE1990s/191
In 19 9 3-94, almost every financial commentator, along with a great

number of reputable economists, backed the World Bank and IMF's
self-satisfied claims that Latin America was in the midst of a fully-
fledged economic recovery (they were similarly complacent with
respect to the Southeast Asian 'dragons' right up until June 1997,
even though the crisis there had already begun in April 1997). They
pointed out that significant funds were making their way back into
Latin America- and this, they said, showed that the lost decade of the
1980s was over. After leaving his job as an IMF administrator, and
only a few months before the Mexican crisis of December 1994,
Jacques de Groote told the Belgian daily Le Soir (28 March 1994):
There are countless success stories. The best example is Mexico. In

October 1982, this country was hit by a ma] or debt crisis. The ] oint
action of the IMF and World Bank quickly got the country on its
feet again, got its balance of payments back in shape in exchange
for a limited and short-term drop in the population's wages. Today,
investment has returned to Mexico and the World Bank is running
a programme that aims to diversify production. ... In fact, all the
countries of Latin America ... are doing very well economically.
In fact, these investment flows were (and are) volatile. They were
primarily attracted to these countries for two reasons: first, a policy
of high interest rates pursued by the IMF's best pupils (Brazil, Mexico,
Argentina, to name a few) and an unprecedented wave of privatisa
tions (large state-owned companies sold for a song). In order to
sweeten the pot, the government declared a fiscal amnesty for all
nationals repatriating capital that had been invested abroad. It was
misguided to expect that this huge mass of capital on the lookout for
a juicy rate of return could ever get Latin American economies back
on track by rejuvenating privatised companies with new money. All
along, the Mexican trade deficit was getting worse and worse; and
this ultimately shook private investors' confidence and led them pro
gressively to withdraw their money throughout 1994. Stock market
shares were sold off; Mexico plunged into crisis once again. To avoid
a similar fate, the governments of Brazil and Argentina have been
pursuing an aggressive policy of high interest rates in an attempt to
keep investment from going elsewhere. The Mexican government
has been doing the same.
DEBT NATIONALISATION, COMPANY PRIVATISATION,

DOMESTIC MARKET DOLDRUMS AND INCREASED
DEPENDENCE ON FOREIGN CAPITAL
It was of enormous benefit to local capitalists when their
governments nationalised private debt. In this way, they not only
made huge savings, but also were able to export much of their capital
to the North's financial markets.
And that's not all. Since the state took over company debts,
companies were able to use their new margin for manoeuvre to buy
up state-owned businesses that were being privatised from the mld-
1980s onwards. Some countries, such as Mexico and Argentina,
privatised faster than others. Brazil and Venezuela only began large-
scale privatisations In 1996-97.
It has already been pointed out that, since the beginning of the
1990s, most Latin American governments have pursued a policy of
high Interest rates. The objective Is to attract foreign Investment and
to persuade local capitalists to repatriate a part of the funds they have
Invested In the North. The social costs of such a policy are high. Small
and medium-sized producers, let alone households, cannot borrow.
This has led to a downturn In production for the domestic market.
Growth Is pulled along by exports, on the one hand, and by Imports
aimed at satisfying the needs of the capitalists and the upper middle
classes, on the other. Due to the high domestic Interest rates In effect
In most Latin American countries, the government and local state
bodies pay a high price for money borrowed from local capitalists.
These borrowed funds are used to service both foreign and domestic
debt owed to these same capitalists and to capitalists from the North.
Since state bodies have to pay so much for money borrowed on
domestic financial markets, and since this money Is not enough to
pay off previous debts, governments and private companies Issue debt
paper on International markets. This Is actually less costly, since
Interest rates In the North are currently lower than In countries
like Brazil, Mexico and Argentina. The problem, of course, Is that
these countries become even more dependent on external markets
and trends. Several times a year, the big Latin American countries
Issue debt paper on International markets. The money raised through
such Issues goes mostly towards paying off holders of previous debt
Issues. A striking example of dependence on the US, some Latin
American countries - especially Mexico - have to purchase US
DEBTINTHE1990s/193
Treasury Bonds to guarantee their own borrowing on international

markets. Simply put, the US authorities raise funds among their
Southern neighbours in order to finance the US public debt, while
these same Southern neighbours seek out capital on private financial
markets in the US and Europe in order to pay off their foreign and
domestic debts.
The fundamental problem here is that such policies do not lead to
a process of cumulative development by which these countries could
catch up with the industrialised powers of the North. Trade
imbalances have actually grown, whatever the optimistic pro
nouncements of Latin American leaders. This is due to the structure
of Latin American exports to the world market. Whatever the level of
industrialisation, these countries remain far behind the North.
According to Oscar Ugarteche, there has even been a 're-primarisa-
tion' of Latin American exports in recent years - in that
proportionally Latin America exports more low value-added
('primary') products than before (Ugarteche, 1996). At the same
time, industries targeting the domestic market have stagnated or
declined, whether they have remained in domestic hands or been
sold off to foreign interests. Foreign investors are rarely interested in
boosting both employment and production. There are exceptions: the
auto sector in Argentina, Brazil and Venezuela, and some
investments in the oil sector; but these are marginal. Multinationals,
with American MNCs in the lead, seek to bolster their control over
local economies, not to develop them.
NEW DEBT SPIRAL FOR LATIN AMERICA

Unlike Africa and South Asia, financial markets are once again very
interested in Latin America. They hold more than 65 per cent of the
continent's foreign debt. It is primarily by holding so much private
and public debt paper that financial markets have been able to
increase their control over Latin America's foreign debt. The total
value of Latin American debt paper increased twenty-fold between
1980 and 1996.
Since the beginning of the 1990s, Latin America has entered a
new cycle of debt. The new neo-liberal policy of opening up to foreign
capital has had real success. Holders of capital from the North are
indeed interested once again in investing some of their liquidity in
debt paper and on the stock market (portfolio investment). In
exchange, Latin America has had to sell off strategic companies, it

has grown more dependent on volatile investment, and it has a
structural deficit in the balance of trade whose levels resemble those
of the 1980-81 run-up to the last debt crisis.
DEBT IN SUB-SAHARAN AFRICA ON THE EVE OF THE

THIRD MILLENNIUM
Since 1996, reports published by the international financial institu
tions (IMF, World Bank), the OECD and the media say that
sub-Saharan Africa has got off to a new start thanks to adjustment
policies in place there.
However, a series of social and economic indicators point in the
opposite direction. It is clear that living conditions have actually
deteriorated and that economic indicators are in the red.
According to the 199 7 edition of the UNDP's Report on Human
Development, more than 40 per cent of sub-Saharan Africa's
population of 590 million (220 million people) live below the
threshold of absolute poverty. These people survive on less than S1 a
day. According to the same source, the situation has indeed deterio
rated in recent years:
Sub-Saharan Africa has the highest proportion and fastest growth

of human poverty.... Indeed, poverty has come to dominate life far
and wide in sub-Saharan Africa ... it is estimated that financial
poverty will affect half of sub-Saharan Africa's population by the
year 2000. (UNDP, 1997)
In Africa, the economy is not doing any better than the continent's
social indicators.
Three economic indicators should be examined to have an idea of
the real situation in sub-Saharan Africa: its constantly rising external
debt, its rising trade deficit and the low level of private investment.
The External Debt: A Millstone around Africa's Neck

Sub-Saharan Africa's external debt trebled (by 2.8 times to be exact)
between 1980 and 1996, in spite of the S170 billion made in
debt-servicing payments (this includes interest payments and
DEBTINTHE1990s/195
reimbursement of a part of principal). Sub-Saharan Africa has paid

off its 1980 debt twice and more, but is now three times deeper in
debt.
Table 14.2 Evolution of sub-Saharan Africa's external debt (Sbn)
1970 1980 1986 1988 1991 1993 1995 1996
7 84.3 140 166 196 200.4 226 235.4
Source: World Bank, World Debt Tables to 1996 and Global Development
Finance, 1997, vol. 1.
Every year, sub-Saharan Africa spends four times more on debt-

servicing payments than it does on healthcare and education
combined.
In spite of the large sums spent on debt since 1980, sub-Saharan
Africa has clocked up significant overdue payments - some S48
billion by 1994 (Alibert, 1996, p. 7).
Another symptom of the growing debt problem is that 31 of the
region's 48 countries were classified as heavily indebted poor
countries (HIPCs) by the World Bank in 1996. That is six more than
in 1994.
Trade Losses
Sub-Saharan Africa has to use a significant part of its export earnings
to pay back its foreign debts, which are all denominated in hard
currencies. As a result, the ratio of annual export revenue to overall
debt provides some idea of the gravity of the situation. In 1996, total
debt was worth 32 7 per cent of total annual exports (not including
South Africa). In other words, to pay off its debts, the region would
have to hand over all its export earnings continuously for three years
and three months.
Changes in the region's balance of trade are crucial to evaluating
its ability to pay off its debts. If export earnings are inferior to import
spending, it is difficult to see how the debt can be paid without further
cuts in social spending and the resulting increase in poverty.
Since the beginning of the 1980s, there has been a deterioration in
the terms of trade for sub-Saharan export products on the world
market in relation to the products imported from industrialised
countries. In spite of a brief boom in the price of some products (coffee,
cocoa) in 1995-96, there is a clear downward trend. Since 1980, the

value of a basket of sub-Saharan export products has been halved
relative to the value of imports from the North. Africa has reacted to
this decline by increasing the overall volume of exports onto the world
market-by some 50 per cent between 1985 and 1992. But this is not
a solution, since prices for these export products have been dropping
faster than those on imports from the North. In fact, in the present
system of world trade, the countries of the South are disadvantaged,
since any increase in the volume of their exports tends to decrease
their value as demand stagnates or falls in the North. Sub-Saharan
Africa is particularly disadvantaged since it exports far fewer manu
factured goods than Latin America and East and Southeast Asia.
As a result, sub-Saharan Africa's trade deficit continues to rise.
More than ten years of IMF and World Bank-dictated structural
adjustment policies have produced a devastating economic failure.
Table 14.3 Evolution of the balance of trade in sub-Saharan Africa

(Sbn)
1980 1990 1995 1996

2.2 -0.6 -11.4 -11.5
Source: World Bank, Global Development Finance, 1997.
Low Foreign Investment, High MNC Profit Repatriation

In 19 9 5, sub-Saharan Africa accounted for only 1 per cent of foreign
direct investment (FDI) made in developing countries - S2.2 billion
in FDI out of a total of S240.3 billion (Alibert, 1996, p. 6). The
situation is even worse given that 90 per cent of this investment is
made in a handful of the region's 48 countries - South Africa, and a
few oil and mineral-producing countries such as Nigeria, Angola,
Gabon and Cameroon.
Table 14.4 Net flow of foreign direct investment in sub-Saharan

Africa (Sbn)
1980 1990 1994 1995 1996

0 0.9 3 2.2 2.6

DEBTINTHE1990s/197
Sub-Saharan Africa receives little FDI, but this does not prevent the
head offices of MNCs operating in the region from repatriating their
profits to the North. In 1995, repatriated profits were worth twice as
much as total FDI.
Table 14.5 Profit repatriation by MNCs operating in sub-Saharan

Africa (Sbn)
1980 1990 1995 1996

4 4.5 4.4 4.2
Sub-Saharan Africa is Bleeding

The three phenomena described above can be summarised in the
following way: growing debt burden in spite of large debt payments;
unequal trade creating a growing trade deficit; repatriation of
relatively high sums of profits to North-based MNCs while FDI
remains very low. When all the negative effects of this state of affairs
are added up, it becomes clear that the media and international
financial institutions' favourable reports on Africa are little more
than downright falsifications.
This appreciation is confirmed in the IMF's own internal
documents, where one can occasionally find analyses that stray a
long way from the optimistic proclamations of official press
statements. For example:
The debt burden remains extremely high, accumulated overdue

payments increase this burden further still. This can be seen in the
fact that most countries on the continent owe total debt that is four
times annual export earnings.
Only a few countries show signs of being able to service such
high debt. For most of the others, however, actual debt servicing
accounts for more than twice incoming funds from lenders and
donors. The danger is that excessive debt will be an obstacle to
direct investment and other private capital flows. (IMF, 1995)
Specific Features of Sub-Saharan Africa's Foreign Debt in

the 1990s
Unlike most Latin American and Southeast Asian countries, sub-
Saharan Africa (excluding South Africa, Cote d'lvoire and Nigeria)
no longer has access to financial markets. Bank loans are few and far
between, accounting for only 2 per cent of the region's total debt
load. Furthermore, by 1996, 98 per cent ofthese loans were made to
South Africa. Foreign financial markets are at best uninspired by the
public bond issues of the region's governments. Such bonds account
for only 2 percent of sub-Saharan Africa's foreign debt-with 90 per
cent of this tiny investment in bonds going towards four countries,
with South Africa again in the lead.
Another indicator of the lack of financial market interest in Africa
is the low level of portfolio investment (especially with respect to the
purchase of company shares). Such investment is barely more than
FDI, and 89 per cent of it went to South Africa in 1996.
In recent years, private banks have been reimbursed by the debtor
countries in question and by the governments of the North, who hold
almost half of sub-Saharan African debt (not including South Africa,
which is still in the banks' good books). The international financial
institutions (World Bank, IMF, African Development Bank) hold
more than a third of this debt. The poorer an African country is, the
more its debt is held by the international financial institutions (Ms).
For example, 79percentofBurundi'sdebtisheldbyIFIs; 81 percent
of the Rwandan debt; 77 per cent of the Central African Republic's
debt; 61 per cent of Guinea Bissau's and 7 7 per cent of Uganda's debt
(Alibert, 1996). Aside from a few exceptions, sub-Saharan Africa's
debt is held by the M s and the governments of the North (especially
the former colonial powers). The M s , especially the World Bank and
the IMF, take in more from African countries than they provide to
them in loans (UNDP, 1994). The M s are always the first to be
reimbursed. A significant portion of official development assistance
provided by the countries of the North is used to pay back the Ms.
Aside from South Africa (given the weight of its economy and the
strength of its capitalist class) the region's governments are very
much under the thumb of the IMF, the World Bank and Paris Club.
The Paris Club, which brings together the various lender
governments of the North, gives the World Bank and the IMF a free
hand to determine the policies debtor countries should implement.
DEBTINTHE1990s/199
DEBT RELIEF MEASURES: A DROP IN THE OCEAN

Since 1994, the Paris Club has been negotiating case-by-case debt
reductions with specific debtor countries selected for being good
pupils of the IMF. The Paris Club has been wholly dishonest in its
promotion of the specifically Africa-oriented segment of this
initiative. It has claimed that up to 80 per cent would be chopped off
total bilateral debt. In fact, the conditions a country must meet in
order to qualify are so Draconian that the reduction amounts to very
little indeed. Uganda was the first country to benefit from such Paris
Club 'largesse': its total foreign debt was reduced by a mere 3 per
cent. One figure puts the lie to all talk of debt reduction: in 19 9 5, less
than 1 per cent of total sub-Saharan African debt was erased by
various debt cancellation and debt relief measures (World Bank,
1997). As for the new IMF-World Bank-Paris Club 1996 initiative,
we can be certain that it will also amount to little or nothing. The
whole operation aims only to make debt servicing a little more
'bearable' for the heavily indebted poor countries, whose total debt is
more than S200 billion. The first round of reductions is expected for
1998, but most will only take effect after the year 2000.
15
Case Studies
ARGENTINA
Debt and Dictatorship
Argentina's foreign debt skyrocketed under the military dictatorship
of General Videla, which lasted from 1976 to 1981. From 2 April
1976 onwards, the Minister of the Economy, Martinez de Hoz,
pursued an economic policy that marked the beginning of a process
that devastated the country's productive apparatus - and paved the
way for a speculative economy that has bled the country dry. Most of
the loan money granted to the Argentinian dictatorship came from
private banks from the North. It is important to note that the US
authorities (both the Federal Reserve and the administration) fully
supported Argentina's policy of debt accumulation. The architects of
Argentina's policy of debt accumulation were de Hoz and the
Secretary of State for Economic Coordination and Planning,
Guillermo Walter Klein. In order to secure credit from private banks,
the government forced state-owned companies to borrow from inter
national private banks. State-owned companies became the
cornerstone of a strategy aimed at denationalising the state, through
an accumulation of debt that has forced the country to sacrifice much
of its national sovereignty.
Forcing Debt on State-owned Companies

This is how the main Argentinian state-owned company - the
Yacimientos Petroliferos Fiscales (YPF) oil company - was forced to
take on foreign debt even though it had sufficient funds for its own
200
CASE STUDIES/201
expansion. At the time of the 24 March 1976 military coup, YPF's

foreign debt was S3 72 million. Seven years later - when the dicta
torship fell - it owed S6 billion. Its debt had been multiplied by 16 in
seven years.
Hardly a cent of the borrowed foreign funds actually went into the
company coffers; the money lined the regime's pockets. Under the dic
tatorship, productivity per worker at YPF jumped by 80 per cent; the
total number of workers at YPF fell from 4 7,000 to 34,000. In order
to boost its own earnings, the dictatorship reduced by 50 per cent the
subsidy it gave YPF for petrol sales to the population. Moreover, YPF
was obliged to have the oil it extracted refined by private multina
tionals (Shell and Esso). Given its sound financial health before the
dictatorship, it could have had its own refinery. By June 1982, not a
cent of company assets was debt-free.
Government Debt
The IMF and those in charge of the dictatorship's economic policy
argued that massive government debt was justified, since the country
needed to boost its hard currency reserves if it wanted to open up the
economy from a position of strength. A sound economic policy would
have sought increased foreign reserves in the country's international
trading activity. Instead, the dictatorship obtained its foreign
currency by going into debt.
These foreign reserves were neither managed nor supervised by
the central bank. In fact, the huge sums borrowed from the North's
banks were usually deposited right back into the same banks; or at
least into competing institutions. In 19 79, 83 per cent of these
reserves were deposited in foreign banking institutions. The reserves
were worth S10.1 billion; deposits in foreign accounts totalled S8.4
billion. That same year, foreign debt rose from SI2.5 billion to S19
billion (Olmos, 1990). Of course, interest earned on these foreign
deposits was lower than interest owing on the borrowed amounts.
The Argentinian authorities pursued this line of action for the
following reasons: first, individuals in the regime grew rich off the
commissions offered by the North's banks; second, increased foreign
reserves meant a significantly increased capacity to import - in
particular, to import arms; third, the policy of economic liberalisation
and debt accumulation recommended by the IMF, improved the dic
tatorship's credibility with the main industrialised countries,
especially with the US. The dictatorship would not have been able to
sustain the initial years of domestic terror (1976-80) without the
blessing of the US administration.
For its part, the US Federal Reserve was all the more favourably
inclined to the dictatorship's policies since most of the borrowed
money was deposited in US banks. From the point of view of the US
administration and the IMF, Argentina's growing debt load was
bringing the country back into the US fold - after decades during
which Argentina had been something of a nationalist rebel and
achieved real economic progress within the framework of the
Peronist system.
Private Sector Debt

Private Argentinian companies and Argentinian subsidiaries of
foreign MNCs were also encouraged to amass debt. Private debt rose
to more than S14 billion.
Conflicts of Interest
Walter Klein was Secretary of State for Economic Coordination and
Planning from 1976 until March 19 81. At the same time, he headed
a private legal firm that represented the interests of foreign creditors
in Buenos Aires. When he joined the military regime, his firm
represented the interests of one bank, the Scandinavian Enskilda
Bank. A few years later, it represented the interests of 22 foreign
banks. In March 19 81, he left his government ] ob as General Viola was
replacing General Videla at the head of the dictatorship. A few weeks
later - 7 April 1982, five days after the Argentinian armed forces had
occupied the Malvinas (Falkland Islands) and Britain had declared
war - Klein was made the official representative in Buenos Aires of the
British-based Barclays Bank Limited, one of the main private holders
of Argentinian public and private debt. When the dictatorship fell and
Raul Alfonsin came to power in 1984, his legal firm continued in its
role as defender of the interests of foreign creditors.
After the Military Dictatorship: Alfonsin and Impunity

The central bank announced that it had no record of public foreign
debt. Indeed, post-dictatorship government officials have had to rely
CASE STUDIES/203
on the claims of foreign creditors and on contracts signed by officials

in the military dictatorship, even though such contracts had never
been approved by the central bank.
Nevertheless, the first post-dictatorship government of President
Alfonsin decided to honour the dictatorship era debt in its entirety,
public and private. Just as the military's torturers were amnestied
under the 1986 'Full Stop' and 'Obeying Orders' laws, so too were
those in charge of the dictatorship's economic policy treated with
clemency. Most of the dictatorship's top economic and financial
officials retained their jobs in the state apparatus; some were even
promoted. Military officials responsible for the repression that
claimed at least 30,000 lives also kept their jobs, or were granted
early retirement. A scandal erupted when one of them, Captain Astiz,
finally broke the rule of silence observed by the dictatorship's military
officials: 'In 1982, a friend asked me if there had indeed been disap
pearances. I replied, "Of course, there were 6,500, even more; but no
more than 10,000. All of them were eliminated.'" (Le Soir, 16
January 1998).
When the State Honours Private Debt

The long list of indebted private companies included the Argentinian
subsidiaries of MNCs: for example, Renault Argentina, Mercedes-
Benz Argentina, Ford Motor Argentina, IBM Argentina, Citibank,
First National Bank of Boston, Chase Manhattan Bank, Bank of
America and Deutsche Bank.
The Argentinian government paid off these private companies'
creditors: Renault France, Mercedes Benz, Citibank, Chase
Manhattan Bank, Bank of America, First National Bank of Boston,
Credit Lyonnais, Deutsche Bank and Societe Generale.
In other words, Argentinian taxpayers repaid debt contracted by
the subsidiaries of MNCs with their head offices, or with international
banks. It is reasonable to suspect that the MNCs in question actually
engineered the debt of their Argentinian subsidiaries with some
creative accounting. Argentinian government officials have no way
of verifying this information.
A Wave of Privatisation
In 1990-92, the government of Alfonsin's successor, Carlos Saul
Menem, undertook a vast programme of privatisation, selling off
most of the nation's wealth at rock-bottom prices. It is estimated that

the country lost S60 billion in the process. Menem argued that
Argentina's state-owned companies were deeply in debt in order to
justify the sell-off. Yet their poor financial position resulted from the
debt load they had been forced to take on by the dictatorship; most of
the borrowed funds never made it into company coffers.
Menem asked the US investment bank and brokerage firm Merrill
Lynch to determine the value of YPF. Merrill Lynch deliberately
underestimated company oil reserves by 3 0 per cent in order to lower
YPF's paper value before privatisation. Once the privatisation had
been carried out, the hidden reserves were factored back into the
company's assets; financial operators who had bought company
stock at a low price made huge profits when YPF share values subse
quently rose. The windfall also led many to vaunt the superiority of
private companies over state-owned ones.
It is interesting to note that in 19 9 7 Brazilian president Fernando
Henrique Cardoso asked the same US firm, Merrill Lynch, to
determine the value of the country's main state-owned concern, the
mining company Vale do Rio Doce. A number of Brazilian members
of parliament have accused Merrill Lynch of undervaluing the
company's mineral reserves by 75 per cent (0 Globo, 8 April 1997).
Apart from YPF, another Argentinian gem was sold for a song:
Aerolineas Argentinas. The airline's Boeing 707s were sold for a
token sum - S1.54, to be exact! A few years on, these planes continue
to work the routes of the now privatised company. The value of the
company's rights over certain routes - S800 million - was estimated
to be only S60 million before privatisation. The company was sold to
the private sector for S130 million in cash; the rest was made up of
debt write-offs. State-owned companies were privatised free of debt,
which was instead absorbed by the public purse.
The Dictatorship on Trial

After the fall of the dictatorship, the debt scandal did not fail to attract
public attention. The first civilian government established a parlia
mentary commission, which was dissolved after 18 months of
deliberations. Its findings were considered to be too threatening to
Alfonsin's economic policy, given that in the meantime he had
decided to nationalise the debt. Menem, the current president, had at
CASE STUDIES/205
one time also railed against the debt; once in power, though, he
abandoned all talk of revisiting this eminently taboo subject.
In spite of all the delays and compromises, a trial is now underway.
It is the result of a complaint lodged by an Argentinian citizen in
October 1982, while the country was still ruled by a dictatorship.
Thanks to this courageous and tireless journalist, the question of who
is responsible for the country's debt burden is now being examined
by the judicial authorities. Many of the dictatorship's economic
officials and heads of state-owned companies have had to testify at
trial hearings. Walter Klein's legal firm has been searched; most of the
documents from the period in question have been seized and placed
in safekeeping at the Central Bank. Sixteen years later, despite indis
putable proof of the guilt of people such as de Hoz and Klein, the trial
has not reached any conclusions. There is reason to fear that the
guilty parties will never be punished.
In the meantime, Argentina has been paying astronomical sums
to service its debts - which hasn't prevented the total owing from
rising. Strategic state-owned companies are now in private hands.
The central bank has not been authorised to create money since the
April 1991 Menem government decision to set up a currency board.
Under this system, the number of pesos in circulation is scrupulously
limited to a fixed ratio of the amount of hard foreign currency held by
the central bank (Cartapanis etal, 1996).
In 1976, Argentina owed S8.2 billion to foreign creditors. In 1980,
it owed S27.1 billion; in 1983, S43.5 billion; in 1993, S74.5 billion;
in 1995, S84 billion. By 1996, the country owed S96.2 billion
dollars to foreign creditors.
MEXICO
1982 to 1998: Mired in Debt
Mexico is at the heart of the 'debt crisis'. The crisis is said to have
begun in August 1982, when Mexican authorities announced that
they would no longer be able to meet their debt-service payments.
This sounded the alarm for private US banks; in the end, however, the
US federal government bailed them out. It saved a number of small
banks known as Savings and Loans, which had become heavily
involved in the Mexican economy. The Reagan administration
negotiated a number of successive agreements with Mexico in order
to ensure ongoing debt-service payments in exchange for a marginal

decrease and rescheduling of the debt load.
In 1982, Mexico's total foreign debt was S95 billion. During the
following six years, Mexico paid out S102 billion in interest
payments and principal repayment. The Mexican debt nevertheless
increased to $112 billion by 1988 (George, 1992). Between 1988
and 1994, Mexico paid $125 billion in debt-service repayments -
funds drawn in part from privatisation receipts. Yet, for all that,
Mexican debt did not decrease. On the contrary, foreign debt was
$130billionin 1994. Current president Ernesto Zedillo has promised
to repay the 'aid' provided in 1994-9 5 - primarily by the US (but also
by the Bank for International Settlements and the IMF) - to rescue
financial markets. With this in mind, Faprode (an independent
research institute) estimated in late 19 9 5 that Mexican debt totalled
more than $180 billion (the OECD calculates that it totalled $134.4
billion in late 1995).
For Mexico, as for other Third World countries, foreign debt
repayment involves a huge transfer of revenue from small and
medium-sized producers to capitalists holding foreign debt paper.
Among these capitalists, one finds Mexican capitalists who hold some
of this foreign debt paper, purchased with capital they shifted onto
foreign financial markets. In addition to this transfer of wealth, since
the December 1994 crisis a part of Mexican oil revenues has been
channelled through a US account which US officials can freeze if ever
debt-service payments are not met. This is a blatant symbol of
Mexico's renewed submission to the US. At the beginning of 199 7, in
an attempt to escape this humiliating predicament, the Mexican
authorities made an early payment of $10 billion to the US Federal
Reserve.
Privatisation and Heightened Dependence on the US

President Carlos Salinas de Gortari used his six years in power (late
1988 until late 1994) to extend the neo-liberal policies initiated by
his predecessor Miguel de la Madrid in 1982. Under Salinas, the
banking sector was privatised, with large segments falling into the
hands of US capital; and an agrarian counter-reform was enacted
through amendments to Article 27 of the Constitution, which
granted 50 per cent of arable land to peasants and small farmers.
This counter-reform reduced the collective property accessible to
CASE STUDIES/207
peasants and small farmers, and served the Interests of the big
domestic and foreign agro-export companies. Furthermore, the state-
owned industrial sector was thoroughly restructured and, for the
most part, also privatised. MNCs have tightened their grip on the
Mexican economy. This neo-liberal shock therapy was designed to
prepare Mexican capitalists to prosper within the new North
American Free Trade Agreement (NAFTA) zone linking the US,
Canada and Mexico.
The wave of privatisations initiated in 1982 by President de la
Madrid has been breathtaking in its scope. Of the 1,550 state-owned
companies that existed in 1982, about 100 remain in state hands.
Privatisation has led to a pronounced concentration of capital in a
few private hands. Currently ten groups control 71.2 per cent of
shares quoted on the Mexico City stock exchange. Privatisation has
enabled capitalists to acquire companies at cut-rate prices, and to
repatriate dollars invested abroad, no questions asked. For foreign
capital, privatisation has been a heaven-sent invitation to buy up
companies in strategic sectors, such as telecommunications. The
funds that have entered Mexico have not created any jobs; indeed,
they have been used to buy up companies that already existed, and
then to 'streamline' them of a number of their employees. When
NAFTA came into effect, Mexico did not come out on top; in fact, the
trade deficit with its neighbours actually increased.
To make matters worse, much of the capital on the stock market
was very volatile. The investors in question were at the ready to sell
off their shares in order to tap into better profit opportunities
elsewhere. Between April and December 19 94, this money took flight
(Toussaint, 1994; in this article, I noted that capital flight had begun
before the August 1994 elections, paving the way for the December
1994 crisis).
By the end of 1995, Mexican capital deposited in US accounts
totalled S24.6 billion - that is, twice the total of the previous year.
Current Mexican president Ernesto Zedillo has the temerity to say
that the SI00 billion that entered the country during the Salinas
presidency were speculative, incorrectly included in calculations of
national revenue: 'Those revenues did not belong to us.' He does not
mention the fact that, in order to attract this speculative capital, the
government auctioned off state-owned companies that did indeed
belong to the nation.
At the end of the day, the combination of privatisation and NAFTA

has deepened Mexico's renewed dependence on its northern
neighbour.
Social Effects of Neo-Liberal Policies
In 1995, the fortune of the wealthiest Mexican was 6.6 billion

dollars - equal to the combined total annual income of 17 million
of his poorest compatriots. (UNDP, 1997)
The neo-liberal policies implemented since 1982 have increased

structural unemployment. Mexico should have created 12 million
jobs between 1982 and 1994 to meet the demands of a growing
population; only 2.4 million were created. The crisis unleashed by
capital flight in December 1994 wiped out 850,000 jobs in 1995; the
country's GDP fell 6.9 per cent in 1995. By 1997, the country had a
job deficit of 20 million, for a population of 91.9 million. By April
1997, it was estimated that there were the same number of jobs in
absolute terms as before the December 1994 crisis; in the meantime,
however, 2 million more people had entered the labour market.
There has also been a calamitous fall in purchasing power. The
minimum monthly wage is S100. Arural school teacher earns S200
per month. In 1996, the minimum wage dropped to its lowest level
since it was created in 19 3 5 under Lazaro Cardenas. According to the
Confederation of Mexican Employers (Coparmex), only 3.5 workers
out of every 10 (34.6 per cent, to be exact) earn S200 or more per
month. Coparmex also says that 15 per cent of workers receive no
money wage whatever (5 million workers, of whom 3.2 million work
in agriculture), 20 per cent earn less than the S100 monthly
minimum wage, and the remaining 30 per cent make between one
and two minimum wages per month (La Jornada, 21 July 1996). The
situation is much worse for women: fewer than 20 per cent of women
workers earn S200 per month or more.
Between 1977 and 1996, the minimum wage lost 8 0.8 per cent of
its buying power.
Workers must work 3.2 times longer today in order to replicate
1970 consumption levels. In 1976, wages accounted for 40.3 per
cent of GDP; today they account for less than 21 per cent.
CASE STUDIES/209
The middle classes, small producers, small businesspeople, and a

section of the professional classes have also been severely hit by neo-
liberal policies, especially since the December 1994 crisis. Debt has
grown to unsustainable levels in these sectors of the population. One-
third of private bank customers - 4 million people - are insolvent (in
1996, annual bank interest rates were nearly 4 5 per cent). One result
has been the emergence of a 'debtors movement', known by the name
of the umbrella organisation El Barzon. This movement describes
itself as a 'regrouping of the middle classes, whose relative comfort is
threatened'; it has 1.8 million members (see interview with El Barzon
national leader Juan Jose Quirino, La Jornada, 21 July 1996).
Apart from the increase in the job deficit, the fall in purchasing
power and the rise in personal debt, there are other ways to measure
Mexico's social disaster: 21 million Mexicans have no access to basic
education; 15,000 schools have only one teacher; 50 per cent of the
population has no social protection; and 20 per cent of children suffer
from malnutrition. According to the UN-funded Economic
Commission for Latin America (CEPAL), between 1982 and 1992 the
number of Mexicans living in poverty rose from 48.5 million to 66
million. In 1982, 16.2 per cent of the poor lived in conditions of
extreme poverty; by 1992, the proportion was 48.6 per cent.
Social Movements: Fragmented Resistance

The forms of social resistance have been uneven, in a patently
unfavourable climate for the working classes. Admittedly, there have
been encouraging signs - like the second consecutive independent
May Day trade union mobilisation held in 1996. Several hundred
thousand demonstrators took to the streets across the country that
day - in spite of opposition from the eternal lider mdximo of the ruling
party-controlled trade union movement, Fidel Velazquez (who died
in 19 9 7, well into his nineties). May Day 19 9 6 was an historic event;
the new 'May First Inter-Union' grouping played a central role.
The El Barzon debtors' movement has also organised ma] or protest
actions and demonstrations among the middle classes. This
movement, oriented towards non-proletarian sectors of the
population, could well radicalise leftwards. One encouraging sign, for
example, was the July 1996 national gathering it held in a Zapatista
bastion par excellence: the community of La Realidad in the southern

state of Chiapas.
Another sign of rising discontent has been protest activity from
the poorest sectors of the population. On 30 May 1996, at San
Nicolas de los Garza, a large number of poor people attacked a train
transporting corn, Mexico's staple food. Corn is being imported in
ever greater quantities from the US; previously, Mexico was self-
sufficient. The poor ambushed the train in order to eat. In July 1996,
in a state in the north of the country, day labourers from the southern
state of Oaxaca looted shops of their food supplies. They were driven
by hunger, plain and simple.
However, this vast manifestation of protest and direct action has
not come together under a common umbrella. Moreover, the ruling
Institutional Revolutionary Party (PRI) still controls most factory
worker trade unions. The success of independent protest on 1 May
1996 highlights the growing crisis of the PRI system of control over
mass movements; but an alternative is emerging only slowly and
very unevenly.
Regime Down but Not Out

There is certainly no shortage of signs that the regime is in crisis: the
failure of neo-liberal policies carried out since 1982; the victory of
Cuauhtemoc Cardenas - leader of the centre-left Party of the
Democratic Revolution (PRD) - in Mexico City's first mayoral election
on 6 July 1997; the PRI's loss of its absolute majority in the national
Congress as a result of the July 1997 elections; election victories by
the right-wing National Action Party (PAN) in a number of states;
internal struggles within the PRI (including the assassination of two
main PRI leaders - Colosio and Massieu - in 1994, probably under
orders from opposing factions; the Irish exile of former president
Salinas and the imprisonment of his brother, Raul; the partial loss of
PRI control over mass movements; government agreement to
negotiate with the Zapatista Army for National Liberation (EZLN)
indigenous armed rebellion; and growing PRI involvement in
criminal activities (especially in the rapidly growing drug trade to
the US). There can be no denying that there is a crisis.
The following commentary from Rhina Roux is straight to the
point:
CASE STUDIES/211
We are currently living through a profound political crisis. It is not

a crisis of the building of a system, but rather of its very ability to
function and reproduce itself. It is fundamentally a crisis affecting
the three constituent dimensions of the state: firstly, the way the
regime is structured; secondly, the relationship of domination
between rulers and the ruled; thirdly, the functioning and repro
duction of the ruling elite. This is not a government crisis, nor is it
a crisis of the current ruling group. Rather, the current crisis is a
crisis of the very form of the state. (Viento del Sur, Mexico City, July
1994)
The crisis began with the 1988 elections, which were won by the
main opposition candidate, Cardenas. He was denied victory through
an enormous PRI-orchestrated electoral fraud. A huge mass
movement against the fraud shook the regime. The January 1994
Zapatista rebellion was the second shock wave, amplified by the
December 1994 economic crisis. The latest blow to the regime was
the July 1997 elections. Taken together, these knocks have
sharpened conflicts within the regime itself. Thus far, however, the
country has not seen a rising momentum of social forces capable of
delivering a knock-out blow to the regime, as part of a process of
growing experience, strength and consciousness. The direction taken
after 1988 by the main progressive opposition party, the PRD, has
disoriented and profoundly disappointed broad sectors of the mass
movement (Toussaint, 1996c). Thanks to the EZLN's boldness and
the gigantic mobilisation against repression of the indigenous
rebellion, it was able to force the regime to the negotiating table
between 1994 and 1996.
But the regime still has a number of tricks up its sleeve; for example,
it led negotiations with the EZLN into an impasse. It has succeeded in
waging a low-intensity war against grassroots movements, especially
against small farmers and indigenous communities, by placing the
army on a permanent war footing in a number of states (Chiapas,
Guerrero, Oaxaca, Tabasco). In two years, the Mexican army has
grown considerably; most of the armed forces are permanently
deployed outside barracks. The judiciary and police apparatus have
also grown more active; more and more grassroots activists are being
arrested, leading many movements to turn inwards. The dirtiest
repressive work is carried out by private militia linked to big capitalists
and landowners ensconced in the PRI machine. The December 1997
massacre of 45 Tzotzil Mayan Indians in the village of Acteal in the

state of Chiapas by PRI militiamen, is further proof that the PRI-run
state is seeking to provoke the EZLN into open armed conflict.
Chiapas is no exception; in other regions, and in some cities,
selective assassinations are a regular occurrence. The guilty are
never found. Yet the PRI is also keeping in mind Napoleon's dictum,
'You can do everything with bayonets except sit on them'; it is trying,
with some success, to maintain its control over organisations of
farmers and industrial workers, while reducing the leverage of some
sectors of the PRI trade-union bureaucracy. And the PRI has a firm
grip on the television networks.
It is difficult to foresee any rapid resolution of the crisis of the
Mexican regime; and even less of the debt crisis.
RWANDA
The 1994 Genocide
Beginning on 7 April 1994, within a period of three months, more
than one million Rwandans - the exact figure has yet to be
determined - were exterminated because they were Tutsis or thought
to be. Several tens of thousands of Hutus were also killed - political
opponents of the regime and people who refused or might have
refused to support the genocide. The population of Rwanda before the
atrocities is estimated to have been about 7.5 million.
Comparisons with the genocide of the Jews and Gypsies are fully
justified. Of course, there are differences: the absolute number of
victims (the Nazis murdered 6 million Jews) and the methods used
(the Nazis designed and used industrial techniques to implement the
Final Solution).
But there was indeed a genocide in Rwanda - that is, the planned
destruction of an entire community through mass murder, with the
objective of preventing it from reproducing itself biologically and
socially.
Policies of the Multilateral Financial Institutions

It is crucial that we examine the role of international lenders. My
contention is that the policies imposed by the international financial
institutions - the Habyarimana regime's main lenders - accelerated
the process which led to genocide. In general, the negative repercus-
CASE STUDIES/213
sions of these policies is not taken into consideration to explain the

dramatic conclusion of the Rwandan crisis. Only a handful of
scholars have highlighted the responsibility of the Bretton Woods
institutions (such as Chossudovsky, 1994). The institutions
themselves reject all criticism on this score. More surprising, some
authors with links to NGOs have also published studies that seek to
tone down criticism of the World Bank and the IMF's role
(Woodward, 1996).
At the beginning of the 1980s, when the Third World debt crisis
broke, Rwanda (like its neighbour Burundi) had very low debt.
Elsewhere, the World Bank and the IMF jettisoned their policy of
active lending, preaching austerity instead. In Rwanda, however,
they adopted a different approach, and began to lend large sums.
Rwanda's foreign debt increased twenty-fold between 1976 and
1994. In 1976, it stood at S49 million; by 1994, it was more than
SI billion. Most of this growth took place after 1982. The country's
main lenders were the World Bank, the IMF and related institutions.
The World Bank and the IMF played the most active role; they hold
more than 75 per cent of Rwanda's foreign debt.
The dictatorial regime in place since 1973 was a guarantee against
progressive structural change. For this reason, it received the active
backing of Western powers, particularly of Belgium, France and
Switzerland. It was a bulwark against those states in the region that
sought to protect their independence and effect progressive change
(neighbouring Tanzania, for example).
Between 1980 and 1994, Rwanda received large sums in loan
money; the Habyarimana dictatorship channelled a significant share
of this money into its own coffers. The loans were meant to help
Rwanda more fully integrate into the world economy by developing
its coffee, tea and tin-exporting capacities, to the detriment of crops
destined for domestic consumption. This model worked until the mid-
1980s, when world tin prices collapsed - soon followed by world
coffee and tea prices. Rwanda, for whom coffee was the main source
of hard currency, was devastated when the US broke up the coffee
cartel in the early 1990s.
International Loans used to Prepare Genocide

A few weeks before the Rwandan Patriotic Front (FPR) launched its
October 1990 offensive, the Rwandan authorities signed an
agreement with the IMF and the World Bank to implement a

structural adjustment programme (SAP).
The SAP was implemented in November 1990, one of the first
measures being a 67 per cent devaluation of the Rwandan franc. In
exchange, the IMF provided credit in the form of quick disbursing
loans to enable the country to maintain the flow of imports. As a
result, the country was able to set right its balance of payments. There
was a meteoric rise in the price of imported goods; petrol rose by 79
per cent. Earnings from the sale of imported goods on the domestic
market enabled the government to pay the salaries of members of the
armed forces, whose ranks were growing rapidly in size. The SAP
prescribed a drop in public spending; there were indeed wage freezes
and dismissals in the public sector, but part of the savings were
transferred to the armed forces.
While import prices soared, in response to IMF insistence the price
at which coffee was bought from local producers was frozen. As a
result, hundreds of thousands of small coffee farmers were ruined
(Maton, 1994). Alongside the poorest sectors of the urban
population, these destitute farmers became a permanent reservoir of
recruits for the Interahamwe militia and the army.
The measures imposed by the World Bank and the IMF in the SAP
included: increased taxes on consumption and lower business taxes;
increased direct taxes on low-income households through a
reduction in tax allowances for large families; and cuts in lending
programmes for small farmers.
To account for the sums loaned by the World Bank and the IMF,
Rwanda was authorised to show old invoices for imported goods.
Within the bounds of this system, the regime financed massive arms
purchases. Military spending tripled between 1990 and 1992
(Nouhungirehe, 1995). The World Bank and the IMF sent several
delegations of experts during this time; they highlighted the positive
features of Habyarimana's austerity policies but none the less
threatened to suspend credit unless military spending stopped
increasing. The Rwandan authorities manoeuvred their way around
these restrictions in order to hide rising military spending. Lorries
imported for the army were put on the Transport Ministry's account;
a significant share of the petrol used for militia and army vehicles was
put on the Health Ministry's account; and so on.
Finally, the World Bank and the IMF suspended financing at the
beginning of 1993 - but did not freeze the large sums of money held
CASE STUDIES/215
on account in large foreign banks, which the regime used to buy

arms. It can be argued that the Washington-based institutions failed
in their duty to monitor the way in which loan money was used.
They should have suspended credit in early 1992, when they realised
that the money was being used for arms purchases. They should have
alerted the UN. By continuing to provide financing until early 1993,
they helped a regime that was preparing a genocide. Since 1991,
human rights organisations had been reporting and condemning the
massacres that paved the way to genocide.
Rising Social Conflict

For the genocidal enterprise to get underway, it was not sufficient to
have a regime drawing up the blueprint and stocking the required
hardware. The country also needed an impoverished and
'lumpenised' citizenry, ready to do the irreparable. In Rwanda, 90 per
cent of the population live in the countryside, 20 per cent of peasant
families own less than half an acre. Between 1982 and 1994, there
was large-scale impoverishment of the majority of the rural
population; at the same time, a tiny section of the population grew
fabulously rich. According to Jef Maton, in 1982, the wealthiest 10
per cent of the population received 20 per cent of rural revenues; in
1992, they received 41 per cent; in 1993, 45 per cent; and by the
beginning of 1994, 51 per cent (Maton, 1994). The catastrophic
social impact of policies dictated by the IMF-World Bank combine
and the fall in world market coffee prices (a fall linked to the policies
of the Bretton Woods institutions and the US), played a central role
in the Rwandan crisis. The Habyarimana regime channelled
profound social discontent into implementing its plan for genocide.
The Genocide's Financiers

Between 1990 and 1994, Rwanda's main arms suppliers were
France, Belgium, South Africa, Egypt and China. China also provided
500,000 machetes. Egypt - whose joint Minister of Foreign Affairs,
responsible for relations with the African continent, was none other
than Boutros Boutros-Ghali - granted Rwanda a S6 million interest-
free loan in 1991 to purchase arms for its infantry divisions. When
the genocide got underway, France and the British firm Mil-Tec
provided arms to the rampaging army through the Goma airport
across the border in Zaire - violating the 11 May 1994 UN embargo

on arms sales to Rwanda (Toussaint, 1996b). Once the Rwandan
capital, Kigali, had been overrun by the opposition FPR, many key
leaders of the genocidal army were received by the French president.
Rwandan leaders-in-exile set up the head office of the Banque
Nationale du Rwanda in Goma, with the help of the French army.
Until August 1994, the Banque disbursed funds to repay debts for
previous arms purchases and to buy new arms. Private banks
(Belgolaise, Generale de Banque, BNP, Dresdner Bank, among others)
accepted payment orders from those responsible for the genocide and
repaid those who financed the genocide.
Today, Rwanda's foreign debt stands at S1.6 billion. Almost every
cent was incurred by the Habyarimana regime.
Rwanda after the Genocide

After the fall of the dictatorship in July 1994, the World Bank and the
IMF demanded that the new Rwandan government limit the number
of public sector employees to 50 per cent of the number agreed upon
before the genocide. The new government complied.
Initial financial assistance provided by the US and Belgium in late
1994 went towards repaying the Habyarimana regime's debt arrears
with the World Bank. Financial aid from the West is trickling into the
country. Yet the country's needs are enormous: it must rebuild itself
and provide for the more than 800,000 refugees on its soil since
November 1996.
According to David Woodward's report for Oxfam, agricultural
production did recover somewhat in 19 9 6. However, it is 3 8 per cent
lower than usual first harvests and 28 per cent lower than usual
second harvests. Industry is taking a longer time to recover: only 54
of 88 industrial concerns in operation before April 1994 have
renewed activity; most are operating well below previous levels. At
the end of 1995, the total value of industrial production was 47 per
cent of its 1990 levels.
A 20 per cent wage increase in the public sector in January 1996
was the first such rise since 1981; official estimates, however, are that
80 per cent of public sector workers live below the poverty line. It
comes as no surprise that Rwandans prefer to work in NGOs as
drivers and cooks rather than in the public sector. These poverty
statistics are not peculiar to the public sector: in 1996, the World
CASE STUDIES/217
Bank estimated that 85-95 per cent of Rwandans lived below the
threshold of absolute poverty.
Worthy of note is the major increase in the number of households
run by women: from 21.7 per cent before the genocide to 29.3 per
cent now, with peaks of 40 per cent in some districts. Their situation
is particularly disturbing in view of the profound discrimination
against women in such matters as inheritance, access to credit and
property rights. Even before the genocide, 35 per cent of women
heads of households earned less than 5,000 Rwandan francs ($17)
per month; the corresponding figure for men was 22 per cent.
In spite of a high rate of adoption of orphans (from the genocide
and AIDS deaths), there are between 95,000 and 150,000 children
without families.
In the education system, only 65 per cent of children are enrolled
in primary schools; and no more than 8 per cent in secondary schools
(Woodward, 1996).
One statistic tells the whole tragic tale: average life expectancy in
Rwanda fell from 42.3 years in 1960 to 23.1 years in 1994 (UNDP,
1997).
Beginning in 19 9 8, Rwanda is expected to repay S15 5 million per
year to its creditors - mainly the Bretton Woods institutions.
Is it right that survivors of the genocide should be forced to pay for
the arms used to commit the crime?
16
The Asian Crisis and its

International Repercussions
The world's stock markets have been unstable since late October
199 7. Those stocks that had generally registered major gains in
recent years have dropped in value. No clear tendency can as yet be
detected. The representatives of triumphant neo-liberalism -
governments, financiers, the heads of the World Bank, IMF and the
Bank of International Settlements, and stock market commentators
- are putting on a brave face but it is clear that they are worried.
Confidence in the future is the watchword, they say.
But where did this crisis come from? Did the IMF forecast it? Who
will pay for the damage that has been done?
CHECKMATE FOR ASIA'S FOUR 'DRAGONS'

In April 1997, a major economic and financial crisis broke out in
Southeast Asia. It began in Thailand in February 1997, spreading
from July onwards to Malaysia, Indonesia and the Philippines. These
four countries had not long before been cited by the IMF, the World
Bank and private banks as the models to emulate owing to their high
degree of openness to the world market, their low rate of inflation and
their high rates of growth. They were Asia's four 'dragons', engaged
in a race to catch up with the regions four 'tigers' (South Korea,
Taiwan, Hong Kong and Singapore). Today, the very same institu
tions now criticise these countries for having given the state too
strong a role; they accuse the state of having allowed private financial
and industrial concerns to accumulate exaggerated levels of debt and
to speculate.
218
THE ASIAN CRISIS AND ITS INTERNATIONAL REPERCUSSIONS/219
In the five years running up to the crisis, the external debt of these
countries had more than doubled. The 1997 crisis unleashed a
renewed explosion of debt, suddenly making it very difficult for the
countries to meet their financial obligations. Taiwan and China are
exceptions to the rule, but for how long? Growth in the 'dragon'
countries (Thailand, with a population of 60 million; Indonesia with
203 million; the Philippines with 73 million and Malaysia with 20
million) was driven by an inflow of foreign capital, by the importation
of goods and machinery and by low salaries. This soon led to the
appearance of two negative factors. First, the external debt - largely
in the form of short-term loans contracted on the financial markets
- grew rapidly; second, the trade deficit continued to rise. Indeed,
imports were systematically higher than exports. In other words, the
productivity of these countries remained structurally lower than that
of the industrialised countries with which they were trading. The
four 'dragons' have retained the characteristics of Third World
economies and therefore suffer under the effects of unequal trade.
The relative price of their exports is lower than the relative price of the
goods they must import in order to reach their growth targets and
satisfy the consumer demands of the wealthiest sectors of the
population. It is only these layers of the population that have the
necessary purchasing power to buy high-quality consumer goods. A
large sector of the population did not benefit from the fruits of growth,
which explains why the gap between rich and poor within the
countries in question actually grew in size, in spite of an overall
increase in the national income. Now that the crisis has struck, the
richest sectors of the population continue to amass riches while the
majority of the population - including most in the middle classes -
have seen their income plummet. This will only serve to accentuate
the characteristic features of an 'underdeveloped' economy.
Thailand was the first country to plunge into crisis, its money being
pegged to the dollar (which was not the case for the other three
'dragons'). The Thai bhat therefore kept in step with the dollar, which
had strongly risen in value. This made Thai exports much less
competitive, provoking capital flight. The three other 'dragons' were
dragged down by the Thai collapse.
Thailand is the fifth most indebted Third World country in absolute
terms, just behind Brazil (population 170 million), Mexico
(population 90 million), China (population 1.2 billion) and South
Korea (population 45 million).
The Global Stock Market Crisis

The crisis was not limited to the four 'dragons'. In October 1997, it
hit Hong Kong hard and began to undermine South Korea. It
deepened the economic crisis already affecting Japan. By late October
and early November, all the world's stock markets were shaken (see
Box 7). The big institutional investors - pension and mutual funds,
insurance companies and banks - panicked in the face of the
monetary and stock market instability (for which they are largely
responsible). They deepened the crisis by selling off some of their
shares to convert them into liquidity or to buy bonds from
governments in the most industrialised countries. These bonds were
seen as safe havens, although their yield immediately dropped in
response to the flood of money in their direction. Capital flight out of
Southeast Asia began in early 1997; the scale of this flight forced the
'dragons' progressively to devalue their currencies relative to the
dollar from July onwards. The outward flow of capital eventually
affected Hong Kong - the main stock market in the Third World and
the sixth biggest in the world. The bourgeoisies of Latin America had
hoped to attract this outflow of investment from Asia into long-term
investment in Latin America, but this was not to be. On 2 7 October,
the Mexico City, Sao Paolo and Buenos Aires stock markets - the
three main financial centres in Latin America - crashed simulta
neously. By December 1997 the Mexico City stock market had
recovered, but for how long? The crisis spun out of control; all the
world's stock markets plummeted on 2 7 and 28 of October. As for the
four 'dragons' - under the combined effects of the huge devaluation
of their currencies, emergency loans from the IMF, World Bank, other
financial institutions and some governments - the weight of their
external debt has increased dramatically. Now that the two
American credit-rating agencies, Moody's and Standard and Poor's,
have downgraded the country-risk rating of the 'dragons' and South
Korea, these countries have to pay very high short-term interest rates
in order to contract loans aimed at paying off past debts.
The Social Costs in Southeast Asia and the Knock-on

Effect in the Industrialised Countries
Beginning in the summer of 1997, the economies of Southeast Asia
have seen a significant fall in industrial growth. How long will the
crisis last? It is best to avoid random forecasts. Nevertheless, it looks

as if there will be zero and perhaps even negative growth in 1998.
The four 'dragon' countries' 350 million inhabitants have seen their
purchasing power come tumbling down. According to the World
Bank, by early 1998, 2.3 million Indonesians had lost their jobs
(International Herald Tribune, 12 January 1998). One million
Malaysians and 1.7 million Thais were in the same position. We are
in the early stages of large-scale social catastrophe.
BOX 7 CHRONOLOGY OF THE CRISIS

February 1997: capital flight from Thailand begins
2 July 199 7: first devaluation of Thai bhat
August 1997: IMF announces rescue package for Thailand. IMF
package accompanied by harsh austerity measures.
Stock market performance: between January and August 1997,

stock markets continued to climb in the United States, Europe,
Hong Kong and Latin America. Japanese markets stagnated, and
in August 1997 markets in the four 'dragons' crashed.
October 199 7: stock market crash in Hong Kong and a number of

other markets (the term 'crash' is usually used to describe a drop
in share values of more than 10 per cent in a single session).
27 October 1997: generalised fall on world stock markets. New

York, down 7.2 per cent (554 points down). Trading stopped twice
on Wall Street. Sao Paolo, down 14.9 per cent; Mexico City, down
13.7 per cent; Buenos Aires, down 13.3 per cent; Toronto, down
6.1 per cent; Hong Kong, down 13.7 per cent (or 33.4 per cent in
eight days); Tokyo, down 4.3 per cent; London, down 8.4 per cent;
Frankfurt, down 11 per cent; Madrid, down 14 per cent;
Amsterdam, down 8.7 per cent; Paris, down 9.1 per cent; Brussels,
down 1.2 per cent; Manilla, down 6.3 per cent; Seoul, down
6.6 percent; Taipei, down 6.9 percent; Sydney, down 7.2 percent;
Shanghai, down 7.2 per cent; Auckland, down 12.5 per cent;
Moscow (October 28), down 21.1 percent.
December 1997: South Korea accepts IMF conditions

15 January 1998: Indonesia accepts IMF conditions
Depreciation of Asian currencies against the dollar between 2 July

1997 and 8 January 1998: Indonesian rupiyah, down 80 per cent;
South Korean won, down 96.5 per cent; Thai bhat, down 8 7.4 per
cent; Malaysian ringgit, down 78.5 per cent; Filipino peso, down
70.5 per cent; Singapore dollar, down 21.5 per cent; Japanese yen,
down 15.5 per cent; Indian rupee, down 11 per cent.
The slowdown in the industrial growth of the 'dragon' countries

will lead to a drop in their imports from the industrialised countries,
whose economies will suffer as a result. The effect on each industri
alised country will be proportional to the amount of exports they had
been sending to Southeast Asia prior to the crisis. The Asian countries
affected by the crisis (including South Korea) took in no less than 19
per cent of US exports in 1996. Japan, the US, Holland and Germany
will be more seriously affected than France. But since 60 per cent of
French and Belgian exports go to Germany, they will both be
seriously affected none the less.
A Failing Grade for the IMF

The IMF had sworn that it would never again be caught off guard by
a financial crisis characterised in particular by the massive outflow
of capital from a given country. Following the Mexican crisis of 1994,
the IMF had established a surveillance system for each country's
national economy, aimed at eliminating the possibility of another
Mexico-like crisis. But this system proved to be worthless. The IMF's
Annual Report of the Board of Directors for the year ending 30 April
199 7, was written up during the summer of 199 7, while the
Southeast Asian crisis was gathering steam, and published in
September. It is a dismal read for a number of reasons. The report
reveals an IMF steeped in illusion about its own ability to pinpoint the
beginnings of a crisis in time.' [We] note that consistent progress has
been made, especially concerning the IMF's ability to detect the
appearance of financial tensions at an early phase' (IMF Annual
Report 1997). The actual course of events soon showed how baseless
these complacent comments had been. The IMF did not foresee the
major financial crisis that hit the four 'dragons'. Worse, in its World
Economic Outlook, written during autumn 1997, the IMF did not
foresee the crisis that would hit South Korea, the world's eleventh
strongest economy, in November 1997. The IMF's pronouncements
recall a well-known French song from the depression era 19 3 Os, 'All
is well, Madame la Marquise'. In it, the maid-servant replies to the
marquise's question about the state of her castle, 'Your castle is
burning to the ground, but all is well.'
IMF president Michel Camdessus constantly changes his
explanation for what is happening. He has become a champion of
political and diplomatic doublespeak. At a press conference held at
IMF headquarters on 18 December 1997, he said that the IMF had
underestimated both the danger and scale of the crisis. Yet in Brussels
on 21 January 1998 he blamed the crisis on the leaders of the
countries affected. He accused them of not having heeded IMF
warnings! He added, 'If we had been able to act six months earlier, the
crisis in South Korea would never have happened' (Le Soir, 22
January 1998). What nonsense!
The IMF and the Asian 'Dragons'

It is worth recalling that beginning in the 1980s both the IMF and the
World Bank had pointed to the four 'dragons' as models to be
emulated by all Third World countries, and even by those of Eastern
Europe. This posture was maintained right up until the outbreak of
the crisis.
On the subject of Thailand, the 1997 Annual Report includes a
summary of a working meeting held between the IMF and Thai
officials in 19 96. According to the report, the external debt had risen
sharply between 1991 and 1995, going from 3 9 per cent to 49.5 per
cent of GDP. Furthermore, it says, half of this external debt was
contracted on a short-term, high-interest basis; and the trade balance
was increasingly in the red. The report highlights other reasons for
concern. Nevertheless, it draws the following balance sheet: 'The
governors enthusiastically praised Thailand's remarkable economic
performance and its strict application of sound macroeconomic
policies. They noted that financial policy had been tightened in 19 9 5
in response to the increase in inflation and in the current account
deficit; and that these measures had begun to bear fruit although
they warned the Thai authorities against being complacent' (IMF
1997 Annual Report).
Indonesia also earned IMF kudos. 'The governors congratulated

the Indonesian government for their country's economic
performance in recent years, in particular for the significant
reduction in poverty and improvements in a wide range of social
indicators ..." (IMF 1997 Annual Report). Further on, IMF governors
praise Indonesia for prioritising 'the free circulation of capital',
although just before they highlighted some of the dangers this
entailed. 'Massive capital inflow has raised a number of challenges for
the government', the report says. The analysis continues with praise
for the Indonesian authorities, indicating that they would handle the
new challenges with comparative ease. 'One of the ingredients of
Indonesia's success has been the flexibility with which the authorities
have adapted economic measures to changes in the situation. This
will be an essential asset for tackling new challenges' (IMF 1997
Annual Report).
As for Malaysia, the report contains the following passage:
The governors congratulated Malaysian officials for their

country's ongoing remarkable economic performance, charac
terised by robust export-oriented growth, low inflation and
noteworthy social progress in the reduction of poverty and
improvement of income distribution. Sound macro-economic
policies and broad structural reforms have boosted these results.
(IMF 1997 Annual Report)
Soon after, once the crisis began, these very same Thai, Indonesian
and Malaysian officials became the targets of criticism from the IMF
and neo-liberal ideologues. Malaysian Prime Minister Mahathir was
a particular source of irritation to the IMF for a number of reasons.
From late July 1997 onwards he denounced the criminal role of big
speculating financial institutions; he criticised the IMF and refused its
assistance; he visited Fidel Castro in September 1997; and his
country hosted the G15 Summit in the autumn of 1997, bringing
together the main countries of the Third World in a (sadly) failed
attempt to put pressure on the governments of the industrialised
countries.
As previously stated, one of the main causes for the crisis in the
'dragon' countries was a high growth rate based on a massive inflow
of foreign capital and on a level of imports that consistently exceeded
the value of exports. This led to an increasing current account deficit,
accentuated by the rise in the value of the dollar in 1996 and 1997.
These countries pursued a low-wage and high-interest policy aimed
at attracting foreign direct investment and speculative capital. This
policy created a distorted domestic market in which only a small
wealthy minority enjoyed high levels of consumption, and in which
speculative investment exploded in sectors such as real estate.
Financial and industrial concerns in the 'dragons' all took on high
levels of debt to undertake ma] or development pro] ects and to engage
in speculative investment practices. Local banks and brokerage firms
made huge loans without requesting adequate guarantees from their
debtors. When the vanguard among international and local financial
speculators - with George Soros's Quantum Fund in the lead -
determined that governments would be unable to defend their
currencies, they unleashed their attack, starting with the Thai bhat.
The first round of attacks proved to be a success, a wave of panic
selling followed; the local capitalists that could were quick to offload
their local currencies in exchange for dollars, which they invested in
safer markets far away. For this reason, Mahathir's condemnation of
international speculators is inadequate. He covers for local capitalists
who behaved in exactly the same way, sheltering their capital from
turbulence in the region. The Malaysian prime minister seems more
interested in finding a scapegoat to redirect the population's anger,
and thus to protect the region's homegrown capitalists. Indeed, like
his Thai counterparts, he seems to have found another category of
scapegoats - the large number of migrant workers both countries
have decided to expel.
The crisis has awoken the region's governments to the disadvan
tages that come with a massive inflow of volatile capital. This inflow
feeds a speculative financial bubble and pushes up the value of the
local currency (due to the enormous quantity of strong currencies in
circulation on the domestic market). An example of the change in
thinking in the region came from Cesar Bautista, the Filipino Minister
of Commerce and Industry. While not jettisoning his neo-liberal
creed, he made revealing statements in his 13 January 1998
interview with the French newspaper Le Monde. Asked, 'Do you think
that five years ago you should have let the peso fall below a rate of 3 0
to the dollar as some were suggesting? Could you have averted the
crisis by abandoning your policy of maintaining higher interest rates
than those of your neighbours?', he replied: 'Our currency was never
pegged to the American dollar. We always let the market determine
the exchange rate. The problem was - and the same goes for other
countries - that the market was functioning abnormally due to the
excessive influx of dollars. When dollars flood into your economy,
your currency is probably overvalued.' Further on, Bautista engages
in self-criticism. 'We should have applied much stricter measures
over the last two years, to control the enormous influx of American
money. We could track portfolio investment more closely, we should
also encourage these funds to make a longer-term commitment to the
country by penalising short-term speculative operations.' But for the
moment, the IMF remains hostile to such measures.
The IMF and the South Korean Crisis

The crisis thundered into South Korea in November 199 7. In its
October 1997 quarterly bulletin on economic prospects for the
coming two years, the IMF makes absolutely no mention whatever
of the crisis that would hit the world's eleventh most powerful
economy a few days later.
After the fact, the IMF did exactly the same thing as the army of
neo-liberal editorialists and economists. Having praised South Korea
to the heavens until 1996, it changed its tune overnight. The South
Korean system, it now said, was based on too much overlapping
between state employees and institutions, financial establishments
and industrial houses. These financial and industrial establishments
form huge conglomerates - the chaebols - that finance political
leaders in exchange for continued economic privileges.
The neo-liberals also criticise South Korea for maintaining a highly
protectionist arrangement, an overly strong public sector and a social
welfare system seen as too favourable for workers.
Is it true that the South Korean government opposed liberalisa
tion? Definitely not. For proof, one need go no further than a report
filed by an IMF mission sent to the country in November 1996 and
the minutes of the debate between IMF leaders that followed the trip.
Here are some excerpts:
1. On the question of the elimination of tariff barriers and other

obstacles to imports. 'Since 1994, the authorities have progres
sively dismantled obstacles to imports and reduced tariffs in
accordance with the Uruguay Round agreement. The granting of
import licences has become automatic, except for a small number

of items that threaten public health and safety' (IMF 1997).
2. On the question of privatisation. 'Over the last ten years, the
authorities have partially implemented two different programmes
of privatisation of state-owned companies. The programme
adopted in December 1993 set out to privatise 58 of 133 state-
owned companies in the 1994-1998 period. By mid-1996, 16
companies had been privatised'.
3. On the liberalisation of capital flows. 'IMF governors were also
pleased with the recent liberalisation of capital flows. While some
governors backed a progressive approach to reforms in this field,
a number of others feel that rapid and wide-ranging liberalisation
would be very advantageous at South Korea's current level of
economic development.'
The IMF report on South Korea concludes, 'the board of directors

was pleased with the broadening of structural reforms, especially as
concerns the labour market and privatisation. These reforms should
boost productivity gains and ensure the competitiveness of the South
Korean economy' (ibid.). Finally, from early 1997 onwards, IMF
governors backed South Korean government plans to reform the
labour code to make it easier to lay off workers.
What Were the Causes of the South Korean Crisis?

South Korea's industrial development is more advanced and began
long before that of the four 'dragons'. Some South Korean multina
tionals had even managed to compete head-to-head with powerful
companies from the advanced industrialised countries in a number
of sectors (computer semiconductors, automobiles, shipbuilding,
industrial goods). South Korea's share of the world market continued
to grow until 1996.
The South Korean development model was in many ways the
antithesis of the neo-liberal model. It involved a radical agrarian
reform in the 1950s, industrialisation fostered and protected by the
state, military dictatorship and repression of the trade union
movement, followed by significant concessions to labour in the face
of powerful working-class mobilisation. After the Japanese, South
Korean workers have the highest wages in Asia.
The Causes of the South Korean Crisis Belong to Three

Distinct Categories
First, the country experienced a decline in the terms of trade, between
the relative value of its exports and that of its imports. In 1996-97,
the volume of South Korean exports rose by 3 7 per cent but brought
in only 5 per cent more revenue. The dollar value of South Korean
exports dropped by about 15 per cent in 1996 and 12 per cent in
1997. The weakening of the Japanese yen made Japanese exports
more competitive. South Korea was also confronted with competition
from China and the four 'dragons', whose competitiveness was linked
to a low wage policy. Finally, South Korea had carved out a
specialised niche for itself in the production and export of semicon
ductors, and therefore was hit hard by the fall in prices.
Second, South Korea had grown increasingly dependent on the
recent and massive inflows of foreign capital in its most volatile form
- portfolio investment and short-term loans. In order to compensate
for export losses, South Korean firms took out huge short-term loans
in expectation of an economic recovery that never came.
Third, South Korean employers failed in their attempt to make
workers pay for losses suffered in export markets. They tried to tackle
industrial workers (whose wages had risen at an annual rate of 16
per cent between 1987 and 1996), by getting the government to
rush through a reform to the labour code in late December 1996, in
the absence of the parliamentary opposition. This measure provoked
a general strike, which was victorious inasmuch as the workers
obtained a two-year moratorium on layoffs.
Under the combined effects of the Southeast Asian crisis, the
continued rise in the value of the dollar and depreciation of the yen,
the accelerated outflow of volatile capital from the country (which
had begun in earnest in the spring of 1997), the eleventh most
powerful economy in the world was plunged into a major crisis -
placing it at the mercy of the IMF and the US. The Seoul stock market
plummeted 6 7 per cent between 11 August and 17 December 1997;
the South Korean currency lost 96.5 per cent of its value against the
dollar between 2 July and 8 January 1998.
IMF-Imposed Structural Adjustment in South Korea,

Thailand and Indonesia
A thoroughgoing structural overhaul is underway. A number of
financial establishments have been shut down, there have been
extensive layoffs, the central bank has been made Independent of the
government (making it easier for the IMF to exercise its influence
over it), interest rates have skyrocketed (sinking local industry and
consumer spending into recession), major investment projects have
been abandoned, the big South Korean conglomerates (the chaebols)
are being dismantled, the South Korean labour code is being reformed
to allow for extensive layoffs, and Indonesia has abandoned its
ambitions in the aviation and automobile sectors. These countries
have been plunged into a deep recession.
Governments have been placed under the supervision of the IMF,
the World Bank - and the G7 countries, particularly the US. They
must make regular reports to their overseers, who can at any time
threaten to stop the flow of loans that the countries need to pay back
private creditors. This represents nothing less than a loss of national
sovereignty.
The loans provided by the IMF, the World Bank and private banks
all include a risk premium tacked on to the market interest rate
(except for a small number of the World Bank loans, which target the
most vulnerable sectors of the population). These institutions will
make huge profits. IMF head Michel Camdessus recognised as much
at a press conference given on 18 December 1997. The tens of
billions of dollars contracted in loans were immediately used to pay
back the banks and other international financial institutions. Every
single one of the contributors to the so-called rescue package will be
paid back, thanks to the countries' export revenues and savage cuts
in public spending. Tax revenues will also go towards paying off the
external debt.
Openings for foreign investment (with no limit on the repatriation
of profits) will clear the way for American, European and Japanese
multinationals to buy up Asian companies at rock-bottom prices. The
IMF convinced South Korean officials to allow foreign companies to
acquire 100 per cent ownership in South Korean companies.
International financial institutions will now be able to return to the
region to invest a part of the funds they had previously withdrawn in
a panic. George Soros acknowledged having withdrawn his funds
from the region in 1997, yet he was welcomed back to the country
like a visiting dignitary by the new South Korean president, Kim Dae-
jung, who promised he could pursue his lucrative interests in the
country. The new president announced that foreign investors were
welcome to buy up the 71 institutions that make up the country's

domestic financial sector.
Hong Kong and China

The crisis in the region has also affected Hong Kong and reduced the
influx of capital into China. Capital flows into China had already
dropped by 5 0 per cent during the first half of 19 9 7 compared to the
previous year. In 1996, China had attracted more than half of total
foreign direct investment (FDI) destined to East and Southeast Asia. It
took in S42 billion, the four 'dragons' took in SI7 billion, while
Singapore tookin S9 billion thatyear. (Forpurposes of comparison, all
of Latin America took in only S 3 9 billion in FDI that year. Worse, India
attracted only S2.5 billion, the same as Hong Kong.) It is very likely
that the drop in FDI China registered in 19 9 7 will continue in 19 9 8.
If China finds itself faced with a dramatic fall in the inflow of foreign
capital, it will have to reduce its imports. This could have a depressive
effect on the world economy.
In its desire to keep its exports competitive with those from the
'dragon' countries, whose currencies have significantly dropped in
value, China will be tempted to devalue its currency. It might desist
from doing so in order, on the one hand, to avoid sharpening its trade
disputes with the US, which consistently registers a strong trade
deficit with China and accuses it of unfair trading practices. On the
other hand, such a devaluation would be seen as an admission of
weakness by global markets, and would tarnish the country's image
in the eyes of foreign investors.
Furthermore, before the outbreak of the crisis, Chinese officials had
adopted a programme of large-scale privatisation for 19 9 8. Will they
stick to this plan in a context where all their competitors are
privatising, thereby driving down the price (and therefore the pri
vatisation revenues) of the companies for sale?
Finally, China's growth rate has begun to weaken.
Recessionary Effects Throughout the Third World?

The first Third World countries to be affected by the crisis will be those
whose main revenues come from the sale of raw materials. Prices for
these raw materials have dropped considerably, since the countries
of East and Southeast Asia are major importers of these products.
Those Third World countries who depend heavily on exports of a few

raw materials will be hit harder by the Asian crisis than will the most
industrialised countries. Take the example of copper. Asian countries
are major copper importers. What will be the impact of the drop in
copper prices on Chile, which receives much of its revenue from
copper exports? The negative effects could be particularly dramatic
given that Chile has recently invested in an increase in its copper
production capacity.
Second, countries like Mexico and Brazil hope to profit from the
Asian crisis by being the new Shangri-La for global investment flows.
Their reasoning is simple. Funds fleeing Asia have gone in various
directions. They have gone into bonds issued by the governments of
advanced industrialised countries in order to finance payment of
their public debts. They have gone into short-term loans with interest
rates that are particularly high due to 'country-risk' premiums. In
this second category, large quantities of investment flooded into
Mexico from Asia, primarily in 28-day government paper with an
option to renew. Suffice it to say that this is highly volatile money.
How long will it stay in Mexico? Who can prevent it from suddenly
picking up and leaving - much to the chagrin of the Mexican
authorities - if greener pastures appear elsewhere? Finally,
investment fleeing Asia has inundated emerging-market stock
markets, primarily the Mexico City stock market. But for how long?
In any event, such a hefty influx of capital leads to an over
valuation of the recipient country's currency, thereby cutting its
competitive edge. If exports drop, the country can become less
attractive, leading to an enormous outflow of capital, which causes
a dramatic decline in the value of its currency. Is this not one of the
vicious circles of financial globalisation?
A third point should be taken into consideration. Asian countries'
exports have become more competitive following the devaluation of
their currencies. Will this not create problems for the exports of other
Third World countries? Indeed, will these other countries not see
their markets 'invaded' by Asian products competing with domestic
merchandise?
There is a fourth point. Myanmar (Burma), Vietnam, Bangladesh
and other countries in the region depend on the remittances
regularly sent by migrant workers in the 'dragon' countries. Yet the
authorities in the 'dragons' are planning a massive expulsion of these
immigrants. What consequences await the poorest Asian countries?
And in the 'dragon' countries themselves? Are we headed for a

programmed escalation of 'inter-ethnic' conflicts?
India and Pakistan Spared Thanks to Protectionism

In its 1997 report, the IMF celebrated globalisation. 'The governors
agreed that globalisation has contributed to global prosperity' (1997
Annual Report). It once again warned those governments that might
seek to control capital flows and partially protect their economies.
'The threat of marginalisation increasingly hangs over those who
resist globalisation' (ibid.).
This assertion has also been refuted by real life. India and Pakistan,
the two giants of South Asia, have not yet been seriously affected by
the financial storm in Southeast Asia. Pakistan and India are experi
encing serious economic problems (Pakistan devotes 40 per cent of
public spending to servicing its external debt), but the relative
slowness with which they have embraced globalisation has protected
them from the speculative domino effect. Far from 'marginalising'
them, the maintenance of protective barriers and controls on capital
flows, as well as the slow pace of privatisation, have shielded them
from the constant attempts at destabilisation that they must face.
Japan and the United States

The Japanese crisis has been so serious that the country's
government and capitalists have been unable to implement measures
that might stabilise the East and Southeast Asian situation. Rather,
the US - with the IMF in tow - have taken control of the situation.
When demanding that Japan clean up its financial house, the IMF
has had a difficult time concealing a certain arrogance towards the
Japanese authorities (for example, Michel Camdessus's press
conference of 18 December 1997). Thanks to a strong dollar, US
multinationals are better placed than the Japanese to buy up
companies in a region hitherto dominated by Japanese capital. US
multinationals are also looking to boost their hitherto weak presence
in Japan.
Japanese capitalists have one way of putting pressure on the
American authorities - they hold one-third of all US Treasury Bonds.
If they were to decide to sell a part of these holdings to provide some
liquidity for their financial system and to buy up companies in the
region, this would create serious problems for the Americans. Indeed,
it would increase global financial and monetary instability. It is
unlikely that Japanese capitalists will want to bear responsibility for
such an outcome.
Lastly, the US has a strong military presence in the region (particu
larly in Japan and South Korea), and they have shown no intention
of changing this state of affairs.
WHO WILL PAY FOR THE DAMAGE DONE?

A cynical editorial in the 5 January 1998 edition of the Financial
Times claimed, 'Profits are for private owners while losses, when suf
ficiently large, are covered by the taxpayers.' International bankers
are asking the South Korean authorities (and those in the 'dragons')
to nationalise the astronomical short-term debts contracted by
private South Korean firms. This is exactly what happened during the
1980s Latin American debt crisis. Adopting the same posture as they
did during the Latin American crisis, private bankers are threatening
to cut off all loans to Asia - to South Korean capitalists in this case -
if the South Korean government does not step in for private
companies through a public bond issue aimed at paying off their
debts. The Financial Times editorial continues,
Creditors who granted high-risk loans will be saved - first by the

IMF, then by South Korean taxpayers - for the simple reason that
they and their debtors are too big to be allowed to go bankrupt. To
add insult to injury, some creditors are going to make a fortune.
No further comment is needed, except perhaps to point out that

this process will accelerate the tendency towards a reliance on
financial markets for credit. Until now, Asians had preferred to
contract direct short-term loans, now they will have to issue bonds
on international financial markets.
A DOUBLE STANDARD ON BAIL-OUTS

In their talks with Asian governments that approached the IMF for
assistance, the IMF and American officials conditioned their aid on
the shutting down of a large number of badly managed financial
institutions. Need we recall the way in which, during the 1980s,

American officials organised the Savings and Loans bail-out to the
tune of some S 200 billion doled out by the federal government? Does
IMF head Michel Camdessus, from France, recall the S20 billion bail
out of Credit Lyonnais? In Asia, however, financial institutions in the
same position are being forced into bankruptcy - at which point
banks from the wealthy industrialised countries will be able to snap
them up for a song.
ARMS SALES
The official line of the IMF is that Asian countries engulfed in the
crisis have to undertake drastic cuts in state budgets, especially in the
area of arms spending. As is often the case, reality is very different
from the IMF's hypocritical posturing. South Korea and the four
'dragons' are the main customers of American arms dealers. In the
14 January 1998 edition of the International Herald Tribune, Steven
Lee Myers of the New York Times writes about how US Secretary of
Defense William Cohen 'is seeking ways to maintain the military
orders' placed by the countries in crisis. In January 1998, close on the
heels of Michel Camdessus and US Treasury representative (and
former World Bank head) Larry Summers - making their tour of
Asian countries subjected to IMF austerity conditions - was another
delegation following exactly the same itinerary. It was led by William
Cohen, accompanied by Todd Crawford from the US Treasury. South
Korea wants to cancel its order for AWAC planes, and Thailand
wants to cancel its order for eight F/A 18 fighter jets. The US,
however, wants Malaysia, Thailand, South Korea and Indonesia to
maintain their orders, and has offered a special source of financing to
this end.
CONTRADICTORY REACTIONS IN THE UNITED STATES

A Warning from Henry Kissinger
In early January 1998, the former US Secretary of State Henry
Kissinger threw a spanner in the works of the US delegation led by
Larry Summers just as it was about to begin its diplomatic rounds in
Asia. In a piece in the 12 January 1998 edition of the International
THE ASIAN CRISIS AND ITS INTERNATIONAL REPERCUSSIONS/23 5
Herald Tribune, Kissinger said that the US was behaving as though it

intended to recolonise Asia. He warned against an overly arrogant
and aggressive approach, which could provoke an anti-American
backlash in the region. He wrote, 'We must ensure that economic
realities do not provoke a wave of nationalism and perhaps anti-
Americanism, which would mean that the cure is worse than the
illness'; adding: 'We should avoid using this opportunity to recolonise
Korea.' Kissinger may well be on to something.
Other American Points of View

In the 12 January 1998 edition of the International Herald Tribune,
David Hitchcock, a former US diplomat with considerable experience
in East Asia, wrote: 'For the moment, Asians seem to be blaming their
own leaders, bankers and businessmen. But if harsh economic
measures lead to further bankruptcies and layoffs, their anger might
cross the Pacific'
Finally, in the 16 January 1998 edition of the International Herald
Tribune, the number two Democrat in the US House of
Representatives, David Bonior, criticised the IMF rescue package. 'We
must provide aid. But this aid should not be a rescue package for
bankers, speculators and repressive dictators [sicl]. We cannot
support a rescue package that strangles working people, ignores the
causes of instability and then asks the American taxpayer to foot the
bill.' He said that the US contribution to the IMF package should go
towards expanding democratic rights, increasing salaries and
improving Asian living conditions.
In all respects, the US has strengthened its position as a result of the
crisis. The various aforementioned warnings will probably have little
impact on US policy and on that of the IMF, which the US controls.
The US government and American businesspeople clearly feel they
have more to gain than to lose by taking their economic and political
offensive as far as possible. They want to expand their presence qual
itatively in the Asia-Pacific region, at the expense of Japanese
imperialism and of those countries subject to IMF conditions -
primarily South Korea and Indonesia. Countries such as the
Philippines, Thailand, even Vietnam, are already under US control to
all intents and purposes.
THE IMF BAILS OUT THE SPECULATORS AND

STRENGTHENS THE AMERICAN HAND
On 22 January 1998 Stanley Fischer, an American citizen and
number two at the IMF, gave a report to US bankers on the IMF
response to the crisis. He said there were two possible responses.
When the crisis hit, we could have let it deepen and given a lesson
to international lenders. The alternative is to try to moderate the
effects of the crisis on a regional and global level in a way that
spreads the burden between borrowers and lenders. However, we
cannot rule out undesirable side-effects. This latter approach
makes more sense. The general interest, and therefore the interest
of the United States, is reliant upon a strong Asia that can import
and export in a way that drives world growth. ('The Asian Crisis:
A View from the IMF', IMF press release, 22 January 1998)
Although a little more subtle than is usually the case, the

statement clearly reveals how the IMF has once again played the role
of protector of the interests of the big international financiers. The
IMF refused to teach them a well-deserved lesson. Furthermore,
Fischer leaves no doubt that, in the IMF's view, what is good for the
United States is good for the world.
SOME FINAL QUESTIONS

1. The Asian model, often described as the Asian 'miracle', no longer
exists. Michel Camdessus and others have declared this publicly. Did
this model - in particular that of the four 'dragons' - ever create the
conditions for long-term human development in the countries of the
periphery? Or rather, did it not reproduce in its own way the charac
teristics of dependent countries, dominated by the capitalist centre?
If the Asian model is 'out of fashion', to quote Michel Camdessus,
what do the high priests of the IMF and World Bank, and the plethora
of neo-liberal development experts, have in mind as a replacement?
What is the way forward for poor countries now?
2. As far as the IMF, the World Bank and 99 per cent of the world's
governments are concerned, the worst thing to do would be to limit
the free flow of capital. On the contrary, it should be freed up even
more. French president Jacques Chirac, an expert in the art of self-

contradiction, has also said as much. Passing through Malaysia in
November 19 9 7, he met with Prime Minister Mahathir and declared,
'Excessive speculation must be controlled.' It seems logical that
speculation can only be controlled by placing strict limits on capital
flows, but Chirac had a response at the ready. 'I am naturally not in
favour of exchange controls or limits on capital movements. The free
circulation of capital is now a rule everyone accepts' (Le Monde, 18
November 1997). Yet, once again in the history of the last two
centuries, we have clear proof that the free circulation of capital is a
powerful catalyst for crises. Even if the IMF, World Bank, Bank for
International Settlements, the US Federal Reserve, and the German
Bundesbank were to unite their efforts, they would be unable to
discipline capital movements - unless, of course, new restrictive
legislation was put in place. But these institutions are opposed to such
measures. The IMF and those that run it (the G 7 countries, multina
tional corporations) have plainly shown that, whatever they may
say, they are the cause of this and other crises, and not the cure. IMF
head Camdessus even had to admit this, albeit discreetly, during his
negotiations with the Indonesian president Suharto. It was the
closing down of 16 Indonesian banks decreed by the IMF in
November 19 9 7, he agreed, that had provoked a panic and deepened
the crisis. He was obliged to offer an apology to the old dictator before
he would sign the agreement with the IMF on 15 January 1998. If
indeed the Asian model is 'out of fashion', is the free-circulation-of-
capital model not out of fashion, too?
3. If inter-ethnic troubles erupt in Indonesia, the Philippines,

Malaysia and Thailand, will world economic and political leaders
continue to refuse to see the link with the current economic crisis?
Will these events merely be chalked up as 'undesirable side-effects'?
17
Towards an Alternative
We can now turn our attention to the task of examining and debating
possible alternatives. Some of the proposals in this final part of the
book actually stem from ideas put forward by social movements in
various countries. They originate either in the deliberations of the
social movements themselves or from the work of different
researchers and international organisations. This is not an all-
inclusive programme, nor should it be seen as a proposal to accept or
reject en bloc. They are suggestions, alternative avenues for debate
and reflection. At best, they are a collection of necessary-but-insuffi
cient conditions for charting a path forward. The angle of attack is in
keeping with the analysis provided thus far. The issues addressed are
thus: the burden of the Third World debt for the peoples of the South;
North-South relations; 'power'financial deregulation; the evolution
of revenue distribution in favour of the holders of capital; and unem
ployment. This section of the book is addressed to those directly
involved in the struggle for change.
PRIORITY NEEDS AS THE STARTING POINT

The Third World
According to official documents from UNICEF, the UNDP and the
World Bank (UNDP, 1994), about S90 billion over ten years would
be enough to:
Provide basic medical care for all, vaccinate all children,

eliminate extreme malnutrition and reduce non-life-
238
TOWARDS AN ALTERNATIVE/239
threatening forms of malnutrition by half, cut in half the

mortality rate for children under the age of 5.
Each year, 10 million children die from easily curable
diseases or hunger before the age of 5.
Cost: $5-7 billion annually for ten years.
Guarantee universal access to drinking water.
1.3 billion people do not have access to safe water supplies.
Cost: S I 0 - 1 5 billion over ten years.
Reduce adult illiteracy by half, guarantee universal primary
education, bring female illiteracy down to the rate found
among men.
Cost: S5-6 billion over ten years.
ON A WORLD SCALE
Guaranteed Employment for All
In the North, the debate over the reduction of working time is in full
swing. If carried out in a radical and generalised fashion, with no loss
in wages, such a reduction can be a powerful measure for providing
employment for all.
An explicit objective must be that of abolishing unemployment,

which is the main mechanism for social discrimination of the worst
sort. All the debates about the end of waged labour, and the
wonders of free time and a well-rounded lifestyle, are no obstacle
to this objective. Indeed, these matters cannot be properly
addressed as long as so many are excluded from the terms of the
debate. This is why a generalised reduction of working time is
pivotal for finding an egalitarian solution to the social crisis.
(Husson, 1996)
This kind of project raises the need for workers' control to ensure
that such measures are applied in full and that the pace and organi
sation of work are not changed to the detriment of the workforce. This
means implementing a universal ban on overtime and work speed
up, and other restrictive measures.
In the South and East, the reduction of working time is also a
priority. Aside from making a step in the direction of social justice,
this measure would also mean giving a boost to the flagging

domestic market.
Guaranteed Access to Land

'Land to the tiller' is as relevant a demand as ever. For much of the
Third World, land is the key question for ensuring sustainable and
socially just development. On the eve of the twenty-first century,
guaranteeing individual or collective access to land and the means to
put it to good use (low-interest loans, infrastructure, transport and
communications) remains a central goal. Significant agrarian reform
is essential in a number of countries. To take just two highly
populated countries, India and Brazil, tens of millions of landless
peasants have a stake in such reform. Providing the ways and means
for working the land to those who want to do so, is also a way to stem
the rural exodus to the sprawling urban monsters of the Third World.
This is also a way to slow the increase in the size of the industrial
reserve army of labour. This in turn would reduce downward
pressure on industrial salaries in the countries concerned, and indeed
on an international level. The matter of access to land also continues
to be relevant in a number of countries of the North.
Women's Liberation
Women are the first victims of austerity policies, in both the South
and North. Enduring oppression in patriarchal society, women are
also directly hit by attacks on job security, wage levels and social
programmes. Such attacks further restrict their participation in
economic, social and political life. To ignore the major contribution
of women's work, however, would mean scuttling the very idea of
development. The UNDP's 1995 Report estimates at S16.000 billion
(SI6 trillion) the value of human activity not accounted for in the
current wage system. This is equivalent to just under 70 per cent of
annual world production, officially calculated at S23.000 billion.
Of these SI6,000 billion, SI 1,000 billion correspond to the
'invisible' contribution of women. One major objective is acknowl
edging this contribution and, above all, ensuring that it is reflected in
the way social power is shared between men and women.
Throughout the nineteenth and twentieth centuries in the industri
alised countries, it was only after fierce struggles for social rights - in
which women played a central role - that women began to reduce the
gap that prevented them from enjoying full equality with men. Now
that the World Bank itself is cynically promoting women as capitalist
trailblazers, it is crucial that women in the North and South fight for
their emancipation based on an agenda that they themselves decide.
Who can Implement the Measures Needed to Fulfil these

Priority Objectives?
Can the Bretton Woods institutions do so? The G7? The financial
markets? The multinationals?
Is it not risky to rely on them? Would it not be wiser to look towards
those 'from below', towards the vast array of social movements in the
North, South and East that are putting up resistance to the decline in
living conditions for the overwhelming majority of the world's
population? Should we not also turn to political institutions
(parliament, government, and so on) and those holding office to
demand that they apply policies that make a radical break with neo-
liberalism?
This raises the question of political power. How is it wielded? How
and by whom is it controlled? What choices are made? How? Based
on what interests? What institutions are needed to apply which
policy?
Should the relevant authorities not apply restrictive measures
against the powerful few that have led humankind into a downward
spiral for living conditions (including environmental conditions) and
democratic rights?
Why do politicians renege on their responsibilities to their voters
and more or less actively give themselves over to the imperatives of
profit maximisation?
Frangois Chesnais hits the nail on the head when he writes:
It is difficult to see how humanity will be able to avoid measures

involving the expropriation of capital. New methods for doing so
will have to be invented, keeping in mind all the lessons of the
twentieth century. It may well be that we have once again under
estimated both the flexibility of the current system of domination
and the talent of those who run it. As far as a few basic objectives
are concerned, events may indeed prove otherwise but it seems
unlikely that the G7 governments will soon re-establish their
control over financial markets and tightly regulate them. Or that

they will cancel the Third and Fourth World debt. Or that a
significant majority of companies in OECD countries will agree -
thanks to the mere intellectual persuasiveness of the measure - to
reduce the length of the working week to 3 5 or 3 0 hours. As a result,
this book aims at contributing to the debate among those 'from
below' and all those who identify with them. (Chesnais, 19 94)
As for the IMF and the World Bank, can these institutions be
reformed? There is reasonable cause for doubt. Should they not
instead be replaced by other bodies established to regulate capital
transfers? By other bodies established to provide low interest loans
that are not linked to monetarist, neo-liberal conditionalities - and
that are instead aimed at restoring to the countries of the periphery
a part of what was stolen from them? Should humankind not create
international institutions with which the peoples of the world truly
identify? Institutions in which national delegates would debate the
major questions facing the world in full public view (with radio and
TV coverage)? Institutions in which the GNP and military might of a
handful of countries - or one country alone - would not be the
deciding factor?
At the very least, those interested in seeing immediate improve
ments must debate what intermediate measures could be taken right
away to lessen the burden of the heavily indebted poor countries
(HIPCs). Two specific proposals follow.
IMMEDIATE MEASURES CONCERNING THE DEBT OF THE

POOREST COUNTRIES
The value of the IMF's gold reserves is estimated to be at least S40
billion. Proceeds from the sale of 10 per cent of these reserves would
be enough to cancel the debt to the IMF of the poorest countries, most
of which are in sub-Saharan Africa. The IMF's statutes should be
amended to 'authorise' it to write off debts; this would have an
immediate effect on its loans to the HIPCs.
In addition, the World Bank has reserves totalling more than S14
billion. These reserves have grown considerably over the last ten
years, since profits made on Third World debt repayment exceed new
loan disbursements. By spending 35 per cent of these reserves, the
World Bank could wipe out the debt owed to it by the poorest
countries. These reserves account for only 16 per cent of outstanding

loans. The World Bank would still have S9 billion in reserves. Such
a measure would not disrupt the Bank's operations. The World
Bank's statutes should be amended to allow it to write off debts; the
total cancellation of the debt of the poorest countries could
immediately improve the lot of some 300 million people.
As for private banks, since 1982 they have managed to restructure
their portfolios. On average, Third World debt accounts for less than
5 per cent of their outstanding loans. These banks have taken in more
than was their due thanks to interest on arrears. They have also
made provisions for bad loans; in most countries of the North, they
received tax write-offs for these provisions. It seems only natural that
they should now write off the remaining outstanding loans. A similar
approach should be adopted by other financial institutions that have
outstanding loans to Third World countries.
FINANCING SOCIAL NEEDS WORLDWIDE

The Third World
The Cancellation of the Debt
The Third World debt totalled SI,940 billion at the end of 1995
(OECD, 1996). Although hair-raising at first sight, this figure
accounts for only 10 per cent of total worldwide debt. It should also
be kept in mind that we are dealing with debt contracted by countries
representing 85 per cent of the world's population! The industrialised
North, with only 15 per cent of the world's population, is much
deeper in debt than the Third World.
As for sub-Saharan Africa, things are even more clear-cut. Its debt
accounts for only 1 per cent of worldwide dollar and hard currency-
denominated debt, while its population (590 million people)
represents more than 10 per cent of the world's population. These
countries shoulder the greatest burden in terms of human suffering
in order to meet their debt payments. Debt-servicing costs sub-
Saharan Africa more than four times the total amount allotted for
health and education budgets.
Cancelling these countries' debt, especially in the case of sub-
Saharan Africa, would not disrupt the world economy in any way.
Refusing to cancel the debt, however, is akin to refusing assistance to
an entire population in mortal danger.
In general, the Third World debt should be totally and uncondi

tionally cancelled. This debt has already been paid back in many
different ways.
Jean-Claude Willame has raised an interesting question that
tackles the problem from a political and moral standpoint. 'Is this not
in many ways an "odious" debt?' He reminds us of a principle of inter
national law defined in the 1920s:
If a despotic regime borrows money, not in accordance with the

needs and interests of the country but in order to strengthen its
hand and put down resistance from its people, the debt is odious for
the whole of the said country's population. Such a debt is not
binding on the nation; it is a debt owed by a regime, a personal debt
owed by those that took it on. As a result, such a debt disappears
along with the regime to whom the money was loaned. (Willame,
1986)
The Expropriation of the Foreign Assets of Dictators

Turning the clock back to zero is one thing. Ensuring that developing
countries have the means to leave their problems behind them, quite
another.
Five, six, seven billion dollars, the equivalent of the country's

external debt. During the National Conference, there was a lot of
heated debate in Kinshasa and any number of guesses as to the size
of the president's fortune. Everyone quoted the World Bank
estimate that the assets of Zairian citizens abroad totalled more
than 10 billion dollars, while the country's foreign debt was less
than nine billion dollars. (Braeckman, 1992)
Such figures are well known and must also be taken into account
when determining who is responsible for what. The colossal fortunes
of Mobutu and other dictators were built through outright theft from
the people of their countries. Confiscating these fortunes held abroad
- mostly in the countries of the North with the complicity of the banks
and even some governments - goes hand-in-hand with cancelling
these countries' debts. Indeed, there can be no question of letting
dictators off scot-free. Tough measures must be implemented to freeze
and expropriate their assets, to eliminate in one fell swoop their
credibility, their power and their ability to strike back. The foreign
assets of dictatorial and corrupt regimes must be returned to the
people of the country in question, in the form of national development
funds democratically controlled by grassroots organisations. In
1997, the question was squarely posed after the fall of the Mobutu
regime. Would Mobutu's entourage live abroad comfortably from a
fortune built on theft, embezzlement and murder? If Mobutu's assets
were frozen and expropriated, to whom would they go? To lenders in
the North, with the IMF and World Bank first in line? Or to the
Congolese people?
Nationalisation/Socialisation of the Domestic Assets of

Dictatorial Regimes
Debt cancellation turns the clock back to zero. The expropriation of
ill-gotten gains - dictators' (and their entourage's) holdings abroad
- would provide the ideal basis for a development fund. To this fund
should be added the wealth accumulated by these predatory regimes
within their own borders. A proper register of these holdings must be
established. The regime's physical wealth (not just financial) should
also be placed at the disposal of the development fund. This fund is
essential for undertaking constructive projects aimed at satisfying
the real needs of the population, and for setting up a host of social and
environmental programmes.
Making Fraudulent Capitalists Pay their Fair Share

Holders of capital from the South hold large sums of money in foreign
accounts. They have enriched themselves on the backs of their
people, through out-and-out theft and/or through organised capital
flight. A proper register of domestic and foreign-held wealth must be
established. This means that officials in each country, under the
pressure of the social movements, must take legal steps to demand
that banking secrecy be lifted at both national and international
levels.
These same officials must determine how much wealth is involved
and who controls it. To do so, they can also send commissions of
enquiry to private foreign banks. With this information in hand,
governments can establish what tax penalty should be imposed to
ensure that state coffers receive all taxes due.
Since those with assets abroad also hold domestic assets, their
domestic wealth can be frozen as long as the tax penalty is not paid.
If the penalty is never paid, a part of the person's domestic assets can
be confiscated and transferred into the public domain.
Similarly, in order to calculate special wealth taxes (not to be
confused with tax penalties) foreign assets have to be taken into
account.
A Redistributive Monetary Reform

A redistribution of wealth can also be achieved by means of
appropriate monetary reforms. Without going into too much detail,
one model is the kind of monetary reform carried out after the Second
World War by the Belgian government - or, on the other side of the
planet and in more recent times, by the Nicaraguan government in
1985. These reforms sought to tax those who, in particular, had
accumulated wealth through speculative operations. Such a model
is relevant in countries such as Congo-Kinshasa (former-Zaire) that
have to be rebuilt following the overthrow of thoroughly corrupt dic
tatorships. In the case of Congo-Kinshasa, however, the IMF and the
World Bank, intent on dictating their own conditions to the new
government, are strongly opposed to such a reform. As for the
government of Laurent Desire Kabila itself, it has decided to honour
the debts taken on by the Mobutu dictatorship. There is good reason,
therefore, to doubt its willingness to undertake a redistributive
monetary reform.
On a World Scale
The Wealth Tax Proposed by UNCTAD
In its 1995 annual report, the United Nations Conference on Trade
and Development (UNCTAD) proposes that a one-off non-renewable
wealth tax should be levied to reduce budget deficits.
Wealth taxes are levies on the estates of holders of capital; they can
be imposed the world over.
Global Finance: The Tobin Proposal for a Tax on International

Transactions
James Tobin - former adviser to John F. Kennedy, Keynesian
economist and 19 81 Nobel Prize winner for economics - has shown
that every day more than 90 per cent of international financial trans
actions are purely speculative (and therefore non-productive)
operations. According to the Bank of International Settlements (BIS),
in 1995 these transactions totalled SI,400 billion every day. It is
calculated that a 0.5 per cent tax on such transactions would bring in
SI,800 billion in its first year. This measure of basic social justice
would have such a dissuasive effect on speculation that the windfall
would drop off dramatically after the first year. But the exercise reveals
that it is indeed possible to acquire badly needed funds. Such a measure
would also shore up the autonomy of national monetary policies.
Tobin calls for a proportional tax, imposed on all international
currency transactions. The tax would apply at both the time of sale
and the time of purchase, whatever the purpose of the operation
(commercial or financial). Initially, the tax was meant only for up
front transactions. However, since there would be too many ways to
get round such a tax, it is clear that the tax would also have to apply
to other types of transactions - whether up-front, futures, options,
currency swaps or other types of exchange transactions.
The tax would be levied at one rate the world over, to avoid the
transfer of speculative activities to competing marketplaces and
countries. The different national governments would collect the tax
for all operations carried out within their territory, whatever the
currency used.
The tax would curb speculation because the total tax collected is
inversely proportional to the length of time the asset is held. The
shorter an investor's position, the more quickly the total tax collected
increases automatically. For example, a 0.5 per cent tax levied on a
two-day-long operation produces the equivalent of a 517 per cent
annual tax. For a seven-day-long operation, an annual equivalent of
68 per cent. For a month-long operation, 13 per cent. Three months,
four per cent. Three years, 0.3 per cent. Ipso facto, a surtax on purely
speculative transactions.
OTHER PRIORITIES AND SUBJECTS FOR DEBATE

The Ecological Dimension
Criticisms of World Bank and IMF activities have highlighted the
ecological disasters these institutions have helped unleash on both a
local and global level. Any serious alternative must keep in mind the
environmental dimension. We are told that the only kind of growth
that matters is increased consumption and/or production. An eco

logically sustainable model, however, has to make a clear distinction
between an increase in market consumption and genuine
improvement in the quality of life. Following the Rio Conference in
1992, the World Bank was put in charge of managing the Global
Environment Facility (GEF). The negative consequences of this
perverse decision were immediately apparent. No real progress has
been made towards meeting the objectives set by the Rio Conference.
The summer 1997 New York evaluation meeting served to reveal the
huge obstacles that have been created in this respect, especially by
the US government.
Intellectual Property Rights

The protection of intellectual property rights - in particular, those of
Third World peasants - is another objective to be pursued as part of
any alternative policy agenda. Over the centuries, Third World
peasants have been the ones to produce (by process of selection) the
very wealth of the soil that multinationals are now stealing from
them (Shiva, 1994). As though it were not enough for big agrobusi
ness firms to make off with the genetic maps of these agricultural
organisms, they also patent them and demand royalties be paid in
exchange for use.
High Value-Added Production in the South

As for other kinds of production - high value-added - Third World
countries should be free to manufacture the whole range of such
goods. The approach of the new World Trade Organisation (WTO)
works against this freedom. In the face of pressure from the US, for
example, it has put up a number of obstacles to the development of
the pharmaceutical industry (in India and Colombia, for example)
and the computer hardware industry (in Brazil).
Social Clauses. Yes, but Which Ones and How Should

They be Implemented? Might They Become a Pretext for
Protectionism in the North against the South?
On the question of trade, a maj or debate is currently underway on the
desirability of social clauses. Do the proposals that frequently arise
during these debates in the North not carry the risk of heightening
the North's protectionism? The question is important. If the answer
is yes, it would mean that social clauses produce the opposite effect of
what is desired by those who see such clauses as a way to improve the
lot of super-exploited workers (who are often child labourers). There
is not enough space to go into all the different arguments. Above all,
there has to be an honest debate between the social movements in the
North and South (Horman, 1996 and 1997). A key point in this
debate would be the indirect control over production wielded by the
big marketing and distribution firms and the big network companies
(such as Nike, Reebok, Adidas and Benetton). These multinationals
have found a perfect way to sidestep their legal obligations in the area
of labour rights and working conditions (Petrella, 1995).
Protectionism in the South, Partial De-Linking and

South-South Trade
It is quite natural that the countries of the periphery should want to
satisfy the priority needs of their citizens and, to this end, pursue a
policy of strong economic growth (especially in industry) and protect
themselves from the world market - from the North in particular. The
overwhelming majority of modern nations have applied strict pro
tectionist measures at key moments in their history. They have done
so to lay the groundwork for and accelerate economic growth. A few
examples are Britain, the US, Japan and, until early 1998, South
Korea. Partial de-linking from the world market is, therefore, entirely
legitimate. In the face of the breakneck speed with which interna
tional deregulation has taken place over the last 20 years, debate on
this question has been put on the backburner. It must return to
centre-stage.
Trade and complementarity also have to be developed between the
countries of the South themselves. Put simply, these countries must
seek to organise forms of coexistence between their differentiated
zones in such a way as to avoid marginalisation and outright
exclusion. This means setting up a system of 'gateways and sluices'
- in short, regulations or a form of protectionism - so that small
peasants in the South are not forced overnight into stiff competition
with ultra-competitive agrobusiness multinationals in the North
(who are usually subsidised to boot). This protectionism must be
pursued as a method for organising the different zones of the world
economy. The goal is not autarchy but regulation - to stabilise

exchange rates, to ensure trade contracts over long periods of time,
to guarantee prices, to de-link interest rates from the going market
rate, and so on.
The Arms Trade

It is pure hypocrisy to claim that cancelling the Third World debt
would be catastrophic for the world economy. It is a way to obscure
the need for lasting solutions that necessarily involve a challenge to
wealth and privilege. Such lasting solutions do indeed exist, this book
has made recommendations in this regard. A large body of literature
has already made the case for another such recommendation: the
need for a drastic reduction in the arms trade.
The overwhelming majority of arms are manufactured in the
industrialised countries of the North. Through generous export
credits, the countries of the North press Third World countries to buy
arms - whatever their hypocritical pronouncements to the contrary
might suggest. The US, for example, is currently making a pitch to the
countries of Latin America to modernise their military hardware,
especially their air forces. A major reduction in arms spending and
steps towards total disarmament would produce a huge peace
dividend to be shared out in everyone's benefit. Efforts aimed at
finding the funds for genuine development cannot overlook demands
for total disarmament and the reconversion of war industries.
Indispensable Complementary Measures

If they are to produce the desired results, the core solutions put
forward thus far must be accompanied by a series of further
measures.
These are:
the establishment of authentically democratic governments.

This means free elections, the freedom of assembly and of
expression, the right to demonstrate and strike; respect for and
promotion of the whole array of cultural expression present
within a country's borders;
the restoration of full political and economic sovereignty;
the end of 'export-only' policies and a return to food security

based on the development of a strong agricultural sector;
the increase in government social spending;
the development of the redistributive role of the state through
a system of progressive taxation;
the establishment of vast public works programmes serving the
interests of social justice and the environment. Examples are
urban development, renovation of existing housing, rail-based
public transport, large-scale irrigation wells, to name a few.
Such programmes need considerable labour, which should be
hired with decent contracts that respect national and interna
tional conventions on workers' rights.
the launching of literacy, vaccination and basic healthcare
campaigns, such as the kind that produced extraordinary
results in Nicaragua between 1980 and 1983 and in Cuba
during the first phase of the Revolution.
International Measures
The modification of the terms of trade; an increase in the price

of products exported by the Third World to the world market
(which does not mean that consumers in the North will auto
matically pay higher prices); refusal to uphold the GATT/WTO
agreements; rejection of the Multilateral Agreement on
Investment (MAI);
the planned transfer of the wealth of the countries of the North
towards the countries of the South, to compensate for the age-
old exploitation to which the peoples of the South have been
subjected.
These two latter measures go hand-in-hand with the cancellation of

the Third World debt, the global implementation of a tax on interna
tional financial transactions and a drastic reduction in the
manufacture of and trade in arms. These measures can only be
carried forward by a grand intercontinental movement. They are
beyond the reach of the political institutions of one or even a number
of isolated countries.
18
Globalising Resistance
THOSE WHO SAY GLOBALISATION IS UNAVOIDABLE

SHOULD REALISE THAT THEY CAN BE BYPASSED OR
OVERTHROWN
Neo-liberal thought nurtures the idea of inevitability. The system
that exists must exist because it exists. Globalisation in its current
form cannot be avoided, everyone must fall into line.
This is a recipe for mysticism and fatalism. Any serious study of
history reveals that nothing is 'irreversible'. Take finance, for
example. At the beginning of the twentieth century, the free flow of
capital made possible by the gold standard, and free trade guaranteed
by treaties on trade and investment, seemed irreversible. The First
World War put an end to all that. In the 1920s, the omnipotence of
financial markets seemed just as irreversible as it does now. The 1929
crash and the long crisis that followed forced governments to monitor
banking and financial activities closely. At the end of the Second
World War, the governments of the main victorious capitalist
countries agreed to set up bodies to regulate global finance. The IMF,
for example, was established primarily to ensure that this regulation
would be carried out (article 4 of its statutes is very clear in this
respect). Beginning in 1945, a number of Western European
governments carried out extensive nationalisations, including in the
banking sector, in the face of pressure from organised labour.
Neo-liberal theoretical 'certainties' held forth in recent years are no
more valid than those of the liberals and conservatives that held
power in the 1920s on the eve of the financial meltdown. The
economic failure and social disaster created by today's neo-liberals
might well lead to a round of major political and social changes.
252
GLOBALISING RESISTANCE/253
Globalisation is not a steamroller crushing everything in its path.

Resistance is alive and well in many places. Globalisation is a long
way from having created a coherent and harmonious economic
order. There are many contradictions within the Triad - contradic
tions between imperialist powers, contradictions between
companies, social discontent, a crisis of legitimacy of the existing
political system, and growing criminalisation in the behaviour of the
main economic players. Furthermore, there are growing contradic
tions between the centre and the periphery, due to the exclusive
nature of globalisation in its present form. Yet the countries of the
periphery account for 85 per cent of total world population. Those
who believe that these populations will quietly allow themselves to
be marginalised are utterly wrong. As wrong as those governments
in the 1940s and 19 50s that believed their colonial rule in Africa and
large parts of Asia would last for ever. Within the periphery itself,
governments that have chosen a neo-liberal path are experiencing a
growing crisis of legitimacy inside their respective countries. The
ruling classes in these countries are for the most part incapable of
offering credible prospects for progress to the great majority of their
citizens.
Is it unrealistic to expect that the inevitable social discontent will
once again assert itself through broad-based projects for emancipa
tion? Nowhere is it written that discontent must necessarily be
expressed in an inward-looking 'ethnic' or religious manner. Even in
the midst of hellish conditions, such as those found in Rwanda and
Algeria, there are significant forces seeking out progressive solutions.
Action by living, breathing social forces can transform even the
most seemingly inextricable economic and political situation.
More than ever before, any alternative must take into account a
number of different dimensions:
The political dimension. While governments have deliberately

cast aside a part of their regulatory functions, to allow for the
deregulation of capital flows, they can also be pressured into
reinstating these functions. It is a question of political will; if
those in power cannot rise to the task, they can either step aside
or be ousted.
The dimensions of citizenship and class. Those 'from below' and
their organisations - whether from the labour movement born
in the nineteenth century (parties, unions), from other
grassroots movements, or from new social movements born in

the latter half of the twentieth century - must reclaim their
right to intervene in society and exercise control over certain
aspects of public life, to exert pressure on other political and
economic players, and to raise in concrete terms the question
of hands-on political power.
The economic dimension. Economic decisions lie at the
junction of all the other dimensions. Such decisions should be
directed at placing restrictions on capital flows and on those
that control them, the holders of capital.
The recent evolution of capitalism has given renewed urgency to

the debate on new forms of radicalism. Indeed, forms of consensus
and compromise inherited from the past have been swept aside by the
economic crisis and the neo-liberal onslaught.
Although the Fordist social consensus in the North, the develop-
mentalist consensus in the South and bureaucratic control in the East
did not do away with the use of force by those in positions of power -
far from i t - each of the three paths gave rise to genuine social progress
in a number of fields. In fact, compromise was only possible thanks to
this social progress. Yet these compromises have now been split apart
by the current logic of capital and by the paths chosen by the different
governments. In response, there is a need for a new approach that is
anti-systemic and seeks to make a clean break with the current order.
This means that those 'from below' have to become central players in
the fight for change and in the administration of this change once it
begins to take place. Just as important, this means that social
movements have to remain loyal to the interests of those they
represent and that they remain scrupulously independent of the insti
tutions of political power. This can only be obtained by fostering real
forms of internal democracy that give voice to those engaged in the
daily grind of politics, that allow for choices to be made from a variety
of contending approaches, that stimulate the debate on concrete
strategies for attaining a movement's objectives.
CONCERTED ACTION BY WORKERS AND SOCIAL

MOVEMENTS
The neo-liberal offensive is so relentless and wide-ranging that it calls
for a concerted response from workers and the oppressed the world
over. Such a response is mandatory for eliminating unemployment.

Such an objective can only be attained through a generalised
reduction of working time, with no loss in wages and with compen
satory job creation. Concerted action is required to oppose job
dismissals and the transfer of workplaces to other regions and
countries. Workers in the South need support from workers in the
North if they are to obtain wage increases and the trade union rights
that can pave the way for an overall improvement of their living
conditions to levels similar to those that exist in the North.
At present, the labour movement remains the most powerful
springboard for direct involvement in political struggles. It is
essential, though, that those on the margins of the productive process
be closely linked to the labour movement and its activities. All social
movements fighting against oppression, whatever form this
oppression takes, must also be intimately involved in this concert of
resistance.
PESSIMISM OF THE INTELLECT, OPTIMISM OF THE WILL

'Pessimism of the intellect' is essential for taking stock of the scale of
the neo-liberal offensive and the powerful organisation of its
proponents. At the same time, it would be wrong to overlook the
'optimism of the will' that spurs on whole sections of the global
population.
Had this determined and courageous resistance not existed in the
four corners of the planet, the ideologues and driving forces behind
globalisation would have gone much further than they have been
able to thus far. This is an achievement in itself, although far
from sufficient.
BREAKING DOWN THE WALLS OF ISOLATION

It is no secret that the capitalist class keeps the media, especially
television, on a tight leash. It is not in its interest to broadcast images
of struggles in which the oppressed demonstrate their creativity and
courage.
While we may be shown confrontations with the police and army
often enough, very seldom are we given any insight into the struggle
in question, the inventiveness of workers, the resourcefulness of
demonstrators, and details of the initiatives that attained their
objectives. To do so would give ideas to other movements elsewhere;

that element of 'the news' represents a danger for the capitalist class.
On those rare occasions, however, that the media do honestly relate
the intelligence and scale of a movement, there is a tremendous accel
erating effect on the mobilisation itself. The best recent example is
that of the French strike movement of December 1995, which elicited
such a wave of sympathy that the media could not play things down.
By relaying this sympathy so far and wide, the media sparked a
broadening of the movement.
Struggles have not declined in number, there has even been an
overall increase in proportion to the growing number of attacks. Yet
a persistent sense of isolation is one of the most cumbersome
problems encountered by movements of resistance. One of the most
pressing tasks for progressives is to break down these walls of
isolation and work towards a convergence of struggles.
Given the small number of decision-makers on a world level and
the generalised drop in living conditions that they are imposing
around the globe, the struggle of landless peasants in Brazil is at one
with the struggle of Volkswagen workers against their multinational
company. The struggle by Zapatista indigenous peoples for dignity in
the rural areas of Mexico is at one with the strike of American UPS
workers. The struggle by hundreds of thousands of Indian farmers
against G ATT and the WTO is at one with the 'sans papiers' (undoc
umented immigrants) movement in France. The struggle by South
Korean trade unions to defend their social gains is at one with the
campaign by grassroots Christian communities in Congo-Zaire for
the cancellation of Africa's debt. The struggle of the Thai population
against the implementation of a Draconian austerity package is at
one with the popular mobilisation in Belgium against political and
legal institutions unable to halt the sexual trade in children. The
struggle of Algerian women is at one with the people's tribunals in
Argentina that denounce the country's illegitimate debt. The
struggle of Nicaraguan students is at one with Greenpeace
campaigns for the environment. And the list goes on.
Indeed, the struggle of workers at Renault France is at one with the
struggle of their colleagues in Belgium. French Renault workers took
a giant step forward when they organised active solidarity with their
Belgian counterparts. The strategy of multinationals consists of neu
tralising workers at one production site by attacking their colleagues
at another. The struggle of Renault workers in different European
countries in May 19 9 7 showed that this divide-and-rule strategy has

its limits.
The tremors of rebellion can be felt the world over. Wherever one
goes one can find people angered in the face of premeditated
indignity, urged on by aspirations toward a better life, up in arms over
the injustice and violence of a system portrayed as the be all and end
all celebration of the 'end of history'. In many places around the
world, the warlords of neo-liberalism have not gone unchallenged.
Spread the word.
THE PLANET'S OTHER VOICES'

Activists and academics have organised international networks to
take on their common enemy: specifically, the G 7 and the Bretton
Woods institutions; more generally, capital and multinational cor
porations. Progressive movements in Germany set the tone in 1982,
on the occasion of the yearly G 7 summit. Seven years later in France,
a number of social movements, cultural groups and radical left-wing
organisations followed in their footsteps. Indeed, hundreds of
thousands of people protested against the holding of the G 7 summit
just a stone's throw away from the symbolic Bastille on the occasion
of the bicentenary of the French Revolution. They chanted the slogan
'Enough is enough!' Since then, counter-summits have
mushroomed. No major gathering held in the spirit of 'globalisation'
has gone unnoticed. Not Rio in 1992, nor Cairo in 1994, nor the
incongruously extravagant celebrations in Madrid in 1994 for the
50th anniversary of the Bretton Woods institutions. 'Fifty years are
enough!' was the slogan raised by the 'Planet's Other Voices'. This
became the rallying cry for a wide array of movements the world
over, in the US, Canada, South Africa, India and elsewhere. Their
presence was felt at the Copenhagen summit and in Brussels in
March 1995, when the UN ceremoniously turned its attentions to the
question of social development. And again at the G7 summit in
Halifax in June 1995; at the UN meeting on women's future in Beijing
in 1995; in Geneva in November 1995 at a CETIM-organised inter
national symposium on the WTO. At Lille and Lyons in 19 9 6 against
the G7 summit; at Chiapas in 1996 at the first intercontinental
gathering against neo-liberalism and for humanity organised by the
Zapatistas. In Manila in November 19 9 6 on the occasion of the APEC
summit of 18 Asian-Pacific heads of state; at Port Louis (Mauritius)
in April 1997, where 1,200 trade unionists analysed and decried

globalisation in all its forms. Fifty thousand people took to the streets
of Amsterdam in June 19 9 7 in defence of a Europe of open borders
and social justice - on the occasion of the meeting of the European
Council of Ministers, at which further impetus was given to plans for
an anti-social Europe. In Caracas in July 199 7, at the summit of Latin
American countries, to seek out a strategy for the 21st century on the
question of foreign debt. In the Spanish state in late July 1997, at the
second intercontinental gathering against neo-liberalism. In Havana
in July-August 1997 at the 18th World Festival of Youth, where
9,000 young people from around the world told the US government
to 'stuff the Helms-Burton Act where the sun don't shine'. In Hong
Kong in September 1997, social movements organised a counter-
summit on the occasion of the annual meeting of the World Bank and
IMF. In Geneva in February 1998, at an international gathering
against the WTO. In May-June 1998, with the Global March against
the exploitation of child labour, in which delegations from 98
countries participated, and which concluded in front of ILO head
quarters in Geneva. In May 1998, when 60,000-70,000 people
attended a meeting in Birmingham during the G 7 summit, to call for
the cancellation of the debt of the poorest countries. At Cardiff in June
19 9 8, on the occasion of another people's summit against the leaders
of the European Union. And in 1999, with the worldwide Jubilee
2000 campaign in favour of debt cancellation.
A TALE OF SUBVERSION GROUNDED IN DAY-TO-DAY

LIFE
This broad movement, created in response to defining moments in
recent times, is also grounded in real everyday life. Those involved
have met and discussed their experiences, visited one another. This
has fostered a wonderfully human culture of subversion. Our values
are defined in pluralistic terms, for happily, the oppressed do not
speak with one voice. This is why it is essential to bring out 'the
planet's other voices'. Yet our ideas are not those of the oppressors,
our pluralism does not brook submission to the dictates of those who
seek immediate profit and gain. Why on earth should we submit to
their dictates?
Resistance is also boosted by struggles on a national level. Blows
must be dealt to one's own capitalist class in order to weaken the
whole. The French strikes oflate 1995 sparked a political sea-change

whose first upshot, however inadequate, was the defeat of the Right
in the 1997 parliamentary elections.
The organised labour movement is struggling for the generalised
reduction of working time, and for the protection of hard-won social
welfare programmes in industrialised countries and in those
countries of the periphery (in the South and East) where such
programmes were fought for and won.
Instead of staying clandestine, the sanspapiers in France have come
out openly to demand that the government legalise their situation
with the proper documents.
Elsewhere on the planet, the 1994 Zapatista uprising in a
peripheral part of Mexico had a huge impact in the rest of the country.
No clear victory was secured as a result, but the level of conscious
ness throughout the country grew by leaps and bounds, restricting
the ability of the Mexican government to intervene and put down by
force a (reluctantly) armed rebellion. Almost simultaneously, the El
Barzon debtors movement of hundreds of thousands of middle-class
Mexican victims of globalisation, mobilised against the government.
Ever since, there has been an ongoing friendly exchange between the
Zapatistas and El Barzon.
South Korea has been portrayed as a model for emerging from
underdevelopment. Yet in January-February 1997 masses of South
Korean workers took to the streets against the government's neo-
liberal designs. In the US, the working class has faced a series of
crippling defeats since the Reagan era. Yet workers at the multina
tional company UPS (300,000 employees) organised a partially
victorious strike movement that earned the sympathy of a majority
of Americans.
In December 1997 and January 1998, French unemployed
workers shattered their docile image by occupying unemployment
offices across the country. Large numbers of the German unemployed
followed their example soon after, in February 1998. In January
1998, the World March Against Child Labour got under way in the
Philippines, South Africa and Brazil. It travelled throughout the three
respective continents and converged on Geneva in June 1998. In
May 1998, students backed by the Indonesian masses rose up against
Suharto and IMF dictates, forcing the dictator to resign. An
encouraging beginning. The future will reveal whether equally
promising results will follow.
Globalisation has had the positive side-effect of forcing organisa

tions genuinely committed to defending the interests of the oppressed
to link up with other like-minded organisations. Indeed, how can
anyone hope to defend effectively the right to asylum without an
overall view of the situation in the Third World? Or, in the current
situation, how can workers resist the temptation to back 'their'
employer to save a job in 'their' workplace, to the detriment of
workers in neighbouring countries? In short, how can class con
sciousness be sustained? Surely, getting directly involved in debates
and exchanges on an international level is the only solution. How can
an NGO ensure that it remains independent short of linking up with
others in its own country to promote the same demands for social
justice that it raises in far away lands? How can any progress be made
in the fight against exclusion and unemployment without an
ongoing dialogue with the trade union movement?
One often hears the complaint that it is increasingly difficult to
determine exactly who is 'in charge'. The target is no longer the local
boss but rather the board of directors of a multinational company. It
is useless to take on national governments, since the European
Council of Ministers calls the shots. To be sure, it is necessary to adapt
strategy to the changing landscape. But the new forces that can be
harnessed to overcome what is said to be 'impossible' to overcome,
are potentially many times more powerful than before. The key thing
is to be aware of the problems - but also the potential advantages -
of the current situation, and moreover to spare no effort in seeking to
harness this potential. It is important to stress that the need for
determined political will does not imply the stifling of internal debate
within movements. On the contrary, the wealth of social movements
is rooted in their diversity and pluralism. These inner strengths must
be fully protected by ensuring the fullest democracy in relations
between the various component parts of social movements.
Obstacles and New Forms of Organisation

The world over, the labour movement is experiencing a crisis of rep
resentation. The trade union movement and left-wing parties are no
longer seen as the legitimate representatives of their theoretically
natural constituents. The trade union movement is increasingly
unable to defend the interests of workers and their families. Nor has
its approach to the problems at hand succeeded at drawing in the

other social movements.
NGOs, of which a significant number radicalised during the 19 70s,
are also clearly in crisis. Many of them have fallen into line with their
national governments or with the international organisations
(World Bank, UN, UNDP).
This crisis of representation has created deep-seated scepticism
about pro] ects for radical change. S ocialism, to take the most clear-cut
example, has been hugely discredited by the bureaucratic experience
in the so-called socialist camp in the East and by the capitulation of
Western socialists to their own countries' capitalist class.
Nevertheless, social struggle continues and in some cases has
grown more radical. New forms of organisation and consciousness
appear fleetingly, thus far unable to give rise to a new and coherent
programme. Let us not, however, make the mistake of underesti
mating their radicalism. Belgium, that tiny example of developed
capitalism, went through a ma] or social crisis in the autumn of 19 9 6.
The crisis was provoked by the inability of the political and legal
system to put a stop to the sexual abuse and murder of children.
Belgian trade unions were themselves unable to play a direct role in
the crisis, even though their membership base participated actively
in the strikes and street demonstrations.
There are frequent gatherings of representatives of all the 'lesses':
the landless, the jobless, the homeless and the documentless. They
declare loud and clear that the future of the world does not belong to
markets, companies and capital, but rather to each and every citizen
of the planet 'and everyone else'.
Doubtless, social movements have chalked up a long list of failures
in recent years. But the history of struggles for emancipation is not a
matter of adding and subtracting victories and defeats.
Can the crisis of all the various social movements give way to a new
upward cycle of positive experiences and rising consciousness? The
events of recent years provide cause for cautious optimism. The case
for standing on the sidelines is less convincing than ever.
A tiny minority of decision-makers spare no effort to strip the
individual of his or her fundamental rights, to reduce human beings
to the status of just one 'resource' among others; to replace the idea
of society by that of the market; to reduce the creativity and wealth
of labour to one commodity among many; to destroy social
awareness and leave individualism in its stead; to empty politics of all
meaning save that of giving capital and its thirst for immediate profits
control over all key decisions; and to smother culture in the quest for
a 'normal' way of life. The time is ripe for the millions of people and
tens of thousands of organisations in the struggle, to learn to live
together through a recognition of the complementarity and interde
pendence of their projects. To organise and promote the globalisation
of forces for the (re)building of our common future, to broadcast far
and wide a world view rooted in solidarity.
The time is ripe.
BOX 8 AN EXAMPLE OF CONVERGENCE: THE BELGIAN-

BASED COMMITTEE FOR THE CANCELLATION OF THE
THIRD WORLD DEBT
Impressed by the initiative taken by French activists to counter the
1989 G 7 summit, a number of people called on the French writer
Gilles Perrault- one of the spokespeople of the 'Enough is Enough'
movement - to explain the Bastille Appeal and the French
campaign for the immediate and unconditional cancellation of the
Third World debt. At the time, Belgian activists were very much in
the doldrums. Solidarity committees were stagnating; and trade
union mobilisation floundering, subsequent to a number of partial
defeats in various sectors. In such a climate, the February 1990
conference with Perrault was an undeniable success. It provided
an occasion to take stock of wide-ranging enthusiasm for work
around the debt question, however removed this question may
have seemed at first glance from the daily concerns of those
present.
The Belgian-based Committee for the Cancellation of the Third
World Debt (COCAD, or CADTM in French) has been pluralist from
the word go, not only in political outlook (socialist, Christian,
ecologist, revolutionary), but also in its composition (individuals,
trade union sections, NGOs, political parties, various associations).
This is definitely one of the reasons for COCAD's dynamism and
success.
COCAD's pluralist character has been the keystone for setting up
a unitary framework for every initiative, whether for contacting
and cooperating with other associations, for drawing up
statements and petitions, for putting together publications and
dossiers, or for organising public events.
From the beginning, discussion and debate around the debt

issue has gone hand-in-hand with public activities aimed at kick-
starting 'mobilisation'. COCAD participants never saw the
organisation as a mere think tank or study circle. Other groups of
this sort already exist, COCAD has cooperated with them on an
ongoing basis. Since 1990, COCAD campaigns have attracted a
wider and wider spectrum of people. The names of past COCAD
campaigns speak for themselves: 'The Third World Debt Time
Bomb'; 'Third World Debt in a Time of Cholera'; 'While 40,000
Children Die Each Day, Every Minute Counts'; 'Third World Debt:
Necessary Solidarity Between Peoples'. The current campaign is
called 'From North to South, Up to Our Ears in Debt'.
COCAD also functions as an editorial collective. It has helped
draw up a number of platforms and declarations. Madrid 1994,
Copenhagen 1995, Brussels 1995, Chiapas 1996, Manila 1996,
Mauritius and Caracas 1997, are some examples of key events
where COCAD was able to help enrich analytical efforts carried out
in various places around the world. These democratic and organi
sational enterprises are vital for overcoming a sense of isolation
and for working together on a given project with others.
COCAD has always taken pride in its international and interna
tionalist identity. There is nothing surprising about being
'international' when dealing with such issues. Beyond this,
however, COCAD has always seen itself as part of a broader anti-
imperialist movement, as a partisan of a renewed form of
internationalism. Internationalism has taken some hard blows in
recent times, yet it is more urgent than ever before to set it back on
its feet.
While COCAD has been building itself up patiently in Belgium,
at the same time it has directly linked up with movements in other
countries. Whenever possible, activists from other parts of the
world have been invited to COCAD events; COCAD itself has
accepted invitations elsewhere from those who had already made
the trip to Belgium. A number of COCAD sympathisers have often
also made the trip to these events in distant lands, weaving a
stronger web of subversion in the process.
This kind of exchange has actually boosted serious grassroots
activity on the home front. COCAD has always been at the ready
to respond to calls for action, whether from a university professor,
in a local parish's Lenten sermon, from an unemployed workers
group or a long-established solidarity committee. COCAD responds
and always focuses its attention on the need to develop awareness,

understanding of the issues at hand and mobilisation.
Through its work analysing the mechanisms of the Third World
debt, based on an ongoing study of the different players and the
policies they pursue, COCAD has had to broaden the scope of its
work. Talking about frontal attacks against the educational and
healthcare system, privatisation, unemployment and so on in the
Third World, might ring hollow if we are not also able to point to the
results of similar policies implemented at home; and if we are not
able to fight these policies with the same determination even if their
results are not (yet) as destructive as in other parts of the world.
In order to explain the need for a tax on speculative investment
on a world level, for example, we have to raise the question of
taxing wealthy estates in our own countries.
Last but not least, anyone intelligent enough to recognise the
injustice of the Third World debt also has the moral duty to
condemn the public debt in industrialised countries. Indeed, this
public debt is responsible for a similar transfer of wealth from
workers and small producers to the capitalist class.
Which brings to mind an unforgettable public debate between
COCAD and Philippe Maystadt - Deputy Prime Minister of the
Belgian federal government, Minister of Finance and Foreign
Trade, and president of the IMF's powerful interim committee.
Maystadt encouraged COCAD to continue and even to extend its
activities on the international stage. The Third World is so far
away, after all, and its debt amounts to peanuts! His nostrils flared,
however, when the author of this book (representing COCAD)
argued for decisive action against public debt in the North through
the implementation of hefty estate taxes (CADTM, 1998).
COCAD does not seek to take the place of other initiatives. It is
always at the ready to participate in coalitions set up in response
to key events or developments. It was in this spirit, for example,
that it got involved in the European Marches on Amsterdam in
June 1997.
Make no mistake, COCAD's activities fall well short of the
current challenge. There is an urgent need to build an interna
tional movement that is able to analyse the major global changes
currently underway while at the same time acting in response to
new problems. COCAD has provided proof, however modest, that
it is indeed possible to make progress towards the building of just
such a movement.
Chronology: The World
Bank, the IMF and the
Third World
A political and environmental chronology from 1944 to the present day
1944 USA. Founding of the World Bank and the International

Monetary Fund at Bretton Woods, in the presence of
delegations from 44 countries.
1947 Indonesia. The Netherlands receives loans from the Bank
while simultaneously putting down the Indonesian indepen
dence struggle with 100,000 troops.
1956 Washington, DC. The Bank creates the International
Finance Corporation (IFC), which uses government funds for
joint investments with private companies.
1960 Washington, DC. The International Development
Association (IDA) is created as part of the World Bank Group,
to obtain low interest loans for the poorest countries - against
the objections of Third World governments who want a
separate institution for this purpose.
1964 Thailand. The Bank finances the Bhumibol hydroelectric
dam, whose construction leads to the forced displacement of
more than 3,000 people. These people have yet to receive
appropriate compensation.
19 64 Brazil. Having refused to provide loans to the democratically
elected Goulart government, the Bank now offers significant
financing in the wake of a military coup. These loans grow by
265
leaps and bounds until the mid-1970s, by which time they

total some S500 million per year.
1965 Washington, DC. The World Bank launches the Green
Revolution. Following its request for limited food aid to deal
with a drought, India is obliged to overhaul its agricultural
policy, devalue its currency and implement a series of
measures corresponding to the 'Green Revolution'. These
measures include the use of ecologically non-sustainable
agricultural techniques, mandatory export of farm products
and the importation of pesticides and chemical fertilisers. It
is only after implementing these measures that India receives
the requested aid, which it needs for only one season. The
major transformation of agriculture that results from the
Green Revolution has negative effects that are still being felt
(Shiva, 1991).
1965 South Africa. The apartheid regime receives loans from the
World Bank in spite of UN resolutions against such aid. The
World Bank persists in spite of an open reprimand from UN
Secretary-General U-Thant.
1968 Indonesia. The Bank begins loans to the Suharto military
regime, which came to power through a bloody coup d'etat in
1965 that overthrew the civilian government and killed
more than 500,000 people.
1969 Indonesia. The Bank provides financing for the
Transmigration Programmes. These programmes use more
than S500 million to shift millions of people to remote and
sparsely populated islands. The programmes have a
devastating effect on the country's forests. They have a
profoundly negative impact on the lifestyle of numerous
indigenous communities and cause serious environmental
damage.
1970 Washington, DC. For the first time, the Bank takes in more
money in debt payments than it gives out in new loans.
1973 Chile. The Pinochet dictatorship receives substantial
backing from the Bank in the wake of the overthrow of the
Allende government, which had been unable to obtain
World Bank funding.
1974 Washington, DC. Under pressure from the US Congress, the
Bank sets up the Department of Operations Evaluation (DOE)
to analyse the performance of past projects. On several
CHRONOLOGY/267
occasions, the first head of the DOE threatens to resign in

protest against interference from Bank executives in the
independent evaluation of projects.
1976 Pakistan. The Bank finances the building of the Tarbeta
dam, which leads to the forced removal of 300,000 people,
who become homeless.
1978 India. The Bank provides S451 million in financing for the
Upper Krishna dam, which involves the forced removal of
nearly 220,000 people in one of the country's poorest
regions. It has been estimated that the first 100,000
displaced people saw their earnings drop by 50 per cent.
1979 Turkey. The Bank makes its first loan within the framework
of a structural adjustment programme (SAP).
1979 Argentina. The Bank makes the first of three loans totalling
more than S1 billion for the building of the Yacyreta hydro
electric dam on the Parana river between Argentina and
Paraguay. Both countries are controlled by dictatorships at
the time of the first loan, which is spent before building even
begins. Construction lasts more than 15 years, more than
50,000 people are forcibly removed. Corruption is so
extensive that President Menem has called Yacyreta 'a
monument to corruption'.
1979 Philippines. The Bank discreetly withdraws from a project
to build four hydroelectric dams on the Chico river, which
would have involved the forced removal of 100,000
members of the Bontoc and Kalinga tribes. Ambushes of
surveying teams and mass protests and civil disobedience by
the local population - including lying down in front of
bulldozers - lead Prime Minister Varata to declare in 1981:
'One of the four planned dams ... will not be built because the
people are opposed to it.' The experience leads the World
Bank to carry out an internal review of policy on minorities
threatened by development.
1979 Nicaragua. The Bank suspends all loans to Nicaragua in the
wake of the overthrow of the Somoza dictatorship, in place
for nearly 50 years. The Bank only resumes loans to
Nicaragua in 19 9 2, two years after the electoral defeat of the
Sandinistas.
1980 Washington, DC. The Bank establishes its first set of policies
on forced relocation. It requires borrower countries to
provide relocation programmes that ensure adequate com

pensation for displaced people.
1981 Brazil. Bank loans for the Polonoreste project in the Amazon
finance the building of inland roads which pave the way to
massive deforestation and the extinction of indigenous
communities.
1981 Brazil. The Bank's International Finance Corporation (IFC)
invests S8 million in Cobrape, a company in which it is a
shareholder, for a rice-field irrigation project. Since 1984,
more than 100 families of small farmers have been resisting
legal and physical attempts to remove them from their land.
In 1987, they persuade a state prosecutor to lodge a
complaint against Cobrape for sending men to assault the
farmers, destroy fields and property, and force the farmers to
sign away their property rights. In 1986, the NGO Comisao
Pastoral Da Terra draws the IFC's attention to human rights
violations. Yet the IFC has never contact the prosecutor or
the affected parties. In 1992, the IFC discreetly withdraws
from the project after making investments totalling S4
million.
1982 Mexico. Beginning of the debt crisis, whose effects continue
to affect the Mexican people. The crisis turns the World Bank
and IMF into collection agencies for Western governments
and private banks.
1982 Ecuador. A series of Draconian anti-social measures are
taken in response to World Bank pressure. Gas prices are
increased by 120 per cent, flour subsidies are eliminated,
cigarette, beer and automobile taxes are increased, and
public transport fares are boosted by 25 per cent. Reaction is
swift and violent. Ministers are kidnapped, there are strikes
in transport, education and other sectors, riots break out.
The government is forced to back down on a number of
fronts, salary rises are granted to compensate for the rise in
prices, and gas prices are decreased.
1982 Burkina Faso. A 15 per cent salary reduction provokes a
strike of government workers.
1983 US. The NGO campaign on the Bank's obligation to reveal the
social and environmental impact of its activities begins with
two days of hearings at the US Congress. Since 1990, NGOs
in most donor countries work with partners in borrower-
CHRONOLOGY/269
countries to lobby their governments and the Bank for real

reforms.
1984 Zambia. Riots break out in response to a doubling in the
price of flour and corn, caused by the elimination of subsidies.
Government repression causes 15 deaths. The government is
forced to reinstate subsidies.
1984 Burkina Faso. The government cuts teachers' salaries by
25 per cent. Teachers go on strike.
1984 Tunisia. Riots break out in the south in response to a
doubling in the price of bread and semolina. Dozens of people
die as a result of the ensuing government repression. The
Minister of the Interior is forced to resign, the state of
emergency is lifted, bread and semolina subsidies are
reinstated and rent control remains in place.
1985 Latin America. Fidel Castro calls for the non-payment of
the debt and for the establishment of a continental common
front between the countries of Latin America and the
Caribbean.
1985 Ecuador. The government increases the price of petrol by 6 7
per cent and bus fares by 50 per cent to reduce the budget
deficit. The main trade union calls for a two-day general
strike; seven people die in the resulting clashes. Two months
later, there is another wave of strikes and demonstrations.
President Cordero stays in power thanks to military backing.
1985 India. The Bank provides financing for the Sardar Sarovar
dam in the Narmada valley, which threatens to displace
some 200,000 people. Mass demonstrations and court
challenges drag on for years, finally leading to the first
independent evaluation of a Bank project. The Morse
Commission condemns nearly every aspect of the Bank's
involvement in the Narmada project.
1985 Bolivia. Huge price increases in food and petrol lead to 15
days of strikes and riots. The increases are carried out in line
with the structural adjustment programme drawn up and
financed by the World Bank and the IMF.
1986 Zambia. Hunger riots break out in the copper-belt towns, in
response to a 120 per cent increase in the price of basic goods.
President Kaunda declares that the conditions placed on
structural adjustment loans are intolerable.
1986 Brazil. A S500 million loan for an electricity project is used

to complete a dam that damages the Amazonian rainforest
and its inhabitants.
1988 Nigeria. The government eliminates subsidies for kerosene,
used mostly by poor households. The increase provokes riots,
during which six people are killed.
1989 Venezuela. More than 300 people (some place the figure as
high as 2000) are killed during riots against a 100 per cent
increase in the price of petrol and fares for public transport.
These increases are part of a package of restructuring
measures adopted to satisfy conditions for IMF and World
Bank structural adjustment loans.
1989 Ecuador. Further increases in the price of petrol and motor-
vehicle taxes lead to a general strike of bus and lorry drivers.
The president calls out the army to operate public transport.
In November, there are violent student demonstrations in
response to an increase in bus fares.
1990 Worldwide. Despite numerous internal studies showing
that the least expensive techniques are the best for ensuring
energy availability, less than 1 per cent of Bank loans
between 1980 and 1990 go towards improving energy
efficiency and conservation. Of more than S35 billion
in vested by the B ank in hydraulic proj ects between 19 81 and
1990, only 0.4 per cent went into small-scale irrigation
proj ects; 0.6 per cent into water distribution and 2.3 per cent
into conservation. It is universally recognised that small-
scale projects meet the population's needs at the lowest price.
A study from the Ford Foundation says that the Bank is
'wedded to giant-sized projects'.
1990 China. The Bank resumes its loans after an eight-month
suspension in the wake of the Tienanmen Square massacre.
1990 Cote d'lvoire. The government cuts private sector salaries
by 10 per cent, public sector salaries by between 15 and 40
per cent. The measures are met with student demonstrations
and riots, and then strikes by teachers, health professionals
and bank workers. The government is forced to relent. Still,
a general strike is organised with army and police participa
tion, threatening the stability of the regime.
CHRONOLOGY/271
1990 Gabon. In January, ma] or riots erupt following public sector

strikes against salary and job cuts. Fifty people are injured
and 250 are arrested as a result of government repression.
1990 Morocco. Violent demonstrations take place in Fez against
the implementation of the structural adjustment
programme, 100 students are killed by government forces.
Hunger riots have already taken place in Morocco, especially
in Casablanca in 19 81.
1990 Congo. The government cuts jobs and salaries in the public
sector. A wave of strikes forces the government to withdraw
its measures.
1990- Rwanda. The World Bank and IMF finance the Habyarim-
1993 ana dictatorship, which is preparing a genocide. The
massacres are perpetrated during a three-month period
beginning in April 1994.
1991 Thailand. Despite strong opposition from the population,
the Bank begins funding the Pak Mun dam project, which
endangers the Mekong ecosystem.
1991 Lesotho. The Bank provides S110 million for the Highlands
hydraulic project, even though it will flood major archaeo
logical sites, displace shepherds and poor farmers, and
threaten endangered species. Local groups organise
opposition to the project, whose objective is to redirect water
to South Africa.
1991 Honduras. The national electricity workers' union goes on
strike against government plans to privatise the state-owned
company and cut staff in line with World Bank and IMF
structural adjustment prescriptions. More than 700 workers
are dismissed over three months, the trade union disappears.
1991 India. The Bank and IMF provide more than S200 million
for the construction of a 500 MW thermal power station on
territory belonging to an aboriginal community, to provide
electricity to Bombay. Local groups take the Indian company
to the Bombay High Court and the Indian Supreme Court.
1991 Peru. As part of the 'Fuji-shock', prices on fuel and other
basic products are massively increased. According to many
observers, the poorest sectors of the population of Lima are no
longer able to boil their water, leading to new outbreaks of
cholera.
1992 Washington, DC. The Bank's chief economist, Larry

Summers, publishes a confidential report in which he calls for
exporting the North's polluting industries to the South,
which he describes as being 'largely under-polluted'. He sees
this as a rational way to further industrial development while
reducing pollution in the North. Among other things, the
future joint secretary of the Treasury for the Clinton admin
istration writes:
There are no limits on the planet's capacity for absorption

likely to hold us back in the foreseeable future. The danger
of an apocalypse due to global warming or anything else
is non-existent. The idea that the world is heading into the
abyss is profoundly wrong. The idea that we should place
limits on growth because of natural limitations is a serious
error; indeed, the social cost of such an error would be
enormous if ever it were to be acted upon ... In my view,
the economic logic of disposing of toxic waste in low-
income countries is impeccable.
(Better for sickness and death to occur in places where the

loss of earnings is the lowest!).
His conclusion is typical of the Bank's approach to such
matters:
The environment is a critical global problem.

Environmental problems are serious the world over, but it
is only in the poor countries that they maim and kill
millions of people every year, by aggravating all the other
terrible effects of poverty. Any strategy on environmental
problems that slows the growth of poor countries, either
by direct regulation or by market limitation, is perfectly
immoral, (quoted in George and Sabelli, 1994)
1992 Chile. The Bank's International Finance Corporation (IFC)

approves a financial package worth 124.9 million dollars for
the Pangue dam on the Bio Bio river, disregarding two years
of opposition on the local and international levels. In 1993,
more than 2,000 opponents of the dam attend a meeting of
seven Pehuenche communities billed as 'a symbolic act for
CHRONOLOGY/273
the defence of the cultural Identity and lands of Chilean

Indigenous peoples'. In 1995, the Inspection Council of the
World Bank rejects a request to inspect the project, saying
that IFC projects are outside its jurisdiction.
1992 Rio de Janeiro. The Bank is handed the job of managing the
Global Environmental Fund (GEF).
1993 Worldwide. An internal review at the Bank says that 3 7 per
cent of the Bank's projects do not fulfil its own financial
criteria and that 78 per cent of conditions for loans are not
met. Other internal reports concede that more than two
million people have been removed by force to make way for
Bank-financed projects.
1993 China. With human rights violations continuing apace,
China receives a total of S3.17 billion in the year, becoming
the Bank's biggest borrower.
1993 Washington, DC. The Bank finally agrees to set up an
independent Inspection Council, empowered to look into the
complaints of communities severely affected by projects
where the Bank has not respected its own procedures and
policies.
1994 Mexico. The Zapatista rebellion emerges on the first of
January, in response to the coming into effect of the free trade
agreement between Mexico, Canada and the US (NAFTA). At
the end of the year, a financial crisis erupts. The national
currency is devalued by 40 per cent; 850,000 jobs are
eliminated over six months.
1994 India. After persistent local and international protest, the
Bank abandons the Sardar Sarovar dam in the Narmada
valley at India's request, confirming the conclusions of the
Morse Commission. It is recognised that incontestable
human-rights violations had taken place through the contra
vention of planned re-housing measures. The Indian federal
government and the local state government continue to
breach re-housing policies stipulated in the loan agreement.
1994 Worldwide. Ofmore than 6,000 loans proposed by the Bank
administration since 1947, not a single one has been rejected
by the Bank's executive directors.
1995 Papua New Guinea. The structural adjustment
programmes of the Bank and the IMF are the cause of riots,
with the police opening fire resulting in three deaths. The
SAPs aim to open up the PNG economy to exploitation at the

hands of multinational corporations.
1995 Washington, DC. The IMF finally sets up an independent
review unit to oversee its evaluations of the economic
conditions in member-countries. It does so in response to
criticism in the Whittome Report that it had been unable to
foresee the crisis of the Mexican peso in its 1994 economic
report on the country. The original analysis had contained
warnings concerning a situation of 'quasi-crisis', but the
government persuaded IMF officials to water down the
report. Since then, the World Bank and the Inter-American
Development Bank have spent more than S2 billion dollars
to get Mexico's private banks back on their feet.
1995 Nepal. The Bank agrees to withdraw financing from the
Arun dam after Nepalese citizens groups take their case to the
Independent Inspection Council. The Bank president
recognises that the Arun dam is not the kind of project Nepal
most needs, and promises to work on obtaining financing for
alternative projects drawn up by NGOs.
1996 Jordan. Riots erupt in response to the 200 per cent increase
in the prices of basic goods that follows SAP-inspired subsidy
cuts.
1996 Washington, DC. The Bank and the IMF launch an
initiative for the Severely Indebted Low-Income Countries
(SILICs), to make debt repayment more 'bearable' (Toussaint,
1997c). The initiative does not seek to serve the needs of the
populations of the countries in question, but rather to ensure
the smooth flow of debt-servicing payments.
1997 Washington, DC. The Bank creates the Structural
Adjustment Participatory Review Initiative (SAPRI) to
involve NGOs in its SAP review process, thereby taking the
sting out of their criticisms. According to the Bank, 47 per
cent of its projects have NGO participation, while 72 Bank
missions maintain regular contact with local NGOs (1997
Annual Report). Unfortunately, this has not led to a change
in the Bank's macroeconomic orientations. The Bank says
that 29 per cent of its loans targeted the poor in 1997, as
opposed to 32 per cent in 1996. This is a drop of nearly 10
per cent of the share of loans going to the poor.
CHRONOLOGY/275
1997 Uganda. The first country to be targeted by the HIPC

initiative, Uganda's debt reduction is postponed to April
1998.
1997 East and Southeast Asia. On several occasions, the World
Bank and IMF declare in official documents that there is no
threat of a serious crisis in Southeast Asia. This does not
prevent a crisis from erupting in the summer. The IMF
imposes severe austerity packages involving the elimination
of millions of jobs and of subsidies to basic goods. In October,
the IMF announces there is no threat of the crisis spreading
to South Korea. In November, South Korea is hit hard by the
unfolding crisis. IMF president, Michel Camdessus, declares
the crisis to be a 'blessing in disguise' (Liberation, 1 December
1997).
1998 Rwanda. Rwanda is obliged to repay IMF and World Bank
loans made to the former Habyarimana regime (19 73-94) to
buy arms used in the 1994 genocide.
1998 Zimbabwe. Food riots erupt in January against the increase
in the price of basic staples.
1998 Mozambique. In January, the Paris Club announces an 80
per cent reduction in debt from 1999 or the year 2000
onwards - in line with IMF and World Bank promises to
make a positive gesture in the country's direction. If the
reductions are indeed granted, the ratio of total debt to export
revenues will, at 200 per cent, remain unbearable. This is no
solution for one of the planet's poorest countries.
1998 East and Southeast Asia. The 'Asian miracle' is over. Yet
it has been the IMF and World Bank model for 20 years. The
social balance sheet is catastrophic. The IMF and local
governments impose policies implying nothing less than a
sell-off of the countries' national wealth. Who will the next
victims be?
1998 Russian Federation. In August-September the country is
rocked by a ma] or stock market and financial crisis, plunging
it into political chaos.
1998 Eastern Europe. In September, the Russian crisis spreads
into other countries of the former Eastern Bloc (especially
Poland and Bulgaria).
1998 G7. The stock markets of the main industrialised countries

enter a period of tremendous instability, which it will be
difficult to control.
1998 Latin America. The main Latin American countries (Brazil,
Mexico, Argentina and Venezuela), thus far relatively
sheltered from the stock market depression and financial
crisis, once again find themselves on the edge of the precipice.
Glossary
AUTHOR'S NOTE
In this book the following terms are used interchangeably: Third
World, (the countries of) the South, the periphery, the developing
countries. These terms are generally used in contrast to: the Triad,
the main industrialised countries, (the countries of) the North, the
centre, the imperialist countries - also considered as synonymous.
BIS (THE BANK OF INTERNATIONAL SETTLEMENTS)

Founded at Basel as a public company in 1930 to handle German
reparations after the First World War. The BIS manages part of the
foreign currency reserves of the central banks. Its capital of 1.5 billion
francs-or is divided into 600,000 shares mainly underwritten by
European central banks, with the remainder held by private investors
who are entitled to dividends but not votes. The governors of the
affiliated central banks, mainly those of the Group of Ten, meet
regularly to promote good communication and close cooperation.
The federal banks of New York, Canada and Japan regularly send
observers. The BIS plays an important role in gathering data on inter
national banking transactions, published in a quarterly report since
the early 1980s. It is responsible for handling financial risks
associated with the liberalisation of money markets. It also carries out
banking transactions, receiving gold and currency deposits mainly
from the central banks, selling the currency on the markets and
granting loans to certain central banks. Little research has been done
on the BIS, least of all in relation to the IMF.
277
DEBT
Multilateral Debt
Debts due to the World Bank, the IMF, the regional development
banks such as the ADB (African Development Bank), and other multi
lateral institutions such as the European Development Fund.
Private Debt
Loans contracted by private borrowers, regardless of the lender.
Public Debt
All loans contracted by public borrowers.
Rescheduling
Modification of the terms of a debt, for example by modifying the due
dates or by postponing repayment of the capital sum and/or the
interest.
Debt-Servicing
Repayment of interest plus amortisement of the capital sum.
Net Financial Transfer

This refers to the subtraction of debt servicing (yearly payments -
interest + capital sum - to the industrialised countries) from the
year's gross payments (loans) made by the creditors. The net financial
transfer is said to be positive when the country or continent
concerned receives more (in loans) than it pays out. It is negative if
the sums repaid are greater than the sums lent to the country or
continent concerned. Since the mid- 1980s, the IMF earns more from
sub-Saharan Africa than it lends it. The net financial transfer is thus
negative in this region of the world.
FOREIGN DIRECT INVESTMENT (FDI) (TAKEN FROM

CHESNAIS 1994)
Foreign investment can take the form of direct investment or portfolio
investments. Even though it is sometimes difficult to distinguish
GLOSSARY/279
between the two, for reasons of accountancy, jurisdiction or

statistics, a foreign investment is considered to be a direct investment
if the foreign investor holds 10 per cent or more of ordinary shares or
voting rights in a company. This criterion, though somewhat
arbitrary, is based on the idea that such a holding corresponds to a
long-term investment whose holder has some influence on the firm's
management decisions. On the other hand, a foreign investment of
less than 10 per cent is considered as a portfolio investment. Portfolio
investors are not considered to have any influence on the
management of companies they hold shares in. Portfolio investments
cover all bank deposits and financial investments in the form of public
or private securities. The flow of direct investments, to whatever
destination, represents the sum of the following elements:
net capital contributions made by the direct investor in the form

of share-buying, capital increase or the founding of a new
company;
net loans, including short-term loans and advances made by a
parent-company to a subsidiary; distributed profits
(reinvested).
EURODOLLARS
The eurodollar market is said to have arisen, during the Cold War of
the 1950s, from the Soviet authorities' wish to capitalise their dollar
reserves without having to sell them on the American money market.
Nevertheless, in structural terms it was the amount of American
capital outflow which caused the market's spectacular boom in the
second half of the 1960s. The growing deficit of the balance of
American capital during this period results from the combination of
three elements: massive investment in American firms abroad,
especially in Europe; the ceiling imposed on interest rates by 0
regulations, which encouraged foreign loans on the American
market and discouraged deposits in the US; the cost of the Vietnam
War. In 1963 the US authorities introduced a tax on non-resident
borrowing, to slow down capital outflow. The result was a shift in the
demand for financial backing in dollars from the US market to the
European markets, where American bank subsidiaries could operate
more freely. The supply of dollars on these markets came partly from
American institutions and companies discouraged by the very low
interest rates in the US, partly from the central banks of the rest of the
world holding their exchange reserves in dollars. The term
'eurobanks' refers to banks dealing in dollars on European soil, and
by extension, to the 'xenobanks' dealing in any currency outside its
country of origin. Free of state control and the obligation to lay down
reserves, they could offer high returns to their depositors and
competitive rates to their clients without reducing their profit
margins (Adda, 1996).
FINANCIALISATION OF A NATION OR FIRM

The degree of financialisation of a nation or firm is measured by a
simple indicator where the numerator is the financial assets and the
denominator, the financial assets plus the real assets. More precisely,
it may be said that financialisation exists when industrial firms
devote an increasing portion of their resources to strictly financial
activities, often to the detriment of the principal activity. (Salama, in
Chesnais, 1996)
G5
The G5 (Group of Five) came about in 196 7, when the US and the UK
called a meeting of the Ministers of Finance of the top five industrial
countries (Germany, US, France, UK and Japan). The G5 nations still
carry most weight in the G 7.
G7
Germany, US, France, UK, Japan, Italy and Canada. The seven heads
of state generally meet annually in late June, early July. The first G 7
summit was held in 1975, on the initiative of the French president,
Valery Giscard d'Estaing.
G8
Composed of the G7 plus the Russian Federation (since 1995).
G10
Composed of the G7 plus Belgium, the Netherlands and Sweden, the
ten countries which signed the General Agreement to Borrow in
GLOSSARY/281
1962, which has been constantly renewed ever since. Switzerland

became an associate member in 19 76 and is now a full member.
G24
The G24 was created in 1972 by the G77 whose members were
worried at the growing influence of the G10. At first, its main
function was to prepare the developing countries' positions for the
Committee of 20. Since the establishment of the Interim Committee
and the Development Committee, its field of interest has broadened
to include development issues. It is the mouthpiece for the developing
countries, as the G10 is for the OECD countries.
G77
The G 7 7 arose from the group of developing countries which met to
prepare the first UN conference on trade and development (UNCTAD)
in Geneva in 1964. The group provides a forum for the developing
countries to discuss international economic and monetary issues.
GLOBALISATION (TAKEN FROM CHESNAIS, 1997a)

The term 'globalisation' was coined in American business schools. It
refers to the relevant parameters of strategic action of very large
industrial or financial groups. The strategy of such large groups
consists of adopting a 'global' approach and 'global' policies bearing
on Solvent Demand Markets, on the group's sources of funding and
on the strategies of its main oligopolistic rivals. This strategy is all of
a piece with the operations of financial investors and the composition
of their portfolios. It is because of the connotations the term 'global'
has for large industrial groups or large financial investors that the
expression 'globalisation of capital' rather than 'globalisation of the
economy' has always seemed to me the more appropriate. In a public
debate, the president of one of the biggest European groups explained
that 'globalisation' represented 'freedom for his group to set itself up
wherever it wanted, for as long as it wanted, to produce whatever it
wanted, buying and selling with the least possible number of restric
tions as far as labour laws and social conventions were concerned'.
Until recently, it seemed possible to analyse globalisation as the latest
stage in the process of internationalisation of capital, as exemplified
by the large transnational Industrial groups. Today this is clearly no

longer sufficient. The 'globalisation of theeconomy' (Adda, 1996) or
more precisely, 'the globalisation of capital' (Chesnais, 1994) must
now be seen as more than just another phase in the process of the
internationalisation of capital begun over a century ago - or even as
something quite different. We are dealing here with specific and
important new modes of behaviour in world capitalism, and to reach
a better understanding of what is taking place, we must examine the
underlying mechanisms and trends. Points of departure from the
functioning of the main economies, inside or outside the OECD, need
to be considered as a whole, on the hypothesis that they are probably
part of a single system. My own opinion is that they reflect the
passage into a new phase of imperialism (in the terms of the theory
of imperialism developed by the left wing of the Second International
almost a century ago), which differs greatly from the one in force
between the end of the Second World War and the beginning of the
1980s. In the hope that a better description will soon be found
through discussion and, if necessary, heated debate, I refer rather
awkwardly to this new phase as 'the global regime of accumulation
mainly through finance'. The differentiation and hierarchisation of
the contemporary world economy on a planetary scale is as much
the result of concentrated capital operations as of the political rela
tionships of dominance and dependency between states, whose role
is by no means diminished, however much the configuration and
mechanisms of that dominance have been modified. The origin of
'the global regime of accumulation mainly through finance' is both
political and economic. It is only in the neo-liberal jargon that the
state is 'outside' the 'market'. The present triumph of the 'market'
would have been impossible without the repeated political interven
tions of the political institutions of the strongest capitalist states
(starting with the members of the G7). This freedom has enabled
industrial capital, and even more, financial capital, both made
respectable as 'money', to spread their wings as never before since
1914. Of course this freedom is also founded on the strength
regained after the long period of uninterrupted accumulation of the
'boom years' (1950s, 1960s, 1970s) - probably the longest of the
entire history of capitalism. But capital could never have achieved its
ends without the success of the 'conservative revolution' at the end
of the 19 70s.
GLOSSARY/283
GROSS DOMESTIC PRODUCT (GDP)

The GDP represents the total wealth produced In a given territory,
calculated as the sum of added values.
GROSS NATIONAL PRODUCT (GNP)

The GNP represents the wealth produced by a nation, as opposed to a
given territory. It includes the revenue of citizens of the nation abroad.
HUMAN DEVELOPMENT INDICATOR (HDI)

This instrument is used by the UN to estimate the degree of
development of a country, in respect of per capita income, the level of
education and the average life-expectancy of the population.
IMF (THE INTERNATIONAL MONETARY FUND)

The IMF's capital consists of contributions in strong currencies (and
in local currencies) by member countries. According to the size of its
contribution, each member-state is entitled to Special Drawing
Rights (SDR) which are monetary assets freely and immediately
negotiable against the currency of a third state. SDRs are designed to
work in what is known as a short-term economic stabilisation policy,
in order to reduce the country's budget deficit and limit the total
amount of money in circulation. This stabilisation is usually the first
phase of IMF intervention in debtor countries. However, the IMF has
taken upon itself (since the first wave of the oil crisis, 1974-75) to
bring its influence to bear on the productive base of Third World
economies by restructuring whole sectors: this amounts to a longer-
term adjustment policy. It does the same thing with the countries said
to be in transition towards a market economy (Norel and Alary,
1992, p. 83).
INDUSTRIAL FREE ZONE

Geographical area where industrials producing for export are exempt
from paying duty on the production factors they import and to which
certain elements of other national regulations are often not
applicable. (Source: World Bank.)
IMF: distribution of administrators' votes (24)

US 17.82%
Germany 5.55%
Japan 5.55%
United Kingdom 5.00%
France 5.00%
Italy 4.00%
Canada 3.70%
Belgium 5.00%
Netherlands 4.64%
i.e. nine industrialised countries 56.26%
INDUSTRIALISATION BY IMPORT-SUBSTITUTION
This strategy mainly concerns a historic experiment in Latin America
in the 1930s and 1940s, and the school ofthought known as CEP AL
(the UN Economic Commission for Latin America), and especially
work published by the Argentinian Raul Prebisch. The starting point
is the observation that when faced with a drastic reduction in
currency exchange, the main countries of Latin America had
managed to respond to domestic demand by replacing imported
products by the development of local production. The CEP AL theory
holds that this process can be fruitfully extended to all sectors of
industry, one after the other, and thus enable the country to
'disconnect' from the centre. A good dose of protectionism and
coordinated state intervention are expected to promote the expansion
of budding industries. It is a sort of reformist version of the
dependence theory, which relies on dynamic local entrepreneurs
(Coutrot and Husson, 1993, p. 117; Prebisch, 1981; Clairmont,
1987;Ugarteche, 1996).
INTERNATIONAL MONETARY SYSTEM (IMS)

The IMS is a system of rules and mechanisms set up by states and
international organisations to promote international exchanges and
coordinate national monetary policies. The present system was set up
under the Jamaica Agreement (1976), which overhauled the
preceding one, dating from the Bretton Woods Agreement of 1944
(US).
GLOSSARY/285
LIBOR (LONDON INTERBANK OFFERED RATE)

The interbank interest rate of the London City (very close to the
American 'prime rate', also a basic rate for international loans).
THE LONDON CLUB

The members are the private banks which lend to Third World states
and companies. During the 1970s, deposit banks had become the
main source of credit for countries in difficulty. By the end of the
decade, these countries were receiving over 50 per cent of total credit
allocated, from all lenders combined. At the time of the debt crisis in
1982, the London Club had an interest in working with the IMF to
manage the crisis. The groups of deposit banks meet to coordinate
debt rescheduling for borrower countries. Such groups are known as
advisory commissions. The meetings, unlike those of the Paris Club,
are held in New York, London, Paris, Frankfurt or elsewhere at the
convenience of the country concerned and the banks. The advisory
commissions, which started in the 1980s, have always advised
debtor countries immediately to adopt a policy of stabilisation and to
ask for IMF support before applying for rescheduling or fresh loans
from the deposit banks. Only on rare occasions do commissions pass
a project without IMF approval, if the banks are convinced that the
country's policies are adequate.
THE LONG WAVES OF CAPITALIST DEVELOPMENT

(1826-47, 1848-73, 1874-93, 1914-39, 1940(48)-67, 1968-?)
'The long waves are marked by striking fluctuations in the averages
of growth, with ups and downs between successive long waves
ranging from 50 to 100 percent.... The Marxist long waves theory is
in the last analysis a theory of "long waves in the average rate of
profit". ... In the explanation of the sudden upsurges in the average
rate of profit after the great turning points in 1848, 1893, and
1940(48), extra-economic factors play key roles. And for the very
same reason, Marxists generally should not accept a Kondratieff type
of theory of long cycles in economic development, in which there is,
in the economy itself, a built-in mechanism through which an
expansive long cycle of perhaps twenty-five years leads to a
stagnating cycle of the same length, which then leads automatically
to another expansive long cycle, and so on.... The long waves are not
just empirically demonstrable. They do not simply represent
statistical averages for given time spans. There is nothing "formal" or
"conventional" (i.e., in the last analysis, arbitrary) about them. ...
They represent historical realities, segments of the overall history of
the capitalist mode of production that have definitely distinguishable
features. For that same reason, they are of irregular duration' (E.
Mandel, Long Waves of Capitalist Development: A Marxist Interpretation,
Verso, 1995). Such historical periods are characterised by a
'productive order' or 'accumulation regime', with a specific mode of
accumulation of capital, type of material productive forces, mode of
social regulation, type of international division of labour and repro
duction scheme.
MARKET TYRANNY
'This means nothing less than the right of those among whom the
money-capital is concentrated, after having made it and greatly
increased it, to take for themselves a disproportionate share of the
wealth created through the production process' (Serfati, in Chesnais,
1996).
NEW DEAL
This term appeared for the first time at the US Democratic Party
convention in Chicago in July 1932.Itwasto refer to the experiment
attempted in 1933 by President Franklin Roosevelt, to end the deep
economic crisis that the US had been going through since 1929. The
expression New Deal covered a series of measures from aid to the
worst-hit economic sectors to social reforms. From 1938 on, a new
recession occurred and showed the limits of the New Deal. The
economic revival took place thanks to the outbreak of the Second
World War. Roosevelt did not draw up a consistent plan such as the
one implemented by the British Labour government of 1945.
OECD (ORGANISATION FOR ECONOMIC COOPERATION

AND DEVELOPMENT)
The OECD includes the 15 members of the European Union plus
Switzerland, Norway, Iceland; in North America: the US and Canada;
GLOSSARY/287
and in Asia and the Pacific: Japan, Australia and New Zealand. Since
1994, three Third World countries have entered the OECD: Turkey,
also a candidate for the EU; Mexico, also part of NAFTA with its two
North American neighbours; and South Korea (December 1996).
Since 1995, three countries of the former Eastern Bloc have joined:
the Czech Republic, Poland and Hungary. Recent additions to the
OECD faithfully reflect the configuration of the Triad as described in
this book, i.e. the three central axes of the USA (plus Canada),
Western Europe and Japan (plus Australia) and their respective
peripheries.
List of the 29 OECD member countries in 1997 in alphabetical
order: Australia, Austria, Belgium, Canada, Czech Republic,
Denmark, Finland, France, Germany, Greece, Hungary, Iceland,
Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, New
Zealand, Norway, Poland, Portugal, South Korea, Spain, Sweden,
Switzerland, Turkey, UK, US.
OFFICIAL DEVELOPMENT ASSISTANCE (ODA)

(See end of Chapter 8.)
OLIGOPOLY
'A state of limited competition when a market is shared by a small
number of producers or sellers' (Shorter OxfordDictionary, 1983). The
condition of oligopoly arises from the interdependence between the
firms that make it up: 'firms which no longer react to impersonal
forces coming from the market, but to their rivals, personally and
directly' (Pickering, 19 74). The global oligopoly is an 'area of rivalry',
defined by mutual market-dependent relations between the small
number of large groups which manage to acquire and keep the status
of effective competitor, within an industry (or within a complex of
industries with a common generic technology), on a world scale. The
oligopoly is the focus both of ferocious competition and of collabora
tion between groups (Chesnais, 1996).
THE PARIS CLUB

This group of lender states, specialising in dealing with non-payment
by developing countries, was founded in 19 5 6 at the time of the Suez
crisis. From its beginnings, there has traditionally been a French

president: Christian Noyes, Jean Arthuis's right-hand man,
succeeded Jean Claude Trichet in 1993, when Trichet became
Governor of the Bank of France. The member-states of the Paris Club
have rescheduled the debts of some 70 developing countries. The
Club members own nearly 30 per cent of Third World debt stock.
Links between the Paris Club and the IMF are extremely close, as
witnessed by the observer status enjoyed by the IMF in the Paris
Club's otherwise confidential meetings. The IMF plays a key role in
the Paris Club's debt strategy, and the Club relies on IMF expertise
and macroeconomic judgements in instigating one of its basic
principles: conditionality. In return, the IMF's status as privileged
creditor, and the implementation of its adjustment strategies in the
developing countries, are bolstered by the Paris Club's actions.
PRIVATE LOANS
Loans granted by commercial banks, whoever the borrower.
PUBLIC LOANS
Loans granted by public lending institutions, whoever the borrower.
REAL RATE OF RETURN

Nominal interest rate less the forecast rate of inflation.
SECURITISATION (TAKEN FROM ADDA, 1996)

Describes the new preponderance of security issues among market
activities (traditional international bonds issued on behalf of a foreign
borrower in the financial location and in the currency of the lender
country; eurobonds drawn on a different currency from that of the
place of issue; international shares). To this should be added the
technique of transforming former bank credits into negotiable
securities, which enabled banks to disengage from developing
countries faster after the debt crisis. The main logic behind this secu-
ritisation is that it spreads the risk. First, it spreads it numerically,
since the risk of defaulting by borrowers is no longer concentrated on
a small number of closely related multinational banks. Then there is
GLOSSARY/289
the qualitative spread of the risk, since each component of risk carried
by any particular security may lead to the invention of specific
negotiable instruments of protection such as fixed-term contracts to
protect against the exchange risk, fixed-interest contracts to protect
against variation in interest rates, negotiable option markets, etc.
This proliferation of financial instruments and derivative markets
gives the international markets a casino-like air.
SILIC (SEVERELY INDEBTED LOW-INCOME COUNTRIES)

Countries with a per capita income of less than USS695 (in 1993)
and showing more than 200 per cent as a percentage ratio of debt
stock/annual export revenue.
STRUCTURAL ADJUSTMENT FACILITY (SAF) AND

ENHANCED STRUCTURAL ADJUSTMENT FACILITY (ESAF)
(FROM LENAIN 1993, p. 99)
These facilities are IMF instruments which emphasise growth, the
fight against poverty, structural reforms and foreign funding reckoned
over a period of three years. ESAF loans are greater in amount but
demand considerable structural efforts and entail stringent condi-
tionality. Countries have to be very poor to qualify for them. Created
in 198 7, the ESAF was extended and broadened in scope in February
1994. ESAF loans are repaid in ten six-monthly instalments, ending
ten years after the date of initial outlay, held over for five and a half
years. Their interest rate is lower than market rates. ESAF funding is
allocated to support stringent medium-term structural adjustment
plans. It is financed by more than 40 member-states of the IMF, about
half of which are developing countries (IMF document).
SURPLUS VALUE
Surplus value is the difference between the value newly produced by
labour power and that labour power's own value, that is, the
difference between the value newly produced by a worker and the
costs of reproduction of his or her labour power. Surplus value, that
is the sum total of the incomes of the propertied classes (profits +
interest + ground rent), is therefore a deduction from the social
product: it is what remains of the social product once the reproduc-
tion of the workforce is assured and its maintenance costs covered. It

is therefore nothing else than the monetary form of the social surplus
product, which is the propertied classes' share in the distribution of
the social product in all class-structured societies: slave-owners'
income in a slave society; feudal ground rent in a feudal society;
tribute in the tributary mode of production, etc. The wage-earner, the
proletarian, does not sell 'labour' but his or her labour power, his or
her production capacity. It is this labour power that bourgeois society
transforms into a marketable commodity. It has its own value, which
is an objective fact like that of any commodity: its own production
costs, its reproduction overheads. Like any commodity, it has its use
(use value) for the buyer, which is a precondition for its sale but
which by no means determines the price it is sold at. Yet the use, or
use value, of labour power for its buyer, the capitalist, is precisely
that of producing value, since, by definition, all labour in a market
economy adds value to the value of the machines and the raw
materials it is applied to. Thus every wage-earner produces 'value
added'. However, since the capitalist pays the worker a wage - which
represents the cost of reproduction of labour power - he will only buy
this labour power if the value 'added' by the worker exceeds the value
of the labour power itself. This fraction of value newly produced by
the wage-earner Marx calls 'surplus value'. The discovery of surplus
value as a fundamental category of bourgeois society and its mode of
production, along with the explanation of its nature (a result of the
surplus labour, of the unpaid, unrewarded work supplied by the
wage-earner) and of its origins (the economic necessity for the
proletarian to sell his or her labour power to the capitalist as a
commodity), represents Marx's main contribution to economics and
the social sciences in general. This is, in itself, the application of the
perfected labour theory of value to the specific context of a specific
commodity, labour power (Mandel, 1986).
TRIAD
The expressions 'Triad' and 'Triadic' come from K. Ohmae (1985).
They were first used in business schools and economic journalism,
before entering into more common usage. The three axes of the Triad
are the US, the European Union and Japan, but round each of these
axes larger groups have formed. According to Ohmae, the only hope
for a developing country - to which must now be added the former
GLOSSARY/291
so-called socialist countries - is to reach for the status of associate, or

even peripheral, member, of one of these axes. This also holds for the
new industrialised countries (NIC) of Asia, which have been
gradually integrated into the axis led by Japan, though with marked
differences from one country to another (Chesnais, 1997).
UNCTAD (UNITED NATIONS CONFERENCE ON TRADE

AND DEVELOPMENT)
This was established in 1964, after pressure from the developing
countries, to offset the GATT.
WELFARE STATE
The term 'Welfare State' dates from 1942. It was a pun on 'Warfare
State'. Sir William Beveridge wrote two reports for the Conservative
government, the second of which, published in 1944, was entitled:
'Full Employment in a Free Society'. In it he discusses the ideas of the
economist John Maynard Keynes for combating poverty, unemploy
ment, etc. Immediately after the war, with the rise to power of the
Labour Party, the expression 'Welfare State' was applied to cover a
series of social reforms. During the 1950s, the term became
associated only with the strictly social aspects. The English term
'Welfare State' has been translated into French as I'Etat-Providence,
implying that social rights 'fall from heaven' onto 'passive' and 'irre
sponsible' citizens. It is important not to confuse the British and
European sense of 'Welfare State' with the US acceptance, where it
refers to handouts only.
THE WORLD BANK

Founded in 1944 at Bretton Woods in the context of the new inter
national monetary system, the Bank's capital is provided by
member-countries and especially borrowed from the international
capital markets. The Bank finances public or private sector projects
in the Third World and former so-called socialist countries. It is
composed of the following three subsidiaries: the International Bank
for Reconstruction and Development (IBRD, 180 members in 1997)
makes loans for large sectors of activity (agriculture, energy). The
International Development Association (or IDA, 159 members in
1997) specialises in very long-term loans (15-20 years) at nil or very

low interest rates to the least developed countries (LDC). The IFC
(International Finance Corporation) is the World Bank subsidiary
responsible for financing private firms and institutions in the Third
World. With the increase in indebtedness, the WB and the IMF
(International Monetary Fund) have adopted a macroeconomic
perspective in their dealings. For example, the WB increasingly
imposes adjustment plans designed to improve the balance of
payments of heavily indebted countries. It never hesitates to dispense
'advice' to countries undergoing IMF 'therapy', on the best ways to
reduce budget deficits, mobilise domestic savings, incite foreign
investors to move in and liberalise currency exchange and prices.
Finally, since 1982 the WB has made structural ad] ustment loans in
support of these programmes to countries which follow its policies.
Types of loans granted by the World Bank:
1. Project-loans: traditional-style loans for power stations, oil and

petroleum, forestry industries, agricultural projects, dams, roads,
water distribution and purification projects, etc.
2. Sectorial adjustment loans aimed at an entire sector of the
national economy: energy, agriculture, industry, etc.
3. Loans to agencies whose role it is to direct the policies of institu
tions towards foreign trade and to open the way for
transnationals. Such loans also finance the privatisation of public
services and public enterprises.
4. Structural adjustment loans, ostensibly designed to mitigate the
debt crisis, and which invariably encourage neo-liberal policies.
5. Loans to combat poverty.
WORLD TRADE ORGANISATION (WTO) (taken from M. Khor,

1997)
The WTO founded on 1 January 1995, replaced the General
Agreement on Tariffs and Trade (GATT), where states had only had
the status of 'contractual parties', as a permanent negotiating forum.
One of the WTO's objectives is to dismantle state monopolies resulting
from a public decision, where such monopolies still exist. This is what
happened for telecommunications, for which the decision was made
by the WTO in February 1997. Yet others still remain, such as the
railways, and are coveted by the financial groups. Another objective
GLOSSARY/293
is the liberalisation of investments. The projected instrument to

achieve this is the Multilateral Agreement on Investment (MAI),
which the OECD was set to approve when France withdrew from
discussions in October 1998. The MAI, which was originally decided
upon at the ministerial meeting of the OECD in May 1995, targets all
investments: direct (industry, services, natural resources) and
portfolio. It provides protection mechanisms, especially for the total
repatriation of profits. The WTO will doubtless raise the MAI from the
dead for renewed consideration by member-states.
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Index
Note: The Chronology (pp. 265-76) has not been indexed. Bold page nos.
indicate Tables and Figures.
Africa, 34, 168; education, 156; Bandung Conference (1955), 116

healthcare, 157-8, see also Bangladesh, 1 0 9 , 2 3 1
Rwanda; South Africa; Sub- Bank for International Settlements
Saharan Africa (BIS), xxii, 247, 277; and
African Development Bank, 11 financial markets, 5 7-9
agriculture: and food security, 251; banks: high liquidity, 82, 83; liber
reform of, 240; subsidised, 105, alisation, 144-5; loans to South,
142 83-4; offshore, 103; private
agrobusiness, 101-3, 117-18, 248 Northern, 10, 83-4, 91-2, 243;
aid see loans; ODA within MNCs, 47
Algeria, 85 Barings Bank, 60
alternative measures, xxvi-xxix,
Belgium, 131, 215, 256-7, 261;
13, 238-50; essential comple
COCAD, 262-4; and corruption
mentary, 2 5 0 - 1 ; international,
in Congo, 86-8
251
Beveridge, Lord, 171, 291
Argentina, xxvi, 74, 76-7, 86; case
biological diversity, 101-3, 118
study, 200-5; foreign debt,
9-10, 6 7 , 2 0 1 - 2 , 2 0 5 Bolivia, 75, 153
arms trade: exempt from budget borders, closed, 4, 106-7
cuts, 234; linked to ODA, Brady, Nicholas, 78-9
108-11; need to reduce, 250 Brady Plan, 10, 77, 78-9
Asian Development Bank, 11 Brazil, 43, 74, 76; debt statistics,
autonomy: effect of FDI on, 44-5; 67, 67, 68, 219; foreign debt,
effect of SAPs on, 161-2 9-10, 11; household debt,
xviii-xix; internal debt, xxvi;
Baker Plan, 10, 77 poverty levels, 2, 18; risk
balance of payments deficits: loans premiums, 95-6; World Bank
to finance, 84, see also trade and, 121
314
INDEX/315
Bretton Woods Conference (1944), Congo-Zaire (Kinshasa): corruption

112-14 in, 85, 86, 246;IngaDam
Bretton Woods system, 59, 75, 257 project, 87-8
Burma (Myanmar), 231 corporate mergers, xxi, 31-2, 32
corruption, xiv-xv; in Third World,
Camdessus, Michel, on 1997-8 85-8, 104, 244-6
crisis, xix, 223 credit, international, 71
Canada, and NAFTA, 41 Cuba, 251
capital: concentration of, 3 1 - 5 , 33; currency: depreciation, 222;
expropriation of, 241; flight from devaluation, 1 4 0 - 1 , 2 3 1
South, 103-4, 220; globalisation
of, 26-8; primitive accumula debt: forms of HIPC, 11-12; multi
tion, 70, 71, 166, see also wealth lateral, 278; nationalised, 10,
capital flows: liberalisation of, 192-3, 233; net financial
xxiv-xxv, 28, 54-5, 145, 227; transfer, 278; private, 202, 203,
and speculation, 23 7 209, 278; public, 9, 65-6, 71,
capitalism: long waves, 14, 73, 94-5, 278; and structural
173, 285-6; and role of state, adjustment, 136-7; Sub-
163-4; systemic crisis, xvii-xviii; Saharan Africa, 194-5, 195;
triumph of, xiii ThirdWorld, 7 , 6 8 , 8 0 - 1 ,
Caribbean, external debt, 190 129-30, see also foreign debt
CEP AL, 76, 173, 189
debt cancellation, 242-4, 262-4
Chicago School, neoliberalism,
debt relief, World Bank/IMF
181-2
initiative, 12, 199
children, in Colombia, 1-2
debt repayment, 92; debt-servicing,
Chile, 55, 76, 121, 182
278; moratorium recommended,
China, 11, 165, 215, 219; debt
xxvii-xviii; of North's public
statistics, 66, 67, 68; effect of
Southeast Asian crisis, 230; FDI debt, 94-5; rescheduling, 278;
in, 37-8; foreign debt, 72, 219; as wealth transfer, 93-5
revolution, 119 debt repudiation: and economic
Chirac, Jacques, 23 7 recovery, 76-7; Latin American,
Clinton, W., US President, xix 74-7
COCAD (Committee for the debt securitisation, 65, 66-9, 6 7
Cancellation of Third World democracy, 250; and good
Debt), 262-4 governance, 149-50; market,
Colombia, 76, 120; street children, xiv-xv; and role of state, 164
1-2 dependence, 39-40, 173; cycle of,
colonial pillage, 7 0 - 1 , 118-19, 6, 7, 81; onDS, 1 9 2 - 3 , 2 0 6 - 8
165-6, 167 derivative trading, 60
commodification, xiv devaluation, 1 4 0 - 1 , 2 3 1
commodities, overproduction, 54 development, 4, 171; causes of
competition, xiv, 4 5 - 6 underdevelopment, 165-9; and
conflict, 8, see also Rwanda green revolution, 116-19, see
Congo-Brazzaville, 86-7 also ODA
development models: Asian, 236; 105-6; of raw materials, 85, 98;

export-oriented, 4 4 - 5 , 74-5, Third World price falls, 44,
128-9; Import substitution, 76, 97-8, 130
116, 284; South Korean, 227
developmentallsm, 173, 174, 254 financial deregulation, 59; effects
dictatorships: Argentina, 200, of, xxiv-xxv, 52-5; Soros on, 63
202-3, 204-5; expropriation of financial markets, 3 , 1 1 ; and debt
foreign assets, 244-5; nationali securitisation, 66-9, 67; globali
sation of domestic assets, 245; sation, 47-64; institutional
and 'repugnant' debt, 244; investors, 60-2, 61; technologi
World Bank support for, 121-2 cal revolution, xii; Tobin tax
proposed, 45, 246-7; transac
East Asia, FDI flows, 3 7 , 3 8 tions compared with exports, 53;
Eastern Europe: bureaucratic transactions compared with
socialism, xii-xiii, 171, 173; debt GDP, 54, see also capital flows
levels, xxv; poverty levels, financialisation, 280; in France,
18-19; poverty and living 5 0 - 1 ; of industrial companies,
conditions, 21-2; unemploy 47-50
ment, 16, see also Russian First World War, 252
Federation flexibility, 134-5
economic growth: long waves, 14; Fordism, economic model, 172
slow, 4, 30 foreign debt: in early capitalist
education, funds for, 155-6 development, 71, 72-3; Latin
Egypt, 146,215 America, 9-10, 11; as means of
Elf Aqultalne, misuse of loan domination, 6, see also debt
monies, 86-7 foreign direct investment, 3 1 , 99,
environment: green revolution, 192, 278-9; effect on autonomy,
116-19; and need for reform, 4 4 - 5 ; fall of Third World share,
13,247-8 36-8, 36, 37, 38; by MNCs,
eurodollars, 59, 82, 279-80 26-7; South Korea, 229; sub-
European Monetary System, 60, 63 Saharan Africa, 196, 196
European Union, 14, 42; inter- France: and African former
Triad investments, 38; colonies, 34; company financiali
protectionism, 97, 105; public sation, 5 0 - 1 ; foreign trade,
debt, 65; wages decline, 20 98-9; andRwanda, 215-16;
exchange controls, elimination of, strike movement, 256, 258-9;
51-2 withdrawal from MAI, xxvii
exchange rates: and devaluation, Friedman, Milton, 181-2
140-1; fixed, xxiv-xxv; floating,
59 G5 (Group of Five), 280
exports: compared with financial G7 (Group of Seven), 8, 241-2,
transactions, 53; contraction of 280; protests against, 257-8
markets, 91; global share of, 43; G8 (Group of Eight), 280
from Latin America, 74, 75, G10 (Group of Ten), 2 8 0 - 1
193; and protectionism, 97, G24 (opponents of G10), 281
INDEX/317
G77 (developing countries), 281 methods, 8 In; and deregulation,

GATT see World Trade 52; policy on Southeast Asia,
Organisation (WTO) 233-4; power of, 4 0 - 1 ; and
GDP, 283; compared with financial Rwandan genocide, 212-15;
transactions, 5 4 and Sub-Saharan Africa, 198,
Germany, and Eastern Europe, 38 see also IMF; World Bank
globalisation, xv-xvi, 3, 5, 252-4, IMF, 9, 114, 129-30, 283; and
281-2; of capital, 26-8; fosters Brazil, xxiv; and debt cancella
exclusion, 34, 36-46; opposi tion, 242; debt relief plan, 12;
tional organisations, 260-2; forecasting errors, 191, 222-3;
political factors in, 28-30 and liberalisation of capital
governance, good, 148-50 flows, 54-5; potential for reform,
government bonds, xxvi, 66, 6 7 242; praise for Asian dragons,
government(s): and bilateral loans, 223-4; relationship with World
84, 107; budget austerity Bank, 134-5, 138-9; response
(imposed), 141-2; financial to Southeast Asian crisis, xxiv,
regulation, 252; intervention, 233-4, 236; and South Korea,
xxiii-xxiv, 3, 171; macroeco- 226-7, 228-30; structural
nomic reform, 13 7-8; and adjustment policies, 134-8
reduced role of state, 161-5; import substitution, 76, 116, 284
sovereignty of, xi, 159-60, 250; income: from exports, 9; global fall
strength of, 152, 155; Third in, xviii-xix
World corruption, 85-7 India, 24, 117; debt statistics, 67,
green revolution, 116-19 67, 68; protectionism, 232;
resistance to colonial capitalism,
Hayek, Friedrich von, 174, 179, 165-6
180-1, 186-7 Indicator of Human Development,
health and healthcare, 22, 23, 284
156-8,238-9 Indonesia, xix, 23 7, 259; debt
highly industrialised countries: statistics, 67, 67, 68; financial
effect of Southeast Asian crisis, crisis, 218, 219, 237; IMF
222; poverty and living report, 224
conditions, 19-20, 22; regional industrial free zone, 284
blocs, 41-2; share of world industrialisation, 167-8; export-
market, 39; World Bank driven, 74-5; by import
flowback to, 13 0 - 1 , see also substitution, 76, 284; South
Triad Korea, 227
homelessness, 22 industrialised countries see highly
Hong Kong, 11, 40, 220, 230 industrialised countries
Human Poverty Index (HPI), 22-3 infant mortality, 157
Hume, David, 170 inflation: 1970s global, 88; and
interest rates, 8 9 - 9 1 , 9 0
IFIs (international financial institu infrastructure, loans for, 84, 107
tions): criticism by economists, intellectual property rights, 101-3,
xx-xxi; debt calculation 248
Inter-American Bank for 189-93; historical debt crises,

Development, 12 73-4; new debt cycle, 193-4, see
interest rates, xxiv-xxv, 288; and also Argentina; Brazil; Chile;
debt crisis, 7, 9; increased, Mexico
144-5; increased (from 1979), liberal ideology xi-xii: xiii-xiv, 13,
89-91, 90; Latin America, 191, 171-2, see also neoliberalism
192; LIBOR and Prime, 89, 285; liberation movements, 124-5
North-South difference, 95-6 life expectancy, 21,23
International Development Lisbon Group, 28-9
Association, 12, 291-2 literacy, 2 1 , 2 3 , 2 3 9
International Labour Office, 2 loans: bilateral, 84, 107; misappro
international monetary system, priated, 86; private, 288; public,
284 288; purpose of, 84-5, see also
international organisations, multi ODA
lateral aid from, 107 London Club, 7-8, 92, 285
investment see foreign direct long waves, of capitalist
investment development, 14, 73, 173,
Israel, US aid to, 109 285-6
LTCM, bail out, xxii-xxiii
Japan, 14, 38, 42; capitalist Luxembourg, 87
development, 72-3; economic
crisis, 220; protectionism, 38; Malaysia, 59, 63; financial crisis,
and US, 232-3 218, 219; IMF report, 224
malnutrition, 21, 22, 23, 239
Kant, Immanuel, 170 Mandel, Ernest, 71, 73,98
Keynes, J.M., 113, 115, 171, 177, Marcos, Ferdinand, corruption, 85
178-80 markets: faith in, 55-7; free,
Kissinger, Henry, 77, 234-5 185-6; tyranny of, 286
Marshall Plan, 115
labour market: de-indexing salaries, Marx, Karl, 175; on colonialism,
143-4; deregulation, 15, 28; 165-6; on foreign trade, 166-7;
migrant workers, 106-7, 231; on public debt, 70-1
reforms, 146-7; state sector Marxism, 172, 177
salary cuts, 154-5 McNamara, Robert, World Bank,
labour movement, 254-5, 259, 116, 121-6; and Third World
2 6 0 - 1 , see also trade unions debt, 127, 128-9
land: access to, 240; privatisation, media, xiii-xiv, 255; concentration
146; reform, 117, 125 of control of, 32, 3 3 , 34-5
Latin America, 10, 9 1 , 100, 111; Mexico, 4 1 , 58, 74, 76, 231; 1982
1930s debt repudiation, 6-7, crisis, 7 7 , 8 1 , 9 1 - 2 , 129, 191;
74-7; and Brady Plan, 77, 78-9; 1994 crisis, 11; case study,
debt levels, xxv, 189, 190; 205-12; debt statistics, 66, 67,
development, 168, 172; FDI 68-9, 68, 206, 219; foreign
flows, 3 7, 38, 220, 231; debt, 9-10, 11; political crisis,
government policies (1990s), 210-12; privatisation, 146,
INDEX/319
206-8; social movements, North, the: public debt repayment,

209-10; wealth in, 79, 207; 94-5; unemployment, 4, see also
Zapatistas, 210-12, 256 European Union; OECD; Triad;
migration, restrictions on, 4, 106-7 United States
Mises, Ludwig von, 179, 180-1
Mitterand, Francois, 93 ODA (offical development
MNCs (multinational corporations), assistance), 93; beneficiaries of,
xi-xii, 5, 4 4 - 5 , 203, 249; 107-8; linked to arms sales,
control of world trade, 26-7, 99; 108-11, see also loans
corporate mergers, xxi, 31-2, OECD, 286-7; debt calculation,
32; financialisation, 47-50; and 8 In; and feasibility of SAPs,
global concentration, 33; and 150-5; unemployment in,
globalisation of capital, 26-8; 15-16
internal resistance in, 256-7; offshore banking, 103
repatriation of profits, 8, oil prices, 143
9 9 - 1 0 1 , 197, 197; size of, 27; oil shock (1973), 83
trade within, 45-6 oligopoly, 287
Mobutu, General, corruption of, 85, OPEC, 83,97
86, 87, 244-5 Ottoman Empire, foreign debt, 72
monetary reform, 246
Pakistan, protectionism, 232
Mont-Pelerin, Societedu, 180-1
Paris Club, 7-8,92, 198, 199,
Morgenthau, Henry, 112, 113
287-8
Morocco, adjustment model, 151,
patents, 101, 102
152, 154
patriarchy, 24, 240
Multifibres Agreement, 105 pension funds, 60, 61-2, 6 1 , 148
Multilateral Accord on Investments Periphery: debt levels, xxv-xxvi;
(MAI), xxvii, 100-1, 251, 293 levels of development, 167-9, see
also Third World
NAFTA, 4 1 , 2 0 7 petrodollars, and bank liquidity, 83,
nationalisation, 172 91
neoliberalism, 3, 170n; Chicago Philippines, 218, 219, 225-6
School, 181-2; imposition of political intervention: to counteract
(from 1979), 89, 170, 173; and neoliberalism, 241-2; factor in
Keynes, 178-80; and neoclassi globalisation, 28-30
cal theory, 184-5; origins, politics: market democracy, xiv-xv;
174-7; strategic significance, and resistance to globalisation,
16 5-9; view of social welfare, 253-4
186-8 poverty: absolute, 17-18; Eastern
NGOs, 25-6, 107; in crisis, 261 Europe, 18-19; industrialised
Nicaragua, 251 countries, 19-20; Mexico, 209;
Nixon, Richard, US President, 59 Rwanda, 216-17; Sub-Saharan
Non-Aligned Movement (NAM), Africa, 194; Third World,
173 17-18; World Bank policies on,
non-project aid, 107 124-5, see also social welfare
prices, 18, 19, 251; collapse of Russian Federation, xix, 16, 18-19,
Third World export, 44, 97-8, 95-6
130, 2 3 0 - 1 ; liberalisation, Rwanda: case study, 212-17; funds
142-3; public services, 143; for arms, 214, 215-16;
timing of increases, 154; world genocide, 34, 212; loans to,
market, 160-1 213-15; post genocide crisis,
private banks, 10, 75, 83-4; 216-17
withdrawal from Third World
debt market, 91-2 Samuelson, Paul, 174
private debt, 202, 203, 209, 278 Say, Jean-Baptiste, 170, 176
private sector: debt levels, xxii; Second World War, 171-2
government bail-outs, xxiii-xiv, securitisation, 288-9
234 severely indebted low-income
privatisation, 28, 104, 144, 145; countries, 289
Argentina, 203-4; Latin Singapore, 11, 40
America, 191; Mexico, 206-8; Smith, Adam, 163, 170, 174-5
South Korea, 227 social clauses, in trade, 248-9
profits: repatriated, 8, 9 9 - 1 0 1 , social costs, 158; in Mexico, 208-9;
Southeast Asia, 2 2 0 - 1
145, 197, 197; and wages,
social crises, 8, 23 7
29-30
social movements, 238, 253-4,
protectionism, 8-9, 97, 232,
256-7, 261; Mexico, 209-10,
249-50; against South, 105-6
256; role for, 241
social rights, 240
Reagan, Ronald, US President, 182,
social spending, xxviii, 4, 251; to
183-4
alleviate poverty, 23; public
recession, xxvi; (1930s), 177-8,
works programmes, 251; user-
179; (1974-75), 84; (1980-81), funded, 142, 156, 158
91-2 social welfare, 172, 187-8;
resistance: fragmented (Mexico), reduction, 28, 148; welfare
209-10; to globalisation, xvi, state, 291
253, 255; to neoliberalism, socialism, discredited, 261
xxvii, 254, 257; to structural Somalia, 35
adjustment, 152-3, 256, see also Soros, George, 62-4, 225, 229
social movements South Africa, 121-2, 198, 215
resources, optimum allocation of, South Asia, FDI in, 3 7, 38
185-6 South Korea, 11, 32, 39, 55, 259;
Ricardo, David, 170, 175, 176-7 crisis (1997), 226-7; debt
Rio World Summit, 13, 248 statistics, 66-7, 67, 68, 69, 219;
risk premiums, 1 1 , 9 5 - 6 and regional bloc, 42; risk
risk rating agencies, xxiii, 96, 220 rating, 96, 220, 229; Soros and,
Roosevelt, F.D., 112; New Deal, 64, 229; structural adjustment,
171,286 228-30
rural development, ODA for, 107 Southeast Asian crisis, xxv, 6, 220,
Russian Empire, foreign debt, 72 221-2; capital inflows, 219,
INDEX/321
224, 225; causes, 218-19, terms of trade, 8, 9, 251; deteriora

224-5; IMF and, xxiv, 10, tion in, 9 6-9
222-3; and risk premiums, Thailand, 95, 223; debt statistics,
95-6; social costs, 2 2 0 - 1 ; and 66, 67, 68, 219; financial crisis,
unemployment, 16-17; World 218,219
Bank and, xxiv, 10, 132-3 Thatcher, Margaret, 88, 182-3
sovereignty, of governments, xi, Theses of the book, 3-13
159-60,250 Third World: attraction of loans,
speculation (financial), 52, 225, 83-4, 91; 'brain drain' from,
236; tax on, 246, 247 104-5; capital flight from,
state: reduced role of, 161-5, see 103-4; corruption in, 85-8,
also government(s) 104, 244-6; debt, 7, 68, 8 0 - 1 ,
stock markets: instability, 218, 129-30; debt cancellation,
221, see also financial markets 243-4; debt crisis, 127-33, 173;
exports, 85, 97-8; high value
strikes, 256, 258-9
added production, 248; margin
structural adjustment programmes,
alised, 4, 36-46; MNCs from, 32;
8, 16, 18, 4 0 - 1 ; and debt,
poverty and living conditions,
136-7, 159; economic conse
17-18, 21; priority needs,
quences, 158-9; flexibility,
238-9, 251; restrictions on
134-5; and macroeconomic
migration, 106-7; subordination
reform, 13 7-8; macroeconomic of, 6, 8-9, 4 0 - 1 ; threat of
stabilisation, 144-50; political recession, 230-2; unemploy
effects of austerity, 150-65; SAF ment, 5-6, 16
andESAF loans, 289; short-term
Tobintax, 45, 246-7
stabilisation, 140-4, 151; social
trade: between developing
costs of, 158; stated objectives,
countries, 44, 249-50; between
135-6
industrialised countries, 44;
Sub-Saharan Africa, 97, 156, 194; deficits, 91; and export earnings,
external debt, 194-5, 195, 243; 135-6; liberalisation, 144; MNC
FDI in, 3 7, 38; specific problems, domination of, 26-7, 45-6, 99;
197-8; trade losses, 195-6, 196 social clauses, 248-9; unequal,
subordination, of Third World, 6, 8, 167, 193, see also terms of
8 - 9 , 4 0 - 1 , 168 trade
surplus value, 51, 289-90 trade unions: decline of, 2 6 0 - 1 ;
and structural adjustment,
Taiwan, 1 1 , 3 9 , 2 1 9 153-4; World Bank opposition
taxation: of extreme wealth, to, 147, 187-8
245-6; to pay external debt, Triad, 4 1 - 3 , 2 9 0 - 1 ; inter-Triad
229, 233; reforms, 145-6; for investment, 38-9, 38, 39, see
social needs spending, xxviii, also European Union; Japan;
251 United States
technological revolution, xi, xii Turkey, debt statistics, 67, 67, 6 8
technology: and environment, 117;
protected markets, 106 Uganda, 198, 199
DNCTAD, xxvii, 15, 173, 291; and 93-106; unequal distribution,

MNC investment, 4 4 - 5 ; wealth 17-20, see also capital
tax proposed, 246 welfare state, 291
UNDP, xxviii, 95, 119; household women: liberation of, 2 4 0 - 1 ; in
debt, xvlll-xlx; Human Poverty poverty, 23-4; in Rwanda, 217;
Index, 2 2 - 3 ; report on declining violence against, 24, 26;
living conditions, 20-2 workforce participation, 24-5
unemployment, xix, 4, 57; denial of working time, reduction of,
involuntary, 183-4; long-term, 239-40,255
147; need to abolish, 239, 255; World Bank, 9, 113-14, 291-2;
inOECD, 15-16; Southeast Asia, and communist threat, 124-6;
221; Third World, 5-6, 16-17 and debt cancellation, 242; debt
United Kingdom, 77, 113; relief plan, 12; and development,
colonialism, 118-19 115-16, 123-4; forecasting
United States, 14, 22, 4 1 , 186; errors, 129-30, 191; and green
arms sales, 108-11, 234; and revolution, 116-19; increased
Bretton Woods, 113; corporate loans, 82, 132; and Marshall
takeovers, 32; household Plan, 115; opposition to social
incomes, xviii, 19-20, 20; inter- welfare, 187-8; organisation,
Triad investment, 38-9, 39; and 114-15, 138-9; political
Japan, 232-3; and Latin influence of, 119-20, 121-2;
American debt crises, 74, 77, potential for reform, 242;
78-9; Latin American promotion of good governance,
dependence on, 192-3, 206-8; 148-50; Public Expenditure
public debt, 65, 91; tied bilateral Review, 141; relationship with
aid, 108-11; unemployment, IMF, 134-5, 138-9; return on
15, 16; view of Southeast Asian funding, 130-2; and role of
crisis, 234-5 state, 161-5; and Southeast
Asian crisis, 132-3; and Third
Venezuela, 73, 137, 152 World debt crisis, 127-33; under
Vietnam, 231 McNamara, 121-6; Wapenhans
report, 131-2
violence, against women, 24, 26
World Trade Organisation (WTO),
wages: de-indexed, 143-4; xii, 44, 2 5 1 , 2 9 2 - 3
declining, 19-20; Mexico,
208-9; minimum, 147; and YPF oil company, 2 0 0 - 1 , 204
profits, 29-30; women's, 24-5
Wapenhans report, 131-2 Zambia, 156
water supplies, 2 1 , 23, 239 Zapatistas, Mexico, 210-12, 256,
wealth: concentration of, xxi-xxii; 259
and corruption, 85-7; expropria
tion of dictators', 244-5; forms
of transfer, 93-106; register of, Index compiled by
245-6; transferred to North, 8, Auriol Griffith-Jones

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What is the book about?

What is the book about?

What are some of the main arguments made in the book?

What are some of the main arguments made in the book?

Eric Toussaint

Your Money or Your Life!

Translated by Raghu Krishnan

First published in French by CADTM (Belgium), CETIM (Switzerland),

First English language edition published 19 9 9 by Pluto Press

ISBN 0 7453 1417 1 hbk (Pluto Press)

Library of Congress Cataloging in Publication Data

Designed and produced for Pluto Press by

List of Tables and Figures vii

17. Towards an Alternative 238

Table 14.3 Evolution of the Balance of Trade In

This work is dedicated to my parents, Jose Toussaint (1920-9 7) and

My heartfelt thanks to Denise Comanne, without whom this work

Contemporary history can be described as that of the conquest of the

single country, not a single market, remains untouched. Not a single

destruction and hair-raising increase in social inequality that result

When this book is released in English by Pluto Press in the spring of

A GLOBAL AND SYSTEMIC CRISIS

doubt; but it has always managed to weather the storm. However,

A WORLDWIDE FALL IN INCOME

STRAIGHT TALK ON THE CRISIS FROM CAMDESSUS AND

ESTABLISHMENT ECONOMISTS CRITICISE POLICIES

supervised policies to harsh criticism. Jeffrey Sachs was a leading

markets risk doing severe damage to the Latin American economies'

A FLURRY OF CORPORATE MERGERS

WEALTH CONCENTRATED IN FEWER AND FEWER HANDS

SO MUCH FOR PRIVATE-SECTOR EFFICIENCY

Trust merged in late 1998), Deutsche Bank, Bankers Trust, Chase

GOVERNMENT TO THE RESCUE

SO MUCH FOR THE ADVANTAGES OF FINANCIAL

in productive activities - which require long-term investments. As a

YET ANOTHER DEBT CRISIS

PROGRESSIVE AND RADICAL POLICIES ARE BOTH

A growing number of the planet's inhabitants have access to little

SOME COMMENTS ON THE WAY THE BOOK HAS BEEN

of the text itself, whenever there is a quotation or one or more authors

THE BOOK'S THESES

5. What is needed is a clear change of tack, placing the satisfaction

12. Globalisation has been accompanied by a global offensive by

increase in wages. A Nike spokesperson worried that Indonesia

brings together the North's private banks; see glossary) dictate

from the South; restrictions on the travel and migration of

was transformed to the benefit of the North's private banks, with

from the poorest and most indebted countries go to the interna

42. In its current form, globalisation is hastening environmental

Globalisation and the

THE DETERIORATION IN LIVING CONDITIONS:

In the Former Eastern Bloc Countries

In the Third World

have been lost in Indonesia, 1.7 million in Thailand and 1 million in

GROWING INEQUALITY IN THE DISTRIBUTION OF

In the Third World

In Eastern European Countries

Trade unions say the minimum required every month is actually

In the Highly Industrialised Capitalist Countries