-Caveat Lector-
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Subject: ZNet Commentary / Robin Hahnel / Play It Again Sam / Dec 9
Date: Fri, 8 Dec 2000 16:31:38 -0800
From: "Michael Albert" <[EMAIL PROTECTED]>
To: <[EMAIL PROTECTED]>
Note: Today's Commentary is on the IMF and World Bank machinations in Chad
and Turkey. It is longer than usual, but the topic is fantastically timely
and important, and requires a bit more words to address...
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PLAY IT AGAIN SAM: THE IMF AND WORLD BANK ARE AT IT AGAIN
By Robin Hahnel
Just in case anyone thought the IMF and the World Bank had gotten the
message in Seattle, Washington DC, and Prague, all he or she has to do is
read the December 5 edition of the Washington Post to find out otherwise.
Looming disasters in Chad and Turkey are proof positive that nothing besides
a tactical adjustment of rhetoric has changed at the Bank and the Fund.
Anyone who thought the World Bank had finally learned that helping
multinational companies and banks accelerate the extraction of third world
natural resources does not benefit the third world poor, much less the
environment, needs to check out what is happening in Chad. And anyone who
thought managers at the Fund had learned from the East Asian crisis that
capital liberalization puts third world economies dangerously at risk, and
conditionality agreements only compound the crises that result, needs to
watch the Fund repeat every mistake they made in East Asia, Russia, and
Brazil all over again in Turkey.
Douglas Farah and David Ottaway inform us: �In June, when the World Bank
agreed to back a controversial, 650-mile oil pipeline from this impoverished
desert nation [where more than two-thirds of the population lives on an
average of less than $250 a year] to Africa�s Atlantic coast, it declared
that it had found a way to prevent corrupt officials from stealing the
country�s new wealth. Criticized for years over projects in developing
nations that failed to return benefits to their populations, bank officials
knew that the $3.7 billion pipeline -- the most expensive infrastructure
project now underway in Africa -- would be closely scrutinized. So they
imposed strict accounting standards and insisted on guarantees from the
Chadian government to ensure that its oil profits would be spent to improve
public health, education and vital infrastructure here, rather than
disappearing into secret bank accounts or funding weapons purchases by those
in power. World Bank officials said that their �Chadian model� would prove
they could overcome the African nation�s endemic corruption and that it
might be applied to other corruption-prone oil-producing lands. In a press
release after it approved the project, the bank called the agreement with
the Chad government an �unprecedented framework to transform oil wealth into
direct benefits for the poor, the vulnerable and the environment.� So when
Chadian President Idriss Deby, a general who seized power in a 1990 coup,
declared last week that he had used $4.5 million of the government's first
oil receipts to buy weapons instead of bolstering social programs, saying
�it is patently obvious that without security there can be no development
programs,� he sent a jolt through the bank.�
The demonstrators in Seattle, Washington DC, and Prague were not the only
ones who warned the World Bank that this is exactly what would happen. Human
rights activists in Chad fought the project for years, claiming it would
�only escalate armed power struggles and be diverted by authoritarian rulers
to buy guns or to fatten their bank accounts.� Delphine K. Djiraibe,
president of the Chadian Association for the Promotion and Defense of Human
Rights was quick to point out after the story broke: �The arms purchases
should be a warning to show that when the oil money flows, the World Bank
won't have any way to know what Deby will do with it.�
But the diversion of profits to purchase arms is only one problem. The main
objections critics have voiced to this and similar World Bank projects
elsewhere are that too much of the profits go to foreign companies and
banks, leaving too little to make a significant dent in unpayable
international debts that should be forgiven. Chad is only projected to
receive $2 to $3 billion over 25 years from the pipeline, the rest going to
the consortium of international oil companies led by Exxon Mobil Corp., to
the international banks financing the project, and to the World Bank itself
for brokering the deal and putting up 3 percent of the initial financing.
Meanwhile, another IMF �success story� is in crisis and about to receive the
usual IMF ministrations -- the twenty-first century version of blood
letting with leeches. In the same edition of the Washington Post, Molly
Moore informs us from Istanbul that �Turkey's stock market plunged today and
some interest rates soared to more than 1,200 percent in a financial crisis
that analysts fear could spread to Russia and other struggling economies.
Turkish officials began emergency talks with the International Monetary Fund
in Ankara, the capital, urgently asking for a $5 billion loan to help
counter a rush to sell Turkish lira that threatens to undermine the
country's precarious economy. Officials fear that if it is not contained,
the financial crisis could send Turkey's economy into a downward spiral of
unemployment and company closures. Investors, both foreign and Turkish, are
moving their money out of markets here as they lose confidence in the
country�s future and worry about the effect a devaluation of the lira could
have on their holdings. Turkey�s stock market has lost nearly 40 percent of
its value in the last two weeks, including today's plunge of 8 percent.�
How is this possible? Reporting from Washington in the same story Steven
Pearlstein tells us: �The first 10 months of this year marked one of the
most stable economic periods in recent Turkish history.� And: �In the past
year, Turkey has won praise from the IMF and international financial
analysts for streamlining its financial policies, reining in government
spending and making other economic policy changes suggested by the IMF.� In
other words, Turkey was a paragon of neoliberal economic virtue according to
the IMF, and therefore one would think the last place a crisis should break
out. But of course that was what the IMF and World Bank had said about the
East Asian economies only a year before their crises. In that case as well,
East Asian economies who succumbed to pressure from the US Treasury
Department and the IMF to open themselves completely to international
financial investment, including short-run, speculative capital flows, were
praised by the US and the Fund as neoliberal success stories. But as soon as
the hot money took fright and fled, as soon as the IMF imposed its draconian
conditionality agreements -- calculated to protect international
investors -- in exchange for a bail out, and as soon as all this left the
East Asian economies in ruins, Fund managers hastened to tell us the East
Asian governments had been less virtuous than heretofore presumed. And just
as Fund managers hastened to point the finger of blame elsewhere for the
disaster they were responsible for orchestrating in East Asia, with the help
of the mainstream Western media they are already positioning themselves to
blame the victim in Turkey.
Once again we will be told the Turkish fall from grace is due to their
�crony capitalism,� �lack of transparency,� and �insufficient prudential
regulation.� We are already being told �the crisis was set off by almost
daily disclosures of banking scandals and related criminal investigations� �
as if this were not what triggers most financial crises. The real question
is why disclosure of some bad loans triggered a crisis in this situation
whereas it usually does not. The reason we are not reminded of the real
question is the answer points straight to the magnitude and conditions under
which international speculative capital poured into Turkey over the past few
years, i.e., the �financial streamlining� orchestrated and praised by the
IMF. We are also told �astronomically high interest rates have taken hold in
loans between banks because lending banks fear that borrowing banks may
default� � small wonder! The real question is who decided to subordinate the
interest of financing productive Turkish investments, which will be brought
to a standstill by astronomical interest rates, to the interests of
international wealth management in the first place? Again, international
investment banks taking part in an IMF sponsored program in Turkey come to
mind. Moore informs us: �Banks in Germany--which have invested heavily in
Turkey�s efforts to sell off state-owned companies and in its economy in
general -- have suffered drops in their own share prices because of the
Turkish crisis.� Finally, we are also being warned that Turkish government
reluctance to shut down troubled banks and assume their liabilities may
deepen the crisis. �The government has already placed 10 troubled banks in
receivership. According to sources familiar with the talks, the IMF is
pressing officials in Ankara to take over and close more of the country's 81
banks, a politically difficult step that would cause powerful owners to lose
their investments. In return, the government would guarantee all or most of
the depositors� funds.� Notice whose cronyism is subject to criticism and
whose is not. For the Turkish government to worry about Turkish business
loses is irresponsible cronyism. But when the IMF urges the government of a
developing country to guarantee the funds of wealthy international
depositors -- in this case German banks financing the IMF privatization
program in Turkey! -- it is only sound crisis management.
One question is whether the IMF bailout will work in Turkey in even the most
narrow terms. We are informed: �The flow of investment funds out of the
country has led the central bank to spend at least $6 billion of its $18
billion foreign exchange reserves in the last two weeks shoring up the
lira -- buying the currency to offset the downward pressure on its value
caused by investors selling it to buy dollars and leave the country.
Analysts fear that if the IMF does not quickly give Turkey its requested $5
billion emergency loan, the government could soon run out of foreign
reserves and be unable to support the lira. In that case, the currency's
value would likely plummet.� Whereas the IMF pulled off a successful bailout
in Mexico in 1995, they failed to do so in East Asia in 1997 where it was
predominantly Japanese banks and multinational companies who stood to lose,
as opposed to US banks and companies in Mexico. Technical �success� in
Mexico was due to the speed and size of the bailout package. In Asia the IMF
was slow and cheap, concentrating instead on forcing internal �reforms� in
the stricken economies. The US Treasury Department even dispatched then
deputy secretary Larry Summers to tell the Japanese in no uncertain terms
that their offer to put up $100 billion for bailouts without conditions was
unacceptable. Turkey has already spent a third of its foreign exchange
reserves in just two weeks to prop up the lira. Whether $5 billion from the
IMF will prove enough, and arrive quickly enough to ward off the speculative
attack on the Turkish lira remains to be seen. I have no doubt what the
German government will be lobbying the new German managing director of the
IMF to do! Whether Larry Summers proves more interested in using the crisis
to force further debilitating �reforms� on Turkey, or more interested in
staving off an international financial crisis and any possible contagion,
remains to be seen.
But whether the IMF bail out is a technical success, as it was in Mexico, or
a failure, as it was in East Asia, is not the most important issue.
Technical success means international investors will not suffer and the
stricken economy will recover more quickly. Technical failure means greater
investor loses, extending to taxpayers, contagion effects in other emerging
markets, and a much deeper and longer depression in the afflicted economy.
But in either case IMF policies are detrimental to the interests of
developing economies as they tie them ever more tightly to the torture rack
of highly leveraged international wealth management. At a minimum, the
crisis in Turkey proves once again that playing the IMF game -- reducing
government spending, privatizing public services, opening completely to
international investment, and accumulating what used to be more than
sufficient foreign exchange reserves to adequately protect your currency
($18 billion in the case of Turkey!) � is no protection at all from economic
ruin in the brave new world of unchecked neoliberalism.
Update: Financial crisis are fast breaking stories. On December 7, 2000
Molly Moore wrote: �The International Monetary Fund today announced a $10
billion credit package for Turkey in an effort to stem a financial crisis
that has seriously undermined the nation's economy and threatened to spread
to other emerging markets.� What are we supposed to think when the Turkish
government asks for a $5 billion bailout one day and is delivered a $10
billion bailout the next! Could it be that somebody at the Fund is just a
little concerned? But obviously Fund concern is not limiting its demands, as
we also read that the Turkish government has caved to Fund pressure to
assume responsibility for bank deposits and speed up privatization: �IMF
officials were concerned that Turkey had not responded sufficiently to the
banking scandal that has left 11 of the nation's 81 banks in receivership.
Turkish Prime Minister Bulent Ecevit said today that the government would
make bolder efforts to insure deposits in the nation�s troubled banks and
will move to begin privatization of the state-owned telephone company, Turk
Telecom, Turkish Airlines and the power and electricity sector by the end of
next week.� Obviously what managers at the Fund have learned from a year of
escalating protests and public concern is to rev neoliberalism up to warp
speed.
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