Financing the rich

Najma Sadeque

 

After getting their fingers burnt - or rather, their countries, over and over again - Third World governments know by now that the World Bank and IMF are not the 'development' good Samaritans they have always pretended to be but a self-serving tool, essentially of the US or the international finance system, depending on point of view. One can only wonder what might have happened after the Second World War if the US had not come up with its Marshall Plan to give grants to Europe to rebuild their war-devastated infrastructure and kick-start their economies again.
Without the Marshall Plan, the World Bank and IMF would have been doing business in Europe for at least a decade before turning their undesirable attention to the southern countries. But by then, at least, the elite rulers of the Third World countries would have got over their colonial hangover. They would have been more likely to have faced reality so as to design the running of their economies in keeping with their own inherent capabilities and rich resources instead of beginning to re-sell themselves - this time voluntarily - to their old colonizers plus an additional superpower at the other end of the world.
Most people have never heard of the International Finance Corporation. And if they have, they usually think it's an independent investment house. Well, it is and isn't. What should be known is that the IFC is the private sector lending arm of the World Bank founded about a decade after the World Bank and IMF. The justification for creating it was that small- and medium-sized businesses in developing countries had a hard time getting credit, so the IFC resolve that problem by lending only to them. -- It even spouts, incongruously, 'poverty-reduction' rhetoric on its website. It was a shrewd if dishonest backdoor method of the World Bank for indulging in private investment when it is not supposed to. But the ethics of the IFC cannot be expected to be much better than that of the World Bank that created it.
The IFC is one of the smallest branches of the World Bank, and in a manner of speaking, that makes it almost invisible as it goes about doing business where it is not supposed to. The IFC was essentially USA's brainchild which is why it was mainly US support that got it off the ground.
Like the World Bank and IMF, it is totally devoid of transparency and accountability - but it has an excuse that the parent organizations don't have - the claim of the need for "business confidentiality" in the private sector. But then, the World Bank is not supposed to be running a side-business under a lie either - consider the fact that the IFC has a particular fondness for investing in large multinational hotel chains and oil corporations.
It created its internal review body as late as 1999 more than 40 years after it was created. Not that it has made any difference. -- The Compliance Advisor/Ombudsman as it is known, submits reports to the president of the World Bank. But the reports are non-binding. It's like the little wolf reporting to the big one.
What small and medium-sized enterprises has the IFC been lending to? The obvious place to look for them, according to their stated goals, would be in the poorest countries. But those are just the places they seem to avoid. They are even otherwise hard to find, since they are overshadowed - if at all they exist - behind loan beneficiaries like Hilton and Exxon-Mobil.
The fact is that most of IFC's lending, in 2004 for example, went to projects in middle-income countries. But should IFC be going to where private financing exists already, or should they be going where it doesn't? - in which case, there might be some justification in lending to bigger than small and medium enterprises.
The wars in the Middle East hasn't affected western business too much. According to Vital Signs 2006, global natural gas consumption in 2004 was more than 15 times greater than in 1950; oil consumption or eight times more (at 3.7 billion tons); and coal, two-and-a-half times more. Most was consumed by those who already have more than enough.
In 2005, enough money was spent on advertising to enable the Third World to get developed - if it were allowed to choose its own economical, indigenous ways -- $570 billion. About half that advertising money, most of which originates from the industrialised North, was spent in the United States alone
The world's governments spent more than a trillion dollars on the military in 2004, the highest figure since the end of the Cold War. A fraction of that money would have fed, clothed, sheltered and created jobs for the entire world's unemployed and cared for the unemployable too (including minors, elderly, and disabled) which would have done away with the causes of conflict and high military spending. And yet the Third World is always in deficit, the LDCs alone having a combined trade deficit of $6.5 billion in 2004, while their energy consumption is 1.6 percent the level of rich countries.
The point is there is so much scope for investing in development. -- Both honestly and profitably. But the IFC doesn't put its money where its mouth is, any more than does the World Bank/IMF.
Today the IFC is one of the fastest growing branches of the World Bank what with funding commitments to it being replenished by about 12% annually. By 2009, it is expected to go up by 30-50%.
After the WTO barged in, banks and other investment houses have been flooding the developing world, so where does the IFC fit into this scheme of things? As a publicly-financed institution lending at market rates, it is certainly not supposed to be competing. That will sooner or later give it an undue advantage since it is being propped by governments that are in turn propped up by their taxpayers, unlike other private banks that have to compete for investment with their own resources and that of their clients.
It looks suspiciously as if the IFC is trying to carve out a permanent and ever-growing niche for itself while it can get away with doing so at the expense of governments, because that scope will not last either. The World Bank and IMF are not doing quite as well, business-wise, as before. They have after all, only about a couple of hundred governments as clients. Not that this isn't a lot of clientele if one is a creative and beneficial banker. Banks are supposed to help enterprises to grow and do well which leads to enterprises keep returning to the same helpful bank for further credit to do something new.
But World Bank's and IMF's strategy from the outset has been based on creating permanent dependency in their clients, NOT development, to facilitate continued exploitation by the Northern industrialized countries. In the bargain the World Bank and IMF has impoverished most of its client countries. Most have been tricked into mortgaging their countries and country assets several times over under the most dishonest and treacherous terms.
There are little grounds left to borrow more when they can't even repay previous loans. The fact that they are calculated in a deceitful manner and most loans have already been repaid on the basis of simple interest, not the unwarranted compound interest which should not apply to governments trying to aid themselves, is a different issue.
The upshot is when there aren't enough places to lend to, there'll be less and less profits, and the bloated salaries and perks and lifestyles of the World Bank/IMF will not be able to be maintained indefinitely. That leaves the real, competitive world of private banking, a very tough and different ball-game of which the World Bank/IMF have no experience whatsoever. They are not even able to show benefits from lending they don't have to sweat for, since all they do is borrow from private capital markets and re-lend at a higher rate of interest. How will they operate in the open world?
Maybe that's why IFC is an interim 'school' for them through which to gain some learning and experience for the time they might have to make a drastic change. Maybe they are developing pals in the right places like large infrastructure projects and oil, mining and gas projects which took up 13.6% of their spending in 2005. Education and healthcare, in comparison, don't make much money, so they wisely lent only about 1.4% of their money on these. A glance at the annual report will show that they are spending 11 times more on extractive and infrastructure projects which actually compound and spread poverty (by World Bank's own admission) than they do on socially beneficial projects.
The IFC claims it can finance projects where nobody else is willing to put their money into. Now this is not quite true, because that is exactly industrialized governments already do through special financing agencies of their own to back risky investments in unstable countries which no other sane bank will pick up. Not only that, if the investment fails for whatever reason such as war or being thrown out for overcharging, the investor has nothing to lose as the government guarantees to compensate him to the full. Is that the direction IFC is heading? Who knows? But if the US has a hand in it, anything is possible.
In the meantime, since it is doing no good to the majority of the world that does need credit, various people's movements around the world are stepping up their demands for the opportunistic IFC to be closed down along with the parasitical World Bank and IMF. As the '50 Years is Enough' Network says, the IFC plays the role of financing those who are already rich. Even private sector professional question why an international, public sector backed institution should be allowed to do that.