Episode 77: How the IMF exploits developing nations

I read Cheryl Payer's book The Debt Trap: The IMF and the Third World, which I came to by way of Donald Gibson's book Battling Wall Street.

➡️ Feudalism exists now as Feudalism 2.0. Slavery became debt slavery.

➡️ Colonialism becomes control through finance rather than overt authoritarian control.

Links:

https://www.imf.org/en/About/Factsheets/IMF-at-a-Glance

https://en.wikipedia.org/wiki/International_Monetary_Fund

https://www.amazon.com/Debt-Trap-IMF-Third-World/dp/0853453756

https://www.investopedia.com/terms/n/nixon-shock.asp

https://www.amazon.com/Engine-Inequality-Future-Wealth-America/dp/1119726743

Need more? You can visit the website at: https://consaracytheories.com/ or my own site at: https://saracausey.com/. Don't forget to check out the blog at: https://consaracytheories.com/blog. 

Sara's book Decoding the Unicorn: A New Look at Dag Hammarskjöld is available now! Click here to buy it on Amazon. 

Transcript

Transcription by Otter.ai.  Please forgive any typos!

SUMMARY KEYWORDS

IMF exploitation, developing nations, Cheryl Payer, debt trap, financial stability, international cooperation, balance of payments, economic growth, foreign aid, multinational corporations, military coups, economic crises, financial discipline, colonialism, neo-colonialism.

Welcome to con-sara-cy theories. Are you ready to ask questions you shouldn't and find information you're not supposed to know. Well, you're in the right place. Here is your host. Sara Causey,

Hello, hello, and thanks for tuning in. In tonight's episode, I will be talking about how the IMF exploits developing nations. I recently checked out Cheryl payers book the debt trap, the IMF and the third world. I actually got turned onto this by way of Donald Gibson's book battling Wall Street. It is a bit academically dense and difficult to get through at times, but the overall message, the sort of takeaway, the neat, little, tiny takeaways that we can extract from this book are very important. And even though it was published in the 70s, what has really changed? Pick out your frosty beverage of choice, and we will saddle up and take this ride. Before we get too far into the meat and potatoes of this episode, let's start off by defining exactly what is the IMF. I feel like it's one of those organizations like the Fed, you may think back to the crossover episode I did about money for nothing inside the Federal Reserve, how they had those man on the street interviews where they would ask people, do you know what the Federal Reserve is? Well, it's a bank or something. I mean, people knew of the Fed, but didn't really understand what the Fed does if we go to imf.org, we can get the official definition here, under the heading of what is the IMF, the International Monetary Fund, or IMF, works to achieve sustainable growth and prosperity for all of its 190 member countries. It does so by supporting economic policies that promote financial stability and monetary cooperation, which are essential to increase productivity, job creation and economic well being. The IMF is governed by and accountable to its member countries. The IMF has three critical missions, furthering international monetary cooperation, encouraging the expansion of trade and economic growth, and discouraging policies that would harm prosperity to fulfill these missions. IMF member countries work collaboratively with each other and with other international bodies. End, quote, okay, well, all of that sounds pretty noble. All of that sounds pretty above board. We'll slide over for a moment to Wikipedia and their page on the IMF. The International Monetary Fund is a major financial agency of the United Nations and an international financial institution funded by 190 member countries, with headquarters in Washington, DC. It is regarded as the global lender of last resort to national governments and a leading supporter of exchange rate stability. Its stated mission is working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth and reduce poverty around the world. Established in July 1944 at the Bretton Woods Conference, primarily according to the ideas of Harry Dexter white and John Maynard Keynes. It started with 29 member countries and the goal of reconstructing the international monetary system after World War Two, and now plays a central role in the management of balance of payments difficulties and international financial crises through a quota system, countries contribute funds to a pool from which countries can borrow if they experience balance of payments problems. As of 2016 the Fund had SDR, which stands for Special Drawing Rights. Of 40 No, excuse me, 477 billion, which would be in US dollars, about 667 billion. End Quote, I'm also going to the Wikipedia page about balance of payments, because this is something that Cheryl talks about in her book, and we need a good little synopsis, working definition, because this concept can get awfully dense in international economics, the balance of payments, also known as balance of international payments and abbreviated bop of a country is the difference between all money flowing into the country in a particular period of time, for example, a quarter or a year, and the outflow of money to the rest of the world. In other words, it is economic transactions between countries during a period of time. These financial transactions are made by individuals, firms and government bodies to compare receipts and payments arising out of trade of goods and services. The balance of payments consists of three components, the current account, the capital account and the financial account. The current account reflects a country's net income, while the capital. Account reflects the net change in ownership of national assets. End quote, Cheryl payers book, the debt trap was published in 1974 the back cover tells us the International Monetary Fund is the most powerful supranational government in the world today. Cheryl payer exposes and explains in clear, non technical language, the system of aid and credit in which the IMF, as the international credit agency with vast powers to dictate internal policies in the borrowing nations, is the keystone. More specifically, this book is about the efforts of poor nations to gain some control over their own economies, the role of the IMF in frustrating those efforts, and the complicity of their elites in that betrayal. Two introductory chapters sketch a model of payment crises, alternative methods for dealing with crises and the political and social effects of the solution favored by the IMF. An important theme of the book is that the death of democracy in third world countries, whether through military coups or other means is due to the contradiction between a government's responsibility to its electorate and to its foreign creditors represented by the IMF. The heart of the book is a series of major case studies which provide a fresh interpretation of the modern history of the Philippines, Indonesia, Brazil and India from the point of view of their foreign exchange needs and resources, their balance of payment crises and the effects of the intervention of the IMF. It shows also how the IMF aided the US war effort in Indochina and helped to divert Yugoslavia socialist development into the dead end of a market economy. Through examination of the external economic relations of these countries, it is possible to explain a number of events which are usually attributed to internal causes, as payment crises are now becoming endemic even in the industrialized countries. The debt trap has a relevance which extends beyond the Third World and the specific case studies which it chronicles. End Quote, even though we're told it's sort of impractical, down to earth, easy to understand, language, I don't know for me, there were times I felt like my eyes were crossing. It reminded me of a book that I talked about on my daytime broadcast, cruel optimism, by Lauren Berlant. Her main thesis is, Can optimism be cruel. Are there times when a person's dream or imagery of, quote, living the good life? Are there times when those dreams actually prevent people from living a good life? What an interesting premise. I really enjoyed delving into her thoughts about that. But the book was so academically dense and dry. My goodness, it reminded me of some times in graduate school when I had to read some books about academic pedagogy, and same thing, I would feel my eyes beginning to cross. It's like so it's almost better in some cases, listening to Lauren Berlant talk about that book on podcasts, because reading it was just a bit of a slog. If I'm being honest. There were times that this book became that way for me as well. But I want to just hit some high points. The book is worth your time. Go to the library, check it out. If you find a copy, affordable copy somewhere, it's worth your time to read it. I'm just warning you that it can get a bit dense and a bit dry. Maybe, if you're some sort of professional international economist by trade, it's speaking your language. But for me, it was, it was quite something. In the introduction, she writes, In Indonesia, Brazil, Cambodia and Argentina, the military seized power from elected governments or popular rulers within a few weeks of the coup, a mission from the International Monetary Fund arrives in each country to advise the new rulers on the reorganization of their economy. In the Philippines, Colombia and Ceylon, candidates for the post of president or prime minister campaign for election on a platform of opposition to the IMF months or even weeks after the election is won, the same leaders forget their campaign promises and come to terms with the IMF, having found it as impossible to live without it, has to live with it. In communist Yugoslavia, the IMF is unobtrusively in in attendance whenever major economic reforms are introduced which make the country more open to Western trade and investment in Laos and Cambodia, though the IMF lends its prestige and expertise to prop up anti communist governments and ensure continued Western control of Indochina. What is this powerful but publicity shy institution? How can it exercise such a profound influence on the politics and policies of so many countries. The International Monetary Fund is the most powerful supranational government in the world today. The resources it controls and its power to interfere in the internal affairs of borrowing nations give it the authority of which United Nations advocates can only dream the. This tremendous power does not inhere the core of economists who staff the IMF, nor even in the Board of Governors appointed by its member nations, the IMF must be seen as the keystone of a total system. End quote. I've said many times, so many of these people that rule over us. They're not elected. Nobody chose them. We have to answer to them. We have to live with whatever they tell us. We have to live with but we didn't pick them, and in some cases, they exist in the shadows. We don't even know who they are. At the end of the introduction, she writes, in the 1950s It was hoped that countries like India, Yugoslavia and Indonesia would lead a genuine third world whose development would avoid both the evils of capitalist exploitation and the hard labor and bitter shortages of socialist autarky. Today, that dream is dead, and all of these nations are more deeply dependent than they were at the time they gained their political independence. This is the story of how that dream was killed. The IMF is not the real villain of the piece, though it is an agent of the villains. They are the multinational corporations and capitalist governments, which are the natural enemies of the Third World independence, and can usually mobilize the resources to crush it. But this is also the story of the human errors, weaknesses and corruptibility that give the enemies of independence a fifth column within the body politic of their victims, as Mao Tse Tung warned his cadres as they took power in China in 1949 the sugar coated bullets of the bourgeoisie are likely to prove more fatal to a revolution than real bullets. End quote in chapter one titled The foreign exchange crisis, she really sets the stage. She writes, all nations need to trade with other nations. They may need to import food, either to cover a harvest shortfall and avert a famine, or to make up a deficit caused by the fact that their resources are devoted to producing commodities other than food they may want, agricultural products that cannot be grown within their country, or minerals, which are not found there. Third World countries the subject of this book, want to import capital goods and sophisticated technologies in order to raise their own level of production and feel a part of the modern world, their rich citizens want to import luxuries, which other nations produce? Some items in this list fill genuine needs. Others, like the luxury goods, may represent an obvious waste of scarce resources, capital goods and sophisticated technologies may seem necessary imports to a country that wants to industrialize. But on the other hand, they might not be necessary if the country rearranged its priorities or mobilized its own resources more effectively. End quote, so the basis there at the beginning, all nations need to trade with other nations. Another country may have something that your country needs or is unable to produce, makes sense. I go now to the beginning of chapter two, which is titled The IMF and the new style of aid giving the International Monetary Fund and its twin institution, the World Bank, were designed at a conference held at Bretton Woods in the New Hampshire mountains in 1944 the United States, which was inevitably to be the most rich and powerful nation in the immediate post war era, had for that reason, the controlling voice in designing the institution. Britain's J M Keynes argued vigorously the cause of the European nations, who were bound in the short term to be debtors to the fund. Problems of the economic development of the third world were scarcely contemplated at Bretton Woods. Most of the Third World, apart from the Latin American nations, was at that time still under colonial rule. Nevertheless, it is not possible to understand the present role of the IMF in the third world without considering its origins and its constitution. End quote. She goes on to summarize how the major nations of the world had their currencies tied to the value of gold, she then writes, The Great Depression of the 1930s saw the final abandonment of the International Gold Standard. In the attempt to salvage something from the collapse of international trade, the major trading nations devalued their currencies, ie, set their own price for them, independent of gold values, in an effort to win back export markets by lowering the international price of their products, the poor nations and colonies, no longer able to pay for their imports with exports, stopped importing because of their lack of funds, and began to produce import substitutes at home, or they entered into bilateral trading agreements in which imports from one trading partner could be paid for by exports to that country, without the expenditure of scarce gold, since their own currencies were no longer as good as gold. End quote, of course, we know that the final nail in this coffin really was when Nixon took. US dollar off the gold standard. I plan to record an episode about the Nixon shock, but for the time being, I will go to investopedia.com What Is The Nixon shock? The Nixon shock refers to the after effect of a set of economic policies announced by President Richard Nixon in 1971 most notably, the policies eventually led to the collapse of the Bretton Woods system of fixed exchange rates that took effect after World War Two. The Nixon shock relates to an economic policy shift undertaken by President Nixon to prioritize jobs growth, lower inflation and exchange rate stability. It effectively led to the end of the convertibility of US dollars into gold. The Nixon shock was the catalyst for the stagflation of the 1970s as the US dollar devalued, thanks in large part to the Nixon shock, central banks have more control. Thanks in large part to the Nixon shock, central banks have more control over their nation's money and the management of variables such as interest rates, overall money supply and velocity. Yep, thinking of old Dave on Storage Wars, yep. I really don't think that that's a coincidence. Definitely needs to be its own episode. I'm still in chapter two. I'm on page 41, of the paperback copy that I have under the heading the view from below, social and political consequences. Thus far, we have discussed the components of a typical IMF stabilization program as a consistent whole, growing logically out of the fund's constitutional commitment to promote freedom of trade, exchange and investment. What is good for international corporations may not, however, be very good for the citizens of the affected country. So it is now time to sketch briefly, the political and social effects of these programs. The case studies which follow will provide illustrations the programs result, typically in the takeover of domestically owned businesses by their foreign competitors. The stabilization program puts the squeeze on domestic capitalists in several ways, the depression which it causes cuts deeply into their sales. Devaluation raises the costs in local currency of all imports needed for their businesses and of all the unpaid debts resulting from past imports. This a severe blow in itself, is compounded by the fact that the contraction of bank credit makes it more difficult than before to get the loans they need to carry on operations. Finally, the liberalization of imports robs them of protected markets they had enjoyed before. End Quote, yeah, I warned last year over on the job market journal about the targeting of smalls and mids. It seems like small to medium banks and small to medium businesses have really been targeted in this downturn. And I argue that, first of all, this is not happening by accident. Secondly, it's going to push people into situations where, if you want to bank, you're going to have to rely on mega banks, you're going to have choice. Wank, but really it will just simply be five or six mega, mega, mega banks, and that'll be it. I think they will also herd people into large corporations. And if you like me, sit back and say, God, no, I don't want to work for some large corporate behemoth for pennies on the dollar, well then you'll have to freelance and carry your own benefits. I think that's where things are headed. Still in chapter two, on page 43 under the heading the fund's fifth column, internal allies, although the majority of a country's citizens may suffer from the effects of an IMF program, the fund has important allies within most countries, the most enthusiastic allies are the exporters, whose profits will rise if the currency is devalued. Wow. Although exporters are often foreign owned corporations where there is a strong domestic class of exporters, ie, the sugar barons. In the Philippines, this class will form a fifth column inside the country, lobbying for the IMF sponsored reforms. End quote. She also goes on in that chapter to talk about the relationship between the IMF and various military coups, as well as the correlation between debt and dependency. In chapter five, which is titled money to burn at war in Indochina, she writes, The war waged by the United States against the peoples of Vietnam, Laos and Cambodia has become the prime contemporary symbol of the clash between the forces of change and self determination and those of repression and the status quo. The presence of the IMF missions, advisors, resident representatives, fools no one about the fact that this is an American war. People neither know nor care that the IMF is there at all and expose in this sense, would be superfluous. There are nevertheless very good reasons for scrutinizing the role of the IMF in Indochina. For one, it demonstrates the astonishing length to which the IMF will go in. Subordinating itself to the political and military aims of the US government, while it abandons, in the process, any pretense of aiding the growth of a balanced economy. Similarly, it reveals the cynical us use of IMF advice and support as a fig leaf of multi lateralism for programs which are in execution almost purely American. End quote, I would say to take things even farther. I mean, okay, the Vietnam War is over now, but thinking about it in contemporary terms, I don't even think it's so much American interests as it is corporate interests, these multinational behemoth corporations and NGOs, I mean, ostensibly, on the face of it, American bidding Yes. But I think even beyond that, it's almost like getting fixated on somebody that's wearing a mask, and you're focusing on the mask. Who is the one wearing the mask? That's the question you ask in chapter six, which is titled Yugoslavia, the IMF and market socialism. She writes at the same time as it assisted the war effort against communist led revolutionaries in Indochina, the IMF was cooperating happily with a communist government in Yugoslavia by offering credits to support the cost of an important economic reform. In striking contrast to all other communist led nations, Yugoslavia has been a member in good standing of the IMF since its founding. End quote, yeah, that's because ultimately, the nomenclature of the political structure doesn't matter. It's all about compliance, and it's about whether or not the fat cats and the hyper elites can get their money. They really and truly don't give a fuck if it's a communist led government, a socialist led government, a fascist led government, a democracy wink. They don't care. It's all about being able to get what they want, money, power, control compliance. That's the name of the game. Chapter Seven, which is titled The destruction of democracy in Brazil. Brazil, like Indonesia, is one of the few success stories claimed by the IMF after a strong and bitter dose of stabilization policies applied by the military government in the mid 1960s Brazil has in recent years experienced a remarkable economic boom and claimed in 1971 the distinction of being the fastest growing economy in the world. In contrast to most other third world countries, its exports are leaping ahead with manufacturers as an ever growing proportion of the expanding total about 30% in 1972 could Brazil then be considered as a model of how poor countries can develop within the framework of international capitalism? End quote in battling Wall Street, Donald Gibson quotes Charles Murphy. Murphy made some of these points as follows, no self sustained growth is going to come from the Alliance for Progress billions, unless the client nations brace themselves for the most elementary fiscal disciplines. Some technicians suggest that without these, the most salutary course for the US might be to give no money at all. But because Kennedy has staked so much of his personal prestige on making the Alianza work, it is doubtful that bell could nerve himself for so drastic an action, even with governments as profligate as Brazil, nevertheless, long second thinking has prompted a basic question, would it not have been wiser to seek a cure for Latin America's economic woes through an international apparatus that included the Major European nations long bankers to that region and its first market. End quote, yeah, shouldn't we get the IMF? Shouldn't we get these central banks involved? Yeah, Donald writes this suggestion that nation to nation loans and aid should be dropped in favor of arrangements that would achieve more fiscal discipline and greater involvement by European lenders, accompanying other criticisms of the role that national considerations were playing in Kennedy's policy. One year after this article was published, Brazil's profligate government was overthrown by a click of military officers. The new military leaders were immediately recognized by the Johnson administration, and the coup leaders were rewarded with financial aid. End Quote, we're starting to see a pattern here, aren't we? Folks in chapter eight, which is titled The transformation of socialist India, Cheryl payer writes, India is the country which has come to symbolize the problems, hopes and frustrations of development aid for a number of reasons, its huge population, the extreme poverty of most of its people, its democratic form of government, its self styled socialism and attempts at developing planning and its stance of independence and non alignment in world politics, India is also, in gross terms, the largest user of IMF facilities among third world countries. Up to July, 1967 India had purchased a total of $1 billion in foreign exchange. Exchange from the IMF a sum almost twice as large as that for Brazil in second place. For all these reasons, India merits a place in this work. Not surprisingly, India's history since independence shows many of the same trends we have already seen in other countries, the rapid depletion of once large foreign exchange reserves, the subsequent accumulation of massive foreign debts, and along with this, the abandonment or modification of independent policies affecting the entire strategy of development for the purpose of winning foreign loans or investment, all this in the name of economic development, which in the more than a quarter century since independence has produced no real effect in eradicating the poverty which afflicts all but a small minority of its people. End, quote, yeah, I think we noticed a pattern there too. You can have your independence. You can be a democracy, theoretically, but you're not really going to get shed of us. We will just simply grab you by the short hairs and keep you under our control by using money in the conclusion, she writes, the IMF is perfectly correct when it tells governments that financial discipline and occasional painful adjustments in the structure of production are necessary for the health of the balance of payments. My quarrel with the fund stems from the fact that by conniving in the rich country's use of foreign aid as a bribe, the IMF is deliberately frustrating the very type of financial discipline and production adjustments which are most badly needed the nation which wishes to break out of the imperialisms grip must not only say nay to the IMF demands, but must also have the courage to discipline its own consumption and channel it along the most constructive lines, historically speaking, and ignoring the original distorting effects of colonialism, which have set the present patterns, nations have failed to develop not because they had too little international money, but because they had too much. All nations will find that some imports are genuinely essential, and many more are useful if properly utilized when they develop new industries and a new productive capacity, but imports are somewhat analogous to medicines administered to an ailing body. The same medicine which in small doses, AIDS and stimulates the body's own powers of recovery may, in massive amounts, innovate and addict the patient beyond hope of recovery. End quote, I think that's the point in Appendix two, which is titled the US and the fund, she writes, from its inception, the fund has been dominated by the wishes of its largest member, the United States of America, until 1956 this dominance was so absolute that decisions were made effectively by the US Secretary of Treasury, to the point that the fund's staff had no authority to negotiate conditions for drawings. End Quote, she points the finger a lot at the USA, which I completely get, as I have said, as an addendum, America, sure, but also multinational corporations, NGOs, fat cats and billionaires, they're not all Americans. Appendix three is titled reform of the IMF. The question of the motives of the IMF officials has not been touched on except obliquely in the body of the text. The question of motive or intent is not relevant to a description of the system in operation. But it becomes important when the possibilities of change are considered the fund staff are frequently criticized by other economists as being too narrowly orthodox in their theory, the implication being that they are behind the times in economic fashions and out of touch with the real world. End. Quote, yeah, anytime that somebody proposes that these organizations regulate themselves, they investigate themselves. I just tune out because I feel like that's such a waste of time. A year or two ago, I read Karen Petrus book, engine of inequality, the Fed and the future of wealth in America. And it's an interesting book, but she loses me as soon as she starts talking about the Fed should audit itself. Here's how the Fed can help itself. Here's how the Fed can be reorganized. And I'm like Ron Paul out here, fucking abolish the Fed. It needs to not exist, period. What do you mean? It needs to reform itself. It needs to investigate itself. It needs to be remade. No, it doesn't. No, it doesn't go on get so here's the real takeaway for me, the IMF exploits these countries as her drug analogy makes. You know, it's it's about getting these countries dependent on this foreign aid, getting them dependent on this money that has all kinds of strings attached, having them import things they may not even necessarily need. In some cases it may just be junk, and driving them so far into debt that they will never see the light of day. They're just going to be beholden to other people forever. I would say it's like colonialism or Neo colonialism, really turned into feudalism for everybody, and we see this happening in America. I call it feudalism 2.0 if you're trapped. In your living situation, and you're trapped in your job and you have to answer to your feudal overlords. You're just trapped full stop. We need to call it what it is. It's being trapped. It's things like indentured servitude and slavery being spread out, not abolished or done away with, but simply spread out to involve people all over regardless of race, color, country, creed, age, sexual orientation, etc. You're going to sit down, shut up, and do what you're told, eat your cricket burger, go into virtual reality, live in a coffin apartment and fuck you very much. If you don't like it, die. We'll put you in a euthanasia pod and that'll be the end of you. What's the same thing with these developing nations? Okay? Ostensibly, you have your independence. You're not ruled by some European nation full of white people anymore. But Ha, ha, not really, not really, because all of those same people behind the scenes are going to grab you by the short hairs and make sure that you're indebted forever. There is no escape. It's like Jean Paul Sara's book. No exit. You're trapped, motherfucker, and that's it. If you listen to my episode about remembering Kennedy's murder at year 61 I talked to people in developing nations, some of whom are old enough to remember Kennedy when he was president, and some of whom are not. It really struck me how many of those people agreed with what Sergey Khrushchev said he was quoted in James Douglas's book JFK and the unspeakable, saying, I really think if Kennedy had lived, we would be living in a different world. Now, I've always said I don't believe it would be utopia, like the Christmas songs or the Scriptures, the lion would lay down with the lamb. Peace on earth, good will toward men. You're going to have some people that are just always determined to try to make war and to try to throw a wrench into any engine of peace that somebody can come up with. But the survey respondents, in so many cases, said, I really think that he was killed because he was trying to make things better. I think had he lived, things would be better. We would be living in a different world today, whether you believe that or not. Here we are saddled with these central banks and bank stirs and parasite classes that just want to feed off of everybody else. It's like in Pretty Woman, we don't make anything. We don't build anything. And the lawyer snarkily replies, we make money. That's what they care about, money, power, control, obedience. Colonialism just simply became financial indentured servitude, not real independence. Stay a little bit crazy, and I will see you in the next episode.

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