The IMF and World Bank talk good governance, but walk with state-capturers
What is it about Washington’s hallowed international financial hallways in buildings just west of the White House and Treasury, and north of the Federal Reserve, that makes it so difficult for BWI bureaucrats to break the pattern of intra-elite corruption? To be sure, the extreme pressure of geopolitics often suffocates financial ethics, for as establishment economist Rudiger Dornbusch remarked in 1998, “The IMF is a toy of the United States to pursue its economic policy offshore,” a problem that won’t go away while Washington both retains veto power over Bank and Fund policies and projects, and props up favoured dictators (see IMF and World Bank decision-making and governance).
But there is a deeper reason for sustained corruption: neoliberal ideology. From North Africa to South Africa, financial deal-making with explicitly-corrupt governments is hard-wired into the Bank and IMF, even while the BRICS’ own ‘alternative’ institution, the New Development Bank, appears to have exactly the same problem in relation to its dozen South African portfolio credits, and while the (still-notional) BRICS Contingent Reserve Arrangement empowers the IMF because if a country wants to borrow more than 30 per cent of its quota it must first sign up for a structural adjustment programme – designed at 18th & H Streets in NW Washington. The BRICS institutions are not actually alternatives after all, but amplifiers of malgovernance, given the political pressure to conform to both borrower desires – e.g. Vladimir Putin’s crony capitalism or South African parastatal agencies’ service to the minerals-energy complex – and the inevitable New York credit rating agency squeeze (see At Issue Summer 2020). That, in turn, ironically compelled the BRICS Bank to join Western financial sanctions against its own 18 per cent-shareholder Moscow immediately after the February 2022 invasion of Ukraine, and maintain them even under the 2023 Bank presidency of Putin’s ally, Dilma Rousseff.
Lessons of the Arab Spring, unlearned in Washington
A dozen years ago, IMF and Bank back-scratching patronage appeared on the verge of collapse in North Africa. In 2011, millions of pro-democracy protesters in Tunisia, Egypt, Libya and Algeria ran up against brutality inflicted by not only tyrannical, ultra-corrupt regimes. Behind the scenes in each case were World Bank and IMF officials who supported (and often financed) economic injustice, even as austerity put unbearable pressure on society. Most notorious was Strauss-Kahn, who in 2008 was feted by Tunisian tyrant Zine El Abidine Ben Ali. The IMF head was given the Order of the Tunisian Republic for his “contribution to the reinforcement of economic development at the global level.” Strauss-Kahn was effusive in return, terming Ben Ali’s economic policy “the best model for many emerging countries… Tunisia is making impressive progress in its reform agenda and its prospects are favorable.”
(After resigning, Strauss-Kahn’s own personal tax dodging – witnessed in Luxembourg prosecution and a 2016 fine – led him to register a consultancy firm in the Casablanca Finance City haven, where he was shamed again by the 2021 release of the ‘Pandora Papers.’ The revelations catalysed an investigation by former French colleagues into “aggravated tax fraud laundering” associated in part with his post-IMF employment at the Russian-parastatal oil company Rosneft.)
Codifying Strauss-Kahn’s praise for Ben Ali, two of his economists – Joël Toujas-Bernate and Rina Bhattacharya – enthused in IMF Survey Magazine in 2010 how Tunisia’s dictator had promoted “wide-ranging structural reforms aimed at enhancing its business environment and improving the competitiveness of its economy.” They praised his “prudent macroeconomic management,” an “export promotion strategy,” various free trade agreements and in finance, moves to toward liberalisation that would “transform Tunisia into a banking services hub and a regional financial market.”
And in social policy, Toujas-Bernate and Bhattacharya applauded the Tunis authorities for “reforms to labor market policies, the educational system, and public employment services that will serve to facilitate labor mobility and reduce mismatches between demand and supply in the labor market. The implementation of these reforms will be supported by several World Bank Development Policy Loans” (see What is World Bank Development Policy Financing). In “reforming the social security system” (i.e. cuts that might “buttress the pension system’s financial sustainability”) and attempting to cut “subsidies of food and fuel products,” Ben Ali won praise for “undertaking reforms to make the tax regime more business friendly” including commitments “to reduce tax rates on businesses and to offset those reductions by increasing the standard Value Added Tax (VAT) rate,” i.e., a profoundly regressive approach to taxation (see Observer Winter 2020)
The December 17, 2010 suicide-by-immolation of an immensely frustrated informal trader, Mohamed Bouazizi – after his fruit and vegetable stand was confiscated, reflecting Washington’s instructions to squeeze tax receipts from the poor – catalysed the Arab Spring revolt that pushed Ben Ali out just a month later. WikiLeaks revealed how even the U.S. State Department was appalled by the families of Ben Ali and his wife Leila Trabelsi, who controlled half the national economy and who, as Rob Prince put it, were “dominating the IMF-pressured privatisations that have marked the country’s economic transition.” In July 2019, Tunisia’s Truth and Dignity Commission sentmemoranda to the World Bank and the IMF, as well as to France, seeking reparations for Tunisian victims of human rights violations, claiming that the IMF and World Bank bear “a share of responsibility” in social unrest linked to structural adjustment policies (see Observer Autumn 2019).
As for Muammar Gaddafi’s reign in Libya, the IMF in October 2010 celebrated the regime for “reducing civil service employment” by a planned 340,000 workers, while recommending “that the retrenchment program be accelerated.” And in February 2011, the IMF promoted “an ambitious program to privatize banks” and “commended the authorities for their ambitious reform agenda, and looked forward to the effective implementation of the many important laws passed in the last year, complemented by policies aimed at adapting the labor force to the economic transformation.”
New York Times reporters Pierre Briancon and John Foley observed how, “The fund’s mission to Tripoli had somehow omitted to check whether the ‘ambitious’ reform agenda was based on any kind of popular support. Libya is not an isolated case. And the IMF doesn’t look good after it gave glowing reviews to many of the countries shaken by popular revolts in recent weeks,” including Bahrain, Algeria and Egypt. The Times journalists’ worry was that “the toppling of unpopular regimes will make it difficult for their successors to adopt the same policies. In the future, the IMF might want to add another box to check on its list of criteria: democratic support” (see Observer Winter 2019).
But because that concept was utterly foreign, neither the IMF nor Bank seemed to have any idea that promoting neoliberalism in corrupt regimes so openly would generate political instability. A February 2011 World Bank report, “Africa’s future and the World Bank’s support to it,” claimed that both Tunisia and Libya were ‘low risk’ in a map of “fragile and conflict affected states” (reprinted from the Center for Systemic Peace), even after Ben Ali was ousted by popular demand and Libya was breaking apart.
And in Egypt, where Hosni Mubarak’s dictatorship and military-capitalist regime was borrowing heavily, the IMF’s Article IV Consultation praised Cairo in 2010 for “key fiscal reforms – introducing the property tax, broadening the VAT, and phasing out energy subsidies.” Mubarak’s “fiscal and monetary policies of the past year have been in line with staff’s advice. The authorities remain committed to resuming fiscal consolidation broadly in keeping with past advice to address fiscal vulnerabilities.” There was still need, the IMF argued, for “decisive action” in “Resuming privatisation and increasing the role of carefully structured and appropriately priced Public Private Partnerships...”
From 25 January to 11 February 2011, millions of angry citizens went to the streets and Tahrir Square, forcing Mubarak to resign. He was then repeatedly convicted and jailed for blatant “presidential palaces” embezzlement of state funds, which somehow had gone unnoticed by the IMF and Bank.
But because of counter-revolutionary processes in the subsequent months and years, none of the countries being praised by the IMF and Bank in 2010 witnessed durable democratisation. And while a G8 “Deauville Partnership declaration pledged support for ‘reforms that promote transparency, accountability, and good governance’ in the Arab world,” as leading political scientist Adam Hanieh reported in 2015, the World Bank and IMF “attempted to utilise the post 2011 moment to maintain the essential characteristics of past practice, while employing a language that professes a new course and sympathy with the social justice goals of the uprisings.”
Adherence to neoliberal dogma meant that in the year that democratically-elected Egyptian president Mohamed Morsi served (2012-13) before a military coup, the IMF was back to demanding that Cairo drop food and fuel subsidies in exchange for a $4.8 billion loan. Morsi realised if he took such a step it would risk a reboot of the Arab Spring. Even his coup-installed successor, General Abdel Fattah El-Sisi (who in 2018 was later formally elected), received three bailout loans from the IMF. In 2023, the $3 billion requested by the tyrant from the IMF was contingent upon further privatisation and exchange control deregulation.
The story was initially similar in Tunisia, where after Lagarde sweet-talked its new leaders in 2012, IMF conditionality was imposed on loans in 2013 ($1.7 billion) and 2016 ($2.8 billion). But in 2023, as trade unionists opposed the IMF-mandated restructuring of 100 state companies and cuts in social subsidies, the tyrannical president Kais Saied (who in 2021 dissolved parliament and ruled by decree) ultimately rejected another $2 billion IMF bailout due to loss of sovereignty. But Saied’s securocrat regime is appreciated by European Union officials doling out generous aid in order to bridge the gap to IMF lending, so as to slow African migrant passage through Tunisia.
South Africa’s corruption continues, with more IMF and Bank funding than ever
At the southern end of Africa, the IMF and Bank were extremely generous lenders to the apartheid regime – with proceeds advancing white South African and multinational corporate mining interests – and in 1993, an $850 million Fund loan locked in neoliberal policies that decisively shifted Nelson Mandela’s government away from its 1994 democratic mandate. And World Bank economists were crucial in authoring Mandela’s 1996 homegrown structural adjustment programme, as well as biased subsequent research aiming to cover up the resulting inequality, the world’s worst.
In 2010, the Bank’s $3.75 billion Eskom loan for a 4800 MW coal-fired power plant allowed the crucial funding of manufacturer Hitachi’s state-capture of the ruling party, although the Bank’s 2007-12 president Robert Zoellick was fully aware of that corruption (which was by late 2007 already a scandal) and citizen lobbying against the loan was unprecedented (see Observer Summer 2022) When Hitachi was successfully prosecuted in 2015 under the Foreign Corrupt Practices Act by the U.S. Securities and Exchange Commission, the Bank’s ‘Vice President-Integrity’ (a controversial South African) illogically claimed that no Bank funds were affected. Moreover, as extreme structural corruption was being unveiled within the South African state – including its fraud-riddled health ministry – the IMF and Bank offered major loans in 2020-22 ostensibly for Covid relief, drawing protest at the Bank’s Johannesburg office.
Ironically, it was a quarter century ago when the World Bank began regularly fretting over state capture, particularly based on the disastrous Eastern European political transitions. In 2006 then-President Paul Wolfowitz – himself deposed a year later due to malgovernance – gave vocal Bank support to the Extractive Industries Transparency Initiative. And yet conditions prevailing among some of its most wretched borrowers – especially in Africa – mean that in the course of dogmatically promoting hard neoliberal ‘reforms,’ the Bank and IMF have regularly elided the obvious correlation between state shrinkage and crony empowerment.
the April 2011 IMF spring meetings, at Strauss-Kahn’s last press
a journalist asked about the North African uprising: “Do you
have any fears that there is perhaps a far left movement
coming through these revolutions?,” and for a then smug but
light-hearted Strauss-Kahn, this was a “Good question. Good
question. There’s always this risk, but I’m not sure it will