|The Observer (London) August 21, 2001
IMF'S FOUR STEPS TO DAMNATION
How crises, failures, and suffering finally drove a Presidential
the wrong side of the barricades
By Gregory Palast
It was like a scene out of Le Carré: the brilliant agent comes in
cold and, in hours of debriefing, empties his memory of horrors
the name of an ideology gone rotten.
But this was a far bigger catch than some used-up Cold War spy.
apparatchik was Joseph Stiglitz, ex-chief economist of the World
new world economic order was his theory come to life.
He was in Washington for the big confab of the World Bank and
Monetary Fund. But instead of chairing meetings of ministers and
bankers, he was outside the police cordons. The World Bank fired
two years ago. He was not allowed a quiet retirement: he was
purely for expressing mild dissent from globalisation World
Here in Washington we conducted exclusive interviews with
Stiglitz, for The
Observer and Newsnight, about the inside workings of the IMF, the
Bank, and the bank's 51% owner, the US Treasury.
And here, from sources unnamable (not Stiglitz), we obtained a
documents marked, 'confidential' and 'restricted'.
Stiglitz helped translate one, a 'country assistance strategy'.
assistance strategy for every poorer nation, designed, says the
after careful in-country investigation.
But according to insider Stiglitz, the Bank's 'investigation'
little more than close inspection of five-star hotels. It
concludes with a
meeting with a begging finance minister, who is handed a
agreement' pre-drafted for 'voluntary' signature.
Each nation's economy is analysed, says Stiglitz, then the Bank
minister the same four-step programme.
Step One is privatisation. Stiglitz said that rather than
objecting to the
sell-offs of state industries, some politicians - using the World
demands to silence local critics - happily flogged their
water companies. 'You could see their eyes widen' at the
commissions for shaving a few billion off the sale price.
And the US government knew it, charges Stiglitz, at least in the
case of the
biggest privatisation of all, the 1995 Russian sell-off. 'The US
view was: "This was great, as we wanted Yeltsin re-elected. We
DON'T CARE if
it's a corrupt election." '
Stiglitz cannot simply be dismissed as a conspiracy nutter. The
inside the game - a member of Bill Clinton's cabinet, chairman of
President's council of economic advisers.
Most sick-making for Stiglitz is that the US-backed oligarchs
Russia's industrial assets, with the effect that national output
nearly in half.
After privatisation, Step Two is capital market liberalisation.
this allows investment capital to flow in and out. Unfortunately,
Indonesia and Brazil, the money often simply flows out.
Stiglitz calls this the 'hot money' cycle. Cash comes in for
real estate and currency, then flees at the first whiff of
nation's reserves can drain in days.
And when that happens, to seduce speculators into returning a
capital funds, the IMF demands these nations raise interest rates
50% and 80%.
'The result was predictable,' said Stiglitz. Higher interest
property values, savage industrial production and drain national
At this point, according to Stiglitz, the IMF drags the gasping
Step Three: market-based pricing - a fancy term for raising
prices on food,
water and cooking gas. This leads, predictably, to
what Stiglitz calls 'the IMF riot'.
The IMF riot is painfully predictable. When a nation is, 'down
and out, [the
IMF] squeezes the last drop of blood out of them. They turn up
until, finally, the whole cauldron blows up,' - as when the IMF
food and fuel subsidies for the poor in Indonesia in 1998.
exploded into riots.
There are other examples - the Bolivian riots over water prices
and, this February, the riots in Ecuador over the rise in cooking
imposed by the World Bank. You'd almost believe the riot was
And it is. What Stiglitz did not know is that Newsnight obtained
documents from inside the World Bank. In one, last year's Interim
Assistance Strategy for Ecuador, the Bank several times suggests
- with cold
accuracy - that the plans could be expected to spark 'social
That's not surprising. The secret report notes that the plan to
make the US
dollar Ecuador's currency has pushed 51% of the population below
The IMF riots (and by riots I mean peaceful demonstrations
bullets, tanks and tear gas) cause new flights of capital and
bankruptcies This economic arson has its bright side - for
can then pick off remaining assets at fire sale prices.
A pattern emerges. There are lots of losers but the clear winners
seem to be
the western banks and US Treasury.
Now we arrive at Step Four: free trade. This is free trade by the
the World Trade Organisation and the World Bank, which Stiglitz
the Opium Wars. 'That too was about "opening markets",' he said.
As in the
nineteenth century, Europeans and Americans today are kicking
to sales in Asia, Latin American and Africa while barricading our
markets against the Third World 's agriculture.
In the Opium Wars, the West used military blockades. Today, the
can order a financial blockade, which is just as effective and
just as deadly.
Stiglitz has two concerns about the IMF/World Bank plans. First,
because the plans are devised in secrecy and driven by an
ideology, never open for discourse or dissent, they 'undermine
Second, they don't work. Under the guiding hand of IMF structural
'assistance' Africa's income dropped by 23%.
Did any nation avoid this fate? Yes, said Stiglitz, Botswana.
'They told the IMF to go packing.' Stiglitz proposes radical land
attack on the 50% crop rents charged by the propertied
Why didn't the World Bank and IMF follow his advice?
'If you challenge [land ownership], that would be a change in the
the elites. That's not high on their agenda.'
Ultimately, what drove him to put his job on the line was the
failure of the
banks and US Treasury to change course when confronted with the
failures, and suffering perpetrated by their four-step monetarist
'It's a little like the Middle Ages,' says the economist, 'When
died they would say well, we stopped the bloodletting too soon,
he still had
a little blood in him.'
Maybe it's time to remove the bloodsuckers.