Today's Winner Of The Nobel Prize In Economics
Source Dave Anderson
Date 01/10/12/22:13



The World Bank's former Chief Economist's accusations are eye-popping -
including how the IMF and US Treasury fixed the Russian elections

by Greg Palast
The Observer, London
October 10, 2001

"It has condemned people to death," the former apparatchik told me. This
was like a scene out of Le Carre. The brilliant old agent comes in from the
cold, crosses to our side, and in hours of debriefing, empties his memory of
horrors committed in the name of a political ideology he now realizes has
gone rotten.

And here before me was a far bigger catch than some used Cold War spy.
Joseph Stiglitz was Chief Economist of the World Bank. To a great extent,
the new world economic order was his theory come to life.

I "debriefed" Stigltiz over several days, at Cambridge University, in a
London hotel and finally in Washington in April 2001 during the big confab
of the World Bank and the International Monetary Fund. But instead of
chairing the meetings of ministers and central bankers, Stiglitz was kept
exiled safely behind the blue police cordons, the same as the nuns carrying
a large wooden cross, the Bolivian union leaders, the parents of AIDS
victims and the other 'anti-globalization' protesters. The ultimate insider
was now on the outside.

In 1999 the World Bank fired Stiglitz. He was not allowed quiet
retirement; US Treasury Secretary Larry Summers, I'm told, demanded a public
excommunication for Stiglitz' having expressed his first mild dissent from
globalization World Bank style.

Here in Washington we completed the last of several hours of exclusive
interviews for The Observer and BBC TV's Newsnight about the real, often
hidden, workings of the IMF, World Bank, and the bank's 51% owner, the US

And here, from sources unnamable (not Stiglitz), we obtained a cache of
documents marked, "confidential," "restricted," and "not otherwise (to be)
disclosed without World Bank authorization."

Stiglitz helped translate one from bureaucratise, a "Country Assistance
Strategy." There's an Assistance Strategy for every poorer nation,
designed, says the World Bank, after careful in-country investigation. But
according to insider Stiglitz, the Bank's staff 'investigation' consists of
close inspection of a nation's 5-star hotels. It concludes with the Bank
staff meeting some begging, busted finance minister who is handed a
'restructuring agreement' pre-drafted for his 'voluntary' signature (I have
a selection of these).

Each nation's economy is individually analyzed, then, says Stiglitz, the
Bank hands every minister the same exact four-step program.

Step One is Privatization - which Stiglitz said could more accurately be
called, 'Briberization.' Rather than object to the sell-offs of state
industries, he said national leaders - using the World Bank's demands to
silence local critics - happily flogged their electricity and water
companies. "You could see their eyes widen" at the prospect of 10%
commissions paid to Swiss bank accounts for simply shaving a few billion off
the sale price of national assets.

And the US government knew it, charges Stiglitz, at least in the case of
the biggest 'briberization' of all, the 1995 Russian sell-off. "The US
Treasury view was this was great as we wanted Yeltsin re-elected. We don't
care if it's a corrupt election. We want the money to go to Yeltzin" via
kick-backs for his campaign.

Stiglitz is no conspiracy nutter ranting about Black Helicopters. The man
was inside the game, a member of Bill Clinton's cabinet as Chairman of the
President's council of economic advisors.

Most ill-making for Stiglitz is that the US-backed oligarchs stripped
Russia's industrial assets, with the effect that the corruption scheme cut
national output nearly in half causing depression and starvation.

After briberization, Step Two of the IMF/World Bank one-size-fits-all
rescue-your-economy plan is 'Capital Market Liberalization.' In theory,
capital market deregulation allows investment capital to flow in and out.
Unfortunately, as in Indonesia and Brazil, the money simply flowed out and
out. Stiglitz calls this the "Hot Money" cycle. Cash comes in for
speculation in real estate and currency, then flees at the first whiff of
trouble. A nation's reserves can drain in days, hours. And when that
happens, to seduce speculators into returning a nation's own capital funds,
the IMF demands these nations raise interest rates to 30%, 50% and 80%.

"The result was predictable," said Stiglitz of the Hot Money tidal waves
in Asia and Latin America. Higher interest rates demolished property
values, savaged industrial production and drained national treasuries.

At this point, the IMF drags the gasping nation to Step Three:
Market-Based Pricing, a fancy term for raising prices on food, water and
cooking gas. This leads, predictably, to Step-Three-and-a-Half: what
Stiglitz calls, 'The IMF riot.'

The IMF riot is painfully predictable. When a nation is, "down and out,
[the IMF] takes advantage and squeezes the last pound of blood out of them.
They turn up the heat until, finally, the whole cauldron blows up," as when
the IMF eliminated food and fuel subsidies for the poor in Indonesia in
1998. Indonesia exploded into riots, but there are other examples - the
Bolivian riots over water prices last year and this February, the riots in
Ecuador over the rise in cooking gas prices imposed by the World Bank.
You'd almost get the impression that the riot is written into the plan.

And it is. What Stiglitz did not know is that, while in the States, BBC
and The Observer obtained several documents from inside the World Bank,
stamped over with those pesky warnings, "confidential," "restricted," "not
to be disclosed." Let's get back to one: the "Interim Country Assistance
Strategy" for Ecuador, in it the Bank several times states - with cold
accuracy - that they expected their plans to spark, "social unrest," to use
their bureaucratic term for a nation in flames.

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
poverty line. The World Bank "Assistance" plan simply calls for facing
down civil strife and suffering with, "political resolve" - and still higher

The IMF riots (and by riots I mean peaceful demonstrations dispersed by
bullets, tanks and teargas) cause new panicked flights of capital and
government bankruptcies. This economic arson has it's bright side - for
foreign corporations, who can then pick off remaining assets, such as the
odd mining concession or port, at fire sale prices.

Stiglitz notes that the IMF and World Bank are not heartless adherents to
market economics. At the same time the IMF stopped Indonesia 'subsidizing'
food purchases, "when the banks need a bail-out, intervention (in the
market) is welcome." The IMF scrounged up tens of billions of dollars to
save Indonesia's financiers and, by extension, the US and European banks
from which they had borrowed.

A pattern emerges. There are lots of losers in this system but one clear
winner: the Western banks and US Treasury, making the big bucks off this
crazy new international capital churn. Stiglitz told me about his unhappy
meeting, early in his World Bank tenure, with Ethopia's new president in the
nation's first democratic election. The World Bank and IMF had ordered
Ethiopia to divert aid money to its reserve account at the US Treasury,
which pays a pitiful 4% return, while the nation borrowed US dollars at 12%
to feed its population. The new president begged Stiglitz to let him use
the aid money to rebuild the nation. But no, the loot went straight off to
the US Treasury's vault in Washington.

Now we arrive at Step Four of what the IMF and World Bank call their
"poverty reduction strategy": Free Trade. This is free trade by the rules
of the World Trade Organization and World Bank, Stiglitz the insider likens
free trade WTO-style to the Opium Wars. "That too was about opening
markets," he said. As in the 19th century, Europeans and Americans today
are kicking down the barriers to sales in Asia, Latin American and Africa,
while barricading our own markets against Third World agriculture.

In the Opium Wars, the West used military blockades to force open markets
for their unbalanced trade. Today, the World Bank can order a financial
blockade just as effective - and sometimes just as deadly.

Stiglitz is particularly emotional over the WTO's intellectual property
rights treaty (it goes by the acronym TRIPS, more on that in the next
chapters). It is here, says the economist, that the new global order has
"condemned people to death" by imposing impossible tariffs and tributes to
pay to pharmaceutical companies for branded medicines. "They don't care,"
said the professor of the corporations and bank loans he worked with, "if
people live or die."

By the way, don't be confused by the mix in this discussion of the IMF,
World Bank and WTO. They are interchangeable masks of a single governance
system. They have locked themselves together by what are unpleasantly
called, "triggers." Taking a World Bank loan for a school 'triggers' a
requirement to accept every 'conditionality' - they average 111 per nation -
laid down by both the World Bank and IMF. In fact, said Stiglitz the IMF
requires nations to accept trade policies more punitive than the official
WTO rules.

Stiglitz greatest concern is that World Bank plans, devised in secrecy and
driven by an absolutist ideology, are never open for discourse or dissent.
Despite the West's push for elections throughout the developing world, the
so-called Poverty Reduction Programs "undermine democracy."

And they don't work. Black Africa's productivity under the guiding hand
of IMF structural "assistance" has gone to hell in a handbag. Did any
nation avoid this fate? Yes, said Stiglitz, identifying Botswana. Their
trick? "They told the IMF to go packing."

So then I turned on Stiglitz. OK, Mr Smart-Guy Professor, how would you
help developing nations? Stiglitz proposed radical land reform, an attack
at the heart of "landlordism," on the usurious rents charged by the
propertied oligarchies worldwide, typically 50% of a tenant's crops. So I
had to ask the professor: as you were top economist at the World Bank, why
didn't the Bank follow your advice?

"If you challenge [land ownership], that would be a change in the power of
the elites. That's not high on their agenda." Apparently not.

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 crises -
failures and suffering perpetrated by their four-step monetarist mambo.
Every time their free market solutions failed, the IMF simply demanded more
free market policies.

"It's a little like the Middle Ages," the insider told me, "When the
patient died they would say, 'well, he stopped the bloodletting too soon, he
still had a little blood in him.'"

I took away from my talks with the professor that the solution to world
poverty and crisis is simple: remove the bloodsuckers.

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