History of the world economy

The IMF's "Contract on the World"

By Sue Bailey, in Workers World,
4/11 January 1996

"Neoliberal capitalism carries injustices and inequity in its genetic code. Latin America is poor, and its people are poor because they have been exploited by the rich."

Who said this? Some might guess Fidel Castro. No, these words came from Honduran Archbishop Oscar Andres Rodriguez Maradiaga at the Latin American Bishops Council last May.

Why were the bishops talking about neoliberal capitalism? Because the number of people living in poverty in Latin America has nearly doubled since 1980--reaching an alarming 200 million people, 40 percent of the population.

Neoliberalism or new liberalism--the brainchild of Milton Friedman, F. Von Hayec and the Chicago school of bourgeois economists--asserts that the economic crises of the 1970s was due to "excessive government intervention in economic affairs."

Neoliberalism advocates the survival only of those companies that set up rules to maximize profits with no obligation to the environment, health-and-safety standards, or provisions to assure job security and a living wage.

The Contract with America and downsizing are neoliberalism.

The International Monetary Fund and the World Bank implement neoliberal policies around the globe, especially in the developing countries. For instance, in order to borrow money, a country has to develop an IMF-approved Structural Adjustment Program, or SAP.

For countries representing 80 percent of the world's population, the SAP has become the dominant economic policy--with consequences that are all too predictable.

In Zimbabwe, SAP is called "Suffering for African People." And it is.

For developing countries, SAP is the late 20th-century version of sharecropping. Once entangled with the IMF, it's almost impossible to get out of debt. Independence is sacrificed.

For instance, in Africa, south of the Sahara--where 18 of the 20 poorest countries are located--the foreign debt has tripled since 1980 to $180 billion.

The debt burden was 110 percent of the region's Gross National Product in 1991. Just to service the debt costs $10 billion each year--four times the amount spent on health and education.

For the entire Third World, the debt went from $100 billion in 1970 to $1,350 billion--or $1.3 trillion--by 1990.

The IMF and World Bank, which control vast amounts of finance capital, agree to lend money to cash-starved developing countries only in exchange for a thorough reorganization of that country's economic, political and police structures.

The loan, which is needed for industrial development, is actually a noose. As Cuban President Fidel Castro said at the Fourth Latin American and Caribbean meeting last January, they [the U.S. and Western bankers] want to be the owners of the principal industries with which they would undermine the independence of developing countries--not only actually, but officially.

Fidel is so right. SAPs wrench open the economies to imperialist takeover; divert money from vital social programs for interest payments to foreign banks; destroy indigenous agriculture by gearing the production of foodstuffs for export rather than consumption; and create cheap labor pools for multinationals that manufacture goods for export to the home country.

SAPs also destroy national industries by first privatizing and then selling them to foreign investors. As the United Nations Development Program admitted in a 1993 memo, privatization has been a "garage sale" to the largest transnational corporations.

The results have been devastating.

In Peru, massive privatization took the jobs of 300,000 workers. In Poland, the transportation system has been sold, and fares have risen 61 percent.

Nine out of 10 of the largest privatized enterprises in Hungary were purchased outright by U.S. and other transnational corporations. In Mexico, over 1,000 state- owned enterprises were sold.

These are life-and-death issues of our class.