The Globalizer Who Came In From the Cold

By Greg Palast, The Observer, 10 October 2001

This article is a conversation between two respected people whose expertise on the subject is so much greater than mine that I will not offer much in the way of editorial comments.

1. Greg Palast is the Ace reporter who uncovered the Florida election rip-off in Nov 2000. His book 'The Best Democracy Money Can Buy is a must read for all progressives interested in seeing a positive change in our society.

2. Joseph E. Stiglitz is especially well-known as a critic of the reigning international economic policies and the institutions that enforce them the International Monetary Fund, the World Bank and the United States Treasury Department. After a distinguished academic career on the faculty of MIT, Yale and Stanford, Stiglitz joined the Clinton administration in 1993 as member of the Council of Economic Advisors. He later was named the Councils Chairman. In 1997 he took the post of Senior Vice President and Chief Economist at the World Bank Though a consummate political insider, Stiglitz grew increasingly disillusioned with the failures of neo-liberal policy and began to voice his thinking in public speeches. Increasingly outspoken, he eventually was ousted from his World Bank post, allegedly on orders from US Treasury Secretary Larry Summers. Since leaving the bank, Stiglitz has sharpened his criticism further, making embarrassing revelations about the role of the IMF in the Russian loan scandal, among other things. In mid 2001, he joined faculty of Columbia University and on 10 October 2001, it was announced that he would be awarded the Nobel Prize in Economic Science.

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The World Banks former Chief Economists accusations are eye-popping—including how the IMF and US Treasury fixed the Russian elections.

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, Im 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 TVs Newsnight about the real, often hidden, workings of the IMF, World Bank, and the banks 51% owner, the US Treasury.

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. Theres an Assistance Strategy for every poorer nation, designed, says the World Bank, after careful in-country investigation. But according to insider Stiglitz, the Banks staff investigation consists of close inspection of a nations 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 nations 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 Banks 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 dont care if its 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 Clintons cabinet as Chairman of the Presidents council of economic advisors.

Most ill-making for Stiglitz is that the US-backed oligarchs stripped Russias 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 nations reserves can drain in days, hours. And when that happens, to seduce speculators into returning a nations 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. Youd 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. Lets 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.

Thats not surprising. The secret report notes that the plan to make the US dollar Ecuadors 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 prices.

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 its 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 Indonesias 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 Ethopias new president in the nations 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 Treasurys 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 WTOs 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 dont care, said the professor of the corporations and bank loans he worked with, if people live or die.

By the way, dont 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's 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 Wests push for elections throughout the developing world, the so-called Poverty Reduction Programs undermine democracy.

And they dont work. Black Africas 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 tenants crops. So I had to ask the professor: as you were top economist at the World Bank, why didnt the Bank follow your advice?

If you challenge [land ownership], that would be a change in the power of the elites. Thats 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.

Its 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.