Category Archives: IMF and World Bank

The Russian Loan and the IMF’s One-Two Punch: Ukraine Denouement

The Russian Loan and the IMF’s One-Two Punch

Ukraine Denouement

by MICHAEL HUDSON

The fate of Ukraine is now shifting from the military battlefield back to the arena that counts most: that of international finance. Kiev is broke, having depleted its foreign reserves on waging war that has destroyed its industrial export and coal mining capacity in the Donbass (especially vis-à-vis Russia, which normally has bought 38 percent of Ukraine’s exports). Deeply in debt (with €3 billion falling due on December 20 to Russia), Ukraine faces insolvency if the IMF and Europe do not release new loans next month to pay for new imports as well as Russian and foreign bondholders.

Finance Minister Natalia Yaresko announced on Friday that she hopes to see the money begin to flow in by early March.[1] But Ukraine must meet conditions that seem almost impossible: It must implement an honest budget and start reforming its corrupt oligarchs (who dominate in the Rada and control the bureaucracy), implement more austerity, abolish its environmental protection, and make its industry “attractive” to foreign investors to buy Ukraine’s land, natural resources, monopolies and other assets, presumably at distress prices in view of the country’s recent devastation.

Looming over the IMF loan is the military situation. On January 28, Christine Lagarde said that the IMF would not release more money as long as Ukraine remains at war. Cessation of fighting was to begin Sunday morning. But Right Sector leader Dmytro Yarosh announced that his private army and that of the Azov Battalion will ignore the Minsk agreement and fight against Russian-speakers. He remains a major force within the Rada.

How much of Ukraine’s budget will be spent on arms? Germany and France made it clear that they oppose further U.S. military adventurism in Ukraine, and also oppose NATO membership. But will Germany follow through on its threat to impose sanctions on Kiev in order to stop a renewal of the fighting? For the United States bringing Ukraine into NATO would be the coup de grace blocking creation of a Eurasian powerhouse integrating the Russian, German and other continental European economies.

The Obama administration is upping the ante and going for broke, hoping that Europe has no alternative but to keep acquiescing. But the strategy is threatening to backfire. Instead of making Russia “lose Europe,” the United States may have overplayed its hand so badly that one can now think about the opposite prospect. The Ukraine adventure turn out to be the first step in the United States losing Europe. It may end up splitting European economic interests away from NATO, if Russia can convince the world that the epoch of armed occupation of industrial nations is a thing of the past and hence no real military threat exists – except for Europe being caught in the middle of Cold War 2.0.

For the U.S. geopolitical strategy to succeed, it would be necessary for Europe, Ukraine and Russia to act against their own potential economic self-interest. How long can they be expected to acquiesce in this sacrifice? At what point will economic interests lead to a reconsideration of old geo-military alliances and personal political loyalties?

The is becoming urgent because this is the first time that continental Europe has been faced with such war on its own borders (if we except Yugoslavia). Where is the advantage for Europe supporting one of the world’s most corrupt oligarchies north of the Equator?

America’s Ukrainian adventure by Hillary’s appointee Victoria Nuland (kept on and applauded by John Kerry), as well as by NATO, is forcing Europe to commit itself to the United States or pursue an independent line. George Soros (whose aggressive voice is emerging as the Democratic Party’s version of Sheldon Adelson) recently urged (in the newly neocon New York Review of Books) that the West give Ukraine $50 billion to re-arm, and to think of this as a down payment on military containment of Russia. The aim is old Brzezinski strategy: to foreclose Russian economic integration with Europe. The assumption is that economic alliances are at least potentially military, so that any power center raises the threat of economic and hence political independence.

The Financial Times quickly jumped on board for Soros’s $50 billion subsidy.[2] When President Obama promised that U.S. military aid would be only for “defensive arms,” Kiev clarified that it intended to defend Ukraine all the way to Siberia to create a “sanitary cordon.”

First Confrontation: Will the IMF Loan Agreement try to stiff Russia?

The IMF has been drawn into U.S. confrontation with Russia in its role as coordinating Kiev foreign debt refinancing. It has stated that private-sector creditors must take a haircut, given that Kiev can’t pay the money its oligarchs have either stolen or spent on war. But what of the €3 billion that Russia’s sovereign wealth fund loaned Ukraine, under London rules that prevent such haircuts? Russia has complained that Ukraine’s budget makes no provision for payment. Will the IMF accept this budget as qualifying for a bailout, treating Russia as an odious creditor? If so, what kind of legal precedent would this set for sovereign debt negotiations in years to come?

International debt settlement rules were thrown into a turmoil last year when U.S. Judge Griesa gave a highly idiosyncratic interpretation of the pari passu clause with regard to Argentina’s sovereign debts. The clause states that all creditors must be treated equally. According to Griesa (uniquely), this means that if any creditor or vulture fund refuses to participate in a debt writedown, no such agreement can be reached and the sovereign government cannot pay any bondholders anywhere in the world, regardless of what foreign jurisdiction the bonds were issued under.

This bizarre interpretation of the “equal treatment” principle has never been strictly applied. Inter-governmental debts owed to the IMF, ECB and other international agencies have not been written down in keeping with private-sector debts. Russia’s loan was carefully framed in keeping with London rules. But U.S. diplomats have been openly – indeed, noisily and publicly – discussing how to “stiff” Russia. They even have thought about claiming that Russia’s Ukraine loans (to help it pay for gas to operate its factories and heat its homes) are an odious debt, or a form of foreign aid, or subject to anti-Russian sanctions. The aim is to make Russia “less equal,” transforming the concept of pari passu as it applies to sovereign debt.

Just as hedge funds jumped into the fray to complicate Argentina’s debt settlement, so speculators are trying to make a killing off Ukraine’s financial corpse, seeing this gray area opened up. The Financial Times reports that one American investor, Michael Hasenstab, has $7 billion of Ukraine debts, along with Templeton Global Bond Fund.[3] New speculators may be buying Ukrainian debt at half its face value, hoping to collect in full if Russia is paid in full – or at least settle for a few points’ quick run-up.
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The U.S.-sponsored confusion may tie up Russia’s financial claims in court for years, just as has been the case with Argentina’s debt. At stake is the IMF’s role as debt coordinator: Will it insist that Russia take the same haircut that it’s imposing on private hedge funds?

This financial conflict is becoming a new mode of warfare. Lending terms are falling subject to New Cold War geopolitics. This battlefield has been opened up by U.S. refusal in recent decades to endorse the creation of any international body empowered to judge the debt-paying capacity of countries. This makes every sovereign debt crisis a grab bag that the U.S. Treasury can step in to dominate. It endorses keeping countries in the U.S. diplomatic orbit afloat (although on a short leash), but not countries that maintain an independence from U.S. policies (e.g., Argentina and BRICS members).

Looking forward, this position threatens to fracture global finance into a U.S. currency sphere and a BRICS sphere. The U.S. has opposed creation of any international venue to adjudicate the debt-paying capacity of debtor nations. Other countries are pressing for such a venue in order to save their economies from the present anarchy. U.S. diplomats see anarchy as offering an opportunity to bring U.S. diplomacy to bear to reward friends and punish non-friends and “independents.” The resulting financial anarchy is becoming untenable in the wake of Argentina, Greece, Ireland, Spain, Portugal, Italy and other sovereign debtors whose obligations are unpayably high.

The IMF’s One-Two Punch leading to privatization sell-offs to rent extractors            

IMF loans are made mainly to enable governments to pay foreign bondholders and bankers, not spend on social programs or domestic economic recovery. Sovereign debtors must agree to IMF “conditionalities” in order to get enough credit to enable bondholders to take their money and run, avoiding haircuts and leaving “taxpayers” to bear the cost of capital flight and corruption.

The first conditionality is the guiding principle of neoliberal economics: that foreign debts can be paid by squeezing out a domestic budget surplus. The myth is that austerity programs and cuts in public spending will enable governments to pay foreign-currency debts – as if there is no “transfer problem.”

The reality is that austerity causes deeper economic shrinkage and widens the budget deficit. And no matter how much domestic revenue the government squeezes out of the economy, it can pay foreign debts only in two ways: by exporting more, or by selling its public domain to foreign investors. The latter option leads to privatizing public infrastructure, replacing subsidized basic services with rent-extraction and future capital flight. So the IMF’s “solution” to the deb problem has the effect of making it worse – requiring yet further privatization sell-offs.

This is why the IMF has been wrong in its economic forecasts for Ukraine year after year, just as its prescriptions have devastated Ireland and Greece, and Third World economies from the 1970s onward. Its destructive financial policy must be seen as deliberate, not an innocent forecasting error. But the penalty for following this junk economics must be paid by the indebted victim.

In the wake of austerity, the IMF throws its Number Two punch. The debtor economy must pay by selling off whatever assets the government can find that foreign investors want. For Ukraine, investors want its rich farmland. Monsanto has been leasing its land and would like to buy. But Ukraine has a law against alienating its farmland and agricultural land to foreigners. The IMF no doubt will insist on repeal of this law, along with Ukraine’s dismantling of public regulations against foreign investment.

International finance as war

The Ukraine-IMF debt negotiation shows is why finance has become the preferred mode of geopolitical warfare. Its objectives are the same as war: appropriation of land, raw materials (Ukraine’s gas rights in the Black Sea) and infrastructure (for rent-extracting opportunities) as well as the purchase of banks.

The IMF has begun to look like an office situated in the Pentagon, renting a branch office on Wall Street from Democratic Party headquarters, with the rent paid by Soros. His funds are drawing up a list of assets that he and his colleagues would like to buy from Ukrainian oligarchs and the government they control. The buyout payments for partnership with the oligarchs will not stay in Ukraine, but will be moved quickly to London, Switzerland and New York. The Ukrainian economy will lose the national patrimony with which it emerged from the Soviet Union in 1991, still deeply in debt (mainly to its own oligarchs operating out of offshore banking centers).

Where does this leave European relations with the United States and NATO?

The two futures

A generation ago the logical future for Ukraine and other post-Soviet states promised to be an integration into the German and other West European economies. This seemingly natural complementarity would see the West modernize Russian and other post-Soviet industry and agriculture (and construction as well) to create a self-sufficient and prosperous Eurasian regional power. Foreign Minister Lavrov recently voiced Russia’s hope at the Munich Security Conference for a common Eurasian Union with the European Union extending from Lisbon to Vladivostok. German and other European policy looked Eastward to invest its savings in the post-Soviet states.

This hope was anathema to U.S. neocons, who retain British Victorian geopolitics opposing the creation of any economic power center in Eurasia. That was Britain’s nightmare prior to World War I, and led it to pursue a diplomacy aimed at dividing and conquering continental Europe to prevent any dominant power or axis from emerging.

America started its Ukrainian strategy with the idea of splitting Russia off from Europe, and above all from Germany. In the U.S. playbook is simple: Any economic power is potentially military; and any military power may enable other countries to pursue their own interest rather than subordinating their policy to U.S. political, economic and financial aims. Therefore, U.S. geostrategists view any foreign economic power as a potentially military threat, to be countered before it can gain steam.

We can now see why the EU/IMF austerity plan that Yanukovich rejected made it clear why the United States sponsored last February’s coup in Kiev. The austerity that was called for, the removal of consumer subsidies and dismantling of public services would have led to an anti-West reaction turning Ukraine strongly back toward Russia. The Maidan coup sought to prevent this by making a war scar separating Western Ukraine from the East, leaving the country seemingly no choice but to turn West and lose its infrastructure to the privatizers and neo-rentiers.

But the U.S. plan may lead Europe to seek an economic bridge to Russia and the BRICS, away from the U.S. orbit. That is the diplomatic risk when a great power forces other nations to choose one side or the other.

The silence from Hillary

Having appointed Valery Nuland as a holdover from the Cheney administration, Secretary of State Hillary Clinton joined the hawks by likening Putin to Hitler. Meanwhile, Soros’s $10 million on donations to the Democratic Party makes him one of its largest donors. The party thus seems set to throw down the gauntlet with Europe over the shape of future geopolitical diplomacy, pressing for a New Cold War.

Hillary’s silence suggests that she knows how unpopular her neocon policy is with voters – but how popular it is with her donors. The question is, will the Republicans agree to not avoid discussing this during the 2016 presidential campaign? If so, what alternative will voters have next year?

This prospect should send shivers down Europe’s back. There are reports that Putin told Merkel and Holland in Minsk last week that Western Europe has two choices. On the one hand, it and Russia can create a prosperous economic zone based on Russia’s raw materials and European technology. Or, Europe can back NATO’s expansion and draw Russia into war that will wipe it out.

German officials have discussed bringing sanctions against Ukraine, not Russia, if it renews the ethnic warfare in its evident attempt to draw Russia in. Could Obama’s neocon strategy backfire, and lose Europe? Will future American historians talk of who lost Europe rather than who lost Russia?

Michael Hudson’s book summarizing his economic theories, “The Bubble and Beyond,” is now available in a new edition with two bonus chapters on Amazon. His latest book is Finance Capitalism and Its Discontents.  He is a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. He can be reached via his website, mh@michael-hudson.com

Notes.

[1] Fin min hopes Ukraine will get new IMF aid in early March – Interfax, http://research.tdwaterhouse.ca/research/public/Markets/NewsArticle/1664-L5N0VN2DO-1

5:40AM ET on Friday Feb 13, 2015 by Thomson Reuters

[2] “The west needs to rescue the Ukrainian economy,” Financial Times editorial, February 12, 2015.

[3] Elaine Moore, “Contrarian US investor with $7bn of debt stands to lose most if Kiev imposes haircut,” Financial Times, February 12, 2015.

 

West’s agri-giants snap up Ukraine

West’s agri-giants snap up Ukraine

Frederic Mousseau, Asia Times, January 28, 2015

http://www.atimes.com/atimes/Central_Asia/CEN-02-280115.html

OAKLAND, United States – At the same time as the United States, Canada and the European Union announced a set of new sanctions against Russia in mid-December last year, Ukraine received US$350 million in US military aid, coming on top of a $1 billion aid package approved by the US Congress in March 2014.

Western governments’ further involvement in the Ukraine conflict signals their confidence in the cabinet appointed by the new overnment earlier in December 2014. This new government is unique given that three of its most important ministries were granted to foreign-born individuals who received Ukrainian citizenship just hours before their appointment.

The Ministry of Finance went to Natalie Jaresko, a US-born and educated businesswoman who has been working in Ukraine since the mid-1990s, overseeing a private equity fund established by the US government to invest in the country. Jaresko is also the CEO of Horizon Capital, an investment firm that administers various Western investments in the country.

As unusual as it may seem, this appointment is consistent with what looks more like a takeover of the Ukrainian economy by Western interests. In two reports – “The Corporate Takeover of Ukrainian Agriculture” and “Walking on the West Side: The World Bank and the IMF in the Ukraine Conflict” – the Oakland Institute has documented this takeover, particularly in the agricultural sector.

A major factor in the crisis that led to deadly protests and eventually to president Viktor Yanukovych’s removal from office in February 2014 was his rejection of a European Union Association agreement aimed at expanding trade and integrating Ukraine with the EU – an agreement that was tied to a US$17 billion loan from the International Monetary Fund (IMF).

After the president’s departure and the installation of a pro-Western government, the IMF initiated a reform program that was a condition of its loan with the goal of increasing private investment in the country.

The package of measures includes reforming the public provision of water and energy, and, more important, attempts to address what the World Bank identified as the “structural roots” of the current economic crisis in Ukraine, notably the high cost of doing business in the country.

The Ukrainian agricultural sector has been a prime target for foreign private investment and is logically seen by the IMF and World Bank as a priority sector for reform. Both institutions praise the new government’s readiness to follow their advice.

For example, the foreign-driven agricultural reform roadmap provided to Ukraine includes facilitating the acquisition of agricultural land, cutting food and plant regulations and controls, and reducing corporate taxes and custom duties.

The stakes around Ukraine’s vast agricultural sector – the world’s third-largest exporter of corn and fifth-largest exporter of wheat – could not be higher. Ukraine is known for its ample fields of rich black soil, and the country boasts more than 32 million hectares of fertile, arable land – the equivalent of one-third of the entire arable land in the European Union.

The maneuvering for control over the country’s agricultural system is a pivotal factor in the struggle that has been taking place over the last year in the greatest East-West confrontation since the Cold War.

The presence of foreign corporations in Ukrainian agriculture is growing quickly, with more than 1.6 million hectares signed over to foreign companies for agricultural purposes in recent years. While Monsanto, Cargill, and DuPont have been in Ukraine for quite some time, their investments in the country have grown significantly over the past few years.

Cargill is involved in the sale of pesticides, seeds and fertilizers and has recently expanded its agricultural investments to include grain storage, animal nutrition and a stake in UkrLandFarming, the largest agribusiness in the country.

Similarly, Monsanto has been in Ukraine for years but has doubled the size of its team over the last three years. In March 2014, just weeks after Yanukovych was deposed, the company invested $140 million in building a new seed plant in Ukraine.

DuPont has also expanded its investments and announced in June 2013 that it too would be investing in a new seed plant in the country.

Western corporations have not just taken control of certain profitable agribusinesses and agricultural activities, they have now initiated a vertical integration of the agricultural sector and extended their grip on infrastructure and shipping.

For instance, Cargill now owns at least four grain elevators and two sunflower seed processing plants used for the production of sunflower oil. In December 2013, the company bought a “25% +1 share” in a grain terminal at the Black Sea port of Novorossiysk with a capacity of 3.5 million tonnes of grain per year.

All aspects of Ukraine’s agricultural supply chain – from the production of seeds and other agricultural inputs to the actual shipment of commodities out of the country – are thus increasingly controlled by Western firms.

European institutions and the US government have actively promoted this expansion. It started with the push for a change of government at a time when president Yanukovych was seen as pro-Russian interests. This was further pushed, starting in February 2014, through the promotion of a “pro-business” reform agenda, as described by the US Secretary of Commerce Penny Pritzker when she met with Prime Minister Arsenly Yatsenyuk in October 2014.

The European Union and the United States are working hand in hand in the takeover of Ukrainian agriculture. Although Ukraine does not allow the production of genetically modified (GM) crops, the Association Agreement between Ukraine and the European Union, which ignited the conflict that ousted Yanukovych, includes a clause (Article 404) that commits both parties to cooperate to “extend the use of biotechnologies” within the country.

This clause is surprising given that most European consumers reject GM crops. However, it creates an opening to bring GM products into Europe, an opportunity sought after by large agro-seed companies such as Monsanto.

Opening up Ukraine to the cultivation of GM crops would go against the will of European citizens, and it is unclear how the change would benefit Ukrainians.

It is similarly unclear how Ukrainians will benefit from this wave of foreign investment in their agriculture, and what impact these investments will have on the seven million local farmers.

Once they eventually look away from the conflict in the Eastern “pro-Russian” part of the country, Ukrainians may wonder what remains of their country’s ability to control its food supply and manage the economy to their own benefit.

As for US and European citizens, will they eventually awaken from the headlines and grand rhetoric about Russian aggression and human rights abuses and question their governments’ involvement in the Ukraine conflict?

Frederic Mousseau is Policy Director at the Oakland Institute.

IMF Sponsored “Democracy” in The Ukraine

IMF Sponsored “Democracy” in The Ukraine

by Michel Chossudovsky

www.globalresearch.ca 28 November 2004

The URL of this article is: http://globalresearch.ca/articles/CHO411D.html



Opposition candidate Viktor Yushchenko in the Ukrainian presidential elections is firmly backed by the Washington Consensus.

He is not only supported by the IMF and the international financial community, he also has the endorsement of The National Endowment for Democracy (NED)Freedom House and George Soros’ Open Society Institute , which played a behind the scenes role last year in helping “topple Georgia’s president Eduard Shevardnadze by putting financial muscle and organizational metal behind his opponents.” (New Statesman, 29 November 2004).

The NED has four affiliate institutes: The International Republican Institute (IRI) , the National Democratic Institute for International Affairs (NDI), the Center for International Private Enterprise (CIPE) , and the American Center for International Labor Solidarity (ACILS). These organizations are said to be “uniquely qualified to provide technical assistance to aspiring democrats worldwide.” See IRI, http://www.iri.org/history.asp )

In the Ukraine, the NED and its constituent organizations fund Yushchenko’s party Nasha Ukraina (Our Ukraine), it also finances the Kiev Press Club. In turn, Freedom House, together with The Independent Republican Institute (IRI) are involved in assessing the “fairness of elections and their results”. IRI has staff present in “poll watching” in 9 oblasts (districts), and local staff in all 25 oblasts:

There are professional outside election monitors from bodies such as the Organisation for Security and Cooperation in Europe, but the Ukrainian poll, like its predecessors, also featured thousands of local election monitors trained and paid by western groups. … They also organised exit polls. On Sunday night those polls gave Mr Yushchenko an 11-point lead and set the agenda for much of what has followed.” (Ian Traynor 26 November 2004, the Guardian, http://globalresearch.ca/articles/TRA411A.html )

Needless to say these various foundations are committed to “Freedom of the Press”. Their activities consist not only in organizing exit polls and feeding disinformation into the Western news chain, they are also involved in the creation and funding of “pro-Western”, “pro-reform” student groups, capable of organizing mass displays of civil disobedience. (For details, see Traynor, op cit) In the Ukraine, the Pora Youth movement (“Its Time”) funded by the Soros Open Society Institute is part of that process with more than 10,000 activists. Supported by the Freedom of Choice Coalition of Ukrainian NGOs , Pora is modeled on Serbia’s Otpor and Georgia’s Kmara.

The Freedom of Choice Coalition acts as an Umbrella organization. It is directly supported by the US and British embassies in Kiev as well as by Germany, through the Friedrich Ebert Stiftung (a foundation linked to the ruling Social Democrats). Among its main “partners” (funding agencies) it lists USAID, the Canadian International Development Agency (CIDA), Freedom House, The World Bank and the Charles Stewart Mott Foundation.

(Complete list at http://coalition.org.ua/en/index.php?option=content&task=view&id=29&Itemid=51 )

In turn, Freedom of Choice Coalition directly funds and collects donations for Pora (See http://pora.org.ua/en/content/view/83/95/ )

The National Endowment for Democracy

Among the numerous Western foundations, the National Endowment for Democracy (NED), although not officially part of the CIA, performs an important intelligence function in shaping party politics in the former Soviet Union, Eastern Europe and around the World.

NED was created in 1983, when the CIA was being accused of covertly bribing politicians and setting up phony civil society front organizations. According to Allen Weinstein, who was responsible for establishing the NED during the Reagan Administration: “A lot of what we do today was done covertly 25 years ago by the CIA.” (Washington Post, Sept. 21, 1991).

In the former Soviet Union including the Ukraine, the NED constitutes, so to speak, the CIA’s “civilian arm”. CIA-NED interventions  are characterized by a consistent pattern. In Venezuela, the NED was also behind the failed CIA coup against President Hugo Chavez and in Haiti it funded the opposition parties and NGOs, in the US sponsored coup d’Etat and deportation of president Aristide in February 2004. (For details, see Michel Chossudovsky, 29 Feb 2004, http://www.globalresearch.ca/articles/CHO402D.html )

In the former Yugoslavia, the CIA channeled support to the Kosovo Liberation Army (KLA) (since 1995), a paramilitary group involved in terrorist attacks on the Yugoslav police and military. Meanwhile, the NED through the  “Center for International Private Enterprise” (CIPE) was backing the DOS opposition coalition in Serbia and Montenegro. More specifically, NED was financing the G-17, an opposition group of  economists responsible for formulating (in liaison with the IMF) the DOS coalition’s  “free market” reform platform in the 2000 presidential election, which led to the downfall of Slobodan Milosevic.

Copy and Paste? The Center for International Private Enterprise (CIPE) has a very similar mandate in the Ukraine, where it directly funds research on “free market reforms” in several key “independent think tanks” and policy research institutes. The Kiev based International Center for Policy Studies (ICPS) is supported by CIPE. It has a similar function to that of the G-17 in Serbia and Montenegro:  A group of local economists hired by ICPS was put in charge of drafting, with the support of the World Bank, a comprehensive blueprint of post-election macro-economic reform.

Who is Viktor Yushchenko? IMF Sponsored Candidate

In 1993, Viktor Yushchenko was appointed head of the newly-formed National Bank of Ukraine. Hailed as a “daring reformer”, he was among the main architects of the IMF’s deadly economic medicine which served to impoverish The Ukraine and destroy its economy.

Following his appointment, the Ukraine reached a historical agreement with the IMF. Mr Yushchenko played a key role in negotiating the 1994 agreement as well as creating a new Ukrainian national currency, which resulted in a dramatic plunge in real wages.

The 1994 IMF package was finalized behind closed doors at the Madrid 50 years anniversary Summit of the Bretton Woods institutions. It required the Ukrainian authorities to abandon State controls over the exchange rate leading to an impressive collapse of the currency.

Yushchenko as Head of the Central Bank was responsible for deregulating the national currency under the October 1994 “shock treatment”:

  • The price of bread increased overnight by 300 percent,
  • electricity prices by 600 percent,
  • public transportation by 900 percent.
  • the standard of living tumbled

According to the Ukrainian State Statistics Committee, quoted by the IMF, real wages in 1998 had fallen by more than 75 percent in relation to their 1991 level.( http://www.imf.org/external/pubs/ft/scr/2003/cr03174.pdf )

Ironically, the IMF sponsored program was intended to alleviate inflationary pressures: it consisted in imposing “dollarised” prices on an impoverished population with earnings below ten dollars a month.

Combined with the abrupt hikes in fuel and energy prices, the lifting of subsidies and the freeze on credit contributed to destroying industry (both public and private) and undermining Ukraine’s breadbasket economy.

In November 1994, World Bank negotiators were sent in to examine the overhaul of Ukraine’s agriculture. With trade liberalization (which was part of the economic package), US grain surpluses and “food aid” were dumped on the domestic market, contributing to destabilizing one of the World’s largest and most productive wheat economies, (e.g. comparable to that of the American Mid West).

By 1998, the deregulation of the grain market had resulted in a decline in the production of grain by 45 percent in relation to its 1986-90 level. The collapse in livestock production, poultry and dairy products was even more dramatic.

(See http://www.imf.org/external/pubs/ft/scr/2003/cr03174.pdf )

The cumulative decline in GDP resulting from the IMF sponsored reforms was in excess of 60 percent (from 1992 to 1995).

Propaganda in support of the “Free Market”

Under these circumstances, why would Yushchenko, who was closely associated with the process of economic destruction and impoverishment be so popular? Why has the public image and political reputation of an IMF protégé, namely Mr. Yushchenko remained unscathed?

What the neoliberal agenda does is to build a consensus in “the free market reforms”.  “Short term pain gain for long term gain” says the World Bank. “Bitter economic medicine” is the only solution, much in the same way as the Spanish inquisition was the consensus underlying the feudal social order.

In an utterly twisted logic, poverty is presented as a precondition for building a prosperous society. This consensus presents a World of landless farmers, shuttered factories, jobless workers and gutted social programs as a means to achieving economic and social progress.

To sustain the consensus and convince public opinion, requires “turning the World upside down”, creating divisions within society, distorting the truth and ensuring, through a massive propaganda campaign, that no other viable political alternative to the “free market” is allowed to emerge.

Why is Yushchenko so popular? For same reason as George W. Bush, running on his record of war crimes is popular.

And because his opponent, outgoing Prime Minister Yanukovich does not represent a genuine political alternative for The Ukraine, which forcefully challenges the international financial institutions and the interests of Western corporate capital, which are destroying and impoverishing an entire nation.

The 2004 election in the Ukraine was built on a massive propaganda and public relations campaign, supported by the US, with money payoffs by Washington for political parties and organizations committed to Western strategic and economic interests. In turn, US intelligence, working hand in glove with various foundations including the NED, has consistently supported this process of civil society manipulation. The objective is not democracy, but rather the fracturing and colonization of the former Soviet Union.

The IMF and “Good Governance”

In the Ukraine, the IMF not only intervened in the implementation of the macroeconomic agenda, it also intruded directly in the arena of domestic party politics. As in Russia in 1993, the Ukrainian parliament was seen as an obstacle to the implementation of  the “free market reforms”. In 1999, under due pressure from Washington and the IMF, Yushchenko was appointed Prime Minister:

Yushchenko’s candidacy had been proposed by 10 parliamentary groups and factions, and Kuchma agreed with their choice…

The weightiest argument may be the International Monetary Fund’s desire to see Yushchenko as Ukraine’s prime minister, because the provision of the former Soviet republic with extended finance facilities depends on that.

Several parliament members believe the IMF is ready to extend a loan worth 300m dollars to Ukraine in January in case Yushchenko becomes prime minister. (ITAR-TASS news agency, Moscow, 17 Dec 1999)

Following his appointment, Yushchenko immediately set in motion a major IMF sponsored bankruptcy program directed against Ukrainian industry, which essentially consisted in closing down part of the country’s manufacturing base.  He also attempted to undermine the bilateral trade in oil and natural gas between  Russia and the Ukraine on behalf of the IMF which had demanded that this trade be conducted in US dollars rather than in terms of commodity barter.

They have sacked “our own” Prime Minister!

Yushchenko was accused by his opponents of having put the interests of the IMF ahead of those of the country. In 2001, Yushchenko was sacked as prime minister following a non-confidence vote in the parliament:

“Viktor Yushchenko has fulfilled obligations to the IMF better and more accurately than his duties to citizens of his our country, Olena Markosyan, a Kharkiv-based analyst, has opined in Ukrainian centrist daily Den” (BBC Monitoring, 16 Nov 2004)

“This [Yushchenko] government openly states that it executes all IMF recommendations. Though the government declares the social direction of its policy, actually it is carrying out an anti-social, anti-national policy,” said Communist Party leader Heorhiy Kruchkov ( quoted in Financial Times, May 17, 2001)

The international financial community took immediate action. The Ukraine was back on the creditors’ blacklist.

“The West, which openly put its stake on Yushchenko recently, is not likely to sit on its hands. There is no lack of instruments to bring pressure on Kiev. Most probably the question of resuming IMF, World Bank and EBRD credits to Ukraine will be put on hold because they were expressly linked with Yushchenko’s stay in power…. Talks with the Paris Club on restructuring Ukraine’s $1.2 billion debt may run into difficulty… Not surprisingly, (Ukrainian President) Leonid Kuchma yesterday hastened to distance himself from what is happening and spoke critically about the Rada [Parliament] decision. (Vremya Novostei, 1 May 2001, original Russian)

IMF Managing Director Horst Kohler was adamant. “Yushchenko has gained a lot of credibility outside of Ukraine, and I think he also deserves support inside of Ukraine.” (quoted in the Financial Times, 27 April 2001). The IMF Head did not mince his words:

He added that the IMF respects Ukraine’s right to choose its leaders, but maintained that the direction of reforms must be preserved. He questioned the wisdom of the VR spending time on maneuvering for a vote of no-confidence in the government while reforms need to be implemented.”

Replicating Yugoslavia. The Partition of The Ukraine?

A few months after his dismissal in 2001, Yushchenko was in Washington for talks with senior members of the Bush administration. He was back in Washington in early 2003 under the auspices of the International Republican Institute. During this visit, he met with Vice President Dick Cheney and Deputy Secretary of State Richard Armitage.

The Neocons had carefully “set the stage” for the October-November 2004 presidential elections.

Yugoslavia was a dress rehearsal for the fracturing of the remnant republics of the former Soviet Union. As recent developments suggest, the break up of the country, namely the partition of The Ukraine, modeled on the experience of former Yugoslavia is, no doubt, one among several transition “scenarios” envisaged by the Bush administration.

Creating divisions between Ukrainians, Russians, Tatars in Crimea and other ethnic groups, between Russian Orthodox. Ukrainian Orthodox and Ukrainian Catholics, etc. is part of Washington’s hidden agenda.

Military Realignments in support of the Free Market

Militarisation supports the Free Market and vice versa. The CIA oversees the NED. The donor community including the Washington based Bretton Woods institutions collaborate with the European Union, NATO and the US State Department.

War and Globalization go in hand in hand. While Yushchenko is considered a protégé of the international financial community, his colleague and political crony, former Defense Minister Yevyen Marchuk is a unbending supporter of US and NATO military presence in the region.

It was largely the initiative of Yevyen Marchuk as Defense Minister to send Ukrainian troops to Iraq, a decision which was opposed by the majority of the Ukrainian population.

In August, Marchuk met with Defense Secretary Donald Rumsfeld at The Crimean seaside resort of Yalta.

On the agenda of the August talks: Ukraine’s participation in the Iraqi war theater but also the upcoming Ukrainian elections. Defense Minister Marchuk announced following these meetings that Kiev would continue to participate in “the coalition of the willing” and would maintain its troops in Iraq.

Marchuk was sacked in September, barely a month before the first round of the presidential elections.

Attempting a Coup d’Etat?

In a televised address on November 25th, Marchuk, sent a message to the military, police and security forces to disobey the authority of the civil authorities, namely the government of Leonid Kuchma.

“Ukraine’s former defense minister and head of the National Security and Defense Council has declared that he’s convinced that opposition leader Viktor Yushchenko is entitled to be recognized as the president of Ukraine.

Former Defense Minister Yevhen Marchuk called on President Leonid Kuchma and Prime Minister Viktor Yanukovych to exercise good sense. Marchuk underscored that there should be no bloodshed in Ukraine.

Marchuk appealed to state security officers not to fulfill illegal orders and to remember their official honor and dignity.

He stressed that election fraud in the Nov. 21 presidential run-off election, which the government says was won by Prime Minister Yanukovych, was on a mass scale. He said that there is only one way out of the tense political stand-off that has engulfed Ukraine since Monday: negotiations between equals.

Marchuk also appealed to Russian Ambassador to Ukraine Viktor Chernomyrdin to pass along to Russian President Vladimir Putin only objective information. He reminded officers of the Russian Black Sea fleet in Sevastopol that they are on the territory of a foreign government, and that they should remain mindful of that, calling on the Russian Federation’s defense minister to obey the law.”  (See Kiev Post, 26 Nov 2004 and Kanal 5 transcripts, BBC Monitoringm 26 Nov 2004)

This statement by Marchuk, which calls upon the Armed forces and the Police to go against the government, essentially sets the stage for a US-NATO sponsored Coup d’Etat.

Power Struggle: Oil and Pipeline Corridors

Behind the presidential elections, there is a power struggle between pro-US-NATO and pro-Russian factions within the leading political establishment and the military.

What is at stake is not only the maintenance of the IMF sponsored macroeconomic agenda, strategic US-NATO military interests in the region are also at stake.

The objective of the Bush Administration is to install a Ukrainian government which is firmly aligned with Washington, with the ultimate objective of displacing the Russian military from the Black Sea.

In this regard, The Ukraine has already signed several military agreements with NATO and Washington under the government of Leonid Kuchma.

The Ukraine is a member of  GUUAM, a military alliance between five former Soviet republics ( Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova). This military alliance was initially designed in 1997 by the Ukrainian  National Security Services (NSBU) in close liaison with Washington. Its objective was to undermine the alliance between Russia and Belarus, signed between Moscow and Minsk in 1996.

The Ukraine also signed agreements with Poland and the Baltic states, pertaining to the control of transport corridors and pipeline routes.

GUUAM lies strategically at the hub of the Caspian oil and gas wealth, “with Moldava and the Ukraine offering [pipeline] export routes to the West.” The objective of GUUAM was to exclude Russia from the Black Sea, protect the Anglo-American pipeline routes out of Central Asia and the Caspian sea  and essentially cut Russia off not only from the Caspian sea oil basin but also from the Black sea.

Coinciding with the ceremony of NATO’s 50th anniversary at the outset of the war on Yugoslavia in 1999, the heads of State from all five GUUAM countries were present including President Leonid Kuchma of The Ukraine. They had been invited to NATO’s three day celebration in Washington to sign the GUUAM agreement under NATO and US auspices.

Georgia, Azerbaijan and Uzbekistan, immediately announced that they would be leaving the Commonwealth of Independent States (CIS) security union, which defines the framework of military cooperation between the former Soviet republics, as well their links to Moscow:

“The formation of GUUAM (under NATO’s umbrella and financed by Western military aid) was intent upon further fracturing the CIS. The Cold War, although officially over, had not yet reached its climax: the members of this new pro-NATO political grouping were not only supportive of the 1999 bombing of Yugoslavia, they had also agreed to ‘low level military cooperation with NATO while insisting that ‘the group is not a military alliance directed against any third party, namely Moscow.‘ Dominated by Anglo-American oil interests, the formation of GUUAM ultimately purports on excluding Russia from the oil and gas deposits in the Caspian area as well as isolating Moscow politically.” (Michel Chossudovsky, War and Globalization, the Truth behind September 11, Global Research, Montreal, 2002, Chapter V)


Text of Former Defense Minister Marchuk’s speech on Kanal 5 TV.

25 November 2004

Speaking on opposition 5 Kanal, former Defence Minister Yevhen Marchuk urged President Leonid Kuchma to admit widespread vote rigging

(Marchuk) Dear viewers of 5 Kanal, dear participants in the political events, dear government officials, dear military.

(Passage omitted: could not speak earlier due to illness)

Police must help, not fight civilians

(Addressing servicemen) When fulfilling any orders given to you, you must remember one thing: you are dealing with human beings, civilians, citizens, your brothers, sisters or friends. The main thing is: using force – to say nothing of using arms – against civilians, against your fellow citizens is an extremely high risk.

You must remember that any political orders are usually issued verbally, while commanders issue orders either in writing or verbally. Therefore you must be very clear about formulating and understanding orders.

Using force, in any form, is not only a great risk as I said, but is always fraught with casualties, even when weapons are not used. Servicemen know well that you can use force without using arms and cause panic and casualties among protesters because of chaotic movement of a panicking crowd of people. This is a science you’ve studied well.

It is worth reminding you that the law on the fundamental principles of national security says that before deciding to use force a government must weigh its force compared to the object it plans to using force against. To put it simply, you cannot use force against the peaceful population. While using other means, you must ask yourselves whether this could lead to panic and casualties.

To special forces. I understand that today you are called upon to perform various tasks as special units within the Ministry of Interior and the Security Service. When I worked on the law on the Security Services of Ukraine, I had to add one article, almost in the last minute: officers, servicemen and officials at the Security Service of Ukraine must not perform orders that do not correspond to the constitution and the law. The same is stipulated in other laws that regulate security agencies. In this connection I want to remind you that most special units must now, first of all, stay at their home base and, mainly, not to perform any tasks in plain clothes, especially in protesters’ midst. The only thing you can do is help protesters in keeping order, preventing provocations and identifying provocateurs who can cause a lot of trouble.

I also want to address special units of the Interior Ministry and interior troops. It’s hard work now. But you must remember one thing. You are facing people who disagree with the outcome of the election. They are defending their constitutional right to protest. It is their constitutional right, and you must help them.

Protesters must not storm

I also want to address protesters themselves. Friends, you need to understand that there are instances when governments can legitimately use force: when government bodies come under attack: either the presidential administration, the Cabinet of Ministers, the Supreme Council, the Constitutional Court and the Supreme Court.

(Passage omitted: these are guarded by police)

Therefore, there should be no storming. Any storming will invariably cause casualties.

Russia warned

I also wish to address the leaders of the Russian Black Sea Fleet and my colleague, Russian Defence Minister Sergey Ivanov. Please give an order to all your units. It is desirable now, while there is a crisis in Ukraine, that the main units of the Black Sea Fleet stay at their home base. This would be the wisest and farsighted decision. You have a complex status. You are based in a foreign state. Therefore, any careless action could cause great harm to Ukrainian-Russian relations and the fleet’s continued deployment in Ukraine.

I would also like to address the Russian ambassador in Ukraine, Viktor Chernomyrdin. (In Russian) Viktor Stepanovich, please try and insist that your staff report unbiased information to the Russian president about the true state of affairs in Ukraine regarding the election. The Russian president must receive maximum objective information about developments in Ukraine. I am sorry, I have certain reasons to give you this advice. But we have known each other for a long time, and I think you get my meaning.

Message to President Kuchma: vote was rigged

(In Ukrainian) I would also like to address the president of Ukraine. Leonid Danylovych, you know very well the true state of affairs and the true reasons for the current situation. I have told you before, it is sad to see how you are ending your presidency. But unfortunately this is the way it is. You are president now, and very much depends on you. And intimidation is not the way out – for either side. The situation has reached boiling point, a level of confrontation with such potential that the risk is growing every day. Only talks and nothing else can resolve this problem. You as president must seize the initiative and understand that today you as the guardian of the constitution and stability you bear the chief responsibility for stability and a peaceful way to resolve this conflict situation.

Leonid Danylovych, all people know there was widespread vote-rigging. Maybe you don’t know this, but teams of Donbass people toured the country in carousel voting by absentee ballots. And before that there were squads going around intimidating electoral commissions and voters. They added a huge number of people to the circle of (opposition leader Viktor) Yushchenko’s supporters and turned many people away from you. Believe me, it is these circumstances that scared many people, that this is possible in Ukraine, – these very circumstances caused the greatest damage to your reputation. Maybe your headquarters do not tell you this, but I have the moral right – and you know why – to say this straight to your face.

(Passage omitted: more in this vein)

There is only one solution: talks. But not talks between the victorious and the defeated, but talks between equals. And to reach the platform of equals, you must seriously consider what happened during the election. And the fact that there was widespread vote rigging has been proven.

(Passage omitted: hopes there will be no bloodshed.)

The protest potential is growing fast. But the government is also concentrating a large potential to counter it. And I know that this potential is strong. Therefore, you must stop. Just as the arms race which seemed insurmountable was once stopped, now we must stop the growth of potential on both sides. The situation is extremely dangerous.

Courts will prove opposition victory

I also wish to address Viktor Yushchenko. Viktor Andriyovych, I am firmly convinced that legal and constitutional procedures can prove that you won.



The World Bank’s strategy in the electric power sector

The World Bank’s strategy in the electric power sector

by Elias Davidsson
(Raw Materials Report, Vol. 5 No. 1 (1986))


The article first describes and analyses the context in which the National Power Company was established and its legal structure. It then analyses the World Bank’s role in promoting the establishment of institutions such as Landsvirkjun, monitoring their operations and finances, promoting their fast growth and steering their development.

Although some of the documents referred to in this article are a bit dated, the World Bank has not – as far as is known – changed its goals and methods in the electric power sector within the last decade. Thus, the following analysis may be considered both timely and relevant. Slight editorial improvements to this paper were made by the author in 2012.

The National Power Company of Iceland (Landsvirkjun) was established on July 1, 1965 by a partnership agree­ment between the Government of Iceland and the City Council of Reyk­javik (capital of Iceland) pursuant to Law No 59 of May 20, 1965. The con­ cern was jointly owned by these parties, each owning half of the company, until 1982. At that time the northern town of Akureyri joined in, acquiring from the ci­ty of Reykjavik 6 per cent of the shares.

The principal objectives of Land­svirkjun are to construct and operate electric power plants and main transmission facilities and to sell electric power wholesale for public and industrial consumption.

We will first describe and analyse the context in which the company was established and its legal structure. We will then analyse the World Bank’s role in promoting the establishment of in­stitutions such as Landsvirkjun, moni­toring their operations and finances, promoting their fast growth and steer­ing their development.

Landsvirkjun’s establishment and constitution

On May 3, 1965, members of the Icelandic parliament (Althing) received a copy of a Government Bill, concerning the establishment of a National Power Company, Landsvirkjun. As on other occasions, when the local power elite was pushing legislation related to foreign policy, its political arm (Govern­ment) took care to limit the debate about the proposed legislation in time and space. The legislature was granted just one day to prepare for the debate about the Bill, and a week”s time before a vote was taken.

We will review the articles of the Bill that have affected the political role Landsvirkjun has assumed, leaving aside those of a more technical nature.

Constitution

Article 1 establishes that Landsvirkjun be jointly owned by the Government and the City of Reykjavik, in equal parts. Neither party is entitled to leave this joint-venture without the other’s consent.


Article 8 refers to the nomination of Board members and fixes their terms at six years. Both articles together have succeeded in immunizing the company against occasional changes in the government’s and city council’s political composition. Thus, the founders of Landsvirkjun – and those who formulated these articles – ensured until today that the Board of Landsvirkjun remained under the leadership of, and majority rule of, individuals favourable to the basic philosophy underlying Landsvirkjun’s role and foreign relationships.

Financial independence

Article 11 describes the procedures that Landsvirkjun has to follow in fixing electricity rates: After consulting with the Central Economic Institute, the Company’s Board is free to set prices, so that a “normal return on fixed capital in operations will be assured”. The new company’s revenue should also ensure an unspecified level of self-financing capabilities, allowing Landsvirkjun to expand power load capacity and “meet demand” independently of government policy.

Article 12 establishes that Landsvirkjun is allowed to raise local and foreign loans for its own needs. It is not required to consult its owners before negotiating new loans with foreign banks, as is the normal practice of other public enterprises in Iceland. In accordance with this article, Landsvirkjun has repeatedly issued bonds for sale in the European and American money markets.

Fiscal privileges

Article 13 exempts Landsvirkjun from paying import duties, estimated at 20-30 per cent of the cost of power plants and related equipment.  Article 16 exempts Landsvirkjun from paying income tax, community tax and other taxes.

Government guarantee

Article 15 permits the Government to guarantee loans that Landsvirkjun may raise, up to the amount of $28m or the equivalent in other currencies. This article has been amended a few times since, to keep up with the financing targets of Landsvirkjun.

Búrfell power plant

Pursuant to article 6, Landsvirkjun was allowed to construct a hydro-electric power plant of a total capacity of 210 MW (megawatt) at Búrfell on the Thjór­sá River. Landsvirkjun is also allowed to set up thermal power stations – for backup purposes – when and where it sees fit.


The above articles were not readily accepted by all Althing members, al­though a consensus existed about two main points: The desirability of establishing a National Power Company and the choice of Búrfell as the most economic site for a hydro-electric power plant.

The proposed Law was opposed on two levels: On a more general level it related to foreign investment policy; on a more specific level, the unique privileges granted to the company were considered unjustified.


It must be noted that the creation of the National Power Company and the proposed power plant at Búrfell were directly related to the plans of attracting foreign investment, especially power­ intensive industry. At the time of the Bill’s debate, extensive discussions had already taken place with Swiss Aluminium Co. (Alusuisse) concerning the establishment of an aluminum smelter (which has been operating since 1969) and with the World Bank, concerning loans for the Búrfell Power Project.

Although discussions with Alusuisse were then reaching their final stages, no formal decision was taken concerning the smelter at the time of the Bill’s enactment.

Some legislators considered it inap­propriate to grant a permission for a 210 MW power plant, that could more than feed a 60 kt/year aluminum smelter, while negotiations with Alusuisse were still pending. By enacting this permission, it was argued, the negotiating leverage of Iceland vis-a-vis Alusuisse would be reduced. It was furthermore claimed, that it would strengthen the negotiating posture, if Iceland could credibly demonstrate its ability and readiness to expand power generation capacity (for local use) without recourse to a foreign bulk customer. Thus, a per­mission for a 70 MW power plant would have sufficed at the time.


Others claimed that by granting Landsvirkjun a whole array of fiscal privileges (articles 13 and 16), the authors of the Bill attempted to artificially reduce operating costs with the sole aim of making electricity prices for a potential foreign investor more attractive. The general public – representing a captive market of Landsvirkjun – would thus subsidize indirectly the power com­pany’s import duties and taxes. One parliamentary representative raised the question why electric power retailers were not granted similar fiscal privileges.

The tariff philosophy (article 11) was also criticized by some legislators. As the legislature was denied the control of Landsvirkjun’s investment policies, concern was raised that a process of un­checked asset accumulation could ensue.

Some also considered inappropriate to hand the ultimate control of the elec­tricity sector to a Board on which the Ci­ty of Reykjavik would have veto power. This was apprehended because the development strategy for the electrical power sector was closely related to the policy on foreign investment. The ques­tion whether Iceland (at the time 240 000 inhabi­tants!) should allow foreign investment has been a hot political issue in the country for over 50 years.

In the next two sections, we will analyse the role of the World Bank in establishing, monitoring and steering Landsvirkjun.

The World Bank’s role in creating appropriate conditions for foreign investment in Iceland

The role of the World Bank in pro­moting a development scheme favorable to transnational companies has been analyzed by several writers (1-3). This being the case, no attempt will be made here to add evidence that is widely known. Instead we provide unpublished in­formation about means used by the World Bank group to pursue its goals specifically in the electric power sector.

In this section we will analyze the World Bank’s role in establishing in­stitutional bases apt to carry out the Bank’s ultimate aims “from within” a country, a method that has sometimes been called the “Troyan horse” method. The establishment of the National Pow­er Company in Iceland (Landsvirkjun) may be considered a typical case.

Did the World Bank formulate the Landsvirkjun Act of parliament?

No firm evidence exists that allows to answer this question with an unquali­fied yes. Having said so, there are never­theless a series of indications that strongly support the claim that the Bank was actively involved in formula­ting the law, or at least its most signifi­cant provisions. These indications will be reviewed here one by one:

1. A report of the Industrial Develop­ment Committee to the Icelandic Gov­ernment (1964-11-14), describes the World Bank’s attitude to the integrated power-station/aluminium-smelter pro­ject. Regarding the power company yet to be established, the Bank is quoted to have said “that it would like in a future discussion to study in detail the organi­zation and financial structure of the Company”.

2. According to the World Bank’s report “Operations Evaluation Report: Elec­tric Power” (hereafter called the WB Report, (4)) the Bank has regularly used its “leverage” to impose upon borrowers conditions (“covenants”) of an institu­tional character.

In the conclusions of this report the authors state:

“Effective project execution is im­portant and it is not irrelevant to the role of the Bank insofar as most of the companies studied were either created or consider­ ably reorganized within the period, with the Bank con­tributing to a greater or lesser ex­tent to the formulation of their basic constitutions.” (bold by ED) (p 66)

The report describes several methods the Bank uses to impose specific policies on borrowers in this sector. Some of these methods will be described later.

3. The Act of Landsvirkjun includes provi­sions that “insulate” the Power Com­pany from what the Bank calls “politi­cal interference”, a label that carries itself political connotations! This “insulation” was achieved by the provisions of articles 1, 8, 11 and 12 of the Act, described in the last chapter.

These provisions reflect faithfully the Bank’s philosophy (WB report p. 6, p 10. See also example later in this article).

4. The World Bank has acknowledged the Lansvirkjun Act by covenants in all Loan Agreements made between itself and Landsvirkjun. In these agreements, special covenants restrict the legislative power of the Icelandic Parliament.(5) Should Iceland’s parliament neverthe­less decide to exert its rights of legisla­tion and amend the Law of Landsvirk­jun so as to make Landsvirkjun for in­stance more accountable to the legisla­ture and to the general public, the World Bank would be entitled – at its own discretion – to define such amendments as a default on the Loan Agree­ment. If this should occur, the Bank,


“[…] at its option, may […]  declare the principal of the Loan and of all the Bonds then outstanding to be due and payable immediately together with the interest and other charges thereon”.(6)

Whether such infringement upon the sovereignty of a country’s legislature is consistent with current trends in inter­national law, is open to question. It is, however, noteworthy that this legal question was never brought to the attention of the Althing. Whether the World Bank ever referred to these clauses in its dealings with Iceland to assert its will, is not known and may never become known.

The World Bank’s invisible hand and Landsvirkjun

What quality has the relationship be­tween the World Bank and Landsvirk­jun taken? To what extent is Landsvirk­jun’s autonomy real? How does the World Bank exercice control over Landsvirkjun?

We will proceed by looking again at the Búrfell Loan Agreement  – a publicly available document (7) – made between Landsvirkjun and the Bank in 1966, and offer comments on those provisions that demonstrate the Bank’s influence on, or control of Landsvirkjun’s organization, constitution and operating pro­cedures (as distinct from the Bank’s in­fluence on or control of the execution of the Búrfell Power Project, for which the Bank has loaned funds).

Article 5.01

Landsvirkjun’s consultants and contractors must be “acceptable to, and to an extent and upon terms and conditions satisfactory to, the Bank”.

Implications
This covenant (condition) can be inter­preted in several ways. The Bank would maintain that such a covenant does ensure the qualifications and financial strength of consultants and contractors. In addition to this legitimate concern of the Bank it is plausible to ascribe to the Bank the aim of ensuring the selection of firms and individuals which share the Bank’s economic philosophy (support of MNCs etc).

The above assumption is quite legi­timate, if one considers the general ideological framework under which World Bank personnel operate, plus the fact that the Bank has often made loans conditional on hiring specific in­dividuals (WB Report, Table 4, 5).

Article 5.02 (c)
Landsvirkjun “shall enable the Bank’s representatives to in­spect”, not only the project for which loans are disbursed, but also “the goods, and all other plants, works, properties and equipment (of Landsvirkjun), and to examine any relevant records and documents.”

Article 5.02 (d)
Landsvirkjun “shall furnish to the Bank all such information as the Bank shall reasonably request concerning” not only “the expen­ditures of the proceeds of the Loan, the Búrfell Project” and related matters, but also “the ad­ministration, operations and fi­nancial condition (of Landsvirk­jun), its relations with ISAL (the subsidiary of Alusuisse in Ice­land) and the exercice of Land­svirkjun’s and ISAL’s respective rights, and the carrying out of their respective obligations, under the Power Contract and any other agreement related thereto.”

Implications
This covenant permits the World Bank to monitor and control the entire infor­mation base of Landsvirkjun, financial, legal, administrative and operational.

These scrutiny rights are incidentally denied to the members of the Althing and to Iceland’s tax­ payers.

Article 5.03 (b)
Landsvirkjun “shall inform the Bank of any condition which in­terferes with, or threatens to interfere with, the accomplishment of the purposes of the Loan, the maintenance of the service thereof, or the performance by Landsvirkjun of its obligations under this Loan Agreement, the Power Contract, the Purchase Agreements and the External Bonds”.

Article 5.09 (b)
“The Bank and Landsvirkun shall exchange views as to any ar­bitral or judicial proceeding con­templated or undertaken pur­suant to the Power Contract … Landsvirkjun shall promptly ad­vise the Bank of any such pro­ceeding contemplated or under­ taken and shall give the Bank such information as the Bank shall reasonably request … ”

Implications
While covenants 5.02 (c) and (d) call for a passive relationship towards the Bank, covenants 5.03 (b) and 5.09 (b) require Landsvirkjun to actively supply the Bank with legal and economic intelli­gence pertaining to domestic matters (such as government policies, plans and strategies to increase Iceland’s revenues from electricity sales to Alusuisse sub­sidiary, etc … ).

Article 5.08
Landsvirkjun “shall at all times take all steps necessary to main­tain its existence and right to carry on operations:” It shall “except as the Bank shall otherwise agree, take all steps necessary to acquire, maintain and renew all rights, powers, privileges and franchises which are necessary or useful for ( … ) the conduct of its business.”

Implications
It seems obvious that the World Bank wanted hereby to ensure the cooperation of Landsvirkjun in warding off any laws or regulations that might affect the company’s constitution, prerogatives and “particular relationships.” There is evidence (WB Report p 10), that the Bank is ready to assume the defense of its borrowers in eventual con­flicts with their legitimate owners.

Articles 6.01 and 6.02
If “any provision of the Land­svirkjun Act or the Regulations (pertaining to Landsvirkjun -ED) shall have been amended, suspended, abrogated or repealed so as to affect adversely the finan­cial condition or operations of Landsvirkjun or the performance by Landsvirkjun of its obligations under the Loan Agreement, ( … ) the Bank, at its option, may declare the principal of the Loan and of all the Bonds then out­ standing to be due and payable immediately” (see also note 8).

Implications
This covenant, mentioned previously, restricts effectively the exercice of democratic control by the Icelandic nation over the main producer of electric energy in the country. It must be borne in mind that the terms “affect adverse­ly” used in this covenant, may have a wide range of applications: It may not only infer a deterioration of finances but refer to any decision that would af­fect the administrative obligations of Landsvirkjun towards the World Bank, such as those dealing with the role of Landsvirkjun as intelligence officer in behalf of the Bank.


There are some people who believe that stringent control of power com­panies by the World Bank is beneficial insofar as it ensures the completion of projects on time and within budget. This is not always the case, as the inter­nal WB report readily admits (p 75):

“Considerable cost overruns oc­cured in many of the projects reviewed in Colombia and Mexico (projects funded by the Bank), and in particular by experience of Calima for which the cost overrun was so great that, in combination with other factors of lesser impor­tance, it raises some doubt now as to whether the project was the most economical means of meet­ing system load growth.”

The above analysis focused on adminis­trative, institutional and constitutional covenants, that ensure the Bank’s con­trol of Landsvirkjun. Financial cove­nants will be reviewed later, in relation to the central aims of the Bank, as an agen­cy for steering a particular form of (state) capitalist accumulation.

Means and ends according to the World Bank’s own words (from the “WB report”)

The main aims of the Bank in attaching conditions (covenants ) to loan agreements are summarized by Bank’s officials in the following terms:

“Many of the Bank’s financial and institutional objectives in connection with its loans have been expressed in the form of covenants in the Loan Agreements or supplementary letters attached to the Loan Agreements. The conditions set were generally designed to assure sound financial management and development and sound organiza­tion and operations in the company and/or the country’s power sector as a whole.” (p 41).

There are basically three classes of covenants: Financial, managerial and institutional:

  • Financial covenants attempt to insure a minimal self-financing ratio and limit the incurrence of long-term debt.
  • Managerial covenants include obliga­tions of the borrowing company to con­sult with the Bank on issues such as con­tracting, consulting, accounting, bid­ding, hiring of executives and the like.
  • Institutional covenants attempt to en­sure or increase the autonomy of the borrowing company toward its owners (Government, City) or induce a specific sectoral development in a whole region or country.


Let us quote a few extracts from the Bank’s report, that describe in more detail the means and the ends of the Bank’s involvement in its member coun­tries’ electric power sector:

To be able to obtain World Bank finan­cing, borrowers had to bow to the Bank”s conditions or be turned down:

“A loan for a second stage at Jurong (Singapore -PUB) was seriously considered in 1970 but finally turned down because of PUB’s failure to take action on the appointment of a General Mana­ger.” (p 18)

It should not be assumed that this type of condition (covenant) is unique to this case:

“Covenants regarding Bank ap­proval of appointments to senior positions in (public) utilities, have been quite frequent features of Bank loans:” (p 6)

Another important type of institutional covenant is one dealing with a utility’s autonomy (meaning insulation from public policy):

“EEEB is an autonomous entity responsible for all phases of public electricity supply in the city of Bogota, the capital of Colom­bia, ( … ) The autonomy of the entity and its independence from other city services were assured by decrees issued in 1959 as a precondition for Bank lending. Al­though owned by the municipali­ty of Bogota, appointments to the Board are made in such a way as to prevent the city council from obtaining a majority of the seats; this arrangement, agreed with the Bank, has been designed to in­sulate the entity from intrusion of politics.” (bold by ED) (p 23)

Once a public utility is established in accordance with World Bank’s directives, the relationship with that utility,

” … has often been maintained by further loans in support of fur­ther expansion. There are a num­ber of companies with which the Bank has been associated more or less continuously since the early 1950s or even earlier, such as CFE in Mexico, KESC in Pakistan, Chidral in Colombia, ENDESA in Chile and CEMIG in Brazil ( … ) Interruptions in the Bank’s series of loans to such companies, where they have occurred, have generally resulted from delays by the company, or more often, the Government authorities, in tak­ing certain steps upon which the Bank insisted.” (p 4)

When the Bank”s client-utilities have difficulties with their legitimate owners, the Bank typically stands on the side of their clients:

“The Bank has been a strong pro­ponent of the company’s interests in negotiations with the Govern­ment (of Argentina), for instance, securing lower taxes on equip­ment purchased by SEGBA, spec­ial Government contributions in 1966 to its working capital, Gov­ernment support for renegotia­tion of the labor contract in 1968.” (p 10)

An operational aim of the World Bank in the electric power sector is to initiate and sustain a rapid expansion of elec­trical generation capacity, so that “all demand in the existing service area” would be met (p 4). Since demand must be met at all times, then public utilities will have to dispose of excess capacity, a situation sought after by the power­ intensive industry (smelters and process industries).

The Bank admits readily that its methods lead to a rapid expansion of its clients’ generation capacity:

“Through studies, advice, loan conditions and lending itself, it has sought to bring about changes in the sector’s institutional struc­ture or in Government policies toward the industry, which would enable the power sector to expand more quickly and at a lower unit cost than would otherwise be the case.” (bold by ED) (p 7)

The results have demonstrated that the Bank’s expansionary aims were fulfil­led:

“Sales by borrowing companies have grown faster than customers, indicating an average annual in­ crease of 4 per cent in kW/h con­sumption per customer.” (p 37)

Although many methods are used by the Bank to stimulate its “clients” expan­sion, one method is used more widely and more regularly than others:

“Tariff covenants have probably been in practice the most impor­tant: They have generally been phrased in such a way as to re­quire that the borrowing utility earn a surplus sufficient to fi­nance part of its own further in­vestment requirements ( … ) or to yield a certain rate of return on total net fixed assets in operation, sometimes revalued to allow for inflation.” (bold by ED) (p 6)

As most electricity sales to bulk users (power-intensive industry) are made under long-term agreements, the only way for a utility to reach the prescribed level of return “on total net fixed assets (revalued)” is to increase electricity tariffs to the general public.

As utilities earn a surplus, they invest in new facilities, thus increasing their capacity (fixed assets). As World Bank covenants require them to yield a rate of return based on the value of fixed assets, the borrowing utilities are forced to increase their earnings. This can best be done by pushing up electricity consumption and/or increasing the price to the cap­tive market, i.e. the general population.

Concluding remarks

We have now expanded on the means and ends of the World Bank in the electric power sector. These should be related to one of the Bank’s major purposes, namely:

“to promote private foreign in­vestment by means of guarantees or participation in loans and oth­er investment made by private in­vestors.”(9)

This primary purpose was reaffirmed in slightly different terms in another Bank publication from 1969:

“[A]s the records of the Bretton Woods deliberations indicate, the emphasis from the beginning was not so much on what the Bank could lend out of its paid-in capi­tal as on the concept of the Bank as a safe bridige over which private capital could move into the international field.” (10)

To provide “private capital” (in this context a euphemism for transnational corporations) a receptive investment and operating climate in the Bank’s less indutrialised member countries, the Bank carries out specific policies in each sector. The Bank’s operational strategy in the electric power sector may be broadly defin­ed as follows:

  • Subvert effective public control over electrical power utilities.
  • Build-up an oversupply of in­stalled generation capacity.
  • Use captive markets (local populations) to subsidize interna­tional competition between power utilities, for the benefit of power-intensive industries operating internationally.


Notes
(1) Teresa Hayter, Aid as Imperialism, Pen­guin books, 1971
(2) Bruce Nilsson, “The World Bank -A Political Institution”, Pacific Research and World Empire Telegram, San Francisco, Sept-Oct 1971
(3) Amon J Nsekele: “The World Bank and the New International Economic Order”, Development Dialogue, Uppsala (Sweden), 1977:1
(4) International Bank for Reconstruction and Development (The World Bank): Ope­rations Evaluation Report, Electric Power, 1972-03-10, Report Z-17 (restricted). Although this report deals in a general way with the Bank’s strategies in the electric power sector, it analyzes in more detail the operations of and its relationship with ten electricity companies in Third World coun­tries, namely: CFE (Mexico), VRA (Ghana), SEGBA (Argentina), CELPA (Ethiopia), FURNAS (Brazil), NEB (Malaysia), PUB (Singapore), EEEB (Colombia), EPM (Co­lombia), CVC/CHIDRAL (Colombia).
(5) Loan Agreement (Búrfell Power Project) between International Bank for Reconstruc­tion and Development (the World Bank) and Landsvirkjun, Loan No 466-0 for $18m
(6) Ibid. Article 8.01
(7) Contrary to general belief that Loan Agreements between the World Bank and its borrowers all over the world are confidential, they are in fact freely available from the Bank’s stationary stores in Washington, D.C.
(8) Article IX.10 in the Suppliers Credit Agreement between Landsvirkjun (Bor­rower) and Manufacturers Hanover Trust Company and ExImBank (Lenders), dated 1974-04-05, reads:
“(If) the Borrower shall have default­ed under any other agreement involv­ing the advance of credit to the Bor­rower, if such default gives to the holder of the obligation the right to accelerate the indebtness . . . then either lender … may make immedi­ately due and payable … (a) the entire principal indebtness owing to it then outstanding … and (b) accrued in­terest to the date of payment.”
(9) International Bank for Reconstruction and Development (The World Bank), Ar­ticles of Agreement, Washington 1976,”Arti­cle 1
(10) The World Bank, IDA and IFC Policies and Operations, The World Bank (IBRD), Washington, DC, June 1969

Lagos Dissents Under IMF Hegemony

Lagos Dissents Under IMF Hegemony
Nigeria : The Next Front for AFRICOM

By Nile Bowie

January 08, 2012 “Information Clearing House”

— On a recent trip to West Africa, the newly appointed managing director of the International Monetary Fund, Christine Lagarde ordered the governments of Nigeria, Guinea, Cameroon, Ghana and Chad to relinquish vital fuel subsidies. Much to the dismay of the population of these nations, the prices of fuel and transport have near tripled over night without notice, causing widespread violence on the streets of the Nigerian capital of Abuja and its economic center, Lagos. Much like the IMF induced riots in Indonesia during the 1997 Asian Financial Crisis, public discontent in Nigeria is channelled towards an incompetent and self-serving domestic elite, compliant to the interests of fraudulent foreign institutions.

Although Nigeria holds the most proven oil reserves in Africa behind Libya, it’s people are now expected to pay a fee closer to what the average American pays for the cost of fuel, an exorbitant sum in contrast to its regional neighbours. Alternatively, other oil producing nations such as Venezuela, Kuwait and Saudi Arabia offer their populations fuel for as little as $0.12 USD per gallon. While Lagos has one of Africa’s highest concentration of billionaires, the vast majority of the population struggle daily on less than $2.00 USD. Amid a staggering 47% youth unemployment rate and thousands of annual deaths related to preventable diseases, the IMF has pulled the rug out from under a nation where safe drinking water is a luxury to around 80% of it’s populace.  

Although Nigeria produces 2.4 million barrels of crude oil a day intended for export use, the country struggles with generating sufficient electrical power and maintaining its infrastructure. Ironically enough, less than 6% of bank depositors own 88% of all bank deposits in Nigeria. Goldman Sachs employees line its domestic government, in addition to the former Vice President of the World Bank, Ngozi Okonjo-Iweala, who is widely considered by many to be the de facto Prime Minister. Even after decades of producing lucrative oil exports, Nigeria has failed to maintain it’s own refineries, forcing it to illogically purchase oil imports from other nations. Society at large has not benefited from Nigeria’s natural riches, so it comes as no surprise that a severe level of distrust is held towards the government, who claims the fuel subsidy needs to be lifted in order to divert funds towards improving the quality of life within the country.

Like so many other nations, Nigerian people have suffered from a systematically reduced living standard after being subjected to the IMF’s Structural Adjustment Policies (SAP). Before a loan can be taken from the World Bank or IMF, a country must first follow strict economic policies, which include currency devaluation, lifting of trade tariffs, the removal of subsidies and detrimental budget cuts to critical public sector health and education services.

SAPs encourage borrower countries to focus on the production and export of domestic commodities and resources to increase foreign exchange, which can often be subject to dramatic fluctuations in value. Without the protection of price controls and an authentic currency rate, extreme inflation and poverty subsist to the point of civil unrest, as seen in a wide array of countries around the world (usually in former colonial protectorates). The people of Nigeria have been one of the world’s most vocal against IMF-induced austerity measures, student protests have been met with heavy handed repression since 1986and several times since then, resulting in hundreds of civilian deaths. As a testament to the success of the loan, the average laborer in Nigeria earned 35% more in the 1970’s than he would of in 2012.

Working through the direct representation of Western Financial Institutions and the IMF in Nigeria’s Government, a new IMF conditionality calls for the creation of a Sovereign Wealth Fund. Olusegun Aganga, the former Nigerian Minister of Finance commented on how the SWF was hastily pushed through and enacted prior to the countries national elections. If huge savings are amassed from oil exports and austerity measures, one cannot realistically expect that these funds will be invested towards infrastructure development based on the current track record of the Nigerian Government. Further more, it is increasingly more likely that any proceeds from a SWF would be beneficial to Western institutions and markets, which initially demanded its creation. Nigerian philanthropist Bukar Usman prophetically writes “I have genuine fears that the SWF would serve us no better than other foreign-recommended “remedies” which we had implemented to our own detriment in the past or are being pushed to implement today.”

The abrupt simultaneous removal of fuel subsidies in several West African nations is a clear indication of who is really in charge of things in post-colonial Africa. The timing of its cushion-less implementation could not be any worse, Nigeria’s president Goodluck Jonathan recently declared a state of emergencyafter forty people were killed in a church bombing on Christmas day, an act allegedly committed by the Islamist separatist group, Boko Haram. The group advocates dividing the predominately Muslim northern states from the Christian southern states, a similar predicament to the recent division of Sudan.

As the United States African Command (AFRICOM) begins to gain a foothold into the continent with its troops officially present in Eritrea and Uganda in an effort to maintain security and remove other theocratic religious groups such as the Lord’s Resistance Army, the sectarian violence in Nigeria provides a convenient pretext for military intervention in the continuing resource war. For further insight into this theory, it is interesting to note that United States Army War College in Carlisle, Pennsylvania conducted a series of African war game scenarios in preparation for the Pentagon’s expansion of AFRICOM under the Obama Administration.

In the presence of US State Department Officials, employees from The Rand Corporation and Israeli military personnel, a military exercise was undertaken which tested how AFRICOM would respond to a disintegrating Nigeria on the verge of collapse amidst civil war. The scenario envisioned rebel factions vying for control of the Niger Delta oil fields (the source of one of America’s top oil imports), which would potentially be secured by some 20,000 U.S. troops if a US-friendly coup failed to take place. At a press conference at the House Armed Services Committee on March 13, 2008, AFRICOM Commander, General William Ward then went on to brazenly state the priority issue of America’s growing dependence on African oil would be furthered by AFRICOM operating under the principle theatre-goal of “combating terrorism”.

At an AFRICOM Conference held at Fort McNair on February 18, 2008, Vice Admiral Robert T. Moeller openly declared the guiding principle of AFRICOM is to protect “the free flow of natural resources from Africa to the global market”, before citing China’s increasing presence in the region as challenging to American interests. After the unwarranted snatch-and-grab regime change conducted in Libya, nurturing economic destabilization, civil unrest and sectarian conflict in Nigeria is an ultimately tangible effort to secure Africa’s second largest oil reserves. During the pillage of Libya, its SFW accounts worth over 1.2 billion USD were frozen and essentially absorbed by Franco-Anglo-American powers; it would be realistic to assume that much the same would occur if Nigeria failed to comply with Western interests. While agents of foreign capital have already infiltrated its government, there is little doubt that Nigeria will become a new front in the War on Terror.
Nile Bowie is an independent writer and photojournalist based in Kuala Lumpur, Malaysia. – http://nilebowie.blogspot.com – nilebowie@gmail.com

Is the IMF Irredeemably Irrelevant?

Is the IMF Irredeemably Irrelevant?
Commentary by Paranjoy Guha Thakurta

NEW DELHI, Dec 8, 2006 (IPS) – Has the International Monetary Fund (IMF) become completely irrelevant? Is this world body, set up more than six decades ago to foster global economic stability and help countries facing financial crises, really reforming itself? And will it become more responsive to the aspirations of developing countries?

Opinion is sharply divided on these questions as the IMF undergoes an exercise to change its "quota and vote" system that is linked to the financial commitments made by 184 countries that are its members. A member's quota delineates basic aspects of its financial and organizational relationship with the Fund, including its powers to vote and its access to loans.

Three years ago, the IMF had loaned more than 100 billion US dollars to various countries to help them tide over problems including management of external balance of payments. This amount has now shrunk to less than 20 billion dollars a year. In fact, instead of primarily being a lender of funds, the IMF has become a net receiver of funds with an inflow in excess of 20 billion dollars in the form of repayments of past loans, much of it from developing countries.

"The IMF has today become completely irrelevant," observed Prof. Jayati Ghosh who teaches economics at New Delhi's prestigious Jawaharlal Nehru University, in an interview with IPS. Not exactly, argue officials of the Washington D.C.-headquartered organisation that was established in 1945 after the end of the Second World War in the wake of the historic Bretton Woods conference. "We should celebrate the fact that countries do not need the Fund in emergency situations," an IMF official told IPS.

Addressing a conference of finance ministers of Commonwealth countries in Colombo on Sep. 13, India's Finance Minister Palaniappan Chidambaram caustically remarked: "It is widely believed that the present quota formula of the IMF is hopeless flawed and outdated. Obviously, an ad hoc quota redistribution based on this flawed formula cannot provide a durable solution. We need a consensus on a new formula. And we need it quickly. There must be a deep commitment to fundamental reform and there should be no postponement of a comprehensive review

IMF macroeconomic advice: ?thanks, but no thanks?

IMF macroeconomic advice: “thanks, but no thanks?

News|Bretton Woods Project|23rd November 2006|update 53|url

The IMF?s ability to dictate economic policy to member states is fraying because of lost credibility in the wake of its failures in East Asia, Argentina and Russia (see Updates 8, 10, 28). Smaller developing countries are now joining the larger ones such as Brazil and Indonesia in rejecting the Fund’s interference in their economies.

In the midst of Ecuador’s presidential election in October, the IMF reportedly recommended in private that the government accumulate reserves to guard against a drop in the oil price and a possible adverse ruling in an investment arbitration case with a multinational oil company. The September 2006 World Economic Outlook (WEO), a semi-annual IMF report, criticised Ecuador’s energy investment policies.

Ecuadorean economy minister Armando Rodas called the WEO "a poor report filled with fallacies". The advice on reserves prompted the minister of foreign affairs Francisco Carrion to state "Ecuador will act according to its own interests rather than upon the recommendations of international institutions." Rodas demanded that the IMF stop "meddling in the legal and internal affairs of Ecuador and respect its sovereignty." One candidate in November’s presidential run-off, Rafael Correa, has flirted with declaring a unilateral moratorium on repayment of Ecuador’s debt to the IMF to free up resources for social programmes.

South Africa has also publicly refused the IMF?s advice. The central bank in South Africa has a relatively broad band for its inflation target of three to six per cent. In the Fund’s 2006 Article IV consultation, an annual economic report produced for each Fund member, staff suggested that the bank explicitly target the midpoint of the band. Central bank governor Tito Mboweni rebuffed the IMF and declared that both he and the finance minister Trevor Manuel agreed that the IMF should "avoid anything that would appear to be policy prescriptive for countries which are not borrowing from [it]".
Rates, reserves policies in flux

The industrial world, increasingly concerned over Chin trade surplus growth, is pushing for the IMF to increase its surveillance of exchange rate regimes. This has been bolstered by an Independent Evaluation Office report that criticised the Fund's surveillance efforts (see Update 51). One idea floated by US researcher John Williamson, among others, is for the IMF to publish equilibrium exchange rates for each member country regardless of the currency regime in use. It is widely viewed that this suggestion is targeted at China, whose currency is considered undervalued by the United States and Europe.

However, an October Fund working paper by Dunaway, Leigh and Li casts doubt on this exercise, concluding that "small changes in model specifications, explanatory variable definitions, and time periods used in estimation can lead to very substantial differences in equilibrium real exchange rate estimates. Thus, such estimates should be treated with great caution."

The executive board is still reviewing the IMF?s policy on exchange rate surveillance, which was last revised in 1977, but it is unlikely to reach consensus on this topic. In his statement to the IMFC, Nor Mohammed Yakcop, Malaysi finance minister, argued against the review of the policy, saying “we do not support the proposal for the Fund to determine and make public whether a member’s exchange rate is misaligned. It is widely known that the estimation of equilibrium exchange rate levels is highly sensitive to the underlying assumption.” Similar resistance was expressed by ministers from Argentina and Nigeria.

A recent Fund working paper on the optimal level of foreign exchange reserves by Jeanne and Ranci

World Bank: Research, knowledge and the art of ‘paradigm maintenance’

Research, knowledge and the art of “paradigm maintenance?

The World Bank's development economics vice-presidency (DEC)
At Issue|Robin Broad|20th November 2006|update 53|url

A shorter, fully-formatted PDF version of this briefing is also available.

Robin Broad, professor in the School of International Service at American University, describes six mechanisms by which the World Bank's development economics vice-presidency (DEC) performs a "paradigm-maintenance" role, privileging individuals whose work "resonates" with the neo-liberal free-market ideology.

Unbeknownst to most who work on the World Bank, this institution is not only the main lender of public money in the world. It is also the world's largest development research body, centred in DEC1. DEC is important because it serves as a research department for other bilateral aid agencies and other multilateral development banks, which often follow the course laid out by the Bank. So too with the World Trade Organization which, according to an internal Bank document "looks to the Bank to provide analysis on trade integration policies." And Bank research is consulted by policy-makers across the globe. In academia, as well, relevant courses often rely heavily on Bank research papers. In short, DEC is the research powerhouse of the development world.

The Bank likes to claim that DEC conducts the cr

Bank and Fund in-roads into Iraq

Bank and Fund in-roads into Iraq

News|Bretton Woods Project|23rd January 2006|update 49|url

As the World Bank and IMF ratchet up efforts to plough money into Iraq’s reconstruction, civil society groups call for greater national and international scrutiny over crucial reforms and a total cancellation of the country’s ‘odious debt’. In November, the Bank’s board of executive directors approved the first development loan to the country in over 30 years. This was followed by an IMF stand-by arrangement, quietly approved a week after Iraqi elections at the end of December. Compliance with the conditions of the stand-by arrangement has lead to a dramatic increase in fuel-prices, sparking riots in many parts of the country and leading to the resignation of the oil minister, Ibrahim Bahr al-Uloum in protest.

The stand-by credit arrangement of approximately $685 million is the Fund’s first ever with Iraq, designed to support its economic programme over the next 15 months. It follows an emergency post-conflict assistance disbursement in September 2004, and an Article IV consultation concluded in August 2004. The arrangement, carefully timed to avoid electoral scrutiny, makes Iraq eligible for further IMF loans. It is also necessary to secure the 80 per cent reduction of Iraq’s debt with the Paris Club as agreed in November 2004, and as a seal of approval to initiate aid from other donors.

Key components of the SBA include:
    ?     cutting of public subsidies, especially on fuel;
    ?     a restructuring of Iraq’s external debt;
    ?     strengthening of administrative capacity, including statistical reporting; and
    ?     reform and restructuring of Iraq’s two state-owned banks.

Consequently, the Iraqi government increased state-controlled prices of petrol and diesel by up to 200 per cent. Oil minister Bahr al-Uloum who resigned in protest over the plan said the price hikes should have been introduced gradually to satisfy both the demands of the IMF for an end to subsidies and the demands of ordinary Iraqis for cheap fuel. Iraqi Finance Minister Ali Abdulameer Allawi also expressed concern regarding the potential for unrest as a result of the removal of subsidies. Further rises of petroleum and petroleum products are planned on a quarterly basis.

After a two-day seminar in Amman on IFI policies in Iraq, representatives of five Iraqi trade unions adopted a joint statement concerning the policies of the IMF and World Bank in the country and formed a permanent coordinating committee on the IFIs. Points in the statement included:
    ?     the importance of complete sovereignty for Iraq over its petroleum and natural resources;
    ?     increased transparency and additional representation for Iraq in the decision-making structures of IFIs;
    ?     cancellation of debt incurred by the former regime and an end to conditionality;
    ?     rejection of the privatisation of publicly owned entities; and
    ?     rejection of the increase in the price of petroleum products.

Jubilee Iraq said that "the timing of the deal was very worrying, coming in the period after elections and before the formation of the interim government". They pointed out that if the deal had been made a few weeks earlier then it may would have been an election issue, and if it had been delayed for a few months then the permanent elected government would have been able to negotiate it from a position of greater strength. They stated that "there would be no need to borrow this money if Iraq were not paying more than $100 million a month in reparations and with a huge odious debt burden still un-cancelled from the era of Saddam Hussein."
Debt restructuring

As part of the stand-by arrangement the debt that Iraq owes to the Paris Club has been reduced by the equivalent of 80 per cent in net present value terms. Non-Paris Club official debt constitutes about twice as much as that of the Paris Club. Only a small proportion of it has been reconciled so far. On 19 January Iraq issued its first bonds for trading as part of the restructuring of debt owed to commercial creditors.
Bank expansion

In spite of security concerns, Joseph Saba, the Bank’s country director for Iraq hopes to expand staff (currently seven Iraqis and one expatriate) in the country, asserting that Bank expertise is needed to "promote macroeconomic stability and improve governance". The ground work for the Bank and Fund’s involvement in the country started shortly after the invasion. The International Reconstruction Fund Facility for Iraq (IRFFI), administered by the Bank and the UN was set up in 2003. It channels and coordinates donor support for reconstruction via two trust funds, including the World Bank Iraq Trust Fund(ITF). The Bank administrates the ITF but does not contribute to it.

In July 2005 the Bank set out the framework for up to $500 million in concessional loans from the International Development Association (IDA), of which the first instalment of $100 million, for education projects was approved in November 2005. The Bank’s private sector arm, the International Finance Corporation (IFC), has also provided financial and technical support
Oil ‘privatisation’?

One of the conditions of the stand-by arrangement was that Iraqi officials would consult with the IMF on the drafting of a petroleum law in the second half of 2006, to restructure Iraq’s oil industry. The IMF has already aligned itself with private sector interests on this subject: in autumn 2004, the IMF and World Bank presented a report by little-known corporate lobby group the International Tax and Investment Centre(ITIC) and multinational oil companies to the Iraqi ministries of finance, oil and planning. The report called for Iraq’s oil reserves – the second largest in the world – to be developed by multinational companies through contracts known as production sharing agreements. To do so would break from the standard practice across the major oil producers of the Middle East, whose oil industries are in the public sector.Crude Designs, a report by PLATFORM and other UK and US NGOs revealed that such a move would cost the Iraqi economy between $74 and $194 billion, compared to continuing with the current system. The contracts would substantially restrict the ability of the Iraqi government to control its oil industry or even pass new legislation for up to 40 years. PLATFORM commented, "Oil accounts for more than 90 per cent of the Iraqi economy. The oil industry’s proposals, which appear to be supported by the IMF and World Bank, could sign away a large chunk of Iraq’s oil revenue for decades."

Leopard doesn’t change its spots

Leopard doesn’t change its spots

Moves to usher in a globalized neo-liberal economic framework are being pursued by such international institutions as the IMF, OECD and WTO. A recent address by IMF deputy managing director Stanley Fischer dwelling on a possible role for the Fund as a lender of last resort may be the latest such attempt. If realized, this role could entail borrowing economies assuming capital account obligations and opening up to foreign financial institutions.

by Chakravarthi Raghavan
Third World Economics No. 204, 1-15 March 1999

GENEVA: After the breakdown of the Bretton Woods international monetary and financial system in 1971 – when US President Richard Nixon (after summoning the IMF chief to the White House and giving him the information just a half-hour beforehand) announced a US dollar devaluation against gold, repudiating the US commitment to exchange dollars for gold at $35 an ounce – it took five more years for the industrial and developing countries to agree on the Jamaica agreement to change the IMF articles and set up a revised Bretton Woods architecture and system.

In between the Nixon repudiation of the Bretton Woods agreement and the Jamaica amendments to the articles of the IMF, had come the first oil price rise, and the orchestrated effort of the US and others to use the Northern banks to intermediate the funds: taking in the capital surpluses of the oil-exporting Gulf states and lending them to the governments of the North and their corporations – directly or through bond and other market instruments – and persuading and directing the developing world to look to the market for finance (short-term trade finance and capital for investment).

"Non-system"

The Jamaica agreement and the new architecture, with floating exchange rates (and the industrial countries being committed to current account convertibility and moving towards capital account convertibility), it was argued, would produce stability.

But no such stability came and the IMF has come to be the manager of a "non-system", with a principal role as debt- collector in the South for and on behalf of official and private creditors from the North.

At the time of the Jamaica agreement, which came after two years of negotiations within what later became the Interim Committee of the IMF, the developing countries missed a historic opportunity to ensure democratic governance of the international financial institutions.

The developing countries had not been present at Bretton Woods, but by the time of Jamaica, if they had acted together, they had enough votes to block any amendment, and could have brought about some compromises for changes that would be supportive of development.

But they failed to balance their short-term and long-term interests.

For the promise of additional money, through a gold trust fund (for recycling OPEC dollars), promises of development finance (ODA, World Bank loans and so on), and the promise of liquidity through the special drawing rights (SDRs) (whose issuance depended on the approval of the G-5 and their voting power), the developing countries acquiesed in the Jamaica agreement. Only Tanzania saw it as a "mess of pottage" and dissented. Its then finance minister and IMF governor, the late Amir Jamal, later explained to this writer that though Tanzania counted for nothing in terms of the financial system or world economy, it wanted to make a point in its dissent.

And any possibilities of development were in fact ended by the aggressive embrace by the IMF and World Bank (and now the WTO) of neo-liberalism – in the wake of the Thatcher-Reagan counter-revolution.

The IMF and the World Bank promoted so-called "structural adjustment", which entailed leaving the economy to the "market" and governments following "pro- market" and then "market- friendly" policies. These soon became synthesized into the so- called "Washington Consensus" (a consensus within the official Washington establishment) for disarming the state in the economic arena and leaving everything to the market, adhering to neo-liberalism or laissez-faire in developing countries – even as the major industrial centres have been engaged in neo- mercantilism, and an active government role to promote the interests of their corporations, and expansion of the finance economy at the cost of the real economy.

The IMF and the Bank, through their policies, had been forcing unilateral trade liberalization and the opening up of the services economies in developing countries to the foreign banks and financial services providers.

During the Uruguay Round, the two institutions had actively promoted policies in developing countries that favoured the major industrial world, and encouraged the developing countries to agree to the demands from the US and the EC for negotiations under the "trade rubric" of the entire range of economic policies of countries – in goods, services and intellectual property rights. They also pushed, through their "conditionality" policies, unilateral trade liberalization by developing countries.

Enter the WTO

Since the establishment of the WTO on 1 January 1995, the Bank and the Fund have been promoting the same policies and approach with some "assistance" at informal secretariat level from the WTO. They have been encouraging and promoting developing countries notifying and scheduling trade concessions in the WTO, thus binding the countries and making any change of course a costly exercise. Acting without any authority, the WTO secretariat in informal advices has been trying to help this process along.

Some of the statements and interviews by the WTO head, Mr. Renato Ruggiero, after the Asian crisis began in Bangkok in July 1997, strengthen the view that the WTO (and the US) used IMF influence, for example, to pressure several developing countries to "liberalize" their financial sectors and make commitments in the WTO financial services negotiations that ended with an accord in December 1997. The agreement is yet to enter into force.

Meanwhile developing countries, and more so their finance and trade ministers, have been viewing as separate and distinct the financial services liberalization issue at the WTO, the capital convertibility issue at the IMF, and the OECD and UNCTAD/WTO processes for a multilateral investment agreement (that would provide full freedom for all kinds of foreign investors and investments – ranging from traditional protection of property rights against expropriation to the right of establishment and exit for foreigners for all kinds of capital).

Same task

But careful analysis of the policy pronouncements of the OECD, its Development Assistance Committee, the "advocacy" economic research papers of the WTO secretariat, and the pronouncements of the IMF and so on leaves little doubt that, while there is a mutual turf battle, all of these institutions are engaged in the same task: ushering in a globalized neo-liberal economic framework, under which international regimes and rules would restrict the rights of states and their governments and expand those of the foreign corporations. In the wake of the Asian crisis that broke out in July 1997 and quickly began spreading, the World Bank has sought to distance itself from its earlier policies and the IMF remedies and, moving away from the "Washington Consensus", has been talking now of "Washington-plus" (in the words of its chief economist, Joseph Stiglitz).

However, at the trade policy level, the Bank is still promoting the WTO approaches. Learning from its experience (and failure in the Uruguay Round), the Bank is offering technical assistance to developing countries purportedly to help them negotiate better. But there are fears that in fact the staff will promote the Northern view of new negotiations, including via such concepts as "full integration" of developing countries and discouraging the renewed demand from developing countries for special and differential treatment.

Meanwhile, the IMF management, which had been aggressively advocating (since its 1994 50th anniversary meeting in Spain) changes to its articles of amendment to bring about "capital account" convertibility, in the wake of the Asian crisis that spread from Asia to Russia and now to Latin America, appears to be staging a "tactical retreat".

The developing countries, and particularly the Group of 24, after the Asian crisis began having some second thoughts on moves for capital account convertibility and opening their capital accounts, and have slowly begun reversing track, and pressing for a new financial architecture and a task force and process to achieve it.

Several mainstream economists have also been questioning and challenging the capital convertibility idea, while many others including free trade ideologues like Jagdish Bhagwati, even when supporting and advocating "trade liberalization", began attacking both the IMF advocacy of capital convertibility and the WTO/OECD moves for multilateral investment rules.

In this situation, the IMF and the US Treasury have "coopted" the call for a new financial architecture, and have attempted to bring it under their influence and control, through some window-dressing reforms that will ensure that the transnational banks and financial service operators would be able to operate in the emerging markets, backed by IMF presence and conditionalities.

The IMF’s deputy managing director and US national, Stanley Fischer, has been singing a siren song of a new financial architecture and the IMF as the lender of last resort.

His views and arguments on this were presented at the joint luncheon meetings of the American Economic Association and the American Finance Association in January in New York, and are available on the IMF webpages. The paper is an attempt to meet the objections of developing countries and dilute their opposition to the IMF ideas – by presenting capital account convertibility as a long-term objective and a process to be undertaken at each country’s pace.

At the same time, Fischer has been holding out the prospect of the IMF functioning as a lender of last resort of sorts and providing funds.

But his speech seems to envisage this in relation to the countries, among others, moving to capital convertibility and opening up their economies to operations by foreign banks and financial intermediaries.

[According to participants, Jagdish Bhagwati at the same American Economic Association meeting, while participating in a panel discussion, assailed the IMF policies and proposals for furthering the interests of Wall Street.]

In his paper at the AEA/AFA lunch, Fischer has looked at issues of lender of last resort and capital account liberalization, and has gone on to argue that the IMF could serve as the international lender of last resort.

The IMF was set up in 1944 to deal with payments crises and current account problems, hence the provisions in its articles to effectively prevent members from having recourse to IMF funds for capital account problems, and the IMF specifically being authorized to recommend to the countries imposition of capital account restrictions.

Fischer in his address has dealt with, and given some misleading analogies about, domestic lenders of last resort – bringing in and mixing up the roles performed in this regard (and largely in terms of US experiences and practices) by the US Federal Reserve and the US Treasury, as well as in some other countries where the "lender of last resort" has no power to create "money".

The major thrust of his argument, and the "lollipop" being held out to the developing countries and their treasuries desperately looking for outside finance, is that the IMF could become such a lender of last resort with reference to their capital account.

Backdoor effort?

Tied to this are issues relating to the extension of IMF surveillance.

Is it really possible for the Fund to become a lender of last resort without extending its surveillance (over developing countries) to a number of new areas, including the practices in the financial systems of countries – domestic and external?

It is also difficult to see how the IMF can become a lender of last resort to countries on their external capital account, without countries undertaking obligations with respect to the capital account.

Nor is it easy to see whether it will be possible to vest the IMF with such lender-of-last-resort authority on the capital account without engaging in some capital account negotiations.

Shorn of verbiage, is it really feasible to consider the proposal to make the IMF a lender of last resort in isolation, and separate from the IMF’s earlier efforts for capital account convertibility? Or is the proposal no more than a backdoor effort to achieve the same and ensure capital account liberalization?

Even if such a liberalization and convertibility obligation will no longer be through the IMF articles, but be a voluntary one, would it not result in a further division of member- countries of the IMF?

Even now, in terms of the current account, there are two groups of IMF members: those who borrow from the IMF (developing countries and the transition economies mostly) and those who lend.

Those who lend have no enforceable obligations to the IMF beyond those in the Art. IV surveillance – and there is not enough convincing evidence that such surveillance has in fact brought about a change of policies in the lending countries.

But those who borrow, do so under "conditionality" and are thus governed by the "subjective" obligations and conditions imposed by the IMF management.

Three-tier system

The IMF proposal to become a lender of last resort on the capital account could thus mean that countries which have accepted the conditions and disciplines attached to the loan (or those announced in advance as eligible for capital account loans) would be separate from countries that have access to the IMF windows on the current account. There will thus be a three- tier system of IMF membership.

And given the fungibility of money and resources, this would create a problem in terms of the Fund’s resources – and easily result in division (and/or diversion) of the Fund resources for capital and current account purposes.

Even as it is, there are concerns among developing countries that the current system does not adequately support or provide for development needs and that IMF and World Bank funds are being used for "bailout" operations.

And as the recent packages show, it is not only IMF funds that are involved. Under various guises, including so-called social safety assistance, the funds of the World Bank and regional development banks, and the budgets and resources of the industrialized countries are being called in and used.

Of the three classes of members, the industrialized countries would be those lending funds officially to the IMF, and perhaps even their private capital may become involved.

Of the others, there will be one class of members, perhaps a small number of so-called "emerging markets", which accept capital account obligations and have rights to the IMF resources on the current account as well as to the lender-of- last-resort facilities.

The third class of IMF members would be those having only rights of conditionality access to current account facilities.

This will have differing effects on the market ratings for borrowings of the two classes of members.

A country that does not want to open its capital account and does not accept IMF surveillance over a new range of areas may find itself handicapped when it seeks to tap international markets in different ways (than capital account liberalization).

Any idea of an international lender of last resort raises the question whether there could be a genuine lender of last resort without discretion to create money and liquidity.

The Fischer thesis attempts to argue in the affirmative.

Fischer tries to argue that within countries the treasury has acted as such a lender of last resort, even when liquidity creation is in the hands of an independent central bank. He also cites the role played in the early part of this century by private bankers like J.P. Morgan.

But a treasury lending money or a J.P. Morgan doing so cannot be confused with a "lender of last resort".

An important difference is that a lender of last resort stands ready to lend, in theory, unlimited amounts, if certain conditions are met.

Even though the IMF can issue SDRs, under its articles, such issuance is dependent on approval of the members, and the major countries. If the IMF is enabled to freely issue SDRs, they will become a major rival reserve currency to the dollar and the euro. Alternatively, political considerations (of the majors) could prevail in respect of issuance of SDRs to ensure that the major countries’ dominance is not eroded.

And given the conditions, for example, that the US Congress has already laid on the US executive director in IMF matters, political considerations will prevail to an even greater extent if the IMF is to become a lender of last resort.

Within a national context, the objectives of a lender of last resort (an independent central bank) and the government of the country will not be all that different.

But at an international level, there are conflicts of interest between nations. And, given the IMF’s decision-making and management structure, and the fact that the IMF itself is a creditor, it will be impossible for the Fund to be an impartial lender of last resort, when the management derives its powers from share-holders and their weighted voting rights.

For many years, it has been a part of financial orthodoxy to advocate that countries meet their financing needs from the market, and not from the multilateral financial institutions.

But now the IMF and its moves involve increasing the resources of these institutions.

But there is a difference. The financial orthodoxy prescription to look to the market for financing related to the current account and investment, whereas now the resource increases demanded for the IMF are to enable capital financing.

But the resources that will be needed to bail out the global financial institutions in the event of capital account problems will be very much larger than the amounts needed to help out countries.

Condition for access

And Fischer lets the cat out of the bag when he underlines as one of the conditions for access to the IMF’s "lender-of-last- resort" facilities, and loans being made on the basis of collateral and without conditionality, "the requirement that foreign banks be allowed to operate in the country, a change that should be adopted in any case."

Banks are no longer mainly in the business of taking in short-term deposits and savings and lending them long-term to enterprises, or seeking lowest-cost funds and channelling them to areas of highest risk-adjusted returns. Their main aim is to maximize fees and commissions, thus maximizing the rate of return on bank capital. They do this through over-the-counter (OTC) derivative instruments, "structured derivative packages" – created and provided to clients such as institutional investors and professionally managed pension and other funds which are required to invest their funds in rated bonds and instruments that give lower returns. The OTCs are structured often to enable these funds "to circumvent these restrictions" and earn more.

This is the business that now earns the banks in money centres the most income through commissions and fees, and they are anxious to enter the emerging markets to earn these fees, but in effect with an IMF "safety net" to guarantee that investors could exit easily. And if banks structure OTCs for home investors to get around regulations, is it not likely that they would act similarly in host countries?

A question that arises from the Fischer thesis is whether the IMF is not in fact – by becoming a lender of last resort, and conditional on capital account obligations and opening up to foreign banks by eligible countries – facilitating a process by which investors in capital- exporting countries can get around the prudential regulations in their countries, with the banks further facilitating this process for commissions and fees, assured of an IMF guarantee of sorts?

Such questions suggest that the developing countries may need to take a hard look at the whole spectrum of proposals circulating around – whether disguised as new international financial architecture, changes at the IMF including lender-of- last-resort and capital account issues, liberalization of trade in financial services at the WTO, moves for multilateral investment rules (in various forums), or other variations that could be brought up in other fora.

And while in one sense they are weaker than at the time of the Jamaica agreement for amending the IMF articles, in other respects, they have some leverage to be used to fashion an overall international framework that would be less asymmetric, have greater equity and be supportive of development.

If the governments of the South once again, for some small short-term illusory gains, act as they did at the time of the 1976 changes to the IMF charter, they would be judged harshly, not only by history, but in the present by their societies – where globalization and neo-liberalism are increasing economic hardships and marginalization of the large majority of their peoples, generating social and political disorder. (Third World Economics No. 204, 1-15 March 1999.)

The above article was originally published in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor

The Siena Declaration: On the Crisis of Economic Globalization


                           THE SIENA DECLARATION

                  On the Crisis of Economic Globalization

                       Siena, Italy, September, 1998

In the midst of the rapidly growing global financial crisis that has already reached unprecedented proportions, the following statement was prepared by the Board of Directors of the International Forum on Globalization (IFG), an alliance of leading scholars, activists, economists, researchers, and writers representing over 40 organizations in 20 countries. The meeting was held in Siena, Italy, in September 1998.   
————————————————————————

1. The undersigned have long predicted that corporate-led economic globalization, as expressed and encouraged by the rules of global trade and investment, would lead to an extreme volatility in global financial markets and great vulnerability for all nations and people. These rules have been created and are enforced by the World Trade Organization (WTO), the International Monetary Fund (IMF), the General Agreement on Tariffs and Trade (GATT), the North American Free Trade Agreement (NAFTA), the Maastricht Agreement, the World Bank and other global bureaucracies that currently discipline governments in the area of trade and financial investment. This volatility is bringing massive economic breakdown in some nations, insecurity in all nations, unprecedented hardships for millions of people, growing unemployment and dislocation in all regions, direct assaults on environmental and labor conditions, loss of wilderness and biodiversity, massive population shifts, increased ethnic and racial tensions, and other disastrous results. Such dire outcomes are now becoming manifest throughout the world, and are increasing daily.

2. The solutions to the crises that are currently being offered by the leadership of the above-named trade bureaucracies, and the leaders of most western industrialized states, as well as bankers, security analysts, corporate CEO’s and economists – the main theoreticians, designers and promoters of the activities that have led us to this point – are little more than repetitions, even expansions, of the very formulas that have already proven socially, economically and environmentally disastrous. The experts who now propose solutions to the financial meltdown are the very ones who, only months ago, were celebrating Indonesia, Thailand, South Korea and other "Asian Tigers" as poster-children for the success of their designs. They later stated that the Asian crisis was fully contained. Notably, these experts have been wrong in nearly every predicted outcome of their policies.

Now these "leaders" advocate that we solve the problem by further opening markets, further opening and liberalizing the rules of investment (as they promote such draconian formulas as the Multilateral Agreement on Investment, and expanded IMF powers), further suppressing the options of nation-states and communities to regulate commerce for the good of their own publics and environments, further discouragement of such models as "import substitution" that have the chance to enable nations to feed and care for themselves, and further centralization of control within the same governing bodies as at present. In other words, more of the same.

According to these architects of globalization, it is only a matter of "fine tuning" or "first aid" while on the way to continued expansion of the same failed dream of theirs. They cite "cronyism" among the Third World’s nations as contributing to the problem, but say nothing of the cronyism exhibited by the U.S. Treasury-Wall Street-IMF collaborations by which western bankers bail out other western bankers for their disastrous policies.

Clearly, the architects of the present crisis have not understood what they have wrought, or, if they have understood it, cannot afford to admit it.

3. As for the tens of millions of people who now suffer from this experiment, the expert solutions include no bailouts. Many of these people, formerly self-sufficient in food, are now dependent on the absentee-ownership system of the global economy. Now abandoned, they are left to seek solutions outside the system, from foraging in the (fast disappearing) forests, to barter systems, to social upheaval as means of expression. Many are finding that their attempts to return to prior means of livelihood – such as small scale local farming – are impossible, as their former lands have been converted to industrial corporate agricultural models for export production. Land on which people formerly grew food to eat has been converted to corporate production of luxury commodities – e.g. coffee, beef, flowers, prawns – to be exported to the wealthy nations. Poverty, hunger, landlessness, homelessness, and migration are the immediate outcome of this. Insecure food supplies, lower food quality, and often dangerous contaminated foods are a secondary outcome. The situation is unsustainable.

4. Its creators like to describe the global economic system as the inevitable outgrowth of economic, social and technological evolution. They make the case that centralized global economies that feature an export-oriented free trade model, fed by massive deregulation, privatization, and corporate-led free market activity in both commodity trade and finance — free of inhibiting environmental, labor and social standards — will eventually bring a kind of utopia to all people of the planet. Now it is clear that it is a corporate utopia they have in mind. But even this will fail to achieve its goals, as the entire process is riven with structural flaws. No system that depends for its success on a never ending expansion of markets, resources and consumers, or that fails to achieve social equity and meaningful livelihood for all people on the planet, can hope to survive for very long. Social unrest, economic and ecological breakdown are the true inevitabilities of such a system.

5. It is appropriate to recall that the present structures of globalization did not grow in nature as if they were part of a natural selection, evolutionary process. Economic globalization in its present form was deliberately designed by economists, bankers, and corporate leaders to institute a form of economic activity and control that they said would be beneficial. It is an invented, experimental system; there is nothing inevitable about it. Globalization in its recent form even had a birthplace and birthdate: Bretton Woods, New Hampshire, 1944. It was there that a design was agreed to by the leading industrial nations. The WTO, the IMF, the World Bank, et. al. were instruments that grew out of the design plan, to facilitate and further the process.

Great expectations have led to despair. After 50 years of this experiment, it is breaking down. Rather than leading to economic benefits for all people, it has brought the planet to the brink of environmental catastrophe, social unrest that is unprecedented, economies of most countries in shambles, an increase in poverty, hunger, landlessness, migration and social dislocation. The experiment may now be called a failure.

6. With the crisis now obvious in Asia, Russia, Brazil, Mexico and soon, predictably, in other places including western industrial nations, many peoples of the world, and many nation-states, have begun to recognize that the globalization experiment is doomed to fail. They have begun to specifically ask if globalization – especially free trade in financial flows – is in the best interest of their own nation, or any nation. We have seen serious corrective actions recently taken by China, India, Hong Kong, Malaysia, Russia and Chile which, by various means, have tried to counter the destabilizing force of unregulated private investment that has proved to benefit no one but the crony capitalists who advocate it. As we write, many more nations are showing renewed interest in these expressions of resistance and withdrawal from uncontrolled global capital. Importantly, the nations that have put, or maintained, controls on capital have demonstrated a higher degree of stability, and are better able to act successfully in the interests of their own resource and economic bases and in the interests of their own populations.

We applaud such actions and urge more nations to investigate and adopt currency and investment controls, as appropriate to their unique situations, rather than continuing to take dictates from distant bureaucracies who have proved they do not know what they are doing.

7. Though the current crisis tends to be reported as strictly "financial" in nature, it is worth noting that the problems are deeper and more endemic to the inherent flaws in the design of the global economy itself. All peoples of the world have been made tragically dependent upon the arbitrary, experimental acts of giant self interested corporations, bankers and speculators. This is the result of the global rules that remove real economic power from nations, communities and citizen democracies, while giving new powers to corporate and financial speculators that act only in their own interests; and that suppress the abilities of local economies, regions and nations to protect resources, public health and human rights, This has left the peoples of the world in a uniquely isolated, vulnerable condition; dependent upon the whims of great, distant powers. This too is an unsustainable condition.

8. Any truly effective solution to the current financial crisis, and the larger crises of economic globalization, must include the following ingredients, among others: a) Recognition and acknowledgment that the current model, as designed and implemented by present-day, corporate led global trade bureaucracies is fundamentally flawed, and that the current crises are the inevitable, predictable result of these flaws. b) Convening of a new Bretton Woods-type international conference which would bring to the table not only representatives of nation-states, bankers and industry, but an equal number of citizen organizations from every country to design economic models that turn away from globalization and move toward localization, re-empower communities and nation-states, place human, social and ecological values above economic values (and corporate profit), encourage national self sufficiency (wherever possible) including "import substitution," and operate in a fully democratic and transparent manner. c) Efforts to build on the experiences of Chile, Malaysia, India and the other countries that have placed controls on capital investment and currency speculation. Encourage all activity that reverses present policies that expand the freedoms of finance capital and transnational corporations, while suppressing the freedoms of individuals, communities, and nation-states to act in their own behalf. d) Immediately cancel all efforts toward completion of the Multilateral Agreement on Investment (MAI), or the expansion of the International Monetary Fund to include ingredients of the MAI that give added freedom to finance capital to operate free of national controls.

Finally, the undersigned wish to state that we are not opposed to international trade and investment, or to international rules that regulate this trade and investment, so long as it complements economic activity that nation-states can achieve for themselves, and so long as the environment, human rights, labor rights, democracy, national sovereignty and social equity are given primacy.

SIGNED BY: The Board of Directors, International Forum on Globalization

Maude Barlow, Council of Canadians, Ottawa, Canada
John Cavanagh, Institute for Policy Studies, Washington, D.C., U.S.
Tony Clarke, Polaris Institute, Ottawa, Canada
Edward Goldsmith, The Ecologist, London, U.K.
Martin Khor, Third World Network, Penang, Malaysia
Andrew Kimbrell, International Center for Technology Assessment, Washington,
D.C., U.S. Jerry Mander, Public Media Center, San Francisco, CA, U.S.
Helena Norberg-Hodge, International Society for Ecology and Culture,
Dartington Totnes, U.K. Mark Ritchie, Institute for Agriculture & Trade
Policy, Minneapolis, MN, U.S.
Vandana Shiva, Research Foundation for Science, Technology & Natural
Resource Policy, New Delhi, India
Lori Wallach, Public Citizen, Washington, D.C., U.S.

ALSO SIGNED BY: (PARTIAL LIST) (Organization names shown for identification
purposes)

John Acquay, FOE Ghana
Thomas Akabzaa, Third World Network, (Ghana)
Miguel Altieri, Ph.D, ESPM-Division of Insect Biology, University of
California at Berkeley ESPM-Div. of Insect Biology
Louis Lefeber, CERLAC, York University, (Canada)
Harriet Barlow, HKH Foundation
Tom Barry, Co-Director, Foreign Policy In Focus Project Interhemispheric
Resource Center Medea Benjamin, Director, Global Exchange
Peter Berg, Planet Drum Foundation
Wendell Berry, Lanes Landing Farm
Agnes Bertrand, Observatoire de la Globalisation Economique, (France)
Max Bollock, Legislative Director, Peace Action of San Mateo County
Beth Burrows, Edmonds Institute
Leslie Byster, Silicon Valley Toxics Coalition
Bruce Campbell, Executive Director, Canadian Centre for Policy Alternatives,
(Canada)
John Cavanagh, Institute for Policy Studies
Nilo Cayuqueo, Abya Yala Fund
Kevin Clements, Director, Vernon and Minnie Mynch Chair of Conflict
Resolution
Kevin Danaher, Global Exchange
Donald E. Davis, Armuchee Alliance Dalton College
Maria de la Luz Arriaga Lemus, Trinational Coalition of Defense of Public
Education – USA, Canada, & Mexico, (Mexico)
Chris Desser, Migratory Species Project
Oronto Douglas, Environmental Rights Action (ERA) Nigeria, (Nigeria)
Richard Douthwaite, FEASTA, The Foundation for the Economics of
Sustainability, (Ireland) Fiona Dove, Director, Transnational Institute
(TNI), (Amsterdam)
Ulrich Duchrow, Kairos Europa, (Germany)
Ramon Duran, AEDENAT, (Spain)
Jan Eastman, President, Canadian Teachers’ Federation, (Canada)
Tewolde Gebre Egziabher, Natural Environment Protection Authority,
(Ethiopia)
Anne Else, New Zealand social and economic analyst and writer
Chowdhury Farouque, Friends of the Earth Bangladesh
Allison Fields, Global Exchange
Ed Finn, Canadian Centre for Policy Alternatives, (Canada)
Paige Fischer, Pacific Environmental Resource Center
Alan Fricker, Convenor, Sustainable Futures Trust, (New Zealand)
Jeanne Gauna, Southwest Organizing Project (SWOP)
Susan George, Associate Director, Transnational Institute, (France)
Maria Gilardin, TUC Radio
Fred Goff, Data Center
Larry Goodwin, Director, Africa Faith and Justice Network
Alan Griffiths, Campaign coordinator, ‘STOP MAI’ Campaign, (Australia)
Ricardo Grinspur, Centre for Research on Latin America & the Caribbean,
(CANADA) Richard Grossman, Program on Corporations, Law and Democracy
(POCLAD)
Jonathan Hardy, National Secretary, Campaign for Press & Broadcast Freedom,
(England) Randall Hayes, President, Rainforest Action Network
Ladislav Hegyi, Coordinator, SpoloEnos? priate

Malaysia institutes radical exchange, capital controls

 Malaysia institutes radical exchange, capital controls

In explaining his government’s decision to impose wide-ranging exchange
controls, Malaysian Prime Minister, Dr Mahathir bin Mohamad, has declared
that it was a last resort to limit his country’s exposure to speculators and
financial turmoil, in view of the international community’s inertia in
taking steps to regulate currency trading.

                               by Martin Khor
Third World Economics, No. 192, 1-15 September 1998

  ————————————————————————

PENANG, MALAYSIA: The Government of Malaysia on 1 September announced
radical measures to regulate the trade in its local currency, the ringgit,
and movements of foreign exchange aimed at reducing the country’s exposure
to financial speculators and the growing global financial turmoil.

In a television interview, Prime Minister Dr Mahathir bin Mohamad announced
that the government would fix the ringgit’s exchange rate, and that in
future, the ringgit would only be tradable within Malaysia.

The rate of exchange has been fixed at 3.80 to the US dollar.

Dr Mahathir said that the ringgit, either as cash or in ringgit bank
accounts abroad, would be allowed a period of one month to be brought back
to Malaysia. After that, ringgit held abroad, would be considered "invalid"
and would not be allowed into the country.

The Prime Minister revealed that 20 to 25 billion ringgit was currently held
in bank accounts abroad, in addition to several million ringgit in cash also
being held abroad.

[It is widely known here that much of these savings are held in ringgit
accounts in banks in Singapore, which offer far higher interest rates on
these accounts than the rates for accounts in Malaysia.]

In addition, the Bank Negara (Malaysia’s Central Bank) also announced other
exchange and financial controls, including:

   * Except for payments for imports of goods and services, residents are
     freely allowed to make payments to non-residents only up to RM10,000 or
     its equivalent in foreign currency.

Previously, this limit was set at RM100,000.

   * Investments in any form abroad by residents and payments under a
     guarantee for non-trade purposes require approval.

   * The prescribed manner of payment for exports will be in foreign
     currency only.

Previously, payment was allowed in foreign currency or ringgit from an
external account.

   * Domestic credit facilities to non-resident correspondent banks and
     non-resident stockbroking companies are no longer allowed.

Previously, domestic credit up to RM5 million was allowed.

   * Residents require prior approval to make payments to non- residents for
     purposes of investing abroad for amounts exceeding RM10,000 equivalent
     in foreign exchange.

   * Residents are not allowed to obtain ringgit credit facilities from
     non-residents.

   * Resident travellers are allowed to import ringgit notes up to RM1,000
     only and any amount of foreign currencies, and to export only up to
     RM1,000 and foreign currencies only up to RM10,000 equivalent.

   * Transfers between external accounts require prior approval for any
     amount (previously freely allowed); transfers from external accounts to
     resident accounts will require approval after 30 September; sources of
     funding for external accounts are limited to proceeds from sale of
     ringgit instruments and other assets in Malaysia, salaries, interest
     and dividend and sale of foreign currency.

   * There are also several new rules relating to securities, including that
     ringgit securities are required to be deposited with authorized
     depositaries.

Previously, there was no restriction on secondary trading of securities
registered in Malaysia.

Asked by a journalist whether the exchange control measures were regressive,
Dr Mahathir said they were not so. But the present situation where currency
instability and manipulation was prevalent was regressive.

He said that when the world moved away from the Bretton Woods fixed-exchange
rate system, it thought the floating-rate system was a better way to value
currencies.

                              Currency trading

"But the market is now abused by currency traders who regard currencies as
commodities which they trade in."

"They buy and sell currencies according to their own system and make profits
from it. But they cause poverty and damage to whole nations. That is very
regressive and the world is not moving ahead but backwards."

He added the Malaysian measures were a last resort.

"We had asked the international agencies to regulate currency trading but
they did not care, so we ourselves have to regulate our own currency."

"If the international community agrees to regulate currency trading and
limit the range of currency fluctuations and enables countries to grow
again, then we can return to the floating exchange rate system. But now we
can see the damage this system has done throughout the world."

"It has destroyed the hard work of countries in order to cater to the
interests of speculators – as if their interests are so important that
millions of people must suffer. This is regressive."

Explaining the move to make the use of offshore ringgit invalid, Mahathir
said normally it was offshore ringgit that was used by speculators to
manipulate the currency. The speculators hold the ringgit in foreign banks
abroad and have corresponding amounts in banks in Malaysia.

These accounts in Malaysian banks would be frozen and the ringgit in the
country would not be sold at all.

"Trading outside Malaysia will be meaningless as the offshore ringgit cannot
enter the country. Since the ringgit [will be] legal tender only in Malaysia
after one month from now, they would be holding accounts or papers with no
value then."

Mahathir said the measures would not affect genuine foreign investors as
they could bring in foreign funds, convert these into ringgit for local
investment, and can apply to the Central Bank to exchange the ringgit for
foreign currency to meet their needs, for example to import components.

The premier said investments would not be affected except for investment in
shares, which had to remain in the country for at least a year.

"Genuine long-term investors will have their investments protected as they
will know what the exchange rate is and they can plan how much funds to
bring in as the rate is fixed… Serious investors will realize that with a
fixed exchange rate, they can make good profit with minimum investment."

Mahathir also said that with the introduction of exchange controls, it would
be possible to cut the link between interest rates and the exchange rate.

"We can reduce interest rates without speculators devaluing our currency.
Our companies can revive. If our currency is revalued upwards, the companies
can buy imports as they don’t have to pay so much."

He added the country would not be affected so much by external developments
such as the crisis in Russia.

                                IMF reforms

Asked if the IMF would be unhappy with the measures, Dr Mahathir said the
agency’s actions had benefitted the foreign companies but were not to the
country’s interests.

"They see our troubles as a means to get us to accept certain regimes, to
open our market to foreign companies to do business without any conditions."

"It (IMF) says it will give you money if you open up your economy, but doing
so will cause all our banks, companies and industries to belong to
foreigners."

Dr Mahathir said the IMF should help developing countries but instead used
the financial crisis to enable giant companies from the rich countries to
take over developing- country economies.

"They call for reform but this may result in millions thrown out of work. I
told the top official of [the] IMF that if companies were to close, workers
will be retrenched, but he said this didn’t matter as bad companies must be
closed."

"I told him the companies became bad because of external factors, so you
can’t bankrupt them as it was not their fault. But the IMF wants the
companies to go bankrupt."

"Speculators say they want to see blood, by which they mean the companies
must be killed. Then only are we (considered to be) serious about reform. I
don’t agree."

The Malaysian measures, Dr Mahathir said, were aimed at putting a spanner in
the works of speculators, to take speculators out of currency trade. He
added the period of highest economic growth was during the Bretton Woods
fixed- exchange rate system. But the (floating exchange rate) free- market
system that followed the Bretton Woods system has failed because of abuses.

There are signs that people are now losing faith in this free-market system,
he said, citing Hong Kong’s intervention in the stock market, Taiwan’s
warning not to accept trade from Soros’ funds, China’s refusal to allow its
currency to be convertible, Russia’s having second thoughts and its possible
return to central planning, and Chile’s regulations on capital inflows.

"But some countries benefit from the abuses, their people make more money,
so they don’t see why the abuses should be curbed."

To a question whether the measures would be considered regressive by the
WTO, Dr Mahathir said: "In fact, our participation in the WTO would be
meaningless if we are bankrupt, as we then cannot contribute to world trade.
But a prosperous Malaysia can contribute to world trade and the WTO."

The Bank Negara, in a press release, said the new measures were aimed at
limiting the contagion effects of external developments on Malaysia and
ensuring that a stable exchange rate can facilitate recovery. (Third World
Economics, No. 192, 1-15 September 1998)

Martin Khor is the Director of Third World Network.

Global Finance: Dismantle or Reform? Interview with Paul Hellyer

Global Finance: Dismantle or Reform?
Produced by Kirsten Garrett
Sunday 30/05/1999

Summary:

ON-AIR PROMO: The bad news is that many economic soothsayers are saying that modern wall street capitalism has serious, inescapable problems. The good news is that, for reasons that defy economic logic, stockmarkets seem to know no bounds, and everyone can be an entrepreneur. Billions, overnight!

Can it last? Here one man’s view, a Canadian, the Hon. Paul Hellyer, on…

Hear this program

Full Transcript:

THEME

Kirsten Garrett: News on the world economy is in a yo-yo state of good news/bad news. Wall Street goes through the roof, but Mr Yen, the Japanese economics guru, says that global capitalism could collapse because of deep structural flaws. Business confidence is up, but the economists are nervous.

Today on Background Briefing, you’ll hear a view on modern capitalism and economics from an ex-politician. The Honourable Paul Hellyer, from Canada, discusses, at a conference in Australia, where money comes from, and what he sees as the underlying forces in the economics of western capitalism. He says that all the loans being made around the world by the IMF for example, are an attempt to maintain the illusion that all is well, when in fact, he says, it is not.

Hello, I’m Kirsten Garrett.

Paul Hellyer was Canada’s youngest Cabinet Minister when appointed in 1957. He was for a time, Deputy Prime Minister of Canada. And now he is the leader of a movement called the Canadian Action Party, which is dedicated to the concept of full employment and zero inflation and quality of life issues.

Paul Hellyer: There’s something very wrong in the world, I sense it here as I sensed it at home, and there is an underlying fear and uncertainty which is not characteristic of my earlier years, which didn’t exist at that time. There are not enough good jobs to go around; people are being displaced by machines at an ever-increasing rate. Your unemployment has just dropped below 8% for the first time in quite a while. In Canada we just dropped below 8%.

I come from a generation who consider that a national disgrace, and I don’t buy Professor Friedman’s hocus pocus of natural rates of unemployment and all of this sort of thing. You either have high unemployment or low unemployment, and we’ve had high unemployment for too long. And not only do we have unemployment of statistically around 8%, real unemployment probably 11% or 12% in our two countries, but there are 350-million people unemployed worldwide. Another statistic I’ve seen is a billion people either unemployed or under-employed, and that too, I consider in this case, a global tragedy.

Health care I understand is coming under some threat in your country. It certainly is in our country. We had a wonderful system, one of the best in the world, now the queues are long, the emergency rooms are closed, ambulances go from hospital to hospital looking for somewhere to leave their patients, and even from the city of Toronto, in which there are dozens of hospitals, they couldn’t find a room for a pregnant woman recently and had to fly her to Windsor, 2-and-a-half-hours by air away, to get a room for her. And you must say to yourself as I say to myself, there is something desperately wrong when that is the case.

Universal access to education is being cut back. You have had until very recently, I understand, free education at the university level, and I feel very strongly about this because I enjoyed that as a veteran of World War II, and my colleagues at that time, huge graduating classes, I think contributed mightily to the development of our country. And now, young people in Canada (and I think you can almost foresee what will happen here in due course unless there is a change) are graduating with debts to banks, ranging from $35,000 to $65,000. And one recently, bless her heart, went to the bank and tried to get it renegotiated and they wouldn’t. She said, ‘Well I’ll pay you, but my job doesn’t pay me enough to pay you at the rate that you want. I’ll pay you if you’ll just renegotiate the terms of the loan.’ ‘No.’ She went to the government, they wouldn’t help. So she went to the courts because the government had passed a law which said that students couldn’t get a total discharge of their debts if they went bankrupt. But they’re the only class of citizens who can’t. And so under our Constitution, the Bill of Rights, where everyone is allegedly treated equally, she is now challenging that and saying, ‘Well, you’re treating students differently than you are other citizens, and therefore I’m going to take you to court and have this decided.’

So these things are happening worldwide. Restricted recession in South East Asia, recession in Brazil. If you look at the statistics where they cut back an output in South East Asia, it is enough to break your heart, just calamitous. Fear of recession worldwide, and then the Bulls and Bears are fighting it out on the stockmarket. You all know what the Bulls and the Bears are: the Bulls are the ones who are pushing this way, and the Bears are the ones that are pushing this way, and some days the Bulls are stronger than the Bears, and some days vice versa, and it depends whether you play the stockmarket or not, whether you care or not. Most of the people in the world don’t, some people have a few dollars invested and are quite concerned as to what might happen.

But there has to be a reason for all this: And the reason is neo-classical monetarist economics. It is he product of Nobel Laureate Milton Friedman, and his colleagues at the University of Chicago. Milton Friedman mis-read the cause of the inflation of the late ’60s and early ’70s. He came to the conclusion that there was only one kind of inflation, classic inflation: too much money chasing too few goods and consequently had to be treated on that basis. If he had checked his data more thoroughly, he would have found that the inflation of those years was primarily , (and I say ‘primarily’ because it’s probably in the range of about 80%) cost-push inflation. In fact wages rising out of sync with output, with productivity. And that started in different countries at different times for different reasons, but it really got going in the second half of the ’60s and on into the ’70s and became a problem which had to be treated, but by means other than those recommended by Dr Friedman and his colleagues.

So they decided, because they thought it was a monetary phenomenon, which it wasn’t, that the way to cure it was to crack down on the monetary system to tighten money and raise interest rates. And they had a little go at it in 1974-75, and they brought on a little recession, at least in our part of the world. And then in 1980-81, Paul Volker, who was at that time the Chairman of the Federal Reserve Board in Washington, and who had become a disciple of Dr Friedman, said, ‘We will put this to the test’. And so he brought on a horrendous recession which was virtually world-wide. And million of people lost their jobs, hundreds of thousands of people lost their houses because they couldn’t pay the high interest rates on their mortgages. Thousands of farmers lost their farms after four or five generations in the family, and thousands of businesses, including a lot of struggling businesses, went bankrupt.

Well of course, what happened? Government revenues fell, because people weren’t paying taxes; huge deficits were created, those deficits were rolled over into debt and then compounded at very high interest rates. And your debt problem, worldwide, can really be traced to 1981, and that recession. That’s when it began. Before that, (and this may sound a little technical) but the debt to GDP ratio just the total debt related to the output of the world and most countries, was flat, because economies were growing as fast as the debt. And as long as they grew at the same rate, it didn’t become a problem. Then all of a sudden, with slower growth in the economies, and faster growth in the debt, the debt to GDP ratio took off, and headed skyward.

Well, not only was there social devastation, but as I’ve said, this was the origin of the debt. I’ve had a little difficulty getting the figure for Australia, but I’ve got one here and you can correct me later. Let’s say is it around $200-billion? $230? Close enough. The United States, $5-and-a-half-trillion, which is a lot if you say it fast. In Canada, it’s only $600-billion in all. But I keep telling my friends, if it were just the Federal debt that you’re talking about, that’s one thing, the $600-billion, but our total debt in Canada is $1.8-trillion, and that is the Federal, Provincial (the equivalent of your State) Municipal, personal and corporate debt is $1.8-trillion. And that is about 225% of our Gross Domestic Product. And the interest rate on that is higher than the growth rate of the economy, so you don’t need a PhD in Economics to know that if you owe 2-and-a-quarter times what you earn, and the interest rate on what you owe is about double your average increase in salary year to year, you’ve got a problem, and that is the problem that most western countries have around the world.

Well, this problem was not limited of course to the First World, but very much became a factor in the under-developed world. And that is where the Third World debt problem really began. I haven’t got time to go back into the recycling of petro-dollars and all of that sort of thing, but Third World was borrowing money, and it became so lucrative, that the big US banks decided they wanted to get in on it, so they started lending more and more money to the Third World and at one time their profits in the big New York banks were as high as 60% of their total profits, came from lending money to Third World countries.

Well they were getting by until 1981 and the interest rates went up. So all of a sudden, they couldn’t pay the interest on the money that they had borrowed. So what had to be done? Well they were about to default on their loans and they were about to become non-performing. Then Mr Volker, having created the problem, never having admitted it, but having created the problem, got the bankers together in a small room, twisted their arms real hard and said, ‘You make new loans so that they can use those new loans to pay the interest on their old loans until I can get the IMF to come riding to the rescue.’ And that’s exactly what happened. And that’s when the IMF started taking on its new role, and that’s set the precedent for all of the things that have gone wrong in that department since, and created the moral hazard of big international banks making loans that they know they can never get back, but counting on the IMF using taxpayers’ money, our money, riding to the rescues not of the countries that are under siege, but to bail out the international banks.

So this worked successfully at the time. They tried it later again in Mexico, as you know, and then South East Asia, taking billions of taxpayers money, and using it to bail out international financial institutions. And of course when the IMF ran out of money, they got the World Bank in on the deal too, and they started making loans. They used to make loans for development, but then they started making structural adjustment loans in order to give countries the money that paid the interest on their external debt.

But then they attached conditions. And what they started to say to these countries was, ‘We will lend you money to keep you solvent, but we want you to run your countries our way, and we want you to cut back on your health care, and we want you to cut back on your educational expenditures, and we want you to balance your budgets, and we want you to lower your borders to imports, to reduce the tariffs and allow external imports, and we want you to agree that foreigners can buy your assets, and we want you to do all these things as conditions of the loans. So in effect, they were saying, ‘We’re going to impose the Anglo-Saxon model, economic model, on the rest of the world.’ And what I call it is the Sovietisation of the South, because what they were doing was the same kind of thing that the Soviet Union had done from the Kremlin. And I remember talking to a friend who was quite knowledgeable in these things, and he said, ‘You know, they used to decide in the Kremlin how much jam, how much peanut butter and how much marmalade, would be sent to every restaurant in the Soviet Union.’ No thought of the fact that in some parts of the Soviet Union, they might prefer peanut butter over marmalade and others it might be the other way around. So they had peanut butter going rancid and shortages in some parts of the country because the decisions were made by people who were not knowledgeable of the circumstances in the various areas. And this is exactly what the IMF and the World Bank have done, they have been interfering in other people’s affairs and making decisions about thing of which they new nothing basically. And they have, in effect, just taken the Soviet kind of system and imposed it on the Third World.

Well, when I wrote ‘The Evil Empire’ a couple of years ago and started out to promote it, my first stop was Halifax, which is our eastern city on the Atlantic coast, and at the end of the day I took a cab to the airport and I got in the front seat for some reason, I don’t usually do that, and the driver asked me why I was there and I told him, and he said, ‘Colonisation.’ And I hadn’t thought of it that way, but that’s exactly what it is and what’s been going on. And it’s ironic, because at the end of the Second World War, it was the United States which pressured European countries to give freedom to their colonies. But here, you have now seen a degree of colonisation, re-colonisation, which was previously thought unthinkable. And all part of the pattern. And the difference this time, as I think the Reverend Jesse Jackson has said, instead of using gunboats and bombs they used bonds and bank loans, with the same effect. And in fact with less consideration of the people than the old imperial empires had for them.

Well it’s all part of globalisation and globalisation is really a code name for corporatisation. I think we have to point that out to people because globalisation is so glib and it sounds so easy and so inevitable, but if we expose it as corporatisation, which it really is, then people begin to understand what is going on. It’s an attempt on the part of the largest corporations in the world and the largest banks in the world to re-engineer the world in such a way that they won’t have to pay decent wages to their employees and they won’t have to pay taxes to fix potholes and to maintain parks and to pay pensions to the old and the handicapped. And that is what globalisation is basically all about.

And you’re seeing the big transnational corporations attempting and succeeding, and turning the social clock back 100 years to Dickensian times, and they’re paying starvation wages in many Third World countries, no benefits, women working up to 13 hours a day, 7 days a week; if they get sick they’re out, if they get pregnant, they’re out. No holidays with pay, no pensions when they retire, nothing. In other words, 100 years of social progress by legislation and unionisation down the sink by going around this globalisation route. And if you want to understand the process and the aim of the game, that in fact in a broad way is the name of the game. So we’re being told that it’s the road to Nirvana, that it’s inevitable and just to relax and enjoy it. But it is just the opposite, in fact.

It is also – and this is an important part of understanding a globalisation process – it is an effort on the part of the five most powerful countries in the world, to prevent any other countries from developing industries to compete with them.

Interestingly enough, every one of the five became great industrial powers by erecting tariff barriers, but now that they have that power, they say, ‘Oh no, no-one else can do that, that’s retrograde, that’s -‘ you know, they call it all sorts of names because it’s not in their interest. And what they are saying to the rest of the world, all small countries including Canada and Australia, is ‘If you get an industry that becomes big enough to become a threat to us, we will buy it and either shut it down or make it part of our empire. And that way you will never be able to compete with us on an equal footing.’ And these treaties that they have been negotiating, are all part of that, and I’ll talk about those in a minute.

Kirsten Garrett: You’re listening to the Honourable Paul Hellyer. He was Deputy Prime Minister of Canada many years ago and is now leader of the movement, Canadian Action.

Paul Hellyer: Well then you go back and sort of look at some of the big corporations in the United States and elsewhere, and they’re earning returns of 10% to 15% a year, have been for a number of years, partly, maybe largely on the basis of buying up other companies. And this enhances their shareholder value and of course part of the process is going lean and mean, as they call it, which means laying off a lot of people that had worked for one of the companies for 20 or 30 or 40 years and dumping them out in order to pay back their debt and try and get a decent return on their investment. And they’ve been gobbling up other companies at such a rate that they’re running out of them. And so the big fish have been eating the small fish, but eventually there are not enough small fish left, and the only thing to do is start fishing in somebody else’s pool.

And that’s where Canada came in, and I’d like to mention this because you’re kind of next on the line down there. We negotiated a Free Trade Agreement with the United States, and I was naive enough, (I’m not the most naive person in the world I don’t think) but I was naive enough to think it was a Free Trade Agreement. I mean after all, that’s what it said, FTA, Free Trade Agreement. So a couple of years later I read it, highly recommend it, get the document whatever it is, and read it. I read it, and I got through and I said, ‘This isn’t a trade agreement at all.’ I mean, reducing tariffs over ten years, sure that’s one thing. It was largely to the United States’ advantage because our tariffs were higher than theirs at the time so they had net advantage there. But what it was all about was investment, and they wanted to be able to get our resources and our industries and that is what it was all about. And they put in what is called the National Standing Clause, (and beware of the National Standing Clause) which gives American corporations the same rights in Canada as Canadian citizens. And so in effect they can invest, without conditions, you can’t say to them, ‘You have to hire Canadians, you have to export a certain amount of your product, or you have to leave the technology if you leave the country’ or any of these things. No conditions and no limits. So we can’t say to them, ‘You know, you can’t buy more than 50% of our forests’ because the treaty says they can buy them all. And we can’t say to them, ‘You can’t buy more than 80% of our oil and gas business’ because the treaty says they can buy them all. And we can’t say to them ‘You can’t buy more than 20% of the farms in Elgin county or Southern Manitoba’ because the treaty says they can buy them all. Which is, in effect, what they’re in the process of doing. And under the treaty, you can’t stop it.

Well then, that worked so successfully that they decided to roll it over in NAFTA and get Mexico involved. So that worked well, and then they decided, ‘Well let’s do this with the whole world’, and they tried to do it under the World Trade Organisation and it was called the MIA at that time, and don’t let it bother you whether it’s the MAI or the MIA, it is all the same thing. And some countries bought; India and others said, ‘We don’t want to give up our sovereignty to that extent’. And so they decided instead to go for the richest 29 countries of the world, the Organisation for Economic and Co-operation Development, the OECD. So they started to negotiate a treaty there which was even worse than NAFTA, and which in effect robs nation states of their sovereignty to an extent you wouldn’t believe. And they almost got away with it, but thanks to someone who leaked a copy of the draft, and to the Internet, again some of us got a look at it.

Now of course, what they’re trying to do is to move it to the World Trade Organisation, and the next round of trade negotiations for the year 2000. Also they’re trying to put it in the free trade of the Americas. They’ll put it in everything they can get it in, because this is part of their plan of running the whole globe their way.

And I tell my folks at home, unless we abrogate both the Free Trade Agreement and NAFTA soon, and get that National Standing Clause out, re-negotiate treaties on trade, not investment, Canada will cease to exist as an independent country within a few years and it won’t take very long. We’ll become the 51st State. And some Canadians wouldn’t care, but I think the majority still do, and I certainly do, and I want my grandchildren to have the same choice that I had. I went to school in the States, but I chose to go back and live in Canada, and I would like them to have the same choice as they grow up.

So it’s an overriding problem, and I just note here that Australia’s external debt, which is really the thing that happens when you start letting other people buy all of your assets, that your external debt has gone up from 3.1% in 1976 to 38.2% I guess that’s supposed to be 1994, it’s a typo here. Which means you have no reason to be complacent, because the higher level of foreign ownership you get, the more profits flow out of the country and the more difficulty you have trying to earn enough through exports to pay, and eventually someone else winds up owning you.

Well what transnationals want, of course, is the right to fish in other people’s pools and without any obligations in return. I’m told by someone very knowledgeable that in Australia they’re not paying taxes in Australia, they’re paying taxes offshore, and this is one of the benefits that they are looking for. And what we’re seeing of course is the death of democracy, in the sense that you can no longer run your own country in the interests of your own people, which is presumably what it was all about.

An interesting little thing in my book which gives you some insight into this, and I quoted American because I was talking about the United States and I thought it would be better coming from him than from me. He says there are two governments in the United States: I’ve learned from talking to a couple of old friends here in Australia, that maybe you have two governments here too. We have two in Canada. In the United States, the permanent government is the Fortune 500 list of companies, the largest law firms and public relations firms in Washington and the senior bureaucrats, both civil and military. And they are the permanent government. And every four years they have what they call an election, and they elect the provisional government. And it doesn’t really matter very much the way things work out who the provisional government is. You elect a provisional government, they come on stage and they read the script written by the permanent government.

I don’t know if any of you ever see that television series from England, ‘Yes Minister’, well you’ve got a pretty good idea of how the system works, and I could spend a whole hour telling you about some personal experiences that would curl your hair. It used to make me so mad, people come up to me and say, ‘Oh, it doesn’t matter whether Conservatives or Liberals get in, they’re all the same, nothing changes.’ And the reason it made me mad was because there was a lot of truth in it. You’d get some good ideas, you’d get elected and then you’d go into a room with the experts, and they’d tell you ‘Now you would never have made that suggestion if you’d known the facts.’ And so they spend the next little while educating you and proving to you that you don’t know what you’re talking about, but they do. And the Governor of the Bank of Canada, not the present Governor, but the previous one, a Minister in the room, I think 20 experts, charts and graphs on the wall, says, ‘Now Minister, this is what you have to do: you have to raise interest rates and you have to tighten my spine to all these things, and if you don’t, Canada will have a financial crisis such as you have never seen before. The Japanese will dump your bonds and the bottom will fall out of the Canadian dollar and chaos will ensue; and you, Minister, will be responsible.’

Now you’ve got to be a brave person to walk out of that room and say, ‘Well, I don’t agree, and we’re going to go in the opposite direction’, knowing that before you got 30 steps they’d be at the press speaking anonymously, letting the press know what an idiot the Minister was in trying to go against the world trend. And I actually had an experience in this when I was Minister for National Defence. We had a plane called the 104, it was an interceptor, later called the Widowmaker, and we’d bought a bunch of them and when I became Minister the Air Force came roaring in and said they needed 22 more, and I asked them what they needed them for, and they said, ‘Attrition’. I said, ‘What attrition rates did you use?’ They said, ‘Well, American experience.’ And I said, ‘Well what American experience, the American test experience?’ ‘Well, yes’, and I said, ‘Well don’t you get better results after you fly them for a while?’ ‘Well, yes.’ ‘Well how much better?’ They didn’t know. So in those days I was doing all my own staff work. So I took the stuff home and looked at it for a week, came back and they came to see me, and I said, ‘I don’t think you need them.’ And they said, ‘Well Minister, of course it’s your decision. But if the western world should fall as a result of that decision’ – this is the truth – ‘you would expect us to tell the truth as to who made the decision, wouldn’t you?’ And I said, ‘Well, as a matter of fact, I would.’ And the end of the story, very quickly, was my successor, (we had more than we needed even then without the 22) and my successor sold 50 to the West German government because we had a surplus of them. But sometimes you have to know what questions to ask.

Well, another aspect of Dr Friedman’s philosophy was to give the banking system, the private banks, their virtual monopoly on the creation of money. And this is the pre-Depression system. Most of you here know where money comes from. Is there anybody that doesn’t know where money comes from? Hands up. Only two or three. Well, that’s pretty good. I think it’s probably the most informed audience I’ve ever had in these subjects. But when I wrote ‘Funny Money’ which was about three books back, I asked 100 of my friends, doctors, dentists, lawyers, businessmen, publishers, editors-in-chief and financial writers, where money came from. And first of all they were uncomfortable with the question, and when I pushed them gently, ‘Why,’ they said, ‘well the Government prints it.’ And I said, ‘Well how much does the government print?’ And lowest estimate was 60% and the highest was 100%. And I said, ‘Well if that were true, we would have a very, very different system than the one we’ve got.’ In fact governments print very little of the new money and the private banks create most of it. And last year I think in Canada, probably the government only created 1% of the new money and the private banks created 99%.

We allow them to create credit money and for the three or four people who don’t understand how this works, it is when you go to the bank and want a loan, if you want to borrow $30,000 to buy a car or something like that, you have to provide collateral so you have some stocks or bonds or a second mortgage on your house, or a rich mother-in-law, or someone who will co-sign. You give them the collateral, you sign a note at a certain interest rate, they tap their computer and presto, the $30,000 appears in your account. Seconds earlier, that money did not exist, it was created out of thin air, and it’s easy for them to do it and they create billions of dollars every year that way. So when people talk about printing money, the banks print billions of it in the normal course of their business.

The problem is, once they’ve created it, they’ve got to get it back, and that’s what’s gone wrong, well, everywhere, but especially in the Third World. They’ve made loans that there’s just no way they can ever get back. And one of the reasons the world is in such a mess today. We allow the private banks to blow up credit money, like a balloon. The problem is, it gets, like a balloon, it gets so big somebody sticks a pin in it and then it’s like a balloon with a pin stuck in it. And then you have a recession or a depression. And all 45 of the recessions and depressions that we’ve had since the Industrial Revolution, have had a monetary base and they have all, in my opinion, been due to the private banking system, the partial reserve system of banking.

Well, now they’re setting us up for another huge meltdown. When? Who can say? They came within 30 minutes when Paul Volker was there, of having the whole system collapse, and they just turned off their mad machine before the whole thing came down like the house of cards that it really is. It is being postponed now, not solved, but postponed because Michael Camdessus is going around from one country to another with his tin hat and his Santa Claus suit, holding out his cup and collecting money from us to bail out international banks. And a lot of my friends at home don’t realise that they’re paying taxes for that purpose. And a lot of them would be very unhappy if they did know they were paying taxes for that purpose. If and when we get tired of paying taxes for that purpose, then the crash will come. So all we’re doing is not solving a problem, just postponing the inevitable day.

And the problem is I guess, that if and when that happens, millions and millions of people will be hurt worldwide. Again, they’ll lose their jobs, they’ll lose their homes, they’ll lose their cars, they’ll lose their businesses, they’ll lose their hopes, and maybe even some of the rich people who were highly leveraged that particular day, might lose their wealth and do what they did in 1929 and jump off a high bridge or a high building.

And it doesn’t need to happen. And that is the reason the final thought I want to make today is that we have two choices: we’re at a crossroads really. We’re going to keep on going the road we’re on, the globalisation, the corporatisation, unfettered capitalism road which as George Soros says has replaced both communism and fascism as the greatest threat to open societies. Or we’re going to revise the system dramatically and make it work for everyone, and make sure that that doesn’t happen.

And so I was just absolutely delighted when I heard about the Y2K, the Year of the Jubilee initiative. This is, as you know, based on a Biblical precedent, going back to Leviticus when every 50 years, debts were forgiven. We’ve got our system so complicated now that you can’t wipe out all of the debts, it just wouldn’t work. What the Year of the Jubilee initiative is asking for is really a modest debt reduction in the most highly indebted countries of the world, very modest requests really. But the trouble, if we keep the present system, is it will be taxpayers that’ll wind up picking up the bill, and as an old politician, there’s no faster way to get defeated than to go out and say, ‘I’m going to raise taxes so that you can pay off some Third World debt.’ There are a lot of altruistically piqued people, but they’re in the minority, and it just won’t wash, politically.

And so you’re getting these very modest counter-proposals now, the G7 were first talking about $30-billion that they might put up. Now President Clinton has raised the ante to $100-billion, but that is a drop in the bucket. $100-billion isn’t even the interest on the Third World debt for one year. So it doesn’t solve the problem. It doesn’t free them from the bondage of that debt, which is depriving them of any real hope of a decent life. And so it solves nothing. And in my opinion, we can do better. But that means that we have to change the banking system, the way it should have been changed 200 years ago, or 100 years ago, or 50 years ago, or 20 years ago, and do it finally. And I have a chapter in the book called ‘World War III: the banks versus the people’. Interestingly enough, when I wrote that I thought it was unique and original, and then I saw a clip the other day from the Lord High Justice, Chief Lord of the British Court, in the 1890s I think it was, saying the same thing. So there’s really nothing new under the sun. The problem is getting something done about it.

And my proposal is really to increase the cash reserves of the banks. Now this is just the opposite to what you’re doing in Australia at the moment, where you’re reducing them, you’re heading for zero, which is the latest vogue. And to reinstate cash reserve requirements (because in Canada we have already eliminated them, as you are now in the process of doing) and to increase them 1% a month for 50 months. And this in effect is equal to about 50% of the deposits of all of the deposit-taking institutions. I’m talking about world wide. And what this would allow, it would allow the rich countries of the world to pay off the entire $2.2-trillion Third World debt. And when I say pay it off, I mean buy up the obligations, buy up the World Bank bonds, buy up all of those things and cancel them, get rid of them. And still buy up some of our own bonds and cancel them, and reduce our national debts as well.

In Canada, the figures are, for example $600-billion, they could monetise about half of it; the first $100-billion would be our share of the relief of Third World debt and the next $200-billion would be to reduce our own debt, and we would wind up ultimately, because we had spent the first 100 for somebody else’s debt, with $400-billion national debt instead of $600-billion.

The United States would wind up paying a trillion dollars, which would be its fair share of that Third World debt, and still be able to reduce their national debt by enough to reduce their interest charges something like $70-billion a year. And this would provide the fiscal flexibility.

And then the other half of it is of course, that from then on that the money creation business be split 50-50 between governments, call it what you want, government-created money, and bank-created money, so that governments would have the fiscal flexibility to do the things that governments are expected to do, in health care, in education, environmental concerns, whatever. The armed forces, the important things that people expect to be done. And that’s the only way that they’re going to have the fiscal flexibility to do it, otherwise you’re going to have everybody always scraping and saying, ‘Can’t do it, there’s no money.’ This way there is money, you can do the important things and it doesn’t have the same devastating consequences that there would be if you have to raise those funds from taxes directly and to reduce the purchasing power of the population as a result.

So it is a unique opportunity, and one of the reasons I hope we can involve the Year of the Jubilee initiative this year, and I would say to those of you who are monetary reformers, make contact with them. Have seminars, explain how the monetary system works, have them raise their sights. For this is a marvellous opportunity, probably the best one since the Great Depression, of marrying the intellectual aspects of monetary reform and the monetary system, with those of the heart and the soul of people who really care about other people. And I think it’s a godsend in the truest sense of the word, that here those of us who understand how the system works, get together with those who really hope and pray that a miracle will happen in the world, and say ‘Let’s get together and try and understand how this miracle can happen.’ And if we do, and if we then do all of the things which we’ll discuss later about writing our MPs and writing our Prime Ministers and so on, something could happen, and might happen.

And the very last point I wanted to make was that I hope that the United States will recommend this dramatic change, because it’s the moral thing to do, and it is also in their own long-term best interests, because if the present system continues, eventually there’ll be no consumers because everyone will be paid so little, or unemployed that they won’t have anybody to sell their stuff to. And in the end, capitalism would bring on its own destruction. So as John Kenneth Galbraith said, ‘Keynes saved capitalism from itself once, and I think somebody is going to have to do it again.’

If the United States doesn’t do this though, and I have some doubts that they will because of this permanent government which has too much at stake, then I’m suggesting, (and I know this is drastic and radical, but after all these are big stakes we’re talking about) is that the Third World, that Nelson Mandela organise the Third World, to write to the leaders of the G7 and say to them, ‘Now the stakes are high, we all want to come out of this winners, and we expect you to do something by June 1st, in the year 2000, and if you don’t, on that date we will cease paying both interest and principal on our external debt.’

Now that’s power politics.

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But I think it’s the only kind of power politics that the people running the world understand. I hate to say that, but I believe it. They have just so much power to push people around the way they want and have been doing it for so long, and will continue to do it as long as they can get away with it, and the only way they’re going to stop is if somebody says, ‘Hey, you did it to us, now it’s payback time, and what we’re suggesting isn’t going to hurt you, it’s going to be in your own long-term best interests as it is in ours. But it’s so important that we’re going to put the gun to your head and say let’s work together to build the kind of world that all of us would like to see and where all of us can prosper and where all of us can realise our dreams, and reach our maximum potential in the millennium to come.’ Thank you.

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Kirsten Garrett: That was The Honourable Paul Hellyer, former Deputy Prime Minister of Canada, talking at a conference, ‘Reclaiming Democracy’, in Sydney in April. The speech was followed by questions from the floor.

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Arthur Chesterfield-Evans: Arthur Chesterfield-Evans, Australian Democrats. Two questions: firstly, would you not agree that free trade does in fact transfer jobs from wealthy countries to poor countries, and does that not have some beneficial effect? To ask the question with your ratcheting up of the banks, statutory reserve deposit ratios I think we used to call them in Australia, where they have to keep a certain amount of money and they can only lend in relation to the amount of cash they have, rather than an unlimited amount which they create, if that were not done by all banks at the same time, the ones that in fact didn’t do that would have more cash to play with and effectively would make profits that all the others didn’t make, so in other words, is it not true that that concept you have would have to be universal if it were to work at all?

Paul Hellyer: OK. Of course, my business friends say ‘Well when we create jobs we make jeans or dresses or something, in Honduras, or Venezuela, instead of the United States or Canada or Australia, we’re creating jobs in those countries.’ And I say, ‘That is fine, subject to two things: One, that you pay decent wages, living wages, so that the people there are not being totally exploited in the way that I was talking about recently. And the example I was giving, making garments for J.C. Penney and K-Mart and Wal-Mart, at disgusting rates under disgusting conditions, with harassment both physical and sexual, and under those circumstances I think sure, if they’re going to pay decent wages and benefits and help the people of those countries to come up, just fine.’ The other second thing is we have to change the monetary system because then we have to provide new jobs, presumably better jobs, for the people who are displaced in the First World countries and that means changing the monetary system so that the governments have enough money to finance new environmental projects and new research projects, and new equipment for their armed forces, and free education for their people and better health care and all the other things, to provide good jobs for the people who are displaced by the displacement of jobs to other countries.

So I’m not against that sort of thing, subject to those two conditions: change the system so you can employ the people who have lost their jobs as a result; and secondly, to pay decent wages, decent standards and decent benefits under some sort of perhaps international standard, in those countries where they go, rather than just this race to the bottom of trying to get the very lowest wage, with the very lowest environmental protection and the very least benefits that they can find anywhere in the world.

The second thing was about the banks. If it was only done in one country, then you would have to protect your financial industry from other countries. I’m proposing it on a world-wide basis. That’s where it should take place, that’s where I hope it will take place, but if I were the leader of my country and no-one else would move, I would do it, and I would protect my financial industries to make sure that they weren’t undercut by people who didn’t have to maintain those standards.

Kirsten Garrett: The Honourable Paul Hellyer, from Toronto in Canada.