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From 12 to 18 October organizations from more than fifty countries of the South-North campaign on illegitimate debt carried out several actions in the framework of the Global Week of Action against Debt and the Multilateral Financial Institutions (MFIs). One of the goals of this year’s mobilization is to draw attention to the false solutions that have been identified as ways out of the current global crisis. The decisions announced at the annual meeting of the IMF and the World Bank, on 6-7 October in Turkey, reinforce this concern to the extent that the proposals agreed upon, now with more complicity from Brazil, are aimed at a return of the MFIs’ intervention in national economies and a new cycle of illegitimate debt in the South.

Little could be expected from the meeting in Turkey in terms of a really serious response to the global economic crisis. The approval of a new fund of $ 500 billion for the IMF and the immediate review of the voting power of the BRIC countries (Brazil, Russia, India and China) in the IMF and WB were among the main items on the agenda of the meeting. What was at stake was these four countries’ contribution to the new fund for the IMF amounting to $ 80 billion. In fact, the agreement was reached at the last meeting of the G20 – a group of presidents of the 20 largest economies of the world – the week before in Pittsburgh, USA. As compensation, it also provides an increase of 5% and 3% in voting power of BRIC countries in the IMF and WB, respectively.

BRIC countries’ finance ministers, including “our” Guido Mantega, arrived in Turkey with lots of enthusiasm and speaking loudly. They threatened to condition the approval of the contribution to a review a bit less timid of the division of power within MFI – a claim which, however, was later aborted by the European countries, the biggest losers with the review. Despite this, the contribution, coming from the international reserves of the four countries, was confirmed. Only China will contribute with $ 50 billion to the IMF fund, while Russia, India and Brazil will contribute with $ 10 billion each.

The discussion on the revision of the voting power, besides other nonsense such as the elimination of the rule that determines that the managing director of the IMF is necessarily a European citizen and the president of the World Bank, an American, diverted the public’s attention from what was really being agreed on: Northern developed countries will give up space to the new emerging economies, making them pay dearly for the title of club members.
And the price is already defined: it is the account for the return of the economic growth cycle of the Northern economies, broken by the crisis, at the expense of increasing the social debt of Southern countries.

The proposal to raise the IMF to the category of world central bank, also discussed during the meeting in Turkey, is complementary to this strategy. The idea is to transform the IMF into a last resort lender on a global scale, on the basis of a new relief fund for countries whose economies are in crisis; a sort of fire insurance that we pay, but hope we never need to use it. The IMF’s expectation is that the creation of this fund – made up of part of the countries’ international reserves, which in recent years increased from $ 2 trillion to $ 8 trillion, with strong participation of countries like Brazil and China – will release the remaining resources for the immediate return on investment through the implementation of infrastructure projects, especially in developing countries.

In other words, what is expected is that Southern countries will be the basis of the return of investments and consumption to a global economy in crisis, and that Brazil, Russia, India and China become worthy of their given name: BRIC, meaning “brick”. This proposal is of particular interest to the United States that, with its capacity of public and private debt depleted by the crisis, is unable to finance the return of the global economy to the path of growth. With the global devaluation of the dollar making American goods competitive, the country will depend on exports and consumption in emerging countries to grow again.

The idea of channeling the voluminous resources of our international reserves through the domestic market is really interesting, especially considering the high costs of maintaining these reserves in dollars, at a time when that currency is devaluating sharply, and the high return of 8.75% per year of the SELIC (Special System for Settlement and Custody, basic rate set by the Central Bank and used as a benchmark for monetary policy). On the other hand, the idea of funding growth in developed economies with our reserves is not interesting, especially when they already have a huge social, ecological and historical debt with Southern countries that is yet to be recognized and compensated. When we discuss the dependence of Northern countries in relation to consumption in emerging countries, we especially refer to the opportunities that transnational corporations find for the exploitation of large infrastructure projects in Southern countries, such as those being advocated again by the IMF and the World Bank.

This scenario shows that instead of seeking effective solutions to the crisis by nipping the problem in the bud, negotiations in the sphere of the G20 and the MFIs aim only at measures to promote the immediate restoration of a favorable business climate and to warm up the global economy. The BRIC countries’ participation in international forums – where these decisions are taken – only serves to legitimize them, as these countries will pay the bill. Organizations like the IMF and the World Bank, which until last year were doomed to irrelevance and barely managed to approve new loans, are now taking advantage of the crisis to obtain high profits, and all indications show that they will come out strengthened. In the fiscal year ended in June 2009, the World Bank accounted for $ 58.8 billion in new loans, an increase of 20.6% over the previous year.

In March 2009, the World Bank approved a loan of $ 1.3 billion, which may reach $ 2 billion, the largest loan made so far by the World Bank to the country. The loan is to improve our environmental policies, but resources will be channeled through the Banco Nacional de Desenvolvimento Economico e Social (BNDES), the leading investor in infrastructure projects in Brazil. It is essential to bear in mind that it was thanks to liberal reforms imposed since the intervention of the IMF and World Bank that the groundwork was laid for the financialization of the economies, which led to the current crisis.

Brazil should use its new global status to condemn the proposal that the IMF should become a world central bank and suggest alternatives leading to the construction of a new global financial architecture. If President Lula’s government fails to oppose this, and considering that a new bomb could explode at any moment, we would be helping, right in pre-electoral year, to choose the foxes that will guard the henhouse.

Gabriel Strautman is Executive Secretary of the Brazil Network on Multilateral Financial Institutions, gabriel@rbrasil.org.br

Related Information:

-> The monster is still untamed, by Roberto Bissio, ITeM/Social Watch

-> Brave new world emerges from IMF and World Bank Istanbul meetings, by Aldo Caliari, Center of Concern

-> Leaders' Statement: The Pittsburgh Summit

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