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Sunday, May 1, 1988

The World Bank vs. the World’s Poor

The World Bank is helping Third World governments cripple their economies, maul their environments, and oppress their people. From Benin to Zaire, the bank has spurred the nationalization of Third World economies and increased political and bureaucratic control over the lives of many of the world’s poorest people.

The bank—officially known as the International Bank for Reconstruction and Development—was organized by the United Nations in the closing years of World War II. Its mission, according to its Articles of Agreement, was to facilitate “the investment of capital for productive purposes . . . to promote private foreign investment by means of guarantees . . . and when private capital [was] not available on reasonable terms, to supplement private investment. . . .”

Until the late 1960s, the bank was a conservative institution that primarily funded infrastructure and other basics in less-developed countries. Then, in 1968, Robert McNamara became bank president, and dedicated the bank to continually rising loan levels. Between 1968 and 1981, when McNamara resigned, loan levels increased from $883 million to $12 billion, and have continued soaring since.

Bank officials are now leading a rhetorical crusade in favor of the private sector. But, more than any other international institution, the bank is responsible for the rush to socialism in the Third World—the rise of political power over the private sector—and the economic collapse of Africa.

The bank is seeking a $10 billion commitment from the U.S. government to allow it to greatly expand its lending. Now is the time to stop U.S. support—and to give struggling Third World economies a better chance for survival.

The Assault on Human Rights

The bank has a long record of supporting human rights violations. In the early 1970s, for example, the government of Tanzania, with bank aid and advice, implemented a “villagization” program. The Tanzanian army drove peasants off their land, burnt their huts, loaded the people onto trucks, and took them where the government thought they should live—where they were ordered to build new homes “in neat rows staked out for them by government officials.” (Washington Post, May 1, 1976) The Tanzanian government wanted to curb the people’s individualistic and capitalistic tendencies and make them easier to control.

In many cases, the new government villages were a great distance from the farmers’ fields, so the farmers simply quit tilling the land. This, in no small way, has contributed to Tanzania’s recurrent hunger problem.

In August 1978, the bank loaned $60 million to the government of Vietnam—even after widely circulated reports of massive concentration camps and brutal repression. The bank indirectly paid for the abolition of private farms and the creation of huge state cooperatives. Many farmers who resisted the government’s “reorganization” were sent out in leaky boats. Thousands drowned.

The bank has loaned the government of Indonesia over $600 million to remove—sometimes forcibly—several million people from the densely populated island of Java and resettle them on comparatively barren islands. Despite widespread reports of violence, the bank continues lauding the project as “the largest voluntary migration” in recent years.

The Indonesian Minister of Transmigration has proclaimed that “by way of transmigration, we will try to realize what has been pledged, to integrate all the ethnic groups into one nation—the Indonesia nation . . . . The different ethnic groups will in the long run disappear because of integration and there will be one kind of man.” (Washington Post, June 24, 1986) As Australian critic Kenneth Davidson notes, transmigration is “the Javanese version of Nazi Germany’s lebensraum.” (Melbourne Age,. June 1, 1986)

The World Bank is providing massive aid to the Ethiopian Marxist regime of Mengistu Haile Mariare. in the midst of the 1984-85 famine, the government launched a “resettlement” program to forcibly move hundreds of thousands of Ethiopians from the northern parts of the country to the south. According to Doctors Without Borders, a French medical assistance group, the resettlement program may have killed more people than the famine itself. (Washington Post, December 3, 1985)

Mengistu is also committed to a villagization program whereby the government forces people to abandon their private land and live in government-controlled villages, complete with guard towers. Three million Ethiopians already have been moved this way, and the government claims that eventually it will resettle 33 million people in government villages—three quarters of Ethiopia’s population.

The Wall Street Journal recently reported (May 27, 1987): “Ethiopian soldiers seized their land, destroyed their mosques, burned copies of the Koran and tried to force them to live in villages and give their produce to a collective, in return for standard food rations.” The villagization scheme is closely tied to the government’s plan to nationalize all agriculture.

Throughout this period, the World Bank has provided massive aid to the Mengistu government. Bank commitments to Ethiopia in 1985 equalled roughly 16 per cent of the government’s $1 billion budget. The bank has provided millions for the Ethiopian Ministry of Agriculture, despite its involvement in the villagization scheme. One disgruntled bank employee, who wished to remain anonymous, described the bank’s Ethiopian policy as “genocide with a human face.” (personal interview, August 6, 1987)

A Record of Failure

As the bank’s 1987 annual review noted, 75 per cent of its African agricultural projects have failed, bank projects in Latin American and Africa routinely collapse because the governments don’t repair the bank- financed roads and infrastructure, and World Bank officials have suffered from “an unseemly pressure to lend” to Third World governments. (Twelfth Annual Review of Project Performance Results, World Bank, 1987)

World Bank money has probably had its biggest impact in Africa. Between 1973 and 1980, the bank plowed $2.4 billion into African agriculture. For almost 15 years, the bank has concentrated on boosting food production; in the late 1970s and early 1980s, 92 per cent of bank projects were designed to increase food production. (Tenth Annual Review of Project Performance Results, World Bank, 1985) Yet, per capita food production has fallen almost 20 per cent since 1960.

A 1981 Bank analysis of Africa concluded that “Much of ‘the investment in agriculture, especially the domestic component, has gone into state farms, big irrigation schemes and similar capital-intensive activities. These have turned out to be largely a waste of money; their impact on output has been negligible in most cases.” (Insight, February 9, 1987)

World Bank aid and advice helped African governments launch a flood of new public enterprises. But, as a 1986 bank report concluded, these enterprises “present a depressing picture of inefficiency, losses, budgetary burdens, poor products and services, and minimal accomplishment of the noncommercial objectives so frequently used to excuse their poor economic performance.” Moreover, “the overall performance of public enterprises is so poor that even those African governments most philosophically committed to socialist principles are now openly voicing concern.” (John R. Nellis, “Public Enterprises in Sub- Saharan Africa,” World Bank, 1986)

Bank support of African state-owned enterprises undercuts the private sector in other ways. A 1987 bank study notes: “Another prevalent weakness in African trade regimes is the granting of import duty exempts to government enterprises and foreign aid financed projects. This practice subjects private enterprises to unfair competition and retards the development of domestic industries capable of making the same products, especially when such exemptions coincide with currency over-valuations and heavy domestic tax burdens on local producers.” (Keith Marsden and Therese Belot, “Private Enterprise in Africa,” World Bank Discussion Paper no. 17)

Even though World Bank studies and spokesmen repeatedly insist that the private sector is inherently more efficient than the public sector, the vast majority of Bank lending is still going to shore up foundering state- owned enterprises, government credit institutions, and political and bureaucratic control of Third World economies.

But such aid works against real private-sector-oriented reform. As Alan R. Walters, former chief economist for the Agency for International Development, notes, “Foreign aid . . . gives enormous resources and control apparatus to the local administrative elite and thus sustains the authoritarian attitudes corrosive to the development process.” (Washington Times, March 6, 1987) P. T. Bauer of the London School of Economics recently observed, “Third World rulers’ policies, which have been supported for decades by official Western aid, accord with their own interests. They will modify them only if continued pursuit promises to result in economic breakdown threatening their political survival.” (The New Republic, June 15, 1987)

Bankrolling Communism

Loans to communist governments have been the fastest growing part of the bank’s portfolio in the 1980s. An aid agency desperate to find new recipients has found them in the worst managed economies in the world.

The bank has plowed over $4.7 billion into Yugoslavia. Today, the Yugoslavian economy is in shambles, inflation is over 120 per cent, and the economy is so rigid and controlled that the different states of Yugoslavia have almost no trade with each other.

Since Hungary joined the World Bank in 1982, the bank has given it over $1.3 billion in subsidized loans. Hungary recently received a $140 million loan to “help the government maintain the momentum of the reform process and the restructuring of industry.” (Bank News Release, June 15, 1987) But Hungarian reform is largely an illusion and a failure• (See James Bovard, “The Hungarian Illusion,” The Freeman, September 1987.)

China is now the bank’s second largest borrower, after India. The bank rushed into China as soon as Beijing announced that it would consider accepting foreign loans, and the bank has been searching for justifications for its China binge ever since. In a 1984 statement, a bank official asserted, “If China is to maintain a reasonable growth rate and manageable debt service payments, it will need to obtain the necessary additional foreign capital at an average interest rate below the market rate.” (Helen Ericson, “World Bank to Boost China Loans,” Journal of Commerce, January 6, 1984) In other words, the Chinese economy is so poorly managed that it needs subsidized loans.

Now the Soviet Union appears to be on the verge of gaining World Bank membership—and subsidized loans. World Bank president Barber Conable has stated that he would be “happy” to consider Soviet membership, and Undersecretary of State John Whitehead has said that the U.S. “would like to see the Soviet Union become a member of” the World Bank, the International Monetary Fund, and the General Agreement on Tariffs and Trade. (New York Times, March 6, 1987)

World Bank projects have often caused great environmental harm.

In Kenya, the World Bank has invested over $29 million in the Bura irrigation project. But, when President Moi toured the site recently, he found “eroded irrigation canals, abandoned plots, poor crops, tumbledown and unsanitary housing, zebra grazing on irrigated land, and an air of general desolation and decay.” According to African Business, “a confidential World Bank mid-term evaluation reported at the beginning of 1985 that Bura’s tenants, aside from being so disaffected that a fifth of them had deserted their plots, suffered mortality and morbidity [rates] several times higher than the national average.” Even though the project had invested almost $50,000 per family, the bank report noted severe and widespread malnutrition among “beneficiaries.” (Barbara Gunnell, “The Great Bura Irrigation Scheme Disaster,” African Business, April 1986)

The bank recently made a $450 million loan to Brazil for hydroelectric projects, even though the bank’s president conceded that one of the dams was “an ill-conceived project which has had substantial negative effects on the environment and on the Amerilndian population.” (A. W. Clausen letter to Bruce Rich, June 26, 1986) Hugh W. Foster, U.S. representative to the Bank’s Board of Executive Directors, complained that the loan is “pure folly,” that it will finance “a series of environmental disasters,” and that resettlement efforts are sure to bring “extensive human suffering and bitter recriminations.” (Statement to the Board of Executive Directors, June 19, 1986)

The bank is spending almost half a billion dollars to dam up the largest westward-flowing river in India, a massive scheme that will displace over two million people, flood 900 square kilometers, and destroy 33,000 hectares of the country’s dwindling forest cover, including some of its best teak and bamboo. A study by the Indian Council of Science and Technology predicted that the dam will result in increased malaria, cholera, viral encepha-litis, and other water-home diseases. (Ashish Kothari, “This Dam Spells Doom,” Express Magazine (India), September 22, 1985)


After scores of World Bank loans, most less developed countries still have policies that would qualify them for an economic insane asylum. If the bank has not straightened out Third World economic policies after disbursing over a hundred billion dollars in loans and handouts, what chance is there that increased bank lending will correct the problems in the future?

The World Bank claims that adjustment requires austerity, and we must give governments extra aid to help them adjust. But, in most cases, what is needed is not belt-tightening but simply that governments loosen the noose around their own economies.

Western governments cannot wrap themselves in a cloak of virtue because of their World Bank donations. At the same time Western aid to Third World countries has increased, the United States and Europe have raised new barriers against Third World imports. First we give them money to make them more productive, and then we refuse to allow them to sell us what they produce.

It would be more beneficial, and far more effective at encouraging healthful Third World economic policies, if we simply stopped giving handouts and simultaneously abolished trade barriers against Third World imports. Dominican Republic farmers, for example, would benefit more from open access to our sugar markets than from a handout to their government. And Americans, instead of being taxed to underwrite boondoggles in Timbuktu, could buy goods at lower prices. Free trade would mean less waste and more efficiency here and abroad, rather than higher taxes here and more government intervention throughout the world.

  • James Bovard is the author of ten books, including Public Policy Hooligan, Attention Deficit Democracy, and Lost Rights: The Destruction of American Liberty. Find him on Twitter @JimBovard.