Debt, The IMF, and the World Bank

Sixty Questions and Sixty Answers

Book By Eric Toussaint & Damien Millet

Review and Article By GlobalMacroForex

According to this book, the World Bank is a corrupt organization whose purpose is to enslave the Third World benefit Western commercial banks and private contractors.

How this slavery happens: Step 1 is the World Bank raises funds by selling bonds to commercial banks, who are eager to buy them since it’s backed buy government entities that wouldn’t be allowed to fail (thanks to bailouts).

Step 2, the private contractors get paid right away.  They bid for the project but can easily just bribe the corrupt 3rd World leaders to accept their bid.  Since the bidding process is corrupt, the private contractors can overcharge.

Another option if it doesn’t go to a private contractor is for the World Bank to loan funds directly to the corrupt 3rd World dictator.

Step 3, the private contractor provides the goods/services.  However, they have no incentive to do a good job since their payment has nothing to do with the quality of the work.  Instead, it is a political process in which they bribe 3rd world leaders or commercial banks.

Step 4 is the 3rd World country makes a partial debt payment, since it never seems to have enough to fully pay off the debt.  Either the project didn’t produce the revenue promised (because it’s done for political, not economic reasons) or the 3rd World leaders engaged in capital flight and never had any intention of paying the full amount.

Step 5 is the commercial banks are paid on their loans.   The Paris Club is a group of secretive bankers that decide the fate of the 3rd World debt.  The Paris Club purposeful avoids publicity because its members aren’t elected yet make all the decisions.  The 3rd World countries make their appeal to the Paris Club to get debt forgiveness but it’s usually ignored.

Step 6, The Paris Club in its infinite kind wisdom (sarcasm) decides to extend new loans to pay the preexisting loans.  This means the overall debt level is snowballing and is nearly impossible to repay. 

As time goes by, more loans are extended to pay the old ones.  The debt keeps growing to a larger percentage of the country’s budget, surpassing social services.  For example, as you can see from the third table below, Zambia had 6.7% for social services but 40% for debt.

Step 7: The commercial banks make back more than the original principle but the debt is larger than ever.

The chart below shows the long-term public debt of developing countries.  Notice it spirals into negative cash flows, meaning more money is paid to the commercial banks than ever went to the Third World debtor nation.

The 3rd World has an insignificant vote in the World Bank, and so it’s hard for the 3rd World nations to have a voice.  Also, the US CIA will engineer a coup against any 3rd World leader who even talks about defaulting. 

Step 8: The 3rd World country signs away the rights to its natural resources (oil, metals mining, etc.).  Since these resources are sold under such unfavorable terms to the indebted 3rd World, it works to the creditor’s advantage that the debtor never paid to begin with.  In fact, it provides incentives to lend to as corrupt an African dictator as possible to ensure there’s no possible way the loan could be repaid.

The original money that was loaned to the 3rd World rarely helps the actual people of that country.  Instead the corrupt African or South American leaders of the country engage in capital flight (i.e, they pull the money out of the country and deposit it with a foreign bank).

Here’s the twisted irony of the whole thing.  The money goes back to the same bank that lent it!  In the diagram below the green arrows are legal loans and the red lines are illegal capital flight. 

Citigroup pleads guilty to opening accounts for Nigeria’s dictator Sani Abacha, who originally borrowed the money from the World Bank.  And Citigroup originally had bought those World Bank bonds to lend to Nigeria!  Through fractional reserve banking, the bank gets to keep the money and profit from the loan in perpetuity!