cj#891> Chossudovsky: the truth about IMF “reform”


Richard Moore

Dear cj,

Michel Chossudovsky is, imho, today's most important writer on the global

You've probably heard about upcoming "IMF reforms" in the news media...
reforms inspired by the "IMF failures" in Southeast Asia and Russia.  In
the article below, Michel reveals these "reforms" as being the "biggest
financial scam of the post-war era".  I recommend this article to you for
reading and for forwarding to appropriate forums.

But to anyone who understands power in the world today, the general nature
of Michel's revelations should be no real surprise.  Permit me to
articulate a couple general principles which you might want to keep in mind
as you read through his material...


1. The three phases of laissez-faire capitalism.

...which are:
    - competition
    - shakeout
    - monopoly

1980, with its emphasis on deregulation, marked (more or less) the
beginning of the global laissez-faire era. We began to see new kinds of
competition with some temporary consumer benefits.  We are now in the
shakeout phase, where mergers and bankruptcies reduce the number of
players. When the shakeout is over, we'll have a small number of megacorps
that  will _be the global economy (ie, the monopoly phase).

The same three phases occurred many times in the past, on smaller scales.
In the 19th-century US petroleum industry, these phases led to Standard Oil
_being the US oil industry; in the early 20th-century US communications
industry, they led to AT&T _being the US telephone system.


2. Reform: a general scam.

One of the "faiths" of American liberalism is "reform".  For every problem,
liberals think it can be solved by "reform" legislation at the
highest-possible government level. Little do liberals seem to notice that
what this paradigm leads to is ever-greater centralization of power,
ever-greater dilution of democracy, and ultimately total tyranny.

Elites, long ago, learned to use "reform" to their own advantage.  When
they want to make a political change, for their own benefit, they often
follow this procedure:

    1. create (or sensationalize) a problem
    2. disguise their desired change as a "solution" to the problem
    3. push that "solution" through as a "reform" measure

When the "solution" fails to solve the problem, as it usually does, that is
chalked up to "government bungling".  Meanwhile, elites have acheived the
change they wanted.

The War on Drugs is a good example.  The elite has no desire to stop the
drug trade -- if they did the CIA wouldn't  be dealing drugs. The elite
does have a desire to implement a police state.  Hence, the War on Drugs is
doing nothing to reduce the drug problem, but is succeeding very well in
creating a police state.


bye for now,

Date: Thu, 03 Dec 1998 21:28:40 -0500
To: •••@••.•••
From: Bob Olsen <•••@••.•••>
Subject: Chossudovsky on G7, Dec 98

From: •••@••.••• (John Gile)
To: •••@••.•••
Subject: (fwd) G7 "Solution" to Global Financial Crisis
Date: Thu, 03 Dec 1998 14:13:08 -0800

On Thu, 03 Dec 1998 12:26:42 -0500, Michel  Chossudovsky
<•••@••.•••> wrote:




Michel Chossudovsky, Professor of Economics, University of Ottawa, author
of "The Globalisation of Poverty, Impacts of IMF and World Bank Reforms",
Third World Network, Penang and Zed Books, London, 1997. (The book can be
ordered from •••@••.•••)

Copyright by Michel Chossudovsky, Ottawa 1998. All rights reserved. To
publish or reproduce this text, contact the author at

Following the dramatic nosedive of the Russian ruble, financial markets
around the World had plummeted to abysmally low levels. The Dow Jones
plunged by 554 points on August 31st, its second largest decline in the
history of the New York Stock Exchange. In the uncertain wake of "black
September 1998", G7 ministers of finance had gathered hastily in
Washington. On their political agenda: a multibillion dollar plan to avert
the risks of a Worldwide financial meltdown. In the words of its political
architects US Treasury Secretary Robert Rubin and UK Chancellor of the
Exchequer Gordon Brown: "we must do more to . . .  limit the swings of
booms and busts that destroy hope and diminish wealth."1

Announced by President Bill Clinton in late October, the G7 proposal to
install a 90 billion-dollar fund "to help protect vulnerable but
essentially healthy nations" from currency and stock market speculation
will go down in history as the biggest financial scam of the post-war era.

Hidden Agenda

Skillfully presented to the international community as a timely "solution"
to the global financial crisis, the establishment of a "precautionary fund"
under IMF stewardship proposes to deter "financial turbulence spreading
from country to country in a contagion process." The underlying objective
is "to send a clear message to speculators that they may be taking big
risks if they [short] sell a nation's currency."2

Yet in practice, the G7-IMF artifice accomplishes exactly the opposite
results. Rather than "taming the speculator" and averting financial
instability, the existence of billions of dollars stashed away in a
"precautionary fund" (safely established in anticipation of a crisis) is
likely to entice speculators to persist in their deadly raids on national
currencies . . .

The multibillion dollar fund was not devised (as claimed by its architects)
to help nations under speculative assault; on the contrary, it constitutes
a convenient "safety net" for the "institutional speculator." "The money is
there" to be drawn upon and the speculators know it. If central banks in
Asia or Latin America (in an abortive attempt to prop up their ailing
currencies) were to contemplate defaulting on their (forward) foreign
exchange contracts, the precautionary lines of credit (serving as a
"backup") would enable banks and financial institutions to swiftly collect
their multibillion dollar loot.

In other words, the money "to bail out the speculators" would be readily
available and accessible well in advance of a currency crisis. Moreover,
the IMF sponsored "rescue operation" would no longer hinge upon clumsy ad
hoc negotiations put together hastily in the cruel aftermath of a currency

Whereas the IMF would still be called in to impose even harsher economic
measures, the bailout money would be "available up front": no nervous last
minute meeting as on Christmas eve (24 December 1997) when Wall Street
bankers met behind closed doors (under the auspices of the New York Federal
Reserve Bank) to put the finishing touches on the renegotiation of Korea's
short-term debt.3

Reducing Risks for Banks and Financial Institutions

Rather than repelling the speculator, the existence of the precautionary
fund significantly diminishes the risks of conducting speculative
operations. Not surprisingly, the global banks and investment houses (well
versed in the art of financial manipulation through their affiliated hedge
funds) have unequivocally endorsed the G7-IMF policy initiative. Barely
analysed by the global media, the scheme will reinforce the command of
"institutional speculators" over global financial markets as well as their
leverage in imposing ruthless macroeconomic reforms.

A Marshall Plan for the Speculator

A colossal amount of money has been allocated (from tax payers' wallets) to
"financing" future speculative assaults: the 90 billion dollar scheme
constitutes a "Marshall Plan for institutional speculators" representing an
amount (in real terms) roughly equal to the entire budget of the Marshall
Plan (86.6 billion dollars at 1995 prices) allocated between 1948 and 1951
to the post-War reconstruction of Western Europe.4

Yet in sharp contrast to the Marshall Plan, the money transferred under
both the Asian bailouts (more than $100 billion) and the proposed G7-IMF
precautionary fund ($90 billion) contribute "to lining the pockets" of the
global banks leading to an unprecedented accumulation of money wealth. None
of this money will be channeled into rehabilitating the shattered economies
of developing countries. Under the new IMF Facility for contingency
financing, international banks and financial institutions will be  able to
swiftly collect debts (from developing countries) initially up to the 90
billion dollars ceiling.

Of this amount, some 30-40 billion dollars have already been carefully set
aside to ensure that Brazil (following massive capital flight) does not
default to its Wall Street creditors. In return, President Fernando
Henrique Cardoso, faithful to his financial masters, has committed the
Brazilian government to sweeping austerity measures which will drive large
sectors of Brazil's population (including the middle classes) into abysmal
poverty. In this regard, the IMF's economic therapy in Brazil promises to
be more unmerciful than that applied in Asia. In turn, the cost of
servicing the precautionary line of credit will be substantially higher.

The remaining 50-60 billion dollars is available to be used to "finance"
future speculative raids and bailout agreements (eg. in Latin America, the
Middle East and South Asia) leading to the concurrent dismantling of
national-level monetary policy. This destructive process, however, does not
terminate once the 90 billion dollar ceiling has been reached: once the
money has been used up, the precautionary fund (established as a "standing
arrangement") can if required be replenished (with contributions from G7

A Massive Transfer of Money Wealth

The transfer of wealth resulting from currency speculation is unprecedented
in modern history. Solely in Asia, more than 100 billion dollars of foreign
exchange reserves have been confiscated since mid-1997. Another 90 billion
dollars are envisaged under the precautionary scheme. And these amounts do
not include the collection of private debts nor the value of assets
appropriated by Western capital under the privatisation programmes
(estimated for Russia alone to be more than five times the Marshall plan).
In return, Russia will receive a meagre 500 million in US Food Aid on
condition it faithfully conforms to the IMF's economic agenda.

The Demise of Monetary Policy

Through their decision, G7 leaders have sanctioned the destruction of
monetary policy and the derogation of national economic sovereignty.
Through the manipulation of currency markets, billions of dollars of money
wealth will be transferred from the vaults of central banks into private
financial hands.  Total available foreign exchange reserves in the vaults
of the World's central banks is less than the daily forex turnover of more
than 1,200 billion dollars. A small number of global creditors will control
money creation.

In turn, this demise of central banks has contributed to dramatically
boosting the levels of global debt while furthering the process of economic
and social collapse. G7 political leaders bear a heavy burden of
responsibility in adopting a scheme which contributes to aggravating the
global economic crisis. Moreover, they have blatantly misled the
international community on the likely consequences of the multibillion
dollar precautionary fund.

Boosting the Levels of Global Debt

The speculative assaults not only boost the levels of external debt in
developing countries (eg. Korea, Indonesia, Brazil), they also contribute
to heightening the debt burden in G7 countries: the financing of the
bailouts (under the multibillion precautionary fund) will largely come from
the public purse requiring the issuing by G7 governments of vast amounts of
public debt. Ironically, the latter will be underwritten by the same
investment banks routinely involved in the speculative assaults.

In other words, the G7 proposal is conducive to a massive increase in the
levels of public debt while at the same time creating conditions which
accelerate the collapse of production and employment. The latter in turn
trigger the accumulation of large amounts of personal (household) debts,
nonperforming loans of small and medium sized enterprises, etc., leading to
bankruptcies and loan forfeiture.

The "Privatisation" of the IMF Bailouts

The 90 billion dollar deal was hastily put together by US Treasury
officials following consultations behind closed doors with the
representatives of the World's largest banks and brokerage houses. The
precautionary facility is to provide "short-term" contingency financing at
substantially higher interest rates (300 to 500 base points above the IMF
standard lending rates).

In other words, financing will be available at 3 percent (or more) above
the current IMF soft lending rate of 4.7 percent. This pattern imposed by
the US Congress in October (in relation to the $18 billion US contribution
to the fund) violates the statutes of the IMF as an intergovernmental body;
it derogates the Bretton Woods agreement of 1944. While it increases the
burden of servicing the debt under the bailout, it also reduces the
repayment period (ie. from the standard three to 10 years to one to 2.5
years). In other words, the bailout money provided under the fund would
(within a short period of time) have to be rescheduled with private lending
institutions at market rates of interest.

In other words, the G7-IMF scheme not only artificially inflates the debt
burden (by hiking up interest rates), it also establishes conditions which
favour the eventual "privatisation" of the bailouts. In this context,
"policy conditionalities" would be negotiated by the global banks (rather
than by the IMF): "[M]echanisms could be designed ahead of time to ensure
the timely involvement of the private [banking] sector in providing
liquidity support to countries in times of financial stress."5

Overhauling the IMF

The banks have hinted that what they really want is a de facto  private
sector bureaucracy (which they can more effectively control) rather than a
cumbersome intergovernmental body. This overhaul of the IMF is to be
carefully supervised by the US Treasury acting on behalf of Wall Street. In
other words, the IMF has also been brought more directly under the
political trusteeship of the US Administration in blatant violation of its
intergovernmental status. Overshadowing the IMF (and limiting its authority
to conduct future negotiations with member governments), the Congressional
appropriation bill had identified precise loan "conditionalities" to be
inserted in future IMF bailouts (including provisions which facilitate the
dumping of US grain surpluses as well as the "enactment of bankruptcy laws
that treat foreigners fairly").

Speculators call the Shots on Crisis Management

After the meltdown of Wall Street on Black Monday 31st of August 1998, G7
leaders had pointed nervously to the need for "taming financial markets."
Proposals to control the unfettered movement of money had been put forth.
British Prime Minister Tony Blair highlighting the shortcomings of the IMF,
had called for an overhaul of the Bretton Woods institutions: "the existing
system has not served us terribly well . . . "6

Mea culpa by renowned speculator George Soros: "financial markets are
inherently unstable, which can cause tremendous damage to society."7
Frictions between the Bretton Woods sister organisations had also surfaced
at their annual meetings in October 1998. In an admonishing statement, the
Senior Vice President of the World Bank Joseph Stiglitz publically
expressed his disapproval of the Washington consensus.

In the meantime, despite renewed stock market instability in developing
countries, the storm had temporarily settled on Wall Street much to the
relief of New York's major brokerage houses. Caving in to the demands of
the global banks, the issue of capital controls had been casually dropped
from the political agenda: "the new buzz-words are `sequencing', `orderly
capital account liberalisation', `regulations, yes, restrictions, no'."8

A new invigorated "Washington consensus" was in the making. The unfettered
movement of capital was presented as the sole means to achieving global
prosperity. According to UBS-SBC George Blum and Citigroup's William Rhodes
speaking on behalf of some 300 global banks and brokerage houses: "capital
controls will seriously damage medium-term prospects for raising standards
of living".9

Neoliberal economic policy was alive, speculators rather than elected
politicians were calling the shots. G7 leaders together with the Bretton
Woods institutions had formally invited the  global banks "to be involved
appropriately in crisis management and resolution".10 In an absurd logic,
those who foster financial turbulence are called in to identify policies
which attenuate financial turbulence . . .

In turn, the broader structural causes of the economic crisis remain
unheralded. Blinded by neoliberal dogma, policy makers are unable to
distinguish between "solutions" and "causes." Public opinion is misled.
Lost in the barrage of self-serving media reports on the deadly
consequences of "economic contagion", the  precise "market mechanisms"
which trigger financial instability are barely mentioned.

Despite mounting criticism directed against the Bretton Woods institutions,
the G7 decision not only upholds but strengthens the IMF's lethal economic
medicine as the unequivocal "solution" when in fact it is the "cause" of
economic collapse and financial turmoil.

With the exception of token rhetorical statements on the destabilising
impacts of currency and stock market speculation, no concrete revisions of
the macroeconomic agenda have been put forth. The G7-IMF precautionary fund
"entrenches" the rights of  speculators"; it provides an unconditional
"green light" to financial institutions to "short sell" national currencies
all over the world.

Dismantling the State: Towards the Development of a Private Sector

The global banks decide on what constitutes a "politically correct"
economic agenda. The new "financial architecture" is to be based on the
removal of all remaining barriers to capital movements.

According to Alan Greenspan, chairman of the US Federal Reserve Board,
financial markets are too complex for public regulators to oversee:
"Twenty-first century regulation is going to increasingly have to rely on
private counterparty surveillance to achieve safety and soundness [of
financial markets] . . . "11

More generally, the tendency is toward a system of "private regulation"
(under the direct control of banks and MNCs) in which governments and
intergovernmental bodies would play a subsidiary role. In other words, the
stranglehold of creditors over the State apparatus in all major regions of
the world (including North America and Western Europe) is conducive to the
development of a private sector bureaucracy which oversees activities
previously under State jurisdiction.

This dismantling of the State, however, is not limited to the privatisation
of social programmes and public utilities, corporate capital also aspires
to eventually acquire control over all State- supported "civil society
activities." Cultural activities, the performing arts, sports, community
services, etc., would be transformed into profit making ventures. In this
regard, the proposed Multilateral Agreement on Investment (MAI) purports to
deregulate foreign investment, dismantle State institutions and transform
all State supported "civil society activities" (eg. at municipal level)
into money making operations.

"Taming the Tigers"

In parallel with the forced removal of impediments on the movement of
capital through the disruption of currency markets,  the political power
brokers of the "free market" will continue their relentless drive to
entrench the rights of banks and corporations in several legally binding
agreements including the Multilateral Agreement on Investment (now under
WTO auspices) and the equally controversial amendment of the IMF articles
on capital account liberalisation.

Combined with overt political pressures by Washington, the G7-IMF
multibillion dollar fund will also be used to finance future speculative
assaults on countries such as China (including Hong Kong), Malaysia,
Taiwan, Chile and more recently Russia (under Prime Minister Primakov)
which have defied the "free market" by adopting foreign exchange
restrictions and/or controls on speculative transactions. The Taiwan
authorities, for instance, took measures "to prevent illegal trading of
funds managed by George Soros which have been blamed for causing the local
stock market to fall."12 Hong Kong has introduced measures which curb
short-selling of stocks and currency speculation.13

The G7 scheme (coupled with the decision not to hamper the movement of
money) is intent on weakening these initiatives and destabilising
local-level capitalism; the ultimate objective is to deregulate currency
markets, break down remaining impediments to the movement of capital and
dismantle State control over monetary policy.

Speculators and Creditors get Cold Feet

By legitimising mechanisms which boost global debt and destabilise national
economies, G7 policy makers have also "sown the seeds of destruction." The
creation of unsurmountable debts is backfiring on the World's most powerful
financial actors. The resulting dislocations in production, the "drying up"
of consumer markets (following the simultaneous collapse in the standard of
living in a large number of countries) has resulted in a proliferation of
nonperforming loans.

The inexorable accumulation of global wealth has backlashed on the real
economy leading to the disengagement of human and material resources.
Physical assets stand idle or are withdrawn from the market process
resulting in plant closures, layoffs and corporate bankruptcies. Poverty
and unemployment are the result of massive overproduction (marked by
overcapacity) in virtually all sectors of activity.

The speculators are caught in the twirl: in a cruel irony, financial
turmoil is backfiring on the financial institutions which provoked market
instability in the first place. Bank losses are not limited to Korea, Japan
or China; some of the West's largest financial institutions (involved in
shaky investment deals, high risk trade in hedge funds, "heavy exposure" to
emerging market debt, etc.) are now getting "a bitter taste of their own
economic medicine."

Heavy bank losses have also triggered the layoff of thousands of employees
on Wall Street. At J. P Morgan, Merrill Lynch and Credit Suisse- First
Boston, etc., previously affluent and successful brokers have been
ruthlessly driven onto the streets.

The Destabilising Impacts of the Hedge Funds

Some of the World's largest banks and brokerage houses on both sides of the
Atlantic have incurred heavy losses: Citigroup, Bank America, the Dresdner
and Deutsche banks (hit by massive default on Russian debt), UBS-SBC,
Credit Lyonnais, Merrill Lynch, ING Baring, Credit Suisse- First Boston, to
name but a few. Most of these banks can be considered as "institutional
speculators" with formal links to their numerous affiliated hedge funds.
UBS is under investigation in Switzerland for its shady deals with the LTCM
hedge fund; Bank America, the largest US bank, has declared a 1.4 billion
credit loss following the demise of its Wall Street hedge fund D. E. Shaw.14

Rather than curbing speculative trade, the G7-IMF precautionary fund
provides a "green light" to the hedge funds routinely involved in
speculative operations. A large share of these hedge funds operate from
offshore banking havens to escape government regulation and taxes.

The political consensus among G7 ministers of finance is that it would be
unwise to regulate the hedge funds. Echoing Wall Street and the US Federal
Reserve Board, the Bank of England has urged hedge funds "to regulate
themselves" underscoring the fact that "tighter regulation of hedge funds
could prove self-defeating."

The dramatic rescue by a consortium of Wall Street firms of the LTCM hedge
fund in September 1998 (crippled with debts of more than three billion
dollars) is but the tip of the iceberg in a global cobweb of over four
thousand hedge funds. LTCM was run by a former Salomon Brothers executive,
John Meriwether.

Described as "pool partnerships of wealthy investors", the hedge funds were
created and bred by the financial establishment, serving the interests of
the banks, corporations and rich individuals. They have become an integral
part of the structures of investment banking with "reported capital" of
some 300 billion dollars. However, through "highly leveraged operations",
this  capital of 300 billion has been multiplied to reach astronomical
figures: LTCM's fund manager John Meriwether, for instance, had invested
500 million for every million in capital with operations totalling an
estimated "exposure" of 200 billion dollars. The latter amount is the
"exposure" (through shady investments in emerging markets) of a single
hedge fund out of a total of four thousand hedge funds!  Needless to say, a
large share of hedge fund business transacted in the offshore banking
havens goes unreported.

The hedge funds have contacts in high places; they also wield considerable
influence in determining the direction of G7 reforms. They have the ability
of moving  billions of dollars around the world overnight overshadowing the
powers of governments. Their operations are predicated on the manipulation
of market forces: the hedge funds capture large amounts of wealth from the
real economy ultimately leading to the accumulation of enormous debts and
the demise of productive activity.

Combined with the plight of the peripheral bond markets, a failure of the
hedge funds would backlash on the entire structure of Western banking
including its more than 55 offshore facilities (eg. Cayman Islands,
Bermuda, Luxemburg, etc.). In turn, stock market instability threatens the
future of mutual funds and pension funds (many of which also include
speculative investments in their portfolio).

The Merger Frenzy

The G7's "new financial architecture" favours an atmosphere of  cutthroat
competition leading to a new wave of mega-mergers and acquisitions. In
turn, the merger frenzy has contributed to  artificially boosting the New
York Stock Exchange to new record heights. The multibillion spoils of
currency and stock market speculation are channelled toward the acquisition
of real assets: the enormous cash reserves accruing to institutional
speculators are also recycled toward the financing of corporate mergers
including the purchase of state assets under the numerous privatisation

In turn, currency speculation in emerging markets has favoured the
dislocation of national capitalism in Asia and Latin America and the demise
and subordination of the local economic elites leading to an unprecedented
concentration of global economic and financial power. In the wake of the
IMF sponsored bailouts, global corporations --out on a lucrative shopping
spree in Asia-- have acquired control over numerous "troubled" national
enterprises and financial institutions.

Global Alliances

The formation of new "global alliances" between European and American
capital has rapidly changed the balance of power in the World market. With
the merger boom, British and German banking interests have (inter alia)
joined hands with Wall Street leading to the formation of powerful
financial giants.

Banker's Trust-Deutsche Bank, BP-Amoco, Daimler-Chrysler, to name but a
few: the mega-mergers are proceeding at a very rapid pace in banking,
mining, oil and gas, etc., as well as in the "high tech" industries
(computers, telecommunications, electronics, bio- genetics). The
mega-mergers are also contributing to redefining the geopolitical landscape
of the post-Cold war era. Whereas the former Soviet Union has been defeated
as a superpower, the onslaught of the Asian currency crisis has
significantly undermined the economic dominion of Japan in the Asia-Pacific

In turn, the Euro-American banking conglomerates are shareholders in the
World's largest industrial corporations (eg. Deutsche Bank has a sizeable
stake in Daimler-Chrysler), they also oversee the restructuring of national
economies (under the bailout agreements) in Eastern Europe, the Balkans,
Latin America and South East Asia. These "Atlantic corporate alliances" in
banking and industry seek to edge out weaker competitors including their
Japanese rivals. Moreover, financial deregulation has also opened up the
Japanese economy to corporate buyouts by Western investment banks.
Supported by the G7-IMF economic agenda, the expansion of Euro-American
capital into new frontiers is contributing to undermining Japan's position
as an economic power.

Economic Falsehoods

A "false consciousness" has invaded all spheres of critical debate and
discussion which masks the workings of the global economic system; at the
same token, it also prevents the international community from acknowledging
its devastating impacts on people all over the World. What are the causes
of the crisis as well as the powerful financial interests which are
responsible for financial turbulence and economic dislocation?

Public opinion has been skillfully misled: the Western economy is said to
be "healthy"; "economic infection" is "spreading" from  Asia and Russia
(designated as "sick economies"); politicians, mainstream economists and
the Western media have contributed to trivialising and distorting the
causes of the global economic crisis, not to mention the formulation of
stylised "solutions": "we must stave off the growing flu because flu proves
to be contagious."

Freezing Speculative Transactions

The most urgent task consists in subjecting financial markets to public
scrutiny and social control. A Tobin tax will not suffice in reversing the
tide of destruction: "financial disarmament" requires freezing (nationally
and internationally) the entire gamut of speculative instruments,
dismantling the hedge funds, reintroducing controls on the international
movement of money and progressively breaking down the structures of
offshore banking which provide a safe haven to "dirty money" and the flight
of undeclared corporate profits. While these "preventive measures" do not
constitute a (long-term) "solution" to the global economic crisis, they
would nonetheless contribute to significantly slowing down the accumulation
of money wealth and attenuating the devastating impacts of currency and
stock market speculation on millions of people. In the words of Malaysia's
Prime Minister Mohamad Mahathir: "unless [speculative] currency trading is
recognised as the root cause of the present problem, corrective actions
cannot be made . . . Cosmetic adjustments will not do any good at all."15

Dismantling the Washington Consensus

Beyond the adoption of short-term "preventive" measures geared toward
freezing speculative trade,  far-reaching changes in the structures of the
global economic system are required, which reverse the concentration of
financial power and restore the democratic control of society over the
levers of economic policy. As a first step, the "Washington consensus" must
be broken, the IMF's lethal economic medicine must be discarded; in turn
the mechanics of macroeconomic reform must be reversed requiring the
establishment of "an expansionary economic agenda" geared toward restoring
wages and alleviating global poverty.

Of crucial importance is the concurrent "democratisation of central banks."
Under the present setup, creditors and speculators control money creation
including the financing of State economic and social programmes, the
payment of wages, etc. In other words, what is at stake is not only the
cancellation of enormous public debts held by private financial
institutions but also the "re-appropriation" by society of monetary policy,
--ie. the democratic control by society of money creation and the process
of financing economic and social development.

In turn, the process of dismantling the Washington consensus will also
require (in close coordination with the process of "financial disarmament")
the continued struggle against a number of legally binding international
agreements (eg. under WTO and IMF auspices) which establish an "enabling
environment" for MNCs and global banks.


1. Quoted in Financial Times, London, 31 October-1 November 1998. See also
G7 Communique, October 30, 1998.   2. David Sanger, Wealthy Nations back
Plan to Speed Help to the Weak', New York Times, 31 October 1998.

3. See Financial Times, London, 27-28 December 1997, p. 3.

4. See US Bureau of Labour Statistics, Purchasing Power of the Dollar,
1950-1995. The Marshall Plan transferred 13 billion dollars of US aid from
1948 to 1951, equivalent to 86.6 billion dollars at 1995 prices. See also
Barry Eichengreen and J. Bradford de Long, The Marshall Plan: History's
most Successful Structural Adjustment Programme, CEPR discussion paper, May
1992.  5. IMF, Strengthening the Architecture of the International Monetary
System, Washington, October 1998, p. 5.

6. Financial Times, 21 September 1998, p. 1.

7. Reuters (press dispatch), 10 November 1998.

8. See Robert Wade, Behind the Big Push for Free Movement of Capital, Third
World Resurgence, No. 98, October 1998.

9. Institute of International Finance, Press Release, Tokyo, 13 September

10. G7 Communique, October 30, 1998.

11. Quoted in "Greenspan urges Repair of Global Architecture", American
Banker, October 1998.   12. Martin Khor. "Tide turning on Financial Free
Market", Third World Resurgence, no. 98, 1996, p. 32.

13. Ibid.

14. Financial Times, London, 15 October 1998, p. 1.

15 Mohamad Mahatir, quoted in the Strait Times, 3 November 1998.
    Michel Chossudovsky

    Department of Economics,
    University of Ottawa,
    Ottawa, K1N6N5

    Voice box: 1-613-562-5800, ext. 1415
    Fax: 1-514-425-6224
    E-Mail: •••@••.•••

  Bob Olsen, Toronto, •••@••.•••, http://www.tao.ca/~tdrc/

   "The contest for ages has been to rescue liberty from the
   grasp of executive power."                 Daniel Webster

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