The Inter-American Development Bank (IDB) has its headquarters in Washington DC.
The IDB is part of the family of so-called multilateral financial institutions that are in reality dominated by the interests of private banks from the US and other rich countries.
The Bank has 26 borrowing members and 20 non-borrowing members. Its cumulative lending and technical co-operation programmes reached $104 billion at the start of 2000, it thus owns one seventh of all Latin America’s foreign debt.
The IDB likes to disguise its activities through a smokescreen of apparently neutral technical or even reformist language. Yet alongside the IMF and World Bank, the IDB has played a key role in promoting, imposing and consolidating neo-liberalism in South America. The IDB has made the ruling elites and international banks richer while impoverishing the vast majority.
The Bank’s latest annual meeting in Santiago, Chile was the seen of mass protests with placards reading "The wealth created by the IDB in our country is our misery" (1). Friends in Britain and Europe should listen to this voice of protest, and not be fooled by the IDB, a bank up to its eyeballs in Imperialist Dirty Business.
Che Guevara Warns
The IDB was created in December 1959, officially by the Organisation of American States (OAS) "to help accelerate the economic and social development of Latin America and the Caribbean". In fact it was set up with US $1billion by President Eisenhower to prevent the contagion of revolution spreading from Cuba.
Within a year of its existence the Cuban revolution had instigated Latin America’s most thoroughgoing agricultural reform since the Mexican revolution of 1910-17. The USA had to counter Cuba’s example. It introduced a different solution to the agrarian problem, which had at its root everywhere in Latin America the antiquated, repressive and hated latifundia system. And so President Kennedy launched the ‘Alliance for Progress’ to encourage governments throughout the region to initiate reform from above, to move quickly before the latifundias fell to the peasantry acting from below (2).
The role of the IDB was to provide the financial support for this consciously counter-revolutionary modernisation strategy.
Che Guevara had been appointed head of Cuba’s Central Bank, and in that capacity he famously excoriated the IDB at a meeting of the OAS in Uruguay in 1961. Cuba’s revolutionary leadership denounced the USA for arriving with a bag of gold in one hand and a garotte in the other. Guevara pointed out that the IDB’s offer of loans for roads and waterworks did not address the continent’s fundamental problem, lack of its own productive capacity. He condemned the exploitation of underdeveloped countries by imperialist finance capital.
US Undersecretary of State promised the assembled delegates external finance from Europe, Japan and North America, on condition that "Latin America took the necessary internal measures" that would make loans possible. With great foresight Guevara questioned what might be the content of this unspecified US condition. History was soon to tell.
A good example of the ‘Alliance for Progress’ approach was the land reform initiated by the Christian Democrat Frei government in Chile in the late 1960s. Frei’s idea was not to distribute land from the big landowners to the peasants, but to create a small layer of capitalist farmers. On US prompting, IDB money was poured in to finance Frei’s cautious changes.
Then in 1970 the Chilean electorate voted for Salvador Allende’s more radical Popular Unity programme. Allende nationalised coal and steel production and introduced social welfare. These measures accelerated workers direct takeovers of foreign multinationals, such as the US companies ITT and Ford. The Chilean people were beginning to take over their destiny, and the USA was losing control.
President Richard Nixon had already sponsored one unsuccessful assassination attempt on Allende, even before his inauguration. Next the USA complemented its CIA-organised dirty tricks with a parallel campaign of economic destabilisation. Nixon ordered his underlings to "make the economy scream". Acting on these orders, the IDB and the World Bank cut their programmes in Chile and cancelled credits. They forced the Allende government to pay off old loans while refusing to open new ones, pushing it into a crisis. Following the demands of private investors, and working on direct US instructions, the IDB had starved Allende’s social reforms of finance.
Shortly after Pinochet’s military coup that overthrew Allende in September 1973, the IDB, IMF and the World Bank were all involved in extensive refinancing of Chile’s debt.
The IDB had helped destroy Allende’s democratically elected government, and was now co-operating with the dictatorship.
The Lost Decade and Brazil
The IDB regained a central role in lending and overseeing structural adjustment programmes in the mid- 1980s. The Bank was instrumental in solving the debt crisis on terms that were acceptable to creditors, by rescheduling the debt on terms advantageous to them. That is it laid the ground for ever deeper debt crises in the future.
Thanks to the IDB, Latin America’s level of indebtedness exploded, doubling from $230 billion in 1980 to $442 billion in 1990. The effect of these policies was devastating. The region’s average per capita income dropped by 11 per cent between 1980 and 1990 (3).
Brazil’s debt crisis illustrates how the conditions that Che Guevara warned against work in practice. Brazil’s great economic weight in the region means that even the smallest sign of economic nationalism is perceived by the northern powers as a challenge that has to be slapped down. This is what happened in 1990. The country was governed by the right-winger Fernando Collor, how much real power he exercised was about to be tested.
Although Brazil had paid off $90 billion in interest over the 1980s, it’s debt still stood at a colossal $120 billion. Pushed by the IMF, "Plan Collor" included cutting wages and slashing public expenditure with 360,000 proposed redunancies. In order to pay off the debts the Brazilian people were to be deliberately driven over the abyss. Michel Chossudovsky explains, "Poverty was not only the ‘result’ of the reforms, it was also an ‘explicit condition’".
And still Collor’s cuts were not deep enough for the big international banks who were Brazil’s creditors. They ordered the multilateral institutions not to lend Brazil any new money, a position sanctioned by the G7 meeting in Washington. As a result the US Treasury instructed the World Bank and IDB to block all new loans to Brazil until there were harsher conditions. One year later the government package that was finally acceptable to the IMF in late 1991 meant a brutal 65% cut in current expenditure (4).
Neo-liberalism in the 1990s
The IDB’s grip has been relentless. Latin America and the Caribbean countries owed their overseas creditors nearly twice as much at the start of 2000 as they did in 1990. At the end of the decade servicing regional debt took away 35% of all export earnings. So much for debt forgiveness.
The decade of the 1990s brought an extra dimension to the continent’s attractiveness for foreign capital. The neo-liberal policies of privatisation, labour market de-regulation, tax reductions for the rich, and liberalisation of controls, all seen as ‘reforms’ by the IDB, have amounted to an open invitation to foreign investment with guaranteed super-profits. This welcoming economic regime is also known as globalisation.
International entrepreneurs could hardly contain their celebratory mood as they entered the gold rush. As one business executive advised the 1992 IDB Conference on Latin America’s New Economic Climate, "the race for Latin America has started and the latecomers will lose out". No wonder that Clinton’s Treasury Secretary Larry Summers told the IDB’s next conference, held in Colombia, that "the Latin American model is a model to emulate, not a model to avoid".
According to a recent report, "the volumes of Foreign Direct Investment are of a magnitude not even imagined a decade ago" (5). Indeed, net foreign direct investment had increased sevenfold from $11 billion in 1991 to over $77 billion in 1999.
Privatisation has been the special instrument of this influx. Ever more corporations have been handed over to overseas capital. In the 1990-1992 period foreign multinationals participated in 27% of the 500 biggest companies in LA, this had increased to 43% by 1998-99. In the same period state corporations had reduced their share of the top 500 from 33% to 19%. Acquisitions by Spanish banks and multinationals have been especially significant. What this represents then is the direct takeover of Latin American corporations by foreign capital, European as well as North American multinationals.
The Human Face of neo-liberalism?
At the Montreal ‘Conference on Globalization’, IDB President Enrique V. Iglesias said that globalisation can be a positive thing provided that government, business and labour organisations are "prepared to be truly active in giving it a human face".
Unfortunately humans can be very cruel, especially when they are bankers. The IDB’s real face became all too clear on the first anniversary of Hurricane Mitch, February 2000, when the IMF admitted that it, the World Bank and the IDB were still taking a million dollars a day from Honduras and Nicaragua. In 1999 Nicaragua spent almost as much on servicing its foreign debt ($170 million) as it did on reconstruction ($190 million).
Honduras spent even more on debt servicing than reconstruction. The Washington creditors continued to squeeze debt repayments out of victims of Hurricane Mitch because they are so-called ‘preferred’ creditors, and never give up their claims.
Do not be confused by this Janus two-faced creature. The IDB is driving the free market agenda ever deeper into Latin America. It exists to support private capital making the biggest possible profit. For sure the IDB is remarkably popular with the private banks lending it money. The Bank reports that "In May 2000, Euromoney magazine named the IDB Supranational Borrower of the year 2000. In January 2001, the Bank had two of its bond issues rank first and second best supranational bond issues of 2000 in Euroweek magazine’s annual poll." Recent purchasers of IDB bonds include Deutsche Bank, HSBC, Mitsubishi, Morgan Stanley Witters amongst many others.
The IDB and New Challenges
The IDB has been given a role in meeting two significant challenges of the new race for Latin America. The first challenge arises from the expansion of investment from monetary loans to portfolio investment, and hands-on supervision of the production process. For their investment to become generalised and systematic, the multinationals demand a modernised infrastructure of transport, communications and other services including relevant education and training of their workforce. The IDB’s job is to work with local states and finance whatever infrastructure is needed by capital as a whole.
Echoing its Alliance for Progress roots, the IDB has recently sought to reposition itself as a development bank also focussing on social reform. The IDB presents itself as a financier of ‘safety net’ projects, providing basic services to those hardest hit by structural adjustment programmes.
This is because the second challenge is political rather than economic. Neo-liberalism has impoverished and polarised societies so much that there is bound to be conflict.
What therefore is required is a programme of projects targeted at pre- empting resistance. The intention is not to do away with poverty and its causes, this would require the complete overhaul of the neo-liberal framework. Rather, it is a calculated strategy using specific poverty reduction projects, intended to ameliorate a few, whilst spreading the illusion of hope and sowing division amongst the rest. The IDB’s redisovered reformism is to head off "the explosive potential of unmet social demands".
The new SYSTEM of exploitation has to be constructed and consolidated. But it will be a system of EXPLOITATION. Neo-liberalism in Latin America has moved on from its doctrinaire free market phase to its pragmatic interventionist phase. Next stop Colombia.
1 "One more step to destruction" by Aldo Madruga in Granma International 21 March, 2001
2 "Latin America’s Agrarian Reform: Lights and Shadows" by Cristob·l Kay
3 "Latin America and Global Capitalism" by William Robinson in Race and Class, Vol 40 No2/3
4 "The Globalisation of Poverty" by Michel Chossudovsky (pp178-179)
5 "La InversiÛn Extranjera en AmÈrica Latina y el Caribe", 2000 by CEPAL March 2001