Venezuela's Withdrawal from the IMF and the World Bank

Harald Neuber | 12.06.2007 11:38 | Globalisation | World

With their emancipation from the Bretton Woods institutions, the states of latin America now try to lessen their dependence. A Bank of the South could assume the role of structural creditor in the future.

VENEZUELA’S WITHDRAWAL FROM THE IMF AND THE WORLD BANK

A Consequence of the Interventionism of the Last Decades

By Harald Neuber

[This article published in the German-English cyber journal Telepolis, 5/6/2007 is translated abridged from the German on the World Wide Web,

http://www.heise.de/tp/r4/artikel/25/25220/1.html.]

For years Venezuela’s president Hugo Chavez has been a sharp critic of the US and the regime of the Bretton Woods organizations [1]. Through their conditional credits, the IMF [2] and the World Bank [3] are responsible for deregulating Latin American markets in the last two decades. This policy is complicit in the raging social problems in the region. Now Chavez is ending the tense relationship. At a May 1 political event, he announced his country’s withdrawal [4] from the two institutions. Is this an irrational policy as his domestic and international critics claim?

Venezuela will not be a petitioner any more to anyone, the politician said at the event… With its withdrawal from the IMF and the World Bank, Venezuela continues a trend in the whole region, emancipation from the Bretton Woods regime that forced a neoliberal policy since the 1980s and thereby bears a crucial responsibility for decreased governmental social protection of their population. In Latin America, this decreased protection had and has catastrophic consequences given the massive social contradictions.

GENERAL TREND AGAINST THE IMF AND THE WORLD BANK

The general rejection [8] of the Bretton Woods regime occurred in Ecuador as well as Caracus. Toward the end of April 2007, Ecuador’s government expelled the representative of the World Bank, Eduardo Somensatto, from the country. Head of state Rafael Coppea criticized the World Bank for extortion in withholding a promised credit of $100 million without any reason.

At the summit of the Bolivarian Alternative for America [Lula or Chavez? (10)], the Bolivian president Evo Morales announced the joint cancellation of the 1965 agreement settling investment disputes between states and residents of other states [11]. The arbitration center [ICSID (12)] created on the basis of the World Bank agreement had developed into an instrument of transnational businesses, the socialist politician decried. Together with the ALBA member states, Bolivia declared an immediate end to its cooperation with the ICSID to create its own mechanism for settling disputers between states and private investors.

Resistance against the IMF and the World Bank does not only come from Venezuela. Since the financial crisis in Argentina (1998-2002) [13], the structural adjustment measures of the IMF and the World Bank have been seen as the cause for Latin America’s social problems today [Freedom from the IMF (14)]. The economic interventionism of the organizations stands in an increasing contradiction to the policy of the strong state forced again by the new left in Latin America. Despite the rhetoric, this line does not contradict capitalist market laws. Rather Latin American independence strengthens the possibilitie4rs of the national bourgeoisie toward transnational actors.

RESISTANCE AGAINST POLITICAL INTERVENTIONISM

Conflict with the ISSID was unavoidable. The breach with the arbitration center of the World Bank was necessary, according to Morales, “to guarantee the sovereign right of states to regulate foreign investments on their own territory.” The Bolivian president is not alone in complaining that this sovereign right was increasingly restricted by the World Bank group since the 1990s. The lawyer Jorge Barraguirre, the Argentinean who argued before the ICSID in an August 2006 arbitration procedure [15], regards the decisions of the group as a “perversion and unbearable extension of the original idea of investment protection.” In the last years, fewer and fewer settlements occurred according to the original model while political conditions were decreed ever more frequently on the states from non-intervention in economic affairs to avoiding an “aggressive climate against investors. The ICSID created “new legal standards” with the support of the World Bank; the Argentinean financial official Osualdo Guglielmino is convinced.

A glance at the statistics shows who benefits from this development. According to a report [16] of the government-friendly Bolivian news agency Bolpress, five arbitration procedures between states and corporations were carried out in 1994 apart from the ICSID. Ten years later in 2004, 160 such procedures occurred worldwide, 106 with the arbitration center of the World Bank alone. In the Bolpress report, author Miguel Lora Fuentes classified the procedures according to regions. Of the 50 involved countries, 31 were developing states, eleven industrial states and eight threshold countries. Of the 37 procedures against Argentina, 34 were directly connected with the financial crisis provoked by the policy of the IMF and the World Bank.

When the government in Buenos Aires at the peak of the financial crisis prohibited the natural gas company CMS Gas Transmission from setting the gas price at the high US standard, the company sued [17] and prevailed. The argument of the respondents that the population had to be protected at the peak of the crisis was rejected. The second example was Mexico. Here the group punished an administrative district that prohibited US corporation Metalclad from draining off unfiltered toxic waste water because it contaminated the drinking water of the region. The corporation criticized the measure on the basis of the North American Free trade Agreement as a curtailment of business rights. The prohibition of the regional administration on draining off waste water contradicted article 1110 [19] of the free traded agreement. Article 1110 says under the heading “Expropriation and Compensation”:

“No partner to the agreement can directly or indirectly nationalize or expropriate an investment of another partner to the agreement on its territory or take any measures approaching an expropriation or nationalization of these investments.”

Environmental protection is stylized as an expropriation! This case is a very crass example of expansion of corporate rights in international legal circles and among opponents of free trade.

VOTING FOR ONE’S INSTITUTIONS

After such experiences of the last years, the left-government states of Latin America are now opposing the Bretton Woods institutions for the first time. They appeal to the thesis of the debt trap [20]. In the 1970s, private banks granted general credits to the dictators of the region. This happened in the knowledge that these funds would be spent on weapons sales or prestige objects. In Argentina, the indebtedness skyrocketed from $8 to $43 billion from 1976 to 1983. After the decline of export prices and the rise of interest rates after 1990, the now democratic states fell into a quasi-bankruptcy that could only be avoided through billions in credits from the IMF and the World Bank. Both institutions tied their credits to strict political criteria.

With their emancipation from the Bretton Woods regime, the states of Latin America now try to lessen their dependence. Venezuela’s government supports the founding of its own credit institutions. A Bank of the South [21] should assume the role of international creditor in the future. The establishment of a regional credit institute was negotiated in February 2007 between Hugo Chavez and his Argentinean counterpart Nestor Kirchner – an idea that found a positive resonance in the region beyond the states organized in the ALBA. Every future member state should invest part of its currency reserves in the new development bank. Seven billion dollars of start-up capital have already been pledged.

According to the plan, a development bank independent of the IMF and the World Bank will arise in Latin America by the middle of 2007. Such a regional institution will not break with the capitalist mechanism but will promote local businesses and economic structures. To some commentators in industrial states, this seems to go too far.

Links
(1)

http://www.korbernet.de/docs/globalisierung/node6.html
(2)

http://www.iwf.org/
(3)

http://www.worldbank.org/
(4)

http://www.abn.info.ve/go_news5.php?articulo=90609&lee=3
(5)

http://www.correodelcaroni.com/content/view/65119/112
(6)

http://www.el-nacional.com/
(7)

http://www.eluniversal.com/
(8)

http://www.brettonwoodsproject.org
(9)

http://www.elcomercio.com/noticiaEC.asp?id_noticia=107960&id_seccion=6
(10)

http://www.heise.de/tp/r4/artikel/25/25175/1.html
(11)

http://www.vilp.de/Depdf/d151.pdf
(12)

http://www.worldbank.org/icsid
(13)