Chapter 6 – Bankers to the World

Bankers to the World

THE WORLD BANK is the Third World’s single largest creditor. Of the $1.3 trillion the Third World owes to thousands of creditors, $182 billion, or one dollar in seven, came from this one bank.

Along with the International Monetary Fund, the World Bank was created at the Bretton Woods Conference, held in New Hampshire in 1944. The World Bank would first finance the reconstruction of war-ravaged Europe, then turn its attention to developing the Third World. Its most famous founding father was John Maynard Keynes, a giant among men and a legend in his own time. It was said that the Bretton Woods Conference was not a conference among nations, it was a conference of nations with Keynes.

Keynes’ extraordinary intellect, oratorical eloquence, and prominence as an economic advisor to governments through four decades of war, peace, and depression made him the greatest economist of his time. He had dedicated his career to steadying the economic ship of nations throughout those tumultuous events, and Bretton Woods was his command performance. After weeks of negotiations, Keynes closed the Bretton Woods Conference with a speech formally moving that the two Bretton Woods institutions, the World Bank and the IMF, be created. For a world torn asunder by war, it was no mean feat:

Finally, we have perhaps accomplished here in Bretton Woods something more significant than what is embodied in this Final Act. We have shown that a concourse of 44 nations are actually able to work together at a constructive task in amity and unbroken concord. Few believed it possible. If we can continue in a larger task as we have begun in this limited task, there is hope for the world. At any rate we shall now disperse to our several homes with new friendships sealed and new intimacies formed. We have been learning to work together. If we can so continue, this nightmare, in which most of us here present have spent too much of our lives, will be over. The brotherhood of man will have become more than a phrase.

Mr. President, I move to accept the Final Act.

Delegates paid tribute by rising and applauding again and again. As he moved towards the door to leave the meeting the delegates rose again, singing “For He’s a Jolly Good Fellow.”

In his quest to create a world of peace and prosperity, Keynes was driven by a desire to help the public at large. But he had little faith in the public’s ability to fashion such a world. “It is most dangerous that the people should, under normal conditions, be in a position to put into effect their transient will and their uncertain judgment on every question of policy that occurs,” he wrote. Political parties should have an elitist structure, with decision-making confined to their top echelon. Democracy should be retained, but only as a power of last resort and “until the ambit of men’s altruism grows wider.” Keynes held views close to Plato’s: that society is best governed by a guardian class, unswayed by the venal passions of humanity, exercising power as a byproduct of its own spiritual quest.

So it would be with the World Bank. To place the institution beyond political influence by any one country, the World Bank’s founding fathers made it unaccountable to all. According to the bank’s Articles of Agreement, management and staff “owe their duty entirely to the Bank and to no other authority.” Countries that oppose loans for any but “economic considerations” are chastised for trying to exert political influence, thus violating the bank’s charter. Even the accountability of the board of executive directors is ambiguous and unknowable: the bank argues that its executive directors are individuals deriving their authority from and owing their paramount loyalty to the bank, even though they are elected by, and vote on behalf of, member countries.

Steeped in the belief that deficit financing should prime national economies, managed by a guardian class of economic planners, the World Bank would extend the Keynesian revolution to the Third World. While many debate the legacy of Keynesian economics in the industrialized countries — some claim it brought economic stability, others that it brought instability and enormous state debts — the consequences of the Keynesian revolution for the Third World are unmistakable.

SINCE IT COMMENCED BUSINESS in 1946, the World Bank has lent almost $250 billion, some to Western European countries and Japan for their post-war rehabilitation, but most to Third World countries to promote their economic development. Japan, then an underdeveloped nation, borrowed less than one billion, and repaid it. But unlike Japan and the other original borrowers in Western Europe, most Third World countries don’t escape debt: new and larger loans replace old ones. Of the quarter trillion dollars borrowed from the World Bank, very little — roughly $55 billion — has been repaid.

The World Bank’s role in the debt crisis extends beyond its loans, however. More than any other single institution, the World Bank influences development financing and policy in the Third World.

As the best endowed development agency on earth, with the largest staff and an army of economists, the bank has drawn up investment plans for Third World governments, arranged financing packages for major capital projects, offered financial guarantees to private lenders, provided information about investment opportunities in the Third World, signed special “framework agreements” with the industrialized countries’ national aid agencies, managed multimillion-dollar “trust funds” for cash-rich countries, and organized “consultative group” meetings of other aid donors to coordinate tens of billions of dollars’ worth of loans. As a result of these efforts, for every dollar the World Bank lent to a Third World project, another $2 to $3 was attracted from other sources, both public and private.

The World Bank did more than organize money for the lending; it created institutions to do the borrowing. To carry out its agenda and its projects, the bank often set up autonomous government authorities, such as development finance banks, agricultural credit institutions, and energy agencies in borrowing nations. Small government agencies and private institutions that thwarted the World Bank’s plans were superceded, as occurred in Nepal: when three hydroelectric companies balked at building large and risky dams in the 1960s, they were nationalized, the electricity sector was reorganized, and more pliant institutions emerged.

In Colombia, 36 of the World Bank’s first 51 loans went to autonomous agencies that the bank either established or entrenched. In effect, according to Colombian political scientist Fernando Cepeda Ulloa and John Howard from the New York-based International Legal Center, the World Bank acquired the powers of a surrogate government at the international level, while at the national level it became a powerful administrative arm of the Colombian government that “bypassed … governmental decision-making, including the legislative and judicial branches.”

Not only did World Bank-established institutions undermine democratic ones, they also monopolized scarce foreign capital. The World Bank helped set up Colombia’s national electricity utility system, and so vigorously financed its expansion program that, said International Water Power and Dam Construction, the government found itself with surplus electricity while the rest of the country griped “that most of the foreign exchange income of Colombia had been spent on building large power projects, thus neglecting the other needs of the country such as education, health, transportation, and so on.”

The bank sponsored much the same institution-building in its other client states. In Panama, the World Bank thirty years ago financed the then newly created public electric utility — the Institute for Hydraulic Resources and Electrification (IRHE) — to study the hydraulic potential of the country’s rivers. Once IRHE had identified the sites, the World Bank would fund feasibility studies for various dam sites, and eventually finance the dams. By 1988 IRHE had become Panama’s second-largest public sector borrower after the central government.

The World Bank consciously strove to remove borrowing agencies from the fray of local politics, out of a conviction that “the job of development” would otherwise be botched. This conviction largely reflected the distrust held by Eugene Black, the World Bank’s president from 1949 to 1962, of Third World people’s “traditionalism,” which Black believed would lead them into wrong choices. To save Third World people from themselves, the World Bank hired foreign experts, or “development diplomats,” to train local elites. Touted as “apostles of a new life,” and as “the politician and the bureaucrat … [who] are very literally leaders as well as rulers,” the local elites would “usher their societies into an age of enlightenment.” For Black and the bank, as for the bank’s founders, there would be no place for wide popular participation in development decision-making.

The bank’s influence with Third World governments came from its readiness to reward with loans those taking its advice, and from its influence over other donors and financiers. To disregard or disagree with the World Bank’s development agenda jeopardized a country’s access to foreign capital.

With these tools and this clout the World Bank has helped major capital projects get off the ground, becoming their most frequent financier. In fact, megaprojects — projects costing over $100 million — have received the lion’s share of World Bank loans: hydroelectric dams alone received about 20 per cent of them.

When it came to commodities, the World Bank’s unbridled optimism in the 1960s and 1970s — it predicted growing world-wide demand — stampeded Third World nations into developing their mineral resources, and into switching their farmers from subsistence and small-scale market crops to monocrop plantations for export. So many Third World nations so quickly expanded production of rubber, cotton, iron ore, tea, and tobacco that these commodities glutted the world’s markets, plunging prices and gutting the economies of the producing nations.

The prescriptions in which most of the world’s borrowers placed faith had been based on little more than the bank’s own economic guesswork, as a World Bank study discovered. A review of 1,015 projects by the bank’s Economic Advisory Staff revealed a “striking” degree of uncertainty in predicting its projects’ rate of return. A study by the Overseas Development Council found that almost half of the World Bank’s loans to revenue-generating projects failed to achieve a desirable rate of return.

In the World Bank’s likeness, three other development banks were created, one for each region of the Third World. The Inter-American Development Bank, Asian Development Bank and African Development Bank account for about 5 per cent of the Third World’s debt. Together with the World Bank, this group accounts for $250 billion, or nearly 20 per cent of the Third World’s total indebtedness. They all have virtually the same Articles of Agreement, structures, and lending patterns, leading to precisely the same dismal results.

Despite their consistent record of failure, the World Bank and its sister banks bask as blue-chip institutions, having no difficulty in borrowing from pension funds, insurance companies, corporations and individuals — all are happy to buy World Bank bonds, yet few would dare lend money directly to the Third World countries that are the ultimate borrowers.

The banks take their blue-chip status as a vote of confidence in their banking prowess, but this status has nothing to do with wise investments: backing all the development bank loans are rich governments who have pledged to repay bondholders should the Third World governments default.

Referring to the Asian Development Bank, First Boston’s co-chairman and former head of policy planning at the World Bank, Pedro-Pablo Kuczynski, explained in Institutional Investor: “The fact of the matter is that even if all the loans were lousy and in default, the capital structure of the bank is such that it would still have a high credit.” The bank, he explained, “could be in the middle of a ship parked off the coast of Vietnam and it wouldn’t affect its credit.”

When Third World countries began to default on their loans in the early 1980s, the World Bank shifted its lending to keep creditors — including itself — at bay. Instead of funding only specific projects, the World Bank began providing what are known as “structural adjustment loans.”

These loans, which now account for approximately one-quarter of all World Bank lending, are supposed to help Third World countries make market-oriented adjustments to their economies. But even the World Bank is unable to explain how these loans help Third World economies “adjust.”

Easier to explain, however, is the need to keep cash flowing and old debts serviced, if only at a trickle. Otherwise, the chances of a potentially catastrophic collapse are magnified.

A Third World country receives a structural adjustment loan to pay for its imports, even routine imports such as oil, thus freeing up monies for other uses, including repaying debts. The structural adjustment money thus makes a round trip — from the World Bank in Washington to the Third World country and then back to the West, where much of it repays various creditors.

Through these round-trip loans, however, the Third World country gets deeper in debt; the World Bank holds more of that debt, since it lent more new money than it received; and the private banks — the Chase Manhattans, Lloyds, and Deutsche Banks — are owed less, since old loans were being repaid while new loans weren’t extended. Round-trip loans thus transferred the Third World’s debt from the private sector to the public sector.

Yet the new loans — though they staved off defaults — did nothing to solve the Third World’s debt crisis. Many Third World countries were insolvent, simply incapable of repayment in the house of cards sustained by the World Bank. Not surprisingly, the architect of that house — the World Bank itself — would also be insolvent without continuing bailouts from its rich member countries, which come in the form of regular cash infusions as well as government guarantees.

IF THE WORLD BANK’S SHAREHOLDERS — 155 member countries — tried to privatize it, they would find that no private investor wanted a bank whose assets overwhelmingly consist of loans to Third World countries, most of whom need new loans to pay back their old ones. Without the rich countries’ bailouts, a privatized World Bank could not extend the round-trip loans that keep its debtors out of arrears. And without the promise of new and often larger loans, debtor nations might balk at repaying the World Bank first, as they have promised. “If we’re not receiving fresh money, we can’t pay,” said the planning director for the Haitian Ministry of Finance, Claude Grand-Pierre, adding that his government felt no obligation to pay lending agencies that had cut them off. “Normal relations with creditors are our desire,” said Brazilian Finance Minister Mailson da Nobrega, in explaining his government’s decision in September 1989 to miss a $1.6 billion interest installment to private banks. Referring to some $3 to $4 billion in loans that year that had failed to materialize, he said: “This is a two-way street, in which debt payments should open the way for new resources.”

Without the rich country guarantees, the individuals and institutions who now buy World Bank bonds would refuse new offerings. Existing bondholders would find they were holding junk bonds, worth pennies on the dollar, in what would be the world’s riskiest loan portfolio.

Far from being blue-chip financial institutions, the World Bank and its sister agencies have become financial albatrosses for the taxpayers in their member countries, largely because these public institutions operate free from either private sector discipline or public oversight and control. The minutes of executive directors’ meetings are secret, as are the executive directors’ voting records (that of the U.S. director is an exception due to U.S. law); executive directors are subject to no written restrictions prohibiting the use of their positions for personal gain; and no police force is mandated to investigate their wrongdoing, leaving the door wide open for widespread corruption. The public in the member countries has no right to details of World Bank activities, even if the activity is in its own country.

Given the legal no-man’s land that international organizations operate in, a private suit by a party hurt by a World Bank project would be very difficult, if not impossible. All governors, executive directors, alternates, officers, and employees are immune from legal process with respect to acts performed by them in their official capacity, unless the bank waives this immunity. The World Bank treats its loans as international agreements, registering them with the United Nations, which further puts them beyond legal challenge by individual citizens.

Reform from within to enforce accountability is possible only in theory. Amending the World Bank’s Articles of Agreement requires three-fifths of the members representing 85 per cent of the total voting power, making democratization of the institution unlikely in the extreme: 43 per cent of the votes are controlled by borrowers who shun public scrutiny, the balance by industrialized countries who are reluctant to be seen as diplomatic bullies, and who have their own political interests in seeing World Bank loans finance their countries’ exporters.

Proper scrutiny of individual loans suffers from similar problems: one borrowing country will not question a dubious loan to another. While public pressure in a lending nation may prompt an executive director to voice concerns about a particular loan (something that can never be verified), he is quick to remind his critics at home that his minority view cannot swing any vote. Lenders are also loath to line up en masse against a borrower, to avoid a diplomatic mêlée. Instead, the World Bank is ruled by consensus decision-making, with the board of executive directors never formally voting on loans, and being hopelessly ill-equipped to do otherwise: it has but two weeks to review multimillion-dollar projects. In an average week the World Bank’s board, in this way, nods approval to some $400 million in loans.

Sources and Further Commentary

Information on the finances of the World Bank come from a variety of sources including: Moody’s Sovereign Credit Report, New York, 1990, and Moody’s Credit Opinions: Sovereigns Supranationals August 1989; Standard and Poor’s Supranationals Credit Review, September 18, 1989; The World Bank Annual Report 1989 and 1990; Information Statement: International Bank for Reconstruction and Development, September 15, 1989, March 28, 1990 and March 22, 1991.

I use the term “the World Bank” as defined in the bank’s 1989 Annual Report: “The expression, `The World Bank’ … means both the International Bank for Reconstruction and Development (IBRD) and its affiliate, the International Development Association (IDA). The IBRD has two affiliates, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA). The Bank, the IFC, and MIGA are sometimes referred to as the `World Bank Group’.”

The IBRD was established in 1944, is owned by its 155 member countries, and finances its lending operations primarily from its borrowings in the world capital markets. IBRD loans are made to developing countries with a higher GNP at interest rates just below commercial rates. Each IBRD loan must be made to a government or must be guaranteed by the government concerned, and IBRD loans come with a grace period of five years and are repayable over 15 years or fewer. The International Development Association was established in 1960 to provide assistance for the same purposes as the IBRD, but primarily to the poorer developing countries (those with per capita gross national product of $650 or less). IDA has 138 members, including donors who are in effect lenders, and the borrowing nations. The funds used by IDA, called credits to distinguish them from IBRD loans, come mostly in the form of subscriptions, general replenishments from IDA’s more industrialized and developed members, and transfers from the net earnings of the IBRD. IDA credits are made only to governments, carry ten-year grace periods, 40 or 50-year maturities, and no interest. IBRD is thus known as the “hard loan window,” IDA as the “soft loan window.”

Of the $182 billion owed to the World Bank in 1989, $127.4 billion was owed to IBRD, and $55.5 billion was owed to IDA. Both figures include disbursed and undisbursed loans. Undisbursed loans include those which have been granted to a borrower but have not yet been drawn upon. They are included in the World Debt Tables 1990-91: External Debt of Developing Countries,

published by the World Bank, as part of the Third World’s $1.3 trillion debt. The IBRD’s total borrowings from international capital markets equaled $86.5 billion, therefore representing a liability for which IBRD member states are responsible (see Moody’s September 1990 Credit Report).

Details on the origins of the World Bank and the role that John Maynard Keynes played in setting up the Bretton Woods institutions (including quotations) can be found in the following sources: The Life of John Maynard Keynes by R.F. Harrod, Augustus M. Kelly, Publishers, New York, 1969; The Age of Uncertainty by John Kenneth Galbraith, Houghton Mifflin Company, Boston, 1977; The Money Lenders: Bankers In A Dangerous World by Anthony Sampson, Coronet Books, Hodder and Stoughton, 1981; The Age of Keynes by Robert Lekachman, Random House, New York, 1966. While Lord Keynes was preoccupied with the creation of the International Monetary Fund, he threw his full weight behind the World Bank too. In a front-page story in The New York Times on July 4, 1944 (“World Bank urged by Keynes as vital”) Keynes, chairman of the British delegation to the United Nations Monetary and Financial Conference, was reported to have “urged the delegates and their technical advisers, who had not given as much attention to the bank as to the fund, since they have considered the fund to be the more urgent problem, to speed their consideration of the bank proposals. He asserted that the bank should be ready by the end of the war, so that the liberated countries would know immediately what credit resources they could rely on and thus proceed with their reconstruction programs, get back into production and resume their role in world trade as quickly as possible. Any time lag, he warned, would prevent the establishment of good government and good order and might postpone return of Allied soldiers to their homelands.”

Apparently in an attempt to counteract criticism from orthodox American banking circles, which had expressed skepticism of his postwar ideas because of his long-time advocacy of deficit financing, Keynes spoke reassuringly about the soundness of the bank plan. Under the plan, he explained, postwar foreign loans would come mainly from the United States, the world’s largest creditor at the time, but the risks for the loans would fall on all the bank’s members in proportion to their subscription. The bank, he said, would supervise the spending of borrowed money to ensure that it was used “only for proper purposes and in proper ways,” noting that such safeguards against squandering, waste and extravagance were not in place for many of the “ill-fated” loans made after the last war. To counter the fears of those who had declared “both the fund and bank proposals to be of British origin cleverly designed to entrap the United States into playing the `Santa Claus’ role after this war,” Keynes said that the plan originated in the United States Treasury.

Although reconstruction would preoccupy the bank in its early years, Keynes explained, it would later shift its duty “to develop the resources and productive capacity of the world, with special attention to the less developed countries, to raise the standard of life and the conditions of labor everywhere, to make the resources of the world more fully available to all mankind and so to order its operations as to promote and maintain equilibrium in international balance of payments of all member countries.” The World Bank and the International Monetary Fund, Keynes said, were intended to be permanent institutions.(The New York Times, July 4, 1944.) The other influential party to the Bretton Woods Conference consisted of the Americans led by Harry Dexter White working under Secretary of the Treasury Henry Morgenthau.

For elaboration on Keynes’s ideas about politics and the management of an economy see R. F. Harrod’s biography of Keynes (as above); Keynes’s Vision: A New Political Economy by Athol Fitzgibbons, Clarendon Press, Oxford, 1988; The Age of Keynes by Robert Lekachman, Random House, New York, 1966; The Keynesian Revolution and Its Critics by Gordon A. Fletcher, The Macmillan Press, 1987; Keynes by D.E. Moggridge, Fontana Books, 1976; The End of the Keynesian Era edited by Robert Skidelsky, The Macmillan Press, 1977.

For sources on the structure and facilities of the World Bank, its influence on political institutions in borrowing nations, and why it is unaccountable see: Articles of Agreement of the International Bank for Reconstruction and Development, Washington, D.C., (as amended effective February 16, 1989), and Articles of Agreement of the International Development Association, Washington, D.C., (effective September 24, 1960); The World Bank Annual Report 1990, Washington, D.C.; Cofinancing, Office of the Vice President, Cofinancing and Financial Advisory Services, September 1989; The Impact of International Organizations on Legal and Institutional Change in the Developing Countries, International Legal Center, New York, 1977, including chapters by Fernando Cepeda Ulloa, John Howard and A.A. Fatouros; “Damming the Third World: Multilateral Development Banks, Environmental Diseconomies and International Reform Pressures on the Lending Process” by Zygmunt J.B. Plater in the Denver Journal of International Law and Policy, vol. 17, no. 1, Fall 1988. Also see “Cozy ties: IMF, World Bank aide has dealings hinting at conflict of interest” in The Wall Street Journal, December 28, 1990; “Two foes of Mobutu demand inquiry into de Groote’s ties to Zaire regime” in The Wall Street Journal, December 31, 1990.

Information on the effect of World Bank lending on the electricity systems in Nepal, Colombia, and Panama comes from “Troubled Politics of Himalayan Waters” by Dipak Gyawali in Himal, vol. 4, no. 2, Lalitpur, Nepal, May/June 1991; personal correspondence with Dipak Gyawali; “Hydroelectric Power in Colombia” by C.S. Ospina in International Water Power & Dam Construction, U.K., July 1987; Kilowatts and Crisis: Hydroelectric Power and Social Dislocation in Eastern Panama by Alaka Wali, Westview Press, Boulder Colorado, 1989.

For details of the megaprojects that the World Bank has supported see Macroproject Development in the Third World by Kathleen J. Murphy, Westview Press, Boulder, Colorado, 1983; all World Bank Annual Reports.

For details on the World Bank’s record of commodity price projections see The African Debt Crisis by Trevor W. Parfitt and Stephen P. Riley, Routledge, 1989; “The Berg Report and the Model of Accumulation in Sub-Saharan Africa” inReview of African Political Economy, by J. Loxley, 27:8, 1983; “Aid that hurts” by Lawrence Solomon, The Hamilton Spectator, July 8, 1985.

Reports on the economic success rate of World Bank projects include Project Evaluation in Practice: A Statistical Analysis of Rate of Return Divergence of 1,015 World Bank Projects by Gerhard Pohl and Dubravko Mihaljek, Economic Advisory Staff, the World Bank, December 1989; The Twelfth Annual Review of Project Performance Results by the Operations Evaluation Department of the World Bank, 1987; Between Two Worlds: The World Bank’s Next Decade, edited by Richard Feinberg, Overseas Development Council, Washington, D.C., 1986.

Pablo-Pedro Kuczynski’s comment about the Asian Development Bank is from a sponsored supplement prepared especially for the 1987 Asian Development Bank annual meeting in Osaka, Japan, called The Asian Development Bank and reprinted from Institutional Investor, New York, by the Asian Development Bank.

For details on the World Bank’s (and the other development banks’) structural adjustment lending and round-trip loans, and the banks’ assumption of greater portions of the Third World’s debt, see “Escalating the War On Third World Poverty” by Samantha Sparks in Global Finance, New York, September 1990; “A Private Quarrel” by Melvyn Westlake in Euromoney, U.K., September 1990; “Managing the Debt Crisis in the 1990s” by Stanley Fischer and Ishrat Husain in Finance and Development, Washington, D.C., June 1990; “World Bank chief on the hot seat” by Michael Prowse in The Financial Post, Toronto, May 3, 1991; “3d-world funds: wrong-way flow” by Paul Lewis, The New York Times, February 11, 1988; “Privatize the World Bank” by Melanie Tammen in The Wall Street Journal, May 17, 1991; “The World Bank Underwater” by Barry M. Hager in The International Economy, September/October 1989; “World Bank: development’s foe” by Tom Cox in The Wall Street Journal, July 29, 1988; “The World Bank’s growing irrelevance” by Roger Altman in The New York Times, July 11, 1988; “World Bank confidentially damns itself” by James Bovard in The Wall Street Journal, September 23, 1987; “The IMF and World Bank _ still needed” by John Gutfreund in The Wall Street Journal, September 25, 1990; “The World Bank and IMF are drifting” by Nicholas Eberstadt in The Christian Science Monitor, U.S., August 14, 1989; “How creditworthy is the World Bank?” by Nicholas N. Eberstadt in The New York Times March 1, 1988; “Will the U.S. Be Left Holding the Bag On Third World Debt?” by Paul Craig Roberts in Business Week, October 16, 1989; “Debt crisis: a familiar fall guy” by Allan H. Meltzer in The Wall Street Journal, March 27, 1989.

The IBRD makes about a billion dollars in profits each year: rather than paying a dividend to member countries it puts some of the profits into a loan loss provision fund against the $1.5 billion in nonperforming loans that now plague the World Bank; it also recycles some to its soft loan window, the International Development Association.

According to the confidential minutes of a World Bank executive directors’ meeting on July 9, 1986, an unnamed executive director commented that the proposed $500 million power sector loan under discussion for Brazil “oozed of balance of payments support.” See Summary of Discussions at the Meeting of the Executive Directors of the Bank and IDA, and the Board of Directors of IFC, June 19, 1986 IBRD/IDA/IFC, SD86-35. A follow-up loan in 1988, the second power sector loan, was chided by one bank official as being insufficient to meet Brazil’s needs: Brazil’s debts had become so serious that “we have to shovel money at them, and million dollar pipelines aren’t big enough anymore. We need billion dollar pipelines.” See “The World Bank vs The World” by Catherine Caufield in Joint Annual Meeting News, Berlin, September 24-25, 1988.

For the quotations from Haitian and Brazilian officials regarding round-tripping of loans see “Haiti retrenches as international aid cut off” by Ellen Hampton in The Globe and Mail, Toronto, January 12, 1988; “Nobrega Explains Arrears And Seeks IMF Accord” by Rosemary Werret in Annual Meeting News, Washington, D.C., September 25, 1989.

Standard and Poors in their 1989 Credit Review state: “First, as embodied in the Articles of Agreement of all of the development banks, loans made by these institutions to their borrowing members are not eligible for rescheduling.” While it is true that all of the multilateral development banks have policies against rescheduling their loans _ usually unwritten _ it is wrong to say that this principle is embodied in their articles of agreement. In fact, quite the opposite: each of the banks, according to their articles of agreement, are permitted to modify the terms of their loans should borrowers be unable to keep up with their repayments schedules. I confirmed this point in correspondence with each of the banks: based on that correspondence, it appears that only the Asian Development Bank’s articles (Article 53) protect it against a moratorium on debt servicing.

The much coveted preferred creditor status of the World Bank also seems to be based on nothing more than an arrangement between borrowers and their rescheduling creditors. According to World Bank Counsel Hugh N. Scott, “The bank’s preferred creditor status is reflected in the arrangements between the borrower and its rescheduling creditors. There is no specific commitment to preferred creditor treatment in our Articles of Agreement or loan agreements.” From personal correspondence dated June 27, 1991.

For the research on the roadblocks to suing the World Bank I am indebted to Lori Udall from the Environmental Defense Fund in Washington.

For superb detail and analysis of the environmental record of the World Bank see the work of Bruce Rich, senior attorney at the Environmental Defense Fund, Washington, D.C. In particular, see “The Emperor’s New Clothes: The World Bank And Environmental Reform” by Bruce Rich in World Policy Journal, Spring 1990; “Environmental Reform and the Multilateral Banks” by Pat Aufderheide and Bruce Rich in World Policy Journal, Spring 1988; “Conservation Woes at the World Bank” by Bruce Rich in The Nation, January 23, 1989.

For excellent examples of the kind of mythology that has become essential to the continuation of the World Bank see the various publications of the Bretton Woods Committee, a bi-partisan group in the U.S. that is organized to build public understanding of the Bretton Woods institutions _ the World Bank and the IMF. The committee has more than 400 members throughout the U.S. _ including all living past presidents of the U.S. It is a non-profit organization supported by individual and corporate contributions and foundation grants, and actively lobbies for congressional support of the Bretton Woods institutions. Among the many advantages that the World Bank offers the U.S., says the Bretton Woods Committee, one is that “Projects financed by the Bank can be bonanzas for U.S. consulting, manufacturing and engineering firms.” See Banking on Success: The World Bank, the U.S. and the Developing World, Special Report on the World Bank, Bretton Woods Committee, Washington, D.C., 1988.