The Bretton Woods Institutions’ colonial paradigm

By Elaine Zuckerman /

This article describes the neo-colonial paradigm of the “twin” Bretton Woods Institutions (BWIs) – the World Bank (today called the World Bank Group/WBG) and the International Monetary Fund (IMF) that has framed BWI activities from inception to the present. Since founding the US has been both the BWIs’ largest shareholder and only member entitled to veto decisions. To this day, borrower developing countries most affected by Bank and Fund loans have few shares and little voice. After introducing BWIs’ paradigm, the article zooms into the current WBG corporate privatization crusade under President Ajay Banga, followed by conclusions.

BWIs’ founding and paradigm

World War II’s Global North imperial victors who created the BWIs in 1944 as the world’s first two global International Financial Institutions (IFIs) have continuously used them to neo-colonially meddle in and shape Global South policies and investments. To this day, the Global North has used BWIs as a tool to perpetuate colonial extraction of wealth for the North, undermining Global South governments’ sovereignty. As activist-scholar Bhumika Muchhala has stated, during the BWI’s first couple of decades of operations, “de jure political colonization ended only to be replaced by a de facto economic colonization.”

Both BWIs make loans to Southern countries that mires them in debt. The IMF, which is an IFI but not a development bank (unlike the WBG), lends funds to borrower countries primarily to improve balance of payments, which the IMF claims will reduce debt but actually increases it through endless loan cycles.  IMF loans require borrowers to adopt policy reforms called “conditionalities” such as “fiscal consolidation”, also known as austerity measures, which effectively squeezes social spending.[i] In contrast, the World Bank has traditionally focused on project investments such as infrastructure to which it also attaches policy reforms. But it increasingly also finances programs which focus on restructuring macroeconomic and sectoral policies and regulations.

The BWI modus operandi results in perverse vicious loans cycles requiring debt repayment resulting in Global South countries tightening their public purse strings to repay BWI debt.

During their 80 year lives, BWIs have conducted numerous reorganizations that have renamed their internal organizational charts and external programs but they have been mostly cosmetic – since the underlying BWI paradigm has hardly changed. One exceptional BWI paradigmatic change over their 80 years was triggered by Reagan-Thatcher’s neoliberalism agenda beginning around 1980. US President Reagan and UK Prime Minister Thatcher imposed neoliberal agendas in both their own countries and the Global South.

Under these agendas Global North BWI shareholders, beholden to corporations, initiated new BWI operations interchangeably called “structural adjustment programs (SAPs)” and “structural adjustment loans (SALs)”, that required borrower countries to restructure and adjust policies across sectors. BWI SALs to Southern countries contained “conditionalities” such as privatizing State-Owned Enterprises (SOEs), thereby increasing private corporate profit; imposing austerity measures including-reducing public spending through streamlining public social services even if BWIs say they protect them; privatizing and instituting user fees for basic services such as water, roads and electricity – making them unaffordable to the poor; cutting and/or removing export tariffs on agricultural produce, minerals, fossil fuels and industrial products – undermining GS borrower countries’ export competitiveness while GN countries subsidize their own output; removing consumer subsidies on food, energy and other necessities – making them less affordable to the poor; subsidizing fossil fuel companies; deregulating public and private services across sectors to increase corporate profits at the expense of the poor; and imposing regressive value-added taxes (VATs) that also contribute to impoverishing the poor but are inconsequential to the rich.

To this day, BWI operations continue to contain such onerous conditionalities. In response to a civil society campaign to try to end SAPs/SALs, the World Bank renamed them Development Policy Operations (DPOs) accompanied by a semantic substitution of the term conditionalities with mandatory “a priori” actions. The Fund still clings to the terms SALs and conditionalities.

A primary reason Southern countries take SAL and DPO loans containing onerous conditions is that SAL/DPO disbursements are much speedier than traditional BWI operations – which typically finance transportation, extractive, energy and other sectoral projects, that disburse over roughly six-eight years. SAL/DPO loans can disburse in a year or two. Indebted borrower countries hope to quickly obtain fiscal space from SAL/DPO loans but they actually deepen vicious borrowing-repayment cycles, which in turn trigger belt-tightening austerity measures.

The results of SALs/DPOs include deepening worldwide impoverishment and inequalities, weakened near-bankrupt public sectors, declining tax revenues, lower public investments in health, education and infrastructure, and ecological damage. These outcomes especially burden women with increasing unpaid child, elder and other care. SAL/DPO subsidies to the fossil industry contributes to our growing ecological climate crisis.

Ajay Banga’s corporate privatization crusade at the WBG

The remainder of this briefing zooms into the WBG where the model described above continues to the present day with new twists under current President Ajay Banga.  Right after becoming WBG President in spring 2023, Banga began implementing plans to scale up private sector investments. Although a private sector role is not a new WBG trend, Banga has been elevating it to new levels.

By 1980, Reagan-Thatcher neoliberal practices injected a private sector role into the International Bank for Reconstruction and Development (IBRD) – the WBG fund for middle-income countries, and the International Development Association (IDA) – the WBG fund for low-income countries (LICs).[ii] During prior decades, WBG private sector activities were mostly confined to, first, borrower governments contracting private companies to build IBRD- and IDA-financed infrastructure projects, and second, the International Finance Corporation (IFC) – the WBG’s dedicated private sector arm – that makes loans and invests equity in developing country private corporations.

In recent years, the WBG has increasingly promoted IFC collaboration with other WBG arms. In 2017 then World Bank President Jim Yong Kim stated, “Official aid money should be used to turn the billions of dollars provided by western countries [to the WBG] into trillions of dollars of investment from the private sector”.[iii] That year IDA established a Private Sector Window (PSW) for IFC private sector investments in IDA operations.[iv] PSW consolidates the WBG’s decades-long public-private partnerships (PPPs) in WBG LIC activities.

At his 2023 WBG annual meeting Town Hall in Marrakech, Morocco, Banga proposed ideas to accelerate pushing money out of the door. One idea is to radically streamline the WBG environmental and social standards and policies to accelerate loan processing. Banga also posited accelerating lending by replacing investment projects with quicker-disbursing programs – perhaps meaning more DPOs but he did not elaborate.

Banga is also elevating the private sector role in WBG operations through expanding the Multilateral Investment Guarantee Agency’s role. Created in 1988, MIGA attracts private corporations as WBG co-financiers, especially in IFC operations by offering guarantees to mitigate risks and cover losses – even ensuring private corporations do not lose a penny. According to MIGA’s Vice President for Operations, MIGA leverages private money with public guarantees “at scale”; takes state-owned enterprises to the market – a euphemism for privatization; and shifts the WBG “from lending to leveraging”.[v]

Banga is significantly boosting MIGA, which he calls a “secret weapon”.[vi] Banga announced a goal to triple MIGA’s size. MIGA’s Vice President for Operations said, “The goal is to go from USD 6.5 billion annually in guarantees in MIGA, to at least USD 20 billion per year by 2030.” Hitherto, MIGA, IBRD and IDA managed separate private risk guarantee mitigating instruments but Banga is uniting them into one coordinated ecosystem under MIGA to prioritize ‘blended’ public-private finance for the energy transition.[vii] Bringing all guarantees inside MIGA aims to make it the world’s largest guarantee agency.”[viii]

If MIGA pays out guarantee claims to cover investor losses, MIGA may exercise its right to recover from governments the amount it paid for corporate claims. This effectively means transferring private investment risks onto borrower governments, thereby effectively reducing public budgets. Deploying this “right” burdens people whom the WBG claims to be lifting out of poverty with debt. As in other WBG arms, the US is the largest MIGA shareholder followed by the other industrialized countries.

To expand the WBG’s private sector activities, one of Banga’s first acts as President was to create a Private Sector Investment Lab (PSIL) to advise on removing barriers to private sector investment in emerging markets’ climate-focused activities. PSIL’s 15 CEO members are heads of some of the world’s largest private asset managers and commercial banks that invest in fossil fuels. On the one-year anniversary of Banga’s WBG Presidency, civil society organizations demanded Banga shut down the PSIL.

Thus quickly after becoming WBG President, Banga expanded MIGA’s private corporate guarantees and established PSIL to attract more private sector investments.

Epitomizing Banga’s privatization mania is his either serious or flippant remark: “I’d be happy to be fired, by the way. I can go back to my private-sector life. Much more interesting.”

Conclusions

On the 80th anniversary of the Bretton Woods Conference,[ix] we call to shut down the BWIs because of their neocolonial vicious debt cycles, austerity conditions, forced project evictions and livelihood losses, among other harms, all of which deepen rather than end extreme poverty. But BWIs are unlikely to shut their doors so long corporations and the governments beholden to them are the decision-makers. Ending BWIs and their neocolonial paradigm will require massive movement-building in and across countries, regions and the world. Ending them could be tantamount to revolution.

The WBG has migrated from its supposed original public focus into a private corporate-driven institution.[x] Its dedicated private sector windows — IFC and MIGA — are playing increasingly prominent roles across the previously more public-leaning IBRD and IDA. By scaling up private sector investments in LICs, IDA’s Private Sector Window will continue to weaken governance including regulations and erode LICs’ already meager resources. The WBG plans for MIGA to become the world’s largest corporate guarantee institution. These WBG transformations expose a deep contradiction between its stated mission, “to end extreme poverty and boost prosperity on a livable planet,” and its drive to expand funding through leveraging profit-seeking corporations.

Ideally the BWIs (and other IFIs) would get out of the way of local-led development by closing their doors. That being impossible in the short term, because of ever-growing corporate power, it is important to curtail BWIs ongoing harms by ensuring:

As Bhumika Muchhala concludes, we need a new feminist social contract. To replace the prevailing neo-colonial system empowered by the BWIs, Muchhala states, we need to change “the asymmetry of power and resources between the largely male, profit-led, financial and speculative economy and the largely female, paid and unpaid, productive and caring real economy”.

[i] In plain English “conditionalities” are “conditions”.

[ii] The WBG comprises five arms: IBRD – The International Bank for Reconstruction and Development; IDA -The International Development Association; IFC – The International Finance Corporation; MIGA – The Multilateral Investment Guarantee Agency; and ICSID – The International Centre for Settlement of Investment Disputes.

[iii] Alexander, Nancy. May 23, 2017. The G20, the World Bank’s “Cascade”, and Trump: Going to any Length to “Crowd In” the Private Sector? Heinrich Boell Foundation blog.

[iv] This tripartite private sector window, created as part of the Eighteenth IDA Replenishment by donors, became effective in 2018.

[v] Reported by Janaid Kamal Ahmad, Vice President, Operations, MIGA. Stated at the Atlantic Council webinar, Guarantees for climate finance in the World Bank–IMF agenda. Mon, March 11, 2024.

[vi] Ibid.

[vii] Ibid.

[viii] Ibid.

[ix] The BWIs were established at the 1944 Bretton Woods Conference in Bretton Woods, New Hampshire, USA.

[x] See for example: WBG Africa region Results Brief. December 1,2023. Mobilizing the Private Sector to Drive Development in Africa.

Elaine Zuckerman founded Gender Action in 2002 to hold IFIs accountable for harmful gender and environmental impacts and serves as its current President. Earlier in her career she worked inside the World Bank as an economist on China and anti-structural adjustment advocate. She completed graduate studies during the 1970s at the University of Beijing.