Stiglitz: A WB defector who reveals all

By Gregory Palast

LONDON: It has condemned people to death, the former apparatchik said. It was a scene out of Le Carre: the brilliant agent comes in from the cold and, in hours of debriefing, empties his memory of horrors committed in the name of an ideology gone rotten.

But this was a far bigger catch than some used-up Cold War spy. Joseph Stiglitz was chief economist of the World Bank. The new world economic order is his theory come to life.

He is in Washington for the big confab of the World Bank and International Monetary Fund (IMF). But instead of chairing meetings of ministers and central bankers, he is outside the police cordons. The World Bank fired Stiglitz two years ago. He was not allowed a quiet retirement: the U.S. Treasury Secretary demanded that he be excommunicated, because Stiglitz had expressed mild dissent from globalization World Bank-style.

Here in Washington we have conducted exclusive interviews with Stiglitz, for The Observer and Newsnight, about the real inside workings of the IMF, the World Bank, and the bank's 51 percent owner, the U.S. Treasury.

And here, from sources unnamable (not Stiglitz), we obtained a cache of documents marked, "confidential" and "restricted".

Stiglitz helped translate one, a "Country Assistance Strategy". There's an Assistance Strategy for every poorer nation, designed, says the World Bank, after careful in-country investigation. But according to insider Stiglitz, the Bank's staff "investigation" consists of close inspection of five-star hotels. It concludes with the Bank staff meeting a begging finance minister, who is handed a "restructuring agreement" pre- drafted for "voluntary" signature.

Each nation's economy is analyzed, then, says Stiglitz, the Bank hands every minister the same four-step program.

Step One is privatization -- which Stiglitz said could more accurately be called, "briberization". He said that rather than objecting to the sell-offs of state industries, national leaders -- using the World Bank's demands to silence local critics -- happily flogged their electricity and water companies. "You could see their eyes widen" at the prospect of 10 percent commissions for shaving a few billion off the sale price.

And the U.S. government knew it, charges Stiglitz, at least in the case of the biggest "briberization" of all, the 1995 Russian sell- off. "The U.S. Treasury view was 'This was great, as we wanted Yeltsin re-elected. We don't care if it's a corrupt election.'"

Stiglitz is no conspiracy nutter. The man was inside the game -- a member of Bill Clinton's cabinet, chairman of the President's council of economic advisors.

Most sick-making for Stiglitz is that the U.S.-backed oligarchs stripped Russia's industrial assets, with the effect that the corruption scheme cut national output nearly in half.

After briberisation, Step Two is capital market liberalization. In theory this allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money often simply flows out. Stiglitz calls this the "hot money" cycle.

Cash comes in for speculation in real estate and currency, then flees at the first whiff of trouble. A nation's reserves can drain in days. And when that happens, to seduce speculators into returning a nation's own capital funds, the IMF demands these nations raise interest rates to 30, 50 and 80 percent.

"The result was predictable," said Stiglitz. Higher interest rates demolished property values, savaged industrial production and drained national treasuries.

At this point, the IMF drags the gasping nation to Step Three: market-based pricing -- a fancy term for raising prices on food, water and cooking gas. This leads, predictably, to Step-Three-and-a-Half: what Stiglitz calls "the IMF riot".

The IMF riot is painfully predictable. When a nation is, "down and out, (the IMF) takes advantage and squeezes the last blood out of them. They turn up the heat until, finally, the whole cauldron blows up," -- as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998.

Indonesia exploded into riots, but there are other examples -- the Bolivian riots over water prices last year and, this February, the riots in Ecuador over the rise in cooking gas prices imposed by the World Bank. You would almost believe the riot was written into the plan.

And it is. What Stiglitz did not know is that Newsnight obtained several documents from inside the World Bank. In one, last year's Interim Country Assistance Strategy for Ecuador, the Bank several times suggests -- with cold accuracy -- that the plans could be expected to spark, "social unrest". That's not surprising. The secret report notes that the plan to make the U.S. dollar Ecuador's currency has pushed 51 percent of the population below the poverty line.

The IMF riots (meaning peaceful demonstrations dispersed by bullets, tanks and tear gas) cause new flights of capital and government bankruptcies This economic arson has its bright side -- for foreigners, who can then pick off remaining assets at fire sale prices.

A pattern emerges. There are lots of losers but the clear winners are the Western banks and U.S. Treasury.

Now we arrive at Step Four: free trade. This is free trade by the rules of the World Trade Organization and the World Bank, which Stiglitz likens to the Opium Wars. "That too was about "opening markets"," he said. As in the 19th century, Europeans and Americans today are kicking down barriers to sales in Asia, Latin American and Africa, while barricading our own markets against Third World agriculture.

In the Opium Wars, the West used military blockades. Today, the World Bank can order a financial blockade, which is just as effective and sometimes just as deadly.

Stiglitz has two concerns about the IMF/World Bank plans. First -- because the plans are devised in secrecy and driven by an absolutist ideology, never open for discourse or dissent -- they "undermine democracy". Second, they don't work. Under the guiding hand of IMF structural "assistance" Africa's income dropped by 23 percent.

Did any nation avoid this fate? Yes, said Stiglitz, Botswana. Their trick? "They told the IMF to go packing."

Stiglitz proposes radical land reform: an attack on the 50 percent crop rents charged by the propertied oligarchies worldwide.

Why didn't the World Bank and IMF follow his advice?

"If you challenge (land ownership), that would be a change in the power of the elites. That's not high on their agenda."

Ultimately, what drove him to put his job on the line was the failure of the banks and U.S. Treasury to change course when confronted with the crises, failures, and suffering perpetrated by their four-step monetarist mambo..

"It's a little like the Middle Ages," says the economist, "When the patient died they would say well, we stopped the bloodletting too soon, he still had a little blood in him."

Maybe it's time to remove the bloodsuckers.

-- Observer News Service