Calling a spade
Business World, 28 August 2013


Let’s face it: a great many of us still think that just because we read something in the newspapers — and for the younger generation, on the Internet — it must be true. That’s the power of the printed word, notwithstanding all the evidence to the contrary about its accuracy (misquotes, quotes taken out of context, innumeracy on the part of the writer, etc.) And even if we know that we should know better, we often catch ourselves defending our beliefs/opinions by saying, “But I read it in the papers” (or heard it on radio/TV or got it from the Internet).

And with respect to economic issues, anything that the World Bank or the IMF (and in our part of the world, the ADB) has to say is very often swallowed hook, line and sinker. This, also in spite of these institutions having come under fire, among other things, for their sins of omission and commission with regard to the Asian crisis for example (some of which, to their credit, they have admitted — although only after tremendous pressure).

As a matter of fact, the IMF’s handling of the international debt crisis in the ’80s had already been criticized by many, including yours truly. It was labeled as the bill collector for the international creditor banks. Why? Because if the debtor countries failed to come to terms with the creditor banks, the IMF would withhold its imprimatur, its seal of good housekeeping, which meant that official development assistance and other bilateral aid and multilateral aid would not be forthcoming. In other words, the debtor countries were being blackmailed to give in to the demands of the creditor banks (which is why the Philippine government, for example, was forced to take over the responsibility for the foreign debt of the Philippine private sector over and above its own ).

But it was not until the Asian crisis that the IMF (and the World Bank) got their comeuppance, because it was clear that they were caught by surprise — in the run-up to the crisis had nothing but praise for the economic performance of countries like South Korea, Thailand, Indonesia. Moreover, the economic “medicine” they were prescribing made matters worse, and led to political instability as well. One recalls that where the Philippines was concerned, the IMF was stoutly backing, up to the last minute, the Bangko Sentral of keeping the peso overvalued, and saying that it was actually market-determined (even as the country’s foreign exchange reserves were bleeding out).

Not only that. It was also evident that while the IMF did not hesitate to ride roughshod over developing countries, it was handling the developed countries with kid gloves — and again did not raise the warning flags with respect to the impending global debt crisis (originating in the United States) which of course blossomed into a global economic crisis. It is my information that warning flags did get raised internally in the IMF — but nobody had the guts to bring it out.

Thus there is basis, even at this point, for the belief that when push comes to shove, the IMF will put the interests of developed countries over those of developing countries. Forwarned is forearmed, one would think.

And yet, in a recent very important judicial proceeding, an IMF report on mining in the Philippines was being quoted as gospel. I doubt that those who were quoting from the report had actually read it in its entirety, because the report was, in fairness, up front with respect to its limitations, even as it had some very good recommendations. But the quote was taken out of context, presumably in the hope that the word “IMF,” in connection with the seemingly favorable phrase, would be received (as it seemed to have been) with the proper reverence, and its assumptions no longer examined or questioned. It would be amusing, if the stakes weren’t so high.

While the World Bank has been criticized along with the IMF for its role in the Asian Crisis, it faces other criticisms on its own. Joe Studwell’s How Asia Works points out that the WB sacrificed academic rigor to support an ideological (e.g., free market) stance and cites examples of dubious claims (e.g. that South Korean development was the result of free markets) and internal inconsistencies. As an example of the latter, Studwell cites the Bank’s The East Asian Miracle where on the one hand, Bank President Lewis Preston concedes that “there is no single ‘East Asian model’ of development”; and then shortly after states that “the authors conclude that the rapid growth in each economy was primarily due to the application of a set of common, market-friendly economic policies, leading to both higher accumulation and better allocation of resources.”

But the World Bank has been also been under attack with respect to its own governance (which is ironic, because it is the champion of good governance). Even more eyebrow-raising is that it fired the whistle-blower/s in its midst, particularly one Karen Hudes (Yale Law, University of Amsterdam for economics) who was with the Legal Department of the WB from 1986-2007 and was its senior legal counsel when she was fired.

Even more relevant is that one of her whistle-blowing activities had to do with the Philippines. To hear her story (it is also on YouTube): “In 1999, Karen reported the corrupt takeover of the second largest bank in the Philippines. Lucio Tan, a crony of Joseph Estrada, then President of the Philippines, acquired stock owned by government employees in Philippine National Bank (PNB) valued more than 10% of PNB’s outstanding capital without disclosure, as required by Philippines securities laws. Tan owned Philippine Airlines, in default on its loans from PNB. The government of the Philippines loaned $493 million to PNB after PNB’s depositors made heavy withdrawals. $200 million of a loan from the World Bank and a $200 million loan from Japan were cancelled…

“The Bank’s Country Director in the Philippines reassigned Karen when she asked him to sign a letter warning the Philippines’ government that the Bank could not disburse its loan without a waiver from the Board of Executive Directors since the loan conditionality was not met. The World Bank’s Internal Audit Department refused to correct the satisfactory evaluation of the Bank’s supervision…” etc., etc.

How much of the above quote from Hudes is true? While I won’t take the World Bank’s reports as gospel, neither will I take the Hudes claims. But she did work for the Bank for 21 years, she did work in the Philippines, she did whistle-blow, and she was fired. And her story about Lucio Tan rings true (by the way, she thinks the world of retired Chief Justice Hilario Davide, Jr.).

Enough to get one thinking, anyway. A healthy dose of cynicism never hurt anyone. Physician, heal thyself.