The current impasse in world development is perhaps best explained in the words of Rene Dumont, a former French Minister: ‘We are first and foremost exploiters of the poor, because of an economic system based on dominance that has been cunningly devised by and for the rich nations’. (Stranglehold in Africa)

When the newly independent Third World countries, which aimed at achieving economic development and full employment, commenced action through various programmes designed with guidance and advice from the United Nations, and with the help of developed countries and the cream of academia at leading Universities and began to achieve success as evident from increase in production, employment generation and poverty alleviation, the developed countries found that they were losing markets for their agricultural produce and manufactures. Something had to be done and they resorted to subversive methods of neocolonialism. This came in the form of a multi-pronged approach.

The USA came up with the PL 480 Programme, whereby the excess wheat produced in the USA was dumped on the developing countries. The wheat was offered at low prices undermining the local production and this was the ‘bread trap’ to which many countries have fallen as manifest in the boast: We taught people to eat wheat who did not eat it before. While PL480 can be utilised to help crisis situations and support Third World development, today it is used purely to create markets for U.S. produce. Consequently many countries like Mexico that formerly exported food became importers.

Then the World Bank and the International Monetary Fund came up with the Structural Adjustment Programme (SAP), which comprise a number of policies that when implemented together inevitably create a no-growth paradigm that cause poverty and deprivation within any country. The SAP provisions include:

The country should follow a high interest rate policy. This makes local manufacturers and producers obtain money at high interest rates while competitors from abroad use loans obtained at very cheap rates in their own countries. This destroys local production and causes unemployment.

The country has to follow free trade policies and reduce import tariffs and place no restriction on imports. When import tariffs are reduced local producers cannot compete and give up production for the market. This amounts to the creation of an Import and Sell Economy, which leads to increased prices because prices are determined by the high cost of imports. Every developed country has used tariffs on imports in their formative years to boost their local production. Third World leaders are brain washed to think of Free Trade Agreements as achievements; in actual practice local production is sacrificed and unemployment increases.

Countries are advised to deregulate, to have no restrictions on trade and this includes the use of foreign exchange which is liberalised to enable anyone to use, irrespective of its availability. The countries are advised to sell their assets and even to obtain foreign exchange on loans to enable this extravagance which the country can ill afford. Accordingly Foreign exchange restrictions on foreign travel and foreign education and imports are removed. This enables the rich to get unlimited foreign exchange for travel abroad. This money ends up in the developed countries. Even in 1969 when Sri Lanka was not in debt, there were restrictions on the issue of foreign exchange for travel.

Removal of Subsidies is insisted on, while the superpowers can continue with subsidies. What is not well known is that the subsidies offered to producers in developing countries is based on the cost of production while the subsidies offered in developed countries is based on the premise of enabling the farmer to live a life of affluence.

Professor Joseph Stiglitz, the former Chief Economist of the World Bank advocated the continuance of subsidies to avoid the Financial Crisis in Indonesia. In his own words:

The IMF pressed ahead, demanding reductions in government spending. And so, subsidies for basic needs like food and fuel were eliminated every time when contractionary policies made these subsidies more desperately needed than ever.

Indonesia blew up in riots deposing Suharto and the the adverse effects were still evident when I visited that country in 2003. Stiglitz was actually thrown out of the World Bank for his very words of wisdom.

Privatisation of national assets is insisted upon. When assets are privatised they get into the hands of the private sector where the aim is not national development. The aim of the private sector is to make profits fast and ultimately the assets end up in the hands of foreigners, to whom the goals of national growth and development, the creation of employment are only secondary concerns. Their prime aim is to make profits for the shareholders in their mother country. It is a well known strategy of foreign multinationals to control raw material assets and resources and manage them not in the national interest but in the company’s interest to bolster the sale of items manufactured in the Developed Countries.

Privatisation of assets to raise money to spend on the recurrent budget is advocated. Successes in developed countries are hailed and the reigns of Thatcher in the UK and Regan in USA are touted as exemplary achievements. One needs to know that during the reign of Margaret Thatcher in the U.K. many mental hospitals situated in prime areas were sold and funds raised for recurrent expenditure. The mental patients who were thrown out of hospitals in the process became a burden on the community.

The money realised from the sale has been spent and is lost. In the UK the Railways in the sixties were the showpiece of the world. Privatisation netted millions that were soon spent. Worse was to follow. RailTrack, the private company that was in charge of the track was not interested in spending on safety measures and instead handed over fanciful profits to its shareholders, high salaries and heavy bonus payments to its chief officers. Safety measures used in European trains were not adopted in the UK and the commuters have paid dearly with their lives in repeated rail crashes.

Out of desperation, the UK government had to renationalise Railtrack. In California, the privatisation of the electricity utilities resulted in the private companies overcharging and the attempt by the Governor to control it, ended up costing him his post! These instances expose the ugly side of privatisation, where service and national interest are sacrificed for the personal gain of the shareholders and officers. However the WB and the IMF continue to force the Third World to privatise state ventures.

Privatisation of State commercial concerns is advocated by the WB and the IMF. Accordingly the entire infrastructure that countries have built up for peasant agricultural development like BULOG in Indonesia, the Paddy Marketing Board and the Department of Marketing in Sri Lanka are abolished or privatised. The latter had a Cannery. The Department of Marketing offered floor prices for essential vegetables and fruits thus enabling Sri Lanka to achieve self sufficiency. This enabled farmers to sell their produce at reasonable prices.

The privatised cannery opts for importing fruit. Producers when they fail to sell the produce stop production. Imports take the place of local production. The State has to play a major role by providing incentives and engaging in commercial activities that enable and help people to boost production. This is one method of combating poverty and creating employment. However the WB and the IMF’s SAP prevent such activity.

Devaluation of local currency is advocated on the grounds that the local currency should find its correct value in terms of the theory of supply and demand.

Next, the IMF advises countries to free-float their currencies. Free Floating means that the State––the Central Bank––has no control over the foreign exchange that comes in and allows the commercial banks to determine the exchange rate. The modus operandi is to privatise the State Banks, get foreign banks in so that the currency can be controlled by foreign banks. In reality, the foreign Banks hoard foreign currency collections and bid the foreign exchange value upwards when a large bill has to be paid in foreign currency.

This happened in Sri Lanka in January 2001, when the rupee was free floated and the Rupee plummeted. When the Turkish Lira was freefloated in 2001, the Lira suffered a devaluation of 36%. In 2003, the USA pressured China to free float the Yuan but the Chinese were too wise to fall for that.

In Indonesia the rupiah has been devalued from Rs. 1,330 to pound sterling in 1983 to Rs. 16,002 to in 2006, a drop of 1,103%. The Turkish Lira has dropped in value from Lira 336 to the `A3 in 1983 to Lira 2,316,733 to the `A3 in 2006, marking a devaluation of 689,400%.

The Ghanian Cedi has been devalued from 5.7 Cedi to the `A3 in 1983 to 15,924 Cedi to the `A3 in 2006, a devaluation of 279,000%! The Nigerian Naira has been devalued from Naira 1.11 to the pound in 1983 to Naira 223 to the pound in 2006––a drop in value of 21,170%.

This devaluation of currencies is done by induced supply and induced demand––all designed to reduce the value of the currencies. Increasing the demand happens when foreign exchange is liberalised as insisted by the IMF, while restricting the supply is automatic because no economy can earn endless foreign exchange to support unrestricted imports and their liberal use. In addition the supply is further restricted by foreign banks that hoard the foreign currency it can get hold of. The IMF plan is to privatise local banks so that foreign banks can act undeterred in their manipulations. It is important to note that the theory of supply and demand is restricted to the textbooks.