Call it institutional change-management fatigue. Or an unlimited spin-doctoring capacity by clever public relations officials. Or naivety on the part of those NGOs, environmentalists, trade unionists and Third World activists who cheered the appointment of Renaissance Man James Wolfensohn as World Bank president in 1995.

Whatever the excuse, the bottom-line is obvious: no substantive changes at the Bank and International Monetary Fund. And yet the need for a radical transformation could not be more obvious, in the wake of the late 1990s legitimacy crisis, itself a function of at least four managerial and economic factors that still have not been tackled properly:

- the institutions' 'democratic deficit', which made them unsuitable for genuine global governance;
- the continued reliance upon the neoliberal 'Washington Consensus' approach to public policy;
- the Bank's ongoing orientation to controversial mega-projects; and
- both agencies' failure to cancel Third World debt and cool international financial speculation born of liberalised capital markets.

But we have to be frank about what drives these institutions, even when their credibility is at an all-time low: lubrication of private capital accumulation and stabilisation of geopolitical tensions through subsidised credits (often 'bail-outs' for earlier commercial lenders). So the four factors were not really failures - they were and are integral to the workings of the international economy.

Did reformers understand this problem, and did they adjust their plans accordingly? Confusingly, hopes were raised in part because of the 1997-99 tenure of Joseph Stiglitz as chief economist. Simultaneously, other catalysts for change included commissions on structural adjustment, dams and extractive industries.

However, the internal procedural changes, rhetorical shifts, research reports, individual initiatives, and multi-stakeholder forum exercises that emerged since the short-lived Stiglitzian glasnost did not fundamentally affect operations. The view from the inside is revealing, as staff in the Middle East and North Africa section complained in a leaked 1999 memo to Wolfensohn: 'The World Bank is increasingly being drawn into activities which are politically sensitive (participatory processes, involvement of civil society, corruption and so on). There is no doubt about the importance and relevance of these for development and success of World Bank assistance, but staff are not well prepared to handle these issues which creates more anxiety and stress.'

Yet because the legitimacy crisis has continued growing, it has been rhetorically important for the Bank and Fund to claim they are now 'post-Washington' in their ideology. In March 2002, midway through the United Nations Financing for Development (FFD) summit in Mexico, the Bank, Fund and German officials began promoting the idea of a new 'Monterrey Consensus', which would usher in an era of fair global finance. Even John Williamson has argued in the IMF's own magazine that his celebrated 1990 definition of the Washington Consensus was misunderstood and manipulated by leftist critics.

The institution's 60th birthday provides a chance to review the reform agenda, and to ask whether the late 1990s challenge from high-profile critics - Stiglitz and other enlightened economists, some Third World governments and protest movements -- was as effective as it could have been. Were issues posed by reformers -- debt relief, community and NGO participation in neoliberal programme design, democratic governance, global financial regulation, and commissions dealing with structural adjustment, dams and energy -- the correct ones to tackle?

And if all these reforms were foiled by institutional lethargy or worse, is it appropriate to consider an entirely different strategy, based on Third World states removing themselves from influence by the Bank and IMF? Is collective default feasible, and should Northern supporters assist the process by refusing to buy bonds issued by the World Bank?

Debt relief deferred

Within a year of Monterrey, the World Bank made an embarrassing concession, regarding its prize reform: the Highly Indebted Poor Countries (HIPC) debt relief initiative. The Bank acknowledged longstanding criticisms that its staff 'had been too optimistic' about the ability of countries to repay under HIPC, and that projections of export earnings were extremely inaccurate, leading to failure by half the HIPC countries to reach their completion points. Paradoxically, the Bank blamed failure upon 'political pressure' to cut debt further, as the key reason repayments were still not 'sustainable.'

HIPC was a mirage from the outset, as even the moderate London lobby group Jubilee Plus admitted in its September 2003 progress report: 'According to the original HIPC schedule, 21 countries should have fully passed through the HIPC initiative and received total debt cancellation of approximately $34.7 billion in net present value terms. In fact, only eight countries have passed Completion Point, between them receiving debt cancellation of $11.8 billion.'

Add a few other countries' partial relief via the Paris Club ($14 billion) and it appears that the grand total of debt relief thanks to the 1996-2003 exercise was just $26.13 billion. There remained more than $2 trillion of Third World debt that should be cancelled, including not just HIPC countries but also Nigeria, Argentina, Brazil, Mexico, South Africa and other major debtors not considered highly-indebted or poor in the mainstream discourse.

Inadequate financial provision for HIPC in western capitals probably reflects the merits of using debt as a means of maintaining control over Third World economies. An 'enhanced HIPC' was introduced to give the appearance of concern, and at the G8's Evian Summit in 2003, the world's leaders agreed with pleas by African representatives to relook at the programme. Yet no fundamental changes or substantial new funds were mooted. Proposals to write off further debt owed by Ethiopia and Niger in April were, at press time, likely to be vetoed by the US Treasury.

Poverty 'Reduction' Strategy Papers

In 1999, HIPC was accompanied by a renaming of the structural adjustment philosophy: Poverty Reduction Strategy Papers (PRSPs). More than two years later, at Monterrey, South Africa's finance minister Trevor Manuel - who joined former IMF managing director Michel Camdessus as special envoys of UN secretary general Kofi Annan - argued that PRSPs were 'an important tool for developing countries to reduce their debt burdens… a thorough and useful PRSP requires time, resources and technical capacity.' He suggested the Bretton Woods Institutions increase their role, to 'provide more technical assistance to meet those particular challenges.'

In contrast to Manuel's desire for PRSP expansion, civil society resistance to structural adjustment increased across the Third World, including Manuel's home continent, sometimes in the form of 'IMF riots.' A May 2001 Jubilee South conference of the main African social movements in Kampala concluded: 'In addition to the constraints placed on governments and civil society organisations in formulating PRSPs, the World Bank and IMF retain the right to veto the final programs. This reflects the ultimate mockery of the threadbare claim that the PRSPs are based on “national ownership.” An additional serious concern is the way in which PRSPs are being used by the World Bank and IMF, directly and indirectly, to co-opt NGOs to “monitor” their own governments on behalf of these institutions.'

The latter gambit had begun to fail by the time the FFD convened in Monterrey. Even the World Bank's best African case, Uganda, heard its National NGO Forum report: 'Among CSOs there is growing concern that perhaps their participation in the endeavour has amounted to little more than a way for the World Bank and IMF to co-opt the activist community and civil society in Uganda into supporting the same traditional policies.'

Democratic governance?

Barely acknowledging the power imbalances in the global system, the Monterrey Consensus offered only timid suggestions for global governance reforms. The Bank and IMF took nearly a full year to come forward with a plan, which, as it turned out, was an insult to the concept of democratic global governance.

The Bretton Woods Institutions' nearly fifty Sub-Saharan African member countries are represented by just two directors, while eight rich countries enjoyed a director each and the US maintained veto power by holding more than 15% of the votes. (There is no transparency as to which board members take what positions on key votes.) The leaders of the Bank and IMF are chosen from, respectively, the US and EU, with the US treasury secretary holding the power of hiring or firing.

In this context, some reformist gestures were needed for the sake of appearance. Nevertheless, the Financial Times reported that the 2003 Bank/Fund strategy emanating from the IMF/Bank important Development Committee (chaired by Manuel) offered only 'narrow technocratic changes,' such as adding one additional representative from the South to the 24-member board. For the US, even those mildmannered reforms were too much, and the Bush regime's executive director to the Bank, Carol Brooking, opposed reforms and instead suggested merely a new fund for extra research capacity aimed at the two institutions' Third World directors. Asked about the democracy deficit at the September 2003 annual meeting in Dubai, Manuel merely remarked, 'I don't think that you can ripen this tomato by squeezing it.'

Fanning financial fires

A final example of Monterrey's amplification of the self-destructive tendencies of international finance, was the conference's call for 'liberalising capital flows in an orderly and well sequenced process'. The Asian financial crisis had earlier stalled the persistent armtwisting efforts of US treasury secretary Larry Summers to force through an amendment to the IMF articles of agreement which would end all exchange controls everywhere.

When Ethiopian prime minister Meles Zenawi had resisted Summers' gambit in 1997, according to Stiglitz, the IMF cut off the cheaper loans it had earlier made available. Cross-conditionality also made Ethiopia ineligible for other low-interest loans and grants from the World Bank, the European Community, and aid from bilaterals.

Stiglitz waged war within the Bank and Clinton regime, finally winning concessions, but he learned a lesson: 'There was clear evidence the IMF was wrong about financial market liberalisation and Ethiopia's macroeconomic position, but the IMF had to have its way.' Zenawi poignantly implored, at a mid-2003 Economic Commission for Africa meeting, 'While we will not be at the high table of the IMF, we should at least be in the room where decisions are made.'

The only reform project to deal with financial speculation was a bailout mechanism which might save Wall Street from its own worst excesses, but also allow a 'workout' system for countries that had urgent repayment difficulties. In mid-2003, a debt arbitration mechanism was finally proposed by the IMF's current acting managing director, Anne Krueger, a Bush appointee. However, the plan came to naught, for as the The Guardian's Larry Elliott explained, 'Billions of dollars from the bail-outs ended up in the coffers of the big finance houses of New York and George Bush was told not to meddle with welfare for Wall Street. The message was understood: the US used its voting power at the IMF to strangle the bankruptcy code at birth.'

Reforming from the outside?

Under the prevailing balance of power, the top-down reform processes discussed above could not have worked. But what of other efforts at reform from the outside (ostensibly from below), particularly via international commissions in which the World Bank plays a crucial hosting and financing role?

The three major recent processes in which well-meaning civil society advocates went inside the Bank were the World Commission on Dams, the Structural Adjustment Participatory Review Initiative (Sapri) and the Extractive Industries Review. In the first case, a Bank water expert, John Briscoe, actively lobbied southern governments to reject the findings of a vast, multi-stakeholder research team in 2001. According to Patrick McCully of International Rivers Network, 'The World Bank's singularly negative and non-committal response to the WCD Report means that the Bank will no longer be accepted as an honest broker in any further multi-stakeholder dialogues.'

As for Sapri, hundreds of organisations and scholars became involved in nine countries: Bangladesh, Ecuador, El Salvador, Ghana, Hungary, Mexico, the Philippines, Uganda and Zimbabwe. They engaged in detailed analysis from 1997-2002, often alongside local Bank and IMF officials. Bank staff withdrew from the process in August 2001. In April 2002, when the research, a 188-page report, The Policy Roots of Economic Crisis and Poverty, was tabled for action, civil society groups found that the Bank ignored it.

The third case, the Extractive Industries Review (EIR), also nearly went off the rails when an April 2003, incident in Bali, Indonesia delegitimised the exercise before a final report was drawn up. A meeting between the Bank, international mining industry and civil society ended in an uproar when 15 environmental and human rights groups left in protest. According to the New York Times, 'The group of reviewers set up by the Bank had already circulated its draft conclusions supporting the Bank's oil, gas and mining investments, even though conferences organised to gather information from concerned groups and individuals in Asia, the Middle East and Africa had not yet taken place.'

In the meantime, the Bank approved loans for two infamous pipelines, Chad-Cameroon and Caspian, despite objections from the environmental, human rights and social justice communities. By late 2003, civil societies indignation meant that the EIR leader, former Indonesian environment minister Emil Salim, encountered another legitimacy crisis for World Bank participation politics.

In response, Salim ensured the critique by social movements and environmentalists made it into the December 2003 draft report, including the recommendation that public funds should not be used to facilitate private fossil-fuel profits. The recommendations would have meant an end to World Bank coal lending by 2008; mandatory revenue sharing with local communities; extensive environmental and social impact assessments; 'no go' zones for mining or drilling in environmentally sensitive areas; no new mining projects that dump tailings in rivers; obligatory environmental restructuring; and increased renewable energy investments.

No one was surprised when lead Bank energy staffer Rashad Kaldany disagreed with the recommendations. Several major environmental NGOs blasted the institution: 'One of the Bank's most important environmental reforms of the 1990s was its more cautious approach to high-risk infrastructure and forestry projects. This policy is now being reversed. The World Bank recently announced that it would re-engage in contentious water projects such as large dams in what it refers to as a 'high risk/high reward' strategy. In 2002, the Bank dismissed its 'risk-averse' approach to the forest sector when it approved a new forest policy. The World Bank is also considering support for new oil, mining, and gas projects in unstable and poorly governed countries, against the recommendations of its own evaluation unit.'

Starting from scratch?

Civil society enthusiasts of such commissions should have been warned by well-meaning insiders who also failed to move the reform agenda forward. From a vantagepoint in the chief economist's office during the late 1990s and early 2000s, David Ellerman saw more than his share of reform gambits. Finally, Ellerman threw up his hands: 'Agencies such as the World Bank and the IMF are now almost entirely motivated by big power politics and their own internal organisational imperatives. All their energies are consumed in doing whatever is necessary to perpetuate their global status. Intellectual and political energies spent trying to “reform” these agencies are largely a waste of time and a misdirection of energies.'

Persuasion by reformists within the chief economist's office did not affect the institution, agreed William Easterly, a former senior staffer: 'There's a big disconnect between World Bank operations and World Bank research. There's almost an organisational feud between the research wing and the rest of the Bank. The rest of the Bank thinks research people are just talking about irrelevant things and don't know the reality of what's going on.'

Abuse of power and dogmatic ideology were Stiglitz's long-standing justifications for his August 2002 call to consider replacing the IMF: 'I'm beginning to ask, has the credibility of the IMF been so eroded that maybe it's better to start from scratch? Is the institution so resistant to learning to change, to becoming a more democratic institution, that maybe it is time to think about creating some new institutions that really reflect today's reality, today's greater sense of democracy. It is really time to re-ask the question: should we reform or should we build from start?

At the same time, a Columbia University colleague of Stiglitz, Jeffrey Sachs, began arguing that low-income countries should not repay World Bank and IMF loans, and should redirect debt servicing directly towards health and education. Decapitalisation of the Bretton Woods Institutions through a new wave of sovereign defaults would be a sensible and direct closure tactic.

After all, Sachs insisted, no one 'in the creditor world, including the White House, believes that those countries can service these debts without extreme human cost. The money should instead be rerouted as grants to be spent on more demanding social needs at home. Poor countries should take the first step by demanding that all outstanding debt service payments to official creditors be reprocessed as grants for the fight against HIV/AIDS.' The idea was not as outlandish as it appeared at first blush, according to the Boston Globe, for during the 1980s Bolivia and Poland both got away with this strategy: 'Because the two countries used that money for social causes both were later able to win debt forgiveness.'

Default may be the logical option, since so few HIPC resources are being allocated for debt relief. Argentina, Nigeria and Zimbabwe may have been the highest-profile defaulters since 2000, but there are many more that will eventually feel pressure from the grassroots, conduct a cost-benefit analysis, and decide that default -- combined with internal financing of development using local currency to meet basic needs--is the common sense approach.

Solidarity and strength

In parallel to Third World governments becoming more militant, pressure on the institutions from their main shareholders - Northern citizens via their governments - will be vital. An extraordinary new tactic will assist: the World Bank Bonds Boycott. US groups like Center for Economic Justice and Global Exchange have been working with Jubilee South Africa and Brazil's Movement of the Landless, among others, to ask: is it ethical for socially-conscious people to invest in the World Bank by buying its bonds (responsible for 80% of the Bank's resources), hence drawing out dividends which represent the fruits of enormous suffering?

In even the conservative belly of the global economic beast, the USA, organisations endorsing the Boycott included important US cities such as San Francisco, Milwaukee, Boulder and Cambridge; major religious orders; the most important social responsibility funds; and major trade union pension/investment funds. During late 2003, the world's largest pension fund, TIAA-CREF, sold its World Bank bonds as campaigners made it a special target.

Bank Boycott activists understand that the institutions' waning legitimacy - and hence threatens to funding by socially-responsible investors and eventually angry taxpayers -- is the only target that most Third World social movements can aim at. They have done so in recent years with an increasingly militant perspective that worries not about the Fund and Bank's 'failure to consult' or 'lack of transparency' or 'undemocratic governance' -- all easy populist critiques, whose reformist ambitions are terribly weak. (What difference, after all, would it make if Trevor Manuel were the first non-European IMF MD?)

Most of the attention that the leading activists pay to the Washington Consensus ideology is to the core content: commodification, whether in relation to water, electricity, housing, land, anti-retroviral medicines and health services, education, basic income grant support or other social services, ideally all at once and in cross-sectoral combinations. It is there, in grassroots movements to decommodify the goods and services which the World Bank and IMF increasingly put out of reach, that the only feasible alternative strategy can be found.

* Patrick Bond is professor at the University of the Witwatersrand, Johannesburg. A longer version of this article is in the June 2004 issue of Capitalism, Nature, Socialism. Further details of the South Africa case are in Bond, P. (2004), Talk Left, Walk Right: South Afica's Frustrated Global Reforms, Pietermaritzburg, University of KwaZulu-Natal Press; and Bond, P. (2003), Against Global Apartheid: South Africa meets the World Bank, IMF and International Finance, London, Zed Books.

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