The Story Behind the Washington Protests

As the capital gears up for 'Seattle II,' TIME Daily offers a thumbnail guide to the issues.

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Tens of thousands of union members, ecological activists, collegiate anarchists and other skeptics of the virtues of economic globalization are converging on Washington, D.C., with the intention of repeating last December's street protests in Seattle. Back then the occasion was the World Trade Organization; this time it's the routine annual meetings of the International Monetary Fund and the World Bank. But on both occasions, the target is the same: the institutions managing an increasingly integrated global economy.

The protesters represent a diverse set of interests, opinions and solutions. And their basic premise — that the architecture of the international finance and trade systems is in dire need of overhaul — has plenty of adherents on both sides of the aisle on Capitol Hill. But while everyone from President Clinton and World Bank chairman James Wolfenson to Pat Buchanan and Ralph Nader may agree on the need for change, there's little accord on what should be changed and how.

Herewith, a thumbnail guide to some of the issues:

What is the IMF?

The IMF is a Washington-based supra-national bank comprising 182 member countries that functions as the lender of last resort to guarantee the stability of the international monetary system. Designed to promote economic growth, it disburses some $30 billion annually in loans to developing and transitional countries. It also provides emergency loans to countries facing currency collapse, in order to minimize the danger to the wider world economy. Most recently, it played a leading role — at Washington's behest — in bailing out the troubled economies of Mexico in 1994 and Asia and Latin America during the financial crisis of 1997-98, as well in ensuring the liquidity of the Russian government.

IMF assistance, though, comes at a price. The fund's basic operating premise is that policy adjustments are as important as funds in turning around struggling economies. It therefore requires beneficiaries of its loans to adopt a set of policies in line with the fund's "Washington Consensus" — cutting government spending, opening up markets to foreign trade and investment and adopting the free market principles that have prevailed in the U.S. over the past two decades. Loans are typically disbursed in stages, with IMF officials measuring compliance with the fund's terms.

What's wrong with the IMF?

While there is almost unanimous agreement both on the streets and in the corridors of power on the need for changes, there are widely divergent ideas of what should be changed and why.

Free market conservatives on Capitol Hill, for example, believe the IMF has come to function as a safety net for bad investment decisions, and that investors and governments will continue acting recklessly as long as they can depend on a bailout.

The Clinton administration accepts the basic premise and function of the IMF, but believes the institution is too bureaucratic, inefficient and insensitive to the specifics of crisis situations that erupt periodically. They want the institution reformed to make it more transparent and more responsive to the fast-changing needs of the global financial system, and more sensitive to the humanitarian dimension of currency collapse in developing countries.

The latter point is amplified by Third World advocates (and even the World Bank after the Asian bailouts), who point out that the harsh austerity package that typically accompanies an IMF loan or bailout cuts government social spending and therefore transfers the burden of inept decision-making by governments and investors onto the backs of society's poorest and most vulnerable members.

What is the World Bank?

Founded after World War II to fund reconstruction efforts, the World Bank later evolved into the primary lending institution for Third World development. Having disbursed some $400 billion in loans since its inception, the bank makes loans on a project basis, tied to "good governance." The bank generally requires its clients to follow policies designed to open markets for trade and investment. It emphasizes that while the primary beneficiaries are impoverished countries, the bank's loans also serve the interests of industrialized countries both because of the procurement opportunities provided by the loans and the potential long-term markets opened up by development.

What's wrong with the World Bank?

The IMF and World Bank are sister organizations, and critics view them as a single package, which some want reformed and others want eliminated altogether. Governments have pushed for greater openness and accountability in the fund — criticisms the fund has attempted to answer by emphasizing greater consultation in its loan decisions.

Environmentalists have criticized the bank for funding large development projects that have had a negative impact on the environment. The bank has attempted to answer these too, instituting an "environmental audit" of all of its programs in recent years.

More radical critics accuse the bank of having created much of the current debt crisis through providing corrupt and elitist governments with large-scale loans, whose only tangible impact on the poor has been to saddle them with a crippling debt burden.

Should Third World debt be canceled?

The prime issue for many of the demonstrators in Washington, as well as representatives from developing countries, is debt forgiveness. Economic development in many of the world's poorest countries is paralyzed by a crippling $350 billion debt burden, the bulk of which is owed to the IMF and World Bank. Many of the world's 40 poorest countries spend a considerable portion of their GNP (which in many cases is smaller than their debt) simply on paying the interest owed. It's a point of consensus now between all but the most diehard conservatives that without significant debt relief, billions of the world's poorest people will remain mired in poverty. Not only is the debt devouring resources that could be used for funding basic health, nutrition and education where it's most desperately needed; most of those countries aren t showing signs of turning their economies around to the extent that would ever make the debt collectible.

But the parameters of debt relief are fiercely debated. Although many of the activists gathered in Washington, supported by voices as diverse as the pope and the rock group U2, are calling for cancellation of the debt to the 48 poorest countries, the principle of unconditional and total forgiveness doesn't sit easily with the creditor nations, who also want guarantees that the beneficiaries of debt relief will be the poor and not self-appointed political elites. Efforts to tie debt relief to democratization and some form of accountability have slowed the practical implementation of debt cancellation efforts announced by the industrialized countries over the past year. While some want to see greater democracy, in practice much of the current debt relief is still tied to the implementation of austerity programs that critics say exacerbate the impact of poverty in the developing world. Others counter that the only developing countries that have shown signs of growth have been those that achieved the right policy mix, and that debt relief should remain conditional on policy changes.

Labor Rights

U.S. labor plays a leading role in the Seattle movement, and its involvement may be as much enlightened self-interest as selfless solidarity of labor. They're making the trade deal with China to permit its entry in the WTO (currently on Capitol Hill) the focus of their Washington activities, protesting China's human rights record and its denial of trade union rights. It's precisely that harsh labor regime that keeps production costs in China down and makes it an attractive destination for U.S. manufacturers to outsource work.

Of course there are plenty of Third World trade unionists on board, although they don't see eye to eye with their American cousins when it comes to tariff protections. And needless to say, the governments of developing countries are hostile to having First World labor standards applied in their countries, which they see as a device to eliminate their competitive advantages.

Environment

The environment was a stronger focus of the Seattle protests, but even in Washington activists are hoping to maintain their momentum and place ecological questions at the center of discussions about the global economy. Activists have slammed the World Bank for supporting projects harmful to the environment. The Bank says it's heard the criticism and is changing its ways. The activists say it's not listening hard enough.

Democracy

While most governments are in agreement that the IMF and World Bank should be made more transparent and accountable in their decision-making, the protesters on the streets say that's not enough, and that the constituencies most affected by economic decision-making should have a voice in shaping those decisions. The overall impact of the publicity created by the Seattle demonstrations — and no doubt, the Washington, D.C., round — has certainly been to shift policy issues typically confined to economic experts into the wider realm of public debate.