Daily Times

We have, so far, examined the UN and the ICJ, to see how the powers that be had, at the very outset, emplaced mechanisms to ensure that both were “controlled” to ensure they couldn’t run amok; in effect, defanged. But there were also the international financial institutions; what of them?

The original two are the IMF and the International Bank for Reconstruction and Development, IBRD, also known as the World Bank. The latter is the major actor in the World Bank Group. Both were founded on two basic economic principles: the Keynesian Principle i.e. that weak economies could only be bolstered by infusion of wealth; and, “Credit Creation” i.e. giving loans without giving cash and without collateral but, most importantly, credit was created to fund an enterprise [whether by individual or state], which the bank espoused because it could make money for all concerned.

These two organizations had distinctly different functions and, therefore, no direct connection to the other. The Bretton Woods’ system required each country to adopt a monetary policy, tied to gold, which enabled it to maintain an external exchange rate within one percent. To this end, the IMF would provide loans to bridge over temporary difficulties.

In due course, the principal controller, the US, began to realize just how powerful a weapon he wielded by controlling the IMF and IBRD. Most states of the world needed assistance from IMF and/or IBRD

The IBRD, on the other hand, was to help fund reconstruction and development, as its title indicates. But it had one aim; to reduce poverty. To this end, if the Keynesian principle is to be coupled with Credit Creation, the only logical way to proceed seems to be that, countries seeking assistance from the IBRD, should have prepared enterprises to utilize these funds, so as to pay back the loan interest and improve domestic economic conditions to reduce poverty. And, only if it buys the enterprise sponsored by the [hopeful] state, should credit be created for it by the IBRD.

However, like all other manmade institutions, these two also had to be controlled. Nothing as unsubtle as a veto was required here. The Board of Governors of these institutions consists of representatives from each state. However, their votes are weighted in, as little as, decimal points, according to their monetary contribution to each. Obviously the rich states outweigh the poorer ones and, while the majority of members’ votes are weighed in decimals of tenth [and even] hundredths, the US has more than 15% in one and 16% in the other. Duly defanged.

But, more was to follow. In 1971 the US unilaterally terminated the Dollar’s linkage to gold, converting the USD to, what is called “Fiat Money”. Simply put, Fiat Money is not supported by anything to give it value. Therefore, those who still persist in using it, effectively give credence to whatever value the state supporting that Fiat currency, places on its currency. Many other countries followed suit.

This step, not only destroyed the construct that Bretton Woods Institutions were designed on, there was no longer a base on which to construct [and maintain] international exchange rates. The IMF lost its raison d’etre. But, the United Nations couldn’t just disband it; could it? Obviously not. So, in time, it became another IBRD but, for some obscure reason, it would be the more empowered organ.

In due course, the principal controller, the US, began to realize just how powerful a weapon he wielded by controlling the IMF and IBRD. Most states of the world needed assistance from IMF and/or IBRD. The needier states were poor ones; which most needed poverty reduction. And, obviously, the elites of these needy states were more susceptible to bribery, corruption, and blackmail. If loans to them could be linked withpreconditions in interests of US or American individuals, they would accept.

In his book, “the Confessions of an Economic Hitman”, John Perkins has documented his personal participation in promoting loans from all these organizations in which, during his time with Chas T. Main, “he was charged with inducing developing countries to borrow large amounts of money, designated to pay for questionable infrastructure investments, but ultimately with a view to making the debt-laden countries more dependent, economically and politically, upon the West”.

To facilitate these US-friendly loans by WB and IBRD, Reagan again distinguished himself. Earlier here I explained that both institutions were bound by two economic principles. It was during his tenure as President, that the requirement of adherence to the Keynesian theory was removed. In effect, “Need” was no longer an essential for loans. Worse was to follow, which, in fact, had become inevitable as soon as the first economic principle was removed.

The other economic principle was Credit Creation. The entire definition of creating credit seems implausible until one registers that credit can only be created if the loaner is purchasing an “Idea”; and that this idea will create money in future. Obviously, this is enterprise; State enterprise.

But, when receiving loans became whimsical, it was no longer necessary for [hopeful] states to waste money on expensive service providers who could produce innovative and workable enterprises and increase state wealth. And so, inevitably, state sponsored enterprise also began to disappear.

And, as it continues to die, it sounds the death knell for the subject of “economics” to disappear and clears the last obstacle(s) for “Political Economy” to rule supreme; the economy of wars: preparation for wars, conducting wars and profiting from its aftermath.

The writer is a retired brigadier. He is also former vice president and founder of the Islamabad Policy Research Institute (IPRI)