WBD587 Audio Transcription

How the IMF & World Bank Exploit Poor Countries with Alex Gladstein

Release date: Wednesday 30th November

Note: the following is a transcription of my interview with Alex Gladstein. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.

Alex Gladstein is Chief Strategy Officer at the Human Rights Foundation. In this interview, we discuss the IMF and World Bank - two powerful multinational institutions that have shaped the post-war world for developed nations' benefit. Alex uncovers the exploitation hidden from view and the ongoing real-world costs for the developing world.

“You talk about the CIA and American foreign policy during the Cold War…that’s like level one. We’re on a second level here, the IMF and World Bank are operating on a meta-level, like we’re above Cold War politics, we’re at the level of timeless, strong countries abusing poor countries; this is way beyond the Cold War.”

— Alex Gladstein

Interview Transcription

Peter McCormack: Morning, Alex.

Alex Gladstein: Good morning, Peter.

Peter McCormack: How are you doing?

Alex Gladstein: I'm great, thank you. 

Peter McCormack: Good to see you again.

Alex Gladstein: Yeah, here in beautiful Los Angeles.

Peter McCormack: It is.  Okay, I've sat down with you in London recently, we caught up; you told me you'd been working on a new article, something that is going to expose part of the global financial system, how the IMF, the World Bank essentially -- well look, you get into it; tell me about this article you're working on.

Alex Gladstein: Yeah, well, first of all, thanks for giving me the opportunity to come on here.  I've been down the rabbit hole of the IMF and the World Bank for the last few months; it's pretty dark, I'm not going to lie.  I've learned a lot, I've been shocked, appalled, outraged, depressed and inspired; that's kind of my journey.

I think that people, in the Bitcoin community at least, have this idea that the World Bank and IMF are up to no good, they have this rough idea.  Most people, however don't really know anything about the IMF, they're like, "Oh, three-letter acronym, organisation, like the UN, whatever", and maybe they assign it as like a neutral in their mind.  And a lot of people have positive thoughts about the World Bank, they're like, "Oh, it fights poverty in poor countries, right".  So, in that sense, I think the bitcoiners are on to something.

In my work over the last few years, I've kind of encountered here or there, I realised that the IMF was involved in the monetary colonialism in West Africa, I of course had heard about the kind of economic hitman stuff in pop culture, right.  I didn't know how seriously to take those accusations, so I decided to just start learning about the IMF and World Bank, and I discovered there aren't a whole lot of books that cover this topic, it's a little bit buried, so I really had to dig around, go find things that were written in the 1970s and the 1980s and the 1990s; there, you really find some incredible analysis and there's stuff that really blew me away.

For whatever reason, in the last couple of decades, people have largely stopped thinking about the World Bank and IMF in a critical way, like the debate has faded from the discourse.  Back in the 1990s, there were huge protests; there were tons of books written in 1994, which was the 50th anniversary of the Bank and the Fund, but I don't know, man, it's like they've faded from our public consciousness.

So, I hope today's episode can help people reorient them back to the centre of our consciousness, which is really where they should be given the role in the world of what they've done and what they continue to do.

Peter McCormack: How closely do they work together; how interlinked are they?  If we want to explain what they are, should we separate them, explain each individually?

Alex Gladstein: Absolutely, yeah.  Well, they are close together physically, they're both based in Washington DC, which tells you something about who controls them; the two buildings that they are housed in are connected like Siamese twins, with different tunnels and corridors that connect the two buildings so that, for example, people can sit on the board of both institutions; basically, they're extremely close.

The institutions travel to developing countries together, they create reports together, people will be hired at one, move to the other.  Traditionally, the Bank is headed by an American, and the IMF is headed by a European; that's kind of tradition.  But in general, the institutions are quite close, but they serve very different roles, so we can get into that.

The general idea is that, in 1944, as listeners of your show probably know by now, the modern financial system was created in New Hampshire in a hotel at Bretton Woods, and two really key parts of the modern financial system are the World Bank and the IMF.  Now originally, they were created to help rebuild Europe and Japan after World War II, that was the original idea.  The Bank was a development bank, so the Bank was supposed to give out loans to rebuild infrastructure. 

The IMF was supposed to address the balance of payments concerns.  So, when a country would start to have, basically, an exports crisis, like basically when their imports started to become much higher than their exports and they couldn't pay their invoices, they couldn't import things, they couldn't pay debt back, the IMF existed as an institution to help address that. 

So originally, they had these two very different roles, and in the first decade, they largely focused their funding on Europe and on a handful of more modernised, industrialised developing countries like Turkey, for example.  After the mid-1950s, Europe was back on its feet and Japan was crushing it; these economies, they clearly found their step again and they were leading the world again.  So, the Bank and Fund's energies were directed towards the developing world, and that's where we're going to.

Peter McCormack: So, they were created with good intention and relatively successful early on in supporting the rebuild of Europe and Japan?

Alex Gladstein: I think it's fair to say that initially, the intention was good, yes.  They were built to prevent what happened essentially in the 1930s, which was the world had broken apart, no one trusted each other, there was a competitive currency devaluation; so the Bank and the Fund were created to create international economic stability.  Unfortunately, that is the opposite of what they've done in their history, and that is a result of their actions in the developing world.

Peter McCormack: And just before we get into the details of this, the World Bank and the International Monetary Fund, both based in Washington?

Alex Gladstein: Yeah, exactly.

Peter McCormack: What is the governance structure of these organisations and how are they funded?

Alex Gladstein: Yeah, so basically there are creditors who deposit funds at the Bank and the Fund.  The main five creditors, historically, have been the United States, Japan, the United Kingdom, Germany and France, so the former big empires.  Things changed over time, but historically the United States has held the veto power.  So, to make big, big changes at these institutions, you basically needed 85% of the vote, let's say.  So, the US has always held more than 15%, so the US can veto any big change by itself.  And to do individual loan decisions, you need a majority vote, and if you add the US's vote share with all of its allies, it's more than half, so the US has always been able to basically control these institutions.

Again, the way it works is that member countries join the Fund as a precondition to get access to the Bank.  So, if you want to take out a loan from the World Bank, you have to be part of the IMF; it's kind of like a way they screw developing countries.  The ones that really wanted the loan from the Bank had to join the Fund; that's a precondition.  So, every member of the Bank is also a member of the Fund.  And again, the general idea is you join the Fund, you deposit some money in and then if your country goes into a crisis, you can draw from the pool in different, what they call, tranches basically at different prices; obviously the loans get more expensive the riskier things get, that was the original design.

The Bank is, again, a development bank.  There will be a specific project, like a hydroelectric dam in a particular country, that the Bank will come in and fund.  Now, the Bank also works very multilaterally, the Bank will often lead around, with the government in question, like say it's Indonesia, so the Indonesian Government will throw in some money, the World Bank will throw in some money and then the World Bank will find a bunch of other people to throw in money.  So, they often act as the dealmaker for some of these big projects.

The IMF is more singular, the IMF will come in and just give a big chunk and then it will disperse the funds as it sees progress in the country; these are called standby agreements.  So, the 1950s, 1960s and 1970s, a country would have a crisis, the IMF would come to terms with the government and then they would have this agreement, which is basically like a credit line, that the sovereign government would start to draw down that credit line, and the IMF would continue to provide that so long as they saw progress.

Peter McCormack: But what is progress; is that specific political goals that they would like to see?

Alex Gladstein: Yeah, so the best way I could put it, and I've been struggling to frame it the right way, but basically, around the end of the 1950s, early 1960s, you had two main things happen in the context of our conversation.  Again, you had Europe and Japan get back on their feet and become mighty again with their economies, their industries, they recovered from the wreckage of World War II; then you had decolonisation, so you have all the empires pulling away from their former colonies, the 1960s, known as like the end of colonialism.  Some of the colonial empires fell away in the 1950s, some fell away after 1960, but basically the 1960s was supposed to mark the end of colonialism.

So, what my thesis is is that the World Bank and IMF were created to help stabilise and let's say rebuild Europe and Japan, and once that was done, unfortunately they were repurposed to extract resources and cheap labour from the developing world.

Peter McCormack: Like swapping territorial colonialism with financial colonialism?

Alex Gladstein: Yeah, in the same way that, when I write about the monetary colonialism in West Africa, the French pulled away politically, they no longer controlled -- French West Africa didn't exist anymore, it was sovereign nations, but they still controlled the money.  So, we went from political colonialism to economic colonialism.  So, I guess what I would argue is that, post-1960, the Bank and the Fund, allowed the former empirical powers to continue this colonial dynamic of draining resources from poor countries to support them, and that is of course the total opposite of what they say they do.

Peter McCormack: Is this just down to technical innovation, financial innovation?  They're essentially doing the same thing.  Political colonialism was really, by virtue of being built out of years of ships travelling the world and draining the resources and bringing them back, but we've evolved, we've evolved technologically; you don't actually need to have ships and people there.

Alex Gladstein: Yeah, right.  They're strikingly similar to some of the dynamics of old-school colonialism, except without the violence, the IMF doesn't have guns; whereas the British or the French of the Americans in the Philippines would go and impose a system where they're like, "We're going to take the gold from here.  You're going to work and help us get this rubber from over there, and we're going to take it home and we're not going to pay you a fair rate, if anything"; that was like old-school colonialism or slavery or whatever.  This doesn't entail violence, this uses debt as a weapon.  So, instead of a gun, you're using debt; that's the idea of what the World Bank and the Fund do.

Peter McCormack: Right, okay.  So, just going back to the establishment of the two, originally designed with good intentions?

Alex Gladstein: Yes.

Peter McCormack: Do you believe their evolution was through malice or was it just kind of like more just a natural way these things tend to evolve in that the incentive system works that those running the IMF would see a benefit for their own country, those running the World Bank would see how they could benefit their own country?

Alex Gladstein: Yeah, well I think that the line between malice and self-interest is blurry.  I think that these institutions were transformed into tools which would benefit the wealthy countries at the expense of the poor ones.  I don't think there was a single meeting where people sat down and said, "We're going perpetuate colonialism", no, I don't think that ever happened.  But I do think that this was a conscious shift and the leaders of the Bank and the Fund, I think, were quite clear about what they were doing and the goals over time, I think, became institutional goals.

I don't think the average employee of the Bank or the Fund understands this, there's the kind of like banality of the evil thing; I think they think they're doing a good thing.  So, I think it's a very high-up, very zoomed-out process, but as we'll get into, the outcomes of what the Bank and Fund have done are not arguable, they're very clear.  So, it is a fair debate, was the destruction that they've wrought intentional or not?  That's up for debate; what's not up for debate is the outcome. 

So, it is interesting to talk about how much of this was path dependency, like it was a course that was set and maybe they didn't have a choice, maybe these wealthy countries realised they needed the Bank and the Fund to do these things to keep our way of life the way it was.  I mean in many ways, what these institutions do is subsidise a higher quality of life for people in the West at the expense of people in poor countries, that's kind of what they do, as we'll get into, and maybe that was just a decision that was made.

Peter McCormack: And no part of it could be that the intention was there to help support these countries but the design of the loans was such that there was no chance that these --

Alex Gladstein: Knowing how those traditions work, I don't think charity was ever the point, no, I think it was self-interest.  Now, whether harm was the goal is not clear, I don't think that's clear, but they're certainly not altruistic institutions, as we'll get into.

Peter McCormack: How much separation is there between the institutions themselves and the power lines of government?  I know these institutions are based in DC, I've seen them, I've been to DC, it's incredible.  Actually, just wandering around DC, the number of institutions you see is incredible.  But how much independence do they have from the government; is there independence?  If those working at the World Bank believe they're doing a good thing, but those higher up, what are their incentives?  They're not working for a private corporation; they're not going to receive bonuses.

Alex Gladstein: There's not a whole lot of independence.  So for example, in the 1950s, people at the Secretary of State level in the United States, straight up just vetoed Bank and Fund projects in the Cold War context.  So, at least in their early years, there was very little independence.  There was a huge dam that I think the Bank and the Fund wanted to finance in Egypt and Dulles, who was in the Cabinet of the United States, he sort of vetoed it, and there are a lot of examples of that early on.

To give another example, probably the most important person in either institution, in the history of the institutions, was Robert McNamara, who was the Head of the World Bank in the 1970s, and he kind of transformed the whole way the institutions operate, in my opinion.  If you think about his background, he was the CEO of Ford Motor Company and then he was the Secretary of Defence of the United States; he sent 500,000 American men to fight in Vietnam.  Then, he went from there to becoming Head of the World Bank, and when he left the World Bank, he joined the Board of Royal Dutch Shell. 

In the 2000s, the Head of the World Bank was Paul Wolfowitz, one of the key architects of the Iraq War.  So, I think the national security industry is very, very closely tied with the Bank and Fund, more than people would like to admit, and I think that the United States Government has enormous power over these institutions, but Europeans have big power as well, and so do the Japanese, as I'll explain; the Japanese have essentially used these institutions to loot the resources of Indonesia.  So, I think these great powers have all used these institutions for their benefit, but no one more so than the United States.

Peter McCormack: Okay, talk about Japan then; what have they done in Indonesia?

Alex Gladstein: Sure.  So I think that in some ways, you had western countries benefit enormously from colonialism right; the amount of loot that the British took from India is incalculable.  And that flow of funds started to slow down, first after World War I, and then it kind of trickled to a halt almost after World War II.  A lot of people argue, "Why did we have the Great Depression?" this is a huge academic argument, and you have like the Keynesians and the Austrians and they argue over, "Well, is it because we left the Gold Standard or is it because we didn't leave it fast enough?" and that tends to be the western argument.

I think there's another really good argument too that's related to our conversation that a bunch of Marxists put forward, which I actually think is kind of obvious and I agree with, and I think that one of the major factors in the Great Depression is that western empire countries lost a massive revenue stream, which was colonialism started to wind down after World War I in a big way; that makes a lot of sense to me, like yeah, that would lead to a smaller economy, yeah.  So, I think again you had this process over time of decolonialisation, and that was a really big problem for these big industrial countries; they had gotten really cheap goods and services for a long, long time. 

So, when you look at a country like Japan or France or Britain, they tried to use the World Bank and Fund to accomplish the same things just without violence.  So, in Indonesia, the Japanese would get timber and oil and all kinds of resources for their war machine during World War II, and previous to that, so they colonialised Indonesia.  So, post-independence of these countries, let's say Indonesia's now like a free country, right, in the 1960s, Japan could kind of do the same thing just without guns; they can offer loans and have their companies go into Indonesia and take wood and minerals and different goods and services for the benefit of the Japanese economy, not the Indonesian economy, and that's essentially what happened there.  Same thing in a lot of Africa and Latin America with respect to the European powers and to America.

So, basically, each of the major creditors of the Bank and the Fund kind of perpetuated the resource drain that they had gotten during actual colonialism, they'd been able to perpetuate that through Bank and Fund policy.

Peter McCormack: And the resource drain, was that resources offered as collateral in case loans weren't repaid or was it straight up swaps?

Alex Gladstein: I think it's important to start to trace out how the Bank and Fund actually engineer societies. 

Peter McCormack: Yeah, okay.

Alex Gladstein: So, what they do is they offer the loan, and this was very traditional of the IMF since inception and of the World Bank since about 1980, is what they do is they basically offer the loan with conditions.  We'll talk about credit, but it's just not the fact that they're making a loan which is perceived as charity by us, but then we forget the very simple fact that, when you make a loan, the borrower has to pay back principal plus interest.

So, it's not just that they're benefiting from these countries, these aren't gifts, these are loans, often, back in the 1960s and 1970s, we're talking 6%, 7%, 8% interest, and the Bank and Fund would borrow the money from international capital markets and from creditor nations at 5% and then they would sell the money to poor countries at 8%; they'd make money off a spread.

Peter McCormack: They had spread.

Alex Gladstein: Yeah, of course, that's how they finance themselves, which people also don't like to think about; they think these are like, again, charitable gift-giving institutions.  It's just not the case.  But in any event, these loans are given out with conditions upon conditions; this is called structural adjustment.  So, basically, the goal of structural adjustment is to change the society of a poor country to make it focus on exports at the expense of consumption. 

I'll give you an example, a really good example is what I'm going to lead my new essay with that's coming out soon; by the time that folks are hearing our interview, hopefully the essay will be out.  We'll talk about Bangladesh; this is a very poor country, it's suffered a lot in the last 100 years, both through natural disaster and human disaster.  The British basically caused a massive famine in Bangladesh during World War II, it killed 3 million people; a lot of people attribute this to Churchill and to Keynes actually. 

They suffered again in the 1970s; they had another massive famine that the US Government was actually part of.  The Bangladeshis were selling what's called jute which makes bags, like jute is like a fibre and it can make bags, a sack, green bags, things like that; they were selling that to the Cubans and the Soviets.  So, the US didn't like that very much, and we controlled the world's wheat production, so they started to have a famine and we didn't allow the wheat to go in and a million people died, and the US was partially responsible for that.

So, they've had a lot of rough crises, they also get hit by these insane cyclones that kill up to a million people at a time.  Basically, the bay that Bangladesh sits at the top of is shaped like a tunnel and the cyclones come in and they just pick up power and steam and then they just wreck this country which has a lot of low-lying wetland around it.  So, it's a poor country that had been just devastated over and over again by natural and manmade issues. 

You had people doing essentially subsidence farming, they were poor but they could generally feed themselves usually.  They were growing cattle and rice and things to eat, but that's not very good for paying debt back.  So, if you have the Bank and Fund loaning you money for stuff, that government has to find a way to pay the debt back.  So, the way that it would work is that the Bank and the Fund would come into these countries and try to structure them so that they could earn more money.  And they're not a reserve currency nation; they create their own fiat.

Peter McCormack: Hold on, so this is to encourage them to increase their exports so they could repay the loan?

Alex Gladstein: Yes, exactly, so they could pay back debts.

Peter McCormack: Even though this might not be structurally good for the country?

Alex Gladstein: It's horrible for the country, as we'll get into, but it's a very simple idea; if Bangladesh wants to buy tractors from Britain or from the United States, from the international markets, it can't use its own currency because the Bangladeshi currency is not convertible around the world.  The only way it can buy tractors or grain or whatever is by --

Peter McCormack: With dollar loans.

Alex Gladstein:  Well, by borrowing, but mainly by exporting goods and then they receive hard currency in return.

Peter McCormack: Oh, okay.

Alex Gladstein: So, the point of these programmes was to make governments, like Bangladesh, able to export more so they could get more hard currency so they could pay back the loans, which are dollar-denominated loans.

Peter McCormack: So, does that focus in productivity on producing things that other markets require at the expense of what, domestically, they require?

Alex Gladstein: Exactly, you've hit the nail on the head.

Peter McCormack: So, you destroy farming?

Alex Gladstein: Yeah.

Peter McCormack: Is this kind of what's been happening in Sri Lanka?

Alex Gladstein: Well, just to focus on Bangladesh, the point is they weren't farming the right things for the international markets, so the World Bank and IMF came in and they said, "You guys should grow shrimp; shrimp is very lucrative, there are infinite numbers of shrimp swimming around this tropical bay that's next to Bangladesh".  So, the Bank said to the Bangladeshi Government, which of course was an autocratic government and that's such an important thread of this whole story, is that almost always the money that was borrowed by these governments was borrowed by a dictator or by at least an unaccountable corrupt government.

Peter McCormack: Because it's a lot easier?

Alex Gladstein: Exactly.

Peter McCormack: And the incentives are there for them to maintain power?

Alex Gladstein: Yeah, if you're lending to a democracy with free speech, the people are going to protest against the IMF policies because they lead to horrible social conditions.

Peter McCormack: But also, it's even a time preference argument; if you've got a dictator, you're offering them a whole bunch of money.

Alex Gladstein: Oh yeah, because they don't care about 20 years from now.

Peter McCormack: And they're corrupt and they can steal and they can have their parties.

Alex Gladstein: Exactly, they take 20% off the top.

Peter McCormack: Yeah.

Alex Gladstein: Yeah, exactly.

Peter McCormack: Drink Champagne, smoke cigars, yeah, okay.

Alex Gladstein: So, these dictators and these military dictators in Bangladesh are like, "Okay, yeah, we'll take the money, we'll make you guys some shrimp".  So again, this is a society that's been devastated by these cyclones, so they had built these dykes, they hired the Dutch in the 1960s to build these dykes, these big dirt and rock structures to help prevent the waves from coming in; the waves were very, very deadly.

So, because of the imposition of these new policies, these farmers were now encouraged to take their fields, where again they were growing food that they could eat, and drill holes in the dykes and fill their fields with salt water and then go into ocean and catch the young shrimp and then bring the shrimp into their fields and basically farm the shrimp there.  Then they would, once the shrimp are ready to eat, they would sell it to these shrimp lords who then give them to the government and then they end up on our plate in Britain and the United States and Japan; we end up eating the shrimp.  The key part is that you're sacrificing local consumption for export.  So, we're changing the energy of the nation from creating stuff for it to eat to for us to eat.

Peter McCormack: It's like a subtle, insidious almost slavery.

Alex Gladstein: It's pretty bad.

Peter McCormack: It's like, "Here is a loan; well, the way we get you to pay that off is get you to produce things that they export".  It's a real subtle, insidious form of slavery.

Alex Gladstein: The reason why the Bangladesh example is so powerful is you start to realise that these loans were made to change societies so that they would feed us in rich countries, or fuel us in rich countries at the expense of local human rights and development concerns, and there are also, usually, devastating environmental effects, so that's what I'm talking about.

So, now you have these cyclones coming in and the defence mechanisms, which had been built to protect people, had holes in them now, so they were not nearly as effective anymore.  And what's even more troubling is that traditionally, the way that people would be protected by the cyclones, because Mother Nature usually has a plan, are the world's largest mangrove forests are there, and mangrove forests are very, very good at protecting people.

So, to build the shrimp farms, they cut down, I don't know what the exact number is today, but by the 1990s they had cut down almost half of all the mangrove forests in this region to do shrimp farming.  So, not only are you putting holes in the manmade protections, you're also getting rid of the natural protections, so there's massive deforestation.

The leaking of the salt water into the farmland has destroyed the rivers and any sort of natural life that lives there because everything's now salt, it's like salt kills; they've made other farming nearby very unproductive, because when you have chickens or cows or you're growing something and there's just a lot of salt in the general area, it hurts and kills things.  So, it's made this whole area much less productive, with the exception of making shrimp.

What you have is environmental destruction and you have a reduction of a population that was poor but at least could feed itself, now downgrading to a population that's also very poor and needs to go to the market to buy food.  So, now they're dependant on imports from rich countries; this is the whole game.  So, we make these poor countries focus on exporting raw goods, whether it be oil or gold or cotton or palm oil or tea or coffee or shrimp, usually, by the way, things no one can eat if you think about it, it's kind of sinister; it's usually stuff that you can't eat or it's not meant for them. 

It's not like these poor Bangladeshis who are making like $1 a day and work 12 hours a day, and there are enormous amounts of child labour involved in this by the way, they're not eating the shrimp, no, they're selling the shrimp.  The individuals, by the way, the serfs, the shrimp serfs, they are taking on debt to change their farm into a shrimp farm, and after a decade, they may not even make all the money back that they owe, so they're in like debt bondage.  Meanwhile, the shrimp lords and the government are making a fricking killing; today, as we speak, shrimp is the second largest export of Bangladesh.

So, it's completely changed the country in this way and, dude, it's pretty devastating, and that's just an example.  This is called aquaculture; the World Bank has also funded this in so many other countries, in India, along the western coast of Latin America you'll see all these shrimp farms.  These are operations that do not benefit the local population, that deliver hard currency to usually unelected, unaccountable rulers who spend it on weapons, guns, paying back debt and buying palaces and collections of cars and wine and things like; it's really devastating to the local population.

Peter McCormack: So, when you follow the incentives, who gains here?  Obviously, any dictator who takes the money, is able to buy a palace, buy cars and buy wine, cigars and have their parties; that's one's pretty clear and obvious, and they will do that the detriment of the people of their country.  When you follow the incentives back to the World Bank and the institutions, where are the incentives?

You can see the incentives for shitty decisions within corporations and companies where you have owners, the board members, they get to benefit from the profits of these companies, but within institutions, there isn't like that direct -- so is it career incentives, are these people who are thinking like, "I have a career beyond the World Bank, within government"; where are the incentives, because it's fucking terrible behaviour?

Alex Gladstein: Yeah, and I want to do a couple more case studies, but let's do some of the --

Peter McCormack: I have questions I wanted to ask.

Alex Gladstein: Yeah, let's do some of the data first.  I think it would be helpful to put up this chart.

Danny Knowles: Yeah.

Alex Gladstein: It's an old chart.  Again, a lot of the best stuff about the Bank and Fund is old; you have to go to the library, you have to dig out books because a lot of the critical analysis has just been turned off.  But this is an important chart, and I'll try to explain it so the listeners can understand what we're looking at here.

The important thing is this is from a book from basically 40, 50 years ago that describes how debt cycles work with World Bank loans, okay.  So, the important thing for you to look at, Peter, is this bottom line, which is called net capital flow, and what you can see along the x-axis are the years.  So, if you look at net capital flow, obviously when a country first takes on a loan from the World Bank, as you see, it has positive net capital flow; it's getting the money that was loaned to them by the Bank.  So, for the first 10 or 15 years, they're in the money; the dictator has a bunch of cash.

Peter McCormack: So, let's give some perspective, that looks at say about $75 million positive?

Alex Gladstein: Yeah, exactly, something like that.

Peter McCormack: Within ten years.

Alex Gladstein: Right.

Peter McCormack: Hold on a second, just to ask, so it looks like it starts up like they've got $25 million at the start, after 10 years, that's a $75 million; is that the productivity that increases?

Alex Gladstein: No, these are disbursements.

Peter McCormack: Oh, disbursements?

Alex Gladstein: This is the money.  Let's say they do a $500 million loan to help build a dam over 10 years, and then you have 40 years to pay it back, usually these loans are really long and they get delayed.  So, they're literally loans that countries are still paying back from the 1980s today. 

So, the point is that in the first few years, the borrower country is in the black, it's getting a flow of money from the World Bank that it's using to do stuff with.  But after, as you can see, about eight or nine years, that flow starts to peak and then it starts to go the other way.  Then, as you can see here, as you get around year 15 to year 20, it starts to go negative, and then it goes really negative.

Peter McCormack: And the negative, is that repayment?

Alex Gladstein: Yes, that's repayment of interest.

Peter McCormack: Holy shit!

Alex Gladstein: So, you have to pay back what they gave you plus the interest.  So, the net capital flow, eventually, of the loan that is given to a poor country, because of these high interest rates, is super-negative.  Now, this is just an example of one loan.

Peter McCormack: Again, for the people listening, the net inflow peaks at around $75 million and the outflow gets to nearly $800 million.

Alex Gladstein: Yeah.

Danny Knowles: Negative.

Peter McCormack: Negative.

Alex Gladstein: Yeah, negative, yeah.  And we'll clip this for folks to study and look at; it's a very powerful image.

Peter McCormack: Well, we'll put the image in the show notes and it'll be on the video for people to see.

Alex Gladstein: Yeah, but let's move to the actual data, so what does this mean?  That's just one loan, there are thousands of these loans being poured into these countries in the 1960s, in the 1970s, and in the 1980s and the 1990s, etc.  So I'll give you the outcome, so here's some data; so, between 1970 and 2007, so that's from the end of the gold standard to the Great Financial Crisis, the total debt service paid by poor countries to rich ones was $7.15 trillion; that's the debt service.

Peter McCormack: Against loans of how much?

Alex Gladstein: That's just what they paid.  Obviously, what was given to them was way less because that's the principal plus interest.

Peter McCormack: So, that's over 37 years?

Alex Gladstein: That's over 37 years.

Peter McCormack: What's global GDP?

Alex Gladstein: Well, the annual GDP of the US is around $20 trillion, so it's a lot of money, but the point is, it's the equivalent of 71 Marshall Plans, so the Marshall Plan that helped rebuild Europe; we're talking many, many multiples of that flowing from poor countries to rich countries.  So basically, 1982 was the year when everything switched.  So since 1982, the amount of money that has flowed from poor countries to rich countries has dwarfed the amount of aid and loans that are sent the other way.  So, here is some more data.

Peter McCormack: It's pure resource drain.

Alex Gladstein: Yeah, it's pure resource drain; I didn't know this.  So, according to a study from 2012, that year, this gives you a one-year example more recently, developing countries received $1.3 trillion.  This included the investment, aid and income, everything, so all of the value that flowed to poor countries was $1.3 trillion; that same year, $3.3 trillion flowed out.

So, developing countries sent $2 trillion more to the rest of the world than they received.  And then here's where you add up all the flows from 1980 to 2012, so in the preceding few decades, $16.3 trillion was drained out of the developing world.  So, these institutions were supposed to rescue and save these countries, and the outcome is the opposite, and the people who work at these institutions should have to answer to that; why is this the case? 

I guess what I would say is that, look, if it's a one-time problem, maybe it's a mistake, and a lot of the critics -- this is where my thesis differs from the traditional criticism of the Bank and the Fund; the traditional criticism of the Bank and the Fund, some of it's libertarian -- the libertarians, of course, say the whole thing's a waste and the taxpayer shouldn't pay for this absurd expenditure of money in the Third World that doesn't do anything.  The Marxists have other criticisms, but a lot of people have criticisms of these institutions, Stiglitz, there are all kinds of mainstream people who have said that the institutions aren't good.

The problem is that their argument is that there are too many mistakes made, they're incompetent, they're corrupt, the Bank and the Fund are messing up; I don't think that's a sufficient answer.  I think if you have clear resource drain every year since 1982, it's not a mistake, that can't be a mistake, I don't believe that; I think it's actually institutionally structured this way.  It is a result of policies that squeeze poor countries and reduce their consumption at the expense of selling us stuff, and enormous amounts of debt along the way; that's literally what has occurred.  So, I don't accept the idea that this is some sort of mistake or mismanagement or we screwed up, no, no, no, I think this was quite intentional. 

Peter McCormack: What about the scenarios where we will see or hear about a country, maybe Lebanon is a good example, which is suffering from massive inflation or economic collapse and their only option appears to be to go to the World Bank?  In those scenarios, what is the duty of the World Bank?  I'm always trying to see the good side.

Alex Gladstein: It's like a drug, so debt is like a drug, it's like heroin; it's extremely addictive and it's really hard to get off of and it's very painful to get off of, but getting off of it is the right choice.

Peter McCormack: Okay.

Alex Gladstein: So, these countries should have made painful choices a long time ago, but they were convinced not to do so by the drug dealers, meaning the World Bank and the IMF. 

Peter McCormack: Here's a free sample!

Alex Gladstein: Yeah.  If you think the world is a free market, which I don't think it is, and we can get into that, but the point is that if you think the world's all free markets and capitalism, then there should be bankruptcies, people should be allowed to fail, right?

Peter McCormack: Yeah.

Alex Gladstein: There shouldn't be bailouts.  The problem is that every time one of these poor countries defaulted or basically couldn't pay, what we should remember is that every liability is somebody else's asset.  So, when $100 million is loaned to the Congo, to Mobutu in the 1970s, this horrible dictator who was ruling what was then called Zaire, and either the Fund or the Bank gave him $100 million for something, that loan is an asset on a western bank's balance sheet.  So, that western bank does not want that to go to zero, no way.  So then Mobutu says, "Well, I don't have the money; sorry, I can't pay you back".  So, the IMF says, "Okay, here's some more money".

Peter McCormack: And Mobutu grabs it.

Alex Gladstein: The original loan is preserved as an asset on the balance sheet, and Mobutu starts using the new money to pay back the old money.  Basically, by the mid-1970s, American policymakers and people at the Bank and the Fund realised that the only way these poor countries would be able to pay the debt back was with more debt; it was a literal Ponzi scheme.

Peter McCormack: Right, but we do hear there are certain conditions that come with debts.  So, I seem to remember, I'll have to look it up, whether it was Cyprus or Greece during their crisis, there were conditions of the World Bank loans where they had to change something like tax, their tax rates had to change; I'm trying to remember.

Alex Gladstein: Yeah, I'm going to give you the playbook.

Peter McCormack: Yeah, I'm trying to remember, but there are certain conditions that come with the loans.

Alex Gladstein: People call it the Washington Consensus, but here's the playbook.  I have ten things that the IMF or the World Bank would do; the IMF would do this from inception and the World Bank started increasingly doing this since 1980, which again is tying the loan, which again is not free to begin with, it means the poor country has to pay back more than what it receives over time.  In addition to that, they came with conditions, which is called structural adjustment.

So, that means usually a mixture of ten things; the first one is currency devaluation.  So, again, this is like the doctor coming into the patient who's sick and saying, "You have to do these things to get better".  So, the first thing they'll do is try to do currency devaluation.  Again, all of these things are meant to generate more exports so that the country can generate more hard currency to pay back its debt.  Okay, so currency devaluation; most bitcoiners will understand that that's really bad for savers, for individuals. 

Number two, the abolition or reduction of foreign exchange and import controls, so typically like western countries have controls on these sorts of things.

Peter McCormack: Of course.

Alex Gladstein: We like to say that we're all free market, but we're not, we have these controls.  But when a poor country has a crisis, we say, "You have to get rid of all your controls", which of course leads to massive capital flight; all the rich people take the money out of the country.  A lot of the drain that we speak of is corporations and rich people taking the money out.

Number three, the shrinking of domestic bank credit.  So, this is particularly devastating to local businesses because let's say you're a small entrepreneur in, I don't know, Mexico in the 1980s, when the IMF came in and requested that the bank credit be shrunk, all of a sudden it's really hard for you to get a loan to do your stuff.  Meantime the multinational corporations, they don't have any problems borrowing from abroad, so it really hurts the little guy at the expense of the big one.

Number four would be jacked-up interest rates, so they tell the country to really jack up the interest rates, which of course as we're finding out now in rich countries, really hurts the economy and really hurts people, hurts a lot of people, okay.  Number five, they increase taxes big time, all kinds of taxes.  Number six, an end to any subsidies on food or energy.  So, again, these are poor countries, and I'm kind of a free market guy for sure, I love capitalism, but when you have a country like Sri Lanka that's been, for a long time, giving free rice to its people, and you have Britain, which is giving free healthcare to its people, saying, "You can't do that anymore", that's a double standard, and that's not a free market.  So, you have this country that's used to free rice, which again may not be the best economic decision, but you know what, it's helping people in a way.

Peter McCormack: People can eat.

Alex Gladstein: People can eat, and all of a sudden, they can't eat, they get really pissed, right, so protests, etc.  Wage ceilings, so this one's tough.  So, even though the prices of goods go way up after structural adjustment, the IMF says that you can't do any minimum wage-type stuff, so you have to put a ceiling on the wage.  The whole point is to squeeze more out of the countries without the workers getting more.  You know the labour sharing economy?  The IMF policies are designed to make the share of labour in an economy be as small as possible, to screw over the labourers basically.

Then there are restrictions on government spending, especially in healthcare and education.  So, again, I don't think it's the greatest idea for the government to be in charge of these things, but you've got to understand, in the late 1970s, these African countries had free healthcare, a lot of them had free healthcare; now, was it good?  Probably not, but to go from free healthcare to then no free healthcare, and it's really expensive, is really bad, and led to massive reduction in child and mother mortality, deterioration in those rates; research has shown this.

Number nine, favourable legal conditions and incentives for multinational corporations.

Peter McCormack: There we go!  Yeah.

Alex Gladstein: So, the subsidises, tax breaks, all kinds of things for giant corporations from our countries to go in and take all this stuff.

Peter McCormack: It's asset stripping.

Alex Gladstein: Finally, the fire sale or garage sale on state enterprises and claims on natural resources.  So, these governments are going bankrupt, they have to pay back their debt, one of the things they might do is sell off the national oil company, or whatever, to a foreign company, by the way, at a fraction of what it costs to make.  So, you get to come in and pick up the pieces.

So, structural adjustment meant any combination of these ten things, often all ten in many cases.  The IMF is actually quite transparent, it's not transparent in a lot of ways, but it's transparent in there's a website you can go to and if you just google "IMF history" and insert the name of the country, it'll show you the entire history.  For example, do Argentina, do "IMF History Argentina" in Google; check this out, Pete.  So, this is all of the IMF loans to Argentina.  So, you can think about this as every time the government in the Argentina have a crisis, starting in 1958, you see over there the amount agreed and the amount drawn, those are the loans that were taken.

Peter McCormack: So, $81 billion agreed.

Alex Gladstein: Yeah, at the beginning it was $75 million, and mostly recently --

Peter McCormack: Holy shit!

Alex Gladstein: Only four years ago --

Peter McCormack: $40 billion!

Alex Gladstein: -- Argentina got the single largest loan from IMF in its history, almost $41 billion.

Peter McCormack: When it says "amount drawn" is that how much of that they've used?

Alex Gladstein: Yeah.

Peter McCormack: Oh, so they've still got access to another $9 billion if they want it?

Alex Gladstein: Yeah, exactly, as of right now, yeah.  They took $31 billion!

Peter McCormack: And the amount outstanding is how much they still owe?  Hold on…

Alex Gladstein: No, the amount agreed column is just the IMF says, "We'll give you $41 billion", and Argentina doesn't have to take the whole $41 billion; they've taken $31.9 billion.

Peter McCormack: But that's how much debt they owe back, so every time there's a new loan, it essentially repays the old loan?

Alex Gladstein: Yeah, so see the $41 billion paid off all the old stuff.

Peter McCormack: Paid off all the old stuff.

Alex Gladstein: But they still owe £31 billion.

Peter McCormack: Yeah.

Alex Gladstein: And I'll give you the numbers.

Peter McCormack: So, essentially, they're wrapping it up into a new loan?

Alex Gladstein: Yeah, but check this out; this is insane.  So, basically, if you look at the total debt owned by poor countries, we call it the external public debt, okay, that was $46 billion in the year 1970, today it's $8.7 trillion.  So, in the past 50 years, countries like India, the Philippines and the Congo, now owe their former colonial masters 189 times the amount they owned in 1970; they've paid $4.2 trillion on interest payments alone since 1980, and for every one dollar of aid that developing countries receive, they lose $24 in their outflows.

Peter McCormack: They're loan sharks.

Alex Gladstein: Yeah, they're drug dealers, they're loan sharks, whatever you want to call it.

Peter McCormack: The behaviour of loan sharks is to keep you permanently indebted; the traditional loan shark is to knock on the door, say, "Do you need £50 to borrow to get you through to payday?"  "Yeah, I need £50".  "Great".  By the time next payday comes you own £200; you're permanently in debt, you can never pay off the loan.

Alex Gladstein: No, and I have to read this quote.

Peter McCormack: Motherfuckers!

Alex Gladstein:  I know that you and Saifedean are not the best friends, but I will say the guy has an incredible chapter in his book, The Fiat Standard, on this, and let me read this.

Peter McCormack: Okay, no, I'm happy to read it.

Alex Gladstein: "When World Bank planning inevitably fails and the debts cannot be repaid, the IMF comes in to shake down the deadbeat countries, pillage their resources and take control of political institutions.  It's a symbiotic relationship between the two parasitic organisations that generates a lot of work, income and travel for the misery industry's workers at the expense of the poor countries that have to pay for it all in loans.  The more one reads about it, the more one realises how catastrophic it's been to hand this class of powerful yet unaccountable bureaucrats an endless line of fiat credit and unleash them on the world's poor.

"The arrangement allows unelected foreigners with nothing at stake to control and centrally plan entire nations' economies.  Indigenous populations are removed from their lands, private businesses are closed to protect monopoly rights, taxes are raised, properties confiscated, tax-free deals are provided to international corporations, while local producers pay ever higher taxes and suffer from inflation to accommodate their government's fiscal incontinence.  As part of the debt relief deals signed with the misery industry, governments were asked to sell off some of their most priced assets, this included government enterprises but also natural resources and entire swaths of land".

So, that's what we've been talking about; these people are basically debt enforcers.  Someone wrote a book in the 1980s which I thought had the brilliant title, The Debt Squads, they're the debt squads.  So, the point is that these institutions have forever changed the shape of these societies and they've done so largely in league with dictators, which is why I got interested, and I want to talk about that.

Peter McCormack: Just a couple of questions before we go on to dictators.

Alex Gladstein: Yeah, sure, go ahead.

Peter McCormack: Okay.  So firstly, have I been gaslighted my entire life with the word "aid" by the belief that aid sounds like a good word like, "Aid, we're giving aid to countries"; is it just a fucking loan?

Alex Gladstein: So, this is not a conversation about the effectiveness of actual aid; that's a different conversation.

Peter McCormack: But is aid actually a loan; is it a gift or is it a loan?

Alex Gladstein: So, ODA includes both, Official Development Assistance includes both aid and loans.  Let's just put it this way, I still think it's a good idea for people to be charitable and to help people at a time of need.

Peter McCormack: Agreed.

Alex Gladstein: And there are very effective ways to do that in different ways, and even the US Government still, at times, can do that.  Like there will be a natural disaster and we'll use our army to go in and feed people, and that's helpful.  The percentage of assistance that is pure aid versus loans is very small, so when we talk about assistance going into these countries, it's mainly loans that need to be paid back.

Now, in the last couple of decades, the IMF and World Bank came under a lot of scrutiny, so they started to change some of their policies to make it look like they were less exploitative.  So, now there's a category of what are called Highly Indebted Poor Countries, they're HIPCs or whatever.  Now, these countries can qualify for what's called debt relief, which often means the loans they get are interest free and they can be repaid over a really long period of time, but it's only adding to the debt pile, and not all of the loans they get are in this way.

So again, all you need to see to understand the failure of the Bank and the Fund is the fact that the debt of the poor countries has gone exponentially higher than it used to be.  So remember, again just zoom out, 50, 60 years ago, these countries they were poor, it's true, they were poor but they weren't debt slaves, they didn't owe money to other countries.  Today, the number one thing they have to do when these governments sit down to pay their monthly bill essentially is service debt; that is a really broken world.

Peter McCormack: So recently I saw, was it John Kerry, was sat down with Maduro, was it John Kerry? 

Alex Gladstein: Yes, he had a handshake with Maduro, yeah.

Peter McCormack: Yeah, and Maduro recently, the last recent years, has been subject to sanctions as a dictator.  Now, the US has an energy crisis, needs potentially access to oil.  We know that Venezuela hasn't been mining oil to the extent it could previously because the infrastructure failed, because I don't know what it is, something to do with the heavy oil it is, it's deep down and it's hard to mine and the infrastructure failed.

Alex Gladstein: If western engineers can't go in, the communist ones are not very good at digging oil.

Peter McCormack: Yeah, so is this another example of a similar situation we're going to see here;  are we going to see exactly the same, like will Maduro be brought back into the international fold; will Venezuela be offered loans in return for access to these resources?

Alex Gladstein: Probably, yeah.

Peter McCormack: Is this the same scenario?

Alex Gladstein: Yeah, and look, again yeah, it's all about our needs as large western industrial powers.

Peter McCormack: Can you find that, by the way?

Danny Knowles: Yeah, will do.

Alex Gladstein: There's a video of them shaking hands.  But the overall point is that basically the IMF never met a dictator it didn't like, and it wasn't political, like you'd think, "Oh, it must be Cold War so they must not have given any money to the communists", that's totally not true; so, I'll give you three examples. 

So, they gave a ton of money to Tito in Yugoslavia, a notorious socialist dictator, they gave a ton of money to Ceaușescu in Romania, communist dictator, and they gave a bunch of money to Nyerere in Tanzania, who ruled for like 20 years and was a hardcore socialist; basically, all three of these people totally bankrupted their countries.

I met a guy yesterday at the event we're at who showed me a banknote from the 1990s from Yugoslavia, and they had hyperinflation like Zimbabwe levels; I think he said three of the worst five hyperinflationary events in the world were in Yugoslavia.  Basically, these were the outcomes of the policies of these leaders.  The point is the IMF and the Bank didn't necessarily use Cold War lenses, they would just lend to anyone who could benefit them.

So, this is different than you talk about the CIA and American foreign policy during the Cold War, that's like level one; we're on a second level here, the IMF and World Bank are operating on a metalevel.  We're above Cold War politics, we're at the level of timeless strong countries abusing poor countries; this is way beyond the Cold War, and other countries do it too in their own microcosm.

Peter McCormack: China, Belt and Road is exactly the same policy.

Alex Gladstein: Yeah, exactly.  Now, they won't be as effective as the United States and its allies because they don't control the reserve currency of the world, but they are absolutely trying to copy the playbook of the IMF and World Bank, in fact I have a quote here.

Danny Knowles: So, does the Belt and Road just show that this would happen with or without the World Bank and the IMF?

Peter McCormack: You're basically saying is this just power games?

Danny Knowles: Yeah.

Alex Gladstein: Yeah, well I'll let the listeners and viewers judge, but here's the description of the Belt and Road scheme, and I'll let you determine how closely you think this reminds you of something else that we've just covered. 

Okay, "So, through its $1 trillion One Belt, One Road initiative, China is supporting infrastructure projects in strategically located developing countries, often by extending huge loans to their governments.  As a result, countries are becoming ensnared in a debt trap that leaves them vulnerable to China's influence.  The projects that China is supporting are often intended not to support the local economy, but to facilitate Chinese access to natural resources, or to open the market for its low-cost and shoddy export goods.  In many cases, China even sends its own construction workers, minimising the number of local jobs that are created".  They're following the IMF blueprint to a tee, literally to a tee; that's exactly what's the IMF does.

I don't know how successful they'll be, but the point is the Soviets did some of this, the Chinese will do it, every great power will do it to weaker countries.  So, what I mean by operating on a different level is simply that this is kind of timeless I think, a timeless struggle, and I don't know if changing politics really alters it very much.

Peter McCormack: Did I read yesterday 12 countries have applied to join BRIC?

Alex Gladstein: It's possible.  I'm not very bullish on China, for a variety of reasons; it's an energy and food importer, it has the demographic crisis, its population is shrinking.  I don't think it's going to have the same success as the US has had for many, many, many reasons, primarily because it doesn't issue the world reserve currency. 

One of the reasons this IMF and World Bank thing has been able to work so well, especially since 1971, is that it's fuelled by this fiat system.  So, the deposits that are flowing into the Bank and Fund that allow them to offer these loans are generated often essentially from thin air, from the American printing press; it's not like there's a certain amount of scarce resources that are at stake here.

When McNamara was at the World Bank in the 1970s, again he realised this concept that these poor countries could only pay back the debt with more debt, so he was like, "All right, we're just going to expand the debt in a massive way", and all of a sudden, all the admins, the hundreds of people who worked at the Bank and the Fund, had to allocate like four or five times as much money each year, and that's what led to what I call these white elephants.

White elephants are these enormous projects in these poor countries that clearly have no benefit for the local population, and the reason they were chosen is because it's just easier for the administrators of the loans to deal with.  So for example, if you're like, "Oh my God, I've got to give $1 billion out to Sub-Saharan Africa, is it easier to do 1,000 small projects or a giant dam?"  Well, obviously the giant dam.

So a lot of it, as you point out, is incentives that are micro-incentives that shape a lot of things.  But in the end, the massive expansion of the debt that's been extended to these countries has been used for really, really large projects like hydroelectric dams that facilitate the extraction of minerals or transmigration, which I definitely want to get into.

The typical white elephant project would be, for example, a dam that electrifies the ability of a foreign company to dig out bauxite from the ground and put it on a train and ship it to the coast and put it on a ship and get it out of there with zero benefit to the local population, and often these multinationals own 90% of the stock in the company and the corrupt dictator owns the other 10%.  So oftentimes, it would be literally like they would build a train track from the mountains to the coast to get this stuff out and they would electrify this whole apparatus, but there would be all these poor people along the way who are still using oil lamps and stuff. 

So, a lot of what the Fund and Bank did, again, are really just designed to extract resources from these countries, which again is either through the production of raw goods with cheap labour, like the shrimp example, or literally just natural resources, yeah.

Peter McCormack: When you see announcements now by the IMF or the World Bank, do you see it with a completely different lens, and especially thinking about, say, what's happened with El Salvador?  I know you've been very critical of El Salvador, but at the same time, there is this Bitcoin policy within the country and it has been challenged or questioned by the likes of the IMF; do you see it with a different lens?

Alex Gladstein: Totally, yeah.  So, currently, right now, we're about to enter into another decade that's like the 1980s.  So, the 1980s for poor countries was like the Great Depression for us; they lost everything.  Their GDP was reduced by 10%, 20%, more in some cases, again the share of labour in the economy went way down, the standard of living was just absolutely crushed, the amount of hours you had to work to feed your family went way up basically; that was a result of this Ponzi kind of pumping.  As I was describing before, you had more debt paying for more debt, paying for more debt.

Peter McCormack: Yeah.

Alex Gladstein: So, when Paul Volcker raised the price of debt, the cost of capital way up to solve America's domestic problems, it meant that all these countries, all of a sudden, they had a massive crisis.  That's when you really saw the IMF get supercharged because it had been doing its thing in the 1950s and 1960s and 1970s, but in the 1980s it assumed like a whole new role and it became much, much bigger, ditto the Bank.  That's why you see the debt of these countries really start to rise in the 1980s; their economies totally failed and seized up. 

Again, for example, Mexico was like the Lehman Brothers moment for the World Debt Crisis.  So, Mexico, in 1982, said, "We can't pay our debt back", and the US Government was like, "Wait a second", and they realised the debt Mexico owed was an enormous percentage of US banks' balance sheets.  They were like, "No, you can't go bankrupt; we're not allowing that, so we're going to come bail you out with a huge amount of money", and that of course, it's been dwarfed by more recent stuff, but we came in and we gave, through the Bank and the Fund, just enormous amounts of money. 

That kept going, and even though it's weird, the debate around the Fund and the Bank I think have reduced recently, the amounts have gotten bigger and bigger and bigger; so, you saw the amount for the Argentina just a couple of years ago.

Peter McCormack: Yeah.

Alex Gladstein: In the 1980s, there was a new level of lending with the Third World Debt Crisis; in the 1990s, there was even bigger level of lending during the Asian Financial Crisis; and in the 2010s, there was an even bigger level of lending which dwarfed the other ones in the European Debt Crisis.  So, all of a sudden, you didn't just have countries in Latin America and Africa and East Asia needing these funds, you had countries in Europe, you had Greece and you had Iceland and you had Poland and Spain basically needing bailouts, and they used the same playbook; they came in and literally the playbook I just went through, they would use a lot of that for European countries as well.

Then, to really put the cherry on top, you have the lockdowns.  So during COVID, the IMF and World Bank became much bigger, so now the IMF is a $1 trillion institution.  So, it used to be a $250 billion, and then it was $750 billion, and now, post-COVID, lockdown, pandemic, it's like $1 trillion.  So, they've actually grown an enormous amount over the last few decades.

Danny Knowles: In some ways, are they trapped by the exact same thing that the countries that they're seemingly helping are trapped?  Like, if they know that all these countries are massively indebted and can't pay back their debt, they can either let them fail of give them more debt, so are they stuck between a rock and a hard place as well?

Alex Gladstein: Well, not really.  The right thing to do would be actually, in my opinion, to cancel some of the debt actually, but that means that western banks lose assets.

Danny Knowles: Yeah.

Alex Gladstein: And they're beholden to those banks.

Danny Knowles: So in that way, are they trapped, like they have to issue more debt to let this continue for as long as they can?

Alex Gladstein: Yes, but I don't have sympathy for them.

Danny Knowles: No.

Peter McCormack: But I think I know what Danny's getting to; you alluded to that the 1930s, this Great Depression could have been part-caused by the end of colonialism, and could we see another depression caused by the fact that this financial colonialism ends and these debts will have to be wiped out or not paid off?

Alex Gladstein: Yeah, I think there's a good chance that this -- and it's all part of the fiat system, this fiat debt bubble that a lot of your guests talk about, it's going to pop at some point, and I don't know if that's a gradual thing, it could be gradual, or it could be seismic, but it has to unwind, and we're seeing a little bit of that right now in a very small extent, but you see even what a small unwind does to the economy, right?

Peter McCormack: Yeah.  Everything you do, every three months, you and I sit down, we have a conversation about some new piece of research you've done, whether it's the IMF or the World Bank, whether it's the dollar as a reserve currency; are you connecting all the dots now?

Alex Gladstein: It's all connected.

Peter McCormack: It's all connected?

Alex Gladstein: Yeah, and I think this was the missing piece for me, understanding the role of the Bank and the Fund, because again, the Fund is the world's international lender of last resort and the Bank is the world's largest development bank; they're really important to how every financial market works, and the fact that they're not discussed when we talk about macro is I think a mistake.

Now, to speed up to date, right now, and to talk about El Salvador, again right now, we're about to see the 1980s over again for these countries; the US Government is raising the cost of capital, the Fed Fund's rate is skyrocketing, we're going to have another 50 basis point increase next month probably, it's making all this debt that they have way more expensive.  You could just imagine how insane this is now, these countries.  At least they were bailed out by the fact that there was zero interest rate policy, at least the cost of borrowing was pretty cheap in the last decade; it's not going to be cheap anymore. 

So, you're going to have a list of state failures, so it's already started to happen.  So, we saw Sri Lanka, we saw Iraq; the new meme is people swimming in a swimming pool of the former president, right?  We're going to see a lot of that, this decade.  So, now the IMF is going to try and step in and try to prevent some of this stuff from happening, so it's got to shift its resources away from Europe, where it was trying to hold together the EU essentially and kind of excuse and subsidise the lockdown policies, it's got to now shift back to the Third World, and that's what's happening right now. 

So, the IMF has just been in Egypt making a big deal with the military dictatorship there.  The IMF is going to Ghana; Ghana's one of these other countries that's had this super long history with the IMF, they've been bailed out a million times, they should have just been bankrupt and restarted and instead they've been kept alive like a zombie essentially, and the Ghanaian currency, the cedi, is the worst-performing currency in the world this year.

I'll probably end my essay thinking about the dichotomy between the IMF visit to Ghana, which just happened a few weeks ago, where these people are going to come in with reckless abandon and totally crush the lives of all these people just so that that economy can squeeze out more hard currency to pay its debts, and the contrast couldn't be greater with the Africa Bitcoin Conference, that my organisation is really delighted to sponsor, where we're going to be coming in and showing people how to escape from this system through Bitcoin; I think that's pretty fucking cool.

Peter McCormack: Yeah.

Alex Gladstein: So basically, that's kind of where we're at is the IMF and World Bank are going to get a lot more relevant in the developing world again, and I hope we can create a dialogue around that.  What really got me thinking was I was considering, so we talk about how Mao and Stalin probably killed 100 million people in the 20th century, these are rough estimates but most of them didn't die by the sword or the gun, most of them died because of disastrous agricultural policy; you had people who didn't know how to farm being moved to farms and then they starved to death, things like that.  You had people dependant on imports of a particular food stuff, and then that just disappeared and they all starved, so it was usually agriculture related. 

So, no one's ever done an accounting of how many deaths the World Bank and IMF structural adjustment policies inflicted on a developing world, essentially in the 1970s and 1980s, but just generally speaking, but you can do the maths.  So again, studies show that for every 2% decline in GDP, mortality rate increases by 1%, or rather deteriorates by 1%. 

So, if you think about how structural adjustment and austerity policies imposed by the Bank and the Fund caused massive contractions in GDP for some of these countries over the years, we're talking millions and millions of deaths, maybe tens of millions of deaths; it can probably be calculated, and someone should do it.  And you know what, there's never going to be any justice, no one's going to go to prison, it's all in the past, but we can at least talk about it and acknowledge it, and I think that's important.

I was talking the other day with a woman from Indonesia, and I do want to mention this case because it's so powerful, and she works for a non-profit that works in this place called West Papua; maybe, Danny, you can bring up a map of West Papua and we can just locate it for Peter.

Danny Knowles: Yeah.

Alex Gladstein: But basically, I talked to her about I'm digging into the World Bank and IMF's role in repression in her country.  Yeah, so you can see this is a map, if you just zoom out a little bit, yeah, so you can see Indonesia. 

Peter McCormack: Yeah.

Alex Gladstein: So, Papua and West Papua constitute the western half of the Island of New Guinea.  So, New Guinea is this incredible treasure, it's so rich in every possible national resource, it has the richest coral seas, it's like a gem on the planet.

Danny Knowles: It's got such a dense forest that parts of it are still unmapped, it's that wild.

Alex Gladstein: It has the third largest rainforest in the world after the Amazon and the Congo, and if you just for a second -- so the eastern half is its own sovereign nation, Papua New Guinea, which was at one time an Australian colony, the western half has been under military occupation by the Indonesians ever since Indonesia became independent from the Dutch.

In 1969, there was something called the Act of Free Choice, so basically in the western half of the island you have hundreds of indigenous tribes that have nothing to do with -- Indonesia is really that island on the left.  Java is where most people live, this enormous island over on the left under Sumatra, that's where like 100 million people out of the Indonesian population live, and the Javanese basically colonised all these small islands.  The people who live in West Papua are totally different ethnicity, different religions, everything, they're just different. 

So, you have these people there and they've been relentlessly persecuted by Dutch colonialism and then, in 1969, the Indonesia military did like a puppet vote where they picked 1,000 people in front of soldiers who had guns and made them say whether or not they wanted to be part of Indonesia, and of course everybody said yes, and that was ratified by the UN. 

So, this has been part of the Indonesia since then, and it's honestly probably one of the world's most repressive police states in the entire planet.  There's no free press, journalists aren't allowed to come in, the military has free reign to kill people, it does it all the time; it's actually really crazy and very few people know about West Papua.  It literally reminds me of Pandora from Avatar, from the movie; it's just this incredibly rich place.  So, in Papua, you have the world's largest goldmine, it's called Freeport, and it's so devastating, I mean it's the largest goldmine in the world, and I'm going to give you some numbers.

Peter McCormack: Holy shit, look at that!

Alex Gladstein: Yeah, so that's the largest goldmine in the world; it's called the Grasberg mine operated by Freeport.

Peter McCormack: Can you click into it, Danny?

Alex Gladstein: It's next to a mountain called the Puncak Jaya, which is a 4,800-metre peak; it's the tallest peak in the whole region.  I'll just give you some data that's I think going to shock you on this. 

Peter McCormack: It's called Freeport.

Alex Gladstein: Yeah, so check this out.  So by the time this mine will be depleted, it will have generated 6 billion tons of waste, more than twice as much rock as was excavated to dig the Panama Canal.  Now, this mine was until recently 90% controlled by this Phoenix-based, Arizona-based company, Freeport, and the rest was given to the Indonesian Government; this company's the largest foreign taxpayer in Indonesia and the local people get literally nothing.

The ecosystems downstream from the mine have been devastated, more than a billion tons of waste have been dumped directly into a jungle river of what had been one of the world's last untouched landscapes.  More than 200,000 tons of toxic tailings, basically waste material from mining gold and copper, are dumped every day into a World Heritage site.  This is part of the kind of Bank/Fund plan, this is like a visual, vivid description of the goal of what they do, is they build infrastructure -- this is from the World Bank's own words; they say, "International business interests want better infrastructure in order to extract and export the non-renewable mineral-enforced assets".  So, this is the kind of project that would be related to what we're talking about here.

Danny Knowles: But Bitcoin mining bad!

Peter McCormack: Yeah, Bitcoin mining is bad, yeah!

Alex Gladstein: But the crazy part is, for these people, they were subject to the world's largest human experiment.  So, if you go back to the map of Indonesia, Danny, so again for a long, long time, the officials in Java have said, "There are too many people here, we need to move them around", so this was called transmigration, and the World Bank actually gave $500 million in the 1980s directly to support this. 

What this meant was people were moved from Java to places like Papua and it was settler colonialism.  Basically, the local people who lived there were pushed aside, all of their shit was burned down and these new settlers were there to grow export crops for the Indonesian Government.  This has been happening, happening and happening to the extent where, in Papua, the ethnic Papuans, let's say, used to be 90% of the population, and today they're less than 30% of the population.  So, it's like cultural genocide that's happening there, and the Bank funded it, it's insane, and again they've never paid a price.

I'll talk about this in my essay, but there was loan not that long ago, in 2001, a huge loan that the banks financed for roads and infrastructure in Papua and a few of the other islands in Eastern Indonesia, and again it's very clear that this project was not to help the local population but instead to build better roads so that bigger trucks could come in and extract more stuff from this place, again one of the world's last remaining untouched landscapes. 

This just shows you really what the Bank and Fund are all about; they couldn't care less about human rights or the indigenous people or any of this stuff.  And again, the people who work at the World Bank probably don't even know what we're talking about; it's so buried under paperwork.  The amount of reports that these institutions create are legion, I mean there are thousands and thousands of pages of stuff.  Of course, the human experience has been completely stripped out of them; they use jargon and all kinds of different euphemisms.  The structural adjustment, you would look at it and say, "Oh, that sounds fine"; it hides the enormous human toll of what has happened.

Peter McCormack: But what we can do?  I know that's a big question.

Alex Gladstein: It's a huge question!

Peter McCormack: But when you talk about shrimp, I had a bloody shrimp sandwich yesterday at lunch!  I don't want to be --

Alex Gladstein: So, we start with knowledge, right?

Peter McCormack: Yeah.

Alex Gladstein: So, I think the most important thing is for people to learn about the Bank and the Fund and to start to at least memorialise in their mind and we create a collective legacy of what they've done, and we try to think about how we can avoid doing that in the future.

Now, I've talked to a few people about this, because again, there's not going to be justice.  Everything the Bank and Fund has done in terms of again squeezing value out of poor countries to benefit rich countries is forever encrusted in our societies.  When you walk around London or Amsterdam or Berlin or New York, yes, a lot of the success of what we've done in western civilisation, or Tokyo, is freedom, is free speech, property rights, press freedom, the stuff that I fight for all the time, is democracy; these things have given us enormous fruits.

What we don't think about is that the other half of the equation has been stealing stuff from poor countries, and that's not acknowledged and we don't talk about that, and it's part of the picture.  So, both have been necessary to create the success of the West.  So, when we talk about a future that's not exploitative it's difficult to think about because we've never seen anything like that before.

Now, I talked at length with Jeff Booth and Saifedean about this, both of them have very interesting ideas relating to this, but one concept is, if there is a Bitcoin standard -- like for now, Bitcoin is just a tool that people can use to escape Bank and Fund policy in a way.  Generally speaking, if you didn't have Bitcoin, you would be completely at the mercy of the local currency being collapsed by IMF and Fund policy, so at least Bitcoin gives you a little bit of an escape; you can borrow from international markets, because again, they constrict lending and they basically shrink everything.

So, if you have a world where we're no longer on the fiat standard and we're in the Bitcoin standard, then the general operations of the World Bank and the IMF maybe become impossible to run, maybe they become more like normal banks that have to be take normal risk instead of being able to bail countries out for decades on end as part of this massive debt bubble.  So, if the debt bubble and the debt party ends, they may have to just be a lot more careful in discriminating about what they fund, or they might just disappear entirely. 

As Saifedean told me, today, if we want to give $30 billion to Brazil for some reason, as long as the Congress approves of it, we send the money to these institutions and they disperse it; it doesn't come from anywhere, it comes from some paperwork, but in a Bitcoin standard it would be like, "Yeah, you and whose Bitcoins are going to send $30 billion to Brazil?" you know what I mean?  So, it may change; it's possible.

Peter McCormack: Well, it reminds me of what you said before about war bonds.

Alex Gladstein: Exactly.

Peter McCormack: If the war bonds went, it's because people wouldn't want to fund it.

Alex Gladstein: Yeah, the Bitcoin standard, it's going to be a lot more difficult to finance forever wars, and it'll be a lot more difficult to finance the Bank and the Fund.  I also think there's something interesting about maybe a world where everybody's on the same currency, because currently the Bank and Fund exist, in many ways, to prop up the dollar system.  So, if you don't have the dollar system anymore, if everybody's using something that no government can manipulate, it's this neutral currency, then I don't think they can nearly have the same power, and I don't think the disparities exist in such a way. 

The Cantillon effect we often talk about in our own towns and cities and countries, usually in the West, we're thinking about Wall Street and stuff, right, but there's also a global Cantillon effect that we've been discussing basically the whole time of the people who create the money see the most value, and the people who don't create the money get screwed.  The global Cantillon effect is the rich countries and the poor countries, and it's a tale as old as time. 

So, if we break the Cantillon effect, I think we may actually see a change, not only in the labour share of economies where you have the people doing the work getting more the share, which has been completely shrivelled by IMF and World Bank policy, but also globally speaking, these countries with these incredible riches that we've been talking about, both human and natural, and we haven't even gone into Brazil or much of the African continent, but there's such incredible potential in these places.

Peter McCormack: Yeah.

Alex Gladstein: And they will be the biggest countries in the world in the future; Nigeria will be the third-largest country in the world by 2060.  So, these places have so much to offer, and I think in a neutral reserve currency, maybe they can reach their potential.  But the main point of today's talk is we should reflect on our history and what we did and what we've done and what we're doing currently, and maybe it can change, maybe it can, but this is an important thing for us to reflect on.

Peter McCormack: Yeah.  Well, a lot to think about there.  When people talk about their colonial past of the UK --

Alex Gladstein: It's not an ancient history.

Peter McCormack: It's not a past, it's a present.

Alex Gladstein: Again, the Indonesian taxpayer is still paying off loans from that, from these projects.

Peter McCormack: Yeah.

Alex Gladstein: And, as you saw from that visual on Argentina, the Argentines now have $31 billion that they owe to the IMF.  Again, have you ever heard of this concept -- we can maybe finish out with this -- there's this idea of odious debt.  So, odious debt was invented by the US Government when we liberated Cuba from the Spanish empire, and the Spanish had been basically subjugating the Cubans, this was like 100 years ago, America said, "You Cubans, you don't owe the debt that your occupier incurred; that would be unfair".  So, we called it odious debt.

So, the whole point of what we've been discussing today is that, again debt takes two, it takes two, it's a dance, so the borrower was almost always a dictator or some sort of unaccountable corrupt leader, and they borrowed that money, sinking their country into misery in a way that was not done with consensus of the people.  So, the question is, if you live in a country like the DRC, should you be responsible for all the debt incurred by Mobutu?  The answer morally is no, absolutely not; the problem is that, again, that debt exists as an asset on a western bank's balance sheet and they don't want that to go to zero, so the game must go on.

Peter McCormack: As Danny would say.

Alex Gladstein: So, the irony is there's only one country in the last 20 years that has actually gotten qualification for odious debt; it was Iraq after America invaded Iraq.  So, Saddam had all these debts and we said, now that we had our little colonial possession, we said, "No, this doesn't owe those debts anymore".

Peter McCormack: Was that after they surrounded the Ministry of Oil?

Alex Gladstein: All that stuff happened at the same time.  The point is that we did it in such a way we're like, "It was a one-time exception", but the reality is all these poor countries owe staggering amounts of debt; again Argentina, $31 billion, a lot of that was borrowed by dictators, military dictators in the 1970s and 1980s.  The Argentinian people should not have to pay that debt, that's insane; they never voted for that ever.

So, the answer is that a lot of the debt of the world, an overwhelming percentage of what our assets on balance sheets is, is odious, was created in an unfair contract, and that's got to change, and maybe Bitcoin helps pop that bubble, and I don't think it's going to be pretty.  Again, to finish with the heroin addiction comparison, it's true, these countries are heroin addicts and they're completely addicted to debt, and the drug dealers have been selling and selling and selling and convincing them that they should just buy more, "Don't worry about it".  It's going to be very painful, but it's way less painful than being an addict forever; you have to go to rehab.

Peter McCormack: When's the paper going to be finished?

Alex Gladstein: Right before the Ghana conference, so the end of November, so hopefully people will be listening to this right after Thanksgiving, right before Accra, which is 5, 6, 7 December, and I want it to come out then so that as we go to Accra and gather in Africa, in Ghana, we can think about these big issues.  But yeah, so people should learn about the Bank and the Fund and think about their own complicity in this and think about the fact that a lot of the success they've had in life has been subsidised by the deprivation of wages and standards of living of poor people abroad.

Peter McCormack: Yeah, it feels shit.

Alex Gladstein: Yeah, it's not a good feeling.

Peter McCormack: Yeah, it's not at all.

Alex Gladstein: But we should acknowledge it.

Peter McCormack: Yeah, I absolutely acknowledge it, but yeah, it feels shit, yeah.

Alex Gladstein: Look, maybe Bitcoin doesn't fix this but I think there's a chance that it really disrupts it in a big way, so thank God for that and let's keep working on that.

Peter McCormack: Well, thank you for doing this, Alex, and good luck in Ghana; I wish I could I go.  I'm sure you're going to have a great time.

Alex Gladstein: We'll carry the torch for you.

Peter McCormack: Thank you.  Next time I will be there.  I hope you appreciate the fact that as you say Jeff Booth's name, he wanders through the door.  This is the magic of What Bitcoin Did; any name you say, we would have allowed them to wander through the door, so hi, Jeff.  Okay, Alex, thank you so much.  I look forward to reading the full article and I'm going to ponder on this a lot.

Alex Gladstein: It's heavy stuff.

Peter McCormack: It is heavy.

Alex Gladstein: But thank you for giving me the opportunity.

Peter McCormack: Always, man, always.

Alex Gladstein: All right.  Thanks.

Peter McCormack: Thank you.