‘India a prime target’

Excerpts from an interview with Davison Budhoo, who resigned from the IMF as a senior staff member in 1988 after listing grave charges against it. Done by V. Sridhar, the interview was published in two parts in the May 22, 1992, and June 5, 1992, issues.

Davison Budhoo.

You have said the debt crisis of the 1980s was engineered by the major member-governments (of the Fund-Bank) working in coalition with international commercial banks. How does the Bank-Fund bureaucracy fit into this?

In the late 1970s, countries tried to avoid the IMF conditionalities by going to commercial banks. A lot of them approached them in the wake of the oil crisis; a lot of others incurred massive expenditures on arms; and in some others, money just went out as capital flight. The engineering came with the sudden increase in interest rates by the U.S. by nearly four times in a single year. This caused a dramatic increase in the debt-servicing burden of developing countries even as international prices of primary commodities slid sharply (there was a lot of engineering here too).

The IMF and the Bank were very much a part of the engineering in that they advised the developing countries to go in for massive export-oriented development. This caused an oversupply of commodities produced by these countries in the face of falling demand. That part was engineered mostly by the World Bank in support of transnational corporations.

In your letter to [Michael] Camdessus [Managing Director of the IMF], you had said the “dynamic” process of decision-making has replaced the “formal” channels. What impact did this have on conflict resolution mechanisms within the Fund and the Bank?

Let me elaborate on what I said then. Most of the staff were bypassing the checks and balances built into these institutions – including the Board of Governors and the Executive Board. The “dynamic” process meant they went directly into the country and desiccated the government and forced it to do things. Moreover, in many cases the staff would decide, in collusion with individual major member-countries, what the conditionalities are. And they would try, even before they went into the field, to justify them based on bogus figures in the briefing paper.

The briefing paper goes to the Managing Director who signs it as if he is requesting the mission to do (what is recommended). The briefing paper is never seen by anybody on the board – it is something internal, prepared by the staff. That is the most critical document of any mission. Once they have that, they have the authority to do what they want in the country they are going to. That is what I mean when I say the “formal” mechanisms have been overthrown by the “dynamic process”.

Are your reform proposals feasible?

For the reforms to be carried out, two things are important. First, a very strong constituency must be built in the Northern countries and among governments in the Third World. At the same time, a powerful network of political parties and other organisations among the people must be mobilised to bring about these reforms. The case for our reform proposals are irrefutable.

When India went in for the standby arrangement with the Fund, the government claimed there was no other option. What is your opinion on this?

The option of a unilateral default by India, I think, was off. But what else could India have done? I think it was bad economic management and bad tactic and that it should have consulted the people of the country more closely before even moving towards an adjustment programme. However, what seems to have been done is an obvious dictation by the Fund as to what India must do. I would have thought India would have spoken to the Fund about devising its own programme based on a national dialogue. I would say India negotiated very badly with the Fund.

Are you optimistic that India will be able to come out of the clutches of the Bank and the Fund early enough?

If, as I understand, India is going into a three-year EFF [Extended Fund Facility] programme, there is no way it is going to come out of that programme. That is a programme to change India in three years, from whatever it is now, to a totally free-wheeling capitalist economy. It cannot be done but you will have a series of three-year programmes after that. Given what has happened in eastern Europe, given the New World Order and given that China is not likely to succumb immediately to free-wheeling capitalism, India is a prime target for the U.S. and the West in terms of the adjustment programme and in terms of free-wheeling capitalism.

The Finance Minister and others do not seem to have considered this strategic importance of India. It is very obvious that the IMF and the World Bank, the U.S. and the West want India to be integrated with the world economy as a free-wheeling capitalist country. I do not see it coming out of that grip once it gets into it.