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How Poor Countries Are Preyed On

November 19, 2008

Today I was digging around to find more examples of how money is taken from the poor and middle class to enrich the wealthy. It is unfortunately easy to find examples, and most of them seem to involve billions of dollars. I came across an example of how our money is used to prey on the people in poor countries to keep wealthy bankers happy and well, wealthier.

The IMF (International Monetary Fund) is one of the multi-national financial organizations that the U.S. Government contributes to. It often works in conjunction with other lenders to help economically troubled nations. Contributions vary and there may be none in some years, although I found examples of contributions of as much as 17 billion in others, and this is just one of the organizations of this sort that taxpayer money is used for. Others include the World Bank and the Treasury Department’s Exchange Stabilization Fund (the latter often works together with the IMF).

Now at first glance it seems like a nice idea to help a struggling country, but how do these organizations actually work? According to the information I found, they do more harm than good. The money loaned byt the IMF, for example, is used to repay creditors, who are often large U.S. Banks. This allows the troubled nations to borrow even more money from banks, even as they still owe the money to the IMF. However, countries that get these debts in order to repay other debts have to meet strict IMF demands. These can include tax increases, budget cuts, and other “austerity measures.”

In other words, poorly run governments are bailed out – probably with much of the money going to corrupt officials – and the people of these poor countries are taxed more heavily so the wealthy owners of the banks can get wealthier. As Ralph Nader points out, this is effectively a subsidization of banks at our expense and the expense of the poor in those countries. Plus, the process perpetuates what it’s supposed to remedy: the effects of bad loans. The IMF (usually working with our Treasury Department) bails out the banks, effectively taking away the risk and saying, “if you loan too much we won’t let you fail.”

This is another example of a transfer of wealth from taxpayers to a wealthy few. What makes it especially tragic is that it just doesn’t help the poor in the end. For example, Andrew Mwenda, the political editor of the Daily Monitor in Kampala, Uganda, says that, “foreign aid and debt relief can exacerbate Africa’s problems by postponing economic reforms and the emergence of a transparent and accountable government.” He points out that despite hundreds of billions in aid, per capita income in sub-Saharan Africa declined by 11 percent between 1974 and 2003.

As a more specific example, he noted that foreign aid in the 1990s provided the government of Uganda with 50% of its revenue, allowing it to avoid accountability to citizens, and to pay the bills without undertaking necessary economic reforms. It enabled the government to borrow even more money and to waste it on military equipment and political patronage. His conclusion: “To promote democracy and accountability, the West should discontinue future aid flows.”

A Cato Institute editorial points out that “the West already spent $2.3 trillion on foreign aid over the last 5 decades and still had not managed to get 12-cent medicines to children to prevent half of all malaria deaths. The West spent $2.3 trillion and still had not managed to get $4 bed nets to poor families.” The list went on, but the bottom line is that one way or another the poor are not only not helped, but money from taxpayers here help make things worse while enriching the wealthy few who truly do benefit financially from these programs. There conclusion: “the IMF, World Bank, and other development banks have consistently made loans to the very Third World governments that have created the worst impediments to economic growth.”

What do you call it when you help a poor country get poorer, while helping the corrupt governments stay in power with large loans, and require the poor citizens to pay back those loans so wealthy western bankers can get wealthier? I call it preying on poor countries. And the taxpayers here – poor or not – get to pay for the process.

Note: This is part of a series. You can find all of the pages listed and linked to here:

The Redistribution of Wealth to the Wealthy

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Poor Countries