Lends money to low income countries
Requires those countries to implement structural adjustment programmes (SAPs)
SAPs claimed to lead to increased poverty
SAPs claimed to lead to environmental degradation

The IMF lends money to low-income countries, and has become one of the few sources of such loans since Mexico threatened not to pay back its $US80 billion debt in 1982. The IMF, together with the World Bank, imposes conditions on countries borrowing money to ensure they are able to repay the loans. These conditions are known as structural adjustment programs. These programs result in less money being spent on social services such as health, education, housing, transport and water supply, while great effort is put into mining the countries' natural resources or producing raw materials for export. These measures affect the poor in the low-income countries worst: government cutbacks in services are leading to more unemployment, while food subsidies are being cut and prices for essential commodities like water are going up.

Because many countries were exporting the same raw materials&emdash;such as copper, iron ore, timber, sugar, cotton and coffee&emdash;the prices for these export goods dropped dramatically during the 1980s, as shown in table 15.4. When the prices went down, each individual country had to export more to earn the same amount to pay its debts; and the more it exported, the more the prices went down. Between 1980 and 1987 the prices of thirty-three commodities exported by low-income countries went down by an average of 40 per cent. During that time, the price of food fell by 10 per cent per year and the price of minerals by 6 per cent. This gave affluent countries cheap raw materials for their manufacturing process but kept the poorer countries in a cycle of worsening debt. Some countries depend on just two or three commodities for export earnings. (George 1992, p. 25; New Internationalist, November 1988, p. 17)

This situation has meant that even though many low-income countries have increased the quantities of their exports, their incomes have gone down. For example, between 1980 and 1985 Thailand increased its rubber exports by 31 per cent based on an average of the previous five years, but it earned 8 per cent less for them (Shaw 1988, p. 16). Latin American nations doubled exports in the early 1980s but found that export earnings fell by 5 per cent per year (New Internationalist, November 1988, p. 16).

The Economic Policy Institute of Washington has found that these falls in commodity prices were a direct result of IMF/World Bank policies and their advice to low-income countries. It says that such advice to individual countries was not co-ordinated, and resulted in the huge increase in the supply of commodities on the international market. While the low prices are devastating to low-income countries, they have been a boon to high-income countries that have been able to keep inflation down in their own local economies (Raghaven 1991c, p. 13).

The requirement to export also adds to poverty and hunger. Land which had previously been used for growing food crops is set aside for growing export crops such as tea and coffee. As prices have plummeted for these export crops, small farmers have found it hard to afford the food that previously they would have been growing themselves.

Writing in the magazine Third World Resurgence, Michel Chossudovsky (1992, pp. 13&endash;20) outlines how World Bank and IMF policies have transformed low-income countries into open economic territories and 'reserves' of cheap labour and natural resources available to multinational companies and consumers in high-income nations. In the process, governments in low-income countries have handed over economic control of their countries to these organisations, which act on behalf of powerful financial and political interests in the USA, Japan and Europe. Having handed over this control, they are unable to generate the sort of local development that would improve the welfare of their own people.

Susan George, however, argues that debt in low-income countries also affects ordinary people in high-income countries adversely in several ways. Firstly, the people in low-income countries are being forced to use up their natural resources in order to earn foreign currency. This means, for example, cutting down their forests, which contributes to the greenhouse effect.

A second way in which other countries are affected by third-world debt is through immigration pressure. Of necessity, people try to leave places where they have trouble surviving. Usually, high-income countries try to limit immigration to the best educated, younger or more dynamic members of the society (making it even worse for the community that is left behind). Nevertheless, countries such as the USA have difficulty stemming the flow of illegal immigrants from low-income countries such as Mexico and those in Latin America.

A third way that high-income countries are affected is through the downward pressure on wages. Multinational firms and even local firms may find the lower wages in low-income countries attractive because it keeps their labour costs down. In order to compete for this investment, high-income nations are experiencing pressure to reduce wages and conditions in their own countries. For the same reasons, there is also a downward pressure on environmental standards while firms can move to countries where standards are looser.

Finally, until low-income countries have paid back their loans they are unable to import manufactured goods from high-income countries&emdash;and so markets for those goods cannot expand. Susan George (1992, p. 27) argues that 1.8 million US jobs have been lost because most Latin Americans can no longer afford North American products. This has resulted in the loss of huge markets. The debt crisis has caused a substantial downturn in the growth of Australian exports to low-income countries in the Asia&endash;Pacific region. There has been reduced demand for imports in most of the countries in this region since the onset of the debt crisis. Indeed, some countries have a deliberate policy of import reduction, so that foreign exchange can be used for repaying debts.

For countries such as Australia, which are still mainly dependent on the export of raw materials, the situation is even worse. Australian exports of coal, iron ore, wheat, wool, copper and other materials have to compete with exports from countries that are so desperate to earn foreign money to pay their debts that they have devalued their currencies, thus keeping prices far lower than those in Australia.

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