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World Bank/IMF Threw Colombia Into Tailspin

Opinion pieces and speeches by EPI staff and associates.


World Bank/IMF Threw Colombia Into Tailspin

by Tony Avirgan

As the United States drifts deeper into the Colombian quagmire of drugs and war, policymakers need to take a new look at the problems of poverty, joblessness, and hopelessness that have made that country such a trouble-spot.

And, if they explore how unemployment in Colombia almost doubled from 10.5% in 1990 to 19.7% in 2000, they will find a surprising pair of culprits: not drug kingpins, leftist guerillas, or right-wing death squads, but the World Bank and the International Monetary Fund, which sponsored draconian “economic reforms” that damaged the nation’s industries and agriculture. The policies promoted by these international lenders, including privatizing many industries and public services, eliminating subsidies of all kinds, raising interest rates, and cutting public services, thrust the economy into a tailspin and wiped out tens of thousands of jobs.

A new report by the Medellin-based Escuela Nacional Sindical (ENS) for the Global Policy Network paints a grim picture of where Colombia stands and how it got there. The devastating rise in unemployment has its roots in a series of economic reforms initiated, with World Bank/IMF guidance, in 1990 to meet the demands of globalization. In exchange for an IMF structural adjustment loan in 1999, Colombia agreed to privatize many industries and public services, eliminate subsidies, increase tariffs for public services, raise interest rates, downsize the public sector, and open up the nation’s economy to world competition.

Some Colombian officials feared the effects of a rising tide of imports. But World Bank and IMF economists assured them that job gains in export industries would more than make up for the inevitable job losses in domestic industries. As in other countries throughout the world, however, these assurances proved empty, and Colombia now imports far more than it exports. leading unemployment to soar.

Colombia’s once vital agricultural sector, which previously met the nation’s needs and exported the surplus, has been devastated. “The country has ceased to be self sustaining, choosing to import what it once exported,” the ENS report says. Colombia now imports more than six million tons of food annually while two million acres of arable land lie idle.

The industrial sector has suffered a similar fate as a massive influx of imports has swamped medium-sized and small businesses. This decline has, in turn, triggered a sharp reduction in the number of salaried workers — from 37.1% of the population in 1992 to 30.7% in 2000.

Virtually the only part of the Colombian economy that has expanded is the least stable and productive for the economy as a whole. This is the vast “informal” sector, which includes, at one end of the spectrum, legitimate but low-paying self-employment such as street vending and, at the other end, drug trafficking.

As a result of World Bank and IMF-sponsored policies, per-capita income in Colombia has plunged from $2,716 in 1997 to a current level of $1,890. Between 1997 and 2000, the percentage of Colombians living in poverty rose from 50.3% to 60.0%.

“When people have a choice of seeing their family starve or breaking the law, laws against drug cultivation mean nothing and some people will take up arms” argues Jose Luciano Sanin of the ENS.

The United States should not be surprised by the increase in drug cultivation and trafficking, and it is not a stretch to hold the World Bank, despite its programs to promote alternative crop production, and IMF at least partially responsible.

Tony Avirgan is the Global Network Coordinator at the Economic Policy Institute, a think tank based in Washington, D.C.


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