- Jomo Kwame SundaramMalaysian economist and writer.
World Bank President David Malpass said Wednesday he will resign his post by the end of June, nearly a year before his five-year term is set to expire. Malpass was nominated to head the World Bank in 2019 by then-President Donald Trump. We are joined for an extended Part 2 interview with Malaysian economist, professor Jomo Kwame Sundaram of the Khazanah Research Institute in Kuala Lumpur about the power of institutions like the World Bank and their connection to the climate emergency and the global debt crisis.
AMY GOODMAN: This is Democracy Now!, democracynow.org. I’m Amy Goodman, with Nermeen Shaikh.
World Bank President David Malpass said Wednesday he will resign his post by the end of June, nearly a year before his five-year term is set to expire. Malpass was nominated to head the World Bank in 2019 by then-President Donald Trump. He previously served as chief economist at Bear Stearns for the six years leading up to the investment bank’s collapse at the start of the recession in 2008. Last September, David Malpass came under increased pressure from the Biden administration to resign after he fumbled his answer to this question from David Gelles, The New York Times climate reporter.
DAVID GELLES: Vice President Gore was here earlier today, and I don’t know if you heard, but he referred to you in his remarks publicly on stage here as a climate denier. Would you clear the air? Do you accept the scientific consensus that the burning of fossil fuels is dangerously warming the planet?
DAVID MALPASS: You know, and some of the — I don’t know all of the — all of the instances that you’re talking about. I’ve been very pleased to have super strong U.S. government support across the board on the initiatives that we’ve been taking. Some people that are critical, I think, are unfounded. They may not know what the World Bank is doing.
AMY GOODMAN: In a statement, the climate justice group Oil Change International said, quote, “The World Bank Group still funds more fossil fuels than any other multilateral development bank. Ending this support for oil, gas and coal needs to be priority number one in the next six weeks ahead of the Bank’s Spring Meetings.”
Still with us is Malaysian economist, professor Jomo Kwame Sundaram, leading economist, speaking to us from Kuala Lumpur, Malaysia.
It’s great to have you with us for Part 2 of this conversation. Professor Jomo Sundaram, if you can start off by responding to what the head of the World Bank said, but also the power of these multilateral institutions and how they connect to the global debt?
JOMO KWAME SUNDARAM: I think World Bank President Malpass was, in a sense, caught between being honest and trying to say what was politically correct in the circumstances. The fact of the matter is that the Western establishment has basically given up on the 1.5% Celsius upper limit target, which was agreed to, recommended by the Intergovernmental Panel on Climate Change and largely accepted in various meetings, beginning from Copenhagen and then, subsequently — and especially in recent years. As The Economist magazine, which is very influential in the West, argued, you know, we should just give up on the 1.5% upper limit.
The problem is that the 1.5% upper limit is a serious upper limit for many countries, especially in the tropical zone. We already know that there is great acceleration in extreme weather events in the small island developing states. But also other kinds of problems are serious. In my part of the world, for example, we have had three years of La Niña, which are likely to be followed by another three years of El Niño. In the past, one year of La Niña would be followed by a year of El Niño. The whole weather pattern has changed very fundamentally. As we also know, not too long ago, Pakistan experienced very, very serious floods. These were described as once-in-a-century events — except that they have already occurred twice in the last decade. You know?
These are very, very serious changes, with huge consequences, not only in terms of human survival, human — sorry, agriculture, as well as ensuring the means of survival and subsistence. So we are talking about a very, very serious condition, very situation situation, deteriorating and accelerating, because with the war, for example, the limits on coal, for example, which were announced at Glasgow slightly over a year ago, 15 months ago, have basically been abandoned. Nobody takes seriously — you know, Europe announced that it’s going to go back to coal. And nobody even raises an eyebrow about it anymore. So, we see that the Western establishment is now sort of resigned to giving up on 1.5 degrees Celsius increase, and the situation is likely to be worse, and especially for developing countries.
There was, of course, at Sharm el-Sheikh recently a fund established for losses and damages. And how much is in that fund? Nothing. In Copenhagen — before Copenhagen, in 2009, there were promises of at least $100 billion annually from the rich countries to the poor countries to help them cope with climate change. That money has largely not been delivered, varying between less than half to up to about two-thirds in some years, especially in the last year. And so, there is a great shortfall, and much of that money is earmarked for mitigation. But the urgent needs in many poor countries is really for adaptation, and they do not have the means to adapt. And so we have lost opportunity after opportunity.
After the 2008, 2009 global financial crisis, the United Nations proposed a Global Green New Deal, you know, almost a decade and a half ago. That proposal was accepted in principle, but really nothing was done about it. When the G20 announced $1.1 trillion, most of it went to the IMF. Over $800 billion went to the IMF. And the money has been deployed since then for the so-called PIIGS — Portugal, Greece, Italy, Ireland and Spain. Very little actually reached developing countries. So we have seen that even when resources have been deployed, they have rarely been deployed for the most urgent, pressing matters which need urgent funding in the world today.
NERMEEN SHAIKH: And, Jomo, could you talk about, to return to the question of the global debt crisis, the role, the historic role, of the World Bank in shaping the economies in the Global South, starting from the structural adjustment programs that created so many actually devastating consequences in so many countries, and the way that debt has now altered? Because, of course, now it’s no longer just the World Bank and the IMF, but also country creditors like China, the largest now in the world, and that such a large amount of debt now is private debt. If you could talk about that?
JOMO KWAME SUNDARAM: Yes. Thank you. I think — in response to that, I think it’s important to remember that in the 1980s the problem was not just of the debt but of the conditions which were imposed on many developing countries, of countries in the Global South, to get emergency credit to deal with the situation they were caught in, where interest rates were suddenly raised by the U.S. Fed from 1980. As a consequence of this, they had to just accept so-called structural adjustment programs, sometimes so-called stabilization programs, usually designed by the IMF. Invariably, these were one-size-fits-all programs, but, most importantly, they often meant cuts, big cuts, in government spending, and various efforts to liberalize the economies in such a way as to become much more externally oriented.
Now, as a consequence of this, as we know, the world economy has become much more globalized, much more internationally integrated. But precisely at that time, by the early part of this century, when the international economy has become much more globally integrated, we have seen a far more serious situation emerging where that very exposure, that very integration into the international economy, is now increasing their vulnerability as economic sanctions become normalized.
All these economic sanctions which are being imposed by NATO and its partners, the European Union and so on, are all illegal under the United Nations Charter. There’s no doubt about that. But nonetheless, these powerful countries, these rich countries, continue to do so with impunity, and often regardless of the consequences, particularly for the human condition.
So, I mentioned earlier that we have major cuts in social spending, especially for health spending, but also for education and for other kinds of social provisioning, for example, the social provisioning which was so important in enabling many households to survive during the recent pandemic when they were unwillingly locked down and not allowed to continue life as usual because of the threat of exacerbating the contagion and hence the pandemic. So, this kind of government spending has been extremely important. The governments are not going to be able to recoup that money in the short run, but now they are being subjected to increased interest rates, and also their foreign exchange earnings have been depleted by other conditions. And as a consequence, they are in a very vulnerable situation.
And they are being forced to choose. They are being forced to choose sides in the new Cold War which is emerging. And this, of course, most countries in the Global South do not want to choose. They have no strong interest in being in the Western camp, because it has meant very, very little relief, economic relief. They have also very little interest in being tied to China or to Russia or to any other country, because they realize that being dependent on one side in a superpower rivalry is not going to be beneficial to them. So most countries want to be nonaligned in this situation, but very often they are not being allowed to.
And, of course, we have seen the normalization of economic sanctions, and that is really frightening, because in the past some countries were severely punished for standing up to the West, and now many other countries are being threatened with the same. So, many countries feel that they are caught between the devil and the deep blue sea, and it’s not a very happy situation. And, of course, most countries in the Global South have become much more economically integrated with China in recent decades. They import a great deal of many of their cheap requirements from China, and many of them also borrow from China or invite investments from China in the recent situation.
But if you look at much of what is being offered, for example, in Asia and the Pacific, one of the — the U.S. government has offered something called the Indo-Pacific Strategy, which includes an Indo-Pacific economic framework. But that Indo-Pacific economic framework doesn’t even allow access to the U.S. market. So there’s nothing really of interest to most countries in the Global South in what is being offered.
NERMEEN SHAIKH: Could you explain to whom does credit go in a country? So, for example, what is the focus, to what institutions, what sectors, in a country does, for instance, World Bank funding go, versus private funding, versus, say, bilateral funding, either from China, Saudi Arabia, etc., countries that loan money?
JOMO KWAME SUNDARAM: Yes. I think it’s important, firstly, to remember that the World Bank lending portfolio has not increased very much in recent decades. Part of the reason is because the U.S. wants to maintain domination of the World Bank but is not prepared to pump in more resources, much more funds, to maintain a share of a larger bank, if you get what I mean. So, as a consequence of that, the World Bank lending portfolio has remained relatively small. And that’s why the other lending institutions have become far more significant.
In addition to that, the total amount of what is called official lending, meaning from government or multilateral sources, has become increasingly eclipsed by private lending. And private lending is not private lending as in the 1980s, for example, which was primarily from banks. Now all kinds of bonds are being issued, and borrowing involves corporate bonds and sovereign bonds or government bonds and so on and so forth. So, as a consequence of this, the nature of debt is very, very much more complex.
And, you know, in the 1980s, it took almost a decade for Nicholas Brady, the treasury secretary, to negotiate what were called the Brady bonds, to get out of the Latin American situation. That was only negotiated, if I remember correctly, around 1989, almost a decade later. But this time around, you know, the situation is so much more complicated. It will be extremely difficult to negotiate such a solution. In the past, it was the U.S. — U.S. banks were the major lenders, and so it was possible for Treasury Secretary Brady to make a deal which could hold.
This time, there are so many creditors. Not only China is a new creditor. There are other creditors, as well, including new creditors such as the Asian Infrastructure Investment Bank, the South — I can’t remember what it’s called — the South Development Bank, and so on. And even the lending portfolio of the African Development Bank has increased quite significantly compared to the past. So what we see is a diminishing of the role of the World Bank. But the World Bank, because of its leadership role and because of the U.S. government’s influence on it, continues to be extremely influential in terms of setting the trend for others. And this is why the way you started this part of the program, with the quote from Malpass, is very telling, because it’s not because the U.S. is lending that much, but because the World Bank — the U.S. through the World Bank — sets the tone for other multilateral development banks — what is acceptable behavior, what is unacceptable behavior, and so on.
And then we have seen the last president of the World Bank, he quit the World Bank to join a private sector company. The private sector company was supposed to significantly increase lending to deal with global warming, but the track record has been very, very modest. So, although it is undoubtedly true that there’s a huge amount of private finance available, this private finance is profit-seeking. It is not in the — its priority is not dealing with global warming or dealing with any of the other problems humanity faces, but rather to make as much profits as possible.
So, hence, for example, when in the earlier period, in the last decade, when there was a great deal of money available, much of that money was lent to private — to rich individuals and rich corporations, enabling major shareholders to buy out minority shareholders to have what were called share buyouts and take over the control of the companies and so on. So, you have a lot of perverse behavior, which undoubtedly enriched quite a number of people but did little to channel investments to deal with the problems which we need to deal with by investing appropriately.
So there has been very little actual increase in investments, certainly not in adapting to global heating. And there has been some more money for mitigating globally, but, again, much is not done. One instance, for example, is the photovoltaic solar panels. Photovoltaic solar panels are the cheapest source of renewable energy. The unit price fell in the mid-1990s, and now it is extremely cheap and is very competitive with almost all other fuel sources except for coal, especially dirty coal. But 71% of photovoltaic solar panels are produced by China, another 7% by Korea, and largely for their own domestic use, not for export. So we find that many countries who are seeking cheap means of developing alternatives, for example, renewable energy and so on, are basically discouraged from doing so by the conditions which are imposed on their access to credit. So, while we have the means in some instances to do much more, we are not doing that because of the economic warfare which is going on.
AMY GOODMAN: Jomo Kwame Sundaram, if you can comment on the power of the U.S. as the largest economy in the world, why the U.S. Federal Reserve raising interest rates has such a huge impact around the world? And if you can talk about the different impacts from Latin America to Asia to Africa?
JOMO KWAME SUNDARAM: Half the money which flows out of countries which allow capital to flow out, about half of it, on average, over the last few decades has gone to the U.S. OK? So the U.S. is the single largest borrower in the world. But precisely because the U.S. sets, through the U.S. Treasury bonds, it sets interest rates for the whole world, so it can influence the borrowing rate, the lending rate for everybody else, because of its huge role.
The U.S., unlike every other country, has not really bothered to pay off its debt. This is an exorbitant privilege, as it is termed, which has been available to the U.S. since the Bretton Woods system was set up in 1944, but it has continued after President Nixon pulled out of the Bretton Woods system in August 1971. This is simply because of the confidence of the rest of the world in the U.S., because the U.S. dollar’s position is so dominant and the U.S. Treasury bonds situation is so dominant.
Some of this may be undermined in the medium term or the long term, because, for example, in the sanctions which the U.S. has imposed against Russia and other countries, it has basically forced Russia and other countries to bypass the U.S. dollar, to bypass U.S.-dominated payment systems such as SWIFT and so on. So, as a consequence of this, many countries which are feeling a little insecure about their ability to stay on the good side of the U.S. are looking at other possibilities. So, alternative payments arrangements are cropping up all over the world, but at this point, most of them are relatively small and limited and unlikely to challenge the U.S.-dominated system for some time to come. But it is being eroded. And so, in a sense, some of the sanctions measures which the U.S. is undertaking right now is, in a sense, cutting off its own nose to spite its face, you know, because it’s going to hurt the U.S. and the U.S. role in the world economy and in the world financial system in very profound ways.
And the U.S. is the only power — it is obviously clearly dominant in the World Bank. Even in the IMF, the International Monetary Fund, it is the only country which has a veto power. It has a 17% share. And with that 17% share, it is able to veto any decision made by the board. It rarely needs to resort to this veto, precisely because many other rich countries, especially in the West but invariably Japan, as well, are happy to go along with it.
NERMEEN SHAIKH: Jomo, if you could also — we started in the first part of our discussion talking about the number of countries now that are at risk of default. Sri Lanka, of course, last year did default on its debt. If you could explain what leads a country to default, and what the effects of that are on the people of that country?
JOMO KWAME SUNDARAM: I’ll answer in two parts, because there are two parts to that question. Firstly, most countries which are borrowing want to maintain a good credit rating. They want to maintain a good credit status in order to borrow as cheaply as they can. So they are not in the business of being fully transparent about all their liabilities and so on. So it is extremely difficult to ascertain their liabilities.
I’ll give you one example, which is very common in many parts of the world. In many constitutions, when a country borrows directly, it has to borrow — it has to declare it to the legislature, to the parliament or the congress or whatever the legislative body is. But in many of these countries, if they borrow through a government-controlled institution — let us say you have a petroleum-extracting corporation or a corporation extracting gold or some other precious mineral — that corporation, because of what it does, is often able to get a certain type of corporate bond rating. So, instead of borrowing directly, you often have governments borrowing indirectly through government-controlled companies. And this kind of subterfuge often works, because the creditors also are very happy to lend in such circumstances, because they often profit even more from lending to companies in the Global South because of the difference between the borrowing rate and the lending rate and so on and so forth. So they have a very strong interest in doing so, and it’s very profitable for them to do so.
But when the interest rate goes up, money which is available in countries of the Global South and other countries, even in Europe, for example, flows out of those economies into the U.S. economy. And this is precisely why the U.S. dollar has appreciated with the increase in the interest rates. It’s not because the U.S. economy is doing wonderfully, but because this interest rate increase allows the U.S. dollar to strengthen. The U.S. dollar strengthening allows the U.S. to import things which are at a lower exchange rate, at a cheaper exchange rate. So, U.S. citizens or people in the U.S. actually feel better off precisely when they have a strong dollar.
But this is a very temporary situation, because when that situation changes — for example, if people no longer have the expectation that the U.S. interest rates will continue to go up — money will begin to flow out of the U.S., and the reverse situation begins to happen. Now, flowing out of the U.S. doesn’t necessarily mean it goes to the countries in the Global South who need it the most. It very often may go to some other place, some other place which is considered safe or which is considered to be a good bet and so on. So, the consequence of this is that the countries which desperately need credit are the ones which are most likely to be deprived of credit because of all this happening.
Now, what has happened over the last 30 years or so is that governments all over the world have been told to open their capital accounts. You see, under the IMF Articles of Agreement, all countries have the right to control their capital accounts. They do not have to open them up. But because of advice even from the IMF itself, from IMF staff, contradicting the Articles of Agreement, they often advise countries to open up their capital accounts. This is on the false claim that when you open up the capital accounts, more money will flow in. But this has shown to be empirically untrue; more money tends to flow out. And that’s why when African countries, for example, open their capital account, actually a great deal of money flows out. That’s why African countries are heavily dependent on remittances. They’re very heavily dependent on official assistance and so on.
But private money tends to flow out in this kind of situation, and especially when that private money is associated with corruption. That corruption tends to encourage them to go out, because you want to take the money out and launder it and make as much money as possible outside, precisely because you feel vulnerable in the country of origin. So, a confluence of factors tends to work against this, and usually what we find is that powerful authorities, which should know better, often enable this to happen, and sometimes even encourage this to happen, rather than taking measures to protect the countries’ best interests.
There was a Malaysian economist, now long gone, but who used to say, “This is like opening a bird cage and expecting more birds to fly in than to fly out.” Obviously, this is not going to happen, but this is the kind of advice which is provided from the Washington-based institutions.
NERMEEN SHAIKH: And, Jomo, if you could talk, finally, about the countries that are most at risk of defaulting on their debt, and what the impacts of a debt default are on the people of the country that defaults?
JOMO KWAME SUNDARAM: The countries which are most vulnerable in the present situation are those countries which will have what are politely referred to as external shocks. The nature of their external shock can vary. You can have an earthquake. You can have a tsunami. You can have some kind of natural disaster or unnatural disaster, and that could be an external shock. You could also have a situation where your external creditor is also in trouble and demands payments according to the schedule which has been agreed to. Usually those schedules can be negotiated and sort of rolled over, and so on and so forth, but when you have those kinds of demands, or in situations as we have experienced over the last year — the rising interest rates in the U.S. mean that a lot of private people with money take their money out of the country, because they feel that it’s going to be not in their interest to keep their money in the country. So those countries are most vulnerable.
So, in the case of Sri Lanka, there were a confluence of factors which resulted in that crisis. They handled a number of problems very, very poorly, and the result was that they got into a situation where there were a lot of protests. The people were demanding that the government step down, and the president left the country, and we sort of know what happened there. In the case of Zambia, other factors came into the picture — the amount of debt and so on and so forth. So there’s a great deal of debt which hangs like a sword over the heads of these countries, and this is part of their vulnerability. Other factors which might cause a crisis are situations where, for example, you have a sudden cutoff of external earnings. For example, in the case of Venezuela, as we know, Venezuela’s assets in London banks were all seized. This is nothing less than pure robbery, right? But who is going to act against that? You know?
So, you have right now the possibility of powerful countries unilaterally ignoring international norms and even standards and even regulations sometimes, to do what they deem best. And very often the monitoring mechanism to ensure a certain degree of compliance involves allies, and those very allies are unlikely to punish countries for breaking the rules. So, as a consequence, many of these developments can be due to very arbitrary factors rather than due to the usual causes of external shocks, which I was referring to earlier.
AMY GOODMAN: Jomo Kwame Sundaram is a Malaysian economist at the Khazanah Research Institute in Kuala Lumpur, Malaysia. He was an economics professor and then U.N. assistant secretary-general for economic development. To see Part 1 of our discussion, go to democracynow.org. I’m Amy Goodman, with Nermeen Shaikh.