Jerome I. Levinson

This selection first appeared in the Washington Post on 15 June 1998. Jerome Levinson is a professor of international law at American University and a research associate at the Economic Policy Institute in Washington, D.C.

When dealing with crises such as the one in Indonesia, the traditional U.S. preference is for stability, even if it results in repression and the denial of democracy and human rights. Jim Hoagland took note of this problem last month [op-ed, 17 May 1998] when he called on the United States and the International Monetary Fund, in the case of Indonesia, to "halt financial support for a regime that is digging its own grave."

What Hoagland implies is a revolution in the way we think about development finance and the rules governing it: the Articles of Agreement of the World Bank and the International Monetary Fund. These are the two Bretton Woods institutions that set the conditions for financial aid of borrowing member countries. And at the center of those conditions is a "Chinese wall" between "economic" and "political" considerations. Unfortunately, it is, as Indonesia so graphically demonstrates, an artificial construct.

Nevertheless, it has an institutional expression in the Articles of Agreement of the two institutions. Both include provisions directing that the officers of these institutions shall neither interfere "in the political affairs of any member; nor shall they be influenced in their decisions by the political character of the member or members concerned. Only economic considerations shall be relevant to their decisions."

It is these strictures that have provided the shield behind which the World Bank and the IMF have continued to provide financing to countries that engage in egregious abuses of human rights, so long as they are diligent in carrying out the economic policy recommendations agreed upon--above all, those creating the conditions for attracting foreign direct investment.

But this interpretation of the "political" sections of the articles is unnecessarily restrictive. There is no definitive statement as to what the authors intended, more than fifty years ago, by their use of the term . Congressional hearings at the time simply indicated a concern that decisions on particular loans not be influenced by "political" favoritism.

If we understand the political sections of the articles in the context of the time, a more reasonable interpretation emerges. In 1944 the cold war had not yet begun. World War II had not yet ended. The Bretton Woods institutions were conceived as universal institutions that would include the Soviet Union. Postwar political competition in individual countries would exist between conservative, liberal, and socialist parties. It certainly was reasonable to ensure that the Bretton Woods institutions not take sides in this political competition. And that is what the political sections of the Articles of Agreement should be understood to prohibit.

But that limited and reasonable objective has been expanded to justify financing by the World Bank and the IMF of governments that have been some of the worst abusers of human rights. Such an interpretation almost certainly distorts the intentions of the men who drafted the articles: Harry Dexter White, on behalf of the U.S. Treasury, and Lord John Maynard Keynes, for the United Kingdom, both of whose democratic credentials were impeccable.

In order to accept such an expanded interpretation of the political provisions, we have to believe that Keynes and White, at the time that the war against Nazi Germany was still going on, intended to provide a cover that would permit the Bretton Woods institutions to provide financing in the future for governments that, like the Nazis if on a lesser scale, were egregious abusers of human rights. Such an interpretation defies reason and common sense.

It is precisely that expanded interpretation, however, that has provided the legal justification for constructing the wall between economic and political considerations. That is why Indonesia, before the current crisis, could be represented by both the World Bank and IMF as their star performer in Asia.

Indonesia did accomplish much; it was a leader in reducing absolute poverty. But it also suppressed trade unions, a free press, an independent judiciary, and opposition political parties. This was considered irrelevant by the Bretton Woods institutions in assessing Indonesia's development "performance."

This constricted view of development performance has found support in successive U.S. administrations, including Clinton's. This view has been exploded in Indonesia. For it must now be clear that, even on their own terms--that is, even when the primary goal is fostering a secure investment climate--the IMF and World Bank cannot ignore the absence of institutions that ensure an orderly transition in government and can provide effective checks against abuse of power. In other words, democratic institutions are as relevant to development "performance" as traditional considerations such as fiscal probity.

The Chinese wall has come down and it is neither possible nor desirable to reconstruct it. Accepting that conclusion involves a revolution in thinking inside the Bretton Woods institutions and our own Treasury, which is the dominant force in U.S. policy with respect to these institutions.

[Editors' Note: The IMF suspended a $1 billion disbursement from a $10.2 billion loan to Indonesia from 4 June 1998 to 15 July 1998 because, according to Stanley Fischer, first deputy managing director of the IMF, Indonesia did not have a reasonable political system with which to work and economic reforms could not succeed without political stability. Human rights violations were not mentioned as a cause for the loan suspension.]