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Site First Published : Monday 18 March 2002 @ 1.04pm CET
World Bank Bonds are Getting Looser
Submitted by Alex Madden,World Bank Boycott European Co-ordinator
ASEED Secretariat, Netherlands by way of Prague, Czech Republic
24 January, 2003

A lie has to be pretty watertight in order to stand the test of time. So it’s not surprising that the long held assertion that World Bank and IMF led development aid is essential for countries wanting to regenerate their economies is finally facing serious reevaluation.

By defaulting on it’s World Bank loan in December, the government of Argentina essentially declared that it was prepared to cut itself off from the interference of foreign creditors and seek alternative means of salvaging its economy. It wasn’t, of course, the first time a country had defaulted on a loan to an International Financial Institution but the shock it caused was unprecedented. Argentina had never been classified as a desperate case, despite being the Bank’s fourth largest debtor. Rather, for a long time it had been one of the IFI’s showcase examples for their neo-liberal economic policies. The enormity of a country which was previously so well integrated into the world economy, and knew and respected the rules of the game, suddenly turning around and challenging those rules, was not lost on the financial community. Ripples of anxiety spread as muffled concerns about the potential implications of the default on the World Bank’s standing emanated from behind closed doors.

In response, credit-rating agencies, whether under pressure from the World Bank or of their own accord, hastily mobilised in the Bank’s defence. It is they who determine how investors make their choices about which bonds, stocks and shares to purchase, by ranking each one according to how stable and investment they consider them to be. The World Bank has for a long time enjoyed the highest ranking possible, a AAA rating, which signifies a guarantee that anyone who purchases its bonds will be sure to get their money back, with the agreed interest, when the bonds mature. After Argentina’s default, the credit-rating agencies issued statements exhaustively reassuring the market that the Bank’s highly prized top status would not be affected. The World Bank, they claimed, has a strong enough capital base to be able to forego the withheld interest without it affecting its ability to repay other creditors, so its bonds can still be counted as safe an investment as it is possible to make.

What they didn’t deny, however, was that Argentina’s decision set a dangerous precedent. Not only did it challenge the inevitability of WB/IMF assistance, it also revived the argument that the IMF and World Bank ought to be held accountable for their disastrous economic experiments, and pay the price accordingly. If such ideas spread, and more debtor countries decide that they no longer need put up with WB/IMF arrogance and should be receiving payment rather doling it out, the future of both institutions would be uncertain at most. One credit rating agency, Standard and Poor’s, indicated as much when it admitted that if any other country did decide to follow suit and default on a World Bank loan, it would have to reconsider its decision to maintain the Bank’s AAA rating.

What happens to the bonds is not simply a market indicator of public trust in the Bank. Rather, the bonds are the Bank’s Achilles’ heel. Through them it raises 80% of its income and should they become an unattractive investment, the Bank’s survival would severely be brought into question.

Instead of waiting for another default, therefore, campaigners across the world are capitalising on this fact and seeking ways to undermine the stability of WB bonds. In April 2000, groups from 35 global South countries and the US, came together officially to launch the World Bank Boycott, an international grassroots campaign that is building political and financial pressure on the World Bank in the spirit of the anti-apartheid divestment movement. In general, by raising awareness of the World Bank’s activities, the campaign exposes the myth that the bonds are an ethical option for investment and contributes to the growing pressure for Socially Responsible Investment funds to exclude them from their portfolios.

Furthermore, groups working in Europe and the US specifically target local institutions, such as trade unions, regional and city governments, and religious foundations, and ask them to pass a resolution stating that they will not invest in World Bank bonds. In the two years since its inception, more than 75 institutional investors have signed on to the Boycott, including trade unions such as The International Brotherhood of Teamsters, religious groups such as Pax Christi (USA), banks such as the Co-operative Bank, and SRI firms such as the Calvert Group. The longer the list of objectors grows, the more do senior World Bank staff begin to get nervous, and financial big-wigs to sit up and take note.

It may sound like a pipedream but moves in the market indicate otherwise. During the past Autumn, TIAA-CREF, the largest private pension firm in the US, suffered such cold feet that it sold its WB bonds before waiting for them to come to maturation. Its official reason was “the returns were not as attractive as other investments” but given that one of the main reasons investors choose World Bank bonds is because they guarantee stability of return, rather than a high profit margin, this is hardly a credible excuse. It is possibly no coincidence that since November 2001, the US Boycott had identified the pension fund as one of its main targets, and inundated it with hundreds of letters, faxes, phone calls and e-mails, not to mention an impassioned plea to get out of World Bank bonds by the former South African anti-apartheid campaigner Dennis Brutus at the TIAA-CREF 2001 annual meeting. Whether itself a result of ethical concern about the bonds or not, however, TIAA-CREF’s decision has certainly helped precipitate growing market unease about them, and gives serious financial credibility to the argument that World Bank bonds are something to be avoided.

There are years of effective WB public relations campaigns to undo, of course, and opposition to the bonds will be successful only if constant and steadfast pressure is maintained on public attitudes about them, to avoid people slipping back into the comfortable apathy that has been encouraged for so long. Ultimately, whether the movement will gain enough momentum truly to bring an end to the longstanding creditors’ cartel of the IMF and World Bank will depend on the confidence of debtor countries and a stubborn desire among individuals to become aware about where their money ends up and what it is being used to fund.

For more information about the World Bank Boycott, please visit http://www.worldbankboycott.org, or http://www.wbbeurope.org for a specifically European focus. You can also contact the European co-ordinators at wbboycott@aseed.antenna.nl, who will happily answer any questions and offer support to groups wanting to get involved in the Boycott



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  • ICDA Updates on FfD

  • ICDA's UN FfD Briefing
  • 14 March Interactive Teleconference of UN Ffd @ UN Information center in Brussels
  • NGO Concerns for FfD
  • (to be posted)

    Useful Links

  • Official UN FfD Page
  • The Monterrey Poverty Summit (From The Guardian)

  • Assisting Development (Editorial from The Financial Times)

  • Tobin Tax Page (UK)

  • WEED/Terres des Hommes Paper on Tobin Tax
  • Center for Economic Policy & Research Page on Tobin Tax
  • US-based NGO Center of Concern's page on FfD
  • US-based NGO Interaction Page outlining details for a roundtable entitled "Overseas Development Assistance: The Key to Global Security" on 20 March

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