The backlash against neoliberalism in Latin America is now leading to confrontations between several of the region’s governments and the two major international lending institutions, the World Bank and the International Monetary Fund (IMF). In the span of just a few weeks in May, President Rafael Correa announced that Ecuador was expelling the World Bank’s representative from the country; President Hugo Chávez announced that Venezuela would be withdrawing from both the Bank and the IMF; and Bolivia, Nicaragua, and Venezuela all announced their intention to withdraw from the World Bank–affiliated International Centre for the Settlement of Investment Disputes (ICSID).1 The Venezuelan government has also proposed the formation of a new regional lending institution, the Bank of the South, widely perceived as a challenge to the World Bank and the IMF.
While both the World Bank and the IMF have more than 150 member countries, the representatives of a few rich capitalist countries dominate them.2 Both institutions tie credit to the adoption of neoliberal policies like privatizing public enterprises, reducing public employment, eliminating price controls on basic goods, weakening protections for workers and labor unions, and opening up to international trade and investment.3 Established and funded by the World Bank, the ICSID functions as an international court in which private companies can sue the governments of member countries. While the ICSID lacks police powers to enforce its rulings, a government that does not comply faces the same possible retaliation as one that refuses World Bank or IMF lending conditions—being cut off from international credit.4
The recent withdrawals from the World Bank, IMF, and ICSID by Latin American governments represent a rejection of the conditions these institutions have imposed on poorer and less powerful countries. The withdrawal from ICSID in particular represents an assertion of the power of sovereign states to determine the conditions under which they will permit foreign investment—a burning issue today in Venezuela, Bolivia, and other Latin American countries. The Venezuelan government has nationalized the largest telecommunications and electricity firms by buying their stock and has asserted control over the country’s oil industry by threatening to expropriate the holdings of any multinational firm that refuses to accept its new status as a minority partner.5 Bolivia has made similar moves over its gas resources.6
Disputes over property rights exist in every society. In the United States, for example, conservative legal scholars argue that environmental regulation constitutes an illegal “taking” since it deprives property owners of potential benefits. Others insist that this does not violate property rights since there is no “right” to damage the environment and to harm other people. Moreover, governments throughout the world differ on what property rights they enforce. They differ over whether the government can expropriate “property” without the consent of the “owner,” under what circumstances it may do so, whether it must give compensation, how “fair” compensation is determined, and even what constitutes an “expropriation.” Some of the recent moves of the Venezuelan, Bolivian, and other Latin American states may run counter to, say, property rights under U.S. law—but they are, of course, sovereign countries with their own laws.
Some of the recent nationalizations also run counter to the bilateral investment treaties that hold sacrosanct the property rights of multinational corporations. Sovereign states that have entered into agreements, however, may seek to alter them or withdraw from them altogether. If it has no intention of abiding by the rulings of the ICSID, the government of a sovereign state is perfectly entitled to withdraw from it. With the tide turning against neoliberalism, the governments of Venezuela and other Latin American countries appear determined to gain greater control of their resources and to use them for social welfare and economic development projects. Might they face a cutoff of investment by multinational corporations and high finance, or the hostility of powerful governments, as a consequence? That is certainly possible. But it will be a matter of power, not of right.
Alejandro Reuss is a historian and economist, and writes on contemporary Latin America and global economic issues. He is a member of NACLA’s Editorial Committee.
- Hal Weitzman, “Ecuador Expels World Bank Envoy,” April 27, 2007, www.ft.com; Saul Hudson, “Venezuela to Quit IMF, World Bank,” April 30, 2007, www.reuters.com; Agencia Bolivariana de Noticias, “Paises de Alternativa Bolivariana acordan retirarse de convencion del Ciadi,” www.abn.info.ve.
- Alejandro Reuss, “ABCs of the World Economy: The World Bank and International Monetary Fund,” Dollars & Sense, March-April 2000, www
- Sarah Anderson, “The IMF and World Bank’s Cosmetic Makeover,” Dollars & Sense, January/February 2001.
- Quoted in United Nations Conference on Trade and Development, Dispute Settlement: International Centre for Settlement of Investment Disputes, 2.9 Binding Force and Enforcement, p. 8.
- “Venezuela Seizes Largest Telecom,” Bloomberg News, May 9, 2007, www.iht.com; “Venezuela Buys 93 Percent of Electric Company in Nationalization Move,” Associated Press, May 10, 2007, www.iht.com; Reuters, “Venezuela Pulls Control From Big Oil,” May 1, 2007, money.cnn.com.
- BBC News, “Bolivia Gas Under State Control,” May 2, 2006, news.bbc.co.uk.