IMF Development Loans: A Tale of Exploitation & Debt Cycles.
Through the lens of shrimp farming in Bangladesh.
**A while ago, I came across the following story in Alex Gladstein’s book “Hidden Repression: How the IMF & World Bank Sell Exploitation as Development.” Once I read it, I wanted to share it with you, so here is my summary.
**Notes From The Margin aims to shed light on marginalized communities and their journey to financial freedom. By subscribing, you’ll be supporting my work and receiving a regular newsletter where I share inspiring stories about the individuals and organizations working to empower these communities.
Poor countries take out IMF loans to improve their economic situation and living standards. But in order to repay their debts, they are forced to reengineer their economies, often at the expense of their own people.
Today, we’ll dive into this complicated issue through the lens of IMF-funded shrimp farming in Bangladesh.
What is the IMF? The IMF is the world’s international lender of last resort, which means it provides credit to economies under strain or under economic crisis. Headquartered in Washington DC, the IMF is led by its major creditors, who typically are the United States (U.S.), the United Kingdom (U.K.), France, Germany, and Japan.
How IMF Loans Work.
Creditor nations (like the U.S, U.K, France,) will lend money to the IMF at a certain interest rate. Then, the IMF lends that money to poorer countries, borrowing countries (like Bangladesh, Turkey, and Argentina), in the form of short-term, high-interest-rate loans, which makes the IMF a profit.
“The Bank and Fund would borrow money from international capital markets and from creditor nations at 5% and then they would sell the money to poor countries at 8%. They’d make money off the spread. That’s how they financed themselves, which people don’t like to think about. They think these are charitable, gift-giving institutions [but they’re not].” – Alex Gladstein
Unfortunately, borrowing money, and not being able to repay it, can often mean taking out more loans in an attempt to repay debts. Quite quickly, borrowing countries can get stuck in a debt cycle they cannot escape. As just one example, here’s how many IMF loans Bangladesh has taken out.
“After 10 structural adjustments [loans], Bangladesh’s debt pile has grown exponentially from $145 million in 1972 to an all-time high of $95.9 billion in 2022. The country faces yet another balance of payments crisis, and in November 2022, agreed to take its eleventh loan from the IMF, this time a $4.5 billion bailout, in exchange for more adjustment.” – Alex Gladstein
These loans push developing countries like Bangladesh further into debt and poverty because they must take out more loans to repay their debts, or at the very least, repay interest fees.
How IMF Loans Reengineer Societies.
When the IMF gives out loans, they do so in dollar-denominated terms and with certain conditions. For example, the Bangladeshi government might want to take out an IMF loan to help grow their economy and improve living standards.
(Clearly, Bangladesh needs to stimulate growth and earn money to repay the loan. While tourism and foreign direct investment are viable options, conditions are often imposed, forcing them to focus on exports to the Western world.)
So, the IMF might say:
“Sure, you can borrow 100 million dollars USD. Pay us the principal plus interest. And since shrimps are in high demand in the West, and you have the right conditions to produce them, you must produce more. Export shrimp to us at lower prices.”
These conditions force countries like Bangladesh to focus their productivity on what other markets and countries (particularly creditor nations) need at the expense of caring for the needs of their own people.
“The key part is that you’re sacrificing local consumption for export. We’re changing the energy of the nation from creating stuff FOR IT to eat to FOR US to eat.” – Alex Glastein
“It’s like a subtle, insidious form of slavery…” – Peter McCormack, Bitcoin podcaster
Creditor-mandated exports are not the only conditions the IMF imposes by the way. According to Alex Gladstein, typical IMF demands would include:
Selling off state enterprises and claims on natural resources at fire sale prices.
Restrictions on government spending, especially in healthcare and education.
An end to consumer subsidies on food and energy.
Wage ceilings (to keep export prices low).
Abolition or reduction of import controls (to help us export to them).
Currency devaluation and imposition of IMF-mandated fiscal policies.
Favorable legal conditions and incentives for multinational corporations.
And more…
As you can see, the list of conditions is long and is clearly working against the interests of the local people. Since this article is focused on growing exports, that’s where I’ll continue…
Given loans need to be repaid and exports are a legitimate way to earn money to pay back debt, countries tend to export (or are pushed to export) goods desirable to the Western world (think shrimp, coffee, cotton, etc.).
The problem is when a country focuses on exports, particularly on one good or resource, its economy becomes homogenous; which isn’t good in a world of dynamic markets, and ever-changing political, economic, technological, and natural events. A lack of economic diversification increases a poor country’s vulnerability to external shocks.
Yet, that’s what these IMF loans are doing. They’re homogenizing economies, and dictating the economic activities of poor countries to ensure they’re funneling resources to the developed world, at the expense of the borrowing country. In this way, they’re restructuring poorer societies to power our way of life.
“You start to realize that these loans were made to change societies so that they would feed us, in rich countries, or fuel us in rich countries, at the expense of local human rights and development concerns, and they’re also usually devastating environmental effects.” – Alex Gladstein.
That is the dark side of IMF loans.
Next, let's look at a specific example of how IMF loan conditions incentivize economies against the best interests of their own people. This example looks at shrimp exports in Bangladesh and their detrimental effects on their people.
A Short Case Study of Bangladesh: Pushed to Shrimp Farming & Suffer The Consequences.
Bangladesh has been taking out IMF loans for a while now.
“After 10 structural adjustments [loans], Bangladesh’s debt pile has grown exponentially from $145 million in 1972 to an all-time high of $95.9 billion in 2022. The country faces yet another balance of payments crisis, and in November 2022, agreed to take its eleventh loan from the IMF, this time a $4.5 billion bailout, in exchange for more adjustment.” – Alex Gladstein
The Bangladeshi government is using the loans to fill their pockets, in addition to growing shrimp exports to increase revenue and pay back their debtors; instead of reinvesting in its own people and rebuilding their nation.
A Quick Overview of the Shrimp Farming Process.
The shrimp farming process starts with shrimp collectors who collect young shrimp, known as fry, from rivers, waterways, and hatcheries. Shrimp are typically farmed and cultivated in low-lying coastal areas. These may be naturally salinated environments such as mangrove beds, or low-lying areas deliberately flooded with salty ocean water. There, they cultivate and fatten the shrimps for about three to six months. Eventually, the shrimp are packaged and exported to us to enjoy. The shrimp lords (equivalent to the mafia) who run the shrimp farming empire and government officials take the profit.
With this in mind, let’s explore the adverse effects of shrimp farming.
The Harmful Effects of Shrimp Farming.
Destruction of Ecosystem and the Eradication of Natural Disaster Protection. In order to increase the available land for shrimp production, two common approaches are taken:
Cut down shallow coastal ecosystems such as mangroves, and cultivate shrimp in their place.
Flood low-lying coastal areas such as productive rice farms with salt water. This process results in soil salinization, meaning it is suitable for shrimp farming, but can no longer grow other produce.
Creating the conditions for shrimp farming destroys their local ecology, such as coastal mangrove forests, and low-lying agricultural lands.
“Instead of reinforcing the local mangrove forests which naturally protected the one-third of the population that lived near the coast, and instead of investing in growing food to feed the quickly growing nation, the government took out loans from the World Bank and International Monetary Fund in order to expand shrimp farming.” – Alex Gladstein
The effects of saltwater toxicity mean the land cannot produce what it once could. For this reason, agriculture, local forests, mangroves, and wildlife have disappeared.
“[Kolyani Mondal, a coastal famer] used to farm rice and keep poultry” but after shrimp harvesting was imposed, “her cattle and goats developed diarrhea-type disease and, together with her hens and ducks, all died” – Environmental Justice Foundation
The problems don’t end there. The loss of mangroves and coastal ecosystems has other, larger consequences. This is because wetlands and mangrove forests help protect the coast from storms, big waves, and cyclones. But:
“45% of the mangroves have been cut away, leaving millions of people exposed to the 10-meter waves that can crash against the coast during major cyclones.” – Alex Gladstein
Here’s an interesting 12-second video depicting how mangroves protect the coast:
Salinity is also accelerating coastal erosion, further exposing coastal villages to storms and cyclones.
“The land can no longer withstand the effects of cyclones and typhoons which Bangladesh experiences regularly.” – Bangladeshi woman shrimp farmer
Child labour: Children are being pulled out of school to work long days in the shrimp farming industry. According to Alex Gladstein, collectors make up 50% of the labor force:
“But only see 6% of the profit. Of that labor force, 30% of them are girls and boys engaged in child labor, who work as much as nine hours a day in the salt water, for less than $1 per day, with many giving up school and remaining illiterate to do so.”
*This is an interesting case of shrimp farming incentives not aligning with the protection of Bangladeshi children.
Health hazards: Long exposure to salt water causes skin infections, uterus problems, urinary tract infections, tumors, and more. Most of these complaints aren’t being listened to by shrimp bosses or politicians.
Fry collectors and shrimp farmers therefore are often women and children (as the work is less desirable to men given the health hazards it creates).
“The itching makes me sore and then it burns. Sometimes the areas turn black from constant scratching.” – Bangladeshi woman shrimp farmer
Debt cycle and exploitation: Collecting fry is a seasonal job, which means shrimp collectors might spend a few months each year without jobs. Given they have no income and are already very poor, these uneducated farmers ask middlemen for a loan and get stuck in a cycle of debt and exploitation.
“The middlemen know that fry collectors don’t have much education and they lead a hand-to-mouth existence, so the middlemen can buy the fry for well below market price. The collectors cannot pay off their loans from their earnings. The interest will always be there and it’s passed down from generation to generation.” – Biblop Sarker, Shushilan Trainee Officer
“Around a third of the shrimp farmers are stuck… they can’t see any way out. Therefore they have to continue this trade. It doesn’t matter how much debt they are in. In their desperation, some farmers have been driven to take their own lives. For most, there is no other option than to keep farming.” – Kamrul Hussan Bablu, volunteer for CDP
Employment malpractice: It’s not just fry collectors and shrimp farmers who struggle. Those working in shrimp processing factories are also subject to maltreatment. They work long days, with little breaks (like 10-15 minute breaks per day) or none at all, with no time off, while being underpaid, in an effort to maximize profits and minimize costs for shrimp bosses and ultimately exports.
Summary of the Status Quo.
We’ve seen how the IMF forced Bangladesh to engineer its coastal areas into shrimp ponds to boost shrimp exports to the West, consequently reducing the living standards of the Bangladeshi people. These effects were created by the vast list of conditions attached to IMF loans.
In short, the incentives for growth do not align with what's best for the Bangladeshi people. Rather the opposite appears to be true – that loans:
Drive exports of one good.
Drive the destruction of natural habitats (which previously protected their people).
Make local populations poorer, less educated, and vulnerable to debt cycles.
Poor, developing countries need a responsible and responsive government that is incentivized to make decisions in their people's best interests. This means economic choices, civil rights, fair labour, protection of human rights, opportunities for financial freedom, and a financial infrastructure that works in a globalized world. Not exploitation by international loaning giants, like the IMF, powered by creditor nations in the West.
“Ever since [1982], there has been an annual net flow of funds from poor countries to rich ones. This began as an average of $30 billion per year flowing from South to North in the mid-to-late 1980s, and is today in the range of trillions of dollars per year. Between 1970 and 2007 — from the end of the gold standard to the Great Financial Crisis — the total debt service paid by poor countries to rich ones was $7.15 trillion.” – Alex Gladstein
Fun fact: “The World Bank pays high, tax-free salaries, with very generous benefits. IMF staff are paid even better, and traditionally were flown first or business class (depending on the distance), never economy. They stayed in five-star hotels, and even had a perk to get free upgrades onto the supersonic Concorde. Their salaries, unlike wages made by people living under structural adjustment, were not capped and always rose faster than the inflation rate.” – Alex Gladstein. This is incredible.
Sometimes, borrowing is necessary to grow economies and sometimes countries need to grow exports in order to repay debts. But is that money worth it when it comes with such exploitative conditions? For whom do they export and at what cost? And what are the incentives pushing them to produce certain goods? These are questions that social and economic thinkers should be simmering on.
By now you hopefully understand – at least on a broad level – how IMF loans work and how they can be predatory. They take advantage of a poor country’s dire circumstances and restructure its economy and society to enrich the Western world. With more IMF loans being invested in a harmful industry like shrimp farming, it’s the Bangladeshi who suffer the most. Not us, or the shrimp lords, or governments. In fact, we all benefit from the exploitation of the Bangladeshi people and land.
Is There Any Way Out? Perhaps There Is With Bitcoin.
Imagine if governments didn’t need to take out loans from the IMF to improve their economic situation; if they weren’t forced to meet endless conditions, to manipulate their economies for our benefit, or to always pay back dollar-denominated loans. (Why can the U.S. easily print dollars, lend comfortably, and take profits, while countries have to work hard to earn the same dollars the U.S. can simply print?) What if a global currency, like bitcoin, could level the playing field?
While you may be suspicious of Bitcoin, at least you know now that the answer to poverty is not more loans with more conditions. Surely we can think of a solution that not only supports the growth of developing economies, but enriches their people and their living standards too.
“Now imagine, if we get to a stage in 10 or 20 years where bitcoin is the global money that is accepted for business worldwide, where every nation has to borrow in bitcoin and spend bitcoin and every nation has to pay their debts in bitcoin.
In that world, foreign governments cannot demand that we repay them in currencies that we need to earn but they can simply print; and just because they decide to increase their interest rates, it won’t automatically jeopardize the lives of millions or billions of people in our countries.” – Farida Nabourema, human rights activist
What type of money do you think would work best for this scenario? I think it’s open, global, decentralized money. Not closed-off, fragmented money trying to make it across a bunch of different, broken financial rails.
Perhaps, for the developing world, bitcoin is the answer.
One Last Word.
Next time you read news surrounding Bangladesh’s striking poverty, natural disasters, and human rights abuses, ask yourself: How was this exacerbated by the IMF and creditor nations who pushed Bangladesh to make choices that aren’t in its best interests?
Next time you see the IMF bash a developing country for adopting Bitcoin, ask yourself: Are they trying to break the cycle of poverty and finally taking the bold step to bet on financial freedom?
Bitcoin is not a game. It’s a way out. Hopefully, you now see what we mean when we say “Bitcoin helps protect our human rights.” And why developing countries in particular are slowly seeing its benefits and turning to it as an alternative.
A question I’m Pondering:
Will we see more countries turning to Bitcoin as a way to escape the never-ending debt cycle of the IMF and World Bank (like El Salvador did)?
How do we help countries gain their financial independence from loaning giants like the IMF and World Bank, particularly the conditions they impose for loan approval?
For countries that opt out of the IMF and World Bank, what type of transformation would we see happen for them? And what impact would that have on the developed world? Would we be incentivized to innovate in new ways instead of resting on our laurels of exploitation?
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Additional Resources:
Read: Hidden Repression: How the IMF and World Bank Sell Exploitation as Development
Read: Structural Adjustment: How the IMF and World Bank Repress Poor Countries and Funel Their Resources to Rich Ones. https://bitcoinmagazine.com/culture/imf-world-bank-repress-poor-countries
Watch: Shrimps, Saris and Guns:
Watch: Impossibly Cheap: Abuse and Injustice in Bangladesh's Shrimp Industry
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