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Citigroup and the World Bank
Citigroup, as the largest financial institution in North America and the third largest in the world, holds an ever-expanding grip on global financial markets, and as a consequence, the global environment and local communities.
Research into the most destructive projects around the world repeatedly reveals Citigroup's direct, financial involvement. From predatory lending in US inner cities to burdensome debt payments from the global South, Citigroup is there. Citigroup is a top funder of devastating projects such as mining in the Amazon basin and oil pipelines through the rainforests of Africa. Whether issuing bonds for the construction of the world's largest hydropower projects slated to displace some 5 million people in China, or arranging loans for palm plantations that encroach on critical orangutang habitat in Indonesia, Citigroup's influence on the global environment and communities is tremendous. If you hold a Citibank credit card or bank account or invest in mutual funds through Citigroup subsidiary Solomon Smith Barney, your money is tied up in these projects and the damaging impacts they create. Whether you are an investor, concerned citizen, or activist, you have the opportunity to send Citigroup a strong message that financial investments must support communities and the environment, not harm them.
The financial realm constitutes the commanding citadel of the global system - the benefactor that provides essential capital, the enforcer that disciplines multinational corporations as well as nations. Its imperious attitudes and amoral operating assumptions are embedded in every aspect of globalization and implicated in every complaint, from inhumane working conditions to environmental wreckage, from the erosion of national sovereignty to the gross and growing inequalities." --THE NATION, April 24, 2000
Citigroup's
subsidiaries range from banking (Citibank), brokerage services (Salomon Smith Barney), mutual funds (Primerica), property and casualty insurance (Travelers Property Casualty), investment companies (Sterling LLC, Commercial Credit), and retirement investments (Travelers Life & Annuity).
Boycott and divest
from Citigroup's subsidaries
Citigroup and Third World Debt
Citibank's role in the Third World debt crisis exemplifies how Northern banks have profited from the despair of people, nations, environments and economies in the Third World, or "Global South." Citibank's excessive lending to undemocratic regimes during the 1970s, in a context of global economic slowdown--remains the most significant barrier to Third World aspirations, including the maintenance of ecological integrity.
The problem is structural, and must ultimately be resolved through a full-fledged reorientation of the global economy. But in the meantime, superprofits made by financial institutions in the process of collecting Third World debt, have led the Jubilee 2000 South coalition, South African anti-apartheid campaigners, and other debt activists to call on major New York, London, Frankfurt, Zurich and Tokyo banks to give reparations to debt-torn societies, still suffering under IMF and World Bank rule following the 1980s bailouts of Citibank and the other banks.
The debt crisis broke out during the early 1980s, but its roots go back earlier. The geographical expansion of finance in the 1960s, which ultimately led Citibank into Third World lending, was accompanied by the growing ambitions of transnational corporations (TNCs). But declining profits and overproduction by manufacturing TNCs soon emerged as a universal problem, as excessive "capital intensity" (more machinery) in production was generating far more output than could be absorbed through regular market channels. Corporate resources were then reinvested less in overproductive manufacturing firms, because of rising excess capacity and declining manufacturing profit rates (from 20-30 percent levels during the 1960s-70s to 5-15 percent during the 1970s-90s). Instead, investment funds were increasingly funnelled into financial activities through a variety of new international routes.
The world's two dozen largest banks controlled most of the action, granting three quarters of the total amount of loans to Third World borrowers. Concentration existed on the borrowing side as well: three quarters of the credit (of all lenders) went to just eleven Third World and Newly Industrialised Countries.
From late 1979, as world interest rates soared due to a decision by US Federal Reserve chair Paul Volcker to fight inflation at all costs, this became an enormous predicament for the Third World. For Citibank and other banks, however, crisis also meant opportunity to rake in more profits. Borrowers had been offered loans during the 1970s at a premium (often 2 percent) far above the London Interbank Offering Rate, the rate at which international banks lend each other short-term funds. The banks charged syndication fees as well as high fees (typically 1-2 percent) when, after the repayment burden became unmanageable in the early 1980s, debt rescheduling was necessary. The banks also gained from the rebound of funds (popularly known as "capital flight") to the same banks' VIP deposit accounts. Finally, the ability of the US banks to take advantage of their foreign branches (beyond the reach of bank regulators) brought a higher profit rate.
Yet the threat of mass default suddenly emerged, when in August 1982 Mexico was unable to service debt to Citibank and other foreign banks. Soon, 33 countries suddenly found themselves in need of foreign debt "rescheduling." To this end, the IMF financed the repayment of commercial bank loans--effectively bailing out Citibank--in exchange for a change in Third World development strategy.
"Structural adjustment programmes" were applied to switch Third World countries from inward to export orientation (so as to pay Citibank and other bank debts), and this also included an end to various state subsidies, especially in social spending. To retain their power, the IMF and World Bank were regularly provided new funding by member governments, which allowed the borrowing countries to repay the commercial banks, and hence shift the costs of bad loan decisions from Citibank and other banks, onto both taxpayers of the advanced capitalist countries and Third World peasants, workers, and environments.
The commercial banks hadn't minded how the money was spent, and as a result, corruption was an integral component of Third World lending. Examples include Haiti, where Duvallier's estimated theft was $500 million; Zaire, where Mobutu is thought to be illegitimately worth $5 billion; the Philippines, where Aquino accused Marcos of having stolen tens of billions of dollars, while her government inherited a foreign debt of $36 billion; and Mexico, where even the liberal President Lopez Portillo apparently took $1 billion with him in 1982 to his retirement in Italy.
Citibank was happy to lend even to apartheid South Africa, which during the late 1970s and early 1980s not only witnessed an upsurge of protest by black township residents and workers, but was the subject of an international financial sanctions campaign organised originally by two Nobel laureates, African National Congress leader Albert Luthuli and Martin Luther King, Jr, in the mid-1960s. Citibank's investment in apartheid paid handsome dividends, but the legacy of apartheid bank debt severely hampered the first democratic government's reconstruction and development prospects, resulting in the country's key churchpeople and debt campaigners calling for reparations.
But even where Third World borrowers included relatively more democratic governments, economic calculations associated with debt quickly went askew. The dollar's depreciation and pre-1974 inflation in commodity markets made interest rates on international loans appear negative in real terms (i.e., after inflation) throughout the 1970s when most commercial bank loans were granted. Yet at the time, most Third World countries outside East Asia were suffering from a slow-down in investment, as a function of their own local crises, the oil shocks, and global recession. In order to industrialize or otherwise cope with problems of underdevelopment, many Third World leaders viewed loans as a way out of dependency on the First World.
But neither was export-led growth the panacea that the IMF and World Bank had promised in exchange for new loans (which often mainly went to pay off old commercial bank loans). The primary (non-petroleum) exports of the beleaguered debtor nations suffered a 77 percent decline in world commodity prices from 1973-88 (the key period of debt crisis formation), while global real (after- inflation) interest rates rose from -4 percent to 4 percent.
Yet Third World countries have been told that to solve their debt crisis, they must not only produce more goods for export, at a lower price, hence redirecting resources away from domestic needs. They have also had to adopt a variety of other structural adjustment policies: social subsidy cuts, privatization of state industries, trade and financial liberalization, labor market deregulation, and adoption of higher interest rates to attract foreign capital.
If during the 1980s, Citibank and other banks stopped Third World lending, leaving the IMF and World Bank to do their debt collection of 1970s-era loans, they returned in the 1990s to a small group of "emerging market" economies. There, they lent mainly to the private sector and participated in local financial markets. But this short-term "hot money" was just as rapidly withdrawn, causing dramatic crises associated with outflows, often leaving countries with a currency worth 30-50% less one week than the week before: Mexico (early 1995), South Africa (early 1996 and mid-1998), Southeast Asia (1997-98), South Korea (early 1998), Russia (periodic but especially mid-1998) and Brazil and Ecuador (early 1999).
The IMF and World Bank again came to the aid of Citibank and other investors. They did so, again, at the expense of ordinary people, leaving noted economist Joseph Stiglitz to comment that the main damage done was to ordinary people who had nothing to do with the financial system, while the foreign financiers were rewarded with IMF and World Bank bailouts.
The banks actually gained from the disaster of the Third World debt crisis, dating to the early 1980s. Even when losses were recorded on Citibank's books one year (1987), borrowers were constantly threatened that failure to repay would lead to a cutoff of even trade finance. For example, while writing down loans to Brazil (partly so as to take advantage of tax credits), Citibank's William Rhodes led the negotiations against Brazil when it threatened to default outright in 1987. Those negotiations led to further declines in Brazil's standard of living, and although Citibank declared a temporary loss, this was made up when the loans were, indeed, ultimately repaid.
For all these reasons, people across the Third World have come together in a Jubilee 2000 South movement to declare the foreign debt illegitimate. In Africa, a May 1999 "Lusaka Declaration" demanded reparations. And the Jubilee 2000 South Africa movement has specifically endorsed the campaign to make Citibank leaders aware of their moral responsibility to right the wrongs they have visited upon so many people.
Headwaters Forest and Citigroup
Indonesian Palm Plantations and Citigroup
Citigroup and the Three Gorges Dam
Gobe Oil fields, Paupa New Guiniea
All material (C) Rainforest Action Network