APPENDICES TO THE MINUTES OF EVIDENCE
TAKEN BEFORE THE INTERNATIONAL DEVELOPMENT COMMITTEE
APPENDIX 1
Memorandum on the Heavily Indebted Poor Country Debt
Initiative from the Bretton Woods Project
The Heavily Indebted Poor Country Debt Initiative has been
welcomed by NGOs because it is based on a comprehensive approach
that includes all creditors and it aims to reduce debt burdens
to sustainable levels. However, experience with the Initiative's
implementation to date suggests that many countries which should
benefit from it will perhaps not qualify for multilateral debt
reduction or will have to endure a considerable wait before they
are deemed eligible. In the light of this experience, this submission
addresses the use of conditionality within the framework and the
reliance on the IMF's structural adjustment programmes to measure
commitment to the process. While the Bretton Woods Project[34]
does not work directly on debt issues, its work on monitoring
the World Bank and the International Monetary Fund (IMF) places
it in an informed position from which to comment on these issues.
DEBT RELIEF
SHOULD NOT
BE CONDITIONAL
ON IMPLEMENTING
SIX YEARS
OF STRUCTURAL
ADJUSTMENT
Unlike previous debt relief initiatives which have only required
countries to undergo one three-year programme of adjustment prior
to receiving debt relief, the HIPC Debt Initiative requires countries
to complete two three-year adjustment programmes—one before
reaching the "decision point" and obtaining agreement
on debt reduction, and one before reaching the "completion
point" and receiving debt reduction. The inclusion of two
periods of adjustment is an unwarranted and arbitrary requirement
which simply prolongs the time before indebted countries can benefit
from much needed multilateral debt reduction. Excessive debt burdens
deter investment which inhibits growth and the adjustment process,
therefore it is critical that debt burdens are cut substantially
and quickly. Countries which are classified as having unsustainable
debt burdens at the decision point should automatically qualify
for multilateral debt reduction and should not be forced to undergo
further adjustment.
ADJUSTMENT PROGRAMMES
CONTAIN TOO
MUST CONDITIONALITY
AND FREQUENTLY
BREAK DOWN
For many countries, establishing a track record of reform
is difficult, for example Ethiopia's adjustment programme has
recently been considered off-track, and this is likely to impede
their progress towards attaining multilateral debt reduction.
Results from last year's internal review of the IMF's Enhanced
Structural Adjustment Facility (ESAF)[35]
showed that 51 significant interruptions of SAF/ESAF—supported
programmes had occurred since 1986 affecting 28 of the 36 countries
under review, and only a quarter of all three or four-year arrangements
were completed without significant interruption. The report estimates
that about two-thirds of these interruptions were due to severe
policy slippages.
ESAF programmes are particularly difficult to implement because
they include long lists of benchmarks and reform targets (more
than other IMF programmes), and they tend to dictate solutions
which are difficult to achieve in less-developed economies with
low administrative capabilities. They also tend to overlook the
political tensions that adjustment creates, these political pressures
have increased as countries have moved towards more democratic
structures. Tony Killick,[36]
senior research fellow at the ODI, concluded that "the
proliferation of conditionality has intensified the non-compliance
problem, which probably grows exponentially with the increase
in the number of conditions "However, rather than streamlining
its programmes, the IMF is introducing more and deeper structural
conditionality into them on the grounds that earlier reforms have
not been sufficient "either to accelerate social progress
sufficiently, or to allow countries to compete more successfully
in global markets." [37]This
"second generation" of reforms, which includes financial
sector liberalisation, tighter control on government spending
decisions and good governance conditions, is leading the IMF into
political and micro economic realms in which it has no expertise.
Given that the IMF's macroeconomic conditionality has been difficult
to implement and has produced poor results (see below), it is
doubtful that it can develop appropriate structural conditionality.
IMF ADJUSTMENT PROGRAMMES
HAVE NOT
ACHIEVED THEIR
STABILISATION AND
GROWTH OBJECTIVES
Evidence from the IMF's internal review of ESAF shows that
programmes have only been marginally successful in achieving their
aims. In Africa the rapid decline in growth rates has been halted
but they remain negative, and for all ESAF countries average real
per capita GDP growth was 0 per cent over the 1991-95 period.
Success with reducing inflation rates has been mixed with as many
countries experiencing rising inflation as experienced falling
inflation. The slight reduction in government deficits has largely
been achieved through cutting expenditures, particularly infrastructure
investment which is necessary for encouraging greater private
sector investment.
Current account deficits generally have not improved and
indebted countries still remain heavily dependent on aid and debt
relief to repay their debts and purchase imports. Frances Stewart,
Director of Queen Elizabeth House, in her evidence to the Treasury
Select Committee Inquiry into the IMF, session 1996-97, concluded
that the "empirical evidence shows that in the majority
of countries adopting Fund programmes in the 1980s and 1990s,
per capita incomes have been falling, and poverty worsening .
. . The conclusion is that there has been a small negative impact
on growth of Fund programmes and little effect on other macroeconomic
variables." There seems to be little evidence to suggest
that the IMF is an appropriate body to set conditionality or formulate
appropriate policies to help poor countries achieve macroeconomic
stability and growth.
STRUCTURAL ADJUSTMENT
PROGRAMMES ARE
NOT HELPING
TO RELIEVE
POVERTY
The goal of poverty reduction continues to play second fiddle
to the goals of stabilisation in the design of adjustment programmes.
An examination[38] by
the Operations Evaluation Department of the World Bank found that
income inequality increased in half of the countries studied and
that in most countries growth continued to be insufficient and
this impeded poverty reduction. Where some poverty reduction was
achieved it was, in most cases, insufficient to significantly
reduce the number of poor. Similarly, the internal review of ESAF
found that average per capita incomes in countries implementing
ESAF programmes were falling even further behind those of other
developing countries. Tying in countries to more ESAF programmes
both during the HIPC Initiative and after will not help achieve
targets for poverty reduction such as the OECD's DAC targets.
CONDITIONALITY IS
INAPPROPRIATE TO
INDUCE POLICY
REFORM
There is growing recognition both within the World Bank and
amongst outside commentators that providing aid monies with conditionalities
attached is not an effective means of inducing policy reform.
Thus, adjustment programmes as they are currently formulated (with
little government and no civil society involvement) and applied
are unlikely to achieve their goals. For reforms to be successful
there must be government and civil society commitment to them.
Evidence from the World Bank indicates that government ownership
of reforms strengthens commitment. A new, participatory process
must be developed for formulating adjustment programmes which
widens the dialogue to include all relevant government ministries,
civil society and academic experts, bilateral donors and other
multilateral institutions. The IMF should no longer be allowed
to dominate the formulation and approval of adjustment programmes
and surveillance of their implementation.
THE IMF HAS
SPURIOUSLY LINKED
ESAF TO THE
HIPC INITIATIVE
The IMF is primarily concerned with securing resources to
replenish ESAF and is not sufficiently committed to resolving
the multilateral debt problem. The IMF has manipulated the debate
over the financing of the HIPC Initiative for its own ends by
insisting that funding for it must be channelled through ESAF,
yet there is no technical or legal basis for such a link. Resources
for the Initiative must be delinked from ESAF. ESAF loans are
not sufficiently concessional and are adding to the financial
pressures of HIPC countries rather than relieving them.
CONDITIONS SHOULD
NOT BE
IMPOSED ON
HOW SAVINGS
FROM DEBT
RELIEF ARE
SPENT
As with conditionalities linked to adjustment programmes,
social conditionalities linked to the spending of monies freed
up from debt relief will be difficult to enforce and monitor unless
there is prior government commitment to social spending and poverty
reduction. Instead, no conditionalities should be imposed on governments
which have formulated a workable programme for poverty reduction
and demonstrate commitment to it. Where a government has not yet
developed such a programme they should be given technical assistance
and advice to do so. Priority should be placed on ensuring that
poverty reduction programmes are achievable given the limited
infrastructure and administrative capacity in HIPC countries.
Monitoring the use of resources is best done through parliamentary
processes and civil society pressure from within the country itself.
Governments should be pressed to consult with the public when
formulating these programmes and should make their contents publicly
known.
Angela Wood
Bretton Woods Project
34 The Bretton Woods Project works with a network of
27 UK non-governmental organisations on World Bank and International
Monetary Fund issues. Back
35
IMF, 1997, The ESAF at 10 years: Economic Adjustment and Reform
in Low-Income Countries, IMF, Washington, D C. Back
36
Killick, T, 1995, IMF Programmes in Developing Countries, Routledge,
London. Back
37
Michel Camdessus, 1997, Fostering and Enabling Environment
for Development, address at the HIgh Level Meeting of the UN Economic
and Social Council, Geneva, Switzerland. Back
38
OED, 1995, The Social Impact of Adjustment Operations, and
overview World Bank, Washington, D C. Back
| 
