APPENDIX 4
Memorandum submitted by CAFOD—Catholic
Fund for Overseas Development
CAFOD policy staff attended the recent IMF and
World Bank annual meetings, and met a number of Fund and Bank
staff and board members, including Stephen Pickford and Myles
Wickstead. They have drawn up this briefing for International
Development Committee members on the basis of that visit.
1. THE "ENHANCED
HIPC INITIATIVE"
Background
The "enhanced HIPC" modifications
finalised at the annual meetings result in a broadening of debt
relief and an increase in the number of participating countries
from 29 to 36 HIPCs. As agreed in Cologne, the overall costs of
the package have more than doubled in net present value terms
from $12.5 billion to some $27 billion. There are various ways
of counting the cost to creditors. In nominal terms, the overall
"enhanced HIPC" package is being represented as—(post-Cologne)
$50 billion; plus ODA debts (either already or long-promised write-offs)
$27 billion; plus traditional Naples Terms write-offs $23 billion,
giving a total of $100 billion.
Development ministers are now publicly linking
debt relief to the 2015 international development targets. But
all projections show that aid levels, levels of economic growth
and levels of "enhanced HIPC" debt relief, will not
provide the sufficient flow of funds needed to meet the ID targets.
The response from staff of the IMF has been to suggest that this
will require a greater emphasis on higher "quality"
economic growth. This is a possibility, but presupposes average
growth rates rising in most HIPCs from their current level of
between 1 to 2 per cent pa to over 5.5 per cent pa for the next
15 years. Such consistently high growth rates over such a prolonged
period are over-optimistic. Most HIPC economies are dependent
on one or two commodities real prices of which have been in long-term
decline and are, in any event, vulnerable to dramatic price fluctuations
and are subject to the vagaries of rain-fed agricultural production.
Possible question
The UK government has supported President Clinton's
announcement of 100 per cent write-offs on bilateral debts. Given
the projections showing the lack of finance available to meet
the 2015 DAC targets, will the UK be pushing for 100 per cent
write-offs of multilateral debts for the poorest HIPCs?
2. THE IMF'S
NEW APPROACH
TO POVERTY
REDUCTION
Background
The annual meetings replaced the IMF's ESAF
programme with a new facility, the Poverty Reduction and Growth
Facility (PRGF). PRGF agreements will be based on a new process,
the drawing up of a Poverty Reduction Strategy Paper (PRSP) by
the government of the HIPC in the first instance, setting out
national poverty reduction objectives. PRSPs will begin with analyses
of poverty, including "assessments and impediments to economic
growth". The intention is for a comprehensive poverty reduction
strategy within a macroeconomic and sectoral framework. Unlike
ESAF's Policy Framework Paper (PFP), the proposed PRSP
has poverty reduction as its central objective.
The World Bank will have a lead role in collating
data and advising governments, but the stated intention "is
to have all voices heard" and the outcome approved by the
Bank and Fund. This will mean that when it comes to monitoring
programme compliance, the IFIs will have a new role in judging
key governance and transparency issues. Donor support or debt
relief will be dependent on countries meeting the poverty reduction
targets.
Possible Questions
— The PRSP process envisages the Fund
and World Bank making judgements over governance issues. This
is a complex area and an area wholly new to the work of the international
financial institutions. Is there an intention to develop some
broad and transparent guidelines as to what constitutes good governance?
— There will often be a trade-off between
long-term poverty reduction and short-term growth or reducing
inflation. The fear is that Fund staff faced with such a trade-off
will give priority to the control of inflation. What can you do
to ensure that poverty reduction does not remain an afterthought
in policy design?
— Given the possible trade-off between
the Fund's desire for speed and quick results, and the inevitable
lag involved in designing a truly participatory process for drawing
up a poverty action plan, what will you be doing to ensure the
Fund adopts a truly inclusive approach?
— What institutional reforms are you
pursuing to help the Fund move from its previous reliance on conditionality
to a process based on partnership and dialogue with relevant stakeholders?
For example, do you support a greater regionalisation of IMF staff,
as has happened at the World Bank?
— The new emphasis on partnership and
dialogue in determining poverty reduction strategies requires
additional resources and capacity for government administrations
that have experienced a contraction in the 1980s and 1990s. Will
there be bilateral or multilateral programmes for developing the
capacities of those government administrations to engage in a
costly interaction with civil society?
3. EXTERNAL EVALUATION
OF THE
IMF
Background
HMG supported by Japan, has long supported the
creation of a permanent external evaluation unit to review IMF
policies and programmes. Other countries prefer the current ad
hoc system of occasional external reviews, of which only three
have been completed in the last three years. This system is to
be discussed at board level this winter, and decisions taken on
the future of external evaluation at the Fund.
Possible Questions
— Given the rather disappointing IMF
interim committee statement on external evaluation, what's the
next step?
— Will you press for an external evaluation
of the Fund's role in the rescue packages in Asia and Eastern
Europe, many of which have been fairly controversial?
4. FUND-BANK
COLLABORATION
Background
The boards of both Fund and Bank must approve
PRSPs, establishing a new benchmark for collaboration, which has
long been a goal of HMG. It is vital to keep up the pressure in
this area, to prevent wasteful duplication and ensure that the
joint commitment to poverty reduction and growth is put into practice.
Possible Questions
— What other areas of joint Fund-Bank
collaboration would Mr Pickford like to see in place?
— Would he support the idea of a joint
crisis response unit which would ensure the lessons of previous
financial crashes and rescue packages are included in the response
to future crashes? Such a unit would also help prevent the experience
of recent years, in which the Fund has intervened at very short
notice and established the macroeconomic parameters of a country's
rescue programme, and the Bank has subsequently attempted to introduce
social considerations into a fairly rigid macroeconomic framework.
CAFOD
October 1999
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