APPENDIX 5
Memorandum submitted by the World Development
Movement (WDM)
Decisions taken at the World Bank and IMF Annual
Meetings last month present us with an exciting opportunity. At
the meetings the IMF agreed that poverty reduction should be an
objective of all its lending to the poorest countries. With Gordon
Brown as the recently appointed Chair of the IMF's Interim Committee,
the UK have a key role in ensuring that the opportunities offered
by this commitment are realised. As the UK's representative, the
Executive Director has an important function in helping the Fund
to move away from its traditional approach, and in finding new
solutions to the challenge of poverty reduction to which the IMF
have now committed themselves.
As a founder member of the Jubilee 2000 coalition,
debt relief is an issue of fundamental importance to WDM members,
and one of which we have campaigned for more than 15 years. We
welcome the progress made at the annual meetings in securing funding
to provide wider, faster and deeper debt relief to some of the
world's most impoverished nations under the so called "enhanced"
Heavily Indebted Poor Countries Initiative (HIPC). However, of
more fundamental importance was the central role given in the
annual meeting discussions of how to ensure that debt relief delivers
poverty reduction.
LINKING DEBT
RELIEF TO
POVERTY REDUCTION
WDM believe that it is not just debt repayments
themselves that are undermining poor countries' attempts to secure
poverty reduction, and are deeply concerned that the conditions
attached to debt relief have been at least as problematic as the
drain on resources from the repayment of debts.
The granting of debt relief is conditional on
countries first implementing stringent economic conditions known
as structural adjustment policies (SAPs). These policies, designed
by the IMF, have a poor track rcord on poverty reduction. For
many years NGOs and leading commentators from both North and South
have argued that IMF structural adjustment policies, designed
by the IMF's Enhanced Structural Adjustment Facility (ESAF), should
be judged against the objective of poverty reduction. The IMF
has remained intransigent, arguing that its job is macroeconomic
stability, and that poverty is the prerogative of the World Bank.
POVERTY REDUCTION
MADE A
CORE OBJECTIVE
FOR THE
IMF AT THE
RECENT ANNUAL
MEETINGS
The IMF's commitment at the annual meetings
to make poverty reduction a central objective of their lending
to poor countries was therefore a surprisingly welcome sign of
progress. While arguing that the Fund had always considered social
dimensions, IMF Managing Director, Michel Camdessus acknowledged
that: "the voices of the poor around the world are telling
us in no uncertain terms that this is not enough. The time has
come for a new and more decisive start."
In recognition of the IMF's apparent shift in
focus, a change in name of ESAF to the Poverty Reduction and Growth
Facility (PRGF) was announced at the annual meetings. However,
the potentially more substantive changes are to be found in a
paper prepared jointly by World Bank and IMF staff as part of
the review of HIPC on the link between poverty reduction and debt
relief in advance of the annual meetings. The paper proposed that
countries should design their own Poverty Reduction Strategy Papers
(PRSP) which, once approved by the World Bank and IMF, should
become the basis for all lending including structural adjustment
programmes.
The paper makes three important points:
— Poverty reduction should now be a
key objective for Fund lending to low income countries.
— Borrower countries should have more
ownership over their reform programmes. A poverty reduction strategy
should be developed by governments with the participation of civil
society. The resultant Poverty Reduction Strategy Plan (PRSP)
should then be approved by the Fund and Bank and should form the
framework for their future lending.
— The Bank and Fund should work more
closely together.
This marks a potentially significant change
from the previous position of the IMF. The Board, the Interim
Committee, and the UK in particular, will have a major role to
play both in holding the IMF to its commitment and in helping
the institution learn how to put it into practice.
PUTTING THE
POVERTY REDUCTION
STRATEGY PAPERS
INTO PRACTICE
This is a major challenge. The potential shift
in policies is very welcome. But the difficulty the institution
will have in making the real necessary changes should not be underestimated.
While there appears to be a genuine commitment from some IMF staff
to the Fund's new rhetoric, it is unclear whether the Fund will
ultimately be prepared to adapt its core economic policies in
the light of its new objective of poverty reduction.
The IMF will need to adapt in two areas: Ownership
and Economic analysis. First, the Fund will need to educate itself
on the implications of government "ownership" of its
programmes and, in particular, of the complexity of ensuring civil
society participation. Second, while the Fund has stated that
governments should have more ownership of economic reforms, it
is clear that the Fund still expects to retain the right to judge
whether government plans are "sound". This will require
some changes in economic analysis to accord with the new objective
of poverty reduction.
OWNERSHIP
It is a step forward for the IMF to recognise
that governments need to own their own economic programmes, not
least because they simply will not implement them otherwise. It
is an even greater step forward for the IMF to recognise that
civil society should also participate in their design.
It is, however, unclear what will happen in
the event of a potential conflict between debtor country government
priorities as set out in their Poverty Reduction Strategy Paper,
and IMF core economic policies. The evidence at this stage is
mixed. Leading IMF staff still speak of immutable "economic
laws"—suggesting that there will in fact be little
flexibility when it comes to allowing governments to design their
own strategies. There is a real danger that the Fund will welcome
nationally-owned plans for poverty reduction, and then explain,
regrettably, that they are unworkable and continue with "business
as usual". Guidelines are apparently to be prepared outlining
the framework for an acceptable PRSP. The balance between those
areas of policy which are open for debate and those which are
fixed will be key.
We welcome the IMF's focus on civil society
participation. However, for civil society to be prepared to participate
in formulating their PSRP there must be a genuine guarantee that
their input and the resulting paper is taken seriously. If the
Fund is serious about securing a truly participatory approach,
it is crucial that civil society recognises the process as being
one of integrity, rather than simply a way for the IMF to legitimise
the imposition of the same old-style adjustment reforms by paying
lip-service to the inclusion of civil society's views. This takes
substantial time, expertise and resources.
Key questions will be:
— What happens when the government's
proposals conflict with traditionally held IMF beliefs?
— How will the Fund adapt its procedures
to accommodate civil society participation?
ECONOMIC ANALYSIS
Hither to, it has been the role of the IMF to
advise countries on how to maximise economic growth. They now
have a new role, that of advising countries on how to achieve
poverty reduction. While there is little doubt that growth is
key for the poorest countries, the type of growth is also crucial.
The fear is that the IMF may simply continue
to pursue rapid economic growth, while arguing more firmly that
this will lead to poverty reduction through the process of "trickle
down". The challenge is for Fund staff to listen to economists
outside the institution about the benefits of high quality growth,
where jobs and investment in people are given as much priority
as inflation rates. There is a growing body of analysis on pro-poor
growth, not least within the United Nations family, which the
IMF has so far remained distant from.
This new objective also presents new challenges
of evaluation. Assessments so far have been against the objective
of economic growth. New evaluation will have to take place against
the objective of poverty reduction.
Learning can take place as a process. Lessons
from the first PRSPs can be incorporated into the Poverty Reduction
and Growth Facility (PRGF) lending for other countries rather
than having to wait until all PRSPs are concluded.
A new relationship will also have to be developed
between the World Bank and IMF. The IMF is not, and does not claim
to be, an expert in poverty reduction. It will need to rely heavily
on the World Bank for expertise. It is not clear how this new
relationship will develop and whether there will be any compunction
on IMF staff to adjust programmes in accordance with World Bank
advice.
Key questions will be:
— How will the IMF develop indicators
to enable them to assess the impact of their programmes on poverty
reduction?
— What changes in macro-economic and
sectoral analysis are perceived necessary in order to meet this
new mandate?
TIMING OF
DEBT RELIEF
Amongst these new opportunities is one danger.
It is critical that the new requirement for countries to set out
their poverty reduction plans in PRSPs must not simply add another
layer of conditionality onto poor countries, and does not in any
way delay the provision of urgently needed debt relief.
WDM welcome the proposal that nationally-owned
poverty reduction plans, formulated through consultation with
civil-society, should form the basis of IMF lending. However,
we are concerned that true participation will need time and resources.
Many HIPC countries awaiting debt relief have neither, and there
may be a conflict here with the IMF's need for quick results.
We seek clarification as to the requirements
on HIPC countries with regards drawing up their national PRSPs
as they approach their decision and completion points. We seek
reassurance that in no case will the provision of debt relief
under HIPC be delayed by the IMF's new proposals for linking debt
relief more closely to poverty reduction.
World Development Movement
October 1999
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