Examination of Witnesses(Questions 20-39)|
TUESDAY 21 MAY 2002
20. I understand that, but they have targets
and they have specific objectives. I am looking for some sign
that you have broken down the objectives per country and those
strategies being discussed to get those countries where they should
be, but I do not get that impression. I get the impression that
if it happens, it would be very good, but if it does not, c'est
(Mr Pickford) Let me give you again an example, if
I may, because I think you need to take each of these goals individually.
The World Bank in April produced an action plan for education
and it basically went through 80 odd countries and worked out
what would be required for each of those to get to the goal of
universal primary education. It came up with a global cost, but
it identified certain countries that were likely to get to the
goals through their own efforts, another group which would require
significant donor input and collateral and a third group who frankly
were pretty unlikely to get there unless something substantially
different happened. As a result of that, the Bank are now in the
process of putting together a very concrete action plan to fast-track
ten or so countries in order to put in a lot of resources and
a lot of effort to try to jump-start those into meeting the goals.
I think the same process is going to have to happen, for example,
with the health Millennium Development Goals.
21. The High-Level Panel on Financing For Development
said an extra $50 billion would be needed and the World Bank said
it would probably be higher. If you are playing a part in that
strategy with other organisations, does your future budget see
increased contributions coming in to make that $50 billion realisable
and, therefore, the objectives met?
(Mr Pickford) I think the figure that you quote is
one prepared by Mr Zedillo in the lead-up to the Monterrey Conference.
I think one of the successes of the Monterrey Conference was a
realisation amongst the international community that to achieve
the Millennium Development Goals would require a step increase
in resources, roughly a doubling of total development aid.
22. What are the IMF doing about that as one
of the partners?
(Mr Scholar) Well, just before coming to that specific
point, can I take a step back. As I understand it, your question
is that we have these Millennium Development Goals, we have countries
drawing up their own policies, how do we know the whole thing
is consistent. Certainly I would say
23. I had moved on actually just to put a straightforward
question. Fine words, but if we are going to meet these objectives,
$50 billion was put on the table and everybody said, "That
is not enough", so what indication have you within the IMF
that increased resources are going to come through that organisation
as well as others, but through that organisation?
(Mr Pickford) Actually, in practice the sums are so
large that most, if not all, of the resources will have to come
from the richer countries. The Fund itself has very little spare
resources on its own account and, similarly, the World Bank has
relatively little resources that it can put into the pot in terms
of concessional flows. One of the successes of Monterrey, I think,
was that we made a start towards that $50 billion with pledges
from the EU for what would amount to an extra $7 billion a year
in its aid flows from 2006 and also the US pledge of an extra
$5 billion a year again from the same date of 2006. That is substantial
progress. Now, $12 billion is not $50 billion, but it is a start.
The Chancellor has recognised this as a real issue and has said
that we really do need to think of innovative ways of trying to
bridge that gap. He has suggested one possible mechanism, such
as a trust fund which would take the contributions from the richer
countries and then leverage it up by borrowing from the capital
markets. That is one way of doing it, but I think there is now
a realisation that (a) it is going to cost a lot of money, and
(b) we can make substantial inroads into achieving that.
24. There have been substantial discussions
about the GATT agreements and one of the important points which
ought to be stressed is that GATT is purely voluntary and developing
countries only need to sign up to the extent that they think it
would be helpful. In Oxfam's evidence to the Committee, they say
that there is a weight of evidence showing countries are accepting
trade liberalisation conditions written into their PRSPs as a
prerequisite to obtaining aid and debt relief. My question is:
can you assure us that developing countries will not be pressed
to accept GATT as part of the package as that would of course
make the voluntary aspect of GATT somewhat academic?
(Mr Scholar) The policy, as I have said, is that countries
draw up their poverty reduction strategies, and that the IMF and
the World Bank and other donors then come in behind those to help
them implement them. It would be quite contrary to that to try
to push countries into liberalising where they do not want to
or before they want to. Of course there needs to be a good dialogue
between the Fund and countries and it is perfectly reasonable,
I think, for the Fund to say to countries, "You would benefit
from liberalising in this area", and if they want to say
that, they should do the proper preparatory work to show they
have a case and to demonstrate the impact on poverty and the social
impacts. But, as I said, it is entirely contrary to the spirit
of the approach to force countries when they do not want to do
25. On the issue of trade liberalisation policies,
following up Nick's point, Oxfam did produce a memorandum to us
which seemed eminently sensible. They said that developing countries
should not be rushed "to reduce their tariffs without recognising
the effect it could have on both government revenues and on the
livelihoods of people..." They mentioned Peru. In the 1990s
I was in Peru on a number of occasions and I know that the IMF
and the World Bank approach to liberalisation there ensured that
their tariffs were reduced in 1990 from 56 per cent to 15 per
cent in 1996, I think, and even lower after that, but it did result
in the impoverishment of millions of people in Peru and I witnessed
that aspect for myself. We have the IMF calling Peru in the 1990s
one of the world's most open economies, yet the people are in
dire poverty. I think there is a real lesson to be learned there
in trade liberalisation which the IMF and the World Bank have
not learned. Can we have your views?
(Mr Scholar) Again, we need to look very much case-by-case
at trade policy. In principle, a free trading system is to the
benefit of all because it encourages the most efficient allocation
of resources, greater productivity, growth and so on and so forth.
In particular for developing countries free access for their products
to industrial countries' markets is absolutely essential and there
is a great deal more that needs to be done there. I think there
is a lot of recognition of that. As for trade liberalisation in
a particular country, you would have to look case-by-case and
you would have to look at what the poverty and social impact would
be. When the IMF is in a country such as Peru looking at this
issue there is a new approach to the conditions it attaches to
its lending. The procedure now is to streamline conditions to
make sure only those conditions that are really critical to the
success of the programme are incorporated. Both this streamlining
of conditionality and this wider look at impact, including the
social impact, of all of the policies should over the next years
(Mr Pickford) I think what we are trying to say is
that actually with the move of the Fund to the PRGF facility,
it is fundamentally different to the approach it took in the past.
A number of the criticisms you are making are fair in terms of
the way the Fund operated several years ago. In practice, I would
not pretend everything is perfect, but I think the Fund has made
substantial improvements in the way it deals with poor countries
and in particular, as Tom said, it is now trying very much to
focus the structural conditions that it puts on a country in a
PRGF context on the essential things. In many cases I suspect
trade liberalisation is not an essential structural component,
at least in the early years of a development strategy.
Chairman: The IMF and the World Bank
have a long way to go to change perceptions. Andrew Tyrie is going
to ask some questions on financing issues and representation at
26. I might come on to financing issues in a
moment. I just wanted to ask a very general question which leads
on to the point made a moment ago about perception of the IMF
and the World Bank. Has the Board of the IMF met to discuss as
a Board why it thinks people have been rioting outside its windows
and trying to have a go at the IMF every time it holds a meeting?
(Mr Scholar) The Board meets NGOs from time to time,
and in fact we are due to have a meeting some time in the next
month or so with NGOs to discuss trade policy, and in Stephen's
time at the Fund he hosted a meeting of the Board with various
27. Do you think the NGOs are organising the
(Mr Scholar) No, I was coming on to an explanation
of the way in which the IMF Board does interact with the world
outside the board room. There is a long way further to go in terms
of the transparency of the IMF as an institution. The IMF management
is increasingly transparent. This is something that has changed
in the last few years, something to which Horst Kohler has
made a huge commitment and put at the top of his agenda. If I
am honest it would be a good thing for the IMF Board to follow
that lead and to try to adopt the same standards.
28. Was the answer yes or no to the question
has the Board discussed why it thinks people are rioting?
(Mr Pickford) Certainly in my time the Board did discuss
what was going on in the streets outside. There was a fair degree
of soul searching about why it was that the Fund were so much
a target of demonstrations. To be fair, things like the PRGF and
the PRSP process are to some extent responses to those concerns.
The Fund did not have a good press. I can remember one particular
occasion when Oxfam produced boxes of mints which said on them,
"Beware, the IMF kills babies", or words to that effect.
I do not think the IMF should pretend that it has a good press.
What I do also perceive though is that there has over the last
few years been a change in attitude. To some extent those perceptions
are not borne out in reality.
29. So one of the reasons why the Board think
they are rioting is a lack of transparency?
(Mr Pickford) Yes.
30. Is that the only reason? And that if only
people knew what the IMF were doing they would not be rioting?
I am sorry to put it so simplistically, but I think this goes
to the heart of what is becoming a major political issue in developed
(Mr Pickford) To be fairand Tom may have a
different perceptionin my view the Fund is never going
to be totally loved by the world because in many cases it is the
instrument for putting across some sometimes rather difficult
messages, so that if a country's fiscal situation is totally out
of control then the Fund has to say this is unsustainable. It
can help in terms of the adjustment process and it can certainly
advise, but it will not always be liked for giving that honest
(Mr Scholar) In the time I have been there there have
been a lot of discussions in the Board about the effectiveness
of the Fund. There is probably consensus on the objectives of
the Fund, being to promote stability and prosperity in the global
economy, the question is how is that achieved. A very important
question for the Board of the IMF is how effective is the IMF
in its surveillance activities, in the advice it gives countries,
and how persuasive is it? Is it able to explain why it is doing
what it is doing? It is giving the right advice? Is it making
the global economy more or less stable? There has been a great
deal of attention given to that. We have had a big review of surveillance.
One of the main discussions we had out of that was, firstly, how
to make sure we are giving the right advice and, secondly, how
can we persuade the world at large we are giving the right advice.
That is partly a question of transparency, but it is also a question
of taking a long hard look at what we are doing in each country
and saying to ourselves is this the right thing to do? This is
one of the reasons why we have suggested there needs to be greater
independence of the surveillance function of the IMF, and that
is now being looked at. That would give the Fund an opportunity
to step back from what it is doing in a particular country and
say we know there is a programme in place and we are asking this,
this and this and this is the right thing to do, are we going
in the right direction. There is a lot of soul searching, and
it is a constant challenge to improve effectiveness, but that
is what we are trying to do.
31. One explanation has been lack of transparency.
Another might be frustration at the lack of progress in the formal
programmes and a major reason for that might be nothing to do
with the IMF, but something you have never said or, at best have
had difficulty in saying as an institution, which is that you
are thwarted by the domestic political structures in many of the
countries in which you are trying to operate, particularly in
sub-Saharan Africa. Have the Board ever given consideration to
encouraging Member States, your own shareholders, to be much more
forthright in saying the truth of the extent to which IMF programmes
are thwarted by political interference and corruption in the states
in which you are expecting progress?
(Mr Scholar) First of all, governance is a very big
issue in many programmes and one of the things which is right
at the heart of the Monterrey Compact on the approach to development
policy is that responsibility for achieving progress is shared
between developing countries, developed countries and international
institutions, and it is only possible to have sustainable development
taking place in an environment where there is good governance
and the rule of law. I think that is part of the consensus. In
some cases there are governance conditions attached to IMF lending.
One current example is Kenya where there have been very big corruption
problems and the IMF has halted lending as a result of that; and
the government is now passing new legislation in order to demonstrate
that it has the problem under control. Once that has happened
then lending can resume again. It is not something that is in
any sense ignored by the IMF. On the contrary it is a very important
part of its approach to many countries.
Chairman: You do not want to go on to
32. There is an element of recondite investigation
in all this. There is one question I might ask since the Chairman
wants this area covered. I think you need a degree in international
economics to understand the financing structure of the IMF and
transparency has only taken us as far as saying, "Come and
have a look and see how our space rocket works." For the
ordinary soul transparency has not been a very enlightening experience.
Is there a mechanism by which more clarity can be brought to these
by structural changes, by maybe getting rid of the SDR enumerator
and saying, "Okay, we will talk in a number people understand
like dollars and we will have equal treatment of all tranches
so that they all earn an interest rate." I am just throwing
out a few thoughts.
(Mr Pickford) I think what you suggest is rather sensible
since I have the same problem understanding the intricacies of
the Fund's finances. To explain why the situation is as it is,
I think it has evolved over time.
33. It is history.
(Mr Pickford) It is history. In a situation where
you require consensus or near consensus to make changes it is
in some sense easier to build on what is already there rather
than to perhaps be more radical and start from scratch. I do not
defend the way the system has evolved, but I think there is an
explanation as to why it has and why it will be rather difficult
to change it again.
Chairman: Maybe David Laws has a degree
in international economics!
34. I do not think I covered that. Mr Scholar,
do you regard the IMF as being a democratic body?
(Mr Scholar) It is a body in which all of its members
are represented and which combines universality of membership
and representation with a decision-making body which is sufficiently
small to enable effective decisions to be taken. It has been successful
over the years in taking forward its work with a broad degree
of consensus. That said, I think there are problems over the consensus
that it can command within its membership where in particular
the developing countries feel their voices are not sufficiently
well heard. We agree with them and it is part of the Government's
policy to help strengthen representation and the voice of developing
countries in institutions including the IMF, and that is something
we need to look at.
35. At the moment from the figures we have got
here there are 182 member countries. 36 of those have roughly
82 per cent of the vote between them and 146 have 18 per cent
of the vote. It is almost the type of figures that we hear when
we think about the distribution of wealth throughout the world,
and that in a sense is what it is. Is it satisfactory that the
voting power should be decided in that way?
(Mr Scholar) As you say, on the voting power, the
votes are closely linked to quotas and quotas in turn reflect
the financial strength of the country. That is why you have the
distribution that you have.
36. Why not have one country one vote?
(Mr Scholar) When the IMF was set up it was set up
as a financial institution. It is quite different from the UN,
for example, in that sense.
37. Would the British Government be in favour
of one member one vote?
(Mr Scholar) The situation we have got is that quotas
are tied first and foremost to ability to pay. I think it is important
to remember that the IMF is an institution one of whose major
activities is to lend quite large amounts of money to large numbers
of countries and the money that they are lending is the money
provided by the shareholders, and it is not unreasonable that
the shareholders that contribute the most should have that reflected
to a degree in their voting.
38. So you would not be in favour even in principle
from scratch of a wholly democratic system where one country had
(Mr Scholar) What we are in favour of is strengthening
the voice of developing countries.
39. We have one end of the spectrum of unfairness
and you want to shift along a little bit more in the direction
of full fairness but not the whole way?
(Mr Scholar) I do not think the issue of the complete
restructuring of the entire decision-making process is an issue
which is on the table at the moment.