Select Committee on Treasury Minutes of Evidence

Memorandum submitted by Oxfam

  1.   A concern Oxfam has of both the IMF and World Bank programmes, is that they continue to press trade liberalisation and privatisation even where it is inappropriate for countries' development and could damage efforts to reduce poverty. While the management and the Boards of the IMF and World Bank have acknowledged that developed countries must also dismantle their barriers to developing countries' exports, IMF and World Bank conditionality on developing countries remains a key way to compel developing countries to open their markets. The UK government has gone some way to acknowledge this issue and the Chancellor recently said in New York,

  2.  "We must not rush developing countries to reduce their tariffs without recognising the effect it could have on both government revenues and on the livelihoods of people working on the land.

  We need a sequenced approach which ensures that appropriate measures are in place to protect vulnerable countries from an overly rapid transition to a system of liberalised trade. Hence the IMF and World Bank commitment to undertake Poverty and Social Impact Assessments of our reforms. And at the spring meetings in Washington we asked to see a more systematic approach to these assessments and for the IMF and World Bank to report back on progress in the autumn."

  3.  However, Oxfam believes the British government should be doing far more to highlight the negative impacts of the IMF and World Bank's trade liberalisation agenda. The government should call on both institutions to re-examine their role in formulating trade policy for developing countries and suggest they relinquish some of this power to the WTO (see full recommendations at the end of this document).

  4.  One recent IMF review of trade policy conditionality covering 23 programmes found that a total of 186 trade measures had been included. Most were targeted at reducing tariff and non-tariff barriers.

  5.  An Oxfam survey of 12 Interim PRSPs that incorporated trade liberalisation measures, revealed that only one third mentioned the possible poverty impact of the measures. Only two of these incorporated a policy response to mitigate negative impacts of trade liberalisation.

  6.  One review of seven PRGF programmes discovered a total of 51 trade-related policy measures. When Tanzania accepted a PRGF loan in 2000, it also agreed to eight specific policy measures aimed at liberalising trade, including the reduction of tariff and non-tariff barriers. Yemen accepted 22 policy conditions on a loan from the same account.

  7.  Despite all these examples of instances where the World Bank and IMF have ensured developing countries liberalise their markets, the evidence from China, Uganda and Vietnam in particular appears to be that economic success and poverty reduction was achieved when liberalisation was pursued very gradually. It also shows that export promotion was more important than import liberalisation to achieve success. For example, it has been export liberalisation that has played an important role in Uganda's relative success.

  8.  The case of Peru illustrates the difficulties with the World Bank-IMF approach to trade liberalisation. In the early 1990s the institutions supported one of the world's most radical liberalisation programmes in Peru, rapidly decreasing the average import tariffs from 56 per cent (before 1990) to 15 per cent and then even lower by 1996. The country emerged as one of the world's most open economies (according to the IMF). However the volume of food imports grew more rapidly than food exports, creating an annual agricultural trade deficit of $346 million for 1996-99. In addition, the increase in food imports drove down the prices of the smaller Peruvian farmers, since they could not compete, as the larger farmers managed to do, with heavily subsidised goods such as milk which were imported from the EU. The decline in the prices of their goods was combined with a rise in inequality and a deterioration in poverty reduction rates. Therefore over the course of the 1990s the trade liberalisation policies recommended by the World Bank and IMF contributed to the worsening of conditions for some of the poorest people of Peru.

  9.  Similarly, Haiti was persuaded by the IMF and World Bank to rapidly liberalise its trade from the mid-1980s. In 1995 import tariffs on rice were cut from 50 per cent to 3 per cent and the prices for rice fell in real terms by 25 per cent as subsidised imports flooded in from the US. While urban populations in Haiti benefited from the cheap rice, the small-holder rice producers saw their livelihoods devastated. In a country where more than half the population is malnourished and more than 80 per cent of the rural population live below the poverty line, rice-growing areas have some of the highest concentrations of poverty and malnutrition.

  10.  These two examples show that in countries with high concentrations of rural poverty, the combination of rapid import liberalisation in food staples and the promotion of capital-intensive export production can have profoundly anti-poor outcomes. Yet despite the development of the Poverty Reduction Strategy Papers (PRSPs) under which countries are expected to draw-up their own blue-prints for development through a participatory consultative process in-country, many of the same trade liberalisation policies are still being prescribed. There is a weight of evidence showing that countries are accepting trade liberalisation conditions, written into their PRSPs, as a pre-requisite to obtaining the aid and debt relief that the PRSPs can bring. From the beginning of this year, the World Bank and IMF are obliged to carry out ex-ante poverty impact assessments to ensure that the reforms they recommend are not likely to increase poverty. Progress to date has been slow, and the Bank has only recently sent out a consultation document showing how it will guide staff to carry out such assessments. It will be up to the British government and other key shareholders to hold both institutions to account and ensure these poverty impact assessments are carried out and policies changed accordingly.

  11.  Oxfam recommends that:

    —  trade liberalisation measures should be removed from World Bank and IMF loan conditions. Instead such discussions should be carried out under the auspices of the WTO which is formally charged with negotiating reciprocal trade liberalisation measures. Trade reform via the World Bank and IMF is not reciprocal;

    —  there should be a retrospective credit for past liberalisation measure undertaken by developing countries under World Bank and IMF auspices—the measures should be converted into tariff equivalents and reciprocated by industrialised countries through negotiations at the WTO;

    —  all PRSPs should include a comprehensive assessment of the impact of trade liberalisation measures for poverty reduction and income distribution. This should be published as part of the national consultation process.

  15.  For further information please see Oxfam's new trade report, "Rigged Rules and Double Standards: trade, globalisation and the fight against poverty," published in April, 2002.


  16.  Oxfam welcomed the launch of the PRSP process as an opportunity to move away from one-size-fits all approaches to economic strategies for developing countries. We hoped that the development of PRSPs would involve the participation of an increasingly wide group of actors, leading to policies which were more appropriate to local needs and which had greater ownership. In particular we hoped that the voices of poor people would influence policy formation, and that PRSPs would help dramatically reduce poverty through an expansion of public spending in areas which can have the largest impact on poverty, and though a shift towards structural and macroeconomic policies that have poverty reduction as their primary goals.

  17.  Nearly three years later, progress is mixed. In many countries a space has been opened up for a new dialogue about poverty reduction and how government spending can be better targeted towards poverty reduction. However, many civil society groups that have participated in PRSP processes at the national level express their frustration that their concerns are not being addressed within interim and full PRSPs. The primary concern remains a lack of evidence of a reorientation of structural and macroeconomic policies towards the challenge of poverty reduction. PRSPs are increasingly being challenged at the national level as a continuation of existing economic policies, with an enlarged safety net in the form of additional budget allocations for key basic services. Rather than a process that puts poverty reduction and the Millennium Development Goals (MDGs) first and then builds economic strategies for delivery, PRSPs start with an IMF macroeconomic strategy and then see how other policies can be made to fit within it.


  18.  The IMF should move away from prescriptive policy advice towards a modality of enabling governments and citizens to determine policy trade-offs and outcomes. The IMF have so far failed to radically change the structural and macroeconomic policy advice they give in line with their commitment to poverty reduction and the MDGs.

  19.  In particular:

    —  the IMF should urgently review its approach to macroeconomic planning. The starting point should be "what needs to be done to reach the MDGs?" not "what resources are left for social spending after a sound macroeconomic policy is in place?" Real fiscal and monetary policy flexibility should be allowed. IMF programs should emerge out of the social and poverty needs of a country—this need not lead to an irresponsible macro-framework;

    —  the number of macro and structural conditions attached to IMF and World Bank loans should be ruthlessly cut. The Fund's review of conditionality should be extended to the Bank. A joint paper should be prepared for the 2002 Annual Meetings on net conditionality across both institutions.


  3.  There is a chronic weakness in the ability of the World Bank and IMF to assess the impact of their policy advice on poverty. The World Bank and IMF should immediately deliver on their commitment to conduct ex ante and ongoing assessments of the poverty, social, and environmental impacts on all segments of the population of the policy choices proposed in their lending instruments, including PRSCs and PRGFs. No PRSC or PRGF should go ahead without such an assessment taking place. Consecutive Development Committee and IMFC meetings have mandated this approach, but progress has been desperately slow beyond the promise to carry out pilots in a limited number of cases. Inadequate funding is a reason frequently given for slow progress. Until the World Bank deems impact assessment to be important enough to fund out of core budget, it will remain a fringe activity.

  4.  Poverty, social, and environmental impact analysis should:

    —  be executed in a dynamic process—it should be part of loan preparation, implementation, monitoring, and evaluation;

    —  be open and participatory and involve an informed civil society;

    —  present options and tradeoffs, not a single proposed policy and a single mitigating measure put in place to accompany a single policy;

    —  be conducted as a matter of course and be provided as part of the Bank and Fund's contributions to debates and dialogues conducted during missions

    —  be widely published before loan agreements are drafted;

    —  help deliver indicators to monitor implementation over time.


  7.  Whilst the PRSP process has provided new opportunities for participation by civil society and other stakeholders—the quality and breadth of participation thus far has not been consistent, and in all cases could be substantially improved. When PRSPs go to the Boards for endorsement it cannot be assumed that, just because some participation may have been involved in producing the PRSP, it accurately reflects a consensus reached among all participants. Although governments have ultimate responsibility for the process, this does not make donors exempt from their accountability to the pledges they have made in this area.

  8.  Oxfam recommends:

    —  at a minimum, a matrix detailing who participated at what stage in the PRSP process should be attached to the final drafts of PRSPs as an annex. This matrix should include recommendations each participant made and the reasons given for the inclusion or non-inclusion of those recommendations in the final document;

    —  Joint Staff Assessments of PRSPs should include the recommendations made by civil society and the reason for their inclusion or non-inclusion in the final PRSP;

    —  the Boards should express their views on the level and quality of participation;

    —  where national parliaments exist, their discussion of the PRSP should be a prerequisite for board approval.


HIPC Debt relief Initiative

  1.  The HIPC initiative is in a state of crisis. According to the recent IMF/World Bank paper "Heavily Indebted Poor Countries Initiative—Status of Implementation" (17 April 2002) Eight to10 countries are off track for achieving debt sustainability even by WB and IMF's own very harsh criteria. This is a far worse position than predicted by IMF and WB one year ago. This is largely as a result of declining prices for primary commodities.

  2.  Progression of countries through the HIPC initiative remains desperately slow. Of the five countries that were expected to reach Completion Point in late 2001 four have yet to do so. The status of implementation document clearly shows that delays in implementing macro-economic conditions attached to IMF loans are the main reasons for the lack of progress. Guyana, Senegal and Honduras are the worst examples of countries where the IMF has stalled progress through the HIPC initiative.

  3.  At various times, the IMF have "switched off" interim debt relief for Burkina Faso, the Gambia, Guinea Bissau, Guyana and Malawi (The World Bank has not resorted to such extreme measures). This undermines poverty reduction efforts in those countries, and hampers planning. It could also have a serious knock-on effect because of the IMF's role as gatekeeper for wider aid and debt relief efforts.

  4.  Debt service is still far too high, and undermining progress towards the millennium Development Goals. Even a good performer like Tanzania will spend $134 million servicing debt in 2002. The World Bank estimates that it would cost $123 million to get every child in Tanzania into school.

  5.  We welcome the Chancellor's call for an additional $1 billion from richer countries to ensure that more realistic and generous debt relief can start to be provided now to secure a robust exit from unsustainable debt.


  6.  The IMF and World Bank must be much more cautious about the forecasts they use to calculate debt sustainability between Decision Point and Completion Point. Optimistic assumptions about future growth and exports often do not reflect the reality many countries face—and unnecessarily restrict the amount of debt relief that is provided in the interim stage before countries finally exit HIPC.

  7.  The IMF should allow greater flexibility in determining whether countries are performing well enough to deserve interim debt relief or to progress to completion point. The main condition should be that additional resources are being used for poverty-focused expenditures.

  8.  Where countries have had to contend with external shocks—such as sharp falls in the price of key export commodities—they must receive adequate topping up at Completion Point to ensure a lasting exit from unsustainable debt. More realistic and generous rules for its provision must be developed—including agreement that the calculation of topping up should exclude voluntary bilateral provision of additional 100 per cent relief.

  9.  The UK Government should announce what contribution the UK will make to the extra $1 billion the chancellor has called for to bolster the HIPC initiative.

  10.  Oxfam is calling for a new HIPC3 to ensure that future debt sustainability criteria are linked to the financing requirements of the 2,015 goals in indebted countries. Urgent debt sustainability analysis should be undertaken for all low-income countries. The HIPC initiative should be widened to countries such as Haiti, Nigeria, Georgia or Bangladesh. 100 per cent cancellation of IMF and World Bank debts should be delivered for HIPC countries which have illustrated that they can use the resources to deliver poverty reduction. (The revaluation of IMF gold reserves to finance increased debt relief should be put back on the agenda. An off-market transaction could free up significant new resources without having any significant impact on the price of gold).

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Prepared 12 December 2002