APPENDICES TO THE MINUTES OF EVIDENCE
Memorandum submitted by ActionAid
1. THE ROLE
OF IMF IN
Summary of recommendations for all PRGF countries
ActionAid requests the UK Treasury Select Committee
to seek a commitment that the Treasury will press for the IMF
to institute, in collaboration with other domestic and international
partners, a poverty and social impact assessment of all fiscal
and institutional advice to Governments prior to the adoption
of reform measures in the agricultural sector. The adoption of
IMF advice on the management of emergency food security mechanisms
(such as strategic grain reserves) should specifically be preceded
by a food security impact assessesment.
ActionAid also recommends that the Select Committee
ask Mr Kohler for such a committment.
With regard to the specific case of Malawi,
the UK Treasury Select Committee should press the Treasury to
seek assurance from the IMF and World Bank that the recently approved
Poverty Reduction Strategy discussion in July will be subjected
to a closer examination of the treatment of food security and
agricultural production in the light of famine.
With regard to the wider food crisis in Southern
Africa, the Committee should ask the Treasury to seek a report
from the IMF on the relationship between reforms in the agricultural
sector associated with IMF lending, and the abililty of governments
in the region to respond to the impending famine.
Between January and April 2002, at least 500-1,000
people died of hunger and hunger-related diseases in southern
and central Malawi. Malawi has suffered from a number of agricultural
crises over the years, including a major drought in the early
1990s, but these are the first recorded famine deaths in Malawi
since 1949. ActionAid regards these deaths as a major failure,
by state and non-state parties, to realise the rights of Malawians
to food, inter alia under Article 25(1) of the Universal
Declaration of Human Rights.
The events in Malawi also represent a failure
from the point of view of UK Treasury policy in the area of food
security, on which the Chancellor (in his recent speech to the
UN Special Session on Children) said that action is "imperative".
After pledging a response to food crisis in Southern Africa in
this speech, the Chancellor went on to specify the aim of developing
"credible strategies for food security".
ActionAid Malawi has close to 12 years of fighting
poverty in several of the affected Malawian districts. With the
Malawian Economic Justice Network and the Catholic Commission,
ActionAid Malawi attempted to raise the impending famine as far
back as November 2001, three months prior to the state of disaster
statement by the Head of State of Malawi.
There are both long term and immediate causes
of the crisis, but policy failure plays a large role. A number
of organisations have criticised the role of the IMF prior to
and during the crisis. The criticism has largely been of the IMF's
involvement in three sets of policy advice namely, the adoption
of an unsustainable cost-recovery strategy for the National Food
Reserve Agency and subsequent running down of the grain reserves,
the lifting of price control mechanisms and lastly, scaling back
of essential inputs to small-scale agricultural producers.
On 13 June 2002, ActionAid released an independent
comprehensive report commissioned by ActionAid Malawi and conducted
by a team of researchers from Malawi and the Institute for Development
Studies in the UK entitled "State of Disaster: Causes,
Consequences and Policy Lessons from Malawi". This report
and subsequent communications with Alfred Kammer, Chief of the
IMF Mission for Malawi in Washington DC establishes the following:
In 2000, the IMF advised the government
of Malawi to reduce the strategic grain reserve (SGR) from 165,000
tonnes to between 30,000 and 60,000 tonnes, on cost-effectiveness
grounds. The government subsequently sold off virtually all the
reserve by mid-2001. There was to be replenishment of the reserves
through local purchases after the 2001 harvest, which was forecast
to be adequate. In the event this was not so. The IMF does admit
that the policy advice it gave to government in 2001 was based
on "wrong information" about crop production.
Other donors are implicated in the production of this incorrect
Despite acute crisis and hundreds
of starvation deaths in JanuaryFebruary, an IMF Mission
in February 2002 did not immediately release a disbursement of
US$47 million, but "reached agreement with government
on the way forward to resume disbursements later in the year".
In the May 2002 Article IV consultations,
while acknowledging the need for "urgent action to prevent
starvation" the Fund Mission report implied that National
Food Reserve Agency (NFRA) and Agricultural Development and Marketing
Corporation (ADMARC) activities to minimise famine mortality were
unjustified and "unproductive" thus, "the parastatal
sector will continue to pose risks to the successful implementation
of the 2002-03 budget. Government interventions in the food and
other agricultural markets ultimately led to the National Food
Reserve Agency (NFRA) and the Agricultural Development and Marketing
Corporation (ADMARC) taking heavy rescourse to budgetary financing,
crowding out more productive spending." (International
Monetary Fund, Malawi2002 Article IV Consultation: Concluding
Statement of the IMF Mission, IMF, Washington DC, 14 May 2002).
ActionAid does not believe that the IMF directly
caused the famine in Malawi. However, the crisis and loss of lives
reflects policy failure and a violation of the most basic of human
rights, the right to adequate, nutritious, safe and culturally
acceptable food. Consequently, ActionAid strongly urges the UK
Treasury Select Committee to examine the following short- and
long-term issues relating to the IMF's role in countries undergoing
acute food security programmes and implementing PRGF loans:
The legitimate basis for IMF policy
advice in any sector lies in budgetary and macro-economic factors.
However, other factors also count, and should be considered before
any policy advice is given and policy change made. In most low-income
countries, policy in the food-producing sector almost always has
major food security implications. As it has stated, the IMF has
no competence on food security issues and does not provide funds
for food aid. It would not be able to assess the potential impact
of policy change in the agricultural sector on food security on
Consequently ActionAid recommends
that the IMF institute, in collaboration with other domestic and
international partners, a poverty and social impact assessment
of all fiscal and institutional advice to the Government prior
to the adoption of structural reform measures in the agricultural
sector. The adoption of IMF advice on the management of emergency
food security mechanisms (such as strategic grain reserves) should
specifically be preceded by a food security impact assessment.
In the case of Malawi, it is clear
that while the IMF gave undue weight to fiscal discipline and
pressed for the privatization of parastatals without a risk management
strategy for corruption and profiteering by traders. The combination
of these two led to a depleted capacity of the state to respond
using domestic resources and the inflation by 400 per cent of
essential foodstuffs. ActionAid finds it incomprehensible that
budgetary rectitude and macro-economic stability came at the cost
of the death by starvation of over 1,000 Malawian men, women and
In order to ensure that this kind
of tragedy is not repeated, ActionAid would seek assurances from
the IMF (and the World Bank) that the recently approved Poverty
Reduction Strategy discussion in July will be subjected to a closer
examination of the treatment of food security and agricultural
production in the light of famine.
With regards the wider food crisis
in Southern Africa, the UK Treasury Select Committee should seek
a report from the IMF of the relationship between reforms associated
with IMF lending and the capacity of governments in the region
to the impending famine.
2. THE IMF AND
Summary of recommendation
ActionAid requests the UK Treasury Select Committee
to seek a commitment that the Treasury will press the IMF to clarify
its position on the macro-economic implications of the World Bank's
Education for All Action Plan.
ActionAid also recommends that the Committee
directly ask Mr Kohler for such a clarification.
ActionAid is a member of a Global Campaign for
Education (GCE), whose members work in over 100 countries around
the world. Together with Oxfam and Save the Children, we have
led the GCE in the UK. Over the past three years, we have been
campaigning for the international community to launch a co-ordinated
global initiative to achieve the 2015 goal of universal basic
After years of talk and little action, a breakthrough
was made in April at the Spring Meetings of the World Bank and
IMF. Development and finance ministers endorsed an Education for
All (EFA) Action Plan which proposed the creation of a financing
framework, to mobilize and channel the necessary resources to
meet the education financing needs of all countries on an ongoing
basis. As a starting point, the action plan commits to providing
18 "fast track countries" with immediate additional
aid for education in 2002. The Action Plan provides the best opportunity
in a generation to get every child into school, and deliver on
the most attainable of the 2015 goals.
Education has also been identified as a priority
area for the Treasury's international policy by the Chancellor.
In his speech to the UN Special Session for Children, he said
that the "World Bank initiative marks a major breakthroughthe
first focused financing framework to ensure that no country genuinely
committed to economic development, poverty reduction and good
governance is denied the chance to achieve universal primary education
through lack of resources".
The Action Plan has so far received only a small
proportion of the funding needed for its full implementation.
But despite the lack of concrete commitments at the G8 summit,
additional support to fast track countries can be expected to
begin in late 2002.
However, ActionAid has heard concerns expressed
by senior World Bank staff that the IMF will oppose a rapid expansion
in education, on the grounds that using external funds to support
a large increase in the number of teachers, and hence the salary
bill, will create inflationary pressures, and threaten fiscal
ActionAid believes that the Millennium Development
Goals must be the guiding principle of international development
policy. In contrast, the Fund appears willing to sacrifice human
development on the altar of fiscal rectitude. The IMF should clarify
its position on this issue. The Fund should also work with the
World Bank and other stakeholders to seek ways of retaining macro-economic
stability, whilst ensuring that the desperately needed expansion
of education in poor countries remains a primary policy aim.
Therefore ActionAid requests the UK Treasury
Select Committee to seek a commitment that the Treasury will press
the IMF to clarify its position on the macro-economic implications
of the World Bank's Education for All Action Plan, and also directly
asks Mr Kohler for such a clarification.
28 June 2002