Memorandum submitted by the World Development
Movement
SUMMARY OF
KEY POINTS
— HIPC has serious shortcomings: it
is too slow, helps too few countries and cancels only a part of
the debt. Full cancellation of debts owed by the poorest countries
to the IMF and World Bank is still a priority if the Millennium
Development Goals (MDGs) are to have any hope of being achieved.
— The World Bank and IMF are using
the Heavily Indebted Poor Countries (HIPC) process to continue
pushing discredited structural adjustment-style policies on the
poorest countries. Imposing policy conditions such as privatisation,
investment deregulation and trade liberalisation is demonstrably
unsuccessful, undemocratic and unfair. There should be an immediate
explicit commitment that provision of debt relief and new loans
will not be made conditional on implementing such policies.
— The way the World Bank and IMF operate
leaves much to be desired and urgent steps should be taken to
increase transparency and democratic accountability. Possible
steps on the way to a radical overhaul of the International Financial
Institutions (IFIs) include parliamentary scrutiny of Bank and
Fund loan/debt deals in the countries in which they operate, access
to information on Board meetings to enable greater public and
parliamentary scrutiny in the industrialised world, fair representation
for developing countries in decision-making and transparent processes
for recruiting the heads of the two institutions. WDM urges the
IDC to investigate these issues more closely by initiating an
inquiry into democratic scrutiny of the Bank and Fund in developing
and industrialised countries.
WDM recommends that the following questions be
asked of the Government by the IDC:
— If, as the Treasury has stated, the
achievement of the MDGs will require a full debt cancellation
plus additional resources, will the UK Government support full
debt cancellation in addition to its promotion of the International
Financing Facility?
— How can Poverty Reduction Strategy
Papers (PRSPs) be "country-owned" if the IMF and World
Bank have the final sign-off?
— Why, if PRSPs are really country-owned
and widely supported, are new loans and debt relief made conditional
on their implementation? Surely this would be unnecessary if the
PRSP was a widely accepted strategy for a country's development.
— Why are the IMF and World Bank undermining
the position of poor countries in the WTO by demanding unilateral
trade liberalisation?
— Why is the directorship of the Bank
and Fund still a carve-up between representatives from the USA
and the EU?
— How can developing countries be given
greater decision-making power in the Bank and the Fund if the
US, with its veto, is opposed? How does the UK Government propose
to tackle this problem?
— Will the UK Government support publication
of minutes of IMF and World Bank Board meetings so that the public
can find out what the UK Government has said on their behalf?
— In light of the fact that developing
countries, through loan repayments, now contribute the majority
of World Bank and IMF funds and are the most affected by these
institutions, why do developed countries still have the
majority of votes?
1. INTRODUCTION
1.1 The World Development Movement has been
working on the issue of International Financial Institutions (IFIs)
and debt cancellation since the early 1980s and was instrumental
in setting up the Jubilee 2000 coalition in the mid 1990s. It
has worked extensively with organisations throughout Asia, Latin
America and Africa to produce reports that analyse the role of
IFIs in poor country debt and call them to account for their policies.
1.2 WDM believes that HMG has played an
important role putting the issue of debt relief on the international
agenda.
1.3 But WDM also believes that the International
Monetary Fund (IMF) and World Bank are facing a crisis of credibility.
The continuing debt crisis, the policy conditions attached to
debt relief, the operation of IFIs, and HMG's policies in relation
to the IMF and World Bank, must come under scrutiny if the policies
and finances required in order to meet the Millennium Development
Goals (MDGs) in 2015 are to be harnessed.
1.4 The World Bank and IMF Annual Meetings
in the Dubai highlighted the continuing importance and continuing
difficulty of radically changing the way these institutions operate.
This was exemplified by the issue of "voice" (ie increasing
developing country participation in decision-making) which was
effectively sidelined by the US Government. Although WDM welcomes
the UK Government's attempts to press this issue, there is clearly
much that still needs to be done.
1.5 WDM believes that analysis of the autumn
meetings leads to broader questions relating to how IFIs impact
on developing countries.
1.6 WDM has recently produced two reports—one
general and one focused on Senegal—looking at the policy
conditions attached by these two IFIs to debt relief and new loans.[84]
The Senegal report was written by the Director of the Forum for
African Alternatives in Senegal, Demba Moussa Dembele.
1.7 This submission will summarise the points
made in these publications as well raise some additional issues
concerning IMF and World Bank accountability.
2. THE CURRENT
DEBT CRISIS
2.1 After much public and political pressure
sustained over many years, the IMF and the World Bank finally
sought to address the debt crisis through setting up the Heavily
Indebted Poor Countries Initiative (HIPC) in 1996. This resulted
in commitments to writing off some of the mountain of debt.
2.2 A report entitled "Relief Works",
shows that reduction in debt payments have resulted in more spending
on health care and education.[85]
This is most striking in countries such as Uganda where a strong
civil society network is holding the government to account.
2.3 It has become apparent, however, that
HIPC has major shortcomings: It is too slow, helps too few countries
and cancels only a part of the debt. Even the IMF and World Bank
are now saying that HIPC is failing.[86],
[87]
Just eight countries out of 42 that are eligible have had significant
debt stock cancelled. As for the total amount of debt relief delivered,
according to the latest figures from Jubilee Research it is just
US$26 billion, a meagre 7% of the US$360 billion that Jubilee
2000 calculated was needed and far off the US$110 billion promised
by the G7 richest country leaders at the turn of the Millennium.
2.4 Even those eight countries that have
been right through the HIPC debt relief process, and had some
concrete gains for the poor from it, have received nothing like
100% cancellation. In fact most have been left with unsustainable,
rising debt burdens.
2.5 Recent reports show clearly that the
internationally agreed targets for poverty reduction, the MDGs
will not be achieved without full debt cancellation for the poorest
countries.[88]
As Treasury Spokesman John Healey said earlier this year, "Even
the provision of 100% debt relief to all low income countries
would still fall short of the resources needed to meet the Millennium
Development Goals"[89]
3. INAPPROPRIATE
CONDITIONS ARE
ATTACHED TO
DEBT RELIEF
3.1 The old Structural Adjustment Programmes
(SAPs) of the IMF and World Bank have been widely discredited
for failing to reduce poverty. Yet, in addition to the fact that
HIPC does not provide the resources for full debt cancellation,
an equally serious problem is that it is being used by the IMF
and World Bank to push the implementation of the same suite of
discredited policies in the poorest countries.
3.2 During spring and summer 2002, it was
reported that at least seven[90]
of the 20 countries that qualify for interim debt relief (ie some
debt relief before they reach "completion point") were
being denied it because they had not fully implemented the policies
required by the World Bank and IMF.[91]
3.3 WDM's own analysis of the decision-point
documents for the 26 countries that have so far progressed under
HIPC is revealing, if not particularly surprising. Of these 26
documents, all mentioned a previous privatisation programme and
an ongoing/future privatisation process. 15 specifically mentioned
planned privatisation in public utilities or basic services such
as energy, telecommunications, water and transport.[92]
23 mentioned past efforts to liberalise trade and 11 indicated
a continuing trade liberalisation process.
3.4 From these documents it is clear that
IMF and World Bank are using the debt relief process to ratchet
further free market reforms out of some of the world's poorest
countries. It is also clear that there seems to be little differentiation
between countries based on their varying social and economic circumstances.
The same policy prescriptions are handed out no matter what the
situation in the country.
3.5 WDM's analysis of decision-point documents
merely confirms what many have been saying for years. According
to one author, "privatisation of state industries, including
public utilities, cut backs in the civil service, and deregulation
of investment and industry standards . . . have been features
of adjustment programmes for years, but more recently the financial
institutions have been using the promise of more debt relief to
push them more vigorously."[93]
3.6 While the rhetoric has altered, the
substance of IMF and World Bank conditions, and their strict adherence
to a set of standard free market policies remains unchanged. This
is despite the growing evidence that many of these policies have
not worked, despite the fact that they undermine developing countries
in trade negotiations and despite massive public protest across
the developing world.
Conditions attached to debt relief do not generate
development
3.7 In a range of key policy areas, evidence
demonstrates that IMF and World Bank policies simply have not
led to development.
3.8 For example, on trade, according to
the IMF, "Trade liberalization has been a key element of
Fund-supported programmes over the past twenty years."[94]
Yet, the United Nations Conference on Trade and Development (UNCTAD)
has found that the rapid and extensive trade liberalisation undertaken
by the Least Developed Countries (LDCs) during the 1990s failed
to benefit the poor. In fact, it was associated with rising poverty,
with the countries worst affected being those that had liberalised
most.[95]
Similarly, another UNCTAD report concludes, "The more recent
evidence from liberalisation episodes in sub-Saharan Africa as
well as Latin America suggests that they have often been accompanied
by an increase in unemployment."[96]
UNCTAD also highlights the association between liberalisation
and increased wage inequality and reductions in average wages.
BOX 1: THE
LIBERALISATION OF
SENEGAL'S
GROUNDNUT SECTOR
The groundnut sector has long had State support
because it is the main source of monetary income for two thirds
of rural Senegalese and is a key export. This included a state-run
enterprise providing cheap credits to farmers, subsidised seeds
and fertilizers, and collecting and paying a fixed cheap price
for the crop regardless of fluctuations in world prices.
Despite already cutting subsidies and other
reforms, the IMF and World Bank demanded total withdrawal of the
State from the groundnut sector as a condition for debt relief
under the HIPC Initiative.
In November 2001 groundnut collection was handed
to the private sector. In the absence of State collection, private
agents bought the crops at below the official price, often paying
cash for a small portion and giving "vouchers" for the
rest. Only 335,000 tons out of an estimated 1.2 million tons was
collected, with crops rotting in storage. When farmers tried to
sell in local markets they were confronted with the same speculators.
Most of those holding vouchers did not get paid.
The near starvation of millions of people led
to a Government Emergency Relief Plan, and the Minister of Agriculture,
Pape Diouf, many parliamentarians and farmers' organisations publicly
blaming the World Bank and IMF.
For more details, see WDM's new report on debt
and conditionality in Senegal at: http://www.wdm.org.uk/cambriefs/debt/senegal/senegal.pdf
3.9 On privatisation, the story is of a
similar "one-size-fits-all" policy being imposed on
all countries regardless of their different social, economic and
political circumstances. This policy, particularly in the case
of basic service[97]
privatisation, is based more on a theoretical assumption that
reducing government intervention will benefit everyone than on
real evidence that it benefits the poor.
3.10 A review of structural adjustment related
privatisation case studies concluded that privatisation of public
utilities often resulted in increased charges—adversely
affecting the poor—and often resulted in net unemployment.[98]
A study conducted by four IMF researchers concluded that, "the
empirical evidence suggests that significant reductions in employment
are indeed associated with privatisation."[99]
3.11 In contrast, there is no sound evidence
to suggest that public sector involvement in, or control of, public
services is necessarily and always less "efficient"
or less effective. In fact, there is a growing body of evidence
to suggest that both the public sector and alternative forms of
service supply (eg not for profit and community managed systems)
can achieve levels of efficiency and effectiveness equal to or
beyond those of the standard privatisation model.[100],
[101]
For example, an empirical global energy sector study examining
the performance of both public and private energy companies concluded
that in generation, transmission and distribution there is no
significant difference in efficiency between the two types of
operator.[102]
BOX 2: PRIVATISED
POWER IN
SENEGAL
The state electricity company SENELEC is vital
to Senegal's development so the government resisted pressure for
privatisation until the World Bank made it a loan condition. Strong
and popular union opposition led to further delay until in 1998,
under intense World Bank and IMF pressure, the government falsely
blamed union leaders for a blackout. In the following months the
entire leadership of the union was jailed or fired, and French-Canadian
group, Elyo Hydro-Quebec (EHQ) bought control.
EHQ delivered neither new investments nor reinvestment
of profits, and power outages increased, contributing to a significant
economic slowdown. With EHQ transferring profits abroad, using
mostly external consultants, and paying Senegalese employees a
fraction of that given to expatriates, expected benefits to the
domestic economy did not materialise. The World Bank has acknowledged
the huge economic and social costs to the country.
The controversy contributed to a change of government
in 2000, after which the state took back control, and reinstated
the union leaders. The utility has improved since, and power outages
have declined by more than 50% relative to 2000, but pressure
to privatise is again building.
For more details, see WDM's new report on debt
and conditionality in Senegal at: http://www.wdm.org.uk/cambriefs/debt/senegal/senegal.pdf
BOX 3: PRIVATISATION
AND DEBT
RELIEF IN
ZAMBIA
Zambia has sold 257 out of 280 state firms in
the past 10 years. Now, in return for debt relief, Zambia is required
to privatise its national commercial bank (ZNCB), electricity
(ZESCO) and telecommunications (ZAMTEL) companies.[103]
The JCTR (part of the Jubliee Zambia Campaign)
has criticised such policies stating, "Any honest evaluation
of the past 10 years of privatisation will acknowledge that overall
it has done great damage to the Zambian people's livelihood: loss
of jobs, closure of businesses, foreign dominance of assets, increase
in poverty levels etc."[104]
Although the JCTR recognises that the three
state run companies slated for privatisation are badly managed
and need to change, it calls for a "Clear de-linking of this
process from Zambia's qualification for HIPC, so that the debt
relief process is not held to ransom to foreign multinationals."[105]
According to BBC news, in February 2003, Zambia's
president Levy Mwanawasa seemed to agree with this argument, telling
the IMF that he wanted to rethink the country's privatisation
programme because "there has been no significant benefit
to the country" and "privatisation of crucial state
enterprises had led to poverty, asset stripping and job losses."[106]
However, despite the concerns expressed by the
public and the Government, the IMF representative in Zambia—Dr
Mark Ellyne—is reported to have threatened withdrawal of
the promised US$1 billion in debt relief under HIPC if the Government
did not privatise Zambia's national bank (ZNCB).[107]
The Zambian Government has now agreed to privatise ZNCB after
all.[108]
Two bids have been received by the Zambia Privatisation Agency
and negotiations are underway.[109]
IFI policies relating to debt relief undermine
developing country democracy and stability
3.12 According to Joseph Stiglitz, former
World Bank chief economist, "In theory, the fund [the IMF]
supports democratic institutions in the nations it assists. In
practice, it undermines the democratic process by imposing policies."[110]
3.13 Despite the changing rhetoric from
Structural Adjustment Programmes (SAPs) to "participatory"
Poverty Reduction Strategy Papers (PRSPs), the economic conditions
have remained the same. The IMF and World Bank have the final
say on structural policies while the public and parliamentarians
are deemed fit only to comment on the "pace" and "sequencing"
of policies (rather than the policies themselves) or any "safety
net" mechanisms that could help ameliorate the adverse impacts
on the poor.
3.14 This continuing lack of democratic
legitimacy is one reason why the free market policies being attached
to debt relief and new loans by the IMF and World Bank are being
challenged time and again by social movements throughout the world.
Since late 1999, WDM has been documenting widespread and continuing
resistance to World Bank and IMF imposed economic policies all
over the developing world.[111]
Over the past three years, WDM has documented some 238 separate
incidents of civil unrest involving millions of people across
34 countries. Many of these incidents ended with the deployment
of riot police or the army, resulting in almost 100 documented
fatalities, with arrests and injuries running into thousands.
3.15 One explanation for this civil unrest
is that the conditions attached to new loans and debt relief are
bypassing national democratic processes. For example, although
the Nicaraguan National Assembly unanimously passed a law in August
2002 suspending all private concessions involving water use (which
includes the hydroelectricity sector),[112]
this conflicts with a condition in Nicaragua's HIPC "decision-point"
document relating to privatisation of state electricity companies,[113]
which include Hidrogesa the state hydroelectric company.
3.16 In July this year, Hilary Benn said
"Privatisation is not a precondition for countries to start
receiving debt relief under the enhanced HIPC initiative."[114]
Yet the Zambian newspaper—the Lusaka Post—reported
in late December 2002 that the IMF representative in Zambia, Mark
Ellyne, threatened to withdraw the promised US$1 billion in debt
relief under HIPC if the Zambian Government did not privatise
Zambia's national bank. This was in direct contradiction to the
wishes of the Zambian Parliament which, on 4 December 2002, had
voted for a motion urging the Government to rescind their decision
to privatise the National Bank.
3.17 As the IDC itself recently pointed
out, "The right to pursue nationally-determined policies
is not something to be granted to developing countries on the
condition that they use it in a certain way. Such treatment of
policy space is undemocratic."[115]
IMF and World Bank policy conditions are
undermining developing country positions in the WTO
3.18 Conditions, such as privatisation,
trade liberalisation and investment deregulation, being imposed
on countries in return for debt relief and new loans are undermining
the negotiating positions of poor countries in the World Trade
Organisation (WTO).
3.19 According to the IMF, "Industrialised
countries have mainly liberalised in accordance with multilateral
and regional commitments. Other countries, while also influenced
by multilateral and regional initiatives, have more often liberalized
unilaterally . . . Many of the trade reforms have been undertaken
in the context of Fund-supported programmes."[116]
3.20 As the IMF indicates above, industrialised
countries wait for "trade rounds" before liberalising
in order to gain maximum concessions out of other countries. They
rarely liberalise unilaterally. Developing countries on the other
hand are being forced, through conditionality, to do the opposite.
This undermines developing countries in the WTO. It is simply
not consistent for industrialised government ministers to tell
developing countries to stand up for their interests in the WTO
whilst at the same time—through the World Bank and IMF—systematically
undermining their negotiating position by making loans and debt
relief conditional on unilateral trade liberalisation. Developing
country delegates in the WTO are handicapped before they even
start negotiating as they have little or nothing to bargain with.
It is like they are playing a chess game but have had all their
pawns taken away before they start.
3.21 The creeping expansion of the WTO's
remit into more and more policy areas also means that seemingly
non "trade-related" conditionality can also impact on
developing countries in the WTO. Privatisation and deregulation
of domestic investment policies, and the increased access this
entails for foreign companies into domestic markets, is part of
a pincer movement by industrialised countries. On the one hand,
the poorest countries are effectively forced to privatise and
deregulate investment policies by being denied debt relief and/or
new loans by the IMF and World Bank if they do not. On the other,
industrialised countries are pressuring the poorest countries
to "lock-in" this market access and deregualtion, through
making binding, effectively irreversible commitments in the WTO
General Agreement on Trade in Services and, potentially, through
a proposed new agreement on investment in the WTO, which, at the
time of writing the EU has still not officially dropped from its
negotiating agenda.[117]
3.22 The fact that, through IMF and World
Bank programmes, poor countries have had to privatise and reduce
their regulation of foreign investment is being used to justify
making binding commitments in the WTO in order to "lock-in"
these policies and stop governments from changing economic course
in future. As then UK Trade Minister, Baroness Symons stated in
2002, "A [WTO] multi-lateral framework for investment. .
. will. . .help lock in individual countries' own investment
reform efforts.[118]
(emphasis added). The UK Government is clearly keen to use WTO
rules to stop future developing country governments from "backtracking"—perhaps
in response to policy failure and/or public concern—on the
policies they have been forced to implement by the World Bank
and IMF.
3.23 This is despite historical evidence
that demonstrates conclusively that most, if not all, of today's
industrialised and newly industrialised countries used a wide
variety of what would not be considered "trade distorting"
policy interventions during their development process.[119]
The richest countries are therefore systematically attempting
to deny the poorest countries access to the policy mechanisms
they used to grow wealthy, which has been characterised by one
author as "kicking away the ladder" to development.[120]
Perhaps what is most shameful is that this is being done behind
the rhetoric of "poverty reduction". Examination of
the evidence clearly undermines the link between these policies
and successful development in the poorest countries, making it
high time trade liberalisation conditionality was abandoned.
3.24 This aspect of unfairness is best summed
up by Francis Ng'ambi, chair of the Malawi Economic Justice Network
when he states: "It is a cruel irony that to get any debt
relief at all, the IMF and World Bank are forcing us to follow
unsuitable trade policies, which are driving us further into poverty.
At the same time, rich countries are pushing for international
trade rules which are making these policies effectively irreversible."[121]
4. DEMOCRACY
AND TRANSPARENCY
IN THE
IFIS
4.1 The World Bank and IMF have put significant
emphasis on tackling corruption in developing countries. Addressing
corruption in poor countries is indeed a critical issue but, at
the same time, further work needs to be done on democracy and
transparency in the IFIs themselves. A number of key issues still
need addressing.
4.2 First, there is still little access
to information on the discussions taking place on the Boards of
the Bank and Fund, making public scrutiny extremely difficult.
According to the Treasury Select Committee in 2001, "The
actions of. . .the [IMF's] executive board as a whole remain opaque.
Most notably neither votes, nor the minutes, of the executive
board are published. We believe that, because the executive board
is the ultimate decision-making forum of the Fund, withholding
this information limits our ability to hold the Government to
account for their actions at the Fund."[122]
Two years later and the situation has not changed. Reform is clearly
long overdue.
4.3 Second, the Bank and Fund are not required
to have their loan conditionalities subjected to parliamentary
scrutiny in the affected countries. If the IFIs are indeed concerned
about transparency and democracy in developing countries, parliaments
in those countries should have the right to accept, change or
reject IFI policy conditions attached to loans or debt relief.
WDM believes subjecting these deals to parliamentary scrutiny
should be a requirement of the Bank and Fund.
4.4 Third, developing countries still have
little say in how the IMF and World Bank are run. This is despite
the fact that, over the past 20 years, loan repayments by poor
countries have become the principal source of funding for these
institutions. For example, some 75% of the IMF's income is from
debtor countries.
Table 1
RELATIVE CONTRIBUTIONS TO THE IMF (PER CENT)[123]
| Year | Debtors
| Creditors |
| 1982 | 27.7
| 72.3 |
| 1992 | 44.9
| 55.1 |
| 2002 | 75.0
| 25.0 |
4.5 The carve-out of votes based on a long-since irrelevant
calculation of industrialised country financial contributions
must be changed. Developing countries decision-making power in
international financial institutions should be commensurate with
their relative financial contribution as well as the relative
impact of these institutions on their economies.
4.6 Fourth, in a similar vein, the tradition of European
governments deciding on the head of the IMF and the US Government
deciding on the head of the World Bank is an embarassing anachronism.
The recruitment of the heads of international institutions should
be transparent, fair and based on merit. The current highly politicised
process therefore has to change.
5. CONCLUSIONS
5.1 After nearly 60 years of the World Bank and IMF,
after nearly a quarter of a century of unsuccessful structural
adjustment and after over five years of HIPC, it is time for a
rethink.
5.2 HIPC does not go far enough. It is too slow, helps
too few countries and cancels only a part of the debt. Full cancellation
of debts owed by the poorest countries to the IMF and World Bank
is still a priority if the MDGs are to have any hope of being
achieved.
5.3 WDM believes there should be an immediate explicit
commitment that provision of debt relief and new loans will not
be made conditional on privatisation, investment deregulation
or trade liberalisation. The conditions WDM believes should be
attached to debt relief and new loans should be restricted to
those that relate to adherence to democratic processes and financial
controls to prevent fraud or misuse of funds. This includes conditions
to ensure effective participation of civil society in PRSP processes
and conditions to ensure transparent monitoring and reporting
of how money is actually spent by governments.
5.4 WDM also believes the way IFIs operate leaves much
to be desired and urgent steps should be taken to increase transparency
and democratic accountability. Possible steps on the way to a
radical overhaul of the IFIs include parliamentary scrutiny of
Bank and Fund loan/debt deals in the countries in which they operate,
access to information on Board meetings to enable greater public
and parliamentary scrutiny in the industrialised world, fair representation
for developing countries in decision-making and transparent processes
for recruiting the heads of the two institutions. WDM urges the
IDC to investigate these issues more closely by initiating an
inquiry into democratic scrutiny of the Bank and Fund in developing
and industrialised countries.
October 2003
84
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85
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86
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87
IDA. (2002). The Enhanced HIPC Initiative and the Achievement
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89
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90
Those countries reported to be `behind' in their IMF adjustment
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91
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92
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93
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