Select Committee on International Development Appendices to the Minutes of Evidence


APPENDIX 4

Memorandum submitted by Christian Aid

INTRODUCTION

  1.  Christian Aid is the official development agency of over 40 British churches and works for social justice and poverty reduction with local organisations in 57 countries. It has campaigned for debt relief to the world's most highly indebted and poor countries for over 10 years, and since 1999 has critically engaged with Poverty Reduction Strategy processes[14]. It is an on-going priority for Christian Aid to monitor the activities of the World Bank and IMF.

  2.  Two Christian Aid representatives attended the September 2002 World Bank and IMF Annual Meetings. Prior to the meetings Christian Aid met with the Secretary of State and DFID representatives to share respective agendas, and with other NGOs to co-ordinate activities. Christian Aid's objective in attending the meetings was to monitor discussions and outcomes, and to lobby specifically around debt and PRSP issues. We outline below our main concerns and the position of the UK government on these issues.

DEBT RELIEF

Joint submission for the World Bank and IMF Annual Meetings on Debt Sustainability

  3.  Christian Aid co-authored a report[15] to take to the World Bank and IMF Annual Meetings that argued debt relief should be calculated according to the resources each country needs to meet internationally agreed targets for reducing poverty—the Millennium Development Goals (MDGs). Debt relief under the HIPC Initiative is currently calculated using arbitrary and over-optimistic projections on growth and exports in indebted countries.

  4.  Where debt relief has been delivered, it is helping many low-income countries to invest through "pro-poor" expenditure, and make progress towards the MDGs. However, these gains are not universal, and are limited and precarious where they do exist.

  5.  The Monterrey Consensus[16] recognised that most low-income countries would need to supplement domestic resources with support from donors. The G8 Africa Action Plan went one step further, stating, "no country genuinely committed to poverty reduction, good governance and economic reform will be denied the chance to achieve the MDGs through lack of finance". Yet despite the international commitment to support developing countries in achieving the MDGs, donors have not pledged the sufficient additional resources needed to meet these goals[17].

  6.  In this context, debt relief is an important additional form of finance. Moreover, as our paper argued, it is potentially the most efficient and effective form of resource transfer for the poorest countries—more so than many types of aid with its corresponding conditions and transaction costs.

  7.  The reliance of the World Bank and IMF on using debt-to-export ratios to calculate debt relief packages is fundamentally flawed, especially given the downturn in the global economy and the dependence of many countries on one or two vulnerable commodities. As a result, not only are some countries spending more on debt payments after they receive debt relief, some are overshooting the World Bank and IMF's own definitions of debt sustainability.

  8.  All the agencies involved in preparing the joint report believe that the over-arching objective of debt relief must be to help mobilise the finances needed to achieve the MDGs. Our aim is to see a debt relief mechanism centred on human development that provides support to low-income countries in achieving these goals. At the Annual Meetings we asked the World Bank, the IMF, and their shareholders to make this aim a reality.

The response of the UK, the World Bank and IMF

  9.  In the margins of the Annual Meetings we met with a number of Executive Directors of the World Bank and IMF[18], and attended meetings with IFI staff, to discuss debt relief and the HIPC initiative.

  10.  Based on our meetings with UK civil servants in the run-up to the meetings, and with Mr. Tom Scholar, Executive Director for the UK, in Washington, we understand the position of the UK Government to be as follows:

    —  They are supportive of motivating for finance to help poor countries to reach the MDGs;

    —  They believe that some improvements can be made to current HIPC framework (such as the inclusion of post cut-off date debt, and looking at the tendency to use overoptimistic growth and export projections);

    —  These improvements—together with securing full funding of the Initiative—are their current priorities;

    —  While they recognise that debt relief acts as de facto financing for poverty reduction (in that it funds priorities in a country's own poverty reduction plan), they believe debt relief under HIPC should not primarily be seen in this light, nor should it be seen as the main or most effective way of financing poverty reduction;

    —  Rather, the aim of the HIPC Initiative is to help countries reach "sustainable" levels of debt, while poverty reduction can be financed through additional aid flows.

  11.  At their 2002 Spring meetings, the World Bank and IMF agreed to "discuss the issue of debt sustainability and, consequently, financing and policy implications, at the next [Annual] meeting"[19]. This followed on from a commitment under the Monterrey Consensus that "Future reviews of debt sustainability should also bear in mind the impact of debt relief on progress towards the achievement of the development goals contained in the Millennium Declaration". The staff of the IFI therefore prepared a paper[20] for the September 2002 meeting of the Development Committee which effectively argued that the proposals for reforming HIPC—to make it more responsive to underlying poverty needs—were unrealistic because they were too expensive (p31). They also argued that new flows, including aid, could be better tailored as finance to meet the MDGs in poor countries.

  12.  Christian Aid believes that HIPC is not meeting it's own goal of achieving sustainable levels of debt in low-income countries. Nor is aid necessarily the most effective or efficient way of transferring resources to meet poverty needs.

  13.  Our joint submission argued that, as aid often carries significant transaction costs for countries, debt relief can often act as a better means of transferring resources. This is because it effectively acts as direct budget support to a country's own identified priorities. More importantly, our agencies would not accept that the argument for a desirable and necessary action is undermined because "additional costs (would) call into question their feasibility".

POVERTY REDUCTION STRATEGIES

Quality Participation in Poverty Reduction Strategy Papers (PRSPs)

  14.  PRSPs are prepared by the governments of developing countries, supposedly with full participation of different interest groups in each country, to map out a strategy as to what policies or actions need to be undertaken to reduce poverty. Christian Aid has undertaken three case studies in Malawi, Rwanda and Bolivia that investigate the quality of people's participation in PRSP processes in each country. The conclusions of each case study have been drawn together into a Christian Aid report, "Quality participation in Poverty Reduction Strategies", which was widely distributed and discussed with IFI officials at the Annual Meetings. It was intended to contribute to learning on PRSPs and to improve future processes.

  15.  The report argued that:

    —  Despite efforts to increase participation, PRS processes so far have largely been characterised by "exclusion";

    —  PRS processes do not seem to have been informed by previous experiences of participatory policy making;

    —  Processes have been rushed due to the connection with debt relief—HIPC debt relief is given on the condition that a PRSP has been prepared;

    —  Information from the government and the IFIs has often not been available in appropriate languages and formats;

    —  Participation has been least in policy-making, particularly on macro economic issues.

The response of the UK, the World Bank and IMF

  16.  The points raised in Christian Aid's report were discussed with World Bank and IMF officials in Washington during their sessions with NGOs on PRSPs. The staffs of the World Bank and IMF appear to be more optimistic than some of our partner organisations about levels of participation and the breadth of policy choices within PRSP and PRGF processes. The Development Committee's Progress Report on PRSPs, published just prior to the Annual meetings claims that significant progress has been made in the level and quality of people's and parliamentary participation. [21]

  17.  While we acknowledge that some progress has been made, we believe the Progress Report overemphasises this and does not acknowledge the minimal involvement of groups representing poor people in Poverty Reduction Strategies. It also fails to distinguish between the degree of participation in social policy and participation in economic policy, involvement in the latter being much weaker. Christian Aid's partner organisations in PRSP countries are extremely concerned about the lack of opportunity for civil society actors to contribute to economic policy debates.

  18.  Christian Aid has had an on-going dialogue with DFID on these issues through (a) its regular policy meetings with the IFI Department and (b) BOAG Directors' meetings with the Secretary of State. Generally, DFID has been receptive to Christian Aid's concerns about participation in PRSPs, acknowledging that processes have thus far been weak in involving poor stakeholders. Christian Aid calls on DFID to seek to influence the IFIs to generate more support for genuinely open debate on macro-economic policies, and to permit CSOs to contribute to economic and structural policies, rather than simply being confined to social sectors.

Poverty and Social Impact Analysis (PSIA)

  19.  Poverty and Social Impact Analysis is a set of approaches that can be used to assess the likely impact on different poor and vulnerable groups of choosing certain policies over others. Two years ago the World Bank and IMF made a commitment to integrate PSIA systematically into their own programmes, as well as supporting the capacity of governments to implement PSIAs. This commitment was reiterated in January 2002, by the World Bank's President, who said that PSIA would be mainstreamed within all Bank programmes "within six months"[22]. These commitments are extremely important and Christian Aid welcomes the efforts that have been made by DFID and the World Bank to take them forward through pilot studies. We recognise that PSIA is an area within which all actors are learning and that there is no set blueprint for undertaking them.

  20.  However, there has still been very slow progress in mainstreaming support to PSIA within donor institutions. Key reforms—which have enormous effects on the lives of poor people—continue to be implemented with little analysis of their potential impact, or discussion of alternatives. The pilot studies currently being undertaken by the World Bank and DFID are a welcome attempt to get things moving faster, but Christian Aid still has concerns about the degree to which these studies are "owned" nationally, the limited level of consultation and inclusion of broader stakeholders, and the restriction of analysis to a single policy option, rather than to a range of options in order to select the most appropriate for poverty reduction.

  21.  Christian Aid believes that PSIA should:

    —  be mandatory for all conditions attached to World Bank and IMF grants and loans—including on PRSCs, Letters of Intent and Memoranda of Understanding;

    —  be led by a multi-stakeholder working group that identifies policies of highest priority beyond these conditionalities, and makes requests for external support where appropriate;

    —  be conducted on a range of different policy options, so that the best policy for poverty reduction can be selected;

    —  involve national civil society actors throughout—from the conceptual stage, setting the terms of reference, identifying priority areas for analysis, discussing policy options, ensuring that outcomes of analysis affect policy decisions and monitoring implementation.

The response of the UK, the World Bank and IMF

  22.  At the 2002 Annual Meetings, the Development Committee did reaffirm the need to "intensify efforts to help countries undertake poverty and social impact analyses on a more systematic basis"[23]. The PRSP Progress Report also reiterates that PSIA is a high priority for the World Bank. During our meetings in Washington, World Bank and IMF officials acknowledged the need for opening-up policy dialogue through PSIA processes, even on macro-economic issues.

  23.  However, our concern is that although this looks good on the surface, the IFIs are in practice less flexible about the types of policies they will support with grants or loans. The danger of PSIAs is that they will only be focused on single policies and therefore will not become a creative means of broadening debate and identifying possibly better-suited alternatives.

  24.  Furthermore, the language of the World Bank's draft Users Guide on PSIA suggests that participation will be used as a means through which to simply legitimise pre-determined policies. Christian Aid sees PSIA as a potential tool for broadening democratic debate and awareness within society of policy options.

  25.  DFID is one of the leading advocates for PSIA in official donor circles and has taken the initiative by leading with pilot studies. It has been very receptive to Christian Aid's proposals and provided positive feedback on our publication "Proving the Impact"[24]. We consider DFID's partnerships with national governments on the PSIA pilots to be a very positive move. However, this first set of PSIA pilots are still confined to single policies and do not seem to have been well rooted in national debate. Initial surveys suggest that civil society actors in these pilot countries have a very low level of knowledge on these studies, if they know of them at all.

RECOMMENDATIONS

  26.  On the issue of debt relief, we do not believe that the response of the World Bank and IMF in their Status Report is sufficient to address the concerns of many shareholders and external stakeholders about the effectiveness of the HIPC Initiative.

    —  We would therefore urge the UK to press the IFIs to look in more depth at the issue of formally linking debt relief with the resources needed to reach the MDGs.

    —  We also urge the UK government to be more progressive in its support for a debt relief mechanism—whether HIPC or its successor—to make an explicit link between debt relief and poverty reduction goals.

  27.  On Poverty Reduction Strategy Papers:

    —  The UK Government should continue to engage significantly with the World Bank and IMF while retaining a critical distance.

    —  On Poverty and Social Impact Assessment specifically, we believe that PSIA should be mandatory for all conditions attached to World Bank and IMF grants and loans. These should be independent and conducted on a range of different policy options.

Paul Ladd and Jennie Richmond

Global Advocacy and Policy Division

Christian Aid

October 2002

  This submission had four annexes attached which have not been printed.

  Annex 1: "Joint Submission to the World Bank and IMF Review of HIPC and Debt Sustainability", CAFOD, Oxfam GB, Christian Aid and EURODAD, August 2002—is available at http://www.Christian-aid.org.uk/indepth/0209debt/debt.htm

  Annex 2: "Quality Participation in Poverty Reduction Strategies", Genevieve Painter, Christian Aid, April 2002, is available at http://www.Christianaid.org.uk/indepth/0208qual/quality.htm

  Copies of the following annexes have been placed in the Library:

  Annex 3: "Proving the Impact: Christian Aid Comment: A User's Guide to Poverty and Social Impact Analysis", Jennie Richmond and Paul Ladd, Christian Aid, August 2002.

  Annex 4: Letter to World Bank and IMF staff regarding PSIA pilot studies, from Christian Aid, World Vision, EURODAD, Oxfam GB, Save the Children and CAFOD.


14   In 1999, the World Bank formalised its approach to poverty and participation through the introduction of a new instrument-Poverty Reduction Strategy Papers (PRSPs). These are intended to place poverty reduction at the heart of their national programmes-and debt relief efforts-for the world's poorest countries. Back

15   A Joint Submission to the World Bank and IMF Review of HIPC and Debt Sustainability, CAFOD, Christian Aid, Oxfam and Eurodad, August 2002, <au0>http://www.Christianaid-org.uk/indepth/0209debt/debt.htm<xu Back

16   Declaration arising from the UN Financing for Development Conference held in Monterrey in March 2002 Back

17   The UN and World Bank estimate that an additional US$30-50bn is needed annually in additional aid resources to enable developing countries to meet the MDGs. Back

18   Executive Directors for the UK, France, Germany, "Anglophone" Africa, and Canada / Ireland Back

19   Development Committee communique« April 2002 Back

20   Heavily Indebted Poor Countries (HIPC) Initiative: Status of Implementation, World Bank and IMF, September 2002 Back

21   Poverty Reduction Strategies (PRSPs)-Progress in Implementation, World Bank and IMF Development Committee, DC2002-0016, September 13 2002 Back

22   This commitment was made at his meeting with Civil Society during the PRSP Review in January 2002. Back

23   Development Committee Communique« Back

24   "Proving the Impact: Christian Aid Comment: A User's Guide to Poverty and Social Impact Analysis (Draft), World Bank", Jennie Richmond and Paul Ladd, Christian Aid, August 2002 Back


 
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