House of Commons - International Development

Select Committee on International Development Written Evidence

Memorandum submitted by the Bretton Woods Project, UK

INTRODUCTION

1. The Bretton Woods Project was established by a network of UK-based NGOs in 1995 to take forward their work of monitoring and advocating for change at the World Bank and IMF. See www.brettonwoodsproject.org for more details.

WORLD BANK/IMF GOVERNANCE: LITTLE PROGRESS

2. In our submission to the International Development Committee last year we noted that we were pleased that the UK government had tabled the issue of developing country representation at the Bank and Fund and asked for further clarity on what was being done in practice to implement the commitment in the UK Government's Globalisation White Paper to work towards a "stronger and more effective" voice for developing countries in the international institutions.

3. Since then the issue has been raised at the spring and annual meetings of the World Bank and IMF, but no progress has been made on the structural problems with the Bank and Fund. A small amount of progress has been made on the question of financing additional research and communications capacity for developing country executive directors, but this is extremely insufficient given the challenges faced by many of these. Notably the 45 sub-Saharan African countries are represented by just two EDs.

4. One of the main reasons advanced for this lack of progress is the position of the US government, which holds a veto on structural reforms at the Bank. This is certainly a major governance problem in itself and one of the causes of limited progress. But Bretton Woods Project is not convinced that the UK government has tackled this problem with sufficient energy and strategy, for example, to build alliances with key European partners (who occupy one third of the seats at the Board) to forge a platform for negotiation with the US. Such a platform would inevitably include the appointments of the heads of the World Bank and IMF, currently in the gift of the US and EU respectively. It should also include increased transparency of the proceedings of the World Bank Board, something of concern to parliamentarians as much as NGOs.

5. The recent annual meetings of the World Bank and IMF agreed to keep this issue on the agenda for a further year.

Suggested question:

— Given the limited progress over the last year, what does the UK government expect can be achieved by the 2004 annual meetings, and what strategies is it adopting to improve its chances of success?

For a joint position statement on Bank/Fund governance see: http://www.brettonwoodsproject.org/article.shtml?cmd[126]=i-126-af1dc5d0f3f53c512f115afd9f8

PRSPS: "POLITICAL SPACE" FOR WHOM?

1. There is a belief that while PRSPs have only departed from previous programmes in their increased emphasis on social spending, they are nonetheless a worthwhile exercise because of the unprecedented "political space" they have opened in designing public policies. But increasingly commentators argue that not only do PRSPs fail to widen the range of macroeconomic policy options for governments, they have the potential to hamper or undermine existing democratic structures, and consolidate the hegemony of creditors' interests in the development policy arena.

2. PRSPs tend to ignore power issues and the political economy of poverty and inequality. They are the result of a broad consensus at the international and national level that combines economic integration, good governance and investment in human capital. A sign of this growing consensus is perhaps that when new governments come into power, they do not feel the need to revise their PRSP. i

3. Many observers argue that while PRSPs are not perfect and the core macroeconomic framework remains untouched, at least the new framework has created political space for local civil society actors, often pushing them to get better organised to influence political processes in their country. The assumption that PRSPs can open political space is based on them offering opportunities for the poor to get their voice heard by decision-makers, with NGOs playing the role of facilitators.

4. However, the model of participation in PRSPs can be at the expense of democratic structures that are bypassed, often because they are considered corrupt or inefficient, unlike capable technocrats. Despite pronouncements by the Bank and the IMF that legislators should be more involved in PRSPs, new analysis argues that "the dominance of the public policy arena by a narrow corps of transnational development professionals occludes the possibility of deepening democratic oversight"ii. Representative democratic structures (imperfect as they might be) are bypassed, but structures of clientelism are left intact. In what becomes in effect a "fast-track democracy", "legitimacy of post-SAP policies is being sought through the establishment of direct channels of communications" with NGOs used as brokers to being "the poor" directly into the policy arena. iii

5. The problems with the PRSP consultation processes are compounded by the fact that the World Bank and IMF have often provided lending with conditionalities which do not arise from the PRSP document. Only 9% of the World Bank's low-income country (IDA) lending is currently provided in the form of Poverty Reduction Support Credits. These are the low-conditionality, budget support lending modality introduced to match the objectives of PRSPs—ie that governments should be in the driving seat.

Suggested questions:

— Why are legislators almost never involved in the design of supposedly country-owned anti-poverty strategies and what concrete efforts have been and will be made to remedy that?

— Why is the proportion of low-conditionality lending through the Poverty Reduction Support Credit still only 9% and what steps does the UK government propose to increase this?

THE WORLD BANK, THE IMF: TROJAN HORSES OF TRADE?

1. In the run-up to the Cancun Ministerial, the World Bank made extensive efforts to, in its own words, "improve outside perceptions of the Bank by emphasising its commitment on trade issues." iv Indeed, there are a number of areas where developing countries and NGOs have enjoyed moral support from the Bank, and on occasion the Fund, in their advocacy work. This includes the Bank's public pronouncements decrying the injustice of northern agricultural subsidiesv, questioning the appropriateness of the WTO for the negotiation of the "new issues"vi, and IMF research encouraging the inclusion of the temporary movement of labour in services negotiations. vii

2. To show its commitment to trade-related issues and thereby secure its control of a rapidly growing donor pie, the Bank has ratcheted up the expansion of its trade empire. Under the new Trade Department, lending for trade capacity building and learning activities has doubled; trade co-ordinators have been appointed in each region; myriad trade research projects have been launched along with regional trade facilitation centres; and the list goes on. viii

3. What is being obfuscated by this headlong rush to become the world's premiere trade institution is that the Bank has no mandate for these activities, and, despite holding the money bag, is not particularly welcome.

4. On market access, the Bank conveniently ignores the fact that, as UNDP states, "many developing countries have been compelled to cut their tariffs and non-tariff barriers as conditions for World Bank and IMF loans".ix It must not be forgotten that developing countries are forced to do so by the BWIs, while industrialised countries are only politely asked (and usually refuse). While the Bank's Trade Director, Uri Dadush, extols the benefits for developing countries of rapid, autonomous liberalisationx, his own researchers concede that such moves would cause developing countries to lose their "negotiating coinage in a future multilateral round"xi and argue over the appropriate formula for crediting countries which have liberalisation imposed upon them.

5. On the "new issues"—the rocks over which the Cancun ship was smashed—while Bank economists have called expansion of the multilateral agenda "counterproductive"xii, official documents continue to argue that the payoff to unilateral reductions in investment and competition barriers is highxiii. This oversimplified view contradicts the historical evidence cited by UNCTAD that "many countries which contain highly competitive firms in certain industries find it necessary to protect others against foreign competition, and this is true at almost every level of industrialisation and development." xiv While unanimously rejected in Cancun, new issues are often included as pre-requisite actions in structural and sectoral loans: for example, Ghanaian procurement experts draft legislation designed to ensure accountability while promoting domestic enterprises was rejected by the World Bank. In the place of this, "World Bank officials almost single-handedly crafted the current bill, which the experts say sacrifices accountability for the primary purpose of granting foreign companies unparalleled access to government procurement in Ghana, to the detriment of domestic business." xv

6. On differential treatment, provisions which UNDP sees as central to the incorporation of human development goals in the trade agendaxvi, World Bank research has recommended limiting the benefits to only the least developed countries and requiring beneficiaries to give up the principle of non-reciprocity. xvii These recommendations, commented Christian Aid, "are so close to those of many of the most powerful countries in the WTO—the ones that have been, in the eyes of many developing countries, responsible for blocking progress on SDT over the last year—that they will simply confirm the view among critics that the Bank is wedded to the interests of the big industrial powers, and cannot offer unbiased research or policy advice to developing countries." xviii

7. On capacity building, the Bank congratulated itself on its efforts, boasting that this "was one area of the Cancun agenda that did not generate controversy." xix Considering the fireworks over agriculture and the new issues, the fact that capacity building did not generate controversy does not suggest that it is unproblematic. A coalition of NGOs described the Bank's technical assistance programmes as "underpinned by ideological assumptions about the benefits of liberalisation, and driven by the interests of the countries that provide the funding for them." xx The evaluation of the integrated Framework for technical assistance to the LDCs, a flagship multi-agency initiative led by the World Bank, found that the Bank's diagnostic studies were "doing it for them" instead of "doing it with them".xxi This model is being extended to middle income and transition economies and the results of these studies are to be integrated into national development plans.

8. All of this should raise alarm bells about increasing efforts to achieve "coherence" between the Bretton Woods Institutions and the WTO. xxii Rather than addressing the incoherencies between the current global trade regime and a pro-poor development agenda, this work seems oriented towards introducing the interests of the most powerful nations concealed within the Trojan Horse of coherence. UNCTAD's recent Trade and Development Report summarises this trend: ". . . as inflation has subsidised and market forces enjoy an increasingly freer reign, the call for developing countries to pursue greater fiscal discipline, more deregulation and ever faster liberalisation has intensified even as growth prospects have dimmed in many places and poverty levels have risen." xxiii



© Parliamentary copyright 2003	Prepared 2 December 2003