Memorandum submitted by ActionAid
ActionAid UK welcomes the opportunity to submit
to the International Development Committee on the IMF-World Bank
Autumn meetings. This submission focuses on some of the key agenda
items for the meetings, and proposes questions we believe could
usefully be addressed by the IDC.
As the fourth largest shareholder in the IMF
and World Bank, as the chair of the G8 and EU presidency in 2005,
and given Gordon Brown's and Hilary Benn's prominent roles on
the International Monetary and Financial and Development Committees,
the UK has a crucial role to play in holding the International
Financial Institutions (IFIs) to account, and pressing for reform.
CONDITIONALITY
We welcome the UK government's draft policy
position on conditionality. Significantly, it recognises the negative
impact of many World Bank and IMF economic policy conditions on
growth and poverty reduction, and the ways in which conditions
can skew accountability away from publics in poor countries, towards
donors. The paper fills an important policy and analytical gap
in the government's approach to working with the IFIs, and promises
changes in how the UK aligns its aid programme with the Bank and
Fund.
We also welcome the decision at the meetings
to request World Bank staff to review their use of conditions.
Such a review is overdue, and responds to a tension between commitments
to country ownership, and the ongoing practice of top-down programme
conditions. At the same time, we're concerned that the review
goes beyond a simple appraisal of the number of conditions and
their effectiveness, to tackle the core issues of appropriateness
and intrusiveness of conditionality.
Recent evaluations of IMF programmes in low-income
countries, including by the Swedish government, show that despite
IMF commitments in 2001 to "streamline" their use of
conditions, the number of conditions per programme is rising again.
It is therefore important that any review of Bank conditions is
cross referenced to the IMF's own current review, to ensure that
measures are identified to reduce the aggregate burden of conditionality
between the two institutions.
Given recent high level donor commitments—including
from the UK—to respect the need for country ownership of
reforms, and to end externally imposed policy blueprints, we hope
to see the UK make an explicit commitment to end all economic
policy conditionality, and to press the Bank and Fund to follow
this approach. If genuine ownership exists, conditionality becomes
superfluous beyond the basic fiduciary conditions expected of
any funder-recipient relationship. The poor track record of conditionality
in fostering economic growth also underscores the importance of
locally appropriate economic policy—identified and designed
by national decision makers who are accountable to the citizens
of poor countries. In many developing countries, these channels
of accountability are highly imperfect. However, they will not
improve so long as fundamental decisions about the direction of
public policy are taken by unelected, unaccountable outside agencies.
Finally, we are concerned by what we see as
mixed messages from the government regarding conditionality. While
the new HMG policy calls for home-grown, home-owned policies in
poor countries, the Chancellor's important proposal for an International
Finance Facility appears to make extra aid conditional on poor
countries being prepared to liberalise their trade and investment
regimes—something criticised in the HMG policy paper.
QUESTIONS
"Will the World Bank and IMF reviews
critically examine the appropriateness and intrusiveness of conditionality
in poor countries?"
"Will the World Bank and IMF reviews
identify practical measures to reduce the aggregate burden of
aid conditions on developing countries?"
"Does the UK government support making
aid conditional on countries liberalising trade and investment
to a level deemed appropriate by the UK government?"
DEBT
More than seven years into the Heavily Indebted
Poor Country (HIPC) initiative, a durable exit from the debt crisis
remains elusive. Even against the IMF and World Bank's inadequate
criteria, just seven countries have seen their debts reduced to
sustainable levels, and 90% of low-income country debt remains
on the books.
We welcome the UK's efforts to break the debt
logjam at the annual meetings, by proposing 100% multilateral
cancellation through a mix of additional donor resources and IMF
gold. However, it is important to note that the UK's commitment
to cancel its share of debts owed to the World Bank and African
Development Bank is coming out of the existing UK aid allocation,
and is not strictly additional.
ActionAid is concerned that debt relief should
not be financed by diverting existing aid flows, but through new
donor contributions and the sale or revaluation of IMF gold. Extra
resources are essential if the poorest countries are to have any
prospect of reaching the Millennium Development Goals (MDGs).
We also believe that debt relief should also be extended to other
poor countries that are not HIPC countries, such as Bangladesh,
that need debt relief to meet the MDGs.
Moving forward beyond a resolution of the existing
crisis, we believe that in countries where human development needs
are greatest, and where the feasible tax base is narrow, future
aid flows should be provided in the form of grants rather than
loans for the foreseeable future.
QUESTIONS
"How does the UK government plan to address
the debt crisis in poor countries that do not stand to benefit
under the HIPC initiative?"
"What measures is the UK government taking
to ensure that future debt relief is genuinely additional to the
funding commitments made in the recent Comprehensive Spending
Review, and therefore bolsters countries' chances of reaching
the Millennium Development Goals?"
GOVERNANCE
The democratic deficit at the heart of the International
Financial Institutions is well documented. The World Bank and
IMF are operated on a one-dollar, one-vote basis that massively
over-represents developed countries relative to their population
and share in the global economy. For example, the UK and France
each hold a seat on the board, while 47 African countries must
share just two seats. Belgium's quota is half as big again as
Brazil, which has a population 17 times larger, and an economy
twice the size.
The key shareholders—the G7 countries—are
no longer stakeholders, having long since stopped borrowing from
the Bank and Fund. Yet the appointment of the heads of these institutions
is the result of horse-trading between America and Europe, exemplified
by the recent process to appoint a new IMF director, Rodrigo de
Rato. The selection process for the head of the Bank will come
under similar scrutiny next summer, when James Wolfensohn's current
term as World Bank president is completed.
The lack of effective and balanced representation
of all shareholder country priorities undermines the legitimacy
and credibility of the IFIs. It also means that the voices of
the poorest countries, whose interests the Bank especially are
expected to serve, are often marginalised.
So far, the only action taken to address these
serious shortfalls has been some extremely modest undertakings
to enhance the administrative capacity of the largest multi-country
constituencies, that include low-income countries and small island
states. While capacity building in this area is useful, it should
not be mistaken for a serious effort to address the weaknesses
of Bank and Fund internal governance. ActionAid wants to see a
transparent, high-level process—mandated but not controlled
by the boards, and balancing developed and developing country
voices—to identify options for far-reaching governance reform
of the IFIs. The Bank-Fund Spring Meetings in April 2005, when
governance is back on the agenda, are an opportunity to press
this proposal.
QUESTIONS
"How does the UK government plan to ensure
that the appointment of the World Bank president in 2005 is a
transparent and merit-based process, that is open to all candidates
regardless of nationality?"
"What proposals does the UK plan to take
to the IMF-World Bank Spring Meetings to address fundamental imbalances
in voting power?"
PARLIAMENTARY OVERSIGHT
ActionAid is a co-sponsor of a petition that
has been signed by over 140 UK MPs, calling for greater parliamentary
oversight of the IMF and World Bank. The petition is also supported
by the Parliamentarians' Network on the World Bank, and parliamentarians
in more than 20 other countries have now signed on.
The IFIs have placed increasing emphasis on
country ownership in their recent public statements. Yet parliaments
often play only a limited role in overseeing binding loan conditions,
and continue to be bypassed and overridden by IMF and World Bank-sponsored
policies. For example, in Ghana a recent bill to increase tariffs
on sensitive imports—approved by parliament and within WTO
ceilings—was withdrawn after objections by the IMF that
it violated key loan conditions. As poor countries in Africa and
elsewhere move towards democratic elections, this approach is
less and less tenable or justifiable. To be legitimate and sustainable,
key economic policy choices need to be made through national decision-making
processes, and involve parliament. The UK government's draft conditionality
policy paper recognises the importance of parliamentary oversight
of IFI activities, but stops short of opposing in principle parliamentary
decisions being overridden by the Bank and Fund.
Further actions also need to be taken to strengthen
UK parliamentary oversight of the IMF and World Bank, including
releasing transcripts of UK oral and written interventions on
the boards, IDC scrutiny of UK objectives for IMF-World Bank meetings,
and parliamentary debate on the annual reports of the UK in the
IMF and World Bank.
QUESTIONS
"Does the UK government support the imposition
of aid conditionality where a parliament votes against the conditional
policy measure?"
"How does the UK government plan to improve
the accountability to parliament of its activities in the IMF
and World Bank, in line with international best practice?"
November 2004
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