Memorandum submitted by the Bretton Woods
Project
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/about for more
details.
2. We feel strongly, that the United Kingdom,
as:
— the fourth largest shareholder in
the institutions;
— chair of the IMFC and a governor
of the Development Committee, the highest bodies of the IMF and
the World Bank respectively;
— one of only two OECD countries where
oversight authority over the World Bank resides within the development
ministry;
— one of only two OECD countries with
a standing international development committee; and
— head of both the G8 and the EU in
2005,
is uniquely positioned to scrutinise and press for
reform of the World Bank and IMF.
WORLD BANK/IMF
GOVERNANCE: A
STEP BACKWARDS
3. Four years ago, the UK Government's Globalisation
White Paper called for work towards a "stronger and more
effective" voice for developing countries in the international
institutions. i Then, in 2002 there was unanimous international
agreement in the Monterrey Consensus "to enhance the participation
of developing countries and countries with economies in transition
in the decision-making of the World Bank and IMF".ii This
issue of enhancing the participation of developing countries has
been on the agenda of every meeting of the Development Committee
(DC) since that time:
— September 2002: DC asks boards "to
prepare a background document to facilitate consideration of these
important issues at our next meeting." iii
— April 2003: DC requests "a
progress report for our next meeting." iv
— September 2003: DC "looks forward
to concrete action by our spring meetings." v
— April 2004: DC "looks forward
to receiving reports . . . and to further discussion." vi
— October 2004: DC "looks forward
to receiving a report regarding the feasibility of these options
to allow us to address the necessary political decisions at our
next meeting." vii
4. The only progress in that time has been
steps taken to enhance the administrative and technical capacity
of large multi-country constituencies (47 African countries, for
example, are represented by just two directors). While we welcome
DFID's support for the Analytical Trust Fund, to support the research
and analytical capacity of African Executive Directors' offices,
we feel that this should in no way be seen as a substitute for
reform of an inequitable governance structure.
5. Selection of the heads of the World Bank
and IMF will re-surface as a key test of the institutions' commitment
to good governance when the term of current Bank president James
Wolfensohn ends in 2005. The positions continue to be in the gift
of the United States and the EU respectively. After the resignation
of the former IMF Managing Director early in 2004, UK NGOs reminded
the Chancellor of the government's commitment to "open and
competitive processes for the selection of top management".viii
This was in keeping with calls from southern country directors
and the staff of the Bank and Fund. While we were encouraged by
the presence of a non-European candidate this time around, the
process fell far short on all other counts. The process was marred
by the absence of clear and transparent set of search criteria,
an independent search committee, public sharing of candidates'
platforms or a clear rationale for the final decision.
6. Reform of the board structure and the
voting weights remains unaddressed. The Finance Department at
the IMF published a report in advance of the annual meetings which
took this debate a step backwards. The report concluded that "quota
formulas using the economic and financial variables and weights
that have been considered broadly appropriate by the Board—are
likely to yield results that would imply a larger calculated than
actual quota share for the advanced economies as a group, and
a smaller calculated than actual quota share for the developing
and transition countries." ix In so doing, the report ignores
a previous IMF staff report that shows what would be the appropriate
adjustments in calculated quotas in order to exclude intra-trade
in goods among EU countries. According to the G24 group of developing
country directors at the Bank and Fund, developing countries are
under-represented and developed countries are over-represented
when their GDP is compared both at market exchange rate and PPP.
x
7. The European Union (EU) with a smaller
GDP than the US has 74% greater voting power than the US and is
currently represented by nine Executive Directors in the IMF Executive
Board, and 56% more votes in the World Bank and eight Executive
Directors in the World Bank. This over-representation of the European
Union comes largely at the expense of the developing countries.
Denmark has a larger IMF quota than South Korea. Belgium has a
quota that is 52% larger than that of Brazil. The EU has nine
executive directors in the IMF, when 47 sub-Saharan African countries
are represented by only two.
Suggested questions:
— While the government has committed
itself to the general principle of more equitable representation
for developing countries in the global governance institutions,
will it specify its position on the questions of leadership selection,
board structure and voting weight?
— Given that this item has been
on the official agenda for nearly three years with little progress;
and that Trevor Manuel—who heads the work on these issues—ends
his term as chair of the Development Committee in 2005; and that
the UK Objectives Note for the annual meetings 2004 called for
"detailed proposals" on the five key structural proposals;
will the UK commit to call for independent arbitration to resolve
the impasse if no progress is made in 2005?
For a joint civil society position statement
on Bank/Fund governance see: http://www.brettonwoods project.org/ifigovstat.html
PARLIAMENTARY SCRUTINY:
MORE WORK
NEEDED
8. Over 350 parliamentarians worldwide have
signed a petition demanding a greater role in scrutinising the
operations of International Financial Institutions (IFIs). xi
To date 144 MPs have endorsed the petition in the UK.
9. Despite agreeing that aid works better
if it supports national ownership of development decisions, loans
are still agreed in a highly secretive manner, parliamentarians
still find their role reduced to rubber-stamping the development
proposals of these institutions and are overruled if they try
to challenge them. Poor people's participation in these decisions
is still limited and conditions requiring cutbacks to social services,
trade liberalisation and privatisation are still attached to debt
relief and loans, despite evidence that these reforms risk increasing
poverty.
10. To end this short-circuiting of democracy,
approval for PRSPs should be shifted from the boards of the World
Bank and IMF to the national parliaments of recipient countries.
Decisions on economic policy reforms should be decided through
national processes rather than forcing them through with the use
of conditions attached to grants and loans. The institutions should
immediately withdraw loan conditions if they are rejected by a
democratically elected parliament. Recognising the weakness of
some recipient country parliaments, donors should have a long-term
objective of providing financial and technical support to bolster
their capacity to analyse and formulate policy alternatives, and
scrutinise multilateral agreements.
11. Parliamentarians in the UK have a responsibility
to oversee the activities of the World Bank and IMF which their
contributions support. This accountability is not possible if
they are not fully informed of the government's actions in those
bodies on their behalf.
12. We welcome the government's recent commitments
in this respect, including:
— imminent introduction of a report
on the UK Government's activities at the World Bank;
— commitment to report annually to
parliament on the "broad positions" taken at the Bank
board; xii and
— urging publication of Board minutes
within two weeks of Board discussions by the end of FY05; all
Bank monitoring and evaluation reports made publicly available
by the end of FY05; 50% of Economic and Sector Work publicly available
by end FY05, with presumption of full disclosure by end FY07.
(ibid)
13. From a survey of OECD Executive Director's
offices on their accountability to legislators, xiii we recommend
the following additional best practices be adopted:
— Release of transcripts of UK interventions
to the boards of the institutions, both oral and written; clarification
that the aforementioned transparency in Bank monitoring and evaluation
reports should include Country Policy and Institutional Assessments
(CPIA);
— Posting of UK objectives for the
spring and annual meetings of the IMF and World Bank at least
10 working days in advance of the meetings;
— Scrutiny of these objectives at a
meeting of the International Development Committee;
— Debate on the annual reports of the
UK in the IMF (Treasury) and the World Bank (DFID—expected)
in parliament;
— The recent comprehensive spending
review would suggest that DFID will be channelling a considerably
increased amount of its funds via the World Bank. An independent
audit should be planned of all UK contributions to the BWIs. Only
one such audit has been conducted by an OECD country in the 60
years of the institutions (Canada in 1992).
14. We support the initiative taken by those
UK MPs which have participated in the Parliamentary Network on
the World Bank (PNoWB). The future legitimacy of this network
requires that it should address issues of representativity, accountability
and independence from the World Bank.
Suggested questions:
— If a democratically elected parliament
of a recipient country rejects economic policy conditions attached
to non-crisis lending, will the UK pressure the institutions to
respect parliamentary sovereignty?
— What further action does the government
plan to take to ensure that its accountability to UK legislators
is up to best practice standards?
DFID WORLD BANK
ISP: STRIKING A
BETTER BALANCE
BETWEEN PARTNERSHIP
AND OVERSIGHT
15. The Bretton Woods Project has invested
considerable time into facilitating civil society input into both
the present and the previous Institutional Strategy Papers (ISP)
for the World Bank. We feel that while consultation with civil
society during the drafting phase has been adequate, monitoring
and evaluation of progress in achieving objectives is severely
lacking.
16. The current ISP makes reference to an
internal DFID review of progress in achieving the previous ISP's
objectives. This document has not been made publicly available.
17. The current ISP fails to make public
the indicators which were established for each of the ISP's objectives.
As only two examples, civil society groups were promised during
the consultation process that an indicator was to be developed
on the Bank's relations with civil society (in relation to objective
8b); and another to be developed on safeguard policies (under
objective 5b).
18. We are concerned that the one-page review
of the previous strategy in the current ISP fails to make any
critical comments on either the failure to achieve the objectives
of the previous ISP or of the Bank's work more generally. This
rosy assessment of the Bank's work is surprising given that the
previous ISP was considerably more rigorous in its recognition
of a number of serious weaknesses including, but not limited to:
— tension between field offices and
sector networks in Washington—recent civil society research
in India indicates that this gap is widening; xiv
— under-resourced monitoring and evaluation—this
continuing problem has been highlighted by US Congressional hearings
on corruption in MDB projectsxv and by research into the costs
of financial unaccountability; xvi
— a tendency to "dominate borrowing
countries and other development agencies"—reinforced
by the findings of a Bank-commissioned survey in 2003 which found
that the Bank "forces its view on developing countries";xvii
and
— a narrow focus on its own projects
"without giving consideration to more strategic issues".
This problem is the only one which appears—in diluted form—in
the current ISP: "the Bank must make clear its commitment
to partnership".
19. While the current review of the previous
strategy indicates "particular areas of progress", it
gives no indication of any failures, and a number of objectives
from that strategy are left unaddressed. These include, but are
not limited to:
— objective 6 on the integration of
environmental considerations into PRSPs;
— objectives 8 and 9 on the effectiveness
of the IFC and MIGA which calls for more activities to be undertaken
in the poorest countries;
— objective 10 calling for support
of the Bank's comprehensive development framework; and
— objective 12 urging collaboration
with the IMF in situations of financial crisis.
Suggested questions:
— Will DFID make public its internal
review of progress in achieving the objectives of the previous
ISP? the indicators for the current ISP? and future WB-DFID annual
reviews (as promised in ISP consultations)?
— What action will be taken if objectives
fail to be met? Will future World Bank replenishments be conditioned
upon achievement of the objectives?
ENDNOTES:
i http://www.dfid.gov.uk/pubs/files/whitepaper2000.pdf
ii http://www.un.org/esa/ffd/aconf198-11.pdf
iii http://siteresources.worldbank.org/DEVCOMMINT/NewsAndEvents/20125710/September2002DCCommunique_E.pdf
iv http://siteresources.worldbank.org/DEVCOMMINT/NewsAndEvents/20125700/April2003DCCommunique_E.pdf
v http://siteresources.worldbank.org/DEVCOMMINT/NewsAndEvents/20128919/September2003DCCommunique_E.pdf
vi http://siteresources.worldbank.org/DEVCOMMINT/NewsAndEvents/20195333/APRIL_2004_Communique_E.pdf
vii http://siteresources.worldbank.org/DEVCOMMINT/NewsAndEvents/20264401/Sept_2004_DC_Communique_E.pdf
viii http://www.dfid.gov.uk/pubs/files/whitepaper2000.pdf
ix http://www.imf.org/external/np/fin/2004/eng/092204.htm
x http://www.g24.org/09-04ENG.pdf, paragraph
10.
xi http://brettonwoodsproject.org/article.shtml?cmd[126]=x-126-72225
xii World Bank Institutional Strategy, draft
p. 20. See comments under WB ISP on need for full publication
of indicators.
xiii http://www.halifaxinitiative.org/updir/Legislator_Oversight_Paper_Oct2004.pdf
xiv http://brettonwoodsproject.org/article.shtml?cmd[126]=x-126-42220
xv http://www.bicusa.org/bicusa/issues/world_bank/1461.php
xvi IFIs and financial accountability, Kunibert
Raffer, Ethics & International Affairs, 2004, v 18, no 2.
xvii http://brettonwoodsproject.org/article.shtml?cmd[126]=x-126-16551
October 2004
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