Memorandum submitted by the World Development
Movement (WDM)
Introduction
The World Development Movement (WDM) welcomes the
International Development Committee's continued commitment to
scrutinising UK Government policy and practice in relation to
the World Bank and IMF.
The following brief submission is aimed at highlighting
some key issues raised in the context of the World Bank and IMF
Autumn meetings, and suggesting a range of questions that WDM
feels need addressing.
Debt relief and debt sustainability
The Chancellor's recent announcement that the Government
will meet the cost of cancelling the UK's share of the remaining
debt owed by a number of developing countries to the World Bank
and African Development Bank is a welcome step.
It is positive for two particular reasons. First,
because it accepts that the existing debt relief scheme is inadequate
and that rich country governments must find more funds. And second,
the Chancellor also plans to extend debt relief to more poor countries
than are currently eligible, a central demand of debt campaigners
for several years.
However, it is important to point out that, contrary
to the demands of debt campaigners for debt relief to be additional
to aid, the money will come out of the UK aid budget increases
announced earlier this year.
That said, we are now hoping that the UK's move will
encourage other countries to put their hands in their pockets
and agree a debt relief deal which will provide genuinely new
money for poverty reduction. There is also an unresolved issue
as to how to pay off debts owed to the IMF. WDM supports the Chancellor's
suggestion of using IMF gold revaluation/sales to raise the required
money but other countries seem sceptical at this stage.
Key question: If IMF gold
sales are not agreed to, will the UK Govt show leadership by writing
off its share of IMF debt?
Conditionality
The Secretary of State for International Development's
commitment to addressing the issue of conditionality is welcome,
and the development, for the first time, of a policy on conditionality
is an important step. The launch of the draft paper and the subsequent
commitment by the World Bank and IMF to review their conditionality
also constitute positive moves.
However, a number of key issues remain inadequately
addressed or unresolved.
On the World Bank and IMF reviews, WDM is concerned
that these could end up being technical exercises looking at the
amount of conditionality and its success/failure rather than addressing
the fundamental question of whether or not the Bank and Fund should
be using conditionality in the first place and, if so, what kind
of conditionality is acceptable.
Key question: will the
World Bank and IMF conditionality reviews address the fundamental
question of whether conditionality is compatible with democratic
decision-making?
On the UK Government paper, WDM would like to see
an explicit commitment from the UK government that its bilateral
aid conditionality will not include economic policies, such as
privatisation, investment deregulation and trade liberalisation.
We would also like a commitment by the UK to pursuing this approach
in the World Bank and IMF.
At present the paper advocates giving space to recipient
countries to decide their own policies but leaves open the possibility
of using UK aid conditions as a way of ensuring those policies
are carried through. This begs the question; if a policy has been
through a domestic decision-making process and is widely supported,
why use conditionality at all? The rationale given in the draft
paper is that, "Reformers in developing countries often
favour 'conditionality', as it can signal that they are serious
about reform." The problem with this is twofold.
First, it relies on the development planning process
- in many countries consisting of a Poverty Reduction Strategy
Paper (PRSP) - to be perfect. But of course such policy planning
processes can never be perfect so the subsequent political checks
and balances - that we in the UK take for granted - are extremely
important. In the UK, policies do not get written down in a plan
and then implemented to the letter. It is often the case that
subsequent media exposure, parliamentary scrutiny and public debate
result in significant changes or even reversals in policies. Conditionality
denies the opportunity for this entirely legitimate process to
take place.
And second, this raises serious political issues
about who 'reformers' are and who they represent. Continuing to
use conditionality to enforce economic policy implementation,
by its very nature, places the UK government in the questionable
political territory of deciding who are, and are not, 'legitimate
reformers'.
WDM believes that on the extremely subjective area
of economics it should be left entirely to national political
processes to develop and then carry through policies, which, as
in the UK, can be subject to modification or even reversal at
any stage.
The UK's approach to conditionality has been further
confused by recent statements made by the Chancellor of the Exchequer,
Gordon Brown. In May 2004, the Chancellor said, "it is
a condition of the international finance facility…that countries
receive the proposed development aid only if they show
that they are tackling problems of corruption, lack of transparency
and those associated with fiscal and monetary stability as well
as opening up to trade and investment." (emphasis
added). An almost identical statement was made in the Chancellor's
2004 Party Conference speech (subsequent to the UK's draft conditionality
paper being agreed). While WDM is certainly not questioning the
need to tackle issues such as corruption and lack of transparency,
'opening up to trade and investment' is a common reference to
liberalisation, privatisation and deregulation and is therefore
something we object to strongly if it is imposed through conditionality.
The Chancellor's statements seem to contradict the
proposed approach set out in the draft UK position on conditionality.
For example, the draft paper acknowledges the fact that privatisation
and trade liberalisation can cause serious problems for poor countries,
yet the Chancellor is indicating that, regardless of such problems,
countries must implement these policies if they are to receive
aid.
Also, the draft paper states, "Donors can
support developing countries in thinking through their policy
choices about reform, but should not seek to use their
financial support to impose their own views."
(emphasis added). Yet, the Chancellor's statement is clearly suggesting
the use of financial support to impose a view of what constitutes
the 'right' economic policies.
Key question: the Chancellor's
statements in the House of Commons earlier this year, and at Labour
Party Conference, on the IFF - saying poor countries will only
receive money if they 'open up to trade and investment' - contradict
the thinking behind the draft conditionality paper which suggests
poor countries should receive aid in support of development strategies
that they themselves have drawn up, regardless of whether or not
they propose 'opening up to trade and investment'. Which approach
is the UK going to follow?
Key question: will poor
countries still receive UK aid and IFF money if their development
strategies do not propose 'opening up to trade and investment'
to an extent deemed satisfactory by the UK Government?
Innovative financing mechanisms
It is well recognised that increasing aid finance
is critical to achieving the Millennium Development Goals (MDGs),
and meeting the now 35 year old commitment to providing 0.7% of
national income in aid as soon as possible must form a key part
of this.
WDM believes it is also important that governments
create innovative and sustainable ways of increasing finance for
development without passing the costs onto future generations.
One such possibility is the Currency Transaction Tax (also known
as the 'Tobin Tax'). In this regard, a recent technical report
prepared on innovative financing mechanisms for the Action on
Hunger and Poverty Summit organised by the Brazilian government,
states, "a tax on foreign exchange transactions is technically
feasible on a global level." This kind of tax could also
be workable on a regional scale, such as in Europe, meaning that
extra finance could be raised without needing global agreement.
However, the UK seems, as yet, to have displayed little interest
in such a proposal.
On the issue of meeting the 0.7% aid commitment,
the current UK position in relation to the proposed International
Finance Facility (IFF) is confusing. On the one hand, the Treasury
has categorically stated that the IFF is not "an
alternative to the 0.7% ODA/GNI commitment."
On the other, despite being fully aware of this Treasury
statement and the concerns of many development organisations on
the need for the IFF to be seen as separate from the 0.7% target,
at the 2004 Labour Party Conference, Gordon Brown said, "we
the richest countries will through an international finance
facility ensure we honour the timetable to reach 0.7 per cent
of GDP." (emphasis added). WDM believes the 0.7% commitment
should be met using tax revenue that forms part of the UK's GDP,
not using money borrowed on international financial markets.
Key question: does the
UK Government support the development of a Currency Transaction
Tax and, as a first and workable step, the creation of such a
tax within Europe?
Key question: if, as the
Chancellor states, the IFF will ensure rich countries honour the
timetable to reach 0.7% of GDP in aid, will this simply be used
as a convenient excuse by rich countries not to increase their
aid budgets?
Governance of the IFIs
Few, if any, people would have the nerve to claim
that the selection process for the IMF Managing Director this
year was fair and transparent and met the highest standards of
equal opportunities. The reality is that the selection of a European
- Rodrigo de Rato - was a stitch up between European governments.
The unwillingness of European governments to break
this 'tradition' means it is likely that the selection of the
World Bank President next year (traditionally decided by the USA)
will follow the same untransparent and undemocratic procedure.
This state of affairs continues to be an embarrassment
to the UK government, which, in its 2000 White Paper on Globalisation
stated, "the UK favours open and competitive processes
for the selection of top management [of the IMF and other
international financial institutions]. This could include a
definition of the competencies for the post, selection and search
committees and a clear process for taking the final decision,
in which competence would be put above consideration of nationality."
While the selection process for the heads of these
two institutions may not be seen as the most critical issue facing
the international financial system, the inability of the IMF and
World Bank to make this most basic democratic reform sends a strong
signal to campaigners that these institutions are incapable of
significant change.
Key question: what plans
has the UK government for ensuring that next year's selection
process of the World Bank President is open, competitive and not
based on nationality - as committed to in its 2000 White Paper
on Globalisation?
Voice of developing countries in the IFIs
Developing country 'voice' in the IMF - the basic
facts
| Developed Countries | Developing Countries
|
| Share of world population | 25%
| 75% |
| Contribution to IMF income | 25%
| 75% |
| Share of IMF programmes | 0%
| 100% |
| Share of votes on IMF board | 65%
| 35% |
Key question: in light of the fact that developing countries
have 75% of the world's population, contribute 75% of the IMF's
income, and are subject to 100% of the IMF's programmes, why do
they only have 35% of the votes on the IMF's board? What is the
UK government doing to change this situation?
Parliamentary scrutiny of the IFIs
WDM has been a key proponent of increasing Parliamentary scrutiny
over World Bank and IMF loan and debt deals, and appreciates the
support that many UK MPs have given to an International Parliamentary
Petition (IPP).
In its draft position paper on conditionality, the Government
recognises the importance of parliamentary scrutiny, particularly
in the case of sensitive policy issues such as privatisation and
trade liberalisation, yet stops short of abandoning economic policy
conditionality altogether. This raises the possibility that the
UK could include an economic policy condition in an aid deal,
which is then subsequently voted down by a parliament.
Key question: If a case arises where a parliament votes
against a particular policy measure subsequent to it being included
as a condition for UK aid, will the UK accept the will of the
parliament and drop the condition?
It is also important that parliamentarians in the UK can effectively
scrutinise the actions of our government in the World Bank and
IMF. In a recent parliamentary debate on IFI scrutiny Economic
Secretary to the Treasury John Healey said, "On accountability
and openness, we recognise that all countries must be accountable
to their own citizens in their dealings with the IMF and World
Bank." And, "We will continue to work to make clear
the stance that we have taken in the IMF board and how we have
voted throughout the year."
One key way the UK Government could immediately act to improve
its own accountability would be to publish copies of all its submissions
and statements to the Boards of the IMF and World Bank, and press
other countries to do the same. There is already a UK precedent
for this. At a meeting with UK NGOs on the 14th September
2004, UK Executive Director Tom Scholar confirmed that the UK
Government submission on the Extractive Industries Review to the
World Bank Board meeting of the 3rd August 2004 had
been released to the public. The confidentiality 'convention'
of the World Bank was bypassed by simply printing it on UK Government
headed paper. Tom Scolar also confirmed his opposition to keeping
Board papers secret.
Key question: will the UK Government make it standard policy
to release transcripts of all UK verbal interventions and written
submissions to the Boards of the IMF and World Bank?
References
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