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 seventeen 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 to 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?'
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