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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1251-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE international development committee
autumn meetings of the imf and the world bank
Tuesday 9 November 2004 RT HON. HILARY BENN MP, MR PETER GRANT and MR STEPHEN PICKFORD CB MR JEFF POWELL and MR PATRICK WATT Evidence heard in Public Questions 1 - 34
USE OF THE TRANSCRIPT
Oral Evidence Taken before the International Development Committee on Tuesday 9 November 2004 Members present John Barrett Mr John Battle Hugh Bayley Tony Worthington
In the absence of the Chairman, Tony Worthington was called to the Chair ________________
Examination of Witnesses
Witnesses: Rt Hon Hilary Benn, a Member of the House, Secretary of State for International Development, Mr Peter Grant, Director, International Division, Department for International Development (DFID), and Mr Stephen Pickford CB, Director International Finance, HM Treasury, examined. Q1 Tony Worthington: Could I welcome you, Secretary of State, and your colleagues: Mr Peter Grant, who is Director of the International Division of DFID, and Mr Stephen Pickford, who is the Director of International Finance at Her Majesty's Treasury. We have quite a lot to do this afternoon because we have a session with yourselves and then a session with NGOs on the same theme. Could I offer the apologies of the Chairman, who is in Sierra Leone at the present time. Secretary of State, we are just back from India and, while out there, we went to see the World Bank. They had just concluded the Country Assessment Plan for India and I asked the Director, the Country Manager - I forget the exact title - of the World Bank in India whether the Country Assessment Plan had gone to the Indian Parliament: Had it been the subject of any debate there? He seemed surprised by the question. That is a common experience one has, that there is the most important economic document in terms of the inter-relationship between the outside world and India, and it does not go to their Parliament. Could I link with that, what I know is an important matter to you and to the IMF, the idea of Poverty Reduction Strategy Papers (PRSPs) that are country-owned. My experience has overwhelmingly been that the parliaments are not involved in these Poverty Reduction Strategies; indeed, there is a piece of research by the World Bank itself indicating disappointment that way. I would welcome your reflections on the whole business of the involvement of parliaments, the involvement of civil society, in these key documents of the World Bank and, indeed, the international community. Hilary Benn: Thank you very much for inviting us along here this afternoon. I hope to be of greater assistance this time than I was a year ago, when I came to give evidence at an earlier session having not attended the World Bank annual meeting because I had just taken over in the job. The first thing I would say is that there is nothing to stop any developing country from involving its parliament in discussion about Poverty Reduction Strategy Papers or any other aspects of the relationship with donors, be it DFID bilaterally or the World Bank. There is not any obstacle that we put in the way. I think it is very important to get this point across. It is for parliaments - as our own history in this place demonstrates - to devise their own methods for holding the Executive to account. Secondly, we would certainly encourage it, and our paper on conditionality[1], which I am sure you have seen, makes explicit reference to that. Thirdly, as your question indicated, if Poverty Reduction Strategy Papers are truly to be country-owned (in the jargon) as opposed to being something written to satisfy the donors - which none of us wants - then it is important that there should be the widest possible involvement on the part of parliamentarians, civil society, and others who have an interest, in drawing them up. There is an interesting conditionality question about the extent to which we should say to countries, "You must have this mechanism for consultation" because they might come back and say, "Who are you to tell us how we should choose to take decisions internally in deciding whether we want to sign up to agreements with you, as a bilateral donor, or with the World Bank?" But I think, in a nutshell, since time is short, that is how I see the issue. Q2 Tony Worthington: I accept there is no obstacle to parliaments doing it, but they do not. I think part of that is because of the tradition of governments relating to the World Bank rather than the World Bank relating to the wider society, including parliament. Do you not think it would be a considerable step forward if it were to be part of the conditionality of Poverty Reduction Strategies or Country Assessment Programmes and so on that they should require the approval of their parliaments? Hilary Benn: I very much encourage that. I think it is very important that that is the case. It is a debatable point whether we should impose it as a condition on countries, because people might say, "You are seeking to tell us how we should conduct our own business." One would hope that parliamentarians in all countries, if they wanted to be part of the debate about World Bank Country Assistance Plans or partnerships that we are agreeing, would want to be part of that process. We certainly encourage it. I think it is debatable whether we should say, "If you do not do that, then we are not going to have an agreement with you" - because is it our place to tell them how their democratic structures should run? That is the question. Having said that - and I am sure you will have a view on that - yes, we very strongly encourage it in practice, and we would like to see greater participation on the part of parliaments in this process for, I think, the reasons that we would share. Q3 Tony Worthington: It is a pretty minor conditionality compared with the other conditionalities. Hilary Benn: At one level, yes. But I think the question ought to be put to the parliaments themselves in those countries - after all, it is up to them: "Why do you not participate to a greater extent in these kinds of discussion? What steps have you taken? Have you encountered any obstacles?" I think it would be good to hear their voice in this debate about participation in the process of drawing up World Bank plans and, indeed, plans that we have agreed. But you can see very clearly in our conditionality paper that this is something we very strongly encourage. I suppose the debate is to what extent we should make it an explicit condition. Q4 Mr Battle: I wonder if I could ask you something about what I perceive, perhaps wrongly, to be the nature of the World Bank. I see that, in a sense, under the banner of its modest title: "the World Bank", it gathers everything together, gives us a view of everyone. But the forces tend to be to pull everything to the centre and make decisions at the centre and then to draw up papers to tell the rest of the world, in detail, how to do it. I am thinking of the Structural Adjustment papers and of the Poverty Reduction Strategies. More recently, I understand, there are some Country Policy and Institutional Assessment papers that will actually rate the economic, social and political performance of each borrowing government and they draw up the criteria for what they describe as "good" policies and institutions. I do not think they are talked about very much. Similarly, with the Structural Adjustment Policies, it was not until about four years after they had been thought up and printed that they came to public awareness. What is your view of those Country Policy and Institutional Assessment (CPIA) documents? Hilary Benn: They provide, if you like, the background assessment of conditions in circumstances in a particular country, which will then inform decisions that the World Bank takes. If one is talking about the transparency of the process as well as the usefulness of the process itself, as you may be aware, the World Bank Board agreed on 7 September to disclose CPIA scores and components, starting with the ratings from 2005 - and we may come on to transparency in the operation of the World Bank later - and I very much welcome that. The Bank has not yet taken a decision to disclose actual assessments, and I think developing countries themselves may have very strong views on that subject. I should add, linking this to the previous question, that our Institutional Strategy paper, as I am sure you will be aware, as well as saying that we encourage developing country governments to involve their parliaments in this process, says that we very much want to encourage the World Bank to do the same. Just to place that on the record. Q5 Mr Battle: As well as the process and the transparency point, who determines the criteria? Who decides to draw up the list of what is good institutional management of economic, political or social affairs? I wonder whether you feel they are the right criteria. How are those criteria determined? Are they discussed rather more publicly? Are they thought up in head office? Hilary Benn: Like all the things that the Bank does, they will need to evolve over time. I think it makes sense for the Bank itself to have a set of criteria and these have been in place for a number of years. They are an assessment, as I say, of the operating environment, the circumstances of the country itself, which will inform decisions that the Bank takes. If there are issues that people want to raise about the nature of that assessment, then I am certainly up for a discussion and a debate about that, in exactly the same way as I am up for a discussion and debate about conditionality - which is why we have published the paper, why this is the single hottest topic in the debate about effective aid and lending and the relationship between the World Bank and partner countries, and, indeed, between bilateral donors and countries. As I say, they have been in place for a number of years. If people say this is something that should be looked at, I would not have any objection to that, but I would see that as part of a process of evolving the Bank's approach to the work that it does. Q6 Mr Battle: To my mind it is a question of whether there is a one-size-fits-all attitude to development, whereas globalisation might teach us, paradoxically, to look much more locally and to be much more locally sensitive to particular circumstances and conditions, and therefore, if I say - and I do not mean it pejoratively - that generalist and crude criteria at the centre might not be appropriate to development at the local level. Hilary Benn: I would say two things in response to that. One is that the publication of the scores - the decision that has been taken in September to make that open - will, I think, itself generate a debate about the CPIA framework - and that is a good thing. The second thing to say is that there was an external review carried out which has made a number of recommendations which are in the process of being implemented and one of which is that there should be greater consultation about the CPIA framework. I think that demonstrates a process of movement in the direction that your question implies. Q7 Hugh Bayley: Secretary of State, in the joint statement which you and the Chancellor of the Exchequer made to the World Bank Development Committee, you say on conditionality: "Our understanding of what makes aid effective is changing. Evidence and experience challenges the traditional approach to attaching strict terms and conditions to aid."[2] You continue at some length to elaborate on that. If the UK position is that the traditional approach to conditionality needs to change whilst maintaining a focus on poverty alleviation, what in policy terms would you like the World Bank annual meeting to decide? Do they publish a communiqué at the end of the meeting? What would you like that communiqué to say to explain to the wider world how conditionality is changing as a policy? Hilary Benn: The first thing to say is that, as you will be aware, we got the World Bank annual meeting to agree to undertake a review of the World Bank's policy and practice on conditionality and that was reflected in the communiqué. That is the start of the process. It is a very welcome step, because, as well as publishing the conditionality paper, principally but not exclusively in respect of the UK's approach to conditionality, if this is the subject of great debate which it undoubtedly is in the field of development then it is important that we have that debate in the World Bank as well as donors bilaterally. The second thing to say is that we talk a lot about country ownership - we talked about PRSPs a moment ago and country ownership - but what exactly do we mean by that? Because, let's be honest, there has always been a tension at the heart of talking about country ownership on the one hand and the attaching of conditions to aid on the other. I am listening here really to the issues that need to be discussed and debated. It is for the review to come up with proposals, as our conditionality review will come up with a clear policy at the end of the consultation process, because I think it is a very, very big, very important issue which goes to the heart of a lot of what we do - which is why I have allowed quite a length of time - until the end of the year - for comments to be received on our paper. Thirdly, to look at the process by which conditions are agreed: Are they imposed? Are they jointly discussed and genuinely agreed? These are issues that I would want to see looked at. We want much greater use to be made of poverty and social impact analysis (in other words, what the consequence of doing this would be) and, I think, more effective use of the evidence. Because if one talks about - I do not know - private sector involvement in parts of the economy, in some areas the private sector undoubtedly is extremely effective: access to mobile telephony being one example; if you look at the provision of clean water, however, the evidence is much less clear. So let's have a look at the evidence and let's look at the most effective means of achieving the objective - which, hopefully, we share - and then let's not get quite so tied up by the means; in other words, "It has to be this means as opposed to that means." I think that would be helpful. I have two final points. One is about greater transparency about the process, and, as one of the cries that is constantly heard is about greater predictability of long-term aid, being very clear about the circumstances that might lead to aid flows being disrupted. There are circumstances where it would not be honest to pretend that they would not arise, but being clearer about that, so that developing country governments can plan with greater confidence and therefore really use that aid to best effect rather than thinking: "Will it be here next year?" That would be my list of the issues that we are looking at and which the World Bank will be looking at in the review we have got them to agree to undertake. Q8 Hugh Bayley: Could I ask you to explain to the Committee how that kind of new policy adopted by the World Bank would read across to the Fund, because the Fund imposes its own conditionality on developing countries and you would want to make sure that the policy was coherent between the Bank and the Fund? Hilary Benn: Yes. Q9 Hugh Bayley: I generalise, but I think you will understand what I mean by the generalisation: in general, the Fund imposes - and perhaps for understandable reasons - harsher and less flexible conditions than a development agency like the World Bank. Hilary Benn: Yes. Q10 Hugh Bayley: And there is the possibility that, unless you get that co-ordination, you can have IMF conditionality undermining the new freedom ... or perhaps "freedom" is the wrong word - the new joint setting of conditions that the Bank might be seeking to develop. How will you avoid that problem? Hilary Benn: I will make two quick comments and then I am sure Stephen will want to say something. The first is to say that the consultation paper on conditionality is a joint effort, including the Treasury, and, secondly, to acknowledge that the Bank and the Fund have different jobs to do - and that is implicit in your question. Mr Pickford: You are absolutely right, the IMF have for a long period of time imposed conditions for its lending programmes. The underlying rationale for that is essentially that they want to be repaid, therefore they ask that countries put in place fiscal policies or monetary policies which are designed to maximise the chance of being repaid. Having said that, the debate has been going on for some time in the Fund also, and every two years they do a review of their conditionality guidelines. They essentially look again at whether the types of conditionality they impose on foreign countries are still appropriate. They had a major review in 2002, which led to the so-called streamlining of conditionality - which has had some effect; some people would want to go further. The next review, which is just getting under way at the moment, is an opportunity to review again. If I could just reinforce the point that the Secretary of State made, the joint consultation document that we put out fully recognises the importance of looking at the total sum of conditionality across the two institutions. We are very much in favour of making a clearer distinction on the division of responsibilities between the Bank and the Fund and also at trying to develop a measure of the combined weight of that conditionality, so that we can ensure that when we call for streamlining in one institution it is not simply replaced by an increase in the burden of conditionality in the other institution. But I believe that progress has been made in terms of the Fund looking more at its own core areas of responsibility, which are essentially macro-economic, and also trying to reduce the number of conditions that have been put in place. This is something that the Development Committee asked for. We will look again over the next few months. Q11 Hugh Bayley: I would be keen to see the two tied together. Could I explore a bit further with one practical example. Christian Aid, in their submission to us, refer to a World Bank study.[3] They say: "In South Africa, HIV/AIDS could result in 'complete economic collapse' within three generations, according to a World Bank study."[4] Then Christian Aid argue that, on the one hand, the World Bank study is saying the level of infection is so high you could have these dire economic as well as social and health consequences, and yet World Bank policies do not give enough attention to combating the HIV/AIDS pandemic. When the Africa All Party Group was collecting evidence on studies of HIV/AIDS in Africa, we received evidence that the Government of Uganda was put in a position where it had to forego some of the aid that was offered to do work on HIV/AIDS prevention. It was happy to accept it but it would have put government expenditure beyond the public expenditure ceiling set by the IMF. This aid, as I understand it, was grant aid, so it was not a matter of the IMF proposing conditionality, as you were suggesting, so that it would be repaid. It is something we raised with the IMF and they said, "Yes, of course we have an interest in the macro-economic policy of a country, because if you were simply to increase expenditure in the field of health care you could end up in inflated healthcare costs and spending more money but buying no more." The IMF, I believe together with the Bank and the DFI and USAID and a number of other partners, had a meeting in Washington earlier this year, to consider the problem. I think the solution appeared to be that you ought to invest on the supply side to increase the number of nurses and paramedics and so on, so that you could push up public expenditure without inflationary consequences. In terms of conditionality, you certainly need to remove, in my view, both from Bank conditions and from Fund conditions, a blanket ceiling, and you need to make public expenditure controls contingent upon the macro-economic consequences of public expenditure. Should not effective spending to combat HIV/AIDS be seen as investment and not as consumption, and something that one should seek to maximise in those countries most affected and build a macro-economic policy around that which accommodates that rather than using a Washington-determined macro-economic framework to prevent it? Hilary Benn: Would you like to comment from the IMF point of view? Mr Grant: Yes, I will try to respond briefly to that. The whole issue of fiscal space has been something that has been fairly hotly debated over the last few years. The point that the UK has been making consistently is that there needs to be more flexibility built into fiscal conditionality, so that if, for instance, donors were to provide X hundred million more in a particular year, you should go back and work through the fiscal numbers to see whether the ceilings that you put in place are appropriate. It partly depends, as you suggest, on whether there would be macro-economic consequences within the country. I do not think any of us would disagree with the fact that you do not want to have policies in place that are going to put at risk the macro stability of the country. Indeed, the countries themselves generally have absolutely no interest in that. But when circumstances change - and the provision of aid is clearly one where in the way in which many donors provide their aid there is uncertainty about the level of aid that will be provided - we have been arguing with the IMF that they need to look again at the numbers and reflect that in the conditions that are set. I think it is fair to say that that argument is getting through and the IMF is now demonstrating more flexibility in the fiscal assumptions that it puts in place in its programmes. In relation to South Africa, of course South Africa has not borrowed from the World Bank since 2002. Secondly, the situation described in Uganda clearly is not sensible and we should do something about it. Making aid more predictable would help in the long-term pattern. I think that is the other thing we should bear in mind. Q12 John Barrett: Secretary of State, could I ask about the integration of the Poverty Reduction Strategy process into domestic policy making processes? As we work towards the Millennium Development Goals, it is clear that the Poverty Reduction Strategies ought to be as effective as possible. There was a communiqué from the International Monetary and Financial Committee that said that these processes must be improved, must be better integrated, and they included the IMF in this. I was wondering if you could say anything about key findings and recommendations to the joint World Bank and IMF study on implementing the Poverty Reduction Strategy approach and also to find out if there is a plan for making these Poverty Reduction Strategies more effective? Hilary Benn: We are now beginning to talk about second generation PRSPs and the study is very important in trying to draw the lessons. I think there are a number of lessons. The first is one about the process of drawing them up and the extent to which those who ought to be interested in the process and involved in it are indeed part of it - which we have discussed. The second is that we do not want these to be plans written to make the donors happy, if I may put it in blunt terms. There is no point. That is not what they are for. That is why, if we do not do the things that we do which make it more or less likely that that is going to happen, we can help the plan to be more something which the government itself feels is their plan. I think the third lesson is that this has to be integrated into what we are doing as a government as a whole: you cannot have the government's plan over here for running the country and its future, and over here is the bit of paper we have written for the purposes of the donors, because that does not make sense. The two have to be integrated. I think the fourth is about predictability and certainty - again a point we have touched on - because it is very, very hard to plan for the medium and long term, dealing with these enormous challenges (improving health care, tackling AIDS, getting children into school, dealing with infant and maternal mortality) if you are not quite sure what the position is going to be next year, let alone two years, three years, five years. That then links into the things we are trying to do on further action on debt relief, because one of the great merits of debt relief is predictability, subject to the very limited set of conditions which would apply under the UK proposal. It is how we reflect on all those experiences. The final point I would add is on what the PRSP covers. Again, if we are being straight with ourselves: To what extent do the subjects that the donors bring to the table to discuss and the areas of expertise that the people doing the discussing have, influence the shape of the PRSP? We have touched on this previously in relation to water. One of the great puzzles, in a sense, is why water does not figure more prominently in PRSP processes. One view is because it tends to be a local government responsibility and central governments do not tend to think about it so much. Another view is: Does it reflect the kind of debate that the donors sitting on the other side of the table want to have? We need to ask ourselves that question. There was one example in Africa, where they went back, after having drawn up the PRSP, and the people said, "Not bad, but you have not done enough on water," so, in drawing up their second version, they said, "We will give greater priority to water." That shows the benefit of talking to your own population and political processes, civil society, parliament, about what the plan is about. Those are the key lessons I would list as coming out of this process of review, and, by definition, those are the key issues that need to be addressed in trying to overcome those difficulties and deal with those contradictions in taking the process forward for the second round. Mr Grant: Could I follow up on that? I think this sense of the Poverty Reduction Strategy evolving over time is hugely important, both within individual countries but also for the international community. We demonstrate that we are here for the long term according to PRSs, so that we can learn from each generation. We can see them improving radically over the second and third generations in individual countries. Following up the Secretary of State's comments, the breadth of those plans is vital and the fact that they integrate an approach to growth and sources of wealth in a society is vital. Picking up on your earlier question, it is very interesting to see in Asia the extent to which national planning processes and PRSs are often coming together; for example in Vietnam, creating a very strongly owned and much more authoritative plan which is right at the heart of government. Q13 Tony Worthington: Could I ask you about the International Finance Facility (IFF), which, as you know, now feels like it has been around for quite a long time. The reports we receive from yourselves and the Chancellor are that steady progress is being made, it is the pre-eminent solution, that there is not much else in the field, and, as both you and I know, unless there is a very, very substantial early injection of aid then the chances of meeting almost any of the MDGs are nil. What progress are we really making on this? Where are the obstacles? Hilary Benn: The report that came to the annual meetings said very clearly that this is technically workable, so that is important. The second thing that is happening is we are looking to run a pilot in immunisation IFF, with the Global Alliance for Vaccines and Immunisation (GAVI) - indeed, there are discussions taking place this week on putting that together. We feel there is a huge benefit because raising additional resources for immunisation is desperately needed, but, also, because to demonstrate that if you turn the key in the engine of the IFF it works, the engine runs, will give people confidence. I think the third thing to say is that, as you referred, while France and others have been working on medium and long term sources of additional financing above and beyond the march towards the 0.7 per cent - and we have made big progress in the UK since we last met on that front - the fundamental question is: Next year we will be 10 years off, we know we are short, how do we raise the money now? In pressing the IFF, we say, "Here's the one practical proposal on the table that can work that will raise us the additional finance that we need today" and there is no other proposal of which I am aware that offers the same hope of raising the finance that is needed. There is a lot of support from developing countries. France has offered support. Some of the Scandinavian countries are expressing, I would say, more interest in it. But the United States has not been a supporter of the IFF up until now, let's be very frank. The arguments have tended to fall into two camps, in my experience. The first has been, when we did not have a commitment on progress towards the 0.7 per cent: "Well, this is a substitute for lack of progress towards the 0.7 per cent." We have dealt with that argument by what the Chancellor announced in the summer. The second argument is about what will happen to aid flows in the future, when it comes to paying back the IFF. I think the honest answer to that is: Nobody can guarantee the future, but the argument we have always put very strongly is: In the end that is a political decision for governments and parliaments to reach, but are we going to be in a stronger position to continue to argue the case for aid and more aid, if that is what is required in the years ahead, if we have demonstrated our capacity to make progress towards the MDGs and achieved as many of them as possible - as opposed to a world in 2015 where we say, "We didn't manage to do it." That is the argument, because we know we are short, for investing the money up front in making progress. But I recognise that implicit in your question is: When is this thing going to move? 2005 is going to be a crucial year, because the world is going to have to decide: Is it going to raise the additional resources that are required or not? - and in the end, that comes down to political will. The final point I would make is that there are things that have seemed in the past impossible, like any progress on debt relief. Go back over a decade and people just said, "It is very difficult to do anything about this problem," and here we are, $70 billion worth of debt relief later, now talking about how to take debt relief forward. So it does show that where there is a will, things can move. I do not know whether from the Treasury's point of view, Stephen, there is anything you would like to add. Mr Grant: For us, one of the key determinants in persuading others of the IFF principles is actually to demonstrate that it does work. That is why, for us, it is very important for the two departments jointly to make progress on getting this pilot underway and up and running. Once those principles are demonstrated, then it is easier to go further and demonstrate that the wider IFF itself is feasible. Q14 Hugh Bayley: In their evidence to us the Bretton Woods Project made five recommendations for increasing transparency.[5] These were that the UK Government should: "Release transcripts of UK interventions to the boards of institutions ...." Hilary Benn: Yes. Q15 Hugh Bayley: Secondly, "Posting of UK objectives for the spring and annual meetings of the IMF and World Bank at least ten working days in advance of the meetings." I know you do publish objectives, because you send them to us, but I am not sure whether they are published ten days in advance. Thirdly, that "Scrutiny of these objectives" should take place at a meeting of our Committee - well, that is down to us. Hilary Benn: It is. Q16 Hugh Bayley: Fourthly, that "Debate on the annual reports" of the Department and the Bank should take place in the UK Parliament. That might be a joint effort, with us both talking to the party whips about whether there could be an annual debate in Westminster Hall. Hilary Benn: Agreed. Q17 Hugh Bayley: Finally, they say that in 1992 Canada commissioned an independent audit of their contributions to the Bretton Woods Institutions, and they suggest now would be an opportune time for the UK to do the same of UK contributions. Because the Government has so greatly increased aid in the triennial review, there would be substantially more UK aid going through the World Bank, and therefore they suggest this would be an appropriate time to get an independent audit. I know the National Audit Office is independent of the Government but I suppose they mean some firm of consultants to look at what the money will buy. Hilary Benn: Obviously, yes, the International Development Committee (IDC) scrutiny is entirely a matter for you. I would be very keen for an opportunity to debate these issues on the floor of the House or, indeed, in Westminster Hall. You referred to the National Audit Office. It is undertaking a review next year on our relations with multilaterals which will include the World Bank. Whether that quite covers what the Bretton Woods Project has proposed, I am not entirely sure. On the ten days in advance, we will certainly seek to do that, because we publish it with a view to informing people about what it is that we are seeking to do. On the release of transcripts, at the moment it is against the rules of the Bank to release individual executive director interventions. I think this is what ought to happen, but we have to persuade others. Could I just say, more generally on transparency, that we will this year be publishing for the first time a report on our work with the Bank, in a sense mirroring what the Treasury has done in relation to the IMF in the past. If you ask me why we did not do it before, the honest answer is: "I do not know" but I am doing it now because I think it is the right thing to do. We touched on earlier some of the other steps that have been taken by the Bank already. The board is going to be discussing on 18 November the publication of board minutes. We strongly support that and I hope others will agree. On the disclosure of board documents prior to discussion by the board, again the board will be discussing on 18 November a pilot project. This will also apply to operational policy papers, if that is agreed. We would support this move and also the extension of the pilot. I just want to give you an indication of the steps that are already underway, and, to be honest, my inclination is - but we have to look at the details and how it is going to work - that some developing countries themselves might be not very keen on forms of disclosure and I think we need to acknowledge that. But, as I hope you can tell by what I have done, what we are pressing for, I want to see further progress in this direction because, frankly, it is overdue, it will improve transparency and accountability and help us to have a more informed debate. So we are working on it. Q18 Mr Battle: Could I quickly come back both to conditionality and the International Finance Facility. Hoping that the International Finance Facility gets going, there is an ironing out of what seems to be a slight tension (to put it at its mildest) between Treasury and DFID, because the Chancellor in May in the House of Commons suggested that there would be a special conditionality attached to access to International Finance Facility funds. He said that poor countries should receive aid if they open up to trade and investment and that "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" and then he went on to add "as well as opening up to trade and investment."[6] I want you to assure me that there is a reconciliation between the conditionality paper and what the Chancellor is suggesting. Otherwise, we might find a replication of the divisions that we have had between the World Bank and the IMF reflected in our own government departments. Hilary Benn: Heaven forbid! There is never any tension between the Treasury and any government department, least of all DFID. The conditionality paper is a joint enterprise, because our joint thinking on conditionality is evolving. It is evolving in the international system, it is evolving in the UK Government. Depending on the nature of the conditionality you are discussing, what is very clear is that you will come across very different views, on being able to demonstrate that the resources you put in - whether it is through our development programme or through the IFF - are used for the purposes for which it is intended, can be accounted for, has not disappeared in corruption. I have not encountered anyone who says, "No, you should not be doing that," because it is about accountability for the resources that we have committed to development. If you talk about human rights conditionality, NGOs will rightly come and speak very strongly to us about linking development assistance very clearly to countries upholding basic human rights, but when it comes to economic conditionality it is different. If you talk about the trade as a "for instance", well this is at the heart of the world trade talks: At what pace do countries open up? What do we mean by special and differential treatment? While moving in the same direction, how long will countries have to adjust, recognising that not all countries can move at the same pace. That is what we are talking about. Q19 Mr Battle: It is trade and investment - just to make sure there is not a waiver. Hilary Benn: Indeed, but, in relation to investment, as far as the World Trade talks are concerned, of course investment and competition are off the table, and we have made that position very clear. Q20 Tony Worthington: Secretary of State, could I thank you very much, and your colleagues as well, for your responses to us. As you know, a huge topic, and we have not covered all the questions we intended to. Perhaps we could write to you and ask for a response to those we have not covered, so that we can incorporate them in our report? Hilary Benn: With pleasure. I hope it has been helpful. Examination of Witnesses
Witnesses: Mr Jeff Powell, Bretton Woods Project, and Mr Patrick Watt, Senior Policy Adviser, ActionAid, examined. Q21 Tony Worthington: If we could move on now to the second half of this afternoon's session. For the first time, we have with us representatives of NGOs. Mr Jeff Powell of the Bretton Woods Project, and Mr Patrick Watt, who is the Senior Policy Adviser to ActionAid. You are very welcome. It is a slightly unusual situation because you have been listening to what the Secretary of State has been saying. To some extent, we would like you to react to what you have heard, so that we can have the benefit of your advice in evaluating what we have heard. Obviously we will want to ask our own questions, but perhaps we can just start on that basis out of the previous session. What are the points you would like to focus upon as important to our consideration of the relationship between this Parliament, DFID, the Treasury, the World Bank and so on? Mr Watt: Maybe I could start on the issue of conditionality, since that seemed to take up a fair proportion of the earlier questions. I think there are a number of interesting issues that were raised. On the issue about parliamentary oversight of conditionality, parliamentary discussion of Poverty Reduction Strategies and World Bank Country Assistance strategies, I think there are clearly ongoing obstacles to parliamentary oversight, a couple of which I would like to identify here. I think the first is this issue of disclosure, which has been touched upon already, that actually the lack of disclosure of World Bank open documents is a very active barrier to effective parliamentary oversight of binding loan conditions. I have just a few examples. The memorandum of the programme concept document and the Poverty Reduction Strategy credit matrix which unpacks the details of conditions of how compliance will be measured, generally all remain outside the public domain, and I think represent a significant barrier to effective scrutiny and oversight. I think there is also an issue about how bank processes quite actively undermine effective country ownership. We heard from the Secretary of State how it is certainly not DFID's intention that PRSPs are being written to satisfy the donors, and yet at the same time PRSPs have to receive World Bank sign off before they can be approved. So there seem to be some mixed signals there. There are clearly also issues about Bank staff incentives. There are simply not incentives within the World Bank to encourage Bank staff to press for engagement between the Executive and parliaments of countries to broaden the definition of country ownership beyond their current application. I think that is one important issue. I think there is a second issue about the evidence base for conditionality and maybe an ambiguity in the Treasury/DFID draft paper on conditionality. On the one hand, the paper seems to be saying that there is a very poor track record in terms of the enforceability of conditions: the conditions are a very crude instrument, that they have often foisted inappropriate policies on poor countries and have not delivered in terms of poverty reduction, and, on the other hand, it seems to be saying, "If we get the evidence right, and if we do a bit more analysis, then it will all be fine." There seems to be perhaps an ambiguity there that needs to be resolved. I think there is also on conditionality a lack of clarity at the moment from both the Bank and from the UK Government about whether conditions can be derived from outside of Poverty Reduction Strategy. Are there the situations where conditions might be used that are not the result of an iterative discussion between different stakeholders but are decided out of that process? At the moment, it is certainly clear that a lot of key decisions are being decided in a very non-transparent way, in discussions between IMF, World Bank staff and governments and are not open to the scrutiny afforded by the Poverty Reduction Strategy Process, so there is clearly an issue there. Q22 Mr Battle: Could you give us some examples of ones outside the Poverty Reduction Strategy. Mr Watt: One example would be that debt relief recently for Zambia has been significantly delayed in a country where debt service repayments exceed annual expenditure on education. Debt service repayments have been delayed because of an IMF condition that the Zambia National Commercial Bank should be privatised. This was not a conditionality that was established through the Poverty Reduction Strategy process. Another example would be in Tanzania recently where debt relief was made contingent by the IMF on privatisation of the water utility in Dar Es Salaam. Again, that was not something that was identified through the PRSP. I think those kinds of instances could be repeated many times over. If I may make one more point on conditionality before we move on, this issue about aggregate conditions. We heard that the IMF has recently streamlined its conditions, and yet a lot of the evidence, including some recent work that was done by the Swedish government, suggests that in fact IMF conditions are starting to rise again at the same time as the IMF has offloaded some of its structural conditions on to the World Bank. So there really is no clear evidence at the moment that the overall burden of conditions is being reduced. I will hand over to Jeff. Mr Powell: First of all, thank you for the opportunity to appear in front of the Committee today. I will be very brief on some responses to some of the specific points that were made because obviously we want to give more time over to your specific questions. In relation to the discussion that was held about the Independent Evaluation Office (IEO) or, indeed, the joint review of the PRSP process, I was pleased to hear the Secretary of State say that there were a number of lessons from that. First and foremost, I think there is a fear that there will not be proper implementation of those lessons, and I think there is a role for the IDC, for example, in making sure those lessons are learned and that there are monitorable achievements on each of those points. But I think one key lesson that was missing from what the Secretary of State mentioned, which came up very clearly in the IEO evaluation, was the need for greater attention to macro-economic policy alternatives in the design of PRSPs, and still very much we are seeing, as the point was made, a one-size-fits-all or cookie-cutter approach to economic policy in developing countries, something that would not be acceptable in our own countries. Another point I wanted to develop further was this discussion on the Country Policy Institutional Assessments. It is a very interesting phenomena. This is something that has been going on for quite a long time, in fact. The Bank has been making judgments about how to allocate funds to low income countries since 1977; in fact, it is only now that there is some furore over the issue because we have started to see a bit of transparency. So civil society has started to see the hands behind the curtain, if you will, and that is what is starting to generate greater discussion. Therefore, our fear is not simply about the question of transparency - I think that is a technical one - but the larger question is: What is the use of the CPIA? The perception of most people is that when we allocate development funds we assess need and then we look at availability and then we look at whether or not a country has a valid plan to reach those goals. That seems quite intuitive. But in fact what goes on is quite different. What really is going on is that we look at availability and then we look at scores that the World Bank has given on the policies of the government and we allocate the money available based upon that. We very much want to encourage, first of all, an independent assessment of whether or not these scores have any relation to results. I have not seen anything to suggest that these scores are related to economic growth, to poverty reduction or to reducing inequality - and of the key things that we all agree we are working towards. If we can show there is a relation, then I still think there is an argument to be made that there is a greater place for balancing assessment of need. We need to look at how much money is needed to reach the MDGs and factor that into the decision, so that we are not just looking at availability plus the government's rating. Finally, on this question of transparency, there still is some concern that what the World Bank means by full transparency is giving its rating 1-6 on all of these 16 indicators, but not giving out the raw data with the exact methodology of how these are reached. Until that is done, there cannot be any independent verification of whether or not these are rigorous standards. I will leave my comments there. Q23 Hugh Bayley: I would like you to comment on the Uganda example, which I put to the Secretary of State, where the Fund was limiting public health expenditures to deal with HIV and AIDS. Do you accept that the Fund has identified a serious problem? I do not think you would agree with the solution, but you have identified the problem; that if you doubled the amount of money available to the DoH but do not double the number of nurses, you do not produce more healthcare but inflation. Do you accept that that is the problem, and do you agree with me that the way you address the capacity of poor countries to absorb more aid is by spending as much of that aid as you need to do so on increasing capacity, in other words training more health workers in this case to deal with HIV/AIDS prevention, medication, et cetera? Mr Watt: I would agree that half of what the Fund is saying is right, and that the Fund has seized upon a genuine problem, which is that in order to achieve Millennium Development Goals in poor countries, particularly in health and education, you are looking at a major increase in the current spending, and that is a major increase that cannot be very quickly reversed so you do need to recruit more health workers. If you are going to put people on courses of anti-retrovirals, for example, or if you are going to recruit more teachers, you cannot do that one year and then the next year discover there is not enough money in your coffers to sustain that expenditure. There is clearly a critical issue there about aid being made more predictable and being made available to cover recurrent expenditures, which most aid at the moment does not - most aid continues to be provided in project form, mainly for capital expenditures. There is clearly a challenge there. Most aid continues to be provided on a 12-month horizon - in some cases with DFID it is provided on a longer-term basis, maybe up to three years - but generally the planning horizons, I am afraid, are not the planning horizons governments should be working with to achieve the MDGs, so there is clearly a problem there. Where the Fund's analysis is much more contentious is on the macroeconomic impact of increased aid expenditure, because, as has been said, that very much depends on whether that is on investment or consumption spending, and where on the economy and where in the country it is spent. There is much less agreement on the inflationary macroeconomic effects of increased aid, and that needs to be challenged. What the Fund is failing to do at the moment is to recognise that there is clearly a trade-off between macroeconomic stability at all costs and addressing urgent human development problems like the HIV/AIDS crisis, which, if they are not dealt with, will themselves have massive macroeconomic effects. There clearly is a trade-off, and there has to be a much more balanced approach. Part of doing that is to bring in a more heterodox range of opinions on the issue and part of it is about improving external scrutiny and how we assess these conditions. Q24 Mr Battle: What do you think of the Government strategy paper on working with the World Bank? Will it work? Will it open up a new model of working, and will it push the World Bank into re-thinking its own governance do you think? Mr Powell: I have a couple of general comments. The Bretton Woods Project acts as a facilitator of approximately 40 UK NGOs, which, as part of their work, look at the World Bank and the IMF. The feedback we have had from them is that there is concern that the strategy in striking the balance between seeing the World Bank as a partner and having DFID play an oversight role of the work that the World Bank does...that we are leaning too close towards the partner end of the scale. I have to communicate some concern on behalf of our network about that. In our analysis, there is not a sufficient questioning of a general shift in the Bank's work towards emphasising once again efficiency over effectiveness. This is manifesting itself in a number of ways. We are seeing a very influential cost-of-doing-business report which is saying that the Bank cannot compete with other lenders, and the response to that is to ramp up lending in things like infrastructure, to reduce the environmental and social safeguard policies that have taken twenty years to build. Our fear is that we are losing sight of the public mandate of these institutions, which is to reduce poverty, not to get loans out of the door. We do not see a reflection of that somewhat worrying trend at all in this institutional strategy paper. I do not want to get into some of the finer details about specific points, but I have learned today that in response to our written submission to the Committee the objectives have now been made public, so we are pleased to hear that. The indicators for those objectives are now clear, but we still feel that there is not enough being done to monitor the achievement of those objectives. We are told there was an internal review of those objectives, which we have not been able to see, and we are also told that they are planning to have an annual review with the Bank and Fund - or I should say the Bank - about these objectives, and we would be very much interested in having a much greater civil society and parliamentary oversight of that discussion as well. I stumbled just then in saying the Bank and the Fund, and that did raise the one point that we are very clear about right now, that we do not have an institutional strategy paper for the IMF, and that is a concern. Mr Watt: The institutional strategy is coming at quite an important time in terms of influencing the reform agenda within the World Bank. Obviously, there is the replenishment of the World Bank soft loan window, the International Development Association (IDA), coming up early next year, so there is clearly a strategic decision to be taken by the Government on how much of the increasing aid budget in this country is allocated through the World Bank; and whether if the UK does increase its allocation to the World Bank, that money can be used to leverage reforms within the World Bank. It is very important that the Government is going to marry its financial commitments to the IDA with an agenda for improving World Bank policy and practice on the ground. Again, that is something that the IDC could play a valuable role in scrutinising. Q25 John Barrett: You were here when the Secretary of State gave evidence. Was there anything he said that you disagreed with - feel quite open and free to say? While you are thinking about that, as parliamentarians we are increasingly concerned that a distance is growing between those methods by which funding is being allocated, whether through the IMF or the World Bank, and whether it is in this country or abroad as the Chairman mentioned in relation to an earlier visit to India, that the effectiveness of the ends to eradicate poverty and working towards the Millennium Development Goals, are becoming more and more distanced from the organisations and the structures put in place to deliver those same goals. Do you have any suggestions as to how that gap can be narrowed? Mr Powell: That is a very tough question. Maybe I will take a jump at the things we disagree with first, and then perhaps Patrick can take the MDG question. I very much disagree that there are no obstacles placed by the World Bank in terms of parliamentary ownership. The IEO evaluation about the PRS said that processes were not designed typically to include accountability through the involvement of parliament. It is a bit deceptive to say that we are not actively blocking, but then there is a responsibility on the partner to ensure that their involvement is there. We quite strongly disagree with that. We see that there needs to be a role, which DFID has started to undertake, about providing the funds to do the capacity-building necessary; so the parliamentarians, in conjunction with civil society, can have greater analytical capacity to answer these policy questions. I think that that does talk to your second question, which is how we connect with the people who are affected by these policies to the allocation mechanisms which will release the funds to make a difference in the region. A big step in that direction will probably be to allocate capacity-building funds to allow people to participate in those policy-making structures. Mr Watt: I think the Secretary of State is wrong when he says that there are not obstacles being put in place to effective parliamentary oversight. Just to take one example that was recently highlighted in a Christian Aid report: in Ghana the parliament approved a measure to increase import tariffs on sensitive imports, which was within WTO rules, and which was later withdrawn by the government because of IMF concerns that it was not consistent with IMF trade conditions established with the Ghanaian government. There are clear examples like that where parliament's will is being explicitly overridden by the IFIs, so there is a serious issue there to be addressed. That kind of approach by the IFIs is going to be less sustainable as a growing number of countries in Africa particularly start to democratise. More general is the point that the Secretary of State was making about trade conditionality. There are mixed messages coming out at the moment. The point is that where there are international standards on trade as provided through the WTO, what we tend to see is the IMF and World Bank in their own trading conditions go beyond those international standards in pressing poor countries into unilateral liberalisation of their trade systems. Again, that is something that warrants more scrutiny. In terms of connecting aid to poor people, there is a huge agenda that needs to be tackled about making aid more accountable, and that needs to happen at a number of levels from looking at the governance structure of IFIs in Washington, down to how they operate at the country level and interact with national institutions. Q26 Tony Worthington: Can you follow through on that? That is one of the things that seems to be around for ever, reforming the governance structure of the IFIs, particularly to give the poorer countries some say. Have you any faith in that at all? Mr Watt: Do I have any faith in the existing process? Q27 Tony Worthington: It has been within both structures for a long time, and they are working on it. Do you have any faith that anything is going to come out? Mr Watt: I think there is a problem that to get movement on this you will need shareholders who currently control these institutions to relinquish significant power, and that is always a very, very difficult thing to make happen. At the moment, most of the discussion has been about incremental tinkering around the edges - things like providing capacity-building assistance, and providing administrative assistance to African executive directors' offices for example, and talking about the possibility of an extra seat for Africa on the board. At the moment we do not see significant movement towards more fundamental re-appraisal of institutions' governancet structures, but we have got ideas of how it could happen. Jeff might want to say more about that. Mr Powell: It is a very good question. The time really is coming when we have to say that the process of internal reform is not working, and yet there is global consensus that the structures are inequitable. How do we fix that? We need to resolve on a process to take it outside of the board, where it is a catch 22 situation, and have an independent panel look from first principles. Let us open up the articles of agreement and design institutions that are appropriate for the geo-political and economic situations that we face today, because we are stuck right now with institutions that are still in 1944, and we are paying the price for that. There are some very good suggestions on all the specific issues of voice and vote, and I know that many of you are very well-informed on these details, so I do not need to go into that. A lot of that will be wasted energy unless we can open up the entire process; otherwise we are always simply tinkering at the margins. We need to get the Government to be explicit, and we have to look at the next annual meetings as a kind of deadline. Trevor Manuel, who has been charged with leading the road map for reform of governance, ends his presidency of the Development Committee at the next annual meeting. If we are still saying then, "we look forward to another report at the next meetings", which we have now had for six successive meetings - for three years we have been looking forward to continuing reports - we have to at some point draw a line and say, "this is too important an issue; the voices of poor countries are being overlooked in these institutions, which are fundamentally important in terms of allocation of resources and reaching globally-agreed goals". We have to take it outside of that. Q28 Tony Worthington: You are both institution-watchers. We have had the American election, and the top man in the World Bank, Jim Wolfensohn, is approaching the end of his second term. The tradition is - and you will be critical of it - that the Americans choose the top man in the World Bank and Europeans choose the top man in the IMF. There is a new top man in the IMF, following the traditional rules, Mr Rato. What is going to happen in the World Bank in terms of appointments and changes of direction, if the Americans get their way? Mr Powell: The crystal-ball question. Q29 Tony Worthington: It is quite important. Mr Powell: It is very important. Patrick, I should say, is less of an institution-watcher than I am perhaps, but my colleagues who do monitor the World Bank and the IMF are very concerned about this right now. Certainly, for all that our role is to be critical of what Mr Wolfensohn has done, there have been some very positive steps that we would encourage that he has taken; and we are very concerned that some of those might be reversed and there might be some back-pedalling on some key issues around participation, civil society and parliamentary involvement, et cetera. As you know, various names are being mentioned in Washington corridors, some of whom we do not believe bring the kind of experience that is necessary for this kind of position, and we think that that highlights the fact that the process itself is broken where we are not looking for someone based on their qualifications and their experience in dealing with crises and development issues from a southern country perspective; instead this is still a position that is in the gift of the US and the EU. I think we have something that will give us an indication before President Wolfensohn is likely to step down in the middle of next year, and that will be the replacement of Peter Woicke, the present head of the IFC, the Bank's private-sector arm. That is a position that has also traditionally been in the gift of European countries; and it would be very important and symbolic for the European countries to allow a meritocratic process to occur for that replacement; and that would put more pressure on the Americans to do that likewise. Q30 Tony Worthington: Can you say a little more about the change of direction, given the economic philosophy of the Bush government, in which they might wish to drive the World Bank? Mr Powell: We see very much the direction of USAid in the Millennium Challenge Account. This is a US initiative where they select countries according to policies that they think are the right ones to give money to. I believe they have chosen 13 countries. Q31 Tony Worthington: The same with the AIDS money. Mr Powell: Exactly. We only need to show, for example, that those countries that have been chosen through the MCA process get anywhere from a B to an F grade on the Bank's CPIA indicators. I am not up here to defend those indicators either, but I simply point out that there is a great disparity in terms of who we are giving money to. I fear that this is much more about the old geo-political lending that caused so many problems in terms of creating the debt crisis and putting countries behind through the seventies and the eighties. We may go right back to that. Mr Watt: It is worth saying that if you look at the proposed beneficiaries of the Millennium Challenge Account, for the most part it is middle-income countries; there are very few of the lower-income countries on that list. Of course, those are the countries where achieving the Millennium Development Goals is such a critical challenge. There are serious questions about it - if a selectivity agenda gets pushed within the Bank funds, will we see some of the countries in greatest need of additional assistance being by-passed by the multilateral system? There are some other salient trends that we are likely to see continue to be pushed, partly as a result of US influence on the board: I think the erosion of safeguard policies, particularly environmental and social safeguards - and the IFC safeguards are up for review at the moment, and that is a concern shared by a lot of civil society organisations; some of the principles of participation around national planning processes that have been fought hard for and won are again potentially under threat around PRSs. There is clearly a demand from some parts of the board for the Bank to lower its safeguard standards and lower the costs of operating in middle-income countries and in infrastructure projects and to start shifting more money to capital-intensive projects in middle-income countries. Finally, there is this debate about grants and loans and the extent to which the World Bank should be moving to becoming purely a grant-giving agency in lower income countries; and while that has some obvious merits, particularly for the heavily indebted countries, which arguably cannot afford to borrow, it raises the possibility that future replenishments of IDA will be much more vulnerable to political influence from some of the key shareholders, including of course the US, so there is clearly a concern there. If World Bank funding flow is totally dependent on contributions by shareholders it could perhaps become even more of a problem. Q32 Tony Worthington: Thank you very much. As we come to a close, when you go outside that door in regard to which points do you think you will say, "I wish I had said that"? Mr Watt: We did not touch on debt, so maybe that should be touched on in subsequent discussions. Over the next year we will, hopefully, see some significant movement on debt and multilateral debt relief, which is an important matter. Q33 Tony Worthington: How should that be done? Mr Watt: I think it should be done through additional resources rather than recycling aid; so there is clearly a need to finance debt relief from additional resources, and to go beyond existing thresholds that have been set. Q34 Tony Worthington: Do the Gold Reserves figure? Mr Watt: It can figure as part of that solution. At the moment the Bank - the Fund is sitting on reserves that are undervalued by over $30 million and it seems strange why some of that money should not be used to finance cancellation of debt, say to the IMF, of low-income countries. We would like to see progress on that. Mr Powell: In any of these discussions we can always get distanced from the people that we try to represent, or whose voices we try to amplify; and those are the people who are affected by the policies and projects. That can be both in a positive sense, or in terms of negative impact. In last year's session Mr Barrett raised the question of safeguards, and Mr Colman pressed on Chad-Cameroon, and there was some discussion of the Baku-Ceyhan pipeline. We have not had a chance to talk about any particular projects today. I would only say that I came prepared in the case of Chad-Cameroon, in the interests of continuity since it was discussed last year: the International Advisory Group, established by the World Bank, has found that in terms of monitoring of transparency and social/environmental impacts the World Bank must share responsibility with both the Chad and Cameroon Governments for having allowed much of the training funds to be used for unproductive studies and construction projects, with serious consequences in terms of Chad's lack of training and preparedness. Q35 Tony Worthington: Would it help if we did the same with the Secretary of State, if we were to write to you and asked you what you thought about the Chad-Cameroon set-up, and then you can write with a response? Mr Powell: Very much so, and I would encourage those groups we work with in Chad and Cameroon to submit to that. Tony Worthington: Thank you both for what has been very interesting and thought-provoking. I think it worked well that you listened to what the Secretary of State said. Thank you very much. |