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 Government 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." 1 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."
2 (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." 3 (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." 4 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.
5 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." 6
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% of GDP."
7 (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." 8
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." 9
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 14 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 3 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 Scholar 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:
1 DFID, FCO, HM Treasury. (2004). Partnerships for Poverty
Reduction: Changing Aid "Conditionality". A Draft
Policy Paper for Comment. September 2004. http://www.dfid.gov.uk/pubs/files/conditionality
change.pdf
2 Rt Hon Gordon Brown MP. (2004). Parliamentary answer on
International Aid. House of Commons Hansard, 13 May 2004,
column 465.
3 DFID, FCO, HM Treasury. (2004). Partnerships for Poverty
Reduction: Changing Aid "Conditionality". A Draft
Policy Paper for Comment. September 2004. http://www.dfid.gov.uk/pubs/files/conditionality
change.pdf
4 Report of the Technical Group on Innovative Financing Mechanisms
to the Action Against Hunger and Poverty Conference, September
2004 (http://www.mre.gov.br/ingles/politica_externa/temas_agenda/acfp/index.asp)
5 Tobin Tax Network. (2003). Frequently Asked Questions
about the Tobin Tax. 19 March 2003. London. Tobin Tax Network
http://www.tobintax.org.uk/?lid=1443
6 HM Treasury. (2004). The International Finance Facility.
London. Her Majesty's Treasury. April 2004.
7 Prosperity and justice for all: Speech by Gordon
Brown MP, Chancellor of the Exchequer, Labour Party Annual Conference,
Brighton Centre, Monday 27 September 2004 http://www.labour.org.uk/ac2004
news?ux_news_id=ac04gb
8 HMSO. (2000). Eliminating World Poverty: Making Globalisation
Work for the Poor. White Paper on International Development. http://www.dfid.gov.uk/pubs/files/whitepaper2000.pdf
9 John Healey MP (The Economic Secretary to the Treasury).
(2004). Parliamentary Answer on Oversight of IMF and World Bank
Policies. House of Commons Hansard, 14 Sept 2004 : Column
430WH
October 2004
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