Examination of Witnesses (Questions 21-35)
9 NOVEMBER 2004
MR JEFF
POWELL AND
MR PATRICK
WATT
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 Officer 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 president, 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. 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 in 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?[6]
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 and 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' governance 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, James 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 US aid 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 who are 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 as 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[7]
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.
6 Working in Partnership with the World Bank,
DFID, September 2004: http://www.dfid.gov.uk/pubs/files/ispworldbank2.pdf Back
7
Ev 40
Back
|
