Letter to the Chairman of the Committee
from the Rt Hon Hilary Benn MP, Secretary of State for International
Development
WORLD BANK
CONDITIONALITY
I am writing to update you on World Bank conditionality,
including my decisions to pay the UK's second £50 million
supplementary contribution to IDA14, and to make further progress
on the Bank's use of conditionality a central consideration for
the UK in next year's IDA15 negotiations.
You will recall that I said in September, and
again in October when I appeared in front of the Committee, that
I was not satisfied with the original report produced by the World
Bank on its use of conditionality. In particular, the report did
not provide sufficient evidence of how the Bank had implemented
the conditionality Good Practice Principles that were agreed in
September 2005. I pressed Paul Wolfowitz to produce a more
detailed report, which we received last month and have now considered
in detail.
This second report was discussed by the Bank
Board yesterday and was published on the Bank's website shortly
after the Board meeting. In contrast to the earlier report, it
is thorough and candid. The Bank has looked at each programme
(development policy operation) and assessed how well the Good
Practice Principles have been applied. There has been real progress,
but the Bank needs to do more.
In particular, I welcome the report's findings
that:
— the number of conditions and benchmarks
used by the Bank have fallen over the past year, since the Good
Practice Principles were introduced, continuing a trend over the
last few years;
— the Bank is moving away from using
conditions to impose economic policy choices on governments;
— the Bank has made real efforts to
make sure that the conditions it does use reflect the priorities
of developing countries;
— the Bank has used conditions to support
countries in removing or reducing user fees;
— there has been more systematic assessment
of the poverty and social impact of reforms, and of the political
economy. This work has increasingly informed the policy choices
of governments, to the benefit of poor people; and
— the transparency of the Bank's operations
has also increased. We are pleased that the Bank's operational
documentation, including the policy matrices it uses, is available
on its website. We also welcome the recent decision to provide
NGOs and others with access to all of the data relating to conditionally.
This transparency is important for the credibility of the Bank's
findings.
In my view, the report provides the evidence
that the Bank has made the "satisfactory progress" on
conditionality that was required to release the UK's £50
million supplementary contribution. This was also the unanimous
view of the World Bank board. The other elements relating to the
£50 million contribution, namely progress on the Bank working
better with other donors, have also been met, and so we plan to
make the payment when it is due in April 2007.
Of course, this is not the end of the discussion
on conditionality. The report is clear that the Bank must make
further improvements in its use of conditionality, also it reiterates
the Bank managements strong commitment to do so. The report has
reflected on the weaknesses in the Banks current approach, and
makes six recommendations for improving the use of conditionality
in its programmes. These are:
— avoiding conditions on sensitive
policy areas (such as privatisation and trade liberalisation)
if government ownership of the policy choice is uncertain or the
political environment is fragile; and avoiding duplicating IMF
conditions in Bank programmes;
— early and more proactive disclosure
of the Bank's analytic work, particularly to allow debate in-country
about the various policy options;
— avoiding process conditionality,
that is conditionality related to developing plans or policy rather
than their implementation;
— reducing the number of benchmarks;
— ensuring that programme reviews are
in line with national budget timetables; and
— specifying the progress expected
so that an assessment can be made of the impact of the programme
on the poor and the Bank's contribution to that programme.
I support all of these proposed improvements.
Like the Bank, I remain concerned by the number of benchmarks
used in Bank programmes, and there are gains to be made in reducing
them. But we must remember that benchmarks are not conditions
They set out the steps that a government will take in implementing
its policies and plans, and Bank management is clear that benchmarks
do not affect disbursement. However, there is misunderstanding
and misinformation surrounding them. Critics of the Bank's conditionality
argue that benchmarks are equivalent to conditions, and the Bank
has merely moved the goalposts and not reduced the overall burden
of its conditionality. Feedback from developing country governments
suggests that they do not always distinguish between benchmarks
and conditions, regarding both as binding and affecting disbursement
of Bank assistance. An important part of the Bank's response must
be to ensure greater understanding of the nature and purpose of
benchmarks; we are pushing for this, alongside a further reduction
in the number of benchmarks.
Finally, I made clear in our statement at the
Board meeting that the progress that the Bank makes in improving
its practice on conditionality will be a central consideration
in our funding of the next replenishment of IDA. This begins next
year, and takes around a year to complete. I therefore asked the
Bank to produce their next report on conditionality in 12 months
time, so that we have the evidence on their latest practice to
inform our decision, and this was agreed by the Board.
6 December 2006
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