Memorandum submitted by Christian Aid
INTRODUCTION
Christian Aid works in more than 50 countries
worldwide, supporting local organisations to deliver urgently
needed services directly to poor people, and to scrutinise and
hold their own governments and the international community to
account. Through public campaigning and advocacy on debt and trade
justice, Christian Aid has built an expertise on the work of the
World Bank and IMF in developing countries, and has built strong
links with civil society organisations and policy institutions
working on economic justice issues throughout the world.
Christian Aid is pleased to present evidence
to the Select Committee on both World Bank and IMF conditionality
and the pressing need to reform these important international
institutions—issues we consider to be entwined and that
have been at the heart of our policy and campaigning work for
much of this year. In addition, we will give our response to the
World Bank's anti-corruption drive.
Key Recommendations
1. The UK government should continue to
press the World Bank and the IMF on their use of economic conditions,
withholding funds and even redirecting them to other multilateral
institutions that do not use such conditions.
2. The UK government should set out a broad
reform agenda for the World Bank and IMF that includes ceasing
IMF development lending to low-income countries, dividing the
Bank into separate lending and aid institutions and improving
developing country representation.
3. The UK government should discourage the
Bank from taking on the role of global arbiter on corruption and
good governance. It should invest instead in making the UN Convention
against Corruption, the OECD Anti-Bribery Convention and other
regional initiatives binding and enforceable.
1. WORLD BANK
AND IMF CONDITIONALITY
1.1 The World Bank and IMF are out of step
with UK policy. In March 2005, the UK government introduced a
new policy specifying which conditions should be attached to UK
aid. This policy recognised that, while it is right for donors
to insist on transparency and accountability for aid funds, it
is intrinsically inappropriate, undemocratic and ineffective to
use such conditions to dictate economic policy. Some donors share
this understanding and are shifting away from economic conditions—but
the World Bank and IMF are not, and they continue to set conditions
in the areas of privatisation and liberalisation.
1.2 The problem with economic conditions.
Donors have frequently used economic conditions to promote policies
such as trade liberalisation and privatisation. These policies
have often failed to bring growth—on the contrary, they
have frequently impoverished poor people further.[32]
For example, Christian Aid research found that IMF conditions
requiring Haiti to cut sugar tariffs led to a flood of cheap imports,
which in turn reduced the incomes of an estimated 85,000 small
farmers. Wilbert George, a former sugar producer said, "When
the sugar factory closed I lost 80% of my income. This meant we
had to take the children out of school. Life became very insecure
and I had to sell many assets over the years to pay for the needs
of the family... I felt like someone had cut off my head."[33]
Furthermore, such conditions are undemocratic and can undermine
a state's accountability to its citizens. In Ghana, for example,
pressure from the IMF in 2003 led the government to overturn the
budget—even though it had already been approved by the Ghanaian
parliament.[34]
1.3 Persistent conditionality. In our recent
report Challenging Conditions: A New Strategy for Reform at
the World Bank and IMF, we presented evidence of the continued
use of conditions at both institutions. Countries such as Burkina
Faso, Vietnam, Mozambique, Benin, Ghana, Tanzania, Rwanda, Bangladesh,
Mali and Uganda have all had economic conditions included in World
Bank and IMF agreements since March 2005.[35]
1.4 Changing conditions. Although evidence
shows that conditions on trade policy are declining, this does
not represent a change of practice. It is instead evidence that
the drive to liberalise has already succeeded. Today, for example,
many African states have the most open economies in the world.[36]
The IMF and World Bank are now moving into a new frontier of economic
reform, focusing on privatisation in areas such as banking and
electricity, as well as governance reforms. In addition, the institutions
continue to employ other tools to secure policy change, such as
selectivity—whereby the volume and make-up of grants and
loans is dictated by an initial assessment of a country's economic
policies—and technical assistance.[37]
1.5 Challenging conditions. The UK government
has called for change in these institutions, pushing the World
Bank and IMF to conduct internal evaluations to make recommendations
to improve their use of conditions. These reviews have failed
to substantially change the way the institutions work, and Christian
Aid argues that the government should adopt a new strategy for
change, putting a moratorium on its voluntary contributions to
the World Bank and IMF and redirecting funds to other multilateral
institutions that do not use such conditions.
1.6 The annual meetings. Christian Aid welcomes
DFID's announcement at the annual meetings that it would withhold
£50 million of its contribution to the 14th International
Development Association (IDA) replenishment until there was more
evidence of change in practice at the World Bank. [38]Even
the World Bank and IMF's joint Development Committee has called
on the World Bank to implement the commitments it has made to
improving its use of conditions.[39]
Unfortunately, conditionality was largely off the agenda at the
meeting of the International Monetary and Financial Committee
(IMFC) that overseas the IMF.
Recommendations
1. The UK should retain the £50 million
until the World Bank and IMF commit to stopping their use of economic
policy conditions.
2. If the Bank does not end its practice
of imposing economic conditions, the UK government should redirect
a substantial proportion of the next IDA replenishment to another
multilateral agency that does not use economic conditions.
3. The UK should now turn its attention
to the IMF, challenging not only their continued use of economic
policy conditions but the appropriateness of their provision of
back-to-back development loans for low-income countries.
4. The UK should prioritise working with
other progressive donors to adopt similar conditionality positions
and work together collectively to secure reform at the international
finance institutions. The forthcoming conference on conditionality
to be hosted by the Norwegian government presents an important
opportunity to do this.
2. WORLD BANK
AND IMF GOVERNANCE
AND REFORM
2.1 The reform agenda. The IMF and World
Bank are not delivering in the areas of economic growth or poverty
reduction. Christian Aid believes that this is because of deeply
embedded conflicts of interest, the dominance of the institutions
by the world's richest countries and their overlapping roles.
Based on our analysis,[40]
Christian Aid has set out a broad reform agenda for the institutions
as follows:
— The IDA should become an independent
grant-giving agency, allocating funding without economic conditions.
There should be a separate governance structure, giving more equal
weight to customers (low-income countries) and donor countries.
— The International Bank for Reconstruction
and Development (IBRD) should remain a loan agency, allocating
loans without economic policy conditionality. There should be
a separate governance structure, giving more equal weight to customers
(middle-income countries) and donor countries.
— The IMF should cease long-term lending
to low-income countries and focus instead on balance of payments
support and monitoring. It should reform governance structures
to give all countries an equal say.
— The World Bank and IMF should both
separate the provision of grants and loans from technical assistance
and policy advice, as the latter is often used to restrict policy
choices and reinforce conditions.
— Both institutions should undertake
reforms to make their boards and management more accountable to
recipient country citizens and parliaments, and to the governments
and parliaments of donor countries.
2.2 The annual meetings. Christian Aid has already
documented the lack of representation of the countries that are
most dependent on the IMF and World Bank.[41]
While, we welcome the fact that this issue, albeit focused entirely
on the IMF, secured such a high profile at the Singapore meetings,
we believe that the package agreed is geared to appeasing middle-income
countries that are turning away from the IMF's services. However,
the reforms will fail to make the IMF more "relevant"
to these countries—they are avoiding it mainly because of
the inappropriateness of past IMF advice, not to protest at their
lack of representation. Nor will the reforms substantially address
the lack of representation of the poorest countries: negotiations
have been far more about protecting their existing share than
creating a system which gives them a more substantial share of
the decision-making pie.
2.3 Next steps on reform. Earlier this year,
the UK government launched a new white paper on development, which
was disappointing on reform of the World Bank and IMF.[42]
It largely repeated commitments to increase the voice of low-income
and middle-income countries at the institutions and made recommendations
on the issues the institutions should focus on. It did not, however,
look more broadly at the institutions' mandates and roles. This
issue was picked up in a speech Tony Blair made in the US, which
called for the World Bank to focus on poverty, the IMF to focus
on surveillance, and suggested merging the institutions.[43]
Since then, the UK government has worked hard
to ensure that any changes in voting power at the IMF do not erode
the existing share of low-income countries. However, Christian
Aid is concerned that on this issue the UK is reacting to the
policy agenda of other shareholders, rather than setting the agenda.
To get the best out of reform negotiations on the appropriate
quota formula and increases in basic votes over the next two years,
we believe that the UK government needs to urgently and publicly
lay out a well-defined vision on governance reform at both institutions,
and for the roles that the IMF and World Bank should play in development
and the global economy.
2.4 Addressing overlapping IMF and World
Bank roles. Both the International Monetary and Financial Committee
(IMFC) and the Development Committee noted the need to look at
World Bank and IMF collaboration, pending the findings of the
External Review Committee on this issue. It is particularly important
that this process addresses the role the IMF is currently playing
in low-income countries. The IMFC communique« reiterated
that the IMF should be supporting countries to achieve the Millennium
Development Goals (MDGs), yet repeated evidence shows that IMF
programmes could actually be hampering achievement of the goals.[44]
The UK government's response has been to push for greater country
ownership and broader participation in formulating IMF programmes,
and to increase IMF capacity to assess the economic and social
pros and cons of different economic policies. But this would require
a considerable expansion of the IMF's mandate and human resources,
turning it into a development agency and duplicating the role
of the World Bank. It would be far more appropriate for the IMF
to focus on balance of payments support and monitoring for all
countries, and to leave development financing for the MDGs to
a (reformed) World Bank.
2.5 Addressing overlaps at the World Bank.
As with the IMF, we believe that the reform agenda at the World
Bank should be broader than simply increasing developing country
representation, as the contribution the institution can make to
the fight against poverty is reduced by the overlap that exists
between the services it offers to: middle-income countries through
the IBRD; low-income countries through the IDA; and both low-
and middle-income countries through technical assistance and in
its role as global knowledge bank.
Conditions on loans are often more restrictive
and less pro-poor than those on grants. It is, of course, reasonable
to expect countries to repay their loans, but the need for repayment
helps explain the continued use of conditions that require trade
liberalisation and exchange rate controls, privatisation of state
assets and reductions in government spending. These policies were
perceived as essential not only to growth, but also to ensure
that donors could be repaid with the government revenue and foreign
exchange generated. The IDA offers low-income countries joint
packages of loans and grants, with conditions that ensure repayment.
It does not, however, offer the flexibility that a purely grant-making
body could potentially give.
This is why we believe that the IDA should become
a full grant-giving agency, funded entirely by official development
assistance. The IBRD should only provide loans to emerging-market
countries, which can afford to borrow and repay loans. The World
Bank's role as a "knowledge bank" further increases
overlap and mixed motives. While the quality of some Bank research
is strong, many of its publications reveal a neoliberal bias—possibly
the result of a strong incentive to justify past, current and
future analysis and lending programmes.
Recommendations
1. The UK government should push for the
IMF to stop development lending to low-income countries, focusing
instead on short-term crisis lending and surveillance. The UK
should propose that the Bank be divided into separate lending
and aid institutions.
2. The UK government should develop and
disseminate a visionary plan for governance reform at the IMF
that will substantially increase developing country representation
(and decrease European over-representation) to inform its negotiating
position.
3. THE WORLD
BANK, GOOD
GOVERNANCE AND
ANTI-CORRUPTION
3.1 The Bank as global corruption watchdog.
The World Bank has an obligation to ensure its resources are going
to where they are intended. It also has a role to support investment
in building state and oversight institutions, such as parliaments,
civil society and free media. However, this strategy represents
part of an ongoing attempt by the Bank to set itself up as the
global arbiter of good governance. Christian Aid believes that
the Bank lacks both the legitimacy (because of its own undemocratic
governance structures), and the mandate (currently restricted
to economic development) to play this role. We welcome the fact
that the Bank is taking corruption seriously, but believe it must
work in conjunction with other international institutions to fight
corruption and ensure its analysis is more robust.
3.2 Conditionality, selectivity and corruption.
Donors must respond to corruption—not only to protect their
own development resources but also because corruption hampers
poverty reduction. It is important to balance corruption and governance
with the other myriad factors that keep poor countries poor, and
ensure an appropriate response to evidence of corruption. For
instance, a strategy that cuts aid indiscriminately may undermine
long-term predictable finance for education, thus perversely feeding
corruption in the longer term. A nuanced approach is therefore
needed, allowing development finance to be protected while challenging
the broader problems of bad governance and corruption in a given
country, and balancing short-term and long-term responses to corruption.
We are concerned that the World Bank's current discourse and strategy
risk both increasing public perception that poor countries' poverty
is entirely due to their corruption (and thus undermining public
support for development), and cutting development finance to countries
where the need is greatest.
3.3 The link between good governance and
the Bank's economic agenda. Christian Aid is gravely concerned
about the indivisibility of the World Bank's governance and economic
agendas, which is evident in the way the Bank measures country
performance. The Country Policy and Institutional Assessment (CPIA)
guides the allocation of Bank resources and considers a country's
economic, governance and social policies. The Bank uses economic
indicators that demonstrate a bias towards neo-liberal policies
such as low tariffs, the absence of state marketing boards and
the removal of controls on capital inflows; and governance indicators
that show a similar bias, preferring policies such as light regulation
of business. Such up-front conditionality that rewards some policies
at the expense of others makes the Bank's public commitments to
country-led development sound hollow. The Bank's governance and
anti-corruption strategy reinforces this, conveniently arguing
that removing business regulation and privatising state-owned
businesses will reduce corruption. However, this argument is undermined
by evidence that rapid privatisation has provided increased opportunities
for corruption.[45]
3.4 Where does the corrupt money go? The
focus of most public debate, and indeed of the Bank's anti-corruption
strategy, is on the existence of corruption and the implications
of this on aid going into developing countries. Much less attention
is paid to where corrupt monies end up. Many of these funds travel
through UK dependencies and the City of London itself on their
journey to tax havens and western bank accounts.[46]
Contemporary corruption flourishes due to negotiations between
the elites of rich and poor countries alike, so an approach to
corruption that looks at developing countries in isolation is
unlikely to succeed without understanding and challenging the
role of external agents in exacerbating corruption. While the
Bank's strategy does note the importance of various anti-corruption
conventions and the need to support countries to track, freeze
and confiscate the proceeds of corrupt behaviour, its poverty
focus prevents it from looking at the other side of the equation.
Technical support to developing countries to combat corruption
is vital; however, we believe that donors should focus predominantly
on making international conventions that impose binding and enforceable
obligations on countries rich and poor alike.
3.5 Consultation in the development of the
strategy. The content issues aside, Christian Aid is concerned
that the consultation process for the World Bank's strategy was
purely symbolic. It did not present a real opportunity for civil
society organisations and other stakeholders to substantially
influence the development of this strategy.
3.6 The annual meetings. The governance
and anti-corruption strategy was not fully endorsed in Singapore;
instead the communique« stressed that the need for continued
oversight by the board as the strategy was further developed and
then implemented. The reason for this was reportedly due to the
concerns of European board members, including Hilary Benn.[47]
Recommendations
1. The UK government should discourage the
Bank from taking on the role of global arbiter on corruption,
for which it lacks the mandate and the legitimacy.
2. The UK government should invest in making
the UN Convention against Corruption, the OECD Anti-Bribery Convention
and other regional initiatives binding and enforceable.
3. The UK government should continue to
encourage the Bank and other donors to adopt a more sophisticated
analysis of corruption that links it to broader governance and
accountability issues.
4. The UK government should carefully scrutinise
anti-corruption discourse and practice to ensure it is not used
to push in liberalisation by the back door.
October 2006
32 For example, Christian Aid, The Economics of
Failure: the Real Costs of Free Trade, June 2005-Christian
Aid estimates that trade liberalisation in sub-Saharan Africa,
much of which was compelled through World Bank and IMF conditionality,
has cost countries some US$272 billion over the past 20 years,
wiping out two decades of aid. Back
33
Christian Aid, Challenging Conditions: A New Strategy for Reform
at the World Bank and IMF, July 2006, p 4. Back
34
Christian Aid, The Damage Done: Aid, Death and Dogma, May
2005, p 31. Back
35
Christian Aid, Challenging Conditions, op cit, pp 6-8. Back
36
This is evident in the World Bank's trade restrictiveness index,
a cross-country comparison of openness to trade. See Christian
Aid, Business as Usual: The Bank, the Fund and the Liberalisation
Agenda, September 2005, p 15. Back
37
Christian Aid, Challenging Conditions, op cit, p 10. Back
38
BBC, UK withholds World Bank donation, 14 September 2006,
http://news.bbc.co.uk/1/hi/business/5344752.stm Back
39
World Bank and IMF Development Committee, Development Committee
Communique«, 18 September 2006. Back
40
Christian Aid, Challenging Conditions, op cit, pp 18-25. Back
41
Christian Aid, Struggling to be Heard: Democratising the World
Bank and IMF, September 2003 and Kept in the Dark: a Briefing
on Parliamentary Scrutiny at the World Bank and IMF, April
2005. Back
42
Department for International Development, Eliminating World
Poverty: Making Globalisation Work for the Poor, July 2006,
pp 110-114. Back
43
Tony Blair, Third foreign policy speech, Georgetown University,
March 2006. Back
44
Evidence from the IMF itself has shown that developing countries
have rarely made back the budgetary income lost through removing
trade tariffs-see Thomas Buansgaard and Michael Keen, Tax revenue
and trade liberalisation (IMF Working Paper WP/05/112) June
2005. Research from the Global Campaign for Education has shown
that IMF wage and budget ceilings have left countries unable to
recruit new teachers or pay existing teachers a living wage-see
Global Campaign for Education, Every Child Needs a Teacher,
2006. Back
45
Dr Sue Hawley, Exporting Corruption: Privatisation, Multinationals
and Bribery, The Corner House, June 2000. Back
46
See Raymond Baker, Capitalism's Achilles Heel: Dirty Money
and How to Renew the Free-Market System, New Jersey, 2005
for a full analysis of the impact of crime, corruption, money
laundering, tax evasion and illegal transactions on poverty and
inequality, and the complicity of western countries and institutions. Back
47
Krishna Guha and Alan Beattie, Minister "invented"
World Bank row, Financial Times, 19 September 2006. Back
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