House of Commons - International Development

Select Committee on International Development Written Evidence

Memorandum by the Bretton Woods Project

INTRODUCTION

1. The Bretton Woods Project is an independent NGO established by a network of UK-based NGOs in 1995 to take forward their work of monitoring and advocating for change at the World Bank and IMF. See www.brettonwoodsproject.org/about for more details.

2. This year's hearings on the World Bank and IMF come at a crucial time for these institutions. Both have recently taken on new leaders. Both face strong challenges to their structures and roles. At the same time, the UK has earmarked its largest-ever increase in support for the World Bank. Clearly, the scrutiny role of the IDSC has never been more important. For this reason, we would urge greater cooperation with the Treasury Select Committee, in these hearings and in the upcoming review of the structure and performance of the World Bank, the IMF and the WTO.

3. Broadly speaking, the UK government deserves praise for both its efforts and the results achieved on debt relief. While HMG deserves high marks for its positions on aid effectiveness—especially on reducing detrimental economic policy conditionality—this has yet to result in changes in the way the Bretton Woods Institutions (BWIs) operate. In contrast, we give the government failing grades for the lack of substantive progress on governance reforms and for the widening gap between rhetoric on the environment and the impacts of the policies and projects of the Bank and Fund on the ground.

INTERNATIONAL FINANCE CORPORATIONS' SAFEGUARD POLICY REVIEW: FROM BAD TO WORSE

4. The role of environmental and social safeguards, on issues such as environmental assessment, indigenous peoples, involuntary resettlement and natural habitats, are of increasing importance, given increased lending for infrastructure projects and high-risk extractives (see paragraph 7) and the adoption of these standards by private banks. The IFC is nearing the end of its safeguard policy review, which began in August 2004. This will result in the replacement of the current 10 safeguard policies of the World Bank Group with eight IFC-specific "performance standards". A 60-day window has now begun for the public to make final comments on the drafts, before they go to the Board in January.

5. The proposed policies will weaken existing human rights, labour and environmental protections by failing to make explicit statements on minimum binding standards that comply with international law. They fail to recognise the IFC's responsibilities under international law to respect and protect human rights, including indigenous peoples' internationally guaranteed rights, and labour rights. They also employ vague and unenforceable language, particularly in relation to what is required from IFC and its client. [4]Clear lines of accountability between the IFC and the client are not specified. Comprehensive and carefully researched analysis on each performance standard submitted to the IFC by civil society was largely ignored. [5]

6. In their current form, the IFC performance standards are unlikely to avoid future environmental disasters like those found at the Yanacocha gold mine in Peru or the Chad-Cameroon and Baku-Ceyhan oil pipelines. Other IFC-funded projects have highlighted the serious shortcomings of existing safeguard policies over the past 12 months: An audit by the Bank's internal Compliance Advisor Ombudsman (CAO) of the Amaggi soybean project in the Brazilian Amazon found that the IFC had failed to ensure that the Amaggi group complied with the IFC's environmental and social requirements, following revelations that Amaggi had been buying soybean from Amazon farms where slave labour was used[6]. The Marlin goldmine in Guatemala, run by Glamis Gold Ltd has also been surrounded in tension and violence since its approval in June 2004. Another CAO report referred to the IFC's lack of oversight in addressing human rights and the use of security forces, in light of Guatemala's fragile peace accords and the legacy of its bloody civil war[7]. In general the CAO has questioned oversight and due diligence practices and expressed concerns that the proposed system will exacerbate these problems.

7. UK NGOs were disappointed with DFID's initial response to the IFC's safeguard policy review. Despite repeated pressure, DFID failed to act publicly on this issue until April 2005, shortly before the end of the public comment period. A two-sided position paper from Hilary Benn was received by the Bretton Woods Project in July 2005 detailing the comments that DFID had sent to the IFC. NGOs welcomed the statement that "safeguards need to be made more consistent both with international conventions and with the World Bank's safeguard policies", but felt that DFID could have gone further on this point given its firm commitment to a rights based approach to development.

Suggested questions

— Will DFID remind the IFC that as a subject of international law it has a duty to respect and promote universal civil, political, economic, social and cultural rights, and push for explicit integration of international law in the final version of its policy and performance standards?

— Will DFID demand that IFC improve accountability, by requiring independent monitoring of large projects and reporting on the development results at a project level?

— Will DFID call upon IFC to reinstate the requirement that independent third party environmental assessments are carried out, in particular for high-risk projects?

— Will DFID push for action plans to be developed in a consultative manner with affected communities?

EXTRACTIVES: SLOW PROGRESS

8. The Extractive Industry Review (EIR), concluded in December 2003, exposed many problems, and found that in the vast majority of cases, World Bank financed extractive industry investments do not alleviate poverty and fail to promote sustainable development. On average 80% of the energy produced by such projects is exported to the rich industrialised countries[8]. The Bank's management response rejected the review's recommendations for a phase-out of support for oil and coal, made symbolic gestures for increasing support for renewables and watered down language on the rights of indigenous peoples.

9. UK NGOs in our network cautiously welcomed the UK government's position[9] in August 2004 that the Bank should go further to implement a number of the report's recommendations on support for renewables and transparency. However they remained concerned that it fundamentally neglected to hold the Bank to account on a number of significant points, including "free, prior and informed consent", the phase-out of fossil fuels and "no-go zones"[10], and continued to credit the Bank with the ability to raise standards, set benchmarks and establish best practice.

10. Since then meaningful progress on the Bank's implementation of its own recommendations has been slow, particularly on "no-go zones"; "broad community support"; revenue transparency commitments; poverty impact assessments and governance risks[11]. NGOs have been in dialogue with the IFC on this issue and attended meetings in April and September[12]. A report to present the IFC's view of their performance on EIR implementation is scheduled to go to the board in late December. The possibility of NGO input is still being considered and Bank evaluation departments will not be involved. The terms of reference of the World Bank extractive industries advisory group, which was meeting in Washington at the time of writing, have yet to be clarified.

11. The IFC-funded Glamis goldmine in Guatemala (see paragraph 6) is the first major mining project to be approved by the Bank following its management response to the EIR in September 2004. It has illustrated numerous problems, and civil society allege that it has failed to comply with the Bank's commitments, particularly in relation to environmental assessment, security forces and human rights and the evaluation of the project's risks and benefits.

Suggested questions

— In light of the slow progress made over the past 12 months, what steps will DFID take to ensure that the World Bank fully implements the commitments made in its management response as quickly as possible?

— What contribution is DFID making to ensure that the implementation report, due out in December 2005, provides a transparent and comprehensive presentation of the Bank's implementation of its own management response to the EIR?

CLIMATE CHANGE

12. The G8 Communiqué in July provided the World Bank with a leadership role in "creating a new framework for clean energy and development, including investment and financing". It called on the Bank to put forward specific proposals at its annual meetings on how it could accelerate the adoption by developing countries of affordable and lower-carbon technologies, and asked it to develop an investment framework to enhance the use of concessional and other funds to mobilise greater investment in clean energy. In September, the World Bank and the UK (as G8 presidency) duly launched work on an "Investment framework for clean energy and sustainable development", of which early results will be presented next year.

13. However, one year on from the EIR, Bank support for renewable energy is a mere 6% of its total energy-related lending and its lead role in the clean development mechanism has been subject to severe scrutiny[13]. Furthermore, the Bank's response to climate change over the past five years has been inadequate: country assistance strategies and relevant sector loans have failed to comprehensively address climate change and over 80% of the Bank's publicly disclosed lending in the energy sector did not adequately consider climate change mitigation issues in its project document[14]. The UK is set to play a key role, and will host a ministerial conference to launch the "Dialogue initiative on climate change, clean energy, and sustainable development" on 1 November, in London.

Suggested questions

— One of the greatest barriers to poverty alleviation will be climate change impacts according to the World Bank's own reports. In light of that assessment, will HMG challenge continued World Bank investments in oil extraction projects given the ultimate green house gas emissions that will occur when that oil is consumed?

— Please could you clarify the outcomes of the side event at the annual meetings that was hosted by the UK to discuss follow-up work on G8 climate change initiatives?

— As multi-lateral development banks review their own lending portfolios and prepare proposals on a new investment framework for the World Bank spring meetings, will HMG ensure that the Bank not only reviews its clean energy projects but also other project, sector and country loans that have significant green house gas emission consequences?

— What steps will the HMG take to ensure that the Bank's framework does not undermine the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto protocol?

CONDITIONALITY: GOOD START, HARD WORK AHEAD

14. NGOs in our UK network have welcomed the new UK position on conditionality[15] that calls for an overall streamlining of conditions and an end to damaging economic policy conditionality. However, there are concerns that the recently-completed World Bank review of conditionality[16] missed the point. The Bank insists that the number of conditions imposed is falling and that the burden of the remaining conditions is decreasing. [17]Research from a number of NGOs suggests the opposite. Debt and Development Coalition Ireland, in a study of 13 recently completed Poverty Reduction Support Credits[18], has found that the overall number of conditions is rising and that obtrusive conditions requiring privatisation persist. [19]

A similar story occurs with conditions requiring trade liberalisation. While we welcome the language in the UK objective note for the annual meetings stating that "trade liberalisation should not be forced on developing countries, whether through trade negotiations or aid conditionality"[20], Christian Aid research finds that while the number of trade-related conditions may have fallen, their burden has not. [21]

Suggested questions:

— Given that the IMF's Independent Evaluation Office (IEO) is currently undertaking an evaluation of the IMF's use of structural conditionality, will HMT push for the development of parallel good practice guidelines and regular monitoring of IMF conditions and aggregate conditionality?

AID EFFECTIVENESS: BANK'S FAILING GRADE ON RESULTS

15. We welcome the inclusion in the DFID WB ISP indicators of a call for "comprehensive reform of the budget cycle to introduce genuine results-based management" and "development of a results reporting system at country level" by end FY06, and reports on corporate performance to reflect this focus on outcomes by end FY07.

16. However, a number of internal studies released in 2004-05 pose serious questions about the Bank's abilities to achieve and monitor results in its work:

In light of these OED findings, the G24 has urged the "reassessment of World Bank country business models and global programmes that are not yet fully aligned with poverty reduction goals and progress toward the MDGs."

Suggested questions:

— In light of the OED findings, does DFID consider that the Bank is making sufficient progress on the results agenda?

INFRASTRUCTURE: FORWARD TO THE PAST?

17. The World Bank has announced a rapid scaling-up in its infrastructure lending, with plans for it to reach 40% of the entire portfolio within a few years. While the Bank vice-president for infrastructure has assured civil society that the institution has "learned the lessons of the past"[28], there are serious concerns that it has not.

Suggested questions:

— How will DFID encourage the World Bank to adopt a poverty-centred approach to infrastructure, to avoid the pitfalls of its past lending in this area?

— Following the commitment of the EIB and the EBRD to align its lending to the recommendations of the World Commission on Dams, will the UK urge the World Bank to do so?

GOVERNANCE: FRESH PERSPECTIVE DESPERATELY NEEDED

18. In its last submission to the IDSC, the Project documented the failure to make progress on the issue of democratisation of the BWIs over five consecutive spring/annual meetings. That number has now reached seven consecutive spring/annual meetings. We agree with the UN Secretary-General[36] and, more recently, with the IMF's medium-term strategic review[37] that the failure to address the issues of fair quotas and voice for developing countries is "straining the legitimacy of the institution". It is clear that the "governance roadmap" process led by Trevor Manuel which was intended to break the logjam on this issue has failed. The torch is now being passed to the thirteenth review of IMF quotas, a process which is to be completed by January 2008. However, beyond the inability of this review to address the specific needs of World Bank reform, without an independent process to overcome the conflict of interests at the Board, the quota review is unlikely to come up with a satisfactory resolution.

19. On the question of leadership selection, UK civil society were disappointed that HMG first supported the carve-up which saw yet another European head the IMF, and then give high-level backing to the US administration's unilateral anointment of an inappropriate candidate for presidency of the World Bank. While we support DFID's call in its WB ISP for "demonstrable improvements in recruiting senior Bank staff in an open, meritocratic and transparent manner", we can see no way in which these words are consistent with HMG's actions. Most recently, two more Europeans have been appointed to top posts at the IFC, and finance.

20. We welcome increased attention given to the issue of parliamentary scrutiny of IFI financing agreements and national development strategies by both DFID[38] and by the World Bankx[39] and IMF. However, civil society organisations in the networks we work with continue to be alarmed at BWI transgressions of parliamentary sovereignty[40]. Most recently, two parliamentarians who travelled to Washington representing over 1000 MPs worldwide who have signed the International Parliamentarians' Petition[41], were blocked from attending a G24 meeting by IMF staff. [42]

21. We note a number of improvements in HMG accountability to parliament and UK civil society in its dealings with the IFIs: in particular, we welcome DFID's new WB ISP which, for the first time, includes objectives and indicators, and we look forward to the first meeting to review progress on such and would hope for IDSC participation; UK NGOs appreciated receiving UK objectives notes for the annual meetings 10 working days in advance of the annual meetings, and we would encourage a greater role for the IDSC in scrutinising such; and we look forward to the publication of the National Audit Office evaluation of UK contributions to multilateral agencies.

22. However, we note a number of areas where improvement is still needed: we urge HMT to follow DFID's lead in the publication of specific objectives and indicators for its dealings with the IMF; the annual reports of both DFID (and the World Bank) and HMT (and IMF) failed to respond to salient issues raised by the institutions' own evaluation and complaint bodies or explain whether UK objectives for spring/annual meetings are achieved; finally, we were disappointed by the failure of the NAO to consult civil society on its study of UK contributions to the multilaterals and have been told that this study will not include a "value for money" examination.

23. On the issue of transparency, we welcome advances made in the Bank's recent disclosure policy review which include publication of board minutes and a pilot programme to disclose operational policy reviews simultaneously with their distribution to the board. However, there was disappointment over the failure to publish board transcripts, country strategies and programme documents for PRSCs.

Suggested questions:

— How will HMG support the creation of an independent, credible process to advance discussions on democratising the World Bank and IMF? With an HMT official slated to become the next chair of the IMF sub-committee at the European Parliament, will the UK spearhead a discussion of the rationalisation of European representation on the board of the IMF?

— Will HMG, as part of the IMF quota review, demand a re-tabling of the question of leadership selection, and make explicit its refusal to support a system whereby Europe and the United States continue to share the spoils of leadership?

— Will HMG encourage the Bank and Fund to develop good practice guidelines in their dealings with elected representatives?

— What can HMT and DFID do to improve take-up of the recommendations of the Bank and Fund's evaluation and complaint bodies?

— Will HMT commit to produce medium-term objectives and indicators for its dealings with the IMF?

— Will HMG support a move to the presumption of disclosure at the IFIs?

IMF MACROECONOMIC AUSTERITY

24. We welcomed HMT calls in its annual report on the IMF for increased macroeconomic flexibility. This is in keeping with an appeal made in the G24 communiqué at the annual meetings for the IMF to support countercyclical policies. At last year's IDSC hearings, HMT representative Stephen Pickford said he "believed there was evidence of increased flexibility on the part of the Fund". Recent studies by ActionAid International argue the opposite. Fund austerity on inflation rates, fiscal deficits and social spending are blocking dynamic growth and achievement of the Millennium Development Goals. There are fresh concerns that the introduction of a new policy instrument, the Policy Support Instrument, will extend the pre-dominance of the Fund's static view of allocative efficiency to non-borrowing countries.

25. In both its review of the IMF and capital account liberalisation[43] and the Fund's handling of the Argentine crisis[44], the Independent Evaluation Office (IEO) found that the Fund should provide more input into rich countries' financial supervision to reduce `herd behaviour'. Despite this admonishment, the Fund's medium-term strategic review once again places the onus of responsibility on the most vulnerable countries to adapt to the vagaries of global capital, saying that "capital account liberalisation is a reality, a part of globalisation" and "what the Fund must be in a position to do is to advise on how best to manage the process".

Suggested questions:

— What steps will HMT take to ensure that calls for increased macroeconomic flexibility at the Fund are followed-up on?

— Will HMT encourage the Fund to take a stronger role in regulating the herd behaviour of investors in rich countries? Will it ensure that capital account liberalisation is never included as part of Fund conditionality?

October 2005

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