Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 53-59)


31 JANUARY 2006

  Q53 Chairman: Welcome. Could you introduce yourselves for the record, starting on the left?

  Ms Greenhill: I am Romilly Greenhill. I am a Senior Policy Adviser with Action Aid UK.

  Dr Tembo: I am Fletcher Tembo. I am a Senior Economic Justice Policy Adviser for World Vision.

  Ms McDonald: I am Olivia McDonald. I am a Senior Policy Officer for Christian Aid.

  Q54  Chairman: Thank you. It could be said that the IMF walks a delicate line in that the aid agencies will often ask for it to step back from taking a part in events, and yet if things go wrong it feels it has been made a "scapegoat". Can you think of instances where the IMF has been unfairly criticised, or where its policies are having a beneficial effect?

  Dr Tembo: On the point about the IMF being unfairly criticised, perhaps it has to do with the kind of expertise they have on the global economics, I think that is where they genuinely have the expertise. I think, however, that largely the criticisms have largely been right because of the way the IMF has been able to stand apart with that expertise, especially when you begin to see economics coming together with the development. On the development side there has been a move towards achieving the Millennium Development Goals in a better way, with the World Bank coming up with the CDF a comprehensive development framework for instance and looking at poverty as a mutual phenomena rather than just income. The IMF has been rather slow to catch up with that reality and has used their expertise independently and has not brought it into play with what other actors know.

  Ms Greenhill: I would like to second that. The IMF obviously does have technical capacity and advice and skills that are useful for poor countries, but as Fletcher says, that often manifests itself in a very narrow technical debate between the IMF and Ministry of Finance officials. Some of the research that Action Aid has done in Southern countries has shown that even officials from other ministries, for example health and education, are not able to take part in the discussions. So there are quite fundamental areas, like the macroeconomic framework, like the overall level of public expenditure and so on which are not open to public debate. The IMF does have a role to play but it must be broadened out, it must be as an adviser rather than in these very, very narrow discussions.

  Ms McDonald: I would reiterate the point made there about the IMF using its weight to propose certain policies that we consider inappropriate.

  Q55  Susan Kramer: I suppose we want to pick up some of the issues around the conditionality of the lending, which I assume lies behind a lot of what you are talking about. We have taken evidence which suggested that the IMF has gone a long way towards reforming its outlook, that it no longer is pursuing policies and the same ideological perspective that it once did. You are on the ground. Do you see that change in outlook feeding through?

  Ms McDonald: No, we do not. We are still getting reports from our partners. We are still getting evidence of trade conditions, for example, in loans to developing countries. One reason that we think the IMF is accounting for that supposed reduction in conditionality is by saying that they are reducing the overall number, but what we found when we analyzed it is you might have one single condition that says liberalize trade in a variety of sectors and that would be down as one condition, but that is actually quite a few different conditions because it could implicate at least three or four or five different sectors. One issue we are concerned about is how the IMF measures their reduction in conditionality and, also, that second generation liberalization reforms are being pursued by the IMF, which are in areas of trade facilitation and customs, which are ways of ensuring that importers can get their goods in because of the lower tariffs, they ease their way into the country.

  Ms Greenhill: On this question of whether the IMF is changing, the IMF did make a commitment in 2002 to streamline its conditionality and that was partly in response to some of the criticisms that had been made by NGOs, by Southern governments and so on. A few years down the line, as Olivia says, there has been some nominal reduction in conditions, but there are several concerns we have. Firstly, there has been a shift of some of the IMF conditions onto World Bank lending instead so that the countries are still facing the same aggregate burden of conditions. As Olivia said, there has been a broadening of conditions. Also, even though there are fewer conditions, sometimes those conditions have greater weight. From the perspective of countries on the ground and people on the ground, there does not seem to have been a very large shift in the IMF's practice.

  Dr Tembo: In 2002 the IMF also came up with an analysis to help them forecast core conditions, and then there are shared conditions with the World Bank and others and then those that are not within their expertise. There is another analysis which is to do with categorisation of post-conflict countries. It is a way of looking at the different countries and categorising them as post-conflict, early stabilisers and countries that are kind of area stabilizers and mature stabilizers. What we see on the ground however is that, although there is that sort of analysis, the IMF has not changed its behaviour in the way it uses conditionality, it is not remaining within its core areas. There has been a bit of a shift again to issues of governance which can be quite tricky for the IMF to be involved in. We find that reactions on the ground suggest they are involved with the governance of countries that countries themselves are not comfortable with.

  Q56  Susan Kramer: If your conclusion and experience on the ground is that while the language has changed the culture has not, do you see any mechanisms or approaches to achieve that change or would it require structural reform, who sits at the seat at the table and how the votes are weighted? Is it something as fundamental as that that has to be changed or do you see any other way to get this shift?

  Ms Greenhill: I think you do require very fundamental change to the governance of the IMF. I know that the previous witnesses emphasised that point as well. We have a particular concern that, firstly, what the IMF is doing in the countries is very often using anti-democratic processes, it is undermining the systems of local democratic accountability. Very often the countries that we are dealing with do not have very advanced democratic systems, but we think that it is all the more problematic for that reason, that the IMF is undermining those systems on the ground when they are just getting up and running, they are just being developed. Meanwhile you have got the IMF which at the international level is very undemocratic and it lacks basic accountability. We think you really need quite fundamental reform. You cannot really tinker at the edges. I do not think you are going to make very much progress.

  Dr Tembo: I want to add to that point based on World Vision's research in Zambia and Bolivia on IMF behaviour. Whereas the top line IMF structure will change, at the moment they do not attend the consultative group meetings even with the donors themselves. The argument has always been about reducing numbers of staff. As to the weight that the IMF have on the process, they shift to a poverty reduction strategy approach and that has suggested cycles or processes or consultations with stakeholders and then suddenly you find the Poverty Reduction and Growth Facilities that the IMF brings that has not been factored in. Those kinds of behaviours and ways of working will have to change significantly for greater impact on poverty.

  Ms McDonald: There are other approaches that could be pursued alongside structural reform, which I am very, very much in favour of, to help challenge the situation. Some of it the UK government is quite active on, which is looking at improving the domestic oversight. We have raised the point that there is a deficiency, but, for example, in Malawi there is quite a lot of support for a fledgling parliamentary committee to scrutinize the IMF and World Bank and defining their role in that process is obviously a key factor. In addition, the way that the aid system is moving towards multi-donor budget support and joint agreements between donors and recipients could provide an opportunity for donor groups to be more progressive and to say, "We're prepared to take different input on what we think the key macroeconomic and liberalization policies or trade policies necessary for this country are".

  Q57  Kerry McCarthy: The experts described the IMF's role in poverty reduction earlier as "a mistake, very unhelpful, fundamentally misguided" and you have also now expressed the view that the IMF's role in developing countries does not help them bring about stable democracies, it is anti-democratic. To what extent do you think that the IMF does bring any benefits from working with low income countries? What does it bring that could not be provided by the World Bank instead and perhaps in a less anti-democratic manner?

  Ms McDonald: I know the IMF does a lot of work with capacity building in ministries of finance and also with parliamentary committees and I am sure some of it is very good, but I am not entirely sure why they would have a monopoly on providing that.

  Dr Tembo: The IMF are able to look at global issues, regional issues, for example in Africa and the ways in which the economy has changed at the regional and country level, and then bring this analysis together. Where we have an issue with the IMF is that analysis stands alone, it is not brought in to accountable systems domestically that have been set up through the Bank's work. Civil society organisations and other think-tanks within countries would offer alternative views on how the analysis informs the debate and conclusions.

  Q58  Mr Love: Dr Tembo, in your submission to the Committee you talked about ways in which they could improve the development of poverty reduction strategies and you talked about the need for greater accountability and particularly the engagement of civil society in the countries concerned. What other ways can we make these poverty reduction strategy papers more effective in delivering the objectives that we are seeking?

  Dr Tembo: There are several ways. The first one is providing more flexibility. On poverty reduction strategies, the initial bit was from HIPC arrangements, so countries were rushing to get their debts cancelled or to get debt relief. That cycle of three years went very quickly, without genuine and deep consultation with countries' strict orders. One way would be to be more flexible on timetables. We are seeing a bit of flexibility now in that countries are allowed to give in their national development plans as poverty reduction strategies. The other way is to look in terms of donors investing in domestic capacity. We have talked about members of parliament. They were not adequately involved in the initial phase, along with civil society organisations. Most of the stakeholders have failed to backtrack processes properly because they do not have the capacity. We think that is an area that needs to be developed more so that when you come up with the poverty reduction strategy it is owned by the country adequately.[1] Another area is to reduce demands for debt when they sign off by poverty to the World Bank and external influences, but that suggests more accountability to donors rather than domestically so that there is more of an organic process. I think those are some of the areas that I would raise.

  Q59 Mr Love: Ms Greenhill, according to the decisions taken last year by the G8 there is going to be a significant increase in resources going to aid and development and the whole issue of effectiveness of that aid, which has been under much discussion, is going to come even more to the fore as larger resources go in. How can we assure aid effectiveness, and what role can the IMF play in that?

  Ms Greenhill: I think this raises a very interesting issue because our research, as I outlined in the submission, has shown that the IMF is still quite pessimistic about the capacity of countries to absorb more aid and that is for reasons of fiscal ceilings, of their concerns about inflation and so on. We are going to see, as more of this aid starts coming on-stream, a potentially greater conflict between the IMF and other donors, but while other donors are quite keen for more money to be coming in to countries and the IMF's fiscal ceilings to be blocking the absorption of that money (and we have already seen that happening in countries like Mozambique and Uganda), in terms of the question of effectiveness of resources, it is really again a domestic process, it is a process of domestic accountability, of scrutiny by parliaments within countries, by local civil society organisations, by church groups and so on. I do not think it is really up to the IMF to be saying aid is being well used or not. They can support capacity building, they can support transparency, but it is really up to people within the country to have greater oversight over those resources.

1   Footnote from witness: The negotiation of the Poverty Reduction and Growth Facility (PRGF) or the macro-economic framework in general by the IMF should be part of this process and not separate from it. Back

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