Examination of Witnesses (Questions 53-59)
MS OLIVIA
MCDONALD,
MS ROMILLY
GREENHILL AND
DR FLETCHER
TEMBO
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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