Examination of Witnesses (Questions 63-79)|
31 JANUARY 2006
Q60 Mr Love: There are always a lot
of accusations that the IMF is ideological in their approach in
the sense that they talk continuously about free markets and global
trade and opening countries, including Third World developing
countries, to trade. Do you think that is too much of an emphasis?
Are they getting it wrong there? Should they be much more pragmatic
in trying to gain the objectives that are set by the international
community in their Millennium Development Goals?
Ms McDonald: We take a pragmatic
approach to the pros and cons of liberalization within developing
countries, but we really believe that those choices should be
based within developing countries themselves. The IMF has a very
pro-liberalization stance, but because of its power in developing
countries through its lending and its advice, the fact that they
have to take the advice to get the money from other people, they
are basically locked in to following those policies when countries
like the UK can take that advice, pro-liberalization or not, and
say, "We're not going to do that". We would also argue
that these decisions should be taken through the form that is
appropriate for this, which is what the WTO has been set up for.
To an extent we would say the IMF is moving out of an area that
it should not be working in by promoting liberalization so aggressively.
Q61 Mr Love: In the previous session
with the experts we had a clear difference of views about what
restructuring of the IMF would be appropriate, ranging from the
fairly radical, which would be bringing a fairly substantial voice
for the Third World into the internal workings of the IMF, to
those that were much more conservative in the sense of recognising
the power structures that already exist there. If you are to maintain
the commitment of the developed nations and particularly the US,
how much reform will take place at the IMF?
Ms Greenhill: The question really
is not necessarily about the developed countries but I think it
is more about the developing countries. You have seen some of
the big Latin American borrowers, particularly middle income countries,
starting to want to repay back their loans to the IMF. Increasingly,
we are going to get a situation where borrower countries are saying
we do not want to take the IMF's advice on these terms, we do
not want to take their money or we are very concerned about the
kind of policies that we are having to take. I think all of us
on this panel would agree that there needs to be very, very significant
governance reform to the IMF, but in terms of where that is going
to come from, I would see increasingly over time it might be that
poor countries are going to be standing up more to the IMF and
being more assertive and that means that the IMF will have to
change both in terms of its governance and in terms of its practice.
Q62 Angela Eagle: You are not against
conditionality per se presumably because conditionality,
if it is not the Washington Consensus conditionality on liberalization,
might be about ensuring that the money that is lent is not completely
misused. Is this an issue about what kind of conditionality is
appropriate rather than about conditionality itself?
Ms Greenhill: I would say that
that is exactly right. I think you do need to have some conditions
to ensure that money is well spent. We are not advocating writing
blank cheques to the Mobutus and Mugabes of this world. Our really
big concern is around the policy of conditionality. We are concerned
partly about the mix of policies that has been promoted in the
Washington Consensus but we are also concerned about the way that
policy conditions undermine democracy and undermine local accountability
in countries. Even if they are the right policies that the IMF
is demanding from the countries, we think it should be up to the
country, the local people, the parliaments, etcetera to
make those decisions. We think there should be some very minimal
conditions, mainly around fiduciary accountability, rather than
this very intrusive raft of policy conditions that we see at the
Q63 Angela Eagle: So it is liberalization
that is the problem?
Ms Greenhill: From an Action Aid
perspective, even with the right policies, we do not think that
it is up to outsiders to impose those policies. We have two criticisms.
Firstly, we do not like the policies that are there at the moment,
but, secondly, even if there were the better policies from our
perspective, we would still be concerned about the impact of that
on accountability within the country.
Dr Tembo: World Vision have conducted
research on conditionality itself in relation to poverty reduction
strategies where we think it would be more useful to go for strengthening
domestic accountability which will have very positive knock-on
effects on issues of fiduciary accountability and that is something
which donors are concerned about. If we take conditionality in
the way the IMF would put it, it would look at systems but it
would not be able to handle political relations and views in the
way the countries handle it. It is the domestic systems that have
those powers to be able to change how things work at a more social
or political level which conditionality cannot do. The way to
do it is by strengthening domestic capacity and making sure the
conditionality that you have strengthens those processes. Tony
Illick of the Overseas Development Institute also alluded to the
fact that conditionalities only work when they tilt the balance
towards what citizens want. Unless citizens want something and
they are well aware of what that conditionality in that country
is supposed to deliver, it cannot deliver any change.
Q64 Angela Eagle: There is another
issue that I asked the experts about which was off-shoring and
the holding of now US$11.5 trillion of assets in tax shelters,
which obviously impacts on some of the poorest countries if there
is the corrupt moving of assets outside of the country in that
way. When the IMF was originally set up John Maynard Keynes, it
was so that bank secrecy should be dissolved and there should
be much more transparency about where assets are kept. Do you
think that that would impact, if there was a change there, on
this problem of off-shoring colossal amounts of monies and the
consequent loss of tax revenue which apparently could achieve
the Millennium Education Goals with the financing on a tax revenue
from the money that currently escapes national taxation in this
Ms McDonald: Christian Aid has
been looking at this area of taxation and offshore accounting
and we definitely think that this is a vital thing that needs
to be prevented, but we also think it is important to look at
how that can happen and that is partly due to the taxation regimes
that the countries are using themselves.
Q65 Angela Eagle: Bank secrecy?
Ms McDonald: We have not worked
necessarily on bank secrecy. One of the things that we have been
looking for is an international taxation authority which may be
a body that could look into those things.
Q66 Mr Todd: I just wanted to explore
the conditionality point a little further. This is money loaned
and so a principle of the conditionality is that there should
be mechanisms to give a very high chance that it will be repaid
and that includes a variety of mechanisms which will improve the
sustainability of the economy. Surely you accept that someone
loaning money has some right to say they want to make sure their
money comes back?
Ms McDonald: I think it depends
on what the starting point is.
Q67 Mr Todd: You have used the word
donor quite often in this discussion. There is a distinction between
a loan and aid. I recognise they are tied together very often,
but the principle is that this money is loaned and then repaid.
Ms McDonald: In theory, the IMF's
poverty reduction growth facility is a facility to bring poverty
reduction and growth. Some of the policies and income that a country
might need to do might be very, very long-term policies that might
take a time to start really bringing in the benefits. Having a
loan with a relatively short turnaround to get it back in might
encourage a recipient country to adopt different policies. Is
that what the loan is for? Is it to make sure that the short-term
problems are resolved and the money comes back in or is it to
get long-term poverty reduction?
Ms Greenhill: Increasingly now
what we are seeing with the IMF is that they are not lending large
volumes of money, particularly to the low income countries, and
that is because IMF monies is really quite expensive. IMF loans
do not count as aid because they are so expensive. Their role
is increasingly about that seal of approval which will allow the
bilateral donors to come in and very often that is in the form
of grants. The role that they have, the singling function, is
not necessarily about their own money, it is about telling donors
this country has the right mix of policies. You can then come
in and bring your grant financing.
Q68 Mr Todd: So your dispute is less
with the conditionality attached to a loan, which you are saying
is relatively trivial, but more with the economic advice that
it gives and the message that gives to others who may be wishing
either to make other forms of loans or donations to a country,
that this is a green light so to do?
Ms Greenhill: They go together.
You have your PRGF programme which will involve you borrowing
and that is generally a small amount of money, but the fact that
you are borrowing that money acts as a signal, it means you are
deemed eligible for budget support, for HIPC debt relief. One
of our key concerns is the lack of choice that countries have.
If I want to borrow money for a mortgage, for example, I might
be able to go to a range of different banks and look at their
conditions and see which mortgage I want to take, whereas a poor
country really has no choice but to go to the IMF if it wants
access from other donors, often from private sector finance as
well. That is one of our key concerns around this issue.
Q69 Peter Viggers: I would like to
ask about the IMF's medium-term strategic review which was produced
towards the end of last year and the extent to which you are able
to comment on this either direct to the IMF or through the UK
government. Broadly the strategy took account of the fact that
the institution was originally created to support international
monetary stability and the financing of temporary balance of payments
problems and then it looked at the different aspects which have
come to bear on this strategy. To what extent did you study this
and comment on it to the IMF or to the UK government?
Ms McDonald: Is that question
about our opinions on the strategic review or what we have done
about the strategic review?
Q70 Peter Viggers: What did you do
in response to the strategic review? Did you consider it and did
you put forward representations of your own and to whom?
Ms McDonald: We have not engaged
in the strategic review apart from reading it and commenting on
it within the NGO community when we received it.
Ms Greenhill: I do know that there
have been some concerns from our organisations and from others
that we work with that the process has been quite opaque. There
have not really been opportunities for us or particularly for
our counterparts in Southern countries to engage with the review,
to make submissions or to make our voices heard. It seems to have
been quite an untransparent process and not a very participatory
Dr Tembo: We still have comments
on the IMF review. We do not have a process in which we can get
those comments through so that the IMF includes them at the next
Q71 Peter Viggers: So you are really
saying that it was not particularly consumer friendly in the sense
that it sought responses from bodies like your own?
Dr Tembo: Yes.
Q72 Lorely Burt: I would like to
ask each one of you about your views on the current UK policy
towards the IMF. If there was one thing that you would like the
UK government to push for in its policies towards the IMF, what
would it be?
Ms McDonald: I think it would
have to be taking a stand at a country level, in the multi-donor
budget support framework, in how that integrates with the IMF,
particularly because the UK on the one hand has got this new position
on conditionality where they are saying conditions should not
be used to force countries to adopt certain economic policies
and on the other hand the PRGF is very central to the multi-donor
budget support systems that have been spearheaded by the UK government.
I think it would be helpful to have not only some form of clarity
but also to see the UK government in certain countries supporting
the development and use of macroeconomic frameworks by groups
other than the IMF.
Dr Tembo: One issue that I would
wish the government to take a stand on with regard to the review
is the power that the IMF has through the instruments that they
use. Even though they have embraced the issue of diversity that
different countries would need, it is very much supply led rather
than demand led. If you take the Policy Support Instrument that
has just been introduced, for example, and if you read the clause
in the UK document, it is saying that this would have an effect
on what donors do with those countries. That is a position that
leans towards the IMF continuing with this role with too much
influence on countries. If there is an issue, it has to do with
helping the IMF to stand back from putting too much weight on
lower income countries, to allow for domestic processes, including
that part of society to come up.
Ms Greenhill: I would agree with
Olivia, the UK needs to show leadership following its position
on conditionality, which is something that we very much welcomed,
but it needs to be working with other donors and critiquing the
IMF's approach internationally but also at a national level and
particularly the IMF's approach to these fiscal ceilings and limits
on public expenditure.
Q73 Mr Newmark: The UK government,
in its report on relations with the IMF, strongly endorses the
Independent Evaluation Office. Is the Independent Evaluation Office
a great success? Do you think it is sufficiently well resourced?
Do you have any idea of where it should be turning its attention
Ms McDonald: The IEO has come
out with some very good reviews that have been very critical of
what happens in the IMF. For instance, there was one last year
on the PRSP process which really condemned the IMF, so in those
terms it is a success. It does seem to have quite a lot of resource
in terms of capable staff to do this and investment to do field
cases. The questions are: what resources does it have; what is
invested in it in terms of making sure its recommendations are
followed up, and what teeth does it have?
Ms Greenhill: I would agree with
that point, that we have seen some very good analysis, but it
is not clear what the responsibility of the IMF is then to take
forward any of those recommendations. How do they feed back whether
or not they have adopted the recommendations? If not, why not?
At the moment it seems a bit like the IEO produces reports and
all the NGOs say "What a great report" and then nothing
Dr Tembo: For instance, on the
IMF lack of participation on the Poverty Reduction and Growth
Facility, failing to link it properly with the poverty reduction
strategy papers, it was very articulate and it recommended what
the IMF should do, but we have not seen any change. When the PRS
review was done last year by the Bank and funded together those
views were not accommodated adequately. There is no mechanism
for seeing that.
Q74 Mr Newmark: Does the International
Monetary and Financial Committee, of which Gordon Brown is currently
the Chairman, provide enough oversight of the IMF's activities?
Ms McDonald: As far as I understand
it, the IMFC meets once or twice a year and it largely seems to
be an opportunity for people to give general policy statements.
So Gordon Brown will make a policy statement and that will largely
guide the UK Executive Director in what he then does on a day-to-day
basis on the Executive Board. I am not clear how something that
meets so infrequently and is more an opportunity to state our
policy preferences can be an oversight body.
Q75 Mr Newmark: My sense is it does
give some direction on prioritizing and so on. It is more than
simply a static reporting of something that has happened. I think
they do give a little bit of guidance. It been said that the voting
arrangements of the IMF reflect the distribution of world wealth.
On the other hand, there is a good reason why those who supply
the money for the IMF to lend should have a larger say in how
it is run. How do you feel the balance between lender and borrower
should be struck, and how can the competing needs of both borrowers
and lenders be adequately addressed?
Ms McDonald: It is not necessarily
correct that the current voting structure represents world wealth
when, if I remember correctly, Canada and China have the same
voting share but China has a GDP that is twice the size of Canada.
As it stands, there are inequalities within it and this is what
is putting pressure on the next quota negotiations. There is pressure
coming from middle income countries who are saying, "Our
GDP is so strong, why do we not have a share of the power that
recognises that?" That is not necessarily true anyway. What
we would like is that, when these discussions are happening, we
should look beyond a reform package that bases itself just on
economic wealth and looks at something much more egalitarian,
as is befitting of such a multilateral institution.
Q76 Mr Newmark: I think the concept
has to do with a shareholder structure, ie he who is the
largest shareholder, he who is lending the most money should be
having a larger say than others who do not give as much. Clearly
someone who is a borrower should be having some say in what is
going on. I know you have been trying to address this as well.
How does one adequately balance those two tensions there?
Ms McDonald: We would ideally
want one member, one vote because rather than being seen as a
shareholder institution, it should be seen as a part of global
governance and that should be based on much more egalitarian principles.
However, we recognise that that might not be something that happens.
There are ways of readjusting the voting formula within the institution
to get a much better balance of power, to have a 50:50 say with
lower income countries having a much greater input.
Ms Greenhill: We should not see
the IMF as a bank or like a private sector institution where the
shareholders have voting rights depending on their shareholdings,
we need to see it as part of the international organisation and
so we should have a similar system to the one we have in the WTO,
which is one member, one vote, or the UN. Neither of those institutions
are perfect in the way they represent the views of poor countries,
but in terms of the way we think about the IMF, that is the direction
that we should be going in bearing in mind that some of the issues
that it deals with are genuinely about the organisation global
financial stability, international economic integration and so
Q77 Mr Newmark: Are there concerns
that the skills mix of the IMF staff is not sufficiently well
aligned with the work they undertake, especially in development
issues? Have your institutions any particular experience of this,
and what do you feel the IMF is doing to address this? It is those
who have direct experience with poverty issues versus those coming
in as pure economists in trying to deal with that and there is
that tension between having those with economics expertise and
those with real life experience in poverty economics.
Dr Tembo: There is an issue there.
That is why in our submission we mentioned that within the capacity
development-type of approach other than capacity building, where
the IMF wants to develop the skills, should be in working with
developing countries. The IMF also has to learn about the contextual
issues in which it is placed. It is not as straightforward as
the conclusions appear because there are underlying issues there.
For instance, we pointed to the issue of the Poverty Social Impact
Analysis which shows that when implemented there is a whole set
of changes in favour of poor people which, by looking at it through
an economic lens only, you could not achieve. I think that is
something that needs to be done.
Q78 Angela Eagle: Are we not in danger
of mixing up the World Bank's role with the IMF's role and ending
up with one agglomerated international body here? Do you see merit,
even if you do not like the Washington Consensus, as many of us
do not, in having a body which is about macroeconomic stability
and finance over there and then a body such as the World Bank
which has different governance in things, which is really much
more about development and the social issues? Do you think the
system ought to be all mixed up or you ought to try to specialise
in the international architecture that we have got even if it
has not been perfect so far?
Ms Greenhill: There is a role
for the IMF to be quite focused on macroeconomics as an institution,
but in terms of the staff and the skills that they have, I do
not think that one can be an economist in isolation. The sort
of macroeconomic policy you have is going to have a fundamental
impact on social and political dimensions. There is a lot of research
showing that the Washington Consensus policies have been very
detrimental to women. So you have to be able to think about all
of those things and I think that is the real problem with IMF
economists, that they see things very much in purely economic
terms and they do not have any basis to think more broadly. It
is not saying that you should merge the IMF and the World Bank,
but you need to be thinking about the very particular training
that IMF economists will have.
Angela Eagle: Perhaps better economic
theory to apply rather than the rather narrow theory they do apply!
Q79 Chairman: We are meeting both
the IMF and the World Bank next week. What is the first question
we should put to them?
Ms Greenhill: I would ask them
about conditionality. The track record of the Washington Consensus
really is not a success.
Dr Tembo: It would be to do with
how they would change their behaviour to embrace the diversity
that they have pointed to, which includes development, so they
do not have a one-size-fits-all kind of economic approach to development,
especially in relation to low income countries.
Ms McDonald: If after having been
able to ask both of those questions, I would probably want to
ask a question following up on this IEO issue, which is why, when
they come out with critical evaluations and recommendations, they
have been so slow to implement them and what is going to change
in the future.
Chairman: Thank you for your time this
morning. We will be using that information next week when we go