Select Committee on Treasury Written Evidence


Memorandum from ActionAid International

INTRODUCTION

  1.  ActionAid International is an international NGO working in more than 40 countries worldwide, including the UK. This submission reflects the experiences of ActionAid staff and partners in Africa, Asia, North America and Europe.

  2.  We welcome the decision of the UK Treasury Select Committee to conduct an enquiry into "Globalisation: the role of the IMF." Our work around the world has demonstrated that there is urgent need for reform of many aspects of the IMF's role and functioning. The UK is the fourth largest shareholder in the IMF, and we believe that this gives the UK a particular opportunity, and responsibility, to press for reform.

IMPACT OF GLOBALISATION ON THE CURRENT AND FUTURE ROLES OF THE IMF

  3.  As developing countries have become more integrated into the global economy and more heavily dependent on donor funding, the role of the IMF as arbiter of "appropriate" economic policies has increased. This brings with it two problems.

  4.  Firstly, it gives the IMF a much stronger role in determining national economic policy decisions. This is despite the fact that the IMF is an institution which stands outside national democratic processes and accountability mechanisms, and is itself deeply undemocratic and unaccountable (see below.)

  5.  Secondly, the IMF's definition of sound economic management is often inconsistent with the policies needed for sustainable growth and poverty reduction.

  6.  The IMF generally requires borrower countries to maintain very low rates of inflation. Research by ActionAid International found that in 45 out of 63 recent IMF programmes, the inflation target was set at 5% or less. This contradicts peer reviewed economic research, including by the World Bank, which has demonstrated that countries can sustain inflation rates of up to 20% without damaging their growth prospects. [1]Such low inflation targets inevitably constrain the level of public expenditure that can be sustained, with knock-on effects on health and education spending and hence on the capacity of poor countries to meet the MDGs. [2]

  7.  Moreover, in-depth interviews conducted with finance and central bank officials in eight countries (Bangladesh, Ghana, Malawi, Uganda, Zambia, Guatemala, Sierra Leone and Nigeria) found that there was a lack of awareness of alternative or more expansionary fiscal and monetary policies. [3]

  8.  IMF programmes often include other conditions which prevent poor countries from investing in education and healthcare. For example, the IMF continues to recommend that the wage bill be reduced in order to contain recurrent expenditures to "sustainable level." In 2005, for example, the IMF recommended a reduction in the wage bill in Kenya from 8.5% of GDP in 2005-06 to 7.2% by 2007-08. Although it has eliminated user fees, Kenya is unable to hire the estimated 60,000 teachers required to staff the expanding number of students enrolled in schools. [4]

  9.  Significant numbers of IMF programmes also involve conditions in controversial policy areas such utility privatisation and trade liberalisation, which have often been shown to hurt rather than help poor people. For example, in Tanzania, privatisation of energy was included as a condition in the IMF's Poverty Reduction and Growth Facility (PRGF) for 2003-06, while privatisation of the Dar es Salaam Water and Sewerage Authority as included in the PRGF 2000-03. [5]In Kenya, reduction of the top external tariff rate from 35 to 25% was included in the PRGF agreed in 2003. [6]

UK PERSPECTIVE ON THE IMF'S STRATEGIC REVIEW

  10.  ActionAid International welcomes the IMF Managing Directors' decision to review the role and function of the IMF. However, we are concerned that the process for undertaking the review appears to be very opaque and the opportunities for input from civil society groups are not apparent. ActionAid International believes that it is vital that such groups, particularly those from IMF borrower countries, are able to provide feedback on their experience of IMF policy and practice in their countries.

  11.  The IMF Strategic Review should focus in particular on the impact of IMF policies on women and girls. This is an area to which scant attention is paid at present, despite the fact that the poor are predominantly female.

CURRENT UK AND EUROPEAN POLICY TOWARDS THE IMF

  12.  ActionAid International is concerned that UK activities in the IMF board are not made sufficiently transparent. We would like to see publication of the UK's positions within Executive Board discussions, both in terms of formal voting and views expressed during IMF board discussions.

GOVERNANCE AND MANAGEMENT OF THE IMF

  13.  The governance and management of the IMF need to be radically overhauled. At present, the institution is deeply undemocratic, and lacking in basic transparency and accountability.

  14.  ActionAid International would like to see as a priority:

      (a)  Increased transparency of Executive Board discussions, for example publication of board minutes and all board papers before discussions take place.

      (b)  Much greater representation of borrowing countries in the governance and decision making processes of the IMF.

      (c)  A greater role for Parliaments in scrutinising and approving IMF loan conditions.

January 2006







1   Bruno, M (1995) "Does Inflation Really Lower Growth?" Finance and Development, Vol 32 no 3 Sept 1995 pp 35-38. Back

2   ActionAid International USA (2005) "Changing Course: Alternative Approaches to Achieve the Millennium Development Goals and Fight HIV/AIDS." Back

3   Ibid, ActionAid International (2005) "Contracting Commitments: How the Achievement of Education for All is Being Undermined by the International Monetary Fund." Back

4   ActionAid International (2005) "Contradicting Commitments: How the Achievement of Education for All is Being Undermined by the International Monetary Fund." Back

5   Actionaid International UK (2004) "Money Talks: How Aid Conditions Continue to Drive Utility Privatisation in Poor Countries." Back

6   Christian Aid (2005) "Business as Usual: The World Bank, the IMF and the Liberalisation Agenda." Back


 
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