Select Committee on Treasury Written Evidence

Supplementary memorandum submitted by World Vision


  1.  This evidence builds on World Vision's earlier written evidence submitted on 18 January 2006 and the subsequent oral evidence given before the Treasury Committee on 31 January 2006, in order to take into the recent developments in the debate on the role of the IMF, especially with regard to the new position of HM Treasury.

  2.  In particular, this submission focuses on the two key documents that have been produced in the HM Treasury since January, which are, "The UK and the IMF 2005: Meeting the challenges of globalisation for all, March 2006"; and "Reform of the International Monetary Fun", speech by Mervyn King, the Governor of the Bank of England, at the Indian Council for Research on International Economic Relations (ICRIER) in New Delhi, India; 20 February 2006. In doing so, the submission also takes into consideration the statement by the Right Hon. Gordon Brown, in his capacity as the UK Chancellor of the Exchequer and Chairman of the IMFC, at the 13th meeting of the IMFC on 22 April 2006 and the statement given by the Managing Director of the IMF to the Development Committee on 20 April 2006, both as part of the programme of the 2006 Spring meetings of the Bank and Fund.

  3.  In this submission, World Vision makes specific recommendations to the UK government, and to HM Treasury in particular, in order to ensure that the current IMF reform debates put the case for better IMF support to low-income countries central, for a genuine move from rhetoric to practice. World Vision commends the UK government for taking full advantage of the 2005 coincidence of chairing the G8 and presidency of the EU to raise the political and moral stakes towards achieving MDGs by 2015, alongside the NGO community's call for Making Poverty History. Now is the time for action and the IMF has to become an actor of positive contribution to poverty reduction.

  4.  With a focus on the two key documents highlighted above, and the associated references to the just ended Spring meetings of the World Bank and IMF, World Vision identifies the key areas of the IMF's approach to globalisation, the role of policy prescription or advice, surveillance, transparency, instruments and issues of voting and quotas, as critical areas where the IMF has to reform if the institution has to become a credible player for low-income countries. From World Vision's current experience of working in low-income countries, walking alongside the poor and engaging with their governments, we argue that the key issue for a credible IMF for low-income countries is not one of adopting "measures to improve the influence of the IMF" (HM Treasury, 2006, p 23). The IMF is already too influential through its signalling and macro-economic framework expertise. What is required is transformation to an institution that is relevant to the MDG agenda both local and global and offers the necessary and demand-led leverage to low-income countries complex interfaces with the medium and big players in the international monetary game, the game that Mervyn paper dwells on. Mutual accountability, between the IMF and national authorities, and domestic accountability, between the national authorities and their citizens, is a double-edged interface that the new role of the IMF has to embrace as a central part of its approach to diverse environments of low-income countries[72]. World Vision makes the following key recommendations, put together under headlines and explanations for clarity.

The IMF approach to globalisation, growth and poverty reduction

  5.  The IMF approach to globalisation, as evident in the Managing Director's report on the Medium-Term Strategy (MTS) of 15 September 2005 on which his report to Development Committee of 20 April 2006 builds, is one of looking at low-income growing their economies by integration into the global economy, their adaptation to globalisation and modernisation. This model shapes the IMF's understanding of economic growth and poverty reduction, and we argue that it is still one of putting new wine into an old bottle. Low-income countries and their populations are already included or integrated in the global economy but included problematically, that is why, in our view, "Capital has flowed `uphill' from poor to rich countries", as Mervyn observes (p 8). Globalisation is not an "actorless" phenomenon and Mervyn is also right here to project the international economic system as a game of many players pursuing their different objectives.

  6.  World Vision recommends that a focused IMF institution, that contributes its expertise to the achievement of both growth and MDGs in low-income countries, needs to adopt a kind of "drivers of change" approach to growth with poverty reduction in its surveillance and other streamlined functions. This approach will dwell on using local analysis by other actors, including the Bank, in-country "think-tanks" and civil society organisations to shape its conclusions. The emphasis will shift from use of "one-size fits all" expert approaches, nevertheless based on "proven" economic principles, to respect for contextual differences especially in critical political economy factors that the IMF is ill-suited to analyse and account for. The economic growth model in this case, becomes one of the products of the local contextual analysis of both bottle-necks[73] and opportunities for driving growth with poverty reduction. This would also include a focus on finding the best way to achieve social inclusion in growth, and how the micro[74] and macro analyses of aid absorption interplay. This cannot be achieved by a simple division of labour between the Bank and Fund, as alluded to in the Managing Director's report to the Development Committee. It cannot also be achieved by mere independence of surveillance under Article IV as the UK government proposes, a point we refer to in a later bullet point below.

  7.  The IMF in this approach to globalisation will seek to engage with low-income country MDG processes, through PRSs better together with the Bank and local actors because that is where localised and national bottlenecks and opportunities for driving growth with poverty reduction can be accounted for without the IMF itself being required to do the analysis in areas that it is ill-suited. This is a different position to one where the IMF minimises or disengages its analysis from other areas on grounds of becoming focused and cutting down on its own resource commitment. World Vision and other NGOs have for instance, observed in various countries where we work that despite the introduction of the PRGF as an lending instrument that would draw from PRSPs in its macroeconomic framework recommendations for low-income countries, practice shows that countries draw their PRSP macro-economic sections from PRGFs[75]. More recently the IMF sought to disengage from Joint Staff Advisory Notes (JSAN) with the Bank on grounds of limiting use of resources and without provision for an alternative mechanism where its joint analysis of PRSs with the Bank would be monitored[76]. Given the further endorsement of the PRGF and the newly introduced Exogenous Shock Facility (ESF) by the IMFC and the UK government in the Treasury document (sections 2.35 to 2.40), such disengagement from the PRS process, without an alternative monitoring mechanism, would lead to promotion of the IMF's "one-size-fits all" approach to globalisation and growth in low-income countries. Instruments are powerful agents of ideology.

Challenging the relevance of Policy Prescriptions/Conditionality

  8.  Mervyn King's trajectory of balance sheets, strategies, objectives, policies and the failure of "the invisible hand of international capital markets" to coordinate monetary and exchange rate policies, is very useful for conceptualising the IMF that we are looking for, in our case for supporting growth and poverty reduction in low-income countries. For us, it agrees with our lobby for greater space for policy experimentation by low-income countries and inclusion of civil society, which has been a critical problem in IMF practice despite mentioning it in the MTS, and our lobby for donor to stop using policy prescriptions as a means for buying policy change. This is because, it is true that we now exist in "a world of atomistic countries", where the international economy and the actors involved are game theoretic in their objectives, our interpretation of "no assumptions to be made about the objectives of others". In this situation, Mervyn rightly argues, "Policy makers, therefore, are most likely to make incompatible choices if they make decisions independently relying solely on international prices as their guide . . ." (p 8).

  9.  To us this reinforces our view that globalisation goes beyond policies to intentions, strategies and objectives, including hidden ones. In such a world, the IMF, and any other donor for that matter, cannot achieve their objectives through ex ante policy conditions, except where such policy is already in line with what governments wanted to achieve in the first place. The alternative is where conditionality leverages what citizens want their governments to do, and hence enhances the citizens ability and power to challenge or make it difficult for governments which would be interacting with the IMF based on other intentions and strategies rather than those stipulated in the Memorandum of Understanding. It further strengthens the contract between citizens and their governments, a point also raised in the Secretary of State for International Development's statement consultation for the White paper.

  10.  The UK government, in the Treasury positional document, has not done enough in developing this argument in order to challenge the IMF conditionality and hence leads to contradictions with its own position in "Rethinking Conditionality". It also does not send a strong and clear message to the 2006 review of IMF structural conditionality that will conducted by the IEO, with respect to the UK's own position. For instance, the UK position provides for opting out of IMF conditionality if not in line with its analysis of a particular government's overall programme. However, this could be the same government that has received IMF endorsement based on the PRGF, ESF or PSI, to which the UK is increasing its funding support. How can the UK government easily support the same government through the PSI or PRGF and yet act differently when it comes to conditionality? Furthermore, opting out is only as effective as offering a temporary measure in a country situation where donors are increasing budget support and coordination, and hence each donor will face pressure to oblige. Instead of settling for the temporary mechanism of opting out, the UK should push for greater investment by the IMF into strengthening mutual and domestic accountability (achieved by drawing conditions from PRSs and through dialogue that involves domestic actors and parliaments) and a roll back from policy prescriptions because many research findings have proven them to be ineffective.

Independent Surveillance

  11.  In the two documents, and also in the Chancellor's speech to the IMFC, HM government has argued for independence of the IMF as a way forward in the reform process, so that it can carry out its core business of surveillance effectively. However, if we take Mervyn's analysis of "a world of atomistic countries" in a game of many players of different sizes and objectives, the challenge becomes one that is more than managing "spill-over" effects of one country's policies to another to one of understanding the politics of negotiation that is informed by intentions both hidden and apparent. In this case, the fundamental role of the IMF to low-income countries needs to take into account the political economy of information and leverage their programmes for addressing the information "bottle-necks" that they face. Becoming a forum for discussing risks, as Mervyn suggests, is only one important issue but more fundamentally, the IMF needs to take into account other relationships that poor countries have with the international system, in the IMF conclusions, which will be drawn from the work of other agencies, including the Bank.

  12.  Furthermore, such independence cannot be achieved if only rich countries are endowed with ownership of the institution, an issue we refer to under Voting and Quotas below. We agree with Mervyn to say that IMF should at best be independent of government. However, we observe that Mervyn contradicts this argument when he argues for meetings of the big players on their own (eg G7) without at the same time recommending that their conclusions should be assessed by the IMF in the same way and criteria as those of small ones.

  13.  The UK government's call for a framework for assessing the effectiveness of surveillance (section 3.17) is commendable. We recommend, however, that in low-income countries, this framework should go beyond addressing the question of traction and accuracy of IMF assessments to including results from Poverty Social Impact Analysis (PSIA), which will show impact of policy advice on poor people, including vulnerable groups especially children. It will also show how negative impacts of policy implementation are addressed in future PRSPs and macro-economic policy frameworks that countries adopt with IMF advice. This does not necessarily mean that it is the IMF that should conduct PSIA but that it must provide clear channels of learning and accountability in its undertaking of functions in its core areas. As a matter of mutual accountability, this analysis should also be part of the benchmarks within the implementation of the Paris declaration on aid effectiveness at country level.

Increasing Transparency

  14.  Increasing publications of IMF documents is a significant measure for ensuring transparency but should include accounting for the extent to which country authorities make these publications transparent to their own citizens, which does not necessarily mean breaching Article IV. As noted in the previous World Vision evidence, CSOs made a difference in Zambia when they published an accessible version of their country's MOU with the IMF for the ordinary citizens in Zambia, for example. They, however, still have limited access to donor-government negotiation information on PRSs in order to scale-up this practice. CSO networks are also increasingly developing innovative ways of working with country parliaments so that democratic decision-making, based on improved key PRS information and the IMF, is improved. Although there is no such practice in rich countries, the objective of achieving MDGs by 2015 should mean that donor countries should do all they can to positively contribute to developing country government's accountability to their own citizens rather than only to donors.

Voting and quotas

  15.  An economic weighted representation formula is not based on justice in a world of atomistic players with different objectives. In this game, power shapes deliberations and communiqu

s well before the agenda is discussed at the various tables. Increasing the basic vote is the way forward and the UK government should make this much clearer. It is interesting to note African Finance Ministers asked for this increased representation at the Spring meetings, arguing against a two staged formula that would start with India and China as the new economic powers and then the low-income countries[77].

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72   This is a key World Vision position eg in Tembo, Dr Fletcher/World Vision UK, "Poverty Reduction-are the strategies working?", 2005-World Vision UK research based on case studies of Zambia and Bolivia. Back

73   An interesting analytical discussion on diagnostic approaches to growth and poverty reduction, with a focus on bottle necks is given by Dani Rodrik (2005), Rethinking Growth Strategies, WIDER Annual Lecture 8, UNU World Institute for Development Economics and Research. Back

74   Some of the micro analyses here include the debate over investments of aid and debt relief in social sectors versus investing in productive sectors as countries prepare their second generation PRSPs. Our experience in various low-income countries (especially Bolivia and Zambia) shows that this debate is both an economic and political one and it takes varied dimensions in different countries. Back

75   See current five country case study of the impact of PRGFs on social services conducted by the African Forum and Network on Debt and Development (AFRODAD), for example: Back

76   "Joint Staff Assessment Notes. To free resources for higher priorities eg, more careful debt sustainability analyses, it is proposed to eliminate this note, and have staff reports summarise relevant aspect of the poverty reduction strategy" (section 32 of the April 05 2006 report of the IMF Managing Director towards implementation of the MTS that was tabled at the IMFC). World Vision wrote a letter to Gordon Brown, dated 19th April 2006, asking him to use his position as chair of the IMFC to challenge this position and hence we commend Gordon Brown for arguing in his statement to the IMFC, that "the Fund and Bank's work through the JSAN is key to ensuring advice and programme are more effectively integrated with countries own poverty reduction strategies". This does not mean that JSANs should go unchallenged, especially if they are used to undermined national ownership. It means, instead that the IMF does not distance itself from PRSs in its new role. Back

77   See the transcript of a Press Conference of African Finance Ministers, Washington DC, 22 April 2006. Back

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