Select Committee on International Development Sixth Report

4 DFID'S PRESENCE AND INFLUENCE

53. We discussed in the previous chapter some examples of the extent of DFID's influence at the World Bank, including the impact of its withholding funds in 2006 and its influence over the negotiations on IDA 15. In this chapter, we look at the arrangements and structures in place in order to effect that influence.

54. During our visit to Washington, we heard both from Bank staff and from donor and borrower delegations that the UK had considerable influence at the Bank. President Robert Zoellick said that this was due not just to the UK's financial commitments but to its willingness to engage with the Bank intellectually. In contrast, some NGOs and commentators in Washington said that DFID was too stretched to influence the Bank as well as it might. The position of International Alert as set out in the previous chapter would appear to support this view, as does the comment by Simon Counsell of the Rainforest Foundation UK that it was very difficult for DFID staff to check the rigour of the Bank's impact analysis given its staffing arrangements in Washington.[78]

STAFFING

55. All staff in the Executive Directors' offices (delegations) at the World Bank are paid for from World Bank, rather than national, budgets. The UK, along with France, has an Executive Director shared between the World Bank and International Monetary Fund (IMF) while all other delegations have dedicated Executive Directors for each institution. During our visit to Washington, the UK delegation argued that this arrangement facilitated good communication and allowed the joint delegations to draw out synergies and common themes between World Bank and IMF work, ensuring a 'joined-up' approach to the issues. The current UK Executive Director for the World Bank and the IMF is a civil servant from HM Treasury and his Alternate (or deputy) for the World Bank is a civil servant from DFID—this was also the case with their predecessors.[79] It appeared to us that the Alternate acted as de facto Executive Director in most circumstances, although without the seniority and influence that comes with that office. This is, of course, not a reflection on the individuals involved but rather on the staffing arrangements themselves.

56. On our return from Washington, our preliminary view was that the historical arrangement of a part-time Executive Director at the World Bank was no longer adequate. We shared this preliminary view informally with the Secretary of State. Two days before our evidence session with the Minister, the Secretary of State wrote to the Chairman of the Committee to tell us that the Government had reviewed the staffing arrangements in Washington and would now appoint full-time Executive Directors to the World Bank and the IMF.[80] The Secretary of State's letter said that the World Bank senior management "strongly supported" this decision. When we asked President Zoellick his view on UK staffing at the Bank during our visit he said that he was not competent to give one.[81] The Minister told the Committee that the World Bank Executive Director would be appointed by DFID. The rationale for the change of policy, she said, was that with the new increased funding,

"we were asking of the Bank quite a lot of things in terms of new challenges, things that you have talked about in the hearings here on climate change, but also on certain reforms within the Bank […] and given the amount that we were asking of the Bank […] we should move to a separate Executive Director."[82]

57. We heard from the delegation during our visit to Washington that the UK chooses not to use all of the other Bank-funded staff slots available to it: the joint office currently had six advisers but it has scope and funding available for two more. The Executive Director's view was that a full complement of staff would mean diluting the quality of the portfolios available and so attracting less high quality staff. The UK would therefore not make use of the full complement available to it.

58. We support the Secretary of State's decision to appoint a full-time UK Executive Director to the World Bank. It is appropriate recognition of the need for UK oversight of the Bank to be as well-resourced and comprehensive as that of other delegations, if not more so given the UK's role as the largest bilateral contributor to the International Development Association. We are glad that the Secretary of State listened to our representations about this matter and take some satisfaction from the part that we appear to have played in changing the policy, especially given the surprisingly vigorous defence of the shared directorship provided to us by the UK delegation. We recommend that DFID take up all adviser slots available to it in Washington—the UK cannot afford to be under-resourced at a time when its oversight of and influence over the World Bank must be as strong as possible.

TRUST FUNDS

59. Bank-managed Trust Funds have proliferated in recent years to over 900 today and the volume of funds passing through them doubled between 2000 and 2005. Funds range in size up to several billion dollars, such as for the Global Fund to fight AIDS, TB and Malaria (GFATM). In addition to its contribution to IDA, the UK was the largest contributor to Bank-managed Trust Funds in 2007, providing around £721 million (up from £357 million in 2006).[83] On current trends, the UK could soon be contributing around the same amount through Bank Trust Funds as it does through IDA.

60. The Funds provide a way for donors to channel their money to particular areas as the Funds each have a specific focus or set of objectives, in contrast to IDA's broad remit and reach. Some Funds focus on a country or region—Africa receives the largest share by region and we have examined the Afghanistan Reconstruction Trust Fund in detail in our recent Report.[84] Others focus on a 'global public good', such as through the Global Environment Facility. The larger Funds are, in effect, autonomous entities whose funding is held in trust by the World Bank. The Minister said:

"I do not think Trust Funds are a very homogenous group. […] About a third of our contributions to Trust Funds are in fact to five global aid institutions [… such as the GFATM]. We then have about a third going to country Trust Funds, where we think that they can be a very effective pooling mechanism. So in one sense there is a Trust Fund which is about policy and there is also a Trust Fund where […] the Bank is just being the financial agent, being a bank."[85]

61. We put to DFID the view that the Funds were a way for donors to work around the limitations and problems of the Bank's major institutions and as such weakened donor incentive to push for reform of institutions such as IDA. One of the Minister's co-witnesses, Mark Lowcock, responded:

"I think there is one category, if I may say so, for which there is a potential concern, which is to do with the administrative budget. We think, for example, that the World Bank should have much greater expertise on gender and social issues and […] at the same time it is true that there is a Trust Fund which helps build their capacity on gender issues [… There is a] risk of Trust Funds on staffing creating a silo, when what you really need is a mainstreaming across the whole of the system."[86]

62. The proliferation of Funds has implications for aid effectiveness and donor harmonisation, particularly as Funds can have conditions—such as on staffing—and different reporting or monitoring requirements attached. The Bank asserts, however, that Funds facilitate harmonisation by helping to "leverage donor resources for a broad range of development initiatives at the global, regional and country level".[87] The Minister said in her evidence:

"We have found them an effective mechanism for a number of reasons; one of them is around pooling and harmonisation and reducing the burden for countries […]. I agree that if you end up with six Trust Funds in one country you have slightly defeated the purpose of having the Trust Fund. In-country it tends to be a little less like that."[88]

63. On current trends, UK funding for World Bank-managed Trust Funds will soon match UK funding for the International Development Association. Some of these Funds are largely autonomous institutions with which DFID will need to engage directly to influence policies. For those for which the World Bank is both financial agent and policy lead, DFID is right to provide support if such Funds can add value to the work done by the Bank's major institutions and reduce the burden on borrower countries. We are concerned however that any further proliferation of Funds could distract World Bank shareholders from the key challenges ahead with regard to its main institutions, such as ensuring IDA effectiveness and progress on governance reforms. We recommend DFID resist proposals to set up any further Funds or where it supports such proposals—for example on climate change—provide us in advance with the rationale for its support.

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78   Qq 80-81 [Mr Counsell]; and see paragraph 51 above. Back

79   The UK Executive Director to the World Bank and the IMF has one Alternate Executive Director for the World Bank and another for the IMF. Back

80   Ev 59 Back

81   Annex 1 Back

82   Q 134 Back

83   DFID, The UK and the World Bank 2006/2007, p 47 Back

84   International Development Committee, Fourth Report of Session 2007-08, Reconstructing Afghanistan, HC 65 Back

85   Q 166 Back

86   Q 167 [Mr Lowcock] Back

87   World Bank, 2006 Trust Funds Annual Report, section 1, paragraph 3 Back

88   Qq 166 and 169 Back

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Prepared 5 March 2008