House of Commons - International Development

Select Committee on International Development Written Evidence

Memorandum submitted by the Bretton Woods Project

INTRODUCTION

1. The Bretton Woods Project is an independent NGO established by a network of UK-based NGOs in 1995 to take forward their work of monitoring and advocating for change at the World Bank and IMF. See www.brettonwoodsproject.org/about for more details.

2. This inquiry comes at a critical juncture. The World Bank faces serious questions about its role and legitimacy as it embarks on a long-term strategic review. Secondly, the UK must imminently decide on its contribution to the International Development Association. And finally, DfID will soon outline a new strategy for working with the Bank.

3. This provides an ideal occasion for DfID to take a step back, assess the coherence of Bank operations with its own objectives, articulate its vision for a reformed Bank, and clarify the UK role in attaining that vision. As this submission will elaborate, we believe that there are significant gaps between HMG policy and/or objectives and World Bank practice in three areas: the role of developing countries in decision-making; pursuing climate change objectives; and implementing a rights-based approach to development.

A. THE ROLE OF DEVELOPING COUNTRIES IN WORLD BANK DECISION-MAKING

(.) governance structures

4. The 2006 HMG white paper on making governance work for the poor states clearly that "the practice of picking the heads of both institutions based on nationality should end".[3] DfID's Institutional Strategy Paper (ISP) for the World Bank 2004-07 sets out a success indicator for "demonstrable improvement" in recruiting "senior WB staff" in "open, meritocratic, transparent" methods.

5. Beyond the obvious failure to make any progress on the selection process for the presidency of the World Bank,[4] the Wolfowitz presidency was marred by a series of high-level appointments which, by by-passing hiring rules of the Human Resources Department, made a mockery of open, merit-based, transparent selection.[5] These very public failings have done enormous damage to the reputation of the Bank and Bank staff have suggested that they have adversely affected its ability to operate effectively.

6. Astonishingly, for an institution which advocates improved governance and accountability in its clients, the World Bank has no mechanisms to evaluate the performance of the President or the Executive Board. Such systems should be put in place mirroring the recommendations of the High-Level Panel on IMF Board Accountability.[6]

7. The 2006 HMG governance white paper also stated that: "developing countries need more influence in the World Bank and the IMF. They are weakly represented on both Boards where voting rights are decided by financial contributions. This balance must change."[7]

8. As the Bank embarks on a long-term strategic review, now is the time for advocating for bold measures to significantly increase the democratic representation of developing countries at the World Bank (for a comprehensive treatment of these issues, please see South Centre Analytical Note).[8] A recent ODI study suggests that country stakeholder perceptions of the World Bank's effectiveness are adversely affected by the perceived lack of democracy in its governance structures.[9]

9. The network of UK NGOs which focus on the Bretton Woods Institutions believe that the UK should support the end of appointed chairs, and a consolidation of European representation on the board to allow increased chairs for developing country representatives. We support double majority as a practical, but by no means satisfactory, movement towards democratic representation, as outlined in a paper by Bretton Woods Project and One World Trust[10] which elaborates the proposal for the IMF.

10. The white paper made a welcome call for "greater transparency in the way the World Bank and IMF operate". Indeed, progress continues to be made on this front, with the publication of Country Policy and Institutional Assessments, and increased publication of economic and sector work, as advocated for in DfID's WB ISP.[11]

11. The Bretton Woods Project is a member of the Global Transparency Initiative,[12] and we fully endorse its belief that people have a right to information from public institutions and a right to participate in the development policies and projects that affect their lives. In IFI-supported activities, transparency can help reduce corruption; identify potential social, environmental and economic risks and benefits; and avoid damaging communities and sensitive ecosystems. A detailed examination of the World Bank's disclosure policy conducted in September 2006 by the GTI[13] found that the Bank's disclosure policies are "focused on publicly releasing select documents, while all other information remains confidential unless specifically approved for disclosure. This contradicts the presumption of disclosure, a rhetorical commitment made in WBG disclosure policies."

Suggested questions:

What steps will the UK take to ensure that a final solution is implemented to end the leadership selection crisis at the IFIs, and ensure that all senior management are selected through open, merit-based processes?

Will the UK insist that systems should be put in place to evaluate the performance of the President and the Executive Board?

Will HMG support an end to appointed chairs and a consolidation of European representation on the board of the World Bank?

Will DfID support the GTI Transparency Charter for the IFIs calling for the Bank to implement a true presumption of disclosure in the upcoming review of its disclosure policy?

(ii) The role of developing countries in operational decision-making

12. Of course, participation in formal decision-making structures in Washington DC is only part of a solution to the inadequate representation of developing countries in decision-making. It is critical that for effective development outcomes there must be timely, informed participation of relevant stakeholders, including parliamentarians and civil society, in Bank operations at a country level.

13. The DfID WB Institutional Strategy Paper calls for a strengthening of the capacity for analysis of the poverty, social, economic and environmental impact of policy options.[14] We welcomed DfID's support for increased ex-ante poverty and social impact assessment (PSIA) at the Bank. However, there is now concern that having exhausted this support, the Bank has not mainstreamed impact assessment into its agenda. There is a lack of incentives for Bank staff to deliver proper PSIA, and evidence that the number of assessments conducted is declining.[15]

14. HMG is rightfully committed to evidence-based decision-making. A recent evaluation of World Bank research, led by Princeton professor Angus Deaton and commissioned by the Bank itself, has some worrying findings. Amongst its serious criticisms, it found that some Bank research is "technically flawed and in some cases strong policy positions have been supported by such (non) evidence", and that "the Bank proselytised selected new work in major policy speeches and publications, without appropriate caveats on its reliability".[16] It also finds "remarkably little work co-authored by non-Bank researchers from developing countries". There is a disconcerting gap between DfID's commitment to have the Bank "strengthen national and local level systems of policy analysis",[17] and the findings of the Deaton evaluation on Bank research in practice.

15. In DfID's own words, we agree that "it is inappropriate and has proven to be ineffective for donors to impose policies on developing countries".[18] We welcomed the UK's critical assessment of the Bank's progress in implementing its good practice principles on conditionality in September 2006. This echoed the criticisms of several organisations in the BWI-UK network which have been conducting research into the Bank's use of conditionality.[19] In anticipation of the 2007 review, NGO Eurodad has welcomed the decline in the average number of non-binding conditions (from 30 in 2005 and 27 in 2006 to 17 in 2007), but is frustrated by the Bank's "failure to show progress in streamlining the legally binding conditions and by an overall limited progress".[20]

16. Aside from the need to make progress in the use of explicit conditions, we are wary of steps that are being taken which violate the spirit if not the letter of DfID's conditionality policy. There is concern that, through the use of Country Policy and Institutional Assessments, indicators used in the allocation of aid to low-income countries and in the prioritisation of Bank funding priorities for all recipient countries, the Bank may be limiting policy space and encouraging policy choices which are not in recipient's best interests. The empirical evidence upon which the Bank bases its selectivity is highly contentious (a thorough analysis of these arguments is to be developed in a submission from Elisa van Waeyenberge of the University of London).

17. Finally, DfID's WB ISP communicates the "need to form effective partnerships with other donors, parliamentarians and civil society".[21] A success indicator on the Bank's relations with civil society was "to be developed".[22]

Suggested questions:

Will DfID ensure that the World Bank puts sufficient funds into Southern-based research institutions to conduct impact assessment, ensuring that country-led PSIA be used in all Bank lending with significant distributional impact?

Will DfID shift its emphasis in support for development research from the Bank to southern-based research institutions in line with its objectives to strengthen country systems of policy analysis?

Will HMG withhold a significant portion of its contribution to the current IDA 15 replenishment round pending a World Bank commitment to end the use of economic policy conditionality?

What evidence has DfID been provided with from the World Bank of improved relations with civil society and parliaments in recipient countries?

(iii) Coordination between the World Bank and IMF

18. A key aspect of World Bank work in developing countries is that it is subject to some coordination between the World Bank and the International Monetary Fund (IMF). While there has been heavy criticism of the mechanisms and extent of collaboration,[23] the World Bank institutionally must follow the IMF's lead on macroeconomic and fiscal policy questions for countries that borrow from the IMF. This affects two areas that run counter to DfID principles: fiscal policy space and the risk of aid cut-off.

19. The DfID white paper acknowledges that "International partners—some of whom were sceptical that increased resources would be used effectively—have focused on constraints rather than the scale of need. This cycle needs to be broken. Developing countries now need to set out ambitious plans to reach the MDGs over the next 10 years."[24] However the IMF has continued to focus on constraints to the use of resources such as absorptive capacity constraints rather than using a needs-based approach. In a recent programme review for the facility which lends money to low-income countries, the IMF specifically said "The most useful scenarios would focus on an ambitious but controlled acceleration in aid inflows, rather than on MDG- or needs-based scaling up, which may entail financing gaps that could not realistically be filled." Because World Bank assistance must follow the IMF restrictions on fiscal policy, the World Bank is also prevented from funding based on budget scenarios determined by needs.

20. Secondly, DfID's policy on conditionality indicates "An IMF or World Bank programme going `off track' will not automatically lead DFID to suspend its assistance."[25] This is part of DfID commitment to harmonisation of conditions, and to reduce the burden of conditionality. However the World Bank is committed, because of its coordination with the IMF, to suspend assistance to a country when the IMF has had a disagreement with country authorities about their economic policy. In this case where the IMF has declared a programme "off-track", DfID makes an independent assessment of the situation and coordinates with other donors before determining what action to take in regards to bilateral aid. But DfID assistance that is routed through the World Bank will be held up by the Bank regardless of DfID's independent assessment.

Suggested question:

How does DfID plan to ensure that multilateral institutions use needs-based assessments rather than relying on assessments based on the currently constrained fiscal framework in developing countries?

B. PURSUING CLIMATE CHANGE OBJECTIVES

[Please refer to separate joint submission from Bretton Woods Project, Greenpeace UK, People & Planet, Practical Action and Christian Aid]

C. PURSUING A RIGHTS-BASED APPROACH TO DEVELOPMENT

21. FID outlined its rights-based approach to development in 2000 in its paper Realising rights for poor people.[26] The paper states that "Respect for, and commitment to, the human rights and fundamental freedoms set out in the Universal Declaration of Human Rights is a constant theme throughout our work." Despite this, we find that DFID has failed to uphold its human rights principles in relation to the World Bank.

22. DFID's World Bank institutional strategy: indicators of success, commits to "conduct by end FY06 an analysis of the gap between the current set of safeguard policies and relevant international standards and best practice, including those established by international treaties and conventions". We are not aware that this has been carried out.

23. NGOs pushed for DFID to honour its rhetoric on the need for stronger safeguards, and to ensure that the Bank adhere to human rights principles during the revision of the IFC's safeguard policy review. In a series of written documents, letters, and meetings with DFID during 2004-2006, NGOs detailed how DFID was not meeting its own policies on principles-based decision making and a rights-based approach to development. A letter to Hilary Benn of 24 May 2006, from representatives of 11 NGOs stated: "NGOs were extremely disappointed to note that based on its statement of March 2006, DFID no longer insists that the performance standards "reference and cite language from relevant international standards and conventions". DFID is satisfied with the fact that ILO conventions are now referenced in the performance standards, but makes no insistence that universal instruments referring explicitly to human rights, indigenous peoples or the environment be included. We feel that this is inconsistent with DFID's rights-based approach to development".[27]

24. In June the IFC released its Guide to human rights impact assessment and management for "road testing" by companies.[28] Human rights experts have criticised the IFC's legitimacy in this area. The IFC claims that its "sustainability policy and performance standards reference internationally agreed human rights norms". However Amnesty International has said that "the IFC's performance standards ignore the evolution of international human rights law within the UN system, which should have been the basis for applying minimum standards to their clients. Instead they use language and concepts which are vague, open to interpretation and may not provide the protections that are required under international law".[29]

25. We support the call of Canadian NGOs Rights and Democracy and Halifax Initiative which insist that the IFC should clearly and explicitly state that it intends to comply with international law, and should ensure that its projects do not undermine human rights directly or indirectly. They point to current IFC-supported projects associated with clear human rights violations, such as the Glamis goldmine in Guatemala and Anvil copper-silver mine in the Congo.[30] The process surrounding the development of this new human rights impact assessment has been opaque, with little consultation with directly affected communities or civil society groups working in the area. Human rights experts assert that the IFC does not actually require a human rights impact assessment as part of its lending to companies and have made it clear that they are taking a "flexible" approach to their human rights impact assessment. However, if this tool is truly to reflect best practice, it can not allow companies to opt-in or opt-out as they see fit, and must draw on actual jurisprudence, rather than interpretation. Consultation with affected communities and/or civil society experts in the design of the IFC's guide has also been limited.

26. More positively, John Ruggie, the UN special representative on business and human rights and the IFC recently launched a joint study on foreign direct investments and human rights. This aims to examine the relationship between investor "rights" and the human rights obligations of the host states.[31] The study will look at the potential impact of these clauses on the host states' ability to adopt and implement new human rights laws in areas such as labour, protection of the environment, and the provision of essential public services such as water.

27. This study adds to a report by Amnesty International (AI) on the World Bank-funded Chad-Cameroon pipeline in 2005 which examined the framework of legal agreements signed between the ExxonMobil-led consortium and the governments of Chad and Cameroon. These agreements may require the countries to pay large penalties if they interrupt the operation of the pipeline, even if making an intervention to enforce national laws and protect rights and could serve as a strong disincentive to the governments of Chad and Cameroon to implement their human rights obligations. AI called on the Bank and other stakeholders involved to revise the project agreements to include an explicit guarantee that nothing in the agreements can be used to undermine either the human rights obligations of the states or the responsibilities of the companies.[32]

28. We believe that a genuine commitment to human rights principles should include not financing activities that contravene international human rights law; taking full responsibility where the activities of the institution negatively impact or undermine the enjoyment of human rights; and addressing its complicity in past abuses, including through the provision of reparations.

Suggested questions:

Will DFID ensure that a gaps analysis between the current set of World Bank safeguard policies and relevant international standards and best practice, including those established by international treaties and conventions is carried out as soon as possible as per its commitment?

Will DFID insist that the

explicitly address all the rights contained in the International Bill of Rights, International Labour Organisation conventions, the UN Declaration on Indigenous Peoples' Rights and other relevant standards?

Will DFID insist that the IFC's human rights impact assessment be conducted by an independent and competent body?

Will DFID push for World Bank supported project agreements to include an explicit guarantee that nothing in the agreements can be used to undermine either the human rights obligations of the states or the responsibilities of the companies?

12 October 2007