Memorandum submitted by Lauren M Phillips,
Research Fellow, Overseas Development Institute
DFID/WORLD BANK
RELATIONS
Latin American Regional Assistance Plan as a Case
Study for Multilateral Funding
1. This first section of this submission
focuses on DFID's Regional Assistance Plan (RAP) to Latin America
which since 2004 has been heavily focused on working "through,
with and around" the World Bank and Inter-American Development
Bank (IDB) to achieve its regional policy goals. The experience
of channelling a large regional programme through the World Bank
serves as an interesting example of how successful DFID is likely
to be in the future of ensuring that multilateral funding meets
their stated objectives. A second section on World Bank governance
follows.
2. ODI conducted an interim evaluation of
the RAP in winter 2006-07, and material in this brief is taken
from that evaluation.
PURPOSE AND
OBJECTIVE OF
THE RAP
3. The purpose of the RAP was to "enhance
the impact of international community support for poverty reduction
in Latin America, focusing primarily on the Inter-American Development
Bank and the World Bank." The primary objective of the RAP
was to "help the IDB and World Bank better enable poor people
to shape, participate in and benefit from... access to markets
and international trade... [and] accountable and responsive public
sector management and political systems."[105]
4. Faced with the 90/10 strategy for funding
to middle income countries and shrinking resources to Latin America,
the new strategy was driven by the realisation that "as a
modest sized bilateral donor, DFID can only achieve sustainable
and significant contributions to poverty and inequality reduction
if we use our bilateral recourses to enhance the effectiveness
of key influential organisations in the region, in particular
the IDB and World Bank. We need to engage more systematically
with these institutions by focusing on a limited number of areas
where we have a comparative advantage and can add value to their
work."[106]
RAP ARCHITECTURE
5. The RAP had a relatively complicated
architecture with two primary components. A small amount of money
was provided for the three remaining regional offices in Nicaragua,
Bolivia and Brazil to pursue small programmes, and a larger amount
of money for the IDB and World Bank governed through a series
of trust funds. The trust funds were focused on trade, markets,
governance and social exclusion.
FINDINGS FROM
THE EVALUATION
ON THE
EFFECTIVENESS OF
WORKING THROUGH
IFIS
6. The overall findings of the evaluation
were that there was evidence of a positive influence on both the
IDB and World Bank, and that the Trust Funds have been used to
finance projects consistent with DFID objectives.
7. However, it was generally perceived that
the IDB trust funds had been more successful in meeting DFID objectives
than World Bank trust funds for a number of reasons. First, the
DFID trust funds within the World Bank were small in comparison
to the World Bank's total trust fund and other funding pools.
Second, UK attention at the Executive Board level to the Latin
American project was lacking, in contrast to the IDB where the
UK executive director could focus extensively on the DFID relationship.
8. Finally, the World Bank's decentralised
structure in Latin America, with country offices playing a central
role, minimised the impact of funds from Washington. As the evaluation
noted: "The structure of the World Bank might have made it
sensible to consider locating the World Bank Trust Funds closer
to the ongoing programme work. It appears that their location
in Washington has led to the politicisation of the funds amongst
different research and operational departments, and has in practice
decreased access to the grants for World Bank offices in the region."[107]
9. The idea of "influencing" the
World Bank was also problematic for several reasons. First, the
way that this objective was presented at the outset created diplomatic
problems. World Bank staff "continues to be highly sceptical
about the ability of relatively small trust funds to fundamentally
change the way the Bank approaches issues, such as trade and governance."[108]
To date there is a general fear within DFID of causing offence
by claiming to have influenced the World Bank and IDB, which has
made monitoring and evaluating the extent to which such influencing
is occurring nearly impossible.
10. Thus, the findings on the influencing
agenda in the World Bank and IDB was summarised as "a successful
model, imperfectly operationalised."[109]
LESSONS FOR
FUTURE DFID/WORLD
BANK RELATIONS
11. The lessons from DFID's attempt to work
in Latin America through the World Bank highlights that it is
possible to create programmes which conform to DFID goals, but
that the overall strategic direction of the institution is unlikely
to be changed by such programmes given the relatively small funding
impact such projects have.
12. Additionally the RAP experience suggests
that the World Bank does not look favourably upon DFID's attempt
to influence or change its policy agendas, and that presenting
objectives in such a way makes achieving goals more difficult.
UK VIEWS ON
WORLD BANK
GOVERNANCE
13. This second part of this submission
focuses on UK / DFID views on governance of the World Bank, and
in particular on how efforts to reform the governance of the World
Bank and its sister institution, the IMF have been supported or
stymied by the UK government.
BRETTON WOODS
INSTITUTIONS AND
GOVERNANCE REFORM
AND THE
UK
14. Reforming the governance structures
of the Bretton Woods Institutions—the World Bank and International
Monetary Fund (IMF)—was until last year a desirable but
seemingly unattainable goal. But during 2006, major momentum built
both within and outside the institutions for reform, as the IMF
in particular was at risk of losing relevance due to the growing
economic strength of middle income countries (traditionally the
IMF's primary borrowers) who were repaying their loans early and
had little need to borrow given favourable global credit conditions
and their possession of staggering levels of foreign exchange.
It was agreed that by the spring of 2008, members would decide
on a major reform of representation within the IMF, with expected
concordant changes in its sister institution, the World Bank.[110]
15. Some prominent members of the UK government,
and most notably Bank of England governor Mervyn King, spoke out
about the need to reform these institutions.[111]
The reform process also enjoyed the tacit support of Gordon Brown
while he was the chair of the International Monetary and Finance
Committee (IMFC) of the IMF, who pushed for greater representation
for African countries and presided over initial increases in representation
to four countries: China, South Korea, Mexico and Turkey.
16. As the reform process has progressed
however and negotiations continue, the UK along with several other
European countries and Japan are said by insiders to be resisting
a final deal which would utilise gross domestic product measured
(GDP) measured in purchasing power parity (PPP) terms to determine
a country's representation in the fund. Such a metric would afford
developing countries greater representation, but would adversely
affect the level of representation of countries like the UK and
France, who as two of the five largest members, currently have
the right to their own chairs on the Executive Board.
17. Two other critical events have taken
place since the governance reform negotiations began: the first
was the prolonged scandal involving World Bank President Paul
Wolfowitz which eventually led to his resignation. Despite calls
by many to use the opportunity of his resignation to democratise
the selection process—which has always been manned by a
US appointment—the US, tacitly supported by the Europeans,
nominated Robert Zoellick as the new Bank president.
18. Less than a month later, the Managing
Director of the IMF announced that he would be resigning his post
in October 2007 for personal reasons. His resignation once again
generated calls for democratising the selection process (the position
has always been manned by a European appointment), including calls
from the UK to pursue an open leadership contest. However, under
pressure from European allies, the UK recently threw its support
behind the presumptive European nominee, former French finance
minister Dominique Strauss-Kahn. 19. Thus, the UK has played
an ambiguous role in the process to reform the Bretton Woods institutions
and therefore increase their credibility with borrowing governments.
While on the one hand it made initial gestures supporting reform
of formal representation within the institutions, it has more
recently become part of a group of countries which is blocking
a final deal.[112]
Additionally, while they initially voiced an interest in seeing
a fair leadership contest for the positions of President and Managing
Director, they have eventually fallen in line behind the establishment
candidates.
105 DFID Latin America Regional Assistance Plan 2004-07:
2. Back
106
Ibid: 9. Back
107
Booth et al (2007), "Interim Evaluation of DFID's
Regional Assistance Programme for Latin America," Overseas
Development Institute: 5. Back
108
Ibid: 5. Back
109
Ibid: 11. Back
110
Formal representation on the board of the World Bank has always
mimicked that of the IMF, where changes to representation are
usually initiated. Back
111
Speech by Mervyn King, Governor of the Bank of England, "Reform
of the International Monetary Fund," given at the Indian
Council for Research on International Economic Relations (ICRIER)
in New Delhi, India: Monday 20 February 2006. Back
112
It should be noted that the US supports the deal that the UK and
other EU countries + Japan are blocking. Back
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