House of Commons - International Development

Select Committee on International Development Written Evidence

Memorandum submitted by the Trades Union Congress

Summary

— The TUC supports the broad thrust of the DFID and World Bank policies on poverty reduction and emphasizes the need for the explicit recognition of the role of trade unions in development and for their greater involvement in poverty reduction strategies.

— The UK Official Development Assistance should be conditional upon respect of human rights including adherence to internationally recognized Core Labour Standards—effective enforcement of right to freedom of association and collective bargaining, elimination of child labour, forced labour and workplace discrimination.

— Despite a pledge by the DFID to promote Core Labour Standards throughout the world, no meaningful initiative has yet been taken to do so in international fora or institutions such as the World Bank, IMF, ILO or WTO. Both the DFID and international financial institutions need to ensure that all member countries of the ILO, including low-income countries, fulfil their obligation to uphold the rights enshrined in the 1998 ILO Declaration on Fundamental Principles and Rights at work in all development interventions funded by them.

— The DFID and the international financial institutions need to collaborate more closely to dispense with onerous economic policy conditions and focus on a few mutually agreed outcome-based conditions and financial accountability essential for the achievement of objectives of their development interventions and on the respect of human rights.

— It is imperative that the quota systems, voting, representation, access to resources and selection of heads in international institutions be substantially reformed in order to enable low-income countries to take part in decision-making structures.

— Effective measures need to be in place to ensure policy co-ordination between the World Bank and the IMF, as well as between other development agencies and donors. While a rigid division of labour between the two institutions is not advocated, the World Bank and the IMF need to continue to focus broadly on development and growth and on macro-economic stability respectively—areas in which their comparative advantages lie.

— The DFID needs to make use of its influence with governments in developing countries to facilitate consultations with trade unions by World Bank/IMF missions during their visits. This will enhance its credibility on civil society involvement in its aid programmes and encourage the governments concerned to engage in policy dialogue with trade unions.

1. The TUC welcomes the Committee's inquiry into the DFID's relationship with the World Bank, recognizes its relevance and topicality and supports its objectives in view of the growing importance of the role played by multilateral institutions in development. We note that the objectives of the DFID and those of the World Bank coincide in two broad areas of critical importance—poverty reduction and achievement of Millennium Development Goals.

2. The TUC agrees with, and supports, the broad thrust of the DFID and World Bank policies on poverty reduction in the developing world and has, in close collaboration with the international trade union movement, made representations to them on the need for the explicit recognition of the role of trade unions in development and for their greater involvement in poverty reduction strategies. While we are pleased with the progress made in recent years, a great deal remains to be achieved both in terms of policy consultation and dialogue and active and meaningful collaboration with trade unions in development interventions. This submission therefore addresses, inter alia, some issues and concerns over trade union involvement in development as well as some themes of particular importance to the international trade union movement.

3. Despite the explicit recognition of the importance of organized labour and of their rights by the World Bank[119] and the IMF, the policies, practices and attitudes of both institutions, relating to internationally recognized Core Labour Standards remain ambivalent or inconsistent with their declared intentions. The DFID needs to use its influence with international financial institutions, especially the Word Bank and the IMF, in order to ensure that its rights-based approach to development is adequately reflected in their policies and practices, that its policy of close collaboration with trade unions and other civil society organisations is put into practice and that trade unions are given the opportunity to play their role in development initiatives funded by the World Bank and the International Development Association (IDA). It is also imperative that some key issues—gender equality and empowerment of women,[120] HIV/AIDS and protection and promotion of rights of vulnerable groups such as people with disabilities and the elderly—identified by the DFID to be addressed in all its interventions be integrated into, and receive adequate attention in, development assistance programmes supported by the World Bank.

Policies on conditionality

4. The TUC appreciates the contribution made by the DFID to the review of conditionality undertaken by the World Bank and the IMF[121] and the subsequent initiatives, following a public consultation, to transpose some of the key elements of the revised guidelines on to national policy formulation on official development assistance in 2006. Conditionality involves the use of a broad range of policy instruments through which international financial institutions seek to exercise influence over sectoral and/or macro-economic policies of recipient nations. The TUC is not opposed to conditionality[122] per se, but takes the view that conditions should not infringe upon the sovereignty of recipient nations and restrict their ability to manage their economies. Moreover, it believes that the UK Official Development Assistance should be conditional upon respect of human rights including adherence to internationally recognized Core Labour Standards—effective enforcement of right to freedom of association and collective bargaining and elimination of child labour, forced labour and workplace discrimination.

5. The TUC is in broad agreement with the six strands of the UK position[123] on terms and conditions of aid partnership and would like the DFID to collaborate with the international financial institutions and the donor community, especially, with other OECD nations to put in place appropriate mechanisms to implement the reforms of conditionality which, to some extent, it was instrumental in bringing about. The DFID has pledged to refrain from imposing conditions concerning privatisation or trade liberalisation[124] in its programmes of aid and to call upon[125] the World Bank and the IMF to do the same. Nevertheless, apart from some token gestures,[126] no substantive initiatives have yet been taken in order to persuade the international financial institutions to take appropriate and adequate measures to put the revised guidelines into practice. In this regard, it is important to point out that:

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financing decisions

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6. The TUC strongly believes that the DFID and the international financial institutions, notably, the World Bank and the IDA need to collaborate more closely to dispense with onerous economic policy conditions and focus on a few mutually agreed outcome-based conditions[132] and financial accountability essential for the achievement of objectives of their development interventions and on the respect of human rights.

Core Labour Standards, Poverty Reduction and IFIs

7. The TUC welcomes the DFID recognition of the role of trade unions in development, the relationship of the Core Labour Standards and Poverty Reduction[133] and of the importance it attaches to collaboration with trade unions[134] in developing countries. There has indeed been significant progress in policy dialogue and consultation and in DFID support for trade union development co-operation initiatives in recent years. The DFID has pledged to promote Core Labour Standards[135] throughout the world and attached great importance to the respect for human rights and international obligations. However, these declarations have not been followed by any meaningful initiative to promote the respect for Core Labour Standards and/or collaboration with trade unions in international fora or institutions such as the World Bank, IMF, ILO or WTO.

8. The international trade union movement led by the ITUC has made representations[136] to the World Bank and IDA on the need for the observance of Core Labour Standards in development interventions funded by them and welcomed the announcement by the World Bank in 2006 to ensure the respect of Core Labour Standards in infrastructure projects funded by it. However, the Bank does not seem to have an effective, credible, long-term strategy to put into practice its policies on labour rights despite the recognition of the importance of raising the standard of living and working conditions of labour in its Articles of Agreement.[137] The 12th replenishment of IDA, adopted in 1998, included a recommendation that the Country Assistance Strategies (CAS) include assessments of observance of Core Labour Standards. In our view, this provision should be further strengthened by an obligation to ensure the observance and proper monitoring of CLS in all IDA-funded projects. The Country Policy and Institutional Assessment now includes 16 criteria grouped in four equally weighted clusters[138] and the Policies for Social Inclusion/Equity cover social protection and labour. The DFID needs to play a leading role in persuading the donor community to put pressure on the World Bank/IDA to ensure the fulfilment of the CPIA criteria in relation to the CLS.

9. Despite the criticism from the international trade union movement[139] over the World Bank's excessive reliance on labour market deregulation to promote employment, advocated in Doing Business, we note that IDA14 continues to emphasize the need for survey-based diagnostics of the Doing Business Project (DBP). The TUC has already raised the issue with the then Secretary of State for International Development and would like the DFID to proactively support the adoption of measures to promote employment in line with the Decent Work Agenda[140]. A number of countries eligible for receipt of IDA financial assistance have ratified ILO Conventions relating to Core Labour Standards and are required to respect them. Moreover, all member countries of the ILO, including low-income countries with a combined of population of some 2.5bn, have an obligation to uphold the rights enshrined in the ILO Declaration on Fundamental Principles and Rights at work adopted in 1998.

Internal Governance

10 We welcome the UK Government's pledge to seek substantive reforms[141] to the international financial institutions, including the World Bank and the IMF. The two institutions created some sixty years ago for post-war reconstruction of mainly Western Europe had their remit extended to the alleviation of poverty in the developing world. However, the shift in the geographical focus has not been accompanied with any corresponding changes to internal governing structures of the two institutions in order for the concerns and the interests of developing nations to be adequately addressed and represented in them. It is necessary to ensure that representation on governing structures of the two institutions is reflective of today's economic, political and demographic realities. At present, five out of the 24 Executive Directors of the World Bank are appointed by the United States, France, Japan, Germany and the United Kingdom while 19 others are elected by other 180 member countries.[142] The countries in Africa, except Egypt and Libya, and some island states are represented by just two Executive Directors.

11. Developing nations—recipients of financial and technical assistance from the World Bank, IMF and IDA—are not adequately represented in the decision-making processes and have so little voting power that they are unable to exercise any influence over the decisions affecting the lives of their citizens. At present, the US[143] alone holds 16.38% of the total voting power in the World Bank while Japan's share was 7.87% in 2006. It is imperative that the quota system, voting, representation and access to resources be reformed in order to enable low-income countries to wield more influence. In our view, the Resolution on Quota Reform[144] adopted in September 2006 by the Board of Governors of the IMF fell far short of expectations and is unlikely to enhance the voice of low-income countries significantly.

12. According to the Articles of Agreement[145] of the World Bank, the Executive Directors select a President. However, in reality, the heads of both institutions are appointed by consensus reached, mostly, among G-7 countries while the vast majority of developing nations are not even consulted on them other than through the few Executive Directors supposed to represent their interests. The President of the World Bank has been a national of the USA while the post of the Managing Director of the IMF has been held by a European[146] since the inception of the two institutions. Although the DFID has clearly signalled[147] that it would seek changes to the selection processes, the most recent events leading to the appointment of the current President of the World Bank are symptomatic of the chronic malaise felt by leading developed nations including the UK over significant reforms to the institutions concerned.

13 The representation of low-income developing nations—beneficiaries of concessionary lending by the International Development Association—within its governing structures is grossly inadequate. At present, Executive Directors of the World Bank, ex-officio, serve as Executive Directors of the IDA (and IFC). This is a wholly unsatisfactory state of affairs[148] that entrenches the interlocking interests of a few developed countries and perpetuates their sway over the development agenda. Although the beneficiary countries are invited to take part in the discussions leading to the replenishment of funds, they have little say in the decision-making processes.

14 At present, any amendment to the Articles of Agreements of the two institutions needs to be approved by three-fifths of the members having 85% of the total voting power. This is tantamount to the USA having a veto on any reforms, as it holds 16.39% and 16.79% respectively of the total voting power in the two institutions. It is important to point out that this is not a theoretical impediment but a practical obstacle to any reform. 131 member countries having 77.3% of the total vote have so far approved an amendment to the Articles of Agreement of the IMF authorising a new allocation of Special Drawing Rights (SDRs). The United States with 16.79% of the total vote has so far withheld its approval, thereby effectively blocking the allocation.

IMF and Surveillance of Economies

15 The IMF has, in many respects, failed to fulfil effectively its primary function of surveillance of the international monetary system with serious consequences for economic growth and income distribution, as was evidenced in the Asian financial crisis in the late 1990s. In this regard, the TUC supports the approach of the UK Treasury set out in the UK and the IMF Report,[149] which focuses on the need for crisis prevention. The IMF has, in recent years, been involved in development policy issues in some low-income countries to an extent considered by many to be beyond its remit. IMF interventions are no longer limited to ensuring balance of payments viability or macroeconomic stability alone.[150] The IMF requires its members to make crucial policy decisions affecting macroeconomic stability, growth, income distribution etc. While appreciating the need for the IMF to seek changes to some domestic policies due to its obligations under the revised Article IV,[151] we believe that it needs to achieve its objectives[152] in a more discreet and non-intrusive way.[153] Moreover, it is vital that effective measures are in place to ensure policy co-ordination between the two institutions, as well as between other development agencies and donors. Bilateral donors like the DFID often rely on macroeconomic or sectoral analyses by the World Bank and the IMF for important decisions on development assistance. As a recent review[154] pointed out, the lack of coordination—poor, inadequate or conflicting advice—could result in wastage of valuable resources. The World Bank and the IMF need to concentrate on issues in which their expertise and experience are most relevant without straying into each other's fields. While a rigid division of labour between the two institutions is not advocated, the World Bank and the IMF need to continue to focus broadly on development and growth and on macro-economic stability respectively—areas in which their comparative advantages lie.

16 Trade unions and other civil society organisations are willing and able to make a useful contribution to consultations by IFIs, for instance, Article IV Consultations[155] if they are given the opportunity by making available relevant information in advance. We welcome the increase in the publication of Article IV Consultation Reports by the IMF and support further initiatives to enhance transparency. The DFID needs to make use of its influence to support consultations with trade unions by World Bank/IMF missions during their visits to developing countries. Not only will it enhance its credibility on civil society involvement in its aid programmes, but it will also raise the profile of trade unions in the eyes of developing country governments, thereby, encouraging them to engage in policy dialogue with trade unions. Moreover, other bilateral donors are likely to follow the DFID example.

17 The TUC, in collaboration with the international trade union movement, has long campaigned in favour of substantial debt relief for developing nations and argued that the World Bank and the IMF should play a more active role in finding a long-term solution.[156] It is also important to point out that debt cancellation schemes including the Multilateral Debt Relief Initiative (MDRI) and Highly Indebted Poor Countries (HIPC) adopted so far by international financial institutions have not been comprehensive enough to cover all creditors -countries, banks, export credit agencies and other lending institutions.