CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 67-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

INTERNATIONAL DEVELOPMENT COMMITTEE

 

 

DFID and the World Bank

 

 

Tuesday 20 November 2007

MR MICHAEL HAMMER, MR JEFF POWELL and MS NURIA MOLINA

Evidence heard in Public Questions 1 - 55

 

 

USE OF THE TRANSCRIPT

1.	This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.
2.	The transcript is an approved formal record of these proceedings. It will be printed in due course.

 

Oral Evidence

Taken before the International Development Committee

on Tuesday 20 November 2007

Members present

Malcolm Bruce, in the Chair

John Battle

Hugh Bayley

Richard Burden

Mr Stephen Crabb

James Duddridge

Ann McKechin

Jim Sheridan

Sir Robert Smith

________________

 

Examination of Witnesses

 

Witnesses: Mr Michael Hammer, Director, One World Trust, Mr Jeff Powell, Co-ordinator, Bretton Woods Project, and Ms Nuria Molina, Policy Officer, European Network on Debt and Development (EURODAD), gave evidence.

Q1 Chairman: Good morning. Thank you very much for coming in to help us with our inquiry into the World Bank and, particularly, obviously, Britain's relationship with the World Bank and the extent to which the World Bank delivers on UK development objectives. I think it would be helpful for the record if you could introduce yourselves and your organisations, briefly, so that we can then move on to the questions.

Ms Molina: Good morning, I am Nuria Molina from EURODAD (European Network on Debt and Development). I am a Policy Officer, dealing mainly with international financial institutions.

Mr Powell: Good morning, my name is Jeff Powell. I am the Co-ordinator of the Bretton Woods Project, a UK NGO.[1]

Mr Hammer: Good morning, my name is Michael Hammer. I am the Executive Director of the One World Trust, an organisation that is looking at accountability in global governance.

Q2 Chairman: Thank you very much for that. Obviously, we have seen some of you before and had discussions, and there has been a long-standing debate about conditionality and the extent to which the Bank imposes conditions. There has been a lot of analysis of this and how effective it is, and from our point of view what we are interested in, as the British Government is giving £1.4 billion over three years to IDA,[2] is that it is delivering in accordance with our policy, which is poverty reduction, in particular. The UK National Audit Office has said that the World Bank appears to perform best of all the multilateral organisations. Do you agree with that assessment?

Mr Powell: Perhaps I will start on that issue. There have been, as you are, I am sure, now aware, a number of these assessments of the effectiveness, which used various metrics to look at the multilateral institutions - questions of predictability, concessionality, flexibility, co-ordination with other agencies, use of budget support - and on these metrics the World Bank does quite well, and we think the World Bank performs quite well, though with the caveat that on some of these measures, particularly, and I have noted, the use of conditionality and co-ordination with other agencies and predictability, the UNDP,[3] for example, seems to be performing better. So that is a clear signal that we are getting from these assessments. We also have the perceptional survey, such as what was conducted by the Overseas Development Institute, and in those cases we see that what is influencing the perception quite substantially is the governance of these institutions and a perceived policy bias. From that study the World Bank does less well. Having considered both of those, I think, conferring with my other colleagues in NGOs that work on development finance issues, what we do not want to have is that this becomes a purely technocratic exercise; that, really, what we should be focusing on is the impact assessment question. Not too long ago ODI did a study where they looked at aid effectiveness and they constructed a graph where they had, on one axis, low effectiveness to high effectiveness and, on the other axis, they had doing what you want and not doing what you want. Of course, any institution can be very effective at doing what you do not want it to do. So, I think, very often when you hear critiques from civil society about the actions of the World Bank it is not that it is not effective in these fairly technocratic senses, it is that there is a feeling that the Bank is not doing what civil society would like it to do.

Q3 Chairman: Do you mean civil society in the developing country?

Mr Powell: I am having to use a lot of shorthand today, unfortunately, as always. I am referring here to many of the networks that we are involved with, north and south, who focus on development finance issues. Just to finish, if we are emphasising this question of impact evaluation, some of the impact evaluations that have been done by the Bank's own evaluation unit are quite important to look to. Last year's annual review of development effectiveness conducted by the Bank's evaluation unit said that the Bank had been reasonably effective at getting countries on a growth path, but that it had not been as effective as it should be at understanding the distributional impacts of that growth path - so, in other words, understanding whether or not that growth path was actually helping the poor. I think that was quite an important lesson coming from the evaluation unit. That was looking at the public sector work. Looking at the private sector work of the Bank, the evaluation unit was actually much more harsh, saying that there was very little evidence that the IFC[4] was looking at distributional paths or at evaluating the value added, in terms of poverty reduction, of the Bank's work. So these are the kinds of things that we are more focused on in feeling that the Bank needs further reform and needs to work on a number of counts in improving its effectiveness towards poverty reduction.

Ms Molina: Particularly in the area of conditionality, it is one of the areas identified by these different comparisons of the effectiveness of different multilaterals, and a lot of them seem to coincide with the fact that in conditionality, which is crucial, the Bank has been performing quite low and there is still great scope for improvement.

Mr Hammer: I think, at the entry points, where they are doing well is a really interesting one because it all depends from which perspective you see it. The assessment that we did, including the World Bank in 2006, was one trying to understand whether there was an effective possibility for stakeholders that are affected actually to have input into how the World Bank makes its decisions. One of the things that one finds is that if you consider the World Bank to be one of the biggest global operators that has most influence in the world, and if you are then searching for the common principles of accountability and how that is reflected in governance, then you find that the record of the World Bank in terms of its performance of its governance systems is actually relatively mixed. So we do find that the World Bank is doing quite well, for instance, on the ways that it evaluates its programmes and the way that it is handling external complaints through, for instance, its inspection panel, but it is very, very weak when it comes to its ability to be transparent and its ability to be really participative, in the sense that stakeholders who are affected, living in the countries in which most of the World Bank funding is going to, in terms of the programmes that the Bank implements. There is very limited opportunity for people in those countries, or through their representatives, for instance, in Parliament, to actually input and exercise some form of control over what the World Bank does. There is - and that is quite crucial, also - only a very limited degree of transparency about how the decisions are being taken. So when you are asking the question whether the Bank is doing well and when you are looking at the policies and the systems that the Bank has in place in order to be accountable to the stakeholders, meaning the people that it affects most, then the record is fairly mixed and there are only very few dimensions, such as, for instance, its ability to evaluate its programmes, where it actually has some significant good practice in place that others can learn from. For other dimensions of accountability, I think, it is more for the World Bank to look at other global organisations to learn from them.

Q4 John Battle: Do you think the World Bank actually lists who the stakeholders are that it should consult? In other words, obviously, governments, dealing bilaterally and directly. Business? Civil society? Local government? Does it actually provide a list and have any template of who it might build those relationships with?

Mr Hammer: To our knowledge, there is no such list. It is a big question whether a standard list would be useful. What we would like to see is a policy that sets out with whom the World Bank commits to engage when it does take decisions, more in terms of the typology rather than to say: "These are the organisations: A, B, C and D". We are looking at long-term processes and so organisations would come on and off, and it would be a huge effort to keep that list up to date, but I think a policy that would set out what types of organisation and what level of stakeholders is we want to see. There is an issues and options paper at the World Bank which is providing some guidance which staff can take on, on a voluntary basis, but the World Bank at a high level fails to commit to make that policy, and I think that is one of the biggest issues.

Q5 Chairman: The Secretary of State in the debate we had in the House of Commons last week, indicated (I think he put it as a sort of rhetorical statement) that the Government would be putting more funds through multinational/multilateral agencies, and they also have a rising budget.[5] It was in the context of a debate saying: "We do not want you to do the wrong things for the wrong reasons; constrained by staffing, to be giving money to multilateral agencies simply because you cannot do it in-house". His response was, on the contrary, there is a clear role for expanding the contribution through multilateral agencies. So that was a clear statement by the Secretary of State that he felt that was a proper way to deliver and distribute more of a growing aid budget. In that situation, given the criticisms (and I accept that they are qualified, not comprehensive criticisms) of the World Bank, if you were in the Secretary of State's position or advising the Secretary of State and saying: "I have got reservations about the World Bank", what other organisations would you prefer to put money into, either in total or in part? If you were in that situation how would you distribute it? If you think the World Bank is flawed what are the agencies you think would do a better job?

Mr Powell: You ask a very easy question, of course, as this Committee is prone to do! We would not, I do not think, for a moment, want to downplay the fact that I think DFID is very seriously considering how to allocate increased ODA[6] amongst various channels and that, in fact, this is a very difficult decision. It is not a technocratic exercise, it is a political decision. What UK NGOs would like to see is more transparency about how these decisions have been arrived at in the past and how they might be arrived at in the future, with more involvement of broader stakeholders who have an opinion on these issues. I probably do not want to get into a "Take-this-much-money-and-put it-with-this-institution" game, in that I might get in trouble with many of my colleagues in the networks I work with, but I think what they would agree is that DFID needs to have a vision of which institution should play which role and a clear agenda for reforming those institutions so they can most effectively play that role. So there is the question of how do you then get change in these institutions. This gets us into the question of the IDA allocation and how we feel DFID should be using what levers it has to leverage change at the World Bank, in the Bank's case.

Q6 Chairman: Do you have suggestions? We have mentioned other agencies.

Ms Molina: I am not going to provide a final and conclusive response on how much money should be channelled into which institution, but obviously channelling through different institutions implies diversification of risk. It is, as Jeff was saying, a financial contribution but it is also a very political decision and it gives an opportunity to government and particularly to the most progressive donors in Europe. This is a question that, obviously, is being raised within UK politics but it is being raised, at the moment, as well in the context of the later stages in the IDA negotiations and the replenishment round; it is being raised in the context of other European countries, and a number of parliaments and governments are trying to find an answer to this decision. So beyond implications in financial locations, this opens the door to exerting a political influence and being able to foster further change in these institutions, bearing in mind that when comparing different multilaterals we need to identify different flaws in providing aid finance to different institutions which open the door for these governments to try to tackle these different deficiencies in a number of them.

Mr Hammer: I would probably approach the question from the point of view of which are the global public goods that this Government or other governments want to see delivered at world level, and what institutions or what network of institutions of global governance do they want to see in place in order to be able to deliver these goods for world citizens. On that front, I think organisations such as the World Bank are very hard to replace. I think that the Government needs to make choices and, also, see that global governance is not just a matter of state-based institutions but there may be other actors who may well perform roles which currently, in the very long-established state-based system of global governance, are traditionally occupied by those organisations. I think what we need to look at - and what DFID may want to look at - is which are the global public goods that it wants to support the provision of to citizens, particularly the vulnerable and the marginalised, and which organisations can best deliver them. Also, where it has identified that maybe the World Bank is the best organisation to do that, where are the areas that the Bank can learn from others in order to deliver those goods in an accountable way? Our research really shows that there are lots of opportunities for learning. I think we would not advocate for saying: "Do away with the World Bank, or do way with this or that organisation"; it is about what we want to achieve and whether that organisation is able to deliver on these goals in an accountable way.

Q7 Chairman: I thought it was interesting and, perhaps, instructive that none of you mentioned the European Commission. Louis Michel, I think, two years ago at the seminar we hosted here, said he wanted to see the European Commission develop the capacity to deliver things in a way that the World Bank did, to which the World Bank's response was: "If I thought they could do it I would be worried, but I know they have no chance". You do not see the European Commission as really in the frame?

Mr Hammer: Maybe it is going to be interesting, from our perspective, to wait until 4 December when we are publishing our next global accountability report because we are going to be looking there at one European institution; we are looking at the governance and accountability of the Council of Europe. Last year we looked at the OECD[7] as an organisation as well. I think what it shows is that there are organisations which include countries that are powerful, for instance, also, in Europe, that may have complementary or interfacing abilities to work together with the World Bank. So as we are progressing with this research we may be able to give some more answers.

Chairman: As a former Member of the Parliamentary Assembly in the Council of Europe, I shall look forward to that with interest.

Q8 James Duddridge: To what degree are DFID's hands tied in relation to the World Bank? Are they effectively contracted to the World Bank and annually expected to incrementally increase their level of funding? To what degree is there discretion over that relationship?

Mr Powell: I think Nuria might have something to say about the question of the aid effectiveness of the EC,[8] and then can I come back to that question? Is that all right?

Ms Molina: Just a final comment on the European Commission. Since I am based in Brussels, I do not know if I have the response to that but, maybe, I am closer to these institutions. Coupled with the question of how much we have to channel to which institutions, I think it is a crucial question that goes along the lines of: how, as a government, as a progressive donor, can you influence the shaping of the policies and the aid effectiveness of the institutions? I think there is scope for that, but we will come to that later. One of the strengths, probably, of the European institutions (we are aware there have been a number of problems related to the aid effectiveness of the European Commission and the European aid), is that it is multilateral, which is open to change, open to new development and new ways of delivering aid, particularly in terms of issues related to conditionality, but also related to predictability and ownership. So, obviously, this is interesting to explore and this is interesting to support in a constructive way so all the ways of delivering more effective aid can be developed within other multilaterals.

Mr Powell: To return to your question, effectively, how the IDA process now works is that the World Bank staff in countries do assessments of what they think their various portfolios can absorb over the next IDA period. They formulate a grand total request on a number of different scenarios and they then go back to the donors and, basically, ask for an increase on their previous contribution in line with what they would like to increase the current IDA fund to. Is DFID (I think that was your question) simply saying: "Yes, thank you for that estimate, and we will comply"? Up until the last IDA replenishment round, which was the first time where DFID had said: "We want these changes before we are willing to respond to that request", my answer would have been "Yes". With that precedent last year it is a positive one that now UK is much more constructively saying: "We are willing to consider that increase but we want a reform agenda. We want something for our money". That is something we would like to see continue. Having said that, the usual response is we can't have everyone saying: "This is what we want and we will not give you our money unless we get it". That is not the nature of a multilateral institution. However, multilateralism is also not about simply complying and handing over money when you get the request; there has to be a balance in the middle. I think this is where European civil society has been working together across countries to try and encourage various donors to work together to put forward a reform agenda for the Bank. Our understanding from those inside the process is that the Bank, in terms of senior management, has been reluctant to bring any new issues into the reform agenda. That has been disappointing for us. So it appears that in this round there is not a sense of getting something for your money - getting something for the increased commitment.

Q9 James Duddridge: Are there any other good examples where countries have used the replenishment round to push a particular agenda effectively? You mentioned the British being proactive, but in relation to other countries are there any good case studies?

Mr Powell: The history of using the IDA lever is dominated by the United States, and I would not want to put that forward as a best practice example, because the US has usually acted unilaterally in that respect. Where sometimes civil society has been on board and in agreement with that action (for example, with the Pelosi amendment, which brought the need for Environmental Impact Assessments into Bank project lending) civil society groups in both the United States and in many developing countries were quite pleased with that development. However, in terms of a process, that is not the way we would want to go; we would want to see more donors working together as groups, ideally working together with recipient countries to think about a common reform agenda for the Bank.

Q10 Sir Robert Smith: Robert Zoellick has talked about the need to expand the pool of donors to the IDA and, in particular, also, apparently, floated the idea of a couple of private sector companies that might be interested. There was also talk about South Korea, Turkey and Egypt maybe coming along, and other countries that have benefited in the past now becoming donors as well. What do you think the likelihood is of attracting new contributors, whether private sector or from other countries?

Ms Molina: There might be some likelihood of attracting new donors, definitely. There is a concern that we have seen that we would like to ensure, obviously, that decision-making governance and the local objectives of the International Development Association remain within the domain of, firstly, global public goods, development and poverty reduction. Our concern with some actors which have not been traditional in the development aid field would be related to the fact that they might try to change this agenda of looking into poverty reduction and trying to foster pro-development policies. So maybe we see these as an opportunity but an opportunity that we have to be very careful in keeping vigilant that this does not divert from the prior objectives of the International Development Association.

Mr Powell: I would add that I think most civil society groups would be very pleased to see IDA graduates, if you will, become donors to the Bank - expanding the pool of donors in that sense. What we would not want to see is that that takes any pressure off the richer countries to meet their commitments to the 0.7 % contribution. On the question of the private actors, I think initially there was some concern; rumours were swirling around the annual meetings that it was some pharmaceutical companies that wanted to give money to IDA, and you can imagine that there were some concerns amongst civil society groups working on health issues about what that might imply in terms of governance. What is clear, as Nuria has expressed, is that there should be no governance rights given to anything other than states, if other actors do want to contribute to the Bank. Finally, a comment on the fact that there is a greater contribution from the IFC (International Finance Corporation) to this IDA replenishment round. While, I suppose, returning some profits to IDA is a positive development we note some contradiction in the fact that the IFC has been active in promoting fossil fuels. That comes at a time when it is giving money to IDA to actually work on the climate change adaptation agenda. So, if you will, this is a bit of a sense of continuing to pollute with one hand while you pay to clean up with the other. That is not entirely without some problems.

Mr Hammer: To echo the concern, we have just recently had a very short stab at what governance arrangements are in place to look at, for instance, multi-donor trust funds. What was interesting is that there was always this tension between not involving those who are most affected by the decisions but then very often giving power to a lot of actors whose credibility and legitimacy themselves is very difficult. I am not saying that there would be an intention to use that same model for, for instance, governing IDA funds, if they were coming from private donors in part as well, but I think that the experience just shows that one has to be very, very careful because when we look around and see one or two other examples it is not exactly trust-inspiring how it is working at present, and they are not exactly the best examples around. If private donors were to contribute to IDA then a very public and, clearly, safe way of ensuring the governance of these funds, I think, is a very necessary thing.

Q11 Sir Robert Smith: These are all pledges. What is the record of actually delivering on the pledge when the money is needed? Is it a good track record?

Mr Powell: State pledges to the IDA replenishment?

Q12 Sir Robert Smith: Yes.

Mr Powell: I do not have the numbers to mind but I understand that the record is mixed. I know that Italy, for example, is in the throes of its contribution to IDA 13, I believe, right now. So there are countries who are quite prompt in their payment record (which I think includes the UK), there are members that are slightly delayed but generally do not cause problems for the Bank in terms of predictability, but then there are a number of donors who, I think, have not been large in terms of volume but who have not kept up their end of the bargain, if you will. Maybe Nuria knows more of the detail there.

Ms Molina: I think that is a fair picture.

Q13 Sir Robert Smith: In the main top 10 largest pledges to IDA 14, there is nothing from Norway or the Arab States, who are all extremely oil-rich at the moment. Is there any historical reason for that?

Chairman: Would it bother you if they were to come in?

Ms Molina: Norway, as you know, delivers roughly 1 % of their GDP as development aid. Proportionally to their GDP, contributions to the World Bank are large, but obviously we are talking about countries which are smaller than other major donors. These countries are considering increasing donations at the moment, for the current replenishment round with some contingent to further progress, obviously.

Q14 Sir Robert Smith: And the Arab States?

Mr Hammer: We do not do research in that area, so it would be a bit difficult for me to venture into that.

Q15 Chairman: Would it cause you any concern if they came in in a similar way?

Mr Hammer: I have to talk a little bit beyond the One World Trust. I have done some work on human rights before and I think if you have actors that have a difficult track record, for instance, in terms of international human rights accountability, then, of course, their transparency, as well as the legitimacy of how they are coming into power, may have to have an impact on how their contribution is valued in terms of the governance of funds they contribute to the Bank. How that could be formally reflected in a body such as the World Bank is probably something that would need to be looked at, but we do not have a ready-made solution for that.

Q16 Mr Crabb: The evidence submitted to us from DFID states that there is a shared ambition on the part of it and the World Bank in terms of eradicating poverty. Do you, as a panel, perceive any tensions between the heavy focus on poverty eradication on the part of DFID and any aspects of the policy or practice at the World Bank?

Ms Molina: Probably my colleagues on my left are more knowledgeable than I am on the particular details of the DFID policy, but definitely there is divergence between the stated policy by DFID and their White Paper published in 2005, and the policy, for instance, at the Bank in terms of conditionality. So there would be, obviously, a tension and a need to reconcile and to make those more coherent, particularly on the British Government side, if they want to protect the policies that they have shaped and expressed publicly.

Mr Powell: If I can drill down on a particular point here which I think is very relevant, until very recently there was never any research done at an early stage in either a project assessment or a policy loan to determine what the likely poverty impacts of that financing would be. It is quite remarkable, really, that you would not do that kind of research. To DFID's credit, over the last few years, they have funded some of this research which goes by various acronyms, often known as poverty and social impact assessments, at the Bank, and this has started to be pioneered. If you are going to say: "What is this finance going to do to help a country move towards MDG[9] achievement?" then that kind of research is absolutely critical. What we understand, and I think Oxfam made a submission to this Committee specifically on this point (they have done a recent report), is that after the DFID pilot funding has run out the Bank has not taken this on in a systematic way. This kind of research should be an integral part of the Bank's work, and until it is that does leave a gap between both agencies' stated commitment to poverty reduction as the primary goal of ODA, and the Bank's actual practice in terms of its financing.

Mr Hammer: I do not know whether this is the exact point at which to raise the issue in the best way, but poverty reduction also depends on the credibility of those who will, for instance, address issues of corruption when delivering aid. I think it has been made a priority by the World Bank, and it is a priority for DFID as well, as far as I understand it. As that is a shared interest, how does the World Bank reflect in its own ways of working the necessary integrity in the way that it governs its own processes? Over the last year we have seen a very problematic process in terms of the senior leadership of the Bank, which has undermined, partly, the credibility of the World Bank to lead on a number of issues which are relevant to poverty reduction. I do not know whether we will be coming back to that, but the anti-corruption agenda is very important, and I think so is the credibility of the institutions which drives it, and here we have seen a certain slump over the last year.

Q17 Hugh Bayley: DFID has put a strong emphasis of priority on reforming the World Bank to increase its focus on the Millennium Development Goals and their implementation. Is that DFID policy delivering results?

Mr Powell: Another one of these very easy questions! I am not an MDG specialist - I should probably say that up front. I understand that, broadly speaking, there is progress being made on virtually all fronts, particularly in Asia and in many countries of Latin America, but that the African picture is much more mixed, with certain countries not making any progress on any of the indicators and, in some cases, some countries going backwards on some of the indicators. Again, perhaps, to pick up on a particular issue, then, if we look at the African context, where obviously things are not working as well as the international community would like to see them working, we have recently seen a lot of renewed attention placed on agriculture. What has become clear from that study is that agriculture, in terms of return for your money invested, has a much more significant impact on poverty reduction than many other types of expenditure. In some senses it is, again, quite remarkable that for nearly two decades the World Bank has essentially withdrawn from agriculture - at one point where its lending portfolio was approximately 15 % in agriculture to, I think, where we stand in the low single digits, something like 4 %. I think both DFID and the World Bank have made this recognition that we are going to have to see a much more serious commitment to agriculture, and this, hopefully, will give us more impact in terms of MDG achievement, along with the existing work that is going on in terms of essential services, because that is really where the focus has been, but we have not really looked at the other half of the question which is the livelihoods question, which is an agricultural question for Africa.

Ms Molina: Greater focus on the MDGs has been also embodied through, amongst other things, different particular tools, which is, on the one hand, more emphasis on budget support, with greater aid effectiveness and with greater impact on results in poverty reduction and on MDGs. In general, it is a results-based approach that several donors have been really emphasising in the last few years. Initial evaluations say that, first and foremost, it is very difficult to tell because these are mid-term to long-term processes, and it is too early to tell, but, for instance, just to give you an example, the joint OECD evaluation conducted in 2005 would say that even if we have to be cautious because it is early to tell, there is some initial evidence pointing at the fact that both budget support and the results-based approach have helped achievements on MDGs and poverty reduction-related results. Now, how does the World Bank perform in this area? This is a bit more concerning, let us say, not so much on the side of the budget support, because the World Bank is performing quite well, but more in the results-based approach, and the results-based approach, once again, has suggested other areas, like the ones mentioned before - ownership and assessment of distributional impacts - where we have identified some divergences between DFID policy and the World Bank. This would be, once again, one of these areas where the World Bank has been rather good at rhetoric and expressing publicly that they are focusing more and more on results, but when looking more concretely on what sort of results they are looking at, at a country level, in country assistance strategies, in the joint performance assessment frameworks, we see that still the World Bank is very much focusing on other indicators which are obviously relevant to macro-economic management, such as debt management or fiscal policies. These are very important but the question raised here is: are they actually shifting and living up to their commitments to look at poverty reduction outcomes? This is very much more limited than the other sort of results and outcomes that the World Bank is still looking at.

Q18 Hugh Bayley: I have another easy question. In answer to the Chairman's very first question, Jeff, you said that the Bank tends to perform better, certainly, in regard to lifting people out of poverty with its public sector programmes than its private sector programmes. I am not in the least bit surprised by that because many public sector programmes are intended to be universal in application and the private sector programmes create wealth-creating centres, and the best you can hope for is that wealth will trickle down into the society as a whole. My question is this: I take it as read that the Bank should be investing in the private sector because until you get wealth generated in-country you do not have a sustainable development path, but how that wealth is used and distributed is vitally important. Surely, the primary responsibility for the slicing of the cake, the distribution of wealth, lies with the government of the country and not with an investor, whether it is the World Bank or anybody else. The question, in a sense, is: surely we should not be surprised that there is less of a direct poverty alleviation impact dollar-for-dollar invested in the private sector than the public sector, but that the Bank and other donors should be investing in good governance that raises the question of accountability to the people and the responsibilities for distribution. There were big battles in this country a hundred years ago about how the fruits of market capitalism should be spread to prevent poverty - the same throughout Europe and, to a lesser extent, in North America. Is that not where the debate should be, with the governments in developing countries, on distribution, rather than the Bank's private sector programmes or the private sector itself?

Mr Powell: I would agree with you that the history, of course, is that we went through nearly 20 years of development aid where the very simplistic answer was: get the state out of that equation. Even in the weakest countries where, clearly, the capacity to regulate was not there, we seem to have come around a bit on that pendulum of perspectives in development to now where the state has a role again, in the World Bank's view, but it still has a fairly minimal role in terms of having the capacity to play that redistributive function. I guess, if the question is about what role the Bank's private sector arms should be playing relative to the public sector arms, it does look as if one of the major initiatives of the new President will be to better integrate the private sector lending with the public sector action. That, even of itself, is problematic. The questions that organisations such as ourselves, which monitor the IFIs,[10] are interested in, in terms of the private sector lending arms of the Bank, is what is the value added of this money? At its worst, this is simply investing in initiatives that would have got funding anyway, that is crowding out private investment, and much of what we see the IFC doing confirms our suspicion. Some 40 % of its portfolio goes to other financial intermediaries; a very large percentage of its funding is going to extractives and to fossil fuels, as I have already mentioned, and which I understand the Committee will be looking into in more depth in a future hearing. We feel that there should be a role in terms of supporting small and medium enterprise development and the framework by which small and medium enterprise development occurs. Some initial research that we are in the midst of right now finds many IFC projects which cannot be said to be doing that: investing in a Coca-Cola bottling plant in India does not, to us, suggest a value added in terms of private sector contribution to poverty reduction. I think there are some real question marks around the role of the IFC, and typically the donors have been less interested in the reform agenda of the private sector lending arms of the Bank than the role of the public sector section.

Q19 Hugh Bayley: Briefly, why can a soft drinks factory not form part of the growth and diversification of the individual economy? I can think of somebody who I met in Ghana who was, literally, lifted off the street and into providing a secure future for his family because he got a job as a truck driver for, I think it was, the Guinness brewery, or a similar sort of business. Why does that not play a part in poverty alleviation?

Mr Powell: It absolutely does; it does play a part. Employment, growth plays an enormous part. The question is, with multilateral bodies with limited resources, where are those limited resources focused? If the bottling plant - whether it be Guinness or Coca-Cola - is able to raise funds in other ways then our feeling is that they should be raising funds in other ways, and the onus of proof should be that the multilateral agencies are saying: "This is something that would not have happened without us being there".

Q20 Hugh Bayley: The point is clear.

Mr Hammer: I think there is a slightly different direction I would like to take here. There is the substantive issue: should the World Bank be promoting private sector/public sector programming in that area. Yet, it is also about who in the country itself is actually in charge of setting the policy under which economic development should take place. I think that is where the role of parliaments comes in. Is it a matter for the World Bank to, essentially, roll out programmes, sometimes over and above the head of national parliaments, not engaging with them while they are developing a project or a programme; providing not enough information through the government itself to parliamentarians so that parliamentarians find it hard to hold their own government to account about what policies come from the World Bank and what programmes are being rolled out? For me there is, in addition to the substantive issue (on which we would not have a position at the One World Trust because we recognise the role that private investment takes in the economic development in all countries, usually), therefore the question of who is actually in charge of the policy agenda in a particular national context.

Q21 Hugh Bayley: Would you like the World Bank to have a policy that would require the government of any country in which it has a presence, shall we say once a year, to make a report to the parliament about the uses made of the World Bank's funds, and to allow there to be debate and questions and so on? Would that help?

Mr Hammer: I think such a policy would be very valuable. It should cover several ways of ensuring that accountability. We would certainly support the idea that senior staff of the World Bank, whether in-country representatives or people who are involved with the programme in, for instance, Washington, can be called by parliaments in any country. In the same way that we are sitting and giving evidence to a Select Committee it should be possible for a national parliament to ask the same of World Bank staff. The other thing that should happen is that the governments in those countries, with support from the World Bank or other international financial institutions, should provide information - not just a big bagful of data but targeted reporting - that empowers parliaments to exercise their oversight function over the policies that the government is negotiating with the World Bank. As we know the power relationships of aid recipient countries with the World Bank are very often skewed. Without access to information we cannot talk about a fair negotiation process.

Q22 John Battle: In a sense that is where I want to push this question. You will remember we were in Ethiopia and this was the old argument: World Bank funds make public sector projects. What do we find in Ethiopia but a field full of equipment that had been left to rot for 17 years because the road programme had been cancelled. We were looking at the wastage of public money through the World Bank. I want to push the question another way, because it is interesting about the trickle-down of wealth. I never really believed in the Heineken theory of economics, because I never think it reaches the parts it needs to. So I want to monitor who benefits. I would ask this question: do any of your NGOs monitor, in some financial detail, I would say, where the World Bank gives leverage for grants to private companies to invest in privatisation programmes? It may even be Coca Cola, but I want to know whether employing 200 truck drivers is less than is actually paid in the 1% profit returned to the shareholders out of country (because the wealth is exported out) that has come from the leverage of the grant. Who monitors the private sector investment in projects in detail to make sure that the World Bank's grants to private companies actually benefits people in-country and the wealth is not exported out? Yes, a little bit of trickle down as far as the truck drivers are concerned, but the real money is made elsewhere in the world. All I am asking is (I am not saying whether it is right or wrong - I have a view on that) are we monitoring? Are we capable of monitoring it in detail? Do the World Bank monitor it or do any of your organisations monitor it, so that we have got really strong case studies to put up an argument as to whether this trickle-down works or not?

Ms Molina: Yes, indeed, we probably do need to build our own capacity in monitoring what we call the reverse flows, or the lack of capacity of developing countries to retain resources and wealth that has been created in their countries and that flows out. You will know the figures: roughly, according to different sources, it seems that the wealth flowing out from developing countries can be from four to 10 times bigger than actually the development aid flows going from north to south. Obviously, we are aware that plugging the leaks in developing countries is as important as making north/south flows more effective, and we are building the capacities and trying to get European governments more interested in the need to legislate in the appropriate way so these leaks are plugged, because obviously one of the important details we should take into account is that all this wealth sometimes goes offshore in tax havens that are based geographically in Europe, I have to say.

Q23 Ann McKechin: Following on from that I wonder if I could ask a couple of questions regarding the World Bank good practice principles. One of the principles is reducing the overall number of conditions, and I know, Ms Molina, your written evidence has made specific criticism about this. I wonder if I could put to you that this is rather a false debate; that it really should not be the number of conditions that are imposed on a grant but whether the conditions are actually effective. We have had quite scathing evidence, for example, about the World Bank investment in the Chad-Cameroon oil pipeline, and one of the criticisms by the International Advisory Group was that the lack of hard data about almost every one of the Ministry's accomplishments made the task of actually finding whether the oil revenues led to economic growth almost impossible. That suggests to me that, perhaps, in some cases, we are not imposing enough conditions on the grants, rather than the fact that we have too many. I wonder if you could comment on that point.

Ms Molina: Basically, the conditions that we are demanding should be phased out, and which we should call for an end to, are economic policy conditions. I believe that in your question you were hinting at conditions that may be referred to as dealing with the process with diligence, transparency and accountability. These sorts of conditions, obviously, need to be in place, but rather than conditions what there should be are the contractual terms of an agreement between two parties; an agreement that should be balanced and where both parties should participate on an equal footing. Obviously, it is the effectiveness of conditions for some European donors, but also they have been identified as ineffective, as it were; it is conditions that are focused on economic policy, economic management and which have been trying to perform sensitive policy reforms, sometimes not taking into account the ownership of national ----

Q24 Ann McKechin: I wonder if I could press you just a little bit further, because one of the examples you have given on page 10 of the written evidence is about conditions in Uganda.[11] I have read through the list. On the face of it, there does not appear to be many that most people would consider unreasonable. One of them, for example, is that a government department would complete a survey of land right awareness levels of women. What particular criticisms have you of that list?

Ms Molina: We do not have criticisms on the content of the list. There are several different issues that we are concerned about. One would be the number of conditions, which was the first thing that you referred to in your questions. Obviously, sometimes we can perfectly acknowledge, welcome or agree with the content of some of them, as you say, but the number of conditions is burdensome. If the number is too high, and in developing countries which are not ready, it will stretch their administrative capacity and they are just unable to track every six months, every year a huge list of conditions which, sometimes, can go up to more than 100 - more than 100 from the World Bank - and then adding the rest of the donors. So, obviously, the number matters. We are not criticising in particular; this was an example that we put forward more on the side of the numbers and how the numbers should be streamlined. I would agree this is not so much focused on the area that we call due diligence which we believe that, if agreed, equally by both parties, it is very legitimate to be in place. Our main criticism, as you will read in the report, obviously, or as you have already, is on the economic policy conditions.

Q25 Ann McKechin: If I could turn to that now, obviously you called for the principles to be used as a way of reducing economic conditionality. In a letter in this morning's Guardian Kyle Peters, the Country Services Director at the World Bank, responding to an NGO campaign here in the UK about conditionality, stated that: "country ownership is a central principal of the Bank's budget support operations. Indeed, while less than a third of our recent budget operations have been sensitive economic reforms, and privatisation constituted only 1.5 % of such conditions, where applied, these conditions are based on countries' own reform programmes."[12] I wonder if you might care to comment on that criticism.

Ms Molina: Definitely. There is a clear diversion in numbers, obviously, between the forthcoming progress report of the World Bank and our research. It is not that dramatic but it is mainly due to a difference in the definition of what the World Bank calls economic policy conditions and the definition that we have used, and on what the World Bank calls privatisation and the definitions we have used. We are using a slightly broader definition which does not diverge so much from the Bank's one, and mainly using the definition of sensitive policy reforms as the Bank used it in its first progress report, which does not refer only to privatisation conditions but, also, to what we would call associated reforms, and the Bank also called with a very similar terminology.

Q26 Ann McKechin: Some of the terminology may be a little bit difficult to clarify as to what it exactly means. To give an example, again in your evidence, on page 12, on Vietnam, you say that it has to "adapt policies to encourage the participation of non-state establishments in the delivery of public services"[13]. That could mean, for example, the privatisation of private utilities, which clearly you would be against, or, alternatively, it could mean private companies having to tender for construction contracts in the public sector, which most people would say would not be an unreasonable condition. So it is part of the problem, actually, of how we define what is an economic condition and how we define one related to better governance.

Ms Molina: It is important to make clear that in our definition of privatisation we have not included private sector development. So we have taken into account that there are a number of conditions which are related to strengthening or enabling the business climate and strengthening private sector development, and we have not counted those as privatisation. This is, to a certain extent, necessary to clarify. When we talk about economic policy conditions we are not so much worried about or concerned or claiming that all privatisations are bad in themselves. They could be bad or good, as much as nationalisations. The problem is when they are conducted in a rushed way when there is not the necessary regulatory framework or the necessary institutions in place. We were saying before: "What is needed for development?" The right legal frameworks, the right institutions, the appropriate competition law - all these elements are needed for these reforms to happen successfully. Past evidence shows that this has not necessarily been the case. On the fate of ownership of these conditions, if the country wants to put forward these reforms then they are legitimate to do it; they are a country elected by their own citizens. But why should the Bank impose the conditions? The country will do it anyway. So the Bank should just not be seen as meddling into decision making which is up to the national institutions and parliaments.

Mr Powell: If I can just add there that I think there is a fundamental divide, where the Bank sees itself as having a supporting role in the reform agenda. Many civil society critics of the Bank say: "Well, that is not your role". How would we see things here in the UK if the Chancellor were to stand up and say: "Well, I am taking this measure and it is backed by this multilateral institution" - whatever multilateral institution that might be? I would imagine that would draw some catcalls from around the Chamber. Would I be wrong?

Q27 Sir Robert Smith: Well, the EU is often called into ----

Mr Powell: Does that not draw catcalls around the Chamber? Indeed. So I think there is this fundamental divide, where civil society says that if this is the reform agenda of a government by democratic principles, it should have to win the argument of the day. It should not be able to use, rightly or wrongly, the pressure of an international lender to achieve that reform. If they cannot achieve that reform that means the domestic political economy is not yet prepared for that reform.

Chairman: If you can help us with any specific case studies that would be valuable because we have been round this course before and it is not always that easy. For example, whether it is the British Government or the World Bank, that says: "The Government of X asked us to help them in their agreed policy of privatising X or Y and we are simply advising them on the best way to do it." They may even have said they wanted to realise assets in order to build the infrastructure of their health service. So if you get that response, your argument crumbles. I am not asking you to do it now but if you can give us any written examples that take us from the general to the specific, genuinely we would be very happy because we are interested in pursuing the argument but it has to be more than just intellectual; it has to be real.

Q28 Sir Robert Smith: What does the Bank do if someone does not meet some of these conditions?

Ms Molina: Technically the response would be withholding funds, yes - pull-back or freeze the money. The reality is that they are not so often doing it; they are extending a number of waivers, which has been eroding their impact. I would just make a note on your request, not so much on particular cases that we would be happy to provide, obviously, but overall, we obviously face the same problem when we discuss with the Bank and they just push for evidence that a given finance minister has agreed or has used Bank leverage to push forward this reform. We work very closely with our sister network in Africa, AFRODAD,[14] and they work very closely with national parliamentarians in that country. We were recently in a meeting with them and it was surprising to see how parliamentarians in these countries were just complaining that they were completely marginalised from the decision-making process, not only in terms of monitoring the money flows from the Bank and from donors but, also, from the decision-making process - being able to participate in long contraction and in budget matters.

Chairman: This Committee, in general, and Mr Bayley, in particular, have been very active in trying to promote the role of parliamentarians in other countries, and we are very much on side for that.

Q29 Richard Burden: Could we go back to the issue of DFID leverage in conditionality reform? I think, Jeff, you mentioned, in your opening remarks, about the decision in 2006 to withhold £50 million from the World Bank. You said that whilst that kind of approach is not the be-all and end-all of trying to secure reform, it was a kind of useful start. This year the £50 million was released on the grounds that progress had been made, and that has attracted some criticism from a number of bodies. My first question is: do you think that the £50 million was released but actually there had not been any progress made? Or do you think that there was progress made but it was not enough? If it was not enough, what do you think they should have insisted on to release the £50 million? Not to completely reform conditionality (that is a much longer project) but, to release the £50 million, what should DFID have asked for on that specific thing that they did not get?

Ms Molina: Yes, definitely, there were some problems made in 2006, and in 2007 we acknowledge that in our report, some difficulties in the number of conditions and, to a certain extent, some problems in some of the five good practice principles - not enough by far. You would expect that two years after an institution has committed to a policy of reform the change and the progress should noticeable. This is our main concern - we see glacial change. So, basically, I definitely think that the strategy of withholding funds of DFID and the pressure put by other governments, and apparent consideration in different progressive donor governments to maybe follow the same strategy, has been influential. It has been influential in other progressive governments in Europe and it has definitely put the pressure on the World Bank. I do not know if the question is along the lines of whether it should be used again. It is a successful strategy and it should be potentially considered to be used again. In particular, there is a number of recommendations that should be made in a number of areas, but in a nutshell, obviously, independent monitoring of the World Bank progress on conditionality is something that should be asked, and this would provide objective and independent evidence for governments, such as the British and others, to use as a yardstick to realise where there has been progress, because, obviously, a report or a study that is issued by the same institution is not independent and there may be a conflict of interest. So independent monitoring suggesting, maybe, to set some targets, because the good practice principles have some flaws and these flaws are that they are relatively ambiguous and difficult to measure. So, maybe, setting some targets in terms of the degrees of overall conditionality and the degrees of economic policy conditionality, and, obviously, further engagement of other stakeholders, such as parliament and civil society organisations, both in donor countries and in recipient countries.

Mr Powell: If I can add briefly to that, we understand that where the rubber hits the road, as it were, in terms of the Bank's reform agenda with IDA, is in terms of the matrix of the reforms that are included in the final IDA document. Our understanding in the draft is that there is absolutely no reference to this issue. So, at this stage, barring the use of the financial leverage there does not seem to be any willingness to consider another method of holding the Bank to continued progress to reform on this agenda. So we very much support the work that EURODAD has done in terms of a call for an independent assessment of the good practice principles in an attempt to make them more rigorous, so that we can make an objective assessment of how much progress has been made. I do not think that is possible right now because you are always going to get the kind of arguments that all of you have heard quite a bit of between different understandings of different definitions of the implementation.

Q30 Richard Burden: So what you are saying is that the tactic of withholding or threatening to withhold contributions was not only useful last year but it is one that should be seriously considered as being operated again, and specifically for the issue of independent monitoring to secure that as well?

Mr Powell: Yes.

Q31 Richard Burden: What else do you think DFID could be doing to secure the kind of conditionality reforms to make World Bank policies more development orientated, other than withholding contributions?

Mr Powell: Obviously, there are a number of ways that reform agendas are pushed ahead at the World Bank. One is to make a direct contribution to pay for the independent assessment that will be done. That can be done through some kind of trust fund action. Another is to push this agenda at the World Bank Board. Another is for UK staff to work with World Bank staff in terms of trying to convince them of the value of such an assessment. However, all of these are, in the end, quite weak relative to the fact that if the IDA replenishment has been done and money has been handed over then that is the stick, and if you lose the stick the others are just kind of, as far as I am aware, in terms of methods of change, soft.

Q32 Richard Burden: Even if they are soft, are you saying you do not think DFID is doing them? Or are you saying it is doing them but they are not working? Is there something more in those areas of, if you like, soft pressure that you think DFID should actually be doing, or is it doing all that could be expected and it just is not working?

Mr Powell: I am saying DFID is definitely doing all of those things. One recommendation that has been made by, again, our attempt to work together across countries in Europe - the civil society - is for what is broadly called in the Utstein Group "the like-minded donors" to come together to work more often. This was very effective last year with the Norwegian study that was done, which was seen as independent; somewhere between what the civil society groups were saying as critics of the World Bank and what the Bank was saying in terms of its research, which was defending its own position. More effort to work together with donors who prioritise this issue, I think, could be made. We do not see enough effort on that front.

Q33 John Battle: If anything, what disappointed me about the EURODAD report, in a sense, were the references to privatisation of electricity - we almost have an obsession with it as the only point of critique - and the references to liberalisation of energy markets in Afghanistan, Nicaragua, Vietnam and Rwanda. I think there is a world row going on about liberalisation of energy markets. It has gone on for eight years in Europe; it is going on in the United States. They are not there yet, to say the least, and this argument is going on and on. Privatisation of electricity has become the focal issue and I am disappointed in that because I do not think it is the main issue. I think the World Bank conditions do not liberate the poor, and I would like to ask you whether we can look at the world from the other end of the telescope rather than this top-down privatisation model. What about the alternative models nationally on conditions? Are they only about parliamentarians? I want parliamentarians to be involved but, goodness, there has been talk for 10 years about participatory budgeting. That has been going on since the World Social Forum. Even, dare I say, Liberal and Conservatives and a few Labour councils in Britain are trying to experiment with a little bit of participatory budgeting. Where is the vision of alternative economic models that has been pushed up from the base in the direction of the World Bank? Who is working on them? Where are those examples which we could perhaps use to amplify the bad examples and set a counterweight to them?

Ms Molina: The answer to this question would go well beyond the scope of conditionality, because, basically, we are talking about the sort of national policies that should be in place to ensure a meaningful poverty reduction and a meaningful developmental model which leads people out of poverty. I certainly doubt that this should come on board during the forum of conditions for disbursement in development lending but it should definitely be developed as alternative national policies which explore into different economic models, as you were saying. There is definitely work being done by a number of multilateral institutions, and a number of CSOs[15] as well, on alternative fiscal policies and alternative monetary policies particularly, because, as you know, this is basically the role of the IMF[16] but this has an impact on the World Bank and World Bank finance and the cross-conditionality between the Bank and the IMF. Action Aid International, for instance, has been exploring into different alternatives in monetary and fiscal policies in order to provide national decision-makers with a wide array of options - not to be ideological but to have a wide array of options - and there are also institutions, such as the UN DESA,[17] which published two months ago a number of what they have called policy notes, ranging from industrial policy to macro-economic policy, social policy, which tried to provide these alternative views on development as well.

Q34 John Battle: I do not understand why conditionality cannot include that governments should be obliged to work with, consult and engage with people, including the poor. Even in Britain, at a very modest level, before council budgets are spent, to some percentage and in some quarters it is now devolved to the local level, and the Health Authority primary care trusts involve users - in a very minimal, very measly kind of way, in my view. Why can that not be part of the World Bank's vision for conditionality and participation, so that the poor are counted in rather than told what to do from the top all the time? Even on alternative economic models, it is still top down.

Ms Molina: Definitely. We would perfectly agree with that. That is what we would call due diligence or due process: conditions or terms of the contractual relations between donors and recipients, and that should definitely include participation of civil society and what you would call a bottom-up approach instead of a top-down approach. This is quite different, though, from substantive policymaking. With substantive policymaking, the more decentralised it is done, the better it is, because it takes into account the circumstances and the context of local regional and national levels.

Mr Hammer: There is a mixture of issues here. One is about who is defining and setting policy; the other one is also about the space that is offered for consultation. Earlier in the discussion we talked, for instance, about developing policies and firm policy commitments from the side of the World Bank on who to engage on certain processes. If there was greater transparency, for instance, when eventually decisions were taken at the executive board level, what the result of the consultations were that were taken into account when making decisions about certain programmes, it would be easier for civil society, including community-based organisations, and other more marginalised groups, to be involved in the development of policies. It is a very, very steep and very, very high pyramid to build and, of course, there has to be a balance struck on the length of a consultation process and the breadth of a consultation process and the decision-making, because otherwise ----

Q35 John Battle: I am not just looking for consultation. I am looking, if you are describing it as a pyramid, for the lock-in, the safeguards to be built in from the base and not from the top. Are there any models of nationally owned conditionality that build those kinds of safeguards in? In other words, you have to work with peasant farmers in their collectives in order to sort out the agricultural policy; you have to consult people locally in villages before you put pipelines through; you have to consult people before you decide that their town is going to be a goldmine and you need to clear them out of the way and dig it because you have the money to invest, backed by the World Bank, as is happening now. Why are they not built into the conditionality?

Mr Powell: This enters us into a very broad and, I think, fascinating debate, which really is at the cutting edge of where discussion in civil society is right now. How do we move from conditionality to what is often described as responsible financing standards. How do we move to a situation, modelled after, for example, the UN conventions and norms to which countries are signatories, where, when development financing is involved, there could be norms around participation? That would move us away from the situation we are in right now, which is safeguard policies which are specific to a particular institution and its own rules - which are very confusing, which are Byzantine for groups on the ground - to a situation where there is the global expectation of how this would occur.

Q36 John Battle: Good answer.

Mr Powell: It is a detailed debate, but thank you for questioning it.

Q37 Chairman: Leading from that is the way that the Bank is run as a corporate entity. Essentially, it is run on traditional corporate lines. It is a shareholder-driven organisation - apart from having one minority shareholder who has a golden share in having the right to nominate the President. There has been a lot of discussion about how you could change that in ways that would effectively give the recipient countries more say. Given that is the concept, that it is a shareholder organisation, how would you change it in ways that were compatible with that - because, let us be realistic, the donors are hardly like to tear that up - but which gave real influence to developing countries, given that also there are a lot of them?

Mr Hammer: In order to be able to make progress on the reform of governance of international financial institutions, it is important to set oneself realistic goals. Whilst some may argue that, overall, there is something fundamentally wrong with the way in which decisions are being taken and the power relationships, for instance, at the executive board level are very difficult - which is something which we agree with - from our view it would be unrealistic to ask people who currently hold a lot of power simply to give it away - one should nudge and urge them but I think to ask for a complete change is unrealistic - and so one of the ways we have tried to explore, together with the Bretton Woods Project, is to find a way how, all stakeholders and all shareholders in the Bank, essentially, have the possibility to contribute to the decision-making procession. In additioin to the existing quota based vote we propose, under a Double Majority voting system to introduce a second set of voting, on a "one member, one vote" basis, so that, on decisions that affect them, a majority has to be obtained also in that second set of majority. This should be valid for all decisions rather than just a few critical ones. When we looked at comparable examples where double majority systems are being used, these appear as perfectly feasible. They exercise a much stronger pressure towards consensus building and that is what we feel is needed for the World Bank, so that the decisions that it takes at the very high level are supported not just by the majority of people who hold the greatest number of voting shares because of the quota that they have but also by the greatest number of individual countries that are affected by those decisions. Particularly, those are, of course, developing nations which very often do not have any great part in the voting otherwise. That is one way we have been looking at these issues. The other way is about how one can hold those who eventually take the decisions at the executive level to account and what can be done about transparency there. One of the things we are looking at of good practice principle is to disclose the transcripts of the board meetings very, very soon after the decisions are made - and we are looking at transcripts rather than just minutes - so that it is possible for an individual stakeholder in any country to see: "What has my representative voted on and in which direction?" which is currently very difficult to ascertain. The United Kingdom is doing that, but we all know that the last report on the activities of the World Bank is now one and a half years old, and so, once you get the information, it is at least recent history. In order to make accountability proactive and an ongoing process, it is useful to think about coupling new ways of making decisions at the board level; for instance, through introducing a double majority voting system with greater transparency about how the voting is going.

Q38 Chairman: You have mentioned comparable examples. Could you give us an indication of what they are?

Mr Hammer: The double majority voting system is used quite a lot, for instance, in managing corporate and employment relationships in a number of countries in Europe. We all know that some countries like to go on strike more than others but, overall, it seems to be driving consensus in a much more positive way.

Mr Powell: To add to what Michael has already raised, we think the staffing issue is still a very important issue. The African executive directors have raised the point that there is not an African managing director. The high level, senior management staff from Africa is lacking, so there needs to be a greater push. DFID have been supportive of that push. More movement is needed. Advisors and research and analytical staff in the executive directors' offices are also important. Finally - another piece of the puzzle that I have been involved with for the last year on the IMF side - we have an absence of evaluation of performance at the presidential and at the board level of both the World Bank and the IMF. That is quite significant when you are thinking of the norms for international cooperation, the norms for international government, intergovernmental organisations that are evolving, so that that kind of evaluation is an important piece of the puzzle. Lest we get completely caught up at the Washington level, I do think the governance model is also a question of how Washington relates to the country level. Here we not only get into questions of constituency reform - African executive directors having to try to represent 24 countries, which is a virtually impossible task - but also then how those representatives are able or not able to do what Michael referred to earlier, which is to be able to respond to the parliaments in those countries about what kind of position they are taking. These are all related to each other and the reform agenda has to move forward both in Washington and in terms of how Washington relates to country representatives at the Bank.

Q39 Chairman: Are there any negatives to this? If you mishandle it, you finish up with too many people involved in the decision-making process and paralysis or confrontation. You have to balance that out.

Mr Powell: This is more on the IMF side than the Bank but the spirit of consensus, if you will, has been leaching away from these institutions in any case. We cannot divide this discussion of governance reform from the reality of the very hot debate over the legitimacy of these institutions that they face today. We have middle-income countries which, in many cases, are trying to set up their own regional lending institutions, and low-income countries which are quite unhappy with the conditions of the financing that they are receiving. Countries are looking at other options, so we cannot say that the status quo is quite happy and working well. Some of these reform suggestions, such as double majority, are exactly to try to address those issues and see if we can return to more of a consensus kind of model, where different groups with different interests are better able to work with each other and strike a compromise. In the past, the industrialised developing countries dictated the agenda and the others fell into step, and that is simply no longer acceptable in the environment that we are in at present.

Q40 Sir Robert Smith: Are there any resources available to developing countries to give them the skills and practical experience of being able to take part in the decision-making process? Obviously the right to take part is one thing. With the WTO[18] there are trusts and so on to try to enable the voice of the developing countries. Is there any equivalent support from the World Bank?

Mr Powell: The one specific finding - and Mr Bayley and some others will be aware of this - is the analytical trust fund that DFID has established to try to build the capacity of the African executive directors' offices to better be able to commission research to inform their positions in debate at the Bank board. I have not seen an evaluation of how well that has worked or not worked, so I cannot say whether that has been an effective strategy. There has been movement to try to get funding for additional advisers, extra bodies in the room for these same offices. As I understand it, that is stalled over what some might consider to be a tight wallet but other countries have said there are issues around what they can and cannot approve in terms of budget allocations to support such an initiative. Those are the only two of which I am specifically aware.

Q41 Sir Robert Smith: You mentioned earlier about transparency. The Bank has a presumption of disclosure, but what is its practical delivery like?

Mr Hammer: As you say, the starting point is right, to have a presumption of disclosure. I think we continue to be worried that there is no narrowly defined set of exclusions. For instance, the condition that somebody would set in saying, "These documents or these decision-making processes, the minutes of these meetings, are part of a deliberative process that we do not want to disturb and therefore we will not make them public" from our point of view is not a narrow condition, and so, in practical terms, we would ask for a policy which is stricter and which says, "We will make public literally everything, but there are a number of very narrow points where we will withhold information; for instance, to protect staff confidentiality if that is needed on certain issues. But, for instance, which decisions are taken, which documents are being put into the consultation process, should be made public." And that is where the World Bank has a relatively weak record.

Mr Powell: The Global Transparency Initiative (GTI) is an international coalition of NGOs that combines both freedom of information advocates at a national level with the organisations such as my own monitoring the IFIs. It put out a report Behind Closed Doors last year which looked specifically at this question. It did systematic testing of 30 documents, governance, programming and policy documents, and in five different countries put requests in for that same document and got a wonderful array of different responses, from no response, to "Thanks very much, we are not giving it to you," to "Here you go." We see that, though the presumption of disclosure is on paper, in practice there still are enormous gaps. One year ago there was a report by the GTI looking specifically, document by document, at the Bank's practice. I cannot summarise that neatly today but that is also available from the GTI.

Q42 Sir Robert Smith: There is a concern that if you had unlimited transparency then the directors' meetings would become much more formal because people would know what was going to be put out in the public domain and they would, therefore, in the margins or the corridors, sort out the positions and deals which would be completely off the record and unaccountable. Is there any concern that too much transparency could lead to that?

Mr Hammer: I think we realise the tension. In the context of a global organisation that is made up of representatives of governments who are themselves accountable to their own constituencies, I think one has to come from an assumption of maximum transparency. We have seen in the case of the World Trade Organisation, for instance, that these informal spaces sometimes exist very openly. There is, of course, a negative impact in the sense that those are like kind of opaque boxes, you cannot really look inside what is happening there, but I think the trend that one would set in motion by asking for more transparency, particularly about positions taken at the final decision making, will force also a greater attention to all these other informal negotiation processes. Initially, such pressure may very well shift some of those discussions into the corridors or into the green rooms or whatever you would call them but, at the same time, it would focus civil society attention, and it may also focus parliamentary attention, on what is going on in those corridors and, progressively, those areas will become more and more narrow. So I think there is no panacea, no solution for achieving the thing right now, immediately, but I think it is important to push and to force those who are officially representing large constituencies/nations/citizens like us to be accountable for what they say, and, in that way, progressively, the room becomes smaller in which they can do these deals and those rooms, those spaces, will then come under more scrutiny.

Mr Powell: In discussions with colleagues in developing countries, this one becomes quite clear for me if you put it in a practical case. If I am a representative of Rwandan small farmers and I want to know how the African executive director for my region has made the argument at the board regarding a sectoral loan that involves, for example, the reform of the Agricultural Marketing Board, which do I prefer: do I prefer that I can see the argument he made but understand that there may have been some backroom deals or do I prefer the current situation where I have no idea? Neither is perfect but I know which one I want.

Q43 Jim Sheridan: You may have already answered this question but could I push you a wee bit more on good governance and transparency and specifically about the selection of the President of the Bank. As I understand it, all stakeholders can put in candidates for presidency of the Bank but there seems to be some cosy arrangement or agreement that America holds the major influence and gets that position. They say they want good governance, in the sense that we want to hold people accountable and they want to set benchmarks for people so they can evaluate how they are going on. The British Government is also saying it wants better transparency and fairness in the selection of the President. What advice would you give to the British Government in how best we could achieve that?

Mr Hammer: I think it would be beneficial for the British Government to state publicly that the agreement that the United States gets to appoint the President of the World Bank and the Europeans get to appoint the Managing Director of the IMF should simply end. I think it would be a very important signal to state that that is not an agreement that stands the test of time today. I think it would further be very useful to move toward concrete propositions of how a leadership selection process could be established. The fact that now there are two new people in those positions, maybe opens the possibility for a couple of years of time to think through the options and reach an agreement. In my view it is a very good moment to start now rather than to start three or four months ahead of the next time that the need for senior appointments arises, when everybody is rushing and the chance for reform gets much harder. I think it is important to send a very clear signal now that this type of agreement is just not fit for our times.

Mr Powell: As many people in this Committee know I have been pushing this rock up a hill for many, many years now. Certainly the British Government has, in principle, taken a clear stand on this issue and I think has put admirable pressure on by withholding support for both candidates at the IFIs for probably as long as was sustainable under the realities of international diplomatic pressure. I could be wrong on that count. I am optimistic that there will be progress on this issue now, but, if we do not see progress in the timeframe where we are likely to have to replace the current set of heads of these institutions, I think it would be quite useful for the British Parliament, for example, to tie the hands of the UK executive director to say that this issue is at a crisis point: the UK executive director cannot vote to support an American candidate for head of the World Bank or a European candidate for head of the IMF in this round - and this is not to suggest that for eternity this could not happen. At some point the real politik of international diplomatic pressure has to be taken away if the international community is in agreement that we are not making progress on the issue that everyone knows we have to make progress on. That is about the best that we can come up with. I would be interested to chat with all of you more on how we might better put pressure on this government and others of how to make that change.

Q44 Jim Sheridan: Would it be best for the UK Government to make this statement unilaterally or would it be best done in conjunction with perhaps some of our allies in Europe?

Mr Powell: Ideally, it would be with as many of the Europeans as possible; ideally it would involve the Americans as well - some kind of grand bargain. If that is unlikely, then sometimes a unilateral statement of principle is a useful one.

Q45 Jim Sheridan: This is probably an obvious question, but what does the US have to fear?

Mr Powell: I would guess that the particular administration today fears that European attitudes towards development are different from their own and they do not want to see European dominance of this institution. I do not think that is a realistic fear, but that seems to be the game that is played.

Q46 Chairman: When the Bretton Woods institutions were established, clearly Europe was in tatters and America was in a strong position, but, looking at the shareholdings now, it is a very odd organisation that gives a minority shareholder the absolute right to nominate the boss. Is there not a legitimate argument that says the whole balance of contributions has changed? I agree with you, a grand bargain would be a better way of doing it rather than a confrontation, but do you get any sense that the United States either now or in any changing situation would be open to understanding that that would be a gesture not just to the other shareholders but to the developing world that this organisation was changing?

Mr Powell: I think it would be very difficult for a future American administration not to accept those arguments, particularly if we view, that while Europe does not have clean hands on the nomination of the Managing Director of the IMF, at least there have been candidates put forward from other regions and interviews held where the qualifications of those candidates were evaluated against the priorities for the institution. For a future American administration not to do that, to repeat the exercise we have seen with both the nomination of Mr Wolfowitz and Mr Zoellick, is difficult to imagine as sustainable. However, I have been proved wrong on this point several times in the past.

Q47 Hugh Bayley: Do you think the economic freedom of developing countries would be greater or less if you had an American head of the Fund and a European head of the Bank? Would it change things for the better if you were the government of Tanzania or Mozambique?

Mr Powell: I think it really does depend which country you are talking about. For the low‑income countries, particularly Africa, the World Bank is the much more important institution in terms of your policy agenda and in terms of your development financing. If you are a middle-income country, then the IMF is the much more relevant institution in terms of how the IMF responds to any crisis situations or what pressure it is putting on your country in terms of its surveillance function. So I would imagine you would get a very uneven answer to that question depending on who you asked. Ideally, I would have to say that just swapping them is not going to improve anything: we need to be able to draw on the experience of ministers from developing countries who have lived through and created policy through developing situations more recently. Let us bring that expertise into these institutions. Let us not look at it as a defensive exercise but one where we try to improve these institutions by drawing on a vast pool of experience and knowledge in the relevant countries.

Chairman: Thank you. I am sure that will feature in our report.

Q48 Ann McKechin: Following on the World Bank's experience recently and the resignation of Mr Wolfowitz, I wonder if you would comment on the credibility of the Bank currently in terms of governance in the donee countries. It is not just whether the morale of the staff has affected the Bank's ability to do its job, because there have been different reports about widespread discontent, but whether or not you think Mr Zoellick has managed to calm the waters.

Mr Hammer: I cannot comment on Mr Zoellick's performance. Before the changeover happened, obviously things reached a certain boiling point within the Bank, and the Bank staff were not only concerned about how things worked internally but they also saw their work going down the drain, in the sense that most people who work at the Bank have a commitment to development, to equitable development and justice in the world, and these people have, in a way, the right to see a leadership in place that is promoting their work and making it effective rather than undermining it through the practices. That is where, earlier this year, the situation reached a certain boiling point and that is why it is very important for whoever - on the basis of merit, independent of what country the person is coming from - is in the leadership position, is playing that supporting role. My understanding is that Mr Zoellick has managed to bring the World Bank to a certain degree out of the headlines. There is probably then a management issue - but some people may consider that to be beneficial because it allows people to rebuild the credibility of the role - but it is very important that some headline policies, like, for instance, the anti-corruption strategy, are being followed through at the highest level, and that commitment to these is really visible.

Mr Powell: I think we are in the honeymoon period right now. Nothing was done to violate the honeymoon period. Staff appointments were made which made sense in the view of most of the Bank staff. There is a feeling that the new President is listening to staff. I think that did enough to calm the waters, to use your phrase. On the governance and anti-corruption plan, I think it is still too early to tell. Obviously there was a dispute between much of the board and President Wolfowitz on the direction of that plan, which wound up with, ultimately, the board taking more control and a plan that was seen as improved by most of the civil society groups who work on these issues, to broadly describe it. But the key, of course, will be in the implementation of that plan and I do not think the groups that I work with which focus on these issues feel that it has yet been clarified, certainly at a high level, how the Bank will transparently evaluate whether or not the corruption levels are such in a country that they present a threat to the Bank, what that will mean in terms of changing modalities of lending, or when, and if, ultimately, the tap is turned off. Those questions are all still hanging there, with everyone waiting to see how they are dealt with.

Q49 Ann McKechin: One of the senior Vice-Presidents who has been appointed was a former minister in Nigeria. I wonder whether that appointment, given the points you made earlier about the need to try to seek experience from developing countries, could assist in terms of building up confidence in developing nations about the Bank's intentions.

Mr Powell: I think it has. From the traffic I have seen of the African media on this issue, they are quite proud to have their former minister at the Bank. There are always critics. There are many civil society groups who see her as part of a very similar economic viewpoint as the Bank staff which they have problems with. So it is not unproblematic but, in the large, I think it was a positive development.

Q50 Hugh Bayley: DFID's relationship with the Bank is not just one of funder; is it often, in the field, one of being a partner. DFID sees its relationship with the World Bank country offices as a very important relationship. Sometimes there are big projects which both institutions fund. Is that a good way of influencing Bank policy on the ground, for them to be encouraged to work in partnership with other donors? Do you have examples of good local policies that have been developed in dialogue between Bank country offices and some donor communities, perhaps around budget support or around other things?

Ms Molina: At the country level the World Bank keeps on being the leading agency. I do believe at the moment we must have bilateral donors, if not including some of the multilaterals, just to return to the Bank to identify good practices and to give the space for the World Bank to be a team member in processes which obviously under the Paris Declaration on Aid Effectiveness are more and more important. For instance, within joint donor budget support groups the Bank has an important role. This is obviously a trend which also concerns us because the lack of progress of the Bank in some of the targets of the Paris Agenda such as harmonisation, such as ownership, might spill over into the donors that are joining into the Bank to look at good example or as a leading partner at the country level. This is to a lesser extent an issue of concern for those countries which have a strong, expressed development policy, such as the UK, but it is a greater threat for other donors which have a lower profile in terms of development policy.

Q51 Chairman: You have mentioned the role of the World Bank and the IMF as a partnership. Periodically we get lobbied by the IMF, who say, "We are part of the development process too and we see ourselves as assisting organisations working together." But, as you, Jeff Powell said, the relationship between different countries and the Fund and the Bank are different according to where they are at. In addition to that, fundamentally the IMF has to provide a clean bill of health for a country which is receiving development assistance, yet DFID ministers and DFID staff will often say to us, "Our objective is to try to get development aid and assistance to poor people" almost regardless of the quality of government - not governance but government - in their country; in other words, if they can find a mechanism to get it through, they will. But if the IMF says, "This country is persona non grata," then the Bank has to suspend its activities in this country. What do you think the Bank should do in that situation but, more to the point, what can DFID do when they are faced with that situation? How do you think they should deal with it?

Mr Powell: The difficulty is, of course, that in the arrangements between the Bank and the Fund the Bank is obliged to do so. In an ideal world, we would like to see that decision-making process broken, where the Bank had more flexibility to consider whether or not to take the IMF signal or at least to consider different modalities to deliver its assistance. If that were the case, you can think of some kind of postponement period, et cetera. There are different ways it could be examined. Certainly we are appreciative of the fact that DFID has stated it will not, as from on high, take the signal from the IMF in terms of the macro-economic health, whether or not a country is "on track". But, as you say, that only covers their bilateral assistance and their major contribution by IDA to the multilateral channel is effectively cut off. I think this is where the role for development oversight of the IMF is to some extent falling through the cracks a little bit. There could be pressure put on working across DFID and the Treasury to change the view of the IMF, to change the role of the IMF in, particularly, low-income countries. This is where we feel that the IMF's understanding of the growth dynamic in a low-income country has shown itself not to be appropriate for the realities that are needed, the flexibility that is needed, the emphasis on fiscal policy space to allow a dynamic growth path to be attained in the IMF. There was the Malan report recently, looking at the collaboration between the Bank and the Fund.[19] It made some very useful suggestions which reinforced this call that we have made to look again at whether or not the Fund signalling role in low-income countries is effective or not, whether or not the Fund lending role is appropriate, whether or not the Fund's short-term, fairly expensive lending is in fact an appropriate development finance method. But, despite that call from the Malan report and many civil society groups, the response to the Malan report from management was effectively, "Well, we will set up a web portal so that Bank and Fund staff can better share information" - full stop, so we are not satisfied with the response to that report in terms of collaboration.

Q52 Chairman: That has partly answered the next question as to the benefits or otherwise of removing the link. From what you have said, you think that the link should effectively be broken.

Mr Powell: Yes.

Q53 Chairman: The Committee is going to Washington next week and spending time with the Bank. Rounding off, and just briefly, if there were one question we should ask or one statement we should give to Mr Zoellick, what would you like it to be? We are meeting the IMF too, but let us just concern ourselves with the World Bank.

Ms Molina: Definitely on conditionality of policy. Executive directors plus Fund management - and that includes President Zoellick - should agree to set up independent monitoring, an explicit directive, so that in a year's time from now there is objective yardsticks to measure whether the World Bank has actually focused on conditionality.

Mr Hammer: I think the request would be for Mr Zoellick to set out policy for the involvement of parliaments in a very clear way and which is very separate from the promotion of projects that the World Bank may want to implement in a particular country, separating that from the strengthening of capacity for parliamentary oversight. To set out a policy and set out a plan for implementation over the next few years so that we can see how dedicated the Bank really is to strengthening the capacity for a lot of stakeholders to come into the process.

Q54 Chairman: Do you think they should change the constitution on that? Because that is a slight inhibition.

Mr Hammer: I would have to look at the Articles of Agreement. My feeling is that the argument that some form of statutory or constitutional change will be necessary is very often more defensive than necessary. I think there is policy change possible within what is there.

Q55 Chairman: They have done things which were unconstitutional anyway. Mr Powell, your final comment.

Mr Powell: The one issue to me which captures a lot of what we have discussed today is: will President Zoellick ensure that impact assessment becomes an integral part of what the Bank does? I think that is important for us because it addresses a lot of the concerns that there is pressure on social and environmental safeguards, to roll those back, which can mean damage to the most marginalised communities affected by Bank projects. It addresses the distributional questions that were raised: are we really adding value in terms of how we are reducing poverty in these countries that we are going to? Finally, to me, is the key link with the MDG question: Are we really using development finance to help us reach these internationally agreed goals or are we simply putting things somewhat blind into various projects and proposals which come from our country staff? If not, how can you justify not doing such impact assessments?

Chairman: Thank you, all three of you, very much indeed. I think you will appreciate that we have a common goal really, which is that we accept the World Bank is an institution for development. Our objective is to try to make it deliver and be effective. I think you have helped us to do that. The purpose of this inquiry - because we have been to the World Bank and we comment on the World Bank Annual Report on a regular basis - is to spend a little bit more time and go into a little bit more depth to see whether or not we can usefully increase the influence the British Government has, frankly, in the World Bank, given that we are an increasingly important contributor. That is justifying a tiny bit of what we are doing. Your evidence has helped us. If you have any further specific information which you think might illustrate or amplify what you have said to us along the lines we have discussed, that will be additionally helpful and we will certainly be made use of when we are preparing our report. Thank you very much indeed for coming in.

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[1] Non-governmental organisation

[2] the International Development Association (the World Bank's concessional lending arm)

[3] United Nations Development Programme

[4] International Finance Corporation (the World Bank's global private sector development finance institution)

[5] See HC Deb, 15 November 2007, cols 869-929

[6] Official Development Assistance

[7] Organisation for Economic Co-operation and Development

[8] European Commission

[9] Millennium Development Goal

[10] International financial institutions

[11] EURODAD, Untying the knots: How the World Bank is failing to deliver real change on conditionality, November 2007

[12] "The World Bank and conditionality", The Guardian, 20 November 2007, p35

[13] EURODAD, Untying the knots: How the World Bank is failing to deliver real change on conditionality, November 2007

[14] the African Forum and Network on Debt and Development

[15] Civil Society Organisations

[16] International Monetary Fund

[17] Department of Social and Economic Affairs

[18] World Trade Organization

[19] Report of the External Review Committee on Bank-Fund Collaboration, February 2007