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Conditionality

News

Circling the wagons: World Bank-IMF-WTO coherence

26 May 2003

The latest round of global trade talks, coined the Doha ‘development agenda’ by its supporters, is crumbling and the WTO Director General has called in the heads of the Bank and Fund to try to prevent its total disintegration. The three men spoke to the General Council – the highest-level decision-making body of the World Trade Organisation – on 13 May on the benefits of increasing coherence between their respective agencies. Civil society groups counter that the use of the word ‘coherence’ is a ruse designed to bring countries in line with a set of flawed economic policies.

Many developing country delegates challenged the notion trumpeted by the heads of agencies that continued liberalisation is urgently needed in the name of poverty reduction. The Indian representative, reinforcing numerous comments from the floor, urged the institutions to allow liberalisation “to take place at its own pace – we must not convert the philosophy of liberalisation into a religion or a cult or a dogma.” Monitors of the Bank and Fund similarly argue that those agencies see liberalisation as an end in itself rather than as one of many different policy means to improve living standards.

The Bank, in its trade agenda for the coming year, has admitted that it is “concerned with a possible trade-off of liberalization policies with increases in inequality…and a rise in unemployment for specific groups in the short-term.” Rather than question the policy prescription itself, the response is to ensure the “appropriate design of compensation mechanisms.” Similarly, IMF Director Horst K?hler assured General Council delegates that “the IMF is fully committed to assisting countries that face payments imbalances… This includes imbalances that might arise in the process of liberalization.”

K?hler added that the Fund is reviewing its loan facilities “with the objective of more flexible assistance to low-income countries facing significant exogenous shocks.” Critics say this reflects how the Fund misinterprets long-term structural imbalances in the global trading system as short-term shocks which can be dealt with by a never-ending flow of loans – which then contribute to spiraling debtloads. WTO member countries in the Working Group on Trade, Debt and Finance have asked the Fund to reconsider the conditions it attaches to these loans: “IMF trade policy advice and conditionality should take more account of the flexibility available under WTO rules for developing countries.” Many countries have complained compliance with IMF conditionality has led them to be at a disadvantage in WTO negotiations.

In his statement to the Council, WTO Director General, Supachai Panitchpakdi, highlighted the role to be played by the IMF in ensuring the global financial stability vital to meeting development objectives. Given crises in Southeast Asia, Russia, Argentina and Turkey, there is good reason to question the Fund’s prescriptions for financial stability. In a recent paper co-authored by its departing Chief Economist Ken Rogoff, the Fund conceded as much, admitting that there is no proof that financial liberalisation has benefited growth and it seems linked to “increased vulnerability to crises”.

From the Bank, the WTO head asked for “close cooperation” in the formulation of effective special and differential treatment rules – rules in the WTO which accord special privileges to developing countries. However, the Bank’s recent paper on this has met with fierce criticism. Claire Melamed of Christian Aid says that rather than strengthening the principle of differential treatment as developing countries have urged, the Bank’s “recommendations are so close to those of many of the most powerful countries in the WTO, that they will simply confirm the view among critics that the bank is wedded to the interests of the big industrial powers.”

The other major area where the Bank and Fund are to play a key role is in technical assistance and capacity building for implementation of the commitments made during the Doha round. However, Shefali Sharma of the Institute for Agriculture and Trade Policy believes “technical assistance is being used as a political tool to win support for an agenda that is heavily disputed in the WTO.” There are worries that the increased emphasis by the three institutions on “credit” for liberalisation and the offer of technical assistance for implementing such policies could be an indirect tactic to accelerate the liberalisation process.

The Bretton Woods institutions have urged developing countries to “make trade integration a central plank of their development and poverty-reduction strategies”. To date, the IFIs and their critics agree that trade has been largely absent from national development plans. However differences emerge over the details of how to integrate trade into the plans. A recent study by the British Overseas Development Institute concluded that “the current asymmetrical power relationship between donors and poor countries would mean that if trade-poverty analysis was incorporated into PRSPs it would probably be neither independent nor country-specific.”

A number of institutional proposals were put forward to increase coordination with the Bank and Fund, including granting observer status for the Bank and Fund at the WTO’s Trade Negotiations Committee; a more active role for the WTO Secretariat in IMF Article IV consultations; and the creation of a regular “institutional vehicle within the WTO for consulting with the IMF and World Bank on priority areas.”

Trade and finance observers say there is no reason why the existing Financing for Development process, initiated in Monterrey in 2002, should not serve as a framework for regular contact between officials and their counterparts in trade, finance and development ministries. Exclusive cooperation between the WTO, WB and IMF suggests an attempt to deny the UN and its specialised agencies the central role they should have in determining the agenda for cooperation.

Upcoming Bank trade research

  • Domestic regulation and services trade liberalization, Mattoo and Sauvé (eds.) June 2003.
  • Moving people to deliver services, Mattoo and Carzaniga (eds.) June 2003.
  • India and the WTO: a strategy for development, Mattoo and Stern (eds.) June 2003
  • Global Economic Prospects 2004: Realizing the development promise of Doha September 2003.
  • Promoting intellectual property in developing countries, Finger and Schuler (eds.) 2003.
  • Options for global trade reform: a view from East Asia, Martin and Pangestu 2003

World Bank research on trade: overview and recent output