Our common interest, the report of the Commission for Africa, launched 11 March has pointed the finger at the Bretton Woods Institutions for their role in African underdevelopment and has called for sweeping reforms. Controversially, the Commission has proposed the establishment of "decision-making councils" for each institution made up of member countries' political representatives.

In its analysis of the reasons for African economic woes, the Commission has singled out the IMF for forcing African governments to slash budgets for clinics and schools at a time when Asian countries were investing. "Evidence shows that IMF and World Bank economic policy in the 1980s and early 1990s took little account of how these policies would potentially impact on poor people in Africa."

Recommendations of the Commission for the World Bank and IMF include:

More effective aid

The World Bank must shift more of its resources, including staff, to Africa, and must provide more of its assistance as grants rather than loans in poor countries. It should focus more staff on states with weak and unstable institutions. It should make longer term aid commitments and increase the predictability of its aid flows. And it should improve its co-ordination with other donors, including UN agencies, who should strengthen their own co-ordination at country level.
The IMF could help developing countries by assessing and publicising information about their budget and accounts, so enabling citizens to hold their governments accountable as well as supporting external assessments, such as those for debt negotiations. It should avoid creating ill-judged limits on what countries can spend and should promote a better allocation of grants to poor countries. It should change its corporate culture to show greater flexibility.
Proposals to improve the effectiveness of their African programmes should be presented to the Boards of Governors of the World Bank and IMF (preferably at the 2005 Annual Meetings of the two institutions, but certainly no later than the 2006 Spring Meetings).

Fewer conditions

Both the Bank and the Fund need to micro-manage less and reduce the amount of conditions they place on poor countries. The only conditions that should be laid down are that African government policies must focus on development, growth and poverty reduction, and that in their handling of their budgets they must be transparent and accountable to their voters. If African governments are left to make the hard decisions themselves, as more and more are showing themselves willing to do, reforms are more likely to stick.
Developing-country governments must have room in their budgets to make investments necessary for development, and they must have the room to adjust to shocks. Reality places some constraints on what governments can do: over the long run, governments cannot spend much more than they are taking in (including aid). But the IMF should not tighten this common-sense, indeed fundamental, constraint further by applying analytically unfounded fiscal rules. Changes are needed in two key areas. First, the IMF should treat current and capital expenditures differently: capital expenditures are an investment that should yield future payoffs, and hence offset indebtedness taken on to finance them. Second, the IMF should adjust its permitted deficit limits for shocks and business-cycle effects. Deficit ceilings that are perfectly sensible when an economy is growing well cause unnecessary pain when they are applied rigidly in the midst of a cyclical recession or after a temporary shock. The IMF should allow for shocks and use cyclically adjusted budgets when it makes its assessment of country fiscal performance.

Ending the democratic deficit

Africa should be given a stronger voice on the executive boards of the World Bank and IMF. A decision could be taken by consensus to allow the creation, on a temporary basis (for the entire period up to 2015), of two supplementary positions of Executive Director for Africa, each backed by an Alternate Director, in each Board. This would ease the task of the directors in this critical period for Africa's development.
The strategic direction of these institutions should be put in the hands of decision-making Councils (a decision adopted for the IMF in the amendment of its Articles in 1976, but not put in place). This would be a decision-making body, consisting of political representatives of member countries, that would replace the existing, consultative, International Monetary and Financial Committee (IMFC) and Development Committee, and have among its purposes 'to review developments in the transfer of real resources to developing countries'. This would give the governing body of each institution a political, rather than a technocratic nature. The two temporary African chairs would also participate in these bodies.
The top jobs in the IMF and World Bank should no longer be restricted to candidates of Europe and the United States and but should be filled through open competition.

The report concludes that if World Bank and IMF reform does not materialize, "the international public will be forced to the conclusion that these institutions, established after the Second World War, are becoming increasingly irrelevant in our post-Cold War, post-apartheid, post-11 September world."

Africa commission: World Bank and IMF "increasingly irrelevant"

More effective aid

Fewer conditions

Ending the democratic deficit

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