The World Bank and IMF at sixty: plus ça change?

5 April 2004

Sixty years after their founding, the World Bank and IMF remain the dominant institutions in development but face determined opposition to their role in shaping globalisation.

Bank president James Wolfensohn says that critics should stop “going back to things that were addressed five years ago”. The Bank says it has moved on from the Washington consensus to the Post-Washington consensus. The term ‘structural adjustment’ is being done away with, replaced by the ‘poverty reduction strategy’ and soon ‘development policy lending’. A host of policies have been drafted and endless cubicles filled with staff focusing on the social, environmental and labour impacts of lending operations. Ownership and participation have supposedly become the touchstone of all work and a ‘good governance’ agenda has been introduced to root out corruption.

Of the ten elements which made up the original ‘Washington Consensus’, three have been both most aggressively pursued and most strongly opposed. Have the Bank and Fund changed their attitudes to liberalisation, privatisation and fiscal austerity?

Liberalisation: tinkering

On the trade front the Bank has rapidly expanded its trade department, re-positioning itself as the friend of developing countries. Research has highlighted the failure of trade agreements to benefit the poor. Kudos has been sought for advocacy efforts on market access, and research work to allow developing countries more time to implement agreements. Mavericks have openly questioned the Dollar and Kraay doctrine linking openness and poverty reduction which props up trade orthodoxy. Acceptance of what were once considered heterodox trade policies, such as regional trade agreements, export processing zones and commodity marketing boards, is growing.

While tariff conditionality may be on the decline, support is shifting to analytical services and capacity building which indoctrinate civil servants into the deep integration agenda. Massive loans are made in the name of trade facilitation. Old-style conditionality persists in areas where governments are loath to liberalise such as services, investment, and government procurement. The Bank and Fund continue to reject the evidence that an active industrial policy covering directed tariffs and investment laws has been crucial to successful developers both North and South. Different routes to development are rejected in favour of sequencing along a single path.

Plans to make capital account liberalisation a central tenet of the Fund’s work were shelved after crises in Asia, Russia, Latin America and Turkey shook the global financial system. The Fund was criticised from outside and within. The proposal for a debt restructuring mechanism represented an important admission by the Fund that markets alone could not be relied upon to resolve financial crises. Importantly however, the failed initiative would have replaced the ‘free hand’ of the market with that of the Fund itself.

Before his departure, chief economist Ken Rogoff warned that there was no proof that financial liberalisation had benefited growth and seemed linked to “increased vulnerability to crises”. Horst Koehler, ex-managing director of the Fund, suggested that previous opposition to the establishment of an Asian Monetary Fund was “stupid”. Despite this contrition, the Fund’s best efforts to shore up the global financial system are limited to banking sector reforms and the development of standards and codes. The failure of the Fund to address systemic architectural issues partly explains why countries from Eastern Europe, East and Central Asia, and Latin America are finding it possible and worthwhile to disengage from the Fund.

Fiscal austerity: more space or passing the buck?

Developing countries have argued that Bank and Fund prescriptions for fiscal austerity have more to do with pleasing international creditors than with the long-term growth prospects of the economy. In recent negotiations in Latin America the Fund has allowed marginally more breathing room. It says that there is less need for strict prescriptions in middle-income countries.

In the face of public exhortations to greater spending on social services, low income country governments however find themselves trapped by Fund diktat on budget balances, inflation and interest rates. As discussed in a comment from Zambia, countries throughout Africa have had to make cutbacks to meet arbitrary Fund-set targets.

Privatisation: no zealots?

Battles over proposed privatisations have erupted throughout the global south, particularly fierce where public services have been targeted. Responding to the level of public opposition, numerous re-nationalisations and to a growing reluctance on the part of multinational companies to participate, the Bank claims a change of heart. User fees for education have been abandoned. In water, staff say they are “not religious zealots”; the new focus is on public-private partnerships. In health care, electricity and telecommunications, reports say that there is a “vital role for the state”.

However, research from PSIRU at the University of Greenwich reveals that, despite such pronouncements, the IFIs are achieving similar objectives in different ways. A proliferation of bilateral and multilateral programmes, co-financed and managed by the Bank, are only available to countries if they choose private sector partnerships over public reform. While acceptance may be growing in some corners of the Bank for marketing boards, Malawian NGOs are furious that the Bank continues to demand privatisation of the state Agricultural Marketing Board as a condition of its support. An upcoming paper from ActionAid looking at conditionality in the water and energy sectors in India, Ghana and Uganda, finds that donor harmonisation around the conditions set by the Bank and Fund leaves developing countries “more constrained than ever in the choice of policy instruments left open to them”.

Post-Washington or Washington-Plus?

What of the other elements of the Post-Washington consensus: social and environmental safeguards, ownership and participation, and good governance?

Stories on a drainage project in Pakistan, the Bank’s role in climate change, and forestry reforms in the Democratic Republic of Congo, point up failures in both policy and practice with enormous human and environmental costs. Peter Bosshard’s comment reveals that Bank staff in the field take little heed of the endless yarn of policies spun in Washington.

A review of the experience with PRSPs as the strategies are moving into a second round shows the limits on genuine civil society participation. The comment from Zambia and the article on Malawi highlight the severe practical limitations of ownership in a framework dictated from Washington.

Good governance must not be a one-way street. Parliamentary scrutiny of agreements with the IFIs is slowly improving but still leaves much to be desired. Calls from all quarters to increase the voice of Southern countries at the Bank and Fund are perpetually stalled as the current IMF leadership selection process indicates. And at the same time, Bank action against corporate corruption is being tested in Lesotho.

At a time when multilateralism is under increasing attack there is a case for giving existing international institutions the benefit of the doubt. But to bring doubters on board, they must be genuinely multilateral and work much harder to practise what they preach.