World Bank/IMF spring meetings 2004 Round Up

7 May 2004

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Highlights from the Official Meetings

The International Monetary and Financial Committee (IMFC)

The IMFC reiterated many of the issues highlighted previously; calls on the international community to provide additional and coordinated assistance, surveillance on financial sector and capital market issues, anti-terrorism finance work, the critical importance of open markets and the reduction of trade-distorting subsidies in all areas (notably in agriculture), and increased World Bank/IMF collaboration. The IMFC supports a sharpening of the focus of PRSPs in efforts to achieve the MDGs, but expresses concern that on current trends most MDGs, especially for Africa, are not likely to be met.

The issue of transparency in IMF governance was raised, urging efforts “to enhance the capacity of developing and transition countries to participate more effectively in IMF decision-making” stating that, “the IMF’s effectiveness and enhanced credibility as a cooperative institution also depends on all members having appropriate voice and representation” However, no binding decisions were made in this regard.

The Development Committee

The Development Committee emphasised the need for full creditor participation to ensure HIPC success, and particularly its continuation beyond December 2004 as well as the continued application of PRSPs and country-owned development strategies in achieving the MDGs. They also saw the participation of developing countries in the Bretton Woods institutions as a major challenge.

In order to move the multilateral trade agenda forward, ensure a successful, pro-development, and timely outcome to the Doha Development Agenda for global growth and better the economic prospects of developing countries, the communique stresses that it is essential for developed countries to do more to liberalize their markets and eliminate trade distorting subsidies, including in the areas of agriculture, textiles and clothing. The importance of trade facilitation and liberalization efforts in developing countries was underscored. The IMF’s Trade Integration Mechanism, is suggested as a mechanism which will provide additional support to developing countries as they integrate further into the global trading system while Bank lending activities will be tailored to support capacity building and country-owned trade initiatives.

Issues under discussion

The Global Economy and Financial Markets – Sustaining the Recovery

The IMFC welcomes global economic recovery but notes the risks related to global imbalances and geopolitical uncertainties. The issue of trade liberalisation was raised considerably, with an emphasis on the need for an end to trade-distorting subsidies and particularly, in the UK Chancellor’s words, to “urgently tackle the waste of the Common Agricultural Policy, the scandal of agricultural protectionism around the world”.

African finance ministers urged developed countries to do more to expand existing debt relief initiatives, remove barriers to third world exports and reduce farm subsidies. Sudan’s finance minister was quoted saying: “we share the increased optimism regarding the global recovery, but we need to remain vigilant, poverty is a major contributor to global instability”.

Crisis Prevention and IMF Surveillance across the Membership: Priorities, Tools, and Modalities

IMF surveillance and its transparency were discussed in brief. According to the IMFC communique, the impending biennial review of surveillance “is expected to provide an assessment and propose ways to enhance its focus, quality, impact and overall effectiveness”. IMF’s role in partnership with multilateral development banks and donors in assisting low income countries with policy advice, financing and technical assistance to achieve high and sustained growth and poverty reduction was reiterated. “The importance of improving the macroeconomic design of PRGF-supported programs, including the social impact” was referred to.

Aid and Development Financing

The need for predictable, timely and long term aid was underscored, noting continuing difficulty in achieving the 0.7% of GNP as ODA goal. Only 5 countries, Denmark, Luxemburg, the Netherlands, Norway and Sweden have hit the 0.7% target. Wolfenson conceded that progress in stepping up aid to the world’s poorest countries remained too slow. “We spend $900 billion on defence globally”and we spend between $50 billion and $60 billion on development” he said.

The Brazilian finance minister Antonio Palocci Filho further highlighted the need for increased predictability of aid. In this respect, the UK proposal of an International Financing Facility (IFF) was widely supported, as was alternatives such as various types of international taxation mechanisms.

Progress on the MDGs

According to the first Global Monitoring Report- prepared by Bank and Fund staff and offering an assessment of progress on policies and actions for the attainment of MDGs- there is concern that based on current trends most MDGs will not be met by most developing countries, particularly Sub-Saharan Africa. Considerable variation is noted across countries, East Asia has on the one hand countries that have attained several of the MDGs (China and Thailand) and are developing ‘MDG – plus’ agendas while on the other Cambodia and Papa New Guinea are off track.

Pessimistic accounts of the prospect of achieving the MDGs were confirmed. Not only does the hard cash seem to be lacking, but urgent and creative measures are too. HIPC and PRSP programmes, as they stand, will continue to be the mechanism by which the MDGs shall be achieved.

To reverse this trend the report suggests scaling up action around reforms for stronger economic growth, empowering and investing in poor people through the delivery of human development and speeding up the implementation of the Monterrey partnership – matching developing country reform efforts with support from developed countries and development agencies.

Debt Sustainability and HIPC

The principles underpinning the proposed debt sustainability framework were supported and the need for an operationalisation modality underscored. The framework suggests 3 analytical measures to assess credit worthiness and vulnerability to debt distress namely;

the use of the Bank’s CPIA to rate country policy and institutional robustness
LIC’s vulnerability to exogenous shocks
Level of debts to fiscal revenue

The IMFC calls upon creditors to deliver full debt relief.

A detailed analysis and critique of this paper has been done by CAFOD, Trocaire, OXFAM and Action Aid

EFA and the FTI

It is all too clear that in spite of efforts and commitments of Southern governments for expanding access to education, donors have failed to deliver on their promises, there is a financing shortfall. According to WB president, “experience with the first ten FTI countries suggests that the prospects of achieving universal primary education by 2015 are remote unless there is a substantial improvement in the commitment, disbursement, predictability and flexibility of additional external finance”.

IFI governance, ‘voice and Vote’

G24 countries continued their lobbying for increased developing country representation in IFI governance, declaring their “strong disappointment about the lack of progress on the issues of voice, participation, and voting power of developing countries in the IMF and the World Bank”. They expressed concern that the selection process for the MD of IMF “continues to fall short of the standards of good governance, transparency and inclusiveness widely advocated by the IMF and World Bank in their relations with member countries” and warn that this is “inimical to the legitimacy, accountability and credibility of the institutions”.

Some mention of this was made in the committee communiques, but no change in policy was indicated nor was there any mention of the recent IMF head selection process. Comments Elliot: “One conclusion of this weekend’s events is that the rich countries are happier to deliver homilies to poor nations than they are to act themselves. The shameful way in which Spain’s Rodrigo Rato has been lined up as the new IMF managing director is indicative of the double standards that infect the running of the global economy”. Rato was doing the rounds in Washington to drum up support, while a rival candidate to Rato, Mohammed El-Erian refused to stand down and has created a precedent.

The Committees meet again on the 2nd and 3rd of October in Washington, D.C. to discuss among other issues

Improved climate for private sector activity
Progress on the implementation of the infrastructure action plan
A review of aid effectiveness, absorptive capacity, results-based measurement mechanisms
Elaboration of policy options and financing mechanisms for mobilizing additional resources
Progress report on IMF quotas, voice and representation

CSO Dialogues with Bank and Fund

Civil society met with IFC Executive Vice President Peter Woicke to make known their concerns and priorities for the revision of the social and environmental safeguards, information disclosure policies, and the Bank’s Pollution Prevention and Abatement Handbook.

Infrastructure Action Plan

The Bank also affirmed its intention to promote controversial “high-risk/high-reward” projects. Under the auspices of the Bank’s Infrastructure Action Plan, the high-risk strategy aims to substantially increase lending for infrastructure development, including large-scale dam projects over the next two years, despite the Bank’s poor track record of managing the social and environmental risks that accompany hydropower development.

For a critical analysis see ‘The World Bank at 60; A case of institutional amnesia?’ by International Rivers Network www.irin.org

EIR

A major concern for CSOs is the future role of the World Bank in the oil, gas, and mining sectors. A global coalition of NGOs met with President James Wolfensohn to discuss the EIR report which urges a number of reforms for the extractive industries. The Extractive Industries Review was commissioned by Wolfensohn in 2001 in response to international criticism that Bank-financed investments in the extractive industries fail to alleviate poverty and are plagued by massive environmental and social problems.

One of the main issues on the agenda was the pending Board decision on the Extractive Industries Review. Notably, Wolfensohn said to agree on the principles of free prior informed consent, ‘no go zones’ and respect for human rights. However, to date the Bank seems unwilling to implement these principles in a meaningful way.

A decision on whether the Bank will adopt the EIR’s recommendations is expected later this summer.

PRSPs

Four years on since their launch, CSOs took the opportunity of the World Bank IMF Spring meetings to challenge this ‘new’ approach to conditionality. Recent civil society reports on the PRSP process launched at the meetings include:

A discussion Paper by ActionAid USA/ActionAid Uganda, “Rethinking Participation: Questions for Civil Society about the Limits of Participation in PRSPs,” is designed to elicit debate and discussion among ActionAid country programs and other civil society organizations (CSOs) which participate in public consultations for their national Poverty Reduction Strategy Papers (PRSPs).

The paper shows that citizens’ groups who have attempted to participate in PRSP consultations over the last four years have actually not been given any real authority or power to change economic policies. Public consultations have done little to change the basic set of economic policy reforms that the IMF and World Bank push on poor countries as mandatory loan conditions. In fact many of the controversial policies are still being pushed as they have been for the last 20 years. The high-profile use of the ‘participation’ rhetoric to get citizens’ groups to stop protesting in the streets and sit down at the table has now run aground because, after four years of attempted participation in the processes, no major policy changes have resulted in the key World Bank and IMF loan conditions.

IMF role in low income countries

CSOs questioned the depth of the Funds ‘rethink’ around core principles and assumptions. The tension between the ideal of country ownership and IMF policies was noted; the locus of decision making remained with the Fund and not countries.

The issue of lack of fiscal flexibility by the Fund was raised but the Fund were defensive saying “on average PRGF programs were more flexible”. However, flexibility they added depended on the availability of financing.

On the nature of the PSIA unit and its focus, the Fund responded that people well versed and experienced in PSIAs would be contracted to inform program design at different stages and only for critical measures.

Plant conceded that the Fund was struggling with how to deal with opening up macro discussions beyond the government citing the limited capacity for engagement as a key constraint.But could support MDGs based scenarios. However they remained concerned over the implications of an increment in aid levels for the macro economic framework.

The IEO PRSPs evaluation is due to be released mid July and some proposals are possible for the annual meetings reports.

Panel on Debt Relief and Debt Sustainability – World Bank

A joint IMF/ Bank note ( Debt sustainability in low income countries) proposes an operational framework for debt sustainability. Urging for concessional terms to financing the paper highlights the need to shift to grant financing to avoid creating further debt distress. Developing countries are encouraged to strengthen their policies and institutions to more effectively use official financing. Paper concedes that “a debt overhang may undermine urgently needed progress on policy reforms and discourage private investment”

The framework is based on two pillars; “an analysis of actual and projected debt burden indicators in a baseline scenario and in the face of plausible shocks” and secondly on “indicative country specific external debt burden thresholds related to the quality of the country’s policies and institutions”. These two pillars would be the basis for designing country borrowing and lending strategies whilst ensuring this matches their abilities to service debt and ensures progress towards the MDGs.

There is recognition that HIPC will not guarantee long term debt sustainability. The framework would guide new borrowing and that HIPC would still be implemented in full. Implementation modalities are yet to be worked out, including integration with IDA 14 negotiations and efforts to attain the MDGs.

MDGs

There remains a challenge of how to mobilise additional international resources to meet the financing gap given MDG commitments. Greater efforts are needed for grants and more effective aid.

The Fund says they now encourages alternative scenarios for MDG attainment within the PRSPs framework and propose to use these as the basis for Joint Staff Assessments.

CSOs cautioned against the dominant use of quantitative indicators within the analysis arguing that this would mask certain outcomes. The challenges of macro- micro linking in the impact assessment were pointed out. There was no clear outline for CSO engagement with the M & E. Benchmarks and follow up mechanisms were not clear. The challenges of monitoring in conflict contexts were underscored.

Financing modalities towards the MDGs, a progress note for the Developing Committee

This staff note proposes 4 approaches namely

Increased official development assistance
Frontloading aid as proposed in the UK’s International Finance Facility (IFF)
Global taxation
Improve the efficiency and flexibility of current development assistance

World Bank’s Development Policy Lending Paper

Dated December 2003 and released April 2004 this paper is open for public comment uptill the end of June. Preliminary analysis by BIC points out that it fails to address the issue of conditionality for policy reforms. There is some language on gauging potential social and environmental impacts and the need for stakeholder consultations and a change of name from ‘adjustment lending’ to ‘Development policy lending’

CSO EVENTS

CSOs/European EDs meeting

A first ever formal meeting between European NGOs working on international financial issues and European Executive Directors, Alternates and senior staff of the World Bank took place in Washington DC.

Comparative Analysis of IFI Transparency

Citizen access to information is a key component of the growing debate on the ‘democratic deficit’ of the international financial institutions. To address this gap BIC and Freedominfo.org have identified 250 transparency indicators and are applying these across ten of the leading IFIs resulting in a searchable database with more than 2,500 separate entries describing, among other things: access to IFI project documents, policies, strategies and evaluations; transparency of the governing bodies of the institutions; and dissemination and translation of information.

CSO Reports launched

‘Owning the Loan: poor countries and the Millennium Development Goals’ a joint Christian Aid/ AFRODAD report calling for transparency in loan agreements. This report calls on African governments, international financial institutions and the UK government to make their loan agreements transparent and open to the public. This should help to avoid mistakes that in the past have led countries into a debt trap which has jeopardised their chances of reaching the 2015 Millennium Development Goals. It is based on research in 5 African countries- Malawi, Mozambique, Uganda, Tanzania and Zambia.

Conditionality, Privatisation and Poverty

A panel debate organised by Action Aid during the spring meetings to coincide with the launch of a report: ‘Money talks: how aid conditions continue to drive utility privatisation in poor countries.’ The discussion focused on the role of World Bank in economic policy conditionality in water and energy privatisation. Participants considered the extent to which recent policy commitments are reflected in changing practice, and questioned the implications for home-grown and owned reforms.

Other issues

IDA-14

Negotiations will take place throughout 2004 on the 14th replenishment of the International Development Association (IDA), the concessional lending arm of the World Bank. Indications are that the US government will request an increase in the proportion allotted as grants.

EFA and FTI initiative

Present funding levels are too low and unpredictable to sustain progress with this program. Targets are unlikely to be met unless there is substantial improvement in international commitment.

Topics: Activism Knowledge WB/IMF roles
Institutions: International Monetary Fund (IMF) World Bank Group

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