UK reports on World Bank and IMF: More work to do

8 April 2006

The UK’s Department for International Development (DFID) and Treasury released in late March annual reports on their relationship with the World Bank and the IMF respectively.

The Bretton Woods Project described DFID’s previous report for 2004 as “a box-ticking exercise rather than a serious commitment to improved accountability”. This year’s effort contains a more detailed discussion of key policies and projects; reference to the World Bank’s internal accountability mechanisms (minus the IFC’s Compliance Advisor Ombudsman); links to DFID objectives for World Bank spring and annual meetings, and International Development Committee hearings; and detailed information on the UK’s financial contribution to the World Bank Group, including, for the first time, a breakdown of UK support for trust funds.

Learning from accountability mechanisms

The report could go much further in providing more critical commentary and less pro-forma regurgitation. While reference is made to the Bank’s internal accountability mechanisms, there is no indication that either DFID has learned anything from or has a view on the work of these agencies:

No comment on IFC support for a series of projects which have been found to have "significant deficiencies"
  • Contrary to DFID’s assertions, the Quality Assurance Group does not publish its quality assessments, only an annual synthesis of these assessments, and a recent web check reveals even this effort to be four years out of date.
  • DFID applauds the Bank’s management for results. Contrast the Annual Report on Operational Effectiveness 2004 of the Bank’s Operations Evaluation Department which described monitoring and evaluation in the Bank’s networks as “scanty”, in investment lending as “a work in progress”, and in analytical work as “rare” (see Update 45).
  • No comment on the work of the Department for Institutional Integrity, which came in for heavy criticism during the period of the report for the glacial pace at which it processed debarment proceedings against the list of northern engineering firms indicted for bribery in the Lesotho Highlands Water Project (see Update 41).

On accountability, while links are given to spring and annual meetings objectives, it is still not clear if these objectives were met, and if not, what implications that might have for the relationship with the Bank. Similarly, there is no insight into how DFID will evaluate whether or not the Bank has made sufficient progress on the conditions DFID set for an additional £100 million top-up for the International Development Association. One of these conditions is that the Bank work more effectively with other donors. The Multilateral Organisations Performance Assessment Network, of which the UK is a member, found that harmonisation with other donors was an area where the Bank needed improvement: their annual survey found that the Bank is perceived as “pursuing its own institutional goals and procedures” (see Update 49).

Country level analysis: lack of institutional memory

DFID’s discussion of the Bank’s work at the country level is more informative than the previous effort. Particularly welcome are critical views on the PRS review and conditionality, where the report goes beyond simple description of Bank activities. Disappointing however, is the discussion on safeguard policies. No mention of the debate which surrounded the revision of the Bank’s indigenous people’s policy (over the Bank’s unilateral decision to downgrade the internationally-developed standard of ‘free, prior and informed consent’ to ‘free, prior and informed consultation’, see Update 47). Also missing is any sense of the disagreement over the IFC safeguard policy review, which NGOs viewed as a weakening of accountability and a failure to recognise international standards (see Update 50).

On the project front, the report outlines the rationale for UK support for the Nam Theun 2 dam in Lao PDR and forestry reforms in the DRC. Missing is any follow-up on last year’s single paragraph on the highly controversial Baku-Tbilisi-Ceyhan pipeline. DFID said then that “the IFC’s involvement would maximise the potential benefits to poor people in the region”. Since that time a series of reports have revealed cases of pollution and land expropriation, and the UK trade and industry committee has investigated major technical failings (see Update 46).

In this year’s report, DFID says it received assurances from the Bank that management would report to the board on the Nam Theun 2 dam every six months. The dam was approved in March 2005, yet there is no mention of the first of such progress reports or whether the UK found it adequate. One year on from approval of the project, NGO International Rivers Network has found that wildlife management and resettlement plans have not been completed and key monitoring arrangements are still not in place.

On forestry in the DRC, DFID says it has been “working closely with the World Bank in Washington and in DRC to ensure that their programmes respect the rights and livelihoods of forest dwelling communities”. This may come back to haunt DFID. In March 2006, a preliminary investigation by the Bank’s own Inspection Panel found that “the Bank claims it was not aware of the existence of ‘Pygmy’ communities in areas that would be affected by its projects, but that it would now develop a plan to ensure that ‘Pygmy’ people are not harmed by new developments funded by the Bank” (see Update 50).

DFID is evidently pleased that the IFC and MIGA have agreed to strategies which broadly coincide with DFID’s aims as outlined in the 2004 report. Both are to focus more on the poorest countries, offer more support to small and medium enterprise, and encourage trade and investment between developing countries. A corporate scorecard is to measure progress annually against these targets. Bank-watchers will be keen to monitor this progress and will be looking to DFID to be vocal if goals are not met. In the period 1991 to 2005, 23 per cent of IFC commitments supported fossil fuel investment projects. Fifty-four per cent of these were export-oriented. No comment from DFID on IFC support for projects such as Glamis gold mine in Guatemala, the Dikulushi silver mine in DRC, or the Amaggi soy project in Brazil, all of which have been found to have “significant deficiencies” in due diligence by the Compliance Advisor Ombudsman (see Update 49).

UK support for the World Bank Group in 2004/5 totalled £206 million, £205 million of which was for the International Development Association. This does not include $248 million in support for World Bank managed trust funds in 2004 (drawn from World Bank accounting systems in US dollars and based on a different fiscal year) (see At Issue on trust funds).

The UK and the IMF 2005

Like DFID, Treasury fails to explain whether its objectives for the spring and annual meetings of the IMF have been met. Unlike DFID, Treasury continues to insist that it does not need an institutional strategy to guide its dealings with the Fund. While the report does a good job of outlining key policy developments at the Fund, there is no critical examination of a range of new initiatives, such as the Trade Integration Mechanism (see Update 40), the Debt Sustainability Assessment (see Update 42), the Policy Support Instrument (see Update 48) or the Exogenous Shocks Facility (see Update 49). Particularly disappointing considering Treasury’s rhetorical commitment to “alternative macroeconomic policy frameworks” is the failure to take a view on whether or not the Fund has made progress on the issue.

The report provides a detailed outline of what changes the UK would like to see coming out of the Fund’s strategic review, however there is no comment on the failure of the process thus far to engage a broader range of stakeholders.

  • On surveillance, UK priorities include independent surveillance; greater analysis of exchange rate regimes and international spillover effects; development of a framework for assessing the effectiveness of surveillance, including an evaluation of the accuracy of assessments made by the IMF (the IMF is due to bring forward proposals to address this as part of the 2006 surveillance review); and improved transparency, with the UK favouring mandatory publication for all country reports.
  • On crisis prevention, the UK supports an attempt to revive both the Contingent Credit Line (see Update 50) and the sovereign debt restructuring mechanism; argues for a “stronger analytical base” for capital account liberalisation (with no response to the IEO review which suggested greater attention to the supply-side factors of international capital flows, see Update 46); and says more effort is needed to encourage ‘systemic countries’ to participate in the standards and codes initiative and to improve the clarity and usability of reports on standards and codes (no mention of calls from the Tax Justice Network to include an assessment of bank secrecy in such reports, see at issue, Update 49).
  • On ‘voice’ of developing countries, there is no news. The UK supports an increase in basic votes, an ad-hoc increase in the quotas of under-represented countries, and operational measures, including capacity building, transparency and increased decentralisation. No position on whether European coordination or consolidation is needed on the Fund board, or how.
  • On learning from the Independent Evaluation Office, the UK would like to see greater follow-up on previous board-approved recommendations and greater external dissemination of lessons learnt. The UK could have usefully contributed to this process by providing its own thoughts on whether or not the lessons have been learnt from, for example, IEO evaluations of crisis management. Have, for example, the Argentina report’s recommendations to strengthen board transparency and accountability (see Update 42) been adequately addressed?

To calculate the financial cost of the UK’s IMF membership, complicated arithmetic is used to estimate the net benefit/cost of membership against holding conventional reserves in dollars, euros and yen. For 2004-5 the UK calculated a net benefit of £57 million. This does not include UK one-time contributions to new IMF initiatives for low-income countries, however no such payments were made for the period of the report. Regular contributions to the Poverty Reduction and Growth Facility come out of the DFID budget, and totalled £1.8 million. Missing is UK support for IMF technical assistance.