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Split highlights growing call to rethink conditionality

23 November 2006


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Differences of opinion over conditionality blew up into an embarrassing spat between the Bank and the UK at the annual meetings in Singapore, forcing the Bank into a second review of conditionality.

Conditionality – stipulating policy changes governments must make in order to receive loans or grants – is common practice at the Bank. As part of its contribution to the last replenishment of the International Development Association (the Bank’s lending arm to low-income countries), the UK made £50 million contingent on the Bank making “satisfactory progress” on “implementing the recommendations in the 2005 review of World Bank conditionality” (see Update 47). The review committed the Bank to five ‘good practice principles’ in the use of conditions: ownership, harmonisation, customisation, criticality, and transparency and predictability. An internal Bank review released in September which found that it is “broadly following” the new principles was contradicted by NGO research (see Update 52) and failed to satisfy the criteria of the UK.

manufacturing a non-crisis to score points in the UK

Stung by rebukes on both this issue and the anti-corruption framework (see page 2), Bank officials struck back, accusing UK international development secretary Hilary Benn of “manufacturing a non-crisis to score points in the UK by pretending to stand up to the Bank. It plays well in the party leadership race back home but has absolutely nothing to do with helping poor people.” Wolfowitz was forced to climb down by the end of September, writing in a letter to the Financial Times that it was “unwise of Bank officials to attribute this campaign to the political ambitions of Hilary Benn”, and that it was “right to question past Bank policies regarding conditionality”.

In late November the Bank released a progress report on implementation of the good practice principles, in response to the UK’s concerns. The report contends that the Bank has made “satisfactory progress in implementing the recommendations of the 2005 review of World Bank conditionality”. However, in a marked change in tone from the previous progress report, there is an admission that there is considerable room for improvement. Identified areas for improvement include:

  • upstream disclosure of Bank analytic work (such as poverty and social impact assessments) “to give political space for debate”;
  • avoiding the use of policy conditionality in “sensitive areas” where “ownership is uncertain or the political environment fragile”;
  • avoiding overlap of conditionality with the IMF;
  • avoiding unnecessary process conditions and “vague formulations”; and
  • reducing the use of benchmarks (“steps in a reform process that represent progress markers”), especially in low-income countries;

However, the Bank was equivocal on the key issue of the link between a country’s development plan and the policy conditions included in its lending framework, saying only that “many accountability frameworks are a summary of a variety of policy intentions mentioned throughout government strategy documents”.

It is anticipated that the progress report will satisfy the board when it is discussed 5 December. The next progress report on conditionality is planned in two year’s time.

Denunciations of the World Bank’s use of conditionality from civil society groups around the world continue unabated. In October for example, a civil society symposium in Sierra Leone called for reform of conditionality policy, while more than 2000 people marched on the offices of the World Bank in Colombo calling for an end to harmful economic policy conditions.

The Norwegian government is hosting a conference on conditionality end November which will bring together development officials from Sweden, Denmark, Finland, the UK, Canada, Germany and The Netherlands to discuss more appropriate and effective conditionality for the future. As input to the conference, the Norwegian ministry of foreign affairs commissioned research on the impact of conditions. Case study countries are Bangladesh, Mozambique, Zambia and Uganda. Preliminary findings include:

  • the Bank is significantly more pragmatic than it used to be, although it is still exploring ways to increase private participation in the provision of services;
  • privatisation conditionality still figures in a majority of the IMF’s Poverty Reduction and Growth Facilities;
  • in trade, the basic thrust towards liberalisation continues, with changes due to the shifting global context as well as prior liberalisation at the country level; and
  • there is a great deal of variation in Bank and Fund practice, from outright pressure to privatise through the use of conditions to a case where no pressure was observed.