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Spring meetings descend into chaos

Updates on all the action

16 April 2007

The credibility of the World Bank is in tatters, as accusations of nepotism, religious intolerance and political bullying have engulfed the institution. Attention to the issues of the formal agenda of the spring meetings of the World Bank and IMF has been overshadowed by calls for president Wolfowitz to resign after conceding that he violated Bank protocols by personally intervening in the pay rise and promotion of his girlfriend (see Calls for Wolfowitz to resign mount). The key issue to watch at the IMF was whether any progress would be made on meaningful reforms to the institution’s anachronistic governance structure.

Wolfowitz appointee deletes references to family planning

In a damaging blow to Wolfowitz’s leadership, US NGO Government Accountability Project (GAP) has revealed an email trail in which recent Wolfowitz-appointee Juan José Daboub pressures Bank staff to delete any reference to family planning in both the Madagascar country assistance strategy and in the Bank’s health strategy. The Bank’s recently completed health, nutrition and population (HNP) strategy mentions family planning only once, a “glaring omission” according to GAP’s Bea Edwards. Embattled Wolfowitz, at a 12 April press conference to respond to accusations of nepotism in the promotion of his girlfriend, denied that there had been any changes to the HNP strategy: “Let me make it very clear. Our policy hasn’t changed.” Notably Wolfowitz did not rebuff the accusations made against Daboub’s intervention in the Madagascar case. The Financial Times has been able to confirm that World Bank staff in Madagascar “were ordered last month by Mr Daboub to remove all references to family planning from a proposal to fund efforts to combat [HIV] and fight poverty in Madagascar.”

Daboub, former finance minister of El Salvador and member of the country’s ARENA party which opposes contraception and equal rights for women, was appointed World Bank Managing Director by Wolfowitz in April 2006. The appointment came after the resignation of Chinese national Shengman Zhang who left the Bank for the private sector over disagreements with Wolfowitz.

were ordered to remove all references to family planning

UK, France block meaningful reforms at IMF

Despite rhetoric to the contrary, UK daily The Guardian has reported that the UK is blocking attempts at meaningful reform of the IMF’s governance structure. Ranjit Banerjee, India’s policy adviser at the IMF, said Britain and France had discovered they had the most to lose by the plan to apportion voting rights on the basis of adjusted GDP. “The UK and France realised that they would get hit the most,” Mr Banerjee said. “Under the proposed reform they could see China overtaking them in terms of the size of its economy”.

Commitments and contradictions on climate and energy

Though not part of the official agenda at these meetings, Wolfowitz stated that clean energy, renewable energy and climate change would likely be the World Bank’s main focus in years to come. It was also a key concern of civil society, as reflected in the dialogues and press briefings which dealt with deforestation, climate change and projects in Chad, Cameroon and the DRC. At a speech in London last week, UK development minister Hilary Benn on the World Bank energy and climate change, stated that the scale of this challenge needs to be ‘matched by the size, strength and quality of the institution’

Climate change and energy was discussed informally over lunch as part of the World Bank’s spring meetings. However, progress from the development committee was disappointing. A roundtable discussion between civil society and the World Bank during the spring meetings revealed serious and unresolved contradictions in the Bank’s approach and disagreements amongst its staff on the approach that the Bank should be taking.

Civil society organisations point out that the framework fails to tackle the needs of the poor and focuses too heavily on large investment schemes. In this light statements from the Dutch development minister, Bert Koenders were welcomed that the Bank should focus more on “small-scale interventions that target the poor such as the introduction of improved cooking and lighting for poor households, small-scale hydro-generation and biomass production”.

A new report by Greenpeace proves that with proper investment, equivalent to current fossil fuel subsidies of around $300 billion a year, renewable energy along with energy efficiency would deliver the 50 per cent reduction of global emissions by 2050 needed to avoid the potentially apocalyptic scenarios presented by the Intergovernmental Panel on Climate Change at start April. Greenpeace asked the governments supporting the World Bank’s energy portfolio not to provide any further funds until the Bank agrees to support an energy revolution. NGO Oil Change International pointed to the irony of recent figures revealing the Bank’s increased lending for fossil fuels which undermine its rhetoric on climate change and clean energy.

Natural resources and calls for accountability in the Congo

The NGOs Rights and Accountability in Development (RAID), Greenpeace and Rainforest Foundation all released reports on the Democratic Republic of Congo (DRC) at the spring meetings, which reveal that mining and logging in the country are out of control, with devastating consequences for local communities and the environment. They called for fairness and accountability in the exploitation of the country’s natural resources. Their calls are accompanied by an international appeal, signed by over 100 organisations, to be delivered to the World Bank demanding the renegotiation of mining contracts in the DRC. Since 2001 the World Bank has lent more than $2 billion to the country, encouraging investment in the country’s natural resource sectors as a key driver of economic growth. The organisations urge the Bank, as the most influential donor to ensure that its advice and lending do not facilitate private plunder of the country’s resources. 40 million people depend on the DRC’s rainforest, and few benefit from its logging and mining industry.

Highlights of civil society meetings

IMF macroeconomic policies and the impacts on education budgets and teacher wages

IEO Evaluation of the IMF and Aid to Sub-Saharan Africa

Reforming the governance of the IMF / World Bank: Is the Singapore agenda enough?

Danny Glover joins calls to put IFIs on trial over economic policies and climate change

Minutes of press briefing with Danny Glover

DRC’s natural resources: Roundtable discussion on forestry, mining and the role of donor institutions

Chad-Cameroon pipeline: implementation challenges and lessons learned

CSO meeting with German development minister and Liberian finance minister

The World Bank and climate change: A roundtable discussion on forests, fossil fuels and the Bank’s climate commitments

Sub-Saharan Africa: Outlook and Challenges (IMF-civil society dialogue)

Fiscal space and fiscal priorities: Infrastructure, trade and poverty

Key findings and recommendations of the high-level panel on IMF board accountability, notes unavailable but you can see the webcast of the event

European CSO meeting with European IMF EDs

Highlights of official meetings

13 April: G24 and G8 meetings

The G24, a important grouping of emerging markets and large developing countries, chose to focus its meetings on a few particular topics. Given that the discussion over quota changes at the Fund are a hot topic, it is unsurprising that the G24 communiqué concentrated on the reform of the quota formula. The G24 group focused on its traditional demands for the quota formula — for GDP to be weighted by purchasing power parity, intra-currency zone trade to be excluded from quota calculations, and variability of current account payments to be measured relative to GDP. They also reiterated the demand for a “substantial increase in basic votes and prevent erosion in its share thereafter”. The communiqué also argued against any review of the IMF’s 1977 decision on exchange rate surveillance (see Update 53). Some major shareholders have asked for a more explicit role for the IMF in disciplining countries with fixed excahnge rates, a move that most have seen targeted at China (an observer at the G24). The G24 members worry that IMF pronouncements on exchange rates may create instability or speculation in currency markets which can be detrimental to developing country interests. Finally the G24 statement castigated donors countries for failing to sufficiently scale-up aid, despite the commitments of the Monterrey consensus and at the G8 summit in Gleneagles in 2005. “Ministers called therefore for a rapid and frontloaded increase in official development assistance to meet the MDGs and ensure an improved distribution of the gains from global prosperity.” Interestingly, the G24 pushed for more aid to be given through multilateral institutions such as the International Development Association (IDA), an arm of the World Bank. Despite developing country concerns over governance of the Bank and conditionality attached to Bank loans, some recipient countries have complained about onerous requirements placed by donors on their bilateral assistance. Also receiving mentions were proposals for a new contingency financing line (see Update 54), arguing for a “meaningful, reliable and affordable” instrument; clean energy financing (see Update 53), urging rich countries to contribute substantial reosurces to this area; and governance and anti-corruption (see Update 55), arguing for more focus on the supply side of corruption i.e. the mutilnational companies involved in bribery in developing countries.

The G7 press statement on the other hand was fairly bland in assessing the global economy and committed the G7 countries to insure low inflation, sustained growth and long-term fiscal sustainability as their contribution to unwinding global imbalances. The G7 did again call for China to adjust its exchange rate, a recurring refrain from the G7, especially the United States. But it made no mention of the multilateral consultations on global imbalanced that the IMF is hosting. This new function was touted by the IMF last year as their means to improve surveillance over the global economy, but after nearly 1 year of consultations interest seems to be waning. No participants seem willing to make policy commitments as a result of the IMF’s efforts. The G7 issued two quick sentences on IMF governance reforms, perhaps an indication of friction between the European countries and the rest of the G7. The US and Japan are seeking quicker adjustment of voting rights in the Fund, with a particular focus on boosting the shares of emerging markets and Asian tigers; while the Europeans want to maintain their current large shareholding in the institution and make sure any adjustments are slow. The G7 spilled more ink on the topic of IMF surveillance over exchange rates, pushing for a quick overhaul of the 1977 decision on the surveillance remit. On the important reports on IMF-World Bank collaboration, and long-term financing of the IMF, the G7 merely “took note” of them, implying their disagreement with the recommendations. Final mentions were given to Liberian debt resolution, calling for the debt relief to be financed internally; climate change, calling for market-based mechanisms like carbon trading; and money laundering, a recurring US concern.

14 April: International Monetary and Financial Committee meeting

The IMFC communiqué, the statement of the most senior operating committee of the Fund and generally sets the direction for the institution, emphasised the importance of resolving the stalemate over the quota formula reform. The committee called “on the Executive Board to continue its work on the reform package as a matter of priority.” But the statement may disappoint advocates for increased votes for low-income countries since it stresses “higher shares for dynamic economies, many of which are emerging market economies” while the planned basic vote increase may only preserve the voting share of low income countries. The statement calls also weighs in on the review of exchange rate surveillance endorsing a review, but explicitly nodded to the demands of the G24 that the review should not create new obligations, should pay regard to country circumstances, and should remain flexible. The G24 success should work in favour of developing countries that worry about Fund pronouncements on their currency regime. On the topic of multilateral consultations, a Fund exercise to seek solutions to growing global imbalances, the committee received a report from the IMF management on the progress, but there were no policy commitments on ways to actually resolve the global imbalances. While the IMFC called the consultations “useful” and “valuable” there is doubt about whether the IMF will continue emphasise their importance as much as it did last year when they were introduced.

The other critical topics to be discussed were the external reports on the Fund’s long-term financing, because of low lending the Fund is facing an steep fall in income, and on the Fund’s collaboration with the World Bank. On the Crockett report on the Fund’s budget (see Putting the cart before the horse), the IMFC called the report “sound” but reflected that the Fund’s members must consider both revenue and expenditure. The report did not consider expendiute because it was not mandated by the IMF managing director (MD) to do so. It called for specific proposals from the MD to be sent to the executive board, without giving any guidance on which areas of Fund activity should be scaled back. The report on Bank-Fund collaboration (see Update 55) provided a recommendation for one such scale back – an end to IMF development finance through the PRGF. But the IMFC specifically excluded any mention of this recommendation and clearly welcomed only the report’s conclusions on the need for cooperation rather than the report itself. Insiders have said that the major shareholders, particularly those in Europe, were displeased with the report’s recommendations because they want the Fund to have a bigger role in low-income countries.

In fact the IMFC statement reaffirms that “the IMF should remain fully engaged with its low-income members”. And it pushes further IMF involvement in the policies of low-income countries despite abundant criticism of the Fund’s work there. The Fund plans to review its policies in relation to low-income countries over the next several months, but is likely to entrench its role further rather than retreat to its core mandate of macroeconomic surveillance. The IMFC statement also contained paragraphs on other areas, setting the agenda for Fund policy decisions for the next 6 months: the streamlining of Article IV consultations, a new liquidity instrument for emerging market countries, the review of the Fund’s policy on lending into arrears, and a review of charges and maturities for financial assistance.

15 April: Development Committee: distracted

For the most part this year’s Development Committee amounted to a lot of welcoming of existing initiatives, the acknowledgement that more progress is needed, and calling for further study. It has been hard to identify much concrete action. Key statements focussed on progress towards the Millenium Development Goals (MDGs) (including on aid effectiveness, debt relief, health and education, fragile states and gender), the Africa Action Plan, good governance and anti-corruption, and clean energy and climate change.

Ministers expressed concern that the pledges made in 2005 to double aid for Africa by 2010 have not yet been translated into increased total donor resources and reticent donors were called upon to meet their 0.7 per cent targets. Aid fragmentation and earmarking of aid were also cited as a concern, with “greater country-ownership” and “donor coordination” put forward as a way to prevent this. The Bank management’s decision to launch a review of the Bank’s long term strategy on international aid architecture was applauded. Ministers called for renewed efforts to scale-up financing and looked forward “to a successful 15th replenishment of the International Development Association (IDA), including dollar for dollar replenishment of lost credit flows due to the Multilateral Debt Relief Initiative (MDRI) and the HIPC Initiative”. (see Update 50). The committee called for more integrated efforts to achieve goals in health and education, including for the prevention and treatment of HIV/AIDS, malaria and tuberculosis. More support for national education plans is needed, despite the Bank’s support for the Education for All – Fast Track Initiative.

Other highlights teased out of the communiqué:

  • Chinks in the armour of the Bank’s policy scorecard? Ministers called for “greater use of outcome indicators to measure progress”. To date, the Bank has been rebuffing critiques that its scoring of the quality of country policies is not an objective way to allocate aid.
  • Anti-corruption plan: Wolfowitz was told to continue to stand in the corner of the classroom, as ministers made a point of supporting board “engagement and oversight” of the implementation of Wolfowitz’s controversial plan to tackle corruption in recipient countries.
  • Keep middle-income countries sweet: Ministers called for a report by the time of the annual meetings in October on how to keep the middle income countries interested in and borrowing from the Bank. The institution’s financial solvency depends on it.
  • Action on gender: The limited progress on girls’ school enrollment was accompanied by calls for full and rapid implementation of the Bank’s Gender Action Plan, “including scaling up support for economic empowerment of women”. Further gender mainstreaming in Bank operations should be via a country-based approach.
  • Call for more ‘voice’: In what has become an obligatory call in the last five years, ministers urged yet further consultation on the question of democratising the arcane and undemocratic structures of the Bank, leading to a formal report at the annual meetings. The political climate suggests that they might actually mean it this time.
  • Fragile states: International Financial Institutions should work in partnership with the UN and other donors, to review their policies, procedures and incentives. The Bank must strengthen its rapid response and long-term engagement in fragile states.
  • ‘Flexible’ on trade: Ministers are still hoping for a breakthrough in the Doha Development Round negotiations and called on all parties to demonstrate “flexibility”. The Fund and Bank should take leadership in strengthening the Aid for Trade mechanisms and accelerating its implementation.
  • A load of hot air? “Progress” has apparently been made on the Clean Energy for Development Investment Framework but we will have to wait until the annual meetings hear more about it. By then we can hope for developments on: additional financing and implementation for energy access in Sub-Saharan Africa, development of existing financial instruments, mainstreaming climate considerations into development projects and strengthened collaboration with the Regional Development Banks.
  • The Wolfowitz issue: Ministers handed the hot potato back to the board of executive directors. They have asked the board to complete its investigation into charges that Wolfowitz personally intervened into the pay rise and promotion of his girlfriend. Even though Wolfowitz is standing firm, there is no guarantee that this is the last we will hear of the issue, as more and more improprieties are coming to light. It was unclear when the ad hoc group formed to investigate the issue would be reporting. The committee summarised that they expected the Bank “to adhere to a high standard of internal governance”.
  • Change of seat: The committee welcomed Mexican Finance Minister Agustín Carstens as the new committee chairman and gave an appreciative farewell to the former chairman, Alberto Carrasquilla.