Less carrot, more stick please

Disappointing reforms at IDA 15

4 December 2007

As negotiations close over donations to the International Development Association (IDA), the World Bank’s financing arm for low income countries, civil society groups have expressed disappointment over the failure to make progress on conditionality, debt sustainability, allocation and impact assessment.

The IDA 15 policy paper will be finalised after the fifth and final talks in Berlin in mid-December which will focus on the volume of donor contributions. After the fourth round of talks in November in Dublin, the Bank described discussions of reforms of the way IDA works as “substantially concluded”.

There has been concern over IDA’s diminishing role in the global aid architecture amongst a proliferation of vertical funds and private foundations (see Update 55). The Bank has decided that IDA will “provide a platform for development assistance”. It will, for example, strengthen health ministries so they can better manage funds for HIV/AIDS or malaria.

IDA support should strengthen the domestic policy-making institutions as opposed to imposing conditionalities

The Bank will continue to use ability to service repayment obligations as its primary criterion for debt sustainability. This fails to consider the resources that poor countries need to tackle poverty. African civil society groups, at the second round of IDA discussions in Maputo in June, called for the establishment of “a framework that not only incorporates the domestic debt factor in its determination, but also one that is transparent and inclusive of African governments”. The Bank has rejected calls by debt NGOs to redefine debt sustainability as the level of debt that allows a country to achieve the Millennium Development Goals without an increase in debt ratios.

Climate change discussions have been sensitive. The report ensures that there will be no earmarking and that the priority will be adaptation “complemented by selective mitigation actions”. A separate paper outlines specific roles that IDA will play in addressing climate change: integrating adaptation and mitigation in investments; scaling up disaster preparedness; increasing access to new technology; expanding analytical work; and mainstreaming climate actions into country assistance strategies.

Increased financial commitment is to be made to so-called ‘fragile’ states. The length of time is to be extended that funds which exceed the normal allocation guidelines can be channelled to fragile states and donors are to pay for these countries’ old debts to be cleared.

A key issue of interest for civil society groups has been the Bank’s country-level effectiveness. Draft ‘monitorable actions’ for IDA – the only commitments that the Bank can be held accountable for – are disappointing. They include further decentralisation of staff; integration of Bank implementation units into government structures; strengthening partnerships with other actors; and improving results measurement. Missing are any concrete commitments on civil society priorities to decrease the use of conditionality, reform allocation systems, or mainstream the use of impact assessment.

African CSOs in Maputo in June asserted that “IDA support should strengthen the domestic policy-making institutions as opposed to imposing conditionalities”. After a summer of consultation on the implementation of the good practice principles on conditionality (see Update 53), a final report was to be presented to the board in early December. Bank staff have already outlined the findings: the use of conditionality in sensitive policy areas is rare; the use of benchmarks was down 40 per cent; and the use of process conditions is rare.

A report by Brussels-based NGO Eurodad, which was given access to the Bank’s conditions database, finds that the principles have had a positive impact in reducing the number of conditions, but there are concerns that the Bank is now ‘bundling’ conditions together under a single heading. There has also been “very limited progress in curbing the Bank’s practice of attaching sensitive economic policy conditions like privatisation and liberalisation”. While the Bank claims that only 16 per cent of operations have privatisation-related conditions, Eurodad finds that 71 per cent of all grants and loans have some sensitive policy reform, more than half of which are privatisation-related. They have called for independent monitoring of the use of conditionality to be included in the final IDA indicators.

The Bank’s commitment to work with other donors “towards harmonisation of performance-based allocation systems” has raised old concerns about the policy agenda that is advanced through allocation decisions (see Update 52). Rather than allocating IDA funds based on the implementation of policies favoured by the Bank, NGOs and academics have been calling for increased emphasis on the level of financing needed to reach national development goals, and the use of indicators which measure progress towards development outcomes. The German government has sought to eliminate the use of a measure of trade openness in the allocation system. Bank staff have resisted any substantive changes. Some minor technical changes to simplify the allocation formula and reduce volatility have been agreed.

A coalition of NGOs led by Oxfam released a paper in October calling on donors to ensure that the final IDA 15 agreement states that “country-led poverty and social impact assessment (PSIA) be used in all IDA-supported financing with a major distributional impact”. There are no firm commitments to do so. Instead the Bank has agreed to “carry out a stock taking exercise of its PSIA work and update the good practice note on PSIAs”. The Bank’s evaluation unit is scheduled to examine the Bank’s PSIA work in 2008.

The Bank has called on donors to increase their support to IDA by 20 per cent compared with contributions to the previous fundraising round. The increase is to fund the Multilateral Debt Relief Initiative (see Update 46), increased support to fragile states and expansion of IDA’s work. European NGOs have lobbied their governments to consider “redirecting funding away from the Bank through other mechanisms which respect country ownership and take the necessary leadership in addressing climate change”. A similar US campaign has added a third request – improving accountability for development results. Improved accountability includes independent monitoring and evaluation, improved transparency, a strengthened Inspection Panel, the requirement of consent of project-affected citizens, reform of the Bank’s anti-corruption unit, and the establishment of “credible safeguards” for the use of country-based environmental and social protections.