2007 will certainly go down in the annals of the IFIs as an annus horribilis. But a bad year for the IFIs has meant a relatively good year for developing country policy space.
At the World Bank, the headline story was Paul Wolfowitz’s disgraced exit. Coming as the Bank passed the hat to donors, the debacle left the Bank’s financial survival in question. Without so much as pausing for breath however, the Bush administration anointed their man to replace Wolfowitz. For now, Robert Zoellick appears to have steadied the ship. Disappointing for many civil society organisations was the inability of donor countries to use the opportunity of the IDA replenishment to demand fundamental reforms at the Bank. Instead, donors seemed relieved to simply stump up the cash and ask few questions.
And so the CSOs asked the questions themselves. Peoples’ tribunals of the World Bank took place in India and The Hague, with Bangladesh and others to come this year. Campaigns targeting the donor replenishment of the Bank’s coffers demanded an end to economic policy conditionality, a shift out of fossil fuels into renewables, and increased accountability to project stakeholders. While of limited immediate impact, the increased public awareness of the ‘power of the purse’ may prove an important development in the long-run.
Beyond the departure of Wolfowitz and the donor replenishment process, there were key developments on a number of fronts. The year started with damaging blows to the Bank’s self-proclaimed ‘knowledge bank’ role. The evaluation unit found that the Bank was reasonably good at growth, but that the growth strategies have done little to improve the living conditions of the poor. Then an independent evaluation commissioned by the Bank to look at its research department found that Bank researchers are under pressure not to say things that go against the Bank policy line.
Corruption in Bank projects continued to attract headline attention. After Wolfowitz was forced to back down from his personal, and many would say misguided, campaign against corruption, the board approved a new anti-corruption strategy which emphasised the need to work with an array of agencies and interests to confront the issue. An independent review of the Bank’s anti-graft unit agreed with civil society concerns, recommending more transparency in the unit’s operations and the creation of an independent advisory board. While these developments were broadly positive, what was made clear by the Bank’s handling of projects such as the Chad-Cameroon pipeline, is that corruption concerns will not result in any fundamental re-thinking about the Bank’s support for graft-prone mega-infrastructure.
Climate change and clean energy continue as premier policy preoccupations of the Bank. As we edged closer to a mid-2008 deadline for the Bank’s policy framework to address the issues, initiatives proliferated. Besides a myriad of carbon finance funds, the newest idea was to allow industrialised country polluters to pay poorer countries for ‘avoided deforestation’. Civil society groups immediately voiced concerns that this posed a grave threat to forest dwellers and could merely create a new source of revenue for logging companies. The Bank’s reputation in forest management is already in tatters following failed reforms in, amongst others, Cameroon, Cambodia and, most seriously, the DRC. The Inspection Panel found that the Bank had violated numerous safeguard policies in the DRC and had overstated potential forest revenues.
If the year started very badly for the World Bank, things just went from bad to worse for the IMF. Perhaps seeing the writing on the wall over the Wolfowitz affair, Spaniard Rodrigo de Rato surprised everyone by resigning in June. Despite a belaboured attempt to show that the contest for his replacement was not a stitch-up, the Europeans did no better than the Americans. They disgracefully stuck by the ‘gentleman’s agreement’ yet again, putting Frenchman Dominique Strauss-Kahn in post.
Strauss-Kahn certainly has his work cut out for him. The cornerstone of de Rato-led reforms – long overdue re-balancing of the Fund’s governance structures – is going nowhere. Questioning the Fund’s raison d’être has become a favourite pastime of G8 leaders, financial analysts and academics the world over. Multilateral consultations designed to leverage a greater role for the Fund in exchange rate alignment have proven a damp squib. No progress has been made on crisis prevention mechanisms. And uncertainty reigns over what role the Fund should play in low-income countries.
Civil society calls for the Fund to get out of low-income countries have been bolstered by a number of high-powered reports:; an external committee examining Bank-Fund collaboration called for an end to the PRGF; an IEO evaluation found that the Fund had no clear policy on developing alternative fiscal scenarios based on increasing aid volumes; and a working group of health experts said that the Fund was undermining spending on health and education.
But the most immediate concern for Fund staffers will be over their jobs. With virtually all of its clients paying back early or ending their programmes, the Fund’s new director faces some very hard decisions about where to wield the axe. That is part and parcel of the good news story of 2007. Strong economic performance in the south has meant less influence for the IFIs. And with new regional alternatives taking flight, and countries turning their back on some of the old institutions, we can only hope that 2007 is a harbinger of greater things to come.