IFI governance

Background

Meeting between UK civil society and Douglas Alexander, Secretary of State for International Develop

21 April 2009

23 April 2009 | Minutes

DFID: Rt Hon Douglas Alexander MP, Secretary of State for International Development; Stephen Doughty; Sally Taylor; Oliver Keetch.

NGOs: Alex Cobham (Christian Aid); Anna Thomas (ActionAid); Amy Kesterton (Interact); Jesse Griffiths (Bretton Woods Project); Max Lawson (Oxfam); Nick Roseveare (BOND); Purna Shrestha (VSO); Sarah Edwards (Jubilee Debt Campaign); Sharon Sukhram (Unison)

  • The Secretary of State (SoS) apologised for having to curtail the meeting to fifteen minutes, and said officials would continue the meeting in his absence.

1. Economic Crisis

(a) Emergency Funding for poorest countries

NGOs made the following points:

  • Welcome Gordon Brown’s recognition at the G20 that the Washington Consensus is dead; challenge now is to ensure IFIs now adopt new approaches, rather than continuing with outdated policies of the past.
  • Acknowledged that the budget environment is difficult; it would seriously undermine UK leadership if they were to go back on aid promises in advance of the Spring Meetings.
  • There is a huge shortfall between emergency funding that poorest countries need and what’s available. Some progress, for example on IMF special drawing rights (SDRs) but clear that aid will not fill the gap, and main current alternative – borrowing – risks future debt crises.
  • Need therefore to explore new thinking, innovative ideas for rapidly raising and transferring funds. The Spring meetings should be a critical opportunity to galvanise action in this vital area. Highlighted two key ideas, but interested to know what new ideas DFID would be supporting.
  • Currency transaction tax: an idea whose time has come. Could raise substantial sums at low level with no impact on market, but also has potential to be a tool for preventing excessive speculation.
  • IMF gold sales to fund debt relief: key to push now for substantial gold sales; unlikely to get another chance soon. Could rapidly provide resources for debt relief, an extremely rapid means of providing emergency financing.

SoS made the following points:

  • G20 may have left wrong impression that there was a preference for IMF over the World Bank.
  • The World Bank’s response to the food crisis has shown that it does have a capacity to act quickly. It has already taken some steps, such as trebling IBRD lending for middle income countries.
  • Believes there is still more scope for expanding resources from within the Bank’s balance sheet, though there is some resistance from within the Bank, and from other shareholders who are concerned about the impact on the Bank’s credit rating. Will focus on this at spring meetings. Need to firm up assurances of Bank funding for low income countries.
  • Will also be focussing on two longer term issues at the spring meetings:
    • First, the future role of the Bank and Fund. Gordon Brown is leading work on this following from the G20, and will report back to the next G20 meeting, which is likely to be in September in the States. Unclear now what the mechanism for engagement of CSOs will be.
    • Second; taking forward existing reform processes within the Bank. This includes the second phase of governance reform, which is now on accelerated timetable to be completed by spring 2010. Wants to galvanise the board. Expects proposals to be worked up over the summer to be discussed at annual meetings. On question of CSO engagement in this process, said he understood the request to have a clear mechanism and a transparent process to allow CSOs to engage.
    • Also includes the Zedillo Commission on Bank governance reform, which will have its first meeting on Friday, and will report to the annual meetings in October.
    • On both of these, shareholders are ultimately the key players.

(b) IFI policies and the crisis

NGOs made the following points:

  • Need to ensure that IMF allows the poorest countries maximum fiscal space to protect social spending and pursue appropriate policies. DFID’s role will be key in working with HMT on this issue.
  • IMF is still tied to austerity conditions including spending cuts and interest rate rises in the emergency lending it has undertaken so far; particularly inappropriate in the current climate as this will worsen recessions in countries who have to go to the IMF.
  • Will the UK publish its objectives in advance of the spring meetings, as has been past practice.

The SoS made the following points:

  • The G20 review, led by Gordon Brown, will be crucial place for discussion of IMF’s role in low income countries to be taken forward.
  • Aims to publish joint statement with HMT in advance of the spring meetings.

The SoS had to leave at this point. Officials made the following points:

  • G20 discussions highlighted a number of key issues with Bank response to the crisis including; speeding up their ability to process funding; frontloading IDA; the Bank being clear with countries what services they can provide; ensuring appropriate conditionality.
  • DFID has been focussed on protecting the poor, but also on ensuring the necessary reforms to ensure the relevance, effectiveness and legitimacy of the World Bank. This is a big agenda, which includes taking forward the aid reform process from last year’s Accra summit.
  • Key will be engaging shareholders on Bank reform.

NGOs made the following points:

  • Critical issue remains; where will emergency funding for poorest countries come from? Traditional avenues, particularly aid, are closed off; what new approaches is DFID considering? UK could provide real leadership, for example by regalvanising innovative financing discussion.
  • How is the DFID- HMT relationship? Are you pushing them on gold sales, conditionality etc?
  • What is the time frame for gold sales?
  • Need to ensure maximum transparency on disbursement of funds; helps to galvanise action.
  • The development committee communiqué should send a strong signal that approaches have changed; support maximum fiscal space for developing countries, showing that the Bank’s board is focussed on disbursing money rapidly, and has abandoned failed Washington consensus policies.

Officials made the following points:

  • All governments face budget challenges at the moment. Maintaining commitment to ODA promises is an ongoing struggle.
  • Have been pushing hard on funding for low income countries in G20 as well as in run up to spring meetings; still exploring which ideas will gain traction. Danish minister is suggesting a discussion with like minded donors at the spring meetings.
  • Have been and continue to work closely with HMT on gold sales. Will be some difficult discussions on how to use gold sales proceeds; they were originally earmarked to provide IMF administrative funding. Believe aim is to discuss this at spring meetings.
  • IMF managing director very interested in low income country issues, and has been strong advocate for action.
  • Still issues around reforming lending facilities at the Fund so that they use resources most effectively. Pleased doubling of access for PRGF and shocks facility agreed – latter gives countries some money with very limited conditionality – and IMF resources disburse quickly.
  • Scope to do more within existing resources – Bank estimates it has around $1.2bn extra that could be released from existing projects and redeployed.
  • We are pushing the Bank to focus on rapid disbursement – more budget support is better in this regard.

Follow up action: DFID will supply more information on the timeframe for gold sales.

NGOs made the following points:

  • World Bank continues to push public private partnerships for water and sanitation, even though there is currently lack of private financing available. Good examples of public-public partnerships (PUPS), in Japan, Cambodia, India, yet these are barely mentioned by the Bank. For example, not even considered in Malawi. In the current context, PUPs offer low cost capacity building in public services which could involve trade union/worker expertise.
  • Important, in context of crisis, to send a strong message from the Bank that they recognise the role of governments as responsible agents, to protect poorest, provide public services etc.
  • Upcoming development policy lending review at the Bank – it will be important to avoid the controversies of the past where the Bank did its own assessment of its lending and conditionality which was disputed by NGOs and a Norwegian government study. Should have an independent assessment this time, and a repeat of the 2005 survey which asked developing country governments for their views.
  • DFID policies often differ markedly from Banks; for example on health where DFID is opposed to user fees and the Bank is not. IEG reports show the Bank’s track record is very bad. Yet DFID is pushing for the Bank to get more involved in health; it should stop doing this.
  • Isn’t it time to open up the Bank to make it as transparent as possible – hope DFID will be pushing hard for this in disclosure policy review.

Officials made the following points:

  • DFID is concerned with what works, not a particular ideological approach. Countries are free to choose and for example, India has just taken Bank money to support its own public-private partnership programme.
  • Bank has a role in helping private investment to start flowing back to developing countries.
  • Upcoming investment lending review will be important; hope it will focus Bank staff more on outcomes and giving countries more space. African governments very interested in this. Different ways of approaching issue of policy space – decentralisation of Bank staff for example helps Bank to be more responsive and be better able to assist governments find local solutions
  • In G20 outreach, African governments said they were interested in opening up CPIA debate, and way the Bank allocates resources.
  • Bank is a multilateral organisation, and provides assistance in areas that countries ask for; if they are unhappy with Bank approach on health, they can ask for assistance in other sectors. UK is only one shareholder. Cannot have situation where each donor insists on the Bank following its policies. Need to argue on user fees on effectiveness grounds if that is what evidence shows. Better to have this discussion with DFID Health colleagues – they lead on engagement with Bank on health.
  • On transparency and disclosure, DFID will push hard on this, though remain opposed to publishing board transcripts.

The other issues on the agenda (governance, disclosure, debt) were not covered separately.