The DFID white paper and the World Bank: Missing the point?

13 August 2009

The latest DFID white paper strengthens the UK’s target setting for the World Bank, but fails to adequately tackle the crucial questions of governance, conditionality, human rights accountability, and climate finance. A recent Tory Party policy paper leaves it unclear whether they would do any better.

The white paper begins by lauding the achievements of the G20 including the supposed $1.1 trillion package of global financial support (see Update 65), of which a large proportion has yet to be delivered (see G24 briefing).  It heavily promotes the role of the IMF and World Bank in resolving the crisis, but does admit “The old Washington Consensus – with its advocacy of structural adjustment and a one size fits all approach to policy making – failed because it was imposed from the outside and was not tailored to country circumstances.” And it promises to “monitor carefully how the IMF works with developing countries, to ensure it does not use a one-size-fits-all approach to adjustment.”

Bringing focus to Bank goals

While the last white paper lacked concrete objectives (see Update 52), the latest instalment titled Building our common future finally gives a series of targets the World Bank must meet in order to get more funding. However the paper seems to go easier on the need for “stretching targets for performance” for the World Bank than it does for UN agencies.

Claire Melamed of NGO ActionAid was “concerned about a double standard being applied to international organisations. The white paper makes funding for the UN conditional on reform but fails to apply the same standard to the World Bank which receives far more funding from the UK.”

DFID’s priorities for the World Bank are securing: governance reform; a new lending instrument; environmental sustainability at the core of the Bank’s work; a transformation of the Bank’s health programmes; and mainstreaming of gender equality in all the Bank’s work. It gives firm targets for the first four of these priorities, leaving gender equality without a specific goal.

However, the target for governance reform misses the mark. The proclamation that “the UK will work to secure shareholder agreement on changes to voting reform by April 2010 that would give developing countries more say,” gives no red line level at which the UK would consider reform satisfactory. As a target on governance reform, the paper merely calls for “the percentage of senior Bank staff working on Africa who are based in the field, to increase to at least 70 per cent by 2012.” On ensuring merit-based IFI leadership selection, the white paper repeats the UK’s support for a fair process, but they made the same claims before the last process that once again led to an American appointee heading the Bank and a European at the helm of the Fund.

On health it demands that “at least 80 per cent of new health support is joined with other donors or uses country systems.” DFID takes a tack that is friendly to NGO positioning on the vexed debate over private sector health care (see Update 66, 65), saying “The Bank should support countries’ decisions on health service provision, whether a public or private model is favoured.” UK NGO Oxfam was pleased that the government had backed away from the World Bank’s dogmatic commitment to private healthcare. Oxfam’s Kirsty Hughes said: “Imposing private sector solutions on developing countries is no way to provide free healthcare for all. Countries should be able to choose the approach that best fits their needs based on evidence of what works. For most that will mean investment in strong public healthcare.”

Claiming credit for insufficient conditionality changes

While the paper makes a generic claim in a box that “reduced burden of conditionality and transactions costs on partner countries” will be a criteria for funding decisions for all multilateral institutions, the detail on the World Bank makes it seem as if DFID closed its ears to the debate over World Bank conditionality in the wake of the new conditionality policy and IDA replenishment (see Update 60, 59, 58).

The white paper claims: “The average number of conditions in a typical Bank loan has fallen from 32 in 1999 to 12 in 2007.128 More importantly, the Bank has stopped imposing conditions on sensitive policies such as privatisation and liberalisation if country ownership is uncertain or the political environment is fragile.” The endnote that is supposed to verify this statement simply states “DFID Staff (2009)”, and completely ignores independent research by Brussels-based NGO Eurodad (see Update 58) and Norwegian academic Benedicte Bull (see Update 59) that finds that these statistics and claims are dubious.

Essentially washing its hands of the matter, DFID tries to claim victory at both the Bank and the Fund, crediting itself and NGO pressure. This is a far cry from the challenging stance DFID took under previous secretary of state for international development Hilary Benn, who openly questioned then-Bank president Paul Wolfowitz on the Bank’s commitment to reducing conditionality (see Update 53, 47).

Of the IMF’s conditionality changes in 2009 (see Update 65), the white paper stated “Now, the IMF no longer bases its financing decisions on policies such as countries’ approaches to privatisation and capital market liberalisation.” This is untrue as the IMF still has binding structural conditionality in the form of prior actions, and these do include privatisation.

Despite DFID’s claim of being a rights-based development institution, there was no mention of human rights when discussing the World Bank or IMF. The chapter on security and conflict countries has ample discussion of the state’s role in securing rights, but the chapter on the international system unfortunately omits any mention of the Bank’s complicity in past human rights abuses, be they in relation to public or private sector projects financed by the Bank. No thought is put into the accountability systems that might be put in place for redress of rights violations.

Climate steps forward and backward

In the white paper, DFID has called for 60 per cent of the World Bank’s energy sector portfolio to consist of “clean energy investments”. This is a welcome call, but there are concerns over how this is measured.

The report states that 35 per cent of the Bank’s energy portfolio was invested in energy efficiency and renewable energy in 2008. But these numbers mask the Bank’s growing support for carbon-intensive infrastructure (see Update 65). Approximately 40 per cent of the 2008 energy spend went to large hydropower projects which face intense criticism. NGOs such as Environmental Defence and International Rivers highlight the troublesome history of Bank’s large dam projects and that it has not yet adopted the recommendations of the World Commission on Dams (see Update 66). In addition, researchers in Brazil have identified reservoirs from dams in tropical regions as potentially being responsible for as much as four per cent of human-caused climate change. The Bank also counts some coal-based activities as ‘low-carbon’ projects.

The UK’s strong desire to “to build on existing institutions, reformed as necessary” is code for the worrying trend of channelling climate finance through the Bank. This may automatically ensure a role for the World Bank in an arena where developing countries and much of civil society largely feel the Bank is an inappropriate institution and finance should be channelled through the UN.

The UK thus by itself guarantees a central role for the Bank in climate finance but can not alone guarantee delivery of the governance changes needed to transform the Bank into an appropriate institution for climate finance.

Finally, the white paper states that “part of the climate financing gap could legitimately come from official development assistance. But this will be limited to up to 10 per cent of our total ODA spend.” This contradicts assurances given by ministers in the spring that climate finance would be additional to aid. A recent report from UK civil society produced by the Bretton Woods Project and BOND’s Development and Environment Group maintains any finance that is to be considered as meeting international obligations under climate negotiations should be additional to existing aid pledges (see Update 66).

Conditionality review at DFID

In May, DFID issued a new guidance note to staff on implementing its conditionality policy (see Update 47, 43) which appears to be backtracking on their 2005 commitment not to use economic policy conditionality. The note is not supposed to change the 2005 policy which stated that DFID “will not make our aid conditional on specific policy decisions by partner governments”. The new note, however, lists a number of circumstances when it would be possible for DFID to use policy conditions. This internal rethink may be partially behind the UK’s seeming climb-down on demands to end economic policy conditionality at the Bank.

The new note also gives emphasis to the need to define ‘ownership’ of conditions as going beyond just government ownership, indicating a step towards civil society calls for using the concept of ‘democratic ownership’.

Tories and the Bank: telling the future?

In July the UK opposition party, the Conservatives or ‘Tories’ issued their international development policy platform, from which even seasoned rune-readers would find it difficult to divine in which ways their approach to Bank and Fund reform would differ from the present Labour government’s.  One world conservatism: a conservative agenda for international development contains only vague proposals for reform of the Bretton Woods institutions. They repeat the criticism of the government’s system of allocating money to multilateral institutions like the World Bank raised by a 2008 parliamentary report (see Update 60), saying that when it “gives money to multilateral organisations like the World Bank, DFID admits that it does not know which are the most effective in reducing poverty.” 

However, like the government, they back an increased role of the Bank and Fund and believe that “the World Bank is one of the most effective development actors.” Specific ideas for the IFIs are notably absent. Their plan for Bank and Fund reform, however, seems to consist merely of greater decentralisation and “giving developing countries a greater say in decision making” and making “the organisations more effective and efficient.” 

The most controversial elements of the so-called green paper related to the use of vouchers for aid, including for education. This proposal for the use of bilateral assistance drew scepticism from the major UK NGOs. Christian Aid responded: “Vouchers would break the link between citizens and the state and effectively remove governments’ responsibility to provide services for their citizens.” It remains unknown whether the Conservatives will try to push these domestic policy changes into international institutions such as the Bank if they win the next election.