+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Bretton Woods Observer Summer 2023
A quarterly critical review of developments at the World Bank and IMF

Published by BRETTON WOODS PROJECT
Working with NGOs and researchers to monitor the World Bank and IMF

+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

1. Civil society calls for World Bank to reroute 'Evolution Roadmap'
away from Cascade
2. Word Bank promotes agricultural corporations at cost of food
security
in Africa
3. UN Financing for Development: The best chance to democratise
global economic governance?
Guest analysis by Flora Sonkin, Society for International
Development, and Iolanda Fresnillo, Eurodad
4. As World Bank launches Paris alignment approach, unclear
guidelines raise greenwashing concerns
5. Honduras threatens ICSID withdrawal over $11 billion
'neo-colonial' special economic zone claim
6. IFC continues extractive investments under cover of biodiversity
offsets
7. Tunisian government resists proposed IMF austerity programme
8. African finance ministers join growing calls for more equitable
SDR allocations
9. B-Ready for more ill-founded private-sector solutions
10. UDHR and IPN anniversaries underscore urgent need for Human
Rights policy at all IFIS
11. Financial liberalisation, capital controls and development in
Africa: The case of Uganda
Guest Comment by Jane Nalunga, SEATINI Uganda
12. Gender progress at risk as new World Bank president enters
pushing private-sector focus
13. The World Bank approach to human rights

=====================================================================
IFI GOVERNANCE/analysis

Civil society calls for World Bank to reroute 'Evolution Roadmap'
away from Cascade

SUMMARY
Evolution Roadmap and Paris Summit double-down on 'private sector
solutionism' despite concerns this will deepen inequality
Civil society questions the proposed expansion of the Cascade
approach, which has failed to deliver the 'trillions' promised
CSOs call for putting a rights-based approach at the centre of the
public development banks' strategies

ivil society organisations (CSOs) and academics have vocally
questioned the World Bank Group (WBG) Evolution Roadmap's continued
promotion of the Cascade approach, a policy paradigm that heavily
prioritises incentivising private finance to provide co-financing for
development efforts through de-risking – and which has thus far
failed in its goal to mobilise 'trillions' in supposedly idle
capital.
The draft Roadmap, which was initially prepared for discussion by
World Bank governors in April, is currently undergoing public
consultation until 31 July, ahead of further negotiations on reform
of the Bank at its Annual Meetings in Marrakech Morocco, in October.
A briefing published on 5 July, endorsed by 74 CSOs and academics,
including Belgium-based CSO network Eurodad and South Africa-based
CSO Institute for Economic Justice, noted, "the Roadmap's push to
reinvigorate the Cascade approach represents part of the larger
political project which Professor Daniela Gabor (University of the
West of England Bristol) has referred to as the "Wall Street
(Climate) Consensus", which reshapes the role of the developing
states as de-risking agents for private capital, with international
financial institutions helping to facilitate this process." It added,
"This paradigm risks greatly deepening existing inequalities within
and between states, and its promotion within mooted World Bank
reforms reflects in part the failure of the World Bank's wealthy
shareholders to help ensure a more equitable multilateral system that
is truly fit for purpose to meet the challenges of the 21st century."
Missing trillions? Despite unfulfilled promises and misalignment with
development aims, Bank's dedication to Cascade remains undimmed
The Cascade, first launched by the World Bank in 2017, focuses on
privileging private finance solutions over public ones to supposedly
maximise the impact of 'scarce public resources'. The World Bank's
2016 Forward Look document, where the Bank's vision of the Cascade
was first set out, noted, "Only where market solutions are not
possible through sector reform and risk mitigation would official and
public resources be applied" (see Observer Summer 2017).
The World Bank's Evolution Roadmap proposes a deepening of the
Cascade approach, stating: "To further increase the scale of
impact…the WBG will invest more in upstream analytical work and
support to the business enabling environment; make the Cascade
concept central to the country engagement cycle to inform
diagnostics, country dialogue and programming; further develop joint
programs to maximize the One-WBG approach; institutionalize joint WBG
program pipeline reviews within countries; and revise instruments and
approaches across institutions to scale up PCF [private capital
formation]."
The Summit for the New Global Financing Pact in Paris on 22-23 June
doubled down on this approach, as well, with host French President
Emmanuel Macron calling for $100 billion a year in private finance to
be mobilised by multilateral development banks in his closing speech
at the Summit.
This followed the World Bank launching a new Private Sector Finance
Lab at the Summit, and newly appointed World Bank President Ajay
Banga somewhat quixotically claiming that he is targeting $5 of
private sector co-investment for every $1 spent by the Bank in a
panel on reform of the Bretton Woods Institutions at the Summit.
A 2021 estimate by UK-based think tank Overseas Development Institute
suggested actually existing rates of private finance mobilisation by
public finance institutions are closer to a $0.7-to-$1 ratio, pouring
cold water over the idea that 'trillions' can be mobilised via
blended finance initiatives.
This is before taking into account whether such approaches are
appropriate for development finance aims, more generally. "The
derisking approach assumes that there will never be trade-offs
between commercial goals and the public interest," said Bhumika
Muchhala of global CSO Third World Network. "It also ignores the
developmental dilemma posed by prioritising private risk over that of
distributive social equity and state sovereignty in legal and
normative affairs. It is yet to be seen if the WBG will incorporate
sufficient provisions within its plans to escort private capital that
ensure the recipient state's right to regulate in the public
interest, for a rights-based economy that upholds economic, climate,
feminist justice" (see Observer Summer 2023).
Civil society warns re-affirmation of Cascade approach could
exacerbate deeply unequal global economic system at root of the
current crisis
The World Bank's Evolution Roadmap includes a proposed expansion of
the World Bank's mission, with an enhanced emphasis on
sustainability, which "reflects the need to ensure that WBG impact is
positive including in fiscal, economic, social, and environmental
terms."
However, the joint civil society briefing questions the extent to
which this is compatible with the continued promotion of the Cascade,
noting, "Rather than 'evolution', the promotion of the Cascade
represents the reaffirmation by World Bank management and
shareholders of a flawed development paradigm that assumes
incentivising private finance is inherently benign and productive,
while failing to acknowledge that the type of projects designed to
attract profit-seeking private investors and generate quick returns
might not match the public interest and national or local priorities,
or support sustainable economic transformation."
It calls for 'rerouting the Roadmap', via a number of
recommendations, including: (1) commissioning an external and
independent review of the World Bank's development effectiveness; (2)
inverting the Cascade, putting public interest at the core of the
Bank's efforts to support global public goods; (3) developing and
funding a WBG human rights policy; (4) mainstreaming climate justice
into the Bank's operations; (5) mainstreaming a gender lens into the
Bank's operations, extending beyond the mandate of the upcoming
Gender Strategy; and (6) developing better metrics for measuring –
and policies to tackle – inequality.
The briefing notes that, "As a starting point, we would strongly
emphasise that privatisation and blended finance approaches inherent
in the World Bank's current version of the Cascade should not be used
for projects that involve essential public services, including health
and education."
It adds, "On the 75th anniversary of the Universal Declaration of
Human Rights, the World Bank Group must work consultatively – with
grassroots communities who are affected by Bank activities, and their
civil society allies – to develop and adopt a Human Rights policy.
The Bank must also dedicate adequate funds to effectively implement
the policy."
Finally, the briefing argues that, "the Bank must ensure that climate
justice and a focus on green economic transformation are integrated
into its approach. This includes supporting publicly-owned clean
energy transitions that ensure dividends for developing country
governments and citizens, rather than a continued reliance on energy
systems privatisation and price liberalisation."
bit.ly/EndCascade

=====================================================================

LAND/news

Word Bank promotes agricultural corporations at cost of food security
in Africa

New research published by the UK-based Catholic Agency for Overseas
Development (CAFOD) shows how the World Bank is harming farmers in
Africa through its agricultural policies, by promoting regulations
that support the expansion of commercial markets for hybrid seeds,
fertilisers and pesticides. Through seed certification laws and
subsidy programmes, the Bank has advocated for national laws that can
make it illegal for local communities to propagate, grow, exchange
and sell their own seeds, instead encouraging farmers to buy hybrid
seeds and fertilisers in the commercial seed market. This means
farmers become more dependent on outside interventions and expensive
goods (see Observer Spring 2020).
The report shows this approach is ineffective in reducing poverty and
increasing food security, particularly for women, as they have less
access to finance to buy seeds in commercial markets. This is the
result of the Bank's flawed metrics, which measure the success by
greater participation of the private sector (see Observer Spring
2019), instead of measuring poverty reduction. "The World Bank is
funded by taxpayer money. Its purpose is to tackle poverty and reduce
food insecurity. Yet, it seems the main thing they care about is
making it easier for giant corporations to sell expensive seeds and
fertilisers", highlighted Dario Kenner, CAFOD's lead analyst on
sustainable economic development.
In contrast to this industrialised agricultural model, the report
encourages the World Bank to support alternative models, based on
agroecological principles that involve shifting public finance,
scaling up investment in crop diversity, supporting participatory
plant breeding, community seed banks and other community level
initiatives to protect and build crop diversity.
bit.ly/CAFODReport

=====================================================================
FINANCE/analysis

UN Financing for Development: The best chance to democratise global
economic governance?

SUMMARY
As BWIs fail to transform, countries should re-embrace more
democratic space at the United Nations
UN Financing for Development Conference on horizon, with historic
progress on tax cooperation raising hopes on debt

The Bretton Woods Institutions (BWIs) – the World Bank and the IMF –
are historically known for their lack of democratic governance and
accountability: Their shareholder structure skews decision-making
power towards Global North countries, their leadership selection is
based on an arbitrary gentleman's agreement between the US and Europe
(see Inside the Institutions, What is the gentleman's agreement?),
and they deny international human rights obligations as binding to
their operations (see Inside the Institutions, IMF and World Bank
decision-making and governance). Despite their neo-colonial
structures, the BWIs continue to play an outsized role in shaping the
international debt and financial architecture, by being major
creditors, global norm setters and policy prescribers to the Global
South.
Yet, there is a forum mandated to address global economic governance
where each country has an equal say: The United Nations. In
particular, the UN Financing for Development (FfD) process
constitutes the only inclusive and truly democratic space to advance
on the systemic reforms needed to re-design a skewed and
dysfunctional international financial architecture towards supporting
human rights-centred sustainable development.
Surprisingly enough, both the IMF and the World Bank were constituted
as specialised agencies of the UN, but have historically
drifted apart from the UN system. They differ on membership and
governance and, in contrast to the BWIs, climate change, inequality
and human rights are at the core of the UN's mission.
FfD needs to be made the space for equitable global economic
governance
The FfD process has its historical roots in the active discontent of
Global South countries about the systemic shortcomings of the
international financial architecture and the historical inequalities
that define it. The first International Conference on Financing for
Development took place in Monterrey, Mexico, in 2002, in the
aftermath of the Asian financial crisis. It was an attempt to recover
the UN's voice within the global economic and financial system and
resulted in the 'Monterrey Consensus', which initiated a process
toward coherent, rights-based norms and actions to create policy
space for Global South countries to sustainably finance their own
development.
Although debt, domestic resource mobilisation and other international
economic governance issues are at the core of the FfD agenda, this
and other UN processes dealing with global economic reform have been
systematically marginalised in favour of the BWIs. For instance,
attempts to advance reforms on debt architecture and financial
markets regulation under UN auspices have been blocked by Global
North countries. Nevertheless, the democratisation of the global
economic governance has remained at the heart of the FfD process
since the 'Monterrey Consensus'. Civil society organisations (CSOs)
and the private sector are recognised as partners in the process,
making the FfD an uniquely inclusive space for discussing global
economic issues in all their systemic dimensions.
On sovereign debt resolution, for instance, while FfD could offer an
inclusive process where borrowing countries have equal voice under
the 'one country one vote' system and CSOs participate, the IMF and
the World Bank push for discussions at creditor dominated fora such
as the G20 or the recent Global Sovereign Debt Roundtable. This is
precisely why civil society has been calling for an intergovernmental
process to discuss the reform of the international financial
architecture and the establishment of a multilateral sovereign debt
resolution framework under UN auspices.
Momentum is building on international cooperation to face multiple
crises
In recent months, the UN FfD process has regained steam due to two
major steps forward: The approval by consensus of a resolution tabled
by the Africa Group for an intergovernmental process on tax
cooperation at the United Nations, and the momentum building towards
the fourth Financing for Development Conference, which seems likely
to occur in 2025.
The issues of tax dodging and illicit financial flows, which have
been raised by developing countries since the inception of the FfD
process, cost governments around the world hundreds of billions of
dollars in lost tax income every year. It is one of the main
structural impediments to Global South countries' socio-economic
transformation and remains a political choice, with multilateral
progress undermined by decades of resistance from OECD economies. The
recent resolution offers a concrete opportunity to move towards
action on much needed reforms to the international tax system.
As the BWIs fail to deliver their own transformation in response to
the pressing challenges we face today (see Dispatch Springs 2023), a
fourth FfD Conference has never been more urgent, given the need for
structural reform and financing in the context of the Covid-19
pandemic aftermath, 19th century levels of inequality, increasing
social and political instability, and the accelerating climate
emergency.
While Global North countries attempt to create separate fora – such
as the Finance in Common Summit or the Summit for a New Global
Financing Pact – where they can set the agenda and steer the
outcomes, the UN FfD process remains uniquely placed to foster policy
cohesion on global economic governance and to ensure all countries
have a place at the decision-making table in shaping a more just and
sustainable global economy.
bit.ly/FfD2025

=====================================================================
ENVIRONMENT/news

As World Bank launches Paris alignment approach, unclear guidelines
raise greenwashing concerns

SUMMARY
Approach relies on countries' national climate plans, which are not
currently aligned with 1.5°C goal
Bank failed to hold a formal consultation with civil society, despite
repeated requests

The World Bank began operationalising its approach to aligning its
activities with the Paris Agreement on 1 July, six years after first
announcing its intention to do so, along with its multilateral
development bank (MDB) peers, at the One Planet Summit in December
2017 (see Observer Spring 2019).
However, significant concerns remain about the Bank's oft-delayed
approach, which fails to provide clear guidance on limiting future
World Bank investments in, or other support for, fossil fuels, and
will require Bank staff to interpret whether or not many activities
are aligned with the Paris Agreement depending on differing country
contexts.
In a Civil Society Policy Forum event on the Bank's Paris alignment
at the World Bank and IMF Spring Meetings in April, World Bank
representative Stephane Guimbert noted its assessments of Paris
alignment, "will be very country-, sector- and even time-specific. So
the assessment in one country today will not be the same as if we are
doing it ten years from now."
The joint MDB approaches for different instruments related to Paris
alignment – which constitutes one part of the guidance the Bank
relies on – were only made public in June, weeks before the approach
was launched.
"It has taken the MDBs eight years to come up with a plan for
business as usual," said Kate Geary of Netherlands-based civil
society organisation (CSO) Recourse. "A public and transparent
process for producing this guidance would have helped to avoid
loopholes and improve accountability measures for affected
communities, but
instead we have a set of late, weak guidelines that won't catalyse
the necessary shift in financing from fossil fuels to clean energy."
In a briefing released on 30 June, 14 CSOs, including Recourse and
Nairobi-based campaign Don't Gas Africa, registered their concern
that, "the instrument methodologies and sector notes fundamentally
fail to respond to the scale of the climate crisis we confront," and
called on the Bank to – inter alia – reorient its approach to the
1.5°C temperature goal.
Lack of clarity on WBG Paris alignment guidelines raises concerns
around calls for a 'bigger bank'
The concerns about the Bank's Paris alignment approach surface amidst
calls by some think tanks and policymakers for a 'One Trillion
Dollar' World Bank, with a more explicit climate change focus, as
part of the Bank's 'Evolution Roadmap' discussions (see Observer
Summer 2023).
However, Professor Daniela Gabor voiced fears at a 23 May webinar
organised by Belgium-based CSO network Eurodad and
partners that the World Bank's Paris alignment approach could become
a further tool for the promotion of the Cascade approach (see
Observer Summer 2017), which is centred on the state 'de-risking'
private investments, in this case privatising the profits and
socialising the losses from climate-related projects.
She stated that public banks are expanding their balance sheets to
escort private investors into climate initiatives but that they
should "not only [be] offering carrots for private lenders but also
sticks."
A joint civil society briefing on the World Bank's Evolution Roadmap
published on 5 July and endorsed by 74 CSOs and academics, including
Oxfam and Christian Aid, argued, "The Bank's approach to Paris
alignment must not become a vessel for a new wave of green
conditionality that constricts countries' policy space, including by
inducing them into a 'private-sector first' approach to climate
action, as implied by the Cascade."
bit.ly/WBGParis23

=====================================================================
LAND/analysis

Honduras threatens ICSID withdrawal over $11 billion 'neo-colonial'
special economic zone claim

SUMMARY
$11 billion compensation claim brought under ICSID against Honduras
over the repeal of a law permitting SEZ
Claim relates to 'charter city' characterised as a
"crypto-libertarian paradise"
ICSID criticised as a "faulty and undemocratic" dispute resolution
mechanism

Honduras is threatening to withdraw from the World Bank's
International Centre for Settlement of Investment Disputes (see
Inside the Institutions, What is the World Bank's International
Center for the Settlement of Investment Disputes (ICSID)?) over an
$11 billion claim by Honduras Prospera, a US company, arguing ICSID
has breached "law and procedure". In April 2022, the Honduran
government repealed a 2013 law that allowed the US company to
establish a charter city in a special economic zone (SEZ) in 2021.
Prospera's $11 billion claim for damages amounts to about two-thirds
of Honduras's annual budget. US-based publication The Atlantic
described Prospera as neo-medieval and neo-colonial, while Bloomberg
described it as "a mini startup nation with its own set of laws."
The case highlights serious issues with both SEZs and investor-state
dispute settlement (ISDS) arbitration panels like ICSID (see Observer
Summer 2020), raising critical questions about national sovereignty
and effective democratic oversight over economic governance in the
Global South.
Honduras pushes back against SEZs
The Honduran SEZ law that permitted the establishment of Prospera
allowed these zones to operate subject to Honduran criminal law but
with their own civil code and administration. It was initially ruled
unconstitutional by the Supreme Court in 2012, but was reversed after
several Supreme Court Justices were replaced and the constitution
changed. The model Prospera followed was based on former World Bank
Chief Economist Paul Romer's idea that poor countries could grow rich
by encouraging foreign-run 'charter cities'. Finally established in
2021, it became what tech news website Rest of World described as a
"crypto-libertarian paradise".
In a promotional video, Prospera asked if Honduras' SEZs are "Tax
havens or catalysts for competitiveness?" Prospera's neighbours in
Honduras were less enthusiastic, fearing the zone could expand and
expropriate their land. According to Peace Brigades
International-Honduras, the new SEZs in Honduras, of which at least
three are known, are strongly reminiscent of "predatory extractivist
policies of past decades, such as the mining and banana enclaves of
the late 19th and early 20th centuries."
Crucially, there is no actual evidence that SEZs are economic dynamos
capable of supercharging national economies. A study by Shahid Yusuf,
Chief Economist of The Growth Dialogue, published in April 2023 by
the Center for Global Development, noted that, at best, SEZs display
an initial growth spurt, then revert to the growth rate of the rest
of the economy, while the incentives provided only increase the cost
to the host country. Even the World Bank itself now broadly
acknowledges SEZs have failed to live up to their promise.
ISDS: Pervasive, difficult to escape and of no discernible benefit
Unfortunately, even if Honduras does withdraw from ICSID over
Prospera's claim, ISDS cases could still be brought against the
country. It would still have to defend Prospera's $11 billion claim,
and any others filed within a six-month window of formal withdrawal
notification. Honduras could also potentially be subject to further
cases through one of the eight bilateral investment treaties it has
signed that refers arbitration to ICSID.
Despite the proliferation of ISDS clauses in trade and investment
agreements, evidence does not indicate investment agreements actually
stimulate investment, or benefit the host country. A 2018 study from
the Columbia Centre for Sustainable Development (CSD) concluded "the
expected benefits have not clearly materialized, whereas the costs
have been unexpectedly high", while a 2020 meta-analysis by
researchers Jozef Brada et al found "robust evidence that [the]
effect of international investment agreements is so small as to be
considered zero."
Civil society has long argued that ICSID is "seriously flawed" with a
"perceived bias against states", and that ISDS clauses constrain the
policy space available to states to act in the interests of people.
UN special rapporteurs have also been highly critical, calling out
states for prioritising investments over human rights, the rule of
law and democracy.
A May 2023 letter signed by five US Senators and 28 members of the US
Congress noted, "Large corporations have weaponized… this faulty and
undemocratic dispute settlement regime to benefit their own interests
at the expense of workers, consumers, and small businesses globally."
The power relationships in investment treaties are often inherently
asymmetrical, with investors from Global North states more likely to
win their claims.
CSD noted these agreements undermine the ability of Global South
states to govern, reducing the policy space available to them and
increasing the cost of regulating their own economies, and this
problem is particularly acute for states navigating the green
economic transformation. These concerns are likely to become even
more salient as discussions on reform of international development
finance progress. The World Bank's Evolution Roadmap explicitly
refers to increased support for ICSID as efforts are made to mobilise
more private capital (Observer Summer 2023).
Can ISDS be challenged?
Momentum is gradually building against ISDS. In 2020, US President
Joe Biden signed a campaign pledge to exclude ISDS clauses from
future trade deals. The letter from US Senators and members of
Congress requested the US administration "investigate any and all
options at your disposal to eliminate ISDS liability from existing
trade and investment agreements." The EU Court of Justice has also
issued a series of rulings to the effect that ISDS clauses between
members of the bloc are incompatible with EU law, but there has been
pushback from national courts and ICSID itself, and the issue is
unresolved.
However, the web of international treaties and obligations containing
ISDS clauses means the system of protection for international
investments, embodied in thousands of investment treaties and in
ICSID itself, will be more difficult to unravel. As the CSD notes,
"it is particularly difficult to course-correct in a fragmented and
often conflicted international investment law regime that lacks
meaningful checks and balances."
Unfortunately, this leaves Honduras likely facing a budget-busting
$11 billion claim for reasserting its sovereignty over a foreign
enclave a previous government sanctioned on its soil.
bit.ly/ICSIDHonduras

=====================================================================
ENVIRONMENT/news

IFC continues extractive investments under cover of biodiversity
offsets

SUMMARY
IFC continues investing in mining despite grave environmental impacts
with fig leaf of biodiversity offsets
Without effective remedy framework, irreversible harm to local
ecosystems and livelihoods is likely to continue

With the World Bank Evolution Roadmap process underway, concerns are
growing over the Bank expanding its private-finance-first approach to
tackling climate change (see Observer Summer 2023). The Bank has been
at the forefront of promoting private sector centred "false
solutions", including carbon trading and so-called biodiversity
offsets, which attempt to compensate for the destruction of natural
habitats and species through conservation elsewhere. While the
ineffectiveness of the carbon trading system has been widely
documented, the spotty track record of biodiversity offsets has
largely escaped public scrutiny, and they were included in last
year's UN biodiversity framework.
The International Finance Corporation (IFC), the Bank's private
sector investment arm, has funded at least 19 projects involving
biodiversity offsets. Recent research in Guinea published by
investigative news outlet ProPublica demonstrates the problematic
nature of this approach, where an IFC-co-financed mining company
displaced people and destroyed the habitat of endangered apes who in
turn attacked villagers in a shared struggle for food and water.
Meanwhile, the "offsetting" project, a national park protecting
chimpanzees further away, is already being undermined by another
bauxite mine and a planned dam that could kill half the ape
population there as well. These issues are not new: In 2013, civil
society experts already raised concerns with the WBG board over
problematic biodiversity offsets from a different IFC-financed mine
in Guinea, also in relation to chimps (see Bulletin December 2013).
Biodiversity offsets are based on thin evidence of their
effectiveness, as fragile ecosystems can rarely just be uprooted and
recreated elsewhere. As a Civil Society Policy Forum panel at the
April IMF and World Bank Spring Meetings pointed out, the
sustainability of the conservation offset component is also rarely
monitored in the long term, so protection may not even extend beyond
a project's timeframe (see Dispatch Springs 2023). Regardless,
offsets go on being used by environmentally destructive companies to
continue their business as usual approaches with public funding from
the World Bank Group, something environmental civil society
organisations (CSOs) like Global Witness have called out as
greenwashing.
Without upholding credible standards and remedy, the IFC sets a low
bar for others
IFC and World Bank investments in extractives and infrastructure
megaprojects have been regularly linked to deforestation,
displacement, loss of livelihoods, human rights abuses and
environmental degradation (see Observer Winter 2021, Autumn 2020,
Autumn 2019; Bulletin December 2013). However, the impact of such
cases goes beyond the project itself, as the WBG's standards and
practices on accountability, remedy and environmental protection set
the bar for other development institutions and provide a stamp of
legitimacy for extractive companies – as shown in a 2018 report by
Human Rights Watch, which found the government of Guinea pointing to
IFC's standards as best practice.
Pressured by its board and an expert panel after the
highly-publicised Jam vs. IFC lawsuit (see Observer Summer 2022), the
IFC has committed to creating a remedy framework, but a first draft
released earlier this year was severely criticised by an
alliance of 48 CSOs including Accountability Counsel, Recourse, Oxfam
and the Center for International Environmental Law for its "abject
failure" to acknowledge human rights obligations or indeed, "provide
a plan for any type of remedy" (see Observer Summer 2022). The World
Bank's 2022 reform of their own accountability and remedy mechanism
was denounced by a similar group of CSOs for lagging behind even the
IFC, lacking the option to suspend projects that result in imminent
and irreversible harm (see Observer Autumn 2022).
In the context of a green industrial and energy transition that will
see increased extraction of minerals required for renewable energy
storage and other "green" technology, the risks of environmental
degradation and human harm in resource-rich Global South countries
like Guinea will retain their urgency. As a June expert briefing
endorsed by 74 CSOs and co-authored by BankTrack, Friends of the
Earth, Bank Information Center and Rainforest Action Network
stressed: "It is critical that financiers avoid biodiversity and
carbon offset approaches…and dependency on unproven, vague
technologies, as there is an abundance of longstanding evidence that
these approaches are not effective in solving the root problems of
biodiversity loss and climate change."
bit.ly/BiodiversityOffsets

=====================================================================
CONDITIONALITY/news

Tunisian government resists proposed IMF austerity programme

Amid fears of an economic collapse, the Tunisian government is
attempting to renegotiate an IMF loan to avoid cutting subsidies on
food and fuel required by the IMF that would hurt the poor and
economically marginalised. The country is suffering from severe
shortages of basic goods and is heavily dependent on imported wheat
supplies, which have been disrupted by the war in Ukraine, and is
exhausting its foreign currency reserves.
The IMF deal would provide $1.9 billion and unlock a further €1
billion from the EU, including €105 million to stop African migrants
from going to Europe. European leaders are facilitating talks between
Tunisia and the IMF mainly out of concern that an economic collapse
in the country could result in an increased number of migrants
crossing the Mediterranean to Europe.
The IMF programme demands the Tunisian government phase out subsidies
for food and fuel, replacing them with targeted support as part of
its 'social spending floors' policy aimed at mitigating the impact of
its austerity policies on the poorest.
Middle East/North Africa-based civil society network Euromed Rights
argued that this approach is fundamentally misguided, as social
protection is a human right, not a form of mitigation. Further, a
recent Oxfam study of 17 of these spending floors found they were
"opaque and inconsistent" and provided a "fig leaf" for damaging
austerity.
A 2022 study by Friedrich Ebert Stiftung found food subsidies in
Tunisia are progressive and equitable, and effective in eradicating
poverty. The last time Tunisia removed subsidies at the IMF's
insistence, in 1983, widespread rioting and unrest followed, leaving
at least 80 dead in a brutal government crackdown (see Observer
Autumn 2019; Briefing, IMF policy in the MENA region: Lessons
unlearnt).
bit.ly/TunisiaAusterity

=====================================================================
IFI GOVERNANCE/news

African finance ministers join growing calls for more equitable SDR
allocations

Pressure is mounting to reform IMF's Special Drawing Rights (SDRs;
see Inside the Institutions, What are Special Drawing Rights (SDRs)?)
as African finance ministers called for a review of the SDRs
rechannelling mechanism (see Observer Autumn 2021) and their reserve
asset characteristic during the Annual Meetings of the African
Development Bank held in May in Sharm El-Sheikh, Egypt. The ministers
emphasised "the need for SDR allocation decisions to be made in a
rule-based analytical manner to reduce the discretionary and
political nature of the allocation process", and to ensure that SDRs
are directed to countries that need them the most.
Demands for a comprehensive SDR reform are increasing. An April
report by the UN's High-Level Advisory Board on Effective
Multilateralism called for the "immediate, and thereafter regular"
annual issuance of additional SDRs to aid countries facing
foreign-exchange shortages. The report also suggests an amendment to
the IMF's Articles of Agreement to permit "selective SDRs allocation"
in order to facilitate a more targeted and effective distribution
that prioritises the most vulnerable countries over the world's
largest economies.
Following the insufficient and uneven allocation of $650 billion SDRs
in 2021, which allocated 64 per cent of the SDRs to advanced
economies instead of low-income and climate vulnerable countries,
civil society organisations called for a reform of the distribution
criteria, currently based on an inequitable quota system (see Inside
the Institutions, IMF and World Bank decision making and governance).
They and others such as UNCTAD have also called for an additional
$2.5 trillion in SDRs to ensure the international community has a
global financial safety net, enabling countries to close the climate
finance gap and achieve their Sustainable Development Goals (see
Observer Spring 2021).
bit.ly/SDRsCampaign

=====================================================================

PRIVATE SECTOR/news

B-Ready for more ill-founded private-sector solutions

In December 2022, the World Bank published the updated concept note
of its Business Enabling Environment Project (BEE), the successor of
its much criticised 'flagship' Doing Business Report (DBR), cancelled
due to a data manipulation scandal in September 2021 (see Observer
Winter 2021, Autumn 2021). The BEE has subsequently been rebranded as
the Business Ready Project (B-Ready).
Civil society organisations (CSOs) worldwide have for decades called
for the DBR's cancellation on substantive grounds, for instance via
an open letter signed by over 360 CSOs, trade unions and individuals
on 11 March 2021. Given the strong evidence and the critique
published in March 2022 by the Bank's own Independent Evaluation
Group, civil society was extremely displeased with the launch of
B-Ready. Maju Varghese of Indian CSO Centre for Financial
Accountability lamented, "The launching of the B-Ready report will
bring cheer only to businesses and corporations who want to further
deregulate environmental and labour policies. We need better
regulations to 'B Ready' to fight climate change and rising
inequality rather than make economies more 'Ready' for exploitation
and extraction." Rodolfo Lahoy of Philippines-based IBON
International added, "The now-defunct DBR served as a neoliberal whip
on governments and was rightly criticised…its successor sends an
ominous message: be ready for more of the same profit-centred
approach that has hollowed out and drained resources from Southern
economies. Instead of artificially reviving dead reports, we need the
Bank's development approach to be held accountable for driving
today's crises and exposing peoples to their effects."
A 7 March 2022 CSO submission to the B-Ready consultation echoed the
call for an urgent rethink of the Bank's private sector-led approach,
calling for an evaluation of its development impact, a recommendation
that is more relevant today in light of the push for the expansion of
the failed Cascade approach in the World Bank's Evolution Roadmap
(see Observer Summer 2023).
bit.ly/WBGBReady

=====================================================================
ACCOUNTABILITY/news

UDHR and IPN anniversaries underscore urgent need for Human Rights
policy at all IFIS

SUMMARY
World Bank must establish robust and well-resourced remedy framework
to meet the obligations under UDHR
IMF and World Bank must develop human rights policies to begin to
adequately respond to evolving poly-crisis

This year marks the 30th anniversary of the World Bank's Inspection
Panel (IPN), created as the result of grass-roots and international
pressure on the Bank to address the well-documented negative impacts
of the Bank-financed Narmada dam in India and similar projects, on
marginalised communities.
The establishment of the world's first independent accountability
mechanism (IAM) at the World Bank in 1993 led to the creation of
similar mechanisms at nearly all international financial institutions
(IFIs), with the IMF and the German Federal Ministry of Cooperation
and Development stark exceptions. The establishment of the IPN and
other IAMs was a step-change in accountability, as previously only
shareholders and borrowers had institutional channels and pathways to
hold IFIs accountable – as opposed to communities affected by their
investments. Fittingly, this year also marks the 75th anniversary of
the Universal Declaration of Human Rights (UDHR) and the foundation
of the international human rights system.
These anniversaries take place as the world struggles to respond to
the polycrisis exacerbated by the Covid-19 pandemic, the worsening
impacts of climate change, and the war in Ukraine. This coincides
with mounting calls for reform of the unjust international financial
architecture, as evidenced by the Bridgetown Initiative and the
evolving consensus of the need for a fourth UN Financing for
Development Conference (see Observer Summer 2023). The demands for
substantive governance reforms are counter-balanced by a strong focus
on 'technical' and financial fixes, such as reforming multilateral
development bank's capital adequacy framework, to meet a supposed
development financing gap of trillions of dollars. Calls for the
tripling of multilateral development finance to catalyse private
finance – known as the Billions to Trillions agenda or "Cascade"
approach reflected in the World Bank's proposed Evolution Roadmap –
evidence this drive, as outlined in a 5 July statement signed by 74
civil society organisations and academics highlighting the key
shortcomings of the proposal (see Observer Summer 2023).
A bigger bank without rights and remedy frameworks means bigger
problems
The proposed tripling of multilateral development bank finance,
principally focused on de-risking private sector investments, coupled
with proposals to delegate project approval to management, will
likely have a significant impact on the effectiveness and workload of
already understaffed and under-resourced IAMs, particularly given the
expected increased focus on large-scale, regional mega-infrastructure
projects and indirect lending instruments. The need for systems
within IFIs to meet their international human rights obligations and
to provide remedy to affected communities will become more acute.
Despite the Roadmap's mooted expansion of Development Policy
Financing (DPF), which falls outside the Bank's environmental and
social framework (ESF) (see Briefing, Learning lessons from the
Covid-19 pandemic: The World Bank's macroeconomic policies and
women's rights; Background, What is Development Policy Financing?),
it does not bring DPF and Program for Results lending within the ESF.
The struggle for improved IFI accountability and compliance with
international human rights obligations in the context of the 75th
anniversary of the UDHR is further challenged by the fact that the
IMF lacks an IAM. This is particularly concerning given the expansion
of the Fund's work to include, for example, gender and climate. The
proliferation of its programmes in the context of increased debt
burdens and a challenging global economic environment, where
Fund-mandated austerity and other policies are having acute social
impacts (see Observer Summer 2020) exacerbates those concerns.
Umida Niyazova, Director of the Uzbek Forum for Human Rights, and
part of the Defenders in Development campaign stressed, "As World
Bank, IMF and other IFI shareholders celebrate the anniversary of the
international human rights system, they must go beyond words.
Shareholders must demand that all IFIs establish human rights
policies, integrate ex ante and post hoc human rights impact
assessments into all of their programmes, and ensure their IAMs are
adequately resourced and structured to enable them to meet their
human rights obligations by providing remedy and accountability to
communities affected by IFI project and policy lending."
bit.ly/UDHRAnniversary

=====================================================================

FINANCE/analysis

Financial liberalisation, capital controls and development in Africa:
The case of Uganda
Guest Comment by Jane Nalunga, SEATINI Uganda

SUMMARY
Effects of IMF-imposed financial liberalisation on African states in
1980s to attract foreign investment persists
It has made economies more vulnerable to economic shocks and less
resilient
In Uganda it has facilitated the extraction of wealth, and most
foreign investment has gone to services and mining

Financial liberalisation involves diluting or dismantling regulatory
controls over the institutional structures, instruments and
activities of agents in different segments of the financial sector.
It has had a profound impact on Uganda, as it has on other African
economies over the last 40 years, but it has not driven economic
transformation.
The issues of financial liberalisation and capital controls in
Uganda, as in the continent generally, have come to the fore due to
ongoing crises – i.e. climate change, high trade deficits, negative
health impacts (including high out-of-pocket fees, vaccine and
pharmaceuticals dependence), debt distress and economic contraction.
The Covid-19 pandemic intensified the preexisting structural
challenges exemplified by commodity dependence because of the limited
economic transformation in many countries (see Dispatch Annuals 2022,
Springs 2022).
Africa requires resources to address all of these challenges. Given
the dwindling levels of Official Development Assistance provided by
wealthy countries and the increasing debt burden, domestic revenues
can contribute massively to addressing the current challenges.
Therefore, for African countries, the debate around financial
liberalisation and capital controls is inextricably related to the
urgent quest to mobilise resources by capturing the possible
investible surplus for investment. Thus, most post-independence
African governments instituted measures to minimise the share of
foreign profits repatriated and maximise what was retained in their
economies. These included regulations on the repatriation of profits
and taxes on foreign investment and profits. Governments also
directly supported their economies through state enterprises,
capturing the profits that would otherwise have accrued to foreign
capital, repatriated, and lost to the domestic economy.
However, the Structural Adjustment Programmes (SAPs) imposed upon
Africa by the IMF and World Bank in the 1980s dismantled all these
policies, replacing them with neoliberal policies, i.e. economic and
financial liberalisation, reformulating the role of government to
merely providing a 'conducive environment' for the private sector to
thrive and the promotion of private sector-led economic development.
Given the weak domestic private sector in Uganda, and in many other
African countries at that time, a new slate of policies was developed
by African governments to incentivise foreign direct investment
(FDI). These included tax incentives and the relaxation or total
dismantling of regulations regarding financial flows in and out of
the domestic economy.
The lasting negative legacy of financial liberalisation
The effects of financial liberalisation have varied across countries.
However, the literature has shown that although financial flows
increased in some countries, financial liberalisation and capital
account liberalisation has presented a number of challenges for
African countries (see Dispatch Springs 2022). These include:
Increased volatility and vulnerability to external shocks due to
exposure to volatile capital flows; instability in the countries'
financial systems and pressure on the exchange rate with negative
impacts on macroeconomic stability and economic growth; appreciation
of the domestic currency due to increased capital flows making
exports less competitive; and the weakening of the domestic financial
sector.
Specifically, for Uganda, the liberalisation of its capital account
in 1997 was carried out as part of a series of stabilisation and
reform policies undertaken since 1987 under IMF and World Bank Group
SAPs. The government, among other measures, allowed the free flow of
capital between Uganda and the rest of the world, permitting
residents and non-residents to hold foreign exchange-denominated
accounts in the domestic banking system and residents to hold foreign
exchange-denominated accounts and instruments outside the country.
Liberalisation of the capital account in Uganda was justified on the
grounds of closing the savings-investment gap to promote sustainable
long-term growth, and to address its fiscal deficit to finance
infrastructure projects.
Since liberalising its economy, Uganda has not seen increased capital
flows, but key macroeconomic indicators have deteriorated. For
example, according to IMF data, in 1998, the inflows accounted for
3.19 per cent of GDP, while in 2020 and 2021 they accounted for 2.32
per cent and 2.82 per cent of GDP respectively. The fiscal deficit
has also increased from 7.1 per cent of GDP in 1998-99 to 9 per cent
in 2020-21; while public debt to GDP ratio has increased from 45.1
per cent in 1998 to 52.2 per cent in 2022. The trade deficit has also
increased from a trade balance of 6.8 per cent of GDP in 1964 to a
deficit of 10.1 per cent of GDP in 2021.
These adverse figures conceal a profound structural change that has
happened in Uganda since the liberalisation of its financial sector
including the collapse of local banks with reduced lending to the
rural and informal sectors, persistently high lending rates at
between 18-20 per cent and the redirection of investments away from
the productive sectors of the economy. Financial liberalisation has
thus failed to drive investment to sectors that could actually
structurally transform the Ugandan economy. It has in effect
perpetuated economic underdevelopment while facilitating the
extraction of profits by foreign investors. Thus Uganda remains among
the poorest economies in the world.
Uganda's experience demonstrates the urgent need for African
governments – and the IMF – to rethink the efficacy of capital
account liberalisation, based on an assessment of the cost of these
neoliberal policies on their economies especially given the current
polycrisis (see Dispatch Spring 2023).
bit.ly/CapitalControlsUganda

====================================================================

GENDER/news

Gender progress at risk as new World Bank president enters pushing
private-sector focus

SUMMARY
ActionAid UK new report highlights critical importance of gender
responsive public services
New Bank President Ajay Banga's private sector push raises concern
for gender equality

In the lead up to the appointment of Ajay Banga as the new president
of the World Bank, it was no secret that many Bank watchers were
highly critical of the choice of candidate (see Observer Spring
2023). His lack of experience in international development, his
veteran status in the corporate finance world and his expressed
preference for public-private partnerships (PPPs; see Observer Autumn
2022) rang alarm bells for many, particularly those concerned with
gender equality.
The recent global pandemic laid bare the essential role of public
services, including healthcare, social care and education, and the
importance of maintaining universal protection schemes, most notably
for women (see Briefing, Learning lessons from the Covid-19 pandemic:
The World Bank's macroeconomic policies and women's rights). This,
and a steady flow of evidence highlighting the necessity of
publicly-funded essential services as well as the gendered effects of
austerity measures, was not enough to stop the Bretton Woods
Institutions (BWIs) from returning to business as usual, and to
recommend policy prescriptions that encouraged damaging and avoidable
austerity for 'client countries'.
A new report by ActionAid UK, launched in May, with evidence from
Ghana, Kenya, Malawi and South Africa, highlights the critical
importance of public services that are gender responsive. Noting the
role of the World Bank in the ongoing privatisation of services and
cuts to public spending in these countries, the illustrated guide
sets out how women's and girls' rights are impacted when public
services are of poor quality, privatised or cut, particularly in
situations such as the current intersecting crises – inequality,
climate, health, education, conflict and debt – alongside the
Covid-19 pandemic. The report stresses that we must "keep public
services public by resisting pressure to privatise."
Privatisation cause for concern
The World Bank, through its private sector arm, the International
Finance Corporation (IFC), has been repeatedly criticised, including
by UN human rights experts, for the harms caused by its investments
in for-profit social services, including healthcare and education
(see Observer Summer 2022). For instance, the IFC's support for
Bridge International Academies, for-profit K-12 schools, was found by
the Bank's own Independent Evaluation Group (IEG) and others to have
resulted in poor quality education, accusations of sexual abuse and
abuse of power, lack of transparency and inadequate conditions for
pupils and teachers. A June report from Oxfam exposed the harms of
World Bank investment in for-profit healthcare models, particularly
for women, noting "Profit maximization objectives in healthcare bring
inherent risks to public health and patient rights", highlighting
evidence that, "in countries across the world, the higher the share
of private financing for health, the higher the rate of women's
deaths."
The post-pandemic economic forecast remains bleak and global leaders
and social movements have increasingly joined calls for reform of the
international financial architecture (see Dispatch Springs 2023). New
World Bank President Ajay Banga believes the answer lies in
mobilising more private finance, despite the wealth of evidence
underscoring that this approach has not generated the promised
trillions or resulted in inclusive development outcomes (see Observer
Spring 2020).
As the formal consultation process for the Bank's new gender strategy
finally begins in July following multiple delays, women's rights
organisations are concerned about the Bank doubling down on
privatised solutions to social services provision under Banga's
leadership. They fear its consequences for the decades-long civil
society fight to see the Bank recognise the gendered harms its
macroeconomic policies and focus on privatisation have caused (see
Briefing, Gender Just Macroeconomics, the World Bank's Privatisation
Push). Chikumbutso Ngosi, of ActionAid Malawi, stressed how important
it is for women to "understand the unequal ways in which macro
economic policies operate [and] how this connects with their rights
to access gender responsive public services."
bit.ly/WBGPrivatisationPush

====================================================================

The World Bank's approach to human rights

This Inside the Institutions provides an overview of how the World
Bank approaches human rights. It considers the global context of
human rights and the role of international financial institutions and
development institutions in meeting their obligations under the
international human rights legal framework.
In reality, however, many human rights defenders, advocates and CSOs
are critical of the Bank's approach to human rights. The concerns go
beyond lending and include norm-setting, etc. The post-pandemic and
polycrisis of recent years have led to fresh criticism of the Bretton
Woods Institutions' unwillingness to uphold their international human
rights obligations, noting that much of their macroeconomic policy
arguably violates human rights law and perpetuates structural
inequality through austerity and privatisation of social services,
for example.
bit.ly/InsideHumanRights

====================================================================
The Observer is available in pdf, on the web, and by email.
Observer
www.brettonwoodsproject.org/observer/
Spanish:
www.brettonwoodsproject.org/es/observador
Subscriptions:
www.brettonwoodsproject.org/subs

The Bretton Woods Project is an ActionAid-hosted project, UK
registered charity no. 274467, England and Wales charity no. 274467,
Scottish charity no. SC045476. This publication is supported by a
network of UK ngos, the c.S. Mott Foundation, the William and Flora
Hewlett Foundation and The Rockefeller Brothers Fund.

No permission needed to reproduce
ISSN 2053-7522
Design by Base Eleven