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Response from Debt and Development Coalition Ireland

Inexplicably, once again the Report does not contain a clear statement about Ireland's role in relation to the IMF's Poverty Reduction and Growth Facility. This is particularly surprising given that the IMF published a review of the PRGF during 2002 which raised a number of issues in relation to poverty reduction. The PRGF has been a source of controversy in countries undertaking programmes under this facility, including Zambia where Ireland Aid has a major involvement. Debt and Development Coalition Ireland continues to have serious concerns about the lack of change in the IMF programme since Ireland started to contribute in l999.

On debt, we welcomed the government's debt policy last year supporting 100% cancellation for low income countries and were concerned when the Minister for Finance failed to mention the policy in his address to the IMF and World Bank AGM. Fortunately this speech did not accurately reflect Ireland's contribution on the debt issue during 2002. Debt is, in fact, the one issue where the Report elaborates on Ireland's specific input at the IMF and World Bank covering both input at Executive Board level and also by the Minister for State at the Dept. of Foreign Affairs and Ireland Aid officials at special meetings.

Although the Report makes no mention of voting, Canada's report on its role in the IMF and World Bank indicates that Canada took part in a number of votes at both institutions during the year. As Canada represents Ireland, were these votes taken on Ireland's behalf?

2. PRSP/PRGF

2.1 Introduction

We welcome the fact that Ireland's representative to the IMF played a major role in relation to HIPC and PRGF/PRSP policy issues. We are disappointed however, that no insight is given into the actual interventions/policy positions which resulted from this.

Last year's report highlighted the government's concern to ensure that PRGF conditions did not conflict with PRSP objectives. This year's report contains no assessment of whether there has been any progress in this area or what action the government took during the year to press for progress on this point. Neither the Minister for Finance's speech to the September 2002 AGM nor the Canadian contributions to the April or September IMFC make any reference to the PRGF.

This year's report claims that PRGF conditions are based on PRSPs. This is clearly contradicted by Zambia's experience where the IMF made privatisation of the country's National Commercial Bank a PRGF loan condition although this was not included in Zambia's PRSP. Further, complaints about IMF and World Bank dominance which last year were shared by Ireland are this year attributed to unspecified 'external critics'.

2.2. PRGF and PRSP 2002 Reviews

These contained a number of findings on which we would have expected the government to comment:

2.2.1 Little change in macroeconomic or structural policies from previous IMF and World Bank programmes. The IMF accepts that this doesn't mean that these are the preferred policies of the country but that countries may be continuing with the policies of previous programmes. The G24 Secretariat [i] bluntly states 'the continuing dominance of the Bank and the Fund in agenda-setting… results in the imposition of neo-liberal policies that many countries might not include on their own'. Other reports [ii] have stated that policy continuity arises because after years of complying with IMF conditionality, governments are aware of the policies which will receive IMF/World Bank endorsement..

2.2.2 Lack of discussion of alternative policies. The IMF admits that no evidence was found in the PRGF Review of flexibility on IMF staff's part in accepting alternative policies. As long ago as l998, the 1998 Independent Review of ESAF recommended that the IMF should discuss alternative policy scenarios with borrowing governments.

2.2.3 Policies in PRGF programme with major social impacts: The majority of these are 'covered neither by PSIAs nor countervailing measures'. [iii] Again this points to the slow pace of change given that following the Independent Review of ESAF, joint pilots studies were set up with the World Bank to assess ex ante the effects of IMF policies on poor people. These were suspended when the PRSP process was introduced and no outcomes were ever produced. While there is now a focus on poverty impact assessments, little progress can be detected in relation to macro economic policy. According to the G24 [iv] this is because the World Bank and IMF have failed to agree on their respective responsibility in this area. This mirrors the experience of civil society groups including DDCI when discussing this issue with the IMF and World Bank.

2.3. Is the PRGF Facilitating Poverty Reduction?
This is a key question for those who opposed Ireland contributing to this facility .

Evidence from countries which have reached macro economic stability under
IMF programmes shows that poor people who paid a heavy price during stabilisation have not reaped the benefits. This has been among the findings of two progress reports on the implementation of the PRSP in Tanzania produced by TASOET together with
DDCI, Trocaire and Oxfam Ireland. [v]

A EURODAD paper to be published shortly [vi] examines whether the PRGF is maximising finance for poverty reduction. In relation to fiscal policy the study found that:

• Promoting poverty reduction - which is the stated aim of PRGF - does not play a key role in IMF fiscal policy. With the exception of a couple of countries, fiscal targets in PRGF programmes have changed little from ESAF programmes -
  
  
• Lack of flexibility in fiscal targets in most PRGFs has in fact limited the potential to increase poverty reduction spending. Donors who advocate more flexible fiscal and macro policies are hindered by the fiscal framework which is shaped by the PRGF.

Given that Ireland has contributed Euro5,713,821.36 since l999 to the PRGF, we would have expected more in depth information and analysis from the Government on how the IMF programme is contributing to poverty reduction.

2.4 Ownership
The Report's main focus in terms of the PRSP/PRGF is on the benefits - and some of the limitations - of the participatory process which underpins PRSPs. While it is true that many civil society groups' welcomed the opportunity to participate and through their participation have raised the profile of the poverty debate, the experience has not been a positive one across the globe. In Bangladesh, Pakistan and Sri Lanka civil society groups have rejected the PRSP complaining about flawed participation and persistent IMF and World Bank influence on the content of programmes.

In other countries e.g. Uganda where civil society groups dedicated considerable resources to participation in the PRSP, it was strongly felt that Uganda's PEAP was hijacked by the World Bank's PRSC and the IMF's PRGF which ended up reshaping Uganda's priorities. As regards the PRSC, the EU supports the claim that its conditions were poorly linked to the PRSP[vii]. Nyamugasira and Rowden [viii] found that in fact the PRSC and PRGF policies conflict with the poverty reduction goals set out in Uganda's PEAP. For example no consideration was given to how price increases for privatised water, a requirement of the World Bank programme, could undermine the health related goals of the PRSP. The World Bank argue that the PRSC is based on policies taken from the PEAP/PRSP. Civil society groups argue that the World Bank's programme is similar to previous structural adjustment programmes calling for liberalisation and privatisation.

2.5 Privatisation
The Report refers to the privatisation of public utilities which is, currently, a highly contentious issue. A recent World Development Movement report [ix] describes 111 incidents of civil unrest in 25 countries sparked off by BWI policies. A major cause was privatisation of publicly owned companies. Protests took place in Honduras, Nicaragua , South Africa and Bangladesh against the privatisation of public utilities e.g. water, electricity and telecommunications.

Privatisation has been among the conditions to qualify for HIPC debt reduction and failure to comply has held up debt reduction, e.g. for Honduras and Nicaragua. Although privatisation has been a central part of programmes since the late 1980s, the link between privatisation and poverty reduction has not been made [x]. In fact the World Bank's February 03 seminar 'Rethinking Privatisation: A Soul Searching Exercise' suggests that the World Bank may now realise that it has failed to make a decisive case for privatisation.

In this context, the government should clarify where it stands on this issue and what its interventions have been at the IMF and World Bank in relation to this. Particularly important is that the government clarify Ireland's position on

• the IMF imposition of privatisation of Zambia's National Commercial Bank as a PRGF loan condition.
  
  
• the suspension of Nicaragua and Hondura's interim HIPC debt relief

2.2.6 PRGF and HIPC
Both the Irish debt policy and this Report highlight the government's serious concerns at the over optimistic growth projections contained in HIPC debt sustainability analysis. Given that these projections are based on the IMF's PRGF programmes, it is surprising that the government does not raise this as an issue of concern in relation to PRGF design

3. Debt

3.1 Introduction
We welcome the fact that Ireland has been more proactive on debt, both in adopting an independent position and taking some steps to promote this. The report sets out what changes Ireland supports, including the proposed reforms to HIPC, and gives some indication of action taken. The impression from the Report is that Ireland has pressed the debt policy more strongly at the World Bank than at the IMF.

3.2 Pressing the case for cancellation
We would hope that Ireland is not shelving its policy of 100% cancellation in favour of a reform of HIPC - although we support the general principle that debt reduction/cancellation should be assessed on human development criteria. We acknowledge and appreciate the action taken to highlight the need for debt cancellation in response to the HIV/Aids pandemic and to the threat to food security in Southern Africa.

It would be interesting to know what support, if any, Ireland received on debt cancellation in relation to Aids and food security. We noted World Bank Vice President for Europe, Mr. Jean Francois Rischard's [xi] argument that it is very difficult to take HIV/Aids into account in debt sustainability analysis. It seems strange that the World Bank which positions itself as a major body in terms of development analysis and theory is unable to factor in the impact of such a major crisis which has been devastating many Southern countries for over 20 years.

3.3. Funding for debt cancellation
We disagree with the government's assessment that further multilateral debt cancellation will have to be funded by other donors. We note the huge increase in World Bank profits which virtually doubled 2001-2002. This seems an opportune time to press the World Bank to commit to funding further debt cancellation. As regards the IMF, we have never understood the government's argument that the IMF cannot fund cancellation. Prior to HIPC, the IMF argued they had no resources for debt reduction. However, the Irish Debt Policy points out that IMF debt reduction to date has been virtually totally funded by the IMF through revaluing a small portion of their gold. We see no reason why the IMF can't repeat this exercise. Their reserves are not being depleted as it is only the interest from the proceeds of the gold sale which is being used. In addition to this, the IMF make a profit of $0.4 bn a year some of which could also be allocated to debt reduction. We would urge the government not to shackle itself by simultaneously putting its own arguments for total debt cancellation and the IMF and World Bank's counter arguments.

3.4 IMF/World Bank Lending: a threat to debt sustainability
Last year's report highlighted concerns about PRSC lending accruing as unpayable debt and stressed the need for it to be carefully monitored. Minister Kitt restated this position at a recent presentation to DDCI's AGM. There is no mention in the 2002 Report, however, of how Ireland pursued this issue at the World Bank during 2002 . In this context we welcome the Ireland Aid proposed study in Zambia which is to be replicated in other programme countries and would be interested to know what role this study will play in monitoring the PRSC.

PRGF lending also has a negative impact on debt sustainability. In order to receive debt reduction under HIPC, countries must have a PRGF programme in place. Loans under PRGF, however, put their debt sustainability at risk. Although on paper this facility qualifies as concessional lending, in the context of current international interest rates, this is no longer the case. According to Eurodad [i] 'If countries undergoing a PRGF programme were to apply IMF's conditionalities on external financing to IMF's own lending they would reject PRGF support because of its lack of concessionality'. Eurodad's paper also questions whether PRGF funding - designed as short to medium term balance of payment support - is appropriate for countries like Uganda where long term concessional finance is the priority. We would welcome clarification of the government's position on the appropriateness of PRGF lending to heavily indebted low income countries.

4. Decision Making at the IMF and World Bank

How decisions are made at the IMF an World Bank continue to be shrouded in secrecy. According to the institutions, decisions are mainly made by consensus. While consensus may sound positive, it obscures the decision making process, concealing the key decisions taken during the year and making it impossible to monitor the positions taken by individual constituencies.

We would appreciate further clarification on how decisions are made at the IMF and World Bank given that Ireland doesn't have a direct voice but is represented by Canada. For example: how does Canada represent the Irish view in situations where this differs from Canada's position as is the case in relation to the debt policy?

Further, we note from the Canadian report [xii] that Canada voted at the IMF on 3 occasions and at the World Bank on two occasions. Were these votes taken on behalf of Ireland and the rest of the constituency and if so, why were they not reported in the Irish report?

5. Conclusion and Recommendations

While the Report contains much useful information on debates at the BWIs and on Ireland's formal input - in terms of finance, administration and formal public inputs - it fails to give an insight into Ireland's stance on an on going basis. Given that the boards meet up to 3 times a week, clearly a lot of decisions are taken outside of the formal twice Spring and Autumn meetings. Given that Ireland only makes one formal, public contribution per year ie. to the autumn meetings, the Annual Report is the major source of information on Ireland in the IMF and World Bank.. In the interests of transparency and accountability, we would urge the government to ensure that next year's report details Ireland's contribution to the debates and policy decisions which take place during 2003.

The report should include:

• an outline of the main items on the Spring and Autumn meetings and the positions taken by Ireland and whether these were included in the Canadian presentations
  
  
• An outline of the position taken by Ireland in relation to the main debates during the year.

• the poverty impact of its policies
  
  
• flexibility in policies
  
  
• debt sustainability
  

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