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Has the IMF's Poverty Reduction and Growth Facility Changed since Ireland Started to Contribute in l999?


Introduction

In the face of substantial public and parliamentary opposition the government agreed to contribute to the IMF's Poverty Reduction and Growth Facility (PRGF) in l999. The government argued that contributing would give Ireland extra leverage to press for change. Earlier this year reviews of the PRSP and PRGF were published by the IMF and World Bank. In addition many papers have been produced by civil society groups, donor governments, academics and UN agencies examining these two programmes. A key question is: how has IMF policy changed since country ownership and poverty reduction were made central to its programmes in l999? In Ireland a further key question is: what role has Ireland played in relation to the PRGF since l999?

Part 1: PRSP/PRGF: Continuity or Change?

There is substantial agreement across the studies that implementation of the PRSP/PRGF has not resulted in major change in macro economic and structural policies.

a) Social Spending
Social sector budgets have increased, but

  • These still fall far short of meeting the millennium development goals with major financing gaps in many PRSPs e.g. Tanzania has a $264 million gap for 2002

  • Fees for e.g. health services are a feature of most PRSPs covered by the PRSP Review

  • Fiscal restrictions are leading donors in some countries to explore ways to raise social sector spending outside the budget.

b) Macroeconomic and Structural Policies
The core macroeconomic and structural elements in PRSPs are broadly the same as in the previous IMF/World Bank programmes. The IMF and World Bank suggest that this is due to governments seeing these policies as the best way to ensure growth and poverty reduction. This is a surprising claim given that none of the PRSPs covered in the PRSP Review have a clear analysis of the social impact of past macroeconomic reforms.

A major reason for the lack of change is that while growth remains the main engine of poverty reduction, there is no real analysis in PRSPs or PRGFs of how those who are marginalised and impoverished will benefit. Rather than recognise this as a fundamental flaw which must be urgently addressed, it is remarkable that the PRGF Review contains only a vague statement about the need to increase the 'focus on the sources of growth in PRGF programmes'

Civil society groups were consulted on social issues but were excluded from discussions on macro economic and structural policy. In Ghana a PRGF was signed a month after the government started the PRSP participation process. Many of the issues on which the Ghanaian TUC wished to input were, therefore, no longer on the table e.g. fiscal, monetary policy and labour regulation. Further, the PRSP was seriously constrained by the policies laid down in the PRGF . While many civil society groups see benefits in dialogue with government and donors, there is a growing feeling that PRSP is a screen behind which adjustment policies are introduced disguised as the preferred policies of the country.

c) Social Impact of Policies
The PRSP Review recognises the absence of social impact analysis as among the problems of PRSPs . The PRGF Review admits that the majority of policies with significant social impacts are neither covered by social impact studies nor are there measures to mitigate these effects . It is striking that while the IMF and World Bank have been able to impose swift and sweeping reforms on countries across the South for over two decades, analysing the social and environmental impacts of these policies poses such methodological problems to them.

d) Alternative Approaches to Macro/Structural Policies
There is little evidence that alternative macroeconomic or structural policies were even considered in developing PRGFs or PRSPs. The IMF and World Bank make a sweeping assumption in the PRSP Review that there are no fundamental disagreements about inflation, privatisation or trade liberalisation when in fact these are hotly contested in many countries e.g. controversies about water privatisation in Ghana and Bolivia. In fact the push to privatise public utilities, a cornerstone of World Bank policy, raises the fundamental question: if a country is not free to decide on the public/private mix in its service provision, has the concept of ownership any meaning?

Why the lack of discussion of alternatives? Civil society groups appear to be a major culprit here in the eyes of the IMF and World Bank, due to their lack of capacity for technical analysis. We would suggest that years of IMF/World Bank conditionality are the relevant factor here. According to a UN report governments drawing up PRSPs are 'trying too much to read into the minds of the IMF and World Bank'. . In a recent review of IMF conditionality, Tony Killick concludes that many governments which are subject to HIPC conditionality find themselves 'in a tighter policy straight-jacket'. This strait-jacket is reinforced by the IMF and World Bank's role as arbiters of PRSPs. According to the PRSP Review the IMF and World Bank should 'continue to engage in policy discussion …on alternative policy choices' . What are these alternatives?

e) Is the PRGF based on the Country Developed PRSP?
The PRSP review recommends the Bank and Fund to make sure that their loan conditions are based on the country's PRSP. It also states that there is a need to clarify the links between the PRGF and PRSP. These two statements set alarm bells ringing. A fundamental pillar of the PRSP process is that IMF and World Bank programmes will be based on the country's PRSP. Further alarm bells are set off by statements in the PRGF Review detaching the PRGF from the in country PRSP participation process. The best way to ensure that the PRGF is based on the PRSP is that it be agreed through an open and transparent process.

Part 11: Ireland's Role in Engaging with the PRGF/PRSP

When the government decided to pay in to the IMF's ESAF/PRGF, we assumed that monitoring this programme would be a priority for Ireland's representative at the IMF.

a) Monitoring the PRGF at the IMF
There is no evidence from the three Annual Reports produced by the government on Ireland's Participation in the World Bank and IMF that monitoring, and critiquing the IMF programme and pressing for change are Irish government priorities. We note that there is no mention of monitoring the PRGF as even part of the role of Ireland's representative to the IMF, although a significant sector of the Irish public and TDs expressed serious concerns about this programme. This can be contrasted with the clear priority given to Ireland's representative to the World Bank to ensure that Irish consultants get a significant share of Bank business. The first annual report merely quoted IMF policy. The second report didn't mention the PRGF at all. The PRGF receives greater coverage in the third report which contains an informative report back on the PRSP Review Conference in Washington January 2002. This section also includes an outline of Ireland's position on the PRSP. However, the only direct reference to the PRGF merely states that there should be 'better coordination between the PRSP and PRGF so that the conditionalities in the latter do not conflict with objectives in the former' . We understood that the PRGF was meant to be based on the PRSP not loosely linked to it. We understood that poverty reduction was to be the overarching goal of the PRGF since l999. The government's stated position lacks any sense of urgency; there is no mention of the action the government wishes to see taken, nor of the role they intend to play in achieving this either at the IMF and World Bank or in Ireland Aid programme countries.

b) Role of Ireland Aid in Monitoring the PRGF/PRSP
What role is Ireland Aid currently playing in monitoring the IMF's PRGF in the field? The Ireland Aid Review makes only a passing reference to the IMF. The 2001 Annual Report on Ireland's Participation in the World Bank an IMF refers to coordination with the Department of Foreign Affairs only in relation to the World Bank . There is a very unclear statement in the Government's new 'Policy on Developing Country Debt' re Ireland 'drawing on the experience of these countries to inform its policies in relation to multilateral programmes' We would welcome clarification of the statement in the debt policy above and of the mechanism to carry this action out.

Tanzania's PRSP

A Statement was prepared by the Canadian/Irish/Caribbean constituency in consultation with colleagues in the field on Tanzania's PRSP which was presented to the World Bank board. This is the only document we have seen which gives a detailed insight into Irish thinking on the PRSP in practice. While broadly supportive of the PRPS, the statement makes some criticisms. These mainly relate to government failings e.g. in gender and the role of the private sector. It is striking that there is no mention of the PRSP's macro economic section , nor that a PRGF programme had been agreed with the Tanzanian government behind closed doors while the PRSP was being developed. This contained a long list of conditions very similar to previous IMF ones. No poverty assessment was carried out.

Tanzanian civil society groups were very unhappy at this as macro policy was a major focus for them in terms of the PRSP. They had been acutely aware for a number of years that even though the country's macro economic indicators were improving, these were not translating into poverty reduction at community level. They were very keen therefore to participate in the development of macro economic policy as part of the PRSP. Why did Ireland not pick up on this via the Ireland Aid office in Tanzania and raise it at Executive

Board level? As Tanzania's was one of the first PRSPs to reach board level, this could have given an early warning on the disconnect between the PRSP and the PRGF.

c) Dominant Role of the IMF and World Bank
The Annual Report 2001 recognises the overly dominant role of the IMF and World Bank in some PRSP processes but makes no recommendations on redressing this. We believe that the underlying problem arises from the IFI's overarching role as final arbiters of PRSPs. This is distorting the PRSP process in countries, creating mistrust among civil society groups and is also affecting bilateral donors. The Ireland Aid Review highlights concern at the World Bank's role in PRSPs, stating that Ireland and other donors should be more closely involved in the Bank's preparation of poverty reduction strategies. . However, Ireland should be challenging the World Bank's (and IMF's) role in endorsing PRSPs rather than trying to share their dominant role.

d) Ireland and the World Bank
Strong concern at World Bank lending, however, is expressed in the Annual Report 2001: a) where donor grants are available e.g. for HIV/Aids programmes; b) the possibility that their Poverty Reduction Support Credits will result in a build up of unsustainable debt. Strict monitoring of the PRSC is called for in the Report. We would share the government's concerns at the increase in the volume of World Bank lending to low income countries and the possible repercussions on debt levels and would also urge that a close watch is kept on how the PRSC links into borrowing country's PRSPs.


Part III Conclusion and Recommendations
Three years on from Ireland's decision to join the PRGF, there is

a) little evidence of fundamental change in the IMF's programme
b) little evidence that Ireland has played a vigorous role in trying to bring about change.

We do not hold the government responsible for the lack of change. Ireland's vote at the IMF is only about 0.4% . However, as votes are rarely taken at the IMF e.g. no votes appear to have been taken over the three years covered by the government's annual reports, there are opportunities for Ireland to exercise influence in other ways. Overall we believe the government has not fulfilled its commitment to make every effort to ensure the PRGF met its new goals of setting poverty reduction as its overall target.

Recommendations

1. The Minister for Finance should clarify what is meant by 'better coordination between PRSP/PRGF?

2. The Minister for Finance should outline the steps taken over the past 3 years to bring about change in the PRGF, including clarifying the role of Ireland's representative to the IMF in relation to this.

3. The Annual Report on Ireland's Participation in the IMF and World Bank should outline IMF Board discussion on the PRGF - the main issues discussed and interventions and follow up by the Canadian/Caribbean/Irish constituency.

4. Ministers for Finance and Foreign Affairs should clarify how Irish Embassies in Ireland Aid programme countries will feed into monitoring the PRGF /PRSP in country

5. Ireland should put the issue of ending the IMF/World Bank central position as final arbiters of the PRSP on the agenda at the UN, EU, IMF and World Bank .


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