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Executive Summary

This report examines the role of the European Commission (EC) within the Poverty Reduction Strategy Paper (PRSP) process asking whether the Commission could be more effective in challenging the over riding influence of the IMF and World Bank. As the EC does not have a seat on the boards of the IMF and World Bank, it is outside of the formal international decision making process on the PRSP. The EC seeks to influence the process through participating in the informal coordination of EU representatives to these bodies and through a special annual forum set up with the IMF and World Bank. The fact that a special forum to enable high level dialogue between the EC, IMF and World Bank exists highlights the EC's role as a major player. This facilitation of the EC may, however, be a response to the level of resources the EC has available to disburse rather than a recognition of the Commission as a major contributor to policy development. The EC in fact appears to believe it can have the greatest impact at country level.

The EC is critical of both the IMF and World Bank inputs into the PRSP process. In the case of the World Bank, criticisms include the lack of alignment between the Poverty Reduction and Support Credit (PRSC) and recipient countries' PRSPs. In addition, the PRSC contains both old style conditionalities and new forms of conditionality. This continuity with past practice by the World Bank was given as one of the reasons why the EC decided not to co-fund the PRSC, which had been under discussion between the two institutions.

The EC shares civil society groups' and other donors' concerns that the IMF programme does not allow for maximum spending towards reaching the Millennium Development Goals (MDGs). In addition the EC highlights the political nature of some of the elements in the IMF's Poverty Reduction and Growth Facility (PRGF) e.g. the size of the primary fiscal deficit. This contrasts with the IMF's presentation of core macro economic policy as largely a matter of technical expertise.

The EC has adopted policies or has floated proposals to tackle the problems highlighted above. However, there is either a lack of clarity across the organisation on what is EC policy or a lack of follow up on proposals. An example of the first is the EC's policy on disbursing budget support when a country is off track with the PRGF. The policy appears to be that if a country is off track on non core macro issues e.g. privatisation, then the EC will disburse[1]. However, this did not appear to be the understanding among all respondents, some of whom felt that a country must be on track with a PRGF per se to receive EC budget support. An example of the second is the EC's proposal that there should be a wider forum of informed participants to reach the best decision on macro economic issues. But the Commission has not elaborated on the brief or the scope of such a forum.

Instead the EC is placing its hopes on greater donor harmonisation and coordination which includes the IMF and World Bank as the way to reduce conditionality. While respondents were generally positive about progress on donor coordination, the findings of a Special Programme for Africa (SPA) mission in 2002 to examine progress on donor harmonisation, found little progress. In fact the report on the missions stated that there was some evidence of the PRSP process being little more than additional conditionality. Among the recommendations from the SPA mission was the proposal that donors should be required to provide an independent review of their progress in relation to their commitments to the PRSP. The assessment of donor compliance would then be considered alongside the government's review of its implementation of the PRSP.

The EC is a strong supporter of a greater role for national parliaments in the PRSP process. This would certainly be an important element in democratisation of the process. It is not clear, however, what the EC's position is on participative democracy - other than that the latter is seen as having somewhat less legitimacy than representative democracy. Given that the Commission is deeply involved in two processes which are based on the principles of participation (PRSP and the EU/ACP Cotonou programme), it is very well placed to make a positive contribution to analysing how representative and participative democracy could work together to reinforce each other rather than being seen as competing systems.

The Report concludes that the EC could be more effective by following up on proposals for change it has made and also by ensuring clarity across the organisation on its policies e.g. on disbursement to countries which are off track with their PRGF. Specifically the EC should

• be willing to delink its budget support from IMF conditions where these are judged to be outside of the IMF's remit and/or to prevent the government from maximising funding for poverty reduction.
  
  
• clarify and promote its proposal for a wider forum within which macro economic policies could be discussed taking both the political and economic contexts into account.
  
  
• provide support to independent research in order tofoster the development of alternative policies
  
  
• examine the different and overlapping contributions which representative and participative democracy respectively can make towards greater democracy and accountability in national planning. Facilitate debate on the findings.
  
  
• compile the range of ideas within the ECon how the central role of the IMF and World Bank could be challenged and disseminate these with the EC's proposals for change.
  
  
• recognise that while donor harmonisation may increase efficiency, it is not the solution to democratisation of decision making on the PRSP - globally as well as nationally.

1. Introduction

'The future importance of PRSPs in the design of development assistance, including that provided by the Commission cannot be over-emphasised' [2]

The EC was a strong supporter from the start of the PRSP process. An early commitment was made to basing the Country Strategy Papers which provide the framework for implementing the Cotonou agreement at country level on the PRSP. But the EC also had reservations recognising that the PRSP approach would only work if the IMF and World Bank were able to 'change the way in which they operated in the past'[3].

A wealth of papers have been produced on the role of civil society and the IMF and World Bank in the PRSP process, together with some studies of bilateral involvement but there has been little or no focus on the role of the EC. This paper is a start in addressing this issue although it does not claim to have come up with all the answers.

The purpose of this study was to: examine how the EC links to PRSP with a view to identifying how the EC, as one of the major players, could promote the democratisation of the PRSPs through working for a modification of the roles of the IMF and World Bank. The research focusses on how the EC operates as a donor in country and in collaboration with the IMF and World Bank at international level. How the EC works with member states in relation to the PRSP was largely beyond the scope of this report.

The methods used were documentary research, interviews with relevant staff in DG Development in Brussels. In addition a questionnaire was circulated to a sample of EC delegations in ACP countries which are eligible for HIPCs and which had completed a PRSP. Questionnaires were sent to 10 of the 17 countries which fitted these criteria - in the case of some delegations the key person had just left . All direct quotes in this report are taken from these interviews.

Thanks are due to the EC officials in Brussels who gave interviews and helped with identifying relevant documents and also to the delegations who completed the questionnaire

2. EC/IMF/World Bank Interaction Internationally

As a major donor, the Commission was keen from the start of the PRSP process to carve out a central role for itself. To achieve this, the Commissioner for Development proposed to the Heads of the IMF and World Bank that the EC should be closely involved in the development of the broad PRSP framework and of the preparation of individual country papers.

a) in Washington: The EC's concern to ensure it had established channels to feed into the PRSP process internationally is based on the fact that it has not got an official voice at Washington level as only states have a seat on IMF and World Bank boards. However, the EC has an office in Washington whose aim is to keep European representatives to the IMF and World Bank up to date on EC thinking on issues coming to the Board. Officials from the Washington office participate in the informal coordination meetings among EU representatives to the IMF and World Bank . Representatives at the IMF meet weekly, chaired by the country which holds the EU presidency. These meetings involve sharing of information on positions which member states are taking on agenda items. Where a common position on an issue has been taken at Brussels level, the meetings are used to remind representatives of the agreed position. Coordinating meetings among EU member states at the World Bank are less frequent - roughly fortnightly. The EC participates in the discussion but it is up to member states to decide the extent to which they will support the EC position.

It seems there is no agreement among EU member states about how much they should coordinate their interventions at the IMF and World Bank with some states particularly opposed to closer coordination (e.g. the Netherlands).

b) EC/IMF/World Bank Meetings in Brussels: Following the Commissioner's approach to the IMF and World Bank, annual meetings between the three institutions have been taking place starting in 2000. Discussions cover both implementation and policy issues and are an opportunity for the EC to air concerns e.g. re IMF restrictive macro frameworks, Poverty Reduction Support Credit (PRSC) conditions and how Poverty and Social Impact Assessments (PSIAs) are being carried out. They also provide the EC with an opportunity to press its 'results oriented' approach to budget support and examine how to improve IMF, World Bank and EC collaboration at field level. One of the major decisions which emerged from the 2001 meeting was that the EC should co finance the PRSC. This decision, however, was not followed through. (see section 6).

What have been the benefits of these annual meetings? There were no major achievements highlighted in response to this question. There has been some support from the World Bank for the EC position on agreeing joint indicators for monitoring; and some movement towards a common approach towards assessment of public finance management. It was suggested that the IMF was changing more quickly than the World Bank in reducing conditionality. A surprising point made by one official was that the IMF takes social sector indicators more seriously than the WB.

c) EC Preview of PRSPs: the IMF and World Bank agreed early on that the EC would have an opportunity to provide an assessment of PRSPs prior to these being presented to the IMF and World Bank boards for endorsement. The EC plan was to present its assessments to Governments and Member States as well as IMF and World Bank staff. There was also the possibility that these assessments would be made available to boards of the institutions when they were considering the PRSPs.

The EC assessment of a number of interim PRSPs appear on the EC website e.g. Chad, Benin, Kenya, Ethiopia. There is also an assessment of Uganda's full PRSP which was 'very favourable and endorses the appreciation expressed by the donors. However, some questions about the economic policy with regard to enhancing the productive sector and the fiscal/revenue policies, good management of public funds, costing and prioritisation of the programmes and projects and elaboration of realistic performance indicators, are being raised.' [4]

The following quote gives some insight into how the EC hoped to operate in the context of being given the opportunity to preview PRSPs. 'There is a clear intention that active participation in PRSP design, in which our particular interests are brought to bear, will enable assessments to be positive'[5]. It is difficult to interpret the exact meaning of this statement, particularly given the EC's recognition that 'there is a strong political dimension in the choices which are made by any government on this issue (i.e. poverty reduction)'[6] which suggests that programme design should be left primarily in the hands of the country.

However, the EC concluded that previewing PRSPs was not an effective way of inputting, partly because the EC hasn't got a seat on the IMF and World Bank boards and because of the lack of effective EU coordination at Washington level. The Commission's assessment was that it is more important to engage in the process in-country. This is where change can be effected. By the time the PRSP is drafted for the Boards, it is 'stitched up'.

3. Role of EC at country level

a) Formulation of PRSPs
The EC is keen to stress that the PRSP is a country document and that the Commission's role is largely one of commenting on drafts together with other donors. In the case of Ghana, where the EC judges the PRSP to be largely a home-grown document, the UNDP coordinated donors' (including IMF) comments on the PRSP. In the case of Zambia, eight working groups were set up to contribute towards the development of the PRSP involving government ministries, civil society groups and bilateral and multilateral donors. A representative of the EC delegation participated in the macro economic working group.

b) Supporting Civil Society
In Ethiopia the EC co-financed pool funding for a nation wide PRSP consultation but the EC did not give any specific support to CSOs in terms of their inputs into the PRSP in any of the countries covered. It is useful in this context to ask how CSOs have been involved in the operationalisation of the Cotonou agreement given that a leading element in this programme is the role of non state groups including civil society organisations. Eurostep worked with CSOs in a range of countries (e.g. Uganda, Tanzania, Benin, Cameroon) to examine civil society's participation in the implementation of the ACP-EU Cotonou agreement in their respective countries. These studies showed that while consultations with civil society did take place, these were seriously limited due to lack of preparation time for civil society groups, insufficient information, the involvement of a limited range of actors and the lack of an opportunity to contribute to any of the key documents.[7] It is interesting to note that these limitations are very similar to those that have been identified in the case of PRSP participation. This suggests that similar mistakes to those in the PRSP process have been made by the EC in promoting participation in the Country Strategy Paper process. (The theme of civil society involvement is taken up again in section 7 below on the Role of Parliament.)

4. Key issues for EC in the PRSP Process

A number of concerns with the PRSP process were expressed by officials:

• PRSP Review: the role of the review is not clear. Although it is required by the IMF/World Bank boards, it is not taken into account in funding decisions. EC wants to see a transparent PRSP review central to the process and with all stakeholders involved, including Parliament. The review should be based on a small number of indicators agreed with the government.

• Outcome indicators: This is a key issue for the EC which changed its approach to conditionality as a result of its pilot study in Burkina Faso during the late l990s (see Annexe) the EC is moving away from conditions based on policy to linking part of its aid flow to performance on agreed indicators.

  This has been a major focus of discussions with the IMF and World Bank. The EC believes that the emphasis for too long has been on policy inputs and not on results, based on an underlying assumption that 'we know the policies'. The EC is critical of the WB and many donors for not wanting to look at results as this is 'disturbing because you may see what you were saying wasn't true - you have to admit you were wrong and have to change the policy'. EC has produced a set of 10 indicators in consultation with Member States which will be used in all Country Strategy Papers (CSPs). Most Member States have been reluctant to adopt the EC framework although the WB has agreed to adopt these indicators together with a further 5 of its own indicators.
  
  

• What happens after HIPC? Given that adopting and implementing a PRSP was a condition to access resources, there will be less pressure on countries to prioritise PRSPs. According to the EC previous patterns between the IMF and World Bank and borrowing countries are re-emerging.
  
  
• The role of Parliament is unclear (see section 7)
  
  
• Harmonisation (see section 9)

5. Engaging with the IMF

'The macro-economic framework remains a central part of the Government's policy position but the failure in the past to set it firm in the context of poverty reduction needs to be addressed in the new PRSP context.' [8]

a) Greater Openness
The responses from country delegations about greater openness and sharing of information by the IMF following the introduction of the PRGF were generally positive. But progress may be from a previously very low level of cooperation. One delegation reported that until recently they were dependant on finding out the results of IMF reviews via the IMF's website. The IMF's only interaction with the delegation was to request information on the EC's projected disbursement as an input to the IMF programme. There appears to be moves now towards governments bringing together all budget support donors e.g. as observers during IMF missions and PRGF Reviews.

b) Flexibility in Programme Design
In its submission to the PRSP Review 2001, the EC called for a forum in which 'general directions about macro economic stability are translated into concrete fiscal and monetary targets'[9]. While recognising the IMF's expertise in this field, the EC argued that some elements e.g. the size of the primary fiscal deficit have 'a strong political element'[10]. The Commission proposed that the debates be widened to 'draw in enough informed participants, both external and internal, to reach the best possible balance'[11]. No evidence was found, however, in the course of the research that the EC is promoting this proposal either through its high level annual meetings with the IMF and World Bank or in country through delegations.

The EC questions whether IMF programmes allow enough room for expenditure to reach the Millennium Development Goals. This is one of the issues which has been on the agenda of the annual IMF/WB/EC meetings. While the IMF argues that the PRSPs are not based on realistic assumptions, the EC's response is that while PRSPs may be ambitious with respect to past experience they are not so ambitious in the context of reaching the MDGs. There was a feeling at the EC that the IMF is not giving donors a clear message that they could provide more support to low income countries. This was particularly highlighted in the case of Rwanda where there were serious disagreements between the government and IMF on the size of the fiscal deficit. The IMF dismissed the PSIA which made the case for higher expenditure.

A further EC complaint is that the IMF is directing any additional money towards investment rather than recurrent spending. The EC holds that recurrent spending needs to be increased particularly in the social sectors. Burkina Faso was cited as a case where the EC had wanted additional financing directed to recurrent expenditure whereas the IMF was pressing for these resources to be allocated into investment expenditure.

In conclusion, it appeared from responses that EC delegations do not see themselves as having the power to influence the IMF programme - should they want to do so.

c) PRGF as 'quality control' for budget support
The EC links disbursement of the basic tranche of its budget support to compliance with a PRGF programme. Additional monies are linked to progress on programme indicators agreed with the government. The EC argues it needs to have reassurance on some degree of macroeconomic stability so that 'we are not putting money into holes'.

There was a lack of clarity among respondents as to whether EC budget support disbursement is linked to compliance with a PRGF programme per se or just to the core macro elements within the programme. It appears that in theory at least, EC budget support should be linked to the core macro elements of the PRGF. Should a country be off track on a non core macro issue such as privatisation, that should not hinder an EC disbursement [12]. It wasn't, however, possible to identify an example where this had actually happened as none of the examples given of EC suspension of its programme fitted the above scenario. The EC, for example, suspended budget support to Ghana when there was no PRGF programme in place and suspended support to Guyana when 'structural and financial conditions' were not met. There was a suggestion that the EC might have implemented this split approach to the PRGF in the case of Zambia where there was a dispute between the government and the Fund over the privatisation of the state owned electricity company. However other problems arose over increases in the public sector wage bill.

Although the EC makes specific criticism of IMF programmes, officials appeared to feel that they couldn't challenge IMF policies in a systematic way. However, one respondent highlighted the need to break the IMF veto on countries fiscal policies - arguing that if the EC doesn't agree with the IMF's position, the Commission should disburse its budget support regardless. But other than the proposal for a wider forum to examine fiscal and monetary policy, there seems, overall, to be little appetite for close engagement with the IMF on its policies. Neither is there much enthusiasm for exploring alternative macro economic approaches. The EC appears to accept that the IMF has a monopoly on know how in relation to macro economic policy making. However, it was acknowledged by some respondents that the EC could provide support to independent researchers and finance expertise through budget support in order to foster the development of alternative policies.

6. Engaging with the World Bank

EC was initially very positive about the development of the Poverty Reduction Support Credit seeing this as a more programmatic approach by the World Bank. However, the PRSC in practice is seen as showing significant continuity with past World Bank structural adjustment policies. PRSCs contain many actions which are not really based on the PRSP. When the PRSC policy matrix for Uganda (the first PRSC) was produced, the EC queried how this fitted with the 'democracy angle'. The matrix was huge with the PRSC maintaining multiple style conditionalities in the form of prior actions. A civil society study [13] which examined Uganda's PRSC went further than the EC in its criticism. This study found that PRSC policies (and the IMF's PRGF) conflict with the poverty reduction goals set out in Uganda's Poverty Eradication Action Plan.

In addition to continuing with its old style conditionality, the World Bank has introduced a new form of 'soft' conditionality - 'undertakings'. If these are not met the matrix may be amended with undertakings turned into up front conditionality in a future programme. No examples were given of where this had happened but it is still early days with the PRSC. The EC believes donors should not be micro managing the economy - their focus should be on outcomes, not on e.g. 'whether the government fills such and such a job'. In spite of these concerns, it is disappointing that together with other donors the EC accepted the PRSC as the operationalisation of Uganda's PEAP and coordinated their budget support programmes around the PRSC matrix.

EC officials also expressed concerns about the PRSCs which followed Uganda's. In the case of Burkina Faso the PRSC matrix was produced outside the PRSP process. In Ghana, the PRSC was seen as cutting across the cooperation between donors. The PRSC in Rwanda was 'loosely' related to the PRSP with the WB drawing up the matrix with 'less than convincing lip service' paid to how this ties in with the PRSP. The World Bank's Structural Adjustment Credit in Malawi contained very detailed actions not drawn from the PRSP and caused considerable unease among other donors.

Signs of change were highlighted, although one respondent made the point that this is probably less driven by the need for donors to link their programmes to the country's PRSP than by the growing pressure for greater donor harmonisation. There are signs in Ghana and Rwanda that the World Bank may get more involved in 'Multi Donor Budget Support' initiatives. In Ethiopia the World Bank refrained from producing a PRSC matrix leaving it to the government to produce a matrix based on the country's PRSP. According to the EC the Ethiopian government feels real ownership over its PRSP and stress that donors should only select indicators which are based on the Ethiopian document. The EC has in fact called for an annual policy matrix based on PRSPS which would make policy matrices such as the one contained in the Letter of Development Policy to the World Bank obsolete. [14]

The EC is also concerned about the level of PRSC lending arguing this was crowding out grant financing. In the case of Uganda, loans amount to $150 a year for 3 years. A further concern is that, in the immediate aftermath of receiving HIPC debt reduction, this level of borrowing will add to Uganda's debt burden. In future years, however, there may be a larger grant element in PRSC monies received by Uganda.

Proposal that EC should cofinance the PRSC

This was a major decision taken at the 2001 joint BWI/EC meetings. By the 2002 meeting no progress had been made. The World Bank acknowledged that the introduction of the PRSC had been slower that had been expected. The Bank was, therefore, continuing with its traditional adjustment loans but was clearly keen to access the EC's monies, offering the Commission the opportunity of 'being a cofinancing partner independent of the form of the loan'[15]. The prospect of the EC co financing the World Bank's controversial structural adjustment programmes is unlikely to have been popular e.g. with European civil society groups working on economic advocacy. In the event according to EC officials, the proposal to cofinance the PRSC has been shelved because of

• Reservations about the PRSC, in particular
  
  
  • number of 'soft' conditionalities which can turn into 'hard' conditionalities
    
  • continued focus on activities rather than outcomes
    
  • weak link between PRSC and PRSP
    
    
• The PRSC disbursement is in the form of loans while the EC gives grants. Therefore co financing wasn't possible.

This doesn't answer the question as to why the EC was considering cofinancing the PRSC in the first place. The loans/grants difference was known - and there are difficulties with the EC financing multilateral bodies other than e.g. UN Humanitarian programmes. The reason given by an EC official for considering the option was that by cofinancing, the EC would be well placed to influence the PRSC. NGOs working at European level suggested a different rationale - cofinancing the PRSC would have enabled the EC to disburse large sums of money fast - into the World Bank. This would ease the embarrassment caused by the large un-disbursed sums which still remain within the EC development programme.The transfer of Community resources to the World Bank which could reinforce the Bank's already dominant role as 'lead' donor[16], as provider of technical assistance and with a virtual monopoly on development analysis[17], would have raised enormous concerns. However, the fact this did not happen is welcomed and it is important that the EC maintains its critical approach to the PRSC given the strength of the evidence of continuity with past adjustment programmes.

7. Role of Parliament

While the discussion on participation within the PRSP to date has focussed almost exclusively on the role of civil society, the EC breaks ranks by stressing the key role of parliaments stating that these 'in the main have a democratic legitimacy which NGOs and other interest groups lack'.[18] One official interviewed made an interesting distinction between participation processes and accountability processes. According to him some donors are interested in participation and ownership while the EC emphasises domestic accountability - primarily through Parliament via the PRSP review cycle. While the EC is correct in stressing the need to strengthen the role of representative democracy within the PRSP process, there is also a need for participative democracy. More thinking is needed on how to support an approach that strengthens the role of both forms of democracy in relation to the PRSP. This issue should be a priority for the EC given that civil society participation is also a key element in the EU/ACP Cotonou agreement.

Has the EC taken any action to promote a more active role for Parliaments in the PRSP? The answer appears to be not very much other than stressing the importance of this point at international and country level. In Ethiopia however, the EC contributed Euro500,000 towards a UNDP capacity building project for Parliament called 'Sustained Good Governance for Ethiopia'. The aim is to increase Parliament's capacity to discuss, define and monitor government policies, central to which is the PRSP. In Ghana the EC has participated with other budget support donors in discussions with Parliament on the progress of Ghana's PRSP and on the principles of budget support.

While believing that Parliamentary ratification of PRSPS - similar to the practice in the case of national budgets - would give democratic legitimacy to these documents, the EC feels it is inappropriate for the Commission as a donor to state that government's must submit the PRSP to Parliament. There is also an unease at the Commission about donors appointing themselves as judges as to the effectiveness of Parliaments. Among the actions identified by respondents which donors could legitimately do were provide information and research support to MPS and their staff, finance seminars for parliamentarians and training for parliamentary staff. This should be done by multi-donor financing via budget support. A further idea was to facilitate exchanges between MPs of different countries.

8. Challenging IMF and World Bank Endorsement of PRSPs

'Unlike previous policy frameworks they (i.e. PRSPs) will not be documents negotiated with the Washington based institutions although their endorsement is important for international support'.[19] This statement sits right on the fundamental fault line in the PRSP process - that national development plans drawn up in a participative process still have to be approved by the IMF and World Bank. Although this statement appears to accept the role of the IMF and World Bank as final arbiters of the PRSPs, officials interviewed recognised the contradiction this practice represents. While there does not appear to be formal thinking underway at the EC on possible alternative models for validating the PRSP, when asked, respondents highlighted a number of practices/procedural changes which they felt would shift the balance back in favour of the country. Some of these proposals related to concerns already raised by respondents:

• PRSP Review: A clear central role for the PRSP review, carried out in an open transparent way involving all stakeholders would shift the focus of key decisions from Washington to the country. Essentially this would mean changing the Joint Staff Assessment to a Joint Partner Assessment. The Review should be based on a few key indicators agreed with the government.
  
  
• Results approach - this leaves it to the government to decide on how to achieve the results and would mean an end to policy conditionality. This is the approach the EC is promoting - and officials are critical of the resistance from other donors.
  
  
• Parliamentary approval of PRSP - in addition to rather than instead of IMF/World Bank approval.
  
  
• Consultative Group/Development Partners' Group approach - it was suggested that a conference be organised to discuss the final PRSP with all donors participating on an equal footing and making their pledges to support the PRSP. The role of CSO or Parliament was not elaborated in relation to this proposal by respondents.
  
  
• Delink PRSP from HIPC: this link was seen as compromising both content and timing of the PRSP given the pressure develop and implement PRSPs in order to meet HIPC conditions and timetable.

9. Donor Harmonisation

Donor harmonisation is seen by the EC as a way of reducing conditionality and transaction costs for governments with all donors working from a single agreed framework based on a country's PRSP. This involves the integration of the World Bank and IMF into these donor groups thus breaking open the closed relationship between the IMF, World Bank and government. Delegations were generally positive about progress on donor coordination and its benefits - with joint budgetary support mechanisms in place in e.g. Ghana and Burkina Faso. However, reservations were expressed about donor coordination in Tanzania and Mozambique which are not seen by the EC as fully focussed on PRSP priorities. A further point was that not all bilateral donors are equally committed to coordinating with others nor are all World Bank staff equally committed to the PRSP with some still preferring the old style conditionalities

The findings of a Special Programme for Africa (SPA) mission to three African countries to examine progress on simplifying and harmonising donor practices in support of the PRSP found little evidence for the above positive picture of donor harmonisation. As co chair of the SPA technical group, the EC took a lead role in this mission to Ethiopia, Rwanda and Senegal in autumn 2002. Among the findings were that : 'Progress towards simplifying and harmonising donor support for PRS has been generally disappointing. There is some early evidence of business continuing as usual and of the PRSP process being little more than additional conditionality'[20]

(2). Among the concerns highlighted are:
- number of donor conditions, undertakings, benchmarks, indicators, prior action have not decreased
- process of agreeing policy actions required by donors remains non-transparent and not based on country policy process

Specific examples given are:

Rwanda

• Lack of alignment between donors and Rwanda's PRSP - particularly noticeable in the case of the World Bank's Institutional Reform Credit and PRGF, both agreed after Rwanda's PRSP .
  
  
• Onerous conditions, activities, information requirements undermines ownership. PRGF identifies 13 structural conditionalities (with 6 sub conditions) and 49 core actions and reforms for 2002-2004. Bank's IRC has 19 conditions with 48 intermediate benchmarks to be monitored by 50 indicators.[21]

Tanzania/Uganda/Burkina Faso

• Number of donor conditions tended to increase rather than decrease (Tanzania/Uganda) with individual donors adding their specific conditions to whatever conditionality agreed among donors
  
  
• Process for agreeing policy actions required by donors is not transparent and not based on country's own policy making process (Burkina Faso/Tanzania and Uganda).[22]

Among the recommendations arising from the mission was that that donors should be held accountable for their policies, procedure and practices. They should be required to provide an independent review of progress made in their commitment to the PRSP which would be considered alongside government's review of its implementation of PRSP.

10. Trade/EC and PRSPs

Southern civil society groups have pointed out that a major weakness of PRSPs is that they are developed within a national context and do not take into account the likely impact of external factors such as unfair trading by rich countries[23]. Research by Christian Aid UK [24] found that trade was largely absent from PRSPs. A further finding was that where trade is covered, links between trade poverty reduction are not made. In spite of this World Bank and IMF continue to include conditionality on trade policy reform in their loan agreements.

Given that the EC has agreed to link its CSP programmes with the PRSP and that the Cotonou Agreement covers aid and trade, it is surprising that the EC is not playing a major role highlighting the need to link trade to poverty reduction within the PRSP. This issue was raised by DG Trade at the 2003 consultation between the IMF/WB and EC[25] under the catchall heading: 'Other issues related to the PRSP agenda'. Staff from DG Trade pointed out at that meeting that although trade is an important source of growth, it was largely absent from PRSPs. World Bank agreed that the work done at the Bank on trade and growth had not yet been fed into the PRSP process. It was agreed that a joint workshop on integration of trade work into PRSP should take place with the participation of IMF and World Bank, DG Trade and DG Development.

Given that the links between trade and poverty reduction are still hotly contested, and that trade is central to the Cotonou programme, why has the EC not taken a central role in examining this area rather than leaving the lead to the World Bank? The EC could, for example, play a central role in ensuring that poverty and social impact assessments are carried out assessing the impact of trade liberalisation on equality. It would be useful in fact to know whether the EC sees its trade and aid programme as separate elements in the Cotonou agreement or to what extent they see them as linked.

11. Conclusions

The EC is a major donor in the PRSP process. Instead, however, of being part of the formal decision making process, it is reliant on specially established fora for dialogue to get its views across. It could be argued that the best way for the EC to input would be in cooperation with Member States. But it is clear there is very little agreement between Member States on closer cooperation at the IMF and World Bank, or indeed in relation to development cooperation policy generally[26]. At country level, however, the EC has the same opportunities to engage with the PRSP and to challenge the IMF and World Bank if it so chooses as all other donors.

In spite of its anomalous role, the EC could be more effective in following up on the areas where it wishes to see change.

a) IMF programmes.

EC agrees with civil society north and south generally (and with some donors) that PRGF targets do not allow countries to maximise spending for poverty reduction. EC also highlights that these decisions are not simply technical questions but are highly political. This amounts to a strong case for breaking the IMF's monopoly on macro economic advice. Proposed action from the EC identified in this research are:

• A proposal for a wider multi-stakeholder forum in which to debate macro issues.
  
  
• Rejection of non core macro economic conditions as conditions for EC disbursement of budget support
  
  
• Provision of support to independent researchers in order to foster the development of alternative policies

If the EC is serious about the first proposal this needs to be elaborated upon[27]. One question would be how would such a forum differ from fora where the government brings together all budget support donors as observers during IMF missions to develop or review PRGFs. Another question is: would such a forum include civil society groups. The central question, however is: if the EC seriously disagrees with the IMF policy, is it prepared to disburse budget support without making compliance with these policies a condition? While it airs its criticism of the IMF programmes widely, the EC is a long way from this position. The lack of clarity as to whether it is just the core macro economic policies which are conditions for receiving EC budget support or the full PRGF programme suggests there is no clear EC strategy.

Given that the EC stresses the political nature of decisions on macro economic policy whereas the IMF's sees it as a matter of applying technical expertise to decide the 'correct policies'[28], the EC must be willing to delink its budget support from IMF conditions if these are deemed to prevent governments from maximising opportunities for poverty reduction. This is the sticking point for donors generally who believe the IMF's policies are too restrictive. The EC as a major donor could take a lead in breaking the IMF veto and enabling decisions on macro economic issues to be made within a democratic framework. The EC could also make a useful contribution by supporting independent work on macro economic policy and supporting capacity building for governments, parliaments and civil society.

b) Democratic control over PRSPs

Parliament Vs Civil Society OR Parliament and Civil Society

The EC's focus on Parliaments and its questioning of the relationship between representative and participatory democracy is useful. But the relationship between these two forms of democracy needs further exploration. Representative democracy operates within defined formal structures and on the face of it, can appear more legitimate than participatory democracy which operates as a more fluid process. But representative democracy has serious limitations. While universal adult suffrage is a very strong starting point, factors like finance and the media can have a strong influence on who gets elected and who gets into power.
As the EC is deeply involved in two processes which stress the role of participation of non state actors (PRSP and Cotonou), it is particularly well placed to contribute to an examination of how to ensure that national development planning takes place within the frameworks of both representative and participative democracy.

c) BWI Endorsement of PRSPs

Although there does not appear to be any formal thinking on alternative ways to validate the PRSP, a range of ideas were put by officials during the course of this research. The EC could usefully bring these ideas together, develop them further and present them publicly and promote debate on alternatives to the IMF/World Bank's right to endorse PRSPs. It is important that donor harmonisation doesn't dominate the discourse - this could lead to individual countries being faced with a 'donor cartel'[29] parallel to the creditor cartel they already face at the Paris Club. The issue isn't just greater efficiency in how PRSPs are developed and implemented but also that these strategies must be developed and implemented within a democratic framework which respects the rights of the people of the country adopting a PRSP.

Annexe

Burkina Faso: Pilot Study on Reformulating Conditionality 1997 - 2000 [30]

The major element of the study involved a new approach to conditionality, breaking it down into 3 stand alone areas

1. traditional macroeconomic policy including stabilisation
   
2. quality of public finance management
   
3. 'equitable growth', focussing on public spending on health, education and agriculture and private sector development.

Rationale for developing a new approach to conditionality was the recognition that the outcomes from structural adjustment programmes in Africa were not satisfactory, partly due to the way conditionalities were applied.[31]

• Low ownership of reform programmes e.g. the reason Burkina Faso was privatising a cotton company was because the World Bank had asked them to do so.
  
  
• Donor advice or conditionalities weren't necessarily correct and countries which did not follow 'correct policies' sometimes had more success than others
  
  
• No agreement on the best poverty reduction policies. This question cannot be reduced to a matter of technical competence. Rather, there is a strong political dimension to the choices which are made by governments on this issue

• Donors have to move from focussing on policies and measures to be implemented to agreement on goals and results to be achieved. However, the limitations to use of outcome indicators was acknowledged - especially in sectors like agriculture or the private sector development where results depend largely on external factors beyond government's control.

Concerns about the EC approach have been raised e.g. in an evaluation of Swiss Development Cooperation's engagement with the PRSP. The argument put [32] is that the Burkina Faso case shows the risk of a results orientated conditionality. If the indicators agreed are not able to adequately measure the agreed targets, 'there is no room for discussion or negotiation'

Glossary

Cotonou Agreement: between 80 African, Caribbean and Pacific countries (ACP)
and the EC covering aid and trade

CSP: Country Strategy Paper. Outlines the programme of support agreed between
an ACP Country and the EC

HIPC: Heavily Indebted Poor Countries Initiative. Provides some debt
reduction to countries classified as heavily indebted and poor. Countries must
fulfil a range of conditions before they become eligible for debt reduction.

PRSP: Poverty Reduction Strategy Paper. A condition to receive debt reduction under
HIPC is that indebted countries must draw up a PRSP with the participation
of civil society.

PRGF: Poverty Reduction and Growth Facility. This is the funding programme
through which the IMF supports countries' PRSPs

PRSC: Poverty Reduction Support Credit. This is a World Bank funding programme
through which support is provided to countries' PRSPs

PSIA: Poverty and Social Impact Assessments. These are assessments of the likely
poverty and social impacts of proposed policies which should be carried out
before the policy is implemented.

This document has been produced with the financial assistance of the EC. The views expressed herein are those of Debt and Development Coalition Ireland and can therefore in no way be taken to reflect the official opinion of the EC.

Part funded by the Development Education Unit of Development Cooperation Ireland

[1] This is based on interviews/questionnaires with respondents. No written policy was identified [Back]

[2] EU DG Development 'Note to Heads of Delegation, Heads of Unit and Desk Officers ; Poverty Reduction Strategy Papers: Guidance Notes Brussels 11.05.2000; B2(00)D/4371page 2 [Back]

[3] ibid [Back]

[4] 'Uganda - Poverty Reduction Strategy Paper' EC April May 2000 [Back]

[5] Note to Heads of Delegation page 5 [Back]

[6] SPA Task Team on Contractual Relationships and Selectivity 'Conditionality Reform: The Burkina Faso Pilot Case, Summary Report Brussels 12.11.2000 [Back]

[7] eurostep.org/pubs/position/acp-eu-cotonou [Back]

[8] EU DG Development 'Note to Heads of Delegation, Heads of Unit and Desk Officers ; Poverty Reduction Strategy Papers: Guidance Notes Brussels 11.05.2000; B2(00)D/4371 page 18 [Back]

[9] PRSP Review Key Issues EC 2001 para 5.8 page 13 [Back]

[10] ibid [Back]

[11] ibid [Back]

[12] This information is based on interviews/responses to questionnaires. No policy documents were identified [Back]

[13] Warren Nyamugasira, Rick Rowden 'Poverty Reduction Strategies and Coherency of Loan Conditions. Do the New World Bank and IMF loans support countries' poverty - reduction goals' the case of Uganda April 2002 [Back]

[14] PRSP Review Key Issues; EC 2001 para 5.4 page 12 [Back]

[15] 'World bank/IMF/European Commission Consultations on Support linked to Poverty Reduction Strategy Papers Brussels, Friday 17 May 2002 [Back]

[16] PRSP Review: Key issues EC 2001 para 6.5 page 14 [Back]

[17] for a critique of WB's dominant role in development analysis see Alex Wilks and Fabien Lefrancois 'Blinding with Science or Encouraging Debate? How World Bank Analysis Determined PRSP Policies' Bretton Woods Project, World Vision 2002 available on www.brettonwoodsproject.org [Back]

[18] Note to Heads of Delegation, Heads of Unit and Desk Officers: Subject: Pover5ty Reduction |Strategy Papers: Guidance Notes Brussels 11.05 2000 B2(00)D/4371 Page10 [Back]

[19] Note to Heads of Delegation, Poverty Reduction Strategy Papers: Guidance Notes B2(00)D/4371 11.5.2000 page 9 [Back]

[20] SPA Missions to Ethiopia, Rwanda and Senegal: Harmonisation of Support for Poverty Reduction Strategies, Synthesis Report (Missions took place Sept/Oct 2002) para 3.3 page2 [Back]

[21] SPA Mission to Rwanda October 2002 Harmonisation of Budget Support for Poverty Reduction Strategy Paper [Back]

[22] SPA Mission to Ethiopia: Sept 2002 (as above) [Back]

[23] Making PRSP work in a Globalised economy: The Tanzanian experience of implementing RPSP for the first two years: an NGO Perspective' Dec 2002, Christopher Mwakasege, Tanzania Social and Economic Trust. [Back]

[24] Too Hot to Handle: The absence of trade policy from PRSPs Paul Ladd, Christian Aid April 2003 [Back]

[25] World Bank/IMF/EC Consultations on Support linked to Poverty Reduction Strategy Papers, Brussels, Friday 25th April 2003 [Back]

[26] One respondent referred to EU development policy 'as a fiction'. [Back]

[27] The EC is not alone in taking this stance. There is increasing pressure both from civil society groups and from inside the organisation (e.g. IEO, PDR) on the IMF to open up the debate on macro economic policies and leave more policy space to the government [Back]

[28] One IMF official at a meeting with NGOs in Washington in l999 discussing the introduction of PRSPs (at which the author was present) stated that he believed there are natural laws in macro economics. [Back]

[29] 'Do as I say not as I do: A critique of G7 Proposals on Reforming the MDBs' Devesh Kapur, Dept of Government, Harvard University, April 2002 [Back]

[30] SPA Task Team on Contractual relationships and Selectivity: Conditionality reform: The Burkina Faso Pilot Case. Summary Report' Brussels 12.11.2000 [Back]

[31] 'Reformulating Conditionality in Economic reform Programmes in Sub-Saharan Africa: an Operational Approach' EC October l995 [Back]

[32] Independent Evaluation of SDC's Bilateral Engagement in the PRSP Process : Final Synthesis Report 1 June 03; Gerster Consulting www.gersterconulsting.ch, Development Initiatives www.devinit.org page 8 [Back]

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