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Response to Irish Government's 2003 Report on Participation in the
IMF and World Bank
Introduction
We welcome government's fifth annual report and the overview it gives
of key issues on the IMF and World Bank agenda during 2003. In particular
we welcome the description of Ireland's participation in the institutions
in section 3. The detailed section on debt is also very useful. However,
we find it strange that this section is tucked away in Appendix 8 rather
than included in the main body of the Report e.g. Section 2 on critical
issues. A major area of concern to NGOs and civil society groups monitoring
the IMF and World Bank is the PRSP. The Report deals in very general terms
with the PRSP/PRGF and this is disappointing. Further the Report makes
little comment on the World Bank's PRSC although previous Reports highlighted
government concerns about the PRSC1. It would be useful to know how the
government now views he PRSC.
Below we make comments on particular sections of the report. Because some
of the issues covered by the IMF also involve the World Bank, we include
our comments on the World Bank under Section 1.
Section 1
1. IMF Transparency Policy
We welcome the decision taken to publish the agenda of the Board meetings
the week before they occur, which was implemented in early 2004. We are
still concerned about the short time frame that this involves, as it limits
civil society groups' opportunities to make contact with Executive Directors'
offices on agenda items. We would encourage greater openness, for example
through the publication on the website of an indicative calendar for Board
discussions over a time period of 3 -4 months or longer.
2. PRSP/PRGF/PRSC
The Report highlights a number of priorities to strengthen the PRSP process
but these are set out in very general terms and do not address in any
detail the concerns about the PRSP which are being highlighted by civil
society groups north and south, by academics and parliamentarians and
by donors. Indeed, the report also fails to highlight progress against
Irish government concerns, notably the important issue of supporting the
development of national institutional processes for policy making. The
recently published review of the PRSP / PRGF by the Independent Evaluation
Office (IEO) of the IMF found that the IMF and World Bank do not focus
enough on the domestic policy processes and institutions. Indeed, the
PRS approach, widely seen as 'conditionality' for debt relief and ODA,
can hinder the development of domestic procedures for policy making. [1]
Further, the Report does not focus specifically on the role of the IMF and World Bank within the PRSP process. The IMF and World Bank play a different and more influential role from bilateral and regional donors e.g. they are the final arbiters of the PRSP, carry out the PRSP review etc. It is not appropriate, therefore, to treat them as if they were just members of the general donor group.
Among the areas which the Report highlights for action in relation to
PRSPs are:
(a) developing more realistic macro economic projections and
(b) assessing key poverty and social impacts of PRSP policies.
Two further areas are critical also:
(c) addressing the gatekeeper / signalling role of IMF for budget support
and debt reduction and
(d) ensuring PRGFs are consistent with the achievement of the MDGs.
a) Continuity in Macro Economic Policies
According to the government's 2001 Report, the most striking criticisms of the PRSPs made during the IMF and World Bank review conference were aimed at the macro framework and accompanied by calls for 'ex post assessments of previous failed macro economic models'[2] . In its own submission to the PRSP review, the government highlighted the need for 'better coordination between the PRSPs and PRGF to ensure that the conditionalities in the latter do not conflict with objectives in the former'.[3] Two years on from the Review the evidence from a broad spectrum of NGOs, donors and even the international financial institutions[4] shows that the content of the PRGF has predetermined the PRSP in very many cases. Therefore strict limits have been imposed on PRS country governments' ability to draw up and implement poverty reduction policies according to national priorities.
Recent reviews by civil society groups, academics and bilateral donors
conclude that most PRSPs contain similar policies to traditional structural
adjustment. According to Oxfam[5] which
supports civil society partners engaging in PRSP in 33 countries, 'most
PRSPs continue to reflect the structural adjustment emphasis on belt tightening
economic frameworks, liberalisation, privatisation and growth based on
one or two primary exports. There has been virtually no attempt to question
this tired and discredited uniform prescription or to build evidence based
country specific pro poor policies'. Frances Stewart and Michael Wang
[6] make the point that if programmes were
nationally controlled at least some PRSPs would contain different strategies
from past policies. They point out that a striking feature of nearly all
PRSPs is the consistency of their approaches to poverty reduction - giving
precedence to growth and stability. A general feature of the programmes
is that 'they do not consider alternative approaches to poverty reduction,
particularly those with an element of resource redistribution or that
are rights based.' [7]
A Nordic review of IMF and World Bank support to the PRSP in seven countries
found that 'the PRGF does not really show any difference compared to
the previous IMF instruments'.[8]
Recommendations:
Ireland should promote the following:
PRGF agreement processes should be opened up to broader stakeholder debate, involving line ministries, parliament, civil society and bilateral donors. Ireland should urge the IMF to show clearly in every PRGF who within the borrowing country was involved in the discussions, what alternative policies were discussed and why the proposed approach was chosen.
Where PRGFs fall due before a second round PRSP is finalised, the IMF should agree an interim arrangement with the government which does not predetermine policy conditions for the PRSP.
The IMF should publish staff reports on the PRGF as a matter of presumed publication.
Ex post assessments currently carried out internally on PRGFs should be carried out by the IEO, rather than by IMF staff and should be made public as a matter of presumed publication.
b) Poverty and Social Impact Assessments (PSIAs)
While the Government Report states that assessing key poverty and social
impacts is an important challenge, it does not give any information on
progress on PSIAs by the institutions or on their short term priorities
in this area. Evidence from civil society groups and bilateral monitoring
of PSIAs suggests that:
- Most World Bank policies are proceeding without any analysis of likely
impact on poor people - although there is a programme aiming to cover
over 40 countries (Oxfam). Concerns continue that the World Bank aim
is to clarify sequencing and implementation of already agreed reforms
rather than with a view to reshaping policies in the light of PSIA findings
.
- There is little evidence of any progress on PSIAs on IMF policies
(see above re Cameroon)
- While a commitment has been made by the IMF that PSIAs will be undertaken and 'priority given to analysing policies with a potentially significant short term social impact' the Nordic PRSP review found no evidence of impact assessments having been carried out. [9]
The recent IEO review of the PRGF and PRSP delivered a strong critique of the lack of progress in addressing PSIA in IMF programme design. Furthermore, it found that the oft-repeated obstacles to carrying out PSIAs on macro-economic policy in environments with poor data collection and serious capacity constraints should not be overstated. In the light of this finding, we welcome the recent establishment of a PSIA unit in the IMF's Policy Development and Review Department.
Recommendation
- Next year's Report should outline actual progress on PSIAs by the
IMF and World Bank and the action Ireland has pressed for during 2004
on PSIAs.
- Ireland should advocate at the Board of the IMF for the new PSIA unit to take up issues in, or pertinent to, DCI's programme countries - for example the impact of limits on fiscal deficits in Zambia on the public sector's delivery of education services.
c) IMF as gatekeeper for budget support and debt reduction
The impact of IMF programmes is reinforced by donors which link their
budget support to compliance with an IMF programmes and also the fact
that a country must be on track with the IMF in order to receive debt
reduction. For example Zambia has lost budget support and its debt reduction
has been held up because of being off track with the IMF. The IMF itself
has expressed unease at the fact that it operates as central gatekeeper
for donors generally[10], pointing to the
pressure on it to continue providing financial support so that development
assistance from others will continue. There is some evidence of a slight
shift among donors in relation to the IMF's gatekeeper role e.g. Commissioner
Nielson has indicated that if the EC should hold a position different
from the IMF's, 'it may decide to disburse its budget support, despite
the fact that the PRGF review may not be conclusive or that the country
in other words goes off track'. [11]
Ireland took an important initiative in early 2004 in proposing a structure whereby countries in need of a signal of sound economic management but who do not wish to take an expensive and conditionality-laden PRGF loan, would be afforded a facility for enhanced surveillance by the IMF. This evidence of a proactive stance is among the kind of information we would wish to see the Government's Annual Report provide.
Recommendation:
Ireland should
- Continue to promote discussion on an alternative structure to the
IMF's gatekeeper role in mobilising donor support and in providing debt
reduction.
- review its policy as a donor on linking its budget support to compliance
with an IMF programme.
- Press for the delinking of debt reduction from the PRGF.
d) Millennium Development Goals
Together with other bilateral and multilateral institutions the IMF has
committed itself to supporting achievement of the MDGs. Research by Eurodad,however,
showed that the IMF was not enabling the maximisation of poverty reduction
spending[12]. This report also pointed
out that the IMF is placing tighter restrictions on the poorest countries
than those placed by the Maastricht criteria. In addition, while rich
European countries can breach EU deficit rules without sanction as happened
recently with France and Germany, non compliance with an IMF programme
brings serious penalties which affect a countries ability to progress
towards the MDGs e.g. Zambia (see above).
The IMF is still targeting very low inflation - according to Oxfam setting targets below 5% in 16 out of 20 countries without any discussion of the trade off between this and poverty reduction. The Oxfam report highlights the case of Cameroon where a fiscal surplus is targeted within the PRGF. There is no explanation as to why a surplus was chosen above greater spending to meet the MDGs e.g. without extra health spending Cameroon is likely to miss the MDG target on infant mortality[13]. PRGF conditionality is clearly in conflict not only with national policy in many cases but internationally agreed targets for poverty reduction.
The IMF, in its adoption of the PRGF approach, committed itself to signalling resource needs to other donors in order to reduce poverty and promote growth. There has been little transparent evidence of the IMF playing this role to date. While the IMF does not have the competence or mandate to cost poverty reduction initiatives it should work with other UN specialised agencies, the World Bank and civil society organisations to help outline alternative policy options.
Recommendations:
PRGF programmes should clearly demonstrate how they will contribute
to achievement of the MDGs and PRGF reviews should include an annual analysis
and review of policy appropriateness given changing political, social
and economic conditions in the country.
The IMF should work with the World Bank, UN and civil society actors to cost the resource gap for each country in meeting the MDGs. This analysis should be presented as a signal to donors on what is needed if the financing gap is to be closed and the MDGs reached. These figures should be presented in Article IV review, PRGF reviews, Joint Staff Assessments for PRSP countries.
3. Conditionality
The introduction of the PRSP has heightened the conflict between ownership
and conditionality. New conditionality guidelines introduced in 2002 are
due to be reviewed by IMF board this year. The Government's Report (page
5) states that the IMF is trying to sharpen its conditionality and clarify
its purpose. Evidence to date collected by civil society groups[14]
who have long closely monitored the imposition of conditionality is that
while there has been a noticeable reduction in IMF structural conditions
(25%):
- Over all conditionality may not have decreased as IMF now includes
governance conditions
- The streamlining exercise did not look at the appropriateness of IMF's
core macro economic conditionality
- The World Bank is taking up many of the structural conditions dropped
by the IMF. A Eurodad paper [15] looking
at streamlining of conditionality in 3 countries found that while the
IMF had eased off on privatisation conditions, the World Bank was 'pursuing
privatisation aggressively' in Nicaragua, Zambia and Tanzania. Overall
there was very little net change.
- Cross conditionality operates between the IMF and World Bank. Before making a loan the Board of the IMF will examine whether the country is complying with its World Bank programme; the World Bank board does likewise. This could decrease the scope for countries to develop alternative approaches/policies. A major concern arises because the World Bank appears to be increasing its conditionality, in particular the use of prior actions which is a high pressure form of conditionality. Civil society groups and donors have expressed concern at the level of conditionality in Uganda's first PRSC . [16]
The recent IEO report found that it was not possible to tell what changes
had occurred in aggregate IMF/World Bank conditionality as a result of
the conditionality streamlining programme being undertaken by the IMF
and World Bank.
An underlying question on the IMF's approach to conditionality is: what
does the IMF mean by ownership? Is it leaving the space for the country
to elaborate its own policies or is it to get the country to own IMF policies.
The following quote suggests that the latter is the correct answer:
'Ownership does not require that an IMF-supported programme be a government's
first choice, nor that it be the programme that officials would have preferred
in the absence of IMF involvement…As a general proposition, what
is essential is that the responsible and controlling officials be committed
and that opposition can be overcome'. [17]
This is one of the faultlines running through the PRSP process and is
increasing civil society groups' concerns that their participation in
the PRSP may end up legitimising policies of which they are critical e.g.
structural adjustment policies, without the opportunity to endeavour to
influence these policies during the development of the PRSP.
Recommendation:
Ireland should raise questions of the overall level, quality and impact
of conditionality being imposed by both IMF and World Bank and press for
a more in-depth examination of IMF conditionality which includes issues
of quality and appropriateness when the review is discussed at the executive
board.
4. Participation
The Government Report states that popular and parliamentary participation
in the PRSP is increasing and that a wider range of government ministries
now take part. Out in the field the perception is not so rosy. Oxfam found
that it is rare for parliaments to be involved - the process continues
to be dominated by finance ministries. A study by GTZ on the involvement
in PRSP by Sub Saharan African parliaments also found that participation
was the exception rather than the rule [18].
In terms of civil society participation, a report by ActionAid
[19] acknowledges that the PRSP process has been beneficial
to civil society in many countries but also highlights the limitations
of participation. In particular the report documents how civil society
has been prevented from debating structural adjustment in the public consultations
for PRSPs. The report concludes 'If the structural adjustment policies
and possible alternatives can not be discussed or debated in government-led
PRSP consultations, then civil society groups should consider whether
participation in other civil society -led public formats might be a more
useful strategy for advocating alternative development policies'.[20]
The Report makes the valid point that participative processes must not undermine democratic institutions. But it must be asked : what is the biggest threat to the sovereignty of countries implementing PRSPs - their own civil societies or the IMF and World Bank which act as final arbiters of countries' PRSPs coupled with their control of the PRSP review process.
Recommendation:
Ireland should press for the IMF and World Bank to recognise the need
for participation in all PRSP policy areas, including in debates on PRGF
and PRSC policy content, and declare their commitment to being part of
such a process. Clearly the borrowing government is also a major player
in enabling this to happen.
5. SDRM/fair and independent decision making on debt
It is useful that the Report clarifies Ireland's position on the IMF's
SDRM - in favour together with other EU countries. Together with other
debt groups across the globe, the Coalition has been calling for a fair
and independent process to deal with debt. To allow creditors to control
decision-making is clearly a serious breach of global good governance.
We understand that there is some unease within the government also at
the lack of incentive for responsible lending and borrowing to which this
gives rise. While the inclusion of Collective Action Clauses within bond
contracts may help to order relations between private creditors and a
country in financial crisis, this approach does not deal with bilateral
or multilateral debt - and these are the main creditors dealing with low
income countries - nor does it allow for the wider interests of the debtor
country to be factored into the debt resolution process. The need for
fair and independent decision making on debt is not met by the use of
CACs.
Recommendation:
Ireland should highlight the need for independence in debt decision
making during e.g. discussions on long term debt sustainability, (see
below in section on Debt).
6. Voice /Vote
In its first report annual report covering 1999, the government stated
that 'Ireland is anxious to see that developing countries are given adequate
influence in the decision making processes of both the IMF and World Bank'
[21]. The issue of a greater voice for developing countries
and a more equitable share of votes has become more pressing since then.
The Monterrey conference called specifically for the IMF and World Bank
to give a greater voice in decision making to developing countries. The
G24 which has been lobbying on this issue have expressed their strong
disappointment on the lack of progress. However, the Government's Report
gives no indication of where Ireland now stands on vote/voice or on its
input into the current debates, merely stating that there is not yet enough
support at board level to increase or change the distribution of quotas.
Recommendation:
Ireland should clarify its short term and long terms goals in terms
of equitable power sharing at the IMF and World Bank.
Section 3: Ireland's Participation in the Institutions
This year's Report contains a more detailed overview than usual of how
the constituency works and of the activities and priorities of Ireland's
representatives to these bodies. This is a useful development.
a) 'Economic surveillance'
It was encouraging to see that the Irish representatives are following
several countries with PRGF programmes in order to contribute to improving
the effectiveness of HIPC. We look forward to reading about the outcomes
of this work in next year's report. With respect to each PRGF country
it would be most useful to see an outline of: the key issues facing the
country's government; the policy options discussed with IMF staff; the
impact of the alternatives options; the level and quality of participation
in debate on policy content of the PRGF-supported programme; Ireland's
position o those alternatives; and the rationale for final staff / Board
decisions on PRGF-supported programmes.
b) Consultation
We very much welcome opportunities to maintain close contact with the
staff of the Department of Finance and Development Cooperation Ireland.
Indeed, we hope that we can increase the level of engagement now that
the EU Presidency is over and staff are not as overburdened with Community
work as in the past year.
We are encouraged by regular email contact with the Senior Advisor at the World Bank and the IMF Alternate and hope that this dialogue can become more substantive over the coming year, particularly regarding the Irish / Canadian stance on items of Board business. The visits by the Canadian ED to the IMF together with the Irish alternate for Ireland's Article 1V Review have also provided a useful forum. These have enabled exchanges between the ED and Alternate and representatives of a wide range of civil society organisations in Ireland concerned at IMF policies. We note that the Canadian Executive Director to the World Bank no longer makes public visits Ireland as was in the practice in earlier years. Finally, we very much appreciated the positive role played by the Irish senior adviser at the World Bank in facilitating the first formal joint meeting between European civil society groups and European government representatives to the World Bank at the April meetings in Washington.
c) Development Cooperation Ireland the World Bank / IMF
We welcome and are encouraged to note the statement on the increased involvement of Irish Embassies in issues of debt reduction and the local impact of IMF and World Bank activities.
Debt and Development Coalition Ireland member agencies are of the clear view that building national institutions and processes for policy making is key. Several members are therefore actively working on programmes (often with DCI support) for civil society capacity building on economic advocacy. We welcome the increased tendency to systematically integrate assessment of IMF and World Bank policy into bilateral programme planning and the engagement by DCI staff with the Bank and Fund at country level. We encourage DCI to further develop this approach, in cooperation with Irish and national NGOs.
Debt:
There is a fairly full outline of the government's policy on debt, including
public contributions made by Ministers McCreevy and Kitt and the Taoiseach
to the IMF and World Bank over the year. The strong statements on Ireland's
position on debt in this section are welcomed - including the support
for total debt cancellation. This section also highlights Ireland's call
for a revision of debt sustainability criteria to 'pay more attention
to debt/revenue ratio' as this takes into account resources for poverty
reduction. The 2002 Irish Debt Policy goes further, stating that the affordability
of debt service should be assessed in the light of the aim of meeting
the MDGs. Is Ireland pressing - as a fall back to its 100% cancellation
position - for the resources needed to meet the MDGs to be given first
call on resources during debt sustainability analyses in addition to revising
debt sustainability criteria to factor in the impact of HIV/Aids on economies
of heavily indebted countries? This is clearly important given the World
Bank's recent Global Monitoring Report on the MDGs which found that on
current trends most MDGs will not be met by most countries.[22]
While supporting 100% debt cancellation, the government argues that this would have to be funded through additional donor funds. In 2003 Debt and Development Coalition produced a report 'Can the World Bank and IMF cancel 100% of poor country debt?[23]' which concluded that both bodies had sufficient resources to do this without endangering their financial viability. We would urge the government to press the IMF and World Bank to look to their own resources for debt cancellation.
In the context of current discussions on a new Debt Sustainability Framework for low income countries, Ireland should support a move towards a more independent institutional arrangement to assess debt sustainability, rather than one based primarily on the subjective judgement of IMF and World Bank staff alone on economic trends and on governance issues, as measured under the CPIA. This arrangement should ensure that debt sustainability assessments give priority to a countries' financing needs to reach the MDGs.
While we welcome the strong statements made on debt by the Minister for Finance at the Dubai meetings, we notice that he again failed to mention that the Irish government's position was in favour of 100% cancellation of HIPC debt, including multilateral debt.
Although the Government Report gives a complete picture of the public contributions on debt made by the Irish government - and this is useful - missing is information on how Ireland is promoting debt cancellation at IMF and World Bank board meetings as there are no published records of these meetings.
In addition to finding it strange that the debt section is included in an Appendix as mentioned above, we are also surprised that this section is attributed solely to Development Cooperation Ireland. Given that it is the Dept. of Finance which has the lead in relation to Ireland's participation in the IMF and World Bank, it is not clear why DCI are the sole authors of this section. Our understanding is that the Irish 2002 Debt policy is a joint policy of Dept. of Finance and DCI.
Recommendation: Ireland should
Publish positions taken by Ireland and the constituency at board meetings
on debt.
Press the IMF and World Bank to look to their own resources for
debt cancellation for the poorest countries
Debt and Development Coalition Ireland
July 2004
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[1] IEO Evaluation Report on PRSP and PRGF, June 2004.
[2] Annual Report Ireland's Participation in the World Bank and the IMF 2001 page 28
[3] ibid page 30
[4] For example: CIDSE / C: (2003), 'PRSP: are the World Bank and IMF delivering on promises?' Nordic Government (March 2003), Review of Nordic monitoring of the World Bank and IMF support to the PRSP process'; IEO (June 2004), 'Evaluation Report on PRSPs and PRGF'.
[5] Oxfam International 'From Donorship to Ownership? Moving Towards PRSP Round Two' Briefing paper 51 2004 page 2
[6] Do PRSPs Empower Poor Countries and Disempower the World Bank, or is it the other way round? Working Paper Number 108 Queen Elizabeth House, University of Oxford May 2003 page 19
[7] ibid
[8] Review of Nordic Monitoring of the World Bank and IMF support to the PRSP process' Mar 2003 pvi
[9] Review of Nordic monitoring of the World Bank and IMF support to the PRSP process' Mar 2003 p23
[10] IMF 'Role of the IMF in Low Income Country Members over the Medium Term' July 2003 p21
[11] Commissioner Nielson responding to Oral Question Rule 43, from Patricia McKenna 20 April 2004
[12] Eurodad 'Is PRGF Maximising Finance for Poverty Reduction' May 2003 www.eurodad.org
[13] Oxfam page 17
[14] e.g. World Vision 'One Step forward two Steps back: Ownership, PRSPs and IFI Conditionality' 2004
ActionAid 'Money Talks: How aid conditions continue to drive utility privatisation in poor countries' 2004
[15] Eurodad: 'Streamlining of Structural Conditionality - What has Happened' April 2003
[16] Debt and Development Coalition Ireland (2004) 'How does the European Commission Engage with the Poverty Reduction Process'
[17] Boughton JM ("003) 'Who's in Charge? Ownership and Conditionality in IMF Supported Programmes' IMF Working Paper WP/03/191 (quoted in ActionAid International 2004)
[18] GTZ 'Parliaments in Sub Saharan Africa: actors in poverty reduction?' December 2003
[19] ActionAid Uganda/USA 'Rethinking Participation: Questions for Civil Society about the Limits of Participation in PRSPs' April 2004
[20] ibid page 2
[21] Dept. of Finance '1st Annual Report of Ireland's Participation in the World Bank and the IMF' p11
[22] Development Committee 'Global Monitoring Report 2004: Policies and Actions for Achieving the MDGs and Related Outcomes' April 16 2004
[23] Sony Kapoor 'Can the World Bank and IMF Cancel 100% of poor country debts' Debt and Development Coalition Ireland Sept 2003 www.debtireland.org
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