TWN Info Service on Finance and Development (Dec06/02)
taking policy loans from the International Monetary Fund and the World
Bank still have privatization and liberalization conditionalities attached
to their loans, while the two institutions also make use of other methods
to push their policies onto developing countries. These views emerged
at a Conference on Conditionality organized here on 28 November by the
Norwegian Foreign Ministry in
The origins of the conference lie in the political platform formulated by the Norwegian coalition government which in its Soria Moria Declaration stated that “Norwegian aid should not support programmes that are made conditional on liberalization and privatization.” The conference saw a lively debate, including between policymakers, NGOs, researchers and agency representatives, on the content and process of conditionality in Bank and Fund loans.
Below is a report on the conference.
It was published in SUNS #6152, Thursday 30 November 2006.
With best wishes
Oslo Conference Finds World Bank, IMF Still Pushing Conditions
By Martin Khor,
Developing countries taking policy loans from the International Monetary Fund and the World Bank still have privatization and liberalization conditionalities attached to their loans, while the two institutions also make use of other methods to push their policies onto developing countries.
These views emerged at a Conference on Conditionality organized here on 28 November by the Norwegian Foreign Ministry. About 100 participants included government officials of several European countries as well as NGOs and academics from developed and developing countries.
The conference saw a lively debate, including between policymakers, NGOs, researchers and agency representatives. The World Bank and IMF were scheduled to speak, but only the Bank’s Vice President for Operations came and actively participated. The invited IMF official did not come (he was reported ill) nor was a substitute sent, although a IMF paper was distributed.
The origins of the conference lie in the political platform formulated by the Norwegian coalition government which in its Soria Moria Declaration stated that “Norwegian aid should not support programmes that are made conditional on liberalization and privatization.”
Opening the conference,
“Our government came to office on a programme that there should be no conditionality forcing loan recipients on liberalization and privitisation,” he said. The choice of such policies should belong to the countries.
“Some want to nationalise, some want to privatize. Such policies are up to the countries and should not be made by donors or creditors,” he said. For developed countries, that had established the basis for both growth and democracy, there had been no set pattern, as there had been varying degrees of emphasis among them on the private sector or the public sector.
Explaining the reason for
the conference, Solheim said
“Imposing development from outside does not work,” he said. “Countries must formulate their own policies and donors should move away from the old neo-liberal approach.” The best policies come from public debate, which donors should not prevent. As aid comes from taxes, citizens can hold the government accountable that the funds are not misused and thus, “if we get our approach right on conditionality.”
Thomas said the new
Improving Fund and Bank conditionality is important, and “we will also press the regional development banks to review their conditionality,” said Thomas. “The days have moved from where the IMF and World Bank tell countries what to do.”
Christian Aid policy head Charles Abugre said the key issue is a contest over policy and whether it is acceptable for the Fund and Bank to have unfair leverage on developing counties’ policies or whether the countries have the right to decide policies for themselves.
The Fund and Bank “have got it wrong on their growth formula, on trade liberalization, on privatization... Given the shifting knowledge on these areas, the real contestation is whether they should have such influence on policy.”
Abugre said that World Bank
President Paul Wolfowitz at a recent meeting with NGOs in the
Another major problem is the erosion of policy space for developing counties due to conditionality, said Abugre. Although the Bank and Fund have tried to reformulate their policies, the content remains the same and they retain overwhelming power. For example, the number of conditions are said to be reduced, but in fact many of them have simply been re-grouped into fewer “mega conditions”, and instead of calling them conditions, some of these are now re-born as “benchmarks.”
Abugre said that conditionalities
can be defined as “the use of the threat of reprisal to get governments
to act”, and these continue, sometimes in new forms, and have even expanded.
For example, the Bank and Fund have moved to get countries to adopt
liberalization of services, government procurement and investment -
Abugre remarked that these
new forms of conditionality were not reflected in the review reports
of the Fund and Bank, nor in the study on conditionality commissioned
Abugre added that “harmonization” of donor policies, which had been stressed by the Bank, may present opportunities (for more predictability and provide a platform for negotiations) but also the danger of establishing a creditor cartel. “The cartelisation is at national and regional levels but there is no counterpart cartel of African debtor countries.”
He also proposed a key role for the United Nations in coordination between donors and recipient countries. Unlike the Bank and Fund, the UN is not a creditor and thus there is no conflict of interest situation (as when the Bank and Fund coordinate the framework).
“UN coordination at country level helps but there should be a shift of resources to the UN also, so there is competition too in ideas.”
The World Bank’s Vice President and Head of Network Operations Policy, James Adams, said a review of the Bank’s conditionality, requested by the Development Committee, had been published and its findings and “good practice principles” (GPP) had been endorsed by the Committee in September 2005.
These principles comprised (1) ownership (reinforcing country ownership); (2) harmonization (agreeing up-front with the government and other financial partners on a coordinated accountability framework); (3) customization (of the accountability framework to reflect the country’s circumstances); (4) criticality (to choose only actions critical to achieve results as conditions for disbursement); and (4) transparency and predictability.
Adams said that the Bank in November 2006 published a progress report involving 19 of the Bank’s operations (63% from IDA-only countries). He provided figures showing that the number of conditionalities had been declining in recent years, and also that there was a shift in conditionalities away from themes like economic management towards public sector governance issues.
“We agree the Bank should reduce the number of conditions,” he said, as the growth of conditions in the 1980s and 1990s were found to be “inappropriate, not an effective way to respond to crises” and there should be focus on critical areas instead. He also denied that the “benchmarks” introduced were not an underground way to put in conditions as these are not conditionalities.
On trade reform, the Bank
worked with the WTO, said
Benedicte Bull, lead author of a report on Bank and Fund conditionality to encourage privatization and liberalization (commissioned by the Norwegian government), said that the Bank and Fund had claimed that they had reduced the number of conditionalities but that the NGOs in their studies had found instead that there was a rise in the number of conditionalities. This disagreement was partly due to different definitions of conditionalities.
Bull said that their study included a review of 40 PRGF (poverty reduction and growth facility) programmes of the IMF signed between 2002 and 2006. There was privatization conditionality in 23 of the programmes, plus detailed description of privatization policies in another 10 “Letters of intent.” Liberalisation conditionality was also found in 11 of the 40 programmes.
A review on trade policy carried out under the study found that the Bank and Fund still advocate trade liberalization, with the Bank focusing on “behind the border” measures, while the IMF states that trade liberalization is part of its mandate and was found to be more “orthodox” in policy recommendations.
Four case studies carried
The study also found that priorities set out in national development plans were reflected in the IMF-World Bank programmes. However, Parliament seems to play a marginal role in economic policies, and the use of external consultants reduces customization to local circumstances and impede ownership, said Bull.
She added that the case studies noted changes in Bank and Fund practices (with greater openness, flexibility and donor harmonization), but donor harmonization also means that the donors can “gang up” against the government. The local Bank and Fund representatives also show little knowledge of the World Bank’s good practice principles.
Gerald Ssendaula, former
Finance Minister of
“You are seen as letting your country down if you contradict the World Bank and IMF. This is psychological conditionality.”
There were many statements from the floor, especially from NGOs in both North and South, giving views and examples on how the Bank and Fund were maintaining and even expanding their policy influence in liberalization and privatization.
It was pointed out that the World Bank had recently issued a paper attacking the WTO proposals on special products (SPs) and special safeguard mechanism (SSM) that developing countries through the Group of 33 had put forward in an attempt to ensure that liberalization measures in the Doha Round do not adversely affect small farmers and food security.
Even after the G33 had formally complained about this to the Bank’s President, the Bank had made a formal statement in the WTO alleging that the SPs and SSM proposals would adversely affect the poor.
Several other examples were also brought forward on how the IMF and World Bank had used their power to influence developing countries’ trade and investment liberalization positions and policies.
For example, the Bank and
Fund had held a workshop in
It was also pointed out that
A representative of IBON (a Filipino NGO) said the claim that there had been a reduction of conditionalities was based on an illusion, as there had been only a change in tactic. He stressed that the Bank and Fund were “merely clustering important conditionalities into a mega conditionality and then they claim that the conditions have been reduced.”
A delegate from the Jubilee
Zambia group challenged the claim of increased country ownership of
IMF-World Bank policies. “When a Minister of Finance and his officials
walk into the room with the IMF delegation which has come with a document
A representative from an
An economics professor from
He had been examining Bank
and Fund documents for 3 decades in
He added that the Bank and Fund had built a support base in the country, and institutions had been restructured in a way that there are beneficiaries among the elite who speak on behalf of the Fund and Bank.
The Africa Network on Debt and Development said all conditionality is not acceptable as it is used as a tool of control with adverse effects to recipient countries.
A German development bank
official said that lessons could be obtained from the EU’s relation
with its new member states. He posed the question why conditionality
is a success story in this case, but not in
Eurodad’s representative stressed that the “do no harm” principle should be adopted, and that the Bank, Fund and donors should not experiment with people’s lives. “Stop giving policy advice that we are not certain about and that are very controversial”, she said. She added that a major factor for the successful integration of new EU members, such as Spain (when it joined in 1986) had been the massive transfer of financial resources to these countries based on the principle of wealth redistribution and of rights, rather than the aid or charity with conditions that the developing countries are getting.
Actionaid International said the World Bank’s definition of ownership was very limited, as it considers that something is owned if the government’s policy document mentions it. This raises the question of how did this “commitment” develop, as often it is the result of engagement with the Bank.
There is also the problem of the power of the Bank and Fund in these negotiations, especially the “signaling power” that they have in that other donors and the markets look to the views of the Bank and Fund in making their own decisions.
In concluding remarks at the end of the Conference, Atle Leikvoll, a senior official at the Norwegian Foreign Ministry, said the meeting did not come up with a consensus on conditionality, and thus the debate had not ended.
He concluded that there were different roads forward for the different stakeholders. The researchers would have to continue their work, as “we will continue to need research.”
On the role of civil society, he said this was vital as there would be a missing element unless there is “strong CSO engagement.”
As for like-minded developed
countries such as