Africa: World Bank study says aid cannot buy economic reforms

by Gumisai Mutume

Washington, 27 Mar 2001 (IPS) -- Aid cannot buy economic reforms, the World Bank concedes in a new study on Africa, which shows that imposing conditions to force developing countries to adopt unpopular reforms has, in many cases, been ineffective.

The report: ‘Aid and Reform in Africa: Lessons from 10 Case Studies’, released Tuesday, reflects a growing realisation, at least rhetorically, within the Bretton Woods institution, that decades of ever-increasing and more complex loan conditions have not borne the intended results.

“The report shows that aid cannot buy reform in poor countries that are flatly opposed to it,” says Shanta Devarajan, chief economist of the Bank’s Human Development Network who edited the study. “Without ‘country-ownership’ of a national development strategy, even the most generous and well-intentioned aid packages will have little or no impact in improving the quality of people’s lives.”

The World Bank’s report has come even as an Independent Expert, Mr.  Fantu Cheru, has given a report to the UN Human Rights Commission (now in session in Geneva) highly critical of the IMF/World Bank ‘economic reform’ policies and agendas and their Poverty Reduction Strategy Papers, and has called for an end to the exclusive role given to the IMF and the World Bank as “overseers of poverty reduction programmes”.

The Bank study, which examined how development aid has influenced economic policy in Africa, looked at Cote d’Ivoire, the Democratic Republic of Congo, Ethiopia, Ghana, Kenya, Mali, Nigeria, Tanzania, Uganda, and Zambia. It provides additional ammunition to those calling for a revamp of World Bank and International Monetary Fund (IMF) lending practices.

Kenya received massive amounts of aid in return for policy reforms - $3 billion between 1976 and 1996, but many of its reform programmes were hatched at a time when the government was desperately in need of financial support. It quickly agreed to far-reaching reforms but these were subsequently not implemented.

“Sometimes, the probability of successful implementation was low from the outset,” notes the report, in an indictment of one of the cornerstones of IMF and Bank lending conditionalities. “Other times, the lenders or donors may have aligned themselves with well intentioned technocrats ... who lacked the political support to do so.”

To give a semblance of country ownership to their economic reforms, the Bretton Woods institutions came out with Poverty Reduction Strategy Papers (PRSPs) in 1999, which guide lending to the poorest countries.

PRSPs theoretically allow poor countries to devise their own social and economic priorities through consultations between governments, business and civil society, with the international financial institutions playing a supportive role.

However, even this strategy continues to depend on strict conditions and rewards countries that achieve certain benchmarks in economic reforms with further loans while punishing non-performers with cuts in funding.

“Real national ownership of poverty reduction frameworks can only happen if the threat of ‘conditionality’ is removed by the IMF and the World Bank from the backs of vulnerable governments,” notes Fantu Cheru, a professor at the American University in Washington.

In a recent report to the UN Human Rights Commission on the rights implications of the PRSPs, Cheru says that linking debt relief to PRSPs, removes the ability of governments to consult broad sectors of their populations, as they are forced into pleasing policy-makers in Washington rather than seeking viable, national poverty reduction measures.

Many African governments toe the line partly because their only source of cheap finance comes from the Bank, through its concessional lending arm, the International Development Association.

And while the Bank’s rhetoric is that the process around adjustment loans is being transformed to become participatory, the reality on the ground is different.

“Experience in numerous PRSP countries shows that structural adjustment programmes are not being transformed and that, in many ways, participation in PRSPs is engineering consent for structural adjustment policies,” says Cheru, who recently studied the processes around eight interim PRSPs in Benin, Chad, Ghana, Kenya, Mozambique, Senegal, Tanzania and Zambia, and one full PRSP in Uganda.

The average number of World Bank conditions per sub-Saharan African country rose from 32, between 1980 and 1983, to 56 by the end of that decade, according to independent studies sanctioned by the Bank.

In 1999, the Bank and IMF imposed an average of 114 conditions on 13 sub-Saharan African nations implementing structural adjustment programmes. Tanzania, with 150 conditions, had the biggest share of these, notes the Globalisation Challenge Initiative, a non-governmental organisation that monitors the Bank and IMF.

Some of these conditions are as detailed as pointing out budgetary items and recommending precise numbers for lay-offs in particular sectors.

Loan conditions have greatly multiplied since the early 1980s, when they were used mainly to ensure that loans are repaid. Now they are part of a new form of social re-engineering, requiring governments to comply more and more with free market-related and governance demands.

Some involve capital account liberalisation, trade and market reforms and privatisation. In one case, the introduction of a value-added tax programme involved 19 benchmarks.

“I have always said to my colleagues that if you have 67 conditions then you have no conditions,” David Dollar of the Bank’s Development Research Group, who was part of the report’s research team, told IPS.  “Why not trim it down to three or so important ones?”

“We are not saying the Bank should disengage, but we need new approaches, even the more successful reformers (Ghana and Uganda) prefer a modest amount of conditionality.”

Apart from being required for continued loan assistance from the Bank and IMF, sticking to the loan conditions is also a prerequisite for governments to obtain assistance from bilateral donors and for debt relief.

The proliferation of conditions from Washington comes at a time when Overseas Development Assistance to sub-Saharan Africa has been shrinking. From $32 per head in 1990, it dropped to $19 per head by 1998, forcing these countries to depend more on IMF and Bank loans.

Whether the new Bank report will influence any major changes in its and the IMF’s lending policies toward the continent remains to be seen.

The report comes on the heels of the release of a series of discussion papers by the IMF, set to guide debate on conditionality at the annual Spring meetings of the boards of the Bank and IMF set for next month.

One of the papers, prepared by research staff at the IMF, notes that the increase in conditions imposed on borrowing countries has “prompted legitimate concerns, in particular, that the fund is overstepping its mandate and core area of expertise, using its financial leverage to promote an extensive policy agenda and short-circuiting national decision-making processes.

“Conditionality that is too pervasive may galvanise domestic opposition to the programme as well as blur the authorities’ focus on what is essential.”

The papers suggest that IMF directors consider limiting the number of conditions to only those that are critical to the main macro-economic objectives of an IMF programme.