Under siege, IMF/Bank leadership turn ‘reactive’

By Chakravarthi Raghavan

Geneva, 26 Sep 2000 - As the semi-annual Fund/Bank “policy-making” interim and development committee meetings ended Monday, and the ‘speech delivering’ annual meetings of the Governors began Tuesday in Prague, a participant observer speaking on the phone from Prague said the two institutions seemed completely on the defensive and feeling a sense of ‘being under siege.’

The two institutions, senior staff and management, seem to be reactive and not demonstrating any sense of purpose or direction, and lack the confidence, rather the over-confidence, that they had until very recently that they had all the knowledge, they knew all the answers, and the critics are ignoramuses, another participant said. “I have not seen any street protestors and demonstrators as at Seattle or Washington DC this April, but don’t forget this is a former communist state where the police outnumber any demonstrators, if not the people themselves,” an observer said. The Czechs have been quite ‘efficient’ in keeping outsiders coming into the country for the demonstrations, stopping most at the frontier. But inside, the observer said, the institutions are under intense pressure to streamline and slim their activities, and find themselves in some difficulties in responding to their critics - on the streets or even inside the halls.

At the meeting of the Development Committee, which was chaired by the Indian Finance Minister, Yashwant Sinha, the Bank management appears to have unveiled its “global agenda of public good”.

But the ‘public good’ agenda of the Bank seemed to embrace such a vast field, that except perhaps for the Americans who are quite enthusiastic, others seem quite cool and sceptical, the observer said from Prague.

The Bank’s global agenda seems now to embrace democracy, good governance, legal systems and laws, importing these from outside, particularly the United States and about which a study prepared for the Group of 24 is critical and sceptic.

Other subjects involved in the Bank’s “global public good” concept includes anti-corruption, human rights, environment protection, research and other activities to counter HIV/AIDS and other diseases with global reach, and the latest Bank pet theme of ‘digital divide’ and providing ‘global portal’ or gateway for the internet and other facilities. In fact it could almost be an attempt to include everything that some critic or other is demanding.

At the Development Committee meeting itself, according to other participants who were at the meeting, and spoke from Prague on the telephone, the United States was broadly supportive of the Bank’s agenda, but Europe remained sceptic. In fact, the UK Development Cooperation minister, Mrs Clare Short, appears to have commented that the ‘public good’ was very broad, and encompassed many areas where the Bank’s expertise and knowledge is quite thin, if not non-existent.

Her argument was that the Bank should concentrate on what it is best equipped to do, and leave the other issues of ‘public good’ to other institutions, and this was echoed by several others. Another general view was that the Bank should carefully delineate the ‘global agenda’ in these matters as different from a country-level agenda.

The Bank's management is to come back to these issues, with focus on a range of specific issues, at the next meeting of the Committee in Washington in April.

At the press conference by the Development Committee chairman, Yashwant Sinha, the Bank President, Mr. James Wolfensohn was on the defensive on the ever expanding ‘global agenda’ of the Fund and the Bank.

Asked whether the Bank, as pointed out by Mrs.Clare Short, was not in danger of “over-reaching itself”, by moving into these areas of public goods, Mr.  Wolfensohn said, “The World Bank is not self-generating a lot of these interests.  We have a lot of shareholders who are recommending to us that we pursue a large number of these issues, including recommendations that come from developed-country governments who are concerned that someone should address these issues.  So I was anxious to put it on the agenda because I share the view of Clare Short and of many others that clearly the Bank can’t do everything.” Another common theme at this year’s meeting from the governments was the need to ‘stream-line’ conditionality and not to overload. There has also been a call for the World Bank to fund poorer countries and their programmes through grants—as suggested by the Meltzer Commission in the US—and leave those middle-income countries with access to private capital markets to raise loans and funds there. And there is increasing opposition that the Fund and the Bank should not rescue banks and private creditors with public money.

The communique issued after the Development Committee meetings said that the Ministers noted four key criteria for the Bank’s involvement and work in the area of “global public goods”.

The four criteria set are: “clear value-added to the Bank’s development objectives, Bank action is needed to catalyze other resources and partnerships, a significant comparative advantage for the Bank, and an emerging international consensus that global action is needed.”

The communique added: “They (Ministers) endorsed four areas for Bank involvement, in cooperation with relevant international organizations: facilitating international movement of goods, services and factors of production; fostering broad inclusion in the benefits of globalization and mitigating major economic and social problems, such as the transmission of disease and the consequences of conflict; preserving and protecting the environment; and creating and sharing knowledge relevant to development.”

While the major industrialized nations, including the US Treasury, that effectively control and run the IMF and the World Bank, with varying nuances stressed the need to focus Bank’s loans to the poorer countries, and graduate the middle income ones to the market, the communique itself did not go that far.  While endorsing the concentration of the Bank’s efforts on the low-income countries and poverty reduction, the communique said:

“11. Ministers welcomed the Bank’s overall approach for low-income countries and its proposals for achieving greater coherence among various program documents and instruments, including basing Country Assistance Strategies on Poverty Reduction Strategy Papers. Ministers welcomed the discussion of a poverty reduction support credit that would support poverty reduction strategies of governments and complement the Fund’s poverty reduction and growth facility.  They suggested that in its further definition of the instrument, the Bank should also address the nature of the analytic work needed to underpin it, such as public expenditure reviews and poverty and fiduciary assessments. They also requested the Bank and the Fund to review the modalities for their cooperation in implementing both the Bank’s support credit and the Fund’s growth facility.  Ministers stressed the importance of effective Bank/Fund coordination given the significant role the institutions play in support of poverty reduction in low-income countries.

“12. Ministers reaffirmed the very important continuing role of the Bank Group in helping to reduce poverty in middle-income countries, home to so many of the world’s poor. They stressed that the Group’s focus must be on providing support that the private sector can not or will not provide and on fostering private-sector led economic growth. They welcomed the creation of a task force to address how the Group can best respond to the evolving development needs of this diverse group of economies. Ministers agreed that the task force should consider, inter alia, the modalities of conditionality and instruments to maximize the effectiveness of Bank assistance for countries at different stages of development and reform; the scope and conditions for providing borrowers more financial support for social and structural programs at times of market dislocation; the coverage of economic and sector work; and the costs of doing business with the Bank, including the implications for pricing of Bank products.  Ministers looked forward to a progress report at their next meeting.”

At the press conference, Indian Finance Minister and Chair of the Development Committee referred to this controversy and said that while they endorsed their support for the Bank’s approach to low-income countries, “they also made clear, as set out in para 12, that the bank continues to have a very important role to play in middle income countries, home to so many poor people. Ministers representing the entire 182 members of the Bank and the Fund made very clear that they do not agree with some critics that the Bank was no longer needed in these countries. We had an interesting discussion about the areas which needed to be further studied before the Bank comes back to us next spring with a more highly developed strategy for middle income countries.”

Earlier, Development Committee ministers also said:

“9. Ministers emphasized that the Bank must tailor its support to reflect widely differing country situations. To help ensure that country programs are well grounded, Ministers urged the Bank to continue to strengthen its country diagnostic and other economic and sector work. They stressed the need to focus on relevance to the country concerned, and on opportunities for greater synergy with the work of the country and other development partners. Ministers noted that this analytic work, along with capacity building, took on added importance in light of the use of programmatic adjustment lending in support of borrowers’ social and structural reforms, and the vision for Bank and Fund roles and partnership set out in the September 5, 2000 Joint Statement by the President and the Managing Director.

10. Ministers emphasized the urgent need for the World Bank Group to clarify its agenda for institutional selectivity (based in part on its upcoming review of sector strategy papers), to manage carefully total demands made on Bank staff and other resources, and to work closely and systematically with other multilateral development banks and international organizations on a better coordination of responsibilities. Ministers stressed that multilateral and bilateral donors could contribute greatly to country ownership, more efficient use of resources, and achievement of the agreed International Development Goals, by making greater progress on the harmonization of their operational policies and procedures to reduce the burden on developing countries. Ministers asked the Bank to work closely with its partners and prepare a report for the Committee’s next meeting on progress with harmonization.”-SUNS4748

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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