Change of ‘heart’, not ‘mind’, in IFIs, complains UNCTAD

An UNCTAD report has revealed that the policy advice foisted on African economies by the Bretton Woods institutions still essentially hews to the flawed Washington Consensus approach. Coupled with a dearth of resources from the external front, these prevailing policy prescriptions are unlikely to effect substantial progress in reducing poverty on the continent.

by Chakravarthi Raghavan

GENEVA: After two or more decades of policy advice and conditional lending by the Bretton Woods institutions (BWIs), there have been renewed efforts on their part to tackle poverty in Africa; and while this shows a welcome ‘change of heart’, there has been no ‘change of mind’ or fundamental departure from the failed policy advice of the past.

In providing this assessment, after a study of 27 Poverty Reduction Strategy Papers (PRSPs) in African countries, the United Nations Conference on Trade and Development (UNCTAD) says in a report on African development that while there is greater emphasis by the BWIs on public funding of primary education and healthcare, the macroeconomic and structural adjustment policy content of these papers shows “no fundamental departure from the kind of policy advice espoused under the Washington Consensus.”

UNCTAD’s assessment of the PRSPs appears to bear out what civil society groups have been saying at country level, namely, the IMF-World Bank policy advices are just ‘add-ons’ to old policies that have failed. The UN Human Rights Special Rapporteurs have also reached some similar conclusions in terms of the actual effects on the ground.

The UNCTAD assessment came on the eve of the annual meetings in Washington of the IMF and World Bank, when, according to a Washington Post writer, thanks to an anaemic world economy and the mounting problems in Latin America (where the countries for more than a decade implemented all the neoliberal policy advice), the “IMF’s ‘consensus’ policies are fraying.”

Argentina, for two decades the ‘top student’ acclaimed by the IMF and the World Bank, has just announced that it was no longer going to spend its reserves to pay IMF/World Bank debt servicing. Other studies (including a briefing paper by the Washington-based Centre for Economic and Policy Research) suggest that while the IMF has provided a $30 billion credit line to Brazil (US media reports have said it is to help Citibank and others more than Brazil itself), whoever wins the country’s October elections will find that on current policies Brazil’s debt cannot be sustained, that the IMF’s arithmetic does not add up, and Brazil would need a debt restructuring and writeoff.

Other studies, including some by ‘researchers’ for the World Bank (the latest two by Branko Milanovic on globalization and on inequality), have shown that the Washington Consensus policies and globalization have not delivered on their promises, that inequality and poverty have in fact grown, and that the blind and wholesale adoption of trade and investment liberalization does not work.

In Africa itself, however, the African countries, under the leadership of the Presidents of Algeria, Nigeria, Senegal and South Africa, and encouraged by Washington (and the IMF and World Bank), recently ditched the earlier UN General Assembly Programmes and Plans for African Development, and formulated the New Partnership for Africa’s Development (NEPAD), embracing the ‘reforms’ in the hope of the promised benefits of partnership and getting new and additional funds and trade benefits.

The four Presidents put their leadership and prestige on the line in ‘persuading’ fellow African leaders to embrace and adopt NEPAD, and while this has been acclaimed by Washington and other Western capitals, it has fetched no new resources or even real trade benefits.

At a press conference to release the UNCTAD report, From Adjustment to Poverty Reduction: What is New?, the Director of the UN body’s Division on Globalization and Development Strategies, Yilmaz Akyüz, said there is a need for a “careful, frank and independent assessment” of the effects on economic growth and income distribution of the ‘packages’ on offer, if they are to deliver on the promises.

“Any fresh policy initiatives must be matched with adequate external resources, debt reduction and better market access if they are to succeed,” Akyüz said.

The PRSPs, the UNCTAD report brings out, require country ownership and participation, and the governments are asked to draw up the programmes after the widest consultations including with civil society organizations, stakeholders and the poor.

Given the weak institutional structures of these countries, the IMF and World Bank staff are supposed to help the governments of these countries draw up the programmes, but the roles of the staff are defined and they are expected to play no more than a supportive role.

Nevertheless, the various PRSPs have elements of policy strikingly similar to the old policies of macroeconomic stabilization and structural adjustment programmes (SAPs). Even the IMF/World Bank reviews of the PRSPs have acknowledged the NGO complaints that they have incorporated the same SAPs that have consistently failed, and that the governments “write into the PRSPs what they know the donors want to hear and this would remain so as long as Fund/Bank endorsement is conditional for concessional aid.”

Akyüz said there had been a welcome recognition by the BWIs of some of the shortcomings in the approach adopted earlier on SAPs. “Nevertheless, the current approach does not put anything in place, rather it adds a new dimension to it instead of reforming and reviewing the other approaches.”

Can the PRSPs succeed?

The underlying tone of the report, Akyüz said, is that unless something unexpected and remarkable happens - both in the approach to domestic policy-making in Africa itself as well as in the international community’s approach to debt, aid and trade - “it is very unlikely that we will meet the targets set in the UN Millennium Plan regarding poverty reduction.”

Success for the PRSPs and NEPAD would depend on domestic and external factors.

Without going into too much detail, the report brings out that external resource availability is not on the rise, neither on the trade front nor in terms of debt reduction and aid.

The promises at the UN Conference on Financing for Development held in March at Monterrey, Mexico were about a third of what was needed. There is a consensus on the need for doubling aid, and while Monterrey took a step in the right direction, the aid pledges fell considerably short of what is needed.

As for the debt question, there is increased frustration over the Heavily Indebted Poor Countries (HIPC) debt-relief initiative, even within the Fund-Bank institutions. The net transfers of resources, far from increasing, have been declining, and there is a clear trend in this direction.

On the exports side, there have been some positive steps like the EU’s “Everything But Arms” market-access initiative. Nevertheless protectionism in the North remains unabated, particularly in agriculture, an important source of revenue for some African countries.

Asked whether any improvements on the trade front can even be envisaged, given the increasingly accepted fact of the sluggishness in the US economy, with some concerns that the US economy has now caught the “Japanese disease” (of stagnation and sluggishness for more than a decade), Akyüz agreed that the US economy was facing problems. However, he said, in UNCTAD’s view, the US economy should not ‘adjust’ by way of contractionary reforms and reducing imports, but should be able to export and through the EU and Japan adopting expansionary policies for their economies. An economic slowdown brings in its wake protectionism and strengthens it. If this happens, the major burden will be on the middle-income economies, Akyüz said. Africa will also suffer due to the effects on commodity markets and prices.

Any other course will result in accentuating the global deflation factors.

The BWIs recognize all these elements, but nevertheless the old structural adjustment views prevail.

It is a welcome change that both the Fund and the Bank recognize that the SAPs have an adverse effect on the poor and hence targeted spending programmes and safety nets for the poor are required. It is also recognized that growth does not automatically trickle down to the poor, hence the greater emphasis on pro-poor policies of public resources for primary education and health. However, these are also combined with advocacy of “user fees”. There is also the emphasis on the need for country “ownership” of the programmes to avoid slippage. However, this last is being seen as no more than a process for mobilizing popular and political support for the programmes, rather than an attempt to find out to what extent the reform policies are suitable for the country.

Many development experts and civil society organizations note that unless and until countries are able to propose alternative programmes without affecting the Fund-Bank endorsements and aid, no alternatives will be considered. However, neither the Bank nor the Fund, even when seeking more funds, seem inclined to give up their tutelage and conditionality (in the pursuit of their policies).

Policy priorities

UNCTAD says that inflation is not a fundamental problem or principal economic challenge in Africa and the BWIs should cease to make this the focus of their monetary and fiscal policy advice. Policies should focus more on the goals of raising productivity and productive investment, and give up the idea of “quick fixes” by redirecting public spending to social sectors at the expense of other types of public investments.

“Where there are ‘trade offs’ between public spending in priority and non-priority areas, these should be carefully scrutinized from the point of view of their overall impact on growth.”

The current policies still promote trade and financial liberalization on the basis that these will increase access of the poor to financial and other assets and enable them to escape poverty. However, there is no explanation as to how these policies result in increased access for the poor. Given the record in Africa, there is need for some caution in making simplistic pronouncements.

The important thing is Africa should not lose another decade through experiments and more of the same. There are problems, but the new approach does not build on the experience.

The advocacy of analysis of the reasons for failure of the programmes or of the social impact, Akyüz said, was not for UNCTAD undertaking this job. “We have less professionals than the number of countries involved,” he wryly commented. Such an assessment must be done independently.

The most that one can hope for is a genuine dialogue between countries and institutions (for example, between UNCTAD and the BWIs) and a genuine search for solutions, including more resources and assured resources.

“On the policy front, there is a need for frank and genuine discussion of what has gone wrong, and in this process we, as well as the BWIs, will learn,” Akyüz added.

Previous reports by UNCTAD, on Africa and in its Trade and Development Reports, have discussed in some detail the steps that need to be taken in the trading and financial systems to create the necessary external conditions for sustained and rapid growth in developing countries, in particular sub-Saharan Africa.

Progress in international efforts to alleviate poverty will depend as much on international development cooperation in resolving problems associated with protectionism, aid and debt as on improvement of domestic policies, institutions and governance in developing countries.

It is largely because these issues have not been properly addressed that the international community is back where it was more than two decades ago in terms of the challenges it faces in terms of development and poverty eradication. The report cites Raul Prebisch’s views in 1979 on the meagre results achieved since the first session of UNCTAD (UNCTAD-I) in 1964. Prebisch was the first Secretary-General of UNCTAD.

Said Prebisch at that time, “Another idea has now appeared which fires the enthusiasm of some Northern economists, that of eradicating poverty - a phenomenon which apparently they have just discovered. Who could refuse to fight poverty?.... But is this possible outside the context of development and enlightened international cooperation policy?”

“Poverty, we are told,” Prebisch had added, “is mainly rooted in agriculture, and the productivity of this sector must be increased. Quite so. However, increased productivity produces redundancy in the labour force, and the surplus labour must be employed in industry and other activities. The expansion of industry requires exports and this is one of the major obstacles which, far from having been eliminated, is becoming worse. And the greatest of internal obstacles is capital accumulation (both physical capital and the capital of human skills), which requires a vast effort on the part of developing countries themselves in addition to international financial cooperation.”

These words, the Africa report comments, “have a decidedly contemporary ring.” (SUNS5200)                                

From Third World Economics No. 291 (16-30 September 2002)