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Real Change or New Image?

Adjusting the IMF and World Bank

In the face of worldwide criticism of their adjustment programmes, the IMF and World Bank have introduced a new process for drawing up these programmes. Adjustment programmes are centrally linked to the debt problem as indebted countries must implement them for up to 6 years in order to receive debt relief.

A Coalition Briefing  
Old Process

Current practice has been for these programmes to be largely designed by the IMF and World Bank. Consultation within countries was limited, with little or no involvement of elected parliaments or wider civil society, particularly in the case of the IMF.

While IMF and World Bank adjustment programmes focus on different issues there is considerable overlap between them and they share an overall view that governments must:
- Cut public sector including cutting the civil service, cutting spending on public services and privatising public enterprises
- Promote free trade with an emphasis on export lead growth



New Process

Under the new system, national poverty reduction strategies will be drawn up by governments with significant participation from civil society. The aim is that these programmes will now be 'owned' by the country rather than seen as an imposition from the IMF and World Bank.

Plans should cover:

- Current poverty situation
- Targets for poverty reduction and the action to achieve these
- How the plan will be monitored, role of civil society
- Summary of consultation process carried outFunding the National Poverty Reduction Strategy

New Name - New Programme??

The IMF has renamed its Enhanced Structural Adjustment Facility (ESAF) the 'Poverty Reduction and Growth Facility' (PRGF) - a much friendlier sounding title.

According to the IMF, the main changes will be:

· Poverty reduction will be at the centre of the programmes
· Policies will be derived from the new participatory Poverty Reduction Strategies

The national strategy will be submitted to the IMF/World Bank who will decide whether to endorse or reject it for funding. If the strategy is endorsed, the IMF will fund their share of it through the Poverty Reduction and Growth Facility (PRGF). The World Bank will fund other sections through their country programme. Other donors including individual countries will be called upon to provide funding also. These plans will also be resourced from funds freed up through debt cancellation under the Heavily Indebted Poor Countries Initiative. The overall idea is that rather than individual international bodies and donor countries funding separate programmes in countries and laying down their own conditions, all should now support a single national, country lead plan.



How wlll the Participation Process Work ?

This new approach has not yet been tested. The IMF and World Bank make the following points:

- There is no blue print for the participatory process.
- It should build on existing practices within countries and could take the form of national debates, conferences, steering committees. Most low-income countries already have strategies for poverty reduction and social development. These will be at different levels of development. Uganda for example has been carrying out participatory poverty assessments.
- It should take one to two years to draw up the plan. Annual progress reports will be required. A new plan will be drawn up every 3 years.
- The IMF and World Bank may take part to explain their lending policies



Questions about the proposed new approach to adjustment

This new process certainly looks like a radical departure for the World Bank and even more so for the IMF. It appears to respond to our two major criticisms lack of priority for poverty reduction and the lack of country control over their own development. These criticisms were the basis of the two 'Say No to ESAF' campaigns we ran in opposition to an Irish contribution to ESAF.

In discussions with IMF and World Bank officials, representatives of the DDCI have tried to establish whether this new approach will result in real change or whether the proposed changes are merely a better marketing strategy for old models.



a) Are the IMF and World Bank admitting that their current policies are wrong?

The reasons the IMF and World Bank give for introducing local ownership are:

- Dissatisfaction with progress on poverty reduction - poverty is, in fact, increasing
- A realisation that unless poverty reduction is central, economic stabilisation is unlikely to be successful
- A recognition that ownership needs to be by the people as well as by the government of a country

Together with other groups worldwide, we have highlighted these points for many years. Acceptance of them by the IMF and World Bank looks like a positive development.

Both institutions still claim, however, that their overall policies are right. They claim failure is due to poor implementation of their programmes by governments rather than their policies per se.



b) A Better Marketing Strategy?

Is the new approach, therefore, merely a better way of selling the same policies? Mixed messages have been received from the IMF and World Bank since the changes were announced in September. Some World Bank officials have stressed that this is not a new way to sell old policies. A strong message from IMF officials, however, is that they don't expect radical change. Officials made the following comments: I would be surprised if we get programmes which pursue a radically different philosophy'. 'I think there are some laws of nature in macro economics'.

The IMF appears to be renaming their standard economic policies 'pro poor growth'. 'Pro poor growth' as defined by the United Nations Development Programme includes as high priorities for economic policy: restoring full employment, reducing inequality, action on rural poverty and education and health for all. We know that IMF policies did not prioritise these areas and delivered little to poor people in the past. There is very cautious talk of some change i.e. that cuts may not be as stringent as in previous programmes. The emphasis, however, will still be on privatisation, 'free' markets, the lead role being given to the private sector and cutting government spending.

Given the IMF and World Bank's strong message for decades that there are no alternatives to their policies, will governments be reluctant to put forward different plans fearing these will be refused funding?



c) Who is in control of the Process?

This proposal has been developed by the two institutions. There have, however, been a number of proposals made by debt groups both North and South proposing that money released by debt relief should be allocated to supporting national plans drawn up with the participation of governments, civil society and parliaments. But the IMF and World Bank were not named as final arbiter in these plans.

It seems clear that if 'country ownership' is to be genuine the IMF and World Bank should not control the new process. The IMF has no expertise in the area of poverty reduction nor has the World Bank been particularly successful in integrating poverty reduction into their adjustment programmes. The Bank's own internal evaluations have highlighted that Bank adjustment loans do not address poverty directly, the likely impact of policies on the poor or ways to mitigate the negative effects of reform.

Both organisations could benefit from the expertise of UN and other bodies. Further, many donor countries may not be happy to give the lead to the IMF and World Bank in assessing poverty reduction strategies. Decision-making clearly needs to be in the hands of a broader, more democratic body. This could be an opportunity for the IMF and World Bank to be brought under the UN system.

 

d) What issues will civil society groups be involved in?

Drawing up national poverty reduction strategies will involve a number of stages:

- Assessing the current situation on poverty, and the obstacles to change
- Setting targets for poverty reduction
- Developing the economic and social policies to achieve these targets
- Implementing and monitoring progress

Will civil society groups involvement be limited to discussing targets or will they also be involved in developing policies? While not everyone may have the specialist knowledge to engage with detailed economic policies, groups on the ground have information and insights invaluable in assessing the likely social and economic impact of particular policies.

The participatory approach will not be sustainable unless the Strategy responds to the expectations voiced in particular by groups living in poverty. Southern groups have highlighted the danger of involving groups of poor people in a consultation process which produces programmes which do not differ much from previous ESAF/World Bank programmes. If this were to happen, how could governments return to these groups three years on to repeat the process?


e) Who will fund the Process?

A genuine participative process requires all parties to be able to participate effectively and equitably. There is a cost in time, energy, skills and money. This will pose particular problems for civil society groups. If participation is to be a central tool in developing national poverty reduction strategies, resources must be available to enable civil society groups involvement. So far there has been no mention of funding for the participation process.


f) How does this link with the Debt Problem?

The G7 Debt Deal at Cologne kept the controversial link between debt reduction and adjustment insisting that indebted countries must carry out up to 6 years adjustment programmes to become eligible for debt relief under the Heavily Indebted Poor Countries Initiative. A new eligibility criterion for getting debt relief under the HIPC is that a Poverty Reduction Strategy drawn up as outlined above should be in place. Funds released by debt cancellation must be used to help fund the Poverty Reduction Strategies.

This may deal with one concern of people of indebted countries: that resources released through debt reduction should be used for human development. It does not deal with the other major concern that all unpayable debt should be cancelled i.e. illegal or irresponsible debt or debt which absorbs money needed for development.

Assessing the amount of debt relief under HIPC is still based on economic indicators with no account taken of human need. The priority is still to create good debtors, those who pay their debts in spite of the human cost, rather than good developers who target resources to tackling poverty. So, while debt relief must be allocated to poverty reduction, the level of poverty is not taken into account in determining how much debt cancellation countries need in order to reduce poverty - measuring poverty by indicators such as illiteray or mortality rates as well as income levels.

 

 

Challenges for Debt Campaigning in Ireland

Where do we go from here, particularly in the light of our campaign against an Irish contribution to ESAF? Have we merely won the war of words? The IMF and World Bank have accepted, on paper at least, that poverty reduction and democratic ownership of programmes are of central importance. Does this give us greater leverage in engaging with them; in holding them to account to deliver on commitments made? The danger is that the new process may deliver very little but may sap the energies of civil society groups in the process. In particular we need to challenge the IMF and World Bank role as final arbiters of whether the poverty reduction strategy should be funded.

Monitoring

It is clear we need to monitor developments very carefully to see what are the outcomes of participation in developing poverty reduction strategies. The experiences of Southern civil society groups are vital in this regard. Coalition members can help by enabling us to link more effectively with their members or partners working on the ground in relevant countries.

Debt

The other implication is that the campaign for debt cancellation goes on. It is important that this new participatory process is not allowed to obscure the fact that the debt problem is still with us. It is also important that it does not delay delivery of debt reduction. We must not allow the debate to be shifted away from cancellation of unpayable debt and on to how the amount of inadequate debt relief being made available is to be spent.

  Debt and Development Coalition Ireland, All Hallows, Grace Park Road, Dublin 9. Tel/Fax: 01 8571828, e-mail: dde@connect.ie

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