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Donors and debtors

Sarah Hiddleston

ON SEPTEMBER 24 and 25, the World Bank and the International Monetary Fund (IMF) Annual Meetings in Washington will discuss the Africa Action Plan, debt relief and trade. Ministers will receive progress reports on the Bank's review of its practice of attaching conditions to aid, its poverty reduction strategies adopted in 1999, and on how to operationalise the G8's pledge cancel all the debt of 18 Heavily Indebted Poor Countries. Evidence thus far suggests, first, that little has changed in respect of policy conditionality. Secondly, as a result, many programmes are ineffective. Thirdly, the already weak G8 debt deal due to be formally ratified at the IMF is being undermined.

There has long been criticism of the use of policy conditionalities for aid and debt relief by international financial institutions (IFIs), particularly for structural adjustment programmes that are a part of the `Washington Consensus' of the 1980s and 1990s. In response, the IMF and the World Bank made a commitment to poverty and community. A central pillar in this reform was the introduction of the Poverty Reduction Strategy Programmes (PRSPs), in which low-income countries set out their development priorities to obtain debt relief and adjustments, which are then given on the basis of completed actions. However, PRSPs continue to contain particular economic and trade policies, such as privatisation, deregulation, and trade liberalisation.

The Bank itself admits "there is no one right way to development" (World Bank 2005 Economic Growth in the 1990s: Learning from a decade of reform). However, a study by the NGO World Development Movement (One size for all: A study of IMF and World Bank Poverty Reduction Strategies) has found that 9 of 10 poverty reduction programmes demand privatisation, that trade liberalisation is evident in 72 per cent of PRSPs. Besides, no single PRSP is entirely free of all nine of the classic Washington Consensus policies. And while two-thirds include investment deregulation, none mentions the need to regulate investors to ensure reinvestment of profits in the country, joint ventures with local companies, technology transfer or employment of local people. PRSPs across 50 different countries, from Bolivia to Senegal to Zambia to Pakistan, bear remarkably similar prescriptions. Despite calls to allow countries to explore policy options, only 11 of 308 policies diverged in any way.

Part of the reason for this is that PRSPs require sign-off by the IFIs in the first place. Thus rather than being formed through domestic consultation and critical appraisal, the Bank seconds a consultancy to advise the recipient government. So, the government instead of being accountable to consumers and its electorate reports to the Bank.

Peter Hardstaff, head of policy at World Development Movement, says: "Our study shows the Washington Consensus to be alive and well albeit hidden in a sea of `democratic, civil participation' rhetoric ... the only difference between PRSPs and the Washington Consensus is that in an astonishing display of hypocrisy these policies are now defended under the guise that they are country-owned."

These policies have a poor track record of serving the needs of communities. Important insights into social, economic, and political realities have been lost by circumventing domestic processes of consultation and debate. The World Bank/IMF `flagship' water system privatisation, begun in 2003 in Dar es Salaam, Tanzania, sank this year when the Government cancelled the city water company's contract after persistent complaints by residents. Notably, it failed to consider gender in the reform design despite women's primary responsibility for providing water. Women and girls continued to have to walk long distances for water, and with irregular supply they even had to go out at night. Moreover, the private sector could not deliver the investment needed.

Orissa's experience

In India, Orissa was the first State pushed into agreeing to privatised power by the World Bank in 1999. Until recently it was held up as a pioneer model, but the State Government saw its fiscal situation deteriorate as a result of debts incurred in the privatisation. Besides, the private companies breached their contracts by failing to invest new working capital in the sector. Furthermore, a report by Action Aid International in April last year showed that half of Orissa's population remained without power. The World Bank's $200 million spent on reducing transmission and distribution losses had a negligible impact but for an increased charge averaging 15 per cent for every year of the privatisation programme. When this model was superimposed on Andhra Pradesh, price hikes resulted in mass protest. The World Bank responded that such opposition "must be overcome."

The G8 debt deal did nothing to remove the economic conditionalities in debt relief, but it did pledge 100 per cent debt cancellation for 18 countries. However, many parts of the deal are insecure. Leaked IMF papers suggest that some governments have been trying to derail the deal. First, it is not clear that this debt relief will be in the form of new aid — that is, additional to what had already been pledged — rather than a reallocation of already budgeted aid. Secondly, some European countries appear to be trying to change the deal from outright cancellation of debt stock into annual debt relief that include provisos for suspension of cancellation. Thus interference by donor countries via the IFIs would be maintained. Thirdly, there are concerns that benefits will only go to poor countries that have large debts rather than those that need it.

Rich country governments' espousal of freedom and democracy will ring hollow unless fundamental changes are made to the way the IMF and the World Bank operate.

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