Civil Society Newsletter
At the September 24-25 World Bank-IMF Annual Meetings, the international community took a big step toward delivering on its promise of a multibillion-dollar debt cancellation plan for the most heavily indebted poor countries (HIPCs). That was originally proposed at the G-8 finance ministers' meeting in London in June and endorsed at the G-8 Summit in Gleneagles, Scotland, in July. Civil society organizations (CSOs) who had been lobbying for this deal during 2005, welcomed the progress at the Annual Meetings, but are waiting for more details to become public.
The Governors attending the Annual Meetings also encouraged the Board to finalize new tools for IMF cooperation with low-income countries, including a new financing window and a facility that targets their special needs. An article gives an overview of these new instruments as well as an update of other developments in the IMF's work on low-income countries. Governors also endorsed a medium-term strategy for the Fund that has been proposed by Managing Director Rodrigo de Rato.
The Annual Meetings traditionally offer an opportunity for representatives of CSOs to sit down with staff members from the Bank and the Fund in meetings organized by both institutions and CSOs. About 180 people from organizations in 30 countries attended the civil society dialogues, including the third annual Townhall meeting with leaders of the two institutions.
For some time, the IMF has been considering a number of actions it can take to better serve its low-income members. To this end, the Fund has recently undertaken a thorough reassessment of its engagement with low-income countries (LICs), focusing on making its lending and policy advice more responsive to the of needs LICs, and on better defining how it engages with country authorities, other multilateral organizations and bilateral donors, civil society organizations, and other development partners. This review has resulted in the following proposals:
The IMF also is reviewing its role in the Poverty Reduction Strategy (PRS) process, and has recently reviewed the design of PRGF-supported programs. Finally, once the next stage of multilateral debt relief is finalized, that program will provide additional resources to LICs.
Reviewing the Poverty Reduction Strategy framework
The IMF is working closely with other development partners to ensure that the PRS framework provides an effective tool for fostering growth, poverty reduction, and progress towards the Millennium Development Goals (MDGs). To these ends, the Fund plans to review its role in the PRS process and the interaction of this role with its financial facilities and other forms of interaction with LICs. A key priority is to embed the PRS process into existing domestic decision-making processes and systems, including the annual budget, and to align PRSs with programs supported under the PRGF as well as Fund signaling of its support for policies and Fund support for debt relief.
The 2005 IMF/World Bank review of the PRS approach—"Balancing Accountability and Scaling Up Results" —showed that the PRS approach has helped put poverty reduction at the center of the public policy debate in LICs. The elaboration and implementation of PRSPs was associated with improvement in some socio-economic indicators in LICs, especially in Africa. Looking ahead, the review found that the PRS approach could and should continue to be the operational framework for expanding efforts to meet the MDGs, and for translating mutual accountability of country authorities and development partners into concrete development plans at the country level.
The Poverty Reduction and Growth Facility
The Poverty Reduction and Growth Facility (PRGF) remains the IMF's main facility for financial assistance to LICs. Established in September 1999, the PRGF aims to make poverty reduction and growth the central objective to the Fund's lending operations in its poorest member countries. PRGF-supported policy programs are framed around comprehensive, country-owned PRSPs. In order to continue the provision of effective support for LICs' efforts to improve macroeconomic stability, achieve sustainable growth, and reduce poverty, the Fund realizes that it must adapt to the evolving needs of its members. The Fund recently completed its review of the design of PRGF-supported programs among the more economically stable low-income members, or "mature stabilizers." It found that while many LICs still need significant macroeconomic adjustment, many others have achieved broad macroeconomic stability and sustained growth, often with its support.
The recent review confirmed the importance of macroeconomic stability and an open economy for sustained growth. It highlighted the central roles of private investment and exports, and also focused attention on the importance of sound institutions. It also examined how fiscal space could be created for urgent spending needs, beyond what can be achieved through a better allocation of existing resources. A key finding concerns the importance of well-designed fiscal and monetary policies in managing higher inflows of foreign aid. As regards to monetary policy, the study found support for targeting single-digit inflation rates, and, if monetary targets are used, for them to allow for financial deepening.
Protecting against exogenous shocks
The IMF's Executive Board has agreed in principle to the creation of a new financing window within the PRGF Trust for low-income members hit by exogenous shocks. This window will provide financial support at PRGF terms to low-income members without a PRGF arrangement. It will also serve as a potential safety net for countries that wish to exit from continuous PRGF program engagement. This window complements existing facilities available to assist LICs facing shocks, such as augmentations of PRGF access; the Compensatory Financing Facility; subsidized emergency assistance for natural disasters and post conflict cases; the use of credit tranche resources; and the Trade Integration Mechanism for balance of payments shortfalls arising from multilateral trade liberalization.
Policy support and signaling
The Policy Support Instrument (PSI), which was established in October and which will soon be operational, is aimed at providing signaling of IMF support for policy programs without financing in LICs. The PSI will be an important addition to the range of facilities from which LICs can choose their desired form of engagement with the IMF.
The facility would be available to PRGF-eligible members that desire IMF endorsement of their policies, but that do not want or need the IMF's financial assistance. These would also be countries that have appropriate and effective poverty reduction strategies and policy frameworks in place. In addition to supporting countries in their design of policies, the PSI would provide a "signal" about the quality of those policies to donors, the business community, and others.
PRGF financing needs
To ensure the capacity of the PRGF to meet future needs, work is underway to estimate medium-term demand for PRGF financing. This will take into account the implications of debt relief, and the introduction of the PSI and the shocks window, as well as options for increasing PRGF lending capacity. The IMF's Executive Board has emphasized the close linkages between the financing of the Fund's concessional lending operations and further debt relief, and has agreed that the institution needs to be adequately equipped to meet future financing demands associated with its role in supporting LICs.
Endorsement of the multibillion-dollar debt cancellation plan for the most heavily indebted poor countries was one result of the September 24-25 IMF-World Bank Annual Meetings. The meetings also addressed several other crucial international issues. The finance ministers and central bank governors present warned that widening global payments imbalances, and high and volatile oil prices posed increased threats to the ongoing global expansion. They also welcomed proposed new tools for IMF involvement in low-income countries (LICs), and endorsed a medium-term strategy for the Fund proposed by Managing Director Rodrigo de Rato.
The IMF's latest World Economic Outlook, projects global growth of 4.3 percent for 2005 and 2006, which is close to the long-term trend rate, but policymakers urged decisive steps to avoid disorderly adjustments in the global economy. "Global imbalances pose serious risks to prosperity," de Rato told the Fund's Board of Governors. The International Monetary and Financial Committee (IMFC), the IMF's ministerial policy steering committee, called on oil producers, consumers, and companies to cooperate to stabilize the oil market. To tackle global imbalances, the IMFC urged the U.S. to increase national savings through fiscal consolidation; emerging Asia to allow greater exchange rate flexibility; and the euro area and Japan to implement further reforms to enhance growth.
The IMFC stressed that a successful outcome to the Doha Round of trade liberalization is essential for global growth and poverty reduction, and urged action to increase market access, especially for developing countries; reduce trade-distorting domestic support; eliminate all forms of export subsidies in agriculture; and make progress on financial services and intellectual property rights.
Along with the agreement on debt relief, the Governors agreed that the IMF plays a critical role in supporting low-income countries through policy advice, assistance with capacity building, and financial assistance, and confirmed that the Poverty Reduction and Growth Facility (PRGF)—the IMF's concessional loan facility—will remain the main instrument for IMF financial support for these countries. In addition, the IMFC approved two new instruments to strengthen Fund support for LICs. The Policy Support Instrument (PSI) will be available to members that do not want or need IMF financial assistance, but seek Fund assessment and endorsement of their policies. And a new window in the PRGF Trust will be available to provide timely financial support to PRGF countries facing exogenous shocks.
The IMFC also welcomed the Managing Director's report on the IMF's medium-term strategy, agreeing that the Fund needs to deepen its analysis of globalization. The strategy provides a framework for prioritizing and focusing the Fund's work and increasing its effectiveness and preparedness as it faces the future. It proposes specific actions to strengthen its policy advice to member countries, improve technical assistance, and reform the Fund's organization, structure, and work procedures.
Interactions between representatives of civil society organizations (CSOs) and IMF staff at the 2005 Annual Meetings were shaped by the G-8 debt relief proposal. The proposal and the latest HIPC initiative report were the topic of a well-attended session as part of the civil society dialogues organized by the IMF, World Bank and CSOs prior to the Annual Meetings. The full list of dialogues as well as minutes of most sessions will be available at http://www.worldbank.org/civilsociety. The dialogues climaxed at a Townhall meeting with World Bank President Paul Wolfowitz, IMF Managing Director Rodrigo de Rato, and the outgoing Chairman of the World Bank's Development committee, South African Finance Minister Trevor Manuel.
At the September 22 Townhall meeting with CSOs, de Rato said the IMF is striving to be more effective and better equipped in its work for low-income countries (LICs) and is also aiming to be more responsive to new circumstances in a changing world. The Managing Director outlined developments in policies regarding LICs and the issue of voice and representation in the Fund.
De Rato said the Fund has spent an intensive year working on subjects of interest to CSOs. In tandem with the World Bank, the IMF has refined its approach to countries' Poverty Reduction Strategies (PRS) to help ensure that these strategies are home grown by member governments, and that expected results are measurable. The Fund is also committed to incorporating into its analyses the capacity of programs to help countries achieve the Millennium Development Goals (MDGs). De Rato also described the work on new instruments designed to assist LICs. He also highlighted his recommendation that the IMF needs to strengthen the voice of emerging-market economies and African members in the Fund.
Wolfowitz told the CSO representatives there are four reasons CSOs were important to the Bretton Woods institutions: first, they do things that governments either cannot do or do not do very well. Second, CSOs in developing countries are an important way of giving voice to the people and of giving people a chance to hold their governments accountable, or their societies accountable. Third, CSOs in developed countries and increasingly in developing countries can tell international institutions what the effects of programs are and where they are making mistakes. Fourth, CSOs have an advocacy role where they support institutions in efforts to get governments to live up to their commitments and promises.
Manuel reminded the meeting that 2005 was the year the world was going to make poverty history. With only 101 days left, a crisis of inaction loomed. The key challenge is whether this year will be seen in retrospect as a year of wasted opportunity instead of the year of development. Manuel said the UN Millennium Summit had, in many respects, failed to live up to the expectations of the developing world. But participants need to remain committed together because "the challenge of making poverty history is one that I don't think we should allow to slip from our hands," Manuel said.
Questions and comments from CSOs covered issues such as Iraq (also see article on Jubilee Iraq meeting), user fees for primary health care, and debt relief. A full transcript is available at http://www.imf.org.
On September 21, a panel discussion on Accountability Within the Poverty Reduction Strategies Approach examined World Vision UK's report on "Poverty Reduction Strategies: Are They Working?" and the World Bank/IMF 2005 PRS Review. Panelists were Fletcher Tembo of World Vision UK; Warren Nyamugasira of the Uganda National NGO Forum; Linda van Gelder and Luca Barbone of the World Bank's Poverty Reduction Group and Elliott Harris of the IMF Policy Development and Review Department (PDR). Tembo and Nyamugasira addressed whether the poverty reduction strategies can really engage the poor and how to further involve civil society in the process. Harris and van Gelder provided general recommendations for opening up greater policy dialogue space.
On September 22, "Bottom Line" Perspective on the Doha Development Agenda: "Aid for trade," Enhancing National Revenues and Debt Sustainability, addressed the key elements of the Doha Agenda and how they influence the mobilization of resources for poverty reduction. The session, moderated by Liane Schalatek of the Heinrich Boell Foundation, focused on the need for additional aid to support trade reforms adopted by developing nations to strengthen trade competitiveness. Panelists included Nancy Alexander of the Citizens' Network for Essential Services; Uri Dadush of the World Bank's Development Prospects Group; Hans Peter Lankes of PDR; and Sony Kapoor, Senior Economic Adviser at Jubilee Research. Dadush and Lankes emphasized that two World Bank and IMF channels for trade liberalization assistance—the Integrated Framework for Trade-Related Technical Assistance and the Multilateral Fund to Support Trade—have enabled countries to pursue prudent policies that have in part caused an income increase of 6 percent in developing nations since 2004. Alexander and Kapoor were skeptical of the positive impact of policies that encourage developing nations to open markets.
On September 22, PDR's Mark Plant led a session to discuss the recent work and papers on The Role of the Fund in Low-Income Countries. IMF staff explained recent initiatives, including the new window in the PRGF Trust to help LICs facing exogenous shocks; the new Policy Support Instrument; and reviews of the IMF's role in the poverty-reduction process and the design of PRGF-supported programs. Other IMF panelists included Patricia Alonso-Gamo, Mumtaz Hussain, Abebe Selassie, and Simon Johnson (see article for an overview of these initiatives).
On September 22, Luca Barbone of the World Bank and Robert Gillingham, of the Poverty and Social Impact Analysis (PSIA) Group in the IMF's Fiscal Affairs Department participated in the launch of the recent Eurodad PSIA Advocacy Report. The panel discussed the results of a six-month study of how the World Bank and development partners are carrying out PSIA work, with reference to case studies from Ghana, Mali, Vietnam and Nicaragua. The session was held at the offices of InterAction, a consortium of U.S.-based NGOs.
On September 24, Jean-François Perrault and Michael Koch, of the World Bank's Resource Mobilization Department, and Martine Guerguil and Mark Plant of PDR participated in The HIPC Initiative and the G-8 Debt Proposal, to discuss the recently published report, "Heavily Indebted Poor Countries (HIPC) Initiative–Status of Implementation" and to update developments related to the debt proposal. The panel focused first on the HIPC progress report, including the degree of participation by commercial and non-Paris Club creditors, and the potential inclusion of new eligible countries. Plant then summarized the issues under discussion at the IMF on the debt relief proposal.
Legislators debate debt, trade, and other issues
In a year marked by promises of debt cancellation, more open trade, and more effective aid, what role can parliamentarians play to ensure that commitments are honored so that countries make progress toward the Millennium Development Goals (MDGs)? How can legislators bring the concerns of their domestic constituents to bear in the global decision-making process? These were some of the challenges discussed by parliamentarians at the sixth annual conference of the Parliamentary Network on the World Bank (PNoWB), held in Helsinki on October 21-23. The conference that brought together about 200 members of parliament (MPs) from 90 countries.
The gathering produced a lively debate among the legislators, and with representatives of civil society organizations, think tanks, multilateral agencies, as well as WTO Director General Pascal Lamy, and World Bank President Paul Wolfowitz. Representing the IMF were Thomas Dawson, Director of the External Relations Department, Mark Plant, Senior Advisor in the Policy Development and Review Department, and Parliamentary Liaison Sabina Bhatia. Dawson presented the IMF's Medium-Term Strategy, and Plant spoke on actions needed beyond 2005 to move countries toward achieving the MDGs.
President Yudhoyono of Indonesia, addressing participants via video link as the keynote speaker, said the Millennium Development Goals are "our best hope for humanity.". The MDGs are not the brainchild of one country or group of countries and are not being imposed by any country or group, he said. Rather, all countries have equal ownership of the goals. The goals have universal relevance and the message to all countries is that "you are not alone, but are part of a global movement," Yudhoyono said.
The G-8 debt cancellation plan was uniformly welcomed, but the discussion revealed some uneasiness. Expressing the view of many poor countries, Charles Mutasa of the African Forum and Network on Debt and Development (AFRODAD) argued that the problem with the original Heavily Indebted Poor Countries initiative, and now with debt cancellation, is that several countries with heavy debt burdens are not included and therefore are unable to benefit. Expressing the view of the World Bank, Vikram Nehru, Director of the Debt Department, said that depending on how many countries are finally included, the cost to the World Bank's International Development Association could be substantial and could jeopardize future lending. Several speakers expressed the hope that no additional conditionality would be attached to debt cancellation.
Alison Johnson of Debt Relief International called on parliamentarians from borrowing countries to scrutinize carefully government spending to ensure that debt relief actually helps countries progress toward the MDGs. Looking ahead, she said legislators should monitor future borrowing to avoid the re-accumulation of unsustainable debts. Mutasa suggested setting up a debt management office supervised by the parliament. More generally, discussion of macroeconomic issues between legislators and the government would be desirable, said the IMF's Mark Plant, speaking at a later session.
Another central topic at the conference was trade and the upcoming WTO ministerial meetings in Hong Kong. "When two elephants fight, the grass ends up suffering," observed Mutahi Kagwe, MP from Kenya, describing worries about the current state of negotiations between the U.S. and the EU over trade-distorting agricultural subsidies. WTO Director General Pascal Lamy, speaking via video link, observed that the U.S. and EU were too far apart for negotiations to progress. He warned that if the Hong Kong meetings in December collapse, it will derail the chances of completing the Doha Development Round by end-2006. Speaking at a different session, World Bank President Paul Wolfowitz said that while it may be difficult for political leaders in the industrialized nations to give up subsidies and other barriers to free trade, this "temporary discomfort is nothing compared with the daily discomfort and deprivation faced by the world's poorest people." Bert Koenders, MP from the Netherlands and chair of PNoWB said that while legislators from different countries may have divergent views on specific trade issues, it is important that they actively debate these issues among themselves. At home, parliamentarians should scrutinize carefully trade agreements and question their governments in parliament, he said.
The problem, however, as several speakers noted, is lack of capacity. Legislators do not have the resources or access to information to monitor and scrutinize the actions of their governments. Frannie Leautier of the World Bank Institute described the Institute's extensive parliamentary training program, and Peter Koeppinger of the German foundation Konrad Adenauer Stiftung noted that his organization provides extensive capacity building not only to parliamentarians but also to legislative staff and political parties. Beatrice Kiraso, MP from Uganda, said that while such training programs are useful, peer training—legislators sharing experience and knowledge with one another—is even more valuable.
Managing Director de Rato meets with Jubilee Iraq
At the Annual Meetings Townhall with civil society organizations (see article), Jubilee Iraq representative Maysa Ibrahim raised questions related to conditions that might be attached to a future IMF arrangement with Iraq—especially the question of fuel subsidies. After responding during the gathering, IMF Managing Director Rodrigo de Rato invited Ibrahim to discuss the issue with him at a follow-up meeting.
At the September 26 meeting with de Rato and Iraq mission chief Adam Bennett, Ibrahim asked about the possible removal of Iraq's oil subsidies and how such a step could be reconciled with the democratic process. De Rato acknowledged that conditions in Iraq are extremely difficult. However, he said that the IMF's financial help since September 2004 (under the Emergency Post Conflict Assistance facility) has helped the economy. The IMF will start working on a stand-by arrangement with Iraq, and even though the details have not been worked out yet, he said that there are three priorities. The first is that the Iraqi authorities will need to continue improving the economic data they provide to the IMF. The second is an audit of the Central Bank. The third is a shift from a policy of broad subsidies to a policy focusing government support on the needy. Iraq spends the equivalent of 25 percent of GDP on oil subsidies, or about US$8 billion a year. The major beneficiaries of these subsidies are people who take the oil from Iraq, where gasoline sells for 2 cents a liter, and sell it in Jordan for 50 cents. The current subsidies are not targeted at the poor, but benefit those who are better off, including speculators. De Rato said that the IMF is not asking the Iraqi Government to immediately eliminate the subsidies, but to have a plan to reduce them and use those resources for social policy. Ibrahim argued that oil subsidies were the only means of distributing wealth in Iraq. De Rato said that he was generally very happy to hear criticism on the issue of wealth distribution and encouraged Jubilee Iraq to call on the Iraqi government to devote resources from the subsidies to social programs.
Ibrahim said that until now Jubilee Iraq has seen no viable alternative to the subsidies. The group makes the case to communicate to Iraqis what needs to be done in the country and to try to bring the disenfranchised into this process. This buy-in is crucial, Ibrahim said, as the current government is only transitional. If this government pushes reforms through without buy-in, she added, the IMF might be seen as a vehicle of economic occupation. The Managing Director emphasized that the IMF is not asking to change the subsidy system because of budgetary pressures, but to use it for social purposes and in a more direct and targeted way.
African labor leaders discuss Africa's development challenges
Bassirou Sarr, Center Coordinator for the IMF East Africa Regional Technical Assistance Center (AFRITAC), participated in the 14th Congress of the African Regional Organization of the International Confederation of the Free Trade Union (ICFTU-AFRO) held in Tunis, Tunisia on September 28-30, 2005. The conference was attended by about 200 labor leaders from 46 African countries, representatives from Asia, Europe and North America, and representatives from regional and international organizations and civil society organizations. The main objective of the congress was to review the activities of the ICFTU-AFRO and articulate a medium-term vision for the African Trade Union movement. The central theme was Africa's development challenges and what unions can do to address them. A vision paper entitled, "Organizing, Development and Social Justice: Challenges for the African trade Union Movement" was discussed.
The congress was preceded by a two-day forum at which Sarr was invited to make a presentation on one of the selected themes "Making NEPAD Work for African Workers." The forum was opened by Andrew Kailembo, ICFTU-AFRO's Secretary General, who welcomed the recent efforts by the New Partnership for Africa's Development (NEPAD) Secretariat to involve trade unions in the dialogue on policies and to institutionalize a tripartite consultative forum (NEPAD, government and labor) as a framework for future relations. Sarr said that by subscribing to NEPAD, African governments have emphasized their commitment to reforming public financial management, thereby contributing to better governance, faster economic growth, and poverty reduction. He stressed that progress in governance and economic and financial management is essential to ensure a stable and productive environment to attract the investment necessary for economic growth, and job creation, and to encourage increased donor financing through budgetary support. While long-term goals have been formulated in the areas of growth and poverty reduction, insufficient attention has been given to formulating goals in public finance management. He cited the two IMF regional technical assistance centers in Africa as an example of the IMF's work to help members improve governance and public financial management. These centers play a very specific role in providing advisory support and capacity building in three specialized areas of competence: financial systems, public finances, and macroeconomic statistics. All three areas are essential to underpin the broader reform efforts in governance and economic and financial management.
The forum was a good opportunity for Sarr to discuss with union representatives the role of the Fund in debt relief and its work with low-income members. Labor participants recognized that a priority for the union movement will be to build the necessary capacity to formulate alternative policies and take maximum advantage of the increased opportunity for regular dialogue with international financial institutions. While they agreed that substantial progress has been made in the dialogue, a lot more needs to be done to enhance trade union participation in the Poverty Reduction Strategy Paper (PRSP) process, as well as influence the policy content of the PRSPs.
On October 18, I was invited by the Kenya Alliance of Resident Associations (KARA) to address their inaugural luncheon on the subject of "Civilian Oversight Over Government Expenditure and Government Role in Economic Growth." KARA was founded in 1999 as an umbrella body for some 180 resident associations from across Kenya. KARA and its member associations are engaged in advocacy on governance, environment, security, water, land, and judicial issues. Publishing a weekly e-newsletter since the beginning of this year, KARA has emerged as a serious interlocutor for central and local government. The inaugural luncheon was attended by about 120 representatives of KARA member associations from different parts of the country as well as special guests from government and donor organizations. In my address, I stressed the need for civil society organizations to build their own capacity to enable them to articulate realistic positions and engage government effectively. Questions from participants focused on the governance challenges of Kenya's new Constituencies Development Fund (CDF), which was created in 2003 to boost development spending at the constituency level. I agreed that problems existed in the administration of the CDF, but I also noted that on many issues the Government of Kenya sought the views of civil society and other stakeholders, if not always with sufficient time for preparation and discussion.
During the visit of the IMF mission to Lusaka in October 2005, meetings were arranged with members of civil society and trade union representatives. Previous missions had held similar meetings with these organizations. As debt issues and privatization policy had dominated past meetings, the recent attainment of full HIPC debt relief and the prospect of further relief from the multilateral debt relief initiative seemed to account for a relaxed atmosphere that allowed for constructive discussions.
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