Joint letter to the Nordic Ministers and representatives
prior to the World Bank and IMF Annual Meetings 2004
Neither the international development community nor the institutions themselves have paid much attention to the 60 years of existence of Bretton Woods Institutions.
The annual Status Report of the Nordic-Baltic Office interpret this lack of recognition as a sign of development communitys ever growing acceptance of the role and the policies of the International Financial Institutions. The Bretton Woods Institutions often set the agenda and the tone of the international development debate because they have the resources and the research capacities to do so.
Taking this into consideration it is even more disappointing to find some important topics again and again in the agenda of WB/IMF Annual Meetings with no substantial progress made. With this letter we, Nordic organisations working for poverty reduction, debt cancellation and sustainable development, would like to focus on some of these important topics:
1. Voice and participation of developing and transition countries in the decision-making of Bretton Woods Institutions
In 60 years the world economic balance has changed radically but the current quotas (or shares in case of the WB) determining the voting power still reflect the power relations of the year 1944.
Despite the commitment made in the Monterrey Financing for Development Conference in 2002, little advance has been made in enhancing the voice and participation of developing countries in IFI decision-making structures. This strongly undermines the legitimacy of the institutions in all aspects and must change towards a system where developing countries have an equal share of influence.
For this, not only the differential system with quotas must be revised, but also the representativity of Executive Directors in the Boards. Today Europe has unreasonably many Executive Directors while the African countries have unreasonably few. In light of this we call on you, our Ministers and representatives to the World Bank and the IMF, to work for
A revision of the outdated quota formulas, both the basic votes and the quota shares. For the World Bank the relationship between developed and developing countries should be in balance, as it is practised in some of the regional development banks.
A change the number of the chairs in the Board or a rearrangement of the constitutions so that the representation of developing countries -especially the African ones increases.
The introduction of transparent procedures in the work of the Board, especially formal voting procedures so that the decision-makers can be hold accountable.
2. Critical findings in recent PRSP and PRGF evaluations
It is now five years since structural adjustment programs were replaced by Poverty Reduction Strategy Papers (PRSPs) and as of now and today 54 countries have developed a full or interim PRSP.
Timely the evaluation offices of both the World Bank (OED) and the IMF (IEO) have produced two evaluations on the role of each institution in the implementation of the PRSPs and/or the IMF Poverty Reduction and Growth Facility Programmes (PRGFs).
One of the main conclusions of both reports is that there is an inherent tension between a Bank/IMF-driven initiative involving conditionality and the objective of PRSPs to be country-driven and nationally owned.
The report also indicates that there is a question mark over whether there has been a reduction of IMF and World Bank conditionality. Further, these conditionalities are not derived from, nor consistent with, nationally produced PRSPs. The reports also conclude that there is a general failing to explore and discuss alternative macro-economic policy options.
Further the reports conclude that although there are improvements regarding participation in the formulation of PRSPs, the participatory processes were not designed to strengthen existing domestic processes for policy formulation. This in combination with the conditionalities imposed by the World Bank and the IMF, seriously undermine national decision making processes such as the role of Parliaments.
The findings of the OED and IEO reports are very much in line with the experience of our partner organisations in developing countries. The findings also echo the findings of the Review of Nordic monitoring of the World Bank and IMF support to the PRSP process (March 2003).
It is clear that for PRSPs to fulfill their potential in encouraging country-owned development, major changes are needed. In light of this we call on you, our Ministers and representatives to the World Bank and the IMF, to secure that:
– The World Bank and the IMF allow important decisions on policy reforms to be decided through domestic policy-making processes, rather than imposing conditionalities constraining ownership of PRSPs.
– PRSPs must be defined by recipient countries with full parliamentary scrutiny and oversight.
– The World Bank and the IMF assist countries in exploring a wide range of alternative policy choices.
– The World Bank and IMF will place greater emphasis on supporting governments in participatory processes that strengthen existing institutional processes for policy formulation and accountability.
– Civil society involvement, as well as the involvement of other political institutions, should be institutionalised.
3. Debt sustainability and IDA 14 replenishment
Eight years after the launch of the HIPC initiative, many countries are again experiencing severe debt problems. Uganda, for instance, has debt to exports ratio of 300 per cent as a result of falling prices on their main export commodities. The HIPC countries are still spending around 15 per cent of their revenues on servicing debt.
The inability of low-income countries to make progress on MDGs, as documented in the latest Human Development Report (2004), show that more radical efforts are needed if we are serious about these countries reaching the goals. Investments in schools, health clinics, water systems, rural infrastructure etc must have a higher priority than debt repayments. Taking this approach to debt cancellation, a large number of poor country governments will need 100 per cent cancellation of pre-decision point debts.
The International Financial Institutions (IFIs) must also revise their lending practices for low-income countries. IFIs usually lend money to developing countries on the condition of economic policy reforms embedded in poverty reduction strategies. Only qualified poor countries can get 40 per cent of the World Banks IDA loans in the form of grants.
However, if the PRS programs fail to provide expected outcomes, many countries will face severe difficulties in paying back even these “soft” loans. The mix between loans and grants should therefore be reviewed on a country case by case basis given the countrys vulnerability to future unsustainable debts and the investments needed to fulfill the MDGs.
However, more than 20 years of debt restructuring has shown that creditor initiatives will not on its own solve the fundamental power issue that lies underneath recurrent debt crises. New innovative institutions need therefore to be put into place in order to strike a fair balance between creditors and borrowers.
We argue strongly for a fair international process of debt arbitration – for both low and middle income countries – in order to resolve the repayment of past and future debts created through loans that went to non-productive or failed projects and programs or were misappropriated by governments.
To solve the unsustainable debt situation that endangers the achievement of MDGs by 2015 we call on you, our Ministers and representatives to the World Bank and the IMF, to secure that:
– The pre-decision point debts of poor countries committed to poverty eradication be written off where these debts is reducing the possibilities of reaching the MDGs
– IDA-14 support is provided in such a way that it t will not lead to new unsustainable debts for debt-vulnerable, poor countries
– The mix of loans and grants in IFI loans be revised, and that all future financing to low income countries must include a much stronger grant element.
– A transparent, fair and independent international arbitration process on debt be established.
As a Nordic network of NGOs working with debt cancellation and sustainable development, we ask you as our Ministers and representatives to take into account the points made in this letter and bring them up in relevant discussions and fora at the World Bank and IMF Spring Meetings 2004.
North/South Coalition, Denmark
KEPA, Finland
SLUG, Norway
Swedish Jubilee Network
Swedish Society for Nature Conservation
