[DEBATE] : (Fwd) Norway conference on IMF-World Bank conditionality

Sun Nov 26 04:37:23 GMT 2006

*TWN Info Service on Finance and Development (Nov06/02)*

*25 November 2006*

*Third World** Network*

*www.twnside.org.sg <http://www.twnside.org.sg>*

*NORWAY CONFERENCE WILL REVIEW IMF-WORLD BANK CONDITIONALITY*

Pressure on the World Bank and the International Monetary Fund to change 
the policy conditionalities attached to their loans is expected to grow 
from a conference being hosted next week by the Norwegian government to 
discuss this issue.

The conference in Oslo on 28-29 November will bring together government 
officials from donor countries, academics, NGOs and international 
agencies to review these policy conditionalities and plan follow-up action.

Meanwhile, a study commissioned for the conference by the Norwegian 
government has been critical of how the Bretton Woods institutions were 
still pressurising borrowing countries to implement privatization and 
trade liberalization, in spite of rhetoric to contrary. 

The study also found that there remains a notable absence of "policy 
space" in many of these countries to implement economic policies 
contrary to those advocated by the Bank and the Fund despite the 
institutions' conceptual shift towards "ownership" as a principle 
guiding their lending operations.

Below is a report on the upcoming conference and details of the 
commissioned study.

It was published in SUNS # 6148 Friday 24 November 2006

With best wishes

Martin Khor

*Norway conference will review IMF-World Bank conditionality*

By Celine Tan, 23 November 2006

Pressure on the World Bank and the International Monetary Fund to change 
the policy conditionalities attached to their loans is expected to grow 
from a conference being hosted next week by the Norwegian government to 
discuss this issue.

The conference in Oslo on 28-29 November will bring together government 
officials from donor countries, academics, NGOs and international 
agencies to review these policy conditionalities and plan follow-up action.

According to NGOs involved in the meeting, the Conference in Oslo on 
28-29 November could be a "breakthrough" in the way governments of some 
developed countries view these conditionalities and the changes they 
would request the Fund and the Bank to make.

Meanwhile, a study commissioned for the conference by the Norwegian 
government was critical of how the Bretton Woods institutions were still 
pressurising borrowing countries to implement privatization and trade 
liberalization, in spite of rhetoric to contrary.

An information note on the conference by Norway's Ministry of Foreign 
Affairs states that "there is an ongoing debate about how conditionality 
should be applied, and what it should comprise.  For instance, both 
Norway and the UK state that the World Bank should not tie its loans to 
privatisation and liberalisation requirements."

The conference will discuss current conditionality practice;  the extent 
conditionality is needed and how it should be formulated; the process 
leading to conditionality and the "ownership of conditionality related 
to privatisation and liberalisation".

The meeting will also aim to reach a common understanding of what 
constitutes necessary and sufficient conditionality and to issue a joint 
statement on remaining challenges related to conditionality.

The conference is hosted by Norway's Minister of International 
Development Minister Erik Solheim.  Speakers will include the UK's 
Undersecretary of State for International Development Gareth Thomas, 
Former Ugandan Finance Minister Gerald Ssendaula, senior World Bank and 
IMF officials, and Christian Aid policy head Charles Abugre.

The Norwegian Finance Minister Kristin Halvorsen will chair a 
closed-door session, on follow-up action, for 29 November for invited 
representatives from donor Ministries.

The session's objective is "to reach a common understanding on what 
constitutes necessary  and sufficient conditionality and agree to how to 
follow up on IFI policy and practices."

The conference has been prompted by the concern of the Norwegian 
government about the adverse effects of some of the conditionalities of 
the Fund and the Bank, especially those relating to privatisation and 
liberalisation.

This is in light of the current Norwegian government policy -- contained 
in the Soria Moria Declaration on International Policy -- that Norwegian 
aid should not be used to support financing programmes which are 
conditional on privatization or liberalization reforms undertaken by the 
client government.

These continuing concerns can be seen from the findings of a study 
commissioned by the government for use of the Conference.   The study 
examined the extent to which the Bank and the Fund continue to pressure 
borrowing governments to privatize or liberalize through loan 
conditionalities. 

It concluded that privatization and trade liberalization continue to 
feature significantly in loan conditionalities and policy advice from 
the both the Bank and the Fund in spite of rhetoric to contrary.

The report, entitled "The World Bank's and the IMF's use of 
Conditionality to Encourage Privatization and Liberalization: Current 
Issues and Practices", found that the Bretton Woods institutions still 
express "strong policy preferences" in favour of privatization and trade 
liberalization in developing countries although there has been some 
changes in the prescribed modalities through which such reforms are 
implemented in borrowing countries.

The study also found that there remains a notable absence of "policy 
space" in many of these countries to implement economic policies 
contrary to those advocated by the Bank and the Fund despite the 
institutions' conceptual shift towards "ownership" as a principle 
guiding their lending operations.

A review, conducted by the commissioned research team, of 40 IMF 
programmes under the institution's Poverty Reduction and Growth Facility 
(PRGF) showed that privatization and liberalization "still figure as 
important elements" in PGRF loans, with 26 out of 40 programmes 
containing conditions which "demanded either privatization or 
liberalization", with privatization being the most common. This, again, 
is in spite of the IMF's recently reviewed guidelines on conditionality 
which proposed to limit the number of structural conditions imposed by 
the IMF.

Conditionalities requiring countries to privatize state-owned 
enterprises were contained in 23 of the 40 programmes studied while an 
additional 10 programmes detailed privatization plans by the borrowing 
government but were not explicitly included in the loans as policy 
conditionalities, the study found. Accordingly, the report concluded 
that "in only 7 of the 40 cases did privatization not figure as an 
important element of the PRGF".

The review also found that there was also a shift in emphasis in the 
policy conditionalities relating to privatization with conditionalities 
increasingly focused on developing regulatory frameworks and 
institutions to facilitate the process of privatization in developing 
countries. This shift is particularly noticeable in Bank lending conditions.

This shift is consistent with the Bretton Woods institutions' 
much-touted shift from "first generation reforms" -- of "getting prices 
right" -- to "second generation reforms" -- of "getting institutions 
right" highlighted in previous studies of Bank and Fund conditionality.

On liberalization, the study found that the Bank and Fund remain strong 
advocates of trade liberalization, including the removal of tariffs, 
price deregulation and the removal of subsidies in different economic 
sectors.

The study concluded that despite the lack of empirical evidence 
demonstrating the correlation between trade liberalization and poverty 
reduction, trade liberalization continues to "be oversold as a poverty 
reduction strategy" by the two institutions and that many Bank and Fund 
programmes continue to be geared towards "facilitating trade 
liberalization and export promotion" without clear analysis of what the 
impacts are on domestic economies and poverty.

The findings from a review of IMF policy and practice also reveal that 
"the Fund sees the liberalization of trade as a goal in itself and not 
as a case dependent item on a menu of development policies" for the 
borrowing country.

The report therefore concluded that the policies of the World Bank and 
IMF in the area of privatization and trade liberalization continue to be 
particularly problematic from the perspective of the Norwegian policy on 
aid as the use of conditionality, especially by the Fund to pursue 
reform in these areas, may be inconsistent to "the intentions of the 
Norwegian government".

Furthermore, the report notes that while there is "a stronger sense of 
national ownership" of lending programmes today, this "ownership" is 
often circumscribed by various factors, not least the question of 
whether and how the concept of "ownership" is defined and applied.

The study found that "ownership" of economic policies under Bank and 
Fund programmes are weakened by the limited participatory process of 
national stakeholders in the design of policies, even though all the 
countries studied are required to engage in a broad-based participatory 
Poverty Reduction Strategy Paper (PRSP) process as a pre-requisites of 
their financing from the Bank and Fund's concessional lending facilities.

"Ownership" is also weakened by the extensive use of foreign consultants 
in the design of economic policies in developing countries, leading to a 
lack of local input and constraints on local capacity to develop 
national plans. This lack of "policy space" is exacerbated by the lack 
of analysis of policy alternatives presented to the government in 
question and where there has been divergent voices in national 
policymaking, Bank and Fund officials have "used these differences 
strategically to promote their own view".

There is also a concern, highlighted by the report, of the shrinkage of 
policy space resulting from increased donor coordination. While noting 
that harmonisation is a positive step forward in aid relations, this may 
turn out to be "a double-edged sword for borrowing countries". The 
report's case studies of four countries -- Bangladesh, Mozambique, 
Uganda and Zambia -- found that policymakers in developing countries 
express concern that donors may "gang up" on governments as a result of 
greater coordination of donor policies on aid, leaving client 
governments with even less policy space.

The report and the associated conference comes at a time when some 
European governments are beginning to rethink their aid policies, such 
as their approach to policy conditionality, particularly the linking of 
privatization and trade liberalization reforms to development financing.

Last year, the UK government had announced it will no longer condition 
its bilateral aid on countries adopting measures to privatize or 
liberalize while this year, its Department for International Development 
(DFID) announced that it was withholding £50 million of its funding to 
the World Bank as the UK government was dissatisfied with the progress 
the Bank was making in tying economic policy reforms to its lending.

The Norwegian government has not only expressed similar views on 
conditionality, it has also expressed greater support for developing 
countries in the international aid architecture, including advocating 
for faster and deeper debt relief and  the cancellation of "illegitimate 
debt" as well as for more progressive aid accounting, including the 
decoupling of "military aid" from official development assistance.

The government has also called for greater democratisation of the Bank 
and Fund, including "ensuring that the voting right is not solely linked 
to capital contributions".

Norway also recently proposed to cancel US$80 million in debt owed to 
the country by five developing countries in acknowledgement that the 
debt was extended irresponsibly and without due regard for the 
developmental needs of the recipient countries.

The Norwegian government's Soria Moria Declaration on International 
Policy can be found at: 
http://odin.dep.no/smk/english/government/government/001001-990363/dok-bn.html

***

Civil Society call for end to economic policy conditionality
23/11/2006

39 organisations have already signed the CSO Common Statement on the 
Norwegian conference on conditionality calling to phase out harmful 
economic policy conditionality in WB and IMF development lending.

The Norwegian conference on economic policy conditionality

The so long awaited Norwegian conference on conditionality is taking 
place next week in Oslo -- on Tuesday 28th and Wednesday 29th November.

The conference is a great occasion to push governments to adopt a more 
progressive stance on economic policy conditionality and call on them to 
put pressure on the IFI to stop tying so-much needed aid and debt relief 
to harmful economic conditions.

Governmental representatives from Canada, Denmark, Estonia, Finland, 
Germany, the Netherlands, Sweden and the UK will attend the conference, 
which is intended to:

    * assess the WB's and the IMF's current application of 
conditionality to encourage privatisation and liberalisation and
    * explore the possibilities to shift from one-sided conditionality 
to mutual accountability.

On the occasion of the conference, civil society organisations 
participating at the conference have drafted a common sign-on statement, 
which has been already signed by 39 organisations.

CSO Common statement on the Norwegian conference

23rd November 2006

In 2005 donor governments committed to significant increases in the 
volume and quality of development aid. A large amount of this is likely 
to be delivered by the World Bank and the IMF, which are also very 
influential in the spending allocations of other agencies. However, 
economic policy conditionality imposed by the World Bank and the IMF on 
developing countries has harmed development in some of the poorest 
countries and remains a key challenge if aid effectiveness is to be 
taken seriously.

We welcome the Norwegian government's decision to convene a Conference 
on Economic Policy Conditionality. It provides a unique opportunity to 
promote vitally important reform to help development in the poorest 
countries of the world.

We call on our governments to strongly support the process and use this 
opportunity to formulate positions to end tying much-needed aid and debt 
relief to harmful economic policy conditions.

Economic policy conditionality -- continuing to damage development

When external agencies impose detailed conditions on the finance they 
provide for developing countries this has a series of unfortunate 
effects. It:

    * Limits the policy space available for developing countries to 
determine their own policies for poverty reduction, and undermines 
domestic citizens' rights in decision making processes and national 
sovereignty;
    * Can delay poor countries from receiving much-needed resources;
    * Can increase aid volatility, as resources may suddenly stop 
flowing if conditions are not met;
    * Imposes a significant administrative burden on already 
over-stretched developing governments; and,
    * Has often done more harm than good when it comes to poverty reduction.

There is a growing body of evidence -- both official and independent -- 
showing that conditionality has failed. The Bank's 2005 review of 
conditionality agreed to the principles of ownership, harmonisation, 
customisation, criticality, transparency and predictability. 
Unfortunately, there is little evidence that the Bank is doing nearly 
enough to change its practice. The Bank claims a reduction of 
conditionality; however, this is owed, to a great extent, to the fact 
that interventions that CSO consider conditionalities are not labelled 
as such by the Bank enabling official statistics to appear more positive 
than it is the reality.

Recent research conducted by CSOs has found that:

    * Aggregate World Bank and IMF economic policy conditions rose on 
average from 48 to 67 per loan between 2002 and 2005;
    * World Bank and IMF continue to put conditions on privatisation and 
liberalization despite the acknowledged frequent failures of these 
policies in the past;
    * The Bank does not give enough space for governments to define 
their own policies;
    * The continuing secrecy of World Bank and IMF negotiations with 
borrowing country governments inhibits the development of genuine broad 
based "ownership" and leaves reform programmes open to the accusation 
that they have been illegitimately forced on governments by the Bank;
    * IMF macroeconomic conditions, especially high interest rates aimed 
at combating moderate levels of inflation and stringent fiscal policies, 
impair much needed spending on social and economic development.

 From Oslo to greater aid effectiveness

The Norwegian conference provides a unique opportunity for progressive 
governments in the North and the South to call for an immediate end to 
tying aid and debt relief to liberalisation, privatisation and other 
economic policy reforms in poor countries, and to take immediate action 
to make it happen.

Northern countries are collectively the major contributors to the World 
Bank's concessional arm, the International Development Association 
(IDA); they also have an important presence on the World Bank and IMF 
Boards.

We urge our governments in the North and the South to show a resolute 
political commitment to:

    * Ensuring the World Bank and the IMF adopt a policy which prevents 
them from imposing economic policy conditions on poor countries when 
providing finance and debt relief;
    * Phase out harmful economic policy conditionality in WB and IMF 
lending practice;
    * Creating forums for equitable policy dialogue between northern and 
southern governments based on common commitments to international human 
rights law and other international agreements and its implications for 
the goals and modalities of international cooperation and aid;
    * Develop a shared strategy for action in 2007/8 (using 
opportunities such as the IDA 15 replenishment or the upcoming Poverty 
Reduction Growth Facility replenishment);
    * Host a follow-up ministerial level conference on economic policy 
conditionality in 2007 to build on this initiative.

SELECTED SOURCES:

    * Review of World Bank conditionality, by World Bank (September 
2005): 
http://siteresources.worldbank.org/PROJECTS/Resources/40940-1114615847489/ConditionalityFinalDCpaperDC9-9-05.pdf
    * Development Policy Lending retrospective, by World Bank 
(July2006): 
http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2006/07/14/000012009_20060714104555/Rendered/PDF/367720rev0pdf.pdf
    * World Bank and IMF conditionality: a development injustice, by 
EURODAD (June 2006): 
http://www.eurodad.org/uploadstore/cms/docs/Microsoft_Word__Eurodad_World_Bank_and_IMF_Conditionality_Report_Final_Version.pdf
    * A shadow review of World Bank conditionality, by ActionAid 
(September 2006): http://www.actionaid.org.uk/doc_lib/what_progress.pdf
    * Challenging conditions: A new strategy for reform at the World 
Bank and IMF, by Christian Aid (July 2006): 
http://www.christian-aid.org/indepth/607ifis/index.htm

SIGNED:

Organisation

Country

1

EURODAD

Regional network

2

ActionAid Europe

Regional network

3

Foreningen for Internasjonale Vannstudier (FIVAS)

Norway

4

IBIS

Denmark

5

Jubilee Scotland

UK

6

Bretton Woods Project

UK

7

Jubilee Debt Campaign

UK

8

SEED Europe

The Netherlands

9

Jubilee USA Network

USA

10

Development Fund of Norway

Norway

11

Alliance Sud

Switzerland

11

Kirkens Nødhjelp/ Norwegian Church Aid

Norway

12

WEED

Germany

13

Attac Finland

Finland

14

Oxfam Canada

Canada

15

Africafiles

Canada

16

British Columbia for Human Rights in the Philippines

Canada

17

Diakonia

Sweden

18

Plate-forme Dette & Développement

France

19

CCFD

France

20

Réseau Foi et Justice Afrique-Europe

France

21

Cordaid

The Netherlands

22

Service Center for Development Cooperation (KEPA)

Finland

23

Canadian Catholic Organization for Development and Peace

Canada

24

The Social Justice Committee

Canada

25

Halifax Initiative Coalition

Canada

26

KOO

Austria

27

Attac Norway

Norway

28

Canadian Catholic Organization for Development and Peace

Canada

29

Canadian Labour Congress

Canada

30

Kindernothilfe

Germany

31

Arbeitsgemeinschaft Entwicklungszusammenarbeit (AGEZ)

Austria

32

The Confederation of Unions for Professionals

Norway

33

CIDSE

Regional Network

34

Church of Sweden

Sweden

35

Union of Education

Norway

36

Oxfam International

International network

37

Coordinadora Civil de Nicaragua

Nicaragua

38

Uganda Coalition for Sustainable Development

Uganda

39

Danish Association for International Cooperation

Denmark