[stop-imf] ICFTU to IMF/WB: for global stimulus, against austerity

[Robert Weissman]

http://www.icftu.org/displaydocument.asp?Index=3D991217355&Language=3DEN

A GLOBAL STIMULUS PLAN: ROLE OF THE IFIs TO AVOID WORLD RECESSION AND
PROMOTE SOCIAL DEVELOPMENT

GLOBAL UNIONS
INTERNATIONAL CONFEDERATION OF FREE TRADE UNIONS (ICFTU)
GLOBAL UNION FEDERATIONS (GUFs) TRADE UNION ADVISORY COMMITTEE TO THE
OECD (TUAC)

Statement by Global Unions to the 2003 Spring Meetings of the IMF and
World Bank

 (Washington, 12-13 April 2003)

Introduction

 A global stimulus plan is required

 1. The world economy is currently in a more precarious situation that
it has been for years, if not decades. Economic growth has fallen
throughout the world, and the consequences of military conflict in Iraq
along with the repercussions from an ever-increasing number of major
corporate scandals have made the future even more uncertain.
Unemployment has increased in all regions, both industrialized and
developing, and poverty remains appallingly high with a particularly
serious effect on women. The developing and transition economies have
suffered particularly from this situation, as markets for their exports
decline, oil prices increase, and sources of capital dry up. The global
economic slowdown, which could even turn into deflation, brings the
world further away from achieving the Millennium Development Goals, only
three years after they were adopted. The current economic situation
calls for a global stimulus plan aimed at providing decent employment
and improving the living standards of those at the lowest incomes.
Global Unions believe that the IMF and World Bank could play key roles
in designing and applying such a plan, but that, to do so, they must
adopt major reforms in their polices and practices as outlined in the
statement below.

 Increased Debt Relief and Regulation of International Financial System

 HIPC programme has not made debt levels sustainable

 2. With the stagnation of industrialized country markets, depressed
prices for non-oil commodities, and the legacy of unsustainable debt
burdens, a number of developing countries are finding themselves in
increasingly difficult straits, and existing IFI programmes do not
respond to their needs. The enhanced Heavily Indebted Poor Countries
(HIPC) Initiative, adopted with great fanfare in 1999, has so far
cancelled debt stocks in only six of the 41 countries initially deemed
eligible by the IFIs. The institutions have now confirmed that of the 26
countries of Africa and the Americas approved to eventually receive debt
relief payments through the HIPC Initiative, at least ten will not see
their debt brought down to "sustainable" levels even after the
application of HIPC. This is in relation to a debt sustainability
criterion (net present value of debt less than 150% of export earnings),
that most non-IFI analysts already consider too onerous.

 Expanded debt relief and development assistance for poor countries

 3. It is clear that the international community must do much more to
increase the level of debt cancellation, make a greater number of
countries eligible, and end orthodox IMF/World Bank structural
adjustment measures as conditions for benefiting from HIPC. At the same
time, official development assistance should be increased towards
attaining the official UN target of 0.7% of GNP. In this regard, the
proposal by the UK government to double aid to developing countries over
2003-15 in order to meet the MDGs through a new International Finance
Facility is most welcome, as is the proposal of President Lula da Silva
of Brazil for a new international fund to fight poverty and hunger in
developing countries. The IMF and World Bank spring meetings should
consider means for bringing about implementation of these proposals.

 Danger of further defaults in Latin America

 4. The poorest countries are not the only ones to have felt the
repercussions from recent economic developments. The so-called emerging
economies have also suffered from declining exports and, in addition,
have seen private financial institutions increasingly hesitant to
provide loans to their countries. According to the Bank for
International Settlements, the emerging economies became net creditors
to the international banking system (i.e. paying in more than they were
receiving) starting in 1998, immediately following the Asian financial
crisis, and this situation has continued into 2002. The emerging
economies' share of world bond issues have fallen from 15.8% in 1997 to
3.4% in the first three quarters of 2002. These factors have contributed
to the situation where interest rates, which are at historically low
levels in some industrialized countries, are at the highest levels in
years in many developing countries, further squeezing economic activity
and employment. It is for these reasons, plus the legacy of
unsustainable external debts, that Uruguay and several other Latin
American countries may find themselves in the situation of having to
default on these debts, as Argentina did in December 2001.

 Need for an international bankruptcy procedure

 5. Trade unions have for several years urged the international
community to adopt an international debt arbitration and bankruptcy
procedure. Such a procedure would allow for an orderly debt
restructuring that would be binding on all creditors, and that would
reduce the instability and social costs, as took place in the case of
Argentina, that are associated with defaults. Global Unions welcomed the
IMF's launch of a proposed Sovereign Debt Restructuring Mechanism (SDRM)
and participated in various opportunities for debate on this proposal.
However, unions have been, and continue to be, critical of various
aspects of the SDRM proposals. These include the lack of a definition of
sustainability thresholds that take into account needs for adequate
provision of public services, the exclusion of IFI debts from the
procedure, and the overly strong role of the IMF in the administration
of the mechanism. The latest SDRM design, released in early 2003,
further proposes to water down the standstill protection component (a
halt to debt payments) that should constitute a basic element of the
procedure. Global Unions will continue to campaign, along with other
organizations, for a transparent and effective procedure for addressing
unsustainable international debts.

 Measures to stabilize the international financial system

 6. Other than a brief flurry of revived interest in the immediate
aftermath of the Argentine default, global decision-makers seem to have
put aside concerns about the inherent instability of the international
financial system that was much in evidence in the late 1990s. The
Financial Stability Forum refused to open its deliberations to public
consultation or scrutiny, and subsequently produced little of substance.
The risks of deflation in industrialized countries and the unresolved
crises in Latin American and some other developing country economies
could bring this instability to a head once again in the near future.
The only important acknowledgement by the IFIs of the dangers of
destabilizing capital flows appears to be that they have ceased to
demand that developing countries immediately remove all controls on such
flows. For example, in a recent Article IV Consultation Report for South
Africa (January 2003), the IMF states its agreement with the government
that the rapid removal of capital controls "could create large capital
outflows". The World Bank seems to hold similar views when, for example,
it praises China, in a January 2003 Country Assistance Strategy (CAS),
for its "restricted convertibility of the capital account", one of the
major factors "which make China a creditworthy borrower". However,
neither institution has yet recommended that countries vulnerable to
destabilizing capital flows actually put in place capital controls.
Global Unions believe that along with an international debt
restructuring mechanism, steps should be taken to put in place other
measures, including a currency transaction (or Tobin) tax, a closer
coordination of major currencies, binding international standards for
the prudential regulation of financial markets, increased banking
transparency, and a strengthening of capital controls.

 Bringing Support for Labour Standards and Consultation into IFI Operations

 Steps forward in recognition of the core labour standards

 7. Global Unions have welcomed the renewed commitments in support of
the respect of the core labour standards (CLS) that have been made by
the IFIs through statements by their spokespersons and in publications.
When launching an extensive new study on unions and development in
February 2003, the World Bank stated that sound industrial relations
based on respect of the CLS contribute to economic stability and better
macroeconomic performance. It also declared that increased union
membership tends to reduce earnings inequality and wage discrimination
against women and minority groups. A high-level Bank manager was quoted
as stating that "coordination among social partners [unions, employers
and government] can promote better investment climates while also
fostering a fairer distribution of output". By recognizing the positive
developmental impact of the CLS and the important role that organized
labour can play in reducing inequality and poverty, the Bank has taken a
step forward in establishing a more coherent approach to labour issues.
Other World Bank publications have emphasized the importance of
comprehensive social protection measures to cushion populations against
economic shocks and to reduce poverty over the long term. However in
order for the more evolved discourse to have an impact on borrowing
countries, the Bank will obviously have to move from words to actions.

 On a country level, pressure to reduce worker protection

 8. Unfortunately, many country-level interventions of the World Bank
and the IMF do not show a similar concern with respecting CLS, promoting
social partnership, or ensuring improved social protection. For example,
in Croatia, the Bank and the Fund have been pressing the government to
reduce worker protection on the grounds that, as the Bank's country
director has stated publicly, reduced protection will automatically
result in higher economic growth rates. Croatian unions have argued that
improvements to social protection must go hand in hand with any changes
to labour laws that reduce worker protection, so as to avoid that
workers who lose their jobs fall into poverty. Not only have the Bank
and Fund rejected the unions' approach, they also urged the government
to bypass the established tripartite body and unilaterally introduce
labour law amendments. A similar development has taken place in Sri
Lanka: at IFI insistence, labour law reforms were pushed through
parliament while bypassing the established tripartite labour advisory
council. These cases show little regard by the IFIs for the importance
of coordination among social partners.

 Concern for labour flexibility, not labour rights

 9. Several other examples of country-level IFI interventions on labour
issues show great regard for "labour market flexibility" and reduced
labour costs, but none for the CLS. For example, the IMF's Article IV
Report for Colombia (January 2003) asserts that "more flexible labour
market policies would help spur economic growth" but complains that the
proposed reforms do "not go far enough" because the minimum wage is
still indexed to the cost of living. The Bank's CAS for Colombia
(December 2002) proposes that labour reforms be a key loan
conditionality. Neither institution mentions the extremely serious
threats to freedom of association in that country, with a total of 184
trade unionists murdered during 2002.

 IMF pressure to reduce benefits to the unemployed

 10. The IMF's firm belief that labour market deregulation and reduction
of protection are the cure for a number of economic ills also extends to
industrialized countries. In its October 2002 Article IV Report for
Germany, the Fund has decided to weigh in on the debate about labour
reforms in that country. Although the document recognizes in three
places that "tight macroeconomic policies" are the principal obstacle to
higher growth in Germany, more than a third of the report is devoted to
the IMF's propositions for a "a comprehensive package that moves toward
more flexible employment practices". The Fund's package includes
measures to encourage "wage moderation", an "aggressive elimination of
spending on active labour market policies", and a reduction of benefits
to the unemployed.

 Operational practice should be consistent with support for labour
standards

 11. Global Unions urge the IMF and World Bank to ensure that
country-level policy advice or loan conditions concerning labour issues
are consistent with their support for the CLS. Furthermore, respect of
the CLS should be integrated into World Bank operations, such as
procurement guidelines, where they should be mandatory elements of
bidding documents, and in IFC and MIGA contractual requirements. The
Bank should provide no funding for restructuring or privatization of
enterprises or sectors when employees do not have the freedom to join a
union, or where managers refuse to negotiate with the union when one
exists. Finally, Global Unions believe that the IFIs should encourage
countries to develop and maintain comprehensive social protection
programmes, including pensions, unemployment benefits, child support,
maternity, and sickness and injury benefits. All of these programmes are
important components of effective long-term poverty reduction
strategies, which both IFIs claim to be their overarching goal.

 Need to work on quality, as well as quantity, of consultations with
unions

 12. Furthermore, the IFIs must consult with trade unions before
finalizing their programmes and polices, both on a country level and
internationally. In recent years, both of the IFIs have increased the
frequency of consultations with trade unions. For example, ever since
the IMF announced in October 2000 that it would more systematically
consult trade unions when Fund missions prepare Article IV Reports,
ICFTU affiliates have observed a significant increase in invitations to
meet with IMF missions. However many affiliates complain, with regards
to IMF Article IV consultations and also World Bank CAS consultations,
about the perfunctory or superficial level of many of these
consultations and the lack of adequate documentation prior to or even at
the meetings. Global Unions call on the IFIs to improve both the quality
and the quantity of their country-level consultations with trade unions.

 The Need for Quality Public Services

 Growing resentment against IFI-led privatization

 11. All over the world, but most acutely so in Latin America, public
opinion is turning against the privatization that has been a key feature
of the IFIs' agenda over the past two decades. This reaction is not
based on the fact that "people don't know what is for their own good" as
IFI spokespersons often used to claim, but on the fact that
privatizations are frequently harmful to workers, consumers and the
poor. This is borne out by a growing body of research. A recent
extensive report on the distributional impact of privatization (Center
for Global Development, "Winners and Losers", May 2002), written by two
former high-level IFI officials, confirmed many popular perceptions. The
authors found that "more people have lost jobs than gained them through
privatization" and that privatizations are most often "accompanied by
increases in prices". They conclude that, "at least initially, and on
average, privatization has worsened wealth distribution and income
distribution". While the already wealthy have benefited from the
dismantling of state-owned enterprises and services, the rest of the
population usually suffered negative impacts.

 More open attitudes not reflected at country level

 12. Spokespersons of the World Bank have reacted to the growing wave of
protest against privatization by declaring that the Bank has no
predisposition in favour of privatization as opposed to increased
investment in public provision. However, as in the case with the core
labour standards, these attitudes are generally not reflected among the
country-level staff responsible for implementing World Bank policy.
Affiliates of Global Unions frequently report that they have great
difficulty in obtaining meetings with Bank staff engaged in the
privatization or restructuring of the services or enterprises where they
work. When they do obtain meetings, they are told that discussions have
to be limited to certain modalities concerning the privatization; any
questions about the decision on whether or not to privatize are
considered invalid or out of bounds. These attitudes sometimes find
their way into official Bank documents. For example, a June 2002 CAS for
Pakistan includes a report on consultations held on the CAS, which
mentions the strong criticism of the World Bank's privatization agenda
expressed by several participants. The report perfunctorily dismisses
these critiques on the grounds that, in the Bank's opinion, they only
reflect the opinion of "urban =E9lites".

 Corruption and incompetence among private providers

 13. The Bank has accepted to discuss the broader issues concerning
privatization of public services in the consultations for the 2004 World
Development Report (WDR) on "Making Services Work for Poor People".
Trade unions have welcomed these consultations and availed of them
extensively. However they have been disappointed that the outline
documents prepared for the WDR go into great detail identifying the
deficiencies to be found in public sector provision, but are mute on any
similar problems to be found among private providers. Surely the series
of recent corporate scandals, as well as failed privatizations, have
shown the world that the private sector does not lack examples of
large-scale corruption, incompetence and lax standards. The fact that
lack of funding may be a leading cause of public sector providers'
insufficient response to important needs does not enter into the
analysis.

 No expertise, but lots of advice

 14. For an institution that has stated that privatization is not one of
its "core areas of expertise" and that privatization as a loan condition
is being "streamlined" out, the IMF still manages to devote a lot of
attention to ensuring that governments keep up the pace of
privatization. A number of recent Article IV Reports or Stand-By
Arrangement Reviews deal with privatization. Thus, South Africa (January
2003) is told to "pick up the pace of privatization"; Nigeria (January
2003) is admonished about its "muddle-through" approach to
privatization; Turkey (December 2002) is forewarned that the Fund is
working on new conditionality to "prepare the ground for rapid
privatization"; Romania (January 2003) is told that a "gradual approach"
to privatization is not an option; and Pakistan (November 2002) is
advised "to push ahead with the privatization programme, despite a
difficult environment".

 Pension privatization has led to severe fiscal strain

 15. State-run pension or social security systems have frequently been,
and continue to be, the target of privatization efforts supported by the
IFIs. Global Unions have emphasized the dangers of discarding
comprehensive, public, solidarity-based pensions schemes, in favour of
privatized schemes where very high administrative fees are extracted by
private financial institutions and which can only pay decent retiree
benefits if stock market gambles provide large enough returns. This has
not slowed down the drive to privatize. A December 2002 CAS for Colombia
urges the government to plan for "a transfer of all workers from the
public pension system to the private sector" and to "focus on a
reduction of the benefits package" for those not yet transferred. The
switch from public to private pensions has often led to major revenue
losses for the government (because pensions contributions that would
have gone into public pension systems have been channelled into private
sector funds instead) and resultant severe fiscal strain. In Croatia,
the IMF states that "the revenue loss from introducing the second
pension pillar is expected to reach 1.3% of GDP in 2003" (Article IV
Report, February 2003). In Nicaragua, the IMF estimates that the
transfer of pensions to private funds will lead to "a revenue loss
equivalent to over 2 percentage points of GDP during 2003-04" (Article
IV Report, February 2003). In both countries the IFIs have recommended
that the governments freeze the wage bill of the entire public sector in
order to compensate for part of the costs of handing the pension system
over to the private sector.

 Helping developing countries improve public services

 16. The privatization programmes applied by the IFIs over the past two
decades have frequently resulted in negative consequences, to the point
that their spokespersons now state that they are willing to examine all
options. Global Unions call on the IFIs to translate this declared
openness into reality by ceasing to require, through loan conditions,
that governments divest services such as water and health care which, in
developed countries, are generally provided by the public sector. Much
more attention must be paid to assist developing countries in improving
the quality of their public services and to establish proper regulatory
regimes of services presently under private ownership.

 PRSPs: Popular Will Must Have Precedence Over IFI Orthodoxy

 When unions excluded, key questions not addressed in PRSPs

 17. Over the past three years, the ICFTU and other components of Global
Unions have encouraged their affiliates (present in almost all of the
PRSP countries) to be involved in the process for formulating and
implementing a Poverty Reduction Strategy Paper (PRSP) in their country.
There have been a number of instances, which Global Unions have called
to the attention of the IFIs, in which unions have been frustrated in
their attempts to participate in the national PRSP process. In some
cases they were simply not invited; in others the "participatory
process" consisted of an exercise in which a few trade unionists were
invited to a meeting to be told about the government's draft PRSP. The
past three years of experience shows that, where trade unions are not
seriously involved in the PRSP process, questions of employment, labour
standards, combating workplace discrimination, and social protection --
which should all be key elements of a comprehensive poverty reduction
strategy -- are not adequately treated in the finalized PRSP, if at all.

 Obstacles to meaningful participation

 18. There has recently been an increase in the number of countries
where unions are invited to join the PRSP process, although generally
not at all levels. Global Unions have also welcomed the World Bank's
commitment, made at high level meetings between unions and the IFIs held
in October 2002, to monitor and analyse trade union participation in
PRSPs, a project which is currently under way. However, serious
obstacles to trade union and other civil society participation remain in
a large number of countries. For example, unions and other organizations
are often not fully brought into discussions on key macroeconomic and
structural policy issues. Frequently these organizations are kept out of
drafting committees, so that even if unions and NGOs put forward
alternative development strategies, they are not seriously taken up in
the finalized PRSP. There are also problems of lack of resources for
unions to participate effectively in the PRSP process.

 Disconnect between PRSPs and loan conditionality

 19. Whereas governments, and not only the IFIs, can be said to be in
part responsible for not adequately involving unions in the national
PRSP process, such is not the case where PRSPs are simply shunted aside
when subsequent loan arrangements are negotiated between the IFI and the
government. According to official IFI policy, PRSPs that have been
completed and endorsed by the IFIs are supposed to be the basis of
future loans. The IFIs have referred to this as a guarantee of "country
ownership" of national development plans. The IMF has even stated that
its Poverty Reduction and Growth Facility (PRGF) loans are supposed to
be "subservient" to the national PRSP. However, as the number of
completed and endorsed PRSPs increases, one can observe a growing number
of cases of disconnect between PRSPs and the conditionality of IFI
loans, and in particular with the IMF's PRGF loans.

 Privatization imposed as loan condition in spite of PRSPs

 20. In Zambia, IMF spokespersons publicly declared in December 2002
that privatization of the Zambia National Commercial Bank (ZNCB) had to
be part of the national poverty reduction strategy, and that failure of
the government to privatize could lead to a suspension of Fund
financing. In fact, Zambia's PRSP, which both IFIs endorsed in May 2002,
makes no mention of privatizing the ZNCB. However, at IMF insistence,
privatization of the bank was included as a loan condition for a PRGF
loan arrangement negotiated with the government, without civil society
participation or parliamentary oversight, six months after the PRSP was
endorsed. The IMF seems to have concluded that "country ownership" was
less important than the Fund deciding what was right for Zambia.
Understandably, trade unions, NGOs, and also the Zambian parliament have
condemned the Fund's attitude. They have pointed out that the ZNCB is
the only bank to have branches in all districts of the country; its
privatization is expected to have a serious detrimental impact on
agricultural producers in the drought-afflicted country.

 "Country ownership" or "passing the buck"?

 21. Examples such as these raise the question of whether the IFIs
really want developing countries, notably through the PRSP process, to
develop and implement "home-grown" development plans that may be
incompatible with IMF/World Bank orthodoxy. In some cases, it would
appear that IFI officials see "country ownership" essentially as a
device for deflecting criticism away from the institutions for
discredited or unpopular structural adjustment policies. An example of
this is to be found in the IMF's recent Article IV Report for Pakistan
(November 2002), which expresses concern about the high level of
opposition to structural adjustment reforms in Pakistan: "Noting that
many media in Pakistan take it for granted that measures are dictated by
the IMF, [=85] staff stressed the need for the authorities to explain more
actively the rationale for the reforms and their ownership by the
government." Further on in the report, a table lays out a total of 29
separate structural reform measures that Pakistan must carry out in
order to continue receiving funds from the IMF through a PRGF
arrangement, which puts in doubt the degree to which the reforms are
really "owned" by Pakistan.

 PRSPs must not be ignored when they don't coincide with IFIs' vision

 22.Declared features of the IFIs' poverty reduction strategy such as
civil society involvement and country ownership have to be more than
slogans. The IFIs must ensure that the conditions are created for full
and genuine participation of trade unions and other civil society
organizations, such that the concerns and interests of workers and the
poor are truly reflected in the national strategy. Furthermore, the IFIs
should not seek to disregard national poverty reduction strategies based
on broad national consensus when they do not coincide with the IFIs'
vision. In particular, the IMF must ensure that PRGF loans do not
include structural adjustment conditionality that is negotiated in
processes completely independently of the national PRSP process.

 Conclusions: IFIs Must Contribute to Global Stimulus and Social Developmen=
t

 Operational practices that contribute to global social development

 23. Major international development initiatives in 2002 -- the
International Conference on Financing for Development (Monterrey,
Mexico, March 2002) and the World Summit on Sustainable Development
(Johannesburg, August 2002) -- expressed global commitments to
sustainable social and environmental policies to reach the Millennium
Development Goals (MDGs). The debates at these conferences called into
questions many established practices at the IFIs, including their
governance. Much concern was expressed about the undue proportion of
voting rights given to wealthy countries and the lack of transparency in
decision-making. The IFIs have a responsibility to address these
concerns and to demonstrate how they can contribute more effectively to
meeting the MDGs and raising living standards world-wide. This can only
done by acting in coherence with the declarations and actions mandated
by the other parts of the multilateral system, notably the UN and its
specialized agencies. In the current uncertain world economic climate,
the danger exists that the world may actually move further away from
attaining the MDGs. While they have certainly developed a rhetoric that
pays greater attention to poverty reduction, gender equality, better
quality services, the social dimension of globalization, and core labour
standards, the IFIs need to develop operational practices that are
consistent with stated commitments.

 PB - 11-03-03