[stop-imf] IMF policies set low bar for poor nations

[robert weissman]

 > IMF policies set low bar for poor nations
 > By Rick Rowden
 > Published: June 28 2005 03:00 | Last updated: June 28 2005 03:00
 >
 >>From Mr Rick Rowden.
 >
 > Sir, It is ironic that the International Monetary Fund and the World
 > Bank spent the 1980s telling the world's poorest countries to cut
public
 > expenditures drastically as conditions for loans; spent the 1990s
 > telling them to cope with significantly fewer doctors, nurses,
teachers
 > and administrators by charging the poor "user fees" for basic health
 > care and primary education; then spent the past five years trying to
 > finish off their crumbling public health and education systems by
 > mandating privatisation and contracting-out to cadres of
 > non-governmental organisations as replacements; and yet today the IMF
 > and the Bank are shocked - shocked! - to find that poor countries
cannot
 > "absorb" higher amounts of foreign aid because they lack
"administrative
 > capacity" and sufficient staff ("Under-use of aid threatens Africa
 > funds," June 21 [STORY REPRODUCED BELOW]).
 >
 > As rich countries prepare to give more foreign aid, the article's
author
 > David White correctly asks if countries will be able to spend it well
 > (or at all). He notes that existing funds from aid "often remain
 > under-utilised". Not only is money not being spent, but advocates are
 > growing concerned by instances of trained nurses and school teachers
 > sitting unemployed in many poor countries.
 >
 > Partly at issue is the extreme budget austerity pushed by the IMF. The
 > fiscal and monetary policies agreed to by IMF, central bankers and
 > finance ministers are those that IMF insists are "sound macroeconomic
 > policies". These policies set a very low bar for public expenditures.
 >
 > However, while economists worry that over-spending and hyperinflation
 > can hurt economic growth, economists beyond the IMF also worry that
 > policies could be too austere and actually dampen economic growth
rates
 > and undermine poverty reduction.
 >
 > The IMF permits borrowing governments to spend foreign aid on building
 > reserves at the central bank, paying down the deficit, or debt
payments
 > to foreign creditors, but IMF discourages spending on hiring more
 > people, which it fears could lead to "macroeconomic instability",
 > despite its definition being contested. The IMF's harsh, low-spending
 > austerity approach might have seemed reasonable when countries were
 > faced with crises of hyperinflation in the 1980s, but these policies
are
 > no longer appropriate for dealing with the kinds of spending and
foreign
 > aid increases sought today by the UK, the European Union, UNAIDS, the
 > Global Fund for Aids, TB and Malaria and others.
 >
 > Citizens of the Group of Seven countries should call on their
 > governments to take steps at IMF to allow borrowing countries the
 > freedom to adopt more expansionary fiscal and monetary policies. In
 > order to enable poor countries to accept and utilise significantly
 > larger amounts of foreign aid, more expansionary policies will be
 > necessary to accommodate the higher levels of spending on training and
 > employing the legions of new doctors, nurses, teachers and
 > administrators that will be necessary to fight HIV/Aids effectively
and
 > achieve the other Millennium Development Goals.
 >
 > Rick Rowden, Policy Analyst, ActionAid International USA, Washington,
DC
 > 20006, US


Financial Times (London, England)
June 21, 2005 Tuesday
USA Edition 2 Pg. 2

HEADLINE: Under-use of aid threatens Africa funds: Donor nations say
poor budget management in recipient countries is holding up assistance,
writes David White

BYLINE: By DAVID WHITE

BODY:


Africa's poor nations now see the shimmering prospect of a substantial
increase in foreign aid. The question, however, is not just how much
extra money the richest donors meeting at the G8 summit on July 6-8 are
ready to deliver, but how well African countries can use it.

The Commission for Africa, the panel set up by Britain, the summit host,
concludes in its report that "over the next three to five years aid
levels could be doubled and used productively". But funds already
available often remain under-utilised.

Even in a country such as Senegal, with a relatively good record of
budget management, leading donors such as the World Bank and the
European Commission say large parts of their assistance portfolios are
unused.

They blame this on a shortage of administrative capacity in government,
and on slow bureaucratic processes that provide openings for corruption.

Some experts argue that there is a limit to the amount of aid in
proportion to the size of a recipient country's economy that can be
absorbed. Richard Manning, chairman of the Development Assistance
Committee at the Paris-based Organisation for Economic Co-operation and
Development, says studies suggest aid is productive up to a certain
level and then shows diminishing returns.

But he points out that donors would be starting from a relatively low
base. Despite recent increases, aid to the developing world as a share
of recipients' gross national income, at about 1 per cent, is well below
what it was in the early 1990s. Per capita aid to Africa is also lower
in real terms.

Although it is not clear what other aid might be forthcoming, the G8
plans to write off the debts owed by 18 of the world's poorest countries
to the World Bank, the International Monetary Fund and Asian Development
Bank. This would free resources worth Dollars 1bn-Dollars 1.5bn (Euros
824m-Euros 1.8bn, Pounds 666m-Pounds 999m) per year for the first three
years.

The Commission for Africa identifies additional spending requirements
for the continent totalling Dollars 75bn a year from 2010. A third of
this, it says, should come from African governments themselves and
two-thirds from outside sources.

This implies almost a tripling of aid to Africa, which according to DAC
figures reached Dollars 26bn in 2003. The extra annual bills include
Dollars 20bn for infrastructure, Dollars 10bn to combat HIV/Aids, almost
Dollars 20bn for other health spending and Dollars 7.5bn for education.

But it notes that the figures were drawn up "taking no account of
constraints of absorptive capacity". Its recommendations aim at
obtaining half the total in the next three to five years. Higher
absorption rates should be possible asa result of "continuing policy and
governance improvements". It suggests that "results from current aid may
be better than the past."

Steve Radelet, senior fellow at the Center for Global Development in
Washington, says non-delivery of aid is partly the fault of donors as
well as recipients.

"Additional aid can be absorbed," he says. "But we have to be much
smarter about how we do it."

To avoid administrative bottlenecks, more aid needs to go outside direct
government channels and be distributed through non-government
organisations and private-sector entities, he says, citing as a model
the approach adopted by the Global Fund to Fight Aids, Tuberculosis and
Malaria.

"You have to throw them the ball and let them run with it," he says. The
capacities of finance ministry bureaucracies are overstretched by the
demands of meeting donor requirements, and sometimes undermined by donor
programmes as staff are drained away to run aid projects. Governments,
he argues, can become "more accountable to donors than to their own
people".

He sees a clear tension between the desire to give recipient countries
greater "ownership" of programmes and the capacity and institutional
constraints in those countries. Aid needs to be combined with a
strengthening of government systems, he says. At the same time, donors
need to be more open about their activities, and about the share of aid
going to consultants and other professionals close to donor governments.

"It's actually shocking how untransparent the donors are," he says.

Trevor Manuel, South Africa's finance minister, suggested earlier this
month that rich countries, following the example of the UK-backed
Extractive Industries Transparency Initiative, should sign up to a
"donor aid transparency initiative".

To improve absorption of aid, development agencies and governments -
especially European donors such as the UK, the Netherlands, Sweden and
Denmark - have been switching to broad support of sectoral and national
budgets.

* France will double its contribution to the global fund to combat Aids
to Euros 300m (Dollars 364m, Pounds 200m) and extend funding of
micro-finance projects in Africa as part of the rich world's efforts to
alleviate poverty, John Thornhill reports from Paris.

At the G8 summit, France and Germany will also flesh out plans for an
international tax on airline tickets to help fund Africa's economic
development. Jacques Chirac, France's president, said yesterday that it
was vital to introduce additional non-state financing mechanisms to
provide regular funding for development.

To this end, Mr Chirac will also unveil an action plan, drawn up with
the Basle committee, to spread international best practice on
micro-finance programmes. John Kay on G8, Page 17

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