[stop-imf] Global Unions to IMF/WB

[robert weissman]

Statement by Global Unions to the Annual Meeting of the IMF and World
Bank (September 2005)
Circular letter to all affiliate organisations:
Model letter to send:
Glossary:
GLOBAL UNIONS
INTERNATIONAL CONFEDERATION OF FREE TRADE UNIONS (ICFTU)
GLOBAL UNION FEDERATIONS (GUFs)
TRADE UNION ADVISORY COMMITTEE TO THE OECD (TUAC) The ICFTU represents
unions in 154 countries with a total of 145 million members. The ICFTU
works closely with the Global Union Federations, representing workers in
different sectors, and with the TUAC. All the above organizations are on
the Global Unions web site: http://www.global-unions.org

THE IFIs' ROLE IN IMPLEMENTING GLOBAL COMMITMENTS TO ACHIEVE THE
MILLENNIUM DEVELOPMENT GOALS

Statement by Global Unions to the 2005 Annual Meetings of the
IMF and World Bank (Washington, 24-25 September 2005)


Introduction: Implementation of new commitments for debt cancellation
and development assistance

1. Trade unions were co-founders in September 2004 of the Global Call to
Action against Poverty (GCAP), which is undertaking a world-wide
campaign to mobilize support in favour of decisive action in 2005 to
achieve the Millennium Development Goals (MDGs). The specific means GCAP
has put forward are debt cancellation, a major increase in the quantity
and quality of aid, trade justice, and national efforts to achieve the
MDGs that are sustainable and developed in a way that is democratic,
transparent and accountable to citizens. The pledges made by
industrialized countries to completely write off debts of several poor
countries are a welcome step forward, as are commitments to increase
development aid. However, the limited nature of the new debt initiative
should be underlined. Full debt cancellation would apply to only 18
countries at a first stage, less than a third of the number of poor
countries with unsustainable debt burdens, and uncertainties remain as
to whether the beneficiary countries will see a decrease in
concessionary assistance from the IFIs. The impact on poor indebted
countries from recent oil price rises alone are likely to exceed the
benefit of additional debt relief granted through the G8 package.
Furthermore, the continued application of structural adjustment
conditionality to debt relief under the Heavily Indebted Poor Countries
(HIPC) programme will constitute a major obstacle for a number of
countries in meeting the "completion point" requirements for full debt
relief.

2. The Washington-based international financial institutions (IFIs) have
a key role to play in ensuring that commitments made at the G8 summit
for full debt cancellation and increased development assistance are
implemented, and also in taking the initiative of eliminating the
conditionality attached to debt relief and aid that frequently undercuts
original domestic efforts to eliminate poverty and attain the MDGs. All
IMF and World Bank programmes and projects should be monitored to
determine if they contribute to or detract from achievement of the MDGs.
Global Unions also call on the IFIs to insist on the need for all rich
countries to meet the 0.7 per cent target for development aid and to
actively work for the creation of innovative taxes and mechanisms for
raising funds for development, such as a Tobin tax.


The need to end economic policy conditionality

3. The implementation by the International Monetary Fund (IMF) and World
Bank of the new debt relief initiative and the Bank's upcoming
conditionality review provide opportunities to substantially modify
policies on conditionality. As noted in a British government policy
document released earlier this year (Rethinking Conditionality, March
2005), conditionality on issues such as privatization and trade
liberalization has frequently been forced on developing countries
against their best interests, has had negative social impacts, and has
prevented poor countries from incorporating lessons from successful
development models that diverge from the pure free-market approach.

4. Although the IFIs frequently proclaim that that the "Washington
Consensus" of the 1980s and 1990s is dead, classic structural adjustment
conditions continue to be attached to the HIPC programme and many IFI
loans. For example, it took three years of acrimonious negotiations
between the IFIs and Zambia, a country that had already experienced
steady economic decline under IFI structural conditionality for some two
decades, before the country was granted "completion point" status for
debt relief under HIPC in April 2005. During this three-year period, IFI
conditions forced Zambia to privatize public enterprises in spite of
parliamentary votes not to do so, to decree a public-sector wage freeze
in a context of double-digit inflation, and to postpone the hiring of
several thousand new teachers needed to reach MDG 2 until the government
of the Netherlands came up with an extraordinary grant. Even after
Zambia reached the HIPC completion point, the IMF maintained 23
structural and economic performance conditions, ranging from additional
privatization to wage ceilings, while the World Bank introduced several
others, including restrictions on public utilities, pension reform and
wage controls.

5. In the case of Uganda, which became the first country in the world to
reach its HIPC completion point after fully embracing IFI-recommended
structural reforms, economic growth has slowed in recent years and
progress in poverty reduction has stagnated. Despite the fact that
Uganda now has the most liberal trade regime in Africa and there are few
state-owned assets left to privatize, the IMF has called on Uganda to
"launch a second wave" of structural reforms (Article IV Consultation
Report, June 2005), although the impact of the proposed reforms on
poverty reduction are uncertain. In a recent survey of Poverty Reduction
Support Credit (PRSC) loans granted by the World Bank to thirteen
low-income countries, the European Network on Debt and Development found
that in eleven out of the thirteen cases the Bank imposed privatization
conditions. In some cases, the PRSC conditions contradicted policies
adopted in government-prepared Poverty Reduction Strategy Papers (PRSP).

6. Nor are comprehensive economic policy conditions imposed by the IFIs
limited to the poorest countries. In May 2005 the IMF approved a new $10
billion loan to Turkey which included 29 new financial and structural
conditions, including the generation of a sizeable primary fiscal
surplus, privatization of $1.5 billion worth of state-owned assets
within eight months, placing strict controls on public sector hiring,
undertaking a review of civil service wages, and adopting new pension
and social security reform legislation. The IMF also called for
"improved labour market flexibility". (IMF Press Release No. 05/104, May
2005 & Turkey: Letter of Intent and Memorandum of Economic and Financial
Policies, April 2005). Less than two months after announcing the loan,
the IMF suspended payments because the Turkish government had not yet
adopted a pension reform law (IMF Press Release No. 05/157, July 2005).

7. Argentina, which was considered a star performer by the IMF and World
Bank in the 1990s because it adopted a radical IFI-sponsored structural
reform agenda, stopped applying the agenda after seeing its GDP shrink
by 21 per cent between 1998 and 2002. Rather than assist the government
to overcome the severe economic crisis, the IFIs not only cut Argentina
off from further lending because it no longer abided by the conditions
that had led to economic collapse but obliged the country to make debt
payments for a total of over $12 billion. And rather than assist the
government in difficult negotiations with private creditors and owners
of privatized utilities, the IMF overtly took position in favour of the
private claimants, denouncing the government for being "not
constructive" in negotiations with creditors (even though a large
majority accepted Argentina's debt restructuring proposal), and pushing
the government to give in to private utility owners, who made claims of
doubtful legitimacy such as obliging customers to pay rates in US
dollars (IMF, Article IV Consultation Report, July 2005). Argentina's
representative to the IMF has stated that the IMF's current position
appears to be that Argentina should "pay the Fund as soon as possible
and =85 content creditors while risking growth prospects and postponing =85
the alleviation of the pressing social needs that besiege much of the
country's population" (IMF, Statement by Hector Torres, Executive
Director for Argentina, June 2005).

8. It is clear that the privatization of public services frequently
imposed by the IFIs as a condition of borrowing or receiving debt relief
has had negative impacts on the achievement of the MDGs, particularly
MDGs 2, 3, 4, 5 and 6 on education, gender equality, child and maternal
health, and the fight against HIV/AIDS. IFI conditionality attached to
loans or debt relief should not be used to pressure developing country
governments to privatize or impose user fees for public services,
thereby denying access to the poor. On the contrary, the IMF and World
Bank should uphold the rights of citizens to control and have access to
quality public services.


IFIs should push for trade justice rather than unilateral trade
liberalization by developing countries

9. Along with other members of GCAP, Global Unions have called for trade
justice, including the removal of rich country agricultural subsidies
that keep people in poverty as well as ensuring consistency of trade
policies with respect for workers' rights, and human rights more
broadly. Trade justice also entails permitting developing countries to
support sustainable development, to protect public services from
enforced liberalization and privatization, and to secure the right to
food and affordable access to essential drugs. It does not entail
indiscriminate liberalization and imposition of harmful conditions on
developing countries. Unfortunately, the IMF and World Bank have
frequently used the rhetoric of levelling the playing field for all
countries to force developing countries, where the IFIs' influence is
strong, to undertake unilateral trade liberalization or enter into
harmful trade agreements, while leaving intact unjust trade polices in
rich countries, where the IFIs' influence is more limited.

10. Both the IMF and World Bank have expressed doubts about the benefits
of many regional trade agreements between industrialized and developing
countries (IMF, Review of Fund Work on Trade, February 2005 & World
Bank, Global Economic Prospects 2005, November 2004). The Bank has noted
that these agreements frequently include intellectual property rules,
prohibition of capital controls and certain trade restrictions that are
not to developing countries' advantage. In the specific case of the
US-Central America Free Trade Agreement (CAFTA), the Bank issued a
report which acknowledged that CAFTA would negatively affect workers and
small farmers and "by itself is unlikely to lead to substantial
development gains" (Challenges and Opportunities of DR-CAFTA for Central
America, May 2005). The Bank furthermore warned that "the fiscal impact
of DR-CAFTA may be particularly challenging, =85 with fiscal revenues
potentially falling significantly" (Country Assistance Strategy (CAS)
for the Dominican Republic, May 2005). Nevertheless, the World Bank
enthusiastically endorsed CAFTA and publicly intervened on several
occasions in favour of its ratification by the countries concerned.

11. The World Bank's push for unconditional trade liberalization by
developing countries has included such dubious advice as urging Uruguay
to negotiate a bilateral free trade agreement with the US (CAS for
Uruguay, May 2005), despite the fact that it is a member of the MERCOSUR
common market, and advising Burkina Faso to intensify an export-led
growth strategy, even though by the Bank's own admission dependence on
cotton exports has led to highly volatile GDP growth rates (CAS for
Burkina Faso, May 2005). The World Bank has strongly argued against the
adoption of measures that would mitigate the shift of textile and
clothing production from several poor countries to China following the
end of the Multi-Fibre Arrangement. Curiously for a development
institution that has many members other than China, the Bank's
spokesperson for East Asia-Pacific has been quoted by media as stating
that the Bank opposed measures to limit the shift in production to China
because they "would only push jobs to other parts of Asia like Cambodia
and Vietnam or other regions like Latin America or Africa".

12. Other than blind ideological faith in the inevitable benefits of
free trade, a main motivation of the IFIs for pushing developing
countries to sign on to trade agreements of questionable benefit seems
to be their effect of tying the hands of present and future governments
as regards structural reforms. In its analysis of CAFTA, the World Bank
declared that "DR-CAFTA commitments promise to lock in a number of
policy and regulatory changes =85 such as government procurement,
intellectual property rights and the treatment of foreign investors, by
locking in current levels of access of investors from the US". Among the
expected effects of protecting US intellectual property rights are
significantly higher pharmaceutical prices for Central American
citizens. The IMF, which has created a Trade Integration Mechanism to
financially assist developing countries in meeting the obligations of
trade agreements to which they adhere, has stated that "trade reforms =85
can be instrumental for the success of reforms in other areas =96 such as
locking in regulatory reforms in other areas" (Review of Fund Work on
Trade, February 2005).

13. The joint platform of GCAP, which Global Unions have endorsed,
includes an affirmation of "the right to determine at national level
policies and practices that benefit the majority of citizens, and to
resist potentially damaging, externally driven conditions imposed by
international institutions and agreements". These include the right of
countries to adopt industrial strategies appropriate to the country's
needs. Whether they concern privatization, trade liberalization or
several other types of economic policy reforms imposed through IFI
conditionality, it is obvious that these conditions flagrantly and
regularly violate the principles of country ownership and accountable
government that the IFIs claim to have adopted several years ago. The
IFIs should ensure that their assistance supports =96 instead of
undermining =96 community- and country-defined development priorities and
put an end to the practice of tying aid and debt relief to externally
imposed economic policy conditions.


PRSPs must be fully participatory and not be undermined by IFI loan
conditions

14. In a meeting with the IMF and World Bank that took place in April
2005, representatives from the ICFTU, the World Confederation of Labour
and trade union affiliates from six low-income countries in Africa and
Asia put forward several observations and recommendations for the review
of the Poverty Reduction Strategy Papers (PRSP) process. Trade union
participants noted that while the number of countries where unions are
invited to take part in PRSP consultations has increased, unions are
often consulted only late in the process, never included in the drafting
phase, and seldom invited to take part in monitoring and implementation.
Restrictions on freedom of association remain an obstacle to meaningful
trade union participation in some countries and insufficient access to
government and IFI documentation and to capacity building has been
frequently mentioned. Overall, unions expressed dissatisfaction with the
lack of attention to labour concerns =96 employment creation strategies,
improvement of working conditions and respect of labour rights =96 in most
finalized PRSPs.

15. Trade unions also expressed their concern about the manner in which
the IFIs frequently undermine the relevance of the PRSP process by
negotiating major structural or economic policy choices through parallel
processes in which there is no opportunity for civil society input. The
European Network for Debt and Development (Eurodad) recently identified
five countries where the World Bank included privatization conditions in
PRSC loans, despite the fact that the PRSPs for those countries did not
call for privatization. The five cases identified by Eurodad pertain to
the cotton sector in Burkina Faso, electricity in Ghana, telecom in
Mozambique, health care in Senegal, and water management in Guyana.
Macroeconomic policy conditions established by the IMF through PRGF
loans also generally disregard how the issues are dealt with in the
PRSP, a practice that was recently affirmed as official IMF policy in a
Policy Note for Fund Staff on the Modified Poverty Reduction Strategy
Framework (June 2005): "Fund conditionality should be used to remedy
weaknesses in the [poverty reduction] strategy as it is implemented in
the PRGF-supported programs (e.g., an unrealistic macroeconomic or
fiscal framework) where correction of the weakness is critical to the
achievement of [IMF] programme objectives".

16. Trade unions have made several recommendations to the IMF and World
Bank for ensuring that PRSPs genuinely respect the principles of country
ownership and civil society participation on which they are supposed to
be based Global Unions, "Trade Unions and PRSPs: Lessons from the first
five years", April 2005. Obviously, the Bank and Fund should set the
example by ensuring that their own country-level development plans and
projects, including IMF Article IV reports and World Bank CAS, are fully
participatory. In their country-level reports on PRSPs, the IFIs should
call attention to inadequacies in the consultative process, including
impediments to trade union participation such as restrictions on freedom
of association. The World Bank can help countries address the absence of
labour content by, in its own publications, showing how violations of
core labour standards contribute to persistence of poverty, focussing on
employment-intensive growth schemes, and outlining needs for improved
worker protection. The IFIs should encourage parliamentary ratification
of PRSPs and the use of existing social dialogue structures, and make
resources available to trade unions and civil society organizations for
capacity building, research and preparation of policy alternatives, as
part of all national PRSP processes.


World Bank social protection programmes should give priority to
improvement of coverage, not to unrelated goals

17. Global Unions have long proposed that the IMF and World Bank should
encourage and assist countries to develop and maintain comprehensive
social protection programmes as part of the decent work agenda and in
order to meet the challenges of increasing labour market instability
brought on by the forces of globalization. These programmes should
include unemployment benefits, child and maternity support, sickness and
injury benefits, and old-age pensions. The Bank has been particularly
active on the last theme for more than fifteen years; however the Bank's
main focus has been on the reform of existing pension systems, generally
through downsizing and privatization, rather than helping countries that
have no old-age security system to establish one. According to the
Bank's own analyses, the standard reform model it has promoted of
reducing public pension systems and creating mandatory privatized
"second pillar" accounts has proved to be inefficient, costly (the
administrative costs of private accounts being far higher than the
public systems), reinforcing of inequality, unsuccessful in extending
coverage, and has put considerable strain on public finances as
contributions are diverted into the private accounts (World Bank,
Keeping the Promise of Old Age Income Security in Latin America,
November 2003). In most of the Bank-sponsored reforms, women have fared
worse under the new systems than have men.

18. In May 2005 the Bank launched a revised pension policy paper,
Old-Age Income Support in the Twenty-First Century, that acknowledges
several of the failures of the privatization approach, but then
reaffirms the same policy under the pretext that countries should put in
place the complex bureaucracy for administering millions of
second-pillar privatized accounts as a "benchmark" to measure the
performance of the public system. Such a justification seems as
plausible as suggesting that a city should build an expensive network of
automobile expressways not to carry significant traffic, but just to
measure whether it could get people around the city as effectively as
the existing subway system. In actuality on a country level, the World
Bank has pressured countries that have taken the plunge and invested in
the establishment of second pillars to subsequently increase
contributions to the private accounts, and to decrease those to the
public system, in order to make the private system more viable.

19. Recent IFI country-level policy documents contain numerous reminders
of the continuing damage caused by the World Bank's pension reform
model. The Bank's CAS for El Salvador (April 2005) notes that managing
the so-called transition costs (from diverting pension contributions to
private accounts) of a Bank-sponsored reform introduced almost a decade
ago "is currently an important challenge in El Salvador" and supports
the elimination of early retirement provisions as one of several
measures needed to reduce the costs. In Colombia, where a
Bank-recommended pension privatization was adopted in 1993, the IMF
predicts that, despite several increases in contributions and cuts in
benefits, the government's net pension costs are expected to increase
steadily and reach 5.9 per cent of GDP in 2005. The IMF suggests that
the costs of the pension reform will require a reduction of other public
services: "As a result [of pension reform costs], the nonpension balance
of the public sector would have to continue to strengthen over time"
(Article IV Consultation Report, May 2005).

20. The World Bank shows no reticence in getting involved in
controversial pension debates even in countries where it provides no
financial support. In launching Old-Age Income Support in the
Twenty-First Century, the Bank signalled moral support for the proposal
of the Bush administration in the US to partially privatize the Social
Security system (World Bank News Release No. 2005/456/HD), even though
US congressional leaders have suspended consideration of the proposal in
the face of strong public opposition. Interestingly, the Bank's sister
institute is much more critical of the Bush plan, noting that it would
"imply a significant increase in federal deficits and debt in coming
decades" (IMF, Article IV Consultation with the US: Concluding
Statement, May 2005).

21. Old-age pension systems do face important challenges in many
countries. A starting point for establishing a new system or reforming
an existing one must be that any changes to the pension system should be
designed so as to improve the system for workers and retirees, not to
prioritize unrelated goals such as forcing retirees to give up part of
their pension benefits to inefficient private-sector administrators on
the pretext that this will help the financial services industry develop.
In 2001, the International Labour Organization's annual conference
adopted a tripartite consensus on several points concerning the future
of social security, including giving highest priority to the extension
of those not covered and strengthening, rather than weakening,
solidarity systems. The World Bank would do well to revise its own role
in conformity with the ILO's consensus when intervening on the theme of
old-age security.


Respect for workers' rights: A key element in achieving the MDGs

22. A majority of the world's extreme poor, defined by the World Bank as
earning less than $1 per day, work for their living, but at conditions
that keep them in extreme poverty. 60 per cent of the working poor are
women. Access to decent employment =96 jobs that allow the exercise of
fundamental workers' rights, provide adequate wages and safe working
conditions, and include social protection coverage =96 is essential to
successful poverty reduction, reduction of inequalities between men and
women, and attainment of other MDGs. Although some World Bank
publications have made the link between violations of workers rights,
low wages and poverty reduction, and have underlined the importance of
observing the core labour standards (CLS) Core labour standards are
internationally-agreed fundamental human rights for all workers,
irrespective of countries' level of development, that are defined by the
ILO conventions that cover freedom of association and the right to
collective bargaining (ILO Conventions 87 and 98); the elimination of
discrimination in respect of employment and occupation (ILO Conventions
100 and 111); the elimination of all forms of forced or compulsory
labour (ILO Conventions 29 and 105); and the effective abolition of
child labour, including its worst forms (ILO Conventions 138 and 182).,
these are only rarely followed up in country-level Bank analyses and
policy recommendations.

23. Since the 1990s, IDA replenishment agreements have recommended that
the Bank's Country Assistance Strategies include an assessment of
application of CLS in the country. An examination in August 2005 of the
twelve most recent CAS published by the Bank found only one, the CAS for
Cambodia, that included the recommended assessment of observance of CLS.
Instead of analysing the link between poverty and inadequate respect for
labour standards, most of these CAS focus on the need to reduce
protection for workers so as to increase "labour market flexibility".
Such is the case even when CLS violations have been amply documented by
ILO reports. For example, the violations of CLS which are at the root of
extreme poverty in the Dominican Republic's bateyes are completely
ignored in the Bank's CAS (which does recognize that "virtually all
residents of the bateyes live below the poverty line"). The CAS only
deals with labour issues to the extent that the country is advised to
increase "labour competitiveness", implying that workers are treated too
generously (CAS for the Dominican Republic, May 2005).

24. Like its sister institutions, the IMF frequently makes policy
recommendations on labour issues and sometimes includes loan conditions
aimed at increasing labour market flexibility. In the case of Bulgaria,
the current Stand-By Arrangement requires that the country change or do
away with its maximum hours law and eliminate seniority wage premiums
(Stand-By Arrangement Review, May 2005). The IMF would no doubt also
impose labour market deregulation on industrialized countries if it
could, since the Article IV reports for these countries often include
strong condemnations of all varieties of worker protection. For example,
the IMF's most recent Article IV Consultation Report for the Netherlands
(July 2005) criticizes the country for unemployment benefits that are
too long, hours worked that are too short, and wages that are not
unequal enough.

25. The driving force for both the World Bank and IMF on labour issues
is the Bank's Private Sector Development division, which in 2003 began
publishing a country-by-country index whereby each country receives
penalty points if it provides various kinds of protection or regulation,
on the basis of the simplistic premise that all labour regulations are
bad for business. The "rigidity of employment index", published in the
Bank's annual Doing Business publication, dispenses penalty points for
misdemeanours such as rules requiring the provision of social protection
to part-time workers (most of whom are women); minimum wages set at
levels the Bank considers too high (even $20 a month is considered too
high for many African countries); maximum hours laws stipulating a
work-week of anything less than 66 hours; advance notice of dismissal
requirements; and affirmative action programmes aimed at combating
racial or gender discrimination.

26. Global Unions have submitted a detailed critique of the labour
chapter of Doing Business in 2005, pointing out the flaws in the
analysis and the policy implications of the penalty system, and inviting
the Bank to completely revise its simplistic and harmful approach on
labour reform. Global Unions' submission "Comments by ICFTU/Global
Unions on the World Bank's Doing Business in 2005: "Hiring and Firing of
Workers"", May 2005 puts forward a alternative four-point proposal on
how the Bank can contribute to helping countries design labour reforms
that lead to improved respect of fundamental workers' rights, creation
of decent employment and overall economic and social development.

27. Global Unions have stated the IMF and World Bank should ensure that,
at the very least, their own operations are consistent with the CLS and
that the projects and programmes that they fund do no violate them.
Global Unions have taken part in consultations that began over a year
ago for the revision of the International Finance Corporation's social
and environmental "performance standards" for IFC loans and have
provided several suggestions. Global Unions recommend that the IFC move
expeditiously and adopt standards that ensure the respect of
internationally recognized workers rights as expressed in the eight ILO
core conventions, address the adverse impacts of retrenchment, and
provide a safe and healthy work environment. The new standards should
include clear and effective mechanisms for implementation and enforcement.


Conclusions

28. Achieving the MDGs requires a wide range of actions as called for by
the Global Call to Action against Poverty (GCAP). Trade unions welcome
the commitments to increased debt relief and development assistance made
by G8 countries and call on the IMF and World Bank to fully implement
the commitments, and furthermore extend debt relief to a greater number
of countries that respect human rights than those included in the
existing HIPC programme. The IFIs should put an end to the frequently
harmful and delay-creating economic policy conditionality, such as
privatization of public services and unilateral trade liberalization,
attached to debt relief and other assistance. Financial assistance
should be made in support of genuinely participatory national
development plans formulated by the country that advance the achievement
of the MDGs. Rather than intervening in support of narrow business
interests, IFI lending and policy recommendations concerning social
security and labour regulations should give priority to decent
employment creation, comprehensive social protection, and respect of
core labour standards. It follows that the IMF and World Bank must
ensure that their own policies and practices are consistent with
observance of those standards.

             THE MILLENNIUM DEVELOPMENT GOALS

             1. Eradicate extreme poverty and hunger

             2. Achieve universal primary education

             3. Promote gender equality and empower woman

             4. Reduce child mortality

             5. Improve maternal health

             6. Combat HIV/AIDS, malaria and other diseases

             7. Ensure environmental sustainability

             8. Develop a global partnership for development



PB =96 26-09-05