[stop-imf] Europe questions IFIs on conditionality: whose outcome?

[robert weissman]

  http://www.brettonwoodsproject.org/art-561068


  Europe questions IFIs on conditionality: whose outcome?

April 2008|


      by Nuria Molina, Eurodad

A new report shows that IMF structural conditionality did not decline in
the five years after the approval of the Fund=92s conditionality
guidelines. With little progress at the World Bank, many wonder whether
the European Commission's new approach is what is needed.

A briefing by Eurodad, which uses the Fund=92s own conditionality data,
finds that IMF loans carry an average of 14 structural conditions each.
These are conditions spelling out policy reforms to the structure of a
borrower=92s economy, such as privatisation. Sensitive policy reforms =96
including privatisation and liberalisation related conditions, as well
as other conditions prescribing regressive taxation, or constraining the
fiscal space available to recipient governments =96 comprise a third of
the IMF structural conditions and their number has also not declined.

The Fund continues to push conditions in areas beyond its core mandate
of monetary policy, public financial management and financial sector
soundness. These non-core areas include state-owned enterprise reform
and privatisation, social policies, civil service reform, or regulatory
reform. Eurodad estimates that nine per cent of IMF structural
conditions are privatisation-related, and 11 per cent are privatisation
and liberalisation conditions in the banking and financial sector.

Then IMF president Horst Koehler wrote to IMF senior management in
September 2000: =93I am personally convinced that there is substantial
scope to streamline and focus our conditionality, both to reinforce
country ownership of the programmes which the Fund supports and as part
of our overall efforts to focus the work of the Fund on its core areas
of competence=94. This call culminated in the approval of new
conditionality guidelines in September 2002, which committed the IMF to
the principles of ownership and criticality in its application of
structural conditionality, as well as to streamlining the number of
conditions (see Update 32
<http://www.brettonwoodsproject.org/a32atissuecond.html>). Over seven
years later it seems that these recommendations from the top have been
more honoured in the breach than in the observance. A recent Independent
Evaluation Office report confirms that progress in implementing the
conditionality guidelines has been limited (see Update 59
<http://www.brettonwoodsproject.org/conditionality59>).

The World Bank is not doing any better. Even if the Bank claims to have
reformed its conditionality policy, Eurodad analysis published in
November found that more than two thirds of loans and grants from the
Bank=92s International Development Association (IDA) still had sensitive
policy reforms attached (see Update 58
<http://www.brettonwoodsproject.org/ida1558>). The majority of these
were privatisation-related conditions.

In light of these findings, European civil society demanded their
government=92s contributions to IDA were made contingent on further
progress on the implementation of the Good Practice Principles on
conditionality. Disappointingly, the final report of the IDA
negotiations published in March welcomes =93progress under the Good
Practice Principles on conditionality=94 and management=92s proposal to
further review application of conditionality as part of the internal
review of Development Policy Operations. There is no mention of calls
from civil society and some shareholder governments for an independent
review of the Bank=92s use of conditionality.


    Policies or outcomes?

The European Commission (EC) has introduced a new approach to
conditionality, one which is garnering increasing attention across
Europe and in Washington. The EC says it will emphasise conditions
focussing on =93outcomes=94 rather than on policies. This means that
governments negotiating a programme with the EC can propose objectives
they would like to reach, rather than commit to implementing specific
policies. As long as the government makes continued progress towards
these objectives the EC will continue to provide its aid money, often as
budget support.

A Eurodad study launched in February compared this new EC approach with
the results frameworks that have been announced in recent years by the
World Bank and IMF. The report shows that the World Bank and the IMF=92s
treatment of the term =93results=94 goes well beyond that of the EC, which
largely looks at on the ground poverty reduction and human development
improvements. The World Bank uses the term to refer to the proximate
results of policy actions as well as results for people on the ground.
An example for Tanzania is the requirement to improve its ranking in the
World Bank=92s controversial Doing Business index (see Update 60
<http://www.brettonwoodsproject.org/ifcmean60>). The Commission, by
contrast, focuses on results such as increasing net school enrolment
rates and has, to a large extent, phased out economic policy conditions
from their aid which is channelled to poor countries as budget support.

Tracing government responsibility for successes and failures in
education, health and other sectors is a challenge, recognised in
Commission reports and assessed in the Eurodad study. It is hard to find
reliable baseline or annual data, and when shocks occur it is debatable
whether the government should be blamed for slower progress. Some
developing country decision-makers fear that outcome-based
conditionality might make them responsible for results which are out of
their hands. In this regard, the Malawian minister of finance Goodall
Gondwe said =93outcome indicators are not in the hands of the government
and they are very difficult to achieve.=94

The EC seems to lack the courage of its convictions with its new
instrument. It is using it only to disburse about 2-3 per cent of its
overall budget support. The rest of its finance is still linked to more
traditional policy conditions. From recipient countries=92 point of view
little has changed. =93Donors come along with new formulas every now and
then, and after few years these fade away and they come with new
ones=85But it is always about their agendas, not necessarily ours=94 a
Tanzanian civil society activist says . Governments still face policy
conditions and now have to get used to outcome conditions as well. An EC
official quoted in the Eurodad report was forced to admit that =93there is
now more conditionality than in the past.=94 This was also validated by
the report=92s analysis of the EC=92s pilot operations in Burkina Faso and
Mozambique.

Citizen groups will continue to demand a reduction in conditions but
also transparency in how money is spent and information on whether it is
helping countries reach the Millennium Development Goals. The EC=92s
attempt to break ranks with the Washington-based institutions is still
tentative, but provides an opportunity to test out and debate a new
approach.

The World Bank certainly seems to be on notice. At a recent launch event
for the Eurodad report in Brussels, Manuela Ferro, country economics
manager in the Bank=92s Operations Policy and Country Services department,
made a ten minute intervention and engaged in lively debate with the EC
official at the table. Ferro insisted on the =91official=92 World Bank
arguments for being reluctant about this new approach: the problem of
attributing poverty reduction results to the action of the government,
the lack of data to measure results, and the fear of leaving developing
countries to their own fate if multilateral institutions withdraw their
=93valuable policy advice=94. Surprisingly, the World Bank and some Europea=
n
countries, while expressing doubts about the merits of this new
approach, proved to be more open than in the past.