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G20 trillion dollar magic trick Reforms remain house of cards

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G20 trillion dollar magic trick Reforms remain house of cards Powered By Docstoc
					                                 Special spring meetings edition
                                 A CO-PRODUCTION OF THE BRETTON WOODS PROJECT
                                 WITH AFRODAD, BANK INFORMATION CENTER,
                                 CHOIKE AND EURODAD




                                                                                                                                                                                                have so far accompanied IMF

                                 G20 ‘trillion’ dollar magic trick:                                                                                                                             bailout packages (see page 4).
                                                                                                                                                                                                Duncan Green of Oxfam said: “We
                                                                                                                                                                                                have deep concerns about how cen-

                                 Reforms remain house of cards                                                                                                                                  tral the IMF has become in this cri-
                                                                                                                                                                                                sis. The Fund has been given a blank
                                                                                                                                                                                                cheque but its reform remains no
                                                                                                                                                                                                more than a promise.”
                                 To great fanfare, the G20 announced a $1.1 trillion global package, which may deliver less
                                                                                                                                                                                                   Financial reform: any teeth?
W W W.BRET TONWOODSPROJECT.ORG




                                 than half that amount in new resources. Issues of fundamental economic reform were left
                                                                                                                                                                                                The G20 decided to endorse the
                                 off the agenda, despite clear proposals from NGOs and the UN.                                                                                                  OECD approach of exchanging
                                                                                                                                                                                                information about companies and
                                 The G20 ‘London Summit’ on 2                                                                                                                                   individuals suspected of evading




                                                                                                                                                              ROBIN HEIGHWAY-BURY / THOROGOOD
                                 April captured positive media atten-                                                                                                                           taxes on request, rather than the
                                 tion despite failing to set out a vision                                                                                                                       more stringent automatic exchange
                                 for transformative economic change,                                                                                                                            of information called for by the Tax
                                 and pumping more money into the                                                                                                                                Justice Network and others. The fan-
                                 IMF and World Bank without a clear                                                                                                                             fare surrounding a supposed OECD
                                 plan for reforming them.                                                                                                                                       ‘blacklist’ of non-cooperative coun-
                                     The IMF received most of the                                                                                                                               tries went silent when it emerged
                                 boost (see page 7), with a possible                                                                                                                            that only four countries were on the
                                 $500 billion in new resources and                                                                                                                              list - Uruguay, the Philippines,
                                 $250 billion in issuances of special                                                                                                                           Labuan in Malaysia, and Costa Rica
                                 drawing rights (SDRs). Of the $500                                                                                                                             - none of them well known tax
                                 billion, only half has been signed                                                                                                                             havens. All four were subsequently
                                 and sealed, the vast majority of                                                                                                                               removed.
                                 which had been previously                                                                                                                                          The Financial Stability Forum
65                               announced. An allocation of SDRs,                                                                                                                              will be expanded to include all G20
                                 the IMF’s own internally created                                                                                                                               countries, and renamed the
                                 reserve asset, effectively means                                                                                                                               Financial Stability Board. It will have
                                 printing new money. Of the total,                                                                                                                              a purely advisory role to “promote
MARCH / APRIL 2009




                                 only $85 billion will go to middle-                                                                                                                            co-ordination”, “assess vulnerabili-
                                 and low-income countries. Unlike                                                                                                                               ties affecting the financial system”
                                 other forms of finance, SDRs come                                                                                                                              and “set guidelines”. With no spe-
                                 without conditions attached, but a                                                                                                                             cific powers or sanctions available
                                 country must still pay interest when                                                                                                                           to it, and a lack of a clear governance
                                 it uses them.                                                                                                                                                  structure, it remains to be seen
                                     On new money for the World                                                                                                                                 whether this new board will be an
                                 Bank, the G20 is particularly hazy,                                                                                                                            improvement.
                                 agreeing only to “support” addition-                                                                                                                               On banking regulation, surpris-
                                 al annual lending by the multilater-                                                                                                                           ingly little concrete was agreed.
                                 al development banks (MDBs) of                                                                                                                                 Post-summit, British prime minister
                                 $100 billion per year. Some of this,                                                                                                                           Gordon Brown repeated his asser-
                                 such as a boost to IFC trade financ-                                                                                                                           tion that the ‘shadow banking sys-
                                 ing, is money already promised.                                                                                                                                tem’ would be brought into “the
                                 Some is supposed to come from              aid budget for this purpose.               entirely absent from the commu-                                          global regulatory net”, but the lan-
                                 existing MDB resources. Some will                                                     niqué. Controversially, it is likely                                     guage of the communiqué is far
                                 come from a 200 per cent boost to
                                                                                  Money for the poorest?               that most of this total will go                                          more cautious. “Systematically
                                 the Asian Development Bank’s cap-          Of the putative $1.1 trillion, $50 bil-    through heavily criticised export                                        important financial institutions,
                                 ital, and consideration of similar         lion, or less than 5 per cent, is likely   credit agencies. The communiqué’s                                        markets, and instruments” should
                                 moves for the Inter-American               to be for the 49 poorest countries in      commitment to meet existing aid                                          be subject to an “appropriate degree
                                 Development Bank and the African           the world. The communiqué does             pledges obviously meant more to                                          of regulation and oversight.” Hedge
                                 Development Bank.                          not give clear details of how this fig-    some G20 countries than others.                                          fund and credit rating agency “reg-
                                     World Bank attempts to garner          ure is arrived at, but it includes         Italy, the current host of the G8,                                       istration” is promised, and credit
                                 additional contributions for their         SDRs. Most of the total is IMF loans,      plans to cut its aid by 55 per cent                                      derivatives markets will be “stan-
                                 ‘vulnerability’ funds (see page 6)         which are only available if poor           this year.                                                               dardised,” but it is left to the indus-
                                 were snubbed, with the G20 making          countries’ economies go into melt-             The G20 communiqué says noth-                                        try itself to decide how.
                                 clear that these would only be deliv-      down.                                      ing new on IFI governance reform
                                                                                                                                                                                                    Missing the green picture
                                 ered bilaterally from willing donors.          The detail on the promised             (see page 9). Big increases in IMF
                                 So far, the UK is the only country to      “global effort to ensure the availabil-    resources were not matched with                                          Green groups slammed the G20 for
                                 make concrete new commitments -            ity of at least $250 billion of trade      clear commitments to end the con-                                        failing to signal a clear commitment
                                 diverting £200 million of its existing     finance over the next two years” is        troversial austerity policies that                                                         continued on page 5

                                 Ghana’s offshore nightmare                 IMF: bigger but not much nicer             US blocks World Bank’s                                                   IFC mining conflict of interest
                                                                                                                       climate investment fund                                                  in Yemen
                                                 ––comment, page 3                                       ––page 7                            ––page 8                                                                  ––page 10
BRETTON WOODS UPDATE                                                                                                              NUMBER 65 – MARCH/APRIL 2009


                                                                                                                                   reach the economic tipping point in
Wo r ld B a n k s ti ll su p po r ti n g c a r bo n -                                                                              favor of low-carbon development,
                                                                                                                                   the report states it will “require

in t e n si v e f u t u r e                                                                                                        innovative public policy and strong
                                                                                                                                   political leadership.”
By Heike Mainhardt-Gibbs, Bank Information Center                                                                                        Roadmap for the future

The World Bank Group will kick off the revision of its energy sector strategy this autumn but                                      So far the Bank has not shown
                                                                                                                                   strong leadership, as evidenced by
new research shows its fossil fuel lending is on the rise.                                                                         its increased financing for fossil
                                                                                                                                   fuels. The Bank needs to reassess
The energy sector worldwide is           reached an “in-principle agree-               difficult. Each fiscal year the Bank        and responsibly revise its approach
responsible for the lion’s share of      ment” to supply $5 billion over five          supports a coal, oil, or gas project        to energy sector financing, including
greenhouse gas emissions and the         years to expand Eskom, the South              represents a commitment to car-             by: calculating and disclosing proj-
Bank’s energy investments are no         African state-owned power giant               bon-intensive energy sources for 20         ect greenhouse gas emissions;
exception. US based NGO Bank             (see Update 64). In addition to the           to 50 years. Moreover, many of the          including carbon valuation in proj-
Information Center (BIC) recently        IFC’s     billions,      the    African       Bank’s largest oil and gas extraction       ect cost-benefit analyses; hiring
published World Bank energy sector       Development Bank has approved                 and pipeline projects have been and         more staff (especially within the
lending: encouraging the world’s         $500 million, its largest private sec-        continue to be aimed at exports to          IFC) with renewable energy expert-
addiction to fossil fuels. The assess-   tor project to date. Although details         rich countries, feeding their               ise; promoting innovative low-car-
ment finds that gains in renewable       of IFC funds are still under discus-          appetite for fossil fuels. Thus, the        bon policies on tax incentives, trans-
energy and energy efficiency in          sion, it is likely that a significant         Bank is not adequately encouraging          mission, investment, feed-in tariffs,
recent years still do not compensate     amount will go to coal projects.              countries to reduce greenhouse gas          and land-use policies; and provid-
for highly imbalanced financing in       Eskom supplies 95 per cent of                 emissions from fossil fuels.                ing leadership by convincing mem-
favour of fossil fuels.                  South Africa’s electricity, 90 per                                                        ber countries that it can be in their
                                         cent of which is generated by coal.                       Alternatives?                   best interest to invest in no-carbon
   The BIC study shows that Bank
fossil fuel lending is on the rise,      According to Reuters, Eskom has               In contrast to the Bank’s reasoning,        energy resources.
especially for coal. During its 2008     launched a $33 billion new power              it is not a forgone conclusion that            Climate change is anticipated to
fiscal year, the World Bank Group        investment programme, with two                developing countries will need to           negatively affect developing coun-
increased funding for fossil fuels by    4,800 megawatt coal-fired power               continue building more coal power           tries and the poor of the world dis-
102 per cent compared with only 11       plants to come on stream in 2015              plants and other fossil fuel energy         proportionately - the very countries
per cent for new renewable energy        and 2016.                                     sources. A recent Worldwatch                and people Bank programmes aim
(solar, wind, biomass, geothermal           The Bank defends support for               Institute report advocates a no-car-        to benefit. As such, the Bank must
and small hydropower). The Bank’s        coal on the basis that the need for           bon energy roadmap and demon-               significantly change its development
three-year average increase for          electricity is so great in the develop-       strates that developing countries are       model and become a leader in help-
renewable energy and energy effi-        ing world that coal plants are going          well positioned to leapfrog the car-        ing create low-carbon economies. In
ciency of 73 per cent is from a very     to be built with or without Bank              bon-intensive development path of           the revision of the energy sector
low baseline compared with fossil        support. It contends that without             the 20th century and go straight to         strategy, it would serve the Bank
fuel projects.                           Bank support cheaper, dirtier coal            the advanced energy systems that            well to remember that its role is not
   On average, fossil fuel financing     plants will proliferate.                      are now possible. The report points         to lead countries down the carbon-
by the Bank is still twice as much as       In fact, the Bank counts some              out that renewable and efficiency           intensive, economically unstable
new renewable energy and energy          coal-based activities as low-carbon           technologies will allow developing          path of the developed countries.
efficiency projects combined and         projects, such as making a coal-              countries to increase their reliance
                                                                                                                                   World Bank energy sector lending
five times as much as new renew-         fired thermal plant more efficient            on indigenous resources and reduce
                                                                                                                                   ◊ bicusa.org/admin/
ables taken alone. The private sec-      relative to the “business-as-usual            their dependence on expensive and
                                                                                                                                   Document.100733.aspx
tor arm of the Bank Group, the           scenario”. To term any upgraded               unstable imported fuels. But, to
International Finance Corporation        coal-fired plant as ‘low-carbon’
(IFC), is lagging behind its counter-    seems at best misleading given that
parts on renewable energy efforts.       even high efficiency coal plants
Excluding hydroelectric projects,
the IFC is currently only involved
                                         emit more than twice as much CO2
                                         per megawatt-hour as combined
                                                                                       World Bank’s ‘environment’
in ten renewable energy projects
worldwide: two wind, two geother-
                                         cycle natural gas plants. There is no
                                         evidence that the Bank’s recent               loan to Brazil: for what?
mal, and six other.                      coal investment was either neces-
   During the last three years, the      sary or resulted in more efficient            By Patricia Bonilha, Rede Brasil
Bank spent 19 per cent more on coal      technology than would have been
than on new renewable energy             used otherwise.                               Once again the World Bank is lend-          loan has been pushed forward with-
sources. During the 2008 fiscal year,                                                  ing money to Brazil, but without            out sufficient information being
                                          Contributing to climate change               adequate transparency or participa-
the Bank provided approximately                                                                                                    made available and without prior
$1 billion to coal-based projects        The BIC study also found that Bank            tion of civil society.                      consultation with Brazilian civil
including the Tata Ultra Mega            fossil fuel projects have a clear                 According to the Bank, the latest       society.
super critical coal plant in India,      impact on global CO2 emissions.               ‘programmatic environmental sus-                On 5 March, one day before the
two projects for privatisation of        When the fossil fuels involved in             tainability development policy loan         loan was scheduled to be discussed
coal-fired plants in the Philippines     World Bank and IFC lending proj-              project’ is aimed at “key sectors such      by the Bank's board, Brazilian envi-
(see Update 62), and the PT Makmur       ects for the 2008 fiscal year are com-        as forest management, water and             ronmentalists, social movements
Sejahtera Wisesa coal power plant        busted, the project lifetime CO2              renewable energy... and will inte-          and networks monitoring interna-
in Indonesia.                            emissions from one-year of financ-            grate Brazil's climate change agen-         tional financial institutions sent a let-
                                         ing will equate to approximately              da across sectors.” This is the largest     ter to the Bank saying that this loan
       New carbon projects               seven per cent of the world’s total           loan ever granted to Brazil by the          is a mistake and demanding a broad
There is no end in sight for the         annual CO2 emissions from the                 Bank: $1.3 billion in its initial phase,    consultation with Brazilian civil
Bank’s involvement in fossil fuels,      energy sector, or more than twice             to be increased in a following phase        society. However, the board
including coal. For example, the         all of Africa’s annual energy sector          to a total of $2 billion. Although the      remained deaf to the Brazilians'
IFC will be involved in developing       emissions.                                    loan is for the Brazilian treasury,         request and approved the loan.
Ghana’s recently discovered Jubilee         Continued Bank fossil fuel lend-           loan documents reveal that it will go           Over the past decade, the Bank
offshore oil field (see page 3).         ing, especially coal and oil, will            to the National Economic and Social         approved a series of technical
   In addition, the IFC has recently     make a low-carbon transition very             Development Bank (BNDES). The                                  continued on page 3

                                                                                   2
I
BRETTON WOODS UPDATE                                                                                                         NUMBER 65 – MARCH/APRIL 2009


    n June 2007 the ‘Jubilee’                                                                                                  gulf. Ghana should learn from
    oil-field off the cost of                        Ghana’s off-shore                                                         this example and require closer
    Ghana      was      discovered.                                                                                            scrutiny of the safety and envi-
Kosmos Energy plans to invest                           nightmare                                                              ronmental impact of tankers and
$850 million and Tullow Oil                                                                                                    drilling techniques proposed for
$1.2 billion in the overall project                                                                                            the project.
                                                                        COMMENT

costs of $3.2 billion. In late                                                                                                  Ghana's Environmental Pro-
                                                      by Bishop Aklogo, ISODEC, Ghana
February the IFC board decided                                                                                                 tection Agency (EPA) had not and
to provide $100 million for Kosmos and $115 million for Tullow.                     could not have issued any permit for oil and gas development or the
  The International Finance Corporation (IFC) ignored due process                   construction of oil and gas separation, processing, handling, and stor-
requirements mandated by the laws of Ghana in the case of the Jubilee               age facilities without the submission by the companies of an environ-
oil field project and should not have considered the loan applications at           mental and social impact assessment (ESIA) in accordance with regula-
the board. In so doing, the IFC is encouraging the infringement of the              tions. Everyone admits that the companies have not submitted a full
basic rules of governance and transparency. Ghanaian NGOs have                      ESIA to the government.
expressed several concerns regarding this project to the IFC, concerns                The IFC, the previous government of Ghana and the companies have
which have not been addressed properly.                                             violated both substantive and procedural processes of the law by trying
  The fact that the revenues will be seven to nine per cent of Ghana’s              to rush the project. The IFC and the companies appear to have taken
government income requires it be defined by the IFC as a ‘significant               undue advantage of the transition in government by treating a few con-
project’, invoking specific social obligations. The project should there-           versations with newly appointed ministers, who could not have been
fore be fully transparent.                                                          fully appraised of the project or oil sector, as formal consent from the
  Projects for the extraction of petroleum and natural gas are usually              government and people of Ghana.
considered to pose the highest environmental risks, and are classified as             The IFC acknowledges that the potential emergence of a large oil and
‘category A’ projects. However, the IFC has rated this project as a ‘cate-          gas sector does pose new political, regulatory, and governance chal-
gory B’, requiring fewer safeguard procedures. The Jubilee field could              lenges for the country. The fundamental problem is that large-scale oil
significantly and adversely affect the marine environment including                 production will start before proper governance structures are in place.
endangered species, coastal communities and economic enterprises.                   Although the companies have to disclose their payments to the govern-
The project clearly meets the requirements for category A. Yet, there has           ment of Ghana under IFC regulations, it is also crucial that the public
been no real substantive answer to this issue by the IFC.                           knows the terms of the contracts. A vague reference to parts of them
  The Gulf of Guinea’s striking features are its unique coastal wetlands            already being in the public domain is not sufficient.
and the upwelling of deep nutrient-rich ocean water to the surface,                   Finally, in 2004, the Gulf of Guinea was second only to the Straits of
which supports one of the most diverse and economically important                   Malacca in number of piracy attacks. The oil emanating from the Niger
fishing-zones in the world. Nonetheless, the IFC has argued for the use             Delta has also led directly to the proliferation of weapons throughout
of a single-hulled oil storage platform despite danger of spills from it            the region along with alleged corruption in Nigerian politics. Yet no
being frequently approached by other tankers for loading and unload-                assessment of security risks has been undertaken in Ghana.
ing. Furthermore, a US Forest Service assessment mission to Cameroon                  We feel that the IFC has not properly addressed the concerns of civil
and Equatorial Guinea in 2006 found that even though these two coun-                society or sufficiently taken into account the grave risks this project
tries have seen increasing activities in the petroleum sector, neither had          poses to the environment, economy and governance systems of Ghana,
the capacity or institutional coordination to handle disasters like oil             not to mention the possible contributions it and other fossil fuel projects
spills that could be a threat to the rich marine life and ecosystems in the         will make to climate change.




continued from page 2
assistance loans to the Brazilian gov-   for environmental sustainability’          biofuels production, which would          internally, in terms of policies and
ernment, including on improving          were never done. This has com-             require an additional 7.5 million         actions relating to the causes and
environmental sustainability, and for    pounded problems with the                  hectares of sugar cane.                   effects of global warming. Another
power and energy sector reform. In       Brazilian government's energy poli-           Beyond the lack of transparency,       problem raised by the organisations
addition, there have been substan-       cy. Its ten year energy expansion          particularly with respect to civil        in the letter to the Bank, and
tial policy reform loans, including      plan (PDE 2008-2017) was put               society, there is strong evidence that    acknowledged by Bank staff, is that
$454 million for the energy sector. In   together behind closed doors in gov-       the loan will be destined to guaran-      it is not possible to monitor how the
the words of the Bank, its role in       ernment agencies, in consultation          tee capital for financing large infra-    money will be spent.
Brazil, which is no longer financial-    only with energy companies.                structure projects through BNDES,              After a four year grace period,
ly dependent on its loans, is no             The PDE gives priority to the          which is strongly criticised by civil     Brazil will repay this loan for the
longer to “tell the Brazilian govern-    construction of 71 large dams, with        society.                                  next 20 years. However, it is not
ment what to do, but how to do it.”      the involuntary expulsion of more             Recent BNDES loans include the         publicly known at which interest
    However, these loans have failed     than 100,000 Brazilians and the            Santo Antonio and Jirau dams on           rate and under what conditions the
to meet their supposed objectives.       flooding of indigenous reserves and        the Madeira River in the Brazilian        loan will be repaid. What we do
For example, there is still a lack of    conservation areas. It promotes the        Amazon, for which the Bank has            know is that this marks another step
effective integration of social and      construction of polluting thermo-          made commitments to lend more             in the Bank’s resurgence, after years
environmental considerations in          electric power stations burning oil,       than $6 billion. These projects pro-      of a diminishing role in Latin
Brazil's energy planning. The strate-    coal, and gas, expected to increase        mote the destruction of biological        America.
gic environmental assessments that       greenhouse gas emissions by 172 per        diversity and have significant socio-
                                                                                                                              Brazilian civil society letter
the government was to have carried       cent by 2017 compared to 2008,             cultural impacts, placing at risk the
                                                                                                                              ◊ www.rbrasil.org.br/conteudo/carta-
out as a condition of the $503 mil-      equivalent to 39.3 million tons of         commitments made by the Brazilian
                                                                                                                              ao-banco-mundial-05-03-2009/
lion ‘first programmatic reform loan     CO2, in addition to the expansion of       government internationally and

                                                                                3
BRETTON WOODS UPDATE                                                                                                                NUMBER 65 – MARCH/APRIL 2009



                                                                                                                                     IMF loan are heating up in Sri
IMF emergency loans: Greater                                                                                                         Lanka. In early March, the president
                                                                                                                                     Mahinda Rajapaksa said that “We
                                                                                                                                     will not pawn or sell our mother-
flexibility to overcome the crisis?                                                                                                  land to obtain any monetary aid.”
                                                                                                                                     However, according to the Sri
By Nuria Molina, Eurodad                                                                                                             Lankan newspaper the Sunday
                                                                                                                                     Times, opposition politicians and
Despite promising IMF rhetoric about more flexibility in fiscal and monetary policies                                                some economists fear that the IMF
                                                                                                                                     loan that the government now
because of the crisis, new loans in Romania, Latvia, and Armenia show that practice is                                               hopes to get will include stiff condi-
not in line. The Fund is still pushing tight fiscal policy and single-digit inflation.                                               tions.
                                                                                                                                           Practice what you preach
In late March the IMF executive             the loan documents have not yet              ditions. However, the programme             In words of the Thai prime minister,
board agreed to phase out the use of        been published, the information so           still aims at a rather low inflation        “When the G20 talks about reform
one type of IMF structural condi-           far disclosed by the IMF suggests            rate, “converging gradually toward          of international financial institu-
tionality (see page 7). Sources from        that all these programmes push pro-          the medium-term goal of 5 per cent.”        tions, it is not just a question of
within the IMF recently stated that         cyclical policies.                               The ESF for Ethiopia, although          increasing capital, but also of how
the instructions from senior man-               According to the declarations            slightly more flexible in its condi-        that capital is used ... that means
agement are clear: advice to mem-           made by the IMF mission chief for            tionality framework, still pushes for       making sure there are new facilities
ber states should clearly point at          Romania to the Financial Times, the          the “elimination of domestic fuel           for fiscal stimulus, continued devel-
swiftly increasing fiscal stimulus,         country will receive about $17.5 bil-        subsidies and for “significantly            opment and social safety nets for
higher public spending, and flexible        lion from the IMF in exchange for            tightening fiscal policy”. It also          developing economies ... one of the
monetary policy.                            bringing “its budget deficit below 3         includes removal of some taxes,             lessons of the 1997 financial crisis in
    At an International Labour              per cent of gross domestic product           including on basic food items, as           Asia was that the conditions
Organisation meeting in Geneva at           by 2011”. Moreover, he said, “there          well as increased cash transfers in         enforced by the IMF had caused
the end of March, IMF head,                 will be specific reforms in the fiscal       the safety net programmes.                  unnecessary pain.”
Dominique Strauss-Kahn said, “I’m           area to make sure the deficit stays              In March, the IMF approved yet              G20 leaders decided to increase
especially concerned by the fact that       low over time - restructuring wage           another ESF agreement with the              IMF resources up to $750 billion (see
our forecast, already very dark ...         policies, recalibrating the                     Democratic Republic of Congo,            page 1). The main downside of the
will be even darker if not enough fis-      pension system to                                     where the Fund will require        agreement is that there is little men-
cal stimulus is implemented.”
    Olivier Blanchard, IMF chief
                                            make it sustainable,
                                            improving the con-         push                          “keeping monetary policy
                                                                                                      tight”. This will somehow
                                                                                                                                     tion of the need to reform IMF terms

                                                                    pro-
                                                                                                                                     of lending and advice. Southern civil
economist, has been even bolder: “I         trol and monitor-                                         need to be reconciled          society groups, such as TWN, fear
would put it more starkly. What is          ing of public enter-                                      with one of the key objec-     that “additional resources to the IMF
needed is not only a fiscal stimulus
now, but a commitment by govern-
                                            prises.” The Fund
                                            will also seek to
                                                                   cyclical                           tives of the programme:
                                                                                                      “redirecting spending to
                                                                                                                                     would give it the means by which to
                                                                                                                                     discipline crisis-hit countries the
ments that they will follow whatev-         ensure that bring-           policies                    activities that would prop      wrong way, worsening the crisis for
er policies it takes to avoid a repeat      ing down inflation                                      up domestic demand.”             them.”
of a Great Depression scenario.” He         is a core goal of the                                     A substantial change from          At the spring meetings, the exec-
added: “monetary and fiscal policies        country’s monetary policy.                         previous loan agreements is that      utive board is expected to discuss
need to become even more support-               Guatemala will also have to fol-         the IMF consistently suggests sus-          and agree higher access for low-
ive of aggregate demand.”                   low stringent monetary policies in           taining expenditure in the social sec-      income countries. Over the summer,
                                            exchange for their $950 million IMF          tor, including on safety nets to pro-       the board will discuss the terms of
      Rhetoric versus reality               loan, with requirements that “mon-           tect     the      most      vulnerable.     lending of IMF facilities, including
Preliminary research by the Third           etary policy [be] focused on anchor-         Unfortunately, possible changes             the issue of conditionality. Southern
World Network (TWN) on the                  ing inflation at low levels combined         towards greater flexibility in some         governments, civil society and other
Fund’s advice to countries that seek        with a flexible exchange rate sys-           of the programmes are so minimal            actors are likely to put pressure on
assistance to cope with the effects of      tem.” In Mongolia, the programme             that it is hard to tell whether this is     the board to ensure that recipient
the crisis is not promising.                envisages tightening fiscal policy to        change in policy by the IMF.                countries get the necessary fiscal
According to TWN “the documen-              “restore the deficit to a sustainable            In the meantime, the IMF report-        and policy space to decide the best
tation on the IMF’s current loan con-       range”.                                      ed that the first review of the             measures to overcome the crisis, and
ditionalities and policy advice                 Although Armenia will also need          Latvian loan, originally approved in        are not be constrained by stringent
demonstrate that the traditionally          to cut expenditures to meet the tar-         December, has not been completed.           IMF policy advice and conditions.
contractionary nature of the IMF’s          get of 1 per cent deficit in 2009, the       According to the Financial Times, the           Now that the IMF has recognized
fiscal and monetary policy frame-           newly approved Poverty Reduction             Fund “has suspended lending to              the merits of Keynesian policies in
work has not changed.” The old              Growth Facility (PRGF) grants small          Latvia until it sees more progress in       times of crisis, the need for counter-
recipes of tight fiscal policies, cuts in   concessions as “the zero limit on            cutting public spending” and                cyclical measures, and the need for
government spending, and single-            contracting/guaranteeing new non-            “Latvia is racing to prepare more           greater monetary and fiscal flexibil-
digit inflation seem to be at the top       concessional external debt was               cuts to keep its $9.9 billion stabilisa-    ity, it is just a matter of practicing
of the Fund’s conditions and advice         replaced by a small positive amount          tion plan on track ... [as] the budget      what it preaches.
to countries that it has bailed out.        [$50 million], making room for the           deficit threatens to overshoot the tar-
                                                                                                                                     IMF financial crisis loans: no change in
    In March it was announced that          authorities’ debt issuance plans and         get of 5 per cent of gross domestic
                                                                                                                                     conditionalities, Third World Network
Mexico will become the first coun-          projects financed by the World Bank          product agreed with the IMF.”
                                                                                                                                     ◊ tinyurl.com/twn-imfloans
try seeking IMF support from the            and Asian Development Bank.”                     Ongoing negotiations over an
newly created Flexible Credit Line          However, monetary policy is as
(FCL), which provides precaution-           stringent as in the other loans,                                                         For   longer versions
ary support to what the IMF consid-         including a transition to inflation
ers strong performing countries (see        targeting and a tightening of the tar-
                                                                                                                 additional links, see:
                                                                                            of Update articles with
page 7). This follows a series of           get to below five per cent.                             brettonwoodsproject.org/update
arrangements with low-income                    The Exogenous Shocks Facility
countries and Romania, the third EU         (ESF) loan for Malawi shows a                                Para la versión en español, visite:
country to seek IMF support in the          slightly higher degree of flexibility,              brettonwoodsproject.org/es/boletin
past few months. Although most of           and does not include structural con-


                                                                                     4
BRETTON WOODS UPDATE                                                                                                                 NUMBER 65 – MARCH/APRIL 2009



       Inside the institutions Special drawing rights

The special drawing right (SDR) is an international reserve asset, created by              Asia do not hold SDRs.
the IMF in 1969 to supplement existing official reserves of member coun-                       Generally SDRs must be issued to countries in proportion to a country’s quota
tries. Countries can exchange SDRs for hard currency at the IMF. The SDR is                share at the IMF. As the quota is based largely on GDP, rich countries hold the
also the unit of account of the IMF and some other international organisa-                 majority of SDRs. A special one-time allocation of SDRs to countries that joined
tions. Its value is based on a basket of key international currencies.                     the IMF after 1981 was proposed and approved by the IMF board of governors in
                                                                                           1997 but has not yet gone into effect. It requires the approval of capitals of IMF
The SDR is in some ways like a currency, but is currently used only at the IMF.            members and the US Congress has yet to approve the measure.
The value of the SDR is set daily based on a basket of the exchange rates of the               Within the IMF, there is an SDR Department which handles all transactions in
US dollar, the euro, the yen and the pound sterling. The composition is reviewed           SDRs. This department is strictly separate from the IMF’s General Department,
every five years to ensure that it reflects the relative importance of currencies in       which handles the IMF’s normal operations of lending. Countries that have larger
the world’s trading and financial systems.                                                 holdings of SDRs than their allocations receive interest based on the SDR interest
   The SDR is not a claim on the IMF but a potential claim on the freely usable            rate. Those countries that exchanged their SDRs for hard currencies must pay
currencies of IMF members. Holders of SDRs can obtain hard currencies in                   interest at the same rate. Thus within the SDR department the interest paid and
exchange for their SDRs in two ways: first, through voluntary exchanges between            the interest received is equal, and the accounts net to zero.
members; and second, by the IMF designating members with large holdings of                     The IMF Articles of Agreement also allow for SDR cancellations, but this has
reserves to purchase SDRs from members who need hard currencies. Such trans-               never been done. The IMF cannot allocate SDRs to itself. Many commentators,
actions do not involve the IMF staff negotiating with country authorities - mean-          including business figures such as George Soros and former US Treasury official
ing there is no conditionality or policy changes.                                          Ted Truman, proposed new SDR allocations as a method of combating the finan-
   SDRs were originally proposed in the late 1950s but were not created until the          cial crisis. When the IMF issues SDRs, it is a straight forward increase in the
late 1960s. The purpose was to supplement countries’ reserves in the context of            global money supply, as the IMF essentially creates the SDR allocations out of
the fixed exchange rate system which had been operating since 1944. The system             nothing but the commitment of IMF member states. Some critics of this approach
had been based on the convertibility of the dollar to gold, but this was proving           have said this is inflationary, but others have countered that in a deflationary sit-
unsustainable as trade increased because of limits in the availability of gold, and        uation, SDR allocations could help maintain price stability.
the increasing unwillingness of the US to maintain the system.                                 The SDR also has the potential to supplant the dollar as a global reserve cur-
   However, since the collapse of the fixed exchange rate system in 1971, SDRs             rency if the IMF membership agrees to move in that direction. This would involve
have become less important. SDRs can be issued by the IMF only when 85 per                 much larger allocations of SDRs, as global reserve holdings were worth over $6.7
cent of the IMF membership agrees. This gives the US a veto over issuance of               trillion at the end of 2008. The governor of China’s central bank and the UN
SDRs. SDRs have been allocated just two times in the history of the IMF, at their          General Assembly president’s commission of experts on financial reforms both
creation and in 1981, which brought the total allocations to 21.4 billion SDRs             backed the idea of a global reserve currency.
(almost $32 billion at today’s exchange rates). Only 144 countries have been allo-
cated SDRs, because many of the IMF’s current 185 members joined the institu-              IMF factsheet: special drawing rights
tion after 1981. Notably, countries in Central and Eastern Europe and Central              ◊ www.imf.org/external/np/exr/facts/sdr.htm




G20 reforms remain house of cards
continued from page 1
                                                                                                  Spotlight turns to UN                more open to civil society input than
to building a low-carbon economy.          160-plus Put People First alliance of           A week before the G20, the UN               the G20. More than 100 organisa-
The communiqué promises only to            development, environment, faith                 General Assembly president’s com-           tions made submissions, and the
“make best possible use” of stimu-         groups and trade unions.                        mission on financial reforms (see           final report on civil society opinion
lus packages “towards the goal of              January’s World Social Forum,               Update 64, 63) released its draft           was detailed, comprehensive, and
building a resilient, sustainable, and     produced a statement signed by                  report. The Joseph Stiglitz-led com-        well received by the commission.
green recovery” and to “identify and       more than 600 organisations. It                 mission called for global fiscal stim-          The global focus will now move
work together on further measures          includes demands about how best to              ulus, a new credit facility with better     to a UN conference from 1-3 June in
to build sustainable economies.”           manage global finance, including                governance arrangements than the            New York, billed as the follow-up to
Friends of the Earth said the G20          controlling capital flows, and calling          IMF, an end to pro-cyclical condi-          the UN Financing for Development
had “short changed people and the          for “citizen control of banks and               tionality and a rolling back of the         conference in Doha. It is unclear
planet”. Greenpeace said climate           financial institutions.” On the eve of          limits on developing country policy         how much participation there will
change had been tagged on to the           the G20, at the ‘World in Crisis’               space created by trade agreements.          be by heads of state, especially as the
communiqué as an “afterthought”.           NGO summit in Prague, a declara-                    Financial sector recommenda-            G20 announced that it will hold
    On trade the commitment to             tion was issued calling for “transfor-          tions included the use of rules and         another leader’s level summit some-
“reach an ambitious and balanced           mation towards social justice and               incentives to limit excess leverage,        time before the end of this year,
conclusion” to the Doha round has          ecological sustainability as well as            prevent tax evasion, and address the        probably in the US.
not changed from the previous G20          space for alternative systems.”                 regulatory race to the bottom. On
                                                                                                                                       G20 London summit communiqué
meeting, since when little has hap-            The London Summit was                       long-term changes to financial reg-
                                                                                                                                       ◊ www.londonsummit.gov.uk/en/
pened. Civil society organisations         slammed for systematically exclud-              ulation, the commission listed seven
                                                                                                                                       summit-aims/summit-communique/
worldwide        have      questioned      ing civil society voices. In contrast           areas for reform and warned against
whether it is a good idea to revive a      to most international gatherings                “merely cosmetic changes”.                  Let’s put finance in its place! Call to
trade round that developing coun-          there was no process for civil socie-               The systemic demands were par-          action from the 2009 World Social Forum
tries have rejected many times.            ty accreditation and attendance. Of             ticularly eye catching. The call for “a     ◊ choike.org/campaigns/camp.php?5
                                           the few civil society organisations             new global reserve system” echoed
           Protest grows                                                                                                               Prague NGO declaration
                                           attending as media, some had                    China’s demand to end the US dol-
                                                                                                                                       ◊ www.tinyurl.com/pragueNGO
Protests took place around the             accreditation withdrawn at the last             lar’s position as international
world in the run up to the G20 sum-        minute. One of these denied                     reserve currency. The commission            UN commission recommendations
mit, including in India, Philippines,      entrance, Benedict Southwark of UK              also supported a UN-based Global            ◊ www.un.org/ga/president/63/letters/
Indonesia, Spain, Germany, France,         NGO         World       Development             Economic Council - essentially              recommendationExperts200309.pdf
Austria and Italy. In London, thou-        Movement said that this “starts to              bringing a G20-style structure into         UN commission NGO consultation
sands marched under the banner of          reek of the deliberate exclusion of             the UN system.                              ◊ www.un-ngls.org/spip.php?page=cfr
‘Jobs, Justice, Climate,’ as part of the   critical voices.”                                   The UN commission was much

                                                                                       5
BRETTON WOODS UPDATE                                                                                                               NUMBER 65 – MARCH/APRIL 2009




Not much on offer for poor                                                                                                          the World Bank, the IMF and other
                                                                                                                                    MDBs. As the crisis is a consequence
                                                                                                                                    of structural flaws in Northern

countries to counter the crisis                                                                                                     rather than Southern economies,
                                                                                                                                    emergency finance should not be
                                                                                                                                    delayed by negotiating cumbersome
By Nuria Molina, Eurodad                                                                                                            policy conditions or structural
                                                                                                                                    reforms. The situation requires a ‘cri-
The world’s poor are being hard hit by a crisis for which they are not responsible. Low-                                            sis waiver’ which ensures that:
income countries will face a financing gap of hundreds of billions of dollars this year.                                            funds are quickly disbursed; are pro-
                                                                                                                                    vided as grants or on highly conces-
More than $2 trillion have been           countries.”                                     some of the $100 billion G20 leaders      sional terms; no extra policy condi-
found to boost Northern economies             According to Eurodad calcula-               urged MDBs to fund may be used to         tions are added; that they respect the
and emerging markets. Yet richer          tions released before the G20 sum-              fill this gap is still up in the air.     highest social and environmental
countries have committed just over        mit, the Bank and the IMF were only             According to Bank sources, some           standards; and the highest trans-
five per cent of the additional           planning to provide $12 billion to              low-income countries are reluctant        parency standards.
development finance required to           the world’s poorest countries in                to apply for frontloaded money
compensate low-income countries           2009. Preliminary calculations on the           because of the threat of future gaps.                 Two directions
for the shock they face resulting         $1.1 trillion for the IMF and MDBs                  Another share of the funds was        A consensus is also emerging that
from this crisis.                         announced in London (see page 1)                already budgeted as development           the vast capital outflows from devel-
                                          show that the IFIs could eventually             aid before the crisis broke and has       oping countries need to be tackled
        Effects of the crisis             channel up to $50 billion for low-              recently been re-labelled as crisis       through measures on tax havens
Economic prospects for 2009 have          income countries. However, almost               response. This is the case for Bank       and transnational company report-
been repeatedly revised downwards         none of these funds are additional              funds that were earmarked in 2008         ing practices. The latest report by
and it is clear that the world’s poor     to those already promised by multi-             to respond to the food crisis, and        Global Financial Integrity estimates
are being hardest hit by a crisis for     lateral institutions and rich govern-           have now been re-labelled as crisis       that “illicit financial flows out of
which they are not responsible.           ments before the crisis. This still falls       response under the newly created          developing countries are $850 billion
According to the World Bank, 53           short of poor countries’ needs and if           Vulnerability Fund.                       to $1 trillion a year.” The volumes
million people will fall into extreme     disbursement is spread over sever-                  Over half of the $12 billion for      are staggering and they dwarf the
poverty in 2009. Bank president           al years it could substantially lower           the poorest countries this year, is       $100 billion of aid flowing every
Robert Zoellick reported in a speech      the amount available for 2009.                  funding channelled by the IMF. A          year from Northern to Southern
before the G20 summit that “200,000           The G20 leaders also committed              good share of it will be used to cover    countries. Several measures could be
to 400,000 babies will die this year      to make “available resources for                the impact on low-income countries’       taken to avoid these illicit flows.
because of the drop in growth.”           social protection for the poorest               reserve positions and therefore               Eurodad and members propos-
   An early March paper from the          countries [through] the World                   won’t be pumped into the real econ-       als go further than the limited
IMF said that low-income countries        Bank’s Vulnerability Framework”.                omy to boost growth and employ-           reforms agreed at the G20 (see page
would require $216 billion to cover       The framework consists of three                 ment creation, or to support safety       1) They include: the introduction of
the impact on their balance of pay-       main initiatives, including the                 nets for the most vulnerable.             a requirement that businesses oper-
ments during 2009. The Bank pre-          Vulnerability Financing Framework                   In a joint statement on emer-         ating transnationally must reveal
sented a much higher figure on 8          (VFF), an Infrastructure Recovery               gency financing issued at the end of      publicly how much profit they make
March, estimating that developing         Assets Platform (INFRA plus ener-               March, UK NGOs stated that                and the establishment of strong
countries may face a financing gap        gy) and a Private Sector Platform.              “repackaging aid budgets into new         global rules to enable developing
of $270-$700 billion. According to            The VFF comprises resources                 funds and programmes is not going         countries to determine whether they
UN estimates, the funding needed          from the existing Global Food Crisis            to be enough to help countries            have been paid the right amount of
to counter the effects of the crisis      Response (focused on agriculture);              bridge these giant financing gaps, let    tax. These rules would require all
may be as much as $1 trillion.            the International Development                   alone undertake the policies needed       states to exchange automatically the
   A recent ActionAid report sug-         Association (IDA) Fast-Track Facility           to stimulate their economies.             information they hold on companies
gests that African countries alone        (resourced with existing IDA money              Developing countries must be given        and individuals. Banning off-shore
will face a real drop in income of $49    for low-income countries); and the              the emergency funds necessary to          centres and tax havens should also
billion between the start of the crisis   newly created Rapid Social                      pursue the kinds of counter-cyclical      be considered.
in 2007 and the end of 2009.              Response Program (providing                     policies currently being used by rich         It is clear that extra funding is
Christian Aid said “Already hard-         employment through public works                 countries.”                               urgently needed, but so too is an
hit by soaring food and energy            programmes, plus short term social                                                        overhaul of the global financial sys-
                                          safety nets).                                            What is needed?
prices that pushed up inflation,                                                                                                    tem and international financial insti-
caused food shortages and wide-               The World Bank estimates that               Whatever quantity of money is             tutions.
spread hunger, poor countries can         IDA, its concessional arm for low-              available, international financial
                                                                                                                                    Where does it hurt? The impact of the
only look on helplessly as demand         income countries, will this year                institutions need to take immediate
                                                                                                                                    financial crisis on developing countries,
for their exports drops and vital         spend $1 billion more than in 2008.             measures to ensure that the money
                                                                                                                                    ◊ www.actionaid.org.uk/doc_lib/
remittances sent back by family           This increase is the result of a histor-        is channelled to poverty reduction.
                                                                                                                                    where_does_it_hurt_final.pdf
members working in the industri-          ically high replenishment of IDA                    The Eurodad Responsible Finance
alised world rapidly dwindle.”            which concluded in 2008, rather                 Charter outlines the kind of princi-      The impact of the financial crisis on the
                                          than an intended increase in                    ples that civil society organisations     developing world, Christian Aid
         What is on offer?                response to the crisis. Also, a share           think are important to ensure that        ◊ www.christianaid.org.uk/Images/The-
Most low-income countries have            of these packages is “frontloaded”              development finance will effectively      morning-after-the-night-before.pdf
very limited fiscal space to react to     money - expenditures brought for-               contribute to poverty reduction,
                                                                                                                                    UK civil society statement on emergency
the crisis, and need external support.    ward that will therefore not be avail-          including “respect for human rights;
                                                                                                                                    financing
So far, rich countries have not made      able in future years. The Bank is               respect for internationally recog-
                                                                                                                                    ◊ www.ifiwatchnet.org/node/31514
commitments to provide new                planning to fast-track $2 billion of            nised social, labour and environ-
finance to cope with developing           their IDA resources in this way.                mental standards; parliamentary           G20 rescue package for LICs
countries’ needs. Leaders at the              This is not additional money and            and citizen participation in the loan     ◊ www.eurodad.org/uploadedFiles/
London Summit restated past aid           will certainly create a financing gap           contraction process; and public dis-      Whats_New/News/Eurodad_G20_Rescu
commitments, and suggested                in the coming years unless govern-              closure of information.”                  e_Package_Low_Income_Countries_FIN
enabling “multilateral development        ments come up with a solution, such                 In the very short-term, the excep-    AL.pdf
banks (MDBs) to help counter the          as bringing forward the next IDA                tional circumstances require a
effects of the crisis in developing       replenishment by a year. Whether                speedy and flexible response from

                                                                                      6
BRETTON WOODS UPDATE                                                                                                            NUMBER 65 – MARCH/APRIL 2009




IMF: Bigger but not much nicer                                                                                                   ality) where appropriate rather than
                                                                                                                                 on traditional (ex-post) conditional-
                                                                                                                                 ity.” That will likely mean an
By Peter Chowla, Bretton Woods Project                                                                                           increase in the use of ‘prior actions’,
                                                                                                                                 conditions that must be fulfilled
World leaders agreed at the G20 to treble the size of the IMF’s resources, but critics                                           prior to getting a loan. Structural
worry about strengthening the Fund without fundamental reform to its governance and                                              benchmarks, which are not legally
                                                                                                                                 binding, but still force policy
conditionality. Further tweaks to IMF programmes are due this year.                                                              change, will continue to be used.
                                                                                                                                    NGOs are still sceptical. Vitalice
In April the G20 agreed to treble the    been so problematic in recent IMF            income lending framework because           Meja from Afrodad noted: “The ex-
size of available resources at the       loans during the crisis (see page 4),        of damaging economic policy con-           ante approach is a clear indication
IMF, from $250 billion to potentially    but using them does occur interest           ditionality.                               that the conditionalities have been
$750 billion (see page 1). This was      charges.                                                                                well entrenched in countries’ sys-
done in a way that pleased the                                                            Gold to fund debt (relief)?            tems after the Fund’s decade of
Europeans and the US: through tem-           More cash, new acronym                                                              intervention. The current approach
                                                                                      At the same time as these drastic
porary agreements from G20 coun-         It is envisioned that most of the            changes in the IMF’s financing, the        merely places the burden of compli-
tries to extend loans to the IMF         IMF’s new resources will be chan-            legislation to authorise gold sales to     ance with the Fund’s economic
under what is called the New             nelled through yet another IMF               fund the IMF’s core activities and         reform programmes on the poor
Arrangements to Borrow (NAB).            facility for middle-income countries,        solve its income crisis (see Update 61)    countries thereby making IMF look
Altering the NABs would both be          the Flexible Credit Line (FCL),              is being drafted in US Congressional       good.”
temporary in nature and not alter        approved in early March.                     committees, but may come with an              Despite the changes, the IMF is
quotas, leaving rich country voting         The FCL replaces the failed Short         added twist. The Jubilee Act, passed       still under fire for its policy advice
dominance unchanged.                     Term Liquidity Facility (STLF)               by the US Congress in 2008 urges           in crisis-hit countries (see page 4).
   Developing countries and the UN       which was only launched in                   that IMF gold sales be used to pay         For example, a report prepared by
commission on financial reform had       November 2008 (see Update 63). No            for additional debt relief in addition     the Global Campaign for Education
instead called for the IMF to increase   country used the STLF, but the FCL           to administrative expenses.                for the spring meetings in April crit-
its resources through either a gener-    already has two takers: Mexico, who             The G20 seems headed in a differ-       icised the impact of IMF conditions
al quota increase or selective quota     announced interest the day before            ent direction, calling for $6 billion      on teachers wages in developing
increase. These methods would            the G20 summit, and Poland, who              from gold sales to be part of the dou-     countries.
have permanently increased the size      applied in mid-April.                        bling of the concessional lending pot
of the IMF, potentially diluting the        The new FCL includes pre-qualifi-         of the IMF. That means the money
                                                                                                                                      Pending reviews for LICs
dominant voting share of rich coun-      cation instead of conditionality,            will not fund debt relief but actually     The IMF conditionality review
tries.                                   meaning a country must be assessed           create more debt in developing             focussed on overall conditionality
   Civil society organisations had       to be a “strong performer” by the            countries as it is lent to the poorest     policies and middle-income country
demanded both governance reform          IMF before it can sign up. The FCL           nations.                                   programmes          and       facilities.
and an end to the IMF’s damaging         has no hard limit on the amount of              “IMF gold sales should be               However, the reviews of the IMF’s
conditionality in exchange for any       money a country can access, lasts for        expanded and the proceeds used for         low-income country facilities – such
increase     in     resources.    The    a duration of either six or twelve           debt relief or grants without harmful      as the Poverty Reduction and
International Trade Union Congress,      months, and allows up to five years          conditions - not to further indebt         Growth Facility (PRGF), Policy
an umbrella organisation for labour      for repayment.                               some of the world’s poorest                Support Instrument (PSI), and
unions around the world, had                The FCL’s predecessors failed to          nations,” said Neil Watkins, of            Exogenous Shocks Facility (ESF) –
demanded that “both the Bank and         deal with the problem of stigma: the         Jubilee USA Network.                       are still in progress. The staff fin-
the IMF must stop imposing the           fear that signing up for such a facil-                                                  ished papers that were discussed by
conditionality on developing and         ity would spook financial markets            Structural conditionality tweaked          the board in early March, but no
emerging countries that pushes           and foster currency speculation or a         In early March the IMF board con-          concrete decisions were made. The
them into pro-cyclical policies.” A      sudden stop in capital flows. Only           sidered a staff review of conditional-     IMF expects to make changes to
group of UK NGOs demanded that           time will tell if the new FCL will           ity which had been called for by IMF       these facilities after a second round
“any funds provided to existing          solve this problem, but financial            managing director Dominique                of reviews over the summer.
international or regional institutions   markets had mixed reactions to               Strauss-Kahn after the financial cri-         The staff had little input from civil
should go hand in hand with prom-        Mexico’s application, according to           sis broke (see Update 64). Breaking        society (see Update 64) and it is
ises for fast-tracked reforms in the     news reports.                                from tradition, the paper admitted         unclear how extensive future con-
governance of the institutions.”                                                      that the Fund had made mistakes:           sultation will be. After the early-
                                            Low-income resource bump                                                             March board discussion the Fund
                                                                                      “In the past, IMF loans often had too
       SDR’s to the rescue?
                                         The G20 commitment to “a doubling            many conditions that were insuffi-         continued their usual practice of
The other massive increase in IMF        of the IMF’s concessional lending            ciently focused on core objectives.”       briefing civil society after a decision
resources was through an allocation      capacity for low-income countries               In a surprise move the board            had been taken, rather then provid-
of special drawing rights (SDRs), the    and a doubling of access limits” is          decided to eliminate a whole cate-         ing staff papers in advance, so that
IMF’s own internally created reserve     un-resourced. The Fund’s conces-             gory of conditionality, called struc-      stakeholders could express their
asset (see page 5). The $250 billion     sional loans come out of a special           tural performance criteria, despite        views to the board. The only way to
dollars of new SDR allocations was       pot of donor resources called the            having refused to limit the number         push the staff to be more consulta-
the maximum that the US treasury         PRGF-ESF Trust, which currently is           of such conditions just one year pre-      tive might be the IMF transparency
could support without asking for         worth about $23 billion. The G20             viously (see Update 61, 59).               policy review (see page 12), as the
approval from US Congress.               countries have made no specific              Structural performance criteria are        board could then require that staff
   An SDR allocation effectively         commitments to providing the addi-           conditions the IMF places on bor-          papers be published before the
means printing new money, about          tional $23 billion that would be             rowing countries to force them to          board takes a decision.
$68 billion of which will go to mid-     needed, as this money can not come           change economic policies or the
                                                                                                                                 Global unions London declaration, ITUC
dle-income countries and $17 billion     out of the NAB which will fund the           structure of the economy during the
                                                                                                                                 ◊ www.ituc-csi.org/IMG/pdf/No_16_-
to low-income countries. As SDRs         increase in the IMF’s general                course of a loan.
                                                                                                                                 _G20_London_Declaration_FINAL.pdf
are allocated according to voting        resources.                                      However, the elimination of this
shares at the IMF, two-thirds will go       The IMF is supposed to come up            kind of conditionality does not            IMF overhauls lending framework
to rich countries.                       with solid proposals by the spring           mean an end to the practice of forc-       ◊ ww.imf.org/external/np/sec/pr/
   One key benefit of issuing SDRs       meetings, but NGOs are unlikely to           ing structural reform. Instead “the        2009/pr0985.htm
is that they come without the tradi-     be satisfied. Many have called for a         IMF will rely more on pre-set quali-
tional IMF conditionality that has       cessation of the IMF’s current low-          fication criteria (ex-ante condition-


                                                                                  7
BRETTON WOODS UPDATE                                                                                                               NUMBER 65 – MARCH/APRIL 2009




Latin America: Return to the IMF                                                                                                    policies and institutions, asserting
                                                                                                                                    that institutions such as the IMF or
                                                                                                                                    World Bank had been “incapable of

or reinforce alternatives?                                                                                                          anticipating and controlling the
                                                                                                                                    financial disorder.”
                                                                                                                                        In recent months, China extend-
By Maria Jose Romero, Choike                                                                                                        ed currency swap arrangements
                                                                                                                                    worth billions of dollars to South
Today Latin American countries are faced with the option of returning to international                                              Korea, Hong Kong, Indonesia,
                                                                                                                                    Malaysia and Belarus, after rejecting
and regional financial institutions - IMF, World Bank and Inter-American Development                                                the requests of rich countries that it
Bank (IDB) - or rejecting the failed recipes of the 1990s in order to build and reinforce                                           give substantial funding to the IMF
                                                                                                                                    in the absence of institutional
alternatives that allow them to face the current crisis.                                                                            reform. This list is now joined by
                                                                                                                                    Argentina to which China has
The crisis is a global phenomenon         in their decision-making, and                  reformed and the voting power of           offered a $10.2 billion curency swap.
that fails to forgive either regions or   advancing towards the construction             emerging countries increased (see          According to Mark Weisbrot of US-
countries.      The     Institute    of   of South-South cooperation mecha-              page 7). This reform should also           based think tank Center for
International Finance has forecast a      nisms, giving shape to a regional              include the reduction of loan condi-       Economic and Policy Research this
dramatic reduction in private capi-       currency and setting the Bank of the           tionalities for poor countries, and an     implies a specific alternative for the
tal flows to emerging markets.            South into operation.                          increased capacity to discipline the       South American country to escape
While capital flows in 2007 amount-          On the eve of the G20 meeting,              most powerful nations.                     from IMF influence.
ed to $929 billion, they predict in       South American presidents travelled                However, many people still                 At the IDB’s 50th annual meeting
2009 flows will only reach $165 bil-      to Doha to participate in the second           doubt the real magnitude of the            in Medellin, Colombia, in March, the
lion. Therefore, we are facing the        summit of South American-Arab                  reforms to be implemented at the           president of the Central Bank of
possibility of a signifi-                 countries (ASPA), to strengthen the            IFIs. According to Argentinian econ-       Argentina, Martín Redrado talked
cant contraction of                           South-South axis and join forces           omist, Benjamín Hopenhayn, a               about the convergence of macro-eco-
capital flows and                                to give more weight to their            reform of the IMF’s thinking is not        nomic policy and made reference to
investment
emerging
                  in
                         reject                   voices at the international
                                                  level. Since the first meeting
                                                                                         credible, since it needs to “change its
                                                                                         ideology and that of the 3,000 econ-
                                                                                                                                    the proposal for creating a single
                                                                                                                                    regional currency. This builds on the
economies. The
question is how
                                 the              of ASPA in Brasilia in 2005,
                                                  Brazilian exports to the Arab
                                                                                         omists that are part of the IMF.” On
                                                                                         the other hand, economist Anwar
                                                                                                                                    initiative of Venezuela to implement

and by whom this
contraction can be
                             IFIs                world have increased from
                                               $8 billion to $20 billion; while
                                                                                         Shaik, professor at the New School
                                                                                         for Social Research, of New York,
                                                                                                                                    the Sucre as a trading currency
                                                                                                                                    between        Venezuela,
                                                                                                                                    Nicaragua and Ecuador.
                                                                                                                                                                    Cuba,

compensated.                                 Argentinian exports also rose               has said that “global coordination             Finally, the Bank of the South
    The political argument                from $1.8 billion to $4.5 billion.             would be a good idea but the ques-         should be launched next May with
that Latin American countries used        According to Argentinian govern-               tion is what interests it will respond     starting capital of $10 billion from
when moving away from the IMF is          ment officials, this relationship has          to. I do not trust the IMF or the          Argentina,      Brazil,    Venezuela,
the same that led them to accumu-         been based on cooperation rather               World Bank to tell us what is right.       Bolivia, Ecuador, Paraguay and
late international reserves and think     than on imposition.                            Their track-record is awful. If coordi-    Uruguay (see Update 62).
of funding alternatives for the              The BRIC group of countries                 nation goes along these lines, I’d             Civil society and organisations in
region. Now they must decide              made up of Brazil, Russia, India and           rather not have it”.                       the region are demanding that their
between participating in the recapi-      China, announced in March that                     Brazilian president, Luiz Inácio       governments reject the IFIs and turn
talisation of the IFIs and demanding      they will only provide more money              Lula da Silva, has also intensified his    towards people-centred regional
reform that gives them more power         to the IMF if the institution is               discourse against neo-liberalism, its      alternatives.



US Congress votes against funding World Bank climate fund
By Ama Marston, Bretton Woods Project
In the midst of intensifying global       improvements in energy efficiency              over the CTF prior to the March vote       instead gave $100 million to USAID
discussions on climate change due         and readiness for implementation of            on the first year appropriation. They      for renewable and energy efficiency
to culminate in Copenhagen in             carbon capture and storage (CCS),“             urged Congress members not to              technologies and $10 million to the
December, the US congress voted           a process of capturing emissions               include coal in climate funding.           U.N. Least Developed Countries
not to fund the World Bank’s Clean        from coal and burying them under               They highlighted that the CTF crite-       Fund, to poor countries, which are
Technology Fund (CTF) for 2009.           ground (see Update 64).                        ria would require new coal plants          especially vulnerable to the impacts
   The Bank launched the CTF in               “It is a point of great concern that       receiving CTF funds to be CCS-             of climate change.
July 2008 under its climate invest-       this fund would support more effi-             ready but would not finance CCS                “The U.S. Congress wisely nixed
ment funds (see Update 63), strongly      cient coal technologies while the              technology, making it difficult for        funding for the undemocratic CTF
backed by the US and the UK. The          need of the hour is a shift away from          the technology to actually be imple-       in the 2009 spending bill. Coal
fund was ostensibly formed to fund        fossil fuel technologies as soon as            mented in the developing world.            financing allowed under the fund
transformational, low carbon devel-       possible and not to continue coun-                 They further argued that even if       logically troubled members of
opment in developing countries,           tries’ addiction to dirty technology,”         CCS becomes commercially viable it         Congress concerned about financing
particularly those with large green-      said Vinuta Gopal of Greenpeace                is only expected to improve efficien-      the dirtiest of fossil fuels in the name
house gas emissions. The Bush             India. “For example, the World Bank            cy by up to 30 per cent. “CTF coal         of fighting climate change,” said
administration asked Congress to          is funding an ultra mega thermal               financing is in no way transforma-         Karen Orenstein of Friends of the
authorise and appropriate US fund-        coal power plant in India, which               tional. Scarce public clean energy         Earth in Washington.
ing of $2 billion over three years to     would only continue to add to our              funding should be used to drive
go to the CTF with $400 million in        emissions, while this should have              down the price of renewable energy            UN Funding the way forward
2009, the first year.                     gone to fund state of the art renew-           to make it cost competitive with arti-     At UN climate negotiations the G77
   In January, the CTF Trust Fund         able technologies.”                            ficially cheap coal and provide clean      and China characterised the CTF as
Committee released their criteria for         A coalition of US NGOs, includ-            energy,” the letter states.                a donor driven initiative that under-
funding, focussing on “reducing           ing development and environment                    In response to concerns over the       mines climate negotiations and

                                                                                                                                                     continued on page 9
emissions by adopting best available      groups, wrote to Congress alerting             CTF, Congress voted against dedi-          competes for funding with UNFCCC
coal technologies with substantial        them to the substantial concerns               cating $400 million to it this year and

                                                                                     8
BRETTON WOODS UPDATE                                                                                                             NUMBER 65 – MARCH/APRIL 2009




IFIs: Powerful bodies, little                                                                                                     the 2010 spring meetings injects
                                                                                                                                  urgency into a reform process that
                                                                                                                                  had been slated for a 2011 comple-

accountability                                                                                                                    tion date (see Update 63). The G20
                                                                                                                                  communiqué calls for an expansion
                                                                                                                                  of the scope of reform to include
Efforts to reform the IMF and World Bank’s governance structures may finally be                                                   mandates as well as governance.
                                                                                                                                      The uncontroversial reforms
coming to a head, but they may not go far enough.                                                                                 agreed to in the autumn, including
                                                                                                                                  an extra board chair for Africa, were
The eminent person committee on           likely go to developed countries,            an area that was explicitly not in its     approved by the Bank’s board in
IMF governance reform (see Update         worsening the represenation of               mandate: the roles of the IMF.             February and should be ratified by
62) issued its report at the end of       developing countries at the IMF.                 The most surprising recommen-          member countries at the upcoming
March. The committee, headed by               The committee also supported an          dation was buried in a box and only        spring meetings later this month.
South African minister Trevor             accelerated review of quotas at the          briefly mentioned in the executive             Controversial issues remain
Manuel, was set up to examine rec-        IMF, asking for it to be finished by         summary: “The capital account              unresolved, in particular the G24
ommendations made by the IMF’s            the spring meetings of the IMF in            would fall within the mandate.”            developing countries’ demand for
Independent Evaluation Office             April 2010. This one year time frame         This revives a debate that roared in       parity of vote between borrowing
(IEO) in its report on IMF corporate      was also demanded by UK NGOs                 the late 1990s over whether one of         and lending countries, a demand
governance in December 2007 (see          and trade unions in their statement          the IMF’s goals should be universal        supported by over 80 NGOs and
Update 59).                               to the UK government before the              capital account liberalisation. The        numerous influential figures (see
    While agreeing with most of the       G20 meeting. Ambition, however               committee was careful to say that          Update 62). Europe which controls
IEO recommendations, the Manuel           seems lacking. The G20 finance min-          “the objective was never to champi-        over 30 per cent of the vote, is likely
committee notably omitted saying          isters called for the completion of          on the liberalisation of capital move-     to continue to be the main blocker
anything about transparency and           the next review by January 2011. An          ments per se, but rather that coun-        of change, so far opposing parity.
accountability of the Fund’s gover-       inside source at the IMF has indicat-        tries adequately assess domestic               These issues will be the focus of a
nance. Instead it focused on the          ed that achieving agreement even by          macroeconomic and financial risks          high level commission on Bank gov-
legitimacy and efficiency of the          then may be difficult as European            ahead of liberalisation.”                  ernance, chaired by former Mexican
Fund’s structure. It supported the        countries, the most likely losers from           This is dangerous territory, as        president Ernesto Zedillo, which
activation of the IMF Council and         a quota review, were loath                             critics are concerned about      announced its members in March.
the elevation of the IMF board from       to speed up the existing                                 the IMF’s bias towards         The 12 members include Pascal
day-to-day operational decision-          timetable of completing        at issue                  liberalisation. Yilmaz         Lamy, of the World Trade
making to a more strategic role. The      the review by 2013.             is the                   Akyüz former UNCTAD            Organisation, and ministers from
committee argued that all its recom-          The       committee                                  chief economist of the         the UK and Germany. The former
mendations “should be agreed as a         endorsed the often         legitimacy                    Third World Network            president John Kufuor of Ghana is
single package” of reforms.
    The committee recommended
                                          repeated but not yet
                                          tested commitments to
                                                                          of IFIs                  commented that “devel-
                                                                                                   oping countries should
                                                                                                                                  the sole African representative. The
                                                                                                                                  commission should report in
that the IMF Council, a body of min-      a merit-based process for                              be extremely careful in          October.
isters that will have legal authority     leadership selection. It also argued         accepting multilateral obligations             Kofi Annan, former UN secretary
to make decisions at the IMF, have        for expansion of double majority             with respect to the capital account,       general highlighted the central prob-
only 20 seats compared to the cur-        decision making (see Update 55) and          implicitly or explicitly, or a broader     lem at a conference in Tanzania in
rent board’s 24 seats, and that they      a reduction of voting thresholds             mandate for the IMF unless it unam-        March: “At issue is the political
be more fairly distributed between        from 85 to 70-75 per cent, which             biguously recognises their rights to       legitimacy of international financial
developed and developing coun-            would remove the US veto; a seri-            impose unilateral restrictions over        institutions.” It remains unclear
tries. The recommendation for acti-       ous test for the stated commitment           inflows and outflows, and protect          whether the reforms to both institu-
vating the council was obliquely          of the new US administration to              them against litigation by interna-        tions will do enough to restore their
referred to in the G20 communiqué         renewed multilateralism.”                    tional investors and creditors.”           tarnished legitimacy.
(see page 1). However, without a
                                           Capital account mandate back                     Bank governance reform                Manuel committee report
single package of reform to also
                                          While the committee ignored the              The G20’s call for a completion of         ◊ www.imf.org/external/np/omd/
change board seat distribution, 12 of
                                                                                                                                  2009/govref/032409.pdf
the 20 seats at the Council would         issue of transparency, it delved into        World Bank governance reform by




Climate fund                              gin and design and has, along with           issue of climate change and funding        deal in Copenhagen in December
continued from page 8
                                          the US, been one of the main propo-          for addressing the issue. However,         and will have to ask for an addition-
                                          nents of others committing funding.          there are rumours in Washington            al six months as it gains support for
adaptation and technology funds           The first £100m of the UK’s £600 mil-        that Obama will ask for $600 million       ambitious climate change policies
that have already been established        lion will be deposited this financial        for the Bank’s controversial funds,        domestically.
and are to be operationalised this        year, of which £60 million will be           including the CTF, when he presents
year.                                                                                                                             Report on the World Bank’s CTF,
                                          directed towards the CTF.                    his 2010 budget request in April.
    Concerns as to whether the Bank                                                                                               Congressional Research Service
                                              Officials    from      the     UK            Orenstein concludes that “Both
is the most appropriate place for cli-                                                                                            ◊ digital.library.unt.edu/govdocs/crs/
                                          Department       for    International        Obama and Congress have noted the
mate funds has also been expressed                                                                                                permalink/meta-crs-10826:1
                                          Development (DFID) maintain that             importance of clean technology
by members of the US Congress.            there is support for the CTF and that        cooperation to address climate             US NGO letter to Congress
This has caused some to speculate         US funding will be re-committed in           change and are interested in allocat-      ◊ internationalrivers.org/en/global-
that this may be the beginning of         2010. DFID officials expect that only        ing funding to it. To do so in a polit-    warming/letter-no-us-money-world-
other donor countries backing down        a small proportion of the funds will         ically and technologically construc-       bank-coal-technology-fund
on investment in the CTF.                 go to coal projects, and that develop-       tive manner, financing for clean ener-
                                          ing countries will largely pursue            gy technology can and should be
     Will UK also back down?
                                          other low-carbon projects such as            provided under the UN.”                             For a
The UK remains strong in its support      renewable technology, energy effi-               Regardless, there have been               free subscription
of the CTF and the climate invest-        ciency and sustainable transport.            reports that the Obama administra-             to this publication see:
ment funds (CIFs) more broadly.               Environmental groups are hope-           tion will not be able to garner suffi-      brettonwoodsproject.org/subs
This is not surprising given that the     ful that US President Barack Obama           cient support from Congress in time
UK played a critical role in their ori-   will bring new commitment to the             to sign on to a global climate change

                                                                                   9
BRETTON WOODS UPDATE                                                                                                                           NUMBER 65 – MARCH/APRIL 2009




IFC’s role in Yemen Mining                                                                                                                      to disclose what they receive.
                                                                                                                                                Yemeni work has been slow even
                                                                                                                                                though they only have until March
by Nadia Daar, Bank Information Center                                                                                                          2010 to implement the initiative. The
                                                                                                                                                Yemeni ministry of oil and minerals,
Trends in the relationship between World Bank and IFC technical assistance policies and the                                                     designated to coordinate the imple-
IFC’s investment portfolio raise questions over possible conflicts of interest. Disclosure at                                                   mentation of EITI, has also worked
                                                                                                                                                with the IFC on the new mining
the IFC remains opaque, making details of projects and policies hard to come by.                                                                code, yet there was no mention of
                                                                                                                                                EITI in the draft code.
Over the last couple of years, the              Yemen’s mining, oil and gas sectors.           a project’s viability.” Nonetheless,                 Not surprisingly, the IFC’s record
International Finance Corporation’s             The legal and tax reforms make it              nobody representing potentially                  of transparency is mixed, at best,
(IFC) regional advisory service                 cheaper and easier for the IFC to              affected communities was invited to              with weak disclosure policies and
agency, the Private Enterprise                  invest. This trend is clear in Egypt,          participate in the drafting of                   irregular adherence. Information on
Partnership Middle East/North                   where the IFC helped draft the                 Yemen’s mining policy.                           IFC advisory service projects
Africa (PEP-MENA) has provided                  country’s new mining laws, and also                The mining industry is also vul-             approved during fiscal year 2007
assistance to the Yemeni govern-                has substantial investments in the             nerable due to a high level of cor-              can be found, with some difficulty,
ment in the drafting of the country’s           mining industry.                               ruption, not only in infamous cases              on the IFC’s website. However,
mining law, which is expected to                   This conflict of interest is clearly        such as the DRC or Guinea, but also              details of the Yemen policy reform
pass through parliament within a                no accident; in a MENA report for              in Yemen.                                        are limited to location, a brief
few months. This policy is supposed             2008, IFC advisory services stated                 In September 2007, Yemen                     description and total estimated
to reflect best practices, yield                that “by the end of [fiscal year] 2008,        became the first MENA country to                 funding. The limited information
increased transparency, efficiency,             about 50 per cent of PEP-MENA’s                be accepted as an Extractives                    combined with the complexity of
and regulatory accountability, as               advisory work, based on project                Industry Transparency Initiative                 IFC’s investments in the mining
well as streamline administrative               value, was linked to the IFC’s cur-            (EITI) candidate (see Update 62).                sector, which could take place
procedures faced by investors.                  rent and potential investments”                This initiative aims to strengthen               through several layers of subsidiary
   Meanwhile, in March 2008, the                   Similar trends are seen beyond              transparency and accountability in               companies, make understanding the
IFC took the lead in Yemen’s tax                the MENA region: while the Bank                the extractives sector, by setting               extent of these schemes almost
reform, and pushed a reduction of               has been supervising the DRC’s                 standards for companies to publish               impossible.
corporate taxes to attract greater for-         mining policy since 2001, the IFC              what they pay and for governments
eign investment. The Bank also                  maintains investments in DRC cop-
pushed for this change through                  per mines. These trends are seen in
Yemen’s development policy loan, a              other sectors, with the Bank provid-             World Bank sabotaging benefit from mining in Africa?
direct budget support instrument                ing substantial technical assistance
                                                                                                 A paper published by the Open Society Institute of South Africa and compiled by a
that disburses funds based on policy            in India’s power sector reforms,
                                                                                                 group of African and international civil society organisations highlights the Bank's
and institutional reforms. The Bank             while the IFC has invested in the
                                                                                                 role in reducing state involvement in mining and promoting the role of the private
maintained that to make up for lost             country’s power industry, reflecting
                                                                                                 sector. The report focuses on mining taxation and transparency in seven African
tax revenues, the government would              the overall strategic plan for each
                                                                                                 countries, finding that generous tax rates as well as illicit tax avoidance strategies
have to double the sales tax to 10 per          region established under the
                                                                                                 mean governments are failing to optimize mining tax revenues. The role the Bank
cent in 2009.                                   umbrella of the World Bank Group.
                                                                                                 played in promoting lower 'competitive' taxes in order to open African mining to
   An increase in sales tax to make
up for the corporate tax reduction,
                                                         Coherence lacking                       foreign investors is found to be a key factor.
                                                                                                     Mining reform was driven by the Bank's overall strategy to reduce the state's
would compound the harsh condi-                     The mining industry is particu-
                                                                                                 role in development, "in no African country, however, did these tax regimes form
tions faced by the population, 42 per           larly sensitive because of the vast
                                                                                                 part of a broader industrial strategy," according to the paper. As well as exposing
cent of whom live in poverty and 20             damage to the environment and
                                                                                                 tax subsidies and avoidance strategies, the report presents recommendations to
per cent of whom are malnourished,              surrounding communities from
                                                                                                 African governments and international donors as to how they can increase the rev-
according to the Bank.                          poorly regulated mining projects. A
                                                                                                 enue collected from mining activities. "African governments should be free to use
   While the IFC is encouraging the             World Resources Institute report
                                                                                                 this finance to purchase legal and other technical assistance from any service
reduction of corporate taxes, PEP-              encourages greater community
                                                                                                 provider of their choice," the report concludes.
MENA is helping to draft the min-               engagement in extractive projects,
ing code. It is very likely that the IFC        to “mitigate risks, to improve the               Breaking the Curse   ◊ sarwatch.org/sarwadocs/BreakingTheCurse.pdf
will expand its investments in                  lives of communities and strengthen


FCPF still lacks safe-                          Bank’s anti-corruption                         DFID snuggling up to                              Clarification: Armenia
guards, participation                           stance questioned                              the Bank?                                         corruption allegations
In mid March the committee of participants      Doubts have been raised over the efficacy      In March the UK Department for                    We would like to apologise for any confu-
for the Forest Carbon Partnership Fund          of World Bank anti-corruption efforts. A       International Development (DFID) pub-             sion due to an article in Update 62 on
(FCPF) met. The Bank Information Center         recent Wall Street Journal article claims      lished its annual report detailing the UK’s       water privatisation. In discussing a Bank
expressed concerns that the FCPF process        that some firms remained on the Bank’s         work with the World Bank Group between            project in Yerevan, Armenia, it may have not
is occurring “without any significant partic-   books even whilst under investigation for      July 2007 and November 2008, and priori-          been clear that all statements about ten-
ipation by indigenous peoples or civil soci-    collusive bidding in a Phillippines road       ties for 2009. The report is late, lacks spe-     dering the parliamentary commission, water
ety”. NGOs agreed that there was a “need        project which was halted in November           cific monitorable objectives and shies away       services, and project material were allega-
for greater transparency in the work of the     2007. In the wake of the Satyam case           from critique of Bank practice. DFID’s three      tions from the Government Accountability
FCPF”; as well as a safeguard review to         (see Update 64) US-based NGO                   year institutional strategy is replaced by a      Project (GAP) report. We have no specific
strengthen standards and ensure plans are       Government Accountability Project (GAP)        set of five annual priorities setting out         knowledge of the case. The Armenia par-
consistent with Bank policies and interna-      has criticised "the persistent difference      DFIDs agenda to press the Bank to: help           liamentary commission as a whole did not
tional standards. Donors appear keener on       between the disclosure regulations for proj-   countries recover from the economic crisis;       approach the Bank or GAP, and its final
the UNREDD fund which has already               ect and loan vendors and the Bank's own        support low-carbon growth; promote gen-           report did not include corruption allega-
begun disbursing grants whilst the FCPF is      internal contractors." It concludes in a new   der equality; strengthen work in fragile and      tions. The final Bank internal investigation
yet to pay out. The next committee meeting      paper that the breach "is inexplicably         conflict-affected countries; and improve          was made public in April and "found no
will be in June in Switzerland.                 wide."                                         representation for developing countries.          evidence of fraud or corruption."
◊ bicusa.org/en/Article.11092.aspx              ◊ online.wsj.com/article/                      Full analysis online at:                          ◊ tinyurl.com/WBfinalreport
                                                SB123819888024662027.html                      ◊ brettonwoodsproject.org/dfidwb09
                                                                                           10
BRETTON WOODS UPDATE                                                                                                                            NUMBER 65 – MARCH/APRIL 2009




Bank under fire over support for
                                                                                                                                                 than having tax-funded public
                                                                                                                                                 delivery of health care.
                                                                                                                                                     Oxfam responded rapidly, point-

private sector health care
                                                                                                                                                 ing out areas of agreement with the
                                                                                                                                                 Bank but concluding again that
                                                                                                                                                 Bank policy and loans, while direct-
                                                                                                                                                 ed at governments, are often chan-
The debate over the World Bank’s support for private sector investment in health care
                                                                                                                                                 nelled into private services via the
provision in developing countries is in the limelight again.                                                                                     government and that issues of good
                                                                                                                                                 governance alone do not account for
A new report by Oxfam entitled                 profitable treatments rather than              government services generally per-                 the high performance of some devel-
Blind Optimism, asserts that while             those dictated by medical need.                form far better than the private sec-              oping countries in health. “The spe-
the private sector can play a role in              Oxfam points out that data from            tor for rich and poor women alike                  cific policies they have chosen to
health care, evidence shows that               44 middle-income countries sug-                with respect to childbirth.                        pursue in health also make a major
only scaling up of public sector pro-          gests that higher levels of private                Drawing on various sources,                    difference,” Oxfam said.
vision of services is likely to deliver        sector participation in primary                including the Bank, Oxfam con-                         The Oxfam report also provoked
health benefits for poor people.               health care are associated with high-          cludes that the private sector gener-              a response from medical practition-
    At the heart of the report is a cri-       er overall levels of exclusion of poor         ally performs worse on technical                   ers in the British Medical Journal. A
tique of the World Bank, which over            people from treatment and care.                quality than the public sector. For                group of doctors, some of whom
the past two decades has decried the           Women and girls suffer most. To                example, in Lesotho only 37 per cent               work in private health care globally,
failure of public health systems. The          make a return on services to the               of sexually transmitted infections                 accused Oxfam of using “data that
Bank has used this failure to argue            poor, according to Oxfam, the                  were treated correctly by contracted               are thin, selective, and distorted.”
for increased investment and                   International Finance Corporation              private providers compared with 57                 They also wrote “the data do not
growth in the private sector to                (IFC), the World Bank’s private lend-          and 96 per cent of cases treated in                indicate causality, but Oxfam fail to
address ever growing health care               ing arm, recommends that doctors               large and small public health facili-              acknowledge this.” Oxfam’s direc-
needs. Oxfam points out that in                see over 100 patients a day, or one            ties, respectively.                                tor Barbara Stocking replied to the
recent years the Bank has acknowl-             patient every four minutes. Those                                                                 doctors point-by-point, including
edged the role of government in                that can afford it, can attain much               Bank disputes Oxfam claims                      noting: “We do say there is a correla-
health care, however more “as a                higher standards of care.                      The launch of the Oxfam report has                 tion but we do not claim causality.
steward or regulator than a provider               On the other hand, in 30 case              provoked response from the World                   In fact we state clearly in the paper
of services”. Oxfam says, the Bank             studies of developing countries                Bank. In a point by point rebuttal,                that: ‘... although this correlation
has contributed to weakening health            reviewed by the International                  the Bank asserts that the research                 does not clarify whether high levels
systems through enforced public                Monetary Fund (IMF), the govern-               and policies of the Bank and other                 of private participation cause exclu-
sector spending cuts and wide scale            ment health spending was found to              donors has been misrepresented by                  sion, it at least suggests that the pri-
restructuring of the sector.                   have reduced inequality.                       Oxfam. It emphasises that its lend-                vate sector does not in general
    In the face of recent donor-led                Research generated by the Bank             ing focuses on governments.                        reduce it.’” The debate will continue
calls for encouraging and funding              itself supports the importance of              However, it feels that more should                 as more evidence comes in about the
the expansion of private sector                public health care. In 2004, the               be done to leverage non-state actors               effect of the private sector on health
health care provision, Blind                   World Bank’s World Development                 in health given their already large                outcomes, but the Oxfam paper
Optimism draws on international                Report (WDR) (see Update 37) point-            presence in the health sector.                     prompts renewed questioning of the
research showing serious failings in           ed out that individual health                  According to the Bank, this does not               Bank’s push for private provision.
private sector health care. It argues          providers cannot be relied upon to             necessarily mean growth of the pri-
                                                                                                                                                 Blind optimism, Oxfam
that publicly financed and delivered           provide the services they collective-          vate health care system.
                                                                                                 The Bank has further stated that
                                                                                                                                                 ◊ www.oxfam.org.uk/resources/policy/
services lead to higher performing,            ly desire. In practice no country has
                                                                                                                                                 health/downloads/bp125_blind_optimis
more equitable health systems.                 achieved significant improvement in            in many countries it is possible that
                                                                                                                                                 m_private_health_care.pdf
    Higher private participation in            child mortality without government             the private health care sector is too
health care is associated with higher          involvement. According to the                  large and that parts of it provide                 World Bank response to Oxfam
costs, according to Oxfam’s research,          WDR, “Private sector or NGO par-               poor quality care and in some cases                ◊ go.worldbank.org/FJVS7II3A0
rebutting the argument that the pri-           ticipation in health, education, and           may impose too high a burden on
                                                                                                                                                 British Medical Journal discussion
vate sector can provide better results         infrastructure is not without prob-            the poor via payment for services.
                                                                                                                                                 ◊ www.bmj.com/cgi/eletters/338/
at lower cost. Part of this is attrib-         lems - especially in reaching poor             The Bank also argues that good gov-
                                                                                                                                                 feb16_2/b667
uted to private providers pursuing             people.” The report showed that                ernance may be more of a key factor



UN criticises IFI-led                          Gender, finance and                            Bank project design                                 African leaders call for
housing policies                               the IFC                                        falls short                                         greater say in IFIs
In February the UN Special Rapporteur’s        On International Women’s Day the               US NGO, Bank Information Centre, pub-               At the close of March’s IMF-Africa confer-
report on housing was released, highlight-     International Finance Corporation (IFC)        lished a report examining World Bank and            ence, South Africa’s finance minister Trevor
ing the impact of government policies on       announced its sponsorship of the first         the Inter-American Development Bank’s               Manuel sent a clear message to G20 lead-
the right to adequate housing, and how         Gender Investment Index series, an initia-     (IDB) incorporation of participation and            ers, demanding that “developing countries
they have contributed to the current crisis.   tive of its Gender Entrepreneurship            accountability into project design. Of projects     and emerging markets to be given a
The report laments the precedence market       Markets programme devised to main-             reviewed, only a few had clear reference to         greater voice in the governance of the
forces are given over housing provision. A     stream gender into IFC work. No gender         a consultation process or a programme to            IMF”. In a joint statement, delegates at the
section on World Bank and IMF structural       organisations appear to be involved.           ensure stakeholder participation. A third           conference stressed “Africans must be a
adjustment programmes (SAPs) states that       Meanwhile US-based NGO Gender Action           incorporated participation and accountabil-         part of the solution to the global economic
in Ghana they “pushed prices beyond            released a resource on climate change, the     ity into objectives. Fewer included transpar-       crisis and Africa must be fully represented
affordable levels for a significant propor-    first in a series on issues that have gender   ent decision-making procedures or a robust          in the evolving global architecture”.
tion of the population.” SAPs also con-        impacts.                                       evaluation system. A majority of the reviewed       Delegates also agreed that part of increas-
tributed to slum growth, displacement and                                                     projects were deemed ‘standard-mediocre’.           ing support for Africa would come through
                                               ◊ http://tinyurl.com/IFC-gender
impoverishment by causing “governments                                                        Decentralisation, water and health projects         further strengthening of Africa’s voice at
to lessen their efforts concerning econom-     ◊ http://tinyurl.com/Gender-and-climate        were particularly poor. IDB projects did            the Fund.
ic, social and cultural rights.”                                                              much worse than Bank projects.
                                                                                                                                                  ◊ allafrica.com/stories/
◊ tinyurl.com/UNHCR-housing-report                                                            ◊ bicusa.org/admin/Document.                        200903170884.html
                                                                                              100918.aspx

                                                                                          11
BRETTON WOODS UPDATE



                                                                                      2009 World Bank-IMF
World Bank and IMF launch disclosure reviews                                          spring meetings schedule
by Bruce Jenkins, Bank Information Center                                             Members of staff of the Bank and Fund, board members, development

Civil society groups, painfully           appeals process for denied requests,
                                                                                      and finance ministers are gathered in Washington 25-26 April.

aware of information access prob-         but the body would be under man-
lems at the World Bank and IMF,           agement control, not independent.
                                                                                      Official meetings

hope this year’s reviews of trans-          Some of these proposals reflect
                                                                                        24 April Meeting of G24 group of developing countries and G7

parency and disclosure will bring         norms found in national freedom
                                                                                                 finance ministers

radical improvement.                      of information systems and the
                                                                                        25 April International Monetary and Financial Committee meeting

   Communities and individuals are        Global Transparency Initiative’s
                                                                                                 Tentative agenda: Global economic outlook; implementing

often unable to participate in Bank
                                                                                                 G20 decisions

decisions and lack information to         Financial Institutions. However, the
                                          Transparency Charter for International        26 April Development Committee meeting

hold decision makers accountable.         paper leaves a lot of room for dis-
                                                                                                 Tentative agenda: Developing countries and the economic

   For example, the Bank’s country        cretion and does not provide
                                                                                                 crisis; governance reform

programming plans are often not           enough information for a full assess-
released in draft form. Project           ment of the new approach.
                                                                                      World Bank, civil society events

appraisals are disclosed only after
                                                                                       21 April Gender tools for IFI watchers CSO meeting with IFC and MIGA

approval, as are development poli-                  IMF next in line                   23 April African food and financial crisis, World Development Report

cy documents - keeping condition-         In late March, the IMF initiated a
                                                                                                2010 on vulnerability to climate change, WB participation

alities secret. Virtually no informa-     much-delayed review of its trans-
                                                                                                and accountability in Latin America, IMF transparency policy,

tion is disclosed during project          parency policy but it provided little
                                                                                                hidden impact of hunger on women and children, G20 sum-

implementation, and translations of       further information on the process.
                                                                                                mit outcomes on IFIs

key documents are rarely available.       The Fund posted three question-
                                                                                       24 April WB civil society engagement, development and social protec-
Technical assistance and advisory         naires - for civil society, market par-
                                                                                                tion in a new financial architecture, IEG, IFI policies on
services are often opaque or untrace-     ticipants and researchers – with
                                                                                                teachers' wages, IFC agribusiness financing, Inspection Panel
able. If you want to monitor your         public comment due by end of
                                                                                       25 April IMF crisis response, WB disclosure review
government’s positions at the Bank,       April.
well, good luck. The Bank’s board            The IMF’s current policy covers
                                                                                       26 April CSO strategy session on IFIs & global economy

operates in virtual secrecy: closed       only a portion of information held
                                                                                      Check back for regular updates from the Bretton Woods Project during
meetings, skeletal minutes, no access     by the Fund. Few documents are
                                                                                      and after the meetings
to executive director statements.         released in draft form, blocking
                                          external stakeholder access to deci-
                                                                                      For full details of events, contact information for groups in Washington

                                          sion-making. Disclosing country-
                                                                                      for the meetings, and links to documents released by civil society, visit
          Bank proposals
In mid-March the Bank kicked off a        related documents, such as Article
                                                                                      IFIwatchnet.

review of its disclosure policy with      IV reports, requires explicit member
                                                                                      ◊ www.ifiwatchnet.org
the release of an ‘approach paper’,       country consent for publication.                                                                                                 65
accepting electronic comments             Secret “side letters” allow for with-       Rethinking finance: Alternative voices for a
through 22 May and planning               holding of information in which
numerous in-country consultations,        there may be an abiding public
                                                                                      new financial architecture
though it has failed to provide ade-      interest. The IMF does not provide
                                                                                      Rethinkingfinance.org presents alternative ideas and analyses of the
quate notice of locations and dates.      process guarantees on handling
                                                                                      current financial and economic crisis and the reform of global financial
A draft policy will be released for       information requests nor an appeals
                                                                                      architecture. It consolidates all the latest commentary, news, analysis,
comments in May/June, with                process for those denied access.
                                                                                      research and information on civil society action. The work of several
approval as early as July.                   While the IMF’s board releases far
                                                                                      international NGOs, the site presents alternative proposals to make
   The paper articulates four wel-        more information than the Bank in
                                                                                      finance work for people and the environment. It offers up-to-date
come principles as the basis for the      the form of Public Information
                                                                                      information on the global crises in our economies and financial sectors.
new policy: maximum access to             Notices, IMF board meetings are
information; a limited set of disclo-     closed, and minutes and executive
                                                                                      ◊ www.rethinkingfinance.org

sure exceptions; clear information        directors’ statements are withheld
request procedures; and the right to      for 10 years, if not indefinitely.
appeal against denial of informa-            The IMF did not provide the pub-
tion. Currently, the Bank considers       lic withby recommendations for
all documents secret unless they are      changing its transparency policy
                                          Published     Bretton Woods Project

on a specific list. Under the new         and does not yet have a plan to
                                          in co-production with

approach, the Bank would disclose         release a draft policy for public com-
all information held by the Bank          ment after the comment period.
                                                                                     co-produced by


unless it falls within a limited set of   Aside from a briefing during the
disclosure “exceptions”.                  Bank/Fund spring meetings, the
   The paper also proposes to release     IMF does not plan to conduct con-
supervision reports, aide memoires,       sultations. Despite substantial infu-
                                                                                        ◊ afrodad.org        ◊ bicusa.org       ◊ eurodad.org        ◊ item.org.uy



country portfolio reviews, more           sions of public money, the IMF con-
                                                                                    No permission needed to reproduce articles. Please pass to colleagues interested in

evaluation documents, and papers          tinues to stand accused of display-
                                                                                    the Bank and Fund, and let us know of other groups interested in getting the Update.

already considered by the board.          ing a cavalier attitude towards
                                                                                    The Update is available in print, on the web and by e-mail.

   Unfortunately some proposed            stakeholder engagement.
                                                                                    Subscriptions: www.brettonwoodsproject.org/subs

exceptions are broadly drawn,
                                                                                    Spanish: www.brettonwoodsproject.org/update/index-es.shtml

allowing significant categories of
                                          ◊ www.ifitransparency.org
documents to remain secret, under-
                                                                                    Bretton Woods Project
                                                                                    Hamlyn House, Macdonald Road, London N19 5PG, UK

mining the “maximum access” prin-
                                          Bank disclosure review

ciple. Key categories of information,
                                          ◊ bicusa.org/en/Article.11071.aspx            +44 (0)20 7561 7610


such as board proceedings, draft
                                                                                        +44 (0)20 7272 0899
                                          IMF seeks views on transparency

documents, and third-party infor-
                                                                                        info@brettonwoodsproject.org
                                          ◊ imf.org/external/np/pdr/trans/2009
mation, would be unduly circum-
                                                                                        www.brettonwoodsproject.org


scribed. The paper proposes an
                                                                                    A publication of an independent non-governmental organisation, supported
                                                                                    by a network of UK NGOs, the C.S. Mott Foundation and Oxfam Novib.

ISSN 1471-1168                                                                      Designed by mcreative and printed by RAP Spiderweb on recycled paper.

				
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Description: G20 trillion dollar magic trick Reforms remain house of cards