STILL SAPPING THE POOR:  A CRITIQUE OF IMF POVERTY REDUCTION STRATEGIES

 

World Development Movement- June 2000

 

By Charles Abugre

 

INTRODUCTION 

 

To the surprise of many, the International Monetary Fund (IMF) announced its new commitment towards poverty

reduction at its Annual Meetings in September 1999. The key element of this announcement was a new

initiative to tackle poverty, the Poverty Reduction Strategy Paper (PRSP) initiative. It appeared that developing

country governments would now be asked to produce these PRSPs, in consultation with their citizens, and that

these would form the framework for all IMF and World Bank operations in those countries. This represented a

potentially major change, particularly for the IMF.

 

PRSPs threaten to deliver little in benefits to poor countries and poor people by way of debt relief and

democratisation but more in cost, both in time, and more significantly the further erosion of the sovereignty of

poor countries.

 

The early days of the PRSP initiative coincided with two massive mobilizations against globalisation. In

December 1999, throngs of protesters shut down the World Trade Organisation’s (WTO) trade negotiations in

Seattle. In April 2000, police action prevented thousands of protesters from shutting down the spring meetings

of the IMF and the World Bank in Washington, D.C.

 

Mobilisations in the North – especially in the notoriously insular U.S. – are a new phenomena. This is not the

case in the Global South, where twenty years of structural adjustment programmes (SAPs) has created more

losers than winners. Estimates show that there have been of 146 public demonstrations against structural

adjustment policies in 39 countries between 1976 and 1992.[1] Still, neither the shareholding governments of

the IMF or the World Bank, nor the institutions themselves, have taken stops to predict or address the impacts

of adjustment programmes on people or ecosystems.

 

There is a wide gulf between the rhetoric and the reality of globalisation and between the rhetoric and reality of

IMF and World Bank operations. The rhetoric promises progress toward broad-based prosperity and

environmental stewardship. Many citizens see a different reality: pockets of obscene wealth in the midst of

growing human misery, social dislocation, and environmental devastation. Perhaps most troubling is another

disconnect – that of citizens from their governments.

 

THE PUSH FOR CHANGE

 

The context

 

Over the last couple of years there have been unprecedented assaults against the World Bank and IMF.  

 

·        From actors across the political spectrum, the institutions, especially the IMF, were excoriated for their

        role in precipitating and exacerbating the Asian crisis.

 

·        The Jubilee 2000 movement accused the institutions of deepening the levels of debt, poverty and

        inequality in borrowing countries, whilst impeding debt cancellation/reduction efforts

·        The International Financial Institutions Advisory Commission (know as the “Meltzer Commission”) was

        formulating its recommendations to the US Congress. The findings of the Commission, released in

        2000, accuse the IMF of institutionalising instability and the World Bank of being irrelevant to the goal

        of eradicating poverty. It recommended that the Bank become a development agency extending

        grants - not loans - to Africa and, perhaps, Eastern Europe and that the IMF be restructured into a

        smaller institution, shut down its Poverty Reduction and Growth Facility, turn over development

        financing to the World Bank and write off all HIPC debts, conditional on the debtors implementing

        institutional reforms and an effective development strategy.

·        The US Overseas Development Council issued a report recommending that the IMF withdraw from

        Africa and turn its Trust Fund for Highly Indebted Poor Countries (HIPC) over to the World Bank.

·        The institutions were roundly criticized, especially by the US Congress, for their role in the collapse of

        the Russian economy and their complicity with corrupt institutions.

·        The IMF was attacked for the highly secretive and centralised process by which it chose a Managing

        Director to succeed Michel Camdessus.

·        Former World Bank Chief Economist, Joe Stiglitz, has claimed that the institutions, especially the IMF,

        have accumulated too much power, lack credibility and undermine democratic processes.

·        UNCTAD and many prominent economists and financiers calling for an independent body to exercise

        oversight over the two institutions in addition to a call for a World Financial Authority more able to

        provide adequate liquidity as well as exercise a more effective regulation over global financial

        transactions.

 

The scale of the problem

 

The institutions own figures demonstrate the extent of the problem. As the PRS initiative was launched, two

publications were being conceived in the World Bank and IMF that reveal an upturn in levels of poverty and

inequality. The institutions are not making a concerted effort to discover links between their own

macro-economic prescriptions and increased human misery in so many borrowing countries.  

 

Recent publications by the World Bank and the IMF make passing reference to increased misery. The World

Bank’s report, its Annual Report on Development Effectiveness, 2000,[2] shows that the situation for 28

countries deteriorated between 1981 and 1997. Specifically:  

 

·        In 40 percent of the countries, per capita income either failed to grow or   shrank.

·        In 25 percent, the share of the population in absolute poverty increased.

·        In 23 percent, life expectancy declined.

·        In 54 percent, the people experienced stagnating per capita income, rising poverty, declining life

        expectancy, or a combination of these events.

·        In 85 percent, per capita income grew 1% a year or less in the 1990s.

·        In 59 percent, gross savings as a percentage of GDP were low (less than 10 percent) or declining.

·        In 67 percent, investment efficiency was less than 10% or declining.

·        During 1985-95, the aggregate of low income countries (excluding China)experienced a decline in per

        capita income of 1.4%.

·        The number of people living on less than $US1 a day rose from 1,197 million in 1987 to 1,214 million

        in 1998. Excluding China, there are 100 million more poor people in the developing countries than a

        decade ago.

 

The IMF’s report, World Economic Outlook, 2000 describes the plight of a fifth of the world’s population. At the

press conference releasing the report, an IMF official said:

 

      “…too many countries, and nearly one-fifth of the world population, have regressed in relative and

      sometimes even absolute terms. This is arguably one of the greatest economic failures of the 20th

      Century.” (Transcript, 4/12/00 press conference on IMF’s World Economic Outlook, 2000. Emphasis

      added.) 

 

Whereas the IMF measured inequality between countries, World Bank economists are also measuring

inequality within countries. As a result, they paint a bleaker picture.[3]

 

Conversely, various recent studies also point to wealth concentration. The 1999 UNDP Human Development

Report reports that whereas the income gap between the 20% of the world’s richest people in the richest

countries and the 20% of the poorest was 30:1 in 1960, this gap has jumped to 74:1 in 1997.[4] Furthermore,

half the world’s population – nearly three billion people -- is subsisting on $2 per day or less. On the other side,

the combined wealth of the top 3 billionaires exceeds the combined income of the 600 million people in all the

least developed countries. This concentration of wealth reflects in the concentration of global trade, investment

and financial transactions in the hands of a few countries and a few transnational corporations.

 

It is bad enough that the story of economic failure is not acknowledged. Worse still, is the fact that the failure is

expected to deepen. There are many analyses showing poverty deepening as a consequence of

globalization.[5]

 

SAPs – the root of the problem

 

Noted economist, Ricardo Hausman,[6] has compared structural adjustment programmes to military tanks that

roll through a nation creating collateral damage. He compares welfare programs (eg social safety net

programs) to ambulances that attempt to rescue or mitigate the harm to casualties.

 

Structural Adjustment Programmes (SAPs) are the package of IMF and World Bank designed

macro-economic conditions which developing countries must comply with before they can receive resources

from those institutions.

 

At the root of the criticisms of the International Financial Institutions lies concern with their use of SAPs to export

a liberalising agenda. It is this criticism which PRSPs must address, both in terms of the economic content and

impact of the programmes, and their imposed nature.

 

The institutions claim that most adverse effects of adjustment operations are short-term in nature. However, the

institutions have little data to substantiate that claim. Evidence from 20 years of adjustment operations in nearly

100 countries suggests otherwise.

 

SAPs are based on economic prescriptions contained in the ‘Washington Consensus’, which recommends a

set of privatisation, liberalisation and economic stabilisation measures. The Consensus is a recipe for

globalisation, or ‘policy coherence’ facilitated by the WTO, IMF and World Bank. Many people see the

Consensus as epitomizing the kind of ideological prescriptions divined in Washington and exported to the rest

of the world.[7]

 

Many of the objectives of the Consensus are valid, only if they arise out of a national (domestic) consensus

which balances competing objectives with attention to the needs of vulnerable people, local producers, and the

natural environment. As it is, adjustment programs, which implement the Consensus, often conflict with

homegrown development agendas – which features the priorities of social development (eg poverty reduction,

equity, popular participation) and environmental protection.[8]

 

The results of SAPs have been especially dismal in low-income countries where the PRS initiative is being

implemented. Low-income countries in Africa, Asia and Latin America have experienced economic and social

stagnation or decline and, essentially, lost two decades of progress. To some extent, Africa is a “forgotten

continent.”

 

Bolivian citizens protested a World Bank-financed structural adjustment program (SAP) which, through the sale

of the Cochabamba water system to a British investor, doubled the price of water. Who asked Bolivian citizens

whether they would or could tolerate a 100% increase in the price of water? As Bolivian leader, Oscar Olivera,

declared: “We’re questioning that others, the World Bank, international business, should be deciding these

basic issues for us.”

 

Because SAPs often conflict with homegrown development agendas, they are, according to the Bank’s own

account, implemented in secretive and non-transparent ways. The Bank allies itself with powerful partners to

pursue the adjustment agenda. It finds other relatively powerless allies (e.g. NGOs) to mitigate the negative

effects of adjustment and, on the periphery of its operations, achieve some aspects of the popular agenda.

 

This ‘command and control’ style of doing business has undermined the evolution and nurturing of democratic

processes. In country after country, the SAP agenda has undercut government-civil society relationships and,

hence, progress toward democratization. Furthermore, in their fervor to promote SAPs, the IMF and World

Bank have backed governments that abuse human rights, including the right to equitable, sustainable and

participatory development.

 

Some nations have been forgotten, or left behind, because they lack access to international capital markets.

Many other nations that are integrated into the global economy have suffered dramatic economic reversals.

Some of these nations were the IMF and World Bank’s star performers. Bad advice from the institutions

heightened the vulnerability of some countries to the rip tide of volatile international capital flows. The power of

governments and regulatory bodies has been totally outstripped by the awesome and explosive growth of these

flows. As a consequence, we have witnessed financial debacles accompanied by increasing levels of instability

and cascading adverse economic and social effects in country after country.

 

SAPs often promote production and distribution patterns that contribute to poverty creation. Instead of

ameliorating adjustment with new safety nets or more welfare programs, the institutions should re-conceive the

programs in ways that benefit people and the environment.

 

Mitigation strategies, such as social safety nets, offer poor and vulnerable populations too little assistance, too

late. The IMF and World Bank place higher priority on the protection of social sector budgets than they did

years ago. Still, these budgets are often squeezed by efforts to reduce fiscal deficits and dampen inflation.

Mitigation efforts alone are inappropriate responses to bad economic policies.

 

Prior to 1980, the Bank did a negligible amount of adjustment lending.[9] In fiscal year 1999, $15.3 billion, or

53% of the Bank’s new lending, was adjustment lending. A quarter of this total was social sector adjustment

lending. Although the Asian crisis accounted for this peak, adjustment lending will continue to constitute a high

proportion of the Bank’s portfolio. The reason for this is simple: adjustment lending is a fast and easy way to

move large amounts of money. Furthermore, safeguard policies are not applicable to adjustment loans, so the

Bank need not assure protections for populations or ecosystems jeopardized by these loans.

 

Working blind 

 

Many internal documents attest to the fact that the institutions are not well-informed about ways in which their

core business – promotion of certain structural adjustment policies – is linked to poverty and inequality.[10]

 

A 1999 World Bank evaluation looks at the impact of adjustment operations, primarily in Africa, where poverty

is on the rise. The report, which assesses 21 operations totaling $2 billion in 17 countries over the fiscal years

1996-98 found that “no country has data points available for poverty before and after [the adjustment operation].

Therefore, we cannot measure changes in poverty…”[11]

 

It is remarkable that the institutions know so little about the impact of their programs on vulnerable populations.

The Bank’s Annual Report on Development Effectiveness (2000) states that World Bank poverty assessments,

conducted for individual borrowing countries, “fail to address the links between poverty and such

macro-economic issues as trade and exchange rate policy, or such sectoral issues as food and agricultural

policy and rural development”, even though macro-economic policies are the focus of the Bank’s country

strategies.The report further concludes that poverty assessments “give only limited attention to local dimensions

of poverty reduction, including investment decisions and that while all assessments recognise the importance of

labour-intensive growth to poverty reduction, few have analysed this issue.”

 

Two important internal World Bank evaluations are sharply critical of the institution’s neglect of the social and

environmental impacts of structural adjustment lending (SAL). A review by the Environmentally and Socially

Sustainable Development (ESSD) network, titled “Social and Environmental Aspects: A Desk Review of

SECALs and SALs Approved During FY98 and FY99” states that the World Bank’s adjustment programs

“routinely neglect” poverty reduction requirements:[12]

 

      “The majority of loans do not address poverty directly, the likely economic impact of proposed

     operations on the poor, or ways to mitigate negative effects of reform. Even where traditional

     subsidy and budgeting procedures are to be dismantled, the assumption is that poverty alleviation

     is to be achieved through improvements in macro-economic stability and in improvements in public

     administration, targeting, efficiency, etc. Loans with social protection provisions are conflated with

     programs that actually reduce the impact of reform on society’s most vulnerable, as they are

     typically targeted at those within the formal sector. Direct efforts to address short-term impact on the

     poorest are rarely considered.”

 

The other review undertaken by the World Bank’s Quality Assurance Group (QAG) echoes these frank, but

startling conclusions. The report reviewed 100 loans for “quality at entry” and made the following comments.

 

     “The lending instrument that raises the most cause for concern is the SAL, both because of its low

     score and its high proportion of overall Bank lending. One reason the scores for structural

     adjustment were low, is that notwithstanding explicit poverty reduction requirements articulated in

     O.D. [operational directive] 4.15, these considerations were routinely neglected in the design of

     SALs. …This means that structural adjustment, which comprises over half of total Bank lending,

     completely neglects the question of impact monitoring. …It appears that social impact monitoring is

     ignored in the vast majority of Bank lending.”

 

Another Bank’s self-evaluation states that poverty-related objectives were deemed “not applicable” to about half

of a large sample of 1998 Board-approved operations.[13] One can only conclude that the Bank does not have

data to back up its claims about the poverty impact of adjustment lending. Its conclusions are therefore based

more on speculation than fact.

 

THE IMF AND WORLD BANK POVERTY REDUCTION STRATEGY (PRS) INITIATIVE

 

At the Annual Meetings of the World Bank and IMF in Autumn 1999 Managing Director Michel Camdessus

made some surprising announcements about poverty These included the proposal of a new initiative, initially

linked to the Highly indebted poor country debt initiative, for Poverty Reduction Strategy Papers.

 

PRSPs – the theory

 

The proposal contained a number of potentially important points, apparently recognising the need for

government ownership of programmes and the importance of democratic decision making.

 

In order to receive external assistance, over 70 developing country governments are required to design Poverty

Reduction Strategy papers (PRSPs) by 2001. Interim PRSPs will be prepared for countries that urgently need

to qualify for debt relief and/or lending from the IMF or World Bank.[14]

 

In the words of the Bank this enhanced framework for poverty reduction seeks to ensure a “robust link between

debt relief and poverty reduction by making HIPC debt relief an integral part of broader efforts to implement

outcome-oriented poverty reduction strategies using all available resources”.[15]

 

The Bank and IMF send joint missions and individual missions to support the preparation of a government’s

PRSP. Bank and IMF staff prepare Joint Staff Assessments of a PRSP prior to Board consideration of the

Paper. The Boards of the IMF and World Bank receive informal briefings during preparation of a PRSP and

then provide the final approval.

 

The PRSP will be prepared on a three-year cycle, with annual progress reports. They will identify:

 

·        Poor populations and the causes of poverty;

·        Strategies for overcoming poverty, e.g. social sector programs, actions to promote growth and

        capacity building, rural development, local infrastructure, job creation by the private sector, increasing

        participation and good governance;

·        Outcome indicators, which will be set and monitored through participatory processes. Indicators would

        be set in order to promote progress toward International Development Goals for 2015 relating to

        poverty, child and infant mortality, maternal mortality and universal primary education.

 

The IMF and World Bank claim that the PRS initiative is different from earlier attempts at government

collaboration with external creditors and donors in the following respects: 

 

·        Ownership. Ostensibly, borrowing governments lead the process of PRS formulation with input from

        civil society organizations and external creditors and donors. This process is intended to increase

        ownership of lending operations by borrowing country constituencies: governments and civil society

        organisations. In the past, borrowing governments have not generally shaped frameworks for

        assistance from external donors and creditors.[16] The IMF has stressed that ‘country ownership of a

        poverty reduction strategy is paramount’ – and here ‘country’ refers not only to government but to a

        wide cross-section of non-government actors as well.

·        Poverty Reduction as a goal. The PRS should be oriented to achieving poverty-related outcomes.

        Previously, the IMF promoted structural adjustment programs (SAPs) without an explicit link to

        poverty-related objectives.

·        Civil society participation. Previously, civil society has participated, to some extent, in shaping the

        frameworks for World Bank lending (eg Country Assistance Strategies), though not IMF lending (e.g.

        the Policy Framework Paper). The PRSP provides a framework for lending by both institutions. In

        order to emphasise the centrality of civil society participation, the Bank believes that the PRSP

        should:

 

            “describe the format, frequency, and locations of consultations; a summary of the main

           issues raised and the views of participants; an account of the impact of consultations on the

           design of the strategy; and a discussion of the role of civil society in future monitoring.” [17]

 

·        The participation of civil society in poverty reduction strategies is viewed   as essential for their

     sustainability and effectiveness. Again, in the words of the World Bank:·

 

          “Broad-based participation of civil society in the adoption and monitoring of the poverty

          reduction strategy tailored to country circumstances will enhance its sustained

          implementation”.

 

The PRSP, once approved by World Bank and IMF, will provide the basis for the tripartite agreement between

the two institutions and the Government.

 

This model – although originally conceived of in the context of the Heavily Indebted Poor Country (HIPC) debt

relief initiative – is now envisaged as the centrepiece for policy dialogue in all countries receiving concessional

lending flows from the World Bank and IMF. The IMF’s facility for poor countries (formerly the Enhanced

Structural Adjustment Facility) has been re-named the Poverty Reduction and Growth Facility. The PRSP is to

replace the Policy Framework Paper as the overarching document which outlines the policy directions and

resource allocation frameworks for IMF and Bank lending in countries eligible for concessional assistance. It is

envisaged as covering a three-year time frame.

 

  The Predecessor of the PRS: The Policy Framework Paper 

 

 

  In 1990, then-President of the World Bank, Lewis T. Preston, declared that, henceforth, poverty reduction

  would be the over-arching objective of the World Bank. At that time, many members of the US Congress

  were reluctant to fund the Bank’s soft loan arm, the International Development Association (IDA). Mr.

  Preston took pains to emphasize that poverty reduction goals would be achieved through close

  collaboration between the Bank and the Fund. A tripartite (government, IMF, World Bank) policy framework

  paper (PFP) was launched as the basis for assistance from the Fund and the Bank. The IMF assured the

  public that the Bank would ensure positive social impacts of adjustment operations financed by the IMF as

  well as the Bank. We are now being informed that the collaboration relating to the PFP was a sham.

 

 

 

Are the PRSPs a Commitment to Poverty Elimination or a Veil for SAPs?

 

Getting the PRSPs right is crucial. Not only will the PRSP serve as the framework for the International Financial

Institutions (IFIs) to craft their lending policies, but they will be the basis upon which the the wider donor

community will align their policies and programmes in a developing country. PRSPs therefore have a

leveraging role, not only in terms of debt relief, but also the mobilisation of development assistance.

 

Irungu Houghton of ActionAid Kenya said, 

 

      “The second draft of the Interim PRSP was disappointing in many respects. Despite clear causal

      analysis for government failure, poverty and gross inequalities, the NGO memorandum noted that “the

      medium term goals fail to make poverty reduction the centre of the economic recovery and growth

      strategy.” Preoccupation with traditional macro-economic and governance targets currently suffocates

      the strategy. It crowds out the anti-poverty content leaving a discredited trickle-down theoretical

      framework. …From this it became clear that the fiscal strategy of the PRSP marked little change with the

      PFP.” - Excerpt from “Is there a difference between the PFP and the PRSP?” April 3, 2000

 

What is the litmus test of a successful PRS? While the institutions claim that there is no blueprint for an

acceptable PRS, experience is proving otherwise. The primary litmus test, or standard, for judging a PRS

apparently relates to a government’s macro-economic and structural reform policies. Evidence is accumulating

that the IMF and World Bank will only approve those strategies that adhere to rigid macro-economic and

structural standards. A close comparison of PRSPs and Policy Framework Papers shows a striking similarity in

conditionalities. 

 

Where is the link between macro-economic issues and poverty issues? The institutions also assert that PRS

Papers will demonstrate how poverty reduction objectives and macro-economic adjustment objectives can be

mutually reinforcing. But, as part III describes, the institutions have failed to address the link between adjustment

and poverty. Until SAPs are fundamentally reconceived, the PRSP will add a social justice icing (eg welfare

policies), to the cake of failed macro-economic and structural policies.[18]  

 

It is not even clear which of the two institutions is in charge of the poverty impact of IMF programs? The PRS

initiative puts the IMF on record for the first time as naming poverty reduction as the benchmark by which its

programs should be judged. But which institution will be in charge of the poverty impact of IMF programs? The

IMF says that the Bank will provide this service for the IMF. However, the World Bank has not assumed this

responsibility. World Bank lawyers are unhappy with this arrangement. The World Bank is after-all, paying scant

attention to the impact of its own adjustment loans.

 

No Flexibility?

 

While the institutions claim that there is no blueprint for an acceptable PRS, experience is proving otherwise.

The primary criteria, for judging a PRS apparently relates to a government’s macro-economic and structural

reform policies. Evidence is accumulating that the IMF and World Bank will only approve those strategies that

adhere to rigid macro-economic and structural standards. A close comparison of PRS Papers and Policy

Framework Papers shows a striking similarity in conditionalities.

 

When asked what the IMF considers as the litmus test for approving of a PRSP a senior IMF official in-charge

of consultations on the PRSPs said, for the fund, three key questions need to be answered satisfactorily:

 

1.      Was the PRSP prepared with broad-based consultation?

 

2.      Are the policies likely to lead to faster, pro-poor growth?

 

3.      Does the strategy risk macro-economic stability, i.e. inflation and exchange rate volatility? 

 

There is little evidence that the IMF intends to be flexible about its adjustment framework. The orthodoxy about

low inflation pervades virtually every PRSP prepared.

 

The Kenyan PRSP is a case in point. In the Kenyan PRSP process, whilst Civil Society Organisations (CSOs)

were busy developing ideas about spending priorities, oblivious to them was a macro-economic working group

which was meeting simultaneously to produce the fiscal strategy paper. Having presented their report, CSOs

discovered, to their horror that fiscal targets established by the macro-economic working group were so

stringent that their spending expectations were largely thrown over-board and it was too late to make any input

into the macro-economic framework. The fiscal targets were driven by the IMF requirements get inflation below

4% within three years in the face of severe expenditure constraints, even though, there is no obvious correlation

between growth and inflation at inflation levels below 15%, whilst there is an employment effect of inflation close

to zero.

 

Similarly, in almost cases, consultations with civil society has precluded an open debate on the

macro-economic targets and their implication to the spending priorities developed through broad-based

consultation. The case of Uganda is revealing. Uganda is often cited as a model case in participatory PRS

because of the extensive nature of the consultations that NGOs conducted with local communities. These

consultations were however limited to establishing needs and spending priorities among and within sectors. On

no occasion was the financial programme discussed.

 

“Uganda cannot be considered a model case precisely because the macro-economic programme was not up

for discussion. The CSOs did a great job running around the country but their views hardly mattered to the

macoeconomic programme in the end.” However, whereas CSO views on the macroeconomy may be

worthwhile, “we cannot expect CSOs realistically, to be involved in financial programming”. [19]

 

Why should CSOs not realistically be expected to engage in financial programming? Is this an issue of capacity

or one of exclusion? This remains to be answered. One thing is certain, until CSOs successively engage with

the IFIs on the macro-economic target setting process, their scope for influencing the broader policy framework

will be limited indeed.

 

Participation or engineering consent?

 

The nature of civil society participation in PRSPs has been left undefined. The IFIs have emphasised “national

ownership” in the PRSP which obviates the need for more detailed criteria. The rationale for this is that it is

difficult, if not impossible, to specify universal standards, given the widely varying levels of

democratisation/participation, and the unique cultural and social conditions of each country. The formal position

adopted by the Boards of the IMF and Bank is that PRSPs will include a description of the civil society

participation, but neither Secretariat will evaluate the quality of participation. The Bank staff is mandated to

offer advice.

 

At present, the Interim PRSPs which have been prepared show that a formal acknowledgement that

consultation is a future requirement is enough to meet the participatory element, when it is presented to the

Board[20].

 

The Social Development Division has drafted a set of indicators, or framework with a set of criteria, but the

Boards did not adopt this[21]. These documents are both detailed and normative, and sketch out five types

participation drawing on the recent Institute of Development Studies synthesis[22] of participation in poverty

reduction strategies. In the suggested approach, a typology of three country types is proposed, ranging from a

high level of civil society capacity/engagement to limited capacity, and then setting appropriate indicators which

are described as “challenges/outcomes”. An elaborated list of tasks associated with each stage of the PRSP

process has also been produced together with an indication of possible inputs/outputs. Further a set of

possible constraints and remedies is outlined.

 

CSOs are among a host of stakeholders who participate in the PRS process. It is inappropriate for external

donors and creditors to be involved in shaping priorities which they, themselves, will finance. It is also

inappropriate for these powerful actors to interpose themselves between the borrowing government and its civil

society. Such a consultative process can weaken the authority of the government, minimize the influence of civil

society, and diminish government’s accountability to its citizens.

 

Borrowing governments generally consult with CSOs, rather than engaging their sustained participation. When

processes are shallow, they sideline the views of CSOs about the future of their country. There are also

difficulties reaching out to and including poor and marginalized groups in these processes.

 

The borrowing government generally prepares the draft PRS prior to consultation with CSOs. CSOs are then in

the position of reacting to a document, rather than discussing choices among alternative development

strategies. Alternatively, the government could prepare economic options papers in order to engage CSOs in a

process of goal-setting and strategic trade-offs.

 

Critical documentation relating to the PRS is still confidential. Until documentation relating to structural

adjustment programs (SAPs) and other key IMF and World Bank documents are publicly disclosed, it is difficult

for the public to meaningful participate in the PRS process.

 

Formulating the PRSP in Ghana

 

Ghana is a special friend of many in the donor community. It qualified, alongside Uganda and others, to pilot the

World Bank’s Comprehensive Development Framework because of the Government’s alleged openness to

inclusive policy making. But the PRSP process has proved problematic.[23]

 

At the end of January 2000, the Government of Ghana formed a team of experts drawn from the Ministry of

Finance, the National Development Planning Commission and Ghana Statistical Services (with support of the

local World Bank office) to prepare an interim PRSP. The Paper, it was proposed, should be based on existing

sources notably the documentation developed in preparation for the World Bank’s Comprehensive

Development Framework for Ghana.

 

The initial outcome of this work was entitled ‘Development Strategy for Poverty Reduction’. It is envisaged this

would provide the core of the PRSP and was submitted to the Bretton Woods institutions in February/March

2000. The paper formed part of the Government’s contribution to the development of Ghana’s County

Assistance Strategy (CAS). It represented an integral part of the negotiations to secure support from the

Poverty Reduction Growth Facility (PRGF).

 

A telephone interview of a random sample of actors conducted by ISODEC (a local NGO) to determine

knowledge of this document revealed an alarming degree of secrecy. Even a Deputy Minister of Finance had

never heard of the document. The Parliamentary Committees for Finance and Public Accounts had not at the

time of the submission to the IMF/World Bank seen copies. The Ghana Association of Private Voluntary

Organisation in Development (GAPVOD), the umbrella organisation of NGOs had also not seen a copy of the

document.

 

Though the document was perceived simply as an “introductory chapter to the World Bank’s CAS”, it defined a

timetable for engaging with other actors without having consulted any of them.

 

By the end of April 2000, civil society seemed largely unaware of either of the Poverty Reduction Strategy

process or how the Government of Ghana was proposing to handle this issue. There seemed, in addition, a

lively scepticism both about the desire and the ability of the Government to engage substantively with civil

society and the seriousness with which it is willing to tackle problems of poverty.

 

Even members of Parliament felt excluded from the process. The Chairman of the finance Committee of

Parliament complemented opposition members for the positive and constructive role they play on the

committee. He strongly supported the need to increase the effective involvement of civil society in the

development of macro-economic policy in general and on poverty issues in particular. The Chairman

recognised that there was a need to develop a national consensus on poverty reduction. This process, initially

at least, must be locally driven and not involve donors.

 

The Chairman complained, however, that it was problematic for the committee to undertake its monitoring role

effectively because of the difficulty of prising information from government Ministries. Economic policy making

is often opaque. The difficulty of securing information applied equally to members from the majority parties as to

the opposition. It was hoped that the Medium Term Expenditure Framework (METF), which was greatly

welcomed by the Committee, would make the budgeting process much more transparent and easier to monitor.

 

In the view of the churches, consultation, when it happens, tended to be little more than formality – “they have

already made up their minds”. It was suggested that, for “political reasons”, the Government wishes to keep the

churches away from issues of economic planning.

 

Ownership or conditionality by stealth?

 

The institutions claim that they encourage “ownership” of homegrown poverty reduction strategies. However,

extensive involvement by creditors and donors in the PRS preparation diminishes the chances for country

ownership. Furthermore, the practice of attaching conditions to loan operations militates against ownership.

 

One high level Bank official said that the PRS is a “compulsory program, so that those with the money can tell

those without the money what they need in order to get the money.”

 

If the PRS were a government-led process, why would the Bank and Fund send numerous missions to the

country to develop the PRS? Why would the first mission be developed in order to ensure “client commitment”

to the PRS? Why would the Bank develop one 1000 page Sourcebook to tell developing country groups how to

create a PRS and another Sourcebook to describe how to develop acceptable trade policies?

 

The process by which the PRS is developed ensures that borrowing country constituencies will be side-lined.

Government authorities are encouraged to draft a PRS prior to consultation with civil society groups. The

Boards of the IMF and Bank will provide oversight of the PRS development. The power of their veto over the

PRS will have a decisive influence on the process.

 

If a government wants to obtain resources, its PRS must meet the approval of IMF and World Bank Boards of

Executive Directors. If a PRS conforms to the standards of these Boards, then the borrowing government will

qualify for assistance from the IMF and World Bank as well as from other creditors and donors. In other words,

there are high stakes for low-income countries. The quality of a PRSP will either open or shut the flow of

international aid, trade and finance.

 

There could be dire consequences for those governments that take an independent “line” and don’t tell the IMF

or World Bank what they want to hear.

 

If the IMF and World Bank reject a government’s PRS, the government would lose access to trade credits, aid

and finance and probably default on its debt obligations. Ultimately, its domestic economy could collapse. If the

IMF and World Bank retain power and authority over programs, while the government merely implements

programs, then the PRS is nothing more than a smoke screen to obfuscate the results of their operations. The

concept of “ownership” has little meaning in this context.

 

ALTERNATIVE PROPOSALS

 

Fostering national development strategies

 

In the ideal development planning process a developing country government would forge a homegrown

“national development strategy” (NDS) through consensus-building processes based on deep and broad

participation from civil society and other domestic interest groups. Based on this strategy, the government

would then develop its annual and medium term policies, investment priorities, resource needs and the social

goals to be achieved. These will form the basis upon which it negotiates with its external development partners.

Compromise packages from these negotiations will then be placed with democratic structures for final approval

and made into law.

 

The virtues of such an approach are multiple:

 

·        it enhances the accountability of developing country governments to their citizens and democratic

        institutions and builds broad-based ownership for the development objectives of the nation.

·        the NDS serves as a kind of “business plan” for the country, which external actors can opt into, or not,

        as the case may be.

·        poverty is treated as integral to long term strategies for accumulation and distribution.

·        the process of developing a NDS is an opportunity for broad-based national dialogue and consensus

        building, essential for democracy and national unity, especially in weak post-colonial states.

 

These are the outcomes that the PRSPs claim to promote. It is important to note however that many HPIC

countries do have long-term strategies, often prepared with the support of the UNDP. Ghana’s Vision 2020,

and it five-year medium-term action plans, were prepared in 1995 as a constitutional requirement. The IFIs,

played at best a minimum and largely an undermining role in the process. The Ghana Vision 2020 has largely

been undermined since its inception because the annual (and now medium term) plans and budgeting

processes (dominated by the IFIs) have consistently been unconnected to the longer terms strategies under the

NDS.

 

Nigeria has a Vision 2015. Uganda, a Vision 2020, and its poverty component, the Uganda Participatory

Poverty Action Plan (UPPAP), the Gambia, a Vision 2025 and many more. These long-term development

strategies may have been deficient in terms of broad-based participation but they were nevertheless prepared

with much less financial conditionality hanging over them. In that sense they can better qualify as locally-owned.

 

The PRSPs are distinguished from NDS in the following respects: 

 

·        The preparation of NDS are not as conditioned by the threat of Bank and Fund conditionalities.

·        NDS focus on the long-term structure of societies and not just economies, and therefore seek to make

        economic change serve social and societal change goals.

·        Often undertaken as a constitutional requirement of governments ownership of NDS is clear. Unless

        ratified by local parliaments they cannot become operational. NDS need no approval or ratification by

        foreign bodies to become operational and valid.

·        The PRSPs on the other hand, to the extent that they need to be approved by the Boards of the Bank

        and Fund where developing country governments have little power, belong in reality to these

        institutions.

·        By exercising effective ownership over these documents and processes whilst claiming “ownership”

        by developing country governments, the IMF and World Bank exercise tremendous authority with

        diminished responsibilities whilst passing the responsibility for execution and consequences of these

        policies to developing country governments.

 

 Removing the anti-inflation obsession

 

A modest but significant proposal would be to reduce the IFIs obsession with inflation.

 

The World Bank and especially IMF construct a discourse in which the characteristics of a ‘sound’

macro-economic policy are regarded as obvious and not requiring discussion. A more nuanced discussion of

macro-economic policy from a human development perspective is provided by Amartya Sen (1998) who

distinguishes between ‘financial conservatism’ and ‘anti-deficit radicalism’. By financial conservatism he means

a perspective that attaches great importance to price stability and believes that the root of all high inflation is a

financial deficit but which does not call for the elimination of inflation irrespective of what else might have to be

sacrificed to achieve it.

 

Anti-deficit radicalism, on the other hand aims at zero inflation and argues that budget deficits must be

eliminated whatever the cost. Sen allows that there is empirical evidence to support a degree of financial

conservatism. Studies show that high inflation (above 40% per year) has a negative impact on growth rates, he

accepts that several instances of moderate inflation (20-40% per year) have also had a negative impact on

growth rates. However, he notes that there is no clear evidence of the negative growth effects of inflation (less

than 15-20% annually); and he draws attention to the negative impacts of a near zero inflation target on the rate

of employment.

 

Sen’s main conclusion is that a concern for price stability and avoidance of high inflation (financial

conservatism) does not rule out the expansion of public provision of health care, education and social security.

And a concern for deficit reduction does not justify user fees for public services, irrespective of the effects of

such fees on the wellbeing and freedom of the entire population, and more especially the effects on the poor.

“There would, in general, also be a case for giving the interests of the worse-off people the priority that social

justice may demand” (Sen, 1998, p.739). An implication of Sen’s argument is that there is not just one set of

targets and policies that constitute a ‘sound’ approach to macro-economics – the ‘soundness’ of the

macro-economic policy has to be judged from the point of view of social justice.

 

Integrating social analysis

 

There is now widespread recognition of the need to integrate macro-economic management and “social

policies”. However, Elson and Cagatay[24] argue there is still a strong tendency to think this means continuing

to design what are termed “sound” macro-economic policies (with a focus on market-based criteria, an

overriding emphasis on stabilizing the price level and reducing the role of the state). Social policies are then

added on in order to achieve socially desirable outcomes such as poverty reduction. Thus, they argue, “there is

no room for radical reformulation of macro-economic policies as a result of a broad based social dialogue

which would aim at macro-economic policy formulation in the light of the social content of such policies”.

 

The whole discourse of both the Bank and the Fund thus continues to envisage two separate domains – the

macro-economic and the social. Elson and Cagatay argue that, an alternative approach to considering social

policies as an afterthought to macro-economic policies would start with the premise that all macro-economic

policies are enacted within a certain set of distributive relations and institutional structures; and that all

macro-economic policies entail a variety of social outcomes which need to be made explicit. According to such

an outlook, “soundness” of macro-economic policies would be judged not on market-based criteria per se, but

in terms of whether they ultimately succeed in bringing societies closer to achieving social justice. “Thus,

desired social outcomes such as distributive justice, equity, provisioning of needs for all, freedom from poverty

and discrimination, social inclusion, development of human capabilities become the ultimate goals of

policy-making”.

 

The concept of “social development” is understandably not a widely understood term within the Bank, given the

dominance of economists in this institution. It completely draws a blank in the IMF. It is not surprising therefore

that there is great difficulty in conducting social assessment of macro-economic policies, even if there was a

political will to do so.

 

Conclusions

 

As Dani Rodrick observes [IMF and World Bank] “reforms in labor market institutions, trade and capital

accounts and in government-business relations entail a remolding of the Korean economy in the image of a

Washington economist’s idea of a free market economy. If Korea, a mid-size country with an exemplary

development record is subject to such intrusive conditionality, one can imagine what is in store for small

countries with more checkered economic histories.”[25] 

 

·        PRSPs are a classic case of empty rhetoric. It could provide a useful veil for the World Bank and IMF

        to continue their neo-liberal agenda. Judging by the gap between what the IMF and the World Bank

        say, and what they do, PRSPs may well result in the worst of both worlds for poor economies and poor

        people within them, by legitimising and institutionalising yet additional conditionalities without

        significant benefits either by way of debt reduction or real change in the content and “ownership” of

        policies. Indeed, PRSPs and the preoccupation with them have already provided these institutions

        with the excuse they need to simultaneously delay action on significant debt relief and deflect attention

        away from their structural adjustment programmes.

 

·        Judging by official pronouncements and documents emerging from these institutions, the major

        preoccupation and intent would seem to be more about “frameworks” and “processes” and less about

        changing policy content and practices affecting poverty. Not only is there a strong resistance against

        an assessment of the macro-economic and structural policies promoted by the institutions for their

        social content, there is an active effort to shield them from public inquiry on the claim that PRSPs have

        “superseded” structural adjustment programmes. Early experience with the PRS initiative shows that

        structural adjustment programmes are not being transformed.

 

·        PRSPs so far produced do not provide parameters, or boundaries, for IMF and World Bank

        involvement in a borrowing country. To the contrary, the initiative provides a springboard for

        conditionality-laden SAPs and country strategies, which dictate such things as the nature, pace, and

        sequencing of privatisation and liberalisation processes. Heavy doses of conditionality militate

        against any sense of ownership of the PRSP on the part of borrowing country constituencies. Indeed,

        it has shown the potential for expanding micro-management of low-income countries by the IMF and

        World Bank. Conditionalities enforce top-down policy changes. They attempt to buy reform from the

        borrowing government, usually short-circuiting consensus-building processes among citizens and

        government officials, including elected officials.

 

·        Their track record in terms of serious commitment to poverty reduction is so poor, by their own (at least

        Bank’s) evaluation, that the new pro-poor credentials should not be taken for granted. By their own

        bidding, few of their loan operations bother to mention poverty reduction as an objective, let alone

        provide indicators for assessing their impact on poverty. Only a hand full of adjustment operations in

        particular undertake social impact assessments and when they do, the results on poverty reduction is,

        by their own acknowledgement, disappointing. To date it is not clear who, between the two, has the

        principal responsibility for evaluating the poverty outcomes of macro-economic policy. Consequently,

        it is not far fetched to suggest that the hearts and minds of these institutions are not in the poverty

        business, but in other things.

 

·        The ownership issue is yet another example of empty rhetoric. National ownership of policies cannot

        be brought about by the detailed prescriptions of creditors as to how local societies should be

        organised. The very thought of it is a contradiction, especially in view of the fact that these prescriptive

        tools were not prepared at the behest of the debtors. In addition, “local ownership” has no chance of

        being realised in a policy-making framework that has donors and creditors sitting in every local round

        table in the name of partnership. This practice represents subtle and often negative pressures, with

        the result that governments become more accountable to donors and International Financial

        Institutions than to their citizens and democratic institutions.

 

·        On participation, the practice so far indicates that what is intended to be achieved is much less about

        promoting “social consensus” as it is about “engineering consent” to subtle dictates of creditors. As

        currently conceived, participation equates with information and consultation. Like ownership, it is the

        sea that stops at the shore of macro-economic policies. It appears that participation is acceptable

        only as long as it does not interfere with serious matters of macro-economic and structural policies.

        On serious matter of macro-economic policies, including the exchange rate, trade reforms and

        privatisation there is much less pretense about building “social consensus and transparency”.

 

·        PRSPs will make at best, marginal impact on both poverty reduction and democratic governance, too

        much pre-occupation with them could worsen the situation. Attention will be  shifted away from external

        causes of poverty, including the role of the Bank, to developing country governments instead.

 

 Recommendations

 

1. Democratising the process

 

Current forms of macro-economic conditionality should be transformed or, failing that, abolished. The IMF and

World Bank’s own evidence year in and year out confirms high failure rates and unknown impacts on poverty

and social exclusion.

 

Instead, governments, in full consultation with civil society, should develop their own national development

strategies and poverty reduction plans. They should go beyond poverty reduction to look at the country's other

social goals. These should provide parameters within which the IMF and World Bank operate.

 

2. Reducing the role of the World Bank and IMF

 

If the PRSP process is to become effective, the World Bank and IMF should not play central mediating roles.

Both their culture and past performance prove them inadequate to the task. In as much as they are involved,

they should substantially increase their transparency and accountability towards people and governments in

borrowing countries.

 

3. Getting the economics right

 

Currently PRSPs act as a barrier to pro-poor policies. IMF policy recommendations should be accompanied by

‘social content’ assessments that include expected distributional impacts. At a very minimum, the institutions

should exercise their responsibility by conducting up-front social and environmental impact assessments of all

their lending operations and ‘advice’. Many internal documents attest to the fact that the institutions are not

well-informed about the ways in which their core business, the promotion of neo-liberal strategies, is linked to

poverty and equality. 

 

The two institutions must be much more flexible about what they will accept as ‘sound economics’ and

recognise their vast gaps in knowledge particularly around poverty reduction and social policy.

 

Charles Abugre, June 2000. 

 

Charles Abugre is Executive Director of ISODEC (Integrated Social Development Centre), Ghana and

former Coordinator of the Africa Secretariat of the Third World Network. He was previously at the Agency for

Co-operation and Research in Development (ACORD) in London and has taught international economics

courses at the School of Journalism, University of Ghana.

 

The World Development Movement works to tackle the root causes of poverty. Through its ground-breaking

campaigns it wins positive change for the world’s poorest people. WDM has over 10,000 supporters and 120

active local groups.

 

World Development Movement

25 Beehive Place, London SW9 7QR

Tel: 020 7274 7630 Email: wdm@wdm.org.uk

 

 

 

[1] John Walton and David Seddon, Free Markets and Food Riots: the Politics of Global Adjustment,

Blackwell Press, 1994

[2] Operations Evaluation Department, World Bank, 1999 Annual Report of Development Effectiveness, 2000,

p. 17.

[3] Using this approach, the World Bank’s Branko Milanovic shows an increase in the world’s Gini coefficient

from 63, in 1988, to 66 in 1993.

[4] UNDP, Human Development Report, 1999.

[5] Lundberg and Squire, The Simultaneous Evolution of Growth and Inequality, December 1999, preliminary

draft, suggesting that trade liberalization hurts the poorest 40 per cent of populations, while enriching the other

60 per cent. The authors predict increases in poverty and inequality and assert that the costs of adjusting to

greater openness are borne exclusively by the poor, regardless of how long the adjustment takes. The authors

are re-doing their calculations.

[6] Chief Economist, Inter-American Development Bank

[7] See, for instance, Broad, Robin and Cavanagh, John, “The Death of the Washington Consensus?” in World

Policy Journal, Volume XVI, No. 3, Fall 1999.

[8] Sector adjustment programs (SECALs) over-emphasize the value of speedy privatisation and liberalization,

just as SAPs do. Whereas SAP reforms influence a country’s entire economy, sector adjustment loans

(SECALs) address a particular sector (e.g. education, health, energy and transportation). However, the direct

outcomes and impacts of SECALs may have ripple effects that extend well beyond the sectors. For example,

increases in gasoline and diesel prices may result in higher fares for public transport costs, which in turn affect

the ability (affordability) of poor workers to commute to work.

[9] In 1945, the founders of the institutions vested the World Bank with the job of providing reconstruction

financing. The IMF was to provide short-termfinancing to stabilize exchange rates. The IMF's charter stipulates

that the multilateral trade and investment regime (together with stable, convertible exchange rates) should

complement the goals of full employment, progressive taxation, and other aspects of welfare capitalism.

[10] See the Bank’s Annual Report on Development Effectiveness, 2000 (p. 19) on the failure to link

macroeconomic policies and poverty outcomes or paragraph 29 of the IMF/IDA’s Poverty Reduction Strategy

Papers – Operational Issues, 12/10/99.

[11] “Higher Impact Adjustment Lending (HIAL) Initial Evaluation,”, OED, World Bank, June 1999.

[12] “Social and Environmental Aspects: A Desk Review of SECALs and SALs Approved During FY98 and

FY99,” ESSD, World Bank, May 24, 1999 draft.

[13] Quality Assurance group, World Bank, “Quality at Entry in FY98,” March 14, 2000.

[14] As of April, Bolivia, Mozambique and Tanzania had prepared Interim PRS Papers.

[15]          Participation in Poverty Reduction Strategies: A synthesis of experience with participatory

approaches to policy design, implementation and monitoring, Rosemary McGee, IDS, Sussex, March 2000.

[16] With the exception of the Comprehensive Development Framework (CDF).

[17]          A New Approach to Country-Owned Poverty Reduction Strategies, The World Bank and the

International Monetary Fund, January 2000.

[18] Welfare programs (eg social safety nets and food-for-work programs) are necessary, but insufficient, in

order to tackle poverty. Recent development thinking has moved the poverty reduction agenda from the welfare

arena to the rights-based approach. This is a very significant move hitherto adopted by only a few bilateral

donors (eg DFID-UK). Others should follow suit.

[19] Anthony Boote, speaking to UK NGOs at SOAS 31/5/00

[20]          In the case of Mozambique, the Government simply advised that it would deal with this in its own way

and own timetable; for Cameroon, the Bank quietly adopted a quite dirigiste approach to facilitate participation.

 

[21]          See Participatory Processes in the Poverty Reduction Strategy (draft) and Technical Notes, World

Bank, April 2000. This approach is being used with some governments and CSOs to help design PRSP

processes.

[22]          Participation in Poverty Reduction Strategies: A Synthesis of Experience with Participatory

Approaches to Policy design, Implementation and Monitoring, March 2000” Rosemary McGee, Institute of

Development Studies, UK.

[23] Information for ISODEC, Ghana

[24] Elson and Cagatay (Jan 2000) “The social content of Macroeconomic Policies”.

[25] Rodrick, Dani, “Governing the Global Economy: Does One Architectural Style Fit All?” Harvard University,

June 1999.