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Doc. 10565
2 June 2005
The World Bank, the International Monetary Fund and the realisation of the Millennium Development Goals
Report
Committee on Economic Affairs and Development
Rapporteur: Mr Klaus Werner Jonas, Germany, Socialist Group
Summary
The report focuses on the contribution – the part already achieved and that to be expected – of the World Bank and the International Monetary Fund (IMF) toward the realisation of the United Nations Millennium Development Goals (MDG) which have become a yardstick for the world community’s efforts to significantly reduced world poverty by 2015. It welcomes a number of new accents more recently set by the two institutions. They include: debt relief linked to good governance, policy reform and true “ownership” by receiving countries over projects, greater transparency vis-ŕ-vis the public as regards the activities of the two institutions, greater use made of concessionary loans and grants to the poorest countries, a stronger emphasis on education, especially for young women and more resources to promote trade by, and between, developing countries.
The Millennium Development Goals help focus the world’s efforts, notably via the World Bank and the IMF, around well-defined targets. The role of the Parliamentary Assembly of the Council of Europe, working with other parliamentary set-ups such as the Parliamentary Network on the World Bank, is essential to keep governments and the institutions concerned properly focused on the MDGs, the fulfilment of which is at present running behind schedule. As Nelson Mandela put it: “While poverty exists, we are not free”.
I. Draft resolution
1. The United Nations Millennium Development Goals (MDGs), agreed by the world community in 2000, form the main expression of its commitment to tackling global poverty and social inequality. 2005 marks one third of the way toward the MDG target date of 2015 and it is now clear that the world community – including the Council of Europe area – lags seriously behind schedule in its commitment to meeting them in time. Catching up will only be possible if new resolve is mobilised and the Bretton Woods institutions - the World Bank and the International Monetary Fund (IMF) – are the essential tools by which this can and must be done.
2. The Parliamentary Assembly recognizes the major impact which the World Bank and the IMF have had on world economic and social development over the years but also the new challenges posed by a new world economy. New strategies are needed to accommodate a globalisation process that gives advantages to some but carries new economic risks to many others. Against this background, scrutiny of the functioning of the World Bank, the IMF and other international institutions is a political imperative not only for governments but increasingly also for parliamentary institutions such as the Parliamentary Assembly of the Council of Europe which represents many of the world’s most significant aid donors.
3. The World Bank’s and the IMF’s vanguard role in the world’s effort to meet the MDGs reflects a welcome realisation as regards the duties of all: rich countries providing more and better aid and greater access to their markets and poor countries focussing on the quality of domestic policies, governance, democracy, human rights and the rule of law.
4. The Assembly commends the World Bank and the IMF on their rapid and major response to the December 2004 Tsunami catastrophe in the Indian Ocean region. In this context, it recalls its own appeal, as expressed in its Resolution 1422 (2005) on Europe and the tsunami disaster, for Council of Europe member states to “honour the commitments entered into in connection with pledged funds and assistance to the states struck by the tsunami, without prejudicing aid allocated to other areas”.
5. Debt relief for the poorest and most heavily indebted countries is highly welcome. It is important that debt relief be coupled with stringent requirements for policy reform and improved governance in the receiving countries, as required by the World Bank and the IMF, and that it should not lead to any reduction in official development aid by donor countries.
6. The Assembly welcomes the World Bank’s and the IMF’s increasing emphasis on good governance in recipient countries, which it sees as crucial to development and their efforts to enhance recipient countries’ “ownership” of such projects, such as the African Peer Review Mechanism within the New Partnership for Africa’s Development (NEPAD) initiative. In this context, it supports the strengthening of the World Bank’s and the IMF’s staff presence in the field and expects that it will be further intensified.
7. The Assembly, recalling its Resolution 1396 (2004) on “The Doha Development Agenda: world trade at a crossroads”, stresses the importance of trade liberalisation as an essential tool for improving the lot of poorer countries. It is, however, the richer countries that have the economic resources to compensate for the sacrifices incurred as a result of trade liberalisation. It is in this context important that the Bretton Woods institutions and the World Trade Organisation co-operate closely with each other, especially as regards programmes to fund adjustment assistance for developing countries and the pursuit of consistent and mutually supportive policies by these three institutions.
8. The Assembly commends the efforts of the Bretton Woods institutions to maximise transparency and public involvement in its activities, not least via their extended websites. The role of the Parliamentary Network on the World Bank (PNoWB) – a discussion forum for parliamentary groups worldwide in which the Parliamentary Assembly of the Council of Europe actively participates – deserves further strengthening and is fully in line with the Parliamentary Assembly’s quest for increased parliamentary involvement in international institutions.
9. In conclusion, the Assembly:
i. calls on the member states of the Council of Europe to give the World Bank and the IMF all the necessary financial and political support in their effort to realise the United Nations Millennium Development Goals and to assist them in their inner reform and adaptation to a new world reality so that they may fulfil their role as advocates of change, in donor and recipient countries alike. This includes awarding more influence within their decision-making bodies to the poorer countries;
ii. considers the World Bank’s International Development Agency (IDA), with its concessionary loans and grants to the poorest countries, to be particularly valuable for meeting the MDGs and calls on Council of Europe member states to strengthen their support for, in particular, the Polio Eradication Programme, “Roll Back Malaria” and the fight against HIV/Aids;
iii. expresses particular support for current World Bank-IMF programmes meant specifically to alleviate poverty, such as the Heavily Indebted Poor Countries Strategy (HIPCS) to manage debt relief and the Poverty Reduction Strategy Papers (PRSPs) to engage recipient countries in self-help action;
iv. strongly supports the World Bank’s Education For All (EFA) project launched in 1990, including the EFA Fast Track Initiative started in 2002 - seeing that education, especially of young women, is a main vehicle for lasting economic and social development. It notes with regret, however, that insufficient funding by many donor countries, including in the Council of Europe area, continues to hinder full implementation of the project and calls on all Council of Europe member states fully to meet their EFA commitments;
v. welcomes the renewed importance placed by the IMF and the World Bank on trade promotion as part of development and asks Council of Europe member states to work for a timely conclusion of the negotiations of the Doha Development Agenda - fair to the developing world in terms of market access to richer countries and leading to continued reduction of agricultural subsidies in particular;
vi. notes with concern that the implementation of the central MDG environment protection goal is suffering considerable delay and calls for special support by European and other donors to remedy the situation.
II. Explanatory Memorandum by Mr Jonas, Rapporteur
Contents
1. Introduction
2. Background – the Bretton Woods mandate
3. The Bretton Woods twins in a changing world
4. The United Nations and international development
5. Point by point: the Millennium Development Goals
6. Progress to date: “Reasons for optimism, grave concerns”
7. Working together to achieve the Millennium Goals
8. Prospects and priorities: an interim conclusion
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1. Introduction
1. As 2005 began, international aid and development issues dominated headlines all over the world. The horrific destruction caused by the Indian Ocean tsunami – unprecedented in modern times – provoked an unprecedented response: within a couple of weeks, aid worth more than $7 billion had been pledged. More than $775 million of this was given to the United Nation’s “flash” appeal and more than half of this sum has already been received or is being processed. It is clear that this disaster has caught the attention of the world.1
2. But the United Nations has reminded us that the response to the tsunami, although magnificent, was a striking exception: many of its appeals remain critically under-funded, and even those pledges that have been made too often remain unfulfilled. Most importantly perhaps, January’s report by the UN Millennium Project makes clear that progress toward the Millennium Development Goals has been painfully slow. While those goals are still achievable, they now require a dramatic effort, with a quantum leap in financial assistance on the part of the developed world, and structural changes in the way these funds are spent.
3. This report is the latest in a series undertaken by the Parliamentary Assembly of the Council of Europe assessing the work of the World Bank and the IMF. Since 1945, the “Bretton Woods Twins” have held a mandate for international development and financial stability. Their roles have frequently been controversial; but today, their foremost challenge is the realisation of the Millennium Goals. The report will therefore focus on the development of their policies and practices, and ask what specific steps must now be taken if the Goals are to be fulfilled. The Parliamentary Assembly, which represents many of the worlds most significant aid donors, has a profound interest in their success.
4. The report builds essentially on a visit under taken by the Rapporteur and the Chairman of the Committee on Economic Affairs and Development, Mr Evgeni Kirilov, to the World Bank and the International Monetary Fund in January 2005. The Rapporteur wishes to thank the two institutions, and the many representatives they met, for their great openness and willingness to share their knowledge and expertise. In February 2005, the Rapporteur also represented the Parliamentary Assembly of the Council of Europe at a highly interesting meeting in Naples of the Parliamentary Network on the World Bank (PNoWB) and has brought several insights gained at that conference into his report.
5. At the time this report is being finalised, the World Bank’s President; Mr James Wolfensohn, is preparing to hand over the reins of the organization to Mr Paul Wolfowitz. The Committee on Economic Affairs and Development held very fruitful talks with Mr Wolfensohn in March 2003 in connection with a meeting of the Parliamentary Network on the World Bank (PNoWB) in Athens. Mr Wolfensohn has brought many changes to the Bank in the course of his 10-year stewardship, such as an increased focus on combating poverty, fighting corruption which stalls development, and promoting education, basic health, HIV/Aids programmes, biodiversity and environment protection. All these aims are also central concerns of the Parliamentary Assembly of the Council of Europe, and so we hope and trust that Mr Wolfowitz will pursue them with the same vigour as his predecessor.
2. Background – the Bretton Woods mandate
6. To make sense of what is happening today, it is helpful to consider the origins of the World Bank and the IMF – and their brief, and indeed occasionally turbulent, histories. Both were created by the same ambitious spirit of post-war planning that shaped the United Nations. In July 1944, a conference of economists from 43 countries gathered at Bretton Woods to design a new financial architecture for the world. This was just a few weeks prior to the Dumbarton Oaks conference that would lay out the blueprint for the UN, and its ideals and objectives were similar: global order would be based upon consensual decision-making and economic co-operation, offering the prospect of social stability and widely-shared prosperity. At the time, the priorities were to manage recovery and reconstruction, and to avoid a repeat of the economic crises - with their self-defeating currency and trade battles - that had bedeviled the 1920s and 1930s. As the US Treasury Secretary at the time told delegates, the “bewilderment and bitterness” of the Great Depression had been “the breeders of fascism, and finally of war”.
The World Bank
7. The World Bank was created to finance that recovery, by lending money to devastated post-war economies. Originally known as the International Bank for Reconstruction and Development, its primary task, as Article One of its Agreement states, is: "To assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes." Further, it was "to promote the long-range balanced growth of international trade and … international investment ... thereby assisting in raising the productivity, the standard of living and conditions of labour in their territories".
8. The Bank was to be structured like a club, providing services to members, and controlled by a representative board, where voting power was based on each country’s capital subscriptions. It would provide long-term financing, primarily to governments, to fund specific projects – with a focus on infrastructure, such as highways, dams, and telecommunications facilities, and on social welfare projects, especially in the health and education sectors.
The International Monetary Fund
9. The International Monetary Fund, or IMF, was for its part intended as a supervisory institution, whose purpose was to promote financial cooperation, and to create a stable climate for trade, by harmonising monetary policy and maintaining exchange-rate stability. It would also, when required, provide temporary financial assistance to countries with balance of payments difficulties. Its loans, then, would be short-term and, as it were, more ‘tactical’ in nature. As set out in its Articles of Agreement, the IMF would “give confidence to members…thus providing them with the opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international property”.
10. Like the Bank, the IMF was conceived as a club, and the Bretton Woods attendees made up its original members. Each was deposit a 'quota subscription', and this sum would determine how much the member could, when necessary, draw. Quotas would also determine voting rights so that, again as with the Bank, decision-making power would rest with the greatest contributors. In return for financial assistance, borrower countries would implement economic reforms – and the completion of loan payments would be tied to their compliance.
11. Crucially, too – for the Bretton Woods planners - IMF members would agree to keep their exchange rates pegged in terms of the US dollar (and thus, indirectly, in terms of gold), and no adjustment would take place without the IMF’s concurrence.
12. Although technically separate, the two organisations were connected by the requirement that World Bank members should also be members of the IMF. Alongside them, to complete the Bretton Woods agenda, a third institution was envisaged, which would promote trade liberalisation. But it would take nearly 50 years of negotiations and tariff-reductions, handled by the GATT (General Agreement on Tariffs and Trade), to create the World Trade Organisation – by which time the Bretton Woods institutions faced a world radically different to that surveyed by their creators.
3. The Bretton Woods twins in a changing world
13. The Bretton Woods institutions aimed to build a consensual – almost legal - framework for international capitalism, and to restore its battered credibility, a task that became still clearer with the beginning of the Cold War. But the rapid recovery of the West and its accompanying expansion of trade would, ironically enough, soon call their roles into question.
14. At first, as had been envisaged, the Bank’s customers were in Europe: its first loan arrangement was in 1947 to France, then to Belgium and Luxembourg – and its staff was mostly made up of engineers and financial analysts, based in Washington DC. But with the launch of the Marshall Plan for Europe, their activities quickly spread. By 1948, financing was arranged for a hydro-electric scheme in Chile; by the 1950s, loans were being made to enable airlines such as Qantas and Air India to buy jet airliners, and in the early 1960’s, the World Bank helped to finance Japan’s first bullet trains.
15. To meet the differing needs of its customers, the Bank created internal agencies: notably, in 1956, the International Finance Corporation (IFC), which aimed to promote sustainable private sector investment, and in 1960 the International Development Agency (IDA), which offered preferential loans and grants to the very poorest countries. At this stage, developing countries tended to have difficulty raising money, and therefore carried low debt levels. Neither circumstance would last for long.
A World of debt
16. By the late 1970s, in the aftermath of the OPEC boom, overseas borrowing – both public and private – was growing rapidly all over the world. So began the debt crisis that, in many regions, remains with us today – and although much of the debt was with the private sector, the World Bank was blamed by many for encouraging the process. Not only that, but critics accused the Bank of Western bias: much of its aid was “tied” to services provided by the West, and thus appeared to discriminate against local content. And further still, the Bank – along with the IMF – was attacked for its support of liberal policies that came to be known as the “Washington Consensus”.
17. Like the World Bank, the IMF’s first customers were in Europe. But by the 1970s, it seemed in danger of losing its purpose: first, the US abandoned the convertibility of the dollar to gold, and the Bretton woods currency system collapsed. Meanwhile, the expansion of world trade was steadily reducing its role as a source of short-term liquidity, and in the mid-seventies Britain was the last developed country to draw on its resources. Its focus turned to the developing world’s gathering crisis of debt - but its requirements for financial reform remained as rigorous as before.
18. Both the Bank and the IMF became known as apostles of the free market but also the discipline deemed necessary to make it function – bearing down on inflation, insisting on rapid liberalisation, agricultural and labour market reform, while demanding lower public spending (in fact auditing projects to see if they could be carried out by the private sector instead). This culminated in the now nearly infamous term “structural adjustment”, which came to be regarded as a euphemism for a developing country’s policies being externally controlled. The developed world stood accused – as to some extent, rightly or wrongly, it still does – of insisting on policies abroad that it would not implement at home.
19. In country after country, the IMF engaged in debt-crisis management. But while the process was understandably chaotic, and was arguably often damaging for the countries involved, it had a negative impact on the process laid down by Bretton Woods. Developing countries – especially in Africa – could not afford to repay the short-term credits they were offered, and longer-term, concessional deals had to be struck. The result was a perception that the post-war model had become obsolete, and that the roles of both institutions were now confused; overall, there was a weakening of the clarity of purpose – and the credibility - of both.
A change of approach
20. During the 1990s, the Bretton Woods twins would respond to this challenge. The crises continued, of course, notably in Russia and Asia, and the criticism continued, too; but lending policies and mechanisms were refined. More broadly, there was a change of approach and, if not an end to the “Washington consensus”, a period of self-examination and a well-received shift of emphasis.
21. Launched jointly by the IMF and the Bank, the Heavily Indebted Poor Countries Strategy (HIPCS) began a process of managed debt relief for those most disabled by it, while Poverty Reduction Strategy Papers (PRSPs) were evolved as a means of involving client countries in creating their own solutions. It should be noted that parliamentarians in donor countries played a significant role in this rethinking of priorities. At their annual joint meeting in 1999, both bodies decided to make country-generated strategies the basis of all concessional lending and debt relief. Meanwhile, the Bank had became a leader in social programmes – for example, literacy and vaccination campaigns - and launched Education For All (EFA), whose goals of accessibility and gender equality would come to be enshrined in the Millennium Project. Speaking in 1999, the Bank’s President, James Wolfensohn, summed up the mood: “Since the realignment of the focus of the bank after the initial objectives of Bretton Woods… were met, the more recent and continuing focus has been on development and the issues of poverty and the issues of sustainable development.” (Rapporteur’s italics)
22. A variety of factors lay behind this “realignment”. Undoubtedly, lessons had been learned and criticisms heard – and now with more than 180 members, both institutions were aware of being very large clubs indeed. The end of the Cold War, too, had increased the West’s sense of security. But more than this, the change reflected the astonishing increase in global wealth, and the still greater increase in wealth disparity. The average income in Switzerland was now 400% greater than that in Ethiopia – while in Uganda, a country that had averaged 6% growth over 10 years, average income was still below $250 per head. This was something that the developed world should – and now, with its prosperity, could – address. And to do so was becoming more and more urgent. During the 1990s, income per head fell in 54 developing countries – with Africa particularly affected, as well as countries in Eastern Europe and Central Asia - and the UN’s “Human Development Index” actually fell in 21 countries during the period (greatly impacted by the spread of Aids). During the 1980s, the index had fallen in only four countries.
23. This case was forcefully made: in the prosperous West, a crowded field of charities, NGOs and pressure groups had emerged – some of which were very willing to take to the streets to make their voices heard. But if the change of approach was recognition of the limits of “business as usual” capitalism, it was also a sign of the limits of “business as usual” aid, for the most lavishly-funded countries had, by and large, failed to grow appreciably faster than the most neglected. The complexity of the modern world, and the stubborn persistence of poverty, demand a different approach. To some, this is an era of a runaway world, where abundance and need seem equally out of control - and it is not hard to see why: since 1960, for instance, the world’s grain production has doubled (using only a third more land); this is sufficient to provide 2,700 calories a day for everyone on the planet, yet 800 million people are chronically undernourished.
Strengthening the role of developing countries in the IMF and the World Bank.
24. Implicit in both the Millennium Development Goals and the 2002 Monterrey Conference on Financing for development is the belief that the time has now come for a stronger role for developing countries within the IMF and the World Bank. Developing countries at present have extremely limited voting weight in the governing boards of the two institutions due to their small budgetary contributions. Due to this, but also to limited supportive research resources at home, developing countries are unable effectively to prepare issues of concern to them and to lobby effectively for them within the institutions.
25. Thus, the wealthiest countries command around 40 % of the votes in each organisation, enabling them to impose their will by recruiting only a handful of emerging or developing economies for a given project - an easy enough task given the great diversity of views within the developing countries’ camp. By contrast, African countries, accounting for a fourth of the IMF and World Bank membership, have only about 4 % of the voting power.
26. Various remedies have been suggested to remedy the situation. One is the use of a “double voting” system, requiring not only a certain percentage of voting power but also a certain percentage of the membership. Already in the IMF, a double majority is foreseen for any change to the Articles of Agreement or in order to expel a member. The idea would be to have double majority voting expanded to policy decisions. Half the voting power and half the membership could be one possible formula. Another way would be to increase the influence of so-called “basic votes” –equal for all member countries - in the total voting weight calculations. At present, basic votes represent under 3 % of total votes in the World Bank and a similar proportion in the IMF. When the institutions were founded in 1944, basic votes represented over 10% of votes, but with contributions over the years being made essentially by the wealthier members, the importance of basic votes has sunk steadily to the present level.
27. Both institutions are currently grappling with the challenges presented by, on the one hand, the political commitment to giving added weight to the world’s poorer countries and, on the other, what one might call the “money talks” imperative, reflecting the reality that countries that contribute more to the World Bank and the IMF also want a bigger say in how their contributions should be spent. The Rapporteur looks forward to learning of further progress in this area in both institutions.
4. The United Nations and international development
28. But rallying world opinion is at the heart of the United Nations’ mission, and the Millennium Plan is built on the conviction that something can be done. In fact, ever since the UN’s inception, and despite its having a very different mandate to those of the Bretton Woods institutions, it has been a player in international aid and development.
29. In the post-war years, with the Bank and the IMF focussed on Europe, repeated requests from developing countries caused the UN to establish EPTA, the Expanded Programme of Technical Assistance – albeit with a very modest budget of $20 million. By the late 1950s, there was pressure for the establishment of a special UN economic fund (SUNFED), though developed countries chose to expand the World Bank, which they controlled. Various special funds and field representatives were established, however, until in 1966 they were merged into the UN Development Programme.
30. Over the years, UNDP has expressed its own reservations about the “Washington Consensus”, but it has to be said that all three institutions were leading lights in the launch of the Millennium Project. In September 2000, on the very eve of the Millennium summit, the Bank issued its World Development Report, entitled “Attacking Poverty”. It was a clear sign of things to come – and its sentiments would surely have been applauded by the planners of Bretton Woods. It declared that mass poverty in a prosperous world was “morally unacceptable, politically unsustainable and economically wasteful”.
5. Point by point: the Millennium Development Goals
31. The Millennium Summit, convened at the UN headquarters in New York, produced a declaration of goals – affirmed by 189 countries - to tackle poverty and social inequality, and to be achieved by the year 2015. Targets were set for each goal (with interim targets in some cases), and a range of detailed indicators to enable progress to be measured. Though undeniably ambitious, the targets had been carefully assessed – it was a priority that the project be considered achievable and not written off as utopian.
32. The goals and their corresponding targets are:
i. To eradicate extreme poverty and hunger. The target is to halve both the proportion of the world’s population who suffer from hunger, and the proportion who live on less than $1 a day, measured from a 1990 baseline.
ii. To achieve universal primary education. The target is to ensure that all children are able to complete a full course of primary education.
iii. To Promote Gender Equality and Empower Women. The target is to eliminate gender disparity in primary and secondary education by 2005, and at all levels of education by 2015.
iv. To reduce child mortality. The target is to reduce infant mortality by two-thirds, measured from a 1990 baseline.
v. To improve Maternal Health. The target is to reduce maternal mortality by three-quarters, measured from a 1990 baseline.
vi. To Combat HIV/Aids, Malaria and Other Diseases. The target is to have halted, and begun to reverse, the spread of HIV/Aids, malaria and tuberculosis.
vii. To Ensure Environmental Sustainability. The broad target is to integrate the principles of sustainable development into local policies and programmes; there is also a focus on significantly improving the lives of at least 100 million slum dwellers, and a specific target of halving the proportion of people without sustainable access to safe drinking water.
viii. To Develop a Global Partnership for Development. A range of targets are associated with this. They include: the development of an open, rules-based trading and financial system, measures to improve good governance, measures to address tariff and debt issues for the least developed countries (with special measures for landlocked countries and small island developing states), steps to encourage youth employment, as well as beneficial cooperation with international pharmaceutical, communications and technology companies.
33. The Millennium Project was set up to recommend implementation strategies, monitor progress and issue regular public reports. Under its banner, more than 300 development specialists, many from the Bank and the IMF, would contribute to ten working groups. Jeffrey Sachs, of Columbia University, was named as Project Chairman and special adviser to the UN Secretary General on the implementation of the Millennium Development Goals.
34. The Millennium Summit was followed by a series on international conferences - most significantly at Monterrey, in March 2002, when a new consensus was established between developed and developing countries, with the participation – some say active brokering - of the World Bank and the IMF. The meeting stressed mutual responsibility for the achievement of the Millennium Goals: developing countries would need to improve domestic policies and governance, while developed countries would have to step up their support, by offering better access to markets and by providing more and better aid. Specifically, there was a commitment by developed countries to increase aid levels to 0.4% of national incomes by the year 2006 (There was also a reaffirmation of the UN’s own long-term target of 0.7% aid, first set out in the 1960s). 2
6. Progress to date: “Reasons for optimism, grave concerns”
35. We are now nearly a third of the way through the Millennium Goal implementation period – and more than half-way through the statistical measurement period. The state of implementation and what must be done to catch up on any delays incurred therefore formed a main theme of the Rapporteur’s talks in Washington. A variety of progress reports are indeed appearing, in preparation for a new Millennium Summit this September. The phrase quoted above comes from the World Bank and IMF’s first joint assessment of the project, the Global Monitoring Report for 2004. It captures the mood pretty well.
36. “On current trends”, it says, “most Millennium Development Goals will not be met by most countries. The income poverty goal is likely to be reached at the global level, but Africa will fall well short. For the human development goals, the risks are much more pervasive across the regions…Few, if any, regions will meet the mortality goals.”37
37. It continues: “the implication is clear. Achievement of the Goals requires rising above current trends and substantially accelerating progress toward the goals. There is an urgent need for all parties to scale up action.”
38. At this point, one may wonder what could be the “reasons for optimism”; well, prospects for world economic growth are good, and it is growth over the last decade that has driven the income poverty reduction outside Africa, especially in China and India. Also the Bank/IMF report sees improvement in education and health services, and it is enthusiastic about the effect that governance reforms could have when supported by additional aid. Yet the depressing fact remains that there are targets – such as gender parity in schools by 2005 - which we already know to have failed (and which, in that particular case, may not even be met by 2015).
39. In its own reports, the UN declares itself pleased by the progress achieved on Goal viii above, and there is no doubt that discussions among governments and agencies about aid and development have been completely reordered by the Millennium Project. Last year, the UN’s interim report observed that “many countries are in the process of retooling their development programmes and strategies in line with the Development Goals’ and that ‘at least 65 countries and five regions or sub-regions have issued reports geared to measuring progress on them”.
40. And it is exactly this sort of assessment that has led some commentators to doubt the value of the Millennium Goals; the substantive progress achieved would have happened anyway, they contend, but with a lot less paperwork and bureaucracy. However much truth that view contains, it neglects, though, at least one crucial factor: the level of financial assistance from the developed world.
41. Have the commitments made at Monterrey been kept? The sort answer is no – at least, not yet.
42. There have been some encouraging funding increases, but even these serve to highlight the scale of the challenge. Aids and other disease prevention spending, generally agreed to be one of the most effective types of aid, rose year-on-year from $1.7 bill to $4.7 bill in 2003 – but in that year, nearly 5 million people became infected with HIV, more than in any year before. And to meet the Millennium Goal targets, the UN reckons that $12 billion is needed in 2005, and $20 billion in 2006.
43. So far, we have not seen aid increases on anything like that scale. Total aid flows rose by $2.3 billion in 2003, but the reconstruction of Iraq accounts for virtually all of that increase. Meanwhile, contributions to multilateral concession funds actually fell by 1.2 billion. Official Development Aid (ODA) stood at $68.5 billion, or about 0.25% of aggregated national incomes. By and large, European countries are honourable performers here – indeed, Sweden, Norway, Denmark, the Netherlands and Luxembourg are the only developed countries to have reached the UN’s recommended aid level. Overall, the European Union aid average is 0.35% of income – but for OECD countries the level is 0.28%, lower than it was in 1990. By and large, the developed world has not matched its own economic growth with increased aid spending. And even when measured as a share of their recipients’ income, aid levels will be, at best, static:
44. As a result, Jeffrey Sachs is all the more passionate in his advocacy. In his latest report, ‘”nvesting In Development”, written with World Bank and IMF assistance, and running to more than 3,000 pages, he calls for an extra $75 billion a year in aid. Those who are unwilling to increase support to the poorest regions are, says Sachs, like people who send a single fireman to fight a forest fire - and when he fails, say: “Why should we send more firemen? We have already seen that they are ineffective”.
45. While agreeing that “broad regions are far off track”, Sachs proposes a massive aid-driven push – nothing less than a Marshall Plan for Africa – focussed on specific deliverables, such as mosquito nets, roads, diesel generators and school buildings. Such tangible and relatively inexpensive steps could reach a lot of people quickly and have an impact across a wide range of goals. Mosquito nets, for instance will reduce the spread of disease and especially child mortality; better roads will improve the pricing and availability of food, while improving school attendance and access to health services. To achieve this plan, he models the increased spending required by developed countries, culminating in average aid levels of 0.54% by 2015.
46. The money would, he proposes, go directly to governments – and in the first instance it means “scaling up” aid to those countries that are ready. Responding to worries about corruption and mismanagement, he has built his own governance model, and cites a dozen suitable candidates in Africa (including Senegal, Mozambique, Ghana and Zambia). Further, he challenges the conventional wisdom that corruption keeps countries poor; instead, he says, “good governance itself requires real resources”. He suggests, for instance, that bureaucrats steal because they are poorly and erratically paid, and that theft is made easy by a lack of computerisation and rigorous accounting procedures.
47. In short, a reasonably full implementation of the Millennium Goals will be more than a challenge: it will be a battle. And, fascinatingly – shockingly, perhaps, for their former critics - both the World Bank and the IMF are in the vanguard of the argument, and more and more aligned with the advocates of the developing world.
7. Working together to achieve the Millennium Goals
48. It will already be clear that the Millennium Project reflects the evolution of the Bank and the IMF in recent years. On his visit to Washington, senior staff at both institutions shared their current priorities with the Rapporteur, and discussed the initiatives they have either put in place or expanded to support the Millennium Project agenda. Their most recent update on the progress of the project, the 2004 Global Monitoring Report, sets out three essential elements for success:
- Accelerating Reform to Achieve Stronger Growth
- Empowering and Investing in Developing Countries
- Delivering on Monterrey
We will look at each in turn.
Accelerating reform to achieve stronger growth
49. Whether or not one accepts that corruption is an insuperable challenge to the Millennium Goals, everyone agrees that good governance is a top priority for developing countries – and that improving its quality is the most important thing they can do for themselves.
50. Contributing to the Millennium Project, the World Bank has just concluded a study of 18 extremely poor countries - classed as Low Income Countries Under Stress or ‘”LICUS” - but which have fairly good top-line governance systems. They found that subsequent policy and institutional reforms, if supported by additional funding, would double the number of these countries likely to meet the first seven Millennium Goals – and that all of them meet Goal 1. So clearly, this where the realisation of the Millennium Project begins.
51. When James Wolfensohn arrived at the World Bank in 1996, he made good governance a critical social goal. He identified the “state capture of economies”, whereby a country’s institutions become, in effect, ‘criminalised’. And a leading OECD representative - in talks with the Committee on Economic Affairs and Development within the framework of the Enlarged Parliamentary Assembly debate on “OECD and the world economy” – once said that in his view there are three main priorities for a developing country: governance, governance, and governance. Encouraging faster reform, and supporting the process, is critical.
52. Today, the picture is mixed, at best: there are fewer dictatorships than there were in the 1990s, but still too many examples of failed or failing states – and far too many of these in Africa, where one needs only to think of Somalia, the Sudan or Zimbabwe. On balance, though, the IMF feels that the quality of governance has been improving; they cite the spread of computer technology – and especially the internet - as important for improving transparency and accountability. And they point out that governance and corruption are becoming the top issue of concern for businesses around the world, as other macroeconomic factors and barriers to trade are resolved.
53. Of course, neither the World Bank nor the IMF can directly affect the nature or structure of governments; but their indirect power is significant. In particular, the conditionality of IMF loans gives them a great deal of influence. Other financial institutions are unlikely to support governments that fail to comply with IMF requirements. So, while the Fund accounts for only 5% of aid to sub-Saharan Africa, the countries of the region depend upon its approval.
54. The IMF is not reticent about this: in fact, they say, it benefits local people – and especially the poor. By insisting on strong financial systems, funds can be used much more effectively. In recent years, they say, they have been able to strengthen controls over local banks in countries where they work – and to supervise budgets both before and after their application, so as to improve audit controls. This would seem to be the kind of progress that is needed, if donor countries are to be reassured that the investment required by the Millennium Goals makes sense.
55. Further, they point out that a reasonable standard of governance – and the more open, deregulated society it produces, that is less likely to be involved in warfare - is required for economic growth. Growth, they maintain, is a necessary, if not always sufficient, weapon against poverty. Over the last 20 years, the number of people living in absolute poverty (on less than $1 a day) has fallen by 40%, from 1.4 billion to 1 billion; and the dominant reason for this has been the economic expansion of China and India. The IMF remains clear that globalisation is a positive force, and that even unilateral trade liberalisation is good for the country concerned. India, for instance, used to grow by between 1 and 2% per year – but since opening up its markets over the last two decades, this has risen to 5 or 6% per year. And as this has happened, India’s poverty strategy has become more and more homegrown.
56. In fact, “homegrown” solutions have become a key part of the development agenda, for it is vital that client, as well as donor, countries have confidence in the process – and take responsibility for it. This is seen as a crucial means of encouraging good governance, and demonstrating its benefits. The World Bank admits that it learned painful lessons during the 1990s about the limits of their ability to prescribe change - and to foresee, let alone control, the shifts in modern financial markets. They cite the failure of Latin America to develop as planned, the total failure of Africa to keep pace with the rest of the world, and the sudden shock of the Asian financial collapse. Getting closer to clients became a top priority.
57. An important example of this approach is the New Partnership for Africa’s Development (NEPAD), launched in 2002. Owned and led by African countries, who have pledged to place themselves on a path of sustainable growth and development, this group has launched an African Peer Review Mechanism to, in their own words, “foster the adoption of policies, standards, and practices that lead to political stability, high economic growth, sustainable development, and accelerated….economic integration”. The Peer Review addresses all aspects of governance, grouped under four heading: democracy and political governance, economic governance and management, corporate governance, and socio-economic development. By the end of 2003, 16 countries had joined the Partnership, and the first reviews began during 2004.
The Challenge of Flexibility
58. All of this requires the Bank and the IMF to be increasingly adaptable to specific country needs. The IMF, for instance, is nowadays prepared to accept a short-term increase in inflation as part of a recovery plan, so as to preserve a country’s social infrastructure. And while a myriad of training courses, seminars and support materials can spread the general principles of governance and development, there is an awareness that the widely-varying fortunes of different countries in recent years demand an individual approach, with a focus on good institutions rather than on grand projects.
59. To take some interesting examples: China and India - and other Asian nations - have become middle-income countries, no longer qualifying for special loans from the IMF; there remain many challenges in these countries though, requiring special targeting: China, for instance, is not on track to meet the child mortality Goal. Meanwhile, there are some low-income countries such as Tanzania and Uganda, where good economic growth rates have been achieved, but where growth has first been counteracted by population expansion and then ruined by a population crisis resulting from the spread of Aids. Although productive, Uganda has particular challenges: it is landlocked – and in some areas, engaged in guerilla warfare - and the reliance on road transport has a huge impact on costs. Then there is another group of countries that have been – or are being – comprehensively wrecked by war, such as Cambodia, Sierra Leone, the Congo and the countries that formerly made up Yugoslavia. Again, there is a group of countries where the creation of a national infrastructure is an immense logistical challenge that has never successfully been achieved – Chad, for example, is twice the size of France but has only 6 million people. One size cannot fit all, if it ever did.
60. In particular, the Rapporteur discussed the special factors that have applied, in recent years, in South-Eastern Europe. Under the transition challenges and regional conflicts of the 1990s, there was a sharper slump, and then a slower recovery than for the countries of Central/East Europe and the Baltics. Since then, the economy has recovered, and outpaced world economic growth during 2003. Macroeconomic stabilisation has been achieved, inflation restrained, and budget deficit problems have been reduced. Successful banking reforms have also been enacted. But there have been persistent economic difficulties: unemployment remains high – and often increasing – while there are high migration levels and exports have grown too slowly. In most areas, but particularly in Bosnia, the black economy remains huge – often accounting for well over 30% of employment. 25% of the population earns less than $2 a day.
61. Overall, the Bank believes that this region now has a historic opportunity for growth – and the value of the EU’s enlargement process was emphasised. With the countries concerned being too wealthy for IDA membership, and too uncreditworthy for traditional World Bank financing, EU support in the region is having a highly positive impact. Good cooperation is in place, too, between international institutions and the EU to support reform.
62. Current priorities are to encourage more flexibility in the labour market, develop infrastructure and social services, and to reduce public sector bureaucracy. Crucially, the region needs to build a favourable institutional framework for domestic and foreign investors. This will involve action on property and ownership rights, judicial reform and competition legislation, and measures to promote financial transparency. Once again, deregulation and good governance are key.
Transparency begins at home… The Parliamentary Network on the World Bank (PNoWB)
63. Both the Bank and the IMF have made strenuous efforts to match their demands for accountability with actions of their own. In the past, the IMF was noticeably less successful than the Bank in improving its public image. Concerns were expressed by many – not least the Parliamentary Assembly – about the lack of information provided about their operations, the lack of “early-warnings” when a crisis was looming, and specifically their intervention in the Asian currency crisis.
64. The Rapporteur during his visit heard that such criticisms have very much been taken to heart; nowadays, a vast amount of material – including reports, policy documents and statistics - is available for anyone to view (the Internet has helped here, too); and the IMF centre even has a public exhibition area. It also has an Independent Evaluation office, which publishes reports on the effectiveness of its projects. Ironically, it is sometimes now the client countries that obstruct the release of information. Under Article 4 of the IMF’s Agreement, the release of their reports requires the consent of the country concerned; even now, in some 25% of cases – we heard of instances relating to Latin America and Uzbekistan – that consent is denied.
65. A wide array of bilateral bodies have been created or expanded, so as to broaden understanding of the institutions activities, and improve communications. Today, the Bank assiduously seeks external partners and channels of communications. It says that Civil Society Organisations, such as labour unions, faith-based groups and NGOs, are now involved in the planning of 75% of their projects. In addition, they sponsor the Parliamentary Network on the World Bank, a discussion forum for parliamentary groups from all over the world with which the Committee on Economic Affairs is in close contact.
66. The Parliamentary Network on the World Bank - or PNoWB - merits extra comment. The word
“on” in the name is deliberate, because although the PNoWB is financed by the World Bank, it is autonomous from it and meant to comment freely on it and developing cooperation in general, rather than being “of” it. It gathers a large number of parliamentarians from around the world, the aim being to facilitate and encourage a direct dialogue between them and multilateral development institutions, in order to promote greater transparency in policies and practices, in particular of the World Bank. It has the further aim of providing PNoWB members with a platform for coordinated parliamentary advocacy on international development issues.
67. Another purpose is “networking”, that is, to encourage concerted action, timely debate and exchange of information among parliamentarians on major issues of international development, finance and poverty eradication. A further objective is to encourage partnerships among parliamentarians and policymakers, while also involving the academic community, the business sector and non-governmental organisations. There is also the endeavour to promote parliamentary mechanisms and practices to carry out democratic control of development assistance in all its aspects. The Rapporteur and the Economic Committee as a whole has participated in several initiatives of the PNoWB and see it as a vital and innovative tool to also realise the UN Millennium Development Goals.
68. The departing World Bank President James Wolfensohn, in addressing a meeting of the PNoWB in Naples in February 2005 also pointed to the importance of that body’s work and, more generally, to that of parliamentary involvement in development cooperation, also in raising public awareness of this issue.
69. The Parliamentary Assembly therefore very much welcomes these and similar efforts - which help to foster a broad base of support for initiatives such as NEPAD – and to reflect the growing diversity of both institutions. The Bank, for instance - today the largest public lending institution in the world, with annual loans of over $20 billion covering well over 200 projects - is no longer concentrated in Washington DC: more than 40% of its staff are based overseas.
70. Of course, there are limits to what can be achieved in terms of governance. The structures and voting powers of both bodies remain controversial – and the Parliamentary Assembly has continued to call for reforms that would reflect their changing roles. Despite mechanisms such as a five-yearly review of the IMF’s voting quota, many within the institutions share these concerns. The dysfunctional nature of the Bank’s board is often cited, but the board is not free to implement reforms on its own, and it is no secret that the Bank has felt let down by their reluctance to implement change. These issues were addressed by the Parliamentary Assembly’s previous paper on the Bretton Woods Institutions (Doc. 9478, June 2002), the thrust of which remains highly pertinent; but the willingness of staff members to be self-critical is very encouraging. We believe that both bodies are doing more than ever before to improve their own governance, increase transparency, and to build their credibility on the international stage.
71. But when good governance is in place, and a partnership established to create meaningful reform and change, what should be the priorities?
Empowering & investing in developing countries
72. In 2003, the Bank’s World Development Report was entitled “Making Services Work for the Poor”; last year, it addressed the development of a thriving private sector; and the forthcoming report, we were told while in Washington, will focus on the impact on development of inequality. This emphasis - very much to be welcomed and very much encouraged via pressure from parliamentary instances and NGOs - is founded on a new understanding of the nature of poverty – that income levels, though important, do not tell the whole story.
73. Poverty, we now understand, rests on a range of deficiencies - health, education and human services, in particular, as well as social opportunity and gender equality. Persistently low income levels are a symptom of failure in all of these areas. And this creates a vicious circle, for poor countries are especially vulnerable to sudden shocks – such as a natural disaster, a war, an epidemic, a trade dispute or a swing in commodity prices – which can wreck social society, so reinforcing poverty and rendering previous aid investment worthless. In the modern globalising world, such shocks are harder than ever to control.
74. In all regions of the world, encouragingly, low and middle-income countries are allocating more money to human development budgets such as health or education. The priority of the Bretton Woods Twins is to help to strengthen those services and institutions, to adapt their own programmes to support them, and to guide donor countries so as to make the best use of resources.
The PRSP Process
75. To achieve the vast funding increases that the Millennium Project calls for, and to demonstrate to donors that the money will be properly used, effective and accountable strategies are required. For the IMF and the Bank, Poverty Reduction Strategy Papers (PRSPs) are the priority mechanism for helping each country to prepare, and win support for, a coherent local “master plan”. Since the launch of the Millennium Project, countries have been encouraged to include scaled and specific proposals to meet the stated Goals, with particular reference to initiatives such as Education For All (EFA), Roll Back Malaria (RBM) and Aids treatment.
76. Support is given to client governments in the preparation of PRSPs, but without seeking to direct the outcome – which, in itself, requires a shift in cultures by lending institutions and donors. Governments are encouraged to consult widely at home; in providing support, Bank staff take the lead in advising on the social policies involved in poverty reduction, and necessary diagnostic techniques, and the Fund advises on financial and macroeconomic issues. Participating countries send the final strategy to the Executive Boards of both institutions for endorsement, and this is accompanied by a Bank/Fund team assessment, with a recommendation on endorsement.
77. While this process is much to be welcomed, the PRSP is still evolving. It has already achieved a great deal, by helping to build a partnership between donors and recipients. Also, it commits client governments to a series of principles, before any money is actually spent: that the responsibility for policy is truly theirs, that development should be long-term, transparent, result-oriented and quantifiable, concentrating on strategies for participatory growth.
78. By March 2004, 34 countries were putting together full-scale PRSPs. But the process has been slow, for the plans that were initially submitted went far beyond available funding. Jeffrey Sachs tells of the particular case of Ghana’s Poverty Reduction Strategy, which went through four drafts before a fraction of the original plan was approved, not because its proposals were out of line with needs, but because they were out of line with what donors were prepared to fund. If this is what happens to well-governed countries that seek to play by the rules, he asks, will the rest even bother to try?
79. Other lessons have been learnt, as well: if it is to represent a successful collaborative strategy, the PRSP requires a reasonably open society – for a constructive dialogue presupposes a dialogue within the country itself. Accordingly, Bank staff view greater involvement with local Parliamentary groups as a priority – and this is likely to feature in a five-year review of the PRSP process that is now underway. PRSPs should be a means of empowering local people and should, in time, help to increase demands by people on their own governments; but they do require a level of debate that is still, in some countries, an aspiration.
The IDA
80. With its focus on the poorest countries, the IDA is another key element in the work of the Millennium Project. It collects funds from donor countries and makes concessionary loans or grants – with special drawing rights available. The Bank is a strong advocate of this mechanism, since it targets the lowest income countries, and those suffering from natural disasters or epidemics. In their view, it is the ideal focal point for expanding aid flows
81. Through the IDA, donor funds can be pooled and allocated against specific criteria, helping to counteract the problem of “donor darlings” and “donor orphans”, by which specific countries (or specific types of aid) are particularly favoured or particularly neglected. It is estimated that, because of the phenomenon of “donor darlings”, only 49% of aid awarded by developed world governments goes to low-income countries. Colonial links will often influence the geographical distribution of nationally-given aid, for instance; and industrial spin-offs, such as the purchase of a donor country’s machinery or transport equipment, will sometimes influence the types of project chosen. Often, this means that donors insist upon running separate projects that allow them to “show the flag”.
82. By contrast, the IDA is avowedly non-political – resources are awarded based on a country’s project performance. 16 key indicators are being used to monitor how effectively resources are used; these can be used to determine future loans, and be made publicly available. There is also a system of peer review, involving local country representatives.
83. The IDA is a determined attempt to coordinate donor activity and focus resources on the most pressing cases. It aims to be highly flexible – about 80% of its commitments are low-interest loans, the rest outright grants. Funding can be provided for all types of programmes, even for infrastructure, but always targets priorities that are identified by the recipients. Today, it provides the world’s largest flow of low-cost development assistance – about $8 billion a year. Its scope will continue to be determined by the level of donor support it can attract, and it is making great efforts to expand this – both so that it can increase funding (which Jeffrey Sachs argues should be about $25 billion a year) and so that it could offer more of its assistance in grant form. We believe that its aims – and its ambitions - are very much to be applauded.
84. Through evolving strategies and mechanisms such as these, the Bretton Woods Twins aim to meet the challenge of the Millennium Project. More than ever, they are involved in an incredible array of projects; here are examples from a couple of crucial sectors that show the processes in action.
Health Services
85. The World Bank was a pioneer in this field, with its global vaccination campaigns. Funding for the Polio Eradication Programme has been led by the Bank - especially the IDA - and it continues to support a range of campaigns, such as those against measles and tetanus, and Roll Back Malaria. It also funds treatment for less high-profile, but hugely destructive, diseases such as African river-blindness.
86. Meanwhile the Bank has become the world’s acknowledged leader – the largest provider of funds and a key advocate for funding - in the fight against HIV/Aids. This is, of course, a terrifying challenge – 14,000 people become infected every day – and it continues to devastate many fragile African countries, where 20 million have already died from the disease, and 30 million are infected. In fact, the Bank has now promised that no country with an effective Aids strategy in place will go without funding. But Aids is by no means the only health emergency – it is estimated that in Africa alone 3,000 children die every day from malaria, while some 2 million people die worldwide each year because of tuberculosis. Funds are now increasing: domestic spending against disease control has risen sharply, while more bilateral aid (particularly from the US Emergency Plan for Aids Relief) has become available. Meanwhile, a Global Fund to combat the three diseases mentioned above is now in place, with donor provisions of $600 million, channeled, under the Bank’s auspices, to needy countries. Despite all this, as we saw earlier in the report, the response is insufficient.
87. Beyond these specific schemes, the Bank and the Fund work with developing countries to improve the operation of their medical and health provision services, to try to ensure effective budgeting and planning, and to ensure that money reaches the “front-line” of patient care. As domestic – and donor - spending rises, demonstrating effectiveness is more important than ever. But, as the Bank and the Fund point out, donor spending still tends to concentrate on visible, but narrow, areas of health care support, such as combating diseases in children. Funds tend to be closely earmarked, and it has therefore been difficult to develop a broadly-based care system (such as developed countries take for granted), and which they feel will be vital if child or maternal mortality reduction goals are to be met.
Education
88. Education has long been known as a “sector orphan” and is therefore of special interest to the Bank, which over the years has provided $33 billion in loans and credits for education projects. Traditionally, much of the aid that has come from donors has been directed to tertiary education, so as early as 1990 the World Bank created Education For All, with the aim of achieving universal primary education, for boy and for girls. It currently has 157 ongoing projects in 83 countries – a good example of which is the India District Primary Education Project, which especially targets girls in regions of below-average literacy: with funding of $1.3 billion, it covers an area of 60 million children in 18 Indian states. A similar project in Bangladesh has seen girls reach 54% of secondary enrollments in targeted schools – and perhaps unsurprisingly, their attendance rates and examination scores are well above those of the boys!
89. The broad view, though, has been less encouraging: the EFA’s slow progress during the 1990s made education a priority issue for inclusion in the Millennium Goals, and to support it the Bank and the IMF launched an EFA Fast Track Initiative in 2002. The programme now has 26 partners, and a series of bilateral projects, with $265 million put forward as a “catalytic fund” to support neglected projects. So far this has focussed on 18 countries, with a PRSP and an education sector plan to be approved in each case with the donors. While this has certainly improved the performance of EFA, officials regard donor programming and budgeting cycles as its biggest difficulty – as of January 2004, only $6 million of the first $170 million committed had actually been spent.
90. Education is a complex problem, even by the standards of international development. Interestingly, education spending has risen particularly strongly in middle-income countries – and in Africa more than anywhere else. But social and funding pressures account for the UN’s pessimism on delivery of the Millennium Goals: a recent study has suggested that fees are still common at all levels of schooling, with unofficial (and often illegal fees) charged in almost 40% of countries surveyed.
The environment
91. The Bank is the world’s largest supporter of environment and biodiversity projects, with a commitment of $13 billion. Though this area tends to be low on political agendas, environmental issues are key determinants of poverty. Interestingly, in Asia, where many of the Millennium Goals are on course to be achieved, environmental problems have actually worsened, due to population growth and urban migration. Across the world, deforestation is continuing – and the devastation caused by last year’s Caribbean hurricanes shows how dangerous this can be – while there are still 1.4 billion people without access to clean drinking water, and 2 billion without sanitation. On both of these issues, progress is about half of what will be needed to achieve the Millennium targets.
92. The Bank and the IMF place great emphasis on the need to manage to locally achievable standards. They point out that the nature of these problems varies considerably by income level and location. In many countries, the problems are in fact a by-product of much-needed economic growth: urban pollution, and the increase in slum populations on the one hand, agricultural run-off from fertilisers and pesticides on the other.
93. One of the Millennium Projects taskforces is focussed on environmental sustainability; their primary finding is that progress has been so unsatisfactory because environmental issues are still poorly integrated into mainstream policy-making. Their full report, due in June, is likely to suggest a new approach to investment (and perhaps the development of emissions trading), and this is sorely needed, for environmental issues highlight the complex and interdependent nature of the Millennium Goals. A study in rural India has shown that access to clean water, electricity and separate kitchens would reduce child mortality by 50 births per 1,000. And equally, because child mortality is higher among mothers without education, universal schooling for girls would reduce the under-five mortality rate by 23 births per 1,000.
94. Once again we see the desperately complex and intractable nature of poverty; and perhaps the greatest qualities of the Millennium Project are the breadth of its ambition and the multi-sectoral approach taken.
Delivering on Monterrey
95. But all of these changes in policy and practices will only have a limited effect unless accompanied by a major increase in the assistance provided by the developed world. There are a variety of ways in which the financial condition of poor countries can be improved – and both the Bank and the Fund are involved in each of them, either as direct players or as advocates for change.
96. In terms of Official Development Aid (ODA) provided by governments, the picture is – as we have seen - not encouraging. The simple fact is that, while rich countries continue to hold poor countries to their side of the Monterrey agreement, they are not (with some exceptions) keeping their own. Moreover, the very largest economies, such as the US and Japan, while operating widely-publicised schemes, are relatively low regular aid contributors. Jeffrey Sachs – a vigorous columnist - recently pointed out some of the inconsistencies in this approach, and the way in which a short-term “crisis mentality” threatens stable development: in recent years the United States provided only $4 million a year to boost agricultural productivity in Ethiopia – and then, when the crops failed in 2003, it put up $500 million. Similarly, having put up $50 million a year against Aids in the 1990s, it has now stepped in with $3 billion a year. He points out that the scale of the United States’ security operations in East Africa is in danger of surpassing its economic development aid there, and wonders if that will prove the best investment for creating the stability that is so much in America’s interests.
97. In some ways the picture is even worse than it appears. The Bank points out that at least 30% of the world’s $60 billion ODA total is actually debt relief rather than a cash contribution – and that much of this is decided on because there is no hope of receiving payment, rather than on the basis of need. Some in the Bank feel that it might be more transparent if such write-offs were removed from official aid totals.
98. It is interesting to see the effect that the Asian Tsunami disaster has had on public debate in this area; at this stage it seems to be a crisis that could have lasting political effects. Alongside the eagerness of the Western public to contribute, there has been a notable skepticism about the performance of their own governments. The failure to follow through on previous disaster pledges has been widely discussed – in particular, the response to the Bam earthquake, where only some 3% of the $1 billion promised was actually in the end forthcoming. Suddenly, there is public awareness of the world’s many, lamentably neglected appeals, particularly in Africa. To mention just one of those that the UN has reminded us of this month: in the Congo, a civil war and resulting social collapse has claimed the lives of 3.8 million people since 1998 – a death rate of 10,000 people per week.
99. Will all this translate into better support for emergency appeals? And could it lead to stable long-term increases in international assistance? This would seem to be the moment for the Bank, the IMF and all those who care about international development to speak out - and at this very moment, the UK has brought the issue of debt relief to the top of the G7 Group of Nations agenda.
The debate over debt
100. Debt relief is not a simple question; while they are advocates for increased assistance to the developing world – and although some countries spend more on debt servicing than on social programmes - many in the Bank and the IMF believe that debt relief is often the wrong solution. Debt, they say, does not so much hamper growth; it is rather the symptom of deeper problems surrounding financial management and policy-making – which are the real barriers to growth. In their view, debt reduction alone, without policy reform, will do nothing to reduce poverty. Simply to apply debt relief is not to solve the problem; it may simply encourage further profligacy, while at the same time jeopardising a country’s credit-worthiness.
101. Nonetheless, there has for some time been a consensus on relieving debts for the very poorest countries; in 1996, the Bank and the IMF launched the HIPC (Heavily Indebted Poor Country) Initiative, specially designed to reduce debt repayments so as to free up funds for social spending. The scheme was slow to make an impact, and has been revised to cover 38 countries, with a potential for more rapid relief – with debt stocks to be reduced, on average by about two-thirds. As of July 2004, 27 countries (23 of which are in Sub-Saharan Africa) had begun to receive debt relief – and at time of writing, the G7 Group has agreed in principle to move towards writing off all the debts concerned (which the IMF may finance by selling off stocks of gold).
102. The IMF is a keen advocate of HIPCs for two reasons: first, because the countries concerned have unsustainable debt burdens, and even the maximum use of rescheduling and policy reform could not correct their difficulties; and second, because the relief is provided to support specific policies that promote growth and poverty reduction. Together with the World Bank, they are responsible for supporting and monitoring this process. A similar example occurred last month, when the United Kingdom forgave Tanzanian debt, on the basis of the entire saving being directed to the public schools system.
103. It is intriguing to find that the IMF are advocates of debt relief, and even debt forgiveness, when what they regard as the correct conditions are in place. In fact, both institutions seem to have come to the view that grants – or a mixture of concessionary loans and grants – are a better option than traditional lending. We were told that, in an ideal progression for a developing country, an initial programme of grants would be replaced by concessionary loans, to be followed by less and less concessionary loans until the country reaches normal financial viability. This has, we heard, been the recent pattern in central and eastern Europe.
104. Despite this, neither institution is free to develop this approach at will; in both cases, the nature of aid financing is in the control of the shareholders that fund them. And of course, a wholesale policy of debt-forgiveness or a significant shift to grants could cost them a great deal more, in that loans have to be repaid and these repayments can be used to finance further lending, whereas with grants that source of income is no longer there. While we understand these difficulties, we would absolutely wish to welcome this new flexibility in funding mechanisms, and we call for its extension as quickly as is practicable.
A level playing field
105. Officials at the Bank and the IMF told us, over and again, that issues about aid must not obscure the enormous issue of trade. Again, the fact is that the developing world does not compete on a level playing field. Though the “beggar-thy-neighbour” policies of the 1930s may be gone, we are a long way from a freely trading world. If it did exist, we were told, the world as a whole would benefit: the Bank calculates that a 40% reduction in tariffs and subsidies would add $300 billion to the global economy. But as it is, the system disadvantages developing countries most. When, for example, the tariff on roasted coffee beans is 8 times that for raw coffee beans, it obviously impossible for a country to move beyond being a provider of raw materials, and therefore it remains at the mercy of natural forces, commodity prices and demand.
106. Both institutions have focussed on building commercial expertise in developing countries. The Bank established its own trade department in 2002, to provide research and a lobbying voice for the developing world in contexts such as the Doha Development Agenda round of trade liberalisation, and to examine the effectiveness of regional trade agreements, while organising local trade seminars and training sessions. The Bank is concerned that the current trade development agenda is not sufficiently adapted to low-income countries, particularly those in Africa, and will continue to put that case. Tax reforms are another area of concern: it is estimated that imbalances in the international tax system cost the developing world some $50 billion a year. Flexible migration is another key issue: the Bank suggests that remittances to developing countries by overseas workers now approach $100 billion a year, far ahead of the ODA they receive.
107. But by far the biggest problem is seen to agriculture – and, familiarly enough, the European Union is regarded as a chief culprit. On a visit to Senegal in early 205, French President Jacques Chirac pointed out that Europe buys 85% of Africa’s agricultural exports, but it is hard for this argument to make headway when the Common Agricultural Policy provides support of $100 billion a year to European farmers. This compares unhappily with the EU’s overseas aid levels, and indeed the developed worlds aid total of $60 billion. It is surreal to find that European cows are subsidised at the rate of $3 per day, well in excess of what several billion people on the planet have to live on.
108. There is a knock-on effect here, too. Some Bank officials saw the US agricultural policy as becoming increasingly protectionist; and even some larger African countries, such as Nigeria and Kenya are adopting restrictive policies. While understanding the obstacles that lie in the way of reform, and welcoming the measures that have already been taken, our Assembly should call for renewed efforts to liberalise Europe’s agricultural market, thereby reducing the disadvantages for the developing world.
The 2005 Spring Meeting of the International Monetary Fund and the World Bank
109. The IMF and the World Bank held their 2005 Spring Meeting in Washington in April this year. In his concluding press conference, departing World Bank President James Wolfensohn pleaded for more assistance from the industrialised countries in favour of the developing world, and pointed to a financing deficit of 50 billion dollars per year if we want the United Nations Millennium Development Goals to be realised on schedule by 2015. The debt burden also figured prominently in the discussions at the Spring Meeting, in that it was generally deemed to take resources away from needed investments in public health and education in the poorer countries.
110. If everybody was able to agree on the need for more resources, there was nevertheless some disagreement on how to raise them. The British, for instance, argued that the richer industrialised countries should simply take over the servicing of debt owed by developing countries to the World Bank and the African Development Bank, while their debt vis-ŕ-vis the IMF could be financed by the latter if it were to sell some of its gold reserves. The United States, however, is in favour of a complete cancellation of the debt burden vis-ŕ-vis the World Bank, to be followed by a new development policy approach relying on grants rather than loans. The debt relief should come about via the funds paid into the World Bank by donor countries. Finally, there was a proposal by France, supported by Germany, to mobilise new funds via extra taxes on civil aviation. Germany, the Rapporteur’s own country, is generally in favour of debt relief but also feels that it should be decided on a country-by-country depending on strict criteria.
111. The picture emerging from the meeting was not altogether gloomy. Thus, sub-Saharan Africa in 2004 grew at an annual 5%, the highest level since eight years, while inflation was comparatively low. Over twenty countries in the region have shown uninterrupted growth over the past 5 years, leading to a slow but steady improvement in living conditions for the populations concerned. The conclusion would seem to be that development assistance coupled with good management in receiving countries can indeed make a difference.
8. Prospects and priorities: an interim conclusion
112. As befits their name, the Millennium Goals are monumentally ambitious; their range is huge, and their scope consistently daring – but perhaps their most daunting aspect is the complex teamwork, and the step-change in commitment required from so many players. Ultimately, no one organisation can be held responsible for achieving them. Some say that, yet again, the United Nations has willed the end, without being able to will the means.
113. It was probably inevitable, then, that early progress would be disappointing. So what are the prospects? Well, similar things have been achieved before: with the leadership of institutions like the World Bank, illiteracy has been cut by half worldwide in only twenty years. And both the Bank and the IMF continue to say that the Millennium Goals are realistic, and more or less deliverable. If we do raise our game, as Jeffrey Sachs urges us to, there seems to be no reason why the Millennium Project should not succeed. It will not hit every target, of course; but it will have changed the world, and for the better.
114. So the battle is surely worth fighting. The public debate involved could have a huge impact on the lives of the world’s poorest people. Whatever one thinks lies at the root of global poverty, the agenda of the Millennium Project should be energetically supported. The people of the developed world and their political representatives have a responsibility to use this framework, however imperfect it may be, because it offers a clear hope for change.
115. What should the priorities be? In the view of all involved in the Project – not least the Bank and the IMF – additional funding is urgently required. But it seems clear that there is a huge effort underway to help the developing world deliver on its side of the Monterrey consensus, and the developed world has an obligation to do its part. And then - through better planning and coordination of assistance, through a longer-term approach and with more flexible financing - we could make an enormous difference to aid: and all of these steps are available to us through the Bretton Woods Institutions. We could do so much more to liberalise our markets.
116. This can only be an interim conclusion - but on one point, at least, we can be highly encouraged: in a sense, the institutions created at Bretton Woods and Dumbarton Oaks are reaffirming the idealism of their founders. The enthusiasm and commitment they have devoted to the Millennium Project are incredibly heartening to see. And their influence runs far ahead of the budgets they can wield. They are powerful advocates of change, and we hope they will continue to be. For as Nelson Mandela told the G7 Group meeting in early 2005, “While poverty exists, we are not free”.
Reporting committee: Committee on Economic Affairs and Development.
Reference to committee: Standing mandate
Draft Resolution adopted by the Committee on 23 May 2005
Members of the committee: Mr Evgeni Kirilov (Chairperson), Mrs Antigoni Pericleous Papadopoulos (Vice-Chairperson), Mr Márton Braun (Vice-Chairperson), Mr Konstantinos Vrettos (Vice-Chairperson), MM. Ruhi Açikgöz, Ulrich Adam, Hans Ager, Miguel Anacoreta Correia, Abdülkadir Ateş, Radu-Mircea Berceanu, Akhmed Bilalov (alternate: Mr Nikolay Tulaev), Jaime Blanco, Patrick Breen, Milos Budin, Erol Aslan Cebeci, Mrs Ingrīda Circene, MM. Valeriu Cosarciuc, Ignacio Cosidó, Giovanni Crema, Řystein Djupedal, Ioannis Dragassakis, Iván Farkas (alternate: Mrs Edita Angyalová), Relu Fenechiu, Mrs Siv Friđleifsdóttir, Mr Carles Gasóliba, Ms Jane Griffiths, MM. Francis Grignon, Alfred Gusenbauer, Norbert Haupert, Anders G. Högmark (alternate: Mr Göran Lindblad), Klaus Werner Jonas, Ms Verica Kalanović, MM. Karen Karapetyan, Orest Klympush, Anatoliy Korobeynikov, Rudolf Kraus, Zoran Krstevski, Jean-Marie Le Guen, Harald Leibrecht, Rune Lund (alternate: Mr Jens Hald Madsen), Gadzhy Makhachev (alternate: Mrs Liudmila Pirozhnikova), Jean-Pierre Masseret (alternate: Mr Jean-François Le Grand), Miloš Melčák, Mrs Ljiljana Milićević, MM. Neven Mimica, Conny Öhman, Mart Opmann, Mrs Clara Pintat Rossell, MM. Bogdan Podgórski, Jakob Presečnik, Jeffrey Pullicino Orlando, Luigi Ramponi, Maurizio Rattini, Maximilian Reimann, Dario Rivolta, Lord Russell-Johnston (alternate: Baroness Gloria Hooper), MM. Volodymyr Rybak, Kimmo Sasi, Bernard Schreiner (alternate: Mr Michel Hunault), Samad Seyidov (alternate: Mr Aydin Mirzazada), Leonid Slutsky, Ms Geraldine Smith, Mrs Aynur Sofiyeva, MM. Christophe Spiliotis-Saquet, Dimitar Stefanov, Qazim Tepshi, Frans Timmermans, Dragan Todorović, Mrs Ágnes Vadai, Mr Luc Van den Brande, Mrs Jelleke Veenendaal, Mrs Birutė Vėsaitė, MM. Oldřich Vojíř, Varujan Vosganian (alternate: Mr Gheorghe Mereutǎ), Robert Walter, Andrzej Wielowieyski, Marek Wikiński, Paul Wille, Mrs Rosmarie Zapfl-Helbling (alternate: Mr Johannes Randegger), Mr Kostyantyn Zhevago
NB : The names of the members who took part in the meeting are printed in bold
Head of Secretariat: Mr Torbiörn
Secretaries to the committee: Ms Ramanauskaite, Mr De Buyer
1 See also the Parliamentary Assembly’s Resolution 1422 (2005) and accompanying documents on “Europe and the tsunami”, adopted in January 2005. Website http://assembly.coe.int/ .
2 For a discussion of the moral and other implications flowing from the United Nations 2000 Millennium Development Goals, see Parliamentary Assembly Recommendation 1646 (2004) on “Improving the prospects of the developing world: a moral imperative for the world” emanating from the Committee on Economic Affairs and Development and this Rapporteur. See website http://assembly.coe.int/ .