Global Policy Forum

By Shalmali Guttal

The latest policy product of the World Bank and the International Monetary Fund (IMF) does not herald any change whatsoever in the development paradigm promoted by the two institutions. The Poverty Reduction Strategy Papers (PRSPs)--their newest gem--are proving to be little more than hurriedly worked over versions of standard World Bank-IMF policy papers that mandate structural adjustment and reform as preconditions to international assistance and credits.

For decades, the World Bank has made loud declarations of its commitment towards poverty reduction. However, in 1999, studies showed that sixty-three percent of all World Bank lending was towards structural adjustment. At the same time, internal assessments of its loan portfolios showed that the majority of World Bank loans and operations had little to do with addressing poverty directly. Other internal evaluations point out that the Bank's adjustment programmes have routinely neglected poverty reduction, and that the majority of loans do not address poverty directly, nor do they address the likely economic impact of proposed operations on the poor, or even ways to mitigate the negative impacts of reform programmes. Further, structural adjustment programmes completely neglect monitoring of the social and environmental impacts of World Bank loans.

The IMF, on the other hand, has steadfastly maintained its adherence to macroeconomic stabilisation programmes. The creation of the Enhanced Structural Adjustment Facility (ESAF) in 1987 was intended primarily to make IMF financing less expensive for low-income countries already reeling under the burden of IMF austerity policies. However, the IMF has started to lose credibility even among its long time loyal supporters because of its incompetent handling of the financial crises in Asia and the former Soviet Union, and evidence of the impacts of its economic prescriptions in exacerbating the debt burden and human misery among many countries in the South. Now, the IMF too seeks refuge under the poverty umbrella. During the World Bank-IMF meetings in September, 1999, the IMF announced its own overarching commitment towards poverty reduction. ESAF was re-christened the Poverty Reduction Growth Facility (PRGF), and the Policy Framework Papers (PFPs) were replaced by the Poverty Reduction Strategy Papers (PRSPs).

Authority Without Responsibility

Originally conceived in the context of the Heavily Indebted Poor Country (HIPC) debt relief initiative, the PRSPs are now envisaged as the centerpiece for policy dialogue in all countries that receive concessional lending from the World Bank and IMF.

In theory, the PRSPs are intended to be a set of papers prepared by country governments—although under the supervision of World Bank-IMF mission teams—that identify the causes of poverty, who the poor are, and strategies for overcoming poverty. In reality, however, country governments are likely to have little control over the prescriptions that emerge from these papers. Over 70 countries have been identified by the World Bank-IMF as qualifying for this new initiative, and all of them are required to develop PRSPs by 2001in order to qualify for external assistance. Countries that urgently require World Bank-IMF credits or debt relief assistance can prepare an interim PRSP (IPRSP) for consideration at the upcoming World Bank-IMF meetings in September, 2000. All these papers feed into the PRGF (the old ESAF) and are a necessary precondition for any new loans and debt relief measures under the enhanced HIPC.

The PRSPs and PRGF are mechanisms to continue structural adjustment lending and promote corporate globalisation using a poverty "veneer." The PRGF and PRSPs legitimise and institutionalise yet further conditionalities that allow the World Bank and IMF (and now the WTO as well) to expand their neo-liberal programme. Despite the rhetoric of "nationally driven" development, the PRGF-PRSP framework continues to conflict with local and national development priorities and strategies for reducing poverty, ensuring equity, and promoting popular participation in the design of development policies. Recent studies commissioned by the Bank show that its poverty assessments fail to address the links between poverty and macroeconomic issues such as trade, exchange rate, agriculture and rural development policies. These poverty assessments also give limited attention to local dimensions of poverty reduction and to the role of debt in poverty creation.

The PRSPs have a leveraging role beyond debt relief and consequently, have grave implications for the economic sovereignty of low income, borrowing countries. Without an acceptable PRSP, a country can have little or no access to external assistance since the wider donor community will align their funding programmes and policies with the results of the PRSP. Also, it must be remembered that majority of the major creditors and donors of the poorer countries are G-7 members and practically own the Bretton Woods family. Without a PRSP that is accepted and approved by the Boards of the World Bank and IMF, a low-income borrowing country can be cut of from international aid, trade and finance.

Another unfortunate, but almost expected side effect of the PRGF framework is a further sidelining of UN agencies as key actors in national and international policy arenas. This sidelining was set in motion at least two decades ago, as the steady succession of World Bank and IMF structural adjustment programmes (SAPs), country assistance strategies, and the "comprehensive development framework" firmly paved the way towards globalisation, leaving the UN with little option or will to serve as anything other than a handmaiden of the G-7 and its collection agencies. However, the positions taken by the UN at the recent Social Summit in Geneva show all too clearly that the UN cannot be relied upon to adequately represent the interests of less powerful or vulnerable nations, nor is it willing to serve as a counterweight to the Bretton Woods Institutions.

Internal Contradictions

The World Bank-IMF PRGF and PRSP approach is seriously flawed in its assumptions of how to tackle poverty. It is also inherently contradictory.

In the PRGF framework, the "success" of a poverty reduction strategy is based on the borrowing government's macroeconomic and structural reform policies. And while a PRSP might even yield some useful information about how poverty should be addressed, it is completely unclear how poverty elimination measures will be linked to the standard array of macroeconomic and structural adjustment conditionalities that continue to form the mainstay of the IMF-World Bank reform programmes—no matter what name they choose to give it.

Evidence from interim PRSPs (IPRSPs) already undertaken in Africa, Latin America and Southeast Asia show striking similarities between the conditionalities that accompanied earlier PFPs and current IPRSPs. Not only is there no significant transformation of earlier SAP objectives, but also there appears to be no space to examine the impact of past SAPs on the creation of poverty in borrowing countries. The papers continue to promote production, distribution and financing approaches that are oriented towards greater trade and market "openness," with scant attention to the historical causes of poverty. Social goals of equity and equality, although included in some strategies through education and health objectives, are largely relegated to the purview of social safety nets, which offer vulnerable populations too little support too late. Through the "globalisation for all" anthem of the World Bank, the IPRSPs continue to give the message that it's okay to have losers in society—they will be picked up by the safety nets.

Both the World Bank and IFM have made strident claims that this time round, it will all be different, that the process and strategies will be "owned" by governments. Borrowing country governments are supposed to "lead" the process of poverty reduction strategy formulation with input from civil society organisations (CSOs), external creditors and donors. However, these claims fall flat when one considers the fact that the 70 odd countries that are included in the PRSP initiative were identified by the Bank and Fund to begin with, and did not necessarily choose to participate in the initiative. Further, the process of formulating the poverty reduction strategies must follow the guidelines outlined by the Bank and Fund in a huge (1000 page!) source book, which then necessitates the involvement of Bank-Fund preparatory missions to start the process off in targeted countries.

In order to qualify for further credits and assistance, a PRSP must be approved by the World Bank and IMF Board of Directors on the basis of their own internal policy criteria, and not according to the requirements of the country in question. The Bank-Fund Boards can veto the strategy, the paper and the entire process if they stray from the narrowly prescribed path of Bank-Fund structural reform. The conditionalities attached to new loans must also be clearly reflected in the poverty reduction strategies and assistance from other external donors would be contingent on Bank-Fund approval of the process and strategies. Under such conditions, talk about "ownership" of the poverty reduction process by governments would be laughable if it were not quite so objectionable.

The Manipulation of Consent

The World Bank and IMF also claim that in the PRGF-PRSP framework, there will be greater importance than before (i.e., under SAPs and PFPs) on the participation of civil society in the development, implementation and monitoring of poverty reduction strategies.

However, experience from countries where the process has already been initiated shows that participation to date has involved little more than consultations with a few prominent and liberal CSOs, rather than broad based, substantive public dialogue about the causes or incidence of poverty. Local, vernacular forms of civil society organisation such as labour unions, peasant organisations, social movements, women's groups and indigenous peoples organisations have not been invited into the process, and the little public discussion that has taken place has been limited to well resourced national and international non-government organisations (NGOs).

The nature of civil society participation in the PRSPs is also problematic in that it allows for the manipulation of CSOs and governments by the neo-liberal development establishment. The insertion of foreign donors and creditors between civil society and capital deficit governments create conditions whereby the influence of local civil society in setting national development agendas is weakened, and national governments become less accountable to their own citizens than to international creditors and donors.

In some countries (with relatively authoritarian governments), the public relations exercises by the World Bank have attempted to convince local CSOs that they will be ensured seats at the negotiating table because of the Bank's commitment to civil society participation. While it is true that the space for local civil society participation in the formulation of national development agendas is narrow in many countries, the Bank's mediating role in the national arena has serious implications for national and local democratisation, but this role, unfortunately, remains unchallenged or unquestioned.

History Repeats Itself

Reports coming in from countries where the PRSP process has begun show that little has changed in the MF-World Bank's approach to programming either in content or in process. Experiences from Bolivia, Nicaragua, Tanzania, Zambia and Mozambique indicate that PRSP processes continue to be based on existing structural adjustment frameworks and macroeconomic indicators, with little more than lip service to genuine public participation in poverty analyses and policy formulation.

In Cambodia, the Royal Cambodian Government (RCG) initially resisted the imposition of the PRGF and the PRSP process over its own five year socio-economic development plan. However, due to a slow down in Foreign Direct Investment (FDI) and decrease in government revenues, the RCG was eventually compelled to back down and accept the PRSP and PRGF frameworks. The experience thus far has remarkable similarities with experiences from Africa and Latin America in both content and process. The policy matrix and macroeconomic framework accompanying the interim PRSP (IPRSP) are more or less the same as that for earlier PFPs under ESAF, and emphasise traditional structural adjustment priorities: low inflation, deficit reduction, debt servicing, trade and investment liberalisation, etc. (in an initial draft of the IPRSP policy matrix, even the title was unchanged from the PFP period). Further, the macroeconomic framework for the IPRSP was determined ahead of poverty assessments or the formulation of poverty reduction strategies, and does not relate to international development targets. Local civil society was not involved in the design or development of the interim PRSP, and it appears unlikely that it will play more than a consultative role in future PRSP activities.

The Aide Memoire for the PRSP in the Lao PDR reveals the fundamental growth bias that would inform future poverty reduction strategies: "….recognising that growth will be the best means of poverty reduction but also that certain structural and sectoral policies expedite the process." The Aide Memoire also makes the importance of an acceptable (by Bank-Fund standards) three-year macroeconomic framework and policy matrix to future agreements abundantly clear. It unequivocally states that a country's poverty reduction strategies will be jointly assessed by staff from the IMF and the World Bank before they are presented to the respective Boards.

In the Lao PDR, the IPRSP is being prepared by a consultant team recruited by the UNDP, and opportunities for local civil society and even broader government participation appear dim. Interviews with government officials in sectoral ministries at the national level and with provincial government staff revealed that they had little knowledge of the PRSP formulation process. Their role was to provide sector and area specific information to the never ending stream of consultants and Bank-Fund mission teams. In Vietnam, while the government retains significant control over the process at the national level, foreign donors and international NGOs continue to play a significant role in carrying out poverty assessments and identifying development strategies.

In many of the countries targeted for the PRSP, documentation and information about macroeconomic policies, the ways loans and development finance are structured, and the conditionalities that accompany IMF-WB credits are not easily accessible. This includes the actual availability of information about issues that high level decision makers consider their exclusive domain, as well limitations in the capacity of lower levels of government and the public at large to understand the content of whatever information is available. Despite the lofty ideals in Bank, Fund and UN speak, little information is available in local languages and there have been few attempts to educate the public about the PRSP.

Linking the availability of foreign aid and credits with the adoption of the financial and economic frameworks prescribed by the Bank and the Fund weaken the capacities of national governments to formulate their own, nationally relevant plans for socio-economic development and poverty alleviation. Many countries included in the HIPC initiative have attempted to formulate and implement their own long term national development strategies (for example, Ghana, Nigeria, Uganda, Gambia, Vietnam and Cambodia), but these strategies have been undermined by the IMF and World Bank through the leverage provided by the PRGF and PRSP framework.

A Time for New Imaginations

Experience over the last 40 years has proved that the IMF and World Bank are at best irrelevant, and at worst (which is most often the case) inimical to the goals of poverty reduction in the Third World. Any claims by the two institutions that the PRGF and PRSP have anything new to offer to the cause of poverty reduction truly signal the end of imagination.

The development of appropriate strategies to tackle the various forms of poverty in a society is the business of the citizens of that society and their representative governments. Governments and civil society need to evolve their own development approaches and plans that are locally and nationally relevant and sustainable, and which ensure that national policies serve human, social, and environmental goals rather than sacrifice all of society at the altar of a rigid and inflexible macroeconomic policy environment. While it is true that the international community can play a useful and beneficial role in strengthening national capacities for development and poverty alleviation, governments and civil society need to first be accountable to each other, and second to external creditors and foreign donors.

It is within such frameworks that institutions such as the IMF and World Bank should operate, rather than dictating the grounds on which societies are built.