26 October 2006 Edition

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International - New focus may divert resources from poverty relief

West attaches more strings to Third World aid

During the annual World Bank and International Monetary Fund meetings in Singapore at the end of September, finance ministers, mainly from developing countries, expressed concern that the new World Bank focus on anti-corruption policies may divert resources from poverty relief and/or attach too many pre-conditions to aid, making it impossible from some less developed countries to access it. Ministers also pushed for both institutions to change from a policy of imposing conditions on developing countries to a situation where developing countries could also have a say in how the World Bank and the IMF work with governments.

First it was security and now, anti-corruption and good governance policies seem to be the new set of conditions that international financial institutions are ready to impose on developing countries needing their assistance to eradicate poverty. Aid seems to come with more and more strings attached, making it increasingly difficult for developing countries to comply.

Conditions range from the design of the country's economic policy, the goods they should be producing and what services they should privatise to diplomatic relations and the way the country should be run. So while natural resources go to the industrialised West at a very low cost, developing countries become more and more reliant on aid administered according to Western political and economic interests.

South African Finance Minister Trevor Manuel said that there was a "deficit of democracy" in the institution, giving a clear picture of developing countries' dissatisfaction with the way in which the organisations are staffed and managed and their voting systems.

Ng'andu Peter Magande, the Zambian Finance Minister, complained about the fact that a continent the size of Africa has only two seats on the Executive Boards of the two institutions, which have a total of 24 board members each.

In terms of staffing, he said, "A little bit of effort has been made, in particular by the World Bank, in terms of getting our people into decision-making positions... We are very pleased that we even have a Managing Director (there are several of them) from South Africa."

But despite these developments, he said that developing countries "believe there should be a realignment of the belief that the majority shareholders should have the loudest voice. We want to be heard."

The voting systems in the two institutions don't do the poorest countries any favours either, as the votes are weighted in line with member nations' financial contributions, which in turn are loosely related to the size of their economies and certainly not their population.

The result is that the US has 17% of the vote in the IMF whereas India, with more than three times the population, has less than a third; Denmark has the same IMF vote as South Korea, which has nine times the population and, by some measures, an economy six times bigger. And when it comes to constitutional changes in the IMF, there has to be 85% support - so the US, with 17%, has a veto.

Further delays on aid

During the meeting in Singapore, representatives of the world's poorest countries said that they supported the Bank's anti-corruption efforts but complained that debt relief efforts are already slowing down. They expressed concern that new conditions might cause further delays in aid.

Ghana's Finance Minister Kwadwo Baah Wiredu said that industrialized nations need to fulfil promises made during last year's European summit in Britain to double aid to poor countries: "We all noted that there has been slow delivery of the pledges and there's little increase also in the amounts of aid to our countries." Wiredu said that more should be spent on infrastructure development in poor nations rather than on having foreign experts visit the countries and give advice.

Indonesian Finance Minister Sri Mulyani Indrawati agreed, saying that the era of dispatching teams of experts from Washington to quickly diagnose problems and prescribe solutions is over. "We need more people on the ground who can work with us side by side, at our pace, meeting our deadline, and facing our pressure. Act as a partner, not preachers," Indrawati explained, adding that if the World Bank wants countries to be open to corruption investigations, it should be more open to the participation of developing countries governments in the organisation itself.

IMF reforms

On Monday, 18 September, the 184 members of the IMF passed internal reforms giving more voting rights to China, Turkey, Mexico, and South Korea, to better reflect the economic power of those countries. Argentina, Brazil, Egypt and India were among a minority of countries to oppose the limited increase in voting shares. Indian Finance Minister Chidambaram said that he would have much rather seen all countries have their quotas re-assessed. He described the two-stage process approved by the IMF as a "hopelessly flawed formula".

"The two-stage process will mean that some developing countries will be asked to yield a portion of their quotas in favour of some other developing countries.... Let me say that the 23 countries, many of them large, emerging and well-performing economies that voted against the resolution, may have lost the vote but have not lost the argument," Chidambaram said, pointing out that the second stage of reforms, to be negotiated by 2008, should accurately reflect the influence of all the IMF's members.

After the meeting, Peter Chowla of the London-based Bretton Woods Project noted, "Developed countries seem determined to waste this opportunity for reform by pushing cosmetic changes that do nothing more than tinker at the edges. The increase in basic votes is just symbolic and will have no substantial affect on the inequality in decision-making making at the IMF."

IMF chief Rodrigo de Rato has pledged that reforms will go further, and said that the organisation would remain true to its multilateral framework.

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