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The World Social Forum reviews debt and taxes: who pays, who profits and why?

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By Bodo Ellmers

While most of the world’s population was reeling from one of the globe’s multiple crises, social movements and non-governmental organisations (NGOs) gathered at the World Social Forum (WSF) in Tunisia last month in search of alternatives. The country where the Arab Spring started in late 2010 was a great choice to host the WSF in 2013. Inspired by the successful campaign to overthrow the autocratic regime of Ben Ali three years ago, Tunisian civil society is amazingly active, highly motivated and convinced that civil society activism can actually make social change happen.

Tunisia: microcosm of a defunct financial regime

However, the Tunisian experience also shows that activism on a national level needs to be complemented by international solidarity and cooperation because nations that are integrated into a globalised world economy have limited space to determine their development. A mountain of external debt taken out by the former regime today is threatening public service delivery and constraining Tunisia’s progress. The tax system inherited from the Ben Ali regime is unjust and includes loopholes for tax avoidance and capital flight. Tax income is insufficient to finance even the current public affairs, causing high and additional borrowing needs to avoid austerity policies.

A balance of payments crisis looms as investment, export production and tourism in particular have been badly affected by concerns about instability. Tunisia is currently negotiating a loan agreement with the International Monetary Fund. Just a few years after the Ben Ali regime was overthrown, a new player that is not democratically elected and mandated by the Tunisian people is playing a substantial role in the nation’s economic and social prospects.

Tax-debt-development finance: promoting alternatives

One of the questions that concerned activists at the WSF was how to get out of the current mess – where governments depend on financial markets to fund public services, and nations depend on external lending to fund their development. These questions are inextricably linked to debt and taxes, which has been at the core of Eurodad’s work for many years. So we pushed the debt-tax-finance agenda in order to develop alternatives and promote new thinking.

Tax justice: Who pays matters

That domestic resources should play a stronger role in public and development finance became a global consensus position recently as the OECD aid industry is running out of steam, and even formerly aid-dependent countries’ governments are getting increasingly tired of foreign funding that comes with too many strings attached.

For the civil society activists gathered in Tunis, however, the question of tax justice is the primary concern. Regressive tax policies and loopholes for tax avoidance and capital flight caused the current situation – where poorer populations pay more than their fair share to national and global public goods. Consequently, the actions needed to create tax justice – in more technical terms: progressive taxes and tax rates; shutting down tax havens; automatic exchange of tax information; country-by-country reporting; and disclosure of real ownership of corporations – featured highly on the 2013 WSF agenda, including in its final tax declaration. Which reassures us at Eurodad that we are on the right track.

Debt: who shouldn’t pay matters too

But since public debt levels in many countries of the global north and south are high and surging, and governments’ debt service is ever increasing, there is a risk that the tax regime will become an exploitation mechanism – that governments will use citizens’ tax payments for the benefit of creditors rather than citizens. So, while tax income needs to go up, debt levels need to come down to make public finance work for everyone.

Activists in Tunis challenged the current creditor-biased debt regime with the slogan “we don’t owe – we don’t pay” – and promoted a variety of exit options from the straitjacket of debt dependency that has trapped many people around the world. Among these options were comprehensive debt work-out mechanisms and debt audits that would unveil and assess the origins and legitimacy of debt.

A debt audit is currently being debated in Tunisia, with the support of local activists. The findings might provide interesting insights for responsible financing and into the question: what happened to all the money that Western banks and international financial institutions generously lent to former dictator Ben Ali, and why did they lend it to him in the first place?

Cyprus – the next chapter of dysfunctional EU debt crisis management

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By Costas Todoulos and Bodo Ellmers 

After more than a week of messy negotiations, the Troika (made up of the European Union, the International Monetary Fund and the European Central Bank) and the government of Cyprus agreed on a bailout package for Cyprus on 24 March. Cyprus is set to receive a €10 billion loan, on the condition that it shrinks its financial sector and implements austerity policies. Private bank deposits above €100,000 will be taxed at 40% in order to raise the additional €5.8 billion needed to stabilise the country’s de facto bankrupt banks.

Euro banking crisis chapter four  

Cyprus has become the fourth European nation to fall victim to a banking crisis that was caused by irresponsible lending and lax financial regulation – following on the heels of Iceland, Ireland and Spain. Cyprus’ status as a de facto tax haven also played a role in attracting huge amounts of foreign deposits, mainly from Russia and the UK, which inflated the banking sector to such an extent that lending reached 900% of Gross Domestic Product (GDP) in 2011.

Dysfunctional debt crisis management

As the bubble burst and Cypriot banks teetered on the verge of bankruptcy, the EU tried to avoid a disorderly default. However, the chaotic crisis management tragedy we witnessed over the past few weeks was obviously everything but an orderly debt work-out procedure. It is a striking fact that, five years into the Euro crisis, the EU has still not developed clear criteria, mechanisms and institutions to deal with debt crises in a fair and transparent manner.

EU crisis management continues to be a rather random process. Dodgy decisions are made in backrooms, with no transparency and accountability to the European citizens who ultimately have to foot the bill – either because they live in crisis countries and have to suffer from austerity programmes, or because their tax payments will ultimately fund the bank bail-out deals.

Severe governance gaps

Little support have come from the global level as the international financial architecture still lacks effective debt work-out mechanisms, a point that Eurodad and other debt campaigns criticised again and again over the past decade when developing countries suffered from debt crises. Such a debt work-out mechanism would be independent from creditors, cover all categories of debt and make binding decisions for all, in order to find a sustainable solution to debt crises as they arise. It would also assess the legitimacy of creditor claims, and pursue a human rights-based approach to debt restructuring, thus ensuring that public spending for essential services is safeguarded. The Cyprus case provides new evidence about how urgently such a new debt work-out mechanism is needed.

Towards evidence-based crisis management

The time has come for an evidence-based debt work-out. Cyprus received harsh treatment at the hands of its European partners, as they argued the crisis was self-inflicted. The small Mediterranean island has been the preferred destination of many overseas depositors over many years. Banking secrecy was high, tax rates were low. KPMG ranked Cyprus’ corporate tax regime as the most attractive in Europe. Some nicknamed the island the ‘unsinkable washing machine’, given that the origins of the deposits were in many cases unclear and illicit flows may have contributed a substantial share to its bad reputation.

A thorough debt audit would have shed clearer light on the origins of Cypriot debt and the Cypriot debt crisis. It would also have supplied decision-makers with better information for making sound decisions. Not least, it could have traced where all the money ended up and who profited from it. This should have been a prerequisite for fair burden sharing in crisis management, and for protecting the ordinary Cypriot citizens and EU taxpayers from footing the bill for a crisis they did not cause.

Safeguarding development from debt

The solution that was chosen for Cyprus will have negative impacts for the country’s population and development in future. The imposed austerity programmes will affect the living conditions of ordinary Cypriot citizens, in particular the most vulnerable people who are dependent on public services. Moreover, while the EU rightly stressed that the economic future of Cyprus cannot be based on a bloated financial sector, it forgot to provide an alternative. We have had better proposals for debt crisis management in a developing country context, where the international community asked affected countries to draft national development plans, and committed to support their implementation.

The solution chosen for Cyprus is neither optimal from a developmental point of view, nor is it sustainable. The bail-out loan will drive up Cyprus’ debt by an additional 60% of GDP, while GDP is expected to shrink due to the harsh austerity measures. It is just a question of time when the next round of crisis management is due. The only good news is that the EU will soon get its chance to prove it can do a better job next time.   

G20 starts work on long-term investment, but will the IFIs give the right advice?

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The success of emerging markets in sustaining investment during the crisis has triggered a new G20 workplan on long-term investment, but with the IFIs and the OECD at the helm, it’s uncertain whether this will mean any new thinking.

This month, the G20 Finance Ministers set up a new “Study Group on financing for investment” to “determine a work plan for the G-20, considering the role of the private sector and official sources of long-term financing.” This is not a new theme for the G20 which has had a focus on infrastructure investment for some time, criticized for a bias towards controversial and expensive mega-projects, with significant social and environmental risks.

Though the group “will work closely with the World Bank, OECD, IMF, FSB, UN, UNCTAD and other relevant [international organisations]” it’s pretty clear which institutions are dominant.  The IMF wrote one background report for the meeting and the Financial Stability Board (FSB) another. The OECD is preparing a report on “long-term investment financing by institutional investors” for the upcoming G20 leaders’ summit in St Petersburg, while the World Bank and other multilateral development banks (MDBs) are the chosen vehicles, asked to “enhance the catalytic role they play in mobilizing long-term financing from other sources, including through [public-private partnerships].”

The FSB – one of the least accountable and transparent international institutions – starts its report with a mea culpa. Detailing its current work programme, it admits that “the reforms do not specifically target [long-term] finance”. The limited future role it proposes for itself – largely monitoring the effects of reforms on long-term finance – suggests a limited interest in this important topic.

The analysis of the issue provided in the IMF staff’s report, however, is concise and interesting. It finds that “investment in advanced economies fell sharply in the wake of the crisis (by more than 15 percent) and has recovered only very slowly thereafter”, in contrast to the resilience of investment in developing economies, as Eurodad noted last year.  In particular “in emerging Asia investment has accelerated since the crisis, on the back of substantial fiscal stimulus, particularly in China.”

The IMF also notes that “advanced economies have continued to rely on foreign saving, while emerging economies, on average, have generated positive net saving” – in other words, rich countries’ investment is dependent on external finance, while emerging economies and others have stronger domestic sources of investment.  In fact “surplus emerging economies have generally accumulated reserves” – these are largely invested in safe assets from rich countries, particularly US treasuries.  This huge stockpiling of reserves meant, according to UNDESA, that developing countries made a “net transfer of financial resources of approximately $826.6 billion to developed countries in 2011”.   Previous Eurodad research has shown how this stockpiling of reserves, caused by significant failings of the IMF-led international economic and monetary system, places a significant burden on developing countries.

The report finds that “bank credit in emerging Asia and Latin America has grown strongly, in line with strong investment”, suggesting, as others have noted, that the key to stronger investment policies in developing countries lies within the traditional – some may say boring – banking sector, rather than the development of capital markets and financial innovation, championed over past years by both the IMF and the World Bank.

Given this past track record and the controversy surrounding the World Bank’s new ‘flagship’ report on the financial sector, asking the IFIs to advise the G20 on long-term investment financing seems a bit perverse. As UNCTAD have noted, developing countries have also become major importers and exporters of foreign direct investment. Surely the emerging market countries in the G20 have more to teach the IFIs than to learn from them?

Eurodad-Glopolis International Conference: Debt, finance and economic crisis

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by Alessandra Garda

The current public debt crisis compromises development objectives and poverty eradication across the world. How should we move from discussion of root causes to focus on solutions? What should the roles of the state and the private sector be in overcoming debt crises and creating alternatives? How do we need to change our thinking and economic structures to prevent future crises?

The Eurodad biennial conference – which takes place in Prague from the June 3-5, 2013 – offers the perfect opportunity for thorough discussion of the concerns outlined above and to prepare the ground for future joint strategising and thinking on crucial issues of finance and development.

Co-organised by Eurodad Czech member Glopolis, the conference is a leading forum for discussion, idea-sharing and collective strategising for civil society groups advocating for reform of development finance. The Eurodad conference will bring together more than 100 leading civil society thinkers from around the globe working on issues ranging from debt, tax justice, aid, private finance, the International Financial Institutions (IFIs) and global monetary reform. There will be significant Eastern Europe and Southern participation.

Focus on solutions

The debate this year will be focused not only on the consequences of the world economic crisis but mainly on the solutions. By the time of the conference, an increasing number of developed and developing countries are likely to have suffered further debt distress, with negative consequences for their economies and people. EU countries will face decisions about collectivisation of national debts – implying stronger EU regulatory, fiscal and political union or national defaults and possibly Eurozone break-up. The Eurozone debt crisis threatens further regional – and possibly global – recession with obvious consequences for public debt accumulation.

The root causes of the current public debt crisis are multifaceted, and much debated. Many argue that rising public and private debt levels have been driven by the increasing dominance of the financial sector over the real economy. History shows us that financial crises are always followed by public debt problems as the public sector underwrites losses and economies suffer. But the roots of this crisis – and previous crises – go deeper, and it is clear that major change is needed to overcome this crisis and prevent future recurrences. But what kind of changes?

What can be learned from countries that have weathered the current crisis well? Which proposals for change should civil society groups be emphasising now? This is a topic that is extremely relevant in North and South, East and West – and the conference can provide a forum for genuine sharing of experience and ideas. It’s time to take us beyond analysis of the problems to a focus on solutions.

Eurodad’s biennial conference has been held at least every two years for more than a decade, offering Eurodad members, allies and partners the opportunity to broaden understanding of key issues, identify and move forward on collective struggles, forge new alliances and meet inspiring people.

Find out more about the conference here.

Progress on IMF conditionality?

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A first reading of the press statements and overview paper from the IMF’s review of conditionality, completed in September 2012 might give the impression that the IMF has made a 180 degree turn in its conditionality policy, one of the most controversial aspects of the Fund’s role. However, the transformation doesn’t seem as complete as the IMF argues. Harmful conditions are still being imposed, not only to developing countries, but also in Europe, and the IMF claim to have increased its focus on poverty reduction and social protection seems uneven, both throughout countries and time.  Has the IMF really change the way it sees and implements conditionality?

As a thoughtful reading of the conditionality review papers shows, lending reforms and changes in conditionality have already had some impacts in the way the IMF deals with countries under different Fund programs, but much more can and must be done.

The IMF claims for instance to have internalized the objective of poverty reduction in the programmes in low-income countries, but outcomes seem uneven. They recognise that there’s a need for a better and more systematic analysis of social impact of policy measures in programmes. One of the main challenges remaining is therefore to monitor and evaluate, both quantitatively and qualitatively, the impacts of IMF policies in the most vulnerable people.

As the review concludes, debt relief is responsible for the only observable macroeconomic positive effects of IMF policies in low-income countries, including not only sustainable debt levels, but also an increase in social spending. In a time when, after HIPC and MDRI, there will not be a specific debt relief initiative in place for those countries in debt distress, and the chances for having a new debt crisis, not only in Europe but also in the global South, are growing, there’s also an urgent need to evaluate what will happen when no further debt relief is a resource for impoverished and highly indebted countries.

Furthermore, and as the IMF recognises, more efforts in ownership and transparency are also vital for the programmes success, and a better analysis on projections and evaluation would also help. The role of CSOs in monitoring and fostering these transformations is vital for assuring further change within the IMF. Some changes are certainly happening, mostly at a slower pace than what is needed. But the IMF has still a long way to go to be a fully democratic, transparent and efficient institution with no harmful conditions imposed on the countries.

The following briefing analyses these and other issues that arise from the IMF review of conditionality.

IMF/World Bank Annual Meetings: arguments and inaction

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IMF recognition that it has dramatically underestimated the impacts of austerity policies strengthened calls for reform of IMF conditionality, and the World Bank’s jobs report undermined its own Doing Business rankings, but the IMF/World Bank annual meetings ended this weekend with little concrete agreed. Meanwhile, the meetings witnessed a reinvigorated campaign by civil society organisations, supported by some governments, and echoed by the United Nations, to develop fair and transparent debt workout mechanisms.

IMF austerity mistakes add to calls for conditionality reform

Media coverage at the recently concluded World Bank and IMF annual meetings in Tokyo focused on a spat between Germany and the IMF, when the IMF issued a mea culpa recognition that it – and governments around the world – have been dramatically underestimating the negative effects of austerity policies.  The IMF’s World Economic Outlook estimated that forecasts for the multiplier effects of austerity cuts and stimulus packages have been dramatically too low – meaning austerity has hurt growth far more than expected.  Here is the report’s summary (from page 41):

“The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.”

This is an extraordinary admission by the IMF and will add to growing calls for the Fund to radically alter the conditionalities it attaches to its loans, which consistently promote austerity.

However, the official communiqués contained no mention of this, nor did they highlight the recently concluded review of IMF conditionality.  The review, while containing a few useful recommendations was limited in scope and did not examine IMF loans to Europe – the vast majority of IMF lending, leading analysts to question its relevance.  The higher level of conditionality attached to European loans creates real concern that the slow but important trend towards less conditionality at the IMF may be reversed.  The region that is likely to be in the forefront of battles to remove damaging IMF conditionality is the Middle East and North Africa, with Egypt close to agreeing a $4.8 billion IMF loan. With the IMF also announcing that it would use its windfall profits from selling its gold to boost lending to low-income countries, we can expect conditionality to be a major issue across the world as the IMF continues to expand its lending.

Going out of Doing Business?

The release of the World Bank’s 2013 World Development Report on jobs, has strengthened campaigns against the World Bank’s controversial Doing Business rankings.

As trade unions pointed out, the WDR’s review of the literature debunks the idea, propagated by the rankings, that deregulating labour markets to make it easier to fire workers is always a good idea. Though the Bank suspended the Doing Business indicator on employing workers in 2008, unions point out that “it continues to collect the raw data for calculating the indicator and the Doing Business team has not hidden its desire to reincorporate it.” The World Bank is currently reviewing Doing Business, and this will add force to the campaign by many civil society organisations, supported by Eurodad, to discontinue the rankings.

Calls for fair debt workout mechanisms

While the official meetings dawdled to their limited conclusions, there was a reinvigorated push by civil society organisations and the United Nations to put the need for fair and transparent debt workout mechanisms back on the political agenda.  An international coalition of civil society organisations, including Eurodad, issued a statement calling for “a lasting solution to the sovereign debt crisis and the establishment of a fair and independent international debt workout mechanism” and made concrete proposals.  A high level panel in Tokyo saw Ministers from Norway and Argentina echo these calls, and the United Nations (UNDESA) weighed in with its own high level panel on timely debt resolution. This renewed push to stop the chaotic, lengthy, unfair and damaging way debts – of both developed and developing countries – are currently dealt with builds on the recent announcement by the Norwegian government that it will be auditing all its debts to see which are illegitimate.

Other issues: capital controls and private finance ‘innovation’

Meanwhile, the IMFC communiqué notes that “the potential impact from large and volatile cross-border capital flows should be closely monitored” but says nothing about the IMF’s upcoming ‘institutional view’ on capital controls. Critics fear that the Fund’s slow acceptance of the need for governments to regulate finance flowing in and out of their countries will continue to emphasise problems rather than potential for these techniques to benefit stability and development.  Nor does the communiqué mention the continued scandal of huge illicit financial flows that aid tax evasion on a massive scale, an issue Eurodad has campaigned on for a long time.

Finally, while the development committee communiqué says that “the private sector generates most jobs, but the public sector also has an important role to play” it goes on to emphasise importance of “innovative initiatives” by the World Bank’s private sector arms. Eurodad research has highlighted significant problems with the Bank’s approach, finding, for example that the Bank’s private sector lending has focused on supporting firms from rich countries and is often routed through tax havens

 

Campaigners in Toyko call for end of harmful tax policies

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Tokyo, Japan, October 12, 2012

As the IMF and World Bank pursue implementation of tax policies in developing countries, members of Civil Society worry that these powerful institutions are putting the interests of international investors above those of the democratic governments of developing countries.

Of particular concern is the World Bank’s influential “Doing Business” ranking which many development experts find particularly damaging.

“The rankings are based upon criteria that might boost the bottom line of foreign investors but often damage national fiscal policies and hamper efforts to increase domestic resources through taxation”, said Øygunn Sundsbø Brynildsen, Senior Policy Analyst at the European Network on Debt and Development (EURODAD).

“The World Bank’s ‘Doing Business’ ranking pushes countries to lower taxes on corporations, reduce funds for vital public investment in health and education and often forces them to seek revenue elsewhere. It has caused more harm than good and we hope the Bank’s ongoing review of the rankings will result in their discontinuation” Brynildsen added.

Although generally encouraged by the IMF’s growing recognition of the equity effects of tax policies, campaigners in Tokyo expressed dissatisfaction that Value Added Tax (VAT) continues to be seen as a main source of tax revenues. “We are surprised that both the World Bank and the IMF continue to push VAT despite its clearly regressive nature,” said Pooja Rangaprasad of India’s Centre for Budget and Governance Accountability. “Ultimately, it is impossible to dispute the fact that VAT is a heavy tax burden on the poor.

A further issue of concern to tax campaigners is the continued practice by the World Bank’s International Finance Corporation (IFC) of channeling its investments through secrecy jurisdictions. “Tax havens are being used to rob developing countries of much needed tax revenue by facilitating tax dodging. Development finance institutions like the IFC should be the first to discontinue the practice”, said Brynildsen.

Tax revenue for developing countries is a crucial source of independently generated income and as such campaigners feel its importance cannot be exaggerated. Given their influential role in forming national and international fiscal policies, campaigners believe it would be very counterproductive to its development mandate if the World Bank and IMF were unable to stop pushing tax policies that hinder efforts by developing countries to increase local economies and establish greater financial independence.

Contact:
Pooja Rangaprasad, (currently in Tokyo, Japan)
Centre for Budget and Governance Accountability (CBGA), India, member of the Task Force on Financial Integrity and Economic Development
rpooja@cbgaindia.org +81 807 008 1838

Øygunn Sundsbø Brynildsen, (currently in Tokyo, Japan)
European Network on Debt and Development (EURODAD), member of the Task Force on Financial Integrity and Economic Development
obrynildsen@eurodad.org +32 486 903 491

Dietlind Lerner (United States)
Communications Director, Task Force on Financial Integrity and Economic Development
dlerner@financialtaskforce.org +1 202 577 3455

NGOs meet at the 20th EuroIFInet meeting to prepare for the World Bank and IMF Annual Meetings.

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By Carlos Villota,

Last week the European network of IFI (International Financial Institution) watchers – the EuroIFInet – met in Amsterdam for its 20th Annual Meeting to strategically review its last 10 years of activism. In addition the network coordinated NGO actions for the Annual Meetings of the World Bank and the IMF, which this time are taking place in Tokyo from 9 to 14 of October.

This year, BothENDS together with Eurodad hosted the meeting for this informal but active network of European NGOs. Non-European allies such us PSPD (Korea), Forest Peoples, Afrodad and World Resource Institute also attended the meeting and were key assets during the different sessions.

The role of non-traditional donors, emerging economies and the diminishing power of European countries were discussed. In addition, issues such as the World Bank Program for Results financing instrument the ongoing Safeguards review, Investment Lending Reform, IMF gold sales, IMF quota reform, Energy policies and the World Bank Doing Business Report were also addressed.

Through exchanging ideas and advocacy strategies, the participants stressed the need of reinforcing alliances with emerging countries in order to achieve more effective common advocacy towards IFIs. The increasing role of private finance and the growing linkages between private sector actors and the IFIs, was highlighted as a key crosscutting issue in order to get engaged in new emerging world dynamics and advocate to fight poverty and inequality.

The issues addressed will be amongst the topics discussed both in the official meetings and the civil society events organised in Tokyo in mid October.

 

Fair rules on debt: developing countries try to force the IMF’s hand

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By Francesca Giubilo,

27-04-2012

At last week’s World Bank and IMF spring meetings, the G24, the group of developing countries governments made a bold bid to get debt work-out mechanisms back on the agenda. They called for a study on sovereign debt restructuring mechanisms, a topic which the IMF had ignored. The European debt crisis provided an opportunity to re-open the debate.

Though the G24 call was not echoed in the International Monetary and Financial Committee’s statement, it was an important first step which shows how the problem of unpayable and illegitimate debt is increasing at international level. Civil society groups have constantly argued that new measures have to be taken to deal with sovereign debt problems, but why is this so important for low-income countries and which elements should be included in a debt work-out mechanism?

Although some of the effects of the financial crisis in low-income countries may have been mitigated by previous debt relief initiatives and a stronger focus on debt sustainability, almost one third of all low-income countries are either in debt distress or at high risk according to IMF data. In addition, the IMF predicts a permanent increase in the share of low-income countries revenues spent on servicing external debt. The consequences in terms of quantity and type of debt are hardly being analysed and no international procedure or mechanism exists to deal fairly and comprehensively with cases of debt distress.

A fair and transparent sovereign debt work-out procedure should include the 10 civil society principles, which help countries deal objectively with allegations of illegitimate debt. Furthermore, it will not only serve to deal with debt after the fact, but will also discipline lenders and promote more responsible lending and borrowing before loans are agreed.

As stressed in the Eurodad Charter on Responsible Finance, a fair and binding framework for responsible finance at the international level would provide a rules-based system which:

  • lays out the rights and the obligations of lenders and investors, borrowers and host states
  • protects the rights and welfare of citizens around the world

We will keep our eyes fixed on the new opportunities to put this issue back on the IMF’s agenda and push for changes. History bears testimony to many seemingly impossible turnarounds maybe another one is around the corner. We will continue fighting!

Enhacing the IMF’s focus on growth and poverty reduction in Low-income countries

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Eurodad members Save the Children Norway, the Norwegian Forum for Environment and Development and the Norwegian Church Aid (NCA) have commissioned this report from Development Finance International, to analyse whether the new facilities are living up to this objective, and allowing countries to move faster towards the Millennium Development Goals. They asked DFI to look particularly closely at impact on the health sector. The paper analyses all 37 PRGT agreements, and presents case studies of Honduras, Malawi and Sierra Leone, written by local experts closely involved in IMF-government discussions. As the new facilities began only in 2010, this assessment should be seen as preliminary.

The report makes clear that the IMF is not, and should not be, a long-term development lender. However, it has committed to enhancing its focus on growth and poverty reduction through the PRGT, and donors have provided concessional funding to the IMF to support the PRGT on this basis: the facilities should therefore be judged on whether they are achieving this goal. The report also makes clear that it is analysing trends resulting from IMF-government agreements, not ascribing “responsibility” to the IMF for all trends and their impact on MDG prospects.

Overall, the report concludes that there is only very limited evidence of an enhanced focus on growth and poverty reduction compared to the previous PRGF facility programmes: mostly the PRGT has formalized or standardized evolutionary changes which have been occurring since 2000. There have been some steps forward showing increased flexibility by the Fund, but most were introduced before the PRGT, and those relating to macroeconomic policy look increasingly fragile.

Read the full report: Enhacing the IMF’s focus on growth and poverty reduction in Low-income countries