Relations with the International Financial Institutions
Evaluation and Recommendations 1998-2005*
Panel on: Politics of Participation in Economic Multilateral Institutions
Opportunities & Constraints
By Paul Nehru Tennassee
REVIEW OF ENGAGEMENT
In June 1998 the WCL Washington Liaison Office (WCL-WLO) was established in Washington DC to monitor and attend to the relations between the WCL and the IFIs. In addition, the WCL-WLO represents the WCL at the United Nations. The establishment of a permanent liaison office in Washington DC coincided with the new developments on the social question within the IFIs and the transition from sporadic to more systematic relations. In early 1998, the WCL mission to the IFIs consisted largely of Asian Trade Unionists. The Asian crisis was the main subject on the agenda. The Indonesian trade unionists on the delegation pressed the IFIs to use their influence to assist in the demise of the Suharto dictatorship and crony capitalism. The entire delegation lobbied for social programs to respond to impoverished workers, millions of unemployed and their families, and respect for the trade unions’ right to organize unions freely. This was followed-up in 1999 by WCL-WLO in meetings at the IFIs. Representation was made on behalf of SBSI (Indonesian Trade Union) and others regarding the design and implementation of safety net programs. Meetings were also held concerning respect for Core Labor Standards (CLS) in countries where WCL affiliates’ rights were violated. WCL-WLO monitored the debate on the Brazilian-Bolivian gas pipeline and WBG policy on Social Principles.
In March 1999, WCL’s annual mission to the IFIs consisted primarily of its regional African affiliate ODSTA/DOWATU. The focus was on Africa. Meetings were held with the IFIs’ Magaging Director, President, Executive Directors, management and staff. The mission was fully supported by the Executive Directors of Belgium both at the Fund and the Bank. The dialogue and debate covered structural adjustment, HIPC Initiative, trade, private sector development, infrastructure and finance, rural, social, environmental and human development, post-conflict reconstruction, partnership and capacity building. The Bank was particularly interested in the views of the delegation on its “Draft Outline for Discussion and Guidance on Principles of Good Practice in Social Policy.” This document was in preparation for the IMF-WBG Spring meeting. On the fundamental question of the debt, the IFIs and the WCL delegation disagreed. WCL/ODSTA called for the cancellation of the debt. The IFIs opposed. There was an agreement to work on capacity building and a commitment was made that IFIs’ staff when on missions to the various countries will consult the trade unions. Finally, the officials of the WBG insisted that “the Bank has changed considerably in the past two and a half years and the Africa region of the institution has led the way in achieving greater client focus and improved responsiveness.”
WCL-WLO monitored the IFIs’ Spring and Annual Meeting and Seminar. The WCL representative was given press accreditation to facilitate the monitoring of the meetings. There is no formal consultative status with the IFIs, as WCL has since 1948, with the United Nations. Among the issues discussed at the Spring meetings were the WBG’s Policy On Social Principles and the Comprehensive Development Framework (CDF). It was a tense meeting with large demonstrations organized by civil society.
The annual meeting in September was accompanied by a Seminar entitled: “Setting the Agenda For Global Growth and Development.” It included a session on Core Labor Standards (CLS). The World Economic Outlook (WEO) one of the IMF’s flagship publications dealt with policy requirements for a sustained and better balanced global economic recovery. It highlighted that the Asian Crisis was having a turnaround and Latin America and Russia were under control. It also predicted a soft landing of the American economy and modest growth rates for Europe. On the strengthening of the International Financial System, the focus was on the private sector involvement in forestalling and resolving the financial crises, choices on exchange rates, orderly liberalization of capital movements and institutional reform, strengthening and/or transforming the Interim Committee.
On the Fund’s role in Poverty Eradication and Promoting Sustainable Growth, the focus was on transforming the Enhanced Structural Adjustment Framework (ESAF), IMF financing for ESAF and HIPC (a program to assist the most highly indebted poor countries) and the Fund’s role in Social Sector Issues. There was a report on the Y2K Contingency Planning. Progress Reports were submitted on the strengthening of the Fund’s Surveillance and Programs that includes standards and transparency initiatives and the financial sector. It was also agreed that the HIPC Program will be dealt with in a joint meeting of the Interim Committee (IMF BOARD) and the Development Committee (WB Board). The Heads of the IMF and World Bank, in their speeches, pronounced for the inclusion of social variables in the formulation of economic and social policies.
The conclusion of the WCL representative at the meeting was that the Heads of both the IMF-WBG had publicly made a commitment that the new design for a financial and development architecture will include the social factor and to focus on both growth and poverty reduction. However, both institutions continued to insist on “economic fundamentals.” At the same time, they claim that their new approach gives globalization a human face. The ESAF was renamed Poverty Reduction And Growth Facility (PRGF) and both the IMF and World Bank announced the development of Poverty Reduction Strategy Papers (PRSPs) to be used as the basis for their programs. HIPC was conceived to deal with poverty reduction but governments were expected to practice good governance, particularly with respect to corruption. The resources saved through debt forgiveness were to be allocated to education, social services and poverty reduction. As such HIPC has conditions. It was the United Kingdom and Holland that recommended that ESAF be renamed to emphasize the need for the IMF to be sensitive to the problem of poverty. There was no policy agreed on how to control capital flows. Both the IMF and the WBG explained that developing countries were against such controls. A policy of floating exchange rates was reaffirmed. At the 1999 meeting, the IMF-WBG communicated to the world that something will be done about the indebtedness of the poorest countries and that they are incorporating social aspects into their development policies. The trade unions persisted in their lobby and continued to monitor whether the IFIs will “walk the walk.”
The WCL held its Confederal Board Meeting in Washington DC in October 1999. The Board consists of 50 trade union leaders from all the regions of the world. Michel Camdessus participated in a three-hour debate on IMF policies with the labor leaders. It was another example of WCL’s interaction with the leadership of the IFIs. Once more, the Managing Director of the IMF recommitted the institution to the inclusion of the social dimensions in the formulation of policies.
The WCL 2000 mission to the IFIs focused on Latin America and the Caribbean. The WCL affiliates, the Confederacion Latino Americana de Trabajadores (CLAT) and ACV-CSC of Belgium organized a preparatory seminar for the trade union delegates at Latin American Workers University (UTAL) in Venezuela. A document was prepared outlining the position of the CLAT/WCL on a number of issues including debt, privatization, liberalization, labor reforms and a number of problems in Colombia, Argentina, Brazil, etc. The meetings at the IMF went very well but for various reasons the LAC Department at the World Bank had difficulties in organizing meetings. That did not prevent the delegation from meeting the Heads of the WBG and the IMF, Executive Directors, Management and staff in various departments. The well-prepared document was the basis of the delegations’ discussions. However, neither the Fund nor the Bank ever responded to the document. The LAC trade union leaders were quite displeased. One trade union leader remarked that it was like a “dialogue with the deaf.” Subsequent inquiries were fruitless. In LAC, the IFIs have been “demonized” for quite a few decades. Trade union leaders and their members sustain that the IFIs are instruments of the G7, particularly the USA, and that their policies contribute to de-industrialization, “garage sale” of state owned economic enterprises, unemployment, expansion of the informal economy and the deepening of poverty. In spite of these views, the LAC trade union leaders resolved to continue to monitor the policies of the IFIs and stay engaged.
WCL representative monitored the IFIs Spring Meeting in 2000. It was a meeting of progress reports and updates on major policy decisions that were adopted in the 1999 Annual Meeting. The focus was on AIDS in Africa, HIPC and Poverty Reduction Strategy issues. However, it was a meeting held in an environment of demonstrations and controversy generated by issues related to the Global South. Civil Society Organizations demonstrated in very large numbers protesting IMF-WBG policies. It was also noteworthy that the G77 at around the said time was meeting in Havana and denounced the IMF-WBG policies. At the press conferences, the issue was raised since the IFIs always insist that the governments of the Global South are shareholders of the institutions. This demonstrated that there was no ownership of the IFIs policies in the Global South. The trade unions protested outside with NGOs, but continued to engage in dialogue with the IFIs. This is one of the unique features of the trade union movement and integral part of its culture. Picketing outside and engaging inside is like “breathing in and breathing out.”
The IMF-WBG annual seminar and meeting was held in Prague, Czech Republic, in September 2000. The theme of the seminar was “Making The Global Economy Work For Everyone.” There was an NGO meeting organized by the President of the Czeck Republic. The WCL Secretary General spoke for Labor and Walden Bello for the NGOs. Once more there were very large demonstrations organized by Civil Society Organizations. Mamphela Ramphele (South African), Managing Director of Human Development Network, President of the WBG and IMF Managing Director Horst Kohler, met Trade Unions and NGO. The meeting focused on the new PRSP Approach and the HIPC Initiative. Attention was also given to the criticisms of the Meltzer’s USA Congressional Report, the WB’s Global Development Gateway Internet/Global Knowledge Initiatives, anti-corruption policies, monitoring and surveillance systems. The meeting in Prague once more demonstrated great dissatisfaction of trade unions and NGOs with the policies of the IFIs. It also underlined since the demonstrations in Seattle that militant civil society would not let up in confronting the Global Governance Institutions over their policies.
POLICY DIFFERENCES
WCL facilitated missions of trade union leaders to Washington DC to dialogue with the IFIs from Europe (Eastern, Central and Western), Latin America/Caribbean, Africa and Asia during 1997-2000. In 2001, it was decided that the trade union mission would consist of the Executive Board of the WCL. They met in Washington DC to conduct WCL internal business, and then, met the IFI officials. Before the meetings, the Board listened to presentations of several Washington DC NGOs on their views of IFIs’ policies.
The Board reviewed WCL relations with the IFIs over the decade to evaluate where the trade unions stood in its relations. Ronald Jannsen, WCL/ACV-CSC senior economist, prepared a paper that was discussed by the Board and handed to the officials at the IFIs. The paper posited trade unions’ interpretation of IFIs evolutionary history, criticized some of their policies and summarized the WCL’s evaluation. The policy differences were numerous. However, the paper recognized that under “the leadership of Wolfensohn and Camdessus a number of corrections to the ‘structural adjustment approach’ have indeed been made.” The following are some highlights of the paper:
1. A major cause of the debt crisis was the irresponsible lending policies of northern bankers when they had excess liquidity in petro-dollars. Creditors sustained a myth that “firms could go bankrupt not nation-states.” The Mexican financial crisis in 1982 “destroyed the illusion.” Other Latin American nations also had unsustainable debts while international financial institutions saw “an erosion of their assets.” The USA Treasury and the IFIs intervened to bail out the Bankers. At that conjuncture, the IMF seized the opportunity to rewrite its role. IMF loans were accompanied by conditions for restructuring of economies to increase exports in order to repay debts. The IMF program was the incentive and implicit condition for the resumption of private sector lending. There was no lending unless there was an IMF program.
2. The IMF and World Bank originally provided “a public good in the form of sustaining an adequate foreign exchange flow towards world trade. Starting from the eighties, their core business is to safeguard private financial institutions from systemic risk by avoiding and containing possible debt defaults of countries.”
3. Regarding the Structural Adjustment Programs: Macro-economic stabilization is important. Inflation and deficits must be addressed. However, IMF did not anticipate the impact of short term stabilization policies on long term growth and development.
4. In the Global South, IMF policies led to reduced wages and purchasing power. Consequently, workers were impoverished. Household allocations for food, health and education were drastically cut. Severe national budgetary cuts led to insignificant investment in infrastructure. This was a disincentive for foreign private investments.
5. IMF’s policy recommendations of ‘overstabilization’ were counter-productive: Devaluation accompanied by the privatization of state marketing corporations left the rural poor divested of a mechanism or agency to market and export their products. Urban population’s excessive reliance on imports of consumer goods destroyed local production and denied nation-states the right to a food security program.
6. IMF policies failed to address core problems “restore the balance of payments”.
7. Privatization, a favorite IMF policy, seen as a “means to generate one-off financial flows for government finance did not pay attention to long term impact on the economy. Thus there has been a tendency to sell (sometimes profitable) public enterprises even if this meant that a public monopoly was substituted for a private one. The Ivory Coast provided a good example”.
8. Financial Liberalization Policies: The IMF policy position is that “free global capital movements will allocate capital where it has the highest return and the highest contribution to growth.” The case of Zimbabwe financial restrictions on capital outflows were abolished at a time when the government had a large deficit. Credibility became a problem. Consequently, “to keep some capital in the country, interest rates soared, thereby deterring investments and actually increasing the fiscal deficit…”
9. The WCL supports the concept of the Tobin Tax. The IFIs do not.
10. The IMF thesis of a virtually automatic link between growth and poverty reduction is not empirically substantiated in Latin America and Africa. Thus the ‘trickle down’ approach does not reduce poverty.
11. The South Korean package that was negotiated to deal with the crisis forced Korea to open up to foreign car part manufacturers. The ‘drive’ to serve the interest of G7 producers often contradicts with the official intentions to achieve macro economic stability. Opening up economies to imports without giving countries opportunities to export is not really helpful for the balance of payments deficit.
12. During the Asian Crisis when “IMF Adjustment Programs were implemented rules on foreign ownership were relaxed or abolished. Thus TNC’s bought enterprises cheaply. In Africa, Mozambique is a case in point. Of the 750 state companies that have been privatized most have gone to foreigners. More foreign investors are lining up for the take over of water, telephone and airline companies. Mozamibicans even lost control over their land and their sea. One American Billionaire bought 50 year concession to develop an area of 236,000 hectare as a tourist reserve. And an industrial fishery is in foreign hands.”
13. Other examples refer to the privatization of the welfare system. “In Hungary, under the guidance of the IMF, pension reform was pushed through so that private, US based, insurance enterprises could step in and collect pension funds. In Argentina, the World Bank bought itself into social welfare funds, only to push them into selling to American investors when the funds could not repay the World Bank loans.”
14. In the area of Governance, 57% of the voting rights at the IFIs are in the hands of the G7 with G1 (USA) holding a veto. The Managing Director of the IMF is always selected from Europe and from USA, the Bank President.
15. The paper agreed that corruption and bribery are linked to the debt problem in the Global South. However, it pointed out that “in order to secure important contracts in Third World countries (infrastructure, dams, arms), firms of industrialized countries give bribes to corrupt leaders in the Third World. Workers and poor people in developing countries end up paying for these bribes, the explosion in prices of those projects and contracts, and for the dire environmental and social effects of misplaced infrastructure projects. Estimates reveal that 40 billion dollars a year – most of it illegally gained – find their way from developing and former communist countries to US and European banks. Very often, the western banks that provided international loans to developing countries receive transfers of money coming from the international loans. In Latin America, two thirds of its debt is thought to have been deposited in Northern Banks. In 1982, IMF knew that Mobutu was appropriating 30 to 50% of the nation’s capital investment per year…
meaning that an important part of the actual debt of Zaire finds its origin in corruption. A similar story hold for Indonesia where 9 of the 30 billion dollars that were lent by the World bank was wasted through corruption…. Similar stories hold for Russia and Mexico (The Corner House: Exporting corruption, cornerhouse@gn.apc.org).”
16. Third World citizens have foreign investment that amounts to 50% of the debt. In Latin America it reached 70%.
17. Some Changes Under Wolfensohn and Camdessus: Corruption was a new subject placed on the development agenda of the World Bank. Corruption was defined as political, falling outside of economics and the IFI’s mandate. “Now, fighting corruption, ‘good governance’ and protecting the social spending in government budgets at the expense of arms expenditure are seen as essential conditions for successful policy-making…. Furthermore, there are stories about the IMF Board blocking credit to countries where money is spent on folly investments (the ‘typical’ new plane for the President of Uganda, the building of a sports stadium in Nigeria that is equivalent to one year’s of the country’s health budget. Finally, former Managing Director Camdessus is quoted as stating “as poverty hampers growth, reducing poverty contributes to sustainable growth.”
18. The WBG has also opened up to dialogue with trade unions and civil society on structural adjustment policies. The Bank co-financed a project with an NGO “Structural Adjustment Participatory Review Network’ (SAPRIN). IMF has also advised their staff that do Article 4 missions to consult trade unions. A significant number of consultations have been done.
18. The HIPC program is a step in the right direction as long as the G7 provides adequate funding or there is a re-evaluation of the use of IMF gold reserves.
17. The paper refers to another policy initiative that is an indication that the IMF and the WBG are beginning to listen: “There is the transformation of ‘enhanced structural adjustment policies’ into ‘Poverty Reduction and Growth Enhancing Facilities.’ The latter approach is to guarantee that the traditional IMF concern for ‘pure financial stabilization’ does not happen at the expense of increasing poverty. It involves references to poverty reducing targets into the IMF-program itself. Moreover, in the context of ‘PRGF’ a joint IMF/World Bank ‘poverty reduction strategy paper’ has to be established, after consultation with civil society. All of this would mean that the Fund, speaking in official terms, has corrected the traditional approach and now pays attention to social; issues and social consultation.”
18. The Paper’s Evaluation of WCL’s Lobby: It stated that over 10 years the WCL engaged the IFIs at various levels and argued strongly that the social dimensions be included in the formulation and implementation of development policies. It lobbied for alternatives to structural adjustment programs and for consistent consultations with trade unions before policy formulation and implementation. WCL recognized that there has been a change in approaches like the examples cited above. WCL believes that it has made a contribution in achieving those modest changes. Nevertheless, there is much still to be done.
19. WCL feels that the social dimensions of development are yet to be fully incorporated by the IFIs in the formulation of financial and development policies. The IFIs must resolve the fundamental issue as to whether they exist to provide a global public good or to protect private financial interests. The debt question has to be resolved. The IFIs must not only “talk the talk but must walk the walk.” The gap between speech and practice is very wide. IFIs must desist from advising on labor market reforms that violate ILO Conventions and Core Labor Standards (CLS). HIPC and PRGF approach only deals with Low Income Economy Countries. What about the middle-income countries where the majority of the poor reside? Executive Board of Directors have to become more cognizant of the social question since only a small minority are interested in the social dimensions of development. Leadership plays an important role and concern was expressed whether the sensitivity expressed by Camdessus on the social issue will be continued by the new Managing Director.
20. It was evident in 2001, that the IFIs and the WCL had many major policy differences. For the WCL trade union leaders, the pace and substance of change was unsatisfactory. In spite of these numerous policy differences, WCL recommitted to dialogue with the IFIs.5
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