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
2002 JOINT WCL-ICFTU/GUF MEETINGS
Until 2001, the WCL and the ICFTU/GUFs did separate meetings with the IMF and World Bank annually. However, the IFIs insisted that joint meetings be held to save the institutions money. They also claimed that both trade union internationals raised the same issues. So, in October 2002, ninety trade union leaders attended the High Level Union-IFIs Dialogue. WCL Secretary General Willy Thys, in the meeting with the President of the World Bank made three important points. One, the PRSP approach to development should not only focus on growth but also redistribution. As such the regulating capacity of the state should be enhanced instead of markets. Two, privatization has resulted in private monopolies. What has happened to the World Bank’s mantra that only free market can produce competition and efficiency? Three, the debt should be an instrument of development. If not the debt would be un-payable. As such, we must explore solutions to the debt trap of the Global South.
The President of the WCL, Basil Mahan, in his intervention argued that the sovereignty of developing countries are threatened and becoming more dependent on the rich countries and their corporations. He explained that the debt is not a technical issue since debt produces dead people in the Global South. If the World Bank wants good governance, he said, then why doesn’t the World Bank adhere to ILO Conventions? Julio Roberto, from the CGT Colombia, explained that in Washington, the World Bank says the governments make decisions but in the Global South the governments complain about imposed economic models and conditionalities. In Colombia, he said 60,000 workers have been retrenched with the help of a World Bank loan. There were numerous interventions by both WCL and ICFTU/GUFs trade unionists.
President Wolfenshohn reacted a bit emotionally to the interventions. He complained that he could not understand how one can speak of redistribution when the global economy had growth problems. On the debt, he spoke highly of HIPC but did not refer to the debt problem in the middle income countries. At one point, he made it clear that he is not President of the World. He clarified that the World Bank does not have the power and political influence in countries as some may think. “If trade unions do not understand this there would not be cooperation with the World Bank…” Further, he added, it was not the trade unions that “invented” the fight against poverty and that human rights agenda is a political agenda. Finally, he made a plea for the return of “ethical values” in business activities.
In spite of the differences on policy, the President of the World Bank offered 3 to 4 secondments for trade unionists at the World Bank to do work on policy issues of mutual interest, a small group to meet and discuss the debt and willingness to engage in discussing the role of the state in the new PRSP approach to development. Jo Ritzen, Vice President for Social Development at the Bank advised that advocacy of Core Labor Standards should be done with the governments, not with the WB Board. He also summarized the World bank commitments: three trade unionists can work at the World Bank on the millennium development goals in their related sectors, another trade unionist on a scorecard on trade union involvement in PRSPs, a technical meeting will be organized in the Spring of 2003 on pension reform, and later in the year, another, on labor market reform. He also said that further research will be done on privatization.
The trade unionists met Horst Kohler, Managing Director of the IMF. In the meeting, trade unionists made the following observations: there are downside risks to the world economy, there ought to be radically different fiscal stabilization policies for the industrialized countries and the developing countries. There is need to see outcomes on the social dimensions of development. The traditional IMF approach to resolving the debt trap is not working. There is a need for alternatives. Growth must be accompanied by distribution policies in order to eliminate poverty.
IMF Managing Director, Horst Kohler, responded in general terms. The IMF needed more time to change, he said. The IMF Board Of Directors makes decisions by consensus and that was not easy. He would like to see better globalization based on more sharing by rich countries and opportunities for developing countries to diversify. He informed that he spoke to the ILO Commission on the social aspects of globalization. Regarding Argentina, he was specific. Initially, he said, IMF allowed Argentina a deficit of 2.8%. It was the government that put up the goal of a zero deficit. He claimed that the tolerant attitude of the IMF was rewarded with fiscal profligacy by the Argentinean government. On privatization in Argentina, he pointed out that it was introduced without competition or regulatory framework and that privatization should not be pursued merely to enhance public finance. He also made some off the cuff remarks like Romania wants to access EU but has state corporations with too high production costs. Korean government is now thankful for the assistance IMF provided. The new Sovereign Debt Restructuring Mechanism (SDRM) as proposed by the IMF does not give it increased powers over countries. He admitted that perhaps IMF makes mistakes but many are homegrown. The WCL Secretary General in his concluding remarks said that while the IMF acknowledge mistakes, its policies remain neo-liberal and there is an absence of regulation of markets. In the case of Argentina, the workers are paying for the crisis not the rich. He was disappointed that there was no discussion on Core Labor Standards (CLS) and insisted that if the IMF really wants to attack poverty it has to deliver on the decent work agenda.
There were a number of other meetings with the Executive Directors of both the Fund and the Bank and with the staff. Eckhard Deutscher, Executive Director (ED) for Germany at the Bank, in his intervention stated that Core Labor Standards (CLS) are not obstacles to economic development. He recognized that governments had to decide on trade union participation in PRSPs but the World Bank should have the data on trade union involvement. Willy Kiekens, ED for Belgium at the IMF, underlined that unions have been in dialogue for nine years with the IFIs on these issues. He remembered that it was the unions who were the first to raise the issue of governance in various countries. He noted that it was positive that the ILO was now attending official meetings at the IFIs with Ministers. The French and the British IMF EDs also spoke. The French ED said that the privatization issue was sent to the independent evaluation office and the the French President intends to raise the issue of international governance at the G8 meeting. The UK ED made a plea for increased transparency at the Fund and advocated that countries should receive a ‘menu of policy options.’
The meetings with the staff covered PRSPs, pension reform, core labor standards, privatization and sovereign debt restructuring mechanism. Trade union representatives were very critical about the PRSPs in content and process. They claimed that it was business as usual, privatization, liberalization in the mould of the Washington Consensus. Country ownership was self-censorship. The focus remains on traditional stabilization of the economy. Pro-poor growth policies should include core labor standards. “The case of Nigeria shows extravagant fees for consultants even when privatization does not proceed (a fee as a % of the potential value of the sale)”. Trade unions expressed their views on privatization. They sustained that while private profits are guaranteed governments pay the bill. The policy ensures short term solutions for public finance but in the long run the problems are worse. The examples of Peru and Colombia were cited where in Peru 600,000 persons lost their jobs and Colombia where unemployment reached 27%. Bogdan Hossu from Cartel Alfa, a WCL affiliate stated that the government was given six months to privatize its corporations. Failing to do so, the IMF insists that the corporations should be liquidated even when they were making profits.
On the Sovereign Debt Restructuring Mechanism (SDRM), IMF argued that the proposal will facilitate international debt restructuring. It will make an agreement on debt restructuring (rolling over the debt). It will not give the IMF additional powers and IMF-WBG loans will not be subjected to the mechanism. According to the staff, the preferred creditor status of the IMF is necessary because no one else will give loans to countries in deep debt crisis. WCL/ACV-CSC senior economist, Ronald Jannsen raised questions on various aspects of the new international financial architecture such as offshore financial centers which is a haven for drug and money acquired via corruption. He also asked about Michel Camdessus’s proposal of an international tax on weapons and natural resources. There were no forthright answers to any of these issues. The Tobin Tax was also discussed but the IMF staff rejected it. The unions insisted that they will continue to lobby for it.
World Bank staff presentation on pensions explained that the pension capitalization system guarantees safety and coverage, builds financial markets and delivers resources for investment and higher growth. Trade unions views were different. They maintained that twenty years after the Chilean reform, the cost for government still represents 2% of the GDP. Private pension schemes charge huge administration costs (30%). They do not improve coverage and profits are repatriated. The trade unions complained that there is disrespect for core labor standards. They recognized that neither the Fund nor the Bank is an international court. However, they pointed out that the IFIs are part of a global governance structure and as such they should respect the ILO Conventions. The overall response of the staff was that the IFIs do not have power. Power they say is in the hands of the shareholders.6
COMMITTMENTS AND IMPLEMENTATION
In February 2002, it was agreed that High Level (leadership) Union-IFIs meetings will be held biannually, staff level meetings in intervening years to follow-up on commitments made and technical level meetings on policy issues of mutual interest (e.g. pension policy, PRSP, privatization, labor reforms) “as agreed by all parties and not less than once per year.” Organizations also could request thematic meetings on particular issues or meetings at sub-regional; regional may be requested. They could be held at least once a year and mutually agreed time had to be negotiated. The World Bank offered four secondments on specific themes to be mutually agreed on. There will be technical meetings on pension reforms and labor reforms. Briefings would be provided for trade unions to access World Bank funds for campaigns against HIV/AIDS. Regarding the IMF, it was agreed that there would be more frequent dialogue with trade unions on both national and international levels. In addition, the World Bank committed to regularly consult the unions on major products and publications such as the WDR and sector srtategy papers. At the country level, the Bank encourages consultation of trade unions in Bank projects and products such as Country Assistance Strategies (CAS), and in the government’s social dialogue process in general such as through PRSP.
The secondments were done with mixed results but overall they were considered useful for the unions. The union officials learned about the Bank and deepened their knowledge. Trade Union participation in PRSPs (Jan-Dec 2003) resulted in a publication of Trade Union Participation in the PRSP Process (Aug 2004) by the WB authored by ICFTU–African economist. Impact on labor of public service restructuring (PSI-Sept-Dec 2003) led to the creation of a focal point between WB department and PSI and a joint survey was carried out. Labor Standards in World Bank Procurement (IFBWW:Feb.-March 2004) produced recommendations which are still to be implemented: World Bank Relations with unions and civil society (December-May 2005/WCL), products pending; Labor aspects of transport service privatization and restructuring (ITF – presently in progress).
The pension reforms meeting was held in May 2003. It concluded with a promise to consult unions on new WB pension policy paper. The ICFTU submitted detailed comments to the May 2004 draft. The labor market meeting was held in November 2003. A commitment was made to involve unions in WB labor market research strategy and to improve monitoring of WB involvement in national labor market reforms. Some briefings on accessing WB funds for unions’ HIV/AIDS campaigns have taken place. Some union projects have been funded. There was no progress with meetings at the sub-regional or regional levels. At the level of the IMF Art. IV consultations, the IMF does not have data beyond 2002. However, WCL unions report that there has been some consultation. Unions do complain about timely notice, information about subjects for consultation and documentation. IMF makes recommendations on labor issues but does not consult trade unions.
2004 JOINT WCL-ICFTU/GUFs MEETING
In October 2004, 70 labor leaders representing the WCL-ICFTU/GUFs/TUAC, 13 advisors and observers attended the biennial High Level Meeting between the International Trade Union Movement and the IFIs. The meeting covered issues of mutual interest including poverty reduction, progress in achieving the millennium development goals, employment creation, social inclusion and reducing inequities. Once more the dialogue underlined the policy differences between the IFIs and trade unions but highlighted the need to continue the engagement.
The meeting with Rodrigo de Rato, Managing Director of the IMF, was chaired by the Belgium ED, Willy Kiekens. De Rato said that he is committed to dialogue with the unions. He recognized that unions were important in many countries and were instruments of social change. He saw the need for modernizing labor markets, to focus on the issue of the aged and the liberalization of trading systems. Considering that the global economy was in recovery, he thought it was an opportune time to undertake reforms. The trade union leaders pointed out that the recovering global economy was not contributing to the allocation of resources for the achievement of the millennium development goals. They argued strongly for a global development tax and agreed that obtaining new resources was a political and not a technical issue. The union leaders however insisted that poverty reduction required the right policies. They disagreed with the the IFIs emphasis on growth which does not create jobs or generate development. They rejected IMF’s policy recommendations of greater labor market flexibility regardless of the varying realities of countries. Deregulation they insisted increased social insecurity. They called for consultation with unions to avoid disruptive restructuring of the labor market.
The trade union leaders also met the staff of the IMF and World Bank and discussed their work on Low-Income Countries (LICs). For the IMF, their role in the LICs is to assist countries to establish a stable macroeconomic environment to ensure growth and poverty reduction. They supported increased aid to assist countries to reach the millennium development goals on condition that macroeconomic stability is not disturbed. They continued to support HIPC as the major thrust on the debt issue but were concerned that poor debt management practices could reverse the gains. The union leaders were informed that together with the World Bank they were “studying the feasibility of innovative proposals that had been made at the fall 2004 IMF-WB Annual Meetings for financing increases in aid and debt relief – through such mechanisms as global taxes or an international financing facility to frontload aid inflows – and whether those could gain the necessary political support.”
The World Bank representative reported that the Bank now does “development policy lending” instead of “adjustment lending.” This implies a shift from balance of payment support to a focus on growth and poverty reduction. According to the representative, “The new approach has a medium-term perspective and places great importance on supporting country-owned policy programs which meet the following criteria: strong analytical underpinnings; broad based consultation with stakeholders; being mindful about poverty and social impacts; and environmental sustainability. Lending through this new policy is directed at general budget support rather than project financing, allowing countries to better target aid and lending at the priorities they themselves identified, but requiring improved fiduciary and financial management. The Bank’s Poverty Reduction Support Credit (PRSC) was based on these principles, including in particular, on a foundation of ownership embodied in the country’s own Poverty Reduction Strategy Paper (PRSP), and reflected in “country-owned conditionality” in which program conditions are set by the country’s themselves. Over the years lending conditionality has shifted increasingly from the issues of trade, agriculture, and infrastructure to social and environmental concerns, and private sector development.”
The trade union leaders explained that HIPC was not delivering the needed results. They identified three problems with the program. It “did not apply to enough countries, it did not provide enough debt reduction, and it included too many structural adjustment conditions.” Poverty has increased in countries where the program reached completion point and the debt burden persisted. Development aid – and the meeting of the 0.7% of GDP by developed countries was crucial and new proposals for debt relief had to be designed and implemented.
The unions criticized the absence of employment targets and Core Labor Standards (CLS) in PRSPs. It is also the same criticisms that the unions sustain about the CAS. Unions keep insisting that poverty elimination will not be achieved without decent jobs. The failure of PRSPs to include the policy inputs from unions in consultations is indefensible. The union leaders viewed the lack of a clear-cut policy on the expanding informal economy as another obstacle that had to be overcome.
The WB Vice President of Operations in his presentation to the union leaders acknowledged union’s contribution in the fight against poverty. He did an update of WB-CLS work program and the discussions about CLS at the Board and senior management levels. They endorsed the Bank’s support for good practices in relation to CLS. He also stated that the Bank has moved from a “proscriptive policy based on conditionality towards an approach of country ownership.” It included analytical work and implementation of joint analytical results. However, he underlined that “opening up the analytical work to civil society is an important challenge for the WB.”
The Director of Procurement at the WB informed the trade union leaders that the Bank, multilateral Banks and the Federation of Consulting Engineers (FIDIC) agreed to introduce into their bidding documents clauses on forced labor, harmful child labor, records of workers and social issues. They also initiated training modules including the infrastructure group.
The program manager of the IFC spoke of the “rethinking of IFC’S safeguard-policy. Nine performance standards, including an expanded set of labor standards, will apply to client companies and be reviewed prior to investing. Sanctions for companies failing to meet the performance standards include loan withdrawal or delay. Beyond existing safeguards on harmful child labor and forced labor, proposed changes include workers’ rights to organize and bargain collectively, non-discrimination in employment, contract labor issues, workplace health and safety issues, and working conditions such as wages, benefits and hours of work.” The union leaders called for “explicit reference to the ILO Conventions.” They also asked why other members of the WB group do not follow IFC example. A “representative of the International Federation of Building and Woodworkers (IFB&W) who had been seconded to the procurement department of the Bank was disappointed that concrete proposals by the unions had not been taken into consideration.
The ILO representative at the meeting made a presentation on the report of the ILO commission on the Social Dimension of Globalization. He summarized that “the Commission tried to construct an international vision of better governance of globalization. A key element of the report is “policy coherence,” i.e., building greater consistency between the actions of different international institutions on economic and social policy. A parallel process at the national level is a critical second step, he pointed out. National governments, unions, employers, and other civil society organizations should be the driving forces to work on the social impact of international economic, financial and trade policies, and to implement decent work strategies. All issues discussed required partnership in the multilateral system, the production of the report itself is proof that those partnerships are possible, he concluded.”
The union leaders were critical of the policies emanating from WB Social Protection Unit. They gave “examples of deteriorating social safety nets and reduced workers’ protection in Latin America and Eastern Europe. While promoting deregulation of labor markets that can lead to job losses, the Bank had not given sufficient attention to the need to improve social protection particularly for those who have lost their jobs.”
One union representative noted that “beyond endorsing CLS, Bank publications such as the WDR 2005 and Doing Business define all forms of labor regulations as impediments to investment and promote reduced workers’ protection through measures such as lower minimum wages and replacement of job security by “contracts at will.” This position ignores the important role labor regulations play in protecting workers against abuse and the fact that the ILO has adopted 177 conventions in addition to eight conventions on which the CLS are based.”
On the subject of the Millennium Development Goals (MDGs), a World Bank representative did an overview and spoke of the Global Monitoring Report. The report “seeks to present a comprehensive and integrated framework for accountability in global development policy. He stated that it is planned to include civil society in the joint effort of monitoring global development policy. He raised four findings. First, developing countries need to accelerate reforms to achieve economic growth. Second, they need to scale up and improve the delivery of basic human services, such as health, education and sanitation. Third, developed countries need to speed-up implementation of development partnership they committed to in Monterey in March 2002. And fourth, it is key that developed countries open up their economies to exports from developing countries on a larger scale, while the resources for aid need to increase drastically in order to meet the MDGs. He elaborated that governance reform and capacity-building are central elements to ensure the effectiveness of the substantial scaling-up of investment in human capital and infrastructure that is needed to meet the MDGs.” Union leaders expressed concern that the MDGs did not specifically include employment as one of the Goals.
The goals of Education for All and prevention of HIV/AIDS was the focus of representatives of Educational International. At the conclusion of the meeting, the WCL Washington representative in DC in his progress report “underlined he agreed that the international trade unions had access, dialogue and information in their engagement with the IFIs. However, the jury was still out as to whether unions had influence. In this regard, he recommended that unions be given opportunities to participate in labor related research and joint analytical work. He highlighted that much of the WB labor market policies was based on research supported by sources from OECD countries. It is important that unions research centers share research work and make inputs since it may be one way unions can influence policy shifts away from the Washington Consensus paradigm. He concluded that it was his opinion that more lobbying emphasis should be directed toward the Executive Directors of the IFIs.”
Willy Thys, Secretary General of the WCL ‘reiterated the importance of capacity-building and training on the country level as being key for trade unions. He highlighted that this meeting has been the most constructive since the dialogue has been established. As consultations have been constructive and positive, some modality of formalizing the dialogue is a logical next step for the trade unions.” Earlier in the meeting, he emphasized the need for decentralization of dialogue at the national, sub-regional and regional levels.7
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