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DEVELOPMENT: MPs Demand More Budgetary Control From IMF and Bank

Emad Mekay

WASHINGTON, Apr 18 2005 (IPS) - Hundreds of members of parliaments around the world are calling on the International Monetary Fund and the World Bank to roll back dozens of conditions they impose on borrowing countries and let local legislators have the final say in domestic economic policies.

Hundreds of members of parliaments around the world are calling on the International Monetary Fund (IMF) and the World Bank, two institutions that lend billions of dollars every year, to roll back dozens of conditions they impose on borrowing countries and let local legislators have the final say in domestic economic policies.

The appeal came on Saturday as the two institutions started their spring meetings in Washington under tight security.

The parliamentarians called on the two organisations, known as the Bretton Woods institutions (BWI), and their principal shareholders within the industrialised nations “to ensure that the democratically elected representatives of recipient nations are the final arbiters of all economic policies in their countries.”

The two institutions were set up in Bretton Woods in the U.S. state of New Hampshire in 1944 following the Second World War to coordinate economic policies among the victors.

“It is vital that national parliaments in recipient nations have the right and obligation to be fully involved in the development and scrutiny of all measures associated with BWI activities within their borders, and hold the final power of ratification,” said the petition, signed by more than 800 members of parliament from around the world.

Traditionally IMF conditionalities have included devaluation of local currencies, deregulation of state-owned industry, tight public spending caps, liberalisation of trade and exchange controls, withdrawal of subsidies, and more protections for the private sector and multinational companies.

However, the IMF and the World Bank have also publicly voiced a commitment to ensuring that individual countries determine their own economic policies.

The IMF now says that it is streamlining the conditions attached to loans, and that progress on those policies was discussed at the weekend meetings.

But many economists from independent development groups and the parliamentarians who signed the appeal say that broad economic policies continue to be imposed by both the World Bank and IMF from their headquarters in Washington as conditions for receiving debt relief and new loans.

The boards of the two sister institutions retain veto power over all measures, including those in Poverty Reduction Strategy Papers (PRSPs), economic plans that borrowing nations must submit before they can obtain more loans.

The petition, the first of its kind, contends that poverty is better fought if policies have local backing and are under the control of sovereign parliaments.

If adopted by the two public lenders, approval of PRSPs would shift from the boards of the Bank and Fund, where they are dominated by rich nations, to the national parliaments of recipient countries.

Many critics within the development activist community and independent economists added that years of ill-advised economic policies have delayed debt relief, increased poverty and undermined democracy, prompting demonstrations and street protests in many countries.

“Ensuring the primacy of sovereign national parliaments in this way will improve implementation of measures to reduce poverty, enhance good governance, and foster democracy,” the petition says.

For example, members of parliament on Uganda’s finance committee have expressed concern about being asked to rubber-stamp loans that have already been approved by the World Bank Board, making it impossible for them to have any serious input.

According to the petition, in 2003, the former Soviet state of Georgia’s budget deficit exceeded its IMF-set limit. The Fund then asked Georgia to revise its budget for that year, but the parliament refused to pass it.

Rather than accepting this decision, the IMF allowed its lending programme with Georgia to expire in retaliation. This lead to threats from the World Bank that it, too, would pull the plug on existing projects.

Yet the IMF argues in its review of “Conditionality Guidelines”, made public during the meetings, that conditions provide what it called “safeguards to the IMF” that its resources will be used to help countries solve their balance of payments problems and will be repaid.

The review also said that conditions provide “assurances to the country that it will continue to receive financing provided that it continues to implement the policies envisaged under the program supported by the IMF.”

The report, however, says that the conditions have been streamlined and are being limited and that the economic policy changes attached as conditions on loans are not actually imposed from the outside, but instead are ‘country-owned”.

Some critics who took their protests to the streets during the meetings note that the IMF and World Bank have made such claims before. They charge that the economic models promoted by the lenders, like privatisation and wide deregulation, have actually failed in Africa, Latin America and some parts of Asia.

“The analysis sorely misses the point: it is not the number of loan conditions at issue as much as the efficacy of the neo-liberal policy reforms with which they are associated,” said Rick Rowden, a policy analyst with ActionAid International USA, of the IMF’s conditionality review.

“In Washington, we talk about tweaking procedures a little here and there, streamlining this or that process or other marginal fluff while the house is literally burning down outside. It is only within such an insulated environment that such an analysis as this could be done.”