Civil Society, Development & Aid, Economy & Trade, Eye on the IFIs, Global, Global Geopolitics, Global Governance, Headlines, Poverty & SDGs

FINANCE: Record Support, Some Quibbles for World Bank’s IDA Fund

Abid Aslam

WASHINGTON, Dec 16 2007 (IPS) - Donors have promised the World Bank record sums to spend in the poorest countries from next year, largely overlooking concerns that the global lender uses the money for political purposes.

Forty-five donor countries have pledged 25.1 billion dollars for the bank’s International Development Association (IDA). This brings to 41.6 billion dollars the total available for cheap loans and grants to some 80 impoverished countries between mid-2008 and 2011 – an increase of 9.5 billion dollars over the current three-year budget.

“This is the largest expansion in donor funding in IDA’s history,” Robert Zoellick, the bank’s president, said Friday. “The donor community has demonstrated its full commitment to helping countries overcome poverty and achieve sustainable growth, especially in Africa.”

Not without reservations.

The Norwegian government, citing the continued use of interest-free IDA loans to push cash-strapped countries to privatise basic public services such as water, sanitation, health services and education, trimmed its increase by one-fourth.

With 4.2 million dollars held back, Norway’s move was symbolic.

Even so, activists read significance into it because it was unusual and because it followed revelations that the bank continued to attach such political strings to seven out of 10 poverty-alleviation loans despite assertions that it had stopped doing so. The finding came in a report last month compiled by advocacy group Eurodad, the European Network on Debt and Development, and based on official data.

“Despite the fact that the sum withheld is a relatively small one, this is a significant decision to make as very few countries have ever done anything similar,” said Atle Sommerfeldt, general secretary of Norwegian Church Aid, which lobbied Oslo to deny the bank.

Aid groups appealed to the British government to follow Norway’s lead but were rebuffed: Britain emerged from a pledging session in Berlin Friday as IDA’s top financial backer, unseating the United States for the first time in nearly half a century.

Even so, lobbyists said donors would lean on the bank for better results.

“Donors have made important commitments to ensure the bank looks at what the impact of its advice and its lending will be on the poorest and most vulnerable,” said Elizabeth Stuart of the international charity Oxfam.

Her group “is glad to see extra money available for the world’s poorest countries, but no blank cheques should be given to a development institution that still presses for some policies that harm poor people,” Stuart added. “More donors should be sending this strong message to Washington: we want to get more development bang for our aid bucks.”

From Zoellick’s perspective, the record result spoke for itself.

“This generous replenishment is both a strong recognition of the importance of multilateral aid and a vote of confidence in IDA as an effective platform for global development aid,” he said in a statement.

Six new countries were added to the donors’ roll. Former IDA borrowers China and Egypt were joined by Cyprus, Estonia, Latvia and Lithuania.

“We have been working hard to bring in more donors to IDA,” said Zoellick. “Broadening the base will help us raise more funds and build a solid foundation for IDA moving forward.”

The money would be used to help low-income countries combat climate change, pursue regional integration and cooperation, and boost infrastructure investment. Additionally, the bank would provide greater support to countries emerging from armed conflict.

IDA loans, which the bank calls credits, have no interest charge. Repayments are stretched over 35 to 40 years, including a 10-year grace period. IDA also provides outright grants to countries at risk of debt distress. African countries make up nearly half of the borrowers.

The fund, which is replenished every three years, has dispensed 182 billion dollars since its launch in 1960. In the fiscal year to Jun. 30, 2007, it committed 11.9 billion dollars, 19 percent of it as grants.

The bank announced in September that its core market-loan component, the International Bank for Reconstruction and Development, and its private-sector unit, the International Finance Corporation, would plough operating profits of some 3.5 billion dollars into IDA’s 15th replenishment, for 2008-2011.

The United States was IDA’s top financial backer until the latest pledging conference, when London eclipsed Washington’s pledge of 3.7 billion dollars by offering 4.1 billion dollars. Some commentators attributed the reversal to a weak dollar and others blamed it on the self-styled U.S. “war on terror” and to its military entanglements in Iraq and Afghanistan.

Even before the latest round of pledges, Britain had come close to matching the U.S. contribution despite having an economy about one-sixth the size of its cousin’s.

The U.S. Congress will have to clear Washington’s pledge through a series of annual appropriations. In the past, the bank’s critics have used this process to attach environmental and other conditions to U.S. financing.