Here's a paper that describes (using the IMF's involvement with South American countries) everything that is wrong with the IMF. This paper was prepared for a workshop on New Approaches to Decentralised Service Delivery, held in Santiago, Chile, on 16-20
March, 2003. http://www2.ids.ac.uk/logolink/resources/downloads/Chile%20Workshop/alexanderbgpaper.pdfThe Roles of the IFIs in Decentralization and Service Delivery
Citizens’ Network on Essential Services (CNES)
This section describes the formal roles of the IMF and World Bank and the implications of their advice for decentralization and service delivery. It reveals that many developing country governments (particularly the low-income and/or highly-indebted) are “outwardly” accountable to external donors and creditors. For reasons discussed below, decentralization and integration of local government units into the global economy can significantly increase outward accountability and the leverage of the multilateral lenders.
The increasing agreement, or coherence, among donors and creditors can leave little room for diverse policies at the central or local government level. Indeed, donors and creditors have become increasingly “selective,” directing more resources to local
governments that are willing to undertake privatization of services.A. International Monetary Fund
In a recent meeting at the World Bank, (World Bank “Water Week” Workshop on Subnational Financing, March 4, 2003
) Fitch Ratings, which provides ratings of investment risks posed by sovereign countries and subsovereign entities that access the
international capital markets, noted the significance of the IMF in movements of central governments to curtail transfers to subnational governments:
- Motivated by central bank and other oversight agency regulations, governments
have become reluctant to continue closing persistent fiscal gaps generated at the
subnational level. In some countries, the drive to greater accountability at the
local level is influenced by central governments’ need to comply with the fiscal
conditions of their agreements with the International Monetary Fund (IMF) or
other multilateral lenders and by a gradual shift of political power from the center
to lower tiers of government. Consequently, new lending limitations and tighter
regulations create a gap in funding for subnationals in countries without a welldeveloped
municipal bond market.
World Bank veteran John Nellis, now a researcher at the Center for Global Development in Washington, states that commonly:
The IMF’s roles, leverage, and instruments are as follows:Roles: Provides “seal of approval” and finance
- IMF involvement and surveillance [of the economy] led to a choking off of direct
budgetary financing of SOEs [state-owned enterprises]…In response, private
sector management, financing or ownership was proposed. The World Bank
then became more directly involved in terms of reform/privatization design, and
assistance in implementation. (Nellis, 2003: 6)
- The IMF’s “Article IV Consultation” for all member countries. Primarily through this consultation, the IMF conducts “surveillance” of the economic policies of all member governments. The consultation assesses each government’s macroeconomic policy performance and makes recommendations for policy reforms. Governments that do not rely on IMF resources are free to ignore this advice.
- Leverage. The IMF may revoke its “seal of approval” from a government that fails to comply with “prior conditions” that are needed to obtain a loan or binding conditions (i.e., “performance criteria”) attached to the IMF loan, itself. Since the IMF is head of a
creditor cartel, such a government is effectively “blacklisted” and may lose most or all of its external assistance. (Footnote: Indonesia: In 1999, when the government failed to undertake decentralization actions in a timely manner, the IMF suspended its relationship with the government. Ethiopia. When the Government of Ethiopia did not comply with the IMF’s requirement to liberalize its capital account, all external aid (from donors and creditors) was suspended. (China and other countries ignore IMF’s advice about capital account liberalization.)
- Loan instruments][/b. To obtain a loan, governments submit a “Letter of Intent” to the IMF (which is usually drafted by the IMF itself). Most of the loans extended to low-income countries are called “poverty reduction and growth facility (PRGF) arrangements”. These loans are supposed to implement the macroeconomic and structural policies set forth in a government’s “Poverty Reduction Strategy Paper” (PRSP). (See “B,” below for a description of PRSPs.) Most of the loans extended to creditworthy countries are called “standby arrangements” (SBAs).
The IMF conducts periodic “reviews” of the implementation of its policies by governments with an active IMF programs. These “reviews” update the IMF’s analysis and policy conditions associated with its loans.Examples of IMF Leverage:Brazil
: Prior to the recent election in Brazil, the IMF and the Brazilian Finance Ministry agreed to terms of a Stand-by Arrangement that were not disclosed to the public. Leaks revealed that, in early September 2002, the IMF and Brazil agreed to terms which required, among other things, a reduction in revenue-sharing with the states and municipalities, termination of revenue earmarking, and promises by the new administration to resist pressures to reopen the debt restructuring agreements between
federal and subnational governments. (Footnote: IMF, Brazil—“Request for Stand-by Arrangement,” August 30, 2002 (p. 23) and “First Review Under the Stand-by Arrangement and Request for Modification of Performance Criterion,” December 4, 2002.
: In 2002, the country’s GDP dropped by 11%, yet the IMF required significant utility tariff hikes in order to satisfy the utilities’ foreign creditors.Indonesia
: In November 2002, the IMF welcomed the government’s plan to eliminate of subsidies, despite rising protests. It conceded that, if the target for tax revenues was missed, “there was a risk that development and social spending would bear the brunt of the expenditure compression. In addition, with respect to transfers to the regions, the mission noted that their proposed level exceeded that provided by the formulas under the decentralization framework and urged that this not establish a precedent.” (Footnote: IMF, “Indonesia—Seventh Review Under the Extended Arrangement and Request for Waiver of Performance Criterion,” November 20, 2002.
) Conditionality required bank privatization (which affects localities because foreign-owned banks are indifferent to local credit needs) and reinvigoration of enterprise privatizations since receipts fell short of the mid-year target.Ghana:
Ghana complied with IMF requirements for massive utility rate hikes, after the IMF said that the government has failed "to move domestic energy and other utility prices in line with rising costs…it appears that this arose in part out of a concern that consumers should be shielded from the effects of shifts in world market prices and exchange rates. Staff considers this concern to be misplaced.” [Article IV Staff Report and PRGF Review (June 13, 2001)]Procurement.
Local governments are being asked to create transparent procurement systems to facilitate contracting out of their functions. Even though there is no agreement on whether or not to even initiate WTO negotiations on transparency in
procurement (a “new” issue), the IMF and World Bank are moving headlong into establishing and implementing standards (especially on transparency) for procurement regimes. For instance, World Bank loan conditions require that the Government of Uganda improve the legal and regulatory framework for public procurement through numerous means. (Footnote: Uganda must 1) create procurement units in relevant institutions, 2) carry out independent audits of procurement, 3) establish an Appeals board to handle complains, and 4) hire procurement agents to provide support to weak entities.
In another example, the IMF requires that Colombia close the loopholes (including those pertaining to transactions in real estate and national defense and security hardware) in its law that “establishes generally accepted principles of transparency and disclosure for the process of securing contracts to provide goods and services to the public sector.” (Footnote: The requirement is stated in the IMF’s Staff Report for the 2002 Article IV Consultation and Request for Stand-By Arrangement for Colombia in its discussion of Law 80.
To comply with IMF and World Bank requirements, governments are pressured to liberalize and privatize their economies. Box 1 contains a list of policy conditions attached to IMF and World Bank-financed loans that have a direct affect on decentralization, local governments, and service delivery.Box 1
IMF and World Bank Policy Conditions That Affect Decentralization and Services*
. Conditions require a borrowing government to:
• Meet IMF budget targets
• Cut off budget subsidies of goods (e.g., food staples, petroleum products) and
services (e.g., utilities, social services)
• Cut off domestic credit to loss-making utility or other services
• Raise tariffs and fees for services on a specified schedule
• Commercialize and privatize services (and borrow resources for “strategic
communications campaigns” to persuade the public to accept privatization).
• Use market mechanisms to allocate water from low-value uses (subsistence farming)
to high-value uses (agribusiness and industry)
• Lay off civil servants
• Pass laws (e.g., pass Fiscal Responsibility laws at local and central levels; privatize
pensions) or invoke decrees
. Conditions require a borrowing government to:
• Devolve centrally delivered service to subnational government
• Cut transfers to subnational governments
• Refrain from “bailing out” over-indebted subnational governments
• Ensure that local governments implement standard procurement procedures for contracting out services.
• Ensure that local governments establish transparent fiscal accounts
*There are cases where the recommended policies are the opposite of those mentioned here (e.g., some recentralization
of key budget functions in Chile), however, these cases are the exceptions.
B.Joint IMF and World Bank Roles Relating to Low-Income CountriesDescription of joint roles.
1)Poverty Reduction Strategy Papers
(PRSPs). The IMF and World Bank require each low-income borrower to prepare a PRSP, preferably with popular participation, that sets forth the national development objectives and strategy over the medium-term (3-5
years). The staffs of the institutions prepare a “Joint Staff Assessment” (JSA) of the PRSP outlining its strengths and weaknesses. In order for a government to qualify for assistance, the Board of each institution must endorse its PRSP.
2) Highly Indebted Poor Country (HIPC) Initiative
. The institutions perform a Debt Sustainability Analysis (DSA) of each government that qualifies for HIPC debt relief. After a government demonstrates sustained “good performance,” it becomes eligible to
obtain a specific level of debt relief that, based upon the DSA, should enable the country to achieve sustainable growth.Implications for Decentralization and Services
. External donors and creditors have significant influence on the content of the PRSP. Representative bodies have largely been excluded from PRSP processes. Citizens are excluded from participation in shaping macroeconomic and structural (e.g.,
privatization and trade) policies that often drive the Strategy. To the extent that citizens groups have any influence, it is typically the well-heeled groups in the capital city whose voices are heard. PRSP policies shaped at the national level may leave little autonomy for local governments. IMF and World Bank instruments are supposed to be accountable to the framework provided by the PRSP, but that is not always the case. Examples
- Tajikistan’s 2002 Interim PRSP called for lower user fees for primary education and health. However, with implementation of the World Bank’s Private Sector Development (PSD) Strategy, user fees are proliferating. Burkina Faso’s 2002 PRSP called for decentralized budget management in the health and education sectors and the partial removal of fees for preventative health care. Still, the Bank noted worsening education outcomes in poor areas where the cost for primary education had increased by 17%, as well as the rising costs for poor quality health care. (Burkina Faso and Mali have been devastated as the lenders have insisted that they liberalize their cotton markets at a time when the industrialized countries retain their subsidies and depress world prices.)
The HIPC program has not freed up meaningful levels of government resources for service delivery or transfers to localities. Moreover, the institutions attach onerous policy conditions debt relief, some of which may drain resources from these
purposes. (See Box 1.) In the case of Ghana, a trigger for debt relief required the government to implement automatic adjustment mechanisms to provide for, and maintain, full cost recovery in the petroleum, electricity and water sectors.” (Enhanced HIPC Preliminary Document of June 14, 2001)Examples
- Debt relief is frequently suspended for governments that are unwilling (or unable) to proceed with privatization of services. Debt relief has been suspended for many countries participating in the Highly Indebted Poor Country (HIPC) initiative (Nicaragua, Benin, Mali, Chad and Nigeria) because, among other things, they failed to expedite privatization processes.
C.Dominant Roles and Instruments of the World Bank Group (Footnote: The World Bank Groups consists of five institutions: International Bank for Reconstruction and Development (IBRD); the International Development Association (IDA); the International Finance Corporation (IFC); Multilateral Investment Guarantee Agency (MIGA) and the International Center for the
Settlement of Investment Disputes (ICSID)
Description. Every three years, donors to the International Development Association (IDA) negotiate the terms and conditions that guide its three-year funding cycle, or “replenishment.” The World Bank responds primarily to the policy directives of donor
governments in facilitating the negotiation of the World Bank’s soft loan arm, the International Development Association (IDA).
Sometimes, the U.S. government makes unilateral demands upon IDA as a basis for its contributions. The FY04-FY06 IDA agreement (IDA-13) was highly contentious due to U.S. demands that IDA convert half of its loans to grants, implement the Private Sector
Development (PSD) Strategy, and develop a performance-based orientation. These demands are articulated in the September 2002 U.S. National Security Strategy. The U.S. is making its IDA contributions contingent on the World Bank’s implementation of its
(Footnote: In earlier replenishments, the U.S. Congress has required the Office of the President to impose
requirements that the IFIs improve transparency and that the World Bank establish an Inspection Panel to which affected domestic groups can appeal where there is evidence that the institution has violated its own policies, e.g., safeguard policies which attempt to ensure that operations financed by the institution “do no harm” to the natural environment and innocent third parties. )
(See Attachment A for details about the PSD Strategy.)
Implication for Decentralization and Services. Only about half of PSD operations in low-income countries are sustainable, by the Bank’s own account. Importantly, borrowers criticize these operations for their negative distributional impacts. These
operations are not required to adhere to the same standards (information disclosure, environmental and social safeguards) as other lending operations.
The World Bank/IDA will increasingly provide financing for local governments to implement the PSD Strategy, including:
• “Unbundling” profit-making from loss-making services, and targeting subsidies for poor and marginal groups
• Contracting out services, and engaging “third parties” to attest to contractor achievement of key benchmarks
• Ramping up project monitoring and implementation
Corporate Subsidies. In 2003, IDA will set a precedent if it uses its resources, as planned, to supplement the fees of private operators (Vivendi-Dietsmann) of a water lease in Chad.
2. CPIA: RATING BORROWER PERFORMANCE
Description. The Bank uses its Country Policy and Institutional Assessment (CPIA) to inform lending “selectivity.” The CPIA assigns ratings, or grades, to the performance of each low-income country government that determines the volume of resources (the
“ceiling”) that the government can borrow and the types of policies that the Bank should finance. The rating is determined by:
1) 20 criteria in four areas: a) economic management (e.g., fiscal management); b) structural policies (e.g., trade, privatization); c) policies for social inclusion (e.g., safety nets); and d) public sector management and institutions (e.g., property rights, rule of law,
revenue mobilization, efficiency of public expenditures, absence of corruption).
2) A government’s portfolio performance.
3) An overall judgment about governance. The World Bank/IDA policy advice will focus on those areas in which a government
obtains poor ratings. The World Bank lacks a transparent or participatory process for assigning ratings to each government. It does not engage in meaningful policy dialogue with governments about their ratings, nor has it revealed the methodology it uses to
Implications for Decentralization and Services. In low-income countries, local governments and citizens participate in shaping a national development strategy, i.e., a Poverty Reduction Strategy Paper (PRSP), a pre-requisite for assistance. However,
because the CPIA determines funding levels, central governments (Finance Ministries) have an incentive to shape PRSPs to conform with its policy prescriptions, even where those prescriptions differ from those offered by local governments and citizens’ groups.
CPIA criteria also institutionalize a policy bias, in that they assign high ratings to governments that liberalize and privatize services and unilaterally reduce barriers to trade. Citizens are generally unaware that the CPIA plays a decisive role in setting the
policies that the central government will adopt. Indeed, the World Bank does not publicly disclose CPIA ratings, although CNES does when we obtain them.
3. Country Assistance Strategy (CAS) (Footnote; Chile’s CAS, dated February 2002, lays out the six operations planned for FY02-06, which total about $300 million. They include loans that focus on: public expenditure management (including re-centralizing
some fiscal accounts); life-long learning; watershed management; rural infrastructure; technology and innovation; and strengthening local service delivery while improving the instruments for eligibility, monitoring and evaluation.)
Description: The World Bank prepares a CAS for each borrower that sets forth a rationale for lending as well as an outline of anticipated adjustment and project investment loans over the medium-term horizon (3-5 years). The CAS is owned by the
Each CAS (with few exceptions) identifies whether the borrowing government is in the low-case, base-case or high-case borrowing scenario. These scenarios measure the degree of conformity with the Bank’s preferred policies and determinants of different
levels of assistance. It then identifies the “trigger” policies that a government must carry out to prevent slipping into a lower scenario, or, more positively, to graduate to a higher scenario.
Example: Poland can borrow $1.3 billion from the World Bank over three years if it achieves savings equivalent to 1% of GDP (the “trigger”) over that timeframe.
Implications for Decentralization and Services.
CASs may be prepared with limited participation from central, governments and domestic constituencies, and even less from
local ones. Their investment priorities may ignore or even conflict with local priorities. It can also identify major initiatives that are unmentioned in the PRSP, the document that is supposed to be “owned” by the government. In order to expedite the privatization
agenda, an increasing number of CASs are prepared with participation from the Bank’s private sector affiliate, the International Finance Corporation (IFC).
Trigger policies always call for compliance with IMF performance criteria. (See Box 1.) (Footnote: Vietnam’s 2000 CAS explains that, although Vietnam passed a law to facilitate certain infrastructure investments (BOT, BTO) and implemented the required Water Law (FY99-00), the Government failed to achieve other measures aimed at improving the regulatory framework for private participation in infrastructure. The Bank also said that the Government needed to move faster in land titling, though it
acknowledged that women’s land use rights may be eroded by the system. These were critical factors in the Bank’s decision to cut assistance to Vietnam.
India. The Bank’s triggers require that state power and fiscal reforms stay “on track.” Bank lending to India is at the bottom of the low-case lending scenario. Reportedly, lending dropped when reforms (power sector, fiscal balance, trade liberalization,
deregulation, privatization of banks and public enterprises) were deemed insufficient. The Bank is focusing its resources on three states willing to undertake significant reforms.
Thailand. The CAS for Thailand would slash new lending to the government to $300 million to $500 million over 3 years. Instead of borrowing, the government is launching “country development partnerships” (CDPs) with donors, minimizing new borrowing and prepaying outstanding loans.
Indonesia. The Bank’s lending program for Indonesia averaged $400 million and $300 million in FY01 and FY02, respectively (in line with the upper limit of the base case). (Footnote: From FY01-03, undisbursed lending commitments were down to $1.8 billion from $4.7 billion in FY98.) Net financial transfers to Indonesia are negative. The Bank’s new CAS for Indonesia (2001-2003) required, as a trigger condition, the establishment of a legal and regulatory framework for public procurement consistent with WTO standards. Local governments will be required to comply with the framework. The new CAS maintains low lending, despite Board encouragement to give the government enough support for “trigger” reforms (bank privatization and legal reform) to qualify for the high-case lending scenario, since remaining in the base case increases net outflows of resources.
4. ADDRESSING FISCAL GAPS OF NATIONAL AND LOCAL GOVERNMENTS
Description. When significant fiscal gaps arise, national and subnational governments look to the official aid community and the MDBs and, in the case of creditworthy governments, private creditors. With respect to the aid community, the World Bank or a
regional development bank chairs most Consultative Groups (CGs). Each developing country government has a CG (or its equivalent) that comprises representatives of its government and each of its donors and creditors. Some governments have as many as
120 donors and creditors. CGs serve not only as pledging sessions, but also as an arena for policy development.
Creditworthy national and subnational governments look to private lenders as well as the multilateral lenders for finance and guarantees. As described in part IIB, the multilateral lenders are being asked to change their Articles of Agreement to provide finance without sovereign guarantees to local governments.
Implications for Service Delivery. Analysis of fiscal gaps may overlook contingent liabilities (related to, for instance, guarantees and “take or pay” contracts for services). In addition, since the Bank prepares all the analysis, assessments and projections of a government’s financing gaps, the central (and local) government may not share its perspectives. The Bank’s analyses include important assumptions about the development priorities that face a country in each service sector. These assumptions may or may not be developed in a collaborative manner.
5. SETTING SERVICE SECTOR PRIORITIES
MOVING TOWARD PRIVATE SECTOR PARTICIPATION IN SECTOR STRATEGIES
Background. Each donor and creditor has its own approach to, or strategy for, each sector (e.g., health, education, water). The authorities in most borrowing countries convene a meeting [i.e., “Sector-Wide Approaches” (SWAP)] for each sector. A SWAP
is a group of domestic and external stakeholders that are active in financing and providing services in a particular sector of a particular country.
The Bank is an influential player in SWAPs because it brings significant resources. So, for instance, the Bank’s approach to an Education SWAP in Malawi will carry considerable weight. The SWAP attempts to foster donor coordination by bringing the external aid providers together with domestic stakeholders to resolve sector-specific challenges. While donor coordination is an important and necessary goal, national-level SWAPs can force a donor/creditor consensus upon local governments and stakeholders that may be less organized or poorly represented at the national level.
Through specific sector loans, the Bank may require that a “user committee” is appointed or elected. The committees have significant influence over ongoing policymaking processes in a sector. They may or may not be accountable to local government
officials. (See Attachment D.)
Shift to Private Sector-Led Development. In the case of the multilateral development banks (MDBs), the U.S. pressed each bank to adopt a private sector development (PSD) strategy as the framework to which all other strategies would conform. The World
Bank’s 1995 Annual Report referred to the institution’s shift to supporting private sector investment (as opposed to direct lending to governments) as “a dramatic departure from what had been Bank policy for half a century.”
The PSD Strategy, which was approved by the World Bank’s Board in February 2002, puts real power behind this shift. In the
face of great initial resistance from other shareholders, the U.S. promoted the Strategy as a framework for transformation of the World Bank Group. Indeed, a purpose of the Strategy is to transform the focus and operations of the entire World Bank Group to
support the role of the private sector in development. In particular, the PSD Strategy would accelerate the private (and NGO) provision of basic services on a commercial basis – that is, with cost-covering user fees.
Description. The World Bank prepares sector strategies that are integrated into each borrower’s Country Assistance Strategy and which guide its lending operations. As noted, these strategies are required to conform to the Private Sector Development
(PSD) Strategy (2002):
These strategies include:
- Water Resources Sector Strategy (2003);
- Health, Nutrition and Population Sector Strategy (1997);
- Education Sector Strategy (July 1999);
- Environment Strategy for the Energy Sector: Fuel for Thought (2000);
- Water and Sanitation Quality Improvement Plan (2000);
- Cities in Transition: A Strategic View of Urban and Local Government Issues (2000);
- Rural Development: From Vision to Action (2000);
- Social Protection Strategy: From Safety Net to Spring Board (2000);
- Reforming Public Institutions and Strengthening Governance (2000);
- Cities on the Move: Draft Urban Transport Strategy Review (2000);
- Engendering Development: Through Gender Equality in Rights, Resources and Voice (2001);
- Making Sustainable Commitments: An Environment Strategy for the World Bank (2001)
Implications for Decentralization and Services. Sector strategies must conform to the policies promoted by major shareholders. As the Bank implements its sector strategies through its Country Assistance Strategy, it may not leave much room for
alternative strategies proposed by local or central governments, especially if those alternatives differ from the privatization and commercialization principles embedded in the PSD strategy.
Sector strategies and SWAP policies may override the preferred policies of local governments and stakeholders. Increasingly, the Bank is being “selective” in its lending – that is, extending loans primarily to those subnational governments that are willing to
liberalize and privatize services. This could lead to policy competition among local governments vying for scarce aid (and central government) resources. Those with locally-conceived solutions to service provision may have greater difficulty obtaining
Example: The Water Resources Sector Strategy (WRSS), which was just approved by the Bank’s Board, calls for the institution to roar back into lending for dams and other big infrastructure at a time when its safeguard policies (which require the Bank to “do no
harm” to the environment, indigenous peoples, cultural heritage, etc.) are being watered down. It also calls for allocating water from low-value uses (subsistence farming) to high-value uses (agribusiness and industry) and privatization of irrigation and drinking
water supply systems combined with significant cost recovery efforts. Financing will be available to local governments wishing to implement these policies.
The following is a brief summary of the remaining sections of the paper. To see the complete text, please click on this link, then go to page 9 (of 16) in the PDF file:
6. LENDING AND NON-LENDING INSTRUMENTS
Background. The multilateral lenders primarily finance central governments. However, with sovereign guarantees, they also loan to subnational governments. Whereas lending to the central government is analogous to wholesaling, lending to state and
municipal governments is like retailing. The World Bank is learning to “drill down” and use adjustment lending at subnational levels. In the case of Brazil, there are 26 states and 5,500 municipalities. The sheer scale of this outreach is daunting. Some resources
are borrowed independently; some channeled through the central government with federal guarantees.
7. GRANT FINANCING
Description: As a result of intense U.S. pressure to transform lending to low-income countries, the Bank’s major stakeholders agreed that IDA would provide about 20% of its resources in grants. As of FY04, the World Bank’s soft loan arm is extending grant
financing for post-conflict, natural disaster reconstruction, HIV/AIDS projects, education and other purposes in countries with GNP/capita of $360 or less.
8. THE GROWING ROLE OF THE IFC
Description: The Private Sector Development (PSD) Strategy continues to expand the scope and power of the World Bank’s private sector affiliate – the International Finance Corporation (IFC). 14 The IFC will increasingly team up with the Bank’s soft loan arm,
the International Development Association (IDA), which lends to low-income governments. In 2002, the Bank increased its administrative budget to facilitate expanded lending to low-income borrowers,15 which is expected to reach $7 billion per
year in FY02-04.16
9. PROVIDING GUARANTEES THROUGH THE IFC AND MIGA:
Description: Guarantees are usually provided by the Bank’s private sector affiliates, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA), which protect against commercial and political risks, respectively.
When private firms lend to or invest in a water project in a country, the Bank’s guarantee promises the private firms compensation for certain losses if, under specified conditions, the government does not meet its obligations. The borrower may be the member
country or a company. The MDBs offer two principal types of guarantees: partial risk guarantees and partial credit guarantees.
10: ICSID: SETTLING DISPUTES BETWEENS INVESTORS AND GOVERNMENTS IN SECRET
Description. The International Center for the Settlement of Investment Disputes (ICSID) is a mechanism for settling investor-to-state disputes that provides foreign corporations with a forum for bringing direct action against governments for alleged breaches in investment rules. ICSID not only lacks transparency, it also bypasses domestic laws and national judicial systems. Example: Currently, a three-person tribunal is hearing a grievance lodged by Aguas de Tunari/Bechtel against the Government of Bolivia for having violated a Bilateral Investment Treaty (BIT) between Bolivia and the Netherlands by canceling its contract for water supply for Cochabamba. The firm, the President of Bolivia and the President of the World Bank appoint the three
arbiters of the case, which is heard in secret.
11. TRADE CAPACITY-BUILDING
Background. The Bank is a major player in a capacity-building initiative called “the Integrated Framework” (IF), launched in February 2001.20 The IF, which is financed by many donors and creditors, is intended to 1) build the capacity of low-income countries
to “mainstream” trade into, among other things, planning processes (e.g., preparation of Poverty Reduction Strategy Papers) and 2) establish a country “environment” that is conducive to strengthening trading systems. The IF system is being extended to middle income countries as well. What it perhaps most unsettling about the World Bank’s trade capacity-building initiative
is its conflict of interest. The World Bank is controlled by its major shareholders, which also happen to be the countries driving the agenda and negotiations in the multilateral trade regime. Yet this same institution is now officially responsible -- through the neutral
mechanism of “analysis” -- for helping Southern countries define their trade positions. How likely is it that such technical assistance will contradict the fundamental goals of the governments that created this department in the first place?
12. SERVING AS THE PREMIER “KNOWLEDGE BANK”
Description: The Bank builds its reputation as a “Knowledge Bank” through many resources and publications. Among the most widely touted is its Development Gateway, probably the world’s largest single collection of research and analysis, which is available
to anyone with an internet connection. Its flagship document is the World Development Report (WDR) -- an annual publication that focuses on a particular dimension of development (e.g., state institutions, sustainable development). The WDR generates a
great deal of publicity, especially within “policy wonk” circles, and influences the agendas and thinking of many constituencies (e.g., governments, donor organizations, universities) worldwide.
"He that would make his own liberty secure must guard even his enemy from oppression; for if he violates this duty he establishes a precedent that will reach to himself."
~ Thomas Paine, A Dissertation on the First Principles of Government, 1795