A Case for Reform: Fifty years of the IMF and World Bank

8/7/2019 A Case for Reform: Fifty years of the IMF and World Bank

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A Casefor Reform

Fifty years of the IMF

and World Bank

Oxfam Policy Department


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Oxfam (UK and Ireland) 1995

A catalogue record for this bookis available from the British Library

ISBN 0 85598 3019

Published by Oxfam (UK and Ireland)274 Banbury Road, Oxford OX2 7DZ, UK(registered asa charity, no. 202918)

Available in Ireland from: Oxfam in Ireland, 19 Clanwilliam Terrace,Dublin 2; tel. 016618544.

Co-published with Community Aid Abroad, Oxfam America, OxfamCanada, and Oxfam New Zealand . (Please see the back page for contactaddresses.)

Designed and typeset by OxfamDesign, OX1622/PK/95Printed by Oxfam Print Uniton environment-friendly paperSet in 10/1214 poin t Palatino w ith Franklin Gothic Book and Demi

This book converted to digital file in 2010


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Contents

Bretton Woods: the lost heritage 1Embracing the future? 2Avoiding the challenge 4

Structural adjus tment programmes 6The background 6Employment 10The rural sector 14Social expenditure 17Reforming adjustment 22

World Bank projects: lessons unlearned 26

Social and environmental protection : rhetoricand reality 28Improving project performance 33Participation and decentralisation 35

Reducing the burden of debt 38

Reforming the system 4 3

Conclusion 48

Notes 49

Further reading 50


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A Case for Reform

This book is based on a briefing paper originally issued by Oxfam(UK and Ireland) in response to the World Bank reportLearningfrom the Past, Embracing the Future, pub lished in July 1994 to markthe fiftieth anniversary of the Bretton Woods conference.


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Bretton Woods: the lost heritage

Fifty years ago, the Bretton Woods conference soughtto build thefoundations of a new world order on the wreckage of the old.President Roosevelt, in his address to the conference in 1944,challenged governments to prevent a recurrence of the 'great

tragedy' of the 1920s and 1930s, when mass unemployment,financial instability, and trade break-downs increased inter-national tensions and led to war. The system which emergedfrom Bretton W oods w as flawed in some important respects, bu tthe architects of the World Bank and the International MonetaryFund (IMF), which emerged from the 1944 conference, wereinspired by a common vision and an ambition to address thegreat social and econom ic challenges of the pos t-war era.

Today, a similar vision is needed to address the challenges of thetwenty-first century. Param oun t am ong these challenges is thatof ending the 'great tragedy' of our day the tragedy whichconsigns one billion people in the develop ing w orld to poverty.As the World Bank assserted in its 1990World DevelopmentReport, 'no task should comm anda higher priority for the w or ld's

policy makers than that of reducing global pov erty'. Certainly, nosubject com mands a higher profile in the public statements of theWorld Bank itself. In 1992, the World Bank's President, LewisPreston, declared:

Sustainable poverty reduction is the overarchingobjective of the WorldBank. It is the benchmark by w hich our performance as a developmentinstitution will be measured.

Laudable as such commitments are, over the past fifty years theactivities of the World Bank and the IMF have evolved in a waywhich is contrary to their founding objectives and to the task ofreducing poverty. The Bretton Woods system w as created, withthe experience of Germany in the inter-war period fresh in mind,to protect employment and regu late markets withou t recourse to


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A Case for Reform

extreme deflationary policies.Yet W orld Bank and IMF structuraladjustment programmes, developed in response to the Third

World debt crisis of the 1980s, have concentrated on achievinglow inflation and deregulating markets to the exclusion of otherconsiderations. The resulting deflationary pressures haveundermined prospects for economic recovery. They have alsocontributed to high levels of unemployment and the erosion ofsocial-welfare provisions for the poor. Meanwhile, marketderegulation has brought few benefits for those excluded frommarkets by virtue of their poverty and lack of productive

resources.

This is not to suggest either that the objectives of structuraladjustment programmes, which are intended to establishbudgetary stability and growth, are misplaced; or that there arepainless alternatives. There is today a growing consensus thatmarkets have a critical role to play in development, and thatchronic budget deficits and balance of payments deficits must beaddressed. It is also recognised that, in the creation of the crisis ofthe 1980s, the impact of external forces was compounded byinternal factors, such as ill-conceived forms ofState intervention.

What is clear, however, is that the policies of the Bretton Woodsinstitut ions do not sufficiently reflect the needs of the majority ofthe wor ld's citizens. There is also a gap betw een positive policy

statements and the reality of implem entation. This gapis reflectedin the World Bank's project operations. Guidelines for WorldBank projects include far-reaching commitments to environ-mental protection and to the protection of local communities. Inpractice, how ever, these guidelines areall too often breached, andvulnerable communities suffer displacement from their homes,erosion of their land rights, and acute environm ental problem s asa result.

Embracing the future?

Against this background , the W orld Bank's long-awaited 'vision 'd o c u m e n t , Learning from the Past, E mbracing the Future, p ub l i sh e dto mark the fiftieth ann iversary of the Bretton Woods conference


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in July 1994, was a profound disappointment. Oxfam (UK andIreland) had hoped that, in view of the failures of existingadjustment policies, the World Bank would accept the need for awide-ranging policy review, with the full involvement of therelevant agencies of the UN and other representative interestgroups. Such a review could have provided the founda tions for anew developm ent compact aimed at eradicating pov erty.Instead,the 'vision' docum ent reaffirms the World Bank's faith in existingpolicies, while tentatively acknowledging that a broaderadjustment framework is necessary for sustainable growth and

poverty reduction.

Similar problem s arise in relation to the document's treatm entofproject lending. Despite a welcome commitment to 'increasedawareness of and sensitivity to the social and ecologicaldimensions of developm ent' in the Bank's project operations, anyconsideration of existing problems in implementing policyguidelines is conspicuous by its absence.

So, too, is any consideration of democracy in the management ofthe W orld Bank and IMF. W hi leLearning from the Past, Embracingthe Future rightly calls for increased accountability andtransparency in the public sectors of develop ing countries, it doesnot apply the same principles to the Bretton Woods agenciesthemselves. This is a major weakness. The Bretton Woodsinstitutions carry an im mense responsibility, because the policiesthey advocate make a direct impact on the lives of millions ofpeople in the deve loping world. Yet these policies are designedand implemented with scant regard for the principles ofaccountability and transparency which both the World Bank andthe IMF advocate for developing countries. All too often,bluep rints for structural adjustment are drawn up in Washingtonin accordance with the dictates of free-market ideology, and

applied with insufficient regard to the circumstances ofindividual countries. Negotiations with governm ents are held insecret, and non-governmental organisations (NGOs) andcitizens' groups are denied access to information. At the sametime, information on World Bank projects often remainsinaccessible and unreliab le.


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Oxf am believes that greater democracy and accountability on thepart of Third World governments is vital if the challenge of

reducing povertyis to

be overcome. Without genuine democracy,the interests and aspirations of the poor will remain peripheralitems on the political agenda. By the same token, however,democratisation should not be a one-way process. It is notacceptable for Northern governments to demand greateraccountability on the part of governments in the South, whenthese same governments are effectively transferring economicpolicy sovereignty to remote, unaccountable institutions in

Washington, controlled by the governments of the North.International good governance demands that developingcountries be given a greater share of pow er in the World Bank andthe IMF, thro ugh a reform of the curren t weighted vo ting system,in which a country's votes are determined by its financialcontribution. It also requires that both institutions be opened upto greater public scrutiny. The Bank's recently establishedInspection Panel, though a step in the right direction, will notachieve this objective.

Avoiding the challenge

The developm ent objectives identified inLearning rom the Past arevery positive. Broad-based and shared economic growth,investment in health care and education, environmentally

sustainable development, popular participation, and theempowerment of women are aims shared by Oxfam and manyother NGOs. However, there is a gulf between these importantprinciples and the reality which agencies like Oxfam confront inworking to reduce pover ty. In particular:

Structural adjustment program mes are underminingprospects for recovery, compounding inequalities, underminingthe position of wom en, and failing to protect poor people's accessto health and educa tion services.

Project interventions funded by the Bank often continue tocause unacceptable and sometimes violent humandisplacement and environm ental damage.


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Despite limited initiatives of a positive na ture, there is nocoherent debt-reduction strategy for the world's poorestcountries.

While endorsing 'good governance' in the South, the WorldBank is itself unaccountable to citizens and governments in thedeveloping world.

Learning from the Past has avoided addressing the real challengesfacing the World Bank. The result is less of a 'vision' than a

repackaging of received wisdom s, when the urgen t need is for afundamental review of World Bank-IMF policies and theirimplications for the reduction of poverty.


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Structural adjustment programmes

The background

Structural adjustment programmes (SAPs), designed by theWorld Bank and the IMF, proliferated in the early 1980s, as onecountry after another in the South was afflicted by a lethalcombination of high interest rates and falling commodity prices.Along with the loans from these multilateral agencies to coverbalance-of-payments deficits and budget deficits cameconditions. These required governments to comply with targetsfor reducing budget deficits, liberalising import restrictions,

deregulating internal markets, and prom oting exports.The statedobjective has been to support export-led recovery. More recently,the World Bank and the IMF have asserted tha tSAPs constitute anintegral part of a poverty-reduction strategy geared towards'employment-intensive' growth.

Oxfam does not question the need for economic adjustment indeveloping countries that are facing chronic trade and financial

problems. Nor is it suggested that there are ready-made painlessalternatives available. However, World Bank-IMF adjustmentprogram mes a re deeply flawed in a num ber of respects, not leastbecause they operate over an unrealistically short time-scale. Forthe world's poorest countries in particular, social and economicrecovery from the deep crisis of the 1980s requires long-termplanning for reconstruction. By contrast, structural adjustmenthas focused upon the attainment of short-term targets forreducing budget deficits and inflation. It is true, as the WorldBank and the IMF claim, that external debt problems haveintensified deflationary pressures. But the Bretton Woodsagencies could have done far more to challenge the claims ofcreditors against the highly indebted countries of the South.


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Instead, the IMF responded to the debt crisis by imposing amonetarist strait-jacket on much of the South, insisting uponpunitive interest rates to meet targets for lowering inflation.Social-welfare provision and poor people's access to health careand education have been eroded by reductions in publicexpenditure. Moreover, potentially competitive labour-intensiveindustries and rural employment have been undermined bydeclining public investment in social and economicinfrastructures, by credit shortages, and by foreign-exchangeconstraints. To make m atters worse, the imposition of an 'export-

led growth' strategy for resolving the debt crisis has carried theseeds of its own destruction, especially in the world's poorestcountries. By expanding production of commodities such ascoffee, cocoa, and tea for world markets which w ere already over-supplied, structural adjustment programmes contributed to themost protracted and deep depression in world m arkets since the1930s (a structural trend which the mid-1994 boom in inter-national coffee prices has not changed). Between 1979 and 1992,prices for beverages, which account for the bulk of Africa'sexports, fell by three-quarters. The resulting deterioration interms-of-trade, an index which measures the relative prices ofexports and imports, cost non-oil exporters the equiva lent of5 percent of their national income.

Against this background, any export-led strategy for growth

based on primary commodities should have incorporateda widerstrategy for regulating international supply and demand, at levelscompatible with more remunerative prices. Further, it shouldhave involved a more coherent approach to production, withadjustment policies being scrutinised to ensure tha t they were notfuelling over-supply and locking exporters into a downwardprice spiral. Instead, the World Bank's approach was to 'leave it tothe market' with disastrous consequences for low-income

countries in particular.

It would be wrong to ascribe the worsening poverty in manydeveloping countries entirely to World Bank-IMF policies.Inappropriate forms of State intervention, corruption, excessivemilitary spending, and an adverse external trading and financial


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environment have all played a role in undermining hum an welfare.However, adjustment policies were a significant factor in con-

signing the world 's poorest countries to a lost decade of economicrecession and deteriorating hum an welfare in the 1980s. Today, thesame policies are consigning the poor in wide swathes of thedeveloping world to another lost decade of deepening poverty,rising inequality, slow growth, and m ass unemployment.

The rich world can turn its back on the victims of these policies,but it will not escape the long-term consequences of failure toreduce poverty in the developing w orld. Mass migration, violentconflict, and the production by peasant farmers of commoditiesfor the international narcotics trade areall sym ptom s of social andeconomic policy failure, in which structural adjustment continuesto figure. The challenge of redesigning adjustment policies tomeet the objective of poverty-reduction is a formidable one asis the scale of the problem to be confronted in Latin America andAfrica.

In Latin America, per capita incomes dropped by10 per cent andinvestment fell from23 per cent to16 per cent of national incomeduring the 1980s. Import activity dropped sharply, asgovernments transferred an enormous stream of wealth totalling over $200bn, or some 6 per cent of GDP, during thedecade out of the region. Inevitably, deflation on this scale

increased social misery, with the costs of adjustment passeddisproportionately to the poor. The World Bank itself estimatesthat nearly 33 per cent of the region's population was living inpoverty by 1990, up from 27 per cent a decade earlier; and anestimated 10 million children are suffering from malnutrition.Over the 1980s, the poorest20 per cent of the region 's populationsaw their share of income fall to less than 4 per cent.Unfortunately, as Oxfam pointed out in a report1 issued at thetime of the annual meeting of the World Bank and the IMF inMadrid in September 1994, the Bretton Woods agencies haveremained oblivious to the connections between these trends andadjustment policies. The Inter-American Development Bank hasidentified inequality as one of the major obstacles to recovery inthe region.


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In Africa, where more than thirty countries have adoptedstructural adjustment measures, average incomes fell by 20 percent during the 1980s, open unemployment quadrupled to 100million, investment fell to levels which were lower than in 1970,and the region's share of world m arke ts fell byhalf, to 2 per cent.Today, sub-Saharan Africais the only developing region in whichpoverty is increasing and human welfare standards areworsening. Africa's recovery prospects have suffered acutelyfrom the em phas is placed bySAPs on export-led recovery. As onecountry after another expanded production of primary

commodities for stagnant world m arkets, they contributed to theworst international price slump since the 1930s. During thesecond half of the 1980s, for example, West African cocoaproducers almost doubled their production, only to see theirforeign-exchange earnings fall. The IMF now concedes thatworsening terms of trade have undermined its adjustmentprogrammes, and the World Bank'sGlobal Economic Prospectsreport (1994) acknowledges that world prices for coffee, cocoa,and tea Africa's major primary-commodity exports havebeen depressed by over-supply.

Today, the World Bank and the IMF claim that their adjustmentpolicies are working, and that sustained economic recovery is insight. Oxfam is not convinced. In Latin America, where somecountries are experiencing economic growth, there is little

evidence to suggest that this recovery is being built on thefoundations of domestic investment. Indeed, investment rateshave yet to regain the ir 1980s value and are less than half the levelof those in the high-grow th economies of Asia. In countries suchas Mexico, Brazil, and Argentina, stock-market boom s, fuelled byprivatisation, have been mistaken for stable recovery. The UnitedNations Conference on Trade and D evelopment, most recently inits 1994 Trade and Development Report, has repeatedly warned of

the dangers posed to social and economic recovery byunregulated financial markets but to no avail. Moresignificantly, economic growth has yet to translate into areduction of poverty and inequality.


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In Africa, claims that the World Bank's macro-economic reformsare yielding results a re even less credible. The Bank's own mostrecent assessment of adjustment in the region,Adjustment inAfrica: Reform, Results and the Road Ahead, confirmed that countriesimplementing SAPs were performing worse on investment andagricultural production than other countries. Earlier reviews bythe World Bank and the IMF reached similarconclusions.This canbe traced directly to the effects of IMF stabilisation policies oninterest rates and public expenditure. The World Bank's ownevidence confirms that there is little prospect of economic growth

making an impression on poverty in the foreseeable future. InGhana, the star pupil of both the World Bank and the IMF, theaverage citizen will not cross the poverty line for anotherhalf-century. Moreover, after a decade of adjustment and aid transfersequivalent to8 per cent of national income, private investment inGhana remains insufficient to replace existing capital stock, andthe coun try's debt has tripled to over $4bn.

Employment

Contrary to claims by the World Bank and IMF that adjustment iscreating a framework for labour-intensive growth and povertyreduction, Oxfam's experience suggests that SAPs offer a futureof 'growth-through-exclusion', leaving the poor increasinglymarooned among islands of prosperity. This trend can be traced

in part to the pervasive influence of IMF stabilisation policies,which are geared tow ards lowering inflation to the exclusion ofwider objectives such as genera ting jobs,reducing poverty, andpromoting investment. The IMF's central policy instrument forreducing inflation is high real interest rates. However, these havebeen pa rtly responsible for the disastrous failure of investment torecover under adjustment. Meanwhile, the World Bank'sinsistence on rapid import liberalisation has damaged the

interests of the poor, by exposing labour-intensive industries,which are suffering from acute shortages of capital and foreignexchange, to a surge in foreign competition.

The result, in many countries, has been a process of de-industrialisation, and the collapse of potentially competitive

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industries. Inevitably, vulnerable communities have sufferedform the resulting rise in unemployment. They have also beenadversely affected by the deregulation of labour markets anderosion of minimum wages, which have reduced householdincomes and left w orkers vulnerable to exploitation. The overalleffect has been to transfer the costs of adjustment to low-incomegroups. Oxfam has witnessed the consequences across the widerange of countries in which it works:

In Zambia, fragile industries have been damaged by punitive

interest rates and a surge in competition from cheap imports.More than three-quarters of Zambia's textile factories have closedin the past year, generating mass unem ploym ent in urban centres.This has not prevented the IMF from lauding Zam bia as a modelto be followed by others for its achievements in loweringinflation.

In countries such as Mexico, Costa Rica, and Bolivia, averagewages have fa llen by one third since 1980 and they are stillfalling. This partly explains the increase from 38 million to 69million in the number of urban-based people living in poverty inthe region. In Costa Rica, one of Latin America 's model adjusters,the proportion of the population unable to meet its basic needsincreased from21 per cent to28 per cent between1987 and 1991.

According to the International Labour Organisation, real wageshave fallen by between 50 per cent and 60 per cent since theearly 1980s in most African countries. In Tanzania, by 1988 theaverage monthly w age was below the income level neededto buyenough food for an adequate family diet, and by 1991 it wasinsufficient to purchase twenty days ' worth of food.

In Latin America, open unemployment has risen to an average

of over 10 per cent, and is considerably higher in countries suchas Peru and Bolivia. In sub-Saharan Africa, averageunemployment in countries such as Zambia, Tanzania, andGhana exceeds 20 per cent.

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A Case for Reform

Rising unemployment and falling wages have been accom-panied by a huge expansion of employment in the informalsector, which now accounts for around two-thirds of employ-ment in Africa. This trend has been welcomed by the World Bankand theIMF as a move tow ards market 'flexibility'. However, tha t'flexibility' entails the deepening impoverishment of women,who have been forced to take on multiple jobs, working longhours for low pay in the informal sector to maintain familyincomes. The plight of poor w omen has been worsened by a steepdecline in wages in the informal sector, which have fallen by

almost60 per cent in Latin America since the 1980s.

In Chile, widely cited as a model adjuster by the World Bankand the IMF, inequalities in incomes have wideneddramatically, and low-wage, insecure employment is now themajor cause of poverty. In 1990, minimum wages were 20 percent lower than in 1980. Meanwhile, the income share of thepoorest20 per cent of the population fell by one fifth between 1980and 1990. Itis true that economic growthin Chile has significantlyreduced open unemployment. However, in contrast to thesituation fifteen years ago, when unemployment was the majorcause of poverty , today two-thirds of the poor are in employment.However, around a third of those in work are in a precariousposition, with no security of contract. Their poverty andvulnerability reflect the inherent limitations ofa recovery strategy

built on the foundations of low wages and 'flexible' labourm ark ets a euphemism for eroding the rights of workers. Oxfamhas witnessed the effects of labour-market deregulation throughits support for wom en textile workers in Santiago, many of whomare forced to work extremely long hours ona casual basis in orde rto survive. Unfortunately, both the W orld Bank and theIMF nowregard the type of labour-market reforms introduced in Chile as ablueprint for all adjustingcountries.The 1994 IMF World EconomicOutlook advocated wholesale deregulation as a means ofmaximising em ploym ent. In Oxfam's view, this is a prescriptionfor social dislocation and is inconsistent with the goals ofreducing poverty and insecurity.

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Trade union rights have been severely eroded in a number ofadjusting countries. Chile under the regime of General Pinochetis the most extreme example. But the right to collective action indefence of wages has also been severely curtailed in Ghana,Zimbabw e, Mexico, and the Philippines.

In Latin America, adjustment policies have dramaticallychanged the profile of poverty in m ost countries. In addition tothe general increase in poverty noted earlier, the number ofpeople living in extreme poverty increased from 62 million to 93

million between 1980 and 1990. Over the same period, fallingwages and rising unemployment increased the size of the urbanpoor population, which now accounts for60 per cent of the total.

In the Philippines, the mass unemployment and impoverish-ment caused by stabilisation and structural adjustment forceddestitute families to migrate from Manila to marginal uplandforests and coastal areas to try to earn a bare subsistence, withdevastating environmental consequences.

Oxfam has responded to the social pressures generated bystructural adjustment through its overseas programme. Thatprogramme has supported self-help initiatives among urbanpopulations in Africa,Asia,and Latin America who are seeking todefend their access to basic services and generate employmentand income. However, programme interventions funded byexternal NGOs are not durable substitutes for macro-economicpolicy reforms. Adjustment policies must be redesigned togenerate increased employm ent, notably through a relaxation ofinterest rates, selective protection, and carefully targeted Statesupport for labour-intensive industries. At the same tune,support for living wages and tolerable working conditionsis vitalto prevent the trend towards poverty in employment. There is

little evidence to show that living wages and provisions to ensuresecure employment underm ine the creation ofjobs, in either thedeveloped or the developing world.

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A Case for Reform

The rural sector

In the rural sector, the World Bank and the IMF claim thatdevaluation and the withdrawal of State marketing boards havereduced poverty among smallholder producers by increasingprices and reducing taxation. Given the background of over-valued currencies and the ruinous role of marketing boards inmany countries, these are perfectly reasonable policy objectives.However, they do not amount to a coherent strategy for reducingpoverty. Such a strategy must address the interlocking social,

economic, and environmental pressures which consign poorpeople to a margina l existence.

Learning rom he Past also ignores some of the critical issues ofdistribution which are central to pricing policies. Oxfam'sexperience is that, in the absence of redistributive reforms andeffective State intervention in support of the poor, the benefits ofincreased prices tend to flow towards powerful traders andintermediaries. This confirms the broader lesson, which theWorld Bank and the IMF continue to ignore, that people operatein markets governed by power relations; and they leave themarket-place with rewards which reflect those relations. Theevidence across the developing world is that narrowly-definedreforms of pricing and marketing systems are an insufficientmechanism for reducing poverty.

In Ghana, research by the International Fund for AgriculturalDevelopment (IFAD) suggests that the benefits of pricingreforms have gone mainly to farmers producing cocoa forexport, rather than to producers of staple food, who account forthe majority of the country's poor. In Zimbabwe, tax and pricingreforms under adjustment have brought windfall gains forcommercial farmers, but relatively modest improvements forsmallholders.

In Zambia, Tanzania, and Mozambique, where Oxfam workswith smallholder producers, higher prices have not 'trickleddown' to the poor. Most poor producers are excluded fromprofitable trading by lack of land, credit facilities, and marketing

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infrastructure. Instead, the prime beneficiaries have beenmonopolistic private-sector traders, who are well placed toexploit the poorest producers and most marginal areas.

In the Sahel region of Africa, the liberalisation of agriculturalmarketing has had adverse consequences for many of thepoorest producers. According to a World Bank technical workingpaper2 on Senegal, Mali, and N iger, 'the w ithdraw al of pa rastata lagencies from the agricultural sector resulted in increases in farm-gate prices for inputs, due to the cessation of credit schemes.

These increases in costs were not compensated for by increases inprices of crops and livestock.' The report goes on to note that lowprices, along with the collapse of public investment in extensionservices, rem ain a major disincentive to increased investment.

Agricultural production is growing more slowly in sub-Saharan African countries which adhere most closely to WorldBank-IMF adjustment policies than in other countries.According to the World Bank's paperAdjustmentin Africa: Reform,Results and the Road Ahead, countries achieving the mostsubstantial progress towards the macro-economic targetsassociated with structura l adjustment achieve consistently loweragricultural growth-rates than those making more limitedprogress(or, for that matter, those making no progress atall).Thisfinding has important implications for household food security.Independent research suggests that correlations betweenstructural adjustment and lower agricultural growth-rates couldbe caused by the erosion of extension services (such as technicaladvice) and infrastructural support which results from cuts inpublic expenditure.3

In Nicaragua, Oxfam works w ith smallholder livestock farmerswhose livelihoods have been undermined by restrictions on

access to credit, following the introduction of an IMFstabilisation programme. As a result of tough new conditionsand high interest rates, the amount of credit taken up bysmallholders fell by two-thirds in the year following theintroduction of the 1991 stabilisation programme. In Costa Rica,agricultural credit to small-scale farmers was cut by half during

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A Case for Reform

the second half of the 1980s, while the country's SAP divertedresources tow ards the commercial export sector.

In Zambia, the livelihoods of many poor farmers havedeteriorated as a result of structural adjustment. As the WorldBank itself has acknow ledged in its recent poverty assessment forZambia, smallholders across the country have been seriouslyaffected by an IMF-imposed credit squeeze, which has reducedthe availability of credit for production andmarketing.Moreover,while prices for maize and other food staples have risen, the

withdrawal of State marketing agencies has left poor farmers inmarginal areas exposed to exploitation by powerful private-sector traders. In the Eastern Province, Oxfam's project par tnershave seen their household incomes fall, despite the increase innational maize prices, because of the low prices they receive fromintermediaries. And in a recent survey of the position of smallfarmers in the Mumbwa District of the Central Province, Oxfamfound that the poorest households, around half of which areheaded by women, were trading on highly unfavourable terms.In August1994, the Zambian Catholic Com mission for Justice andPeace reported that poor farmers were bartering cereals forgroceries 'at ridiculously low prices', and cited the exchange of a15kg tin of ma ize for two tablets of soap, worth only a quarter ofthe value of the maize.

In Tanzania, Oxfam-supported groups in the Shinyanga regionhave been unable to market their cotton crop, because of thecollapse of State-supported infrastructure and transportsystems. As a result, producers have lost household income andthe country has lost desperately-needed foreign exchange.

In the Ph ilippines and the Andean countries of Latin America,import liberalisation has encouraged a sharp increase inimports of rice, corn, and other food staples. These imports haveundermined the livelihoods of peasant producers and drivendow n rural wages and the household incomes of the poor.

In Mexico, adherence to IMF stabilisation guidelines in the1980s resulted in a reduction of price support and credit

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provision for smallholder maize farmers. This compoundedrural poverty and encouraged more men to migrate to urbancentres, adding to the labour bu rde n of women. The future of therain-fed, sm allholder maize sector inMexico remains uncertain inthe face of moves towards trade liberalisation under the NorthAm erican Free Trade Agreement. Some estimates suggest that asmany as6 million producers, mainly farming ecologically fragilehillsides, will be displaced byUS maize exports.

Adjustment policies typically increase prices for commercial

crops, where marketing is controlled by men, rather thanimproving prices for staple food crops, which are controlled bywomen. This has had important implications for the d istributionof power and income within households. It also means thatwomen have to work even harder to support cash-cropproduction.

What these cases illustrate is the danger of withdrawing Statemarketing arrangements, especially in the absence of afunctioning private trading system. Whatever the pas t failures ofgovernm ent intervention in agriculture, the State has a vital roleto play in developing agricultural production and food security.This includes acting as a buyer of last resort to maintain prices,providing credit and extension services to smallholderproducers, and protecting local food systems from cheap im ports.

The State can also play a pivotal role in creating an enablingenvironment for smallholder producers. Oxfam's experience isthat market interventions targeted at the poor such as theprovision of subsidised credit, other productive inputs, andirrigation can improve both equity and efficiency. To put itanother way, thereis not always a trade-off betw een social justiceand efficiency. This fact is underlined by the experience ofZimbabwe, where post-Independence investment in peasant

agriculture resulted in sustained increases in production .

Social expenditure

The second central element of the World Bank's poverty-reduction strategy, alongside stabilisation and market

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A Case for Reform

liberalisation, is investment in 'social dimension' programmes,intended to protect the poor during periods of adjustment. In

Oxfam's experience, some of these programmes have beenrelatively efficient in creating short-term employment oppor-tunities for the poor, and in stimulating income transfers. TheBolivian Emergency Social Fund is one such programme. Otherinterventions have beenless effective.All too often, social-welfaresafety-nets have been created after the impact of adjustment hasunderm ined the welfare of the poor.To make m atters worse, mostprogrammes are seriously under-funded. The Zimbabwe social

fund for education, for example, would have been exhausted in1992 if more than5 per cent of the eligible popu lation had appliedfor support. In add ition, over-complex systems of administrationhave excluded many of the poorest people from social-welfarebenefits, and in many cases the main beneficiaries have been civilservants, rathe r than unemployed formal-sector workers or rura lsmallholders.

But Oxfam's main criticism of the social provisions of adjustmentprog ram mes is that they offer a short-term response to a problemof long-term structural poverty. Simply 'bolting-on' social-welfare provisionsto structural adjustment programmes does notamount to a strategy for reducing that poverty, especially whenthese programmes reinforce its underlying causes. What isneeded is a more integrated approach, in which poverty-

reduction is the focus and objective of macro-econom ic reform.

Learning from the P ast gives considerable weight to socialinvestment in hea lth care and education, citing this as one of thekeys to successful adjustment. This is a welcome commitment,which reflects the World Bank's efforts to improve itsperformance in supporting social-sector investment. World Bankspending in hum an-p riority areas rose from5 per cent in the early1980s to around17 per cent in 1994. But much remainsto be done.In particular, the World Bank along with other donors mustincrease the proportion of social-sector support directed towardsthe very poor. In many countries, too much financial support isdirected towards tertiary-sector spending on teaching hospitalsand universities, rather than towards basic health care, primary

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education, and rural water and sanitation supplies, wherebenefits to the poor are maximised. Despite its public policypronouncements, the World Bank also has a mixed record inprotecting social spending during the adjustment process. Inlarge measure this can be traced to the IMF's insistence on theattainment of unrealistic public-expenditure targets under itsstabilisation programmes.

The World Bank's reviews of public expenditure provide animportant mechanism for monitoring overall social-sector spend-

ing and its composition. How ever, these reviews have so far hada negligible influence on policy, which partly explains why gov-ernments can continue to cut priority-sector spending withimpunity, even after making commitments to the contrary. InOxfam's view, public expenditure reviews should be developedin partnership with UN agencies, governments, and citizens'groups to provide m ore effective protection of social spending, ifnecessary through mutually agreed conditions attached tostructural adjustment operations. But it is not simply the overallvolume of spending which is important. The Bank and the IMFhave been strong advocates of 'cost recovery' in health andeducation. Translated into hum anterms, this has mean t chargingvulnerable people for services which should be regarded as abasic right. The predictable result has been a steady erosion ofaccess, with wom en and young girls bearing the brun t of the cost.

Oxfam has welcomed the World Bank's commitment toprotecting the interests of the poor through social investment.But, as in otherareas,experience suggests tha t the will to translatethat com mitment into reality is lacking:

In the Ph ilippines, real per capita spending on health was lowerin 1992 than in 1982. Moreover, the share of health spending in

the total budget fell from 3.4 per cent in the early 1980s to 2 percent for the period 1990-1993. M eanw hile, the expansion of cost-recovery has underm ined the access of the poor to health care.

In India, the Department of Rural Development cut its social-expenditure budget in the first year of the country's stabilisation

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programme. This was followed in1992-1993 by a46 per cent cut inthe rural sanitation budget and a 39 per cent cut in rural water-

supply spending areas of social expenditure which are vitallyimportant in any programme aiming to reduce poverty.

In Nicaragua, per capita social spending is less than half thelevel of the early 1980s, following a significant decline in thelate 1980s.Meanw hile, infant mortality rates are increasing, afterdeclining steadily for more than a decade .

In Zambia, where the World Bank pledged to protect socialexpenditure, the 1992 education budget accounted for 9.1 percent of the total budget, compared with 13.4 per cent in 1985. Inthe health sector, the World Bank has acknowledged that theintroduction of user-fees is perceived by village women as aserious threat to their health, yet it initially supported theirintroduction. This picture is confirmed by Oxfam's projectpartners in Mumbwa, who cite high registration fees at healthcentres as a major reason for not taking children for treatment.These fees have had a detrimental impact on the provision ofimmunisation for measles, whooping cough, diphtheria, andtuberculosis diseases which have re-emerged as major killersacross the country.

In Zimbabwe, per capita spen ding on health care and education

has fallen by one third since the introduction of an adjustmentprogramme in 1990. This is despite a World Bank commitment torestore real spending in both areas to 1990 levels. At the sametime, charges in the health sector were increased sharply,following advice from the World Bank and IMF. These chargeshave been directly responsible for a steep decline in attendance atprim ary health-care centres, and in the registration of wom en forante-natal services. As an Oxfam report4 shows, a directconnection can be found between increasing recourse to user-feesand worsening human-welfare indicators. It is encouraging tonote that the World Bank has now w ithdraw nits suppor t for user-fees in Zimbabwe .

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Evidence from many developing countries has shown thateconomic pressures and the introduction of user-fees ineducation result in disproportionately higher drop-out ratesamong young girls.

Oxfam's experience across Africa, Asia, and Latin America isthat the curtailment of social services has forced women tocompensate by increasing their burden of unpaid work.Increased poverty, the collapse of water and sanitation services,and the erosion of primary health-care provision mean an

increased incidence of poverty-related diseases such asmeasles, cholera, and malaria and oblige women to spendmore time in caring for their families.

These facts call into question the World Bank's claim inLearningfrom the Past that its interventions have enhanced the welfare ofthe poor. True, governments in developing countries sharesignificantly in the responsibility for adjustment policies whichnegatively affect the poor. Budgets for basic health care , prim aryeducation, and water and sanitation services are easy targets forgovernments seeking to meet budget targets prescribed by theWorld Bank and IMF. Meanwhile, subsidies for parastatals,military budgets, and spending on tertiary-level health care andeducation, where there are powerful domestic vested interestsinvolved, are frequently protected from expenditure cuts. But,

while the World Bank cannot be held responsible for theindifference of Third World governments to the plight of thepoorest sections of their countries, it could do more to defend theinterests of the poor.

The failure of the World Bank and IMF to protect socialexpenditure during adjustment is damaging on several counts.Above all, of course, it is dam aging to the interests of the poor. It

also threatens any prospect of sustained social and economicrecovery. But it is scarcely less detrimental to the Bretton Woodsagencies themselves, since it calls into question their widercredibility as institutions capable of addressing the challenge ofreducing poverty.

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Oxfam is concerned that the damage inflicted on today'sgeneration by structural adjustment programmes will be

com pounded in the future. Thisis because of the important linksbetween economic growth and poverty-reduction on the one side,and investment in health care and education on the other. Indeed ,the World Bank itself has identified investment in primaryeducation as the single most important determinant of thedivergence in economic performance between south-east Asiaand Africa. Yet partly as a result of its policies, primary-schoolenrolment in Africa has fallen from80 per cent to70 per cent since

the early 1980s. With employment and international marketsbecoming increasingly knowledge-intensive, this is a prescrip-tion for long-term economic decline, rather than export-ledgrowth.

Reforming adjustment

Oxfam believes that the current approach of the World Bank andIMF to structural adjustment is self-contradictory, and that itaggravates social injustice. It is contradictory because its focus onreducing budget deficits through public-expenditure cuts andhigh interest rates is underm ining investment, employment, andany prospect of long-term growth. And it is socially unjust,because it is compounding already unacceptable levels ofinequality. W hat is needed isa new approach to adjustment. That

approach shou ld do all of the following:

Emphasise equity in the adjustment process: In 1990 theWorld Bank estimated5 that an increase of2 per cent in income taxon the richest fifth of the Brazilian population would generatesufficient resources to raise all the poor above the poverty line.There is a strong case for redis tributive taxation on this scale. As arecent UNICEF report6 has pointed out, personal income taxationin Latin America is only around half the average for alldeveloping countries, even though average incomes are almostone third higher. Despitethis,structural adjustment policies haverelied on restricting public expenditure and increasing taxes onconsum ption (which fall most heavily on the poor)to meet targetsfor reducing budget deficits. Similarly regressive approaches to

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fiscal deficit-reduction have been adopted in Africa. InZimbabwe, for example, taxes on the corporate sector,commercial farmers, and high-income groups have been reduced,to promote investment. Meanwhile, poor people have facedhigher sales taxes and fees on health and education. What makesthis approach doubly unacceptable is that the main beneficiariesof adjustment have been high-income groups. For example,tobacco farmers in Zimbabw e have received windfall gains fromadjustment reforms which enable them to retain their exportearnings in ha rd currency. These gains could have been taxed, in

the interests of protecting the welfare of the poor. Commercialfarm-land could also be taxed in the interests of efficiency as wellas equity. Currently, over one third of that land , the most fertile inthe country, is unused, because its owners treat it as a financialasset. Imposing a land tax would generate revenue which couldbe used for social-welfare purposes and to encourage the moreproductive use of farm-land.

Stress the importance of guaranteed access to a minimumlevel of resources, and the need for institutional reform:Successful adjustment is not compatible with increasedinequality. This is one of the lessons of the South-East Asianexperience to which the World Bank and theIMF continue to turna blind eye. W ithout effective taxation systems, m inimum -wagelegislation, agrarian reform, and social expenditure targeted onthe poor, thereis no prospect ofSAPs creating a framework eitherfor long-term growth or for poverty-reduction. The absence ofland-reform from the adjustment agenda in Latin America isespecially dam aging, in view ofthe high degree of landlessness inthe region. At the sam e time, public-sector reform is vital to theinterests of the poor.

Protect potentially competitive labour-intensive industries:

The results of the World Bank's own research into theperformance of the South-East Asian economies underline theimportance of selective protection, carefully targeted subsidiesfor key industries, an expansionary economic environment,investment in infrastructure, and low real interest rates. Currentpractices in Africa, Asia, and Latin Am erica ignore these lessons.

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Withdraw user-fees for basic health care and primary

education: Oxfam's experience and the results of extensiveacadem ic research in Africa,Asia,and Latin America confirm thatuser-fees for basic health services undermine the welfare of poorpeople. Moreover, user-fees are a notoriously inefficient way ofraising revenue. (In Africa, health fees seldom account for morethan 5 per cent of the recurrent costs in the health budget.) Theoutcome is a system which minimises efficiency and maximisesinjustice. The alternative is for donors, UN agencies, and the

Bretton Woods agencies to explore alternative, non-regressiverevenue-raisingmeasures,allied to financial support throug h, forexample,debt-relief.

Protect and enhance social-welfare provisions through socialconditionality: The legitimacy of any sort of conditionality isopen to debate . But it is clearly wrong to confine conditionality tothe attainm ent of macro-economic targets, especially where theseare likely to com prom ise the welfare of thepoor. In Oxfam's view,social conditionality should be built into adjustment operations ,with specific m easures included to protect access to hea lth care,education, and other social-welfareservices, along with measuresto target public investment on the poor. However, theintroduction of social conditionality shouldgo beyond a bilateraldialogue between governments and the World Bank-IMF, to

include the relevant UN agencies and representative NGOs andcitizens' groups. That dialogue should seek to establish measuresfor achieving tangible social-welfare targe ts, suchas those agreedby the World Summit on Children. The World Bank's public-expenditure reviews, which monitor government spending,could p rovidea mechanism for tracking performance in this area.How ever, these reviews should m ove beyond a narrow focus onexpenditure to consider the more important question ofaccess topublic services. There is little merit in governments increasinghealth spend ing, for example, if poor peop le are being excludedfrom services by user-charges. In this context, special attentionshou ld be pa id to the problems faced by w omen in gaining accessto hea lth and education services.

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Consider the implications of adjustment policies for women:All too often, adjustment policies are designed with a d isregardfor their impact on w om en. The increasing casualisation of labourand decline in wages have had especially severe consequences forwomen, who are forced to work longer hours in adverseconditions to protect household incomes. At the same time,women are often excluded from markets by being denied accessto credit and other productiveresources.Unless these barriers arewithdrawn, there is little prospect of women benefiting from

market reforms.

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World Bank projects:

lessons unlearned

Learning from the Past concedes that 'the Bank Group has made itsshare of mistakes '. That adm ission is a welcome one , although itunderstates the social and environmental damage caused bysome World Bank project lending. How ever, wha t ma tters more

than the mistakes of the pastis the Bank's apparent failure to learnfrom them. It is true that the Bank has adopted adm irable socialand environmental guidelines which address many of theconcerns raised by Oxfam's project partners; but (admittedlywithout an overview of all project lending) Oxfam's experiencesuggests that, to date, these guidelines have done little to protectthe interests of the communities affected by World Bank projects.

Oxfam's partne rs ' experience and our analysis of specific projectsfunded by the World Bank suggests that local elites may havebeen the main beneficiaries of those projects, while the livelihoodsof the poorest have been undermined, particularly throughdisplacement. Women have suffered from the failure of projectplanners to consider the gender-related implications of theiractions; and there has been a reluctance to share information.

These 'problem projects' include the following:

The Sobradinho dam in Brazil: This project displacedthousands of impoverished rural families, who lost their homesand livelihoods bu t were never com pensated.

The Polonoroeste project in north-east Brazil: In 1991, aWorld Bank report admitted that loans provided under theproject to support landless labourers and small-scale producerswere in fact monopolised by wealthier farmers. "The bulk of theprogramme's three million low-income rural families, especiallylandless fanners, were excluded from credit and agriculturalservices,' the report concluded.

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World Bank projects: lessons unlearned

The Singrauli Super Thermal Power Plant, and associatedopen-cast coal mines in central India: 23,000 people wereforcibly displaced bythis project.The loans have resulted in majorproblems for the Singrauliarea: severe air pollu tion from coal andash dust, which cause high rates of respiratory diseases;unem ploym ent, particularly am ong the original local population;inadequate compensation for resettlement and rehabilitation;inadequate housing and the growth of slum settlements; and thepollution of drinking water.

The Carajas iron-ore project in Brazil: Part-financed by theWorld Bank in 1982 with a loan of$305 million, this project wasdesigned to spur economic growth in the eastern Amazon.However, the World Bank failed to make enough provision forthe social and environmental impacts of the loan. As a result, theregion has experienced the highest rates of deforestation, andassociated environmental degradation, over the past two decadesin the whole of Am azonia. As a consequence of the project, landvalues spiralled, leadingto a boom in property speculation whichresulted in thousands of peasant families and Indians beingdisplaced from theirlands,often violently.

Livestock schem es funded by the World Bank in Botswana:The main beneficiaries of these loans have been a small elite ofcommercial farmers, many of them government officials; while

the livelihoods of pastoral farmers have been jeopardised byranches encroaching on communal lands. The schemes havecontributed to over-grazing and desertification.

'Social forestry' projects supported by the Bank in WestAfrica, Peru, Colombia, and the Philippines: These projects haveencouraged timber exports, which in turn have contributed todeforestation and underm ined the livelihoods of forest-dwelling

communities. The financial benefits have gone to commercialcompanies.

Social tragedy has all too often been accompanied by apparenteconomic failure. According to the Wapenhans Report, whichwas submitted to the World Bank Board in 1992, one fifth of all

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A Case for Reform

projects were facing 'major problems' in producing a viableretu rn on investm ent. Performance in Africa w as especially poor,

with a failure rate of over 50 per cent. In effect, these 'non-performing' projects added to the debt bu rden of host countries.If the costs of resource degradation and depletion, as well as thehuman consequences of displacement, were to be taken intoaccount, the proportion of project failures would be considerablyhigher.

Social and environmental protection: rhetoric andreality

In response to public pressure, mounting with each new projectfiasco, the World Bank introduced a comprehensive policy onresettlement in 1990. It was designed to protect the rights ofdisplaced people, whose p light was dramatically highlighted bythe case of the Narm ada (Sardar Sarovar) dam project in India.

In 1992, the Morse Commission, set up to investigate problemswith resettlement in the dam area, concluded: 'Involuntaryresettlement resulting from the Sardar Sarovar Projects offendsrecognised no rms of hum an rights'.The report went onto criticiseplans to displace at least 100,000 people, many of whom are fromtribal com munities, in 245 villages, living in the area affected bysubmersion. It noted that the impact of canal systems, which

would affect a further 140,000 farmers, had largely been ignored.But the most damning indictment was of the Bank's internalprocedures. The report concluded that 'N o adequate appraisalsofresettlement and rehabilitation, or of environmental impact' hadbeen made, and that the decision to proceed was taken 'on thebasis of extremely limited understanding of both human andenvironmental impact, with inadequate plans in place andinadequate mitigative measures underway'. Morse went on tocriticise World Bank staff in the India Department for deliberatelymisleading Executive Directors and Bank management inWashington on the scale of resettlement, and on problems overnon-compliance with agreements.To our know ledge, none of thestaff involved has been disciplined.

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Other evidence suggests that this was more than an isolatedexample of mismanagement. Over the last seven years alone,World Bank projects have forcibly displaced 2.5 million people.Recently reviewing projects that had affected about 2 millionpeople over the period 1986-1993, the World Bank admitted thatvirtually all them had failed to ensure that displaced peopleregained their former standard of living. Some of the problemswere traced to slack project-preparation by Bankstaff, and to laxmanagem ent a ttitudes . Clearance was routinely given to projectsthat did not meet Bank safeguards; offending governments were

not held to account; and little was done to remedy m istakes. But adeeper problem, which the report ignored, is the fact that theseproject failures have continued without an effective responsefrom the Bank's Executive Directors, who have systematicallyfailed to bring them to the attention of national legislatures.

The case of the Arun Dam in Nepal

The World Bank review of the resettlement of communitiesdisplaced by its projects acknowledges that 'the potential forviolating people's individual and group rights makescompulsory relocation unlike any other project activity'. Yet itgoes on to record serious underestim ates of the num bers likely tobe displaced. In India, where Bank guidelines were seldomapplied, it admits tha t 'the overall record is poor to the extent ofbeing unacceptable'. If the experience of one of the Bank's mostrecent big dam projects is an accurate litmus test of currentpractices, there is serious cause of concern.

Oxfam is concerned that a new project to construct a $770m damin the remote and ecologically unique Arun valley in Nepal mayrepeat the bad practices of the past, and could produceirreversible dam age . Relatively few of the tribal peop le living inthe valley will have to be relocated. But Nepali NGOs are

concerned that compensation rates for families losing land are settoo low, and that families are being persuaded to accept cashinstead of replacement land. If this is the case, many will be leftdes titute after a few years and forced to leave. Nepali NGOs alsofear severe social dislocation caused by the build ing of roads andarrival of construction workers. With the opening of the road,

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A Case for Reform

forests will be accessible for illegal logging activities, which carrythe threat of deforestation and soil erosion. This in turn willthreaten the future viability of farming on the region's fragilehillside slopes.

For their part, Bank staff claim that the Arun Dam has an excellentenvironmental protection scheme and they are pressing theBoard of the Bank to approve the project. But it rem ains far fromclear whether the Government of Nepal will be able to secureadequate finance. Moreover, Oxfam partners believe that the

Bank has seriously exaggerated both the export and employmentopportunities which the project will bring, raising questionsabout its economic viability. In addition, local markets will bedisrupted by the influx of goods from outside. The Bank hasadm itted its failure to consider a lternative schem es, such as smalland medium-scale local private-sector projects, which would bebetter geared towards m eeting local needs.

In mid-1994, many of the concerns raised by NG Os w ere echoedby the World Bank's Nepal Division Chief for Population andHum an Resources, MarlinVarchus, who resigned because he had'serious misgivings and reservations' about the Arun Project. In apublic statement(9 September 1994), he explained that thescale ofthe project was liable to 'crowd out investments in the socialsectors'. In his view, benefits would not readily trickle down to

the poor, the overwhelm ing m ajority of whom live in rura l areasthat will not be served by the Arun project.

The case ofPlanaforo in Brazil

Oxfam is currently monitoring another unfolding disastersponsored by the World Bank, this time in the Brazilian A mazon.The Rondonia N atural Resource Managem ent Project (Planaforo)was approved hastily before the Earth Summit inRio de Janeiro in1992, despite warnings from NG Os that the State government ofRondonia had shown no commitment to enforcing its social andenvironmental provisions. These included, as a precondition forthe World Bank loan, a com mitment by the State government tohalt illegal logging activities in Indian areas, and to stopencroachment into ecological reserves by land speculators.

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Neither of these conditions was met. Oxfam warned that, unlessthe Bank tookits own loan conditions seriously, Planaforo wouldonly repeat the mistakes of the past. This is precisely what hashappened.

Part of the rationale of Planaforo was to mitigate the effects of aprevious integrated rural development project calledPolonoroeste, costing $457 million. A major component of thisproject was the pav ing ofa 1,500km road. The construction of thatroad accelerated migration into the largely untouched western

Amazon, devastated Indian communities, and provoked large-scale, indiscriminate deforestation. The failure of the project'splans to protect Indian lands and the environment wassubsequently attributed by the Bank to Brazil's 'inappropriatepolicy framework', weak institutions, and inadequatemonitoring. Barber Conable, the Bank's then President, adm ittedin 1987 that Polonoroeste was 'a sobering example of anenvironmentally sound effort that went wrong'.

When the $167m Planaforo w as unveiled at the Earth Summ it, theBank confidently asserted that 'the current project incorporatesthe lessons learned by both the government and the World Bankduring the past decade about the necessary ingredients forsustainable development'. Yet three years after its approval,Planaforo seems set on the same disastrous course as itspredecessor, w ith problems of non-compliance by the federal andState governm ents, and their official implementing agencies. Theenvironmental protection agencies, despite receiving projectfunds, are not defending Indian areas and ecological reserves; theboundaries of many of the conservation units are being arbitrarilyreduced; logging has intensified; and the State zoningregulations, which demarcate Indian lands and underpin thewhole project, are being systematically violated.

The policy framework which underm ined Polonoroeste has notbeen am ended . Moreover, the government land agency continuesto regard forest clearance as evidence of 'improvem ents', and onthis basis awards definitive titles to land speculators. Peasantfarmers, Indians , and rubber-tappers are suffering in the process.

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Yet the Bank, although insisting that it cannot afford anotherfailure in Rondonia, seems unable or unw illingto keep the projecton course. The Bank has repeatedly stressed the importance of theparticipation of local NGOs in project decision-making, but inJune 1994 the NGO Forum of Rondonia wrote to the Bank'sPresident, Lewis Preston, calling for the project to be suspended .The Forum complained that NGOs' participation had beenlimited to superficial discussions of the annua l work p lans of theimplementing agencies, that 'grass-roots proposals were notbeing incorporated', and that Bank missions had ignored NGO

advice and, crucially, failed to address the discrepancy betw eengovernm ent policies and the State zoning regulations. In A ugus t1994, a Bank supervision m ission, under a new project manager,visited Rondonia to review the NGO Forum's complaints. Thisresulted in an agreement that theBank, the State government, andthe NGOs would draw up a new m anagement plan; that urgentstudies would be undertaken in areas of land conflict; thatguidelines would be drawn up clarifying land policies andprocedures between the key State and federal agencies; and thatmeasures to protect vulnerable isolated Indians and demarcatepriority Indian areas would be taken. Itis, of course, too early tojudge what impact the new agreement will have on theimplementation of Planaforo. What is clear, however, is thatserious mistakes have occurred which could have been avoided.In view of the history of Polonoroeste, it was reckless of the Bank

to press ahead with the project, without ensuring that adequatemechanisms were in place to implement and monitor theprogramme. Even unde r the new agreement, the Bank has failedto establish clearly identifiable benchm arks to measure progress,and the future of Planaforo still hangs in the balance.

The World Bank Inspection Panel

In September 1993, the World Bank established an InspectionPanel to investigate complaints from com munities affected by itsprojects. The introduction of independent and effective scrutinyis welcome. Unfortunately, the Inspection Panel, as currentlyconstituted, will be neither independent nor effective, for fourreasons:

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The Executive Directors of the World Bank can arbitrarilyblock investigations into complaints.

The Panel can only make recomm endations. It cannot dem andcompliance or compensation, which will be determined by theExecutive Directors.

Procedures are ambiguous and do not specify whethercomplainants will be able to comment on the response of Bankstaff to their complaints.

Successful complaints will result only in corrective action bythe Bank, rather than compensation for affected com munities.

Improving project performance

In 1992, the W apenhans report, an internal W orld Bank review ofthe reasons for poor project performance, made a number ofradical recommendations for improving the quality of projectmanagem ent. Few of its recomm endations have been adoptedand even fewer effectively implemented. For example,economists still dominate project design, implementation, andevaluation, even though W apenhans called for social scientists toassume m ore responsibility in these areas. Similarly, while therehave been tentative moves towards improved accountability,Bank staff are reluctant to act on W apenhans ' call for tough actionto counter non-compliance. Calls for greater realism have alsofailed to end the presentation of unduly optimistic andmisleading accounts of project performance to the Bankmanagement, and the impetus to lend at any cost remainscompelling.

More generally, in Oxfam's experience the World Bank's

comm itment to a 'bottom -up' approach to development has yet tobe translated into action. In the cases presented here, it is ill-equipped to deal flexibly with smaller-scale projects and localNGOs. Oxfam's Brazilian project partners negotiating with theBank for funds from the Pilot Programme for the BrazilianRainforest, agreed at the Earth Summit, have complained about

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the Bank's protrac ted and unnecessarily complex procedures forappraising small demonstration projects.

But perhaps the deepest flaw in World Bank project lendingis thatidentified by Wapenhans: namely, its failure to address theproblem of non-compliance with the social and environmentalguidelines established to protect local communities. In mostcases, these are empty formulas, honoured more in the breachthan in the observance. In Oxfam's view , this will remain the caseuntil the Bank introduces effective cross-conditionality, in which

all project lend ing is made conditional on com pliance w ith socialand environmental guidelines in every project.

Against this background, Oxfam believes that the World Bankmust introduce major reforms intoits project operation, including:

rem edial action for people affected by past projects:this shouldcover not just people displaced by large projects, but thosewhose way of life was severely disrupted by in-migration,through the Bank's support for road construction or colon-isation projects;

the cessation of loans for projects involving displacement,unless:

the environmental and social implications of the projecthave been properly understood, considered, and approved bythe affected communities;

the affected com munities have been given free access to theproject's Environmental Impact Assessments (which, despitenew World Bank guidelines, often remain undis-closed), andhave been directly involved in drawing up the resettlementand rehabilitationplan, including mitigation plans to deal withadverse environm ental effects;

the affected communities understand and approve thecriteria for paying com pensation and settling disputes;

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finance for resettlement, rehabilitation, and environmentalprotection is securedbefore the project is approved;

an independen t pane l has been set up to monitor compliancewith the loan agreements, and to protect the rights of affectedpopulations, with powers to halt disbursements and delayconstruction of infrastructure if necessary;

national laws , guaranteeing the rights of displacedpopulations, are enacted and in forcebefore the Bank proceeds

with a project loan.

Participation and decentralisation

Learning from the Past states the World Bank's commitment 'toenhance the participation of the poor in the design andimplementation of Bank-financed projects and programmes'. Todate, its main activities in this area have involved support fordecentralisation of political structures. In Oxfam's experience,decentralisation and participation can be useful instruments forsupporting community involvement. But success dependscritically on the prevailing local conditions and the developm entof genuinely consultative mechanisms fordialogue.All too often,these conditions are ignored.

The decentralisation model followed by the World Bank is theMexican Municipal Funds Program (FMS), which it helped todesign. This project, which is part of the National SolidarityProgram in Mexico, has the aim of increasing the capacity ofmunicipal governments to respond to development needs withgreater efficiency and accountability. Although the FMS hasachieved some successes in funding local projects among poorcommunities, it has been subject to political manipulation by

Mexico's governing Institutional Revolutionary Party (PRI). TheBank's optimistic assessment ofthis strategyis not justified by theevidence. An interna l report about the functioning of the FMS inthe state of Oaxaca, prepared for a World Bank Workshop onparticipation, noted that:

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Project selection under FMS did not necessarily prioritize the mostpressing basic service needs. A large minority of FMSprojects seemed tohave little imp act on poverty alleviationdespite the fact that the fundswere to be spent on projects that 'benefit the largest number ofleastfavoured residents'. In 1991, in Oaxacajor example,over 25 per cent ofthe project funding went into the categorycalled 'urbanization' e.g.paving the town square, building parkbenches, etc.

Whatever the successes and shortcomings of the FMS, itstransferability to other countries is very m uch open to question.

For exam ple, in Brazil the Bank has seen 'municipalisation' as amechanism for addressing problem s associated with its projects.The Planaforo project, discussed above, is a case in point. In thiscase, the World Bank has proposed transferring administrativeresponsibility from a State government, notorious for allegationsof corruption and the protection of vested interests, to municipalbodies . The problem is that municipal bodies in the project areashare many of the problem s associated with Statebodies. Similarproblem s have emerged with the Small Farmers Support Projectin north-east Brazil. This project is administered by localauthorities, many of which are dominated by landed interests andhave proved unresponsive to the needs of small farmers andlandless labourers. What these cases illustrate is that'municipalisation' is all too often a euphemism for disem-pow ering the poor in the interests of the wealthy.

This is not to deny the case for transferring decision-makingtowards accountable, local political structures. But while thebenefits of locally-based participatory development are beyonddispute, real participation requires effective consultation with thecommunities affected, rather than the implementation of pre-designed bluepr ints, which have little rega rd for prevailing localcircumstances. Unfortunately, the development of genuinelyparticipative structures is ha rd to reconcile with the Bank's top-dow n approach to developm ent, which remains firmly in place.Staff are still constrained by inflexible procedures governingprocurement and disbursement; they are based mainly inWashington, and rarely develop a rapport with local organ-isations; they are unable to m onitor effectively the performanceof

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implem enting agencies; and there are few real incentives for staffto carry out participatory w ork, given pressure to achieve lendingtargets. In short, the World Bank's practice is likely to continuefalling short of its aspirations to becom e 'a listening bank '.

This was recently underlined by the Bank's response to reportsfrom Oxfam project partners in Brazil of invasions of protectedIndian areas and ecological reserves. These reports have beendismissed by Bank staffas 'unre liable ' and left uninvestigated . Asa result, large-scale logging and encroachm ent are continuing to

destroy the livelihoods and resource-base of indigenous peoplesand com munities of rubber-tappers.

In Oxfam's view, fundam ental reforms are needed to improve theWorld Bank's approach to participation. In particular:

Decentralisation should be prom oted only in municipalitieswhere local government is genuinely accountable and thepolitical climate for participation favourable. In developingpolicy, the Bank, which generally ha s little field presenceitself,should attach more weight to the views and experience ofrepresentative local organisations.

Local capacity-building is required to enable localcommunities and representative organisations to play an

effective part in project-design, implementation, andmonitoring.

The Bank should adopt a 'process approach' to projects, inwhich objectives are developed in the light of experience, andit should be ready to accept changes proposed by localcommunities. At present, legal and political impedimentshinder effective responses to problem s.

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Reducing the burden of debt

Learning from the Past is conspicuously silent on the issue of ThirdWorld debt. During the 1980s, the World Bank and, moreespecially, the IMF uncritically endorsed creditors' claims thatdebtor countries should honour their debts in full. From this itfollowed that the only proper solution to the debt crisis was to

divert resources on a scale which would inevitably limit g rowth,and to impose enorm ous social costs which is what h appened.By 1988, net financial transfers to developing countries wererunning atminus $20bn per annum .

This perverse transfer of resources from the poor world to the richshould not have happened. Indeed, the IMF and the World Bankwere created, in part, to moderate the extreme effects of un regu -lated cycles of financial markets, in the interests of smoothing outadjustment processes, and enabling countries to grow out of debt.John Maynard Keyneshimself, one of the main architects of theBretton Woods institutions, envisaged a tax on 'surplus ' countriesto ease the adjustment problem s of 'deficit' countries. This couldhave been facilitated by reducing debts, which formed a pa rt ofthe resolution ofall previous debt crises. Instead, having accepted

that the debtshould be paid , the World Bank and theIMF

imposedthe deflationary conditions under which itcould be paid, withlittle regard to the enorm ous social costs involved. In the case ofLatin America, social expenditures w ere cut and domestic econ-omies squeezed to facilitate the transfer of financial resourcesequivalent to five per cent of regional income. Many of theproblem s facing developing countries today can be traced back tothis decision, taken in the early 1980s.

To make m atters w orse, the Bretton Woods institutions emergedas com ponents of the debt problem for many countries. Between1983 and 1987,ne t transfers to theIMF from developing countriesam ounted tominus $8bn,and transfers to the World Bank totalledminus $1.7bn. As the United N ations Development Programme

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report p ut it in1992:"The Bretton Woods institutions thus failedmany developing countries at their time of greatest need .'

That failure ha s continued. The deb tcrisis has all but disappearedfrom the international agenda, following the debt-reductionmeasures introduced in 1989 under the Brady Plan, which hasbenefited the major Latin American debtors; but sub-SaharanAfrica continues to stagger under a massive bu rden ofdebt. Thatbu rde n represents over 100 per cent of the region's income, so thatits citizens owe more than they earn. The people of Zam bia and

Tanzania owe their countries' external creditors around fourtimes what they earn. Repeated rescheduling operations, inwhich repayments are deferred to a future date, do little morethan obscure the fact of bankruptcy. Each year Africais drainedofmore than $10bn in debt repaym ents to the North more thanfour times the sum which the region spends on hea lth care for itscitizens. Even this represents only part of the problem, since itamountsto less than half of scheduled repaym ents,so that arrearsare build ing u p at a frightening rate.

Current debt-relief initiatives, including the Trinidad Terms,proposed by the British Governm ent in1990 and recently adoptedby the Paris Club, to ease the burden of government-to-government debt owed by the poorest nations, will not restoreAfrican and other low-income countries to financialviability.This

is partly becausethe

debt-reduction element envisagedis too

small,a point whichthe World Bank acknowledges.But another reason isthe failure of Northern governments to address the problem ofmultilateral debt, which is a problem for more than 30 countries.The IMF continues to receive from developing countries around$4bn annually more than it provides in new resources; and WorldBank transfers have also remained negative since 1989, althoughthe agency remains the major source of concessional finance('soft'

loans) for sub-Saharan Africa. These trends reflect the increasingpressure of the IMF and the World Bank in the debt profile ofdeveloping countries.

Of particular concern in this contextis the position of low-incomecountries, which have been by-passed by the increase in foreign

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A Case for Reform

inves tment into middle-income countries. Since1982, the stockofmultilateral debt owed by severely indebted low-income

countries has quadrupled to over $40bn, and servicing that debtabsorbs around one third of total payments. TheIMF represents aspecial problem, since it has extracted over $2bn from Africaalone since the mid-1980s. In the extreme case of Uganda,repayments to the IMF now represent over half of nationalrepayments or $100m annually. Projected debt service forNicaragua for1994 was $238m, or13 per cent ofGDP of whichtwo-thirds will go to the World Bank and the IMF.

Oxfam believes it is time for the World Bank to spearhead aninternational initiative to address the debt crisis of the world'spoorest countries. That initiative should include measures toreduce official debt on a more substantial scale than currentlyenvisaged, together with measures to reduce multilateral debt.The latter is vital, to prevent the continued recycling ofdesperately needed development assistance to the World Bankand the IMF in the form of debt repayments. Against thisbackground Oxfam has called for:

A comprehensive write-off of official debt owed by severely-indebted low -income countries to governments. This should bein the range of80 -100 per cent, and should apply to the total debtstock.

The writing off of IMF debt in severely indebted low-incomecountries, through a debt-reduction facility financed by a saleof gold stocks. The British governm ent's recent initiative in thisarea is a step in the right direction. Under its proposal presentedto the Com monw ealth Finance Ministers in September 1994, up to10 per cent of the IMF's gold stocks would be sold overa periodofyears, with the proceeds invested in financial securities. Theinterest from these securities would be usedto finance a reductionin debt repayments for low-income countries facing problemswith multilateral creditors. Oxfam has reservations both aboutthe capacity of the British proposa l to generate resources on thescale required and about the country coverage. It also rejects thelinkage, which the p roposal does not question, between eligibility

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for debt relief and adherence to IMF stabilisation programmes.However, the British initiative is important, because it establishesthe principle that multilateral debt problems can be addressed bygenerating additional resources within the international financialinstitutions themselves, rather than by diverting developmentassistance.

A new issue of Special Drawing Rights (SDRs) targeted atdeveloping countries. In effect, SDRs are an asset which the IMFcan provide to its members, to exchange for hard currencies when

they are facing shortages of foreign exchange. The IMF'smanaging director has been pushing for a new allocation of SDRs,amounting to over $52bn, partly to help finance the imports ofmiddle-income developing countries, and partly to supportreconstruction in eastern Europe and the former Soviet Union.Not surprisingly, this proposal enjoys the strong support of themore powerful developing countries and former communistcountries.

In Oxfam's view, there is a strong case for the Group of Sevenindustrialised countries to agree to a new issue of SDRs, the lastof which happened in 1981. The argument that this would beinflationary ignores the obvious fact that SDRs represent a minuteproportion (less than 2 per cent) of global reserves, and that,properly allocated, they would enable countries to expand outputand employment. However, the real issue is not so much the sizeof the IMF's SDRs, but their dispersal. Under current arrange-ments, each country's share of SDRs depends on the size of itseconomy, so that most are allocated to the big industrialeconomies which are least likely to use them. What is needed is areallocation of SDRs towards poor countries with little access tocapital markets. In this context, the use of SDRs to finance debt-reduction measures in severely-indebted low-income countries

could play an important role in reducing the foreign-exchangeconstraints which are hampering their recovery.

The use of the World Bank's reserves (currently totallingover $17bn) to provide debt relief on a selective basis on non-concessional ('hard') debts owed to the International Bank for

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Documents

A Case for Reform: Fifty years of the IMF and World Bank