UK withholds $50 million to World Bank because of corruption policies

DadaKopf

UK withholds World Bank donation
The UK is withholding £50m it had pledged to the World Bank in protest at conditions it attaches to aid.

International Development Secretary Hilary Benn voiced concerns that the Bank is telling poorer nations how to run their affairs.

Oxfam said it welcomed the move by the UK government, adding that the World Bank's policy on aid was "disastrous".

Mr Benn's comments came on the eve of the World Bank and International Monetary Fund's annual meetings.

He is concerned that the Bank has been demanding too strict conditions before giving aid to developing countries.

Loan suspensions

Mr Benn said the Bank had a duty to help those in poverty despite the actions of their governments.

The Bank has for a long time insisted that the countries it lends to meet economic targets and has encouraged trade liberalisation.

In addition, since taking over as head of the Bank last year, World Bank chief Paul Wolfowitz has made it his mission to tackle corruption in poorer countries.

His campaign has led to hundreds of thousands of dollars of loans and contracts to countries like Chad, Congo, Ethiopia and Bangladesh being suspended.

Campaign attacked

Mr Benn told Mr Wolfowitz that the UK is unhappy with the lack of progress at removing strict conditions on financial assistance.

Last year, the UK provided £1.3bn to the Bank to help poorer countries and promised to donate a further £50m in 2007, provided it eased the strings attached to aid.

On other issues, particularly economic policy, developing countries ought to take their own decisions
Hilary Benn, international development secretary

However, Mr Benn has said he will now delay handing over the cash until he is satisfied the World Bank has eased its position on economic liberalisation.

"Most people would agree that if you're invading your neighbour, if you're oppressing your population or if you're taking aid money and spending it on other things, then we shouldn't stand for that and we won't," Mr Benn told the BBC.

"Britain doesn't and nor does the World Bank and we should attach conditions in those circumstances.

"But on other issues, particularly economic policy, developing countries ought to take their own decisions and I do believe that this is one of the ways that we can increase the voice of the poorest countries of the world," he added.

Decision-making

Oxfam and other campaigners such as Christian Aid say the World Bank's current policies often leave people in developing countries worse off than before.

"Imagine what life would be like if you had to run every decision you made by your bank manager and if he or she didn't like it, you would have to change it," Christian Aid policy manager Anna Thomas said.

"That is the reality for many poor countries and they can't just switch accounts."

Christian Aid points to the example of Ghana where the World Bank's demand for a ban on tariffs and subsidies for the poultry market has led to an influx of cheap European imports and seen many thousands of Ghanaians lose their jobs and livelihoods.

Very positive move by the UK. It looks like since becoming President, Wolfowitz has been using the World Bank to further American foreign policy. The World Bank and IMF have always made developing countries jump through hoops to get money, and many of these hoops have hurt poor people the most. So I reckon it's good that the UK has done this, just like Ireland withheld money to the IMF in 1995 for the same reasons.

Another example of how the World Bank has actually fuelled corruption is Mozambique where enforced liberalisation created greater opportunities for bribery and graft.

Funny thing is, the UK - through companies, banks and some semi-state agencies - is one of the largest drivers of corruption in Africa. Crazy.

The Saint

Whats this? The Brits doing something ethical in relation to their foreign policy. Wonders will never cease to amaze me. Good call though.

The Corinthian

DadaKopf wrote:

It looks like since becoming President, Wolfowitz has been using the World Bank to further American foreign policy.

How so? The article in question cited Wolfowitz imposing conditions to combat corruption, nothing about furthering American foreign policy.

The World Bank and IMF have always made developing countries jump through hoops to get money, and many of these hoops have hurt poor people the most.

The problem is, however, that if we simply hand over wads of cash those poor people will end up getting at best 1% of it - if even that - and further perpetuates corrupt regimes. A good example is when Chad reneged on a promise to the World Bank to set aside money for development and the poor, preferring instead to increase military spending.

So what do we in the West do? Give money blindly on some type of ‘White man’s burden’ guilt trip knowing that we are only feeding the problem? The conditional approach may not work, I’d admit, but it’s better at this stage to try that than continue to line the pockets of corrupt African politicians.

Another example of how the World Bank has actually fuelled corruption is Mozambique where enforced liberalisation created greater opportunities for bribery and graft.

How so? That actually sounds completely speculative.

The Saint

The Corinthian wrote:

The problem is, however, that if we simply hand over wads of cash those poor people will end up getting at best 1% of it - if even that - and further perpetuates corrupt regimes. A good example is when Chad reneged on a promise to the World Bank to set aside money for development and the poor, preferring instead to increase military spending.

I don't think he was argueing for dictatorships to be given the money when it going to be spent on the military or other such things that do not benifit the general population. If corrupt and brutal regimes are i place then money can be distributed through NGO's. I would have no trouble with conditions of human rights adherence and accountable spending.

However the World Bank puts conditions on loans based on privatisation and liberalisation which in effect destroy the domestic economies of developing countries. This has been the case in many countries where they have been forced to open their economies to subsidised European and American imports undercutting their native industries with the US and EU retaing their import tariffs. Countries should be allowed to choose their own economic development models without being coerced into liberalisation when it is clearly bad for the developing country.

mike65

That article comes from the Times of London I think.

Mike.

freddyfreeload

The Corinthian wrote:

So what do we in the West do? Give money blindly on some type of ‘White man’s burden’ guilt trip knowing that we are only feeding the problem? The conditional approach may not work, I’d admit, but it’s better at this stage to try that than continue to line the pockets of corrupt African politicians.

A good first step would be to bypass the governments of recipient nations and go straight to the root of the problem. The international community could instead choose to direct its aid funds at establishing self-sustaining grass roots enterprises from agriculture to manufacturing.

This is the sort of unsung work that NGO's actually do with an N'th of the funding loaned through the IMF, but with very real success. If all international aid were unitied, and spent in this way, developing nations could eventually be left to do just that - develop.

And an even better option that Western taxpayers funding all of this is a Tobin Tax on currency speculation, and other development taxes, which could eventually be extended to all speculative trade.

ff

DadaKopf

freddyfreeload wrote:

A good first step would be to bypass the governments of recipient nations and go straight to the root of the problem. The international community could instead choose to direct its aid funds at establishing self-sustaining grass roots enterprises from agriculture to manufacturing.

This is the sort of unsung work that NGO's actually do with an N'th of the funding loaned through the IMF, but with very real success. If all international aid were unitied, and spent in this way, developing nations could eventually be left to do just that - develop.

And an even better option that Western taxpayers funding all of this is a Tobin Tax on currency speculation, and other development taxes, which could eventually be extended to all speculative trade.

ff

But bypassing government systems means that governments cannot develop the skills and expertise necessary to govern well and provide essential public services.

Imagine if all the structural funds from the EU were channeled through the St. Vincent de Paul Society? Would we have the country we have today?

I think the solution is to mix 'modalities' of aid - to help both governments and civil society to become more accountable to one another.

One thing donors and NGOs can do is publish what they pay to governments and districts, in towns and villages and in newspapers and on the radio. This has had extremely positive effects in many developing countries.

The issue isn't that corruption is not a problem in Africa - Africans themselves think it's a serious problem, and Africans are tackling corruption themselves. This story (from BBC News) reveals tensions within the aid elite, revealing that so-called 'anti-corruption' policies, in the opinion of its progenitors, are merely liberalisation policies that reverse development. This debate has been going on a long time, but it used to go by the unsexy title, 'good governance'. And that was simply Structural Adjustment Mark II.

freddyfreeload

DadaKopf wrote:

But bypassing government systems means that governments cannot develop the skills and expertise necessary to govern well and provide essential public services.

I think the solution is to mix 'modalities' of aid - to help both governments and civil society to become more accountable to one another.

Fair point - and a better solution. The key should be to foster self-sufficiency instead of either a bale-out at one extreme or structural readjustment at the other.

DadaKopf wrote:

One thing donors and NGOs can do is publish what they pay to governments and districts, in towns and villages and in newspapers and on the radio.

Couldn't agree more. Many actually have some very positive figures to publish. I don't know why more don't. Priorities I guess.

ff

The Corinthian

The Saint wrote:

I don't think he was argueing for dictatorships to be given the money when it going to be spent on the military or other such things that do not benifit the general population. If corrupt and brutal regimes are i place then money can be distributed through NGO's. I would have no trouble with conditions of human rights adherence and accountable spending.

To begin with there are limits to the good that that NGO’s can do in developing nations and secondly, when did NGO’s suddenly become whiter than white? In my experience there’s as much incompetence and corruption (not to mention ulterior motives) in them as there is in any other type of organisation.

However the World Bank puts conditions on loans based on privatisation and liberalisation which in effect destroy the domestic economies of developing countries.

Firstly that’s nothing new, what is new and being criticised are conditions relating to corruption.

Secondly, so what is they’re pushing for greater liberalisation? Not everyone is a bed wetting Socialist that thinks that’s such a bad idea.

This has been the case in many countries where they have been forced to open their economies to subsidised European and American imports undercutting their native industries with the US and EU retaing their import tariffs.

Really? Like where?

freddyfreeload wrote:

A good first step would be to bypass the governments of recipient nations and go straight to the root of the problem. The international community could instead choose to direct its aid funds at establishing self-sustaining grass roots enterprises from agriculture to manufacturing.

Have you ever been in one of these countries? Seriously, they’re not big fans of third parties bypassing them, especially if it involves something they could profit from. And they have AK47’s. Do the math.

And an even better option that Western taxpayers funding all of this is a Tobin Tax on currency speculation, and other development taxes, which could eventually be extended to all speculative trade.

Yes, let’s just throw more money at the problem... :rolleyes:

freddyfreeload

The Corinthian wrote:

In my experience there’s as much incompetence and corruption (not to mention ulterior motives) in them as there is in any other type of organisation.

What experience is this? Real or just your selective reading?

The Saint wrote:

This has been the case in many countries where they have been forced to open their economies to subsidised European and American imports undercutting their native industries with the US and EU retaing their import tariffs.

Corinthian wrote:

Really? Like where?

Like wherever the IMF imposes structural readjustment measures.

Corinthian wrote:

Have you ever been in one of these countries?

Yes, actually. Have you?

Corinthian wrote:

...they’re not big fans of third parties bypassing them, especially if it involves something they could profit from.

And they have AK47’s. Do the math.

Quote:
And an even better option that Western taxpayers funding all of this is a Tobin Tax on currency speculation, and other development taxes, which could eventually be extended to all speculative trade.

Yes, let’s just throw more money at the problem...

freddyfreeload

The Corinthian wrote:

In my experience there’s as much incompetence and corruption (not to mention ulterior motives) in them as there is in any other type of organisation.

What experience is this? Real or just your selective reading?

The Saint wrote:

This has been the case in many countries where they have been forced to open their economies to subsidised European and American imports undercutting their native industries with the US and EU retaing their import tariffs.

Corinthian wrote:

Really? Like where?

Like wherever the IMF imposes structural readjustment measures.

Corinthian wrote:

Have you ever been in one of these countries?

Yes, actually. Have you?

Corinthian wrote:

...they’re not big fans of third parties bypassing them, especially if it involves something they could profit from.

Which is why I modified my position to agree with Dadakopf on a mixed approach. Which is now being used very successfully in countries like Ethiopia.

freddyfreeload wrote:

And an even better option that Western taxpayers funding all of this is a Tobin Tax on currency speculation, and other development taxes, which could eventually be extended to all speculative trade.

Corinthian wrote:

Yes, let’s just throw more money at the problem...

I should have thought this kind of witless comment beneath even you. With even the most cursory of looks you would see that I'm not suggesting we throw more money, but that it come from a different source: super-rich currency speculators instead of ordinary citizens.

ff

The Corinthian

freddyfreeload wrote:

What experience is this? Real or just your selective reading?

First hand.

Like wherever the IMF imposes structural readjustment measures.

Less clichés more facts please.

Yes, actually. Have you?

Yes.

I should have thought this kind of witless comment beneath even you. With even the most cursory of looks you would see that I'm not suggesting we throw more money, but that it come from a different source: super-rich currency speculators instead of ordinary citizens.

Where the money from is the only thing you’re suggesting changing, not how it’s spent, so in essence you’re just suggesting the same old “let’s throw more at the problem” solution.

And less of your indignation please.

DadaKopf

The Corinthian wrote:

Really? Like where?

Like the Ghana example given in the BBC news article above. Or in Mozambique, where the World Bank forced the Mozambiquan cashew nut processing sector out of business, putting tens of thousands out of work, despite Mozambique supplying half the world's supply of cashews and having major comparative advantage in this export sector. The gains the World Bank predicted were out of step with reality. The paltry gains made were cancelled out by the fall in real incomes of urban workers involved in the industry.

Or how about the introduction of school and health fees for the world's poorest as part of IMF and World Bank adjustment policies? How can education and health have a positive developmental impact if those who cannot afford it are expected to pay for it, eating up their savings which can be used to invest in their livelihoods?

The Corinthian wrote:

First hand.

Yes.

Less clichés more facts please.

You're one to talk.

I thought this thread would end up being about the validity of the World Bank attaching corruption conditionalities to loans (not 'aid') and the reality of corruption issues in Africa and across the developing world. I guess I was just being naive.

If the purpose of the World Bank is 'poverty reduction', then prioritising anti-corruption in Bank policies is likely to have effects that undermine that goal. Withholding loans on capricious grounds of corruption politicises aid therefore undermining developing countries' commitments to development goals. As The Corinthian admits, conditionalities haven't worked. 'Ownership' is a vital ingredient of successful reform, as is the case in Botswana, for example. Corruption is an important issue - people in developing countries say so themselves. Anti-corruption is a dimension of poverty reduction, but not the magic bullet. I'm glad that this debate is going on in the Bank's top echelons.

But Wolfowitz's withdrawal of aid to Congo seems to be pretty weird:

New York Times wrote:

Aides to Mr. Wolfowitz said he suspended debt relief talks with Congo because he was dissatisfied with audits of its state oil company. They said he expressed indignation over news reports about extravagant hotel bills incurred by Congo’s president during United Nations General Assembly meetings in New York last September.

Surely the solution isn't to hold money back, it's to more actively support developing countries' own efforts in tackling corruption.

edanto

The Corinthian wrote:

Firstly that’s nothing new, what is new and being criticised are conditions relating to corruption.

Secondly, so what if they’re pushing for greater liberalisation? Not everyone is a bed wetting Socialist that thinks that’s such a bad idea.

Just to take your second 'point' first.... are you supporting greater liberalisation and implying that people that think it's a bad idea are bed wetting socialists?

Now, who's being indignant!?!

TC, here's a link for you.

It's a speech by Jomo Kwame Sundaram, the Assistant Secretary-General for Economic Development, Department of Economic and Social Affairs at the United Nations. Can we stop arguing over who's been to the most third world countries and agree that he knows what he's talking about?

Here are some quotes from his speech...

First, the whole question of international financial liberalization. Both Bretton Woods institutions and others have been promoting international financial liberalization for the last few decades. Developing countries were basically told that there would be a net flow of funds from the capital rich to the capital poor, that the cost of funds would go down, and there would be greater stability with financial deepening. The converse has actually happened. There have been capital flows, but the net capital flows have actually been from the south to the north.

:eek: Liberalisation has had bad effects. Nnnoooo!!

The then IMF Economic Councilor Ken Rogoff, now back as a professor at Harvard, published a couple of papers in the year 2003 where he and his colleagues showed that financial liberalization had not been good for growth, and also had actually not been good for financial stability.

Oh dear, that doesn't sound too good either.

But maybe you weren't talking about financial liberalisation... maybe you were talking about trade liberalisation. Well then...

However, as the World Bank has admitted in a very interest document published last week by the Independent Evaluation Office, this trade liberalization while successful in and of itself has not contributed to growth, and certainly not contributed to the reduction of poverty.

Premature trade liberalization undermines the development of economic capacity building, and this I think is very important if we are serious about development. ..... The poorest countries in the world, especially in Africa, are not in the position to benefit from trade liberalization because they simply do not have the productive, let alone the export capacities required to benefit from trade liberalization.

So, you see, the insistence by the World Bank of 'greater market access' etc has been a bad thing. Very poor countries aren't ready for that and it seems to hurt them.

And then your first point

The Corinthian wrote:

Firstly that’s nothing new, what is new and being criticised are conditions relating to corruption.

Eh, no, that's wrong. You'll notice, slap bang in the middle of the article that:

However, Mr Benn has said he will now delay handing over the cash until he is satisfied the World Bank has eased its position on economic liberalisation.

So, it appears, Mr Benn, Jomo Kwame Sundaram and countless others realise that the economic conditions attached to World Bank loans (particularly those related to liberalisation) are doing more harm than good.

I doubt either of them would like to be referred to as bed wetting socialists, I contend that you have hardly read the article we're talking about and I applaud the UK for taking the step of withholding a small proportion of its WB funding to bring more attention to the problem.

And finally, will you stop misrepresenting the views of people that disagree with you as 'throwing more money at the problem'. That's not what's being suggested. Google is your friend.

freddyfreeload

The Corinthian wrote:

First hand.

Fewer clichés more facts please.

The Corinthian wrote:

Less clichés more facts please.

Among others:

Malawi
Ethiopia
Tanzania
Mozambique
Angola
Benin
Senegal
Niger
Kenya
Indonesia
Philipines
S.Korea
Mexico
Columbia
Bolivia
Argentina
Ecuador
Honduras
Paraguay

IMF administered loans are conditional on acceptance of their austerity measures. These measures have almost always resulted in lower GDP, higher unemployment, greater endebtedness and increased poverty.

The Corinthian wrote:

Where the money from is the only thing you’re suggesting changing, not how it’s spent

Actually, no it isn't. You really should read what people write before you try trashing it. Same goes for the Tobin Tax: check out what is being proposed on expenditure before you let your knee start jerking.

The Corinthian wrote:

And less of your indignation please.

Indignation? Oh no, not at all. When I said, "I should have thought such a witless comment beneath even you." I was expressing my surprise at your inability to understand a simple sentence. That's all.

Less of your leaping to eroneous conclusions please.

ff

DadaKopf

Ladies, stop bickering.

In fairness freddyfreeload, that list of countries doesn't leave anyone any better informed.

And I think the issue isn't where the money should come from so much as it is where it should go, and how to ensure that it gets to where it should.

As far as the World Bank and IMF go, however, there are on-the-record and off-the-record uses for loans. On-the-record, it's for poverty reduction. Off-the-record, it's an instrument of rich countries' foreign policies. This is the reason for the miserable track record in reducing global poverty.

edanto

DadaKopf wrote:

Off-the-record, it's an instrument of rich countries' foreign policies.

Do you know of any academic studies that show this clearly?

freddyfreeload

DadaKopf wrote:

Ladies, stop bickering.

Ahh, c'mon... I think he and I both enjoy the handbags!

DadaKopf wrote:

In fairness freddyfreeload, that list of countries doesn't leave anyone any better informed.

Well, TC asked where, not how, and then there's that thing about leading horses to water...

DadaKopf wrote:

And I think the issue isn't where the money should come from so much as it is where it should go, and how to ensure that it gets to where it should.

In the short term, yes. But in the long term where it comes from is crucial too. While govts of developed nations hand out to govts of developing nations, there will always be ulteria political agendas at play that will benefit the lenders/donor nations (either through processes like tying aid, export credit, or through restructuring economies to their own advantage).

The Tobin Tax model proposes a source of funding that would regulate capital flows, fund development, direct the money where it's most needed (from the ground up) and administer it centrally and democratically.

That's got to be a good thing. Plus, it removes the selfish interests of developed nation states from the fundraising and admin process.

ff

DadaKopf

Not necessarily.

I'm in favour of a Tobin Tax - well, one of the modified versions - but it seems to me, looking at history, I'm not so convinced that funds will be administered quite so democratically. It's just not such a happy-clappy win-win situation.

But, its initial objective - to stabilise financial markets - might have good development spin-offs. Less instability, meaning fewer crises for developing countries. That's if our global boom can be sustained, which Larry Elliott in today's Guardian doesn't think it can (see IMF reform article).

edanto

I got a letter from Hilary Benn outlining the UK position on the remaining $50m. Last year 5 good practice principles were adopted by the bank and the first of these is ownership. Benn saw the review as reaffirming the Bank's commitment not to impose policies, including privatisation and trade liberalisation, on developing countries. He says that a report from the World Bank last year showed some good examples of where the bank had sought to apply the good practice principles, but..

there was not enough information to to reach a judgement on how consistently and effectively they had been applied. .... So I told the bank that I would not agree to the $50m being paid until I had seen the evidence that it was making serious efforts to implement the principles. I repeated this message directly to President Wolfowitz at the Annual Meetings of the World Bank and IMF in Singapore last month and he has agreed to produce a more detailed report.

The report will be carried out by the IMF's Independent Evaluation office and is expected soon, before the $50m is due in April 2007. If the report doesn't satisfy the UK, they will spend the $50m on other development activities.

He also made some comments on trade reform generally.

In my view, well managed trade reform has the potential to improve the lives of poor people for the long term. Increased trade is vital for growth, increased jobs and incomes, and ultimately to reducing dependancy on aid. However, we also believe that developing countries should not be forced to open up their markets, either through trade negotiations or aid conditionality, but should have the flexibility to implement trade rules at a pace suited to their level of development. The UK does not support forced liberalisation, so we are fully committed to urging all WTO members to agree to a set of measures that will help developing countries adopt to and take advantage of more open markets of trade.

One example of a study that supports the above argument is one by Christian Aid from last year. They worked out that sub-Saharan Africa is a massive US$272 billion worse off because of free trade policies forced on them as a condition of receiving aid and debt relief. link