Privatisation and trade liberalisation policies foisted on developing countries in return for financial help are often bad for the poor, according to a confidential United Kingdom government paper.
The document — drawn up jointly by the UK’s Department for International Development, the Treasury and the Foreign Office — says the World Bank, the International Monetary Fund (IMF) and individual governments should limit and streamline so-called ”conditionality” for aid money.
Hilary Benn, the UK’s International Development Secretary, has been the driving force behind the review, which was cited by the British delegation at the recent annual meeting of the World Bank and the IMF in Washington.
The paper says: ”We believe that developing countries must have room to determine their own policies for meeting millennium development goals and can use aid most effectively if they can predictably rely on it as part of their long-term budget plans.”
Signalling Benn’s misgivings about aspects of the Washington consensus — the raft of policies urged on developing countries by the IMF and the World Bank — the report commits Britain to a softer line.
”In sensitive policy areas such as privatisation, the UK will only use conditions to back reforms where partner governments have had space to debate — including where appropriate in Parliament — the full range of policy options and have made their own decision informed by clear evidence of the benefits to poor people,” it says.
The paper adds that evidence on the impact of privatisation is not clear-cut. ”Some privatisations have increased investment in service delivery while others have worsened the standard of service received by the poor — particularly where governments have limited capacity to define contracts and regulate the behaviour of private sector providers.”
The government believes that the evidence on trade reform is also mixed, with some signs that over-rapid liberalisation is preventing poor countries from emulating the strong growth of East Asian nations, where trade barriers were removed only gradually as industrialisation took root.
”Overall, trade reforms have been an important element explaining growth of poor countries and hence poverty reduction,” the paper says.
”But there are concerns, for example, that aid conditions have constrained poor countries from following the development path of successful East Asian economies that relied on protection during early stages of development; and that conditions requiring unilateral trade liberalisation affect the ability of poor countries to negotiate effectively in multilateral discussions.
”In some cases, poor people have suffered during trade liberalisation, where ‘conditionality’ has been excessively restrictive, or where insufficient attention was paid to factors that help poor people to benefit from trade, such as being able to access health and education systems, financial services, and infrastructure.”
Romilly Greenhill, policy officer at Action Aid, said: ”At long last the UK government has recognised that aid donors should be lending a hand to developing countries, not imposing policies that cost an arm and a leg.
”As a major shareholder of the IMF and World Bank, the [British] government should now be pushing those institutions — the worst offenders in terms of their record on conditionality — to follow suit.”
James Wolfensohn, the World Bank president, said: ”We have long since dealt with conditionality on a national basis. A lot of the old claims have fallen away. I can’t remember when a head of state last talked to me about conditions.”
Max Lawson, policy adviser for Oxfam, said: ”Conditionality has been dealt with according to Wolfensohn. Tell that to countries like Tanzania and Ethiopia with more than 70 conditions this year. An independent review of World Bank conditionality is overdue.”
The UK paper said there had been some efforts by the IMF and the World Bank to improve ”condition-ality” but more is needed to be done. ”We will continue to press both the World Bank and IMF to monitor the combined burden of their conditionality. More action is also needed from bilateral donors, including the UK.” — Â