Ann McKechin MP

Labour Member of Parliament for Glasgow North

Oversight of World Bank and IMF policies - 14 Septmber 2004

This year marks an important anniversary for our multilateral organisations, as it is 60 years since the International Monetary Fund and the World Bank were created at the Bretton Woods conference. They were set up with the noble and worthwhile aims of providing global financial stability and growth to avoid the economic disasters that had scarred the first half of the 20th century and had, at least in part, led to world war two. Our world has, of course, changed a great deal during those 60 years and the role and influence of those bodies has altered significantly from the original ideals. Gradually, both organisations have adopted objectives based on an unswerving belief in the benefits of capital market liberalisation, which has certainly benefited the financial markets but has, in many cases, failed to secure the original aims of world stability and growth. Today, IMF and World Bank activities directly affect the lives and livelihoods of billions of people throughout the developing world. Over the years there have been many criticisms of their policies, and of their policies' consequences, from a wide variety of sources. Despite the talk in western nations of the need for democracy and good governance, however, in many ways those institutions still appear remote and unaccountable to any form of democratic mandate.

At the end of the month, Ministers will attend the annual general meeting of the World Bank and the IMF, but despite the huge power of both those institutions, there has been no opportunity for a debate in the main Chamber of this House or in the other place on how this country's representatives propose to conduct negotiations, or on their voting patterns during the last year. That is the norm, for there has been remarkably little debate or scrutiny of the Government's record in either institution, despite the fact that we hold a permanent directorship on the boards of both and are viewed as a key world player.

Sadly, the United Kingdom is not unique in its lack of parliamentary scrutiny and I argue that that is one of the fundamental reasons why multilateral institutions have failed to address the true needs of the people whom they were ultimately designed to serve. Although they are public institutions, there is no direct accountability to the public. That is understandable, given their global nature' however, that lack could be balanced by ensuring that the operations of the organisations are open and transparent. In reality, they fail to be transparent, with a culture of secrecy ingrained in the institutional framework, and key economic and loan decisions still being taken in closed-door discussions. Some—the IMF and World Bank among them, no doubt—will argue that that provides flexibility, but it also precludes timely debate and criticism in national Parliaments and allows special interests full sway. Probably just as importantly, it creates suspicions that, even when groundless, can feed the forces that can undermine the political sustainability of such policies. Joseph Stiglitz, a former chief economist at the World Bank, argues in his book, "Globalization and its Discontents" that: "The most fundamental change that is required to make globalization work in the way that it should is a change in governance. This entails, at the IMF and World Bank, a change in voting rights . . . to ensure that it is not just the voices of . . . finance ministries and treasuries that are heard."

At present, voting rights are determined largely on the basis of economic weight, giving the industrialised nations of the world, who are also the leading nations in the financial community, an effective veto on IMF and World Bank decisions. However, as Stiglitz argues effectively in his book, the premise that the creditor nations should hold the real power is fundamentally false, as the IMF almost always gets paid. It is not the same as a commercial bank. The money ultimately comes from the workers and other taxpayers in the developing nations. That imbalance has led to IMF and World Bank policies being concentrated on the priorities of the financial community, rather than on those of the poor. Two weeks ago, I had the opportunity to visit Zambia as part of an exchange scheme for women parliamentarians organised through the offices of the British Council. For more than 20 years, the Zambian Government have been dependent on support from the IMF and the World Bank. Unlike many of its neighbours, it has enjoyed relative stability and lack of conflict for a long period, and it has a proud record of caring for substantial numbers of refugees from war-afflicted zones in countries on its borders.

Despite this record, however, Zambia has become increasingly poorer during that period. It now has the lowest life expectancy of any country in the world: a mere 33.4 years in 2001. In 1990 it was ranked 130 on the UN human development index, but it had fallen to 163 in 2001. Over the years, the multilateral organisations have imposed a whole raft of conditions on the way in which Zambia's economy should operate, but for much of that time those conditionalities did not lead to better policies, faster growth or better outcomes for the Zambian people. Zambia liberalised many of its domestic industries before neighbouring countries in the region, but owing to the failure to consider the proper sequencing of these measures, the record post-privatisation has been very mixed. Many companies have collapsed, jobs have been lost and welfare programmes originally carried out through a state organisation have not been continued by private companies.

In the past 10 years, Zambia has sold 257 out of 280 state firms. Unlike the economies of east Asia, which opened their markets slowly to the outside world and in a sequenced way, Zambia was totally unable to compete with international competition, and privatisation has not led to employment growth. Formal manufacturing employment almost halved, falling from 75,400 in 1991 to 43,320, in 1998. In addition, the Government have been required to lower tariffs on a wide range of products to levels far lower than the limits set under World Trade Organisation agreements. The IMF and World Bank have taken an exceptionally long time to admit that historical evidence shows that to develop, exporting countries need protection for a period of time from the world's markets, and most if not all of today's industrialised and newly industrialised nations—including our own in the west—have used a wide variety of what would now be considered trade-distorting policy interventions to protect their economies before they liberalised. Sadly that lesson was not learned soon enough to save Zambia's textile industry—one of the indicators of its transition from a developing country into a more industrialised state. The lowering of tariffs on textile products, and particularly the removal of all tariffs on used clothes, led to large increases in imports of cheap, second-hand clothing from industrialised nations. There were more than 140 textile firms in 1991 but their number had fallen to just 8 by 2002, and employment in textiles fell from 34,000 to only 4,000 in that period. Sadly, textiles is not the only industry in which such consequences have been felt.

The liberalisation of trade also had an adverse impact on Government revenues. During the 1990s, total income from tariffs, which formed a significant part of Zambia's revenue, fell by more than 50 per cent., and with declining gross domestic product overall, Government revenue fell by more than 30 per cent. in real terms between 1990 and 1998. At the same time, however, the IMF and World were was calling for fiscal stringency, so spending on important economic infrastructure was heavily cut. During my visit, I met communities who had to wait upwards of 30 years for the most basic health care and school provision—in fact health care and school provision now is similar to that provided prior to independence in 1964. In one area, the local community had built its own school with materials supplied by a US charity, but only had resources to appoint an unqualified teacher. Their literally incredible efforts to give their children a very rudimentary education were truly humbling, yet at the same time there are approximately 5,000 qualified teachers in the country whom the Government cannot afford to employ.

Despite that record, in the very week of my visit, the World Bank representative in Zambia stated, astonishingly, that Zambians should stop complaining about the multilateral institutions of the IMF and World Bank. Apparently, he was under the strange impression that his own organisation was an invincible force for good. As the Zambian authorities grapple with the challenge of reaching the completion point in the heavily indebted poor countries process, they may feel that they are not in a strong position to argue against such arrogance. Despite the recognised efforts of the Government this year to achieve a balanced budget, Zambia will reach the completion date, probably by January next year, with an unsustainable level of debt will be far from ever reaching the millennium development goals. Any progress that has been made in the past couple of years is agonisingly small, while Zambian people continue to suffer from crushing poverty. Such complacency on the part of the IMF and the World Bank works against good governance and democratic decision making and involvement.

I appreciate that our Government, together with the IMF and World Bank, have placed much store in recent years on the poverty reduction strategy papers process, which is linked to the debt relief programme, as being much more participatory and constituting a genuine dialogue between north and south. However, the incorporation of civil society viewpoints in the final PRSP in HIPC countries does not extend to the macro-economic policies that are underpinned by the poverty reduction growth facility, because that is subject to complete control by the IMF. A poverty reduction growth facility letter of agreement is required before a country can reach the decision point on the PRSP. The involvement of parliamentarians, as opposed to Ministers, in the PRSP process is at best minimal, and in many HIPC nations is almost non-existent.

There is no doubt that there are other contributory factors to Zambia's economic decline, such as corruption and lack of good governance. Nevertheless, the IMF and World Bank have had 20 years of significant influence in the country and its economy but have failed to deliver. If, like a Government's, their policies were truly subject to democratic scrutiny, changes in direction and scope would have happened far quicker.

Last week, in my role as co-chair of the all-party heavily indebted poor countries group, I hosted a meeting to launch a global petition calling for both institutions to recognise the right of national Parliaments to have the right and obligation to be fully involved in the development and scrutiny of their proposals and to hold the final power of ratification. The organisers of the petition, which is supported by the Parliamentary Network on the World Bank, hope to gain support in at least 60 Parliaments and Assemblies from both the north and south of the globe.

Even though we have been back in session for only just over a week, more than 125 parliamentarians from both Houses have already signed the petition, and the response from other Parliaments has been encouraging. The petition has struck a strong chord with elected representatives, who often feel powerless to influence decisions that have such an impact on their electorate. The aims of the petition are relatively modest but can go a long way to establish better governance both in our multilateral institutions and in individual nation states.

I appreciate that no single member of the institutions can effect widespread change. However, I hope that the Economic Secretary to the Treasury will agree that in the spirit of open government engendered by our Freedom of Information Act 2000, it is not unreasonable to ask the Government to disclose their detailed voting patterns as an executive director, together with policy positions and statements made to the board. That would be a good start and act as a catalyst to reform of the way in which the House examines Government policy on those matters.

The Treasury Committee, in its report in April 2001 on the IMF, stated that the actions of the IMF's "executive board as a whole remain opaque. Most notably neither the votes, nor the minutes, of the executive board are published. We believe that . . . withholding this information limits our ability to hold the Government to account for their actions at the Fund." Does the Minister accept that such information should be made available as a matter of course?

I know that our Government have in the past supported greater involvement by African nations on the boards of directors, and that is welcome. However, although the UK, France and Germany have one seat each, the entire African continent has only two. That makes it very hard for parliamentarians in poor countries to contact, let alone influence, their executive director. I hope that my hon. Friend will support moves to give developing nations more say in the IMF and the World Bank, which in turn would make it easier for their parliamentarians to hold their representatives on the board to account.

Given that 70 per cent. of the world's poorest people are women, my hon. Friend will agree that the fact that the boards of both institutions are overwhelmingly male—in 2002, the IMF board was entirely male—is totally unacceptable in this day and age. Have our Government requested a better gender balance on those boards, or do they have any proposals?

If policies are to succeed and gain support from those who will bear the consequences, it is important that the IMF and the World Bank engage genuinely with national Parliaments. The same is true for any policy that we as politicians try to present to our electorate. I hope that our Government will accept that if the PRSP process is to be a genuine step towards better governance, macro-economic changes and loan decisions must be subject to parliamentary scrutiny and approval, just as we would expect if the House were to enter into significant economic agreements with any multilateral institution.

I know that in order to focus policy direction on poverty reduction, the Chancellor has been at the forefront of policy changes in the IMF, but I urge my hon. Friend and his colleagues to ensure that parliamentary democracy and scrutiny are an integral part of future decision making. We all want the IMF and the World Bank to succeed in tackling poverty around the globe, and that would be a significant way of achieving that objective.


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