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Thursday, 26 July, 2001, 08:06 GMT 09:06 UK
IMF and World Bank to ease debt rules
The skyline of Accra, capital of Ghana
Ghana: one of the few success stories?
International finance officials are meeting in Washington on Thursday to look at ways to overhaul and simplify the strings attached to the loans they make to poor countries.

The board of the World Bank will meet to consider ways of easing the burden on indebted countries, while the International Monetary Fund's board addressed the same topic on Wednesday.

The result should be a lighter approach to setting the yardsticks - a process dubbed "conditionality" by the experts - that govern the use of loaned money.

Two things have forced the change, insiders say.

On the one hand pressure groups and developing nations complain that past practice has failed to get results.

On the other, the new US administration is eyeing the Fund in particular, threatening to curtail it at best and dissolve it at worst.


"There's a recognition that the Fund's conditionality had become too intrusive, too broad-ranging," said Masood Abbas, the IMF's deputy director of policy development.

That recognition, Mr Abbas says, is driving the process of change, which will culminate in new rules by the time the two organisations hold their twice-yearly meetings in April next year.

People from the Fund can be defensive about this. But that means clever minds can use that as an opening to bring about real reform

Dr Joe Abbey
It takes a year or so to test the streamlined approach, according to Mr Abbas, and the process includes a number of consultations, the most recent of which took place in London on 23 and 24 July.

The Bank and Fund are keen to display the change of heart as simply the result of their own internal learning processes.

Joanne Salop, the Bank's vice president for operations policy and country services, said the Bank's rules on conditions attached to debt needed updating after the organisation began to recognise the social impact of its policies in the late 1990s.

On the defensive

But observers with long experience of the two Bretton Woods institutions' relationships with the poor countries which are their clients say the true story is rather different.

According to Dr Joe Abbey, a former Ghanaian ambassador to the US and the UK and one of those responsible for the World Bank programme in Ghana in the 80s, non-governmental organisations like Jubilee 2000 and Drop the Debt have forced debt issues onto the public agenda.

"Talk about the need for debt forgiveness is proof that the present system has not been effective," he said.

"People from the Fund can be defensive about this. But that means clever minds can use that as an opening to bring about real reform."

Dr Abbey's colleague in Ghana in the 80s, and the mission head for the World Bank, was Dr Ishrat Husain, now the governor of the State Bank of Pakistan.

In Ghana, the personal dedication of local and Bank officials made the loan programme work, he said.

But elsewhere the Bank's reputation for flying in experts to tell "the locals" what to do was all too justified.

There's a recognition that the Fund's conditionality had become too intrusive, too broad-ranging

The IMF's Masood Abbas

"Programmes were designed in Washington and sold off the shelf to beneficiaries," said Dr Husain.

"The approach has been 'one size fits all'," said Dr Abbey.

Lacking focus

Bank and Fund officials are reluctant to discuss these charges. But the Mr Abbas admits that targets have been too detailed, while oversight has failed.

"There's evidence that the way in which international community was supporting countries was not getting results," he said. "The focus was not sufficiently targeted on poverty."

John Taylor, undersecretary of international affairs at the US Treasury
Taylor: backs radical IMF reform
Dr Abbey says the Bank and Fund have too often made it impossible for their clients to make the loans work. "Conditions are the right of anyone making any resources - money or people - available to someone else," he said.

But he pointed to the paradox: the most work is expected of the poorest countries, which were the most ill-equipped to tackle drawing up detailed strategies to combat poverty as the Bank and Fund demand.

Simpler rules are vital, he said - not only for client countries, but for the donors to be sure the money is working.

US pressure

But it is not just clients who are piling on the pressure.

Increasingly, the Bank and Fund need to justify themselves to their funders, in particular the US, where senior figures in the new Bush administration such as John Taylor, the US Treasury's undersecretary for international affairs, would like to cut the IMF down to size.

Following the lead of Congress's Meltzer Commission, they want the IMF to stop automatically lending money in financial crises.

And they want to abolish the strings attached to loans - by banning any lending to countries who have not already committed to radical free-market economic reforms.

IMF and World Bank insiders fear the true aim is to emasculate the institutions, not reform them. The fact that the US, as the biggest contributor, has effective veto power over Bank and Fund decisions means that fear is an additional spur to the house-cleaning process.

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See also:

28 Apr 01 | Business
Africa pushes for more IMF reforms
18 Jul 01 | Business
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15 Dec 99 | Business
US calls for IMF reform
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