The World Bank

1
The World Banks and the IMFs use of
Conditionality to Encourage Privatization and
LiberalizationCurrent Issues and Practices

• ByBenedicte Bull, Alf Morten Jerve and Erlend
  Sigvaldsen
• With inputs from
• Hege Gullie, K.A.S. Murshid, Pamela Rebelo and
  Oliver Saasa,

2
Background

• The Soria Moria Declaration (political platform
  for the current Norwegian coalition government)
• Norwegian aid shall not support programs that
  are made conditional on liberalization and
  privatization (p.10)
• Reforms in the World Bank
• Good practice principles (GPPs) (Ownership,
  Coordination, Tailoring to circumstances,
  Criticality, Transparency) and recent reviews of
  practice.
• Reforms in the IMF
• 2002 guidelines (Ownership, Parsimony, Clarity,
  Coordination, Tailoring) and recent reviews of
  practice.
• Persistent NGO critique of use of policy
  conditionality

3
Mandate

• Conclude about the extent to which the World Bank
  and the IMF in recent years have put pressure on
  governments to introduce policies of
  privatization and liberalization through the use
  of conditionalities.
• Conclude about the extent to which the World Bank
  and the IMF have followed the principles set for
  themselves in their most recent guidelines.
• The report makes no attempt to assess the
  soundness of privatization and liberalization
  policies, or their consequences.
• Limitations
• Short time passed since new guidelines were
  introduced.
• Time and capacity of team
• Team identified, consultants hired and study
  finalized between August and November.

4
The Study

• Clarification of concepts
• Review of existing recent studies
• World Bank/IMF studies
• NGO studies
• Studies by independent academics
• Studies by other international organizations
• Case studies conducted in four countries
• A brief desk review of 40 recent PRGF supported
  programs.
• Review of change in policy and practice in three
  sectors utilities (water and energy), social
  sectors (health and education), trade.

5
Clarification of Concepts

• Conditionalities
• Specific, pre-determined requirements that
  directly or indirectly enter into a donor's
  decision to approve or continue to finance a loan
  or grant.
• We employ this definition with no preconceived
  notion on whether conditionality means that it
  is imposed or whether a high number of
  conditionalities is good or bad.
• Privatization
• The partial or total transfer of property or
  responsibility from the public sector
  (government) to the private sector (business) or
  private persons.
• Liberalization
• Any relaxation of previous government
  restrictions, in areas of social or economic
  policy or political organization. Focus here on
  economic liberalization trade liberalization,
  price liberalization and the lifting of
  monopolies.

6
The New Conditionality Debate

• Have IMF/World Bank practices changed? Has the
  number of conditionalities declined?
• Has the policy content changed? Is there a move
  away from privatization and liberalization?
• To what extent are the programs perceived as
  owned by national government and stakeholders?
• Do the programs adequately reflect national
  development plans?
• Have the processes of elaborating these plans
  been inclusive?
• Have national governments been given sufficient
  policy space in the elaboration of plans?

7
Disputes in the literature

• The number of conditionalities
• World Bank significant decline in the number of
  conditionalities
• IMF decline in the use of some types of
  conditionalities, no decline in others
• NGOs rise in the number of conditionalities.
• Disagreement between NGOs and the World Bank
  partly due to different definitions of
  conditionalities.
• Substantial issues arise from the presumption of
  imposition and equation of high number of
  conditionalities with a high degree of IFI
  influence.

8
Disputes in the literature

• The content of conditionalities
• World Bank shift away from privatization/liberali
  zation towards institutional issues, governance
  and improvement of business climate.
• IMF shift away from micro reforms (e.g.,
  privatization) towards debt and financial
  management. Increased focus on core IMF
  concerns.
• NGOs Still strong focus on liberalization and
  privatization in policy advice and
  conditionalities.
• The issue of ownership
• World Bank Strong improvements in ownership.
  Rejects that pressure is exerted.
• IMF Report improvements and ownership and in
  giving the borrowing members policy space. But
  admits weaknesses in the way PRGF reflect PRSPs,
  and in participatory processes on macro-economic
  issues.
• NGOs Criticize the World Banks definition of
  ownership. Claim lack of policy space and
  continued imposition.

9
A Desk Review of Recent PRGFs

• Review of 40 PRGF supported programs signed
  between 2002 and 2006.
• Privatization conditionality in 23 of 40
  programs. Detailed description of privatization
  policies in another 10 Letters of intent.
• Liberalization conditionality in 11 of 40
  programs. Few conditionalities on trade
  liberalization.
• Great variation in the number of conditionalities
  across cases (from 1 to 29).
• Some variation across regions (privatization
  conditionality less predominant in African PRGF
  supported programs, most in those of Central and
  Eastern European counties).
• No indication of a changing trend no significant
  variation across time.
• Limitation
• Says nothing about process or imposition.

10
Sector Review

• Utilities (water and energy)
• Recognition of significant flaws in earlier
  strategies.
• Less focus on privatization, more on
  institutional issues, establishment of regulatory
  framework.
• Recognition of the need for special solutions to
  water issues.
• Social sectors (health and education)
• World Bank moved away from user fees in basic
  health and education
• A general move towards less hard fronts in the
  general debate about user fees.
• Trade
• World Bank and IMF still advocate trade
  liberalization.
• World Bank Focus on behind the border measures
  and poverty consequences of liberalization,
  pragmatic on regional trade agreements (RTAs),
  supports multilateral negotiations.
• IMF Trade liberalization part of its mandate,
  more orthodox in policy recommendations (e.g.,
  RTAs versus unilateral liberalization), supports
  multilateral negotiations.

11
The Cases

• Bangladesh
• World Bank Development Support Credit III,
  emphasis on energy reform
• Mozambique
• World Bank Energy Reform and Access Project
  emphasis on privatization of electricity
• Zambia
• IMF Poverty Reduction and Growth Facility
  supported program, emphasis on privatization of
  ZESCO (electricity) and ZNCB (bank)
• Uganda
• World Bank Poverty Reduction Strategy Credit 5.

12
Have the World Bank/IMF programs included
privatization/liberalization conditionality?

• Yes, in three of four cases.
• But
• Many of these kinds of conditionalities in new
  programs are left-overs from older programs, or
  have been agreed well before the agreement was
  signed.
• Often good reasons for encouraging privatization.
  
• In no case have conditionalities been an
  efficient way of ensuring policy change.
• Conditionalities not the most important way of
  influencing policy.

13
What Has Been the role of the World Bank/IMF
in encouraging policy change?

• Zambia
• The IFIs are reported to have used
  conditionalities to pressure for the adoption and
  implementation of policies to privatize state
  owned banks and utilities.
• Mozambique
• The World Bank was the main proponent of
  privatization in the energy sector, but when
  government priorities shifted away from
  privatization, the WB accepted it.
• Bangladesh
• The privatization of parts of the energy sector
  in line governmental priorities and earlier
  reviews of the sector. WB viewed as having been
  deeply involved in the elaboration of these
  reviews and in setting the agenda for reforms.
• Uganda
• Privatization and liberalization not important
  elements in current reforms and all PRSC
  conditionalities are jointly decided by the
  government and donors.

14
Is There Real Ownership to the Programs?

• The programs adequately reflect government
  priorities set out in national development plans.
• Civil society has been consulted in the majority
  of the cases, but the quality of the
  participatory processes is questioned in some of
  them.
• Parliament seems to play a marginal role in the
  elaboration of economic policy.
• Significant use of external consultants reduces
  customization to local circumstances and impedes
  ownership.
• Lack of policy advice and assistance on
  elaborating alternative policies.
• In some cases there have been internal
  differences within the government, and the IFIs
  have tried to establish alliances with the actors
  that share their opinions.

15
Has There Been a General Change of Practices?

• Change in IFI practice noted in all the cases
• Greater inclusiveness
• Greater openness and transparency
• Greater flexibility
• Greater donor harmonization
• But also some critical comments
• Donor harmonization means that donors can gang
  up against the government.
• IFI flexibility questioned when used on
  conditionalities related to accountability and
  anti-corruption measures.
• Local IFI representatives show little in-depth
  knowledge of the World Banks GPPs.

16
General Conclusions

• Do the IFIs still use conditionalities to promote
  privatization and liberalization?
• Privatization and liberalization are still
  included as conditionalities in World Bank and
  IMF loans, but are less common than before.
• The policy advice given by the IMF and the World
  Bank on privatization and liberalization has
  changed a clear trend towards greater pragmatism
  and focus on complementary policies, but changes
  not uniform across cases and sectors.
• The IFIs exert considerable influence through
  providing policy advice, and have not generally
  elaborated alternative policies to those
  involving privatization and liberalization

17
General Conclusions (contd.)

• Do the IFIs adhere to their own new guidelines?
• Stronger emphasis of national ownership of the
  programs, but this is reduced by
• Weaknesses in participatory processes
• Extensive dependence on IFIs and foreign
  consultants in elaboration of policies, and lack
  of local input
• Lack of policy space and analysis of policy
  alternatives and
• Lack of unified view within the government,
  frequently used by IFIs to promote their own
  cause.
• The IFIs are more flexible in enforcement of
  conditionalities. Sometimes bilateral donors and
  civil society demand less flexibility.
• Donor coordination is strengthened, but this may
  reduce policy space and weaken borrowing member
  countries bargaining power.