By Emad Mekay
Inter Press ServiceAugust 24, 2004
The world's largest public lender for development says it is replacing its controversial "adjustment lending," accused of squeezing scarce resources from poor borrowing nations, with a new set of rules more attuned to poverty reduction efforts in developing countries. The Washington-based World Bank says it is putting more emphasis on what it will call "development policy lending," the money that accounts for one-third of the bank's annual lending, around 18.5 billion dollars in 2003.
But watchdog groups say the bank's fundamental approach to the lending, which includes imposing conditions on borrowing nations to advance policy changes, determining if a nation's macroeconomic framework is "appropriate," and close cooperation with the International Monetary Fund (IMF) remains mostly unchanged.
In an interview posted on its website, World Bank Vice-President James W Adams said the new policy would give borrowing nations more say in devising their own economic plans and will have a long-term development focus. "We're moving away from a very prescriptive list of policies that were part of the early adjustment lending -- focusing largely on fiscal constraints, on trade policy reforms, pricing reforms -- to a much broader range of issues," Adams said, adding those issues include health, education and the environment.
The World Bank, a taxpayer-funded institution with a declared mission of helping poor nations, gives out two type of loans: "adjustment (now "development policy") lending," to influence governments' economic policies and "investment lending," which finances specific projects, for example, building roads, oil pipelines or other infrastructure.
Structural adjustment has been a particularly controversial aspect of the former in recent years because it imposed conditions on borrowing nations that forced changes such as cutting spending for health and education, privatising public assets, deregulating the economy and allowing multinational companies to compete with local firms, leading to loss of local purchasing power and boosting unemployment.
Government policy in many nations across the globe, particularly in sub-Saharan Africa, adopted the cutting of programmes aimed at the poor as the route to restoring economic balance, a strategy that prompted uproars from development campaigners as well as economists. Structural adjustment also came under fire from some borrowing countries, which accused the bank of prescribing a one-size-fits-all policy that ignored differences between countries and regions.
In announcing its new approach, the World Bank admitted some shortcomings of the old policy, which it had long denied. "I think, however, the bank got too prescriptive and, in fact, was presenting a one-size-fits-all (approach) to governments," Adams said. "In moving away from that, we are emphasising our desire to see the governments develop policies. This broader approach will form the basis for bank support."
"We have abandoned the prescriptive character of the old policy statement, in which we essentially enshrined goals and methods: 'this is how you do public sector reform', 'this is how you privatise'," Adams says.
Under the new policy, the bulk of policy lending will come in the form of loans for certain programmes for activities that have already been completed, rather than for achievements promised. That means, says a bank official, the lender will be able to provide funding for a project based on its performance, even if the measures achieved were not precisely those that were promised.
"In these operations you spell out the understanding between the bank and the borrower about the types of key measures that would be critical for making progress toward the country's goals -- a pragmatic mix of outcomes, indicators, specific actions, maybe strategies," said Stefan Koeberle, advisor in the bank's Operations Policy and Country Services Network. Adams says the new approach will also give countries more ownership of their economic development strategies, a long-time demand of borrowing nations and development groups.
"There is a much clearer statement about the desire to see governments working with civil society and other actors in the development front in putting together policies to reduce poverty," he said. "The bank is willing to support a country's agenda, if we think the policies are sound, workable, and are truly owned by the government and its citizens."
Unlike the past approach, "development policy lending" (DPL) also refers to the importance of vetting the bank's efforts to ensure that the possible environmental or social effects of its lending are properly reviewed. The institution says the new policy is the culmination of more than two years of consultation with stakeholders, including governments, community representatives, civil society groups, academics and private sector representatives around the world.
But watchdogs say the scheme lacks sincerity and may be an attempt by the bank to transfer responsibility for its policies to borrowing governments. "This is a huge sham," said Rick Rowden of ActionAid USA. "This is a way of relinquishing responsibility from their own accountability and saying, 'oh, it's all on the borrowing government. Don't hold us accountable'."
But the Bank Information Centre (BIC), another influential non-governmental organisation (NGO) in Washington, recognises "some important process changes when compared to the current policy." For the first time, the World Bank is stressing the need to identify potential social and environmental impacts of its lending and the need for stakeholder consultations, says BIC.
Yet, it says, these provisions unfortunately fall short in responding to numerous critiques and actually lag behind standards already in place for certain types of bank adjustment lending," it adds in a policy update.
More Information the World Bank
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