Both ENDS

Information Package

Nr. 11

 

 

Multilateral Financial Institutions

 

 

Both ENDS offers a wide range of services to NGOs in Africa, Latin America, Asia and Central and Eastern Europe, who are working in the field of environment, development and social justice. 

 

Our standard information service includes Information packs on a wide range of topical environment issues . These packs have been written mainly for Southern NGOs. They are to enable (beginner) environmental organisations to get familiarized with an important environmental subject in a short period of time.

 

Contents:

 

·       a general overview of the theme

·       details of relevant international treaties, guidelines and conventions

·       some aspects of the current (international) debates on the topic

·       a listing of useful contacts in North and South

·       a list of publications 

·       a choice of Websites

·       case studies (mainly from Southern countries)

 

We are making an effort to regularly update the information included  in these packs. But since people and

 

developments are moving fast, we will inevitably lag behind somewhat.

 

The information presented is meant as an introduction. If you require

more specific information, please feel free to contact us.

 

You can download the information packs  from our  Website or you can  request an e-mail  printed version.

We welcome any suggestions or comments which help improve this information pack.

 

 

Both ENDS

Environmental and Development Service for NGOs

 

Nieuwe Keizersgracht 45

1018 VC Amsterdam

the Netherlands

Phone: +31-20-623.08.23

Fax: +31-20-620.80.49

E-mail: info@bothends.org

Website: http://www.bothends.org

 

 

 

This activity has been made possible thanks to the financial support of the Dutch Ministry of Housing, Spatial Planning and Environment (VROM).

 

 

 

INDEX

 

1                        Introduction

                                                                   

2          MFIs: History, goals, structure                                                 

2.1       The International Monetary Fund                                        

2.2       World Bank                                                                     

2.3       European Bank for Reconstruction and Development (EBRD)     

2.4       European Investment Bank (EIB)                                         

2.5                  Global Environment Facility (GEF)  

                             

3         Criticism on the Bretton Woods Institutions                              

3.1       Neo Liberal Policies and Structural adjustment                      

3.2       Dominance                                                                     

3.3       The Debt Crisis                                                                

3.4       Environmental Impact                                                       

3.5       Poverty Reduction                                                           

3.6                  Lack of Transparency

                                                

4         Sources of Information                                                             

4.1       NGOs in the South                                                           

4.2       NGOs in the North                                                            

4.3       NGO publications on the IFIs                                              

4.4       E-mail Lists on the IFIs                                                     

4.5       World Bank Publications/Contact                                         

4.6       EBRD Publications/Contact                                       

4.7       EIB Publications/Contact                                                   

4.8       IMF Publications/Contact                                                  

4.9       GEF Publications/Contact                                                                                                           

 

List of Acronyms                                                                     

 

Boxes/Tables:

 

·       Table 1: Credit Facilities of the IMF                                          

·       Box 1:The World Bank Group                                                   

·       Table 2: The World Bank Project Cycle

·       Box 2: The Inspection Panel    

                           

 

Multilateral Financial Institutions

 

 

The IMF and the World Bank are the mammoths of our time. They look like very strong mighty institutions, capable of crushing whatever gets in their way, but they don’t really fit into a desired future world which is more democratic, with more equally distributed wealth and chances, and with more respect for the environment”

(Enough is Enough, A SEED, Amsterdam, 1993).

 

 

1.     Introduction

 

In 1944, delegations from 45 countries convened in Bretton Woods, a small town in the American state of New Hampshire, to discuss the post-war world order and, more specifically,  how the financial and economic problems of the twenties and thirties could be prevented in the future. They decided to establish the International Monetary Fund (IMF) to guarantee a stable monetary system. The newly established World Bank had to take care of the reconstruction of post war Europe. Also, the foundations of the World Trade Organisation - General Agreement on Tariffs and Trade until 1995- were laid. Nowadays, the World Bank and the IMF are both involved in financing  developing countries as well as countries in transition. Like other Multilateral Financial Institutions (MFIs), they have a great influence on people and their environment, mainly in the South. Yet, they are dominated by powerful western governments and the people affected by the programmes of these institutions can hardly get access to them, let alone influence their policies.

This paper describes the history, goals and structure of several MFIs, including the IMF, World Bank, European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB) as well as the Global Environmental Fund (GEF).The main points of critique on the EBRD, EIB and the GEF will be incorporated in this section.  Due to their far reaching impact on all levels of society in developing countries, the critique on the World Bank and the IMF will be dealt with separately in chapter 3. Chapter 4 deals with ways

to get information from the MFIs and about the MFIs.

 

 

2       MFIs: history, goals, structure

2.1    The International Monetary Fund (IMF)

 

Initially, the main task of the IMF was to ensure monetary stability in the world economy by establishing a system of fixed exchange rates and by giving balance of payments support. At this stage, developing countries hardly played a role, as their economies were small and they were not yet independent. When in 1971 the US government  suspended the convertibility of dollars into gold, the international monetary system collapsed. Critics argued that the IMF’s role had become obsolete; however, the IMF was saved by the oil crisis as it found a new target group. After the first crisis in 1973, the oil-importing developing countries had received massive loans from commercial banks. At the time of the second oil price increase, the commercial banks had lost faith and were reluctant to grant new loans to the  indebted countries. Many  developing countries that had no oil turned to the IMF for balance of payments support. By bailing out the commercial banks, the IMF (and the World Bank) themselves have become the biggest creditor of developing countries, and  a seemingly never ending circle was created. As Ann Pettifor of the Debt Crisis Network puts it:

 “External finance is the IMF’s carrot. Its noose is debt. This increases inexorably thanks to continuous lending by these institutions, to provide “import support” and to finance payments to themselves of old debts in arrears. The debt also increase because of unfavourable increases in interest rates, exchange rates and a worsening in the terms of trade. This, added to what Keynes called “the magic of compound interest” - turns the debt into a slowly strangulating noose” (Ann Pettifor, Debt, the most potent form of slavery, Debt Crisis Network, 1996).

 

 

Table 1: credit facilities of the IMF

 

Regular Facilities	Conditions	Repayment
Stand-by Arrangements (SBA)	Principal mechanism of assistance. Provides short term (12 to 18 months) balance of payments assistance for deficits of temporary or cyclical nature. The first tranche is conditional on reasonable efforts to overcome balance of payments difficulties. Additional tranches on meeting performance criteria and completion of periodic programme reviews	3¼-5 years
Extended Fund Facility (EFF) (1974)	Used in case of macroeconomic or structural problems, requiring long term solutions. Similar conditions as the stand-by arrangement. The programme takes three years.	4½-10 years
Other Facilities
Supplemental Reserve Facility (SRF) (1997)	Provides financial assistance for exceptional balance of payments problems due to a large short-term financing need, resulting from  a sudden loss of market confidence. This was the case in Mexico in 1995 and in Asia in 1997.	1-1½ years extendable to 2-2½ years
Contingent Credit Lines (CCL) (1999)	Aimed at preventing the spread of financial crises. The fund can be used to put in place precautionary financing if there is a threat of the contagion by a financial crisis elsewhere.	1-1½ years  extendable to 2-2½ years
Compensatory Financing Facility (CFF) (2000)	Provides compensatory financing for countries experiencing temporary export shortfalls or excesses in cereal import costs. Conditionality was relatively light but has been strengthened.	3¼-5 years
Concessional Assistance
Poverty Reduction and Growth Facility (PRGF) (1999), replaces the Enhanced Structural Adjustment Facility.	Available for IDA-countries. Subsidised interest rate of 0, 5%. Provides three year loans based on a country specific PRSP (Poverty Reduction Strategy Paper) developed by the developing country and endorsed by the IMF and the World Bank. The disbursements are subject to observance of performance criteria and the completion of programme reviews.	5-10 years with a 5½ year grace period.
Heavily Indebted Poor Countries (HIPC) (1996)	This mechanism is a comprehensive approach to debt relief which involves multilateral (World Bank,IMF), Paris club, official and bilateral creditors. The criteria for debt relief under HIPC are very strict. Till now only one country (Uganda) reached the completion point of the initiative.	Grants

 

 

Objectives.

The main purpose of the IMF is still “to promote international monetary co-operation”, “to facilitate the expansion and balanced growth of international trade”, “to promote exchange rate stability” and to give financial support to countries to restore their balance of payments (article 1).

Governing system The IMF is presided by a managing director, who is always a European (as the World Bank president has to be a US citizen). The current managing director is Horst Kohler, a German national and former president of the EBRD. The Board of Governors, which convenes once a year, is the highest decision making body of the IMF. Each member country appoints a governor, usually the minister of finance or the governor of the central bank. The day-to-day business is taken care of by the Board of Directors, which consists of 24 appointed directors. Some countries have their ‘own’ director, others are represented in groupsof countries. Voting is  based on financial contributions and the amount of votes differs enormously. For instance, the US holds 17.8 percent of the votes, Germany and Japan 5.5 percent, and France and the UK 5 percent. In contrast,  a group of 23 African countries represented by Ivory Coast,  has 1.3 percent of all votes.

 

Back to Index

 

 

2.2        World Bank

 

Like the IMF, the World Bank was founded in 1944. Although it is familiar under the name ‘World Bank’, its original name was International Bank for Reconstruction and Development (IBRD). The IBRD and its sister organisations (International Development Association (IDA), International Finance Corporation (IFC), Multilateral Investment Guarantee Association (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID),  together form the World Bank Group.(See Box 1)

 

Box 1: The World Bank Group

 

 

 

Objectives. Initially, the Bank’s task was to facilitate the reconstruction of post-war Europe. As the US Marshall aid provided for a sufficient capital flow to Europe, the Bank started to focus more on developing countries in the South. Its main objective has always been to support economic and social progress. The Bank has three main functions: a) providing credit for projects and programmes, b) giving advice and collecting data and c) the Bank plays  a catalysing role in stimulating private investments in developing countries.  Over the last decade, private capital has been gaining importance relative to public aid flows  (which are on a downward trend). Therefore, the departments of the World Bank, that focus on the private sector (IFC and MIGA),  have come to play a bigger role.

 

Governing system. The governing system of the World Bank, with its Board of Governors and the Board of Executive Directors, is similar to the IMF’s system.

The president of the Bank (currently James Wolfensohn) should be a US citizen. Like the IMF, power is determined according to what activists call the “one dollar, one vote” system: the amount of votes is based on the financial contributions. Some countries, notably the US (17.0%), Japan (6.0%), Germany (4.7%), France (4.5%), the UK (4.5%) as well as China (2.9%), Saudi Arabia (2.9%) and the Russian Federation (2.9%) have their own seat at the Board. Other countries are represented in constituencies.

 

Financial structure. The basis of the financial structure are the member’s contributions to the World Bank. So in the end, it is the taxpayer who provides the financial basis. Only a part (6%) of the member’s contribution is actually paid in; the remainder is callable capital. At all times, the Bank may realise its claims on callable capital. Based on this guarantee, the Bank can borrow from the commercial market. Its credit worthiness is also protected by the agreed gearing ratio of 1: i.e. credits outstanding may never exceed the total amount of signed in capital and reserves. The World Bank has a so-called ‘triple A rating’, which is the highest rating (i.e. the highest degree of confidence) at the international capital market.

 

The project cycle. Table 2 gives a relatively detailed description of the ‘project cycle’. The period between the identification of a project and its approval by the Board usually takes 27 months. The Country Assistance Strategy (CAS), which is agreed by the country and the World Bank, provides the framework for all aid to the country, including World Bank projects.  Due to sustained pressure by NGOs the CAS’ of IDA countries are available to the public. CAS’ of IBRD countries are disclosed in some cases.

World Bank reforms. President James Wolfensohn, who started his second term in 2000, is a major power behind the new direction the Bank seems to have taken these last years. Wolfensohn’s mission was to make the Bank more open and less bureaucratic, to make the fight against poverty the first priority and to have the active participation of civil society. To achieve all this some new policies and mechanisms were introduced and others were strengthened or revised. The most important examples are:

 

·     the Comprehensive Development Framework (CDF)

·     the Strategic Compact

·     the Poverty Reduction Strategy Papers (PRSP's)

·     The Inspection Panel and the IFC/MIGA Compliance Officer

·     The Safeguard Policies

 

These initiatives are largely a reaction to the extensive and persistent criticism of  the World Bank. Therefore these initiatives, and the extent to which they have succeeded in transforming the World Bank , will be discussed in chapter 3.

 

Table 2: The Project Cycle  

 

Stages of the Project Cycle	Documents Available to the Public
Identification: first, a project is identified. In theory, the borrowing country can suggest a project, but in practice, the World Bank, eager to find targets for its resources, often identifies a project. When a project is identified, it is notified in the Monthly Operational Summary (MOS), which is available for NGOs, and in  Development Business, a UN publication. Also, the project is assigned an environmental assessment category, ranging from A (requiring full environmental impact assessment) to B (requiring an environmental analysis) to C (no environmental assessment needed).	Project Information Document (PID), a 1-4 page description of the project
Preparation: World Bank staff and the borrowing country prepare the project (proposal?). If required, the government carries out an environmental impact assessment. During this stage, civil society organisations should ask for consultations.	Technical Information EnvironmentAssesment (EA) revised PID
Appraisal: A World Bank team visits the country to determine whether the Bank should finance the project. The Bank encourages these teams to meet with civil society organisations. The team produces a Staff Appraisal Report (SAR).
Negotiation: The Bank and the government concerned agree on the measures to carry out the project, including environmental or social conditions, and the financial terms of the loan. The final version of the SAR goes to the Board and the president. Project proposals have never been turned down. Occasionally, and sometimes thanks to NGO pressure, the Board has asked the staff to reformulate a loan.
Approval: The Board of Directors of the Bank approves the loan. Then both parties sign the loan agreement.	Staff Appraisal Report (SAR) or Technical Annex (TA)
Implementation: the loan is disbursed in tranches while the Bank monitors the project.	Legal Agreement
Evaluation: the Bank assesses whether the goals of the project have been attained and what lessons can be learned for the future.	Impact Studies

 

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2.3         European Bank for Reconstruction and Development (EBRD)

 

Objectives. Responding to the political events of 1989 - the collapse of communism - the French president Mitterand launched the idea to create the EBRD. In 1991, the London-based EBRD was founded. The purpose of the Bank is “to foster the transition towards open market-oriented economies and to promote private and entrepreneurial initiative in the Central and Eastern European countries committed to and applying the principles of multiparty democracy, pluralism and market economics” (article 1). A unique feature of this Bank is the political conditionality: Countries can only receive support if they are a multiparty democracy, with a  peaceful law and order situation and a respect for human rights. The EBRD has 60 members (58 countries, the EU and the European Investment Bank (EIB). The Bank operates in 26 countries in Central and Eastern Europe and the region of the former Soviet Union.

 

Governing system. Like the other MFIs, the Board of Governors is the highest body of  the Bank.  Day-to-day management is delegated to the extended Board of Directors. There are 23 directors: eleven from the EC countries, the EC and the EIB; four from Eastern and Central Europe, four from other parts of Europe and four from other countries. The biggest single shareholder is the US (10%). The share of the former Soviet Republics is 6% and the Eastern European countries together hold 6% of the shares. Under the first president, Jacques Attali, the EBRD was criticised by the press as well as its members for its excessive expenditures on the London offices.  At  present the EBRD is headed by Jean Lemierre, who succeeded Horst Kohler, who is now president of the IMF (2000).

 

Financial structure. Members have to pay in 30 percent of their share either in Euro, American dollars (as the US refused to make commitments in Euro) or Japanese yens; the remainder is callable capital. The EBRD can borrow cheaply from the commercial market because it has a triple A rating.