50th Agenda 

50th Session Issues

Relationship of the World Bank, International Monetary Fund, and the Private sector to UN Development Activities

by
Meg Wilkinson

"To promote social progress and better standards of life in larger freedom,"

"To employ international machinery for the promotion of the economic and social advancement of all peoples"

These two statements from the Preamble to the Charter of the UN form the basis for the UN development activities. In the abstract they are quite laudable goals, but the application has proven much more difficult. To this end, there are no less than 33 UN agencies that have some sort of development responsibility; all with differing definitions and methods of development. The United Nations has come under heavy criticism from all sides, some of which has begun to be addressed by the current Secretary-General Kofi Annan, considered by the Economist to be "the most respected leader of the United Nations for a generation." One of his goals is the enhanced coordination between the Council and other UN organs and institutions in order to " make the Council an ever more effective body in meeting the Charter goals of promoting social progress and better standards of life in larger freedom". The question remains what should the United Nations' role be in this coordination?

If we look at the Bretton Woods Institutions separate from the activities of the Secretariat, there are four main sectors of Development activities: The World Bank group, International Monetary Fund (IMF), The United Nations development programs, and the private sector; including groups such as NGOs and corporations. The issue of development coordination amongst these groups was first raised in the 1960s, when there were calls for the United Nations Development Programme to take the lead on all development activities. The reason for this is based on the fact that in the IMF and the World Bank, voting is weighted based on capital commitments. In UN bodies, it is based on one country, one vote. In the 1970s came the call for a New International Economic Order (NIEO), a call by the developing countries for more economic power. Some of their aims were: greater self-sufficiency, fuller participation in the IMF and World Bank, an increased share of world trade and level of industrialization, protection of their resources through international codes governing the conduct of transnational corporations, and a gradual shifting of the pattern of exchange to reflect more fully the interdependence of nations.

The Players

The International Monetary Fund's fundamental purpose is to maintain an orderly system of payments and receipts between nations in order to prevent the sorts of wild currency variations that prolonged and intensified the Great Depression. Membership in the IMF is voluntary; members just need to sign the Articles of Agreement. It requires members to allow their currency to be exchanged for foreign currencies freely and without restriction, to keep the IMF informed of changes they contemplate in financial and monetary policies that will affect fellow members' economies, and, to the extent possible, to modify these policies on the advice of the IMF to accommodate the needs of the entire membership. The biggest impact that the IMF has on development is the use of structural adjustment loans for those countries whose balance of payments (BOP) have fallen out of balance. As part of these loans, the IMF makes policy recommendations for bringing the BOP back into line and a plan for ensuring that it remains in balance. These austerity measures have been criticized for being unduly harsh on the general population, while at the same time protecting the overseas investors and political elite. Some of the measures have been called unnecessarily draconian; the liberalization of trade, direct investment and financial capital flows, as well as the dismantling of labor protections and economic infrastructure that supports small producers. Additionally, critics of the IMF claim these measures have been imposed without linkage to a long-term development strategy aimed at sustainable and equitable growth and economic competitiveness.

One of the challenges facing the IMF has been a shift in the types of problems it is asked to help resolve. In the time of the Breton Woods agreement, the participants were dealing with current accounts problems. Recent crises have been driven by capital accounts caused by sudden and massive reversals of capital flows. Some of the proposed reforms are: de-link debt relief from structural adjustment; require the IMF to cancel all debts owed to it by the most heavily indebted poorer countries; and, for all new loans to be made at market interest rates. In the mid-80s, the IMF recognized that some of its low-income member countries needed highly concessional financial support on a longer-term basis than was available through its existing financing mechanisms. In 1987, they created the Enhanced Structural Adjustment Facility (ESAF). Under ESAF arrangements, the IMF extends support for 3-year structural adjustment programs aimed at fostering sustainable growth and strengthening a country's external position. As of the end of June 1997, cumulative commitments and disbursements totaled $10.9 billion and $ 7.7 billion, respectively. ESAF loans carry an annual interest rate of 0.5 percent; repayments are made semiannually, beginning 5-1/2 years and ending 10 years after disbursement.

The World Bank Group, the second of the Bretton Woods institutions, is formed of the following agencies: International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), International Development Agency (IDA), Multilateral Investment Guarantee Agency (MIGA), and International Centre for the Settlement of Investment Disputes (ICSID). It was to be the lender of last resort for developing countries. In the worlds of John Maynard Keynes, its loans would be "only for proper purposes and in proper ways, after due inquiries by experts and technicians, so that there will be safeguards against squandering and waste and extravagance which were not present with many of the ill-fated loans made between the wars." The World Bank group remains the leading source of funding for economic development. The Bank's formal relationship with the United Nations is defined by a 1947 agreement, which recognizes the Bank as an independent specialized agency of the UN-as well as a member and observer in many UN bodies.

The various bodies of the United Nations that deal specifically with all aspects of development fall under the auspices of the Economic and Social Council (ECOSOC). In the opening address to ECOSOC delivered at the Palais des Nations in Geneva on 5 July 1999, Secretary-General Kofi Annan stated that "The goal of eradicating poverty is the primary focus of this Council. ". Unfortunately, even as the challenges to this goal mount, AIDS, population issues, and rising expectations, the resources available to meet this become scarcer. For example, Denmark, traditionally one of the most generous European Union donors, reecently announced it would cut contributions to the UN Development Programme from $71 million in 1998 to $56 million in 1999. As internal issues take precedence, the monies once available for aid are being redirected. Additionally, the UN has been accused of being rather wasteful and overindulgent, leading to the withholding of the United States' contributions to the budget pending significant administrative reforms. While there is a formal relationship between the Bretton Woods institutions and ECOSOC, they are completely independent.

In June 1997, the Ad hoc Open-ended Working Group of the General Assembly released their Agenda for Development (A/AC.250/1). Several objectives were outlined; one was to "Enhance the role, capacity, effectiveness and efficiency of the United Nation in development."

The forth category includes the various and sundry sundry development organizations outside the UN system. This includes groups such as the Organization for Economic Co-operation and Development (OECD), Organization of American States (OAS), and NGOs that deal with economic development, directly or indirectly. Included in this group would also be the grassroots organizations that have formed to give the people their represent a voice in the debate and to provide an independent view of development activities. Some of them include: Standing up to Structural Adjustment Programs (SAPRIN), the Development Group for Alternative Policies (the Development GAP), and the African Women's Economic Policy Network. Their growing importance in development activities is mostly due their work that the UN. The World Bank has also switching its attention from the large-scale projects to smaller, more innovative ideas. Private capital has become a powerful influence, beginning in the 1960s with the rise of the Multinational Corporation (MNC), private capital flows are five times greater than official assistance. Technological change has revolutionized the way business is done, making private investment into LDCs much more attractive, given their low relative wages.

Background

What is Economic Development? Defined by the World Bank it is "sustainable increase in living standards that encompass material consumption, education, health, and environmental protection." The goal has never been in dispute: a better standard of living for all. The problem has been the means to get there.

From the very beginning, the prevailing world view was that economic development was a neutral act. In fact the World Bank has traditionally precluded political considerations from their deliberations. But the reality is that no development is neutral, for the expansion of one sector is always at the expense of another. Experience has demonstrated that development cannot occur in a vacuum, separate from political consideration

The bodies of the United Nations and the World Bank are evolving, changing their scope from the massive industrial projects to smaller scale less capital intense ones. In 1997, The World Bank's Board of directors endorsed the Strategic Compact; a plan for fundamental reform and renewal in its basic mission of reducing poverty. The Compact recognizes the fact that the Bank must change if it is to remain effective. The compact focuses on four priority areas:

1. Refueling current business activities

2. Refocusing the development agenda

3. Retooling the Bank's Knowledge base

4. Revamping institutional priorities.

An example of this is the change to the Country Area Studies (CAS). Once the most secret of the Bank Documents and prepared in consultation with the client government and focused on outputs -- increasing exportsm, for example. Now the approach to the CAS and to operations in general has also become much more participatory - recognizing not only central government as the client, but local and regional governments, and private citizens as well. In FY99, of the 20 full CASs discussed by, or distributed to the Board up to mid-April 1999, all but one were prepared with the benefit of some form of consultation with non-government stakeholders.

The issue of private capital flows has become one of the most. 1995 World Bank lending was $21 billion; compared to $170 billion of private money sent to developing companies. One of the biggest sources has been the privatization of state owned corporations. Privatizations in developing counties increased from 50 privatizations worth 2.5 billion in 1988 to 750 privatizations worth 24 billion in 1994. This trend has proved to be rather worrisome to many in the development community, since MNCs are not well thought of for their records in LDCs. In recognition of this, the UNDP has joined with private corporations to form the Global Sustainable Development Facility (GSDF). The goal of the Facility is to meet both corporate investment goals and the goals of the UN agency by funding investment projects to help poor countries meet social, environmental, and human development goals.

Present Situation

Interesting enough, the slogan "50 years is enough" seems to be the rallying cry of all groups opposed to the United Nations and its affiliated organizations. For example, the IMF is criticized because its interest rates are too high/too low. To high by those wanting complete debt relief, to low by those that believe they should charge market interest rates. The debates echo through the halls of Congress and on the floor of the General Assembly. Calls have been made by various groups for the immediate resignation of the IMF's top staff to be replaced with those more sympathetic to the group's goals. Critics from the environmental community have charged that international financial flows to the developing world have undermined the ecological foundations of emerging economies and that they have become refuges to high pollution industries. Structural Adjustment in particular has come under criticism from the left, they believe that they are unduly harsh on those least able to handle the change; the poor and the marginalized. In contrast, the economic elite and the international investors see many benefits.

The United Nations, by virtue of its global reach, its universal membership and the mandate reflected in the Charter has a vital role to play in the discussions surrounding the issues of Economic Development. Moreover, it has the structure to implement any recommendations made.

Questions

1. What does economic development mean?

2. In the creation of development strategies, how can the interests of all parties be taken into account?

3. At what point does development aid become more of a crutch than assistance?

4. How can long-term development take place under uncertain political climates?

5. Is there a way to coordinate all development activities...is this possible and if possible is it even preferable?

6. What are the development priorities? And how should they be set? Who should set them?

7. What should the role of the G7 countries be in assisting in the development of the LDCs?

8. Is it possible to make development politically neutral (the aim of almost all multilateral organizations)?

9. What responsibility do the industrialized countries have to aid the LDCs?

10. Sustainable development has become a new catch word...But what does it mean? Especially in determining development priorities?

Sources

1. Knox, Paul and Agnew, John, 1998, The Geography of the World Economy, New York, John Wiley & Sons
2. Lall, Sanjaya and Stewart, Frances, 1986. Theory and Reality in Development, New York, St. Martin's Press.
3. Hancock, Graham, 1989. Lords of Poverty: The Power, Prestige, and Corruption of the International Aid Business, New York, The Altantic Monthly Press
4. Stone, Roger D, 1992, The Nature of Development, 1992, New York, Council on Foreign Relations
5. Caufield, Catherine, 1996, Masters of Illusion: The World Bank and the Poverty of Nations, 1996, Henry Holt & Company
6. Stutz, Frederick P. and de Douza, Anthony R., 1998, The World Economy: Resources, Location, Trade and Development, New Jersey, Simon & Schuster
7. Marber, Peter, 1998, From Third World to World Class, 1998, Perseus Books
8. Rich, Bruce, 1994, Mortgaging The Earth: The World Bank, Environmental Impoverishment, and the Crisis of Development, Boston, Beacon Press
9. Hoy, Paula, 1998, Players and Issues in International Aid, Connecticut, Kumarian Press
10. Economist, 26-June 1999, "How to make aid work", Web Edition of The Economist.
11. "Changes to the World Bank over the last four years:" Transcript of a speech given by James Wolfensohn to Address to the Informal Meeting of the Board, March 13, 1997: http://www.worldbank.org/html/extdr/spring99/fouryears.htm
12. Notes from the Special High-level meeting of the ECOSOC with the Bretton Woods institutions, held on 29 April 1999: http://www.un.org/esa/coordination/ecosoc/doc99-brt.htm
13. "The Private Sector Lending of the World Bank Group: Issues and Challenges", Berne Declaration http://www2.access.ch/evb/bd/privlend.htm

UN Documents

E/1999/1 Restructuring and Revitalization of the United Nations in the Economic, Social and Related Fields.

E/1999/55/Add.2 Operational activities of the United Nations for international development cooperation :report of the Secretary-General.

JIU/REP/87/2 Report of the joint inspection unit on technical cooperation between the united nations development programme and the regional economic commissions : economic and social commission for Asia and the Pacific : prepared by Enrique Ferrer-Yieyra (1987)

E/1998/46 Further measures for the restructuring and revitalization of the United Nations in the economic, social and related fields

E/1998/39 Status of the least developed countries

E/1998/61 Report of the Secretary-General on the joint exploratory review of cooperation between the United Nations and the Bretton Woods institutions

Web Sites

1. Asia Pacific Economic Cooperation (APEC): http://www.apecsec.org.sg
2. Asian Development Bank (ADB): http://www.adb.org
3. Bank for International Settlements (BIS): http://www.bis.org
4. Compendium of ongoing UNDP projects: http://stone.undp.org/eis3/compendium/list.html
5. Development Group for Alternate Policies (Development GAP): http://www.developmentgap.org/
6. ECOSOC-1999 Session: http://www.un.org/esa/coordination/ecosoc/
7. ECOSOC Official records and resolutions 1982 to the present: gopher://gopher.un.org/11/esc/recs%09%09%2B
8. ECOSOC Organizational and Substantive Sessions 1994 to present: gopher://gopher.un.org/11/esc/docs%09%09%2B
9. European Bank for Reconstruction and Development( EBRD): http://www.ebrd.org
10. FAO: http://www.fao.org
11. Global Environment facility: http://www.gefweb.org
12. Global Policy: http://www.globalpolicy.org/
13. Inter-American Development Bank (IADB): http://www.iadb.org
14. International Development Agence (IDA): http://www.worldbank.org/extdr/ida.html
15. International Finance Agency (IFA): http://www.ifc.org
16. International Fund for Agricultural Development: http://www.ifad.org/
17. International Monetary Fund (IMF): http://www.imf.org
18. Joint Economic Committee of the US House: http://www.house.gov/jec/imf/imfpage.htm
19. NGO Information Center: http://www.ngo.or.jp
20. NGO
21. Organisation for Economic Co-operation and Development (OECD): http://www.oecd.org/
22. Standing up to Structural Adjustment Programs (SAPRIN): http://www.igc.apc.org/dgap/saprin/index.html
23. The Multilateral Investment Guarantee Agency (MIGA) http://www.miga.org
24. The NGO Café: http://www.soc.titech.ac.jp
25. Trade and Development Center: http://www.itd.org/
26. UN- Division for Economic and Social Council Support and Coordination: http://www.un.org/esa/coordination/desc.htm
27. UN Web site locator: http://www.unsystem.org/
28. UNESCO: http://www.unesco.org
29. United Nations: http://www.un.org
30. World Bank: http://www.worldbank.org
31. World Food Program: http://www.wfp.org
32. World Trade Organization (WTO): http://www.wto.org