10 December 2003
by Lisa Jordan, Kay Treakle, and Christopher Chamberlain, Bank Information Center
February 1999
Foreword:
The Bank Information Center has produced this memorandum to summarize and highlight the key points of the Twelfth Replenishment Agreement of the International Development Association, which was approved by the Bank’s Board on 1/12/99.
What is IDA?
The International Development Association (IDA) is the soft loan lending arm of the World Bank. Through this lending window, the poorest countries in the world receive interest free loans with payback periods of 40 years.(1) Because of these concessional terms, IDA is not financially sustainable like the International Bank for Reconstruction and Development, and therefore must be re-funded, or "replenished". Countries eligible to receive IDA lending have a per capita income of less than $925. IDA is replenished every three years by donor countries--represented by "Deputies" within the negotiation process--which pledge their "subscriptions" to back future IDA lending. For the current round of replenishment, the twelfth for IDA, the total requested amount is SDR8.65 billion.(2) IDA is one of the very few processes which draws the World Bank donors' attention to the institution's lending activities. As a result, NGOs working to reform the World Bank Group often have used the IDA negotiations to demand better accountability, participation, and environmental protection.
The 12th round of IDA's replenishment negotiations was completed at the end of 1998. On January 12, the Board of Executive Directors, representing both Southern and Northern countries, agreed upon a host of recommendations made to the Bank by the IDA Deputies. As in the last two rounds of negotiation, the IDA 12 Agreement is laden with recommendations on information disclosure, environmental protection and other issues, described below. IDA 12, however, expands the list of issues to the point that it looks like a great policy potpourri. Four key areas are emphasized in the IDA document: investing in people; promoting broad-based growth; supporting good governance and protecting the environment. Of these four, only ‘investing in people’ and ‘supporting good governance’ are accompanied by policy prescriptions.
Irony within the IDA 12 Agreement
The great irony embedded within the Agreement is the failure of the IDA Deputies to take a closer look at the institution through which they hope to further the goals of justice, respect for human rights, equity, transparency and accountability of governments towards the governed in developing countries. The World Bank itself does not adhere to many of the same principles that the IDA Deputies have asked it to enforce through its lending and strategic advice. While the document is replete with lofty principles for its borrowers to follow to tackle serious developmental problems, there is little effort made to evaluate the Bank's role in addressing (or perpetuating) these problems; nor is there any measure of analysis as to whether corrective action within the institution should occur just as it imposes external mandates on its borrowers. Nevertheless, there are some limited areas in which the IDA document calls for internal World Bank improvement.
While many Bank reform NGOs in the North will welcome the language which calls for improved accountability and expanded information disclosure at the Bank, reactions from Southern NGOs may be mixed. The conditions attached to IDA allocations have doubled under IDA 12 to assess government adherence to democratic principles. Those countries which fail to adhere to these governance standards can be cut off from funding, under the new Agreement. The web of demands and conditions for borrowers is sure to anger many Southern actors-NGO and governments alike-who will undoubtedly view this donor conditionality as an imperialist threat to a crucial, if not imperfect means for poor countries to obtain desperately-needed credit. Southern activists will rightfully argue that the brazenly patronizing interference of the World Bank and the G7 in sovereign affairs of the Nation-State would never be accepted by G7 nations from any international body. (Deputies couldn’t even bring themselves to change the voting rights within IDA to more accurately reflect the true level of subscriptions even though some donors pushed very hard for modernizing shares of power within the Bank.)
Having said this, it is also true that the Agreement may be useful for Southern activists from countries with rogue governments in that it could provide international leverage over the State and provide legitimacy for civil actors to engage in formal decision making.
Perhaps most strikingly, the IDA 12 Agreement continues to erode the Bank's insistence that it only makes economic, and not political decisions. IDA 12 inches closer to the truth that the only time economic decisions are separated from political decisions is when the World Bank Group is seeking to shield itself from public criticism for failing to address human rights and democracy.
New Conditionality in the IDA
The IDA-12 report presents a smorgasbord of poverty-reduction policy changes for the Bank and its IDA borrowers, and includes everything from education and health to environmental protection. The most critical element of the IDA 12 Agreement is the new governance and corruption conditionality, described below. Three of the more important nuances of the Agreement are the qualification that growth should incorporate public participation and equity objectives; a directive to stop lending should countries fail the governance and economic criteria; and an expansion of grant programs to post-conflict countries. Other new issues are: a private sector strategy, gender, labor, and education. The CAS has a new role and new instructions are laid out in Information Policy changes, and support for the Inspection Panel.
Governance
One of four priority policy areas for Bank lending during IDA-12, the Bank will expand its focus on governance issues, including corruption, by establishing new ratings and criteria within its country assessments; linking good governance to lending levels; and including governance issues in the CAS. The IDA Deputies agreed that economic development is hindered by poor governance and corruption, and suggested that the Bank use its lending leverage to secure policy changes from governments. The Agreement defines good governance as: "I) accountable and competent public institutions, ii) transparent economic and social policies and practices, iii) predictable and stable legal framework, and iv) participation by affected groups and civil society"(3).
The IDA Agreement sets out new governance criteria for evaluating a country’s performance which will ultimately affect lending levels. The new Country Performance and Institutional Assessments(4) will require Bank Management to assess the quality of governance for all countries using six criteria: Sustainability and Structural Reforms; Property Rights and Rule-based Governance; Quality of Budget and Public Investment Process; Efficiency and Equity of Revenue Mobilization; Efficiency and Equity of Public Expenditures; and Accountability and Transparency of the Public Service. How the Management will rate countries in light of these criteria "constitutes a major challenge" because the methodology has not yet been well-defined.
IDA Deputies also recommended that "lending to countries with weak governance should be scaled back or stopped entirely if necessary."
Other New Issues
Private Sector Strategy: To promote "employment generating, private sector led growth", IDA-12 requires the entire World Bank Group to establish a "clear private sector development strategy" during 1999. This language reflects the growing concern that Wolfensohn’s call for Bank Group harmonization be undertaken. Meanwhile the IFC and MIGA continue to expand in size and budget without any comprehensive development strategy to guide their operations. In part to deal with existing duplication of effort among the different arms of the Bank, this strategy should determine the roles of IBRD, IDA, IFC and MIGA in "improving human welfare". Whether this strategy will address NGO concerns about the lack of development objectives in the private sector lending and guarantee operations of the Bank remains to be seen. The development of this mandatory strategy gives NGOs an opportunity to influence the direction of the Bank’s private sector operations.
Other key features of the private sector elements outlined in IDA-12 aim at building financial services for micro enterprises and small and medium sized businesses. IDA Deputies also reviewed and agreed to extend the "partial risk" guarantees pilot program. This program finances a small percentage of private sector projects, particularly privatized public infrastructure (transportation, water and sanitation, telecommunications and electricity). NGOs have opposed this program because the Bank provides no supervision on these guarantees and has no ability to determine whether safeguard policies are being implemented.
Gender: IDA-12 requires greater effort on the part of the Bank to "mainstream" gender into operations; and an expanded dialogue with governments and civil society on the issue of gender. Apparently, the IDA Deputies are not satisfied with the progress the Bank has made in "main streaming" gender considerations into bank programs and policy and expects the Bank to "intensify" its efforts. Some specific recommendations include the following: CASs will need to include strategies for improving girls’ access to education; IDA and its borrowers should expand dialogue on gender issues with civil society, and strengthen the External Gender Consultative Group process. Country Performance will be evaluated in the CPIAs, which include gender equality and social inclusion in its criteria for assessing borrowers’ "policies for reducing inequalities." Finally, a Gender Sector Strategy is to be completed by June 1999.
Labor: Despite language that promotes "broad-based employment-generating pro-poor growth", issues of employment and labor have little space in the IDA-12 Agreement. However, the language that does exist stresses problems with child labor and forced labor, which "damages the health and welfare of workers and undermines their future productivity"; and recognizes MIGA’s (limited) conditions on child labor. The Bank also is instructed to collaborate with the IMF on core labor standards - however, the collaboration is not further defined in the document. Apart from including child labor practices in country dialogues and the CASs, there is a lack of specific policy advice for Bank staff or governments.
Education: Educating girls is the centerpiece of the Bank’s education strategy. IDA-12 recognizes that when girls are educated, other development objectives are catalyzed. CASs will now include education sector strategies, and Country Education Action Plans will draw on the International Development Targets for the 21st Century.
Expanding the Role of the CAS
IDA 12 Deputies have highlighted the CAS as a ‘platform for aid coordination and partnership.’ While paying lip service to the idea that developing country governments should be coordinating aid within their own countries, the Deputies then granted this role to the Bank through the CAS, a Bank owned and authored document. The Bank is expected to determine selectivity of its programs and provide explanations of what other donors are financing within the CAS.
The CAS is also central to coordinating the World Bank Group effort in borrowing countries. It has now become the vehicle for delivering a wider variety of IDA’s goals and programs to each borrower. The new CAS is supposed to be results oriented and as such, will identify and set monitorable targets for "how IDA’s support through projects and programs will contribute to the achievement of poverty reduction". CASs are now expected to include local, national and global environmental considerations; financing for renewable energy; governance issues that "affect economic performance and development effectiveness"; gender; core labor standards; education sector strategies; and the financial sector. Furthermore, they are expected to be developed with "active civil society participation" and greater "ownership" by governments is encouraged. Lastly, public disclosure of the CAS documents as of July 1999 is mandatory, which goes beyond the new CAS public disclosure policy.
Accountability and Information Disclosure within the World Bank Group
Information Disclosure: For the first time since IDA-10, greater public access to information is encouraged. The Deputies recommended that Bank Management review the policy to determine which documents that are currently not public should be made available. In addition the Deputies sent a grumpy, not-too-subtle message to Bank Management, when they recommended that Executive Directors should have full access to Bank documents.
Inspection Panel: The Deputies reinforced their commitment to accountability through the Inspection Panel and stressed that "it was imperative to ensure the Inspection Panel’s effectiveness and independence." This is apparently an effort promoted primarily by the US to head off current Board attempts to weaken the Panel. Furthermore, the IDA Deputies stressed the need for the Inspection Panel to be extended over the entire World Bank Group.
Repeated Themes from IDA 10 and 11
IDA Deputies have carried a number of policy themes throughout the last three rounds of IDA negotiations. Many of these issues, like environmental protection and participation, have been put on the IDA agenda at the insistence of NGOs. Poverty reduction appears as the overriding objective for IDA lending. The Deputies continue to inch toward earmarking 50% of IDA funds for Africa. They don’t quite do it again in IDA 12 but come closer than ever before. Social services continue to gain support over other types of investments. 40% of all IDA funds are pledged for social protection in IDA 12. Not all NGOs are convinced that the Bank is the most cost-efficient source of financing for needed social services.
Protecting the environment for future generations reappeared for the third time in an IDA Agreement but appears to be considerably less important than in IDA 10 or 11. The only new point is an instruction to the Bank to report back to the Deputies in 2000 on progress made in main streaming environmental considerations into IDA’s regular assistance. The Deputies repeatedly stressed the need to mainstream environmental considerations into Bank operations. The Bank, however, sequenced the instructions from the Deputies so that it now appears that the Bank will first work on main streaming environment into the CAS and then into the project portfolio. The CAS thus appears as a barrier to actually getting environmental considerations into the portfolio. This is rather unfortunate. Capacity building, public participation, and an emphasis on global environmental problems are all included within the environmental language in the Agreement. In a rare moment of candor, the IDA Deputies recommended to the Bank that it actually implement its environmental strategy for energy.
Lastly, another favored NGO theme, participation, underscored much of the IDA Agreement. The need for public participation first appears under the governance theme. Unfortunately, the emphasis and onus is put on developing country governments instead of the Bank.
*NOTES*
- The terms of IDA credits are 40 years maturity, 10 years grace, and a service charge of .75 percent. Blend countries have a 35 year maturity.
- The U.S. government has requested to Congress U.S.$803.43 million for IDA 12.
- See IDA-12 Agreement, p. 36, Box A-2: "Governance Issues Which Affect Economic and Social Development and the Effective Use of IDA Resources" for definitions of each of these requirements.
- CPA’s form the basis of IDA resource allocations which are defined more specifically within the Country Assistance Strategies. They are prepared annually.