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Partnerships for poverty reduction: Changing aid 'conditionality'

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Partnerships for Poverty Reduction

TUC Comments on a draft Department for International Development policy paper

1.1 We welcome the Government’s initiative to hold a consultation on its policies on conditionality and hope that the review of criteria will lead to greater effectiveness of UK overseas development assistance programmes. It is evident that the current review is a sequel to the recent efforts by international financial institutions, notably, the IMF, to streamline its policies on conditionality. In a sense, it seeks to transpose some of the key elements of revised guidelines [1] on conditionality on to national policy formulation on official development assistance. We do appreciate the contribution made by the UK to the review of IMF policies on conditionality.

1.2 The TUC takes the view that there is nothing wrong with imposing conditions on aid. However, some conditions do harm the poor whom aid is designed to assist. The TUC believes that UK aid should be conditional upon adherence to core labour standards of the ILO - effective enforcement of right to freedom of association and collective bargaining and elimination of child labour, forced labour and workplace discrimination.

1.3 Conditionality encompasses a broad range of policy instruments through which donors are in a position to exercise influence over sectoral and/or macro-economic policies of recipient nations. These include in general adjustment of exchange rates, elimination of internal price systems, trade liberalisation, removal of restrictions on foreign investments, public sector reforms, fiscal reforms and limitations on government expenditure etc. However, a single donor is unlikely to be able to insist upon policy changes on all of them or on the majority of them at one time. Therefore, in our view, it is important that the UK continues to a play a prominent role in the formulation of global policies on conditionality in collaboration the international donor community.

1.4 It is also important to point out that many donors still take into consideration criteria [2] other than needs of recipient nations, which has resulted in an unequal and inappropriate distribution of development assistance. In our view, donors need to pay more attention to this aspect under co-ordination and harmonisation of aid.

1.5 We note that the Department has identified six elements of the UK position on terms and conditions of aid partnership and appreciate their usefulness in defining the Government’s position. Our comments which mainly correspond to them also bear upon the role of the UK as an influential member of the international donor community.

I Terms and conditions must support, not ‘buy’ reforms.

1.6 We agree that mutually agreed terms and conditions linked to poverty reduction benchmarks could ensure the effective use of aid, that they should not be unilaterally imposed and that fulfilment of conditions should not weaken recipient government ownership of the programme. In this regard, we welcome the pledge to streamline terms and conditions and apply them sparingly [3] wherever possible in an effort to lighten the administrative burden on the recipient nations. However, as the paper acknowledges, there is little evidence that recipient nations are in a position to assert sufficient authority and autonomy in the processes involving the development of national poverty reduction strategies.

II Transparent terms and conditions are important for UK accountability.

1.7 We welcome the emphasis on transparency and accountability and support initiatives to ensure the proper use of funds . We understand the need for fiduciary conditionality to ensure that adequate finance and accounting systems are properly maintained We are also in favour of proper procedures and practices for monitoring and evaluation of progress on development assistance programmes . We also welcome the Department’s commitment to publish aid agreement on its Website.

III Mutual Accountability in sensitive policy areas.

1.8 We are strongly opposed to the Government’s insistence on the imposition of economic conditions such as privatisation as a condition to back reforms, albeit, on two conditions. The Government acknowledges concern about the impact of privatisation or trade liberalisation on the poor and we remain opposed to such conditions. On the one hand, it will be difficult to establish with objectivity whether the two criteria -informed choice backed by domestic stakeholders and benefits for the poor based on country specific evidence- have been met. On the other, it will still be possible for a donor to make use of privatisation as a 'precondition' for aid. Donors may give priority to programmes in countries that have already accepted privatisation as a condition for receipt of financial assistance under the Poverty Reduction and Growth Facility (PRGF) or similar programmes which entail public sector reforms. It may be argued that receipt of assistance from the IMF is based on Poverty Reduction Strategy Papers, which, in turn, have been developed in consultation with domestic stakeholders. However, there is little evidence that developing country governments engage in meaningful dialogue with all stakeholders or they take into account a broad spectrum of views on the issues concerned. There is reliable evidence from trade union sources that suggests that views of organised labour have often been disregarded.

1.9 The document also refers to conditions on trade reforms and says that the evidence on trade reform is mixed. It is worth pointing out that membership of the WTO now stands at 148, the vast majority of which are developing countries. Accession to the WTO implies adherence to a set of terms and conditions that include many of the key conditions used to be imposed upon countries by multilateral and bilateral donors. Therefore, in reality, the apparent shift of emphasis is less significant than it appears. Moreover, both IMF and World Bank have overlapping responsibilities for both public sector reforms and trade policy and still make extensive use of them under various guises. In our view, the Government should refrain from using privatisation as a condition for aid and use its influence with international financial institutions to dissuade them from using it. Moreover, we believe that trade reforms should be pursued through the WTO rather than through aid, not least because the need to open markets in less developed countries is certainly not the main priority for world trade reforms.

IV Terms and conditions can help promote participatory process, but they need to be applied carefully.

1.10 We welcome the recognition of the critical role of civil society in development. However, we do not share the concern expressed in the paper over possible intrusion into political processes. We believe that donors could be more assertive in ensuring that partner governments take account of the views of a wide range of stakeholders including trade unionists in developing poverty reduction strategies. Our experience is that partner governments do not consult trade unions and other civil society organisations in a meaningful way unless they are required to under the terms and conditions of a particular aid programme. The apparent diffidence on the part of donors to nudge governments to engage in constructive dialogue with all social partners is likely to send the wrong signal [4] . It has to be pointed out that many developing country governments have ratified a variety of conventions, covenants, agreements etc which commit them to upholding the rights enshrined in them.

1.11 Moreover, some international instruments are binding on all members of specialised agencies of the UN family. For instance, the 1998 ILO Declaration of Fundamental Principles and Rights at work which sets out four core labour standards is of universal applicability and binding upon all members of the International Labour Organisation. These include freedom of association and the effective recognition of the right to collective bargaining (C87 and C98), elimination of all forms of forced or compulsory labour (C29 and C105), abolition of child labour (C138 and C182) and elimination of discrimination in respect of employment and occupation (C100 and C111) and are considered part of fundamental human rights and freedoms. [5] It is hardly an intrusion on the part of donors to persuade recipient government to engage in meaningful dialogue with social partners whose collaboration is integral to the success of many programmes [6] . It is appropriate for donors to do so both collectively and individually, especially they provide assistance on a large scale. [7]

V Aid partnerships should enable predictable funding

1.12 We very much welcome the Government’s commitment to enhancing aid predictability and appreciate the pledges made in this regard in the Comprehensive Spending Review. Moreover, we support the International Finance Facility proposed by the Government with a view to ensuring a predictable and stable aid flow.

1.13 We are broadly in agreement with the approach on interruption of aid in the case of a total breakdown of the basis for partnership and are pleased that humanitarian assistance could be excluded from it. The paper enumerates a number of cases, which, it says, could lead to interruption of aid. However, most of them are liable to subjective judgement and interpretation. Moreover, in light of past experience, it is important that political considerations are not allowed to interfere with this process. In the real world interpretation of violations of international obligations on peace and security has proven difficult [8] . Interruption of aid in the case of breakdown of accountancy systems through corruption is justifiable and it is hoped that donors and recipients will take it seriously, for experience suggests that the international donor community has rarely adhered to it in the past [9] . We also believe that internationally recognized violations of core labour standards should also be grounds for suspension of provision of aid.

1.14 We support the initiatives by the Government to channel aid through non-governmental organisations and the private sector when it is impossible to provide aid to the recipient governments. We should like to point out that the trade union movement is in a position to assist the Department in channelling assistance to countries where the Government finds it difficult to deal with the regime [10] .

VI Donor must work together more effectively.

1.15 We support efforts directed at enhancing donor co-ordination and harmonisation. However, there is risk of harmonisation of conditions resulting in the imposition of conditions with greater rigidity. Moreover, it is possible that harmonisation of conditionality leads to the concept of lead agency being applied in some aid programmes. The IMF itself, when applying conditions on measures and variables outside its core areas of responsibility, relies upon conditions set by the World Bank. In other words, there is a possibility of a kind of cross-conditionality being applied under the guise of co-ordination and harmonisation. Although the UK is an important member of the donor community, very often it is not in a position to attach conditions on macro-economic variables. Instead, it relies on the terms and conditions imposed by international financial institutions on recipient nations. The information gathered through IMF Article IV consultations often forms the basis for strict conditions imposed on member countries seeking assistance from the IMF. We therefore call upon the Government to desist from making use of the conditions imposed by international financial institutions as basis for its decisions on aid. We hope that the Government will play a leading role in persuading the international donor community to untie aid from political considerations. [11]


[1] The IMF started its review of policies on conditionality in 2001 and published new Guidelines on 25 September 2002.

[2] 'For foreign policy reasons, some countries have traditionally received large amounts of aid', Aid dependency, p.337, 2004 World Development indicators. In 2002, Israel received aid worth per capita whereas Ethiopia received only per head in the same year.

[3] IMF new guidelines refers to 'Parsimony', see Guidelines on Conditionality, IMF, September 2002.

[4] In 1997, the Ethiopian security forces gunned down an Executive Committee member of the Ethiopian Teachers’ Association. A vehicle donated by the British Government is alleged to have been used in the incident. The Ethiopian Government has so far refused to hold an independent inquiry into the murder.

[5] The DfID recognise the importance of respect for core labour standards in poverty reduction. See Labour Standards and Poverty Reduction, DfID May 2004.

[6] Public sector reforms, for instance, may involve reductions in government expenditure, which has serious repercussions on public services. Governments need to consult trade unions and other professional bodies before embarking on reforms in order to ensure their successful implementation.

[7] Development assistance amounted to 65.5% of central government expenditure in Uganda in 2002. WD Indicators 2004.

[8] There was serious talk of suspending development assistance to both India and Pakistan following nuclear tests by both nations. However, political expediency prevailed and both countries, especially Pakistan, continue to receive significant amount development assistance. US Congress approved an aid package worth US$ 2.5bn in military and economic assistance in November 2004 for Israel.

[9] Both bilateral and multilateral donors continued to pour funds into President Mobutu’s Zaire during the Cold War despite the fact that most of it ended up in the President’s bank accounts in Switzerland.

[10] For instance, the British Government was able to provide assistance to the people of South Africa under Apartheid through the TUC and affiliates.

[11] US Government withholds military aid to countries that refuse to sign bilateral agreements with it, granting immunity from the Court of International Justice for its citizens.

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