printer printer Click on the green icon on the right
Poverty Reduction? or PRSP?
by Shalmali Guttal
11 March 2003

Shalmali Guttal is member of the organisation Focus on the Global South / Presentation at the Seminar on the Participation of Civil Society in PRSPs (Brussels, 16 September, 2002).

First, I would like to thank 11.11.11 and the Belgian Cooperation for inviting me to share my analyses and views on PRSPs with in this seminar.

I would like to raise some key issues regarding PRSPs and the role of bilateral donors in relation to PRSPs. My analysis is formulated on the basis of research that Focus on the Global South has conducted into the PRSP formulation process in general and also specifically in the Lao PDR, Cambodia and Vietnam. It also draws on discussions that we have had with local organisations and individuals, international civil society actors and government representatives in these three countries.

In our view, PRSPs will create and entrench policy-induced poverty. They will have little to do with poverty reduction in any meaningful sense. But they will certainly strengthen the grip of the Washington Consensus on the policy environments of recipient countries.

I. PRSPs are a new and expanded form of structural adjustment.

An examination of Interim PRSPs (IPRSPs) in Africa, Latin America and Asia show that PRSPs are not different from the past structural adjustment programmes (SAPs) that were imposed by the IMF and the World Bank on heavily indebted borrowing countries. The content of full PRSPs under formulation reveal the same trends.

In fact, operational documents of the World Bank and the IMF on PRSP preparation reveal that the PRGF and PRSP are continuations of SAP style programmes, albeit with the term “poverty” attached to them.

The policy matrices attached to IPRSPs and full PRSPs contain the same macroeconomic frameworks and neoliberal reform programmes that accompanied SAPs. The policy matrices are comprehensive lists of policy conditionalities that demand privatisation, trade and investment liberalisation, deregulation, reducing the role of government from providing broad-based social protection, public expenditure management and “good governance” (which entails creating an “enabling environment” for private sector and market expansion).

These policy matrices are non-negotiable, remarkably consistent across countries—whether in Asia, Africa or Latin America—and imposed without discussion or investigation of their long-term impacts on the overall social and economic health of the recipient countries.

These conclusions are corroborated by numerous studies conducted by international NGOs, national civil society networks, independent researchers and the UN Commission on Human Rights.

The destructive impacts of SAPs are documented in numerous studies, the most recent and comprehensive of which is the assessment conducted by the Structural Adjustment Participatory Review International Network (SAPRIN). The SAPRIN study spanned 10 countries across Latin America, African and Asia, and involved national governments, local-national civil society actors, bilateral donors, and the World Bank itself. The study shows how SAPs created and entrenched continuing cycles of impoverishment and inequality, and that the anticipated gains in efficiency, competitiveness, revenues and savings from Bank-Fund prescribed macroeconomic policy prescriptions did not materialise. The World Bank, however, chose to distance itself from the findings of the multi-country study when it became apparent that these findings contradicted the Bank’s claims that SAPs had been successful in fostering economic growth and reducing poverty.

Now, the Bank and Fund seek to impose more or less the same policy prescriptions through the PRSP, but with a poverty reduction tag attached to them. The two institutions are closed to integrating ex-ante assessments into the PRSP-PRGF frameworks, and to subjecting their policies to public scrutiny and nationally determined democratic processes.

The report of the UN Commission on Human Rights independent expert (18 January, 2001) also points out that IPRSPs do not attempt to integrate major international human rights principles such as the Convention on the Rights of the Child, International Covenant on Economic, Social and Cultural Rights, and several ILO conventions.

II. PRSPs emphasise rapid economic growth and market mechanisms at the expense of strengthening domestic social and economic sectors, and the rights of local populations to sustainable development.

A World Bank-IMF operational document on PRGF-PRSP (10 December, 1999) states that: “The impediments to faster sustainable growth should be identified and policies agreed to promote more rapid growth: such as structural reforms to create free and more open markets, including trade liberalisation, privatisation and tax reform and policies that create a stable and predictable environment for private sector activity.”

IPRSPs and PRSPs do not include: bottom-up land and agrarian reform; protection of common pool or common property resources; redistributive and equity enhancing financial and economic policies; progressive taxation; strengthening domestic markets and economic capacities; food and production sovereignty; the rights of communities to their natural resources; the protection of workers and the environment in relation to foreign investors; and assurances of social rights and entitlements to domestic populations.

Similar to the SAPs that preceded them, IPRSPs have already started to sow seeds of deepening inequality, environmental destruction and shrinking of local-national democratic space. The strategy is rapid economic growth at all costs, regardless of the means and impacts. Common elements of the growth strategy include: flexibilisation of labour, large-scale commercialisation of agriculture, encouragement of foreign private investment through special incentives and export processing zones, and privatisation of common property resources.

III. There are no demonstrable links between the macroeconomic policies and conditionalities demanded by the World Bank-IMF, and poverty reduction.

Studies conducted by NGOs, independent researchers and the UN Commission on Human Rights find that PRSP-PRGF policy frameworks reflect those of SAPs, and that the Bank and the Fund are unable to show conclusively how these policies will reduce poverty. Particularly egregious is the PRGF, which is so steeped in fiscal reforms, privatisation, austerity measures and restricting the welfare role of the State, that its’ connection with poverty reduction is not even illusory.

The SAPRIN study, on the other hand, shows that these policies will increase and entrench long term poverty, inequality and humanitarian crises.

The recently completed World Bank report on the Status of Implementation of HIPC (3 September, 2002) shows that the Bank’s strategy of countries under the HIPC programme exporting themselves out of debt and economic crisis through exports of primary commodities has not worked. Debt indicators have particularly worsened for those countries dependant on the exports of cotton, cashew, fish and copper.

HIPC architects appear to have forgotten that it was the failure of two decades of structural adjustment, debt servicing and an export driven economic growth strategy that precipitated the humanitarian crises that called for urgent debt relief measures for highly indebted poor countries. Yet, the very same structural adjustment conditionalities and macroeconomic strategies continue to be at the core of HIPC programming, thereby entrenching chronic poverty in the HIPC programme countries.

There are wide gaps between macroeconomic indicators of growth, incomes, GDP and employment on the one hand, and micro-level conditions of well being and poverty on the other hand. Even if macro figures show an increase in GDP growth and incomes, at the micro levels, we still see increasing employment and economic insecurity, the impoverishment of small farmers and producers, rural to urban migration, and a growing feminisation of poverty. This is visible and evident in the Lao PDR, Cambodia and Vietnam. Neither the Bank, nor the Fund is able to make coherent links between macro pictures and micro realities, nor have they made an visible attempts to adjust their own policies based on evidence and reality

IV. PRSPs are not nationally owned.

For the World Bank and the IMF, national ownership means a country’s commitment to implement Bank-Fund approved strategies, come what may.

PRSPs must be developed according to Bank-Fund guidelines and specifications. All PRSPs must contain core elements such as rapid economic growth, expansion of private sector activity, trade and investment liberalisation, deregulation, good governance and “prudent” macroeconomic management.

All IPRSPs and PRSPs must go through Joint Staff Assessments (JSAs) by Bank-Fund staff. Staff are instructed in operational documents to discuss modifications to a country’s strategy that are necessary to allow Bank-Fund Management to recommend to their Boards that the strategy be endorsed as PRSP.

IPRSPs and PRSPs often conflict with recipient countries’ national plans. In most cases, it is the national plan that adapts to the PRSP and not vice versa.

In Cambodia, the IPRSP formulation was marked by serious conflicts among the Cambodian Government, the World Bank and the Asian Development Bank (ADB). The full PRSP formulation process is not much different. This is particularly counterproductive to a country like Cambodia, which has been in the grips of civil and economic crises for over 15 years. Attempts by the Cambodian Government to promote a genuinely national planning process have been undermined, especially since national plans do not come backed with the money, resources and political clout that a PRSP comes with.

There is a high degree of involvement of Bank-Fund staff in the preparation of PRSPs. The preparation requirements are extremely cumbersome and given the timelines, beyond the abilities of most recipient countries to prepare on their own. In many countries, governments are more than willing to let the World Bank take the process over, since the Bank gets its PRSP and the government gets its loan.

In the Lao PDR and Cambodia, the policy environments are so dominated by the IMF, Multilateral Development Banks (MDBs), UN agencies and international/bilateral donors, that who physically writes the PRSP is unimportant. There are foreign consultants for every sector, from agriculture and health to trade and administrative reform. Policy documents generally reflect the priorities of donors and creditors and not of domestic populations. Many local people familiar with the policy formulation processes in these countries say that national policies are based on consultants’ reports.

In Vietnam, the situation is better: the government is well informed, extremely competent and more in control of policy processes. But even here, a common assessment among many local people is: no PRSP, no loan; so just do the PRSP to get the loan.

The PRSP becoming a coordinating framework for bilateral donor assistance is extremely problematic. Governments will go ahead with a PRSP to make sure that they do not scare donors away.

Linking HIPC debt relief with PRSPs has been a serious problem; governments will give the Bank and the Fund whatever they want in order to get debt relief.

IV. Participation in the PRSPs: whose voice counts?

The entire PRSP formulation process—from interim to full—is marked by an extremely narrow conception of participation. Civil society participation has generally involved prominent developmental NGOs, who have been invited to comment on pre-prepared drafts of documents.

Local populations are not involved in formulating strategies for nationally relevant and meaningful development plans. Local populations are also not involved in monitoring the impacts of past reform programmes. This has been the case in all cases studied, including the Lao PDR, Cambodia and Vietnam.

The policy language in reform policy documents is inaccessible to most local people, including government officials, in the Lao PDR, Cambodia and Vietnam.

The involvement of CSOs and NGOs in PRSP discussions has been by and large restricted to social sectors. They have been excluded from macroeconomic policy discussions.

The current political climate in the Lao PDR, Cambodia and Vietnam is not conducive to open, formal debate about macro and development policies. The most amount of debate is in Vietnam, and the least in the Lao PDR.

At the same time, there is a problem with the insertion of foreign donors and creditors between the relations of the governments and local populations in these countries. Governments appear to be more accountable to donors and creditors than to their own populations.

Reform programmes in the Lao PDR, Cambodia and Vietnam are creating tremendous administrative pressures, and economic and social stress among governments and local populations alike. Governments need money to implement development plans, but cannot get the funds without adherence to donor and creditor policy requirements. But in many areas, livelihood conditions are becoming harder and governments are unable to simultaneously respond to the demands of their own citizens and the policy demands of creditors and donors. The standard government response to this has been to that they become more authoritarian with their own citizens. A government official pointed out that no government wants to own “the bad news” about increasing poverty and the government’s lack of control over economic conditions, especially not to its own citizens. According to him, if you cannot give your people the answers they need, it is better not to talk to them.

On their part, donors and creditors demand that governments are accountable to their own programmes, but not to the citizens of aid and loan recipient countries. Recipient governments thus respond more to the requirements of donors and creditors than domestic priorities. How can a PRSP be participatory in such conditions?

Genuine participation is a deeply political process of representation and negotiation. Donors need to pay much more attention to the standards of civil society participation that they will be satisfied with.

In the Lao PDR, Vietnam and Cambodia, we are witnessing the re-formation of local decision making processes and the re-construction of local social relations into new formations such as NGOs, single-issue groups and private consultancy enterprises. Majority of the newly emerging CSOs have more to do with responding to opportunities created by the aid industry than with ensuring that the diverse interests of local peoples are adequately represented in national policy formulation. More and more, there is a widening gap between those who can and who cannot “participate” in processes such as developing a PRSP. The voices and priorities of local farming communities, women, formal and informal sector workers, migrants, indigenous peoples, ethnic minorities, youth, and small producers and businesses are not reflected in the PRSPs.

V. Capacity Building

It is true that there is a deficit of human resources and institutional capacity in the Lao PDR, Cambodia and Vietnam to adequately manage the reform process.

But before donors embark on “capacity building programmes,” it is important that they gain deeper understanding of what type of capacity is weak, among whom, and why capacity is weak in specific sectors and areas.

It is also extremely important for donors and creditors to be honest about what type of capacity they are interested in building. Most capacity building loans and programmes are focussed on teaching governments how to comply with donor and creditor requirements, but not to support them to be able to think for themselves, do their own research and assessments, and to build nationally accountable and democratic institutions.

Here is a challenge for the World Bank, the IMF and bilateral donors: How do you foster genuine participation in a model and framework of development—such as the PRSP—that is culturally and politically alien to the people of the recipient country? Are bilateral donors committed to sitting at the negotiating table with aid recipients as political equals?

VI. Donor coordination: a double edged sword

There certainly is need for donor coordination in the Lao PDR, Cambodia and Vietnam, but not through the PRSP. Given the politics of policy formulation through the PRSP, it is not an appropriate framework for coordinating bilateral aid.

The type of coordination that the PRSP offers resembles the formation of a massive, powerful and unaccountable aid cartel, whose house rules are based on a development model that has proved to be harmful and destructive to recipient countries.

By channeling bilateral resources through the PRSP, donors will ensure that recipient governments are unable to find alternative policy advice and finances for development. The policy coherence imposed by a PRSP dominated cartel will close off much-needed debate and support for alternative development strategies that differ from the Washington Consensus.

Donor coordination is important but it also raises questions of responsibility and accountability among aid providers. The policy coherence demanded by the PRSP framework is substantive and not simply logistical. If bilateral donors put all their eggs in the PRSP basket, who takes responsibility for bad policy advice, faulty assessments and failed projects and programmes? Will the Bank and the Fund come forward and do this? Or will bilateral donors take joint responsibility with the Bank and the Fund for the failures—or successes as the case might be—of their pet policies? Or, will it all be placed on the shoulders of recipient countries and written off as a result of weak capacity, poor governance and “entrenched structural weaknesses?”

If bilateral donors are genuinely committed to supporting national development plans in recipient countries, they must also engage in a critical examination of what the PRSP and the neoliberal development model is doing in these countries. Here, it is extremely important to challenge the policy advice provided by the MDBs and the IMF to recipient countries. Given their past track records, what competence can the World Bank, the IMF, or the ADB claim in alleviating poverty, promoting sustainable development and even in fostering economic growth?

Equally crucial, donors need to ensure that there is a publicly accountable system of checks and balances in international aid and development efforts, with sufficient avenues for reversals of bad decisions, and corrections of faulty programmes. If bilateral donors are going to operate in concert to support the same policies and programmes, then they must also be accountable to the populations in recipient countries, who will bear the brunt of impacts of these policies and programmes. Without a wider system of accountability, donor coordination can become akin to countries with money ganging up against countries without money.

VI. Good governance: yet another double edged sword

Yes, there are tremendous problems of mismanagement of public funds, corruption and outright theft in many aid recipient countries. And yes also, corruption is an important reason why the benefits of development do not reach the poor in many countries. Corruption and the misuse of a nation’s resources must be fought.

However, these problems are also present in donor and creditor agencies. Large infrastructure projects are notorious for collusion, conflict of interest and corruption, and yet, many of them continue to be supported by creditors and donors even after reports of wrongdoing come to light.

Frameworks for good governance must uphold the human, political, economic and civil rights of peoples. Here, donors and creditors would do well to review how often they have looked the other way in the face of massive human rights violations in recipient countries—violations financed by the resources provided by donors and creditors.

Current frameworks of good governance that are promoted by the MDBs—and included as conditionality in the PRSP—focus on the creation of an enabling environment for the private sector and for protecting the rights of corporate (often foreign) investors. They do not promote the rights of local and national populations. Nor do they allow policy space for foreign investors, financiers and aid providers to be held accountable for wrongdoing.

Bilateral donors need to examine notions of good governance included in the PRSP extremely carefully. The governance policies they support must place responsibility and accountability where they are legitimately due. Good governance should not become another avenue to expand neoliberal reforms in borrowing countries.

VII. Monitoring of past and ongoing policy reforms is extremely important, especially in the context of the PRSPs

Monitoring of past reform programmes is very important to ensure that aid and credits are actually helping to build strong, nationally accountable domestic structures. Such monitoring must be built into aid and reform programmes.

Monitoring is particularly urgent in the case of PRSPs, since PRSPs demand sweeping and wide-ranging policy reforms in almost every sector. PRSP monitoring must be an open process, involve the public (not selected CSOs) and be directed by elected bodies such as parliaments and national assemblies. It must be accompanied by full, complete and timely information disclosure. The process must be seek the truth in micro reality and allow for corrective action as and when needed, even if this means rethinking some policies and programmes. PRSP monitoring must be based on the entire range of human rights principles —civil, political, economic, the right to land, the right to association, etc.

It is particularly crucial to monitor and assess the impacts of PRSPs on women and to ensure that women’s priorities are a structurally integrated into all policy development, micro to macro.

VIII. Debt relief must be de-linked from PRSP; HIPC should be radically restructured according to human rights principles

The HIPC initiative is not only inadequate, but also misconceived and misdirected. The excessive conditionalities imposed on debtor countries for even the most meager debt relief makes the initiative much too costly for the populations of debtor countries. Countries are paying more on debt servicing under the HIPC programme than before, not only in money, but also in their future economic potentials.

The HIPC initiative is based on faulty advice: countries cannot export their way out of the debt trap when they have no control over the markets for their exports, terms of trade, or over their domestic conditions of production. The commodity crisis of the past year shows this only too well. The debt sustainability criteria central to the HIPC are meaningless and inaccurate. Countries that have been through protracted periods of structural adjustment and debt servicing have such massive backlogs of economic, social, technological and institutional capacity that a little extra cash in hand is not going to address their urgent development needs.

The creation of poverty is often accompanied by a parallel and simultaneous creation of wealth. Some groups and interests certainly have benefited from the various versions of HIPC, and continue to benefit from the transfer of privately created debt to public coffers. But these beneficiaries do not include small farmers and producers who lose their productive assets because of non-payments of debts, seasonal migrants who cannot keep their children in school, workers who are forced to work for lowered wages under “labour flexibilisation” programmes, women in low-income families whose burden of family care increases because of heavy debt burdens, or a growing number of poor families who cannot afford the rising costs of healthcare.

It is extremely important for bilateral donors to conduct an honest political assessment of whose interests are served by the framework of debt sustainability used by the World Bank and the IMF and their endless debt restructuring programmes. If donors are committed to poverty alleviation, they must examine how debt repayment and the HIPC programmes have deepened poverty in debtor countries and facilitated the transfer of wealth from the poor to those already wealthy.

The conditionalities in the HIPC programme are the same as in the PRSPs. If donors are genuinely committed to debt relief, they must delink debt relief from the PRSP and remove conditionalities from HIPC. Cancel the debts of the poorest countries—these debts have been paid many times over.

Shalmali Guttal