February 2005

Kunibert Raffer

Dear all,

The very interesting discussion on the IBRD makes me react to the two very insightful commentaries by Wood and Alexander.

First, I should like to support Alexander's view that campaigns have something to show. The Inspection Panel Alexander cites is a particularly good example. Introducing it was pathbreaking, it was copied by other multilateral banks, and it brought a whiff of accountability to these banks. On the other hand, the IBRD's
Inspection Panel established already with reduced authority had its winglets soon clipped, it remains an organ of the IBRD, not a really neutral entity, and its impact on the Bank could certainly be improved.

I am also agreed with Alexander when she writes "It has always seemed to me that, especially by working with academics, NGOs could usefully focus more on the Treasury Department." I think this co-operation is always needed. While I agree with Woods that "On the whole it has not been technical arguments face to face with Bank staff that have led to change", I think she dismissed technical arguments a bit too quickly. While it is patently true that technical arguments are often insufficient in a political environment - maybe mostly so in the case of IFI - I believe that campaigns need technical support, be it to counter arguments by IFI staff (who might otherwise get away by simply arguing with a lot of technical objections that this cannot be done), or to shape and/or provide a counterproposal. To my knowledge, the campaign that brought the Inspection Panel into being drew importantly on the work of Daniel Bradlow, a law professor at American University. While by themselves insufficient to create the necessary pressure on recalcitrant institutions/politicians for reform, technical knowledge and arguments are in my view needed for successful implementation of change.

I am agreed with Woods that "changing the hearts and minds of those who engage in the Bank" is important, but possibly not more so "than changing the Bank" itself, because existing structures shape the possibilities of those working within such structures. Also, yes - we have to point out that the IBRD fails to meet its own economic objectives and, especially, its fiduciary responsibilities. But I have to disagree that the Wapenhans Report has really shaken the IBRD - there was some inconvenience, true, but the IBRD used it to say how critical they were on themselves and that they had learned, then it blew over - at least it has not shaken it enough to bring about real change.

One point that did not receive attention to the best of my knowledge - except from one odd out academic - is that all multilateral development banks continue to break their constitutions by not fulfilling their duty to grant debt relief in the case of default.
This is an open breach of their statutory obligations, and they are allowed to get away with it - precisely because, as Woods pointed out, technicalities alone (without public support by NGOs) are insufficient. For details, may I ask those interested to go to
http://homepage.univie.ac.at/kunibert.raffer/CHICAGOH.pdf or to read my new paper published by the Carnegie Council in 2004 ("International Financial Institutions and Financial Accountability", Ethics & International Affairs, Carnegie Council on Ethics and International Affairs, vol. 18(2), 2004, pp.61). To me it is inexplicable why this blatant breach of law by public institutions eagerly preaching the importance of the Rule of Law to their clients seems just to be exempt from criticism. Especially as MDBs claim that they cannot/must not reduce their claims, a clear hint that they might benefit from reading their own statutes might be quite helpful.

The IBRD's Articles of Agreement allow actions against the Bank except by members or persons acting for or deriving claims from members - for whom an arbitration mechanism was foreseen (Article VII.3; for details, please see the link to CHICAGOH.pdf above)

I also keep wondering why the idea of holding IFIs financially accountable - introducing some form of tort law on the multilateral level - has been unable to get more support. Institutions have no hearts and minds, but they do have a burse. One may not be able to touch them, but there is money to be attached.

The IBRD's present percentages of sustainable or satisfactory etc. projects - the 24% rightly criticized by Alexander - must be seen while taking into account that the IBRD has repeatedly changed its evaluation method - with one sustainable result: the new method always rendered a larger share of "good" projects, and hard economic benchmarks were consistently pushed back to give evaluators more leeway (for details pl. see my Chicago paper) These changes in methods might also make a very nice question to be asked by others with more voice than the odd out academic.

Re. US bullying, I feel I have to tilt a small lance for the US. The EU and quite a few OECD governments are all in favour of PSD. If and when they do not speak up they use the advantage of hiding behind "cowboy boots" - but their intentions are quite the same. The EU and its economic policy to press for the undoing of public services in transport, water etc., which is devoid of any democratic legitimation, is a prime example.

Re. shrinking the IBRD I second Alexander once again. At the moment the Bank finances a lot of unsuccessful, even outright harmful projects and programmes - improvement will thus necessarily mean fewer activities, thus less flows. But no project at all is much better than a project creating huge damages - not least to the affected poor. Alexander's example of operations advancing Northern interests and undercutting developing countries in trade negotiations is one good example of what should be stopped. Technically, that means smaller flows, of course. I should fully subscribe to the point that quality is much more important than quality. Finally, once the debt merry-go-round stops, where one loan is given to enable the "recipient" to repay an old loan in time, such "loans" will cease to be necessary. They should have been topped long ago. However, this would also mean "less money", at least in gross terms. But debtor countries would be better off.

Re. loans or grants I strongly believe that certain activities must be financed by grants - whether or not Dubya's team says so.
Financing institutional or social agenda (such as measures against AIDS - necessary as they are) by loans in poor overindebted countries is simply against all economic sense. Sir Hans and I argued (v. http://homepage.univie.ac.at/kunibert.raffer/rasi1.pdf p.6). that such agenda must be financed appropriately- i.e. by grants). Funding via loans will only increase the debt burden. There are things that must not be done by lending. I can easily embrace the idea that such grants should be channeled via the UN. I also see the very real dangers of NGO proposals being perverted by realpolitik. But whichever institution does it - social and many anti-poverty measures require grants.

With best regards
Kunibert Raffer