I welcome Ms Nessa Ní Chasaide, Debt and Development Coalition Ireland. We will hear short opening remarks from Ms Ní Chasaide, to be followed by a question and answer session. I draw to Ms Ní Chasaide's attention that, by virtue of section 17 of the Defamation Act 2009, she is protected by absolute privilege in respect of the evidence given to the committee. If she is directed by the committee to cease giving evidence in respect of a particular matter but continues to do so, she may thereafter only be entitled to a qualified privilege in respect of evidence given. Only evidence connected with the subject matter of these proceedings is to be given. Further, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I call Ms Ní Chasaide.
IMF’s Role in Developing Countries: Discussion
Ms Nessa Ní Chasaide
I thank the Chairman and the committee for the opportunity to share the concerns of Debt and Development Coalition Ireland regarding the role of the IMF in developing countries, especially in light of a recently proposed major loan facility from Ireland to the IMF. The discussion on the financial needs of developing countries and the dominant role of the IMF comes at a critical stage. Developing countries are currently experiencing devastating impacts due to the global financial crisis, a crisis not of their making. Foreign direct investment in developing countries has fallen by an estimated 30% and losses in migrant remittances are estimated to fall by $24 billion in 2010.
The human impact of these losses is utterly devastating. The World Bank estimates that slower economic growth as a result of the current crisis may cause up to 2.8 million additional infant deaths in developing countries by 2015. The ILO, International Labour Organisation, estimates that 61 million workers worldwide have lost their jobs due to the crisis, with more than two thirds of these workers from developing countries. In 2009, some 100 million people sank below the $1 per day income level. The UN Food and Agriculture Organisation estimates an additional 100 million people lived in chronic hunger in 2009, which now poses a threat to one sixth of humanity.
All of these major challenges are taking place in the context of an urgent climate crisis. Already, an estimated 26 million people in developing countries have been displaced due to climate change, an estimated 375 million people could be affected by climate related disasters by 2015 and several major developing country cities dependent on water from mountain ranges are facing future collapse. Studies indicate the likely onset of a new phase of the sovereign debt crisis in developing countries. For example, Zambia, one of the poorest countries in the world which has already received significant debt cancellation, could soon face a debt to export ratio of 300%, double what is deemed sustainable by World Bank and IMF measures. As a result of these concerns, the UN has signalled serious alarm regarding the debt distress levels of 49 least developed countries.
In April 2009, the UN Secretary General warned G20 leaders that at least $1 trillion is needed to support developing countries through this crisis. This will require richer countries to mobilise additional resources to assist other countries to bridge the giant financing gaps they face and to ensure developing countries are allowed to implement policies that enable them to develop and prosper. As a result of the urgent financial needs resulting from the global financial crisis in 2009, the G20 countries made an agreement to empower the IMF to provide countries affected by the global financial crisis with loan support, including a commitment of up to $500 billion which triples the total pre-crisis lending resources of the IMF to $750 billion.
In January 2010 the Irish Government decided in principle to provide the IMF with a loan facility of approximately €2 billion from Irish Central Bank resources as Ireland's contribution towards this agreement. The Minister for Finance, Deputy Brian Lenihan, proposes to make the commitment in two steps through a bilateral loan facility to the IMF, which will then be rolled over by joining a new facility within the IMF called the "new arrangements to borrow", of which Ireland has not been a member previously.
Debt and Development Coalition Ireland is deeply concerned that Ireland proposes to make such a significant financial commitment to the IMF without seeking to ensure that historical damage caused by the IMF in developing countries is not repeated through the new loans extended. Widely documented evidence demonstrates serious damage caused by the IMF to the lives of people in developing countries. This is due to its application of macroeconomic policies without due consideration to their impacts in impoverished country contexts. IMF economic policy conditions have followed a clear, predictable pattern of market liberalisation, privatisation, the capping of public expenditure and strict monetary policies, irrespective of whether these are the appropriate policy actions in the context of such vulnerable states.
These kinds of polices have been described by United Nations economist Jeffrey Sachs as "belt tightening for people who cannot afford belts". I will focus on the impact of these policies in the area of livelihood security and education. For example, Mali is a west African country and is one of the poorest countries in the world, where 90% of the population live on less than $2 per day. As part of its lending conditions in 2005, the IMF promoted the privatisation of the electricity sector and the liberalisation and privatisation of the cotton sector there. Oxfam International and Malian civil society organisations highlighted the disastrous results these conditions caused, including dramatic price increases in electricity costs with additional limited coverage, which made Malian electricity the most expensive in the region; a 20% drop in cotton price for 3 million Malian farmers as a result of the liberalisation of the cotton price in a highly distorted international market; and the blocking of overseas development assistance to the tune of $72 million by the World Bank when the Malian Government failed to deliver on IMF policy conditions. Oxfam estimated that this money could have been used to pay the salaries of 5,000 teachers for the next ten years in a country where only 17% of women between 15 and 24 years are literate.
ActionAid shows how tight macroeconomic policies promoted uniformly by the IMF across different countries, despite the unique and specific challenges in each country, have prevented many low and middle income developing countries from investing in education. Its report highlights the real life impact of this on children's education, including a ban in 2004 on hiring teachers in Zambia as a result of an IMF policy condition on restricting the public sector wage bill. This meant leaving thousands of teachers unemployed and a pupil-teacher ratio in Zambia of 100:1 in some schools. Conservative estimates at the time suggested that a further 6,000 to 7,000 teachers were needed if a basic desired student-teacher ratio of 40:1 was to be achieved.
Other outcomes include the privatization of 20% of pre-primary and primary school education in Guatemala resulting, according to local communities there, in poor quality teaching due to the use of unprofessional teachers. The hiring of unqualified teachers in developing countries that are struggling to keep public sector wage bills low as part of IMF programmes is a problem. In India, for example, the employment of up to 500,000 so-called parateachers has resulted in widely varying levels in the quality of education being delivered to Indian children.
A lack of resources to support free education in Kenya has also been an outcome of IMF policy conditionalities, resulting in only half of the children who register finishing primary school, and out of that number only half access secondary education. This is largely due to the fiscal and monetary pressures resulting from IMF policy conditions in Kenya, which in 2005 included: keeping inflation below 5%; downsizing the civil service by 15%; freezing the employment of teachers; liberalising key industries such as tea and coffee; privatising telecommunications and power generation; and keeping the fiscal deficit below 1.5% of GDP.
After nearly 20 years of satisfying IMF demands on inflation in 2002, Finance Ministers of the highly indebted poor countries declared their desire to see more flexible growth-oriented macroeconomic frameworks to think more closely about ways to increase growth and employment rather than further reducing inflation. This freedom to make different policy choices is not available to developing countries as many dissenting developing countries have been blocked from receiving aid flows, as highlighted in the case of Mali. Many other developing countries have had their debt cancellation processes delayed as they were declared off track in the implementation of IMF policy conditions. For example, Malawi was declared off track when the government borrowed money from domestic banks to prevent its citizens from dying during an acute three year drought in 2000-03.
Has there been change at the IMF? Given this worrying evidence, it is important to question whether the IMF has changed its approach in the face of sustained criticism and policy failures. Most up-to-date research on the IMF in middle income and low income countries shows that while the institution may have become more flexible in the short term, especially in middle income countries, this flexibility has had a short lifespan. Recent IMF communications have acknowledged that the current period has forced a rethink within the IMF and it has acknowledged that it has focused too narrowly on inflation targeting and debt sustainability issues, but does not fundamentally address the damage done to developing economies through the full set of fiscal and monetary policies that it promotes.
In practical terms, the IMF has introduced a number of changes, such as those made to two of its lending facilities, and has introduced a new scheme with low conditionality called the flexible credit line. It has reformed some features of the exogenous shocks facility to ease low income countries' access to IMF resources. However, these changes, especially in the case of the flexible and the exogenous shocks facility, target better off countries and do not deal with the problem of policy conditionality in low income countries.
Newly published research examining the impact of the IMF on low income countries since the current financial crisis demonstrates that any marginal shifts away from strict policy conditionality approaches were reversed in 2009-10. The research demonstrates that the IMF's macroeconomic policy design shows the usual short-term deflationary set of policy priorities that constrain any countercyclical and development policies. Despite IMF claims that it has allowed borrowers greater policy space, in reality fiscal deficit targets were increased by less than 2.5% of GDP in seven of the 13 low income countries examined. While this increase provides greater policy space compared to previous IMF targets, they represent marginal adjustments to initially restrictive recommendations while the underlying short-term approach remains intact.
The majority of countries in recent study samples are now facing tighter fiscal constraints. Oxfam International confirmed this and highlighted that of the sub-Saharan African countries where there are IMF programmes, three-quarters increased spending in 2009 but by 2010 those countries with IMF programmes were exiting from their fiscal stimulus slightly faster than countries without a programme.
What are Ireland's responsibilities in this area? It has committed to a set of key principles in support of developing countries. These include partnership and coherence in development, a commitment to the provision of grant-based finance to the poorest countries in the world and support for total debt cancellation for the poorest countries. Therefore, in the limited instances when Ireland provides loan-based finance through multilateral institutions such as the IMF, it bears a very serious responsibility to ensure that the social outcomes significantly improve people's lives in developing countries.
Despite bearing this responsibility, the Irish Government has not responded to the significant evidence available of the damage caused to developing countries as a result of IMF policy conditions. In addition, given the high emphasis placed by the IMF on lending as a solution to the crisis, Ireland has not outlined a clear position on the implications of this massively scaled-up credit in the context of low levels of availability of other forms of independent finance.
The Irish Government should use the opportunity of engaging with the IMF on the forthcoming potential loan to support the delivery of sustainable pro-poor finance in developing countries.
The Irish Government should not extend a large-scale loan facility without seeking fundamental reform of the IMF in developing countries. Ireland should work with its Canadian representatives at the IMF to seek commitments from the IMF to discontinue its practice of attaching damaging economic policy conditions to its loans in developing countries; reform its governance structure to include far greater voice and votes for developing countries through introducing a double majority voting system; restrict future IMF lending to developing countries to short-term needs, such as balance of payments shocks; and discontinue long-term lending, given the IMF's lack of expertise in the area of long-term development and poverty eradication.
In addition, as part of its wider development policy, the Irish Government should provide strong support to developing countries to access policy advice from a wide range of sources that could include UN agencies, regional and national think-tanks and academia in developing countries. It should delink bilateral official development assistance allocations to the existence and status of IMF programmes; support Irish Aid-funded research into alternative macro-economic policy designs in developing countries; ensure additional new resources for developing countries, such as promoting the need for increased debt cancellation for all developing countries that need it, based on human rights measurement criteria, and the need to tackle illegitimate debts; and promote the mobilisation of domestic taxation in developing countries, which amounts to a loss of $160 billion per year due to tax evasion by multinational companies, to ensure greater access to debt-free finance through supporting the calls of the global tax justice movement to introduce country-by-country financial reporting on taxation by multinational companies and automatic information exchange between jurisdictions on taxation.
I urge the committee to make these recommendations to the Minister for Finance.
I thank Ms Ní Chasaide for that report, which we all found very interesting.
I thank Ms Ní Chasaide for coming in. It is interesting to hear her views. She is quite critical of the IMF. Would there be a general feeling, however, that its involvement has been positive, if imperfect, and that the desire is to alter and improve, getting Ireland to use any influence we have so the worst excesses of development might be curtailed? It is a gradual process and I presume the negative side of the overall involvement is being highlighted but it is not being suggested that the overall involvement of the IMF has been of doubtful value.
It was said that Ireland should work with the Canadian representatives at the IMF to seek commitments. Why the Canadians? There was a call for the restriction of IMF lending to developing countries to short-term needs and the discontinuation of lending for the long term given the IMF's lack of expertise in the area of long-term development and poverty eradication. Why would that be? Why is it claimed there is a lack of expertise?
Ms Nessa Ní Chasaide
Debt and Development Coalition Ireland is critical of the IMF's historical impact in developing countries. It is questionable to propose the IMF has had an overall positive impact. It should be weighed up carefully because of the plethora of evidence of the damage the IMF has caused, particularly as a result of its strict structural adjustment policies since the 1980s. It is not a given that the IMF has had a positive and supportive role in developing countries. I would suggest many of the patterns that have emerged in macro-economic policy in developing countries have been kick started by the IMF and have contributed to increasing poverty and inequality levels in developing countries.
That is not to say, however, that there is not a role for the IMF or that it cannot play a positive role. The IMF is currently carrying out a review of its mandate, which started at the beginning of this year and the consultations end this week. The committee might take an interest in the views expressed by the Government at the IMF on the sort of role we would like the IMF to fulfil. This is of particular urgency given the bonanza of funding the IMF is now receiving from developed countries, including Ireland, through the forthcoming €2 billion loan.
One of the most basic proposals we made on tailoring the IMF to be an institution that functions well and that is of use to the global economy and developing countries, is to cut back its role. The IMF was originally founded to be a lender of last resort in situations of balance of payments crises. Now, however, it has evolved into a bloated institution that has a strong surveillance role in the global economy but also a strong lending role in long-term development. The IMF has never developed an expertise in this area. We have problems with some of the long-term lending practices of the World Bank but at least the World Bank is a development institution, the IMF is not.
We proposed a scaling back of the IMF's role to one of short-term lending so that it would stick to its original mandate and ensure countries maintain economic stability. The IMF would ensure they have the liquidity to do that but it would stay out of development practice. Time and again it has proved it does not have the expertise or capacity to develop nuanced policy recommendations depending on the context in each developing country.
The Canadians represent Ireland at the IMF. The IMF functions on a governance system of one dollar one vote. The more money members put into the institution, the greater their voice at board of directors level. Ireland is represented on the board by the Canadian Government but it also has an alternate director who can attend board meetings and be given certain tasks to fulfil as a result. There is an issue of how Ireland engages with its Canadian counterparts to ensure our development policy is clearly heard by the Canadians, who have not advocated major fundamental reforms in the IMF's problematic policy conditionality practices. We urge the Government to clarify its own position on the impact of IMF policy conditions, to include that clarification in its forthcoming revised policy on international debt, and to advocate for an end to the damaging practice of economic policy conditionality at the IMF before it extends this significant loan facility.
I welcome Ms Ní Chasaide and thank her for her presentation. It is clear from it that reform is needed within the IMF and how it deals with developing countries. Has the group written to the IMF, the Irish Government or the Canadian Government on these issues? Was there any response? What pressure can the committee bring to bear on the Government on this issue?
I apologise for missing most of the submission as I had to speak in the Seanad. However, I am familiar with the work of Debt and Development Coalition Ireland. I refer to a few of the questions, one of which is a political question. Given that Canada leads the grouping in which Ireland is a part of the IMF, is its attitude subject to whichever government is in power there? I think a conservative government is in office at present. Would the attitude have been different in the past with a liberal government in office and is there consistency or inconsistency?
Is Ireland's contribution to the IMF counted as part of our overseas development aid and, if so, how much is it? One of the recommendations is that it should not be linked and, if so, should that money come in another form and be substituted by more direct assistance to countries that benefit under our ODA programme? Does Ms Ní Chasaide see inconsistency between the type of principles we try to apply with our specified countries in our ODA programme and the philosophy behind the IMF and how it is spending its programme?
Ms Nessa Ní Chasaide
I thank the committee for those perceptive questions. In regard to our interactions with the IMF, Debt and Development Coalition Ireland is a national network of development and community organisations. We are a member of the European Network on Debt and Development and collaborate within a wider global civil society network that monitors the Bretton Woods institutions. We meet at least annually with officials from the IMF, usually in a European formation, where European civil society organisations meet the European executive directors at the IMF to exchange views. The executive directors of the IMF, who are the main drivers of policy on a day to day basis at the IMF, are fully aware of the concerns of civil society, in particular, with regard to policy conditionality. This is a debate that has been going on for decades and since the inception of the IMF.
The responses from the IMF have been rhetorical in that it has conceded that it has made many mistakes in the past. It acknowledges that greater flexibility is required and that it does not have all the answers when it comes to macro-economic policy decision-making and recommendations. However, what we have not seen is any action in practice beyond what I have mentioned in my presentation about the launching of a new flexible credit line fund. However, that is for strong performers which does not count low-income countries and is just not accessible by them.
On the question of what pressure the committee could bring to bear, it is important for the Joint Committee on Finance and the Public Service to be aware that it is the Minister for Finance who has the decision-making power with regard to Ireland's influence as a member of the World Bank and the IMF and an additional regional bank, of which Ireland is a member, the Asia Development Bank. While these areas touch very significantly upon development questions, the Department of Foreign Affairs has a very minimal influence on Ireland's input into IMF policy, so far as we can see.
There is a commitment in the White Paper on Irish aid to increase policy coherence within Government on development questions and specifically with regard to the World Bank and the IMF that the Departments of Finance and Foreign Affairs will increase their collaboration. We have seen improvements in this collaboration during the past three years, more particularly in the World Bank which is specifically an anti-poverty institution. However, because the IMF is viewed as more of a macro-economic policy institution it is discussed far less with the Department of Foreign Affairs. Given that the IMF has such a macro level impact on the economies of developing countries this is something that needs to change. It would be helpful if greater attention was paid by the finance committee to the decisions being made by the Department of Finance and the policy proposals it supports through Ireland's membership of the institution.
Some useful steps which would be very welcome from the committee would be to make a representation promptly to the Minister for Finance with regard to the forthcoming loan, that is, the loan facility to the IMF. This €2 billion may not be called down by the IMF. In effect, it is a loan promise. It is unlikely that this loan will be used by the poorest countries in the world because of the mechanisms to the IMF that it will go to. However, it still represents a very significant endorsement by Ireland of the IMF and its practices. We are very concerned that Ireland would, in a sense, provide this blank cheque without any clear policy position on the historical impact of the IMF, in particular with regard to policy conditionality.
It is welcome, however, that the Departments of Finance and Foreign Affairs are collaborating on drafting a new debt policy updating the existing Irish strategy on international debt. We hope that policy will contain a clear position on Ireland's view of IMF and World Bank policy conditionality because both institutions reinforce each other's practice of policy conditionality on the ground.
It would be helpful if the finance committee could engage the Department of Finance on this policy initiative and urge the Minister to ensure that the principles in the White Paper on Irish aid, which support country ownership of development processes in developing countries, are paramount and protected in the debt policy.
To answer Senator Boyle's questions, Ireland's representation at the IMF through Canada is very much based on what government is in power in Canada, as all members of the IMF behave according to the instructions of their governments. We have difficulties engaging with the Canadian Government on IMF policy conditionality, not because it is unwilling to engage in dialogue with us. We meet it each year along with our civil society counterparts in Canada and they engage us in a debate on the issue. However, we have not seen any progressive decision-making coming from the Canadian Government with regard to policy conditionality, rather it appears to be a fairly strong supporter of IMF policy conditionality.
One of our concerns around the support given to IMF policy conditionality by Canada has been to highlight the fact that the IMF can support developing country governments in pushing through unpopular policy proposals. To us, this is not how any basic understanding of democracy should work. It does not give due attention to the very sensitive and important relationship between citizens of developing countries and their governments. We would like to see the Canadian Government take a much more progressive position. If the Canadian Government does not do that, it is then the responsibility of the Irish Government to make clear to the Canadian Government its own position and any differences of policy in that area and to work out how those different views will be made known at the board of directors level at the IMF. There have been cases at the IMF where executive directors have conceded to less powerful members of their constituency groupings on certain policy areas. Just because Ireland is not a full member of the board of directors does not mean that Ireland cannot influence this area.
On the issue of Ireland's ODA contributions and the IMF, the IMF contributions are not counted as ODA nor, so far as we understand, will the €2 billion loan facility be linked in any way to ODA. Our concern is the connection between Ireland's bilateral aid programme or funding to the European Union and IMF's practice of signalling, that is, where the IMF can sometimes halt aid flows if it views a country as off track with its policy conditionality programme. This means that a donor country receives information from the International Monetary Fund as to whether it should halt its aid flows or continue to disburse money. Given the misjudgments of the IMF in the past, we do not believe that is an appropriate role for it, particularly where there are strong overseas development policies in place that have been approved by the national parliaments, as is the case in Ireland. Donor countries should be in a position to make those decisions by themselves.
There is serious inconsistency with the IMF practice on the ground in developing countries and with the principles Ireland has outlined in the White Paper on overseas aid. For example, even the IMF independent evaluation office has acknowledged in recent months that when it surveyed government officials on the ground in developing countries, approximately 50% indicated that they found the IMF good to work with while the remainder found it does not give adequate time to considering alternative policy practices. It is not only our view, therefore, but the view of the independent evaluation office of the IMF that is also signalling concern around these areas.
Ireland has strong principles in the White Paper on Irish aid which stress coherence and ownership of development practices in developing countries. Ireland's lack of clarity on the development impact of IMF policy conditionality undermines these principles.
Does the double majority voting system mean that the developing countries would vote and then all countries would vote?
Ms Nessa Ní Chasaide
Exactly. We propose that two clear country based and economically weighted majorities would be required. That does not do away with the accountability to high donors to the IMF but it would create the space for like-minded countries to join together to influence policy direction in a certain way.
On the €2 billion loan facility, has the Irish Government given any other loan facilities to the IMF? What other commitments do we have with the IMF? I am trying to establish the overall picture in that respect.
Ms Nessa Ní Chasaide
The Irish Government provides funding to the IMF in several ways. The IMF supports a range of different lending instruments, some of which target middle income countries and low income countries. From the Irish perspective, our investment has been towards the low income countries through a lending instrument called the PRGF, the poverty reduction and growth facility. That is Ireland's main contribution.
What about the €2 billion loan facility?
Ms Nessa Ní Chasaide
The €2 billion loan facility will be given as a bilateral loan facility first and then rolled over to be part of this new arrangements to borrow fund in the IMF, which Ireland is apparently in the process of joining or examining the sort of legislative requirements that would be needed. The new arrangements to borrow facility is really a fund to stabilise the IMF in times of crisis such as this one.
Have we made any other financial commitment to the IMF about which Ms Ní Chasaide is concerned? Are we talking about a loan facility of €2 billion?
Ms Nessa Ní Chasaide
Ireland's contribution from 2001 to 2007 was €8.88 million. There are two funds, the enhanced structural adjustment facility, ESAF, fund and the PRGF fund which replaced it. In 2006 Ireland made a €500,000 commitment to the exogenous shocks facility, which was a new fund set up to enable developing countries access funding when they are experiencing shocks such as the one that arose as a result of the food and fuel crises that hit developing countries. I believe that is a commitment of €500,000 each year for three years.
How has that worked? Has Ms Ní Chasaide's organisation any feedback on that?
Ms Nessa Ní Chasaide
Every year the Irish Government issues an annual report on its participation at the World Bank and the IMF, which is published on the Department of Finance website. The overview tends to provide a synopsis of the funding that Ireland provided but it does not provide any evaluation of the impacts. That is something of which we would urge the Irish Government to be much more mindful.
I thank Ms Ní Chasaide for what has been a worthwhile and enlightening discussion. We will forward to the Minister for Finance a copy of her submission and a transcript of this discussion and request him to come back to the committee with a reply or the views of the Department. We will also contact the Department of Foreign Affairs and inquire about its views on the suggestions and recommendations in Ms Ní Chasaide's report. This has been a worthwhile discussion and I thank Ms Ní Chasaide again for giving of her time and expertise.
As there is no other business the meeting is adjourned sine die.