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Africa: Background on IDA
Africa: Background on IDA
Date Distributed (ymd): 970405
Document reposted by APIC
The following background analysis comes from Bread for the
World, , 1100 Wayne Avenue, Suite 1000, Silver Spring, MD
20910, Phone: 301-608-2400, Fax:301-608-2401, E-mail:
[email protected].
THE WORLD BANK'S INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA)
What is IDA?
IDA is a World Bank program which lends funds at very low
interest rates (.5% over 35-40 years) to the world's poorest
countries. IDA disbursed $5 billion in such "soft" loans to
poor countries in FY 1996. IDA's largest borrowers are India,
China, and Vietnam. IDA programs are funded for three-year
periods by 33 donor countries.
From 1994 to 1996, 75 percent of all IDA loans supported
investments in infrastructure, agriculture, and basic social
services (education, population, health and nutrition). The
remaining 25 percent supported economic reform, or "structural
adjustment" operations. However, most adjustment lending was
concentrated in Africa, where adjustment represented almost
half all IDA loans, although the share is now falling.
Why does IDA matter?
Seventy-nine countries, home to 80 percent of the world's
people living in absolute poverty, are eligible for IDA loans.
The countries that receive IDA loans have an average income of
$400, compared with $4,000 for countries that receive grants
from the U.S. bilateral aid agency (AID). The World Bank's
member governments have targeted approximately 45-50 percent
of IDA's resources for Africa and IDA is the largest source of
development finance for Africa.
Furthermore, the World Bank provides economic policy advice to
borrowing country governments, and its "stamp of approval" is
critical to the lending and investment decisions of other
donors and the private sector. In fact, other regional
development banks and some industrial country donors model
their policies and aid programs on that of the World Bank.
What are the criticisms of IDA?
IDA's performance and that of the World Bank generally has
been extensively critiqued by non-governmental organizations,
academics, and even by the Bank itself. Following are some
of the major concerns:
- Structural adjustment. Since the 1980s, the Bank has
shifted from lending exclusively for development projects, to
lending tied to "structural adjustment" reforms that are
intended to restore financial stability and promote economic
growth. Typical reforms are privatizing state-owned
organizations, increasing exports, removing subsidies and
price controls for farmers, reducing government spending on
education and health, and devaluing currencies. Structural
adjustment reforms have been planned with too little regard
for the impact on poor people and many have entailed social
hardships. In response, the Bank has supported "social safety
nets" to mitigate the negative impact, rather than designing
and implementing policies that benefit poor people.
- Lack of participation. Structural adjustment programs as
well as projects are often designed in Washington or with a
borrowing government's finance ministry with little prior
consultation of affected populations. Non-governmental
organizations sometimes have difficulty getting access to
information about key World Bank policies, such as its threeyear
assistance strategies for each borrowing country. Some
Bank programs and projects have been widely criticized for
waste, environmental destruction, social dislocation, and even
corruption.
- Undemocratic governance. Voting power on the World Bank
board is based on financial contributions, rather than on the
principle of "one country, one vote". The world's five
richest countries hold almost 40 percent of votes, of which
the US share is 17 percent. This imbalance of voting power
steers the Bank toward the interests of the industrial
countries. Yet the Bank has little leverage over the policies
of industrial countries, which often don't practice what they
preach through the Bank about fiscal, monetary, trade, or
adjustment policies.
- Debt. Some countries have used IDA funds to help pay back
the debt they owe to the World Bank for past loans. Such debt
repayments are sapping scarce financial resources away from
investments in health care, education, and other human
development. Although the Bank has recently agreed to a
modest debt reduction plan for a limited number of countries,
the Bank has failed to adequately address the root causes of
indebtedness in poor countries.
Civil society organizations in both industrial and developing
countries have exerted considerable pressure on the World
Bank, directly and through their own governments, to address
these criticisms. In response, the Bank has initiated some
reforms, especially under the current president, James
Wolfensohn. For example, the Bank has adopted a plan to
increase popular participation in projects and policies;
increased lending for health, education, and population;
canceled several dam and large infrastructure projects which
might have damaged the environment and displaced people; and
initiated a joint Bank-NGO review of the social and economic
impact of structural adjustment. However, changes in practice
has lagged behind changes in rhetoric and in policy.
What do southern partners say about IDA?
Most overseas non-governmental organizations with whom we
collaborate give qualified support for IDA. In 1995, a group
of African development NGOs issued a statement urging support
for full funding for IDA. However, the statement raises
criticisms and calls for a series of qualitative improvements,
including a more central focus on poverty reduction and equity
in the Bank's economic policy prescriptions and lending
practices, greater participation by local organizations of
civil society in the Bank's process, and a reduction in the
share of loans for structural adjustment.
The same year, 11 Asian NGOs issued a similar statement,
urging support for IDA funding conditioned upon the Bank's
progress toward reform. These include more direct targeting
of poverty reduction, a rejection of current structural
adjustment approaches, full participation by affected
communities throughout all projects, and changes to Bank
staffing and operational practices.
Some southern NGOs partly blame U.S. critics of the Bank,
especially environmentalists, for the recent deep cuts in U.S.
funding for IDA.
What is Bread for the World's position?
Bread for the World takes a position similar to that of our
southern partners -- namely, support for full funding while
conditioning future support on IDA progress toward better
development results. The statements of colleagues in Africa
and other developing regions have been important in our
decision to support IDA. In 1994, Bread for the World adopted
a policy which conditions future support for IDA on specific
reforms, including:
- greater openness and participation at all levels of its
policy and lending operations;
- reducing the share of lending for structural adjustment and
focusing adjustment on policies which benefit poor people and
preserve the environment;
- greater focus on poverty reduction in projects;
- reevaluating economic growth strategies to fully account for
social and environmental impacts;
- action to reduce debts owed by poor countries to the Bank
itself and other multilateral institutions, governments, and
commercial banks.
In 1996, Bread for the World graded the Bank's progress on
these reforms and, overall, gave the Bank a "C" average.
Bread for the World concluded that while the Bank's rhetoric
had shifted and some policies had been changed, the Bank has
a "poor record of putting its policies into practice."
What is the US stance toward IDA?
The U.S. government has helped secure important reforms in the
World Bank. For example, Congressional pressure helped make
the World Bank more concerned about environmental problems,
and promoted policies for improved access to Bank information.
The U.S. Congress also helped persuade the Bank to establish
an independent appeals mechanism for citizens who have been
adversely affected by a Bank project.
More problematic is the failure of the United States to
fulfill U.S. financial commitments to IDA. The United States
used to be the largest donor to IDA, but by now the U.S.
contribution has fallen to less than 15 percent, second to
Japan. Between FY 1995 and FY 1997, Congress slashed US
funding for IDA from $1.175 billion to $700 million. The
steep cuts caused the US government to fall into arrears and
sharply reduced its financial commitment to IDA's current
three-year funding cycle. Because other donor governments peg
their contributions to that of the United States, IDA's
funding could collapse.
Because of the U.S. failure to fulfill past financial
commitments, U.S. negotiators agreed with European partners in
early 1996 that the United States would not contribute for a
full year while it tried to make up arrears. During that
year, U.S. companies and U.S. private voluntary organizations
would be ineligible for IDA-funded contracts. There have
been no complaints from U.S. businesses or U.S. PVOs about
this. However, some members of Congress were upset by the
arrangement, and used it as reason for further curtailing FY
1997 funding for IDA.
The Clinton Administration has submitted a FY 1998 budget
request to Congress that seeks $800 million for FY 1998 and an
additional $234 million to pay off arrears, for a total of
$1.034 billion. The administration has made IDA funding a top
priority, and will likely press the Congress to appropriate
the full amount.
Kathy Selvaggio
International Policy Analyst
Bread for the World
February 27, 1997
This material is being reposted for wider distribution by the
Africa Policy Information Center (APIC), the educational
affiliate of the Washington Office on Africa. APIC's primary
objective is to widen the policy debate in the United States
around African issues and the U.S. role in Africa, by
concentrating on providing accessible policy-relevant
information and analysis usable by a wide range of groups and
individuals.
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