Toward a New Foreign Policy.

At the 1999 World Bank/IMF annual meetings, the institutions launched with great fanfare the new poverty reduction initiative. Under this initiative, each country receiving IFI loans prepares a Poverty Reduction Strategy Paper (PRSP), which outlines a country's objectives with regard to poverty reduction and stipulates the policies that will be needed to achieve them. The PRSP is a framework to which all IFI ant bilateral donor lending in a country should conform. The document is to be formulated based on a national, consultative process that features a public forum in which civil society, the government, the World Bank, and the IMF all participate and debate the appropriate policies to achieve poverty reduction.

The PRSP process could represent a dramatic change in how structural adjustment is formulated, or it could be a sly repackaging of old policies and programs. The procedure offers opportunities, including the first-ever sanctioned and legitimate debate between IFI and bilateral donors (regional multilateral development banks and bilateral aid agencies), government, and civil society. It could force donors to prove how their policies will help poor people and promote sustainable development. Under this initiative, rather than having countries simply sign on to IFI plans, the governments-in consultation with civil society and bilateral donors-prepare a plan that is then presented to the IFIs. However, it is possible that the PRSP process could exclude NGOs critical of structural adjustment and that the public forums could be sessions at which the IFIs attempt to explain how their usual policy remedies will spur growth and alleviate, poverty. Given that the World Bank and IMF boards must approve the PRSPs, governments will tend to write the documents with IFI approval in mind. Another major problem is that the process retains a key role for the IMF in structural adjustment, despite the fact that the IMF is not a development agency and was created to lend only for short-term external imbalances.

The U.S. should lead the effort to make sure that the PRSP initiative fulfills its potential and truly presents a genuine opportunity for citizens to affect the direction of their country's economic development strategy. Through its financial clout in the IFIs, its central role in shaping global economic integration, and its own bilateral lending programs, Washington has the power to change or eliminate SAPs.

From a policy standpoint, the U.S. should ensure that the PRSP process facilitates the development of economic policies that promote sustainable development, greater equity, employment generation, and community development. Economic policies that are explicitly pro-poor should be encouraged. For example, new research suggests that economic growth geared toward inequality reduction is more likely to alleviate poverty than growth that does not consider income distribution. Inflation and growth trade-offs should also be explicitly analyzed. Trade liberalization policies should clearly benefit the poor, and trade liberalization should not be encouraged in economic sectors where the U.S. and Europe retain trade barriers. And the U.S. should then encourage the recognition by the IFIs of the need for selective government economic intervention to regulate and guide sustainable and equitable growth.

From a process standpoint, the U.S. should clarify the roles of the IFIs in adjustment lending. According to its original mission, the IMF is an institution dedicated to maintaining international macroeconomic stability during short-term payments imbalances. It should return to that role and stop adjustment lending, limiting itself to advising the World Bank on the macroeconomic policies contained in SAPs. The U.S. should use its influence within the World Bank to seek the adoption of a policy of social and environmental assessment of structural adjustment options. These should be public assessments that would identify potential negative social and environmental impacts and suggest modifications to the program to avoid these adverse impacts or alternatively to scrap a program if the impacts are too severe.

In addition, the U.S. should lead the way for greater information disclosure about structural adjustment. Drafts of structural adjustment loans should be publicly available so that people have an opportunity to voice their concerns and opinions. Since they have effects that transcend the concerns of finance ministries and central banks. SAP negotiations should be dramatically broadened to include the full range of government ministries and key parliamentarians. If more officials were involved, including parliamentarians (who must often pass the required measures set out in SAPs), the programs would likely be better formulated, have greater success, and enjoy more domestic support.

Key Recommendations

* The U.S. should work to refocus the IMF on short-term lending, and ensure that PRSPs provide for genuine country-driven economic development plans.

* Washington's priority should be the encouragement of sustainable, equitable development that benefits local people rather than transnational corporations.

* The U.S. should push for greater transparency and for social and environmental impact assessments of adjustment lending. The U.S. should also insist on delinking structural adjustment conditions from debt relief.

Carol Welch is an international policy analyst at Friends of the Earth in Washington, DC, where she specializes in international financial institutions.