World Council of Churches

A worldwide fellowship of churches seeking unity, a common witness and Christian service

2nd WCC-IMF-WB encounter

29 October 2003

28-29 October 2003, Washington D.C., USA

Synthesis of discussions and summary of agreements

The backdrop

Following the 1st encounter held in Geneva, Switzerland from 13-14 February 2003, the 2nd encounter between representatives from the World Council of Churches (WCC), the International Monetary Fund (IMF) and the World Bank (WB) took place in Washington D.C., U.S.A. from 28-29 October 2003.

The encounter set itself two challenging objectives, namely:

  • To deepen discussions on the four issues that had emerged during the 1st encounter (i.e. civil society participation in development, institutional governance and accountability, public and private sector roles in development and the challenges of globalisation), explore areas of commonalities and differences, propose solutions in combating poverty, and test if - and how far - some kind of collaboration between the three institutions may eventually become feasible and/or appropriate in the common fight against poverty; and
  • To propose major issues that will comprise the agenda of the planned high-level summit of the governing bodies of the WCC, IMF and WB some time in 2004. 

This report encapsulates the commonalities and differences between the WCC, IMF and WB based on the discussions around the four issues outlined above as well as the main agreements reached with regard to the next steps in the series of encounters between the three institutions.

Commonalities and differences

The 2nd encounter affirmed areas of common ground, but also sharpened points of divergence between the WCC, IMF and WB on the issues of civil society participation in development, institutional governance and accountability, public and private sector roles in development and the challenges of globalisation. As differences became more patent, it was recalled that the series of encounters between the WCC, IMF and WB are aiming, at the end, for more clarity and better understanding among the institutions, and not necessarily broad agreement on some of the burning questions in the development discourse today.

Eradicating world poverty, which continues to be the most pressing challenge confronting the international development community, and achieving sustainable human development, as embodied in the Millennium Development Goals (MDGs) agreed upon by world leaders during the United Nations (UN) Millennium Summit in 2000, were identified as goals that are mutually held by the WCC, IMF and WB. However, significant differences in perspective clearly arose on the development paradigms as well as the specific socio-economic policies to attain these objectives. The WCC expressed the concern that the MDGs would not be met within the mainstream development framework that emphasises policies promoting trade and financial liberalisation, deregulation and privatisation.

Across all four issues, the lack of lucidity on commonly used development concepts (e.g. "neoliberalism," "governance," "globalisation") surfaced as a problem. The discussions around the topics indicated that the WCC and the IFIs may have dissimilar definitions and understanding of these concepts; and, hence, the need for more clarity.

Institutional governance and accountability

The democratic deficit in the governance structures of the international financial institutions (IFI), which are public institutions that have public responsibilities, and the necessity for institutional reforms to enable the IFIs to become more accountable for their lending and policy actions were commonly acknowledged.

A number of changes proposed by the WCC and civil society in general (e.g. opening the selection process for the managing director and president of the IMF and WB and incorporating local knowledge in lending operations) are currently being discussed internally by the IFIs. These changes, if pushed through, would represent concrete advances. However, it was agreed that much more work remains to be done by the IFIs in terms of effectively expanding and strengthening the voice and representation of developing countries in IFI governance structures. While developing countries are the most affected by IFI policies, they have minimal decision-making power compared to the US, Japan and countries comprising the European Union. The IFIs have to put more pressure on developed countries to enact the necessary changes. Equally, churches, particularly those in developed countries, have to play a more pro-active role in lobbying their governments, which are major shareholders in the IFIs, to facilitate these crucial reforms.

The IMF and WB conceded that a previous lack of appreciation of socio-political contexts in developing countries may have resulted in policy and project mistakes. However, the question of who takes full responsibility for the misguided policies and projects of the IFIs, which have placed - and continue to place - inordinate costs on poor people in developing countries, remained largely unanswered. The WCC reiterated the calls of the church constituency and civil society in general for genuine justice, that is: reparation for environmental and other damages, cancellation of debts incurred under illegitimate conditions and the creation of a platform that would allow people impinged on by IFI policies to directly air their concerns. On the other hand, the IFIs emphasised that they are working on pragmatic responses to the problem that will not result in the collapse of the international banking system. For instance, a wide range of safeguard mechanisms (e.g. public consultation requirements, poverty and social impact analyses) have been - or are currently being put - in place to prevent repeats of the same mistakes. The WB further noted that legal/judiciary systems in many developing countries would prevent IFIs from being held liable for failed development projects since these projects are deemed nationally-owned.

The IMF and WB acknowledged that their institutions may be held accountable for the achievement (or non-achievement) of the UN-initiated MDGs in terms of efficiency and effectiveness of financing and policy advice. However, limited support was expressed for the WCC proposal for regular and voluntary reporting by the IFIs, as international public institutions, to the UN on mainstreaming human rights (including economic, social and cultural rights) in all aspects of their work.

The WCC admitted the need for critical introspection and internal dialogue among its member churches and church-related agencies on its governance structures as well as accountability for church-related projects and other forms of assistance to developing countries. Churches and church-related agencies have been implementing development programmes (especially in the areas of health and education) for decades and as such should be open to the same critical scrutiny directed at the IFIs.

A coherent global financial governance architecture, which is broader than institutional governance of the IFIs, also emerged as one issue requiring more substantial discussion by the three institutions.

Participation of civil society in development

The WCC, IMF and WB concurred on the importance of consulting civil society, particularly those people who are most affected by the programmes and policies of the three institutions, at all levels of programme and policymaking.

The Poverty Reduction Strategy Paper (PRSP), which forms the basis for concessional assistance from the IMF and WB, is one process that represents considerable headway made in improving participation of civil society as well as strengthening country ownership of IMF and WB programmes. The IFIs noted that this approach has also opened up a space for civil society to dialogue with their national governments and can therefore also serve as a force for holding governments accountable. However, the IFIs recognised that, in practice, this approach has worked better in some countries than in other countries; that there are trade-offs between ambitiousness and realism, comprehensiveness and prioritisation, and breadth and depth of civil society participation; and that problems arise in assessing the legitimacy of some civil society organisations that are engaged in the process.

More crucially, the WCC pointed out that, in many cases, the core policy matrices of the PRSPs have not been open to public scrutiny or discussion at all (e.g. the Ugandan PRSP), flagging two concerns: first, that civil society voices are not being seriously taken into consideration where it matters the most; and, two, PRSPs continue to be a tool to impose policy "conditionalities" on developing countries. On the other hand, the IFIs noted that, in recent years, their institutions have become increasingly transparent in documentation and in procedures as well as increasingly flexible in policy recommendations as long as the goals of financial sustainability, economic growth and eradication of extreme poverty would be met (the latter goal is seen as contingent on the former two goals). Some debate took place around the effectiveness of certain economic policies that are typically contained in the PRSPs (e.g. tight monetary and fiscal policy, trade and financial liberalisation) in attaining these goals.

The conduct of joint case studies was proposed to critically examine, on the ground, how and to what extent does the PRSP approach take into account civil society voices.

While there was considerable discussion on PRSPs, the three institutions recognised that civil society participation in development goes well beyond this approach. It was agreed that genuine participation is about people's informed and active involvement at every stage of socio-economic development policymaking, implementation, monitoring and evaluation. The WCC emphasised that this implies that developing countries and local communities must be allowed the space to define and forge their own development paths that would take into account their needs and circumstances in relation to the global economic environment.

Public and private sector roles in development

Services were used to illustrate the roles of governments and the private sector in development. The WCC, IMF and WB concurred that health, education, water and other essential services constitute fundamental human economic, social and cultural rights. Therefore ensuring that people, especially poor people, have access to these services is a public responsibility, that is, a social contract between governments and its citizens. The IFIs acknowledged that this public responsibility also has a redistributive dimension. It was commonly observed that currently there are enormous gaps between rich and poor peoples in access to basic services

However, the question of how to enable governments to fulfil their public responsibility of delivering services effectively and efficiently (e.g. complete privatisation of state utility enterprises, contracting out to private sector service deliverers, etc.) remained a highly controversial one.

The WCC expressed the view that privatisation - and therefore commodification - of essential services is intrinsically problematic because of market limitations (e.g. in registering the needs of people who lack purchasing power, in supplying services for which no profit can be made, and in valuing what is essentially priceless) and huge power imbalances (between corporations on the one hand and governments, especially weak and financially-constrained governments, and people on the other hand). Where unequal power dynamics and natural monopoly conditions are present (as in many services industries), simply viewing poor people as clients and directly handing them purchasing and monitoring power as proposed by the WB in its World Development Report 2003 cannot be a workable solution. Moreover, the WCC argued that there are fundamental differences in state/local community-citizen/community member relationships as compared to private service provider-client relationships: the latter fails to capture socio-cultural values of community and caring that are intrinsic in many services and that cannot be monetised.

On the other hand, the IFIs contended that, while social services are a public responsibility, experience has shown that direct public provision of services has failed in many instances, with benefits accruing to the rich rather than to the poor, due to corruption and political patronage. This is the paradox.

Some consensus between the WCC, IMF and WB was reached on the view that both extreme scenarios (i.e. completely public and completely private provision of basic services) are problematic. Yet difficult questions remained on how best to combine the objectives of equity and efficiency in service provision and distribution. Moreover, the WCC expressed apprehension that, notwithstanding some acknowledgement of previous experiences of failure (e.g. water privatisation in Cocochamba, Bolivia), in practice, privatisation of services continues to be promoted and supported by the IFIs through concessional financing under the PRSP framework.

It was agreed that more intensive discussions and joint analyses around a couple of specific case studies - perhaps on the privatisation of water - would helpful in going deeper into the issue.

Beyond services, the IMF reiterated that it is pragmatic economic sense, not market fundamentalism or ideology, that is the rationale behind privatisation, particularly when countries are saddled with budget deficits and inefficient enterprises. The WCC pointed out that, in the first place, budget deficits are often a symptom of systemic problems in trade (e.g. declining terms of trade) and finance (e.g. heavy debt servicing). These structural root causes of budget deficits also have to be addressed.

The challenges of globalisation

There was some accord between the WCC, IMF and WB on the view that economic globalisation processes have not benefited all people equally and have produced losers. The three institutions also shared several similar concerns on continuing inequities in the global trading system under the rule-based trade regime of the World Trade Organisation (WTO) (e.g. the problem of protection extended by developed countries to their agricultural sectors through domestic subsidies that are hurting farmers and rural communities in developing countries, the need to reform the WTO, etc.).

However, the three institutions continued to have divergent understandings of the processes and dynamics of globalisation as well as conflicting information on the impacts of globalisation on poverty, inequality and ecological sustainability.

The WCC analytically distinguished between globalisation as a historical and evolutionary process (e.g. driven by technological advances) and economic globalisation as a project influenced by neoliberal economic thinking: it is the latter that is particularly problematic. They argued that economic globalisation is adversely affecting the economic, social, and cultural rights (including the right to dignified employment) of the majority of the world's population and is exacerbating divides between and within developed and developing countries based, among others, on grassroots studies and research by United Nations and even the WB itself. The WCC underlined an urgent need for the protection of spaces for people who are living outside of the market, redistributive economic policies to compensate losers in the globalisation process, human rights-based approaches that emphasise entitlements to basic needs, and pro-poor-growth strategies rather than growth-pro-poor strategies.

In general, the IFIs espoused a more positive view of globalisation. They cited advances in technology, communications and transportation; the development of new products and services as a result of heightened trade and competition; and the positive role played by trade liberalisation in promoting poverty reduction as well as convergence between rich and poor countries (based largely on the Dollar and Kraay (2001) study). The WB underscored the importance of improving infrastructure and investing in human capital (e.g. education) to enable more people to partake of the benefits of globalisation.

From a more holistic perspective, the supremacy of the market as a mechanism for distribution (as manifested in the policies associated with globalisation) and the centrality of economic growth in attaining sustainable development were recurrent threads of contention between the WCC and the IMF and WB.

Next steps

Notwithstanding continuing differences, the WCC, IMF and WB generally agreed that the conduct of case studies on the PRSP approach as an effective vehicle for civil society participation and/or on the issue of water privatisation could serve as a step in moving forward in the encounters. These case studies would allow more concrete discussions of some of the issues that were tackled in the 2nd encounter, i.e. civil society participation and public-private sector roles in development. The case studies may be done jointly by the three institutions or by an independent group. Countries, data and framework to be used would have to be agreed upon. The case studies would have to be conducted before the high-level meeting.

One of the objectives of the 2nd encounter was to come up with critical issues that have to be brought forward in the high-level meeting between the leadership of the WCC, IMF and WB being planned in 2004. For the WCC, the foremost concerns have to do with economic globalisation and its impact on equity between and within countries as well as the integration of human rights in all aspects of the work of the three institutions. On the other hand, the WB emphasised human development (e.g. health and education) within the context of MDGs as well as issues of corruption as its main concerns.

The high-level meeting is tentatively scheduled to take place in the fall of 2004 perhaps in Geneva. A preparatory meeting between a small group of WCC, IMF and WB staff will be held (tentatively in spring 2004) to plan more intentionally for the high-level meeting and to work out continuing issues. A concept paper containing the rationale and agenda for the high-level meeting will be jointly developed. The concept paper will be circulated among participants in the encounters for inputs. It was reiterated that engagement between the three institutions should not end with the high-level meeting.