An introduction to the international forums, processes and events where aid policy is crafted.
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International Financial Institutions

 

Introduction

IFI governance

International Development Association Replenishments

Highly Indebted Poor Countries (HIPC) initiative

 

Introduction

 

The International Financial Institutions (IFIs) – the World Bank and the International Monetary Fund – were established to provide financial stability and mobilise resources for reconstruction in the aftermath of the Second World War. Over time, the World Bank has emerged as the largest channel for multilateral development finance, while the IMF plays a key role in securing macroeconomic stability. The governing bodies and financing processes of the IFIs are important sites for international development policy making. While both developed and developing countries participate in the governance of the IFIs, there have been extensive concerns about the lack of developing country voice.

 

IFI governance

 

Both World Bank and the IMF are structured as cooperatives, with their member countries represented by a Board of Governors who are the ultimate policy makers for the institution.  Generally, the governors are the ministers of finance or development of the member countries.  They meet once a year at the Annual Meetings of the Boards of Governors, which are important events for setting international development policy.  In between, they delegate their governance responsibilities to 24 Executive Directors, based in Washington, who oversee the business of the institution, including approving new policies, strategies and loans.  The five largest shareholders – France, Germany, Japan, the United Kingdom and the United States – have their own Executive Director, while other member countries are jointly represented by the other 19 Executive Directors.  Further details are available on the World Bank and IMF sites.

 

The President of the World Bank and the Managing Director of the IMF chair the Boards of Directors and are responsible for overall management of the two institutions.  Traditionally, the World Bank President is a US national while the IMF Managing Director is a European.  However, an agreement was made at the London G20 summit in April 2009 to move towards open, merit-based appointments.

 

The Boards of Governors are advised by two ministerial committees – the International Monetary and Financial Committee (IMFC) and the Development Committee.  The IMFC has 24 members drawn from the pool of 185 governors.  It meets twice a year, during the Spring and Annual Meetings, to discuss the state of the global economy and advise, through communiqués, on the implications for the IFIs.  The Development Committee advises the two Boards on matters affecting economic development in emerging and developing countries, and helps to build consensus on emerging challenges.

 

Around these Spring and Annual Meetings, the IFIs organise a number of fora to facilitate interaction of their staff with member governments, NGOs, journalists and the private sector.  These meetings provide a forum for explaining to stakeholders and the general public the objectives, policies and achievements of the two institutions, to promote transparency and accountability.  The meetings are attended by around 10,000 people, including 3,500 in member country delegations, 1,000 media representatives and more than 5,000 special guests and visitors.  The events also provide an opportunity for member country delegations to meet directly with IFI staff.

 

In recent years, there has been vigorous debate on the governance of the IFIs, particularly concerning developing country representation on the Boards of Directors and the method of choosing the President/Managing Director.  For more detail, click here.

 

International Development Association Replenishments

 

The World Bank is made up of two different development institutions – the International Bank for Reconstruction and Development (IBRD), which focuses on middle-income countries and credit-worthy poor countries, and the International Development Association (IDA), which provides grants and low-interest loans to the poorest countries.  While the IBRD raises most of its funds on the world’s financial markets, IDA is funded largely by contributions from the governments of its richer member countries.  Donor countries meet every three years to replenish IDA funds.  The most recently replenishment (IDA15) was finalised in December 2007, and finances projects through to June 2011.  Donor contributions amounted to around US$25 billion – a 42% increase in real terms, and the largest in IDA’s history.  A mid-term review meeting of IDA15 will be held in autumn 2009.

 

The replenishment meetings provide an important opportunity to review IDA policies and achievements.  Representatives of borrower countries are invited to take part in the replenishment meetings.  In addition, background reports on IDA activities are made public.

 

Further information can be found in the IDA15 Chairman’s Summary or on the World Bank site.

 

Highly Indebted Poor Countries (HIPC) initiative

 

The Highly Indebted Poor Countries (HIPC) initiative was first launched in 1996 by the IMF and the World Bank to ensure that no poor country faces a debt burden it cannot manage.  It was in part a response to an extended civil society campaign designed to relieve the mountain of debt that had resulted from failed development policies in the 1970s and 80s.  In 1992, the 33 most indebted low-income countries faced debts equivalent to more than six times their annual exports.  From the late 1980s, the Paris Club and other bilateral creditors rescheduled and forgave many of these debts, leaving much the residual debt owed to multilateral lenders such as the World Bank and IMF.

 

The HIPC initiative expanded debt relief to all creditors, multilateral, bilateral or commercial.  It was enhanced in 1999 to provide deeper, more rapid relief to a wider group of countries, and to provide a stronger link to poverty reduction.  Participating countries are required to produce a comprehensive Poverty Reduction Strategy Paper (PRSP) to demonstrate how they will make effective use of debt relief.  After establishing a track record on poverty reduction and macroeconomic management, they reach ‘completion point’, at which point debt relief becomes irrevocable.

 

By March 2009, 41 countries had benefitted from HIPC relief, with 24 reaching completion point.   The total value of debt relief is around US$62 billion, reducing the debt burden of participating countries from around 4% in 1999 to less than 2%.  A 2006 evaluation by the World Bank’s Independent Evaluation Group found that debt relief has enabled higher spending by participating countries on social programmes and poverty-reducing investments, but noted that long-term debt sustainability depends upon countries building the institutions required to support sustained economic growth.

 

More information can be found in the World Bank brochure HIPC at a glance and on the World Bank site.