Trade

Commentary

Harmonisation and coherence: White knights or Trojan horses?

30 July 2003 | At Issue

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In recent months, the World Bank has been leading the charge to increase the harmonisation of donor policies and further coherence between the Bank, the IMF and the WTO. But does harmonisation risk ‘one-size fits all’ solutions? And will moves towards increased ‘coherence’ at the next round of trade negotiations in Cancun mean locking-in policies which are in fact incoherent for development?

‘Harmonisation’ and ‘coherence’ have become the motherhood and apple pie of development-speak. But any action can be coherent with another – the term says nothing about its value or who will benefit. Similarly, harmonisation can describe manipulation as easily as it can cooperation for the greater good. Added to the lack of clarity over the value of these terms is confusion over how and where they are to be applied. Should they relate to both policies and procedures? Do they refer to the organizational, the national or the international levels? Can they bridge the gulfs between the development, trade, finance and security communities?

Harmonisation can be a slippery slope to cartelization.

Old wine in harmonious bottles

In various forms, the clamour for increased cooperation between aid agencies is as old as the development industry itself. As far back as 1949, President Truman declared that post-war development efforts “should be a cooperative enterprise”. Fifty years on, the impetus comes from the rich countries’ Development Assistance Committee (OECD-DAC). DAC established the Task Force on Donor Practices in late 2000. At their meeting in 2001, the G-7 called for the “harmonisation of procedures, policies and overlapping mandates of the MDBs (Multilateral Development Banks)”. This momentum was carried into the UN conference on Financing for Development (FfD) in March 2002, where coherence, cooperation and consistency figured as major themes.

For its part, the World Bank has had harmonisation with the IMF and other MDBs on its agenda since the late 90s. This work was a perfect fit with the Bank’s new Comprehensive Development Framework (CDF), unveiled in 1998. Originally to be called the New Development Framework, the CDF ‘holistic approach’ offers everything to everybody – all at once. In February 2001, the Bank hosted a Forum on harmonisation including representatives of the MDBs and the DAC Task Force. Two months later, the Development Committee, the Bank’s governing body, stressed “the importance of harmonising operational policies and procedures by the Bank, other MDBs and bilateral aid donors, with the objective of enhancing development effectiveness, increasing efficiency and reducing administrative burdens”. A forum was convened by the Bank in April 2002 where officials of donor organizations and countries could review progress on harmonisation. This forum has become an annual event.

The main elements of the broader harmonisation agenda include: reducing the administrative burden for recipient countries, disseminating good practices, results-based management, streamlining conditionality and harmonising policies. The Bank’s harmonisation activities are summarised in table 1.1.

Table 1.1: Selected World Bank activities on harmonisation and coherence

Level Harmonisation Coherence
Global Participation in MDB roundtables, Rome Forum, OECD Task Force on Donor Practices, Paris21
Work on codes and standards with IMF
Research
Trade capacity building – World Bank Institute, Global Learning Network etc.
Meetings with IMF, WTO
Corporate Operations Policy & Country Services (CDF Secretariat) – integrates policy development, dissemination and oversight functions with country service functions Creation of Trade and Private Sector Development Departments
Staff and data exchange with IMF and WTO
Country Country Analytic Work
PRSP – CAS alignment
Staff decentralisation
Capacity building
Public financial management tools
Trade diagnostic studies PRSP (limited) / Country Assistance Strategies under CDF principles
Article IV consultations (IMF)
Trade Policy Review Mechanism (WTO)

The struggle for coherence

The issue of coherence first surfaced in the ministerial declarations preceding the Uruguay Round of trade negotiations in 1993. Among the goals of the declaration was “the need to improve the ‘coherence’ of international policymaking by establishing better linkage mechanisms between the GATT and the Bretton Woods institutions”.

At the 1995 Copenhagen Social Summit, delegates threw the UN into the mix, urging the “coordination of UN activities, the BWIs and the WTO at the global, regional and national levels in the areas of economic and social development programmes, including, inter alia, through reports to and meetings in coordination with the Economic and Social Council (ECOSOC).” Bank President Wolfensohn was cagey about the details of working with the UN. “But what does coordination mean? I have a job to do and I don’t want to be instructed by someone else, unless my shareholders ask me to.” In 1998, annual meetings between the BWIs and ECOSOC were initiated.

A formal cooperation agreement was reached between the Bank and the WTO in 1996. A further expansion of the coherence mandate at the failed Seattle trade summit in 1999 was opposed by developing countries due to fears that IFI conditionality would be used as a prod in trade negotiations and concerns that language referring to “other international organizations” was an attempt to bring the ILO and labour standards into the WTO.

Despite this setback, WB-IMF-WTO coherence was given forward momentum once again in the declaration adopted by WTO Ministers in Doha in November 2001. Since that time, two meetings on coherence have been held with the General Council of the WTO, and regular meetings have been instituted both between the heads of the agencies and at the staff level. A renewed call for coherence of the BWIs with the UN was made at the Financing for Development conference in Monterrey in March 2002, with the suggestion that the annual meeting with ECOSOC be expanded to include the WTO, “as well as a dialogue with civil society and the private sector.” Two such meetings have taken place and progress is to be reviewed this October.

The key elements of the current coherence agenda include: supporting the Doha work program (liberalisation in goods, services, and investment), trade-related capacity building, improving global financial stability through capital account liberalisation and channelling increased investment to developing countries and assisting borrower countries to improve coherence in policies at the national level. Selected World Bank coherence activities are listed in table 1.1.

Harmonisation or “cartelization”?

Much of the harmonisation agenda is long overdue. Developing countries have been drowning in donor bureaucracy for decades. However unlike the harmonisation of procedures, the standardization of donor policies raises alarm bells for many observers.

Despite the BWIs’ penchant for market-based solutions in virtually every aspect of their operations, competition is eschewed when it comes to the provision of aid. Devesh Kapur, lead author of a study of the first fifty years of the Bank, argues that “‘forum shopping’ allows borrowers to have at least a modicum of choice between a regional development bank and the World Bank and harmonisation can be a slippery slope to cartelization.” Effective opposition to the agenda of the aid cartel by borrowing countries is effectively precluded by the use of the ‘good governance’ stick.

Whereas development agencies may act as a cartel, the IMF has a monopoly. In its role of key signaler, the Fund precipitates donor flight when it declares a borrower ‘off-track’. During the Asian financial crisis, the IMF vigorously attacked proposals for the creation of an Asian Monetary Fund, arguing that the presence of another Fund might allow countries in crisis to avoid taking the ‘necessary medicine.’

We lead, you follow

Increasingly the policies and procedures of MDBs, governments and even private banks are being harmonised with those already developed by the Bank and Fund. This process is a double-edged sword. In some instances ‘ratcheting up’ the policies of other financial institutions to meet those of the Bank and Fund results from NGO pressure. A good example was the recent adoption by a number of private banks of the safeguard policies of the Bank’s International Financial Corporation. On the other side of the sword, trade groups worry that the universal spread of Bank-led diagnostic trade studies will allow biases towards rapid unilateral trade liberalisation to enter national development plans through the back door.

The key process through which the Bank hopes to ‘harmonise’ development is the Poverty Reduction Strategy Paper (PRSP). From the outset, country ownership has been the central tenet of PRS formulation. However, as long as the PRSPs have to pass the Boards of the Bank and Fund to obtain funding, governments produce remarkably similar outputs. Jubilee South reports that “in some cases, the rush was such that the IFIs simply took over the task of writing the PRSPs in a way that it would meet the approval of the Boards in Washington.”

Contested coherence

At the UNCTAD X conference, Indian Minister of Commerce Murasoli Maran warned that “we should be careful that in the name of coherence we do not create a networking behemoth which puts pressure on developing countries through cross-conditionality.” Critics of the Bank and Fund argue that there is much which remains to be done to make the Bank and Fund’s own policies coherent with the notion of human development, before other agencies and countries are encouraged to fall in line.

  • finance: the conditions of support contained in the IMF’s Poverty Reduction and Growth Facility (PRGF) loans have conflicted with national development strategies
  • debt: repayments do not consider the impact of liberalisation or commodity price shocks
  • trade: developing country negotiating positions are undermined by BWI conditionalities
  • governance: the World Bank has just 2 seats out of 24 for the entire continent of Africa

Looking more closely at trade, it is interesting to note that while ‘coherence’ is used in reference to reconciling trade and finance, ‘mainstreaming’ is used for the insertion of trade into development. This suggests that there are no ‘incoherencies’ between the current trade system and the development agenda. Addressing the issue, Martin Khor of Third World Network argues that “a distinction between ‘mainstreaming development in trade’ and ‘mainstreaming trade in development’ should be carefully kept in mind.”

The Bank has conceded that trade is still missing from the joined-up approach of the PRSP. The question will be whether trade is ‘mainstreamed’ into the PRSP process or whether the incoherence of the existing trade system with development priorities will be examined. A study of the trade policy content of PRSPs by the British Overseas Development Institute concluded that “the current assymetrical power relationship between donors and poor countries would mean that if trade-poverty analysis was incorporated into PRSPs it would probably be neither independent nor country-specific.”

NGOs have responded in detail to moves by the WTO towards increased coherence with the Bank and Fund:

  • Questioning the role of the BWIs in trade – why should these agencies take a lead role in capacity building when developing countries emphasize the role of other agencies such as UNCTAD and question the BWIs independence?
  • Defending the role of the UN’s FfD process as the vehicle for trade-finance-development consultation, rather than the creation – as suggested by the WTO – of a “separate institutional vehicle within the WTO for consulting with the IMF and World Bank”
  • Demanding that assessment of the impacts of developed countries’ trade policies, previous WTO agreements and BWI conditionality be factored into policy advice to developing countries.

Moving forward with coherence

Coherence lies on contested terrain. Possible outcomes include development policies being made coherent with unfair trade policies or even the foreign and security objectives of the economic powers. The objective of the coherence work of the Bank, Fund and WTO has been left open-ended – coherence for “global economic policy making”. In contrast, coherence for development should explicitly place as its goal the maximisation of policy space for developing countries to take steps to reduce poverty. This framework must similarly be applied to the examination of the policies of the industrialised nations and the multilateral economic organisations which create unfair trade rules and global financial instability.

Table 1.2 sets out some discussion points of what such an agenda might look like.

Table 1.2 Elements of mainstream coherence vs. coherence for development

Mainstream coherence Coherence for development
Finance Millennium Development Goals
MDB collaboration
WB manages trust funds under single set of principles
‘Results’ based lending
Enforcement measures for financing to reach MDGs
MDB competition
Bank revenue-sharing plan
Stable development finance from an international tax
Debt Repayment of debts based on HIPC formula International debt tribunal
Link repayment to commodity prices, impact of liberalisation
Trade Integration into rules-based trading system
Donors abide by WB’s CDF principles
Rules include retaliatory measures against countries which fail to make aid targets, run persistent surplus, etc.
Recipient countries set guidelines
Governance Dissemination of WB ‘good governance’ best practices and assessments Bringing the BWIs under jurisdiction of UN (ECOSOC) and treaties signed by a majority of members
Security WB may comment in Security Council on relationship to development
Some public noises by WB since 9/11 but little action
Coherence between development and arms exporting countries

Discussion of how to elaborate these concepts has been dominated by a select group of multilateral agencies working in conjunction with the more powerful donor countries. It should instead be led by elected ministers – especially those in the South – and not unelected secretariats of international institutions. Where appropriate, the circle should be widened to include the specialized UN agencies, Southern intergovernmental agencies such as the G-77 and the South Centre, and Southern civil society.

Those who are familiar with these debates will point out the great difficulty in ‘widening the circle’. However, we must not shy away from the political debates that the implementation of these terms involves. If we do, the development community risks creating self-selected communities where – concealed within the Trojan horse of the worthy concepts of harmony and coherence – the most powerful pass off their own self-interest as the common good.

Comments welcome. We may post selected comments (with permission) on the Bretton Woods Project website. Send to coherence@brettonwoodsproject.org

August 2003

References

Bretton Woods Project, Circling the wagons: World Bank-IMF-WTO coherence, Bretton Woods Update 34, May 2003.

Caliari, Aldo. Coherence in Global Economic Policymaking and Cooperation between the WTO, the IMF and the World Bank: An NGO response, Center of Concern, June 2003.

Debt Relief International, Reviewing PRSPs: The views of HIPC Ministers and PRSP Coordinators

Hewitt, A. and Ian Gillson, A Review of the Trade and Poverty Content in PRSPs and Loan-Related Documents, Overseas Development Institute, June 2003.

High Level Forum on Harmonization, Rome Declaration on Harmonization, 25 February 2003

Kapur, Devesh. Do as I say not as I do: A critique of G-7 proposals on reforming the MDBs, Center for Global Development, November 2002.

Khor, Martin. Mainstreaming Development in Trade and Finance: A Key to Global Partnership, UNDP Development Policy Journal, Volume 3, April 2003.

OECD, Harmonising Donor Practices for Effective Aid Delivery. Paris 2003.

Princeton Survey Associates, The Global Poll: Multinational Survey of Opinion Leaders 2002, June 2003.

Rowden, Rick and Warren Nyamugasira. New Strategies, Old Loan Conditions: Do the new IMF and WB loans support countries’ poverty reduction strategies? The Case of Uganda, April 2002.

SUNS Online, “Don’t tell me what to do” – World Bank, 7 July 1995.

TWN, Developing Countries no to WTO’s expanded ‘coherence’ role. 5 Nov 1999.

UN Financing for Development, Final Outcome of the International Conference on Financing for Development, March 2002.

UN Secretary General, Increased coherence, coordination and cooperation for the implementation of the Monterrey Consensus of the International Conference on Financing for Development at all levels one year after the Conference, 14 April 2003.

World Bank, Coherence, Coordination and Cooperation among Multilateral Organizations, SecM2003-0112, 19 March 2003.

World Bank, Harmonization: Recent and future World Bank activities, 22 February 03.

World Bank, Development Committee Communique, Harmonization of Operational Policies, and Practices: Experience to Date (DC2001-006) April 2001.

WTO, The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts. Geneva 1994.

WTO Secretariat, Coherence in Global Economic Policymaking and Cooperation between the WTO, the IMF and the World Bank: Note by the Secretariat, WT/TF/COH/S/7, 28 April 2003. 2003

Also available as fully-formatted 2 page PDF