The myths and dangers of PRSPs

25 September 2003 by Demba Moussa Dembélé


Demba Moussa Dembele is member of the Forum des alternatives africaines, Senegal.

50 Years Is Enough Board member Demba Moussa Dembele has the following article in the current issue of the Bretton Woods Update, from the Bretton Woods Project in the UK. All of its articles are available at http://www.brettonwoodsproject.org/update/

Poverty Reduction Strategy Papers (PRSPs), required by the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
and the World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

for access to debt relief and concessional assistance, are loaded with a number of myths that should be debunked.

The myth of ’national ownership’

According to these two institutions, PRSPs are country-driven and reflect the priorities of each country in its fight against poverty. They insist that PRSPs are drafted through a large participatory process involving the government, civil society organizations (CSOs) and the private sector. But ’national ownership’ is more theoretical than real. In many cases, CSOs have been frustrated by the process and have found they had been used more as an alibi, or guinea pigs, than considered as genuine partners. Democratically-elected parliaments have been bypassed. And the fact is that African governments put in PRSPs what the Bretton Woods Institutions (BWI) would like to see, rather than what the poor really want. The reason: PRSPs have to be consistent with the BWIs’ preferred policies in order to get their endorsement.

The myth of ’pro-poor’ policies

There is a big gap between policies that are in the interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. of the poor and those that the BWIs consider as sound. The privatisation of public and essential services, like water, health and education, is at the core of the BWIs’ policies and has contributed to spreading poverty. A case in point is Senegal where, because of water privatisation, poor groups in urban areas pay 3 to 4 times more than rich groups. The liberalisation of the country’s groundnut sector, imposed by the BWIs, cost more than 400 jobs following the dissolution
of transport company SONAGRAINES, and led millions of peasants and their families to the brink of famine. The Government had to draw up an Emergency Relief Plan to avoid a national catastrophe. Price deregulation and the elimination of subsidies have squeezed the purchasing power of average citizens, leading more than 64% of people surveyed in the Senegalese PRSP Poverty Reduction Strategy Paper
PRSP
Set up by the World Bank and the IMF in 1999, the PRSP was officially designed to fight poverty. In fact, it turns out to be an even more virulent version of the structural adjustment policies in disguise, to try and win the approval and legitimation of the social participants.
to say that their situation has deteriorated over the last five years, a period of supposedly high growth rates.

The myth of ’poverty reduction’

How, under these circumstances, can the IMF and the World Bank claim that PRSPs aim at reducing poverty? The forced liberalisation of the groundnut sector in Senegal led to a sharp fall in agricultural production in 2002. This, in turn, resulted in the decline of economic growth from 5.6 % in 2001 to an estimated 2.4 % in 2002. This translated into an income loss of roughly $200 million for a country where two out of three citizens live under the poverty line.

In many other countries, local industries have been destroyed by cheap imports in the name of free trade imposed by the BWIs. No wonder in Sub-Saharan Africa about 500 million people live on less than $2 a day. This number is projected to rise to more than 600 million in 2015, despite all the fuss about the Millennium Development Goals. So long as PRSPs, like the now discredited Structural Adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
Programmes (SAP), are within the framework of the neoliberal model, they will generate more poverty than they reduce.

After spreading poverty at an unprecedented scale in Africa, the IMF and the World Bank are trying to mislead world public opinion, especially in the North, into believing that they are really committed to poverty reduction. Their real mission is to promote the interests of global capitalism by opening Africa’s economies to multinational corporations and financial speculators and by transforming them into markets for Northern countries’ products.

This should be clear to everyone, especially NGOs familiar with these institutions’ philosophy and policies. Yet some Northern NGOs which have been among the leading critics of SAPs and at the forefront of the struggle for debt cancellation, have bought the BWIs’ propaganda. They have found some merits to PRSPs and think that with an emphasis on more spending for social sectors, PRSPs could help alleviate poverty, despite the fact that they leave intact the neoliberal macroeconomic framework. The same NGOs think that the PRSPs provide an opportunity for their partners in the South to influence national policies toward more pro-poor policies. This explains why some big Northern NGOs have literally forced their Southern partners to participate in the PRSP process. This paternalistic attitude has been condemned by numerous Southern NGOs, especially African NGOs, during the last African Social Forum, in Addis Ababa, in January 2003.

A sincere partnership should be based on mutual respect and trust. African and other Southern NGOs are mature enough to know what is best for their people and what course of action to follow. Northern NGOs should respect that choice and support it rather than dictate what they think is best.

In conclusion, what the BWIs are trying to achieve with the PRSPs is to: create the illusion of poverty reduction while continuing the same failed policies; promote a superficial national consensus on short-term poverty reduction programmes at the expense of a serious reflection on long-term development policies; drive a wedge between so-called ’reasonable’ and ’radical’ civil society organizations; and shift the blame to HIPC Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
governments and citizens for the inevitable failure of the PRSPs.

We should not walk into this trap!




Demba Moussa Dembélé

président de l’Africaine de recherche et de coopération pour l’appui au développement endogène

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