13 Panel Discussion
- Laura Wallace
- Published Date:
- May 1997
What is striking about the discussion at this seminar is the very broad acceptance of the need to go through adjustment. There are clear concerns, however, on the need for both short-term results that can sustain adjustment politically and long-term results that deliver on the sort of reductions in poverty that we are all looking for. And this need raises issues of implementation and supply response.
To be frank, the only way we can resolve this challenge is by being very honest and open about what we do and do not know. And in those areas where we do not have the answers, we really have to work together to find them. Cross-country analysis is a very useful input into that process. But at the end of the day, we are going to have to find solutions for individual countries. One of the things I learned from working on East Asia is that there is no one model even in East Asia. We really do have to find some country-specific answers. That said, there are some general principles we can work from.
All the evidence clearly shows that when you implement sound macroeconomic policies, you do get a supply response. I know the World Bank’s 1994 Adjustment in Africa study1 was controversial for many reasons, but on the question of whether there is a supply response to good fiscal policy, good monetary policy, and good exchange rate policy, the supporting evidence in Africa is very strong. We should not lose sight of that important positive message. The report also noted that there has been good progress on macroeconomic policy in Africa. The problem is that the record from country to country is very mixed, and in some countries, there has even been slippage. And as East Asia has shown us, if you do not have that consistency in policy, credibility is very easy to lose. Stability is absolutely critical. Take Indonesia, a country that for 30 years has had one economic team working on economic issues. When a crisis emerges, the team members know exactly what they are going to do in response. There is no hesitancy; there are no mixed signals to the markets. That is the model you need if you want to get a supply response to good macroeconomic policies.
The difficulty, I think, comes when we move on to structural policies. I do not think there is any debate about the direction we want to move on structural reforms—more openness, more liberalization. But there is a debate over timing, pacing, and sequencing. And here, I think, we should be very open about the fact that we do not have one single answer. This is true, for example, for financial sector reform, a topic on which David Cole introduced a healthy note of skepticism into this discussion and where we still have a number of unanswered questions: What do you do when you introduce reforms that have a very sharp impact on interest rates and, potentially, on exchange rates, and can have damaging effects on the banking system, which in turn can feed back into your fiscal problems? As we all know, it is very difficult to find a solution that is consistent with the overall macroeconomic program and will lead to a supply response.
We have heard similar issues raised on both tax reform and on public enterprise reform. On public enterprise reform, for example, the Bank’s report Bureaucrats in Business2 has pointed out that if you do not have the preconditions in place in terms of political feasibility, it can be counterproductive to push ahead rapidly with privatization. It does not mean that privatization is not a good thing. It is a good thing. But the question is: Do you have the conditions in place? John Nellis told us about alternatives, such as management contracts and leases. Do we really have the full agenda of options laid out? This was brought home to me when I worked on a couple of adjustment programs—in Indonesia, where the current account was opened up early on in the reform program, and my orthodoxy told me you should open up the current account later; and subsequently in my home country, New Zealand, where again in a reform program the current account was opened up early on. Clearly we should not be too dogmatic about what is the precise answer. Let us try to find what will work in a particular country situation. The key here is surely consistency. If you are going to take a given approach to interest rates, exchange rates, and financial sector reform, make sure the reforms are internally consistent, because if they are not, they will not be credible.
That brings me to the final and, I think, the most difficult question: Should the government actually go further than structural reforms to promote the private sector? I think one thing we have learned is that it is not a simple matter of putting the public sector role on one side of the ledger and the private sector on the other. It is really the interface between the two that gives us a good result. We are learning a lot about the role of the public sector in providing the regulatory legal framework for the private sector. But we also know that the bureaucratic requirements of implementing these types of policies are very demanding. Moreover, in Africa, where the need for government intervention is probably very strong, the ability to deliver it is very weak. The interesting question then becomes not so much what should the government do, but how can we improve the government’s capacity to do what it has to. And there I honestly believe that although we have come some way in understanding, we are not yet applying that understanding consistently across countries.
We have heard a number of radical solutions to improving government capacity—“abolishing” the customs administration in Indonesia is one. However, there are other less radical, but I think equally important, changes that can be made—paying customs officials high salaries to avoid corruption, or breaking down the face-to-face relationship between the customs officers and the client through the use of computer technology. These kind of changes can make a real difference.
We have also heard about changes in budget management. This is a critical area. In the past, I think we have spent too much time looking at ways of improving accounting systems without paying sufficient attention to the incentives that underlie budget management. And there are other ideas about how one can depoliticize the budget process through fiscal responsibility legislation and budget laws, ideas we need to be bringing much more directly into the debate.
At the end of the day, however, we have to find answers that will meet the needs of the African clients. Within the World Bank, I can assure you that we are now giving a lot more research attention to these problems. As Michael Bruno, the Chief Economist, has made clear, this is a challenge we accept. But I think to work it through, we are going to have to come and talk to all of you to help us get the agenda right, collect the appropriate evidence, and reach the right conclusions.
Let me now turn to the issue of aid effectiveness in Africa, where we have very high net disbursements of aid with a perception of very limited results. Net overseas development assistance to Africa, actual disbursements less actual repayments, is now about 12 percent of GDP in these countries. It is higher than it was in the past, and it is substantially higher than it is in other regions. Yet when we look at all the studies trying to assess the impact of aid, we find that they often come out with very weak or mixed results, and that in turn affects our ability to mobilize aid. It is also a serious concern for African countries—if they are borrowing money, even on concessional terms, and not generating results, it is contributing to the type of debt problem they face. This is the crux of the aid effectiveness issue and one that we have to address up front. When we come to specific countries and specific projects, the results are often more promising. What we need to do is work from those to try and better understand what we can do to improve the overall impact of aid. Let me make four points.
First, we cannot get away from the fact that policy does matter for the effectiveness of aid. We have a number of studies that now show this—the last report of the Operations Evaluation Department of the World Bank,3 for example, clearly links the returns on World Bank projects with the policy environment in which they take place. We can try to isolate projects from bad policy, but even in doing that we create problems—drawing resources and limited staff away from other needs. We also have to worry about what we are really financing at the margin—the fungibility issue. That is why you are seeing a lot more focus now on overall expenditure programs as a means of getting a much more complete view of what is happening in the budgets and in the aid programs. This leads, of course, to the conclusion that we will be more selective in the countries that we support. I know that is a controversial suggestion. Good performers like it; not-so-good performers are less keen on it. But in a world of limited resources it is a reality we have to face.
Second, if we accept the proposition that policy matters, I would argue that adjustment lending has been an important instrument to achieve better policy. The problem is that adjustment lending can become very addictive in itself, and if we provide adjustment lending in countries where policy reform is not strong, then we get very limited results and give the instrument itself a bad name.
We have to improve the instrument. Ravi Kanbur has been pushing us very hard within the Bank to change our approach to adjustment lending, and he has had some success. We now have much greater recognition of the value of single tranche operations, based on up-front policy actions—as opposed to multiple tranche operations, where money is disbursed as conditions are met. We have simplified disbursement procedures. We are recognizing the fiscal rationale as well as the balance of payments rationale for adjustment lending. We hope these changes give you an instrument that is more responsive to your needs, and we would welcome feedback in terms of how it works.
Third, it is very clear that we have to spend a lot more time up front developing the local capacity and consensus for reform. As you know, [World Bank President] Mr. Wolfensohn has given a high priority to expanding the role of the Economic Development Institute. EDI is working very actively building capacity and consensus; holding seminars with parliamentarians and trade unions; and discussing sensitive issues like governance, which we cannot tackle through many of our normal instruments. I would urge you to take advantage of it as a potentially important tool for building local capacity.
Finally, let me turn to the issue of coordination. I think that within the World Bank Group we need a much more coherent approach to the way we look at countries. For example, we have something like 35 groups working on private sector development—which is simply unacceptable, and we will be coming up with a much more coherent approach. Country Assistance Strategies are being used as one instrument for getting there, as they offer a very useful instrument for coming to a consistent view of what the Bank Group is going to do in a country. More investment in these strategies would give us much more flexibility in how we use different instruments—both lending and nonlending—to support country programs. I also hear the message on Policy Framework Papers. If we do have issues in terms of the timing and sequencing of structural reforms, if there are concerns on the social impact of adjustment programs, clearly we have to work together both with the country and the IMF early on in the process to resolve them, and the Policy Framework Paper provides us with one instrument that we should probably use more actively to that end.
I would like to start by going back to Kwesi Botchwey’s text of yesterday morning, which gave us a brilliant start to this seminar. Specifically, I would like to go back to the rather basic point he made that, to the extent that structural reform programs provide the overall policy framework for domestic policy reform and external resource transfers, these programs must be strengthened in their design, negotiation, and implementation so as to facilitate the realization of the fundamental goals of economic development.
The design, negotiation, and implementation of structural reform programs so as to facilitate the realization of the fundamental goals of economic development—that is an agenda that we have been working on in the Development Assistance Committee (DAC) for over a decade. I have been listening to the proceedings of this seminar very carefully because they have been an important reflection of the state of play on this agenda, helping us to see where we are now and how we can move forward on some key fronts.
The DAC has produced a number of guidelines that are particularly relevant in this context. They relate to aid coordination, program assistance principles, participatory development and good governance, and private sector development. The latest in this series of conceptual and policy guidance pieces was produced just a week ago at the annual DAC high-level meeting in Paris, which brought together aid ministers and heads of aid agencies. It is a major policy statement called “Shaping the 21st Century: The Contribution of Development Cooperation.”
What this statement does is to set out a vision in the form of human development objectives for the year 2015 for the reduction of poverty, educational attainment, gender equality, population stabilization, environmental sustainability, and so on. The targets specified are all drawn from the outcomes of UN conferences held over the last few years. They are not very new or controversial in the development debate. But they serve an important inspirational purpose. What they do is to say that this is the kind of world we would like to see when we look at the social indicators in 2015 and, taxpayers of the OECD countries, this is the outcome your money contributes to when you fund aid programs.
Alongside this vision of development progress into the next century, the other major element of the DAC policy statement is a sketch of a concept of development partnerships. This term “development partnerships” was mentioned yesterday by Michael Foster. The question is: What does it mean? It is, of course, a very nice phrase, and that is one reason why it is used. But there is some important substance behind it, and it is substance that we have been discussing in one way or another over the last day or so.
The term development partnerships derives from four major changes in perspective.
First, we have all now moved from looking at conditionality as a cost of access to external resources to thinking in terms of policy reform as the path to sustainable development. This meeting and other meetings of this kind reflect a major transition in thinking among developing countries themselves, among Africans themselves. This was the point made by Mark Baird. We are not talking any more about whether to engage in policy reform, but how to do it. And Africans themselves are now fully engaged in the issues of design, negotiation, and implementation. As we have learned today, this is not a matter just for a narrow group of politicians or officials, but something that is reaching out now quite deeply into African societies and has to reach out into African societies.
The second change is that we have shifted from short-term adjustment perspectives to long-term perspectives and a concern with sustainability—economic, social, environmental, cultural, and political. And we have all come to see the key importance of institutional and capacity development in the reform process.
The perception that institutions and capacity are fundamental for sustainable policy reform and adjustment has been having a major impact on donor thinking, both in bilateral agencies and in the multilateral agencies, including the World Bank. The shift, for example, from an approvals culture to a results culture in the Bank and other aid agencies is based on this perception. Aid agencies and their staffs will need to have different incentives and performance objectives, with less emphasis on negotiating new commitments and more on fostering implementation capacity and effectively functioning institutional arrangements.
Our longer-term perspective has also meant a widening of the agenda of development strategies and of development cooperation. We are dealing with a much wider range of substantive issues now. So, again, the institutional and capacity development objective means longer-term partnerships and different ways of working together with wider participation from within developing countries.
Third, the results culture itself brings new perspectives in the aid community and in the international financial institutions regarding coordination, both within the donor community and with the recipient country. If you think in terms of results, it is the total effort of all actors that counts, not just your effort. So you have to be much more concerned with coordination issues, with what it is all adding up to. The results culture is also leading toward integrated sector approaches because a results culture has to go beyond the project, looking at results over five, ten years. What counts here is building capacity in broad sectors and getting resource allocation by both donors and recipients to match with priorities.
Thus, the partnership approach also derives, as a fourth change, from a shift in accountability philosophies, particularly accountability philosophies on balance of payments and budget support. Accountability in balance of payments support was until very recently done by trying to attach money to particular imports and so forth, which as good economists we all know is totally fictitious. We are now seeing accountability for these broad kinds of financial support in terms of government priorities. What is being done with these resources in terms of resource allocation, particularly through the public budget?
So I think these are four key reasons why we are now in a different era in terms of relationships between the donor community and the recipient countries.
New DAC Initiatives
Next, I would like to mention some practical initiatives that the DAC is taking to improve overseas development assistance, but first a word about the current environment in which we must operate.
The interface between donors and recipient countries is a complicated one. The reform process itself is complicated. The aid process is complicated because there are many actors. Each actor has a different set of operational modalities, different conditions, coming often from different angles. We have also moved way beyond the two-gap model, which provided the conceptual framework for consultative group meetings, for example. The agendas of consultative group meetings have widened. They include governance, financial sector reform, private sector reform, human development—all the things we have been discussing today.
We also have donors pressing developing countries to improve the rationality and efficiency of public management. At the same time, we are increasingly aware that the donor community can itself be a source of irrationality and inefficiency in public management in developing countries. How could it be otherwise when we have so many actors providing resources in so many different ways with so many different requirements along the way? We have the problem of budget fragmentation. We have the problem of multiplication of procedures and conditionality, the problem that ministers end up by being “Ministers of Donor Projects,” as Michael Foster said yesterday.
We are taking a number of initiatives in the DAC to see if we can work on these issues. First of all, we are going to undertake a developing-country-based aid review. We will try to assess how the aid system as a whole is functioning in one country, not in narrow “does aid produce growth” terms, but rather more operational terms. Thus, we will be looking at the impact of the aid system on the functioning of the state, on the functioning of the private sector, and on the functioning of civil society. And we will be doing this through an in-country process. Government officials, the World Bank, UNDP, and donor field offices will first of all put together an overall assessment. We will then have a panel of senior donor officials that will look at the results and discuss them with ministers of the country concerned. We are hoping to do a first pilot review in Mali, and I was talking yesterday with Soumaïla Cissé about doing that.
The second initiative is in the area of governance. The DAC has compiled guidelines on participatory development and good governance, which are programmatic in character; that is to say, they try to look at these issues in practical ways. They identify institution-building implications of good governance and the ways in which the donor community can help to build those institutions. There is also an inherent philosophy about the kinds of dialogue that the donor and recipient countries could have. What we have done most recently—and agreed at our high-level meeting last week—is to write a policy note on improving country-level coordination and consultation on good governance to provide guidance at the field level.
What is foreseen here is to help foster an in-country process of discussing governance issues and then to bring the results of that discussion to the consultative group and roundtable meetings. We are all aware that governance issues are now very pervasive in consultative group meetings, but they are handled in a rather unsystematic way. What we would like is to see better prepared consultative group meeting agendas, so that we have a more focused and contained discussion and, we would hope, a more productive one. We believe this would help the efficiency of the consultative group process overall because, as I have said, there are many agenda items that are starting to crowd into these consultative group meetings now.
The third area in which we are undertaking an initiative is improving the effectiveness of technical cooperation. Much technical cooperation in the past has not managed to build sustainable capacity. We have been asking why. And we have been looking at best practices, at ways of cooperating that would produce lasting results.
We are also looking at the impact of donor practices in technical cooperation on local labor markets in developing countries. If donors come in and hire away talent that should be working in local institutions—rather than hijacked by the donor community—then we are getting a perverse impact from the way in which we are conducting the aid process. This is a very, very difficult topic, but it is one that we are trying to look at.
Finally, we also would see the technical cooperation/institution-building issues being brought into consultative group meetings in a more systematic way than they have been in the past. There have been too many consultative group meetings on public investment programs and policy reforms with institution-building implications that have never been made explicit, never been adequately programmed.
So, Mr. Chairman, those are just some of the practical initiatives that I wanted to tell this meeting about. I have profited greatly from the discussion here and will be carrying back many of the messages that I have heard into the DAC processes.
The government of Japan has started a remarkable dialogue here through this series of conferences between Asia and Africa, and over the last two or three conferences, I have sensed a maturing and a deepening of the dialogue that is taking place. I think we are realizing that there is not the East Asian miracle; there are many East Asian miracles, each with their own peculiarities. And, of course, there is not a single Africa; there are many Africas. As we point out in our latest report, A Continent in Transition,1 which was presented in Tokyo in April, the differentiation is in some sense what characterizes Africa now. Country specificity should be the basis of our discussion and dialogue.
Another sign of the dialogue maturing and deepening is that there are more questions than answers around the table. I do not think there is anything wrong with that. Some searching questions are being asked. And listening to what was being discussed, I picked out three issues that I think merit more discussion and more dialogue: culture, timing, and conditionality.
The Issue of Culture
I think all of us would accept that culture is important. The question is how exactly is it important. And there are many paradoxes around. First, Tetsuji Tanaka mentioned Confucian values, and many commentators today attribute the success of some East Asian countries to Confucian values. But those of you who remember texts from 40–50 years ago, might recall that those texts, in fact, were saying that the reason for East Asia’s slow progress was Confucian values. So what is going on in this context?
Second, we heard from Dahlan Sutalaksana and David Cole about the remarkable advances in Indonesia in terms of rice production among the peasants, a jump from 9 million tons in a period of five years. Yet 40-50 years ago, the famous Dutch anthropologist Boeke coined the term “the dual economy” to describe what he saw as the disconnect between the Indonesian peasantry—whom he described as being seen in shadows and silhouettes in the background—and what he thought of as being a modern economy.
Third, for those of you who remember Gunnar Myrdal’s famous book, Asian Drama,2 where the negative weight of culture on Asian development was prominent, just look at Bangalore in India, where the Silicon Valley of India is developing.
So how exactly cultures affect development, I think, is something we do not understand, and as a group we should continue to discuss.
The Issue of Timing
On timing, certainly Yasuo Yokoyama’s point about the desirability of countries taking some 50 years to establish sound economic fundamentals before proceeding with privatization evoked a response from our African colleagues, and there is a real issue here in the sense that, indeed, many elements of the East Asian success took a long time. And 50 years ago, we might have had 50 years; but I think the African reality is that we do not now have 50 years. Moreover, what our African colleagues are telling us is that they are looking for quick results over a 5- to 7-year horizon, not a 15- to 20- to 25-year horizon.
That raises some paradoxes and some dilemmas. I agree very much with David Cole in terms of some of his skepticism about quick movement on the financial reform front. But while agreeing with that, David, I would still then pose the question back to you: How do we respond to the demand for quick growth? Quick financial reform may not be the right way to go, but then what is the right way to go? Again, I think there are more questions here than answers.
The Issue of Conditionality
On conditionality, we have come a long way in terms of our discussion on this issue, and the World Bank has learned very painfully that without government consensus and government ownership nothing will happen. These conditionalities are meant to be part of legal contracts, meant to be imposed by the Bretton Woods institutions. But if you look at compliance rates on these conditionalities, they are running at about 40–50 percent, and yet not very many tranches have been left unreleased.
So what is going on? There are paradoxes here in terms of conditionality, ownership, and policy reform—paradoxes galore in the East Asian context. One of the major elements of success that Western commentators cite is land reform, and yet, as we know, in many cases this land reform was imposed by an occupying military power. So I am not sure that we fully understand all the interactions.
Kwesi Botchwey mentioned the peculiar difficulties that the adjustment lending instrument has as we move into the deeper reform agenda, as we move into areas of reform that are very tricky, politically and technically. To link those conditions to a macroeconomic program where you have to deliver—where the resources should be delivered in a sustained and predictable manner is a major problem. It is a technical design problem that we are trying to address, but it is also a basic issue: suppose there is disagreement between the government and the donors, what happens? Ben Ibe from Nigeria mentioned that Nigeria has its own homegrown program. Presumably, there is ownership. But it is not acceptable to the donor community. What do you do then in that context?
These problems will not go away, but I think we can solve some of them through technical solutions of the type that Mark Baird mentioned, where you try to disconnect the resource flow from the specific satisfaction of specific conditionalities in tricky areas, such as civil service reform, privatization, and so on.
But then if you move away from that, what do you replace it with? How can donors get a handle on whether or not things are moving in the country? What is the framework in which you discuss this? I would fully support Botchwey’s proposal that we move away from the very specific link between specific conditions and specific disbursements—instead adopting a broader framework where there is a three- to five-year agreement on a broad program, including a broad assessment of whether or not that program is successful. But I am afraid that will, in fact, raise even more questions, such as what that broad assessment should be. Suppose there is a disagreement between the broad assessment of the government and the broad assessment of the donors? Then what happens in that context? So I think we are making some progress but, as always, there are more questions than answers.
Just let me conclude by saying that the dialogue is maturing and deepening, and what is needed now is much more detailed country-specific discussions both among policymakers from Asia and Africa, and among scholars from Asia and Africa.
In preparation for this seminar, I asked desk economists in the IMF to list three or four key concerns of bilateral donors in the African countries where an IMF-supported program is in place or where there are reasonable prospects for such a program in the near future. Governance was seen as a key concern of bilateral donors for as many as two-thirds of the countries surveyed. In certain instances where concerns on governance became acute, bilateral donors sharply cut back their assistance, particularly their balance of payments support. One example is the case of Kenya, which Peter Warutere mentioned yesterday. This highlights the importance of governance in donor-recipient relations today.
Governance encompasses an array of issues, including not only those that directly involve financial implications—such as corruption, lack of transparency in budgetary procedures, and an ineffective judicial system in relation to commercial and financial activities—but also those that are more political in nature, such as democratization, the political process, the administration of justice as related to human rights, and freedom of the press.
Economic and Noneconomic Governance
There is now a growing consensus that economic governance is an important factor affecting investment, savings, and economic growth in many African countries. A prospective investor will be reluctant to invest in a country where his competitors may be granted special favors, such as exemption from tax payments and preferential access to government contracts. Similarly, if contractual obligations cannot be enforced or if property rights are not very secure in a country because of an inadequate judicial system, investors might prefer to invest or save in more secure locations. There are indications that these factors—which lead to an absence of adequate economic security—have adversely affected private investment and savings in a number of African countries. During the last three years, net private capital inflows to the sub-Saharan African countries (excluding Angola, Nigeria, and South Africa) amounted to only $0.5–1.0 billion annually. The absence of adequate economic security explains in part these low private capital inflows.
Some dismiss corruption as an important macroeconomic issue, stating that the problem is universal and that a number of countries have grown rapidly despite widespread corruption. This argument overlooks the concern that the efficiency of resource allocation is undermined by corruption. In fact, Dahlan Sutalaksana referred to a similar problem in Indonesia as a nonmarket allocation of rent, which he said is a source of high economic cost and weakens the competitive effect of market mechanisms.
Therefore, when economic governance leads to problems that entail macroeconomic implications, it is important to address this issue as a key element of the economic reform agenda. The remedy could involve a number of measures, such as (1) closing avenues for rent seeking; (2) stablishing a system that would assure full transparency in public finance, including budgetary processes; (3) strictly enforcing a civil service code of conduct, which includes, where appropriate, dismissal and prosecution of officials involved in financial malpractice; and (4) establishing a civil service that is lean, efficient, and properly remunerated.
The relationship between noneconomic governance issues and economic performance is more complex. In 1993, Singapore’s Senior Minister, Lee Kuan Yew, told the Africa Leadership Forum that good government is necessary for economic development, but that good government is not necessarily good governance as defined by Western donors. Some participants in our seminar noted yesterday that Korea and Taiwan, for example, developed initially under a political system that might not be viewed by donor countries as representing good governance. Some African observers also wonder whether democracy of the Westminster type is a necessary ingredient for economic development in all the African countries. What is the meaning of casting a vote when you have nothing to lose or protect? Can a nation with a mature political system be created instantly if its national boundaries were artificially drawn only recently? It has been suggested by some observers that in Africa, it may not be appropriate to adopt a multiparty political system at an early stage of a country’s development because such a system could sharpen tribal conflict. If this consideration is valid, then economic reforms should precede political reforms, rather than being pursued simultaneously.
There is of course an opposing view, namely, that good political governance is essential for good economic performance. Jacob Mwanza mentioned yesterday that Zambia was able to introduce tough adjustment measures only because its president was recently elected by popular vote and had a mandate for such reform. The transition in Malawi also appears to have helped to reinvigorate the adjustment process. It could be argued in these cases that public participation in policy decision making, which is inherent in the democratic process, has enhanced the political support for economic reform. In some other countries, it is believed that political reconciliation among rival parties would help enhance political stability and, hence, investor confidence. Indeed, the prevalent view in the bilateral donor community, according to a recent OECD document, is that “it has become increasingly apparent that there is a vital connection between open, democratic and accountable systems of governance and respect for human rights and the ability to achieve sustained economic and social development.”1 A number of bilateral donors who are facing increasingly severe budgetary constraints are directly linking their assistance to the political aspects of good governance.
Sub-Saharan Africa still depends heavily on donor assistance. In several countries, net flows of official resources are estimated at the equivalent of more than 20 percent of GDP in 1995. This means that African countries need to develop a constructive approach to deal with a broad range of governance issues that bilateral donors consider important. Richard Carey discussed the approaches that the bilateral donors may be adopting in this regard.
As for the IMF, its discussions with member countries will focus on economic governance, insofar as governance affects macroeconomic performance. It will certainly need to be aware of the sensitivities involved, and to ensure that discussions are based on facts, not rumors. Moreover, it is necessary to ensure that due process—administrative or judicial—is not undermined as a result of an interaction between the international institutions and their member countries.
The IMF does not have a mandate to address governance issues that do not involve macroeconomic implications. However, if bilateral assistance is disrupted because of donor concerns and financial resources become insufficient to adequately fund a structural adjustment program, a country’s financial arrangement with the IMF would be interrupted. As it is crucial to avoid such interruptions in the structural reform efforts and in the associated donor inflows of financing, I would support what many of the seminar participants have emphasized in the discussion today: African governments should engage in a dialogue with bilateral donors so as to address their concerns in a manner that is mutually acceptable.
World Bank, Adjustment in Africa: Reforms, Results, and the Road Ahead (Washington: Oxford University Press for the World Bank, 1994).
World Bank, Bureaucrats in Business: The Economics and Politics of Government Ownership (Washington: Oxford University Press for the World Bank, 1995).
World Bank, Annual Review of Evaluation Results, 1994 (Washington: World Bank, Operations Evaluations Department, November 10, 1995).
Kevin Cleaver, Ravi Kanbur, and Mustapha Rouis, A Continent in Transition: Sub-Saharan Africa in the Mid-1990s (Washington: World Bank, Africa Region, 1995).
Gunnar Myrdal, Asian Drama: An Inquiry into the Poverty of Nations (New York: Twentieth Century Fund, 1968).
ECD, Participatory Development and Good Governance, Development Cooperation Guidelines Series, Development Assistance Committee (Paris: OECD, 1995).