Challenging the IFIs: Practical Strategies for Trade Unions

1. Challenging the IFIs:Practical information and strategies for trade unions Molly McCoy Global Unions Washington Office Baku, 13-14 November

2. I. International Financial Institutions: an Introduction

3. The IFIs in the Region • World Bank (WB) • International Finance Corporation (IFC) • International Monetary Fund (IFC) • European Bank for Reconstruction and Development (EBRD) • European Investment Bank (EIB)

4. World Bank (WB) and International Monetary Fund (IMF) • Founded in 1944 en Bretton Woods, USA, by the Allied countries with the objective of avoiding another crisis like that of the 1930’s (and thus, maintaining favorable conditions for peace) • Original vision: Complements to the UN system that would support financial stability and international economic growth

5. Original functions of the Washington-based IFIs International Monetary Fund: Preserve exchange rates between national currencies Provide loans to countries with temporary balance-of-payment problems International Bank for Reconstruction and Development (IBRD)  World Bank Provide low-cost loans for the reconstruction of Europe after the war

6. 1950s-60s, A new objective:Economic Development 1950s-70s: IBRD focuses on projects (especially infrastructure) in developing countries 1956: International Finance Corporation established with the objective of stimulating private sector development through support to private businesses in developing countries 1960: Creation of the International Development Association (IDA) to provide concessional loans (0% interest) and grants to the poorest countries

7. 1970s: New role for the IFIs: Promoting Economic Reform • 1970s: Expansion of credit at extremely low interest rates • The IFIs promote “access to capital markets” for low-income countries • 1973: End of fixed-exchange rate regime: IMF becomes a monitor of balance of payments, focusing on developing countries

8. The Debt Crisis • Early 1980s: Interest rates rise rapidly  Many countries’ bear unsustainable debt burdens. Commercial banks limit new loans and demand payment on outstanding loans. Some governments assume the responsibility for private debts. The IFIs devise “structural adjustment programmes” for debt-stricken countries in Latin America and Africa. SAPs emphasize debt reduction through fiscal austerity and private investment.

9. 1980s to early 2000s: Structural Adjustment Programs Dominate • 1980s onward: The era of Structural Adjustment Programmes (SAPs): The IMF and World Bank demand compiance with SAPs as a condition of borrowing • The IFIs push more than 70 countries to apply SAPs during the 1980’s, under the pretext of reducing or avoiding indebtedness • 1990s: IFIs urge transition countries in ECA region to rapidly undertake SAPs

10. The Philosphy of Structural Adjustment • Reducing the role of the State allows countries to attract more private investment • Privatization reduces corruption and makes bussinesses more efficient • Trade and investment liberalization decreases prices, increases productivity, and stimulates economic growth • Reducing the cost of labour increases job creation, and reduces unemployment and poverty

11. Typical Elements of SAPs • Reduction of public spending • Privatization of state-owned enterprises and public services • Fewer government internventions in the economy • Increased openness to international trade liberalization and foreign investment • Increased interest rates to develop savings and attract foreign investment • Reduction of labour market regulation, social protection, and subsidies for essential services

12. 1991: Creation of European Bank for Reconstruction and Development (EBRD) • Founded to promote private sector development following the fall of communism • Lends to: private and state-owned companies (for privatization) and some municipalities for projects (no policy-based lending) • Members are European-region countries, plus Japan and US (largest shareholder) • Now largest single investor in the region

13. 2000s:The failure of SAPs • In Latin America and the Carribbean, where govertments adhered to SAPs, economic output grew by only 3.2% annually between 1980-2006 • In Asia, where governments spurned SAP, output grew by 8.5% annually during the same period • In transition countries of ECA, poverty, unemployment, and inequality increased sharply during the first year of transition • In Sub-Saharan Africa, the number of people in extreme poverty rose from 164 million in 1981 to298 million in 2004

14. 2000s: Protests Against the IFIs • At the beginning of the new millennium, the IFIs’ annual meetings spurred massive protests from NGOs, environmental groups, indigenous peoples’ organizations and unions • Washington (April 2000) • Prague (Sept. 2000) • Barcelona (June 2001)

15. The IFIs respond to the criticism: Tenets of the current IFI model • Poverty erradication • Increased spending on infrastructure • Reduction of conditionality • Private sector development/ Public sector efficiency

16. 1. Poverty Reduction 1999 • The IFIs declare that poverty reduction is their first priority • The IFIs introduce the “Heavily Indebted Poor Country” (HIPC) initiative to provide debt relief to the poorest 41 countries • “Poverty Reduction Strategy Papers” are introduced as the framework for IFI country programmes 2000s: The IFIs promote the Millennium Development Goals 2005-2007 • Multilateral Debt Relief Initiatve (MDRI) brings more debt relief to HIPCs

17. 2. New focus on infrastructure • Following a decline in infrastructure investment (public and private) in the 1990’s, the IFIs insist that new investment in infrastructure is essential for commercial and economic development • 2005: EBRD publishes a new transport sector strategy • 2008: WB publishes Sustainable Infrastructure Action Plan for 2009-11 • WB and EBRD lend to national and subnational agencies for infrastructure projects

18. 3. Reduction of conditionality • 2005 – WB and IMF revise their policies on conditionality. WB presents its 5 “good practice principles on conditionality” • 2007- IMF limits its use of public sector wage bill ceilings for certain countries • November 2007 report from the NGO Eurodad criticizes the World Bank’s “progress”: • “2 years after the application of the new principles, 71% of loans contain sensitive conditions, in particular privatization.”Avg number of conditions per loan is 24 (of which 6 are economic policy conditions) • 2008 IMF report finds lack of progress on conditionality

19. 4. Private Sector Development • Change in terminology: emphasis on promoting private sector “participation” (instead of privatization) • Public sector “modernization” and “efficiency” projects can be precursors to privatization • Rationalization of expenses, tariff reform, staff reduction, decentralization, etc.. • Doing Business and “investment climate” projects support reforms favorable to employers • Labour market reforms such as reducing the cost of hiring and firing, limiting collective bargaining, eliminating restrictions on work hours, etc.

20. Private Sector Development and Doing Business • WB’s Doing Business report ranks countries on labour market regulation: less regulation  better score • ECA region is “reforming” more rapidly than any other region in the world, according to Doing Business • Croatia, FYR Macedonia, Georgia, and Bulgaria were “best reformers” in 2007 according to Doing Business • Georgia’s high score was a result of its recent labour market reform

21. How do the IFIs achieve this model? • Policy reform programmes • Projects and strategic investments

22. II. Trade union intervention in IFI policies

23. Fiscal and monetary policies Privatization Labor market flexibility Civil service reform Pension system reform Procurement reform Justice system/court reform Trade liberalization Typical IFI policy reforms of concern to trade unions

24. Fiscal and Monetary Policies Objective – Control inflation and assure economic stability and debt sustainability Current Example: • Russia: “Ongoing projects…include tax modernization, cadastre and registration, fiscal federalism, performance-based budgeting, and treasury development.” -WB • Georgia: “The IMF strongly urges the authorities to ensure their 2007 fiscal stance is consistent with single-digit inflation, and to budget for a surplus in 2008.” -IMF

25. Privatization (or “Private Sector Participation” Objective (according to the IFIs): Reduce public spending, eliminate corruption, improve efficiency Current Examples: • Kyrgyz Republic: “The IFC will seek to support investment in private or public-private infrastructure projects, particularly privatizations in the power and communications sectors.” • Ukraine: “Future benchmarks [include] the adoption of public private partnership (PPP) legislation to attract private investment in transport and other infrastructure sectors.” -WB

26. Current Examples: • Belarus: “The key transition challenges over the next few years will be to promote structural reforms and allow private participation in the provision of public services.” – EBRD • Georgia: “Privatisation or private sector participation opportunities will be pursued in (but not limited to) the fields of telecommunications and infrastructure services.” -EBRD

27. Civil Service Reform Objective – Facilitate efficient public adminstration through reform of public sector salary scale, employment reviews, staff reduction, and decentralization  Current Example: • Moldova: “[Loan] might focus on public administration and civil service reform… This might include policy development capacity, pay reforms, staffing rules, code of conduct behavior, assignment of responsibility and accountability, anti-corruption.” -WB

28. Civil Service Reform • Kyrgyz Republic: “Setting public sector remuneration and ensuring that public servants receive adequate remuneration will take considerable time and will require gradual improvement in reform management capacity” (WB) • Belarus: “[Objectives include] optimization of the Government’s structure based on functional reviews, cadre rightsizing, and strengthening capacity of civil servants.” –WB

29. Pension System Reform Objective – Reduce public spending and develop financial markets through the partial or complete privatization of the pension system Current Example: • Azerbaijan: “The [Bank] may also help develop a multipillar pension system.” –WB • Armenia: “The draft pension reform concept would also involve the mandatory introduction of a second pillar for those above 30 years of age … a flat-benefit budget-financed first pillar and a universal zero-pillar for those that did not contribute to the system” -WB

30. Procurement System Reform Objective: Ensure that the national procurement system is consistent with international standards so that private companies (including foreign companies) have fair access to public contracts Current Example: • Azerbaijan: “Improvements in…public procurement would enhance accountability.” –EBRD

31. Justice System Reform Objective: Improve the functioning of the court system, promote access to justice, create a legal climate that defends the rights of businesses and investors Current Example: • Belarus: “Support will be provided for programs that build up the capacity of judges—including on human rights—the development of an effective pre-trial supervision process and an overall strengthening of the courts system.” -WB

32. Justice System Reform (cont’d) • Azerbaijan: “The Judiciary Reform Project is supporting the government’s ongoing reform program to improve the functioning of the civil, criminal, and economic courts by strengthening the management capacity of judicial institutions.” Russia: “A new project is currently under development for judicial reform (FY07) with a focus on improving dispute resolution, the enforcement of laws, and the transparency of information.” –WB • Kyrgyz Republic: “A Judicial Reform Study and Judicial Reform project are envisioned to modernize the judicial system and improve its effectiveness and transparency.” -WB

33. Trade Union Intervention in IFI Policies • Indentify the union’s policy priorities • Seek information about IFI programmes and loan conditions in your country • Determine the union’s response to problematic (or positive) IFI policies • Present the union’s position to both the IFIs and the government • Involve the community in the union’s campaign

34. Sources of information about IFI polices • The government • National Development Plan (such as PRSP) may provide basis for some IFI strategies • Consultations or public meetings with the IFIs • Official IFI documents • Country Assistance/Partnership Strategy (CAS) - WB • EBRD Country Strategy • Article IV Consultation Report - IMF

35. Official IFI Documents • Contain the IFI’s analysis of the country • Indentify priority sectors and themes for IFI projects and programmes • Serve as the base for technical assistance, project lending (for EBRD and WB), and policy lending and conditionality for the next 3-4 years

36. WB & EBRD Country Strategies Contents: • General national context: the government’s development plan, economic, social, and political challenges • History of IFI cooperation and loans with the country, including a detailed analysis of the most recent lending programme • Bank’s current country strategy: neccessary reforms, social and economic objectives, types of assistance envisioned, criteria for evaluation country performance and monitoring IFI programme (latter in WB strategies only)

37. Poverty and the MGDs Socio-political and economic concerns Social services Debt sustainability International trade and regional relations Private sector development, investment climate, and labour market regulation Governance and legal system Procurement system Infrastructure needs Political and Programmatic Areas covered in the country strategies

38. IMF Article IV Consultation Reports Contents: • Description of recent financial and economic activities in the country • Summary of discussions between the government and the Fund • The IMF’s conclusions and reccommendations, based on consultations with government

39. Policy areas covered in Article IV Consultation Reports • Fiscal and monetary policies • Financial sector • National budget, including the public sector wage bill • Risks and vulnerabilities (capital flows, current account, debt) • Structural policies (trade, labour market, energy policy, etc.) • Institutional issues (financial sector regulation, corporate governance, etc.)

40. Effective intervention in IFI policies • Read official documents of both the IFIs and the government (PRSP, national development plan, country strategy, etc) to understand current debates • Analyze IFI proposals: identify harmful and/or positive programs for workers • Prepare a response: use data and evidence to justify the trade union position, prepare declarations, propose alternatives • Demand meetings with the IFI in question and with the government, or determine whether a consultation is already planned

41. Consultations with the IFIs • During prepartion of the Article IV Report and CAS, the IFIs hold “civil society consultations,” including with trade unions • IMF: Annual consultations with unions • World Bank: CAS consultations every 3-4 years with a variety of civil society groups, plus more frequent sector-specific and other thematic consultations • EBRD: Country strategy and policy consultations held regularly with a variety of civil society groups

42. Information meetings Interviews or surveys Online discussion or forum Open meetings for all kinds of civil society organizations Small meetings with invited groups Negotiations Cooperation and joint planning How do consultations work? Consultations can be:

43. How can unions participate in IFI consultations? • If you weren’t invited, contact the representatives of the local office of the WB or EBRD to organize a meeting. Contact the Global Unions Washington Office for assistance and for meetings with IMF. • Ask for the meeting agenda and all relevant documents in advance of the meeting. • Prepare research, data, etc to support the union’s position. • Don’t hesitate to ask questions of IFI representative, and demand answers. • Request a written report of the meeting.

44. The final result: loans and conditinality • The majority of IFI documents are available online or at the IFIs’ public information centers. • World Bank: http://www.worldbank.org/eca/russian/ • IMF: www.imf.org (documents in English only) • EBRD: http://www.ebrd.org/ru/index.htm

45. Group Exercise • Read the programme matrix • Identify one potentially problematic or benficial IFI programme or project • Use the provided document to seek more information about the programme of interest • Develop a union strategy towards the programme you have chosen • Consider: evidence or data needed, alternatives, ways to improve the programme, potential allies, relevant ministries, press, etc. • Present the programme and your response to the group

46. III. Trade union intervention in IFI projects

47. WB, International Finance Corporation, and EBRD provide technical assistance and loans for specific projects such as: • Reform of a ministry • Infrastructure construction • Health • Education • Transportation • Private sector investments • Microfinance

48. Examples: Recent projects • BTC Pipeline (IFC) • Loan to a private company for construction of a cement factory in Kazakhstan (IFC) • Expansion of an large grain farm in Ukraine (EBRD) • Construction of a shopping mall in Moldova (EBRD) • Loan to a municipal services management company in Russia (EBRD) • Creation of clean fuel system in Chernobyl area of Belarus (WB) • Highway improvement in Georgia (WB)

49. Sources of information about IFI projects •  Upcoming projects are disclosed at least 30 days in advance of approval on the IFI websites • Monthly Operational Summary (BM) www.worldbank.org projects  procurement  “monthly operational summary” • Projects database (IFC) www.ifc.org/projects • EBRD/AFDB • Related documents (social and environmental impact reports, procurement plans, etc) are also available online • There are no systematic consultations for projects, but IFIs hold consultations with “affected parties” for many projects.

50. Interventions in IFI projects • Indentify projects of interests and read relevant documents • If you oppose the project, work to develop alternatives • For example: If the bank proposes privatization of a public service as the solution to financial instablity, consider other alternatives that meet the same objective. • Present your proposal to the bank and relevant government representatives • If the authorities don’t accept the alternative proposal, consider how the project can be modified to lessen negative effects or improve results