IDA 15: Switzerland in a financial bind

Bruno Gurtner, Alliance Sud

 

 

In early March 40 countries began negotiations in Paris on the 15th replenishment of the IDA (IDA-15). Their target is to secure funds to be made available as interest-free loans or as grants to the poorest countries between 2008 and 2011.

 

It should be even harder now than in earlier rounds to raise the funds. Many donor countries are dissatisfied with the policies of World Bank President Paul Wolfowitz. The situation is also being compounded by the fact that the World Bank and IDA are themselves facing financial constraints (see box). Besides, the IDA must now cope with tougher competition for the limited funds available from other multilateral organisations, including the United Nations Development Programme UNDP, the African Development Bank, the European Union or the new global fund to combat transmissible diseases.

 

The negotiations are being further complicated because the donor countries in this round are being asked to pay twice. In addition to the regular three-yearly contributions for the replenishment, the rich countries are also being requested to come up with funds for the costs being borne by the IDA as a result of the multilateral debt reduction initiative (MDRI). Through this initiative, the World Bank has so far cancelled the IDA debts of 20 very poor countries.

 

Is Switzerland sidestepping its responsibility?

 

Over the next two years, Switzerland should pay out a good 30 million francs annually for the multilateral debt reduction initiative. The Federal Council is still to approve this, however. Owing to the stagnating development budget, Switzerland already had to curtail its share in the 14th IDA replenishment from 2.43 to 2.28 per cent. Unless the Federal Council increases Switzerland's development budget, a cutback in its IDA contribution will be inevitable. Other donor countries will hardly stand by idly as wealthy Switzerland sidesteps its share of the international burden. That could ultimately hurt even the Swiss voting rights group in the IMF and World Bank.

 

NGOs: no more projects detrimental to the climate

 

As the IDA-15 negotiations got under way, over 65 non-governmental organisations in 16 European countries (including Alliance Sud) issued a joint declaration. They are calling on their governments, as the World Bank's major donors, to push through drastic reforms. Failing that, funds to combat poverty should be routed through other channels.

 

First, the NGOs demand that aid should no longer be tied to economic conditionality such as privatisation, liberalisation and the curtailment of public spending on health and education. The World Bank did indeed review its conditionality in 2005, but changed very little.

 

Second, the NGOs demand that in the light of the dramatic climate change, the World Bank should immediately start the move away from spending on fossil fuel operations and instead invest massively in renewable energies and energy efficiency. The World Bank is currently investing 2–3 billion dollars annually in projects that foster greenhouse gas emissions, but a mere 136 million dollars in renewable energies – which is half the 1994 figure.

 

Lastly, the NGOs demand that the Bank should be more transparent. The sector strategies for water, education and health, for instance, are misguided, to say nothing of gender equality. And above all else, the developing countries have far too little influence on policy and decision-making.

 

Contact: Alliance Sud

 

 

+++++++++++++++++++++++++++++++++++

 

Box

IDA financing

 

The IDA is funded from three sources, namely non-recoverable contributions from some 40 countries, repayments of earlier interest-free loans to the poorest countries, and from World Bank profits from commercial lending to middle-income developing countries.

Because the IDA is now providing significantly more funding in the form of grants rather than as interest-free loans, repayments are declining. World Bank profits are also trending downwards because many middle-income countries are now taking up less credits. They are turning to other funding sources (international financial markets as well as countries such as China or Venezuela) in order to circumvent the World Bank's economic conditionality.