Select Committee on Treasury Memoranda


APPENDICES TO THE MINUTES OF EVIDENCE

APPENDIX 1

Memorandum submitted by ActionAid

1.  THE ROLE OF IMF IN FOOD CRISIS, WITH SPECIAL REFERENCE TO THE CASE OF MALAWI

Summary of recommendations for all PRGF countries

  ActionAid requests the UK Treasury Select Committee to seek a commitment that the Treasury will press for the IMF to institute, in collaboration with other domestic and international partners, a poverty and social impact assessment of all fiscal and institutional advice to Governments prior to the adoption of reform measures in the agricultural sector. The adoption of IMF advice on the management of emergency food security mechanisms (such as strategic grain reserves) should specifically be preceded by a food security impact assessesment.

  ActionAid also recommends that the Select Committee ask Mr Kohler for such a committment.

  With regard to the specific case of Malawi, the UK Treasury Select Committee should press the Treasury to seek assurance from the IMF and World Bank that the recently approved Poverty Reduction Strategy discussion in July will be subjected to a closer examination of the treatment of food security and agricultural production in the light of famine.

  With regard to the wider food crisis in Southern Africa, the Committee should ask the Treasury to seek a report from the IMF on the relationship between reforms in the agricultural sector associated with IMF lending, and the abililty of governments in the region to respond to the impending famine.

  Between January and April 2002, at least 500-1,000 people died of hunger and hunger-related diseases in southern and central Malawi. Malawi has suffered from a number of agricultural crises over the years, including a major drought in the early 1990s, but these are the first recorded famine deaths in Malawi since 1949. ActionAid regards these deaths as a major failure, by state and non-state parties, to realise the rights of Malawians to food, inter alia under Article 25(1) of the Universal Declaration of Human Rights.

  The events in Malawi also represent a failure from the point of view of UK Treasury policy in the area of food security, on which the Chancellor (in his recent speech to the UN Special Session on Children) said that action is "imperative". After pledging a response to food crisis in Southern Africa in this speech, the Chancellor went on to specify the aim of developing "credible strategies for food security".

  ActionAid Malawi has close to 12 years of fighting poverty in several of the affected Malawian districts. With the Malawian Economic Justice Network and the Catholic Commission, ActionAid Malawi attempted to raise the impending famine as far back as November 2001, three months prior to the state of disaster statement by the Head of State of Malawi.

  There are both long term and immediate causes of the crisis, but policy failure plays a large role. A number of organisations have criticised the role of the IMF prior to and during the crisis. The criticism has largely been of the IMF's involvement in three sets of policy advice namely, the adoption of an unsustainable cost-recovery strategy for the National Food Reserve Agency and subsequent running down of the grain reserves, the lifting of price control mechanisms and lastly, scaling back of essential inputs to small-scale agricultural producers.

  On 13 June 2002, ActionAid released an independent comprehensive report commissioned by ActionAid Malawi and conducted by a team of researchers from Malawi and the Institute for Development Studies in the UK entitled "State of Disaster: Causes, Consequences and Policy Lessons from Malawi". This report and subsequent communications with Alfred Kammer, Chief of the IMF Mission for Malawi in Washington DC establishes the following:

    —  In 2000, the IMF advised the government of Malawi to reduce the strategic grain reserve (SGR) from 165,000 tonnes to between 30,000 and 60,000 tonnes, on cost-effectiveness grounds. The government subsequently sold off virtually all the reserve by mid-2001. There was to be replenishment of the reserves through local purchases after the 2001 harvest, which was forecast to be adequate. In the event this was not so. The IMF does admit that the policy advice it gave to government in 2001 was based on "wrong information" about crop production. Other donors are implicated in the production of this incorrect information.

    —  Despite acute crisis and hundreds of starvation deaths in January—February, an IMF Mission in February 2002 did not immediately release a disbursement of US$47 million, but "reached agreement with government on the way forward to resume disbursements later in the year".

    —  In the May 2002 Article IV consultations, while acknowledging the need for "urgent action to prevent starvation" the Fund Mission report implied that National Food Reserve Agency (NFRA) and Agricultural Development and Marketing Corporation (ADMARC) activities to minimise famine mortality were unjustified and "unproductive" thus, "the parastatal sector will continue to pose risks to the successful implementation of the 2002-03 budget. Government interventions in the food and other agricultural markets ultimately led to the National Food Reserve Agency (NFRA) and the Agricultural Development and Marketing Corporation (ADMARC) taking heavy rescourse to budgetary financing, crowding out more productive spending." (International Monetary Fund, Malawi—2002 Article IV Consultation: Concluding Statement of the IMF Mission, IMF, Washington DC, 14 May 2002).

  ActionAid does not believe that the IMF directly caused the famine in Malawi. However, the crisis and loss of lives reflects policy failure and a violation of the most basic of human rights, the right to adequate, nutritious, safe and culturally acceptable food. Consequently, ActionAid strongly urges the UK Treasury Select Committee to examine the following short- and long-term issues relating to the IMF's role in countries undergoing acute food security programmes and implementing PRGF loans:

    —  The legitimate basis for IMF policy advice in any sector lies in budgetary and macro-economic factors. However, other factors also count, and should be considered before any policy advice is given and policy change made. In most low-income countries, policy in the food-producing sector almost always has major food security implications. As it has stated, the IMF has no competence on food security issues and does not provide funds for food aid. It would not be able to assess the potential impact of policy change in the agricultural sector on food security on its own.

    —  Consequently ActionAid recommends that the IMF institute, in collaboration with other domestic and international partners, a poverty and social impact assessment of all fiscal and institutional advice to the Government prior to the adoption of structural reform measures in the agricultural sector. The adoption of IMF advice on the management of emergency food security mechanisms (such as strategic grain reserves) should specifically be preceded by a food security impact assessment.

    —  In the case of Malawi, it is clear that while the IMF gave undue weight to fiscal discipline and pressed for the privatization of parastatals without a risk management strategy for corruption and profiteering by traders. The combination of these two led to a depleted capacity of the state to respond using domestic resources and the inflation by 400 per cent of essential foodstuffs. ActionAid finds it incomprehensible that budgetary rectitude and macro-economic stability came at the cost of the death by starvation of over 1,000 Malawian men, women and children.

    —  In order to ensure that this kind of tragedy is not repeated, ActionAid would seek assurances from the IMF (and the World Bank) that the recently approved Poverty Reduction Strategy discussion in July will be subjected to a closer examination of the treatment of food security and agricultural production in the light of famine.

    —  With regards the wider food crisis in Southern Africa, the UK Treasury Select Committee should seek a report from the IMF of the relationship between reforms associated with IMF lending and the capacity of governments in the region to the impending famine.

2.  THE IMF AND THE WORLD BANK'S EDUCATION FOR ALL ACTION PLAN

Summary of recommendation

  ActionAid requests the UK Treasury Select Committee to seek a commitment that the Treasury will press the IMF to clarify its position on the macro-economic implications of the World Bank's Education for All Action Plan.

  ActionAid also recommends that the Committee directly ask Mr Kohler for such a clarification.

  ActionAid is a member of a Global Campaign for Education (GCE), whose members work in over 100 countries around the world. Together with Oxfam and Save the Children, we have led the GCE in the UK. Over the past three years, we have been campaigning for the international community to launch a co-ordinated global initiative to achieve the 2015 goal of universal basic education.

  After years of talk and little action, a breakthrough was made in April at the Spring Meetings of the World Bank and IMF. Development and finance ministers endorsed an Education for All (EFA) Action Plan which proposed the creation of a financing framework, to mobilize and channel the necessary resources to meet the education financing needs of all countries on an ongoing basis. As a starting point, the action plan commits to providing 18 "fast track countries" with immediate additional aid for education in 2002. The Action Plan provides the best opportunity in a generation to get every child into school, and deliver on the most attainable of the 2015 goals.

  Education has also been identified as a priority area for the Treasury's international policy by the Chancellor. In his speech to the UN Special Session for Children, he said that the "World Bank initiative marks a major breakthrough—the first focused financing framework to ensure that no country genuinely committed to economic development, poverty reduction and good governance is denied the chance to achieve universal primary education through lack of resources".

  The Action Plan has so far received only a small proportion of the funding needed for its full implementation. But despite the lack of concrete commitments at the G8 summit, additional support to fast track countries can be expected to begin in late 2002.

  However, ActionAid has heard concerns expressed by senior World Bank staff that the IMF will oppose a rapid expansion in education, on the grounds that using external funds to support a large increase in the number of teachers, and hence the salary bill, will create inflationary pressures, and threaten fiscal imbalance.

  ActionAid believes that the Millennium Development Goals must be the guiding principle of international development policy. In contrast, the Fund appears willing to sacrifice human development on the altar of fiscal rectitude. The IMF should clarify its position on this issue. The Fund should also work with the World Bank and other stakeholders to seek ways of retaining macro-economic stability, whilst ensuring that the desperately needed expansion of education in poor countries remains a primary policy aim.

  Therefore ActionAid requests the UK Treasury Select Committee to seek a commitment that the Treasury will press the IMF to clarify its position on the macro-economic implications of the World Bank's Education for All Action Plan, and also directly asks Mr Kohler for such a clarification.

28 June 2002


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 12 December 2002