Challenging the IFIs:Practical information and strategies for trade unions

Molly McCoyGlobal Unions Washington Office

Baku, 13-14 November

I. International Financial Institutions: an Introduction

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)

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

Original functions of the Washington-based IFIs

International Monetary Fund:Preserve exchange rates between national currenciesProvide 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

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

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

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.

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

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

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

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

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 to 298 million in 2004

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)

The IFIs respond to the criticism: Tenets of the current IFI model

1. Poverty erradication

2. Increased spending on infrastructure

3. Reduction of conditionality

4. Private sector development/ Public sector efficiency

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

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

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

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.

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

How do the IFIs achieve this model?

1. Policy reform programmes

2. Projects and strategic investments

II. Trade union intervention in IFI policies

Typical IFI policy reforms of concern to trade unions

• Fiscal and monetary policies

• Privatization• Labor market

flexibility• Civil service reform

• Pension system reform• Procurement reform• Justice system/court

reform• Trade liberalization

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

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

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

Civil Service ReformObjective – 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

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

Pension System ReformObjective – 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

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

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

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

Trade Union Intervention in IFI Policies

1) Indentify the union’s policy priorities

2) Seek information about IFI programmes and loan conditions in your country

3) Determine the union’s response to problematic (or positive) IFI policies

4) Present the union’s position to both the IFIs and the government

5) Involve the community in the union’s campaign

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

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

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)

Political and Programmatic Areas covered in the country strategies

• 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

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

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.)

Effective intervention in IFI policies

1. Read official documents of both the IFIs and the government (PRSP, national development plan, country strategy, etc) to understand current debates

2. Analyze IFI proposals: identify harmful and/or positive programs for workers

3. Prepare a response: use data and evidence to justify the trade union position, prepare declarations, propose alternatives

4. Demand meetings with the IFI in question and with the government, or determine whether a consultation is already planned

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

How do consultations work?

• 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

Consultations can be:

How can unions participate in IFI consultations?

1) 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.

2) Ask for the meeting agenda and all relevant documents in advance of the meeting.

3) Prepare research, data, etc to support the union’s position.

4) Don’t hesitate to ask questions of IFI representative, and demand answers.

5) Request a written report of the meeting.

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

Group Exercise1) Read the programme matrix2) Identify one potentially problematic or benficial

IFI programme or project 3) Use the provided document to seek more

information about the programme of interest 4) 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.

5) Present the programme and your response to the group

III. Trade union intervention in IFI projects

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

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)

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.

Interventions in IFI projects1. Indentify projects of interests and read relevant

documents2. If you oppose the project, work to develop

alternatives 1. 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.

3. Present your proposal to the bank and relevant government representatives

4. If the authorities don’t accept the alternative proposal, consider how the project can be modified to lessen negative effects or improve results

Labour Standards in IFI Projects • In May 2006 the International Finance

Corporation (IFC) adopted standard loan conditions requiring all new loan clients to respect the ILO’s core labour standards (CLS)

• In 2007, the World Bank adopted similiar requirements for its large infrastrucure projects

• In 2008, EBRD adoped similar standards for its private sector lending operations

• The CLS are:1. Prohibition of forced labour2. Prohibition of child labour3. Non-discrimination4. Right to organize and bargain collectively

How can unions use the labour standards?

1. As an instrument to defend workers’ right to unionize during organizing campaigns

2. The standards can provide support to an organizing campaign when the local union is prepared to:

• Organize• Be in continued communication with the national center

or relevant GUF• Provide reliabe and up-to-date information , • Work with allied organizations and other partners as

necessary

How can unions use the labour standards?

2. As a greivance mechanism:• Unions can bring greivances and complaints

against companies that violate the labour standards before and after projects are approved (though unions have more leverage before projects are approved) – Complaints should be very precise

Some examples of trade union complaints:• Right to organize in a garment factory in Haiti• Child labour in the supply chain of and African

telecom company• Threats against unions and trade unionists in

Belarus• Refusal to bargain collectively with unions in a

Pakastani electrical plant • Discrimination and anti-union action in a Brazilian

airline• Union’s right to organize workers on a dam

construction project in Uganda

To make an effective complaint, you must have:

• Specific information • Continual communication between union (or its

representative organization) and bank to clarify doubts

• Sufficient time• The Global Unions Washington Office can:

– Coordinate information– Facilitate contacts between the local union and local IFI

representatives– Organize meetings in Washington or in the country– Seek support of IFI executive directors

Discussion

• What are trade union priorities for dealing with the IFIs?

• Is there any benefit of engaging with the IFIs?

• If yes, what do unions need to take advantage of the possibility to intervene in IFI programmes?

• If no: How should unions confront the damaging programmes of the IFIs?