how imf&wb influence 3rd world education

8/14/2019 How IMF&WB Influence 3rd World Education

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Paying for Education:

How the World Bank & IMF Influence Education inDeveloping Countries

By

Nancy C. AlexanderGlobalization Challenge Initiative

Takoma Park, Maryland, USA

December, 1998(updated January 2002)

Table of Contents

Introduction

I: The World Banks Approach to the Education Sector

A. Volume of AssistanceB. StaffingC. Lending and Non-Lending ServicesD. Monitoring and Evaluation

II. Recipes for Educational Reform

A. OverviewB. Recipes

1. Privatize2. Recover Costs3. Decentralize4. Provide Demand-Side Financing5. Reallocate budget resources from HE to BE


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III: The Impact of IMF and World Bank SAPs on Education

A. Overview

B. How the IMF and World Bank Promote Economic Fundamentalism

1. IMF Seal of Approval2. Binding Conditions attached to SAPs3. Mechanisms for Modulating Government Access to World Bank Credit

C. Critiques of Adjustment1. Impacts on Social Sector Budgets2. Impacts on Incomes and Inequality

D. The Poverty Reduction Strategy (PRS) Initiative

IV: Findings and Recommendations

A. Adjustment operationsB. Impact AssessmentsC. Quantity vs Quality of Education OperationsD. ParticipationE. Debt Relief and Domestic Financing

V: Bibliography

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Paying for Education:

How the World Bank & IMF Influence Education inDeveloping Countries1

ByNancy C. Alexander2

Introduction

The 1980s are sometimes described as a lost development decade. School enrollmentsslumped. The tremendous progress toward universal primary education during the twentyyears, 1960-1980, was arrested or reversed in many countries.

In 1990, the Education for All (EFA) Conference in Jomtien, Thailand made an urgent appeal

to governments, donors and creditors to address the decline in basic education. Donorgovernments and creditors, including the World Bank, made commitments to help developingcountries achieve education for all.

In June 1996, a conference was convened in Amman, Jordan to assess progress since theEducation for All (EFA) Conference in Jomtien, Thailand. UNICEF cites the findings of theconference report:

Overall, primary enrolment was the brightest sign of progress by mid-decade, withsome 50 million more children in developing countries enrolled in primary school thanin 1990. Discouragingly, however, this figure only managed to keep pace with thenumbers of children entering the 6- to 11-year old age group over the period.3

Unsatisfactory progress was noted in some regions south Asia and Sub-Saharan Africa.Progress in educating girls had also been disappointing:

During the five years following the conference, little gain was recorded in thedeveloping world in girls primary enrolment as it rose only by a fraction of a decimalpoint, from 45.4% in 1990 to 45.8% in 1995. The gender gap in adult literacy actuallywidened over the same period.4

1 This document was written for Oxfam America. Portions of it may be found in other publications by the author,

including: Accountability to Whom: The World Bank and Its Strategic Allies, published in Derde Wereld in May,1998; various issues of News & Notices for World Bank Watchers; NGOs in the International Monetary andFinancial System, (with Charles Abugre) in International Monetary and Financial Issues for the 1990s,published by UNCTAD; Financing for Development, published by Friedrich Ebert Stiftung.2

The author is Director of the Globalization Challenge Initiative; former Director of the Development BankWatchers Project at Bread for the World Institute; former Director of Government Relations at Bread for theWorld; former Legislative Advocate, Friends Committee on National Legislation. Her degrees are from Dukeand Harvard University.3 UNICEF , State of the Worlds Children Report, draft, 1998, p. 15.4 Ibid., p. 15.

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At the World Education Forum in April 2000, the international community promised to launcha global initiative to mobilize resources to support national education efforts. However,since the Dakar, Senegal Forum, there has been no headway towards launching theinitiative.

Educational progress is uphill. The world slump has hit developing countries hard. Many arein recession or depression. Meanwhile, the donor and creditor community is increasinglytight-fisted. However, as discussed below, more money for education is not necessarily theanswer. Even with vigorous education campaigns, there will be disappointing progressunless creditors especially the IMF and the World Bank begin to support homegrown,national development strategies and education action plans. In addition, the institutions needto change their policy prescriptions for ailing economies, in general, and for the educationsector, in particular.

This paper provides an overview of the roles of the IMF and World Bank from 1980 to the

present. It distinguishes between two types of impacts exerted by the IMF and World Bank inthe education sector of borrowing countries: the World Banks direct involvement in theeducation sector of developing countries and country-wide economic reforms, or structuraladjustment programs (SAPs), financed by the IMF as well as the World Bank.

Parts I and II of this paper address the World Bank direct involvement in education throughproject investments (e.g. school construction, curriculum development, or textbookpublication); and reform of the education sector (e.g., school privatization, cost recovery,decentralization).

Part III addresses adjustment programs (SAPs) financed by the IMF and World Bank. Unlikethe World Bank, the IMF does not make project investments or reform education policies; itonlyengages in structural (and sectoral) adjustment lending. The impacts of IMF and WorldBank-financed adjustment programs ripple throughout a society, including households andschool systems.

Few independent analysts have attempted to evaluate the impact of adjustment oneducation. This is unfortunate since adjustmentpolicies are a more powerful influence onthe education sector than educationprojects. As a result of the hiatus in research, we aresignificantly dependent upon the World Bank and IMF for their own evaluations of the impactof adjustment on education.

The paper finds that the operations of the institutions have had both positive and negativeimpacts. The net influence of each institution has been different in different countries; amongdifferent groups within countries; and in different timeframes. Much of the literature about theimpact of the institutions addresses their track records in the 1980s, when even according totheir own admission, the institutions paid scant attention to the impacts of their economicreform loans on vulnerable people.

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This paper underscores the World Banks conclusion that, in many countries, adjustmentlending had negative impact upon primary education in the 1980s. During the 1990s, thereappears to be a weak, but positive, response to measures taken by the institutions andborrowing countries to modify SAPs. That is, in some circumstances, safety nets andeducation investments have helped to stem school enrollment declines or increase

enrollments.

In 2002, the World Bank Group launched a Private Sector Development (PSD) Strategy thataims to expand the provision of educational services by private firms and non-governmentalorganizations (NGOs). In selected instances, this approach may have merit. In general,however, the Strategy endangers educational progress because it expands ignores thelessons of experience. Among other things, the Strategy ignores the fact that wheneducational services are provided at cost, they will not reach poor populations even whensubsidy schemes are employed.

To analyze the influence on education of the IMF and World Bank operations, this paper

reviews the following issues:

IMF and World Bank loans. Historically, the IMF and World Bank provide loans5at marketrates as well as credits at concessional rates. Shortly, the World Bank will increase itslevels of grant assistance.

The volume of resources for education. Too often, the public sees increasing amounts ofresources for education as a good thing. However, history shows that aid hassometimes been used to dismantle education systems. Greater quantities of aid shouldonly be used to support good education policies.

Types of loans: projects investments or adjustment loans. Over time, adjustment loansgenerally have a stronger influence on educational outcomes than do investments in

education projects. Purposes of reform. The purpose of many adjustment programs (e.g., cutting deficits and

lowering per pupil costs) can complement or conflict with educational goals. Impacts of reforms. In many countries, the formulae employed by the Bank to reform the

education sector have had more negative than positive impacts. Furthermore, structuraladjustment programs (SAPs) have often sabotaged educational progress whileweakening the state. Ultimately, the state needs to be the guarantor or educationalaccess, quality and progress.

IMF and World Bank instruments: grants and loans. As a rule, bilateral donor governmentsand United Nations agencies provide grantaid, whereas the World Bank and IMF provide

loans and credits. Hard currency debt obligations to the institutions, must be repaid.

Grants are usually more valuable to countries than foreign loans; soft, or concessional,credits are more valuable than hard, or market rate loans. Concessional loans have asignificant grant component; they have low interest rates and long grace periods.

5 Technically, governments with active IMF programs are not borrowers, although the term is employed in thispaper. They are actually purchasers of resources, some of which they contribute to the IMF.

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The World Banks has facilities, which offer both types of loans. The International Bank forReconstruction and Development (IBRD), extends so-called hard or market rate loans. TheInternational Development Association (IDA), extends concessional credits to poorergovernments. IBRD and IDA, together, constitute The World Bank.

The U.S. is exerting tremendous pressure on IDA to provide an increasing amount of grantfinancing, especially for education. Ordinarily, this would be good news. However, the U.S.wants the World Bank to privatize education and use the grants to offset the costs ofproviding education to poor populations. Experience demonstrates that efforts to offseteducational services through subsidy schemes seldom work.

Volumes of resources for education. Grant assistance has declined over the last decade.In 1994-95, bilateral donor governments provided less support for education (both in absoluteterms and as a percentage of total aid) than they did in 1989-90 before the 1990 Educationfor All (EFA) Conference in Jomtien, Thailand. The good news is that the volume andpercentage of education aid devoted to basic education has tripled.6

World Bank lending for education has increased significantly since the Jomtien Conference.Overall lending for education doubled from the 1986-1990 period to the 1991-1998 period.Lending for primary education has increased by 360%.

In 1995, the volume of Bank loans ($3.1 billion) represented 28% of all external finance foreducation.

Of the approximately $15 billion in education loan commitments made by the World Bankfrom 1991-98, two-thirds were at market rates. One-third ($5.7 billion) were for poorercountries which borrow from IDA and which are concentrated in Africa. From the mid-1980sto the mid-1990s, the share of education lending rose for two regions South Asia (SAS) andLatin America and the Caribbean (LAC); the share of education lending fell for four regions Sub-Saharan Africa (AF), Middle East and North Africa (MENA), East Asia and the Pacific(EAP) and Europe and Central Asia (ECA).

The volume of Bank assistance to the education sector understates the institutions influence,since high levels of assistance provided by bilateral donors usually help finance World Bank-financed projects and policies. Bank assistance (indeed, all external finance) represents atiny proportion (0.5% of 1%) of global spending for education. However, in some times andplaces, it is significant in terms of volume of resources for, and/or influence on, education.For instance, during the 1980s, Bank resources constituted 16% of the resources available toAfrican governments for education.

Types of loans. Project lending is very different from adjustment lending. World Bank-financed projects take five to seven years for implementation. In contrast, adjustment loansare quick disbursing.

6 Germany, Japan, the U.K., France, and the Netherlands shifted considerable aid into basic education.Australia, Austria, Canada, Denmark, Finland, Switzerland, and the U.S. made modest shifts. Belgium, Italyand Norway decreased allocations to basic education.

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Adjustment loans -- SAPs and SECALs -- influence both the demandfor, and supplyof,educational services. Demand for educational services is elastic; that is, demand rises orfalls as direct and indirect costs of education rise or fall relative to a familys income level.Families make choices and set priorities. Often, families place a higher value on education of

boys than girls.

Purposes of reforms. In addition to influencing the incomes of households and the cost ofeducation, SAPs attempt to reduce the budget deficits of borrowing governments. Sinceeducation budgets usually constitute a significant portion of the federal budget, SAPs oftenchange the level or composition of education spending. Such changes affect many aspectsof school systems, such as: school construction, administration and maintenance, teachersalaries and benefits, and educational materials.

Generally, adjustment loans for the education sector or for an entire economy are morepowerful and influential than project loans. Hence, an understanding of the net impact of the

IMF and World Bank on education relies heavily on an understanding of the impact ofadjustment loans.

Adjustment loans for the education sector may attempt to privatize and decentralizeeducation while recovering costs through user fees. They also reorient spending fromsecondary and higher education to basic education. These recipes, or formulaicapproaches to the education sector have often retarded educational progress. In addition,the goals of SAPs often conflict with the goals for education.

From 1980-93, there were more than 3,000 policy conditions attached to World Bank SAPs,but only 50 related to education. Of these 50, only six explicitly called for increased spendingon education.7 Now social conditionality is the rule rather than the exception. However,social conditions are often discretionary. The important, bindingconditions on SAPs (e.g.up-front conditions, which are imposed at negotiation, pre-appraisal, and prior to release ofloan installments, or tranches) may have an adverse impact on the social sectors. Amongother things, these binding conditions usually induce governments to cut budget deficits,which puts pressure on social sector spending.

Impacts of assistance. The Findings and Conclusions suggest ways to enhance positiveimpacts of assistance on the education sector by addressing with problems in the followingareas: structural adjustment, impact assessments, quantity vs. quality questions,participation, and debt relief and domestic financing.

7 Figures derived from a list provided to the author by the Poverty Reduction & Economic Management (PREM)Network of the World Bank.

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I: The World Bank Groups8Approach to the Education Sector

A. Volume of Assistance for Education

One can gauge the influence of a donor or creditor on the education sector of a developing

country by reviewing the volume of assistance, its type, purpose and impact. Too often, thevolume of assistance provided by a financier is used as a proxy for effectiveness. This ismisleading.

Forms of Assistance: Grants and Loans. Bilateral donor governments and United Nationsagencies give grants to developing country governments. Grant resources may seem morevaluable to developing country governments than loans, since grants do not need to berepaid. However, the World Bank is considering extending grant assistance to subsidizeprivatization of education in borrowing countries.

Declining grant aid for the education sector. In 1994-95, bilateral donor governments

provided less support for education (both in absolute terms and as a percentage of total aid)than they did in 1989-90 before the 1990 Education for All (EFA) Conference in Jomtien,Thailand. However, the percentage of education grants devoted to basic education tripledduring this period.9

In the early 1990s (1991-1994), the volume of Bank loans for education ($7.9 billion)represented 40% of all bilateral grants ($19.8 billion).

This percentage has increased. According to UNESCOs 1998 World Education Report, theWorld Banks education commitments represented 46% of bilateral assistance and 28% of allassistance in 1995.

Box 1

1995 External Expenditures for Education*(in millions of current US dollars)

Bilateral Assistance $4,450

All Multilateral resources 2,717World Bank (2,057)

8 The World Bank refers to the institutions market rate window, the International Bank for Reconstruction andDevelopment (IBRD), as well as the concessional window, the International Development Association (IDA).The IBRD is the facility for countries with per capita annual incomes exceeding $925; IDA is the facility forpoorer countries. IDA provides soft, or concessional, loans to the poorest countries which are concentrated insub-Saharan Africa and South Asia. Affiliate members of the World Bank Group include the InternationalFinance Corporation and the Multilateral Investment Guarantee Agency.9 Germany, Japan, the U.K., France, and the Netherlands shifted considerable aid into basic education.Australia, Austria, Canada, Denmark, Finland, Switzerland, and the U.S. made modest shifts. Belgium, Italyand Norway decreased allocations to basic education.

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UN Programs 278

UNESCO (100)

Total 7,445

World Bank as % of Total 28%

*1998 UNESCO World Education Report, p. 112.

Technical assistance which never reaches developing countries. The DevelopmentAssistance Committee (DAC) of the OECD categorizes aid as follows: investment projects,sector aid, technical cooperation, and other. Importantly, 70-75% of all donor support sincethe mid-1980s has focused on technical cooperation. Usually, most technical cooperation

monies and some project monies are spent in donor countries for purposes, such as training.Thus, it is calculated that 60-80% of all education aid commitments is spent in donorcountries.10

Levels and Types of Bank Lending. Overall lending for education doubled from the 1986-1990 period to the 1991-1998 period.

During the 1990s, lending levels for basic education have fluctuated wildly. In FY98, the levelof education loan commitments -- $3.1 billion was three times the FY97 level. The $3.1billion level represents 36 loans to 28 countries. It is 9.1% of total World Bank loancommitments of $28,594.

Commitments are disbursed over a period of years. In FY98, education loan disbursementstotaled nearly $1.9 billion.

Basic Education Emphasis. Bank lending for primary education increased by 360% fromthe 1986-1990 period to the 1991-1998 period.

During the nine fiscal years, 1990 1998, the average annual level of lending for basiceducation has been $809 million, which is four times the annual average for the years 1986 1989. During the 1990s, basic education has constituted about one-third to one-half of Bankeducation lending. While basic education encompasses adult literacy as well as primaryeducation, adult literacy is not a Bank priority. In FY96, only two projects (in Ghana and inIndonesia) focused on this goal.

Prominence of Education Operations in the Banks Loan Portfolio. The World Banksmedium-term plan for a borrowing country, which is called the Country Assistance Strategy(CAS), lays out the framework and rationale for Bank investments in a country. A CAS is

10 Bennell, P. and Furlong, D., Has Jomtien Made any Difference?, p. 50.

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prepared every few years for each borrowing country.11 The CAS describes plans for bothkinds of lending operations: economic reforms, or SAPs, and project investments in differentsectors, such as agriculture, power, education and health. The World Banks CASs identifiededucation as a priority in 77% of all CASs prepared during FY97 and the first half of FY98.Twenty percent (20%) of the subject CASs proposed education loans; an additional 20%

proposed education research. Education loans represented 9% of all loans proposed by theCASs, while education research represents 7% of all research proposed by the CASs.

IBRD & IDA Lending for Education. IBRD. In 1962, when the Bank began educationlending, there was controversy about whether it was appropriate to use Bank finance (ratherthan grants) for education purposes. The Board considered a proposal to use IBRD netprofits for education grants in IBRD countries. However, it was decided that net profitsshould be channeled to low-income, IDA countries.

Of the approximately $15 billion in education commitments made by the World Bank from1991-98, nearly two-thirds were extended by the hard loan window, the International Bank for

Reconstruction and Development (IBRD). The biggest borrowers for education are IBRD orblend (both IBRD and IDA) countries: Mexico, India, Brazil, Indonesia, China, Pakistan,Argentina, Korea, and the Philippines.

IDA. During this timeframe, over one-third ($5.7 billion) of the $15 billion in commitmentsrepresent credits extended by the International Development Association (IDA).

Most IDA countries are in Africa where the ratio of enrollments to the primary school-agepopulation is declining. In fiscal year 1998, 11 of 35 new education loan commitments wereto IDA countries. (Seven of the 11 were in sub-Saharan Africa).

The World Banks financing of education feel from an average of $2 billion per year in the1990s to $1 billion per year for the last two years. These levels continue to gyrate. Why?First, education is increasingly a priority of powerful shareholder governments, such as theUnited States Government. Hence, the Bank is under pressure to move money foreducation. Second, there are bottlenecks in the lending pipeline because many governmentscannot or will not provide the local cost financing components of education operations.

Implementation problems also stem from factors, such as political turmoil and weakinstitutions. Some Bank critics claim that SAPs, which have downsized governments, arepartly to blame for the inability of governments to efficiently process and administer educationloans.

IFC.12 The power and authority of the World Banks private sector affiliate, the InternationalFinance Corporation (IFC) is expanding.13 (The IFC has a mandate to lend to, and take

11 If country conditions change in the interim, the Bank updates the CAS by preparing a new short CAS or aCAS Progress Report.12 The IFCs approach to the education sector is described in: Karmokolias, Yannis and Maas, Jacob vanLutsenburg, The Business of Education: A Look at Kenyas Private Education Sector, IFC Discussion Paper#32, 1997.

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equity positions in, private ventures.) 14 The IFC will increasingly team up with the Bankssoft loan arm, the International Development Association (IDA), which lends to low-incomegovernments. The Bank increased its budget in fiscal year 2002 to help finance expandedlending to low-income borrowers,15 which is expected to reach $7 billion in FY02-04.16Together, the IFC and IDA are aggressively promoting the privatization of education. The

World Bank has an on-line service, EdInvest, which guides investors to profitable ventures inthe education sector.

The IFCs 2001 paper, IFC: Strategic Directions, targets five frontier areas for businessexpansion, including the social sectors, infrastructure, small and medium-sized enterprises,domestic financial institutions, and information technology and communications. Especially inthese areas, the IFC will increasingly take the lead in expanding private provision ofservices,17while IDA will work with governments to design subsidy and other schemes tooffset the costs of private provision to low-income consumers.

Initiatives to privatize education are being taken without regard for the needs and preferences

of citizens in borrowing countries. Indeed, the IMF and World Bank are suspending debtrelief for several countries due to their inadequate progress in privatization. Such coercivetactics subvert efforts by citizens in borrowing countries to shape their own future throughnational planning processes [e.g., the Poverty Reduction Strategy Paper (PRSP) process].

Regional Patterns. From the mid-1980s to the mid-1990s, the share of education lendingrose for two regions South Asia and Latin America and the Caribbean; the share ofeducation lending fell for four regions Sub-Saharan Africa, Middle East and North Africa,East Asia and the Pacific and Europe and Central Asia. Of the six geographical regions,Latin America & and Caribbean (LAC) and East Asia and the Pacific (EAP) receive the mosteducation resources about 65%.

Demand for Education Loans. Governments prefer grant financing to loan financing ofeducation. Historically, demand for education loans has been sluggish due to factors suchas:

The high level of sustained, recurrent costs (e.g. teacher salaries and educationalmaterials) required for effective education operations. Governments prefer to borrow forcapital expenditures (e.g. construction of facilities).

13 The World Banks 1995Annual Reportreferred to the institutions shift to supporting private sector investment (asopposed to direct lending to governments) a dramatic departure from what had been Bank policy for half acentury.14

For the most part, the IFC would also take charge of the World Bank Groups on-lending operations and policyrisk guarantees. That is, if the market does not provide these services to borrowing countries, the IFC/MIGA willprovide them (or refer the borrower to the IBRD and IDA).15 The Banks Strategic Directions Paper (3/29/01) envisioned the Banks administrative budget growing from $1.2billion in FY01 to about $1.3 billion in FY02. It succeeds the Banks FY98 to FY00 Strategic Compact.16 IDA commitments increased to $6.8 billion for 134 projects in fiscal year 2001, compared with $4.4 billion for 126projects in fiscal year 2000.17 IFC investments increased four and a half times over in real terms between 1980 and 2000. The IFCsinfrastructure department was created in 1992 and, by 2000, a fifth of IFC lending went to private sectorinfrastructure.

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Education operations, like other operations, require that borrowers provide counterpartfunds. Borrowers provide almost 20% of the total cost of education operations incounterpart funds. The poorer governments have greater difficulty providing counterpartfunds.

Returns on education are realized in the long-term. Education operations do not usually

generate a stream of revenues in the near term. Nor do they directly contribute to thegeneration of foreign exchange revenues, which can help to service foreign debts andimport goods and services.

Thus, while lending for education has been expanding since the late 1980s, demand by thepoorest countries is much lower than demand by lower-middle income and middle incomecountries.

Many NGOs in developing countries oppose the government practice of borrowing at marketrates for social services, which they believe their government should underwrite with their taxdollars. Some NGOs also oppose greater World Bank provision of grants for education

where grants would subsidize the privatization of education.

Fungibility. As described below, aid and credit is sometimes diverted for other-than-intended purposes. Once assistance reaches a governments treasury, it is fungible ortransferable for any purpose. Education assistance is especially fungible since governmentsare averse to providing sustained levels of local cost financing for purposes, such as teachersalaries and educational materials.

In addition, where there are IMF programs, governments may divert assistance to avoidviolating IMF budget deficit targets.

B. Staffing.

The Bank has approximately 240 staff working in the education sector. Of this total, about20% have graduate exposure in the field of education.

The World Banks 10,000 staff members are organized into thematic networks that provideservices to country and regional departments.

The staff of the country and regional departments hold the reins of power in the Bank. Apowerful Country Director, along with a Chief Economist staffs each Country Management

Unit. In conjunction with their client country or countries, these individuals coordinate thedesign of Country Assistance Strategies (CASs) and determine the level and composition oflending, including education lending.

The Country Management Units generate demand for the advice and services of the Banksthematic networks. The Human Development (HD) Network supplies advice and serviceswith respect to education, health and social protection operations to the country and regional

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departments. The HD Network is relatively powerless compared with the thematic networksthat focus on macroeconomic reform, private sector engagement, and infrastructure.

C. Lending and Non-Lending Education Services.

1. Lending Services. The principal loan instruments of the World Bank are (structural andsectoral) adjustment loans and project investments.18 Adjustment loans are popular with theWorld Bank and its borrowers because they are fast-disbursing and inexpensive to process.In contrast, project loans disburse slowly over the course of six or more years.

As a rule, adjustment programs have a greater impact on the education sector than doproject investments. Thus, it is unfortunate that researchers that seek to understand theinfluence of the World Bank on the education sector tend to focus on education projects andoverlook adjustment programs. Hence, the public tends to have a distorted view of the role ofthe World Bank and the IMF in education. Education sector adjustment policies are discussed

in part II; structural adjustment programs are discussed in part III.

a. Structural adjustment programs. Adjustment loans, which aim to liberalize andprivatize economies in the context of strict budget discipline, are controversial and unpopularfor reasons described in parts II and III. Hence, the IMF and World Bank are graduallyexpunging the term adjustment from their lexicon. At present, many World Bank adjustmentloans to low-income countries are now called Poverty Reduction Support Credits (PRSCs);IMF loans to poor countries are called Poverty Reduction and Growth Facility (PRGF)Arrangements. World Bank adjustment loans to middle income countries are being calledDevelopment Support Loans (DSLs). These are name games are cosmetic; they are notaccompanied by any change in the institutions policy prescriptions.

b. Sector adjustment programs. Adjustment loans for the education sector often attemptto privatize and decentralize education while recouping costs through various means,including user fees.

c. Hybrid loans. Adjustment provisions are also being packaged with project investmentloans. Hybrid loan instruments, including adaptable program loans (APLs) and learning andinnovation loans (LILs), combine adjustment and project elements. The adaptable programloan (APL) is a loan with a long-term development purpose and a phased-in implementationprocess, which allows the borrower to pilot and then scale-up and replicate projects. Like theAPL, the LIL allows a grow-as-you-go approach to lending. However, it is smaller in scale.

These new instruments are especially well suited to education operations, which involve avariety of governmental and non-governmental stakeholders.

18 In addition, the Bank and the IFC offer a variety of partial risk and partial credit guarantees to privateinvestors. The IFC also takes equity positions in ventures.

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d. Project investments. In the early days of Bank project lending, nearly 80% of projectsinvolved civil works construction. The volume of construction has declined steadily and nowstands at about 23% of lending.

Most education expenditures are recurrent expenditures, such as teacher salaries and

benefits and textbooks and other educational materials. However, until the late 1980s, aBank policy prohibited loans to support recurrent expenditures. When this policy changed,the composition of Bank lending changed. In 1995-7, about 60% of operations suppliedequipment and textbooks or provided technical assistance.

Bank-financed projects focus on the supply-side of education that is, provision of buildings,technology, and educational materials. Supply-side financing works on the field of dreamstheory that if you build the school, they [the students] will come.19 Providing a place inschool for every child is a demand-side as well as a supply-side challenge; families must beable to afford the direct and indirect costs of educating their children.

Projects are only beginning to address issues relating to instructional quality and demandside barriers to education faced by certain populations. Barriers come in many varieties:language barriers; gender discrimination20; high direct and indirect costs; the opportunity costof education that is, income foregone from children forsaking employment for school; thelocation of schools in deprived rural settings; trade-offs between investing in the education ofdifferent children within a family; cultural and religious biases with respect to the value andtype of appropriate education; and so on.

2. Non-Lending Services.

Training. In the late 1990s, six private foundations, 21 bilateral donors, and 20 multilateraldevelopment organizations funded activities of the Economic Development Institute (EDI).

During 1998 and 1999, EDI, which is the Banks training and education arm, had 21 corecourses, one of which focused on education reforms.

EDIs program on education reform is intended to build capacity and consensus foreducation reform in developing countries, focusing on three areas, education financing,improved governance, and school and teacher effectiveness. EDI also has a GirlsEducation Program which is part of the Partnership for Strategic Resource Planning, a multi-donor collaboration with African countries led by African Women Educators. (EDI 98 AnnualReport, p. 32)

19In the 1996 movie Field of Dreams, a lover of baseball believed that if he built the perfect ball park, baseball

players would rise from the dead to play.20 According to the World Bank, the average 6-year-old girl from a low or middle-income country can expect toattend school for 7.7 years; the average 6-year-old boy can expect 9.3 years of schooling. (Patrinos andAriasingam)

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D. Monitoring and Evaluation.

As of fiscal year 1995, mid-term reviews were conducted for only 12% of the World Bankseducation loans. As noted above, the Banks 1997Annual Report on Development

Effectiveness states that the Banks current systems for evaluating the education sector areinadequate.

The Banks monitoring and evaluation (M&E) system has been plagued with difficulties.Borrowers sometimes resist using project resources to collect data required for M&E.Moreover, until the 1990s, M&E was seldom performed by client country constituencies,which have the most intimate knowledge of the accomplishments of an operation.

In 1992, the Banks Portfolio Management Task Force was disparaging of Bank M&E. A1994 OED study found that Bank managers did not satisfactorily supervise projects or reporton their outcomes at completion. The study also found that tracking project indicators did not

measurably contribute to project outcomes.

Historically, M&E has measured Bank inputs rather than outputs, or results (e.g. schools builtrather than children educated). Since 1992, the Bank has concentrated on building results-based methodologies of M&E. By 2002, the Bank was focusing on measuring results-basedindicators and seriously neglecting medium-term indicators. Hence, the Bank and itsborrowers are learning more about outcomes without understanding what caused them.

Quality of adjustment lending. The Banks Operations Evaluation Department (OED)provides misleading assessments of the performance of adjustment programs. There arethree types of adjustment performance indicators: policy, intermediate, and outcomeindicators. Policy indicators reflect whether the government has complied with policyconditions. Outcome indicators monitor progress toward growth and poverty reduction goals.Intermediate indicators reflect progress toward desired outcomes.

The OED relies heavily on policy indicators in claiming that 86% of FY99-00 structuraladjustment loans and 90% of sector adjustment loans performed satisfactorily. [Sectoraladjustment loans (SECALS) constitute roughly a third of all adjustment lending by volume.]At the same time, OED finds that just 76% of adjustment loans during these fiscal years werelikely to sustain benefits over time. For Africa about half of its sector adjustment loans and43% of its structural adjustment loans were expected to sustain benefits.

A closer look at adjustment programs gives a gloomier view of their performance. Forinstance, the Bank found that only 45% of FY98-00 adjustment operations addressed povertyissues adequately. Less than 20% of a sample of adjustment loans linked adjustmentpolicies with efforts to reduce poverty; 22% of these loans made provisions for monitoringpoverty and social indicators.

Another evaluation of adjustment loans found that:

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The majority of [adjustment] loans do not address poverty directly, the likely economicimpact of proposed operations on the poor, or ways to mitigate negative effects ofreform. Even where traditional subsidy and budgeting procedures are to bedismantled, the assumption is that poverty alleviation is to be achieved throughimprovements in macroeconomic stability and in improvements in public

administration, targeting, efficiency, etc...Direct efforts to address short-term impact onthe poorest are rarely considered.22

Quality of Project investment loans. The Banks Operations Evaluation Department (OED)has generally measured project success relative to three criteria: achievement of objectives,sustainability and institutional development.

Achievement of Objectives. The Banks Operational Evaluation Department (OED) foundthat for a cohort of projects completed in the 1973 to 1993 timeframe, over 82% achievedtheir stated objectives, such as manpower development, skills training, access to and qualityof education, and institutional development.

Sustainability. An evaluation of 111 education projects the Bank since 1989, 62% werejudged as likely to sustain their gains. Disaggregated by region, we see that sustainability isexceptionally low in African countries (56%) and Latin American and Caribbean countries(50%), but higher in East Asian countries (85%).

Evaluation data show that project success is inversely correlated with the number of yearsthe Bank has been involved in the education sector. (The longer the Bank is involved in theeducation sector, the less chance of project success.)

The Bank is increasingly providing support for education, health, water, and other basicservices through Social Funds (SFs), which operate in parallel to activities of borrowinggovernments. Social fund projects allow local stakeholders to determine investmentdecisions through subproject proposals which they, themselves, prepare. In 2001-2002, theBank is evaluating the relevance, efficiency, sustainability, and institutional developmentimpacts of Social Funds. This evaluation trivializes the extent to which Social Funds subvertthe authority and effectiveness of governments, since the SF operations are usually carriedout in parallel with federal and state programsalmost like another line ministry. In order tomake a sustainable, lasting contribution to social well-being, SF activities will need to beintegrated with mainstream social programs offered at the federal, state and local levels.

22 Social and Environmental Aspects: A Desk Review of SECALS and SALs Approved During FY1998 andFY1999, Environmentally and Socially Sustainable Development (ESSD) Network, World Bank.

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II. World Bank Recipes for Educational Reform

A. Overview

The level of Bank support for education generally varies depending on a borrowing

governments willingness to undertake reforms recommended by the Bank. In principle, thismakes sense. As a lender with fiduciary responsibility, the Bank has a right to ensure thatborrowers do not waste or misuse resources. However, the Banks recipes for reform areoften standardized and simplistic: privatize, decentralize, recover costs, and transferresources from higher to primary education. Since these recipes are viewed as goods, thenit is often assumed that there is a linear relationship between the recipe and the outcome(e.g. if some decentralization is good, then more must be better).

In and of themselves, these recipes are neither good nor bad. Their efficacy depends uponthe circumstances. In general, the analytical basis for Bank-proposed reforms wasdeveloped in the industrial North. For instance, the rationale for the Banks 1990 primary

education policy draws largely on developed country experience as the basis for its policyrecommendations. There is a conspicuous lack of research and analysis of the impact ofreforms based upon information and experience in developing countries.

Still, the application of simple, standardized recipes has revolutionized the Banks educationportfolio.23

Impacts of the Banks formulaic approach to fiscal adjustment and education reform resultedin the widespread imposition of user fees which, in turn, deprived generations of poor childrenof an education. As many studies demonstrate, charges for basic services impose a tax onhuman development.24

In October 2000, the U.S. government enacted a law requiring U.S. representatives tointernational financial institutions to oppose any loan operation that would impose user feesfor primary education and basic health care. Subsequently, the Bank beat a fast retreat fromits past policies of encouraging and even requiring user fees.

As of September 2001, the Banks policy on user fees is ambiguous. Although the Bankstates principled opposition to user fees for primary education, it often assumes that stateswill continue to impose such fees. Hence, the Bank sees a role for itself in carefullydesigning user fee policies so that poor people will not be hurt.

23 According to Jones, a comparison of loans approved in 1990 with loans approved in 1980 shows that: thepercentage of projects with increased privatization and cost-sharing rose from 33% to 100%; projects aimed atreducing recurrent costs rose from 33% to 78%; and projects to expand secondary and tertiary educationdeclined from 50% to 11%. In 1990, 70% of projects called for increases in primary schooling; 67% of projectsreduced subsidies for secondary and tertiary students; 56% raised tuition fees; 67% enlisted communities inschool construction and 56% contained covenants encouraging governments to support private education.(Jones 177-178)

24 Oxfam International, Education Charges: A Tax on Human Development, November 12, 2001.

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There is broad agreement among communities of educators and economists about theimportance of certain economic and social values. While many policy-makers agree oneducational values, such as quality and equity, differences arise when such values areconsistently subordinated to economic values. In addressing the qualifications of teachers,UNESCOs 1998 World Education Reportcites the International Labor Organizations 1996

report, Impact of Structural Adjustment on the Employment and Training of Teachers:

..No other aspect of structural adjustment programmes [than teacher compensation]has demonstrated so clearly the increasing tendency of national development policiesto subject education to the same cost-cutting logic of market forces that is applied tothe overall system of production: if qualified people are willing to teach for less paythan the standard rates, then why not hire them? (p. 36)

UNESCO claims that the same logic is often applied to the issue of classroom size. That is,in seeking economic efficiency one can continue decreasing the teacher/pupil ratio, much asa factory manager would attempt to increase output while cutting costs.

Cost containment is an important value when considered in tandem with the requisites of aquality education. Too often, the focus on efficiency eclipses educational needs.25

Since staff with advanced degrees in education are in such short supply in the Bank, staffdeployed to the Banks education unit, often look for simple, standardized solutions.

Especially for weaker borrowers, the provision of simple, standard answers to complex needscan be unhelpful. This is worrisome because governments must be able to monitor andevaluate the policies and practices of a burgeoning number of actors in the education sector.If such actors lack accountability to governments, the government will be unable to facilitateachievement of education goals, such as universal primary education. If institutions inborrower countries are challenged to design solutions to their unique circumstances, theircapacity grows.

It is possible that, if the Banks analysis had greater depth, the Departments of Educationwould seek out Bank experts in Western countries. However, the Bank does not receivecontracts from countries in the Organization for Economic Cooperation and Development(OECD).

25 Measures of internal efficiency may relate to (1) Staff efficiency: Student-teacher ratio, multi-grade teaching,multiple shifts, lengthened school week and school year. In general, the Bank emphasizes the benefits of alower teacher to student ratio (fewer teachers per class) and shifting expenses from salaries to training andeducational materials. (PSE, 59); (2) Reducing repetition and drop-out rates. (3) Efficiency of Facility Use:Percentage of time (day/week/month/year) facilities are occupied and (4) Construction costs: simplify designs,use appropriate materials and community labor while upholding safety and building standards. In contrast,external efficiency focuses on how education translates into jobs, promotes productivity gains, reduces povertyand increases social mobility.

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B. Recipes

As noted above, the Bank has five major policy prescriptions for the educational challengesof borrowing countries: Privatize;

Recover costs through user fees; Implement demand-side financing; and Decentralize Transfer subsidies from higher education to basic education.

The Bank packages such products in adjustment or project loans. Here are two typical Bankpolicy packages:

Package #1: Increase the private costs of higher education; reduce public financing ofvocational education; finance loans for low-income students; and transfer public resourcesfrom higher education to basic education.

Package #2: To improve resource utilization, the borrowing government should: decentralizeby establishing school-based management; offer families a choice of schools; involve theprivate sector in financing and service delivery; increase class size; provide incentives forteacher achievement; and monitor educational outcomes and achievement.

Each policy prescription is defined and described as follows:

1. Privatize

Definition:

To some, privatization connotes transfer of ownership of education facilities from governmentto private or non-governmental entities. Here, the term is intended to encompass ALLaspects of private sector and non-governmental involvement in education. Privatization caninvolve the transfer from public to private hands of:

Ownership of education facilities and other assets, Financing, Management, and Delivery of education services.

Some estimate that private investment accounts for a third of education spending globally

while public investment accounts for two-thirds of spending. In fact, there are insufficientdata to know this with any degree of certainty.

World Bank Group strategies. The World Bank Group [including the private sector affiliate,the International Finance Corporation (IFC)26] emphasizes three options for public-privatecollaboration in education:

26 The IFC committed to seven education projects in FY98, 5 of which are located in West Africa.

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Private schools subsidized by public money, Public schools which are privately managed, and Parental choice, which often involves providing parents with vouchers which permit them

to choose their childrens schools.

The share of private sector investment. The proportion of total spending from privatesources ranges widely: Haiti: 80%; Hungary: 6.9%; India: 11%; Kenya 38%; Uganda: 57%;Venezuela 27%. However, 90% of primary school students are enrolled in public educationsystems. (Priorities & Strategies, p. 53-55).

Some governments, such as Indias, have systems for supplanting private financing withpublic financing. In Indias Maharashtra State, the government will absorb costs of fundingschools after they have scored high on key capacity building areas.

Boosting privatization of education through output-based aid schemes. Increasingly,

education systems will be administered through output-based aid (OBA) schemes, in which thegovernment delegates service provision to private (or non-profit) providers and compensatesproviders only after services are delivered (e.g., after students pass standardized tests).

Output-based aid focuses on achieving measurable results. In education systems in the U.S.and elsewhere, student achievement, as measured by success on standardized tests, isconsidered an output or a result. But in the U.S., student achievement has not beenimproved after almost a decade of obsessive focus on standardized testing. Even when schooldistricts use performance contracting to hire and pay private firms to produce a single output(e.g., higher test scores), firms do no better than public schools. Hence, the growing, large-scale resistance to the emphasis on standardized testing by parents and educators. What is

surprising at first is that outputs massive levels of standardized testing have not redirectedfunding within education systems in any significant way. The sector has been beset withconfusion about what criteria to use in order to award funding increases to high-performing orlow-performing schools.

The chances of poor people receiving services through output-based schemes are poor for ahost of reasons, including:

The difficulty of targeting subsidies and leakage, or capture, of subsidies by well-to-do groups. For instance, the bureaucratic apparatus needed to conduct means testing inorder to target subsidies and exemptions has, in some cases, been shown to cost more than

subsidies, themselves. The incentives for private providers to pocket subsidies or inflate losses, (e.g., provide

low quality or no service). The lack of regulatory mechanisms, which can oversee and enforce OBA contracts and

ensure that services are delivered in acceptable ways. The lack of judicial mechanisms that permit poor users to appeal or seek recourse when a

contractor fails to deliver services in the specified manner. It is unrealistic for the PSD

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Strategy to assume that an arms-length relationship will exist between borrowinggovernments and service providers

The fiscal liabilities assumed by the public sector when OBA schemes fail. Resistance to foreign service providers. Increasingly, contractors in output-based aid

schemes will be international or foreign service providers, which will exacerbate cultural

conflicts, access, affordability and accountability problems. Usually, domestic serviceproviders will lack the deep pockets for up-front financing for health, education or waterservices, as required by OBA schemes.

Social Funds. One way of devolving government responsibility for education is the SocialFund (SF). As noted earlier, SFs channel monies to local communities for small-scaleprojects to reduce poverty by, among other things, delivering social services and creating

jobs. SFs were originally designed to accompany adjustment programs in Latin America.Because the SFs bypass government bureaucracies, they sometimes offer speedy services.However, SF programs fail to coordinate their activities with those of government ministries.They can also cater to special interests.

SFs have become widespread. The Bank has helped to establish Social Funds in 22countries, including Bolivia, Cameroon, Ethiopia, Honduras, Senegal, Uganda, and Zambia.Funds generally pool resources from multiple donors and creditors.

Examples:

Chile. Beginning in 1980, the government provided incentives for private schools to competewith public schools by providing vouchers for both. The percentage of subsidized privateprimary school enrollment has doubled and stands at a third (33%).

Colombia. British Petroleum, in partnership with the government and in association with aWorld Bank-financed project, is setting up pilot projects in municipalities to establishintegrated family care centers. British Petroleum is involved in large-scale oil exploitation invarious parts of Colombia. Colombia has also initiated a Bank-supported program to providevouchers (financed by the central and municipal governments) which students can use toattend private schools.

Pros:

Like private education, public education is often biased against the poor. In the case ofpublic or private provision, access to education for disadvantaged groups can requiresubsidies.

Unlike public systems that can run deficits, private systems must exercise financialdiscipline and still remain competitive.

Teachers unions can sometimes protect the employment and wage interests of publicteachers at the expense of other interests (e.g. recurrent expenses, such as materials andtraining).

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In some countries, the public sector provision of education is highly inefficient and poor inquality. These deficiencies reduce demand for education.

Cons:

The responsibility of federal, state and municipal governments for oversight and

supervision of the education sector can diminish when education functions are transferredto the private sector. Output-based aid schemes and SFs often circumvent and undercutthe government. In turn, this can undercut achievement of education goals, such asuniversal primary education. Jones states that:

Fewer and fewer Bank loans by the end of the 1980s were free of the obligationsimposed by loan conditionality to promote the privatization of education through thebuilding up of systems of private institutions and the expansion of user charges in the

public sector. Bank-promoted subsidization of private schools increased, to questionablelevels when it was in clear danger of jeopardizing public commitments to educationalquality, in both public and private institutions. (249)

In theory, private school systems can foster greater financial accountability. However,where private schools are subsidized with public money, financial discipline can becompromised. Thus, World Bank support for private school subsidies has beencontroversial.

Private sector actors, which the Banks affiliate, the International Finance Corporation,calls edupreneurs, and non-governmental organizations are not always properlyequipped to provide high-quality formal educational services on a large-scale withfinancial accountability. Their niche is usually in small-scale innovation.

Private school systems can increase social stratification and rural/urban divisions.Children of low-income and racial or ethnic minority families are often ghettoized inpublic school systems that under-perform their private sector counterparts.

Sometimes poorly functioning systems, which are intended to subsidize the direct orindirect fees for private (or public) education via vouchers or other means, impede accessto education.27

Private teachers are usually not able to protect their interests through collectivebargaining.

To succeed, Social Funds require: strong project selection criteria; effective monitoringand supervision; and integration with government-provided services. Currently, theyconstitute a parallel delivery system. SF innovations, principles and technologies shouldbe mainstreamed into public sector programs. SFs should also address the capacitybuilding needs of local organizations. (Bigio, 6)

27 See description of problems with school fee exemptions in Lennock, Jean, Paying for Health: Poverty andStructural Adjustment in Zimbabwe, Oxfam Publications, 1994, p. 33.

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2. Recover Costs

Definition: The term cost recovery refers to: (1) The cost of constructing educationalbuildings and facilities. It is now common practice for such communities to absorb the cost of

constructing school facilities. In fact, this is the main kind of cost recovery at the primaryeducation level still officially sanctioned or advocated by the World Bank. The contributions offoreign aid to the capital costs of construction are widely criticized. Aid is blamed forexcessive costs for facilities that are often inappropriate to the needs of communities. (2)Textbook fees and the topping off of teachers salaries are commonplace. Formal tuition feesare uncommon at the primary school level. (3) The less visible costs to families involve: thecosts of travel to and lodging in proximity to schools and the costs of food and uniforms, orclothing. (4) There are also opportunity costs namely work which children cannot performat home when they are at school. In general, girls contribute more significantly to workaround the home than do boys. There is also the cash income foregone by children obtainingan education rather than working for pay. It is significant to note that families need to make

trade-offs with respect to the education of their children. Increasingly, secondary schoolsimpose more significant fees on families than do primary schools. Consequently, parentswho decide to pay the bill for one or more secondary school students may find the direct orindirect costs of educating a primary school student less affordable.

Examples:

Nicaragua. In the Bank-financed project which decentralized school management (seebelow, decentralization), parents equated decentralization, or participation, with theimposition of fees (cuotas) on impoverished rural families. The system became highlycontroversial and altered social relations inside the school (Fuller & Rivarola). Parents said:It is like the institution is privatizing itself. They now say education is no longer free. Youhave to pay for everything.

Oxfam International provides additional examples of how education charges constitute a taxon human development in Tanzania, Zambia, and Ghana.28

Pros:

In theory, cost-recovery schemes can waive fees for primary school and low-incomechildren.

In theory, recovery of costs can help ensure efficient and effective spending.

Cons: In practice, waiver and exemption systems often fail. Thus, for low-income families, fees

can be a barrier to school enrollment and completion.

Using both cost-recovery and demand-side financing mechanisms may be inefficientwhen a majority of the students in the locale or country are poor.

28 Oxfam International, Education Charges: A Tax on Human Development, November 12, 2001.

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Many countries have limited capacity to administer cost-recovery and demand-sidefinancing mechanisms.

3. Implement Demand-Side Analysis and Financing

Description of the Issue: In the 1990s, Bank-financed projects still emphasize the supply-side of education provision of buildings, materials and technology. However, increasingly,the Bank is conducting demand-side analysis (e.g. beneficiary or social assessment) toidentify problems that impede school attendance of girls, low-income students and othermarginalized or disadvantaged groups.

With the benefit of such analysis, education loans can be designed in ways that increaseschool attendance. For instance, in Turkey, a number of measures were taken to inducegirls to attend school, including: Construction, extension and rehabilitation of facilities especially those that can induce

attendance of girls (e.g. secure boundary walls, lavatories and female teacher housing). Provision of secure transportation to and from schools in areas where school closings

have led to consolidation. Introduction of flexible school schedules, childcare policies allowing siblings to accompany

students, and provision of double shifts that make it easier for parents to forego girls helpat home.

Incentives to increase the number of female teachers in rural areas through provision ofscholarships, housing and hardship pay.

The Bank has also undertaken strategies to compensate families for the cost of theirchildrens education. Such strategies may involve: stipends (cash payments); community

financing (through monetary or non-monetary contributions); targeted bursaries (cashpayments that go directly to schools, municipalities or provinces); vouchers (usually publiclyfinanced cash payments); and scholarships.

In 1995, school drop-out rates in Brasilia were dramatically reduced when, Governor Buarqueestablished an innovative scholarship program. The program provided a stipend (or bolsa)equivalent to a minimum wage ($128 per month per family regardless of the size of the familyor the number of children in the family) to every low-income family with children aged 7-14.Eligible families were in the lowest quintile of the income distribution (with an income levelless than $50 per month per family member) and employed or searching for employment. Aschool savings program provided a deposit of approximately $90 into a savings account for

each child of a participating family who successfully completed a school year.

Enrollment statistics often mask demand-side problems. During the late 1980s, enrollmentswere declining for poor populations in Cote dIvoire despite the fact that net enrollments andeducation expenditures were increasing. In other words, increases in enrollments of non-poor children exceeded the decline among enrollments of poor children. The gap inenrollment and in educational progress widened between the non-poor and the poor,

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between urban and rural areas and between various socio-economic groups. (Grootaert,131)

In order to achieve universal primary education, it is essential to boost the DEMAND by poorfamilies for education by protecting and increasing incomes while, at the same time, boosting

the SUPPLY of education services to disadvantaged regions and groups.

Even after the significant declines in primary enrollments in the 1980s, the Bank is hesitantabout embracing demand-side solutions. A recent Bank publication,School EnrollmentDecline in Sub-Saharan Africa: Beyond the Supply Constraint, notes that between 1981 and1991, primary enrollment declined in at least 14 of 27 African countries surveyed. Itconcludes that declining incomes and employment opportunities MAY impact householddecisions and, therefore, the Bank should not assume inelastic demand for education. 29 It ispuzzling that the Bank is so TENTATIVE about this conclusion given the evidence about howdeclining income and employment opportunities influence the decisions, including educationdecisions, of poor families.

Demand-side solutions might include ensuring that: IMF and World Bank adjustment policiesdo not jeopardize livelihoods and diminish incomes; user fees are eliminated; and indirectcosts of schooling are covered by stipends and scholarships.

Until recently, the Bank only considered strategies to offset the indirect costs of schooling.To that end, it analyzed the effectiveness of funding student subsidy schemes to increaseenrollment among the rural poor in several countries, including: Bangladesh, Brazil, Pakistanand Tanzania.

Examples: The World Bank has instituted a variety of demand-side financing schemes in:Bangladesh (stipends for girls); Chad (Community financing); China (targeted bursary forpoor and minority children and free textbooks), Colombia (targeted bursary, voucher system);Jamaica (student loans); Mexico (targeted bursary for poor and indigenous populations);Pakistan (subsidies to private schools servicing low-income, rural girl students.

Pros:

Demand-side financing can reduce or eliminate family costs for schooling and raiseenrollment rates.

Where targeting of low-income children and/or girls is effective, demand-side financingcan enhance equity.

Cons:

The costs of applying for a waiver may be prohibitive. In Zimbabwe, families wererequired to travel long distances to apply for exemptions to fees. Furthermore, there wereoften long time lags (6-9 months) in benefit payments. (Watkins, WIDER, 1997)

29 See Bredie, J.W.B. and Beeharry, G.K., School Enrollment Decline in Sub-Saharan Africa: Beyond the SupplyConstraint, World Bank Discussion Paper #395, 1998.

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Financing may only compensate a family for partial costs of schooling. Indirect costs ofschools (e.g. transportation, clothing, foregone income) may be prohibitive.

Stipends may be misused or siphoned off. A social stigma may be attached to children in the populations targeted for assistance. Systems may be difficult to administer.

4. Decentralize

Definition: Decentralization entails devolving the responsibility and/or the operations of theeducational system from the federal government to subsidiary levels of government, such asstates and municipalities.

In some countries and regions, such as Latin America, centralized control over schoolfunding, curricula and personnel issues is seen as a remnant of colonialism.

Examples:El Salvador: The EDUCO (Educacion con Participacion de la Comunidad) decentralizeseducation by strengthening direct involvement and participation of parents and communitygroups. It was conceived as a way to expand access to education for children in remote ruralareas. The program has had discouraging educational outcomes. (Jimenez, Sawada)However, it did lead to higher teacher attendance rates. (See Impact Evaluation ofEducation Projects: Decentralization and Privatization Issues in The World Bank ResearchProgram, 1998.)

In the Brazilian state of Minas Gerais, decentralization shifted responsibility for decision-making from the state capital to school boards headed by an elected principal and composed

of equal numbers of parent representatives and school staff. Educational standards haveimproved and drop out and repetition rates have dramatically declined. (See UNICEF Stateof the Worlds Children Report, 1998.)

Nicaragua decentralized management and budget decisions to local school councils(consejos directivos). The theory was that greater responsibility on the part of parents,teachers and school administrators would result in greater accountability, which would raiseschool achievement. Data also show that passing authority to the schools, which were unableto squeeze sufficient fees from poor families, created conflict. Many parents resented theimposition of fees (cuotas). In addition, there was insufficient parental participation,confusion over who actually had the power to hire and fire teachers, poorly functioning

teacher incentive systems, and insufficient responsibility on the part of directors for improvingpedagogical methods or monitoring school repetition and drop-out rates or achievement.When asked what decentralization meant to them, parents said:

* We are responsible for higher cuotas [to pay] for electricity, the water, the phonethisis what autonomy means to me.

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* Now the Government is no longer sending the amount of resources the institutionneedsnow the burden is on our shoulders.

* Teachers said, During the [decentralization] workshop we were told that we shouldask parents for a cuota of 5 cordobas, but we should say it is voluntary. (Fuller & Rivarola,

1998)

Pros: Decentralized governments are expected to be: more efficient in responding to demands for the delivery of services, more flexible in adapting to changing local circumstances, and more accountable to the local population than are centralized governments.

The Banks Vice President and Chief Economist for the Latin America and Caribbean regionsummarize the pros of decentralization this way:

Because local governments are better than national governments at recognizing theneeds and preferences of local residents, and because local governments are at leastas efficient as national governments at delivering public goods that benefit only localresidents, it will be more efficient to have local governments provide the optimal levelof public goods in each local jurisdiction. Local governments can be expected to bemore efficient than national governments because local residents may find it easier tohold accountable local, as opposed to national, officials. (Shahid Javed Burki andGuillermo Perry, the Vice President and Chief Economist of the Banks Latin

America/Caribbean Department, The Long March, p. 81)

Cons: The federal governments responsibility for oversight and supervision can diminish when

functions are devolved to lower levels of government.

Many localities lack the capacity or the resources to implement decentralized educationprograms. In addition, many localities become overloaded as the federal or stategovernment devolves an increasing number of responsibilities.

Decentralization cannot increase equity unless state and local governments are equitableand transparent and possess adequate resources for expanding access to schools,especially by children from low-income families and from ethnic and racial minorities.

Inter-American Development Bank literature acknowledges the need for suchpreconditions.30

30IDB, Latin America After a Decade of Reforms says that various circumstances that must converge in order

for decentralization to serve the people, including: (1) local officials are elected, the democratic process workswell enough to provide sufficient electoral discipline; and decisions are more visible and accountable; (2) localgovernments have institutional capacity to handle their expanded responsibilities; (3) the decentralizationarrangements between different levels of government are clearly specified; and (4) there is a correspondencebetween the costs and benefits of government programs. ( p. 156)

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In Nicaragua, decentralization was viewed as an attempt to undermine teacher rights,

wages and job security.

It is difficult to monitor and evaluate decentralization efforts.

5. Transfer subsidies from Secondary and Higher Education to Basic Education.

The Bank places a higher priority on allocating budget resources to primary education than totertiary education.

Primary education can contribute to benefits at many levels: individual, family, communityand society. As described in the Banks 1980 World Development Report, primary educationcan increase human potential and social cohesion while improving health, reducing fertility,and boosting income generation potential.

Policy-making should emphasize basic education. In developing countries as a whole, 71%of school age children share just 22% of public resources for education; 6% in highereducation use 39% of public resources. (PSE, 63)

The cost of primary education is low relative to tertiary education. In Tanzania, the cost ofsending one student to university is equivalent to the cost of sending 238 students throughprimary education. While that statistic is telling, it is also true that a university student mayhelp govern the nation or become a private sector entrepreneur in the near term.

European and North American countries provided heavy subsidies for higher education,

although they also guaranteed universal education at an early date.

The worlds job market is quickly bifurcating dividing workers into skilled and unskilledcategories. In order to compete in a global market place, developing countries must buildupon a strong primary school foundation by expanding enrollments in secondary, vocationaland higher education.

Methodologies for calculating rates of return to different levels of education are fraught withproblems. They involve dividing the benefits of education (measured in projected annualincome of a student) by the lump-sum cost of her education (tuition, expenses and foregoneearnings during school years). These private rate of return calculations have limited

application, e.g. setting tuition or scholarship policies. However, the methodologies are stilltoo primitive to use in policy making. Important factors still defy calculation, such as: variablestudent abilities, variable quality of instruction, and in-kind earning potential.

Social rates of return attempt to measure the benefits of education to society at large.World Bank calculations show that social rates of return are high in the primary years anddecline thereafter (PSE, Psacharopoulos, 22). These methodologies are also rife withproblems.

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The World Banks researchers have studied the question of how education contributes togrowth and found that the greatest needs for expanded education at a given level varies fromcountry to country. (Lopez, R., Thomas, V., and Wang, Y., Solving the Education Puzzle:Economic Reforms and Distribution of Education, 1998)

But, the Banks operations are a different story. In its operations, the Bank generally stressesthat borrowers must shift budget expenditures from higher education to basic education. Atthe same time, the Bank exerts pressure on governments to institute significant user fees atnoncompulsory levels of education. Citizens in many countries feel that Bank is contributingto a gutting of secondary and tertiary education systems. Many citizens would prefer thattheir governments shift resources from other sectors (e.g. military) into primary educationsector rather than slashing spending for secondary and tertiary education.31 Many citizensfeel that the Bank oversteps its authority when it attempts to veto a domestic consensus infavor of significant support for higher education? Even the Banks Board of ExecutiveDirectors (e.g. the 1995 sector review discussion) has expressed opposition to the strong

emphasis on transferring subsidies from higher to basic education.

In a study commissioned by the Bank32, African advisors recommended that:

The Bank needs to review its policies of not making loans available for higher education.Although higher education in Africa is expensive and not very effective, this should be anargument in favor or reform rather than a reason for neglect. Indeed, the Bank shouldinvestigate mechanisms for channeling resources to higher education to ensure at least theexistence of a limited network of good universities in the region. Ways should be found toallocate resources to universities on a competitive basis. For instance, resources could beallocated according to proposals submitted by the universities aimed at improvingperformance. Preference could be shown for imaginative programs that enhance auniversitys prospects. In addition, bursaries could be provided for students to use at theuniversities of their choice. The bursaries could function much like a voucher system, withuniversities competing for the fee-paying students.

Social scientists and economists could try to forge methods that do not understate the realcost of education (which is highly subsidized in most countries) and understate the benefits ofeducation. However, attempts to put a price on externalities, such as the contribution ofeducation to social cohesion, good citizenship, well-functioning institutions or individualfulfillment may prove as illusive as valuing the beauty of a pristine forest instead of its valueas timber. Likewise, the types and costs of dysfunction, which arise from the lack ofeducation (e.g. famine, social breakdown, and war), are incalculable.

31 One Brazilian member of Congress assailed the Banks short blanket philosophy of education financing namely that the blanket can cover the head (higher education) or the feet (primary education) but not both.32Partnership for Capacity Building in Africa: A Report of the Working Party on the Impact of Bank Policies,Instruments and Operational Practices on Capacity Building in Africa, October 1996, p. xiv.

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III: IMF and World Bank Approaches to Structural Adjustment

A. Overview

The Bank has worked in the education sector since 1962. For the first eighteen years (1962-

1980), the Banks goal was to support construction and equipment for technical, vocational,and secondary education in order to meet manpower needs.33 There were majorperformance problems in the portfolio.34

1980 was a pivotal year. From 1980 onward, Bank-financed education operations were oftenundertaken in the context of structural adjustment programs (SAPs). The conditions attachedto adjustment loans require governments to take actions intended to help achieve fiscalequilibrium and macroeconomic stability and stimulate growth. SAPs aim at such outcomesby restricting domestic demand and expanding production of exports. Typical SAP measuresinclude: downsizing or decentralizing government, devaluing the currency, removing importbarriers, providing incentives to exporters, reforming the tax or legal system and revising

labor codes.

SAPs have not generally improved economic performance. In fact, in most of the developingworld (with a few exceptions, notably China) per capita income growth in the period 1980 1997 (after SAPs were introduced) is much lower than per capita income growth in the 1960-1980 period (before SAPs were introduced). From 1960 to 1980, there were increases inprimary and secondary school enrollment in nearly every country. But declines in schoolenrollments began in about 1980 and grew during the decade.

SAPs exacerbated the gap in per capita income (GNP) between the countries with the richestfifth of the world's people and those with the poorest fifth. This gap widened from 30 to 1 in1960, to 60 to 1 in 1990, to 74 to 1 in 1995.35 There is also a disturbing pattern of wideningincome inequality within countries, which among other things, spawns political and socialunrest.

Critics contend that SAPs frequently cause substantial short-term pain and hardship for poorand vulnerable groups offset only by a promise of long-term gains that may or may notmaterialize. In other words, adjustment may not always produce economic growth and, if itdoes, the benefits do not always trickle down to poor people. In fact, many NGOs contendthat vulnerable groups, such as poor people and women, are often disproportionately hurt byadjustment and receive no tangible benefits. Even when the costs of adjustment are widely

33 There were major problems with operations. Thus, the Banks first education policy paper was issued in1971, directing that analysis of the education sector should precede investment lending. The purpose ofeducation lending was also expanded to include software, curriculum development, and administrative andmanagement support.34 Regarding capital investment in diversified secondary schools, Haddad reported that Completed buildingswere considered inadequate in quality and educational relevance in 40% of the projectsSimilarly, almost allprojects faced problems in the acquisition of equipment.There were also major problems in the provision andutilization of laboratories and workshops (Jones, 253)35 www.challengeglobalization.org/indx.shtml

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shared, SAPs may bring disappointment to upper-income groups, but hunger and higherrates of mortality to low-income groups.

Incomes, especially those of low-income populations, are vulnerable due to a variety ofdynamics: competitive pressures can bid down wages; union bargaining power can diminish;

budget cuts often retrench civil servants, cut subsidies for basic staples, cut pension andsocial security benefits. Tight credit can reduce consumption and investment. Privatizationof services can raise costs.

The World Bank sometimes pressures a developing country governments to accept a paceand/or sequence of adjustment measures that exposes local enterprises to internationalcompetitive pressures in imprudent ways. While competition is a worthy value, it is importantthat the structural advantages of transnational corporations are not systematically reinforcedat the expense of local enterprises.

State-owned enterprises have often been grossly inefficient, sometimes subsidized by taxes

on low-income agricultural producers. But privatization sometimes creates privatemonopolies or competitive systems that do not service regions in which the majority of poorpopulations are located. In addition, when user fees are imposed to recoup costs of primaryhealth care and basic education, there is evidence that some poor people can no longerafford to pay for services.

As a result of SAPs, borrowing countries are increasingly dependent on export revenues tobalance their accounts. When Northern demand plummets, as has been the case in 2001-2002, then developing countries suffer disproportionately as described by a 2002 report bythe UN Economic and Social Affairs Department:

For the developing countries and economies in transition, global linkages haveamplified the impact of the vicissitudes in world economic growth in the past fewyears...Moreover, the impact has often been asymmetric, with most developingcountries tending to benefit less than the leading developed economies in the upturns,but suffering equally, or more so, in the downturns.

In the late 1980s, when the World Bank and IMF acknowledged that, in some countries, thenegative social impact of SAPs was not only a short-term concern, but also a medium- and/orlong-term concern, safety nets or conditions protecting social spending were sometimesattached to SAPs.

It is taking many years for the Bank to come to grips with the social impact of adjustmentbecause the institution is quite schizoid. Its identity as a bank is often at odds with its identityas a development institution. One finds this reality reflected in the Banks internal operations.The right hand of Bank economic reform appears to be poorly informed by the activities of

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the left hand of social development and vice versa. In other words, the Bank is comprisedof worlds within worlds that often do not intersect.36

Like education sector reforms, SAPs are often administered in a top-down way. Manyborrowing country officials accuse the IMF and Bank of undermining government capacity by

their heavy-handed, single-minded style of operating:

it could be suggested that the low morale of the civil service in many African countrieswas an unintended result of structural adjustmentFurthermore, the Bank onlyconsiders it has achieved success in its SAPs when the loan conditions result in

policies that would not otherwise have occurred. This hinders the use anddevelopment of local capacity and results in a paradoxical outcome: key decisions aremade by donors who, at the same time, emphasize the importance of policies beinglocally owned.37

Methodologies for detecting the impact of SAPs on education are rife with problems. Below,

we identify flaws in the methodologies used by the Bank and the Fund. However, even withresults, which appear to be biased, the Bank identifies declining primary school enrollmentsas a consequence of adjustment during the 1980s.38

One of the few educators to study the impact of adjustment on education, Fernando Reimersof the Harvard Institute for International Development, compared adjusting and non-adjustingcountries during the 1980s and found that drops in net enrollment rates were twice as likely inadjusting countries as in non-adjusting countries. (Reimers, 127)

Increasingly, the Bank attached conditions to SAPs stipulating that social sector budgets beprotected. However, many of these conditions were discretionary, not binding, as discussedin the next section.

Box 2

Primary Educations Share of Public ExpendituresDeclines in Many Adjusting Countries in the 1980s*

1975 1980 1985 Recent Year

36 The history of the Banks Social Development Task Force reflects a sharp divide between the Bankseconomists and non-economic social scientists (NESSies). Many of the conflicts between the two groupsrevolved around the question of whether economic policies should be normative or non-normative.37Partnership for Capacity Building in Africa: A Report of the Working Party on the Impact of Bank Policies,Instruments and Operational Practices on Capacity Building in Africa, October 1996, p. x.38 The 1992 Poverty Reduction Handbookciting the World Bank PRE Working Paper #467, StructuralAdjustment and Living C

how imf&wb influence 3rd world education

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