At the very outset it must be noted that the link between the provision of support either for development or balance of payments purposes and the adoption of the PRSP approach implies that the consultation process that leads up to the PRSP is not completely a voluntary phenomenon. Further, inasmuch as many countries were in urgent need of support in the aftermath of the adoption of the approach by the Fund and the Bank, there was not much time to have genuinely broad-based and participatory consultations, even taking account of the fact that the Bank and the Fund provided for an Interim-PRSP as a first step in the completion of the process. This pressure to go through with the PRSP process to access support could also have in some contexts served as a means by which governments avoided any genuinely participatory process of consultation.

Conditionality and ownership

Besides these reasons, there are other strong grounds for expecting that a genuinely broad-based discussion of the strategy to be incorporated in the PRSP could not occur. For example, it is not clear why a poverty reduction strategy that can be truly classified as nationally owned would be necessarily acceptable to the IMF and the World Bank. But Bank-Fund acceptance is a necessary condition for a country's PRSP to be approved. As a July 2001 World Bank document made clear: "A Joint Staff Assessment (JSA) evaluates the soundness of each PRSP, and accompanies the PRSP to the Boards of Executive Directors of the World Bank and IMF. This document is an assessment of whether or not the strategy presented in the PRSP constitutes a sound basis for concessional assistance and debt relief from the IFIs." That is, the Fund and the Bank are the final arbiters of the soundness of a PRSP. Thus, the adoption of the PRSP approach does not imply that loan-conditionality as a policy is being given up by the Fund and the Bank.

Inasmuch as conditionality requires the country concerned to adopt a set of development policies that the Fund and the Bank consider to be most appropriate, given its circumstances, there is an obvious contradiction between the notions of conditionality and ownership as the terms themselves suggest. The only circumstance when this need not be true is if there is consensus among the Fund, the Bank, the government and civil society, about what is the appropriate package of policies to be adopted by a particular country at a particular point in its history.

The reason why Fund-Bank conditionality has not been acceptable in the past is that there has been no such consensus. Despite the lack of it, governments have adopted versions of Fund-Bank type neo-liberal policies because of the influence of the Bretton Woods institutions whose strength derives from their direct and indirect control over the flow of foreign finances. They directly exercise such control because the Fund and the Bank themselves were and are important multilateral donors with substantial budgets. Their indirect control is explained by the influence that Fund-Bank perceptions of a country's strategy can have on the access of that country to private foreign financial resources.

The Bretton Woods institutions had realised quite early the problems involved in ensuring "ownership". A 1998 IMF External Evaluation of the Enhanced Structural Adjustment Facility (Report No. EBAP/98/8) declared that the challenge was to find ways "to foster strong country ownership, and at the same time provide adequate assurances to both multilateral and bilateral sources of financial assistance that their resources will not be wasted." At least in principle the BWIs argued that "the solution lies not in limiting ownership to borrower countries' adoption of what donor's want, but in finding ways to enable recipients to develop and build consensus behind programmes capable of achieving sustainable growth." This was just a way of brushing the problem under the carpet, because it is being presumed that there is agreement on which programmes are capable of achieving sustainable growth. It is the lack of such agreement, rather than the lack of knowledge regarding any single set of policies, that explains the lack of consensus that leads up to programmes being donor driven.

In fact, the "partnership" notion included in the Comprehensive Development Framework is likely to increase the donor-driven nature of country programme, since it involves coordination among donors. The proliferation of donors, programmes and projects, it is argued, puts a heavy burden on the limited managerial expertise of developing country governments. Further, it is held, the "collection of aid activities of a variety of donors in a particular country may not be adding up to a coherent contribution to development."

The problem with this argument is that it presumes that developing country governments do not have the capacity to manage their own agenda. If they did, the multiplicity of projects in an area can be dovetailed into an overall plan that the government/country owns. Further, inasmuch as there are "competing" donors, the ability of a government to hold to its own agenda would be substantially greater. Allowing donors to coordinate could result in a situation where donor- or developed-country preferences have an undue influence on the developing countries' policy regime. Partnership can effectively be the partnership of donors in imposing these preferences, as has been the case in many contexts. It is not that that the World Bank is not aware of this. Its "Partnership for Development" document of 1998 listed among the challenges likely to be faced by its approach the following:

The Bank-Fund position enters the PRSP-based "poverty reduction strategy" through a three-step process. First, it is presumed that ensuring high and stable growth is a prerequisite for poverty reduction. Second, it is presumed that growth is predicated on maintaining a "stable macroeconomic environment" in the sense that the Bank understands it and establishing a climate conducive for private investment, especially private foreign investment, which is expected to be a lead factor in growth. Third, the set of policies prescribed to stimulate growth, is a package of "adjustment" measures involving external and internal liberalisation of the real and financial sectors as well as privatisation aimed at expanding the role and increasing the operational flexibility of the private sector.

To ensure that these steps are adhered to, the Bank and the Fund require that the PRSP approach should be "comprehensive". As one World Bank document put it: "Since poverty is complex and multidimensional, the strategies should be comprehensive, and should include plans for rapid economic growth, sound macroeconomic policies, structural reforms, and social improvement."

The growing dissent with Bank-Fund policies stems from two aspects of the experiences with implementing the "sound" macroeconomic and adjustment policies that the Bank and the Fund recommend. First, the package is seen as promoting growth only in exceptional circumstances. The norm, it is argued, is that this kind of a package tends to be deflationary in its impact. Second, even to the extent that growth occurs, such growth, it is held, tends to be inequalising and/or inadequately effective in reducing poverty

Experience indicates that independent of the circumstances affecting the country concerned, the Fund-Bank strategy has as its medium-term goals the realisation of the following: an open trade regime based on unilateral liberalisation involving removal of quantitative restrictions and reduction of tariffs; a high degree of currency convertibility; the abolition or substantial curtailment of deficit financing based on strict limits on government spending, cuts in subsidies and imposition of user charges for provision of crucial public services such as water, sanitation and primary health servcies; incentives provided through the taxation route for private savings and investment; greater autonomy for the central bank and a greater reliance on monetary rather than fiscal measures in economic policy; a substantially liberalised financial sector; and removal or substantial dilution of any regulatory measures aimed at influencing private decisions with regard to investment, production and pricing. Early analyses of policies included in PRSPs in Africa point to the presence of such policies in all countries, irrespective of size and circumstance.

Closer home, in Asia, where the PRSP process was initiated slightly later, the experience has been no different. For instance, in the draft PRSP prepared in Bangladesh, not only were the policies typical of the structural adjustment programme, the route by which they were arrived at was also by no means participatory. According to one assessment by a civil society organisation, "The current process more or less excludes a range of groups whose active support and participation is critical if the PRSP is to generate the kind of outcomes as envisaged. While the Taskforce's activity plan outlines consultations with a number of groups, it is argued that such `consultations' are seen by the Taskforce more as a technical requirement to legitimise the PRSP and thus access loans than as a genuine participatory process to define national economic and social priorities. There are reasons to support such an argument."

In Vietnam, which completed its full PRSP process in May 2002, the objectives the paper seeks to achieve include:

creating an equal business environment for all types of enterprises from all economic sectors, including enterprises with foreign direct investment (FDI), with respect to their access to public services and business and investment opportunities; and

continuing with structural reforms to bring about a transformation of the nation's economic structure; reorganise, renovate and improve the efficiency of state-owned enterprises (SOEs); restructure the state budget; reform the commercial banking system, reorganise and strengthen the health of financial and credit organisations; continue with trade liberalisation, honouring international commitments made under the framework of AFTA; make good preparations for the country's accession to the WTO; realise bilateral trade agreements and so on, so as to raise the efficiency and competitiveness of the economy and meet the requirements for rapid growth and sustainable development.

In sum, the change that now appears to be touching the IMF and the World Bank does not involve any rethink on the nature of the strategy they advocated under their failed structural adjustment programmes. Rather, the emphasis is to change the manner in which these policies are introduced into developing countries, so as to ensure that even when they have extremely adverse growth and distributional consequences and increase external vulnerability, they do not erode the legitimacy of the IMF and the World Bank. The PRSP process does not reflect a change in policy belief or intent, but a shift in the method through which such policies are put in place in developing countries. It is above all the reflection of a new search for legitimacy.

However, there are two difficulties with this. First, the core macroeconomic and adjustment policies themselves are not conducive to maximising growth and welfare and do in fact tend to worsen inequalities. Second, even though there is a veneer of democracy and equality through partnership, the process in practice tends to involve a few prominent and "cooperative" NGOs and in terms of the formulation of the core of the strategy is concerned is as top down as conventional Fund-Bank conditionality.

Deflationary bias

THE problem on the ground is that while for most developing countries, large capital inflows to finance investment and growth are not an option, the policies recommended by the World Bank and the IMF to attract such flows are deflationary in nature and actually work to reduce the rate of growth of the system. The sources of deflation are many:

Further, Bank-Fund style stabilisation and adjustment policies can work directly to worsen poverty and increase deprivation. Deflation increases unemployment. Reduction in subsidies on food tied to fiscal adjustment increases the prices of food and affects real incomes. Increases in user charges for a range of physical and infrastructural services squeeze real incomes. And reduced expenditures on social services varying from water and sanitation to health and education can worsen an already poor quality of life. In sum, it is not just that Fund-Bank policies reduce growth and, therefore, affect the poverty-reduction effort, but in various ways they contribute directly to an increase in poverty and deprivation.

There are also other indirect ways in which the package can result in slow growth, rising unemployment and increased deprivation. For example, the adoption of a liberalisation package by a country dependent on primary product exports can result in its facing a decline in the prices of its principal exports, because that country and its competitors who are similarly liberalising, would be increasing supplies to the world market to earn the foreign exchange to finance their imports. This could affect farmers' incomes adversely. It could erode the government's tax revenues. And, by worsening the current account of the country's balance of payments it could force both a devaluation of the currency and a cut back in government expenditures aimed at reducing domestic absorption and curtailing imports. All of these are deflationary in character and would inevitably result in slow growth and increased unemployment.

Above all, some of the medium term effects of the Fund-Bank strategy can be extremely adverse from the point of view of reducing poverty and improving welfare. For example, it is known that agricultural liberalisation, by encouraging a shift away from production of staple food crops to exportable cash crops, has had devastating consequences for food security in much of Africa. And the already vulnerable situation there is worsened by policies such as those adopted recently in Malawi where food stocks were sold in order to improve the budgetary position of the government, ostensibly with encouragement from even if not under pressure from the IMF.

Put together, these problems with the typical Fund-Bank strategy imply that it fails to delver on the growth, poverty and welfare fronts. It is for this reason that these policies have been under attack. Yet, the "rethinking" underway in the IMF and the World Bank circles, which supposedly explains the Comprehensive Development Framework, the PRSP approach and the new guidelines on conditionality, has not involved any major rethink on the growth strategy itself.

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