Open letter to the G7 finance ministers

When the G7 heads of government met in Halifax in June 1995, leaders made a commitment to a series of measures to reform the Bretton Woods Institutions. The G7 called for the provision of multi-lateral debt relief for the poorest countries, the promotion of environmentally sustainable development and the reduction of poverty.

Seven years later, these promises are unfulfilled. The crisis of legitimacy confronting the World Bank and the IMF at the 50th anniversary of their creation led to the G7 to take up the reform of the international financial institutions (IFIs) in Halifax. As the G7 finance ministers return to Halifax, this question of legitimacy continues to haunt the institutions.

We address you as the practical powers governing the global economic system. In doing so, we must assert that the G7 is not the appropriate mechanism to decide on the roles and approaches of the International Financial Institutions.

The undemocratic systems and structures of the G7 and the IFIs create a democratic deficit in global economic governance. This deficit has been pointed out in many studies including one from the United Nations University, New Roles for the UN and the Bretton Woods Institutions (May 2001). We urge you to begin the re-structuring necessary to create and preserve a peaceful and equitable world.

The organizations signing this letter, all based in G7 countries, call on you, the G7 Finance Ministers, to make fundamental changes in the IFIs and the governance of the global economy. With increasing inequality, poverty, environmental stress, and frustration with an unjust distribution of power and opportunity, we believe we are echoing an imperative being voiced with increasing urgency around the world.

Debt

We will encourage: the Bretton Woods institutions to develop a comprehensive approach to assist countries with multilateral debt problems - 1995 G7 Communiqué

In 1996, one year after the Halifax Summit, the World Bank and the IMF announced the Heavily Indebted Poor Country (HIPC) Initiative, which was widely criticized for providing too little debt relief, to too few countries, too slowly, and with counter-productive conditions. In 1999, the G7 announced a reformed HIPC ( HIPC II) proposal at its summit in Köln, ostensibly to provide speedier, deeper debt relief. Yet, to date, only five countries have received the full amount of debt relief offered by the World Bank and IMF programme.

African countries alone spend US$15 billion each year repaying debts. The level of relief being offered under HIPC is far less than necessary to ensure stability, let alone ignite economic growth. Only 23 countries have even qualified for the programme and many of them are failing to meet the onerous conditions attached to the debt relief program. The HIPC Initiative is not working. The HIPC Finance Ministers note this in their London Declaration of March 2002. The World Bank and IMF's own report on the HIPC Initiative, tabled at the Spring meetings, April 2002, documents the deterioration of external debt levels. The former Canadian Finance Minister, Paul Martin, has called for a serious review of the HIPC Initiative. We believe that you, the G7 Finance Ministers must agree to Mr. Martin's proposal, but that you should also go further.

You, the Finance Ministers, should come forward with a new recommendation in Halifax, calling for the comprehensive cancellation of debt claimed by the IFIs of the most impoverished countries.

While impoverished countries need immediate cancellation, other developing countries also face difficulties with debt. We need new approaches in international debt management that strongly favour the prevention of debt crises and which recognize the responsibility of all parties involved. An international debt arbitration mechanism must have the authority to assess and cancel illegitimate debts and not just write down unpayable debts as does the HIPC mechanism.

Illegitimate debts include: debt that cannot be serviced without causing harm to people or communities, odious debts incurred to strengthen despotic regimes, debts contracted for fraudulent purposes, debts whose proceeds were stolen through corruption, debts for failed projects and debts that became unpayable as a result of a creditor unilaterally raising interest rates.

We urge you to call in Halifax for the multilateral institutions to accept their share of responsibility for the debt crisis and to write off the debt owed to them by the poorest countries, as it is illegitimate.

We urge you to ensure that any debt arbitration mechanism is independent of all creditors, including the IMF, is statutory, and addresses the issue of illegitimacy.

Environmental Sustainability

We will work with the organizations and all their members to ensure relevant multilateral institutions make sustainable development a central goal of their policies and programmes, including by intensifying and deepening the integration of environmental considerations into all aspects of their programmes. - 1995 G7 Communiqué

We will encourage the World Bank Group to integrate more effectively the activities of the International Finance Corporation and the Multilateral Investment Guarantee Agency into its country assistance strategies - 1995 G7 Communiqué

The World Bank Group has failed to mainstream environmental sustainability into IFI policy and operations. The private sector lending arms in the Bank, especially MIGA, have failed to commit to support projects that reduce poverty and environmental degradation. The World Bank continues to finance environmental disasters. The Operations and Evaluation Department of the Bank, in its report Promoting Environmental Sustainability in Development, confirms, "The Bank has done little institutionally to promote, monitor, or otherwise make mainstreaming happen."

In response to one of the gravest threats to our security, climate change, the Bank continues to lend vastly more for fossil fuels than renewables. The ratio of fossil fuel funding to funding for clean, renewable sources of energy is approximately 20 to 1. The Bank has even rejected calls to set specific targets for support for renewables. Although it supported the World Commission on Dams from it's beginning, the World Bank has explicitly refused to commit to its recommendations. The newly launched Extractive Industries Review appears also to be an exercise in managing rather than addressing criticism, and the process's independence from the Bank has been seriously compromised.

We urge you to call on the multilateral organizations to take into account the environmental and social impacts of all their programmes and to phase-out support for destructive oil, gas, mining and dam projects.

Poverty

An overriding priority is to improve the plight of the world's poor. Persistence of extreme poverty and marginalization of the poorest countries is simply not compatible with universal aspirations for prosperity and security. - 1995 G7 Communiqué.

We encourage the IMF and the World Bank to concentrate on their respective core concerns (broadly, macroeconomic policy for the IMF and structural and sectoral policies for the World Bank). - 1995 G7 Communiqué.

The IMF and the World Bank continue to undermine the quest by impoverished peoples for sustainable and dignified lives. The most obvious problem is the institutions' adherence to specific economic and fiscal policies that have had negligible or negative impacts on poverty.

Although the Structural Adjustment Participatory Review Initiative, conducted jointly by governments, the Bank, and civil society organizations in about ten countries, found that the root causes of poverty include the impact of governments' efforts to adhere to policies of trade and investment liberalization, privatization and cutbacks in government spending, there has been no change in lending portfolio or decision-making processes of the World Bank and the IMF.

Macroeconomic policy, which has an enormous impact, remains outside of the Poverty Reduction Strategy processes: for all the talk of participatory approaches to development, civil society organizations are simply excluded from discussions of the key policies. Recent studies on the PRS process in different countries document problems with participation, accountability and ownership.

Appropriate means of stimulating growth and stabilizing the macroeconomic framework have been conspicuously absent from PRSP discussions. The World Bank and the IMF, in their report on the PRS process, urge PRSP countries to recognize the primacy of the private sector for growth and the desirability of trade openness, a strategy that many observers feel is at best unproven.

The IMF undertook a "Streamlining Conditionality" review but made no commitment to ensure that its core conditions do not worsen poverty. Whereas the Bank and the Fund have adopted a new "User Guide on Poverty and Social Impact analysis"(PSIA), in response to NGO calls, it is neither a minimum standard for staff, nor operational policy. The IMF continues to condition stand-by arrangements and the Enhanced HIPC programme on conditions such as privatization.

The Finance Ministers of HIPC countries made several recommendations on this issue in their London Declaration, March 2002, such as allowing for flexible approaches to macro-economic stability and dramatically accelerating PSIA that the G7 Finance Ministers should address.

We urge you to call on the World Bank and IMF to end requirements for structural adjustment (programmes) or conditions that have negative impacts on the poor and the environment.

We urge you to call for the effective incorporation of respect for human rights, including labour rights and other social, economic and cultural rights as defined by accepted United Nations guidelines, into the programs and conditions of the international financial institutions.

Africa

Sub-Saharan Africa faces especially severe challenges. We will work with others to encourage relevant multilateral institutions to: focus concessional resources on the poorest countries, especially those in Sub-Saharan Africa, which have a demonstrated capacity and commitment to use them effectively, [and] direct a substantially increased proportion of their resources to basic social programmes and other measures which attack the roots of poverty. - 1995 G7 Communiqué.

While we applaud the priority given by the G7 governments to an African-led economic plan for Africa, we are concerned that donor pressure will continue to foreclose the possibility of approaches that depart from the current economic orthodoxy.

We call on the G7 Finance Ministers to pledge good faith support to an economic strategy designed by Africans, including full consultation and cooperation with a broad range of civil society organizations.

We further call on you to support African development with comprehensive cancellation of the debt claimed by the World Bank and the IMF in order to free resources for basic social programmes and other measures which attack the roots of poverty, an end to structural adjustment and similar conditions, and support for diverse development paths premised on a strategic rather than open integration into the global economy.

Since the G7 last met in Halifax, promises to reform the International Financial Institutions remain unfulfilled. As a result, the global crisis of poverty, inequity and environmental devastation has continued to worsen. Canceling the debt, ending structural adjustment and integrating sound sustainable approaches to the environment into development are imperatives for addressing this crisis. On-going delays to serious reform of the Bretton Woods Institutions are scandalous in the face of G7 declarations promising help for the poor and the environment.

Finally, if the institutions are to begin to reverse the damage done to their legitimacy by their manifest failures, the governance of the institutions must be changed to ensure equitable participation and full transparency. Calls for "good governance" from the IFIs or the G7 will continue to be received as pure hypocrisy until the extreme power imbalances at the root of our global economic system are redressed.

Sincerely,

Pamela Foster
Halifax Initiative Coalition
on behalf of all the partner organizations