The Front

Norway Nixes World Bank

In protest against the conditions the World Bank attaches to its lending, the Norwegian government announced in December it will withhold 25 percent of its originally planned increase in financial support to the Bank. Norway made the announcement at a meeting of the International Development Association (IDA), a lending arm of the World Bank for the world's poorest countries. It will withhold approximately $4 million of the $15 million in additional funds it planned to commit to IDA.

"We are still not completely satisfied with the progress of the World Bank as regards adherence to its conditionality principles," says Håkon Arald Gundersen, Norway's deputy minister of development. "That is why we have reduced the increase. Instead, Norway will use some of this amount to put the Bank in a better position to assess the social consequences of its policies, by financing [a] Poverty and Social Impact Analysis. Even though the Bank already undertakes a certain number of such impact analyses, extra efforts and extra pressure are needed."

World Bank loan conditionalities are attached to a wide range of loans and largely center on the liberalization of trade, deregulation and privatization. Critics contend that they frequently wreck havoc on a developing country's fragile economy. Failure to comply with conditionalities may result in the loss of financial support by the Bank.

Norway kept its commitment of funding the Multilateral Debt Relief Initiative (MDRI), but didn't give additional funds, says Jostein Hole Kobbeltvedt, global economy advisor for Norwegian Church Aid, a not-for-profit organization which actively campaigns against the World Bank's heavy use of conditionalities. "The only increase made was what they were obliged to do through the MDRI agreement," he says.

The World Bank downplayed the move, pointing out that Norway's contribution increased in real terms. "There's not a lot of drama in that," says Jakob Kopperud, World Bank external affairs counselor for the Nordic countries. "We have an ongoing debate and discussion with, amongst others, Norway, about conditionalities."

In 2005 the World Bank conducted a review of its conditionality policy and developed five "Good Practice Principles" (GPPs) intended to govern the way the Bank applied conditionalities. These GPPs ranged from reinforcing country ownership, to customizing conditionalities to individual countries, to choosing only those conditionalities necessary to achieve results.

A November report by the European Network on Debt and Development (Eurodad) found that the World Bank still attached privatization, market opening and deregulation requirements to more than 70 percent of its IDA loans and grants. The report also found that economic policy conditions, which many see as the most harmful, have "remained virtually unchanged, if taken as a percentage of overall Bank conditions."

The World Bank's own conditionality review, by contrast, says that "Bank support remains broadly consistent with the good practice principles on conditionality." The Bank's report finds that the number of conditionalities per loan is dropping. "By historical standards, the average number of conditions per policy-based operation continues to be low for both IDA and IBRD [International Bank for Reconstruction and Development] borrowers: it declined from about 30 in the mid-1990s to about 10-12 in [2005], where it has remained," the report states.

But Eurodad contends that the reduction in conditions is illusory, due largely to the Bank "bundling" several policy actions into one overall condition. "According to Bank data," the Eurodad report states, "Uganda has only 11 conditions in its [loan policy]. However, when Eurodad counted the policy actions contained within each of these conditions, they found that Uganda actually had 38 separate policy conditions."

The World Bank's Kopperud says the Eurodad report came to different conclusions from internal World Bank reports because it "operated with a different timeline and a different set of projects."

After a quarter century of the Bank imposing conditionalities on developing countries, rich countries are slowly starting to respond to cries of failure from the developing world. In 2006, the United Kingdom threatened to withhold nearly $100 million from the Bank. At the time, Hilary Benn, the International Development Secretary, said, "When it comes to economic policy choices, and in particular privatization and trade liberalization, I do not think it's right that we should be telling other countries what to do. The UK does not do that any more with its aid." The UK later declined to follow through with the threat.

"Both Norway and the UK have had some influence - they are more critical than others," says Norwegian Church Aid's Kobbeltvedt. "The World Bank is really keen on satisfying these governments." Kobbeltvedt believes that while the World Bank may downplay Norway's decision in public, "it has certainly been noticed."

Privatization-related requirements are commonly attached to World Bank loans. Critics say they often lead to a devastating loss of jobs in already impoverished countries.

In Afghanistan, for example, World Bank development financing comes with the condition that more than 50 state-owned enterprises be privatized in the next two years. If that privatization takes place, approximately 14,500 jobs will be lost, according to Eurodad. "This is a very serious and potentially destabilizing move in a country ravaged by war and where only 10 percent of workers are in the formal economy," states the Eurodad report. "By the Bank's own admission, the enterprises in question are not unduly burdening the Afghan public purse."

- Jennifer Wedekind

Food Prices Boil Over

Penang, Malaysia - The rising cost of wheat flour and its possible inflationary spillover to bread, noodles, cakes, biscuits and chapatti has been making hot news in Malaysia, with the government urging makers of wheat-based food products to restrain from raising their prices excessively.

It is the same bad news the world over. And wheat is only one example. The prices of many other food items are also going up.

In the world market, wheat and milk prices have risen to all-time high levels. Rice is at a 10-year record level. Corn and soybean prices are also higher than their averages a decade ago. The price of meat has shot up in many countries.

The era of cheap food seems to be over. With demand exceeding supply, there is also concern of impending shortages, as stocks in warehouses decline, and as some countries restrict the export of their food.

In recent decades, food prices have risen and fallen. These price shifts have usually been due to output being affected by drought or crop disease, and indeed the present drought in some wheat-producing countries is one reason for the recent hike in wheat prices.

But this time there are also other more structural and long-term factors that suggest that the high levels of food prices will remain or climb further.

The first is the rising demand for many types of food in developing countries, due to population growth, rising incomes and changing tastes. China is often cited as an example of this rising demand, but there are also many countries where demand is outstripping local supply, thus increasing the pressure on world markets.

The meat-based diets that many Chinese can now afford requires far higher grain inputs than the country's traditional vegetable-based diet. The second factor is the rising cost of inputs, especially oil that go into producing food. Oil prices above $100 have suddenly become the norm.

This hits food prices in at least two ways - by driving up the cost of inputs such as tractor fuel and fertiliser, and by increasing the cost of transporting the food across oceans.

The third factor is the boom in biofuels, which is causing land that could be growing food crops to be used for producing crops for fuel.

The increased demand for biofuels is causing basic changes to agricultural markets that may drive up the world prices of many farm products, according to a June 2007 report by the Food and Agriculture Organization (FAO) and the OECD (Organization for Economic Cooperation and Development - the an inindustrialized countries' think-tank).

Their Agricultural Outlook 2007-2016 says that temporary factors such as droughts in wheat-growing regions and low stocks largely explain the recent hikes in farm commodity prices.

"But structural changes are underway which could well maintain relatively high nominal prices for many agricultural products over the coming decade," says the report summary.

The most important change is "the growing use of cereals, sugar, oilseed and vegetable oils to produce fossil fuel substitutes, ethanol and bio-diesel. This is underpinning crop prices and, indirectly through higher animal feed costs, also the prices for livestock products."

The shift of land use from food to fuel is ringing alarm bells. In October, the United Nations' rapporteur on the right to food, Jean Ziegler, told a press conference in New York that there should be a five-year moratorium on biofuels "as it is a crime against humanity to convert food crops to fuel. Biofuels are driving up food prices at a time when there are 854 million hungry people in the world."

Another recent FAO report titled, "Crop Prospects and Food Situation" said that international wheat prices have risen sharply since June 2007, hitting record highs in September, due to tightening world supplies, low stock levels and sustained demand.

The combination of higher export prices and soaring freight rates is "pushing up domestic prices of bread and other basic food in importing developing countries, and causing social unrest in some areas."

Overall, developing countries are estimated to spend a record $52 billion in cereal imports in 2007. Other highlights of the FAO report:

• Maize prices are well above last year's levels, despite bumper crops, due to strong demand from the biofuel industry.
• The 2007 cereal harvest will only just meet utilization levels in 2008, meaning that stocks will not be replenished. Cereal stocks will remain at very low levels for the foreseeable future.
• Wheat stocks are "worrying." Sustained demand amid insufficient production increase this year may cause world inventories to fall by at least 14 million tons to 143 million tons, the lowest in 25 years.
• 36 countries are currently facing food crises.

With food prices on the rise, and with food insecurity increasing as stocks tighten or fall, many countries are already planning to increase their own production of food.

Since the prices of food imports are now so high, it is economically more worthwhile, for both farmers and the nation, to start or increase the production of various types of food crops.

- Martin Khor/Third World
Network Features/The Star.

Martin Khor is the director of the Third World Network.