4. Structural Reform of World Bank Structural Adjustment Programmes

In response to the development crisis of the 1980's due to a calamitous combination of declining terms of trade, rising real interest rates, virtual halt of commercial bank lending and reduced growth rates and increased protectionism in industrial countries, the World Bank and IMF executed many adjustment programmes. While there was a technical distinction between IMF "stabilisation" programmes - with presumed emphasis a demand management - and World Bank "structural adjustment" programmes - with presumed emphasis on the supply side -, in practice the two turned out to be difficult to separate and have many common elements and instruments. The principle of 'cross-conditionality' gives formal recognition to this inseparability. The following discussion of 'structural adjustment' programmes should be understood as referring to both Siamese twins of adjustment and stabilisation. The creation of an Expanded Structural Adjustment Facility within the IMF also indicates the erosion of the old boundaries; it indicates that in this new combination the IMF rather than the World Bank has become the leading partners.

Together with the IMF, the World Bank - at least in its Structural Adjustment segment - has become the creditors' instrument of choice for getting the debtor governments to service their debts. This was never part of their intended purpose. The main purpose of the World Bank was - in present language - to reduce poverty in less developed countries. Yet the fact is that despite much growth and improvement of many social indicators, 50 years of lending $250 bill. has not prevented a situation today where income disparities and poverty are greater than ever before. We concentrate, however, first on the new role of the Bank as debt collectors through structural adjustment programmes to show that the approach to structural adjustment is itself in need of structural adjustment. One counterfactual question which is difficult to answer is whether there is any connection between the partial shift from project lending for growth to structural adjustment lending and the deterioration of the Bank's performance in project lending (as documented by the Wapenhans Report). If there is such a trade-off it must be counted as part of the cost of structural adjustment lending.

Alternative Approaches to Adjustment and Stabilization

Much thought has been given to modifying the strict character of orthodox IMF approaches to stabilization and orthodox Bank approaches to adjustment. In the course of this discussion, a large number of proposals have been made and ideas emerged. The Seminar presentation distinguished no less than [24] such proposals. In this summary of the presentation these can only be briefly mentioned and listed.

(1) There should be more dialogue and persuasion rather than imposed conditionality. This is basically non-controversial and thinking in the IMF and World Bank is moving in the same direction.

(2) There must be recognition that at least part of the present difficulties of many developing countries necessitating stabilization and adjustment are due to external reasons over which the developing countries have no control, e.g. weak commodity prices, deteriorating terms of trade, high rates of interest, slower growth in the industrial countries, protectionism, absorption of available funds through the U.S. balance of payments and budget deficits, failure to co-ordinate the use of Japanese and German surpluses, etc. The IMF/World Bank argue that while this may be true yet the need for adjustment is not affected as a fact of life. But those asking for alternative approaches argue that this does not justify special consideration for the debtor countries, also that it calls for more symmetrical adjustment on the part of the industrial countries (especially the surplus countries), and that the Bretton Woods institutions were created not just to help developing countries to adjust to the international facts of life but rather to change them.

(3) Some of the critics have also argued that the IMF and World Bank themselves carry some of the responsibility for the magnitude of the debt crisis, in the sense of inadequate warnings and preventive action during the period 1974-1982, i.e. from the first big rise in oil prices to the full eruption of the debt crisis with Mexico's suspension of payments. During that period OPEC was happy to put its surpluses into the commercial banks of the U.S., U.K., Switzerland, etc., for recycling (instead of supplying cheap oil to developing countries). The commercial banks were only too eager to press loans without conditionality and often without much concern for creditworthiness upon developing countries at favourable rates of interest, many developing countries equally eagerly accepted these funds as an easy remedy for their investment and ultimate repayment, and the major industrial countries were happy to continue this system because it removed any threat to the international financial system and gave them time to adjust to the rise in oil prices and counteract OPEC pressures, etc. In this sense, everyone carried some responsibility for the debt crisis, including the IMF/World Bank themselves for standing too much on the sidelines during that period. In the view of the critics of the orthodox approach to adjustment this widely shared responsibility established a case for also sharing the burden of adjustment today.

(4) In the matter of acceptable and sustainable stabilization/adjustment policies and the impact of given policy instruments, there is still considerable uncertainty and lack of knowledge. These are matters of great complexity and the impact of the instruments in the orthodox repertoire is by no means clear. The empirical evidence is mixed. In these circumstances there is a case for being less self-confident in prescribing measures such as devaluations, abolition of food subsidies, move towards market prices, fiscal policy, etc. Instead there is a good case for considering alternative approaches, and evaluating their results without ideological prejudice.

(5) Adjustment is a difficult process with serious political and social implications. Hence sufficient time must be given to make the process more gradual and soften the political and social impact. This means that more time should be given to debtor countries and other countries in difficulties than is often allowed for. By contrast, stabilization measures can be enacted almost instantly, but for that very reason they tend to have an immediate shock effect which also carries its own political and social dangers. Any alternative approach should make greater allowance for such shock effects and difficulties.

(6) This last point is closely related to the advocacy of more external finance being made available, as a quid pro quo for accepting the great sacrifices and risks often involved. There is a danger of a vicious circle in that external finance is conditional upon strict adherence to the adjustment programme, while the adjustment programme depends on the maintenance of external finance. There is a risk - which experience has shown to be all too real - that even temporary and perhaps unavoidable lapses from the original adjustment targets may result in a cessation of external support and the collapse of the whole programme.

(7) This last point also leads to the suggestion that in alternative approaches the number of conditions and targets should be more limited, and deviations from the targets should be a matter of discussion rather than automatic suspension of external; support - in other words, fewer and more flexible targets. In particular, the suggestion has been made that the conditonality of stabilization/adjustment programmes should be restricted to actual outcome targets (such as balance of payments deficits, growth rates, food production, etc.) rather than instruments (such as devaluation, budget deficits, credit restrictions, pricing policies, etc.)

(8) New unfavourable changes in external circumstances subsequent to the conclusions of agreements should be taken into account and more readily admitted as reasons for modification of original conditions. Alternatively, there should be compensation facilities. While this has in principle been accepted, for example, in the IMF Compensatory Financing Facility (CFF) or the EEC's STABEX, there is a present danger that these compensatory facilities are being eroded and themselves become subject to stricter conditionality.

(9) There should be more concern with income distribution and the social impact of stabilization and adjustment programmes. Many programmes have resulted in severe cuts in real wages. The UNICEF volume on Adjustment with a Human Face has documented widespread harmful impacts on child nutrition, educational and health facilities and infant mortality. Reductions in food subsidies, increase in food prices, and cuts in social expenditure often have had a hard impact on poorer and vulnerable groups. There is a danger that destruction of human capital may defeat the longer term objective of adjustment, i.e. to lay the foundations for subsequent sustainable growth. Many adjustment programmes involve a reduction of "urban bias". While the shift from urban to rural incomes is per se a move towards greater equality of income distribution (since rural incomes tend to be lower than urban incomes), there is a risk that this may be offset by an unfavourable redistribution of incomes within the rural sector towards the larger and more prosperous farmers who are better able to take advantage of new price incentives offered, at the expense of small farmers or landless people. In any case, we do not want to solve the rural poverty problem at the expense of creating urban poverty - it should be possible for programmes to protect poor and vulnerable groups, both rural and urban.

(10) There is also concern about the present timing and sequencing of IMF and World Bank action, and their mutual relation. The IMF stabilization measures, usually working in a contractionist and deflationary direction, tend to come first and have immediate effect. The structural adjustment measures and the longer-term structural adjustment finance which at least in principle are more growth-oriented, take a much longer time to be effective. This relationship is embodied in cross-conditionality with the IMF providing a "seal of approval". The basic idea is that stabilization, often involving devaluation, greater reliance on market prices, reduction of government deficits, trade liberalization, etc., is needed in order to lay the foundations of subsequent economic growth. But there is a danger that the contractionist pressures become cumulative and stand in the way of resumption of economic growth, rather than "laying the foundations". Another danger is that the sacrifices and pressures of the transitional stabilization period become politically and socially unsupportable and prevent countries from reaping the benefits expected from the subsequent adjustment period. The present paradigm is that of reculer pour mieux sauter, of a temporary retreat providing the room for manoeuvre needed for a new forward jump. But the danger is that the paradigm becomes one of stepping back down a slippery slope from which it is difficult to recover or gain ground for a forward jump. The critics want to reverse the sequence between support for longer-term growth-oriented adjustment support and the more immediate need for stabilization to improve the balance of payments. They want a policy of "growing out of debt" instead of "contracting out of debt". In particular, the critics point to the import compression or "import strangulation" presently imposed by the balance of payments crisis upon Latin America and African countries as making it impossible to import the goods needed for new export promotion, or even for efficient import substitution. For example, in the case of agriculture, import strangulation may prevent debtor countries from importing the goods, such as fertilizer, agricultural machinery, transport equipment, etc. needed to enable such stabilization measures as increased prices for agricultural producers to have the intended effect of stimulating production.

(11) Related to this criticism is the suggestion that there should be more emphasis on the "real economy" rather than macro-economic aggregates - more concern with supply, specifically with supply bottlenecks. It is felt that the negotiations concerning stabilization and adjustment are presently too much confined to the financial sphere, taking place between financial experts of the IMF or World Bank on the one hand, and of ministries of finance and central banks of debtor countries on the other hand. It is felt that the conditions of the various sectors of the "real economy" such as agriculture, industry, transport, institutions, etc. are insufficiently built into the negotiations and programmes. This may lead to excessive belief in the efficacy of financial incentives, such as higher prices, a belief which may then be frustrated by such factors as lack of transport to collect crops, lack of storage, difficulties of supplying fertilizers or seeds to farmers, etc. Similarly, changes in exchange rates are supposed to lead to greater exports or efficient import substitution, but this may be frustrated by a scarcity of inputs needed for the expansion of exports and/or efficient import substitutes. In this context, greater emphasis on sectoral rather than overall adjustment lending may be indicated.

(12) To reduce the harshness of the impact of adjustment programmes on poor and vulnerable groups, a number of suggestions have been made to build in compensatory measures into the adjustment process itself, as distinct from providing ex post safety nets such as the IMF Compensatory Financing Facility or STABEX. One current proposal under examination is for the use of good aid as part of adjustment programmes. This could be in the form of programme food aid since food is naturally targeted on poorer and vulnerable groups for whom food is a more important part of expenditure. But it is more effective to use food aid selectively targeted on poor groups lacking effective purchasing power for food so as to make sure the additional food aid does not interfere with the objective of increasing form of specific projects directed at vulnerable groups endangered by adjustment difficulties, e.g. by way of food-for-work projects, feeding programmes for poorer children, etc. The use of counterpart funds from the sale of programme food aid could provide the local finance for projects included in adjustment programmes. Counterpart funds could also serve to reduce the budget deficit which is usually also one of the objectives of adjustment programmes. The World Bank/WFP project in this area was described.

(13) Some modifications are also suggested in the present country-by-country approach. It is true that adjustment problems and optimal adjustment policies are country specific, and there is a need for careful country specific analysis. On the other hand, the impact of what is recommended to Country A on other countries, also subject to advice on adjustment policies, cannot be disregarded. For instance, if devaluation is recommended to say Kenya in order to increase the export of tea, the impact of this on the tea exports of say Sri Lanka cannot be disregarded. If Sri Lanka at the same time is induced to devalue its currency to bolster its tea exports, the backlash on Kenya will undo at least some of the intended advantages of Kenya's own devaluation; in the end both countries may be worse off, with the tea importing countries as the main beneficiaries. More generally, concern exists about the effect of outward orientation, i.e. promotion of exports, which underlies many adjustment programmes, on export prices and terms of trade. It is also not always clear that devaluation with high prices for export crops, in terms of local currency, always gets through to the producers and if it does whether the resulting increase in exports is not at the expense of food production for domestic use. The orthodox approach emphasizes that import substitution must be efficient (and that it is efficient if viable at "proper" adjusted exchange rates). But the critics would extend this qualification also to export promotion and stipulate that export promotion must also be "efficient" and can be inefficient, especially for developing countries as a whole. The concern is often expressed in the form that the country-by-country approach is open to a "fallacy of composition".

(14) The monitoring of performance in stabilization and adjustment programmes has also become a matter of debate. It is suggested, for example, that more social indicators should be used, such as reduction of infant mortality, school enrolment rates, literacy, provision of employment, reduction of poverty, etc., so that countries doing well in these respects are given credit for their performance. Similarly, suggestions have been made that performance in all targets taken as a whole so that under-performance in one individual target should not automatically trigger off suspension of promised assistance.

(15) As a general trend, there is increasing recognition of the need for adjustment programmes to be more "growth-oriented". The point emphasized is that sectoral shifts and industrial restructuring are all easier in the context of growth. The same is true of shifts in income distribution, as was recognised in the development strategy of "Redistribution With growth advocated by the World Bank in the "McNamara era" of the early and mid 1970s. The principle that adjustment should be more "growth-oriented" is not controversial; the Bretton Woods institutions themselves are increasingly accepting this point. But there still remains an area of doubt as to what extent stabilization, often involving "austerity", is a pre-condition for growth and hence must come first; as against the view that growth orientation should dominate both stabilization as well as adjustment. In a growth-oriented stabilization approach, the avoidance of import strangulation and maintenance of rates of investment would be more important objectives that they are now compared with a better balance of payments equilibrium or control of inflation.

(16) A particularly important criticism of the orthodox approach is that it is not country-specific enough, in the sense that the programmes reflected too much a "standard" approach, dominated by monetarist or neo-liberal doctrines and ideology. This criticism refers to a general presumption of these programmes that market failures are less important than government failures; that rational allocation of existing resources, broadly identified with allocation on market principles, is a more immediate objective than promotion of growth by increasing resources, or at least the precondition for it; that "getting prices right" is of primary importance and that price incentives are vital and effective; that criticisms of a "standard" approach are denied by the IMF and the World Bank but various analyses have shown that the country programmes in fact bear considerable resemblance to each other in the above and other respects. The critics ask for greater or more balanced emphasis on market failures as well as price incentives; dangers and risks of competitive devaluation of debtor countries; need for more symmetrical adjustment by creditor countries, etc. The case of the critics is that the programmes are both (in the sense of following a country-by-country approach without sufficient consideration given to the "fallacy of composition". 
5. Reform of GATT (MTO)

GATT has been a mixed success. Its contribution to tariff reduction is clear, its effect in the 'grey area' of non-tariff barrier (NTB) less so. Even if the Uruguay Round is successfully completed, there will still be gaps. While in the Uruguay Round GATT is extending from trade in goods into trade in services, trade-related investment measures (TRIMS), and trade-related intellectual property rights (TRIPS), the competence of GATT would still fall short of that of the originally envisioned ITO. In particular, GATT does not deal with commodity prices nor with restrictive business practices, nor with environmental aspects of trade. Another major exclusion is the question of social impacts of trade on income distribution, employment and labour standards, as well as environmental aspects of trade. The latter may be of direct importance, in view of the dangers of 'green protectionism'.

While it is not excluded that after a successful Uruguay Round future new rounds could extend into some or all of these areas, the GATT would then de facto develop into a full-scale trade organisation - a new GATT - but without the binding powers and normative functions of a full institution.

In this connection a recent resolution on the Uruguay Round by the European Parliament may be quoted:

` ... the strengthening of an open system of world trade must, of necessity, be achieved by respecting worldwide environmental balances and must be accompanied by the promotion of parallel social development ... that the expansion of free trade does not necessarily serve the needs of the poor of the world or the conservation of the environment and there are cases in which the freedom granted to trade in goods and services may undermine a more fundamental freedom - the freedom which allows peoples and their governments to exercise democratic control and tackle their most important problems effectively.'

The resolution also raised the question of the influence of TNCs on world trade as a neglected area and supported the Canadian proposals for the creation of an MTO, adding 'that it should have a democratic international structure and be empowered to regulate fairly the trade activities of states as well as multinational corporations'.

Apart from the need to make GATT more comprehensive, there is also a recognised need for improved and strengthened dispute settlement procedures and for monitoring compliance. In particular, the GATT has not been able to prevent a wide area of unilateral retaliatory and discriminatory action by important industrial countries, e.g. Section 301 action by the US and similar EEC regulations. Unilateral determination of such concepts as 'unfair trade', 'unreasonable' volume or prices of exports, 'dumping', and definition of 'offending countries' all sit uneasily with the GATT concept of non-discriminatory rule-based multilateral trading. It is felt that a full institution like the MTO, with powers similar to those of the IMF and World Bank, would be better able to cope with such thorny problems.

Even without the MTO, GATT would need a more effective trade policy review mechanism, including surveillance and country reports similar to those of the IMF and OECD. This review mechanism should also include trade-related environmental issues as well as social and gender issues relating to international trade. This would involve links not only with the IMF and World Bank as presently proposed, but also with the other agencies in the UN system dealing with human and sustainable development. The way in which environmental and social issues (especially labour conditions and social security) come to the fore in trade negotiations is vividly illustrated in the negotiations concerning the North American Free Trade Area (NAFTA).

There is no doubt that GATT in the post-Uruguay world, or any successor organisation like the MTO - would be increasingly involved with the environmental and social aspects of world trade. This raises the danger of conflicting approaches to environmental objectives (World Bank/UNDP/UNEP operating the GEF) and social objectives (ILO, World Summit for Social Development) on the one hand and trade policies (GATT or MTO) on the other hand. This will create new and hitherto unexplored problems of coordination within the UN system.

The proposal for an MTO, based on a Canadian initiative, is detailed in the Draft Final Act (DFA) but is not itself part of the Uruguay Round agenda. The present draft proposes close links with the Bank and Fund but not with the UN itself as was the case in the non-ratified ITO charter. Apart from the UN itself, one would suggest close links with UNCTAD and with the UN Committee for Sustainable Development. Environmental questions are mentioned in the preamble of the MTO proposal detailed in the DFA but not subsequently operationally specified. The suggestion has been made that the MTO should establish a Committee on Trade and Environment and also a Committee on Trade and Social Development. 14

The special needs of developing countries were not initially considered in GATT but special provisions wer e subsequently added (Part IV of GATT). The present unilateral action by major industrial countries works of course to the disadvantage of developing countries which lack powers of retaliation and are often the specific targets of such unilateral actions. Success in the Uruguay Round would benefit the developing countries, especially in the reform of the Multi-Fibre Agreement (MFA) and for food-exporting countries in the field of agricultural policies of industrial countries. There will, however, be losers as well as winners and compensatory action would be called for, especially for the poorest food-importing countries. This is in fact recognised and provided for in the Draft Final Act of the Uruguay Round.

The weaker countries have a special interest in substituting rule-based instead of power-based policies and settlement of disputes. To the extent that an MTO would have greater powers to assert the observance of rules, this would act to the benefit of developing countries, provide for a more equal distribution of the benefits from trade and improve the social impact. Whether by creation of an MTO, or by the strengthening of the powers of GATT, much still needs to be done to improve the contribution of trade to human development and give sustainability to its impact on growth. There are clear danger signs that the absence of a social dimension in the approach to the world trading system is leading to a backlash against the very idea of free multilateral trade, in the form of a 'New Protectionism', 'managed trade' and regionalism. A better balance between efficiency and social justice will lead to a more sustainable world trading system.
6. Restructuring the UNDP

The UNDP is clearly in decline, as far as its traditional role as the central funder and co-ordinator of technical assistance operations in the UN system is concerned. This traditional role is being eroded in a number of directions. The UNDP has been affected by the general shift of resources and support away from the UN system in the narrower sense to the Bretton Woods system - the World Bank now is more important as a source of technical assistance funding than the UNDP. The resources of the UNDP have been stagnant in the face of increasing needs, increasing populations, and increasing incomes of donors. As a result, the role of the UNDP's share in total transfer of resources to developing countries in purely quantitative terms and on a gross basis has become quite insignificant - 2 per cent or so of the total. The specialised agencies of the UN tend to be less dependent on UNDP resources and rely more on their own resources, bilateral donors, special funds, etc. The proliferation of special purpose funds established with the Specialised Agencies by donors has hurt UNDP's central funding role and directly competed with its fund-raising efforts. The UNDP itself tends to rely more on direct execution by recipient governments, bypassing the specialised agencies.

In the light of this, it is worth emphasizing some of the enduring comparative advantages of the UNDP, especially in comparison with its chief rivals in the Bretton Woods institutions. The UNDP has a considerable field structure and field offices where local staff are increasingly prominent. In the field, the UNDP has unquestionably played a useful role in co-ordinating technical assistance operations and in a number of cases beyond this in co-ordinating general aid through its Roundtables - in parallel with the World Bank Consortia. The UNDP is recognised as being politically neutral in its country allocations, as expressed in the indicative planning figures and operates without conditionality; for this reason it is popular among recipient countries (but perhaps for the same reason unpopular among donors) and enables both them and the UN system to plan ahead on a medium-term basis. Its relationship with the governments of developing countries is much more in the nature of a genuine "development contract"; as a result its programmes and projects are more genuinely "owned" by the governments. Its neutrality between sectors and absence of special ideology or macroeconomic conditionality enables the UNDP to operate in countries regardless of economic structures and policy orientation. Its multisectoral orientation makes it flexible in fitting in with the governments' own priorities. The UNDP voting system and methods of control by its Governing Council are generally recognized as representing a fair compromise between the Bretton Woods system of one-dollar-one-vote and the UN system of one-country-one-vote.

In view of these formidable comparative advantages, the relative decline and lack of support for the UNDP has perhaps less to do with the UNDP itself - even though the Kienbaum Report15 suggests a number of improvements in its managerial structure - than with the general preference of major donors for the Bretton Woods institutions over the UN system, and specifically with lack of trust in the UN specialised agencies through which UNDP assistance is channelled and which act as the chief technical advisers to the UNDP. Thus to some extent the restructuring of the UNDP is an integral part of the general restructuring of the institutions and instruments of global governance, and in particular a healthier relationship between the Bretton Woods system and the UN system.

However, to some extent the relative decline of the UNDP and failure to use its comparative advantages fully is due to its image as a mere funding organisation, without much colour, vision, or defined position. The UNDP appears as a somewhat 'grey' institution - its very advantage of neutrality, absence of ideology, absence of politics, may have worked to its disadvantage. So increasingly thought is turning towards associating the UNDP more clearly with some leadership in development thought. The one area that comes to mind in this connection - the one exception to the 'grey' image of the UNDP - is the area of human development. In this area the UNDP has in fact played a leading role (together with UNICEF) through the Human Development Reports published since ..... Here the tide is moving in the direction of the UNDP. New insights into the nature of development and increasing dissatisfaction with the approaches of the Bretton Woods institutions have combined to make the Human Development Reports into major influences, not only in developing new thinking but also in changing more conventional approaches, including those in the Bretton Woods institutions.. In restructuring and revitalizing the UNDP, it may be natural to build on this success and let the spirit of human development more strongly permeate and influence the whole work of the UNDP. In the past, the Human Development Reports have seemed more like an isolated activity which happens to emanate from the UNDP but does not really influence its other activities. The idea of a more people-centred development by now has become sufficiently accepted as to be virtually uncontroversial - hence perfectly compatible with the UNDP's comparative advantage of `neutrality'.

Apart from being the flagship of human development, the UNDP could also become the flagship of sustainable development. In this respect, the association of the UNDP (and also UNEP) with the General Environmental Facility (GEF) established after the Rio conference could serve as a starting point. At present this association seems more nominal than real and the UNDP plays second fiddle to the World Bank in the decision-making process (or even third fiddle to the World Bank and UNEP which has a lead in at least part of the GEF activities). Capacity 21, if properly funded, could become an important "identity" for the UNDP. Similarly, the new Commission for Sustainable Development provides another opportunity for the UNDP to be closely associated with its work on social integration, poverty reduction and productive employment and thus acquire a new purpose and image.

This possible strategy for a new UNDP is also discussed in the Kienbaum Report. But perhaps the Kienbaum Report poses a false dilemma. Leadership in thought and leadership in technical assistance funding and co-ordination need not be alternatives. Leadership in thought in the directions here indicated may help to mobilize for the UNDP the political support, resources, and influence which are needed to make its role in co-ordinating technical assistance operations for the whole UN system more effective and important.

Because of its strong field orientation, the traditional coordinating functions a country level through its Resident Representatives and its good relations with Government is also destined to play a role in coordinating UN action in cases of emergencies (natural and man-made) as well as rehabilitating after major emergencies. Given the increasing importance of such emergency situation and the increasing role of the UN in dealing with such situations, the UNDP could here play a role of key importance for the reputation and future of the UN and the whole UN system. This is particularly so when the area of emergency or conflict is limited to a particular country covered by a UNDP field office and Resident Representative. The UNDP seems less well equipped to play a coordinating role in problems such as refugees or international wars where boundaries are crossed - here the coordinating role would lie clearly with HCR or other relevant bodies, but the role of the UNDP would still be important in adjusting country programmes so that the serve the cope with the effects of the emergencies and with rehabilitation.

The present relations between the UNDP and recipient governments are coming very close to the proposals for a balanced relationship with mutual rights and obligations in the form of a 'Development Contract'. 16 Not surprisingly, therefore, the authors of this proposal have been thinking of the UNDP as the organisation charged with administering and monitoring such development contracts. For this purpose, a UN Commission on Development Contracts has been proposed within the UNDP as well as the annual or bi-annual publication of a Progress Report on Development Contracts by the UNDP. It is recognised that if the development contracts involve active assistance in negotiations, mediation, arbitration, etc. a separate secretariat within the UNDP would be required. This involvement, like the Human Development Reports would serve to give the UNDP a heightened profile which in turn could help to attract additional support and resources.

Apart from its grey image as a more 'funding' organisation the UNDP has to contend with some other weaknesses. A fairly recent listing17 included patchy agency performances in delivery of projects, slow response time in approval and design of projects, orientation of New York staff to servicing a cumbersome Governing Council rather than the field offices, too much reliance on a rotating group of senior experts instead of flexible recruitment of experts best suited for the specific projects and specific country for shorter periods as required. These are problems of managerial reform rather than part of the restructuring of the UN system, although some of them concern the UNDPs relationship with the Specialised Agencies and the whole question of the role of the UN and the Secretary-General vis-à-vis the Specialised Agencies and their governing bodies. Ultimately, this is a matter for the member governments to speak with one voice in the UN and the agencies. The patchy performance of the agencies faces the UNDP with a dilemma. Is its primary duty to the developing countries - which may point towards direct execution - or to the UN system to help the agencies cope with their financial pressures? There might of course, be no conflict between these two duties - but what is the duty of the UNDP when there is a conflict?

(1) The traditional roles of the Specialised Agencies of setting standards, collecting, analysing and disseminating information, and giving policy advice within their respective fields of competence have been greatly eroded. This parallels the similar erosion of the role of the UN itself.

(2) The erosion is reflected in - and also largely caused by - a shift of financial support from the UN system to the Bretton Woods system. This reflects the political support of the economically powerful countries for the Bretton Woods institutions and the lack of such support for the UN system. The World Bank now spends more on technical assistance than the UNDP, even though technical assistance (together with food aid) was allocated to the UN in the 'Great Compromise' of around 1960 when IDA came to the World Bank instead of the UN.

(3) As a result of lack of financial resources, the Specialised Agencies are now largely dependent on extra-budgetary resources. These are available almost exclusively for technical assistance activities rather than policy-making or analytical functions. FAO, WHO and UNIDO now depend for over 50 per cent of their resources on extra-budgetary funds; ILO and UNESCO are not much below that figure. The main extra-budgetary resources are bilateral donors, the UNDP and in fact the World Bank itself. We thus have the anomalous situation that one part of the broader UN system is dependent on another part - the Bretton Woods system - for its financial resources. This cannot fail to be reflected also in a loss of intellectual independence and initiative on the part of the Specialised Agencies.

(4) The inevitable result has been that the competence of the Specialised Agencies in standard-setting, policy-making and analysis has been greatly weakened. This has set up a vicious circle: lack of resources and political support leads to lack of competence and the lack of competence then forms a reason (or pretext) for shifting resources and support even further - to the Bretton Woods system. The results of this ongoing process are clearly visible. They are particularly clear in the case of UNESCO - where lack of support has taken the extreme form of important countries leaving the Agency altogether - and of UNIDO where the process has perhaps gone furthest. Performance in the Agencies is now largely measured by their ability to attract extra-budgetary funds. Those parts of the Agencies and staffs involved in the traditional functions of standard-setting etc which cannot share in the scramble for technical assistance resources, and staff working in areas not corresponding to funders' priorities, are liable to be in a state of frustration or demoralization. This then is often attributed to 'bad management'. The quality of management may well be affected by the frustration of staff in yet another vicious circle. (This is not to deny that there are also cases of bad management and low morale due to more avoidable reasons - but these are not limited to the Specialised Agencies part of the wider UN system.)

(5) Reliance on extra-budgetary resources creates a new problem: either the overhead payments agreed with the Agencies are generous, in which case the Agencies become dependent even for their normal activities on securing enough extra-budgetary funding; or else the overhead allocations are insufficient, in which case reliance on extra-budgetary funding exerts a further drain on the resources available for the traditional and normal work of the Agencies. The authors of the Nordic Project assume that the latter is the predominant case. This is, however, not clearly established.

(6) This process threatens to become unsustainable: if technical competence declines this is also bound to show in lack of competent support for operational activities financed from extra-budgetary resources. There are signs that they aim for quantity rather than quality (which absorb more staff and is not rewarded) in the execution of UNDP projects and pad the equipment which requires less staff time to deliver and extend projects unduly instead of transferring as soon as possible to the recipient. In this and other ways, budgetary pressures affect the quality of project work. Competition for projects and the associated overhead funding also discourages cross-sectoral and cooperative projects and approaches. Competition for projects by direct contacts with the Ministries of recipient countries also makes the coordinating work of Planning Ministries more difficult. Such complaints, however, do not by any means to all agencies - or indeed all operations of any agency. But the tendencies here described are perhaps the inevitable consequence of budgetary pressures. All this makes the coordinating and monitoring functions of the UNDP all the more important. The logical result would be that the World Bank as well as the UNDP and bilateral sources are driven to implement their technical activities directly or through channels other than the Specialised Agencies.

(7) The erosion of the Specialised Agencies is most clearly expressed in their exclusion from the negotiations of structural adjustment and stabilisation programmes by which the policies of most developing countries are now largely determined. These negotiations take place between IMF/World Bank officials on one side of the table, and Ministry of Finance/Central Bank representatives on the other side. Even though the decisions may have a deep effect on such sectors as agriculture or health, the FAO or WHO are not represented in the negotiations nor are the Ministries of Agriculture and Health of the developing countries. The unspoken assumption - which may well be true by now - is that the World Bank has itself sufficient direct competence in matters of agriculture or health which it assumes to be superior to the competence available in the Specialised Agencies. Otherwise it would be difficult to explain the exclusion of the Agencies from this major policy-making process. If there is a serious intention to revitalise the Agencies, this may well be one of the places to start. However, the indispensable precondition would be greater and more reliable direct budgetary support for the Agencies and - perhaps even more important - greater political support.
 

14. Leelananda De Silva, 'The Multilateral Trade Organisation - Evolution and Future Directions' prepared for the Joint Christian Aid/CAFOD/Oxfam Study on the MTO p33.

15. `A Strategy-Based Senior Management Structure for the United Nations Development Programme (UNDP)' by Dr. Axel G. Koetz and Max F. Otte, MPA, Kienbaum & Partners, International Management Consultants, New York, January 31, 1991.

16. See 'Towards a "Development Contract". A New Model for International Agreements with African Countries?', Arve, Ofstad, Arne Tostensen and Tom Vraalsen, Working Paper, Development Research and Action Programme, Chr. Michelsen Institute, Department of Social Science and Development, ISSN 0800-2045, 1991.

17. From the UNDP Management Study by Quentin Smith and Robert Pursell (1990).