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by Motilal Sharma

It is very difficult to grasp how one could survive on less than $1 a day. Nevertheless, an estimated 1 billion people in the Asia-Pacific region, or about 30 percent of the Asian population, scrape by on such a marginal sum-which would only buy a cup of coffee in a California coffee shop. A further 1 billion, or another about 30 percent of Asia, make do with twice that sum-two cups of coffee at the same coffee shop. A total of 2.5 billion people are living on US$ 2 a day or less.

These impoverished Asians are among the beneficiaries of the Multi lateral Funding Institutes who eventually contribute through taxes along with others in Africa and Latin America to finance the high operational costs of MFIs including unproductive expenditures such as maintenance of resident boards as well as criminally high consultant salaries which are financed out of loan money.

As it stands today debt burden on DMCs is such that there has emerged the phenomenon of debt fatigue. In the case of Africa, it is so deeply rooted that these countries can hardly borrow anymore. They are mired in debt quicksand that prevents them from escaping poverty. 70 per cent of the World Bank's projects have been a failure in Africa. In a effort to cover the damage caused to the poor of Africa the World Bank and IMF have therefore invented a new instrument called HIPC initiative to assist (continue their business) heavily indebted countries, which only goes to prove that the institutions created to help countries escape poverty have not worked but have burdened the poor countries with debt.

Much, maybe even most, aid has done more harm than good, propping up bad rulers, dictators and helping them improvise their people. Lenders have lent trillions of dollars in the name of aid but any borrowing countries appear to have so little to show for years of foreign aid. Furthermore, it is hard to find a clear correlation between overall aid flows on one hand, and economic growth or reductions in poverty on the other. By creating new lending schemes.

WB and IMF genuinely proclaim that they are trying to give relief while critics argue the opposite and assert that the MFIs should begin by first understanding the factors that led to this debt fatigue. By implication, MFIs have failed to demonstrate their accountability to taxpayers of developed countries that sacrificed to help their fellow taxpayers in the poorer countries. At the same time, these MFIs have not demonstrated results. MFIs should analyze their weaknesses, their mistakes, and compensate DMCs for the damages they have made. This is of course a difficult task to rectify but needs to be faced (in line of business ethics and principle of good governance preached by MFIs) if the debt burden is to be reduced.

An ethical question arises as to the professional quality of the members of the Board of these MFIs who approve all development interventions initiated by MFIs (loans, technical assistance and policy initiatives). The quality of the Boards of MFIs is constrained by the fact that the members of these Boards are nominated by their governments and the political regimes, which govern at the time of appointment. Therefore on official assignments to represent their respective governments, these appointees, for the most part, are not recruited on the basis of merit of professional competence and therefore one can easily raise the question about the capacity of these individuals to examine the work of professionals.

There are hardly loans or technical assistance which were rejected by these Boards since the founding of MFIs. Yet many interventions resulted in failures when implemented thus burdening the poor and adversely affecting intended development objectives of borrowers. Moreover, the existing system of resident boards cannot be justified on the basis of good governance principle because these boards are dominated by developed countries who don't want to increase the poor countries voting. These combined cost of maintenance of resident boards of MFIs is close to US $ 100 million annually which has to be financed by the poor.

Furthermore, it is well known that development assistance programs designed by the international donor community are targeted at narrowly defined technical assistance activities rather than broad development goals. The MFIs, on the other hand, do not share genuine accountability to the peoples of the world either directly or indirectly. In fact, there is no clearly defined responsibility between these institutions and their shareholder countries.

Operationally, "the IMFs accountable to the central banks and ministries of finance, while the World Bank is accountable to ministries of finance and either aid agencies or economic ministries. Democratic accountability has been further weakened as central banks have increasingly succeeded in achieving greater independence, often with the encouragement of the IMF itself. As pointed out by a vocal international group (i.e. fifty years is enough), these institutions had done at least as much harm as good. The future scenario is likely to be much worse given the current global economic crisis with negative economic growth, high unemployment and uncertainty in financial markets.

Five decades of experience clearly demonstrate that MFIs are less equipped to take the lead in development issues and therefore have little grounds to claim exclusive contributors to development in any sector. Moreover, the disproportionate balance between the high expenditures incurred on development interventions versus the low benefits obtained suggests that the poor do not gain. This is why the cause of poverty reduction is not happening as we envision. With such high costs, how can poverty reduction be pursued? There is a failure in not seeing development through the eyes of the poor that MFIs need to address.

MFIs should focus on development, and not clutter thinking with ornamental activities like gender issues, NGOs social safety nets, and the like. Rather, MFIs should focus on their key mission of core development banking, and streamlining their organizational capability accordingly, avoiding the thin spreading of their resources and skills.

Furthermore, increasing staff size is not a sign of efficiency; with the availability of ICT, higher productivity per staff is what counts - not -resident Boards who only drain the scarce resources of MFIs and add to the low level of non-productive activities.

MFIs must take every intelligent step to control their unit costs of development which exceed the results generated, resulting in increased cycles of borrowing and reborrowing that end up in a major liability to these countries. High unit costs can be attributed to high operating costs, over-staffing, over-priced consultants and business class/first class travel costs of MFIs that are higher than the UN system. Even the salary and benefits of MFIs exceed that of the UN. There should be a uniform charter among MFIs linked to the UN system.

The UN system should be further strengthened and expanded to undertake many of the social development activities being undertaken by MFIs that, because of low staff capability, cannot optimize the mileage which can come from these interventions. MFIs should support the existing UN system to implement such activities thereby allowing MFIs to concentrate more on development and less on social analysis. Poor people and countries are losing out in the way that MFIs are managed. MFI must stop unproductive expenditure, such as maintenance of Resident Boards which are heavily dominated by US and EU which are calling the shots.

This is, in direct violation of "good governance policy" which MFIs preach. Power is concentrated in the hands of wealthiest countries. More than half of the voting power in MFIs rests in the hands of seven countries. Decisions are heavily influenced by these countries. This constraints democracy in MFIs and puts development at risk. But there is plenty of room to give developing countries a real say in decision-making. Boards of MFIs need to be restructured to give right, the means and capacity to developing mandatory countries to effectively participate in the decisions that affect lives of their people. There is an urgent need to ensure that the MFIs, direction is not continued to be monopolized by a handful of rich countries, the developing countries participation be strengthen by converting Resident Boards into non Resident Boards to contain the damage created by MFI, on the confidence of developing countries.

The non resident boards be structured in such a way that richest nations work with developing countries rather to exercise unilateral action. The new structure should ensure that poor countries better represent their interest at MFIs. The leadership and people of developing countries have the vision and experience which can be effectively used in fostering development. The Directors on MFIs Boards even can hold their offices in the Embassies or Consulates of their respective countries at the headquarters of MFIs, and can attend Board meetings as and when required. The MFIs should provide Coordinating Centers where the directors may convene for consultations and discussions among themselves and with staff. Their respective Governments should incur expenditures in maintaining their offices in the embassies. However, MFIs should provide a budget to pay honoraria for Board meetings. To further strengthen arrangements, the MFIs should consider establishing Internet networks with the Ministries of Finance in their respective member countries.

Alternatively virtual board meetings through video-conferencing could be held where all member countries could participate. Recent Global Civil Society campaigns have clearly demonstrated that wealthier countries and MFIs stand accused of being unfair to the poor and out of touch to reality. This will further strengthen good governance of MFIs in in-house operations of MFIs and reduce burden on poor by about 100 million annually. The saving could be utilized in establishing institutions such as an "Asian Institute of Information and Communication Technology for Poverty Reduction" and "Asian Institute of Peace Development" to support efforts of developing countries in development.

Many MFI staffs have little experiential background, emotional attachment, or on the ground understanding of these issues, and with their First-World clothing and habits, virtually deny them access to undertake these tasks. At times, MFI staffs are not technically or intellectually prepared to undertake sociological and psychological analyses of poverty and gender. Yet MFIs insist on undertaking these tasks - resulting, in indigenous approaches and strong beneficiary participation. MFIs should not glamorise their own importance by indulging in such social issues but instead should concentrate on development banking. MFI should reflect on these fundamental issues and needed organizational changes, and take decisive actions appropriate to its basic mission. MFIs expertise in development banking, and through this core value, should support the UN institutions in its social development programs.

In addition, as we enter the 21st century, it should be clear to all that peace development is essential to the success of any development intervention. Yet military expenditures are on the rise; conflicts are draining poor countries of their scarce resources, and therefore it is the right time for MFIs seriously rethink their role in peace development. They should define strategies to contribute towards it. MFI aid programs should directly be linked to military expenditures. If military expenditures are increasing in aid countries, the aid should be decreased proportionately or stopped to ensure that the resources for development are maximised for their intended purpose of development.

To conclude in the words of Polonius addressing Laertes (Hamlet, Act I Scene iii line 75) "Neither a borrower, nor a lender be; For loan oft loses both itself and a friend, and borrowing dulls the edge of husbandry. This above all: to thine own self be true. And it must follow, as the night the day, Thou canst not then be false to any man." This is high time for the civil society to raise these issues to PROTECT THE POOR whom they claim to represent. MFIs, must actively engage NGOs to participate productively in setting the poverty reduction agenda, ensuring good governance, fighting corruption and bribery to protect the poor, rather than simply facing or avoiding protests.

(The writer is Managing Director of the Worldview International Foundation (an international NGO), Sri Lanka and could be contacted on e-mail: [email protected])

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