Australia’s ban on the World Bank and the ADB lending to Fiji

Written by Stephen Howes

The Foreign Ministers: Ratu Inoke Kubuabola, Bob Carr and Murray McCullyIf you go to the DFAT website to look at the sanctions Australia imposes on Fiji because of its military rule, you will conclude that they relate to military assistance and personal travel.

You wouldn’t guess from that website, and you won’t find it from any other official one, that another sanction which Australia imposes on Fiji is that we, together with New Zealand, prevent the Asian Development Bank and the World Bank lending to Fiji.

How do we know this? We certainly know that neither institution has engaged in new lending since the 2006 coup (except for an emergency response following the 2009 floods). See for example here for a statement to this effect by the ADB. This itself is telling, because elsewhere in the Pacific these two institutions have been scaling up, at Australia’s urging. Both Banks are engaged in various other activities in Fiji, such as private-sector lending and the provision of technical assistance. It’s not a complete ban, but a ban on lending to the Fiji government.

How do we know that this ban on lending to the Fiji government is driven by Australia and New Zealand? It certainly isn’t something that is advertised by either country. To the contrary, the AusAID country strategy for Fiji talks about working “in close partnership” with the ADB and the World Bank.

But the public record tells a different story. One press article reports on a 2011 meeting of the Fijian leader Commodore Voreqe Bainimarama with then ADB President Kuroda requesting re-engagement and funding. According to the report, Kuroda responded, with impeccable politeness,  “that there were some hurdles to the prospects of re-engagement, including the situation in Fiji.”  “[A]ny assistance from the ADB would be limited to technical assistance.”

Clearly, what Kuroda meant was that some countries would object if the ADB lent to Fiji. Given the leading role that they have played in opposing the coup, it stands to reason that the countries concerned (the “hurdles”) are Australia and New Zealand. No-one in Australia would confirm or deny it to me on the record, but off-the-record sources corroborate that these two countries have indeed been preventing lending from the World Bank and the ADB to Fiji.

Whether it is a good policy or not, it is unfortunate that it has not been made public. Indeed, very few seem to be aware of it. The Lowy Institute has run a campaign to lift sanctions against Fiji. It never mentions the ban on Bank lending. Article IV, Section 10 of the World Bank’s Article of Agreements  instructs the Bank not to “be influenced in their decisions by the political character of the member” country concerned. The ADB’s Articles are similarly worded.  If Australia wants the World Bank and the ADB to violate their own constitutions it should come out and defend this policy in public.

Is it a good policy? I don’t think so. The World Bank and the ADB provide loans to many other countries run by dictators. Some of these countries are successful in development terms (China and Vietnam), some less so (Pakistan, from time to time). I wouldn’t say that WB-ADB sanctions are never justified, but I see no basis for continuing with these sanctions.

I want to clarify that I am not a supporter of the Fijian Bainimarama dictatorship. To the contrary, I support the sanctions which the Australian Government has announced. But I don’t see the rationale for a ban on WB and ADB lending. Better in my view to have these institutions active in Fiji trying to promote economic reform and development, including through sound lending.

The ban also seems hypocritical. After all, Australia is increasing its aid to Fiji. In fact, we’ve doubled it since the coup, from $29 million in 2007–08 to $58 million in 2013–14. We’re supporting Fijian government schools and hospitals. But we won’t let the ADB and the World Bank provide resources to the Fijian government.

Some are worried about Fiji turning to China. If you are, that’s another reason for letting the WB and ADB operate in Fiji. The WB-supported hydropower project that was under preparation at the time of the coup is now being implemented with a loan from China.

Most importantly, in my view, there is an international cost to getting the World Bank and the ADB to impose sanctions on our behalf. It reinforces the impression that these organizations are the instruments of rich countries, rather than problem-solving tools for all countries. In this regard, the two multilateral institutions have a case to answer, as well as Australia.

Others might disagree. Some pro-democracy supporters in Fiji might virulently disagree. It would be a good debate to have. But I for one question the wisdom of secretly barring the World Bank and the ADB from lending to Fiji.

 

Correction (27 May 2013)

Jenny Hayward-Jones of the Lowy Institute didn’t mention the ban on World Bank and ADB lending to Fiji in her 2011 report “Policy overboard: Australia’s increasingly costly drift” which is the one I checked and referenced in the article above, but she did, quite clearly, in her 2009 report “Fiji: the flailing state”, where she wrote: “The Australian government will need to relax its principled opposition to lending by international financial institutions to Fiji.”

My  apologies to Jenny and readers for missing this. The lack of response from the Australian Government is sobering given that the issue was first raised as long ago as 2009.

 

Stephen Howes is Director of the Development Policy Centre.

Stephen Howes

Stephen Howes is the Director of the Development Policy Centre and a Professor of Economics at the Crawford School. Stephen served in senior economic positions for a decade at the World Bank before becoming AusAID’s first Chief Economist. In 2011 he was a member of Australia’s Independent Review of Aid Effectiveness.

3 Comments

  • As a dedicated reader of the Development Policy Website and, perhaps more usefully, as the former Vice President for the East Asia Region in the World Bank (from 2007 through 2011), I felt I should comment on the Fiji debate. To begin, I would underline the Bank’s note that a range of Bank work on Fiji continued throughout my tenure and until today. My comments will be limited, however, to the time I was working on Fiji.

    During my tenure a regular dialogue was conducted on economic developments in Fiji and the Government’s efforts to develop more effective economic policies. It was the position of the Bank during my period as Vice President that improved economic policies would be essential to facilitate higher economic growth and achieve meaningful poverty reduction in the country. In all the discussions with the Government we noted that a sensible macroeconomic framework would be central to making serious inroads on poverty and that agreement on appropriate policies would be essential to return to an active Bank lending program. While there were times when progress on reform appeared possible, I regret that during my time the Government was not able to endorse a set of economic policies that offered a credible prospect for sustained growth and meaningful poverty reduction.

    Second, while the Board member for your region was certainly interested in and briefed on the work we were doing in Fiji, I would underline the comments that others have made – no single constituency can determine Bank decisions on lending. Interestingly, I would add that the East Asia Region had the support of your Board member for all the efforts we undertook on working with the Government to improve economic policies in Fiji.

    Jim Adams

    Thanks again for the interesting and informative website.

  • You might have noticed that this post has generated a fair bit of media coverage, which I’d like to respond to for the sake of clarity. I’ve also come across another source which gives a more recent update of the situation, at least with respect to the ADB.

    Various Fiji sources have covered the story with glee, of course not mentioning my support for other sections.

    Rowan Callick’s article in The Australian included a response from DFAT which said “The World Bank and ADB are independent institutions with their own decision-making processes. Decisions to lend to Fiji are taken independently (of Australia) by both banks. Australia’s support for the banks’ work in Fiji is limited to providing technical advice and grants that directly benefit the people of Fiji, who are experiencing increasing poverty and hardship.”

    In fact, as the World Bank’s response (on which more below) clarifies, decisions to lend to Fiji (or any other country) are taken by the Banks’ Boards, on which Australia is represented. What position Australia has been taking as an influential shareholder is not addressed by the DFAT statement.

    The World Bank’s response was reported by the ABC as denying the allegations, but in fact it does anything but. The Bank’s response, which the ABC provided to me, reads as follows:

    “The World Bank Group has not committed any loans to Fiji in 22 years, with our last loan in 1991. The World Bank Group is a cooperative, and Board approval for any new lending – in Fiji or elsewhere – would normally be sought when there is a broad consensus among shareholders.

    Through grant funds, the World Bank Group has a carefully focused program designed to help the people of Fiji. This includes technical advice to the Government of Fiji to improve the targeting of its social protection system to assist the poor and also a risk sharing initiative to encourage commercial banks to provide greater financing for households and businesses to adopt renewable energy solution.

    The World Bank Group has also provided assistance to the telecoms regulator while investments by our private sector arm, the International Finance Corporation, IFC, in Digicel, have helped to significantly reduce the cost and expand access to mobile phones in Fiji. The Bank has also provided support through Pacific regional organisations to strengthen flood early warning systems along the Nadi river basin.”

    The statement that “Board approval for any new lending – in Fiji or elsewhere – would normally be sought when there is a broad consensus among shareholders.” supports my case. Why hasn’t Board approval been sought? Because there isn’t a broad consensus among shareholders. Which shareholders disagree with lending to Fiji? It could only be Australia and perhaps New Zealand.

    Two other clarificatory remarks about the Bank statement. The Bank draws attention to the lack of lending to Fiji over 22 years. Since coups have, sadly, been a recurrent feature of Fiji since the 1980s, this fact doesn’t undermine the case I’m making. The Bank doesn’t mention that it had a loan at an advanced stage of preparation at the time of the coup, which has since been dropped: see my article for the link.

    Finally, the Bank notes all the other things it is doing in Fiji apart from lending. This only further puts the spotlight on the question of why, given all this, no lending. A good explanation is that Australia is happy for the World Bank, and the ADB for that matter, to be active in Fiji as long as they are not lending to the government. (For those of you not familiar with the Banks, lending to governments is their main activity, and the World Bank is now preparing about 7-8 loans a year to various Pacific governments, but not Fiji. See here).

    Finally, I did come across another illuminating exchange between Fiji and the ADB, this one more recent than the one I quote in my post. In fact, it was just a month ago. This time when Fiji asked about the prospect of ADB re-engagement, the new ADB President responded more positively:

    “While the president acknowledged the progress Fiji has made [towards democracy] and expressed the Bank’s support for re-engagement, further discussions both within the Bank and with Fiji were necessary to agree on the processes and timelines to facilitate full access to the various forms of assistance available to member countries once re- engagement is formalized.”

    Translated into non-diplomatic language, this would seem to mean: you’ve made some progress in returning to democracy, and we’d like to lend to you, but we need to check with Australia and New Zealand first.

  • Thanks for this informative blog Stephen. I did not know that Australia and New Zealand had so much sway in the lending decisions of the WB and the ADB. If indeed the case, then your blog says as much about Australia as it does of our international financial institutions (IFIs). The former is worrying for me as an Australian taxpayer and latter is even more disturbing for someone who has a high regard for both the ADB and the WB.

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