PEABODY JOURNAL OF EDUCATION, 76(3&4), 285338 Copyright 2001, Lawrence Erlbaum Associates, Inc.

Paying for Education: How the World Bank and the International Monetary Fund Influence Education in Developing Countries
Nancy C. Alexander
Citizens Network on Essential Services, A Project of the TIDES Center

The 1980s are sometimes described as a lost development decade. School enrollments slumped. The tremendous progress made toward universal primary education in the 20 years from 1960 to 1980 was arrested or reversed in many countries. In 1990, the Education for All (EFA) Conference in Jomtien, Thailand, made an urgent appeal to governments, donors, and creditors to address the decline in basic education. Donor governments and creditors, including the World Bank, made commitments to help developing countries achieve education for all. In June 1996, a conference was convened in Amman, Jordan, to assess progress since the EFA Conference in Jomtien. The United Nations
This document was written for Oxfam America. Portions of it may be found in other publications by Nancy C. Alexander, including: Accountability to Whom: The World Bank and Its Strategic Allies, published in Derde Wereld in May 1998; various issues of News & Notices for World Bank Watchers; NGOs in the International Monetary and Financial System, (with Charles Abugre) in International Monetary and Financial Issues for the 1990s, published by UNCTAD; and Financing for Development, published by Friedrich Ebert Stiftung. Requests for reprints should be sent to Nancy C. Alexander, Director of the Citizens Network on Essential Services, A Project of the TIDES Center, 7000B Carroll Avenue, Takoma Park, MD 20912.

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N. C. Alexander International Childrens Emergency Fund (UNICEF, 1998) cites the findings of the conference report: Overall, primary enrolment was the brightest sign of progress by mid-decade, with some 50 million more children in developing countries enrolled in primary school than in 1990. Discouragingly, however, this figure only managed to keep pace with the numbers of children entering the 6- to 11-year old age group over the period. (p. 15) Unsatisfactory progress was noted in some regionsSouth Asia and subSaharan Africa. Progress in educating girls had also been disappointing. During the five years following the conference, little gain was recorded in the developing world in girls primary enrollment as it rose only by a fraction of a decimal point, from 45.4% in 1990 to 45.8% in 1995. The gender gap in adult literacy actually widened over the same period. (UNICEF, 1998, p. 15) At the World Education Forum in April 2000, the international community promised to launch a global initiative to mobilize resources to support national education efforts. However, since the Dakar, Senegal, Forum, there has been no headway toward launching the initiative. Educational progress is uphill. The world economic slump has hit developing countries hard. Many are in recession or depression. Meanwhile, the donor and creditor community is increasingly tight-fisted. However, as discussed later, more money for education is not necessarily the answer. Even with vigorous education campaigns, there will be disappointing progress unless creditorsespecially the International Monetary Fund (IMF) and the World Bankbegin to support homegrown, national development strategies and education action plans. In addition, the institutions need to change their policy prescriptions for ailing economies, in general, and for the education sector in particular. This article provides an overview of the roles of the IMF and World Bank from 1980 to the present. It distinguishes between two types of impacts exerted by the IMF and World Bank in the education sector of borrowing countries: (a) the World Banks direct involvement in the education sector of developing countries and countrywide economic reforms and (b) Structural Adjustment Programs (SAPs) financed by the IMF as well as the World Bank. The first two sections of this article address the World Banks direct involvement in education through project investments (e.g., school construction, curriculum development, or textbook publication) and reform of the education sector (e.g., school privatization, cost recovery, decentralization). The third section addresses SAPs financed by the IMF and World 286

Paying for Education Bank. Unlike the World Bank, the IMF does not make project investments or reform education policies; it only engages in structural (and sectoral) adjustment lending. The impacts of IMF- and World Bankfinanced adjustment programs ripple throughout a society, including households and school systems. Few independent analysts have attempted to evaluate the impact of adjustment on education. This is unfortunate because adjustment policies are a more powerful influence on the education sector than education projects. As a result of the hiatus in research, we are significantly dependent on the World Bank and IMF for their own evaluations of the impact of adjustment on education. This article finds that the operations of the institutions have had both positive and negative impacts. The net influence of each institution has been different in different countries, among different groups within countries, and in different time frames. Much of the literature about the impact of the institutions addresses their track records in the 1980s, when even according to their own admission, the institutions paid scant attention to the impacts of their economic reform loans on vulnerable people. This article underscores the World Banks conclusion that, in many countries, adjustment lending had a negative impact on primary education in the 1980s. During the 1990s, there appears to be a weak, but positive, response to measures taken by the institutions and borrowing countries to modify SAPs. That is, in some circumstances, safety nets and education investments have helped to stem school enrollment declines or increase enrollments. In 2002, the World Bank Group launched a Private Sector Development (PSD) strategy that aims to expand the provision of educational services by private firms and nongovernmental organizations (NGOs). In selected instances, this approach may have merit. In general, however, the PSD strategy endangers educational progress because it ignores the lessons of experience. Among other things, it ignores the fact that when educational services are provided at cost, they will not reach poor populations even when subsidy schemes are used. To analyze the influence on education of the IMF and World Bank operations, this article reviews the following issues: IMF and World Bank loans. Historically, the IMF and World Bank provide loans1 at market rates as well as credits at concessional
1 Technically, governments with active IMF programs are not borrowers, although the term is used in this article. They are actually purchasers of resources, some of which they contribute to the IMF.

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N. C. Alexander rates (with interest rates below 1%). Shortly, the World Bank will increase its levels of grant assistance. The volume of resources for education. Too often, the public sees increasing amounts of resources for education as a good thing. However, history shows that aid has sometimes been used to dismantle education systems. Greater quantities of aid should be used only to support good education policies. The types of loans: projects investments or adjustment loans. Over time, adjustment loans generally have a stronger influence on educational outcomes than do investments in education projects. The purposes of reform. The purpose of many adjustment programs (e.g., cutting deficits and lowering per pupil costs) can complement or conflict with educational goals. The impacts of reform. In many countries, the formulae used by the Bank to reform the education sector have had more negative than positive impacts. Furthermore, SAPs have often sabotaged educational progress while weakening the state. Ultimately, the state needs to be the guarantor of educational access, quality, and progress. IMF and World Bank Instruments: Grants and Loans As a rule, bilateral donor governments and United Nations agencies provide grant aid, whereas the World Bank and IMF provide loans and credits. Hard currency debt obligations to the institutions must be repaid. Grants are usually more valuable to countries than foreign loans; soft, or concessional, credits are more valuable than hard, or market rate, loans. Concessional loans have a significant grant component; they have low interest rates and long grace periods. The World Bank has facilities that offer both types of loans. The International Bank for Reconstruction and Development (IBRD) extends socalled hard or market rate loans. The International Development Association (IDA) extends concessional credits to poorer governments. IBRD and IDA together constitute the World Bank. The United States is exerting tremendous pressure on the IDA to provide an increasing amount of grant financing, especially for education. Ordinarily, this would be good news. However, the United States wants the World Bank to privatize education and use the grants to offset the costs of providing education to poor populations. Experience demonstrates that efforts to offset educational services through subsidy schemes seldom work. 288

Paying for Education The Volume of Resources for Education Grant assistance has declined over the last decade. In 199495, bilateral donor governments provided less support for education (both in absolute terms and as a percentage of total aid) than they did in 19891990 before the 1990 EFA Conference in Jomtien. The good news is that the volume and percentage of education aid devoted to basic education has tripled.2 World Bank lending for education has increased significantly since the Jomtien conference. Overall lending for education doubled from the 1986 to 1990 period to the 1991 to 1998 period. Lending for primary education has increased by 360%. In 1995, the volume of Bank loans ($3.1 billion) represented 28% of all external finance for education. Of the approximately $15 billion in education loan commitments made by the World Bank from 1991 to 1998, two thirds were at market rates. One third ($5.7 billion) was for poorer countries, which borrow from the IDA and are concentrated in Africa. From the mid-1980s to the mid-1990s, the share of education lending rose for two regionsSouth Asia and Latin America and the Caribbean; the share of education lending fell for four regionssub-Saharan Africa, Middle East and North Africa, East Asia and the Pacific, and Europe and Central Asia. The volume of World Bank assistance to the education sector understates the institutions influence, because high levels of assistance provided by bilateral donors usually help finance World Bankfinanced projects and policies. Bank assistance (indeed, all external finance) represents a tiny proportion (0.5% of 1%) of global spending for education. However, in some times and places, it is significant in terms of volume of resources for, and influence on, education. For instance, during the 1980s, Bank resources constituted 16% of the resources available to African governments for education. The Types of Loans Project lending is very different from adjustment lending. World Bankfinanced projects take 5 to 7 years for implementation. In contrast, adjustment loans are quick disbursing. Adjustment loansSAPs and sector adjustment loans (SECALs) influence both the demand for and supply of educational services. Demand
Germany, Japan, the United Kingdom, France, and The Netherlands shifted considerable aid into basic education. Australia, Austria, Canada, Denmark, Finland, Switzerland, and the United States made modest shifts. Belgium, Italy, and Norway decreased allocations to basic education.
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N. C. Alexander for educational services is elastic; that is, demand rises or falls as direct and indirect costs of education rise or fall relative to a familys income level. Families make choices and set priorities. Often, families place a higher value on education of boys than girls.

The Purposes of Reform In addition to influencing the incomes of households and the cost of education, SAPs attempt to reduce the budget deficits of borrowing governments. Because education budgets usually constitute a significant portion of the federal budget, SAPs often change the level or composition of education spending. Such changes affect many aspects of school systems, such as school construction, administration and maintenance, teacher salaries and benefits, and educational materials. Generally, adjustment loans for the education sector or for an entire economy are more powerful and influential than project loans. Hence, an understanding of the net impact of the IMF and World Bank on education relies heavily on an understanding of the impact of adjustment loans. Adjustment loans for the education sector may attempt to privatize and decentralize education while recovering costs through user fees. They also reorient spending from secondary and higher education to basic education. These recipes, or formulaic approaches to the education sector (World Bank, 1979), have often retarded educational progress. In addition, the goals of SAPs often conflict with the goals for education. From 1980 to 1993, there were more than 3,000 policy conditions attached to World Bank SAPs, but only 50 related to education. Of these 50, only 6 explicitly called for increased spending on education.3 Now social conditionality (requirements in a loan agreement in addition to the terms of repayment) is the rule rather than the exception. However, social conditions are often discretionary. The important binding conditions on SAPs (e.g., up-front conditions, which are imposed at negotiation, preappraisal, and prior to release of loan installments, or tranches) may have an adverse impact on the social sectors. Among other things, these binding conditions usually induce governments to cut budget deficits, which puts pressure on social sector spending.
Figures derived from a list provided to the author by the Poverty Reduction & Economic Management Network of the World Bank.
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Paying for Education The World Bank Groups4 Approach to the Education Sector Volume of Assistance for Education One can gauge the influence of a donor or creditor on the education sector of a developing country by reviewing the volume of assistance and its type, purpose, and impact. Too often, the volume of assistance provided by a financier is used as a proxy for effectiveness. This is misleading.

Forms of Assistance: Grants and Loans Bilateral donor governments and United Nations agencies give grants to developing country governments. Grant resources may seem more valuable to developing country governments than loans, because grants do not need to be repaid. However, the World Bank is considering extending grant assistance to subsidize privatization of education in borrowing countries.

Declining Grant Aid for the Education Sector In 1994 and 1995, bilateral donor governments provided less support for education (both in absolute terms and as a percentage of total aid) than they did in 1989 and 1990 before the 1990 EFA Conference in Jomtien. However, the percentage of education grants devoted to basic education tripled during this period. In the early 1990s (19911994), the volume of Bank loans for education ($7.9 billion) represented 40% of all bilateral grants ($19.8 billion). This percentage has increased. According to UNESCOs (1998) World Education Report, the World Banks education commitments represented 46% of bilateral assistance and 28% of all assistance in 1995 (Table 1).

The World Bank refers to the institutions market rate window, the IBRD, as well as the concessional window, the IDA. The IBRD is the facility for countries with per capita annual incomes exceeding $925; IDA is the facility for poorer countries. IDA provides soft, or concessional, loans to the poorest countries, which are concentrated in sub-Saharan Africa and South Asia. Affiliate members of the World Bank Group include the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency.

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Table 1 1995 External Expenditures for Education in Millions of Current U.S. Dollars Expenditure Bilateral assistance All multilateral resources World Bank UN programs UNESCO Total World Bank as % of total Amount $4,450 $2,717 ($2,057) $278 ($100) $7,445 28%

Note. From World Education Report (p. 112), 1998, Paris: United Nations Educational, Scientific and Cultural Organization. Copyright 1998 by UNESCO. Reprinted with permission. UN = United Nations; UNESCO = United Nations Educational, Scientific and Cultural Organization.

Technical Assistance That Never Reaches Developing Countries The Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD) categorizes aid as follows: investment projects, sector aid, technical cooperation, and other. Importantly, 70% to 75% of all donor support since the mid-1980s has focused on technical cooperation. Usually, most technical cooperation monies and some project monies are spent in donor countries for purposes such as training. Thus, it is calculated that 60% to 80% of all education aid commitments are spent in donor countries (Bennell & Furlong, 1998). Levels and Types of Bank Lending Overall lending for education doubled from the 1986 to 1990 period to the 1991 to 1998 period. During the 1990s, lending levels for basic education have fluctuated wildly. In fiscal year (FY) 1998, the level of education loan commitments$3.1 billionwas three times the FY 1997 level. The $3.1 billion level represents 36 loans to 28 countries, which is 9.1% of total World Bank loan commitments of $28,594 billion. Commitments are disbursed over a period of years. In FY 1998, education loan disbursements totaled nearly $1.9 billion. Basic Education Emphasis Bank lending for primary education increased by 360% from the 1986 to 1990 period to the 1991 to 1998 period. During the nine FYs 1990 to 1998, the average annual level of lending for basic education was $809 million, 292

Paying for Education which is four times the annual average for the years 1986 to 1989. During the 1990s, basic education constituted about one third to one half of Bank education lending. Although basic education encompasses adult literacy as well as primary education, adult literacy is not a Bank priority. In FY 1996, only two projects (in Ghana and in Indonesia) focused on this goal.

Prominence of Education Operations in the Banks Loan Portfolio The World Banks medium-term plan for a borrowing country, the Country Assistance Strategy (CAS), lays out the framework and rationale for Bank investments in a country. A CAS is prepared every few years for each borrowing country.5 The CAS describes plans for both kinds of lending operations: economic reforms, or SAPs, and project investments in different sectors, such as agriculture, power, education, and health. The World Banks CASs identified education as a priority in 77% of all CASs prepared during FY 1997 and the first half of FY 1998. Twenty percent of the subject CASs proposed education loans; an additional 20% proposed education research. Education loans represented 9% of all loans proposed by the CASs, whereas education research represents 7% of all research proposed by the CASs.

IBRD and IDA Lending for Education International Bank for Reconstruction and Development. In 1962, when the Bank began education lending, there was controversy about whether it was appropriate to use Bank finance (rather than grants) for education purposes. The Board considered a proposal to use IBRD net profits for education grants in IBRD countries. However, it was decided that net profits should be channeled to low-income, IDA countries. Of the approximately $15 billion in education commitments made by the World Bank from 1991 to 1998, nearly two thirds were extended by the hard loan window, the IBRD. The biggest borrowers for education are IBRD or blend (both IBRD and IDA) countries: Mexico, India, Brazil, Indonesia, China, Pakistan, Argentina, Korea, and the Philippines.

5 If country conditions change in the interim, the Bank updates the CAS by preparing a new short CAS or a CAS progress report.

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N. C. Alexander International Development Association. During this time frame, over one third ($5.7 billion) of the $15 billion in commitments represent credits extended by the IDA. Most IDA countries are in Africa in which the ratio of enrollments to the primary school-age population is declining. In FY 1998, 11 of 35 new education loan commitments were to IDA countries. (Seven of the 11 were in sub-Saharan Africa.) The World Banks financing of education fell from an average of $2 billion per year in the 1990s to $1 billion per year for the last 2 years. These levels continue to gyrate. Why? First, education is increasingly a priority of powerful shareholder governments, such as the U.S. government. Hence, the Bank is under pressure to move money for education. Second, there are bottlenecks in the lending pipeline because many governments cannot or will not provide the local cost financing components of education operations. Implementation problems also stem from other factors, such as political turmoil and weak institutions. Some Bank critics claim that SAPs, which have downsized governments, are partly to blame for the inability of governments to efficiently process and administer education loans. International Finance Corporation.6 The power and authority of the World Banks private-sector affiliate, the IFC, is expanding.7 (The IFC has a mandate to lend to, and take equity positions in, private ventures.8) The IFC will increasingly team up with the Banks soft loan arm, the IDA, which lends to low-income governments. The Bank increased its budget in FY 2002 to help finance expanded lending to low-income borrowers,9 which is expected to reach $7 billion in FYs 2002 to 2004.10 Together, the IFC and IDA are aggressively promoting the privatization of education. The World Bank has an online service, EdInvest, which guides investors to profitable ventures in the education sector.
The IFCs approach to the education sector is described in Karmokolias and Maas (1997). The World Banks (1995c) 1995 Annual Report referred to the institutions shift to supporting private-sector investment (as opposed to direct lending to governments) as a dramatic departure from what had been Bank policy for half a century. 8 For the most part, the IFC would also take charge of the World Bank Groups on-lending operations and policy risk guarantees. That is, if the market does not provide these services to borrowing countries, the IFC/MIGA will provide them (or refer the borrower to the IBRD and IDA). 9 One internal paper distributed within the Bank in March 2001 envisioned the Banks administrative budget growing from $1.2 billion in FY 2001 to about $1.3 billion in FY 2002. It succeeds the Banks FY 1998 to FY 2000 Strategic Compact. 10 IDA commitments increased to $6.8 billion for 134 projects in FY 2001, compared with $4.4 billion for 126 projects in FY 2000.
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Paying for Education The IFCs paper, IFC: Strategic Directions (World Bank, 2001), targets five frontier areas for business expansion, including the social sectors, infrastructure, small and medium-sized enterprises, domestic financial institutions, and information technology and communications. Especially in these areas, the IFC will increasingly take the lead in expanding private provision of services,11 and IDA will work with governments to design subsidy and other schemes to offset the costs of private provision to lowincome consumers. Initiatives to privatize education are being taken without regard for the needs and preferences of citizens in borrowing countries. Indeed, the IMF and World Bank are suspending debt relief for several countries due to their inadequate progress in privatization. Such coercive tactics subvert efforts by citizens in borrowing countries to shape their own future through national planning processes (e.g., the Poverty Reduction Strategy Paper [PRSP] process; World Bank, 1992). Regional patterns. From the mid-1980s to the mid-1990s, the share of education lending rose for two regionsSouth Asia and Latin America and the Caribbean; the share of education lending fell for four regions sub-Saharan Africa, Middle East and North Africa, East Asia and the Pacific, and Europe and Central Asia. Of the six geographical regions, Latin America and Caribbean and East Asia and the Pacific received the most education resourcesabout 65%. Demand for education loans. Governments prefer grant financing to loan financing of education. Historically, demand for education loans has been sluggish due to factors such as: The high level of sustained, recurrent costs (e.g., teacher salaries and educational materials) required for effective education operations. Governments prefer to borrow for capital expenditures (e.g., construction of facilities). Education operations, like other operations, require that borrowers provide counterpart funds. Borrowers provide almost 20% of the total cost of education operations in counterpart funds. The poorer governments have greater difficulty providing counterpart funds.
11 IFC investments increased four and a half times over in real terms between 1980 and 2000. The IFCs infrastructure department was created in 1992 and, by 2000, one fifth of IFC lending went to private-sector infrastructure.

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N. C. Alexander Returns on education are realized in the long term. Education operations do not usually generate a stream of revenues in the near term. Nor do they directly contribute to the generation of foreign exchange revenues, which can help to service foreign debts and import goods and services. Thus, although lending for education has been expanding since the late 1980s, demand by the poorest countries is much lower than demand by lower middle-income and middle-income countries. Many NGOs in developing countries oppose the government practice of borrowing at market rates for social services, which they believe their government should underwrite with their tax dollars. Some NGOs also oppose greater World Bank provision of grants for education where grants would subsidize the privatization of education. Fungibility (the ability to freely move money from one category of expenditure to another). As described later, aid and credit are sometimes diverted for other-than-intended purposes. Once assistance reaches a governments treasury, it is fungible or transferable for any purpose. Education assistance is especially fungible because governments are averse to providing sustained levels of local cost financing for purposes such as teacher salaries and educational materials. In addition, where there are IMF programs, governments may divert assistance to avoid violating IMF budget deficit targets. Staffing The Bank has approximately 240 staff working in the education sector. Of this total, about 20% have graduate exposure in the field of education. The World Banks 10,000 staff members are organized into thematic networks that provide services to country and regional departments. The staff of the country and regional departments within the Bank hold the reins of power in the Bank. A powerful country director, along with a chief economist, staffs each Country Management Unit. In conjunction with their client country or countries, these individuals coordinate the design of CASs and determine the level and composition of lending, including education lending. The Country Management Units generate demand for the advice and services of the Banks thematic networks. The Human Development (HD) Network supplies advice and services with respect to education, health, 296

Paying for Education and social protection operations to the country and regional departments. The HD Network is relatively powerless compared with the thematic networks that focus on macroeconomic reform, private-sector engagement, and infrastructure.

Lending and Nonlending Education Services Lending Services The principal loan instruments of the World Bank are (structural and sectoral) adjustment loans and project investments.12 Adjustment loans are popular with the World Bank and its borrowers because they are fast disbursing and inexpensive to process. In contrast, project loans disburse slowly over the course of 6 or more years. As a rule, adjustment programs have a greater impact on the education sector than do project investments. Thus, it is unfortunate that researchers that seek to understand the influence of the World Bank on the education sector tend to focus on education projects and overlook adjustment programs. Hence, the public tends to have a distorted view of the role of the World Bank and the IMF in education. Education sector adjustment policies and structural adjustment programs are discussed in the next sections.

Structural Adjustment Programs Adjustment loans, which aim to liberalize and privatize economies in the context of strict budget discipline, are controversial and unpopular for reasons described in the next sections. Hence, the IMF and World Bank are gradually expunging the term adjustment from their lexicon. At present, many World Bank adjustment loans to low-income countries are now called Poverty Reduction Support Credits (PRSCs); IMF loans to poor countries are called Poverty Reduction and Growth Facility Arrangements. World Bank adjustment loans to middle-income countries are being called Development Support Loans. These name games are cosmetic; they are not accompanied by any change in the institutions policy prescriptions.
12 In addition, the Bank and the IFC offer a variety of partial risk and partial credit guarantees to private investors. The IFC also takes equity positions in ventures.

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N. C. Alexander Sector Adjustment Loans Adjustment loans for the education sector often attempt to privatize and decentralize education while recouping costs through various means, including user fees. Hybrid Loans Adjustment provisions are also being packaged with project investment loans. Hybrid loan instruments, including adaptable program loans (APLs) and learning and innovation loans (LILs), combine adjustment and project elements. The APL is a loan with a long-term development purpose and a phased-in implementation process, which allows the borrower to pilot and then scale up and replicate projects. Like the APL, the LIL allows a growas-you-go approach to lending. However, it is smaller in scale. These new instruments are especially well suited to education operations, which involve a variety of governmental and nongovernmental stakeholders. Project Investments In the early days of Bank project lending, nearly 80% of projects involved civil works construction. The volume of construction has declined steadily and now stands at about 23% of lending. Most education expenditures are recurrent expenditures, such as teacher salaries and benefits, textbooks, and other educational materials. However, until the late 1980s, a Bank policy prohibited loans to support recurrent expenditures. When this policy changed, the composition of Bank lending changed. In 1995 to 1997, about 60% of operations supplied equipment and textbooks or provided technical assistance. Bank-financed projects focus on the supply side of educationthat is, provision of buildings, technology, and educational materials. Supplyside financing works on the field of dreams theory that if you build the school, they (the students) will come.13 Providing a place in school for every child is a demand-side as well as a supply-side challenge; families must be able to afford the direct and indirect costs of educating their children.
13 In the 1989 movie Field of Dreams, a lover of baseball believed that if he built the perfect ballpark, baseball players would rise from the dead to play.

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Paying for Education Projects are only beginning to address issues relating to instructional quality and demand-side barriers to education faced by certain populations. Barriers come in many varieties: language barriers, gender discrimination,14 high direct and indirect costs, the opportunity cost of educationthat is, income foregone from children forsaking employment for school, the location of schools in deprived rural settings, trade-offs between investing in the education of different children within a family, cultural and religious biases with respect to the value and type of appropriate education, and so on.

Nonlending Services Training In the late 1990s, six private foundations, 21 bilateral donors, and 20 multilateral development organizations funded activities of the Economic Development Institute (EDI). During 1998 and 1999, EDI, which is the Banks training and education arm, had 21 core courses, one of which focused on education reforms. EDIs program on education reform is intended to build capacity and consensus for education reform in developing countries, focusing on three areas, education financing, improved governance, and school and teacher effectiveness. EDI also has a Girls Education Program, which is part of the Partnership for Strategic Resource Planning, a multidonor collaboration with African countries led by African Women Educators (World Bank, 1998a, p. 32). In 1997, 11 companies gave substantial support for EDIs World Links for Development, an electronic network for teachers and students on development issues.15 This program reached 105 schools in 11 developing countries in FY 1998. EDI also has a program in Distance Education, Technology and Networks for Education, Health and Population, which helps countries use distance education, technology and networks to address problems

14 The average 6-year-old girl from a low- or middle-income country can expect to attend school for 7.7 years; the average 6-year-old boy can expect 9.3 years of schooling (Patrinos & Ariasingam, 1996). 15 Sun Microsystems, URLabs, AMP, Cisco Systems, Advanced Network Services, Intel, Apple, Lucent Technologies, Security Storage, Microsoft, and 3com.

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N. C. Alexander of access and quality in their health and education sectors (World Bank, 1998a, p. 32). Grant Giving In late 2000, IDA began to provide a large volume of grants for education in recipient countries. To date, however, IDA grant giving has been limited to countries in conflict or projects funded by the Banks Development Grants Facility, which endorsed the first year of a multiyear program to support UNICEFs education programs. In FY 1998, a $1.2 million grant supported small-scale innovative programs at the community and local levels to increase girls enrollment rates. A partnership between the U.K.s Department for International Development, the Rockefeller Foundation, and UNICEF (1998, p. 70) will study the implementation of girls education projects and initiative. The Banks Education Knowledge Management System is designed to provide clients, partners, and staff of the Bank with the latest information in the following areas: access and equity in basic education, effective schools and teachers, education and technology, economics of education, early childhood development, education system reform and management, and postbasic education and training. Research Recent or forthcoming research reports include: Impact Evaluation of Education Projects: Decentralization and Privatization Issues Improving Primary Education in Kenya: A Randomized Evaluation of Different Policy Options Child Labor and Schooling in Latin America When Learning Makes Reform More Productive: An Agenda for Analysis El Salvadors School-Based Management Reforms Improving the Quality of Preschool Education in Kenya Evaluating the Impact of Supplementary Teachers in Nonformal Education Centers The Impact of Colombias Voucher Program: Using Randomization Through a Lottery for Program Evaluation Economic Analysis in Education Projects 300

Paying for Education Monitoring and Evaluation As of FY 1995, midterm reviews were conducted for only 12% of the World Banks education loans. As noted earlier, the Banks (World Bank, 1997b) 1997 Annual Report, which concentrated on issues of development effectiveness, states that the Banks current systems for evaluating the education sector are inadequate. The Banks monitoring and evaluation (M&E) system has been plagued with difficulties. Borrowers sometimes resist using project resources to collect data required for M&E. Moreover, until the 1990s, M&E was seldom performed by client country constituencies, which have the most intimate knowledge of the accomplishments of an operation. In 1992, the Banks Portfolio Management Task Force was disparaging of Bank M&E. A 1994 Operations Evaluation Department (OED) study found that Bank managers did not satisfactorily supervise projects or report on their outcomes at completion. The study also found that tracking project indicators did not measurably contribute to project outcomes. Historically, M&E has measured Bank inputs rather than outputs, or results (e.g., schools built rather than children educated). Since 1992, the Bank has concentrated on building results-based methodologies of M&E. By 2002, the Bank was focusing on measuring results-based indicators and seriously neglecting medium-term indicators. Hence, the Bank and its borrowers are learning more about outcomes without understanding what caused them. Quality of Adjustment Lending The Banks OED provides misleading assessments of the performance of adjustment programs. There are three types of adjustment performance indicators: policy, intermediate, and outcome indicators. Policy indicators reflect whether the government has complied with policy conditions. Outcome indicators monitor progress toward growth and poverty reduction goals. Intermediate indicators reflect progress toward desired outcomes. The OED relies heavily on policy indicators in claiming that 86% of FY 1999 and 2000 structural adjustment loans and 90% of SECALs performed satisfactorily. (SECALs constitute roughly one third of all adjustment lending by volume.) At the same time, OED finds that just 76% of adjustment loans during these FYs were likely to sustain benefits over time. For Africa, about half of its SECALS and 43% of its structural adjustment loans were expected to sustain benefits. 301

N. C. Alexander A closer look at adjustment programs gives a gloomier view of their performance. For instance, the Bank found that only 45% of FYs 1998 to 2000 adjustment operations addressed poverty issues adequately. Less than 20% of a sample of adjustment loans linked adjustment policies with efforts to reduce poverty; 22% of these loans made provisions for monitoring poverty and social indicators. Another evaluation of adjustment loans found that: The majority of [adjustment] loans do not address poverty directly, the likely economic impact of proposed operations on the poor, or ways to mitigate negative effects of reform. Even where traditional subsidy and budgeting procedures are to be dismantled, the assumption is that poverty alleviation is to be achieved through improvements in macroeconomic stability and in improvements in public administration, targeting, efficiency, etc. ... Direct efforts to address short-term impact on the poorest are rarely considered. (Environmentally and Socially Sustainable Development Network, 1999)

Quality of Project Investment Loans The Banks OED has generally measured project success relative to three criteria: achievement of objectives, sustainability, and institutional development.

Achievement of objectives. The OED found that for a cohort of projects completed in the 1973 to 1993 time frame, over 82% achieved their stated objectives, such as manpower development, skills training, access to and quality of education, and institutional development.

Sustainability. An evaluation of 111 education projects supported by the Bank since 1989, 62% were judged as likely to sustain their gains. Disaggregated by region, we see that sustainability is exceptionally low in African countries (56%) and Latin American and Caribbean countries (50%), but higher in East Asian countries (85%). Evaluation data show that project success is inversely correlated with the number of years the Bank has been involved in the education sector. (The longer the Bank is involved in the education sector, the less chance of project success.) 302

Paying for Education The Bank is increasingly providing support for education, health, water, and other basic services through social funds (SFs), which operate in parallel to activities of borrowing governments. SF projects allow local stakeholders to determine investment decisions through subproject proposals, which they themselves prepare. In 20012002, the Bank is evaluating the relevance, efficiency, sustainability, and institutional development impacts of SFs. This evaluation trivializes the extent to which SFs subvert the authority and effectiveness of governments, because the SF operations are usually carried out in parallel with federal and state programs almost like another line ministry. To make a sustainable, lasting contribution to social well-being, SF activities will need to be integrated with mainstream social programs offered at the federal, state, and local levels. World Bank Recipes for Educational Reform Overview The level of Bank support for education generally varies depending on a borrowing governments willingness to undertake reforms recommended by the Bank. In principle, this makes sense. As a lender with fiduciary responsibility, the Bank has a right to ensure that borrowers do not waste or misuse resources. However, the Banks recipes for reform are often standardized and simplistic: privatize, decentralize, recover costs, and transfer resources from higher to primary education. Because these recipes are viewed as goods, then it is often assumed that there is a linear relationship between the recipe and the outcome (e.g., if some decentralization is good, then more must be better). In and of themselves, these recipes are neither good nor bad. Their efficacy depends on the circumstances. In general, the analytical basis for Bankproposed reforms was developed in the industrial North. For instance, the rationale for the Banks 1990 primary education policy draws largely on developed country experience as the basis for its policy recommendations. There is a conspicuous lack of research and analysis of the impact of reforms based on information and experience in developing countries. Still, the application of simple, standardized recipes has revolutionized the Banks education portfolio. According to Jones (1992), a comparison of loans approved in 1990 with loans approved in 1980 shows that (a) the percentage of projects with increased privatization and cost-sharing rose from 33% to 100%, (b) projects aimed at reducing recurrent costs rose from 33% to 78%, and (c) projects to expand secondary and tertiary education declined from 50% to 11%. In 1990, 70% of projects called for increases in 303

N. C. Alexander primary schooling, 67% of projects reduced subsidies for secondary and tertiary students, 56% raised tuition fees, 67% enlisted communities in school construction, and 56% contained covenants encouraging governments to support private education (Jones, 1992, pp. 177178). Impacts of the Banks formulaic approach to fiscal adjustment and education reform resulted in the widespread imposition of user fees, which in turn, deprived generations of poor children of an education. As many studies demonstrate, charges for basic services impose a tax on human development (Oxfam International, 2001). In October 2000, the U.S. government enacted a law requiring U.S. representatives to international financial institutions to oppose any loan operation that would impose user fees for primary education and basic health care. Subsequently, the Bank beat a fast retreat from its past policies of encouraging and even requiring user fees. As of September 2001, the Banks policy on user fees was ambiguous (Adams & Hartnett, 1996; Bray, 1996a; Patrinos & Ariasingam, 1996; van der Gaag, 1995; World Bank, 1996b). Although the Bank states principled opposition to user fees for primary education, it often assumes that states will continue to impose such fees. Hence, the Bank sees a role for itself in carefully designing user fee policies so that poor people will not be hurt. There is broad agreement among communities of educators and economists about the importance of certain economic and social values. Although many policymakers agree on educational values, such as quality and equity, differences arise when such values are consistently subordinated to economic values. In addressing the qualifications of teachers, United Nations Educational, Scientific and Cultural Organizations (UNESCO) 1998 World Education Report cites the International Labor Organizations 1996 report, Impact of Structural Adjustment on the Employment and Training of Teachers: . . . No other aspect of structural adjustment programmes [than teacher compensation] has demonstrated so clearly the increasing tendency of national development policies to subject education to the same costcutting logic of market forces that is applied to the overall system of production: if qualified people are willing to teach for less pay than the standard rates, then why not hire them? (UNESCO, 1998, p. 36) UNESCO claims that the same logic is often applied to the issue of classroom size. That is, in seeking economic efficiency one can continue decreasing the teacherpupil ratio, much as a factory manager would attempt to increase output while cutting costs. Cost containment is an important value when considered in tandem with the requisites of a quality education. Too often, the focus on efficiency eclipses educational needs. 304

Paying for Education Measures of internal efficiency may relate to (a) staff efficiency studentteacher ratio, multigrade teaching, multiple shifts, and lengthened school week and school year (in general, the Bank emphasizes the benefits of a lower teacherstudent ratio [fewer teachers per class] and shifting expenses from salaries to training and educational materials); (b) reducing repetition and dropout rates; (c) efficiency of facility use percentage of time (day/week/month/year) facilities are occupied; and (d) construction costssimplify designs, use appropriate materials and community labor while upholding safety and building standards. In contrast, external efficiency focuses on how education translates into jobs, promotes productivity gains, reduces poverty, and increases social mobility. Because staff with advanced degrees in education are in such short supply in the Bank, staff deployed to the Banks education unit often look for simple, standardized solutions. Especially for weaker borrowers, the provision of simple, standard answers to complex needs can be unhelpful. This is worrisome because governments must be able to monitor and evaluate the policies and practices of a burgeoning number of actors in the education sector. If such actors lack accountability to governments, the government will be unable to facilitate achievement of education goals, such as universal primary education. If institutions in borrower countries are challenged to design solutions to their unique circumstances, their capacity grows. It is possible that, if the Banks analysis had greater depth, the Departments of Education would seek out Bank experts in Western countries. However, the Bank does not receive contracts from countries in the OECD. Recipes As noted earlier, the Bank has five major policy prescriptions for the educational challenges of borrowing countries. Privatize. Recover costs through user fees. Implement demand-side financing. Decentralize. Transfer subsidies from higher education to basic education.

The Bank packages such products in adjustment or project loans. Here are two typical Bank policy packages: 1. Increase the private costs of higher education; reduce public financing of vocational education; finance loans for low-income 305

N. C. Alexander students; and transfer public resources from higher education to basic education. 2. To improve resource utilization, the borrowing government should: decentralize by establishing school-based management; offer families a choice of schools; involve the private sector in financing and service delivery; increase class size; provide incentives for teacher achievement; and monitor educational outcomes and achievement. Each policy prescription is defined and described in the following section. Privatize To some, privatization connotes transfer of ownership of education facilities from government to private or nongovernmental entities. Here, the term is intended to encompass all aspects of private-sector and nongovernmental involvement in education. Privatization can involve the transfer from public to private hands of: Ownership of education facilities and other assets. Financing. Management. Delivery of education services.

Some estimate that private investment accounts for one third of education spending globally, whereas public investment accounts for two thirds of spending. In fact, there are insufficient data to know this with any degree of certainty. World Bank Group Strategies The World Bank Group (including the private-sector affiliate, the IFC)16 emphasizes three options for publicprivate collaboration in education: 1. Private schools subsidized by public money. 2. Public schools that are privately managed. 3. Parental choice, which often involves providing parents with vouchers that permit them to choose their childrens schools.
16 The IFC committed to seven education projects in FY 1998, five of which are located in West Africa.

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Paying for Education The Share of Private-Sector Investment The proportion of total spending from private sources ranges widely: Haiti80%, Hungary6.9%, India11%, Kenya38%, Uganda57%, and Venezuela27%. However, 90% of primary school students are enrolled in public education systems (World Bank, 1995a, pp. 5355). Some governments, such as Indias, have systems for supplanting private financing with public financing. In Indias Maharashtra State, the government will absorb costs of funding schools after they have scored high on key capacity-building areas. Boosting Privatization of Education Through Output-Based Aid Schemes Increasingly, education systems will be administered through outputbased aid (OBA) schemes, in which the government delegates service provision to private (or nonprofit) providers and compensates providers only after services are delivered (e.g., after students pass standardized tests). OBA focuses on achieving measurable results. In education systems in the United States and elsewhere, student achievement, as measured by success on standardized tests, is considered an output or a result. But in the United States, student achievement has not been improved after almost a decade of obsessive focus on standardized testing. Even when school districts use performance contracting to hire and pay private firms to produce a single output (e.g., higher test scores), firms do no better than public schools. Hence, the growing, large-scale resistance to the emphasis on standardized testing by parents and educators. What is surprising at first is that outputsmassive levels of standardized testing have not redirected funding within education systems in any significant way. The sector has been beset with confusion about what criteria to use to award funding increases to high-performing or low-performing schools. The chances of poor people receiving services through output-based schemes are poor for a host of reasons, including the following: The difficulty of targeting subsidies and leakage, or capture, of subsidies by well-to-do groups. For instance, the bureaucratic apparatus needed to conduct means testing to target subsidies and exemptions has, in some cases, been shown to cost more than subsidies themselves. The incentives for private providers to pocket subsidies or inflate losses (e.g., provide low-quality or no service). 307

N. C. Alexander The lack of regulatory mechanisms, which can oversee and enforce OBA contracts and ensure that services are delivered in acceptable ways. The lack of judicial mechanisms that permit poor users to appeal or seek recourse when a contractor fails to deliver services in the specified manner. It is unrealistic for the PSD Strategy to assume that an arms-length relationship will exist between borrowing governments and service providers The fiscal liabilities assumed by the public sector when OBA schemes fail. Resistance to foreign service providers. Increasingly, contractors in OBA schemes will be international or foreign service providers, which will exacerbate cultural conflicts, access, affordability and accountability problems. Usually, domestic service providers will lack the deep pockets for up-front financing for health, education, or water services, as required by OBA schemes. Social Funds One way of devolving government responsibility for education is the SF. As noted earlier, SFs channel monies to local communities for smallscale projects to reduce poverty by, among other things, delivering social services and creating jobs. SFs were originally designed to accompany adjustment programs in Latin America. Because the SFs bypass government bureaucracies, they sometimes offer speedy services. However, SF programs fail to coordinate their activities with those of government ministries. They can also cater to special interests. SFs have become widespread. The Bank has helped to establish SFs in 22 countries, including Bolivia, Cameroon, Ethiopia, Honduras, Senegal, Uganda, and Zambia. Funds generally pool resources from multiple donors and creditors. Examples Chile. Beginning in 1980, the government provided incentives for private schools to compete with public schools by providing vouchers for both. The percentage of subsidized private primary school enrollment has doubled and stands at one third (33%). Colombia. British Petroleum, in partnership with the government and in association with a World Bankfinanced project, is setting up pilot proj308

Paying for Education ects in municipalities to establish integrated family care centers. British Petroleum is involved in large-scale oil exploitation in various parts of Colombia. Colombia has also initiated a Bank-supported program to provide vouchers (financed by the central and municipal governments), which students can use to attend private schools. Pros Like private education, public education is often biased against the poor. In the case of public or private provision, access to education for disadvantaged groups can require subsidies. Unlike public systems that can run deficits, private systems must exercise financial discipline and still remain competitive. Teachers unions can sometimes protect the employment and wage interests of public teachers at the expense of other interests (e.g., recurrent expenses, such as materials and training). In some countries, the public-sector provision of education is highly inefficient and poor in quality. These deficiencies reduce demand for education. Cons The responsibility of federal, state, and municipal governments for oversight and supervision of the education sector can diminish when education functions are transferred to the private sector. OBA schemes and SFs often circumvent and undercut the government. In turn, this can undercut achievement of education goals, such as universal primary education. Fewer and fewer Bank loans by the end of the 1980s were free of the obligations imposed by loan conditionality to promote the privatization of education through the building up of systems of private institutions and the expansion of user charges in the public sector. Bank-promoted subsidization of private schools increased to questionable levels when it was in clear danger of jeopardizing public commitments to educational quality, in both public and private institutions. In theory, private school systems can foster greater financial accountability. However, where private schools are subsidized with public money, financial discipline can be compromised. Thus, World Bank support for private school subsidies has been controversial. Private-sector actors, which the Banks affiliate, the IFC, calls edupreneurs, and NGOs are not always properly equipped to provide 309

N. C. Alexander high-quality formal educational services on a large scale with financial accountability. Their niche is usually in small-scale innovation. Private school systems can increase social stratification and ruralurban divisions. Children of low-income and racial or ethnic minority families are often ghettoized in public school systems that underperform their private-sector counterparts. Sometimes poorly functioning systems, which are intended to subsidize the direct or indirect fees for private (or public) education via vouchers or other means, impede access to education (Lennock, 1994). Private teachers are usually not able to protect their interests through collective bargaining. To succeed, SFs require strong project selection criteria, effective monitoring and supervision, and integration with government-provided services. Currently, they constitute a parallel delivery system. SF innovations, principles, and technologies should be mainstreamed into publicsector programs. SFs should also address the capacity-building needs of local organizations. Recover Costs The term cost recovery refers to the following: The cost of constructing educational buildings and facilities. It is now common practice for such communities to absorb the cost of constructing school facilities. In fact, this is the main kind of cost recovery at the primary education level still officially sanctioned or advocated by the World Bank. The contributions of foreign aid to the capital costs of construction are widely criticized. Aid is blamed for excessive costs for facilities that are often inappropriate to the needs of communities. Textbook fees and the topping off of teachers salaries are commonplace. Formal tuition fees are uncommon at the primary school level. The less visible costs to families involve: the costs of travel to and lodging in proximity to schools and the costs of food and uniforms, or clothing. There are also opportunity costsnamely work that children cannot perform at home when they are at school. In general, girls contribute more significantly to work around the home than do boys. There is also the cash income foregone by children obtaining an education rather than working for pay. It is significant to note that families need to make tradeoffs with respect to the education of their children. Increasingly, secondary schools impose more significant fees on families than do primary schools. Consequently, parents who decide to pay the bill for one or more 310

Paying for Education secondary school students may find the direct or indirect costs of educating a primary school student less affordable. Examples Nicaragua. In the Bank-financed project that decentralized school management (see following section, Decentralize), parents equated decentralization, or participation, with the imposition of fees (cuotas) on impoverished rural families. The system became highly controversial and altered social relations inside the school. Parents said: It is like the institution is privatizing itself. They now say education is no longer free. You have to pay for everything. Oxfam International (2001) provides additional examples of how education charges constitute a tax on human development in Tanzania, Zambia, and Ghana. Pros In theory, cost-recovery schemes can waive fees for primary school and low-income children. In theory, recovery of costs can help ensure efficient and effective spending. Cons In practice, waiver and exemption systems often fail. Thus, for low-income families, fees can be a barrier to school enrollment and completion. Using both cost-recovery and demand-side financing mechanisms may be inefficient when a majority of the students in the locale or country are poor. Many countries have limited capacity to administer cost-recovery and demand-side financing mechanisms. Implement Demand-Side Analysis and Financing Description of the Issue In the 1990s, Bank-financed projects still emphasized the supply side of educationprovision of buildings, materials, and technology. However, increasingly, the Bank is conducting demand-side analysis (e.g., beneficiary 311

N. C. Alexander or social assessment) to identify problems that impede school attendance of girls, low-income students, and other marginalized or disadvantaged groups. With the benefit of such analysis, education loans can be designed in ways that increase school attendance. For instance, in Turkey, a number of measures were taken to induce girls to attend school, including: Construction, extension, and rehabilitation of facilities, especially those that can induce attendance of girls (e.g., secure boundary walls, lavatories, and female teacher housing). Provision of secure transportation to and from schools in areas where school closings have led to consolidation. Introduction of flexible school schedules, child care policies allowing siblings to accompany students, and provision of double shifts that make it easier for parents to forego girls help at home. Incentives to increase the number of female teachers in rural areas through provision of scholarships, housing, and hardship pay. The Bank has also undertaken strategies to compensate families for the cost of their childrens education. Such strategies may involve stipends (cash payments), community financing (through monetary or nonmonetary contributions), targeted bursaries (cash payments that go directly to schools, municipalities, or provinces), vouchers (usually publicly financed cash payments), and scholarships. In 1995, school dropout rates in Brasilia were dramatically reduced when Governor Buarque established an innovative scholarship program. The program provided a stipend (or bolsa) equivalent to a minimum wage ($128 per month per family, regardless of the size of the family or the number of children in the family) to every low-income family with children aged 7 to 14. Eligible families were in the lowest quintile of the income distribution (with an income level less than $50 per month per family member) and employed or searching for employment. A school savings program provided a deposit of approximately $90 into a savings account for each child of a participating family who successfully completed a school year. Enrollment statistics often mask demand-side problems. During the late 1980s, enrollments were declining for poor populations in Cte dIvoire, despite the fact that net enrollments and education expenditures were increasing. In other words, increases in enrollments of nonpoor children exceeded the decline among enrollments of poor children. The gap in enrollment and in educational progress widened between the nonpoor and the poor, between urban and rural areas, and between various socioeconomic groups (Grootaert, 1994, p. 131). 312

Paying for Education To achieve universal primary education, it is essential to boost the demand by poor families for education by protecting and increasing incomes and, at the same time, boosting the supply of education services to disadvantaged regions and groups. Even after the significant declines in primary enrollments in the 1980s, the Bank is hesitant about embracing demand-side solutions. A recent Bank publication, School Enrollment Decline in Sub-Saharan Africa: Beyond the Supply Constraint, notes that between 1981 and 1991, primary enrollment declined in at least 14 of 27 African countries surveyed. It concludes that declining incomes and employment opportunities may affect household decisions and, therefore, the Bank should not assume inelastic demand for education (Bredie & Beeharry, 1998). It is puzzling that the Bank is so tentative about this conclusion, given the evidence about how declining income and employment opportunities influence the decisions, including education decisions, of poor families. Demand-side solutions might include ensuring that IMF and World Bank adjustment policies do not jeopardize livelihoods and diminish incomes, user fees are eliminated, and indirect costs of schooling are covered by stipends and scholarships. Until recently, the Bank only considered strategies to offset the indirect costs of schooling. To that end, it analyzed the effectiveness of funding student subsidy schemes to increase enrollment among the rural poor in several countries, including Bangladesh, Brazil, Pakistan, and Tanzania. Examples The World Bank has instituted a variety of demand-side financing schemes in Bangladesh (stipends for girls), Chad (community financing), China (targeted bursary for poor and minority children and free textbooks), Colombia (targeted bursary, voucher system), Jamaica (student loans), Mexico (targeted bursary for poor and indigenous populations), and Pakistan (subsidies to private schools servicing low-income, rural girl students). Pros Demand-side financing can reduce or eliminate family costs for schooling and raise enrollment rates. Where targeting of low-income children or girls is effective, demand-side financing can enhance equity. 313

N. C. Alexander Cons The costs of applying for a waiver may be prohibitive. In Zimbabwe, families were required to travel long distances to apply for exemptions to fees. Furthermore, there were often long time lags (69 months) in benefit payments. Financing may only compensate a family for partial costs of schooling. Indirect costs of schools (e.g., transportation, clothing, foregone income) may be prohibitive. Stipends may be misused or siphoned off. A social stigma may be attached to children in the populations targeted for assistance. Systems may be difficult to administer. Decentralize Decentralization entails devolving the responsibility and the operations of the educational system from the federal government to subsidiary levels of government, such as states and municipalities. In some countries and regions, such as Latin America, centralized control over school funding, curricula, and personnel issues is seen as a remnant of colonialism. Examples El Salvador. The Educacion con Participacion de la Comunidad decentralizes education by strengthening direct involvement and participation of parents and community groups. It was conceived as a way to expand access to education for children in remote rural areas. The program has had discouraging educational outcomes (Jimenez & Sawada, in press). However, it did lead to higher teacher attendance rates (World Bank, 1998b). Brazil. In the Brazilian state of Minas Gerais, decentralization shifted responsibility for decision making from the state capital to school boards headed by an elected principal and composed of equal numbers of parent representatives and school staff. Educational standards have improved, and dropout and repetition rates have dramatically declined (UNICEF, 1998). Nicaragua. Nicaragua decentralized management and budget decisions to local school councils (consejos directivos). The theory was that greater responsibility on the part of parents, teachers, and school adminis314

Paying for Education trators would result in greater accountability, which would raise school achievement. Data also show that passing authority to the schools, which were unable to squeeze sufficient fees from poor families, created conflict. Many parents resented the imposition of fees (cuotas). In addition, there was insufficient parental participation, confusion over who actually had the power to hire and fire teachers, poorly functioning teacher incentive systems, and insufficient responsibility on the part of directors for improving pedagogical methods or monitoring school repetition and dropout rates or achievement. When asked what decentralization meant to them, parents said: We are responsible for higher cuotas [to pay] for electricity, the water, the phone . . . this is what autonomy means to me. Now the Government is no longer sending the amount of resources the institution needs . . . now the burden is on our shoulders. Teachers said, During the [decentralization] workshop we were told that we should ask parents for a cuota of 5 cordobas, but we should say it is voluntary.

Pros Decentralized governments are expected to be: More efficient in responding to demands for the delivery of services. More flexible in adapting to changing local circumstances. More accountable to the local population than are centralized governments. The Banks vice president and chief economist for the Latin America and Caribbean region summarized the pros of decentralization this way: Because local governments are better than national governments at recognizing the needs and preferences of local residents, and because local governments are at least as efficient as national governments at delivering public goods that benefit only local residents, it will be more efficient to have local governments provide the optimal level of public goods in each local jurisdiction. Local governments can be expected to be more efficient than national governments because local residents may find it easier to hold accountable local, as opposed to national, officials. (Burki & Perry, 1997, p. 81) 315

N. C. Alexander Cons The federal governments responsibility for oversight and supervision can diminish when functions are devolved to lower levels of government. Many localities lack the capacity or the resources to implement decentralized education programs. In addition, many localities become overloaded as the federal or state government devolves an increasing number of responsibilities. Decentralization cannot increase equity unless state and local governments are equitable and transparent and possess adequate resources for expanding access to schools, especially by children from low-income families and from ethnic and racial minorities. Inter-American Development Bank (IDB) literature acknowledges the need for such preconditions. In Latin America After a Decade of Reforms, the IDB (1997, p. 156) says that various circumstances must converge for decentralization to serve the people, including (a) local officials are elected, the democratic process works well enough to provide sufficient electoral discipline, and decisions are more visible and accountable; (b) local governments have institutional capacity to handle their expanded responsibilities; (c) the decentralization arrangements between different levels of government are clearly specified; and (d) there is a correspondence between the costs and benefits of government programs. In Nicaragua, decentralization was viewed as an attempt to undermine teacher rights, wages, and job security. It is difficult to monitor and evaluate decentralization efforts. Transfer Subsidies From Secondary and Higher Education to Basic Education The Bank places a higher priority on allocating budget resources to primary education than to tertiary education. Primary education can contribute to benefits at many levels: individual, family, community, and society. As described in the Banks 1980 World Development Report, primary education can increase human potential and social cohesion while improving health, reducing fertility, and boosting income generation potential (Heyneman, 1995, 1997, 1998; Ilon, 1994; World Bank, in press). Policymaking should emphasize basic education. In developing countries as a whole, 71% of school-age children share just 22% of public resources for education; 6% in higher education use 39% of public 316

Paying for Education resources. The cost of primary education is low relative to tertiary education. In Tanzania, the cost of sending one student to university is equivalent to the cost of sending 238 students through primary education. Although that statistic is telling, it is also true that a university student may help govern the nation or become a private-sector entrepreneur in the near term. European and North American countries provided heavy subsidies for higher education, although they also guaranteed universal education at an early date. The worlds job market is quickly bifurcatingdividing workers into skilled and unskilled categories. To compete in a global marketplace, developing countries must build on a strong primary school foundation by expanding enrollments in secondary, vocational, and higher education. Methodologies for calculating rates of return to different levels of education are fraught with problems. They involve dividing the benefits of education (measured in projected annual income of a student) by the lump-sum cost of the education (tuition, expenses, and foregone earnings during school years). These private rate-of-return calculations have limited application (e.g., setting tuition or scholarship policies). However, the methodologies are still too primitive to use in policymaking. Important factors still defy calculation, such as variable student abilities, variable quality of instruction, and in-kind earning potential. Social rates of return attempt to measure the benefits of education to society at large. World Bank calculations show that social rates of return are high in the primary years and decline thereafter (Psacharopoulos, 1985). These methodologies are also rife with problems. The World Banks researchers have studied the question of how education contributes to growth and found that the greatest needs for expanded education at a given level vary from country to country. However, the Banks operations are a different story. In its operations, the Bank generally stresses that borrowers must shift budget expenditures from higher education to basic education. At the same time, the Bank exerts pressure on governments to institute significant user fees at noncompulsory levels of education. Citizens in many countries feel that the Bank is contributing to a gutting of secondary and tertiary education systems. Many citizens would prefer that their governments shift resources from other sectors (e.g., military) into primary education sector, rather than slashing spending for secondary and tertiary education. One Brazilian member of Congress assailed the Banks short blanket philosophy of education financingnamely that the blanket can cover the head (higher education) or the feet (primary education) but not both. Many citizens feel that the Bank oversteps its authority when it attempts to veto a 317

N. C. Alexander domestic consensus in favor of significant support for higher education. Even the Banks Board of Executive Directors (e.g., the 1995 sector review discussion) has expressed opposition to the strong emphasis on transferring subsidies from higher to basic education. In a study commissioned by the Bank (1996b), African advisors recommended that: The Bank needs to review its policies of not making loans available for higher education. Although higher education in Africa is expensive and not very effective, this should be an argument in favor of reform rather than a reason for neglect. Indeed, the Bank should investigate mechanisms for channeling resources to higher education to ensure at least the existence of a limited network of good universities in the region. Ways should be found to allocate resources to universities on a competitive basis. For instance, resources could be allocated according to proposals submitted by the universities aimed at improving performance. Preference could be shown for imaginative programs that enhance a universitys prospects. In addition, bursaries could be provided for students to use at the universities of their choice. The bursaries could function much like a voucher system, with universities competing for the fee-paying students. (p. 14) Social scientists and economists could try to forge methods that do not understate the real cost of education (which is highly subsidized in most countries) and understate the benefits of education. However, attempts to put a price on externalities, such as the contribution of education to social cohesion, good citizenship, well-functioning institutions, or individual fulfillment may prove as illusive as valuing the beauty of a pristine forest instead of its value as timber. Likewise, the types and costs of dysfunction, which arise from the lack of education (e.g., famine, social breakdown, and war), are incalculable. IMF and World Bank Approaches to Structural Adjustment Overview The Bank has worked in the education sector since 1962. For the first 18 years (19621980), the Banks goal was to support construction and equipment for technical, vocational, and secondary education to meet manpower needs. There were major problems with operations. Thus, the 318

Paying for Education Banks first education policy paper was issued in 1971, directing that analysis of the education sector should precede investment lending. The purpose of education lending was also expanded to include software, curriculum development, and administrative and management support. There were also major performance problems in the portfolio. Regarding capital investment in diversified secondary schools, Haddad reported that completed buildings were considered inadequate in quality and educational relevance in 40% of the projects. . . . Similarly, almost all projects faced problems in the acquisition of equipment . . . . There were also major problems in the provision and utilization of laboratories and workshops (Jones, 1992, p. 253). The year 1980 was pivotal. From 1980 onward, Bank-financed education operations were often undertaken in the context of SAPs. The conditions attached to adjustment loans require governments to take actions intended to help achieve fiscal equilibrium and macroeconomic stability and stimulate growth. SAPs aim at such outcomes by restricting domestic demand and expanding production of exports. Typical SAP measures include downsizing or decentralizing government, devaluing the currency, removing import barriers, providing incentives to exporters, reforming the tax or legal system, and revising labor codes. SAPs have not generally improved economic performance. In fact, in most of the developing world (with a few exceptions, notably China), per capita income growth in the period 1980 to 1997 (after SAPs were introduced) is much lower than per capita income growth in the 1960 to 1980 period (before SAPs were introduced). From 1960 to 1980, there were increases in primary and secondary school enrollment in nearly every country. However, declines in school enrollments began in about 1980 and grew during the decade. SAPs exacerbated the gap in per capita income (gross national product [GNP]) between the countries with the richest fifth of the worlds people and those with the poorest fifth. This gap widened from 30 to 1 in 1960, to 60 to 1 in 1990, and to 74 to 1 in 1995.17 There is also a disturbing pattern of widening income inequality within countries, which among other things, spawns political and social unrest. Critics contend that SAPs frequently cause substantial short-term pain and hardship for poor and vulnerable groups offset only by a promise of long-term gains that may or may not materialize. In other words, adjustment may not always produce economic growth, and if it does, the benefits do not always trickle down to poor people. In fact, many NGOs contend that vulnerable groups, such as poor people and women, are
17

www.challengeglobalization.org/indx.shtml

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N. C. Alexander often disproportionately hurt by adjustment and receive no tangible benefits. Even when the costs of adjustment are widely shared, SAPs may bring disappointment to upper income groups, but hunger and higher rates of mortality to low-income groups. Incomes, especially those of low-income populations, are vulnerable due to a variety of dynamics: competitive pressures can bid down wages; union bargaining power can diminish; and budget cuts often retrench civil servants, cut subsidies for basic staples, and cut pension and social security benefits. Tight credit can reduce consumption and investment. Privatization of services can raise costs. The World Bank sometimes pressures a developing countrys government to accept a pace or sequence of adjustment measures that exposes local enterprises to international competitive pressures in imprudent ways. Although competition is a worthy value, it is important that the structural advantages of transnational corporations are not systematically reinforced at the expense of local enterprises. State-owned enterprises have often been grossly inefficient, sometimes subsidized by taxes on low-income agricultural producers. But privatization sometimes creates private monopolies or competitive systems that do not service regions in which the majority of poor populations are located. In addition, when user fees are imposed to recoup costs of primary health care and basic education, there is evidence that some poor people can no longer afford to pay for services. As a result of SAPs, borrowing countries are increasingly dependent on export revenues to balance their accounts. When Northern demand plummets, as has been the case in 2001 and 2002, then developing countries suffer disproportionately. For developing countries and economies in transition, global linkages have amplified the impact of the vicissitudes in world economic growth in the past few years. Moreover, the impact has often been asymmetric, with most developing countries tending to benefit less than the leading developed economies in the upturns, but suffering equally, or more so, in the downturns. In the late 1980s, when the World Bank and IMF acknowledged that, in some countries, the negative social impact of SAPs was not only a shortterm concern, but also a medium- and long-term concern, safety nets or conditions protecting social spending were sometimes attached to SAPs. It is taking many years for the Bank to come to grips with the social impact of adjustment, because the institution is quite schizoid. Its identity as a bank is often at odds with its identity as a development institution. One finds this reality reflected in the Banks internal operations. The right hand of Bank economic reform appears to be poorly informed by the activities of the left hand of social development and vice versa. In other words, 320

Paying for Education the Bank is comprised of worlds within worlds that often do not intersect. The history of the Banks Social Development Task Force reflects a sharp divide between the Banks economists and noneconomic social scientists. Many of the conflicts between the two groups revolved around the question of whether economic policies should be normative or nonnormative. Like education sector reforms, SAPs are often administered in a topdown way. Many borrowing country officials accuse the IMF and Bank of undermining government capacity by their heavy-handed, single-minded style of operating. . . . [I]t could be suggested that the low morale of the civil service in many African countries was an unintended result of structural adjustment. . . . Furthermore, the Bank only considers it has achieved success in its SAPs when the loan conditions result in policies that would not otherwise have occurred. This hinders the use and development of local capacity and results in a paradoxical outcome: key decisions are made by donors who, at the same time, emphasize the importance of policies being locally owned. (World Bank, 1996b, p. 14) Methodologies for detecting the impact of SAPs on education are rife with problems. Later, we identify flaws in the methodologies used by the Bank and the IMF. However, even with results that appear to be biased, the Bank identifies declining primary school enrollments as a consequence of adjustment during the 1980s (World Bank, 1990b). Table 2 shows the declines in primary educations share of expenditures during this time period. One of the few educators to study the impact of adjustment on education, Fernando Reimers of the Harvard Institute for International Development, compared adjusting and nonadjusting countries during the 1980s and found that drops in net enrollment rates were twice as likely in adjusting countries as in nonadjusting countries (Reimers, 1994, p. 127). Increasingly, the Bank attached conditions to SAPs stipulating that social sector budgets be protected. However, many of these conditions were discretionary, not binding, as discussed in the next section. How the IMF and World Bank Promote Economic Fundamentalism The IMF and World Bank promote economic fundamentalism through modulating access to external assistance by borrowing governments. As described later, borrowing governmentsespecially highly indebted 321

N. C. Alexander
Table 2 Primary Educations Share of Public Expenditures Declines in Many Adjusting Countries in the 1980s Country Argentina Bangladesh Bolivia Brazil Chile Colombia Costa Rica Cte dIvoire Ghana Jamaica Kenya Malawi Morocco Philippines Senegal South Korea Togo Turkey Uruguay Zambia 1975 1980 46.2 64.0 18.4 45.7 43.6 37.0 29.0 38.0 39.0 34.0 86.6 50.0 31.0 44.0 43.1 45.0 1985 10.1 46.1 64.0 49.0 53.0 38.0 33.0 41.0 27.0 35.0 58.0 45.1 34.0 84.4 46.0 47.0 38.5 46.0 39.3 44.0 Recent Year 46.8

46.0 25.0

51.1 39.2 33.0 42.2

43.0 37.0 84.6 62.0 38.1 46.2 45.0

56.3 37.9 34.0 59.9 44.0

27.5 41.0

Note. From Social Dimensions of Adjustment Operations: The World Banks Experience, 19801993 (p. 107), 1996, Washington, DC: World Bank. Copyright 1996 by the World Bank. Reprinted with permission.

governmentsmust be in the good graces of the institutions to meet their financial obligations. The IMFs seal of approval. The IMF is head of a creditor cartel and, in this capacity, it judges the policy performance of borrowing governments. Governments that obey IMF dictates usually obtain its seal of approval. If a government loses its seal of approval, it risks losing access to all external assistance because most other creditors and donors follow the lead of the IMF. Debt relief has been suspended for many countries participating in the Highly Indebted Poor Country (HIPC) initiative (Nicaragua, Benin, Mali, Chad, and Nigeria) because, among other things, they failed to expedite privatization processes. By providing or withholding the seal, the IMF modulates a governments access to official development assistance and private capital flows. Bilateral donor governments, which provide 75% of official development 322

Paying for Education assistance, rely heavily on the IMFs signals. The IMF signaling, or gatekeeping, function gives the institution inordinate and inappropriate levels of power in the international financial system. A more diversified signaling process, which draws on the perspectives of several international actors, would better serve the interests of developing country governments and the stability and equity of the international system as a whole. Binding policy conditions attached to SAPs. In the 1980s and early 1990s, social conditions were rarely attached to SAPs. In fact, from 1980 to 1993, only 50 of the 3,040 World Bank conditions attached to SAPs were related to the social sectors. Only eight of these conditions called explicitly for increased allocations to primary education and health care, or improvement of the wage and nonwage balance in the social sectors. In the 1990s, conditions that would protect social sector spending were frequently attached to SAPs, but according to Bank analysts, such conditions were usually nonbinding (Adams & Hartnett, 1996). At the same time, SAPs often had binding conditions, which required cuts in the borrowers fiscal deficit. Hence, some borrowers felt compelled to cut social sector spending to comply with binding conditions. The IMF and World Bank have a hierarchy of conditions. The binding conditions of IMF SAPs are called prior conditions or performance criteria; nonbinding conditions are called structural benchmarks. Performance criteria often call for governments to achieve certain macroeconomic and fiscal targets. World Bank SAPs have two types of binding conditions: prior conditions and tranche (a discreet amount normally based on a percentage of the overall loan) release conditions. Prior, or up-front, conditions are imposed at the time of negotiation, before appraisal, or before the release of the first tranche, or installment, of a loan. In the 1990s, up-front conditions were used with increasing frequency. These conditions are seldom documented. If a SAP has multiple tranches, governments must comply with tranche release conditions to gain access to successive installments of the loan. Mechanisms for modulating government access to World Bank credit. Like any bank, the World Bank uses a carrot-and-stick approach with borrowers. Good performance on the part of the borrowing government leads to greater access to credit. Poor performance closes the money spigot. That is, the Bank modulates the access of borrowing government to lending in ways that reward good performers and punish poor performers. The Bank uses this approach when it prepares its business plan (CAS) for each borrowing country. This section discusses the medium-term plans of the IMF, World Bank, and IDB for their borrowers. It should be 323

N. C. Alexander noted that all creditors and donors have such plans. Some names of these plans are The Country Operational Strategy Study of the Asian Development Bank, the Country Strategy Paper of the African Development Bank, and the Country Cooperation Framework of the United Nations Development Program. The CAS, which describes the investments that the Bank plans to make in the country over the medium term, outlines three lending scenarios (high-case, base-case, and low-case scenarios) for a 3- to 5year time frame. A government in the low-case scenario has relatively few loans. As a government accomplishes trigger conditions, it is given access to more loans and a higher credit limit. In the late 1990s, the most common triggers required borrowing governments to comply with IMF performance criteria, achieve fiscal targets, and privatize enterprises. Only 15% of triggers protected education and health spending. Failure to accomplish triggers can diminish a governments access to resources. For instance, at one point, the World Bank permitted the government of Brazil to borrow $4 billion to $6 billion over 3 years. However, the Bank warned the government that it could only borrow $2 billion if its fiscal deficit exceeded 7.5% of gross domestic product (GDP). In this case, control of the fiscal deficit was a trigger condition. In sum, the IMF and World Bank promote economic liberalization through the IMFs seal of approval, binding SAP conditions, and the Banks trigger conditions (often IMF conditions). The Bank and IMF almost never analyze the social impact of these mechanisms. These mechanisms are not promoted with equal vigor with all borrowing governments, however. UNICEFs (1998) State of the Worlds Children Report cites Cte dIvoires Economic and Finance Ministers reaction to the outpouring of assistance in the aftermath of the Asian financial crisis: We have observed the speedy reaction to Asia and seen the huge sums of money they have been able to come up with almost instantaneously, often bending the rules pretty freely. When it comes to us, our negotiations can drag on for months while they split hairs and act very finicky. One can easily get the impression of a double standard. As described later, the unequal treatment of borrowers has become more pronounced since the IMF and World Bank launched the Poverty Reduction Strategy (PRS) Initiative in 1999. Critiques of Adjustment Impacts on social sector budgets. SAPs attempt to cut budget deficits and modify the composition of budget expenditures. Because education budgets can represent 10% to 40% of public-sector outlays, SAPs usually 324

Paying for Education influence the size and nature of education budgets. Sometimes SAPs are successful in reallocating expenditures in ways that boost enrollments. This is reportedly the case in Bangladesh and Pakistan. As already noted, only 50 of the more than 3,000 conditions attached to SAPs in the 1980 to 1993 time frame were related to education and only 6 of the 50 conditions explicitly called for the protection or increase of education expenditures. The World Bank has documented impacts of SAPs on social expenditures during the years 1980 to 1993 (World Bank, 1996c). However, there are problems with the Banks methodology. For instance, the Bank worked with a sample of 53 countries for which growth data were available. However, household data were only available for a subset of 23 of the 53 countries. Small and poor countries (primarily African) were significantly underrepresented in the subset. Hence, when the Bank extrapolated the poverty and equity implications of adjustment based on household data, the results were skewed. Even when skewing the results in this way, the Bank found that: Per capita social spending fell in two thirds of the countries, and the composition of social spending worsened. Total discretionary spending declined in 24 of 34 countries; social spending declined in 17 of 34 countries. Mitigation of negative social impacts of adjustment had limited effectiveness due to the reduction of social expenditures resulting from adjustment programs.18 In many countries, expenditure cuts may have exacerbated the existing biases and inefficiencies in public expenditure programs. Some sectors (e.g., energy, transportation) have a large capital expenditure component for infrastructure construction and modest levels of recurrent costs for ongoing operations and maintenance. But the education sector has high levels of recurrent costs because it is so labor intensive. Teacher salaries make up a large share of the recurrent budget. Where teachers unions exist, they work to protect teacher salaries, benefits, and working conditions. Consequently, as noted in the following World Bank finding, nonsalary expenses (e.g., textbooks, educational materials, and technologies) are especially vulnerable. . . . [W]ith a few exceptions, most countries have made little effort to shift resources into primary education and basic health care services . . . nonwage recurrent spending for supplies and maintenance has been severely underfunded. This problem which consistently emerged
18 Bullets are quotes from handouts provided by the Banks Social Development Department in October 1998.

325

N. C. Alexander from Bank country reports has worsened in most countries during the adjustment era and all but crippled public social services in many countries. (Jayarajah & Branson, 1995; World Bank, 1996c) The IMF compared social spending in countries with IMF programs to countries without IMF programs in two time slices: the mid-1980s and the mid-1990s. The IMFs (1998) Fiscal Reforms in Low-Income Countries reports that over the past decade, social sector spending increased significantly in real terms, and that, in countries with IMF-supported programs, there are sharper increases in public spending on education and health than in countries without IMF programs. These are welcome findings. However, a thorough review of the IMFs methodology reveals three problems. First, the IMF has chosen to compare spending in the mid-1990s with spending in the mid-1980s, when social sector budgets had been ravaged. Second, the IMF is using GDP deflators to obtain their results. Ninety percent of education spending is wage-related. Thus, wage deflators would give a more accurate reading of actual trends. Third, the IMF analysis only analyzes the amount of education spending, which is a supply-side variable. A fuller analysis would take into account the elasticity of demand for services among populations, especially vulnerable groups. An independent analyst, Fernando Reimers of the Harvard Institute for International Development, found that, during the 1980s, education spending as a percentage of GNP diminished considerably more in adjusting than in nonadjusting countries. In sub-Saharan Africa, education spending as a percentage of GNP declined in 67% of adjusting countries and 14% in nonadjusting countries. He also reported that, as a percentage of government expenditures, education declined in over half of adjusting and nonadjusting countries in sub-Saharan Africa. In real terms, education expenditures (as a percentage of public expenditures) declined in 44% of adjusting and 22% of nonadjusting countries in subSaharan Africa. In adjusting countries, per pupil expenditures declined in 81% of adjusting countries. There were declines in only 67% of nonadjusting countries. In Latin America, education as a percentage of GNP declined in 50% of adjusting countries and 29% of nonadjusting countries. Reimers found that in sub-Saharan Africa the increase in nonadjusting countries averaged 0.64 of a percent of GNP, and the decline in adjusting countries averaged 0.56 of a percent of GNP. In Latin America the increase in nonadjusting countries averaged 0.56 of a percent of GNP, and the decline in adjusting countries averaged 0.66 of a percent of GNP. Education as a percentage of public expenditure declined in 57% of adjusting and 17% of 326

Paying for Education nonadjusting countries. In real terms, education expenditures declined in 53% of countries (Reimers, 1994, p. 123). Impacts on incomes and inequality. Incomes can rise during adjustment, especially for exporters. Incomes can decline due various dynamics: competitive pressures bid down wages, union bargaining power diminishes, budget cuts retrench civil servants, subsidies for basic staples are cut, pension and social security benefits are reduced, tight credit restricts consumption and investment causing unemployment, and privatization of services can raise costs. In addition, currency devaluations increase the cost of imported goods and can lead to a decline in purchasing power, or the real value of wages, which are paid in domestic currency. Declines in the real incomes of teachers lead to pressure for higher wages, diminished commitment to teaching (e.g., poor attendance or moonlighting at second jobs), or exit from the profession. Declines in income require households to cut expenditures by means such as opting against education for one or more children or increasing income by means such as putting children to work. The World Banks review of 114 adjustment operations in 53 countries from 1980 to 1992 (World Bank, 1995b) found that (a) the annual average poverty reduction associated with adjustment was very small, and (b) decreases in poverty were not matched by reductions in income inequality. As mentioned earlier, these conclusions may not be reliable given the underrepresentation of household data from poor countries. Reimers (1994) showed that the growth promised by adjustment did not overcome recessionary forces or even contribute to those forces in Africa and Latin America during the 1980s. Sixty-four percent of the countries in sub-Saharan Africa suffered declines in per capita income during the 1980s. These trends continued in the 1990s. Only 46% of nonadjusting countries suffered declines in income compared to 71% of adjusting countries. Seventy-one percent of [Latin America] countries suffered declines in per capita incomes, including seven nonadjusting countries and seven adjusting countries. Four adjusting countries had rising per capita incomes. (p. 122) In coming to conclusions about the impacts of adjustment, Frances Stewart (1995), in Adjustment and Poverty, drew on 23 studies of the effects of adjustment programs carried out over 15 years as well as six case 327

N. C. Alexander studies of Tanzania, Ghana, Mexico, Chile, the Philippines, and Indonesia. Stewart concluded that adjustment processes increase poverty as deflation effects overwhelm the benefits of liberalization that can accrue, for instance, to peasant farms, which produce tradable agricultural products or labor-intensive manufacturing. In the six case studies, Stewart found the most prevalent deterioration was in educational access and performance. Primary and secondary enrollment worsened in Tanzania, Mexico, Indonesia, and the Philippines, and signs of worsening attainment were evident in Chile, Mexico, and Indonesia. Stewart concluded that the IMF and World Bank neglected and probably exacerbated the burden of exogenous factors (commodity prices and exorbitant debt servicing) on developing countries. At the same time, she stated that adjustment contributed to adverse developments at macroand meso-levels through expenditure cuts and deflation, reduction in food subsidies, and introduction of user charges. Stewart noted that the international financial institutions acknowledged a need to protect the poor in the late 1980s, but their response (e.g., collecting information on, and conducting research about, poverty; reviewing public expenditures; and introducing social funds) was inadequate. Social safety nets. Sometimes, when SAPs reduce social-sector spending, the Bank offers external finance for the social sectors. Sometimes, the IMF and World Bank use safety nets, which may target certain social expenditures to protect vulnerable populations during adjustment. Safety nets were small in Poland. Only $230 million of the $4.1 billion extended to Poland from 1990 to 1996, focused on social sectors and employment promotion. Fifty-five percent of Bank disbursements were in the form of adjustment loans. When subsidies were cut and free social services were curtailed, the cost of living rose and wages fell sharply. Loan failure was pronounced in several sectors, including the social sectors (World Bank, 1997a). Unfortunately, these safety nets usually offer vulnerable populations too little, too late.19 The Bank found that in Africa during 1979 to 1984, only 15 of 54 loans (4 of them in Mozambique) mention the importance of social safety nets. In three regions safety nets were not used at all (UNICEF, 1996, p. 26). In 1998, an IMF official stated that over the course of the last 30 years, the IMF has probably had only 10 missions go to borrowing countries to design safety nets.
19 The deficiencies of safety nets are described in detail in report of the external evaluators of the IMFs Enhanced Structural Adjustment Facility.

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Paying for Education The PRS Initiative Many champions of education welcomed the launch of a 1999 PRS initiative by the IMF and World Bank. The PRS initiative requires that all low-income borrowers design medium-term national development plans, called PRSPs with input from citizens groups. Preparation of a PRSP is a precondition for a borrowers access to external assistance and debt relief. One rationale for the initiative was to ensure that savings from debt reduction efforts (e.g., the HIPC Initiative) were channeled into social programs, especially education and health programs. Another rationale was to ensure country ownership of their own development future rather than to have reforms dictated by creditors and donors. The IMF and World Bank promised that PRSP processes would give citizens groups and their governments an opportunity to design SAPs in ways that would reduce poverty. There were great hopes that PRSPs would mark a break away from one-size-fits-all approaches for developing countries and that, with participation of a wide group of actors, diverse approaches to development would flourish. However, governments have a devilish choice: either heed their citizens or heed their creditors (who have the last word in endorsing the PRSP). In fact, citizens have not participated in shaping macroeconomic and structural policies in any PRSP process. They often cannot get access to basic information and documents that would be required for effective participation. The role of citizens is narrow (e.g., describing budget priorities and ways to channel savings from debt reduction). Citizens are encouraged to engage in monitoring education and health expenditures by their governments to ensure governmental accountability. However, the PRSP initiative has not changed basic things. As before, policy conditions for new loans or debt relief are negotiated in secret within a small elite group of IMF and World Bank officials and high-level officials of the finance ministries of borrowing countries. Citizens groups, which are involved in so-called participatory processes, joke that they are learning a new conjugation of the verb to participatenamely, I participate, you participate, he/she participates, we participate, you participate, and they decide. The promises of PRSP have not been realized. On the contrary, the IMF and World Bank have gained considerable power through the PRSP and HIPC programs. Now the institutions can influence a borrowers entire national development strategynot just the policies related to their loans. Citizens groups want the right to shape their countries future. They reject PRSP processes that only appear to protect that right. 329

N. C. Alexander Citizens groups are supporting the Global Campaign for Education, which calls on the World Bank to work with governments to ensure that all PRSPs include strategies to guarantee that every EFA goal is met and to eliminate all charges for basic education within 3 years. The Campaign also calls for deep debt relief to countries with strong national EFA plans.

Recommendations Adjustment Operations Adjustment operations should be transformed and scaled down or discontinued. The premises of structural and sectoral adjustment programs need rethinking by a broadly representative group in borrowing countries and internationally. There is growing awareness of how adjustment can undercut progress in education and development, in general. For the most part, sectoral and structural adjustment programs are carried out in parallel with other development efforts. To date, there have been few efforts to design SAPs in ways that prevent social hardship. Social programs (e.g., safety net programs, social funds) are often add-ons to adjustment operations. Frequently, these programs offer too little protection, too late, to too few vulnerable people. The Bank claims to judge its programs by their poverty impact. Yet, poverty impact is not a criterion by which the Bank judges adjustment operations, which constituted 63% of loan approvals in FY 1999. Although the Bank claims that 93% of adjustment operations are rated as satisfactory, the Banks own evaluators say that poverty reduction requirements are routinely neglected in these operations. The Bank is clearly using the wrong criteria to judge the performance of its operations. Evaluators were unable to judge the poverty impact of Bank-financed adjustment programs in the worlds poorest countries. (The evaluators looked at 21 highimpact adjustment lending [HIAL] operations in 17 countries exceeding $2 billion in FY 9698.) Criteria by which the World Bank and IMF design and evaluate adjustment programs might include: Transparency: Are the documents, which define the terms and conditions of World Bank and IMF involvement in the country, available to the elected officials and citizens of the borrowing countries? Are they available in draft form to facilitate participation? Three points should be emphasized: (a) If broad ownership of adjustment operations is desired, the IMF and World Bank should work with borrowing governments to disclose draft adjustment programs. (b) The World Bank encourages bor330

Paying for Education rowing governments to disclose documents initiating adjustment programs (Letters of Development and Sector Policy). Such disclosure should be mandatory, because it is inappropriate for the IMF and World Bank to work with Finance Ministry officials beyond the public view. (c) The World Bank should disclose adjustment documents after Board approval. At present, only a few adjustment documents (e.g., some PRSCs) are disclosed. Social consensus relative to adjustment. Who is involved in identifying adjustment priorities and designing adjustment operations? Elected officials? Workers? Educators? Groups of poor people and their representatives? As it stands, adjustment programs are sometimes geared to overcome domestic opposition to reforms. Adjustment loans should not be implemented without popular consent. Likely impacts, as indicated by factors, such as the following: Are adjustment reforms expanding access to, and quality of, education? Are they reducing poverty and inequality? Are export incentives depleting the natural resource base? Are adjustment monies being recycled to service unpayable debt? Are labor flexibility provisions undermining the rights of workers? (See the following discussion.) Impact Assessments The World Bank and IMF could routinely conduct assessments of adjustment operations to help ensure that universal primary education goals are achieved. The institutions could also conduct dynamic assessments of sectorwide and countrywide strategies, including PRSs, which constitute the framework for IMF and World Bank lending to low-income countries. Ultimately, there is a need for independent capacity to undertake assessment, monitoring, and evaluation of operations. Academic institutions and civil society organizations (CSOs) are developing the independent capacity to undertake impact assessments and impact monitoring. Frontier thinking in innovative qualitative and quantitative methods of impact assessment should be developed in collaborations among southern, northern, and transition country CSOs and think tanks. Impact assessments can help resolve conflicts that arise between adjustment goals and education goals and protect educational progress. New policies should protect and advance educational goals. Impact assessments should be conducted to determine the social consequences of the trigger conditions associated with World Bank CASs. Such triggers should always protect or expand education and health budgets. In addition, The IMF and World Bank should ensure that its binding SAP conditions support education goals. 331

N. C. Alexander Impact assessments can also ensure that education resources are not diverted to other purposes. Education aid is highly fungiblemore fungible than aid for most other sectors. This is because it has such a large requirement for scarce local cost financing (Agbonyitor, 1998, p. 9). In addition, in countries with active IMF programs, IMF targets for reduction of budget deficits may divert grant and concessional assistance from the education sector. In other words, if governments exceed IMF targets for borrowing, they risk violating their agreement with the IMF and losing their IMF seal of approval. Many governments object to the way in which the IMF diverts grant aid and concessional assistance (Foster & Thomas, 1998). Quantity Versus Quality of Education Lending The World Banks financing of education fell from an average of $2 billion per year in the 1990s to $1 billion per year for the last 2 years. Lending should only be scaled up in support of homegrown strategies for educational progress. Now, the World Bank is under tremendous political pressure from the United States and other shareholding governments to expand loan and grant assistance for education. This is only good news if external assistance supports good, homegrown policies and processes that will improve educational outcomes (Bredie & Beeharry, 1998; Schwartz & Sack, 1990, 1996; Wolff, Schiefelbein, & Valenzuela, 1994). External resources in support of education reform can come with too many strings attached. For instance, in the 1980s, World Bank pressure instituted user fees for basic education that deprived many children of their right to education. At present, creditors and donors often administer sectorwide approaches to education that lack sufficient domestic leadership. Hence, the Banks formulaic approach to the education sector (e.g., privatize, decentralize, recover costs) often prevails. For many years, Bank critics have decried the Banks incentive system, which rewards managers for moving money rather than getting results on the ground. In recent years, the Bank has developed new incentive systems, which are intended to reward managers for achieving results (e.g., improved enrollment or literacy rates). However, at the same time, management incentives tend to accelerate project preparation. Incentives to borrowing governments encourage timely and efficient procurement and disbursement. Rapid design and implementation processes can sometimes militate against popular participation, which, in turn, can lead to poorly performing operations. 332

Paying for Education The inverse relationship between the level of lending and the quality of lending is especially relevant to the education sector. In a Bankfinanced evaluation of a major research study, Education, Growth and Inequality in Brazil, Birdsall and Bruns (1996) stated that if the study has a single theme, it is that of the quantity-quality trade-off, the thesis being that quantitative expansion at the expense of qualitative improvement soon proves to be not only inefficient but also extremely inequitable (p. 15).

Participation Borrowing governments and their citizens should design their own solutions to policy problems. The national and sector-specific strategies of borrowing governments (e.g., PRSPs) should not be subject to endorsement by external creditors, such as the IMF and World Bank. The institutions should determine whether they wish to invest in homegrown solutions or continue to undermine domestic processes in borrowing countries. The Bank often assumes that decentralization of education services will enhance participation and education outcomes. However, many federal government functions are being decentralized, and local governments frequently lack the capacity and resources to manage education systems effectively. In addition, the IMF and the World Bank must disclose draft documents if they wish domestic constituencies to participate in the formulation of loan operations. For instance, the Bank should work with borrowing governments to ensure that draft CASs are publicly disclosed and discussed and that feedback is integrated into final CAS documents. Final CAS documents should be publicly disclosed. Finally, the IMF and World Bank should scale down programs that undermine the effectiveness and accountability of governments to their people (e.g., SFs and OBA schemes). Where such schemes are used, they should adhere to all World Bank operational policies. Especially in the area of basic serviceshealth, education, and waterit is essential that the capacity of governments to guarantee universal services is strengthened. At present, participation is impeded by factors, such as: Participation for validation. Approaches to participation are usually shallowthat is, they extract information and opinions and stop short of giving stakeholders a voice in decision making. Feedback from many participatory processes (e.g., PRSPs, CASs) reveals that citizens groups 333

N. C. Alexander feel as though they are being asked to validate decisions that have already been made. Phony participatory processes can undermine democratic processes as much as autocratic processes do. The pressure to lend. The culture and incentives of the Bank, together with the scale and pace of lending operations, militate against meaningful participation. A Bank official describes the pressure to lend: The notion of national ownership is in flagrant contradiction with the contract concept (to deliver projects) prevailing in the Bank . . . if the country moves too slowly under participatory arrangements, the pipeline will become too small relative to the contract, which triggers Management to increase it by speeding project preparation; hence Bank staff take over at the cost of local participation/ownership. Reducing the number of contracted projects to allow greater local participation is apparently not a viable alternative. Countries like the loan proceeds not the policy content of the project; this limits possible local ownership. (Schwartz & Sack, 1996) Top-down prescriptive approaches to lending. The Banks education reform prescriptions are often simplified, standard recipes for education based, significantly, on research in developed countries. In and of themselves, these recipes are neither good nor bad; it depends on how they are implemented. The World Bank often implements these recipes indiscriminately, as if they were magic bullets. Moreover, government compliance with these recipes often determines how much access it obtains to World Bank education resources. The recipe approach can undermine the capacity of educators in developing countries to wrestle with the complexity of their own circumstances. Hostility of borrowing governments to Bank consultation with civil society organizations. Most developing country governments believe that World Bank participatory efforts overstep the institutions mandate and pose the risk of undercutting their authority. Ideally, the Bank would facilitate and support governmentcivil society dialogue rather than supplant it. Clearly, the Bank should not undermine the accountability of borrowing governments to their citizens. Domestic opposition to Bank strategies that reduce the role of the state. As developing country governments downsize, they often transfer power to the private sector and responsibilities for social service provision to the private sector and citizens groups. Experience shows that privatizing into an unregulated environment can be a disasterespecially when it comes to basic services. Creditors, such as the Bank and IMF, should not coerce governments into privatizing without the knowl334

Paying for Education edge and consent of citizens. Schemes such as SFs and OBA programs can undermine the authority and effectiveness of government programs. This is especially the case when such programs give international actors (private firms and NGOs) a dominant role in sensitive education and health arenas. Attitudes toward educators. Aid and creditor agencies are far more deferential to experts in other sectors (e.g., doctors in the health sector) than they are to educators. As a result, the economist-dominated agencies often bypass the concerns of educators in recipient countries resulting in education projects and policies that are often ill suited to their environment. Debt Relief and Domestic Financing The HIPC Initiative is inadequate. To free up resources for education and other essential purposes, deeper debt relief and cancellation should be provided to more countries in more expeditious ways. After 5 years of negotiations, the HIPC Initiative has provided debt relief to 23 countries, and the debt burdens of most of those countries will, once again, become unsustainable in the near future. Of the 23 countries, over half spent more on debt than on primary education in 2001 (Oxfam International, 2001). In addition, to minimize problems relating to fungibility, domestic cost financing, and implementation, Bank education resources should be concentrated in countries with strong National Education Action Plans and a commitment to popular participation in education system reform. The Bank should explore ways of making education loans more affordable for low-income countries, including providing grants for IDA borrowers, waiving counterpart funding requirements, or permitting debt service in local currency. As it is, demand for education loans often sags for reasons, such as the following: Investments in education do not generate foreign exchange revenue, which is needed to service World Bank and other foreign debt and purchase imports. Most World Bank-financed projects require that the government put up about one fifth of project costs in counterpart funds. Most education expenditures are recurrent expenditures, such as teacher salaries, education materials, and school maintenance, that require high and sustained levels of local financing. Governments 335

N. C. Alexander that do borrow for education are often slow to disburse the resources because of local cost financing constraints. The volatile level of education loan commitments and disbursements (especially in poor countries) can be attributed, in part, to government difficulty in providing local cost financing. Weaknesses in local cost financing were cited in over 60% of Bank projects identified as unsustainable in the mid-1990s. In some cases, pressure from the IMF to cut budget deficits contributed to government failure to provide sustained support. In particular, the IMF should reevaluate its policies on deficit management. Currently, its ceilings on government borrowing sometimes divert assistance from the social sectors to debt servicing. The IMF should issue a draft policy on deficit management and public investment for review and comment by the World Bank, governments, and civil society organizations. The final policy should be piloted in several countries to determine its impact on education and health spending. In an ideal world, the leadership of the IMF and World Bank would infuse the institutions with a spirit of accountability. The lending philosophy would change to embrace the goals of equitable, participatory, and sustainable development in all operations, beginning with adjustment operations. Special care would be taken to strengthen the capacity of borrowing governments to ensure that all citizens have access to basic services, especially education, health, and water services. References
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