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IN a joint staff paper discussed by ministers at the recent annual meeting of the two institutions, the bank and fund argue that such a mechanism would cut across existing aid programmes.
"The staffs have serious misgivings about the desirability and effectiveness of a separate fund to address adjustment," the paper says. Adjustment should rather be considered "as part of an overall package of domestic policy reforms and economic planning", it says.
The paper comes amid a growing concern about the need to make aid and trade work together. Without financial help, developing countries may be more reluctant to agree to cut tariffs in the current Doha round of trade talks under the World Trade Organisation (WTO).
Trade officials are concerned that trade liberalisation will be of limited benefit to poor countries unless they have good infrastructure such as ports, roads and efficient customs services to take advantage of export opportunities.
And developing countries that benefit from special preference programmes -- such as the global textile quota system that expired in January or the European Union (EU) sugar and banana regime -- also lose out as such schemes are reformed or their value eroded through trade liberalisation.
A recent report from a group chaired by Ernesto Zedillo, the former Mexican president, suggested that such countries should directly be compensated by financial grants.
"The political rationale for this is that it will help support a more ambitious Doha outcome, benefiting all WTO members," said the report.
Most officials agree that previous attempts to make aid work alongside trade have been weak. The "integrated framework", a joint project of the IMF, World Bank, WTO and United Nations agencies, was launched in 1997 to address such concerns. To date, it has given out a maximum of $1.0m in aid to each country.
But the IMF/World Bank paper said the integrated framework should be expanded and existing aid mechanisms used to funnel more trade-related money to poor countries, rather than setting up new funds.
Sheila Page, senior research associate at the Overseas Development Institute in the UK, said that earmarked funds would help prevent aid money being diverted away from trade to more high-profile sectors such as health and education. "You don't absolutely need a stand alone fund, but evidence shows that money not dedicated to trade tends to lose out to other priorities," she said.
The bank says there has already been an increased focus on trade within aid programmes, with the amount going to help countries implement trade policy and regulations rising by over one-third to $1.0bn in 2003.
It is pledging to increase its own trade-related lending rapidly over the next few years, after announcing a renewed emphasis on financing infrastructure in poor countries.
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FT syndication service
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