Paying For Education: How The World Bank and The International Monetary Fund Influence Education in Developing Countries

Paying for Education: How the World Bank and the International Monetary Fund Influence
Education in Developing Countries

Author(s): Nancy C. Alexander
Source: Peabody Journal of Education, Vol. 76, No. 3/4, Global Issues in Education (2001), pp.
285-338
Published by: Taylor & Francis, Ltd.
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PEABODY JOURNAL OF EDUCATION, 76(3&4), 285-338
Copyright ? 2001, Lawrence Erlbaum Associates, Inc.
Paying for Education:How the World

Bank and the InternationalMonetary
Fund Influence Education in
Developing Countries
Nancy C. Alexander
Citizens'Networkon EssentialServices,
A Projectof theTIDESCenter
The 1980s are sometimes described as a lost development decade.

School enrollments slumped. The tremendous progress made toward uni-
versal 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, includ-
ing 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 publi-
cations by Nancy C. Alexander, including: "Accountability to Whom: The World Bank and Its
Strategic Allies," published in DerdeWereldin May 1998;various issues of "News & Notices for
World Bank Watchers"; "NGOs in the International Monetary and Financial System," (with
Charles Abugre) in InternationalMonetary 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' Net-
work on Essential Services, A Project of the TIDES Center, 7000B Carroll Avenue, Takoma
Park, MD 20912.
285

N. C. Alexander
International Children's Emergency Fund (UNICEF, 1998) cites the find-

ings of the conference report:
Overall, primary enrolment was the brightest sign of progress by
mid-decade, with some 50 million more children in developing coun-
tries enrolled in primary school than in 1990. Discouragingly, howev-
er, this figure only managed to keep pace with the numbers of chil-
dren entering the 6- to 11-year old age group over the period. (p. 15)
Unsatisfactory progress was noted in some regions-South Asia and sub-

Saharan 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 commu-
nity promised to launch a "global initiative" to mobilize resources to sup-
port 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. Mean-
while, 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 disap-
pointing progress unless creditors-especially the International Monetary
Fund (IMF) and the World Bank-begin to support homegrown, national
development strategies and education action plans. In addition, the insti-
tutions 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 Bank's direct involvement in the edu-
cation 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 Bank's direct
involvement in education through project investments (e.g., school con-
struction, curriculum development, or textbook publication) and reform
of the education sector (e.g., school privatization, cost recovery, decentral-
ization). The third section addresses SAPs financed by the IMF and World
286

Payingfor 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 Bank-financed
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 depen-
dent 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 coun-
tries, 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 Bank's conclusion that, in many
countries, adjustment lending had a negative impact on primary educa-
tion in the 1980s. During the 1990s, there appears to be a weak, but posi-
tive, response to measures taken by the institutions and borrowing coun-
tries 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 oper-
ations, 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
1Technically, 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
287

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 edu-
cational outcomes than do investments in education projects.
* The purposes of reform. The purpose of many adjustment pro-
grams (e.g., cutting deficits and lowering per pupil costs) can com-
plement 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 Inter-
national Bank for Reconstruction and Development (IBRD) extends so-
called "hard" or market rate loans. The International Development Asso-
ciation (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 pro-
vide 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 demon-
strates that efforts to offset educational services through subsidy schemes
seldom work.
288

Payingfor Education
The Volumeof ResourcesforEducation
Grant assistance has declined over the last decade. In 1994-95, bilateral
donor governments provided less support for education (both in absolute
terms and as a percentage of total aid) than they did in 1989-1990 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 regions-South 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.
The volume of World Bank assistance to the education sector under-
states the institution's influence, because high levels of assistance provid-
ed by bilateral donors usually help finance World Bank-financed 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 govern-
ments for education.
The Typesof Loans
Project lending is very different from adjustment lending. World

Bank-financed projects take 5 to 7 years for implementation. In contrast,
adjustment loans are quick disbursing.
Adjustment loans-SAPs and sector adjustment loans (SECALs)-
influence both the demand for and supply of educational services. Demand
2Germany,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.
289

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 family's income
level. Families make choices and set priorities. Often, families place a
higher value on education of boys than girls.
The Purposesof Reform
In addition to influencing the incomes of households and the cost of

education, SAPs attempt to reduce the budget deficits of borrowing gov-
ernments. Because education budgets usually constitute a significant por-
tion 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 educa-
tion 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 educa-
tion 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.
3Figures derived from a list provided to the author by the Poverty Reduction & Economic
Management Network of the World Bank.
290

Payingfor Education
The World Bank Group's4 Approach to the

Education Sector
Volumeof Assistancefor 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 provid-
ed 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 extend-
ing grant assistance to subsidize privatization of education in borrowing
countries.
Declining GrantAidfor the EducationSector
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 (1991-1994), 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 UNESCO's (1998) WorldEducation
Report, the World Bank's education commitments represented 46% of
bilateral assistance and 28% of all assistance in 1995 (Table 1).
4The World Bank refers to the institution's 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 con-
cessional, 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.
291

N. C. Alexander
Table 1
1995 ExternalExpendituresforEducationin Millions of Current U.S. Dollars
Expenditure Amount
Bilateral assistance $4,450

All multilateral resources $2,717
World Bank ($2,057)
UN programs $278
UNESCO ($100)
Total $7,445
World Bank as % of total 28%
Note. From WorldEducationReport(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.
TechnicalAssistance That Never ReachesDeveloping 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 purpos-
es such as training. Thus, it is calculated that 60% to 80% of all education
aid commitments are spent in donor countries (Bennell & Furlong, 1998).
Levelsand Typesof BankLending
Overall lending for education doubled from the 1986 to 1990 period to
the 1991 to 1998 period. During the 1990s, lending levels for basic educa-
tion have fluctuated wildly. In fiscal year (FY) 1998, the level of education
loan commitments-$3.1 billion-was 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 dis-
bursed over a period of years. In FY 1998, education loan disbursements
totaled nearly $1.9 billion.
Basic EducationEmphasis
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

Payingfor 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.
Prominenceof EducationOperationsin the Bank'sLoanPortfolio
The World Bank's 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 lend-
ing operations: economic reforms, or SAPs, and project investments in
different sectors, such as agriculture, power, education, and health. The
World Bank's 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 Lendingfor Education
International Bankfor Reconstructionand 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 edu-
cation are IBRD or blend (both IBRD and IDA) countries: Mexico,
India, Brazil, Indonesia, China, Pakistan, Argentina, Korea, and the
Philippines.
5If 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 Bank's financing of education fell from an average of $2 bil-
lion 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. Sec-
ond, there are bottlenecks in the lending pipeline because many govern-
ments cannot or will not provide the local cost financing components of
education operations.
Implementation problems also stem from other factors, such as politi-
cal 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 Bank's 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 Bank's 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 2004.10Together, 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.
6The IFC's approach to the education sector is described in Karmokolias and Maas (1997).
7The World Bank's (1995c) 1995 Annual Report referred to the institution's shift to sup-
porting private-sector investment (as opposed to direct lending to governments) as "a dra-
matic departure from what had been Bank policy for half a century."
8Forthe most part, the IFC would also take charge of the World Bank Group's 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).
90ne internal paper distributed within the Bank in March 2001 envisioned the Bank's
administrative budget growing from $1.2 billion in FY 2001 to about $1.3 billion in FY 2002.
It succeeds the Bank's FY 1998 to FY 2000 Strategic Compact.
l?IDA commitments increased to $6.8 billion for 134 projects in FY 2001, compared with
$4.4 billion for 126 projects in FY 2000.
294

Payingfor Education
The IFC's 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 low-
income 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 regions-South 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 resources-about 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 opera-
tions. Governments prefer to borrow for capital expenditures (e.g.,
construction of facilities).
* Education operations, like other operations, require that borrow-
ers 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.
"IFC investments increased four and a half times over in real terms between 1980 and
2000. The IFC's infrastructure department was created in 1992 and, by 2000, one fifth of IFC
lending went to private-sector infrastructure.
295

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 tofreely move moneyfrom one categoryof expenditure

to another). As described later, aid and credit are sometimes diverted for
other-than-intended purposes. Once assistance reaches a government's
treasury, it is fungible or transferable for any purpose. Education assis-
tance 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 pro-
grams, 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 Bank's 10,000 staff members are organized into thematic net-
works 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 Bank's thematic networks. The Human Development (HD)
Network supplies advice and services with respect to education, health,
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Payingfor Education
and social protection operations to the country and regional departments.

The HD Network is relatively powerless compared with the thematic net-
works that focus on macroeconomic reform, private-sector engagement,
and infrastructure.
Lendingand Nonlending EducationServices
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.
StructuralAdjustment 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 cos-
metic; they are not accompanied by any change in the institutions' policy
prescriptions.
12Inaddition, the Bank and the IFC offer a variety of partial risk and partial credit guar-
antees to private investors. The IFC also takes equity positions in ventures.
297

N. C. Alexander
SectorAdjustment 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 "grow-
as-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.
ProjectInvestments
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 education-that is,
provision of buildings, technology, and educational materials. Supply-
side 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; fami-
lies must be able to afford the direct and indirect costs of educating their
children.
131n 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.
298

Payingfor Education
Projects are only beginning to address issues relating to instructional

quality and "demand-side" barriers to education faced by certain popula-
tions. Barriers come in many varieties: language barriers, gender discrim-
ination,14 high direct and indirect costs, the opportunity cost of educa-
tion-that 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 appro-
priate 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
Bank's training and education arm, had 21 core courses, one of which
focused on education reforms.
EDI's 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 col-
laboration with African countries led by African Women Educators
(World Bank, 1998a, p. 32).
In 1997, 11 companies gave substantial support for EDI's 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 Net-
works for Education, Health and Population, which "helps countries
use distance education, technology and networks to address problems
14Theaverage 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).
15SunMicrosystems, 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 educa-
tion in recipient countries. To date, however, IDA grant giving has been
limited to countries in conflict or projects funded by the Bank's Develop-
ment Grants Facility, which endorsed the first year of a multiyear program
to support UNICEF's 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 Bank's 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 manage-
ment, and postbasic education and training.
Research
Recent or forthcoming research reports include:
* Impact Evaluation of Education Projects: Decentralization and Pri-

vatization Issues
* Improving Primary Education in Kenya: A Randomized Evalua-
tion of Different Policy Options
* Child Labor and Schooling in Latin America
* When Learning Makes Reform More Productive: An Agenda for
Analysis
* El Salvador's 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 Colombia's Voucher Program: Using Randomization
Through a Lottery for Program Evaluation
* Economic Analysis in Education Projects
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Monitoring and Evaluation
As of FY 1995, midterm reviews were conducted for only 12% of the

World Bank's education loans. As noted earlier, the Bank's (World Bank,
1997b) 1997 Annual Report,which concentrated on issues of development
effectiveness, states that the Bank's current systems for evaluating the
education sector are inadequate.
The Bank's 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 Bank's 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 track-
ing 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 Bank's OED provides misleading assessments of the performance

of adjustment programs. There are three types of adjustment perfor-
mance indicators: policy, intermediate, and outcome indicators. Policy
indicators reflect whether the government has complied with policy con-
ditions. Outcome indicators monitor progress toward growth and pover-
ty 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 adjust-
ment 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.
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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 moni-
toring 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 macro-
economic stability and in improvements in public administration, tar-
geting, efficiency, etc. ... Direct efforts to address short-term impact on
the poorest are rarely considered. (Environmentally and Socially Sus-
tainable Development Network, 1999)
Quality of ProjectInvestment Loans
The Bank's OED has generally measured project success relative to

three criteria: achievement of objectives, sustainability, and institutional
development.
Achievementof 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. Dis-
aggregated 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.)
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Payingfor 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 pro-
posals, which they themselves prepare. In 2001-2002, the Bank is evaluat-
ing 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 contribu-
tion 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 government's willingness to undertake reforms recommend-
ed 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 Bank's 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 lin-
ear relationship between the recipe and the outcome (e.g., if some decen-
tralization is good, then more must be better).
In and of themselves, these recipes are neither good nor bad. Their effica-
cy depends on the circumstances. In general, the analytical basis for Bank-
proposed reforms was developed in the industrial North. For instance, the
rationale for the Bank's 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 Bank's 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
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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 govern-
ments to support private education (ones, 1992, pp. 177-178). Impacts of
the Bank's 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 develop-
ment (Oxfam International, 2001).
In October 2000, the U.S. government enacted a law requiring U.S. rep-
resentatives 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 Bank's 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 econo-
mists about the importance of certain economic and social values.
Although many policymakers agree on educational values, such as quali-
ty and equity, differences arise when such values are consistently subordi-
nated to economic values. In addressing the qualifications of teachers,
United Nations Educational, Scientific and Cultural Organization's
(UNESCO) 1998 World Education Report cites the International Labor
Organization's 1996 report, Impactof StructuralAdjustment on the Employ-
ment and Trainingof 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 cost-
cutting 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 class-
room size. That is, in seeking economic efficiency one can continue
decreasing the teacher-pupil 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 quali-
ty education. Too often, the focus on efficiency eclipses educational needs.
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Measures of internal efficiency may relate to (a) staff efficiency-

student-teacher ratio, multigrade teaching, multiple shifts, and length-
ened school week and school year (in general, the Bank emphasizes the
benefits of a lower teacher-student 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 costs-simplify designs, use appropriate materials and
community labor while upholding safety and building standards. In con-
trast, external efficiency focuses on how education translates into jobs, pro-
motes 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 Bank's 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 circum-
stances, their capacity grows.
It is possible that, if the Bank's analysis had greater depth, the Depart-
ments 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
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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 fami-
lies 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 non-
governmental 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 educa-
tion 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.
WorldBank GroupStrategies
The World Bank Group (including the private-sector affiliate, the IFC)16
emphasizes three options for public-private 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 children's schools.
16TheIFC committed to seven education projects in FY 1998, five of which are located in
West Africa.
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The Shareof Private-SectorInvestment
The proportion of total spending from private sources ranges widely:

Haiti-80%, Hungary-6.9%, India-11%, Kenya-38%, Uganda-57%,
and Venezuela-27%. However, 90% of primary school students are
enrolled in public education systems (World Bank, 1995a, pp. 53-55).
Some governments, such as India's, have systems for supplanting pri-
vate financing with public financing. In India's Maharashtra State, the
government will absorb costs of funding schools after they have scored
high on key capacity-building areas.
Boosting Privatizationof EducationThrough

Output-BasedAid Schemes
Increasingly, education systems will be administered through output-

based aid (OBA) schemes, in which the government delegates service pro-
vision 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 sur-
prising at first is that outputs-massive 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 sub-
sidies themselves.
* The incentives for private providers to pocket subsidies or inflate
losses (e.g., provide low-quality or no service).
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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 spec-
ified manner. It is unrealistic for the PSD Strategy to assume that an
arm's-length relationship will exist between borrowing govern-
ments 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, educa-
tion, 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 small-
scale 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 govern-
ment bureaucracies, they sometimes offer speedy services. However, SF
programs fail to coordinate their activities with those of government min-
istries. 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 pri-

vate 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 Bank-financed project, is setting up pilot proj-
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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 pro-
vide 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 dis-
advantaged 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 edu-
cation.
Cons
* The responsibility of federal, state, and municipal governments for

oversight and supervision of the education sector can diminish when edu-
cation 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 account-
ability. However, where private schools are subsidized with public
money, financial discipline can be compromised. Thus, World Bank sup-
port for private school subsidies has been controversial.
* Private-sector actors, which the Bank's affiliate, the IFC, calls
"edupreneurs," and NGOs are not always properly equipped to provide
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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
rural-urban divisions. Children of low-income and racial or ethnic minor-
ity families are often "ghettoized" in public school systems that underper-
form their private-sector counterparts.
* Sometimes poorly functioning systems, which are intended to subsi-
dize the direct or indirect fees for private (or public) education via vouch-
ers 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 innova-
tions, principles, and technologies should be mainstreamed into public-
sector programs. SFs should also address the capacity-building needs of
local organizations.
RecoverCosts
The term cost recoveryrefers to the following:

* The cost of constructing educational buildings and facilities. It is
now common practice for such communities to absorb the cost of con-
structing 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 con-
struction are widely criticized. Aid is blamed for excessive costs for facili-
ties that are often inappropriate to the needs of communities.
* Textbook fees and the topping off of teachers' salaries are common-
place. 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 costs-namely 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 trade-
offs with respect to the education of their children. Increasingly, sec-
ondary schools impose more significant fees on families than do primary
schools. Consequently, parents who decide to pay the bill for one or more
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secondary school students may find the direct or indirect costs of educat-
ing 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 controver-
sial 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) pro-
vides 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.
ImplementDemand-SideAnalysis and Financing
Descriptionof the Issue
In the 1990s, Bank-financed projects still emphasized the supply side of

education-provision of buildings, materials, and technology. However,
increasingly, the Bank is conducting demand-side analysis (e.g., beneficiary
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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 allow-
ing 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 children's education. Such strategies may involve stipends
(cash payments), community financing (through monetary or nonmone-
tary 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 provid-
ed 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 Cote
d'Ivoire, despite the fact that net enrollments and education expenditures
were increasing. In other words, increases in enrollments of nonpoor chil-
dren 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 socio-
economic groups (Grootaert, 1994, p. 131).
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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 con-
clusion, 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 cov-
ered by stipends and scholarships. Until recently, the Bank only consid-
ered strategies to offset the indirect costs of schooling. To that end, it ana-
lyzed 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 text-
books), 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.
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Cons
* The costs of applying for a waiver may be prohibitive. In Zimbab-

we, families were required to travel long distances to apply for
exemptions to fees. Furthermore, there were often long time lags
(6-9 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 tar-
geted for assistance.
* Systems may be difficult to administer.
Decentralize
Decentralization entails devolving the responsibility and the opera-

tions 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 fund-
ing, curricula, and personnel issues is seen as a remnant of colonialism.
Examples
El Salvador. The Educacion con Participacion de la Comunidad decen-
tralizes 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 (imenez & Sawada, in press). Howev-
er, 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 deci-

sions to local school councils (consejos directivos). The theory was that
greater responsibility on the part of parents, teachers, and school adminis-
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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 Bank's 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 rec-

ognizing the needs and preferences of local residents, and because local
governments are at least as efficient as national governments at deliv-
ering public goods that benefit only local residents, it will be more effi-
cient 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)
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N. C. Alexander
Cons
* The federal government's responsibility for oversight and supervi-

sion 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 gov-
ernments 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 institu-
tional capacity to handle their expanded responsibilities; (c) the
decentralization arrangements between different levels of govern-
ment 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 under-
mine teacher rights, wages, and job security.
* It is difficult to monitor and evaluate decentralization efforts.
TransferSubsidiesFrom Secondaryand
Higher Educationto 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 Bank's 1980 World Development Report,
primary education can increase human potential and social cohesion
while improving health, reducing fertility, and boosting income genera-
tion potential (Heyneman, 1995, 1997, 1998; Ilon, 1994; World Bank, in
press).
Policymaking should emphasize basic education. In developing coun-
tries as a whole, 71% of school-age children share just 22% of public
resources for education; 6% in higher education use 39% of public
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resources. The cost of primary education is low relative to tertiary educa-

tion. In Tanzania, the cost of sending one student to university is equiva-
lent 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 world's job market is quickly bifurcating-dividing
workers into skilled and unskilled categories. To compete in a global mar-
ketplace, developing countries must build on a strong primary school
foundation by expanding enrollments in secondary, vocational, and high-
er education.
Methodologies for calculating rates of return to different levels of
education are fraught with problems. They involve dividing the bene-
fits 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 policymak-
ing. 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 Bank's
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 Bank's 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 non-
compulsory levels of education. Citizens in many countries feel that the
Bank is contributing to a gutting of secondary and tertiary education sys-
tems. 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 Brazil-
ian member of Congress assailed the Bank's "short blanket" philosophy
of education financing-namely that the blanket can cover the head
(higher education) or the feet (primary education) but not both. Many cit-
izens feel that the Bank oversteps its authority when it attempts to veto a
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N. C. Alexander
domestic consensus in favor of significant support for higher education.

Even the Bank's Board of Executive Directors (e.g., the 1995 sector review
discussion) has expressed opposition to the strong emphasis on transfer-
ring subsidies from higher to basic education.
In a study commissioned by the Bank (1996b), African advisors rec-
ommended that:
The Bank needs to review its policies of not making loans available
for higher education. Although higher education in Africa is expen-
sive 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 universi-
ties in the region. Ways should be found to allocate resources to uni-
versities on a competitive basis. For instance, resources could be allo-
cated according to proposals submitted by the universities aimed at
improving performance. Preference could be shown for imaginative
programs that enhance a university's prospects. In addition, bur-
saries 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 indi-
vidual 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 dys-
function, 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 (1962-1980), the Bank's 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
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Bank's 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, cur-
riculum development, and administrative and management support.
There were also major performance problems in the portfolio. Regard-
ing 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 proj-
ects faced problems in the acquisition of equipment.... There were also
major problems in the provision and utilization of laboratories and work-
shops" (Jones, 1992, p. 253).
The year 1980 was pivotal. From 1980 onward, Bank-financed educa-
tion operations were often undertaken in the context of SAPs. The condi-
tions 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 curren-
cy, removing import barriers, providing incentives to exporters, reform-
ing 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 intro-
duced) 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 world's 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 1995.17There 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, adjust-
ment may not always produce economic growth, and if it does, the bene-
fits do not always "trickle down" to poor people. In fact, many NGOs
contend that vulnerable groups, such as poor people and women, are
17www.challengeglobalization.org / indx.shtml
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N. C. Alexander
often disproportionately hurt by adjustment and receive no tangible ben-

efits. 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 country's govern-
ment 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 privatiza-
tion 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 plum-
mets, 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 short-
term 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 Bank's internal operations. The "right
hand" of Bank economic reform appears to be poorly informed by the activ-
ities of the "left hand" of social development and vice versa. In other words,
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the Bank is comprised of worlds within worlds that often do not intersect.
The history of the Bank's Social Development Task Force reflects a sharp
divide between the Bank's economists and noneconomic social scientists.
Many of the conflicts between the two groups revolved around the ques-
tion of whether economic policies should be normative or nonnormative.
Like education sector reforms, SAPs are often administered in a top-
down 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 adjust-
ment. ... Furthermore, the Bank only considers it has achieved suc-
cess 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 conse-
quence of adjustment during the 1980s (World Bank, 1990b). Table 2
shows the declines in primary education's share of expenditures during
this time period.
One of the few educators to study the impact of adjustment on educa-
tion, Fernando Reimers of the Harvard Institute for International Devel-
opment, 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 WorldBankPromote

EconomicFundamentalism
The IMF and World Bank promote economic fundamentalism through

modulating access to external assistance by borrowing governments. As
described later, borrowing governments-especially highly indebted
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N. C. Alexander
Table 2
PrimaryEducation's
ShareofPublicExpenditures
Declinesin ManyAdjustingCountriesin the
1980s
Country 1975 1980 1985 RecentYear
Argentina 46.2 10.1

Bangladesh 46.1 46.8
Bolivia 64.0 64.0
Brazil 18.4 49.0
Chile 45.7 53.0 51.1
Colombia 43.6 38.0 39.2
Costa Rica 46.0 37.0 33.0 33.0
Cote d'Ivoire 41.0 42.2
Ghana 25.0 29.0 27.0
Jamaica 38.0 35.0
Kenya 58.0 56.3
Malawi 43.0 39.0 45.1 37.9
Morocco 37.0 34.0 34.0 34.0
Philippines 84.6 86.6 84.4 59.9
Senegal 46.0 44.0
South Korea 62.0 50.0 47.0
Togo 38.1 31.0 38.5
Turkey 44.0 46.0
Uruguay 46.2 43.1 39.3 27.5
Zambia 45.0 45.0 44.0 41.0
Note. From Social Dimensionsof AdjustmentOperations:The WorldBank'sExperience,

1980-1993 (p. 107), 1996, Washington, DC: World Bank. Copyright 1996 by the World Bank.
Reprinted with permission.
governments-must be in the good graces of the institutions to meet

their financial obligations.
The IMF's 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
IME 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 govern-
ment's access to official development assistance and private capital flows.
Bilateral donor governments, which provide 75% of official development
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assistance, rely heavily on the IMF's signals. The IMF signaling, or gate-
keeping, 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 conditionsattachedto 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 improve-
ment 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 condi-
tions were usually nonbinding (Adams & Hartnett, 1996). At the same
time, SAPs often had binding conditions, which required cuts in the bor-
rower's 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 crite-
ria; 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 condi-
tions 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.
Mechanismsfor modulatinggovernmentaccess to WorldBank credit. Like

any bank, the World Bank uses a carrot-and-stick approach with borrow-
ers. 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
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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 Develop-
ment Bank, the Country Strategy Paper of the African Development Bank,
and the Country Cooperation Framework of the United Nations Develop-
ment Program. The CAS, which describes the investments that the Bank
plans to make in the country over the medium term, outlines three lend-
ing scenarios (high-case, base-case, and low-case scenarios) for a 3- to 5-
year 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 gov-
ernments 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 govern-
ment's access to resources. For instance, at one point, the World Bank per-
mitted the government of Brazil to borrow $4 billion to $6 billion over 3
years. However, the Bank warned the government that it could only bor-
row $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 IMF's seal of approval, binding SAP conditions, and the
Bank's 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 borrow-
ing governments, however. UNICEF's (1998) State of the World'sChildren
Report cites C6te d'Ivoire's Economic and Finance Minister's 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 negotia-
tions 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.
Critiquesof 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
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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 prob-
lems with the Bank's 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 underrepre-
sented 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 expendi-

ture component for infrastructure construction and modest levels of recur-
rent 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
18Bulletsare quotes from handouts provided by the Bank's Social Development Depart-
ment in October 1998.
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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 IMF's (1998) Fiscal Reformsin Low-IncomeCountriesreports
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 IMF's
methodology reveals three problems. First, the IMF has chosen to com-
pare 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 edu-
cation spending, which is a supply-side variable. A fuller analysis would
take into account the elasticity of demand for services among popula-
tions, 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, educa-
tion spending as a percentage of GNP declined in 67% of adjusting coun-
tries and 14% in nonadjusting countries. He also reported that, as a per-
centage 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 sub-
Saharan Africa. In adjusting countries, per pupil expenditures declined
in 81% of adjusting countries. There were declines in only 67% of nonad-
justing 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 aver-
aged 0.64 of a percent of GNP, and the decline in adjusting countries aver-
aged 0.56 of a percent of GNP. In Latin America the increase in nonadjust-
ing 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 per-
centage of public expenditure declined in 57% of adjusting and 17% of
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nonadjusting countries. In real terms, education expenditures declined in

53% of countries (Reimers, 1994, p. 123).
Impactson incomesand inequality. Incomes can rise during adjustment,

especially for exporters. Incomes can decline due various dynamics: com-
petitive pressures bid down wages, union bargaining power diminishes,
budget cuts retrench civil servants, subsidies for basic staples are cut, pen-
sion and social security benefits are reduced, tight credit restricts con-
sumption 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 Bank's
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 earli-
er, 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 capi-
ta incomes. (p. 122)
In coming to conclusions about the impacts of adjustment, Frances

Stewart (1995), in Adjustmentand Poverty, drew on 23 studies of the effects
of adjustment programs carried out over 15 years as well as six case
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N. C. Alexander
studies of Tanzania, Ghana, Mexico, Chile, the Philippines, and Indonesia.

Stewart concluded that adjustment processes increase poverty as defla-
tion 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 Philip-
pines, and signs of worsening attainment were evident in Chile, Mexico,
and Indonesia.
Stewart concluded that the IMF and World Bank neglected and proba-
bly 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 macro-
and 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 spend-

ing, 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 popula-
tions 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 impor-
tance 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 bor-
rowing countries to design safety nets.
19Thedeficiencies of safety nets are described in detail in report of the external evaluators
of the IMF's Enhanced Structural Adjustment Facility.
328

Payingfor Education
The PRS Initiative
Many champions of education welcomed the launch of a 1999 PRS ini-

tiative 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 borrower's 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 pro-
grams, 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 par-
ticipation 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, pol-
icy 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 participate-namely, "I partici-
pate, 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 borrower's entire
national development strategy-not 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 EFAplans.
Recommendations
Adjustment Operations
Adjustment operations should be transformed and scaled down or dis-

continued. 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 car-
ried 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 pro-
tection, 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 satisfacto-
ry, the Bank's 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 pro-
grams in the world's poorest countries. (The evaluators looked at 21 high-
impact adjustment lending [HIAL] operations in 17 countries exceeding
$2 billion in FY 96-98.)
Criteria by which the World Bank and IMF design and evaluate adjust-
ment programs might include:
* Transparency: Are the documents, which define the terms and con-
ditions 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 bor-
330

Payingfor Education
rowing governments to disclose documents initiating adjustment pro-

grams (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 dis-
closed.
* Social consensus relative to adjustment. Who is involved in identify-
ing adjustment priorities and designing adjustment operations? Elected
officials? Workers? Educators? Groups of poor people and their represen-
tatives? As it stands, adjustment programs are sometimes geared to over-
come 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.)
ImpactAssessments
The World Bank and IMF could routinely conduct assessments of adjust-
ment 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 institu-
tions and civil society organizations (CSOs) are developing the indepen-
dent 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 south-
ern, 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 addi-
tion, The IMF and World Bank should ensure that its binding SAP condi-
tions 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 fungible-more fungi-
ble 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 reduc-
tion 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 los-
ing 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 VersusQuality of EducationLending
The World Bank's financing of education fell from an average of $2 bil-

lion 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 educa-
tional 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 assis-
tance 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 leader-
ship. Hence, the Bank's formulaic approach to the education sector (e.g.,
privatize, decentralize, recover costs) often prevails.
For many years, Bank critics have decried the Bank's incentive system,
which rewards managers for moving money rather than getting results on
the ground. In recent years, the Bank has developed new incentive sys-
tems, 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 partici-
pation, which, in turn, can lead to poorly performing operations.
332

Payingfor Education
The inverse relationship between the level of lending and the quality
of lending is especially relevant to the education sector. In a Bank-
financed 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 improve-
ment soon proves to be not only inefficient but also extremely
inequitable" (p. 15).
Participation
Borrowing governments and their citizens should design their own solu-
tions to policy problems. The national and sector-specific strategies of bor-
rowing 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 fed-
eral government functions are being decentralized, and local govern-
ments frequently lack the capacity and resources to manage education
systems effectively. In addition, the IMF and the World Bank must dis-
close 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 dis-
closed and discussed and that feedback is integrated into final CAS doc-
uments. 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 services-health, education, and water-it 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

"shallow"-that 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, togeth-
er with the scale and pace of lending operations, militate against mean-
ingful 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 par-
ticipation 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 Bank's education

reform prescriptions are often simplified, standard recipes for education
based, significantly, on research in developed countries. In and of them-
selves, these recipes are neither good nor bad; it depends on how they are
implemented. The World Bank often implements these recipes indiscrimi-
nately, 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 com-
plexity 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 institution's mandate and
pose the risk of undercutting their authority. Ideally, the Bank would facil-
itate and support government-civil society dialogue rather than supplant
it. Clearly, the Bank should not undermine the accountability of borrow-
ing 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 provi-
sion to the private sector and citizens' groups. Experience shows that
privatizing into an unregulated environment can be a disaster-espe-
cially when it comes to basic services. Creditors, such as the Bank and
IMF, should not coerce governments into privatizing without the knowl-
334

Payingfor Education
edge and consent of citizens. Schemes such as SFs and OBA programs
can undermine the authority and effectiveness of government pro-
grams. This is especially the case when such programs give internation-
al actors (private firms and NGOs) a dominant role in sensitive educa-
tion 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 agen-
cies often bypass the concerns of educators in recipient countries-
resulting in education projects and policies that are often ill suited to
their environment.
Debt Reliefand 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 coun-
tries, 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 afford-
able for low-income countries, including providing grants for IDA bor-
rowers, 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 rev-

enue, 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 unsus-
tainable 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 manage-
ment. 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 organi-
zations. The final policy should be piloted in several countries to deter-
mine 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 philoso-
phy 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 bor-
rowing governments to ensure that all citizens have access to basic ser-
vices, especially education, health, and water services.
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