In a move welcome to Civil
Society Organizations (CSOs) campaigning for 100 percent debt
relief, the IMF on January 5 delivered on its
portion of the Multilateral Debt Relief Initiative (MDRI) by
canceling the debts to the institution (incurred up to end-2004)
of 19 heavily indebted poor countries (HIPCs). The initiative
also promises to cancel the debts owed by the HIPCs to the
International Development Association of the World Bank and the
African Development Fund. It was originally proposed at the G-8
Finance Ministers' meeting in London in June and endorsed at the
G-8 Summit in Gleneagles, Scotland, in July, and at the IMF/World
Bank Annual Meetings in September 2005. The Fund was the first
of the three institutions to grant the proposed debt
cancellation. The debt relief will free up resources to assist
the poverty reduction effort.
The IMF's work on its
medium-term strategic review continues to progress. The strategy,
which provides a framework for prioritizing and focusing the
Fund's work and increasing its effectiveness, was first outlined
for the 2005 IMF Annual Meetings in a
report from Managing Director Rodrigo de Rato. It proposes
actions to strengthen IMF policy advice to member countries,
improve technical assistance, and reform the Fund's organization,
structure, and work procedures. Seven staff working groups were
set up after the Annual Meetings to develop specific proposals,
and a report based on their finding will be produced for the
2006 Spring Meetings.
IMF management and staff
interaction with CSOs in the field continues to grow in a number
of countries.
In 2005, there was
particular focus by the international community on increasing
the amount of aid and debt relief for low-income countries (LICs)
in order to significantly strengthen the poverty reduction
effort. The pressure to translate commitments into reality must
continue. But there is also a growing sense in the international
community that we must find ways to make aid more effective. As
part of the review of the design of IMF-supported policy
programs in LICs, IMF staff prepared a paper that focused on the
macroeconomic effects of aid. Andy Berg, chief of the
Development Issues Division in the IMF's Policy Development and
Review Department, is the lead author of "The
Macroeconomics of Managing Increased Aid Inflows: Experiences of
Low-Income Countries and Policy Implications." We asked him
to describe the main findings of the paper and the lessons for
IMF policies in low-income countries.
Q: What were the main
reasons for writing this paper?
A: There is a lot of talk about
the difficulties with managing aid inflows. We wanted in this
study to be constructive and concrete. We thought that it was
important to look at issues that worry donors, international
organizations, and especially aid recipients. Are aid surges
inflationary? Do they crowd out the export sector by causing "Dutch
disease" (The term is used for currency appreciation or
inflation arising from an inflow of external resources, which
can adversely affect net exports and incomes of producers in the
trading sectors)? And what can be done about it? We thought that
the most practical thing to do would be to look at recent
country experiences where there had been large aid increases. We
wanted to see what happened in these countries, what did the IMF
advise, how things turned out, and what lessons could be drawn.
We looked at Ethiopia, Ghana, Mozambique, Tanzania, and Uganda,
five countries that had big jumps in aid inflows in recent years
(equal to around 5 percent of GDP) .
Q: And what did you
find?
A: The first thing we found was
that we had to revisit our expectations about how the aid would
be used. We expected that governments would spend the money on
goods, both imported and local, and that the country as a whole
would use the dollars to buy more imports. This would, in
principle, be the most effective way to use the aid. For aid to
be used as intended, it must give rise to spending by the
recipient government and absorption of more imports. But what we
found is a lot more varied and, ultimately, confusing. We were
surprised to find that a full absorb-and-spend response was
rare. In most cases, aid was spent, but not absorbed, meaning
that while the Finance Minister increased spending on the basis
of more aid, the aid dollars remained in the central bank.
Foreign exchange reserves were being built up, so the aid
dollars were not being used to finance the higher spending.
Instead, the recipients had to finance domestically, by either
printing more money or borrowing from the public. To put it
another way, much of the aid is spent in local currency
domestically, to hire teachers for example. The Central Bank can
finance this spending by using the aid dollars to buy back the
local currency that was used to pay the teachers. This way, the
dollars are available in the economy to pay for higher imports.
But if the aid dollars stay in the Central Bank, it's just as if
the domestic spending was financed through domestic money
creation.
Why aren't the dollars always
used to finance the aid-related spending? Sometimes there is a
need to build up an adequate level of reserves. But often the
authorities are worried that to do so would cause the exchange
rate to appreciate and thus "Dutch disease." It seems that
sometimes they'd rather spend domestically, risking higher
inflation or higher interest rates, than use the aid dollars and
risk Dutch disease. In two of the cases (Ethiopia and Ghana),
most of the increase in aid during the high-aid period we
studied went into faster reserve accumulation. In addition, the
deficit (spending less domestic revenue) did not increase over
the aid-surge period. In other words, the aid surge was mostly
neither spent nor absorbed. The other three cases (Uganda,
Tanzania, and Mozambique) mostly or fully spent the aid increase
but also mostly did not absorb the aid. The result was a complex
mix of higher inflation and interest rates and, occasionally,
pressures for exchange rate appreciation.
Q: Many would say this
is the IMF's fault—that we prevent countries from getting more
aid because of fear of Dutch disease.
A: We actually found that the
Fund-supported programs were consistent with spending and
absorbing; in other words, in these five cases, reserves were
being accumulated well beyond the minimum levels specified in
the Fund-supported program. Typically, we advised authorities to
sell more foreign exchange. Sometimes our reports somewhat
obliquely talked about the merits of more exchange rate
flexibility, which in this context really means letting the
exchange rate appreciate. So on the whole, it is not a Fund
concern that is driving these countries. It is the financial
authorities who are concerned about stability—particularly of
their exchange rate.
Q: But if they did not
follow our advice and did not use the aid to its full capacity,
there are important lessons for the Fund as well.
A: There are certainly lessons
for the IMF, as well as for others helping to devise policies in
an environment where more aid is available. One point the paper
emphasizes is that real exchange rate appreciation can be a
natural outcome of spending and absorbing an increase in aid.
The second point is that when you resist real appreciation by
hoarding the dollars in the Central Bank, but the government
spends it anyway, then you do get macroeconomic problems. There
must be more coordination between fiscal and monetary policies,
between finance ministries and central banks, in order to make
the aid more effective. The IMF must be fully aware of these
tensions, where they exist, and work toward finding a solution.
And yes, we at the IMF must be
more attuned to this issue than we have been. We need to be
extra conscious of the fact that the governments may not be
taking our advice. We have to give advice that helps them make
good decisions even when they're failing to follow our preferred
approach. What's our advice then? We need to make sure we're
working with them—helping make sure that the different parts of
the government are communicating to make the right overall
decisions. Specifically, we need to pay more attention to the
consistency of fiscal and monetary policy, so if there's going
to be a big increase in aid-related spending, we need to make
sure, if we can, that the monetary authorities are on board with
that plan and facilitate it. We need to think with them about
what the implications are for the real exchange rate and make
sure they're willing to accept it; or if they're not, to adjust
things in a sensible way. That means adjusting the way they
spend aid—maybe spending more on imported goods, which will not
cause exchange rate appreciation, or more on
productivity-raising investments—or adjusting the pace at which
they spend it.
Q: You mention "the
pace at which they spend the aid:" this seems to reflect the
tension that is often cited between macroeconomic stability and
the Millennium Development Goals (MDGs). The IMF is often
accused of putting macroeconomic stability ahead of hiring more
teachers or spending more to combat HIV/AIDS. Is this a real
trade-off? What is your reply to this criticism, in light of
this paper?
A: On the face of it, it does
sound like a case of immense needs versus macroeconomic
technicalities—and that we are concerned about technicalities.
And it is hard to speak about economic stability when people are
dying every day because of lack of medicines, doctors. But there
is no conflict between macroeconomic stability and pouring more
resources into combating HIV/AIDS, educating more children, or
building more roads. This is not the real trade-off. We can—and
must—design macroeconomic frameworks to accommodate scaling up
for health, education, defeating the AIDS pandemic—you name it.
As I said before, the macroeconomic problem comes when the
policy mix becomes inconsistent—if, for instance, the absorption
of the aid implies a sale of reserves that the Central Bank
objects to, perhaps on the grounds of concern about real
exchange rate appreciation.
We argue in the paper that the
solution should be to face squarely the question of whether
spending on reaching the MDGs is worth the opportunity cost in
terms of resources drawn from other sectors, including possibly
the export sector. If so, go ahead. If it is not worth the
opportunity cost, then don't use the aid at all, or change the
way it's spent. But we must remember, these macroeconomic issues
raise the stakes for aid. Aid dollars allow resources to be
devoted to domestic uses that might otherwise have gone into
exports. But they don't immediately create scarce domestic
resources such as skilled labor. If you're spending money and
educating people, curing AIDS, building roads and ports, that's
fantastic and obviously must go ahead. But if you're not, and if
the aid is going to build schools that then are dysfunctional
after three years or in which there are no teachers, you're not
just wasting the aid—you are also wasting scarce domestic
resources that might have been used elsewhere more productively.
This risk makes it that much more important that the aid be used
well, because if it isn't, you're not just missing an
opportunity; you could be doing harm.
Q: The paper says that
"a Dutch disease effect on exports via real appreciation is
absent in all five countries." This might be an important
finding in the debate over whether aid causes inflation.
A: As I said, aid should not in
general cause inflation. But we also emphasize that sometimes a
real appreciation may be necessary to absorb an aid inflow. If
you have a fixed exchange rate, if you really don't want to let
your nominal exchange rate appreciate, the only way you get a
real exchange rate appreciation is through a period of higher
domestic inflation. It's not that monetary policy is out of
control. It's a relative price adjustment—an increase in the
dollar price of domestic goods and labor that are now in higher
demand because the government is buying more. And it could well
be a necessary part of the absorption of aid. Therefore, where
countries are pursuing a fixed exchange rate and aid increases
sharply, we might expect a relative price adjustment in the form
of some inflation.
Q: Some of our critics
may consider this new thinking for the IMF! Does this mean that
you've reconsidered the tight anti-inflation stance that many
have said limits pro-poor spending?
A: Let me speak to the broader
question. There's been a lot of discussion about whether the IMF
is too tight on inflation, and whether our anti-inflation stance
has limited the ability of countries to increase spending and
work to meet the MDGs. The point that sometimes inflation may be
part of a needed relative price adjustment is something we've
emphasized more in this paper than in the past. And it
highlights that we have to think about inflation targets in
context. In the long run, there is no trade-off between lower
inflation and faster poverty reduction. On the contrary,
countries with inflation out of control can't sustain growth and
reduce poverty. Higher inflation does not allow higher
investment. It does not create resources for development. It
does tax people who hold cash or whose nominal incomes are
fixed. And this tax discourages private investment and tends to
fall on those least able to adapt—in other words the poor.
But we all agree that reducing
inflation from high levels can carry real costs in the short
run. The recent review of the Poverty Reduction and Growth
Facility (PRGF) program design, of which the aid inflows paper
is just one piece, underscored that we have to be careful about
bringing inflation down too fast. For example, programs should
avoid excessive zeal in resisting blips in inflation due to food
shortages or oil price increases. And in practice, IMF-supported
programs are quite flexible. Where inflation was above 10
percent the year before the start of the program (the average
was 14 percent), the first-year target averaged 9 percent.
So how low is low enough for
inflation? One of the conclusions that's emerged from years of
studies on this issue is that inflation only starts to cause
serious damage when it gets above a certain point. Whether you
average 2 percent or 3 percent inflation doesn't seem to matter
for growth. In the review, we concluded that the evidence is
roughly that in poor countries the danger point is somewhere
between 5 and 10 percent, so that when it gets somewhere above
there, it starts to become harmful to growth.
Why might this be? Partly
because with inflation much above that level, there is a real
risk that it will take off. In low-income countries, a 6 percent
inflation rate provides inflation tax receipts for the
government of roughly 1 percent of GDP. In other words, the
money printing that goes with 6 percent inflation will typically
finance spending of about 1 percent of GDP. That's a decent
amount of resources. But it is still tiny relative to needs. If
you were willing to go up to 15 percent inflation, you'd be able
to finance maybe another 0.4 percent of GDP in spending. Is
going from 6 to 15 percent inflation worth 0.4 percent GDP in
expenditure? It puts you into quite a precarious range. It might
be okay if you can manage to keep it there, but when you're at
15 percent, then you're on the edge of a slippery slope.
Depending on how much confidence there was in your overall
system, people start to really flee the currency because they
see the government losing control. It's a precarious balance. If
you go from 15 percent to 25 or 30 percent, you might actually
lose revenues. If you're at 15 percent in good times and the
economy faces a negative exogenous shock, then you have a real
problem on your hands, and you need a stabilization program. No
one wants a stabilization program unless it's absolutely
necessary.
That's why on the whole we
suggest the 5 to 10 percent range as an upper bound. You should
look for other ways to finance expenditure. Of course, foreign
grants are great but are in limited supply. If you're
sufficiently confident that your expenditures are not just
needed but also reasonably effective, then domestic taxation is
a much more efficient, pro-growth way to support further
expenditures.
Q: How will this paper
affect and inform the IMF's programs for poor countries, like
the PRGF and the new policy support instrument (PSI), which is a
non-borrowing facility?
A: We are discussing our
results both inside and outside the Fund. Within the Fund, the
study has been built on as part of the stream of work we are
doing—including in the African Department, the Research
Department, and the Fiscal Affairs Department—on how to scale up
aid effectively. We hold "Mission Chief Seminars" where we
discuss our results and compare them with the experience of area
department mission chiefs. Outside, we discuss and share
experiences with academics and policy-makers when we can. And of
course we are continuing our work. We're looking now at
broadening our sample to see how general our conclusions are,
and we're looking more closely at questions of how to manage aid
volatility—the focus of our study was on sustained surges in aid.
We're also trying to develop better analytic tools to help
design macroeconomic frameworks for scaling up aid.
The most recent example of the
public discussion on the topic can be found on the IMF's website:
A
Response to Joseph Hanlon's Recent Article, Donor Concern
Over IMF Cap on Aid Increases
IMF delivers on 100 percent debt
relief for 19 countries
On January 5, 2006, the Fund
extended 100 percent relief to 19 countries on all outstanding
debt to the Fund disbursed before January 1, 2005. These
countries are Benin, Bolivia, Burkina Faso, Cambodia, Ethiopia,
Ghana, Guyana, Honduras, Madagascar, Mali, Mozambique,
Nicaragua, Niger, Rwanda, Senegal, Tajikistan, Tanzania, Uganda,
and Zambia. They consist of the 18 completion point heavily
indebted poor countries (HIPCs) except for Mauritania (deemed
not to qualify because of a substantial deterioration of its
macroeconomic performance and the management of public finances
since a June 2002 assessment made when the country reached its
completion point under the HIPC Initiative [see
Press Release) plus Cambodia and Tajikistan (two non-HIPCs
included to fit the IMF's requirement that the use of the IMF's
resources be consistent with uniformity of treatment by a
criterion based on per capita GDP.) The Fund is helping
Mauritania and other countries make progress toward
qualification for debt relief under the Initiative.
In June 2005, the
Group of 8 (G-8) major industrial countries had
proposed that three multilateral institutions—the IMF, the
International Development Association (IDA) of the World Bank,
and the African Development Fund (AfDF)—cancel their debt claims
on countries that have reached, or will eventually reach, the
completion point under the IMF-World Bank
Heavily Indebted Poor Countries (HIPC) Initiative. The HIPC
Initiative entailed coordinated action by multilateral
organizations and governments to reduce to sustainable levels
the external debt burdens of the most heavily indebted poor
countries.
At the September 2005 Annual
Meetings of the World Bank and the IMF, the G-8 proposal, since
then dubbed the Multilateral Debt Relief Initiative (MDRI), was
endorsed by both institutions. In November, the IMF Executive
Board agreed on the implementation of the Fund's portion of the
MDRI. On December 21, the Board decided that a first group of 19
countries had qualified for immediate debt relief under the new
initiative. On January 5, the IMF's part of the MDRI became
fully effective when the last of the consents (from 43
countries) needed to finance it was received by the Fund. As a
result, 19 countries then benefited from immediate debt relief
from the Fund. Unlike the HIPC Initiative, the MDRI does not
propose any parallel debt relief on the part of official
bilateral or private creditors, or of multilateral institutions
beyond the IMF, IDA, and the AfDF.
The MDRI will free up resources
that can be devoted to poverty reduction and economic
development. However, the debt relief agreed to by the IMF and
others will only provide a small part of the assistance, both
financial and technical, that low-income countries need to meet
the Millennium Development Goals (MDGs). If these goals are to
be met, donors must also deliver on their commitments for
significant increases in aid. The IMF has long called on donors
to meet the internationally accepted target for overseas
development assistance of 0.7 percent of a donor country's GNP.
For their part, recipient
countries must continue to implement strong policies and make
the best possible use of the higher levels of assistance. The
greatest impact on poverty reduction will come from low-income
countries' own efforts to sustain good economic performance,
improve governance, and develop strong institutions. Low-income
countries can also improve their prospects by strengthening
their management of public spending, fostering private sector
development, and liberalizing trade. The IMF will work with its
low-income members to ensure that debt relief and aid are used
efficiently. One priority is to ensure that large, new infusions
of aid do not have unintended economic effects, such as the
appreciation of a country's currency or inflation, which would
make its products less competitive. Another priority is to
ensure that low-income countries that are striving to meet the
MDGs, and which have large financing requirements, avoid a new
spiral of indebtedness. The IMF can help countries design
economic policies to reduce these risks.
For more information see:
The
Multilateral Debt Relief Initiative (MDRI)—A Factsheet
Multilateral Debt Relief Initiative—Questions and Answers
The November 2005 edition of
the Civil Society Newsletter provided an
overview of the Fund's reassessment of its engagement with
low-income countries (LICs). The following gives an update on
the status of some of this work:
The Exogenous Shocks
Facility (ESF)
With the consent of all 43
contributors to the Poverty Reduction and Growth Facility (PRGF)
Subsidy Account, the ESF became effective on January 5, 2006.
The Fund is still in the process of mobilizing subsidy resources
for the new lending facility. More on the ESF can be found in
the
Factsheet, the
ESF paper, and the
ESF guidance note.
Debt Sustainability
Analysis
The Debt Sustainability
Framework (DSF) is designed to help LICs achieve the Millennium
Development Goals while maintaining debt sustainability. The DSF
assesses a country's risk of debt distress on the basis of the
existing debt and macroeconomic and financing projections, while
taking into account the quality of policies and institutions.
Fund and Bank staff are working
together on a paper for the 2006 Spring Meetings that would
identify key outstanding issues. The paper will focus on the
experience with the implementation of the DSF (including
Bank-Fund collaboration), the implications for debt
sustainability of the debt relief triggered by the Multilateral
Debt Relief Initiative (MDRI), and themes related to the
implementation of the DSF in LICs with large borrowing space,
such as non-concessional borrowing.
HIPC Sunset Clause
The IMF and the World Bank are
in the process of reviewing the list of countries potentially
eligible for the assistance under the Heavily Indebted Poor
Countries (HIPC) Initiative (to see the preliminary conclusions,
see
HIPC progress report 2005). Staff is firming up calculations
of end-2004 debt indicators and plans to present a final version
by the Spring Meetings. Countries that are found to be above
certain debt thresholds will be potentially eligible for debt
relief under the HIPC Initiative. To become eligible, a country
must also have had a Fund-supported program in place at some
point between the start of the Initiative and end-2006. To
qualify, it must still have unsustainable debt at the time it
requests the assistance, and the IMF and World Bank Boards must
be satisfied that the country will be in a position to make
appropriate use of this assistance.
IMF Managing Director Rodrigo
de Rato met with a group of labor leaders during the January
25-29 Annual Meeting of the World Economic Forum in Davos,
Switzerland, where he participated in four official panels. The
labor delegation was led by Guy Ryder, General Secretary of the
International Confederation of Free Trade Unions (ICFTU) and
John Sweeney, President of the U.S. union confederation, the
AFL-CIO. Other participants included Sharon Burrow, President of
the Australian Council of Trade Unions and current ICFTU
president, and Govindasamy Rajasaharan, Secretary General of the
Malaysian Trade Union Congress.
The January 27 meeting was an
opportunity for the Fund and the labor leaders to exchange views
on the global economy and to discuss labor-related issues. Ryder
thanked de Rato for encouraging the continuing dialogue between
the Fund and labor unions. He said that the labor unionists were
interested in hearing de Rato's views on three issues: a) the
outlook for the global economy and near-term risks; b) the
Fund's perspective on global imbalances; and c) the evolution of
the IMF's mission at a time when major borrowers such as Brazil
and Argentina have repaid their financial obligations.
Global economic conditions
remain benign, de Rato observed. Low interest rates are spurring
economic activity in developed and developing economies. The
supply of workers is at high levels, and this is having an
impact on prices and wages. However, cheap financing conditions
will not prevail forever and a harsher economic environment
"down the road" remains a possibility. De Rato expressed
confidence that the global economy is better positioned to
absorb shocks and said he is encouraged by the fact that
emerging market countries are pursuing sound economic policies.
On global economic imbalances,
he said that all major economies have an important role to play.
The challenge for the U.S. is to save more and move away from
the current policy where foreigners are recycling their savings
to finance the U.S. deficit. De Rato was encouraged by Japan's
economic recovery and emphasized that Europe also needs a
"positive agenda" to accelerate growth. The imbalances need not
be scaled back immediately (which could negatively impact the
global economy) and this should be a two-to-four year policy
objective.
On the evolving role of the
Fund, de Rato observed that the early repayments by Brazil and
Argentina should be viewed in their proper context. The primary
objective of the Fund is to provide emergency financing for
countries faced with economic crisis. However, the demand for
Fund financial assistance typically falls at a time when global
economic conditions are positive. Despite the fall in Fund
lending, the institution continues to play an important role in
monitoring the global economy and providing technical assistance
for countries. "We will always have the capacity to put money on
the table," he said. The Fund is in the process of formulating a
medium-term strategy that will be discussed by the membership
during the forthcoming Spring Meetings.
At the end of the meeting, de
Rato thanked the labor leaders for their engagement with the
Fund and said that he looks forward to continuing the discussion
at the next meeting.
Members of the World
Confederation of Labor (WCL) met last November at the
organization's 26th Congress to discuss a draft constitution of
a new International Confederation. The new confederation would
merge the two largest international labor groups, the
International Confederation of Free Trade Unions (ICFTU) and the
WCL. The merged organization is seen as better representing the
world labor union movements. Luc Leruth, Senior Economist at the
IMF's Offices in Europe, attended the November 22-23 Congress in
Houffalize, Belgium, and discussed IMF/labor union relations in
a meeting with Willy Thys, the WCL's Secretary-General.
No major changes were proposed
to the draft constitution. It includes provisions aimed at
keeping the new confederation pluralistic, in particular by
respecting the culture and heritage of all members. Some members
stressed the need to preserve plurality, but others argued that
plurality is a natural phenomenon whose occurrence is driven by
facts and not by legal provisions. The final draft constitution
will be circulated to members for their votes and a "manifesto"
will be prepared. The "Founding Congress" for the new body
should take place in 2006.
In November 2005, the
Pontifical Council for Justice and Peace held a two-day meeting
in Mexico City to launch an initiative to disseminate the
Compendium of the Social Doctrine of the Church. Deputy
Managing Director Agustín Carstens represented the IMF and spoke
on the subject of "The
Compendium and the Social-Economic Reality of America."
The Compendium was
prepared—at the request of Pope John Paul II, to whom it is
dedicated—by the Pontifical Council. It was first published in
October 2004 after five years of work under the presidency of
the late Cardinal François-Xavier Nguyên Van Thuân. It was
finished under the current President of the Pontifical Council
for Justice and Peace, Cardinal Renato Raffaele Martino, who was
present at the Mexico City event. The Compendium offers a
complete overview of the social teachings of the Catholic
Church.
Carstens commended the Church
for its efforts to advance socio-economic development. "The
Church has long been a tireless advocate for socio-economic
development and poverty reduction around the world, and its
efforts find deep resonance with us at the IMF," he said in his
speech. He noted that it is this dimension of poverty reduction
that is perhaps the most important area of common endeavor
between the Catholic Church and the IMF. The Deputy Managing
Director concluded that the influence of the Catholic Church "is
essential in helping to build broad ownership across society of
the economic, political, and social reforms necessary for more
rapid and inclusive development, ownership that extends beyond
government and policy circles to civil society more generally."
The IMF is committed to "maintain a continued dialogue and close
collaboration with the Catholic Church in the quest for a world
of peace, growth, and prosperity for all," Carstens concluded.
The event brought together
Cardinals of North, Central, and South America, including
Archbishop Primate of Mexico, Cardinal Norberto Rivera Carrera,
and Cardinal Oscar Andrés Rodríguez Maradiaga, S.D.B.,
Archbishop of Tegucigalpa (Honduras), as well as other religious
leaders, ambassadors, and Mexican officials.
The Fund has engaged with the
Pontifical Council for Justice and Peace on several previous
occasions. The most recent engagement was the participation of
advisor to IMF management Jack Boorman in the International
Seminar on "Poverty and Globalization: Financing for
Development, including the Millennium Development Goals" in July
2004 (see Civil Society Newsletter
August 2004).
The IMF's
Independent Evaluation Office (IEO) is examining the Fund's
role in determining the external resource envelope—the
availability of external funding resources—in low-income
Sub-Saharan African countries. Recent years have seen calls by
the international community for more and better aid to help
countries achieve the Millennium Development Goals (MDGs) and
related development goals. With higher levels of aid being
committed by major donors—especially for Sub-Saharan
Africa—identifying the lessons that can be learned from past
experience with different aid flow levels becomes increasingly
important. In assessing the Fund's contribution, the evaluation
considers the various aspects of the role that Fund
staff/missions play in the overall aid architecture along with
governments, donors, civil society, and other partners.
The IEO's central premise in
conducting the evaluation is that the IMF influences the
external resource envelope in low-income countries (LICS)
primarily through
Poverty Reduction and Growth Facility (PRGF) financial
program design, which implicitly determines how much available
aid can be used, and through its dialogue with donors. Critics
contend that IMF assumptions about aid absorptive capacity (e.g.
how much aid a country can absorb without risking macroeconomic
instability) and availability tend to be too conservative,
imparting a negative—and, they argue, frequently
self-fulfilling—bias to PRGF program design and donor flows,
which in turn reduce country prospects for growth and poverty
reduction. These issues have attracted increasing attention in
recent years, within the Fund and outside (see Civil Society
Newsletter
February 2005 and
August 2004), alongside calls by the international community
for more and better aid to help LICs achieve the MDGs.
Building on earlier IEO and
other studies, the project focuses on the Fund's actual policy
advice and inputs into program design, the analytical basis for
this advice, and, where possible, the emerging outcomes. The
draft issues paper for the evaluation, which sets out the
background and proposed methodology for the study, is available
in English, French, and Portuguese on the IEO website. Comments
from the public may be submitted to
ieo@imf.org. The evaluation team plans to revise the issues
paper during the last week of February, taking into account
comments received by February 22. Comments received after that
date will be considered during the preparation of the actual
evaluation report.
An independent team of experts
is reviewing the Independent Evaluation Office. The team of
evaluators is led by Karin Lissakers, former U.S. Executive
Director to the IMF (1993-2001), Ishrat Husain, former Governor
of the Central Bank of Pakistan, and Professor Ngaire Woods,
Director of the Global Economic Governance Program at Oxford
University. The team is asking whether the IEO is meeting its
goals to a) serve as a means to enhance the learning culture
within the Fund; b) strengthen the Fund's external credibility;
c) promote greater understanding of the work of the Fund
throughout its membership; and d) support the Executive Board's
institutional governance and oversight responsibilities. The
review of the IEO was foreseen in the
Terms of Reference creating the IEO. The evaluation is to be
completed and presented to the IMF Executive Board by February
2006.
Deputy Managing Director
Carstens meets with CSOs in Eastern Caribbean Currency Union
region
On a December 5-9 trip to four
Eastern Caribbean Currency Union (ECCU) countries—Antigua and
Barbuda, Dominica, Grenada, and St. Kitts and Nevis—Deputy
Managing Director Agustín Carstens met with government leaders,
the press, and civil society organizations (CSOs). While the
tropical climate, accessibility to the U.S. and Europe, and, in
most cases, beautiful beaches, have fostered a growing tourism
industry, the islands also face a number of significant economic
challenges. Among those are a sharp decline in aid flows as well
as the erosion of trade preferences jeopardizing the traditional
banana and sugar sectors and the rural communities they sustain.
Another challenge is the loss of 60-80 percent of skilled labor
to emigration and the negative consequences it causes for
institutional capacity and a vibrant private sector.
Press conferences—including a
simulcast throughout the region of a presentation on the "The
Global Context and Regional Outlook for Latin America and the
Caribbean"—and meetings with CSOs in each country sparked lively
debates on the key priorities for each country. In Antigua and
Barbuda, discussions focused on how to balance the necessity of
regaining fiscal control—including downsizing the civil
service—with social priorities. In Dominica, where the
authorities' program has been supported by a Poverty Reduction
and Growth Facility (PRGF) arrangement, the discussion centered
on how to restart growth. In Grenada, the central topic was how
to rebuild the economy following the devastation inflicted by
Hurricane Ivan in September 2004. And in St. Kitts and Nevis,
the closure of the sugar industry has been announced after more
than 300 years, creating substantial issues as to how best to
facilitate the movement of land and labor into more productive
uses.
During the trip, Carstens also
presented the Grenada Boys Secondary School (GBSS) with a check
for $5,000 from the IMF
Civic
Program. One of the many schools in Grenada that suffered
hurricane damage, GBSS was further ravaged by two fires last
summer. At the event, which was attended by GBSS students,
Carstens noted that he was pleased that the IMF could "assist in
a small way toward helping the school fulfill its mission of
providing a high-caliber education to so many."
IMF Civic Program funds are
provided for humanitarian purposes only and are separate from
the IMF's other financial activities with its members. The civic
program was established in 1994 to help the needy in the host
city of Washington, D.C. and those in developing countries. The
program supports child, youth, and family projects; adult and
community projects; and international projects. See also related
articles in the Civil Society Newsletter
August 2005,
May 2005, and
May 2005.
I represented the IMF at the
West African Civil Society Training Seminar on the Extractive
Industries Transparency Initiative (EITI). The seminar was held
in Kribi, Cameroon, from November 27-December 2, and was
attended by more than 40 participants from CSOs from West
African countries and Cameroon, as well as 10 representatives
from the international CSO coalition Publish What You Pay, which
acted as a co-organizer. Other co-sponsors were the World Bank,
the UK Department for International Development, the French
Cooperation Ministry, and the United Nations Development
Programme.
The agenda included a visit to
the off-loading installations of the Chad-Cameroon pipeline and
an offshore oil platform. There also were presentations by the
French Petroleum Institute on basic concepts of the
international oil industry and by World Bank economists on basic
concepts of macroeconomics and public finances as well as the
poverty reduction strategy (PRS) approach. Transparency issues
were discussed, along with the objectives and process of the
EITI, as well as the role of civil society. A significant part
of the debates focused on the role of the World Bank and the IMF
in countries where transparency and governance are not
responding to CSO expectations; and the way that the EITI could
achieve its objectives. I made a presentation on the IMF
Guide on Resource Revenue Transparency. The question session
covered clarification on the Guide, the design of Fund-supported
programs, and Fund facilities.
On November 7, an IMF mission
to Namibia met with the Basic Income Grant (BIG) Coalition to
exchange views on its proposal to introduce a monthly cash grant
equivalent to about US$15 to every Namibian not covered by the
old-age pension. The coalition includes representatives of NGOs,
religious groups, labor unions, and research institutes.
The coalition representatives
expressed strong concerns about the high levels of poverty in
Namibia, particularly among children, the unemployed, and those
infected with HIV/AIDS. They emphasized the need to improve the
social safety net. The coalition argued that the introduction of
a BIG would improve basic nutrition levels and thus enhance the
effectiveness of HIV/AIDS medicines and increase the capability
of the work force. Such a small universal grant would not
discourage people from looking for work, but would enable them
to escape from the vicious circle of poverty and unemployment.
The cost of the BIG could be recuperated through a seven
percentage point increase in the value added tax and, possibly,
an increase in the personal income tax for the wealthiest 20
percent of the population. In addition, the administrative cost
would be low as the existing distribution system for old age
pensions is particularly efficient.
The IMF mission agreed that
poverty is a serious problem in Namibia and that the fight
against it needs to be a priority. However, it noted that the
coalition's proposal is very costly—at between 3 and 5 percent
of GDP a year—and could jeopardize economic stability, with
serious implications for growth and future poverty reduction.
For a less costly, yet effective alternative, the mission
recommended that the coalition study the recent successful
experience of several Latin American countries. In those
countries, cash grants based on children's school attendance and
health clinic visits have been distributed to female heads of
households at very low administrative cost. A grant targeted to
the poor and based on investment in human capital may assist
Namibia in addressing both current and future poverty as well as
meeting the UN Millennium Development Goals. The coalition
opposed a conditional grant, arguing that school attendance
rates are already high in Namibia relative to other African
countries. They also considered targeting too complicated for
the Namibian system and raised concerns about potential abuses.
The mission suggested a gradual
rollout of the program to test and fine-tune the benefits,
obtain more reliable estimates on costs, and try to avoid the
unexpected negative effects of a large-scale implementation.
This proposal was not favored by the coalition, as the need to
help the poor is urgent. Instead, the coalition argued that
Namibia's introduction of the BIG could serve as a pilot case
for other countries.
Both sides expressed their
appreciation for the frank exchange of views and it was agreed
that the Fund and the BIG coalition would stay in touch and meet
again in the future.
On November 24, 2005, I met
with about 150 university students at the University of
Ouagadougou to speak about the IMF and the Fund's PRGF-supported
program in Burkina Faso. In my presentation, I explained what
the IMF is, how it works, and how the Fund supports low-income
countries. I also gave details about the objectives and progress
of the PRGF-supported program for 2003-06. The students wanted
to know how the Heavily Indebted Poor Countries (HIPC)
Initiative works, what conditionality is attached to the
PRGF-supported program, the role of fiscal transparency, and
what mechanisms could protect social expenditure in the budget.
I distributed copies of three documents prepared at our office:
the brochure "Qu'est-ce que le Fonds monétaire international?";
the latest issue of "Finances et Développement" discussing aid
efficiency; and a 50 page selection of articles from our
website, including an editorial by the IMF's Managing Director
"Il est urgent d'aider les pays producteurs de coton", as well
as articles published in "L'ABC du FMI", and in the "IMF
Bulletin" in 2005.
Staff from the IMF's Regional
Office for Asia and the Pacific (OAP), recently represented the
Fund at the 13th One World Festival in Osaka, Japan.
The two-day event in early February, one of the largest of its
kind in the country, gave the IMF an opportunity to inform the
general public about its mission and activities. This year, more
than 90 public, private, and civil society organizations were
represented, and an estimated 8,000 persons visited the event.
The festival, together with its counterpart held in Tokyo,
attempts to expose visitors to economic, social, and political
issues facing the international community.
The Fund was joined by the
World Bank, the Asian Development Bank, as well as the local NGO
Council, Amnesty International, Save the Children Japan, the
Japan International Cooperation Agency, and other organizations.
The Fund's booth proved quite popular, with many young people,
college students in particular, asking questions on the Fund's
role, the difference with the World Bank, and the function of
OAP.
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- Peter Heller of the Fiscal
Affairs Department (FAD) participated in a panel discussion
on health on November 14-15, at the third High-Level Forum
on the Millennium Development Goals in Paris, France. In
response to NGO criticism of the Fund's policies toward
inflation in low-income countries, Heller described the
Fund's work on fiscal policies and its approach to
macroeconomic stability.
- As part of the World
Bank's commemoration of World AIDS Day on December 1,
Abdoulaye Bio-Tchané, Director of the African Department
(AFR) chaired a panel discussion, Can Economics Help
Fight HIV/AIDS? Presentations by Damien de Walque and
Shanta Devarajan of the World Bank provided an overview of
the economic impact of AIDS on households, firms, and the
macroeconomy. Other speakers included Marcus Haacker of AFR,
Martha Ainsworth and Keith Hansen of the World Bank,
Gillette Conner of the International Finance Corporation,
and Mark Gersovitz of Johns Hopkins University.
- On December 8, Mark Plant
of the Policy Development and Review Department (PDR), and
Simonetta Nardin of the External Relations Department (EXR),
held a conference call with a group of NGOs from Washington,
Paris, London and Brussels, to discuss the implementation of
Multilateral Debt Relief Initiative (MDRI). Plant gave
an overview of the MDRI and responded to questions.
- On December 8, Janet
Stotsky of FAD met with five NGO representatives of the U.S.
Publish What You Pay (PWYP) coalition, Jelena Kmezic of the
Bank Information Center; Corinna Gilfillan of Global
Witness; Ian Gary of Oxfam America; Doug Norlen of Pacific
Environment; and Rustam Murzakhanov of the Environmental Law
Center "Armon" in Uzbekistan. The meeting introduced Stotsky
to PWYP's work on fiscal transparency and provided a venue
to respond to questions on the IMF's
Guide for Fiscal Transparency Codes and Manual. PWYP
welcomed the Guide and looks forward to the publication of
an integrated Guide for Fiscal Transparency Codes and Manual
and the Guide for Revenue Resource Transparency.
- EXR's Simonetta Nardin and
Peter Heller of FAD met with Anne Stetson of the NGO
Partners in Health. Heller gave a general briefing the
Fund's current work on fiscal policies in low-income
countries and IMF collaboration with the World Bank and
other donors on December 15.
- On January 11, Robin
Robison, of Quaker Peace and Social Witness, London; Tom
Loudon, of the Quixote Center, Washington; and Nestor
Avendano of Consultores para el Desarollo Empresarial
(COPADES), in Nicaragua, met with the new mission chief for
Nicaragua, Vikram Haksar, at the IMF Washington DC
headquarters. Avendano presented his recent paper, HIPC
and Human Poverty in Nicaragua.
- On January 26, Sarah Wykes
of Global Witness UK met with FAD staff members, Janet
Stotsky, Taryn Parry, and Jesus Seade, and Simonetta Nardin
of EXR, to discuss the current resource revenue transparency
issues in Angola, Republic of Congo, Equatorial Guinea and
other countries.
- On February 7, Arvind
Ganesan and Anneke van Woudenberg of Human Rights Watch met
with AFR Mission chiefs for the Democratic Republic of Congo
(DRC), Cyrille Briançon, and Uganda, John Green, and FAD's
Lynn MacFarland to discuss the Fund's work on revenue
resource transparency. The discussion was lead by Ganesan
and van Woudberg, who gave a presentation of their recent
report, The Curse of Gold. The report documents
allegations of corruption involving a leading gold mining
company in the northeastern region of the DRC, and the armed
conflict in the region over control of local gold mines and
trading routes to Uganda.
-
The
IMF-World Bank Spring Meetings will take place on April
22-23, 2006 in Washington, D.C.. Information on CSO-related
activities and details on how to apply for accreditation
will be posted shortly at
http://www.worldbank.org/civilsociety.
- On September 19-20, 2006,
the Annual Meetings of the Governors of the IMF and the
World Bank will be held in Singapore, with a number of other
official meetings taking place in the preceding days.
CSO-related sessions will be scheduled to coincide with the
Meetings. Registration information for CSOs will be posted
on the
Annual Meetings website and on
http://www.worldbank.org/civilsociety closer to the
Meetings.
- Masood Ahmed was
named Director of the IMF's External Relations
Department to succeed
Thomas C. Dawson on May 1, 2006. Ahmed, a Pakistani
National, holds a M.Sc. in Economics from the London School
of Economics. He worked at the World Bank from 1979-2000,
including as Vice President, Poverty Reduction and Economic
Management Network. In 2000, he was appointed Deputy
Director of the Fund's Policy and Review Department (PDR),
and is currently on external assignment at the UK Department
for International Development as the Director General,
Policy and International.
- Management
announced the decision to create a new department that
would merge the functions and staff of two existing
departments, the International Capital Markets Department (ICM)
and the Monetary and Financial Systems Department (MFD), in
an effort to strengthen the Fund's work on financial and
capital markets. The decision was taken after extensive
review of the Fund's work in this area, including in the
Managing Director's September 2005 Report on the Fund's
Medium-Term Strategy, and a review by a working group led by
William J. McDonough. Gerd Häusler, Counsellor and Director
of the ICM, has notified IMF Managing Director Rodrigo de
Rato of his intention to return to Europe and has asked to
be released from his position effective July 2006. Häusler
was
named to his current post in June 2001.
-
Remarks for the Fund-Bank Panel on Aid for Trade, by
Anne O. Krueger, First Deputy Managing Director, at the WTO
Ministerial Meeting in Hong Kong December 13, 2005
-
At the Service of the Nations: The Role of the IMF in the
Modern Global Economy, by Anne O. Krueger, First Deputy
Managing Director, at the 18th Australasian Finance and
Banking Conference, Sydney, Australia, December 16, 2005
-
Problems and Issues in the Global Economy: A Call for Action,
by Rodrigo de Rato, Managing Director, at the Institute San
Telmo, Seville, Spain, November 22, 2005
-
From Despair to Hope: The Challenge of Promoting Poverty
Reduction, by Anne O. Krueger, First Deputy Managing
Director, at the Annual Boehm-Bawerk Lecture, University of
Innsbruck, November 17, 2005
-
Building Better Institutions, remarks by Rodrigo de
Rato, Managing Director, at the 23rd Annual Monetary
Conference on "Monetary Institutions and Economic
Development", organized by the Cato Institute, November 3,
2005
-
Multilateral Debt Relief Initiative and Establishment of an
Exogenous Shocks Facility — Papers published by the IMF
-
Quotas and Voice—Further Considerations, by the Finance
Department in consultation with other departments
-
Doha Development Agenda and Aid for Trade—Supplement, by
the Policy Development and Review Department
-
Report of the Independent Panel on Safeguards Assessments
-
Safeguards Assessments—Review of Experience, by the
Finance Department in consultation with other departments
-
Evaluating the Effectiveness of Trade Conditions in Fund
Supported Programs, by Shang-Jin Wei, Zhiwei Zhang,
Research Department
-
Multilateral Debt Relief Initiative and Establishment of an
Exogenous Shocks Facility — Papers published by the IMF
-
Quotas and Voice—Further Considerations, by the Finance
Department in consultation with other departments
-
Doha Development Agenda and Aid for Trade—Supplement, by
the Policy Development and Review Department
-
Report of the Independent Panel on Safeguards Assessments
-
Safeguards Assessments—Review of Experience, by the
Finance Department in consultation with other departments
-
Evaluating the Effectiveness of Trade Conditions in Fund
Supported Programs, by Shang-Jin Wei, Zhiwei Zhang,
Research Department
-
Africa in the Doha Round: Dealing with Preference Erosion
and Beyond, by Yongzheng Yang, African Department,
Policy Discussion Paper No. PDP/05/08
-
Are Donor Countries Giving More or Less Aid? By Sanjeev
Gupta, Catherine Pattillo, Smith Wagh, African Department
-
Will the Doha Round Lead to Preference Erosion? By Mary
Amiti, John Romalis, Research Department
-
Preserving Financial Stability, Garry J.Schinasi,
Economic Issues No. 36
-
Moving to a Flexible Exchange Rate: How, When, and How Fast?
By Rupa Duttagupta, Gilda Fernandez, and Cem Karacadag,
Economic Issues No. 38