[stop-imf] IMF Reviews Progress on Strengthening IMF-World Bank Collaboration on Country Programs and Conditionality

[Robert Weissman]

Public Information Notice (PIN) No. 02/117   
October 9, 2002  
 International Monetary Fund  

 IMF Reviews Progress on Strengthening IMF-World Bank Collaboration  on
Country Programs and Conditionality

 Public Information Notices (PINs) are issued, (i) at the request of a
member country, following  the conclusion of the Article IV consultation
for countries seeking to make known the views of the IMF  to the public.
This action is intended to strengthen IMF surveillance over the economic
policies of  member countries by increasing the transparency of the
IMF's assessment of these policies; and (ii)  following policy
discussions in the Executive Board at the decision of the Board.

  On September 11, 2002, the Executive Board of the International
Monetary Fund (IMF)  discussed a Progress Report on Strengthening
IMF-World Bank Collaboration on Country  Programs and Conditionality.
The report was prepared jointly by the staff of the IMF and  World Bank. 

 Background

 In the context of a major review of the IMF's conditionality (that is,
the conditions attached to  the Fund's financing) the Executive Board
emphasized the need to focus conditionality on those  policies that are
critical to achieving the macroeconomic objectives of the programs
supported  by the Fund and to establish a clear division of labor with
other international institutions,  especially the World Bank.1 In July
2001, the Executive Board discussed the strengthening of  IMF-World Bank
collaboration on country programs and conditionality (Public Information
 Notice 01/92), and adopted a strengthened collaboration framework
between the two  institutions. The framework, which was also endorsed by
the Executive Board of the World  Bank, is based on three key
principles: clarity about responsibilities, early and effective 
consultation, and the accountability of each institution for its own
financing. To implement the  strengthened framework, in the spring of
2002 the managements of both institutions issued a  guidance note on
Operationalizing Bank-Fund Collaboration in Country Programs and 
Conditionality to their staffs.

 The progress report examined the experience with collaboration in
relation to the guidance note,  while noting the short time elapsed
since its issuance. The centerpiece of the report was a survey  of staff
in the two institutions—World Bank Country directors and IMF mission 
chiefs—examining their experience of collaboration. The survey found
that, while collaboration  was seen as satisfactory with no major
problems indicated in most cases, a number of  institutional factors
were identified as impediments to fully effective collaboration—notably
the  different structures of the two institutions and the different time
frames over which objectives  are expected to be achieved. These results
were viewed as confirming the need for continued  efforts to strengthen collaboration.

 Executive Board Assessment

 Executive Directors welcomed the opportunity to review progress on
IMF-World Bank  collaboration on country programs and conditionality, in
relation to the guiding principles  agreed by the Executive Boards of
the two institutions in August 2001 and the operational  Guidance Note
issued in April 2002. Directors reaffirmed that close collaboration is 
indispensable for providing effective support to member countries, and
forms an integral part of  efforts to streamline and focus
conditionality to enhance national ownership of reform  programs. The
move to strengthen collaboration in country programs is taking place
against the  background of progress achieved in a number of other areas,
including the Poverty Reduction  and Growth Facility/Heavily Indebted
Poor Countries framework and systematic joint analytic  work such as in
the Financial Sector Assessment Program and the Report on the Observance
of  Standards and Codes exercises.

 Directors noted that the central principles of collaboration on country
program design and  conditionality are the clear designation of one of
the two institutions as a lead agency in  particular policy areas and
systematic information-sharing between the two institutions. At the 
same time, they considered it essential that each institution retain
ultimate responsibility for its  own lending decisions. 

 Directors considered that the Guidance Note on Operationalizing
Bank-Fund Collaboration  in Country Programs and Conditionality—issued
by Bank and Fund management to the staff  of both institutions in Spring
2002—is beginning to play a positive role in strengthening 
collaboration, while they noted the limited basis for assessment at this
stage. Directors endorsed  the approach that places primary
responsibility for collaboration on the country teams in each 
institution, specifically the Fund mission chief and the World Bank
country director. They  stressed the importance of early engagement
between the staffs of the two institutions to arrive  at a common view
on reform priorities and program design issues, and to harmonize work 
programs and missions. They also underscored the need for transparent
reporting to the two  Executive Boards.

 Against this background, Directors discussed the current state of
collaboration in country  programs and conditionality, as documented in
the paper prepared by the staff. They agreed that  a shared perspective
and clarity of roles and responsibilities are prerequisites for
effective  collaboration, and welcomed indications that these conditions
are receiving heightened attention.  While progress has been made,
Directors called for a stronger, continuing effort to improve 
coordination, communication, and information-sharing between country
teams of the two  institutions.

 Directors reviewed a number of key areas in which collaboration needs
to be strengthened,  noting in particular that it has been impeded by
institutional factors such as differences in  internal requirements,
working structures, timetables, and lending arrangements and 
instruments. While Directors believed that these impediments can usually
be overcome through  effective consultation, they urged staff to
establish a clearer definition of the lead agency role  and also a
sharper division of labor, on a case-by-case basis-especially in areas
where  responsibilities are shared. Public expenditure management was
cited as an area in which better  collaboration is needed; a few
Directors also stressed the importance of operationalizing  Poverty and
Social Impact Assessments (PSIAs). Several Directors suggested exploring
the  scope for more formal structures to implement collaboration, by
analogy with the arrangement  for Financial Sector Assessment Programs
(FSAPs) and Poverty Reduction Strategy Papers  (PRSPs), but recognized
the need to avoid undue bureaucracy.

 Directors emphasized that effective collaboration with the Bank is
critical for the success of  efforts to streamline and appropriately
focus Fund conditionality. They stressed that  strengthened
collaboration is needed to ensure that important measures are adequately
covered  as the Fund applies conditionality more sparingly outside its
core areas. At the same time,  Directors generally considered that
structural measures that do not fall in the core areas of the  Fund, but
are critical for macroeconomic stability, should remain part of the
Fund's  conditionality. Some Directors noted that overlapping
conditionality might thus be unavoidable  for policy measures that are
critical to the success of both programs. A number of Directors 
stressed that reforms that are crucial to achieve stability and growth
should not fall into a "no  institution's land". Other Directors
emphasized the need to reduce the overall burden of  conditionality on
member countries and ensure that collaboration should not become a
vehicle  for implicit Fund conditionality.

 Directors noted that for the low-income countries, the PRSP process
provides a natural  framework for ensuring collaboration between the
staffs of the two institutions in support of a  country-led strategy for
addressing poverty and fostering sustainable growth. For  middle-income
countries, collaboration has been more varied and based on a less formal
 approach, depending in part on the circumstances of the country, and
stronger efforts are  needed to ensure an effective approach in these
cases also.

 Directors generally welcomed the inclusion in program documents of
annexes that provide an  overview of the reform priorities supported by
the two institutions and the accompanying  conditionality. In this
regard, they noted the importance of clear documentation in staff
reports  of the division of labor and of lead roles between the two
institutions; the goals, structure,  relevance and timing of their
conditionality; and the progress achieved in key economic reforms. 
Several Directors stressed the desirability of having Fund staff reports
include a comprehensive  matrix of structural reforms being undertaken
in a country, and the lead agencies involved-with  a view to
strengthening the lead agency framework and promoting donor support. At
the same  time, a few Directors encouraged selectivity in reporting on
Bank-supported programs-based on  relevance to the Fund-supported
program. Directors also welcomed more systematic  participation by the
staff of each institution in the Board meetings, as well as the
missions, of  the other institution.

 Directors encouraged the staff of both institutions to move ahead on
the basis of the Guidance  Note and the approach set out in the progress
report, subject to another review no later than the  end of 2003, when
sufficient experience has been gained—including through a process of 
continuous assessment of collaboration. Since the ultimate purpose of
collaboration is to ensure  the best possible quality of Fund- and
Bank-supported programs, Directors emphasized that  internal and
external studies of experience under those programs will afford further 
opportunities to assess how collaboration has been working in practice.
For the same reason,  they stressed that the views of the country
authorities must be taken into account in evaluating  the effectiveness
of collaboration, and they also suggested seeking input from donors, as
well as  a wider sample of Fund and Bank staff. They looked forward to
the inclusion of such feedback  in the next review.

  1 See discussion by the Executive Board of a series of papers on this
topic, starting in March  2001; Public Information Notice 01/28.