[stop-imf] PRS Watch: IMF Special

[Robert Weissman]

*PRS Watch: IMF Special *

* *

=B7 *Editorial*

=B7 *What=92s on the IMF=92s Agenda: Future Papers & Reviews*

=B7 *Conference on Macro-economic policy in Low Income Countries*

=B7 *The Role of the IMF in Low-Income Countries New Report*

*Editorial *

This IMF special focuses on the Fund and its role in development. Last
year the IMF began an official review of its policies and role in
low-income countries, in light of its expanded role in this area. This
list serve provides an outline of the IMF=92s work agenda for 2005,
summarising future key papers and reviews. Also included is a report of
a recent conference held in Washington on the role of macroeconomic
decision-making in low income countries co-hosted by the Fund, and a
summary of a recent report on the IMF and its role in LIC, commission by
the Swedish Government.

Happy Reading


Hetty

*What=92s on the Agenda: IMF Future Papers & Reviews *

The IMF will be producing a number of papers in 2005 exploring issues
around its role in low-income countries. Below is brief list of those we
think are most relevant, along with where possible timings for their
publication.

*
Forthcoming Papers*

*Fund Signaling and Donor Coordination in Low-Income Countries*: The
Fund will be producing a paper for Board discussion in advance of the
spring meetings on the Fund's role in supporting donor financial
assistance to low-income countries. The paper will consider two sets of
interrelated issues: first, the current situation regarding the impact
of Fund signals on donors and recipients, and whether their needs are
being met; and second, practical aspects of Fund/donor coordination. The
paper will aim to identify mechanisms to strengthen the Fund's
instruments and processes in both areas.

*Poverty Reduction Strategies Review*: This paper, produced jointly with
the Bank, is set to review PRSP progress, challenges, and good practice.
It will be included in the annual PRSP progress report, which will be
discussed by the Boards of the Fund and the Bank shortly before the
Annual Meetings.

The review will address how to increase the effectiveness of the Poverty
Reduction Strategy Papers (PRSPs) as a vehicle for attaining the MDGs.
It will focus on the following five themes:

1. Strengthening the medium-term orientation of the PRS approach;

2. Utilizing the PRS as a mutual accountability framework between
countries and donors;

3. Broadening and deepening meaningful participation;

4. Enhancing linkages between the PRS, Medium Term Expenditure
Framework, and budgets;

5. And tailoring the approach to conflict-affected and fragile states.

The next PRSP list serve will go into more detail on the forthcoming PRS
Review.

*Review of PRGF Program Design*: This review, expected to be considered
by the Board shortly after the 2005 Spring meetings, will focus on three
areas that are key to the Fund's efforts to enhance growth and poverty
alleviation among its low-income members: (i) lessons for low-income
countries and the Fund from the post-war experience of determinants of
growth; (ii) monetary and fiscal policy design in countries that have
succeeded in their stabilization efforts; and (iii) the macroeconomics
of high aid inflows.

*Conditionality* *Guidelines*: The Fund will shortly conduct the first
review of its new conditionality guidelines, adopted in 2002. While
these guidelines apply to all IMF lending, they are highly relevant to
the Fund's work in low-income countries. The review will examine whether
the Fund's structural conditionality has been streamlined, both in terms
of breadth of coverage and numbers of conditions, and if appropriate
efforts have been made to promote ownership. The review will also
provide some preliminary evidence as to whether these efforts are
leading to more consistent implementation of Fund-supported programs,
which was expected to be an intermediate step toward better ultimate
outcomes.

*Poverty and Social Impact Analysis: *In July, the Fund formally set up
a Poverty and Social Impact Analysis (PSIA) group of five experts within
an existing division in the Fiscal Affairs Department. Area departments
have now identified ten countries (Bolivia, Djibouti, Ethiopia, Kenya,
Mali, Moldova, Senegal, Sri Lanka, Tajikistan, and Uganda) where PSIA
support would be most valuable. Work plans have been developed by the
group and relevant country teams. The PSIA group has participated in
four missions, addressing issues ranging from the liberalization of
energy prices to the response to macroeconomic shocks. Several more
missions are planned for early 2005. If resources permit, the group will
also undertake PSIAs in the IMF's core areas where no such studies are
available.

*Review of Fund Work on Trade*: A report that will be discussed by the
Board at the end of February assesses the Fund's priorities in the trade
area, takes stock of its work, and reviews the Fund's collaboration and
division of labor with other institutions. The report notes that the
Fund has been a consistent advocate of open trade regimes. In recent
years, it has encouraged developed countries to examine the impact of
their trade policies on poorer countries, has pressed for an ambitious
Doha Round, and has worked with members to address potential balance of
payments or fiscal impacts of liberalization. There has been a decline
in the number of trade-related program conditions under Fund-supported
programs, but an increase in aspects of trade-related surveillance,
management communication, and research. Among other recommendations, the
report suggests that the Fund should strengthen its focus on trade in
services and on the spillover effects of trade policies in large
developing countries. It also notes that there remains considerable
scope for the Fund to draw more on the expertise especially of the World
Bank in the trade area. Finally, the report also requests the Board's
guidance on whether to conduct follow-up work based on case studies that
would look more deeply at the design and impact of trade reforms
recommended by the Fund.

/(Adapted from source: IMF CSO newsletter February 2005)/

*Conference on Macro-economic policy in Low Income Countries*

* *

* *

Eurodad recently attended a conference on =91Macro-economic policy
challenges in low-income countries=92 held in Washington DC on February 15
-16^th 2005. The conference was organised jointly by the IMF, the
Governments of the United Kingdom and the Netherlands and coordinated by
the Global Development Network. A summary is presented below and links
to a full report and the conference papers are provided at the end.

*Overview*

This two-day conference consisted of presentations from ten researchers
from low income countries (LIC), lunchtime and keynote speeches and a
development economics symposium on the final afternoon. The conference,
which explored different aspects of macro-economic policy-making in LIC,
had three main objectives:

   1. To raise the profile of macro-economic research in Low Income
      Countries (LIC) in the IMF and link IMF research to that from LICs
   2. To support LIC research by LIC researchers
   3. To cement relationships between DFID, Dutch Aid, IMF and WB

Ten researchers from Bolivia, Cameroon, Ghana, India, Indonesia, Malawi,
Nigeria, South Africa and Sudan presented their papers on issues ranging
from Shocks and Macro-volatility to Trade Liberalisation and Fiscal and
Monetary Policy. Discussants, largely from the IMF and WB, commented on
the findings, methodology and suggested areas for improvement or future
research. The presentations had been selected from an initial submission
of over 300 proposals and the process included accompaniment of the
researchers by academic supervisors over several months.

*Presentations *

The researchers=92 presentations were undoubtedly aimed at an economist
audience. Nonetheless it did appear in some cases the focus on
explaining the complicated macro-economic models that they had used
limited the analysis and conclusions of their research. One of the
comparative advantages that national researchers would seem to have is a
closer understanding and knowledge of the political economy of the
country. This gap was highlighted when some of the commentary from the
IMF/WB discussants actually took a more political economy approach than
the researchers themselves.

*Participation*

Approximately 60 people from Africa, Latin America, Asia, Europe and
North America with a relatively good mixture of academic, southern
government (especially African), IMF, World Bank, UN, bilateral donor
and civil society representatives although no list of participants was
available to be able to confirm this. The majority of southern
participants came from African countries, reflecting the balance of
research presented. The attendance of the conference was overwhelmingly
male, with only one female co-author of a paper, two female discussants
and only about 10% of the audience being women.

*_ _*

*Some recurring themes:*

* *

*Herding behaviour/ Aid harmonisation*

Herding behaviour in donor markets was a theme that emerged on several
occasions over the two days. It was said that there is a need to look at
the macro-economic implications of budget support as well as the
potential increase in herding behaviour of providing aid within the PRSP
framework. One commentator expressed concern that the aid system was
favouring =93good performers=94 (North-South Institute representative)
whilst it is countries that in difficulty that are in need of more
support. The upcoming publication of the WB Country Policy and
Institutional Assessment (CPIA) index was seen as a possible factor that
might increase herding behaviour, with Alan Gelb (Director of
Development Policy, WB) arguing that in fact uncoordinated donor flows
have helped to prevent herding behaviour

*Aid increases*

The recent Millennium Development Goals (MDG) report has called for
substantial increases in aid to low income countries in order to meet
the Millenium Development Goals. There were concerns about how this
would actually be implemented. Alan Gelb (Director of Development
Policy, WB) noted that the absorptive capacities of many countries would
mean that any increases in aid are likely to be directed to countries
that already receive significant percentages of their budget in overseas
aid. This is an interesting point as some NGOs have argued that the
absorptive capacity of aid is limited by what Dani Rodrik (Harvard
Development Economist called the IMF=92s =93current obsession with inflatio=
n
targeting=94. This issue was the focus of a recent heated discussion
between Actionaid USA and the IMF in Actionaid=92s accusation that the IMF
targets are =93blocking progress=94 to the MDGs in particular to combating
HIV/AIDS by insisting on single digit inflation targets. This discussion
and Actionaid=92s report can be found at:
http://www.actionaidusa.org/blocking_progress.php

The public response from the IMF can also be found at:
http://www.imf.org/external/np/vc/2004/093004.htm

Some IMF participants expressed concerns about both how aid increases
should be spent and the risks of increasing social spending. Anupam Basu
(IMF) said that the issue is not that =93the more resources that can be
absorbed in social sectors the better it is for Low Income Countries=94
but that =93the challenge is to improve capacity to use aid more
productively=94. Gabriela Inchauste (IMF) in her discussion of the
Bolivian case study concluded from the results of the Bolivian research
that one needed to be wary of increasing social spending as their
results indicated that =93two much social spending could lead to export
and investment decreases=94.

* *

*Growth and poverty reduction*

The relationship between growth and poverty reduction was a recurring
theme over the two days. However the issue of inequality and poverty
reduction was not really addressed meaning that there was little
challenge to the premise that growth necessarily leads to poverty
reduction, against it being necessary but insufficient. The Indonesian
case study dew attention to the importance of macro-policies for poverty
reduction. This research argued that growth obviously matters for
poverty reduction and that distributional effects are less important
than pure growth in reducing poverty. One explanation given by a
participant was that in Indonesia initial inequality levels were
relatively low meaning that it was not such an important factor as has
been observed in other countries.

However the IMF emphasis of the importance of growth over distribution
emerged in Andy Berg=92s (IMF) comments on the Ghanaian study that looked
at the potential impact of the elimination of trade taxes on poverty and
income distribution. Mr Berg questioned the increasing focus on Poverty
and Social Impact Analysis (PSIA) and questioned how much determining
poverty levels has to do with distributional changes and how much it has
to do with growth. In his opinion over the long term poverty reduction
has more to do with growth and he thought we should we be wary of being
too concerned about impact effects of policy reforms (such as trade
liberalisation) when we might care more about the dynamics of the economy.

*Symposium =93Whither Development Economics=94*

The afternoon of the second day of the conference saw five leading
scholars presenting their perspectives on development economics followed
by a debate amongst the panelists and the audience. The aim of this part
of the conference was to discuss the merits and demerits of each of
these perspectives with a view to thinking about a *forward-looking
research and policy agenda*.

The panelists and their perspectives were:

=A7 *Abhijit Bannerjee* (MIT): Micro-development

=A7 *Tim Besley* (London School of Economics): Political economy of
development

=A7 *Simon Johnson* (IMF/MIT): Institutions matter

=A7 *Dani Rodrik* (Harvard): Heterodoxy/experimentation

=A7 *John Williamson* (Institute for International Economics): The
Washington Consensus

*Some recurring themes:*

*Importance of institutions*

A recurring theme throughout three of the presentations was the
importance of institutions for growth albeit with a different emphases.
Differing views existed on whether formal or informal institutions carry
the most weight. Also the scholars had different views as to whether
tackling institutions should be the entry point for promoting growth or
whether this should follow-on from identifying and addressing the most
binding constraints for growth in a particular country. Either way there
was a recognition that reforming institutions is not easy and not enough
information exists about how to do it. It may be easier to instigate
reforms when growth already exists although history has also shown that
opportunities exist for change in moments of crisis

* *

*Specificity and learning*

The first four presenters all emphasized the need for experimentation
and learning in context specific circumstances albeit that these
contexts ranged from the micro to the state level. They highlighted the
need for much more evidence based policy making which will require both
increasing the evidence base and carrying out more randomized
experimentation and research to feed upwards into policy making. This
experimentation and learning are crucial elements of any reform process.

*Feed-in to IMF policy*

The IMF was unable to respond as to whether or not these perspectives
would feed-in to IMF policy making

*Concluding comments of conference and WB chief economist=92s outlined
agenda for future research*

* *

Francois Bourgignon, the chief economist for the World Bank commented
that he felt that the research had not sufficiently focused on three
important issues which he hoped would be addressed to a greater extent
in any subsequent conference:

- Firstly he said that *growth is a crucial issue* and that it should be
4a main topic for research

- Secondly that there was a lack of *linkages between micro and macro
issues* in the papers and that more systematic use needed to be made of
micro data

- Thirdly that there needed to be a more systematic *analysis of the way
to move towards the MDGs* and of how MDGs should be articulated with
macro policies, other policies and PRSP strategies.

A full Eurodad conference report can be found at:
http://www.eurodad.org/articles/default.aspx?id=3D585

The full programme and copies of the research papers can be found at:
http://www.imf.org/external/np/res/seminars/2005/macro/index.htm

*The Role of the IMF in Low-Income Countries Report*

The Swedish Ministries of Finance and Foreign Affairs has commissioned a
report on =91/The role of the IMF in Low-Income Countries=92/. The report,
produced by the Debt Relief International, is based on desk research and
the views of 35 low-income country governments.

The report looks at three key areas that need change. Below are some of
the reports key findings and recommendations.

*1. The Fund=92s Lending Role*

* *

*Concessionality of Lending: *The report argues that presently IMF
lending is insufficiently concessional, undermining its credibility as
an advocate of debt sustainability. The report suggests the IMF should
not provide grants, but should increase PRGF and emergency assistance
grant elements to 35%, and could consider 50% for the most debt
vulnerable and poorest members, without undermining its lending capacity.

* *

*Financing Against External Shocks: *The report notes that the Fund=92s
current financing against external shocks is quantitatively and
qualitatively inadequate. It calls for the Fund to augment PRGF loans
more frequently for countries which can afford new loans, but otherwise
focus its role on improving macroeconomic forecasts to avoid =93shocks=94,
and on alerting the international community to shocks so as to mobilise
grants more rapidly from other sources to finance against shocks.**

* *

*Relationship Between Lending and Programmes: *The report notes that
there is no strong reason why programmes and lending must be linked for
LICs. The Fund should focus its lending resources on pre-stabilisation
countries, taper them downwards for early stabilisers and abandon
lending for mature post stabilisers.**

* *

*2. The Fund=92s Catalytic Role*

* *

(The Fund has three potential catalytic roles in promoting availability
and stability of long-term resource flows to LICs: signalling that a
country needs funds, =93gatekeeping=94 funds through the seal of approval o=
f
a programme, and directly mobilising funds.)

*MDG based signalling:* The report calls for the Fund to improve its
efforts to mobilise official flows to support balanced progress towards
the MDGs, by signalling needs based on better analysis, gatekeeping with
the maximum degree of responsibility, and supporting other institutions
in their efforts to mobilise donor funds. However, pending more progress
in reforming IMF conditionality, donors need to retain flexibility to
assist and analyse countries independently of the Fund.

* *

*Greater Macroeconomic flexibility:* The report also calls for the Fund
to provide greater macroeconomic flexibility. The Fund needs to start
programme design from the GDP growth, investment and spending needed to
reach the MDGs, and then analyse the scope to accommodate higher growth
and spending without compromising macroeconomic stability. The paper
provides a set of questions the Fund should ask in conducting this
analysis and a list of guidelines for programme design and implementation.

* *

*3. The IMF=92s Way of Doing Business*

* *

*Conditionality and Ownership. *The report notes that* *if =93ownership=94
is to mean country leadership of programme design and implementation,
macro flexibility, fully participative PSIAs and conditionality
streamlining are the most vital steps. The PRGF/PRSP process raised
expectations of leadership by borrowing governments, but conditionality
has not been streamlined or made flexible enough for this to be
maintained. It also raised CSO expectations of participation which have
been partly fulfilled by some dialogue and some capacity-building. The
paper suggests a list of measures to improve country ownership; to
increase country capacity, among which the most fundamental is to
enhance support to independent capacity-building efforts in Fund core
areas; to improve IMF participation and transparency in the PRSP
process; and to have the Fund as a more wholehearted =93partner=94 with
mutual accountability.

The paper ends by assessing the Fund=92s capacity and competence to play a
longer-term role. It underlines that the primary focus of the Fund
should be to accelerate the adaptation of its conditionality to the
needs of LICs, growth and poverty reduction, especially through PSIA,
and a secondary focus to enhance (preferably independent)
capacity-building. It should on the other hand scale back its lending
and de-link the seal of approval from lending. It ends by identifying a
few organisational and procedural changes and areas where the Fund=92s own
capacity needs building, particularly stressing the need for the Fund to
allocate more of its staff resources to work on low-income countries.

(Text taken from executive summary of report)

Full report available at: http://www.dri.org.uk/

---------------------

Hetty Kovach

Policy and Advocacy Officer

European Network on Debt and Development

Avenue Louise 176

Brussels 1050, Belgium

www.eurodad.org <blocked::http://www.eurodad.org> / hkovach@eurodad.org
<blocked::mailto:hkovach@eurodad.org>

+ 32 2 543 90 60 / Direct Line: + 32 2 543 9062