[stop-imf] Mozambique: Hanlon replies to IMF's reply

[robert weissman]

Joe Hanlon's original article:
http://lists.essential.org/pipermail/stop-imf/2006q1/001182.html

IMF's reply:
http://lists.essential.org/pipermail/stop-imf/2006q1/001193.html

Joe Hanlon's reply, excepted from his newsletter, Mozambique 94,
http://www.open.ac.uk/technology/mozambique, follows:


IMF REPLY TO
EARLIER ARTICLE

The IMF's departing resident representative in Mozambique, Perry Perone,
has replied to an article distributed here which he says presents "a
misleading picture of IMF program support for Mozambique". The IMF has
posted his letter to me on its website on
http://www.imf.org/external/np/vc/2006/020706.htm
My original article is attached.

As part of its IMF programme and thus as a condition for virtually all
aid, Mozambique is required to limit what the IMF calls "domestic primary
deficit", which is, in effect, current expenditure not covered by taxes -
and thus covered by donor budget support. The article argued that this is
a cap on budget support and thus a limit to aid to Mozambique. Project aid
was specifically not covered by the cap, and thus could increase. This
seemed to contradict an agreed goal of reducing the number of separate
donor-funded projects, having more expenditure on budget, and having more
of donor aid going through the budget.

In his letter, Perone argues that "the deficit target is a fiscal means of
ensuring continued macroeconomic stability" and is "not pegged at some
arbitrary level". Rather, he argues, it reflects donor commitments and
that in six-monthly reviews "the target is revised and adjusted".

But Perone goes on to argue "the need for donors to make their aid more
predictable". He says that the government of Mozambique cannot be allowed
to commit itself to higher levels of staffing and training unless donors
are "willing to guarantee future funding for this expanded staffing" or
there is more "flexibility in hiring arrangements".

The problem is that donors are anxious to give more money to Mozambique,
which is currently very fashionable, and seems likely to receive large
amounts of funds over the next decade. But donor parliaments and aid
ministries will not make long term commitments.

Perone argues, for the IMF, that "it might not be prudent to make medium
term expenditure commitments - especially when it comes to hiring more
personnel - when there is uncertainty about whether the money will still
be available over the next budget cycle."

So the effect is that, without a cast iron promise which donors are
unwilling to give, Mozambique cannot expand teacher training and health
services to meet the demands of the Millennium Development Goals combined
with the obvious impact of HIV/AIDS.

The debate is about how rigid is the cap and how rigid is the IMF's view
of prudence. As noted above, there have been clear revisions and openings.
But in the PARPA-II and related discussions, both the government and
donors seemed to feel expansion was not to be allowed - they felt their
was an IMF cap on donor budget support.

Has the IMF capped donor spending? The discussion continues.