Civil Society Newsletter
The IMF And Civil Society Organizations
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Civil Society Newsletter
The 2003 Annual Meeting in
This issue of the Civil Society Newsletter comes at a time
of considerable debate about economic development strategies.
The effort to achieve a new global agreement on trade encountered
serious obstacles at the World Trade Organization Ministerial
in Cancún, Mexico, in September, posing a new challenge
to the international community. And recent political events in
Latin America have raised again questions about appropriate economic
strategies. At the same time, some economic gains have been made
by many developing countries on all continents, creating an opportunity
for the Fund to explore how it can make the best contribution
to long term development and progress toward the Millennium Development
Civil society organizations (CSOs) also were active at the Annual Meetings, especially groups from the Middle East. CSO representatives participated in a well-attended Townhall Meeting with Gordon Brown, U.K. Chancellor of the Exchequer and Chairman of the IMFC; Trevor Manuel, South Africa's Minister of Finance and Chairman of the World Bank's Development Committee; IMF Managing Director Horst Köhler; and World Bank President James Wolfensohn. It was the first time that this high-powered quartet had appeared together in a session with CSO representatives. The meeting addressed many issues of concern to CSOs, including one of the issues on the Dubai agenda: "voice and representation" of developing countries in the governance of the IMF and World Bank.
One session with CSO representatives covered the newly issued IMF "Guide for Staff Relations with Civil Society Organizations", prepared in close consultation with Jan Aart Scholte of the Centre for the Study of Globalisation and Regionalisation at the University of Warwick in the U.K., and based on interaction with IMF staff and civil society groups. The guide has been distributed to Fund staff and posted on the external website along with a request for public comment. The intention is for the guide to become a "living document" that can be reassessed as Fund staff gain greater experience in their interaction with civil society.
Finally, this issue features an extended interview with Montek Singh Ahluwalia, Director of the IMF Independent Evaluation Office (IEO), which is charged with conducting assessments of the Fund's work. The IEO has become a key intermediate point of contact between the IMF and civil society, and Mr. Ahluwalia in his interview offers perspectives on that interaction.
As always, the staff of the Civil Society Newsletter welcomes
suggestions on coverage from our readers around the world.
Montek Singh Ahluwalia, 60, is the first director of the IMF's Independent Evaluation Office. The IEO was established in 2001 to provide objective assessments of the Fund's work. In keeping with that objective, the IEO decides its own work program independently of the IMF Executive Board and management, and Mr. Ahluwalia and his successors are barred from future employment at the IMF. An economist, Mr. Ahluwalia began his career in the World Bank in 1968, returning 11 years later to his native India, where he served as Finance Secretary in the Ministry of Finance; Secretary in the Department of Economic Affairs; Commerce Secretary; Special Secretary to the Prime Minister; and Economic Advisor in the Ministry of Finance. Mr. Ahluwalia was educated at Delhi University and at Oxford University. He took over the IEO on July 9, 2001.
Senior government officials from around the world traveled to the Persian Gulf this year for the Annual Meetings of the IMF and World Bank. The Boards of Governors of the two institutions, made up of ministers and central bank governors from the 184 member countries, gathered in plenary session September 23-24 in the United Arab Emirates state of Dubai. As usual, the gathering was preceded by a separate meeting of the International Monetary and Financial Committee (IMFC) of the IMF's governors.
The IMFC communiqué surveyed the global economic climate and welcomed the increasing signs of global recovery. However, the committee also pointed to the risks faced by many countries and highlighted the importance for rich and poor countries alike of sustained and vigorous reforms to underpin balanced growth.
In addition, the IMFC pointed to a worldwide risk: a threat to the growth of international trade. In its communiqué, the committee called urgently for resumption of trade and development negotiations, known as the Doha Round, which broke down earlier in September in Cancún, Mexico. Once the talks are back on track, the ministers said, governments should focus on the importance of opening markets, providing fair access, and reducing trade-distorting subsidies in all areas—especially agriculture. They said trade expansion is essential for vigorous global growth as well as the achievement of internationally recognized development goals. The IMFC supported a Fund initiative to provide assistance to countries to help them adjust to the impact of trade reforms.
Addressing the challenges faced by the industrial countries, the IMFC recommended that monetary policies should continue to support demand in the context of low inflation, and that fiscal policies should aim to deliver a reduction of deficits in the medium term, while allowing short-term flexibility if activity weakens. The IMFC referred to the vigorous pursuit of structural reforms, and enhanced corporate governance and transparency as key to stronger, globally balanced growth. Among specific recommendations: the United States should aim fiscal policy toward strengthening sustainability in the medium term; Europe should continue structural reforms aimed at boosting employment and investment; and Japan should strengthen its banking and corporate sectors.
Turning to low-income countries, the committee noted that many have strengthened macroeconomic policies and have undertaken policy reforms, which have improved the prospects for growth. But the ministers also said that growth will have to accelerate significantly in order to reduce poverty and meet the Millennium Development Goals. Stronger policy frameworks and institutions, better governance, improved market access, and larger and more effective aid flows are all needed, the IMFC said.
The communiqué pledged continued IMF support for low-income countries. Initiatives are needed to enhance that support, the IMFC said. These should take the form of such measures as ensuring that macroeconomic policy frameworks support higher and sustained growth and poverty reduction, and reducing vulnerability to shocks. In addition, the IMF should help countries move beyond sustained reliance on IMF financial arrangements. Focusing attention on Africa, the IMFC said African countries should move forward with regionwide implementation of the New Partnership for Africa's Development (NEPAD), especially to strengthen the foundations for investment and private sector-led growth.
Furthermore, the IMFC called on the IMF, in collaboration with the World Bank, to develop strategies to help countries implement the policies needed to obtain the debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative that would achieve a lasting exit from unsustainable debt. All creditors that have not yet granted full debt relief were urged to do so, with the IMF asked to report on the extent of compliance. The communiqué also recognized the importance of providing "topping-up" assistance to HIPC recipients as appropriate, and cited the on-going discussions on the topping-up methodology and financial implications.
The IMFC expressed support for a multilateral effort to rebuild Iraq, and approved the idea of the Fund providing financial and other assistance to that country.
The IMFC reaffirmed that strengthened IMF surveillance is essential to enhancing crisis prevention and promoting stability and sustainable and effective growth. The Committee said it would discuss in 2004 progress in improving the quality, effectiveness and persuasiveness of IMF surveillance. The communiqué emphasized the importance of greater transparency and candor in IMF advice to member countries. The Committee also welcomed the work of the two-year-old Independent Evaluation Office (see related story in this issue) in enhancing the learning culture, effectiveness and accountability of the IMF.
The Annual Meetings provide extensive opportunities for consultations and seminars alongside the formal meetings. The Dubai authorities made excellent provision for CSO representatives attending the meetings, which facilitated a program of civil society dialogues that extended over the better part of a week. Some sessions were organized by CSOs themselves, while others were arranged by officials of the two institutions. Given that these were the first Annual Meetings in the Middle East, and that many CSO representatives from the region had not attended previous meetings, the discussions included an overview of work in the Middle East and North Africa. Other sessions focused on low-income countries and Fund outreach to CSOs.
Mohamad Chatah and Zubair Iqbal (of the IMF's External Relations and Middle Eastern Departments, respectively) conducted a session designed to outline the diversity of the Fund's work in the Middle East and North Africa (MENA) region. This diversity reflected the wide geographic coverage of the department, which includes not just Arabic-speaking countries, but countries as far flung as Sudan and Pakistan. And the coverage is about to get even wider, following a reorganization that brings several Central Asian countries into the renamed Middle East and Central Asia Department (effective November 1).
Questions from the 15 participants reflected many of the key concerns of the region, most going well beyond the attainment of macroeconomic stability. In economic policy advice, should more emphasis be placed on achieving better income distribution than on growth? Could the Fund support progress toward democracy? Could the Fund impose conditionality that would promote good governance? What could the Fund do to support Palestine? What capacity building support could the Fund give to civil society organizations?
The Fund's mandate means that it cannot address all these issues directly or on its own. Iqbal and Chatah explained that the Fund has three main activities: policy advice and dialogue through "surveillance", capacity building through technical assistance, and lending. The Fund's mandate centers on macroeconomic and financial policies, but advice inevitably goes well beyond a narrow focus on macroeconomic stability. Structural change is uppermost on the agenda in many countries: financial sector reform; strengthening public sector finances through tax and expenditure reform; promoting transparency; and working with countries as they attempt to diversify their economies.
In post-conflict situations—such as Afghanistan, Iraq, or Palestine—the Fund's work emphasizes the capacity-building necessary to put in place the rudiments of effective monetary and financial systems and public sector management. Such technical advice and assistance is extended even where it is not possible to provide loans. In these situations, and indeed in most countries, the Fund works closely with other international agencies—the World Bank, the United Nations and bilateral donors—to make sure that its contribution is effective and consistent with national objectives and international strategies.
The IMF has initiated public discussion of a paper on the role of the IMF in low-income member countries. The Annual Meetings in Dubai provided a good opportunity for direct dialogue on the issues. Two seminars took place in Dubai, one for officials and visitors to the Annual Meetings, and the other specifically for civil society organizations. The article below combines perspectives from both sessions.
Defining the issues
But how can IMF-supported programs look beyond macroeconomic stability to promote sustained faster growth and poverty reduction?
Plant highlighted several principles that would help guide the debate. The IMF will remain engaged with low-income countries over the long term, by embracing the Poverty Reduction Strategy Paper (PRSP) process as the framework for working with countries to achieve the MDGs. More aid is desirable, but for the long term the aim should be to help countries rely on private sources of financing. And the IMF must work with developed countries to ensure their policies—especially in trade and agriculture—support growth in low-income countries. The IMF will focus on its core areas of competence: macroeconomic and financial policies. Its primary assistance will be policy advice, given through surveillance and technical assistance, and in programs supported by the Poverty Reduction and Growth Facility (PRGF) lending.
The debate: an overview
Saifur Rahman, Minister of Finance and Planning of Bangladesh, argued, that the IMF and World Bank need to achieve a higher degree of coordination if their advice to countries is to become more effective. Rahman also stressed that private capital flows would come only after developing countries establish an environment conducive to private sector development—truly a long-term process. Ulan Sarbanov, Chairman of the National Bank of the Kyrgyz Republic, argued that the IMF still needs to pay attention to issues outside of its core areas. For example, if a country has a large public sector, the IMF must look not only at tax policy but also at the energy sector or the financial sector if that is where macroeconomic problems are rooted.
Paul Ladd of Christian Aid argued that the Fund's advice should be firmly rooted in the MDGs, and use poverty and social impact analyses. He also felt that the Fund's "gatekeeping" role—the reliance by donors and investors on IMF-supported lending as the trigger for their own lending—needs to be reduced.
Discussion was wide ranging. A recurring theme was the need to base the Fund's work on the MDGs, and related to that, the critical importance of being able to contribute to reducing the impact of HIV/AIDS on Africa's economies. Others called for closer links between the programs supported by IMF lending to poor countries and their poverty-reduction strategies to ensure that the conditions of the former do not hinder the goals of the latter.
Participants also questioned aspects of IMF-supported polices, particularly privatization—whose benefits, they argued, have not been proved—and what they alleged to be the mechanistic approach to the formulation of stabilization programs. One participant argued that it would be better to concentrate on income distribution rather than growth, which is skewed toward the rich. Other speakers commented on the important role that technical assistance can play, and many echoed the call for greater flexibility and sensitivity in policy advice.
Readers are invited to contribute to this debate by reviewing and commenting upon the paper "The Role of the International Monetary Fund in Low-Income Member Countries", which is available for comment on the IMF website through December 31, 2003. Please send your comments by December 31, 2003 to email@example.com.
CSO representatives in Dubai gave a qualified welcome to the IMF's proposed "Guide for Staff Relations with Civil Society Organizations" shortly before it was launched. The Guide has now been issued to the IMF staff, and has been published with an invitation to comment. In Dubai, a panel discussion on the Guide included Michael Bell of the IMF External Relations Department; Alan Whaites, Director of International Policy and Advocacy for World Vision International; and Wahyu Widiarto, Director of the Institute of Development and Economic Analysis in Indonesia. Altogether there were about 25 participants at the session.
Bell outlined the consultative process that had led to the draft: (i) a first draft prepared by Jan Aart Scholte, professor at the Centre for the Study of Globalisaton and Regionalisation at the University of Warwick in the U.K., based on consultations with IMF staff; (ii) a second draft prepared after an extensive process of comment coordinated by Scholte in which a panel of about 30 CSO representatives reviewed the document in parallel with an internal IMF review; and (iii) a final draft after a last round of Fund staff review. Bell said that the process had revealed a surprising amount of outreach already being undertaken by staff throughout the Fund. But he also noted that an almost universal concern on the part of staff had been about the "resource implications" of more extensive outreach. Striking the right balance had been one important factor addressed in the final round of reviews.
Whaites recalled an earlier World Vision paper that had identified three essential areas—capacity, culture, and process—in which the Fund would have to act if it was improve its relations with civil society. He said the draft guide addressed only one of these: process. Based on World Vision's experience, relations in the field with Fund staff were often difficult. There is still much to be done, especially in terms of enhancing the Fund's capacity to undertake effective outreach in-country. He also regretted the "indeterminate state" of the note: an indicative guide rather than a more prescriptive guidance note, which had been the earlier proposal.
The key question or test was whether ownership was being promoted, Wahyu argued. The Guide seemed to confirm the remoteness between the elites—the decision makers—and the people. For instance he asked how in a huge country like Indonesia, ownership can be advanced through the CSOs. The barriers are enormous: the CSOs have little access to information, to the decision-making processes, or the decision-makers. How can real progress be made?
I joined Mac Benjamin, the World Bank representative in Ecuador, for a half-day meeting with civil society and local authorities in the southern province of Loja. This was one of a series of meetings organized as a follow-up to the consultations with civil society that took place in preparation for the recent Country Strategy Paper.
The first part of the discussion focused on World Bank strategy in Ecuador, and the second part on the economic situation and prospects. Some 30 people attended, among them representatives of indigenous communities in the province.
Issues raised by the audience included: the social costs of migration to other countries; the lack of access to credit by communities and businesses; the increase in poverty and its relationship to dollarization; the apparent conflict between multilateral financial institutions and the social movements; the perceived failure of the multilaterals to listen to citizens at the grass roots; and the need to ensure that the poor do not always bear the weight of adjustment programs.
I described the numerous discussions we had had with indigenous leaders at the national level, and pointed out that we are open to views at the local level. Then I outlined our program and stressed that most of its components addressed their very concerns head-on, including anti-corruption measures aimed at the Customs Office and the Agencia de Garantia de Depositos (Deposit Guarantee Agency). There was also a question about the cooking gas subsidy, which prompted an explanation of our argument in favor of transparent subsidies to people rather than regressive subsidies targeted at commodities. The audience showed great interest in our approach.
In the evening, we had dinner with the Mayor of Loja and with the Rector of the Universidad Técnica Particular de Loja. The Mayor is very dynamic, has a nationwide reputation, and has been re-elected several times. He puts great stock in environmental protection, an approach reflected in the clean and well-kept appearance of the town. Roughly speaking, one third of city's revenues come from local taxes, one-third from central government transfers, and the rest from external sources. His main complaints are that the central government is behind in transfer payments, and that the major cities, Quito and Guayaquil, take what they want, leaving the rest of the cities to struggle for what is left.
All in all, the visit was productive. In particular, it was very useful to participate in the forum organized by the World Bank, which has an ongoing dialogue with civil society, to have the opportunity to explain our program and to hear directly from people at the local level. Townspeople appreciated the Fund visiting the city to hear from them and hoped to have other opportunities to continue the dialogue with us.
I met the Conseil National du Secteur Privé en Guinée (National Council of the Private Sector in Guinea) on August 21, together with the Canadian Ambassador, to explain in general terms the role of the IMF and to discuss the Fund's current relationship with Guinea and recent policy recommendations. The main issue was the fact that the current economic program is off-track. The exchange was lively and open and the executives gave many examples of the difficulties they face. We, in turn, had the opportunity to clarify important aspects of the IMF's role, such as the fact that we do not give direct budget support to governments or lend money directly to private enterprises, and to make the distinction between the IMF and the World Bank. This meeting will be followed by regular meetings of a similar kind, perhaps every three months. To help get a better understanding of the IMF's activities, I also held a roundtable meeting with the local and international press in Guinea on August 12.
The meetings with the press and with the industrialists were fully and fairly reported in the local media. Visiting IMF missions usually meet a range of civil groups, most recently during the Article IV consultation in May 2003. My intention is to meet with a broad range of civil groups in the coming months.
In an effort to make material about the IMF and Guinea more
accessible, the resident mission in Guinea has launched a new
web site (www.imf.org/conakry).
It contains some IMF documents and other information in both English
and French. The existence of the web site has been made known
to a wide range of groups (donors, government agencies, civil
organizations). The feedback so far has been positive.
As part of the office dialogue with civil society, I met 16 representatives from local community groups on July 29 in Colombo in advance of the Article IV mission in August. The civil society representatives raised questions about the way Fund programs are designed and carried out, and about their own government's handling of economic policy. These are politically charged issues, but the discussion was friendly.
Among the participants were critics of the government's development strategy, as laid out in "Regaining Sri Lanka", which has been endorsed by the IMF and World Bank as an appropriate basis for Fund/Bank lending operations. In particular, Sarath Fernando of the Movement for National Land and Agricultural Reform argued that the plan would widen the gap between rich and poor, and promote migration to cities by the rural poor. He added that the strategy's authors had not been responsive to suggestions from critics.
From the Fund side, I explained that Fund support for the strategy as a whole did not imply agreement with every word. I also noted that previous anti-poverty strategies adopted by both the current and previous governments and endorsed by the Fund had achieved positive results. To a related point raised by Sarath Iddamalgoda of Janawa Bode Kundara (Public Awareness), who criticized working and living conditions in free trade zones, I noted that the IMF disapproved of labor violations and was encouraging the government to work with the unions in their plans to revise the labor market legislation.
Gloria De Silva of the Center for Family Services criticized parliamentary oversight of economic policy as weak. I said the Fund welcomes greater participation by Members of Parliament, but agreed that currently there was only limited interaction. Responding to related questions about conditionality in IMF-supported programs, and about the quality of government data, I said I was reasonably assured that government figures are accurate. I noted that CSOs are encouraged to contact the IMF if they have any questions about the data being used to monitor the Fund-supported program. As for loan conditions, I noted that all governments that borrow from the Fund commit themselves to achieving certain numerical targets and to adopting policies that are key to achieving the overall objectives of their economic program. Nevertheless, these targets were more signals than strict unbending tests and were aimed at allowing the country government and the Fund to monitor and, if necessary, adjust policies.
I welcomed the continued flow of ideas from civil society, stressing that the Fund is willing to incorporate civil society's ideas in future lending programs, although there would be no guarantee of blanket acceptance of such proposals. But even those that are rejected enrich the policy debate. In that vein, the participants were invited to meet the IMF mission in August to continue the dialogue (a meeting did take place), noting that similar meetings were also being arranged with the unions.
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