Recent Developments in IMF-CSO Relations

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. This edition’s Letters from the field offer a cross-section of the Fund’s most recent country outreach.

Feature Article:

An interview with Andy Berg on the macroeconomics of managing increased aid inflows

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

Back to Table of Contents

Poverty Reduction:

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

Back to Table of Contents

An update on the IMF's work on low-income countries

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.

Back to Table of Contents

Civil Society-IMF Dialogue:

De Rato meets labor delegation in Davos

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.

Back to Table of Contents

Labor union congress discusses new international confederation

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.

Back to Table of Contents

Deputy Managing Director Carstens meets religious leaders in Latin America meeting

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).

Back to Table of Contents

Independent Evaluation Office:

IEO evaluates the IMF's role in aid to Sub-Saharan Africa

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.

Back to Table of Contents

Evaluation of the evaluators

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.

Back to Table of Contents

Letters from the Field:

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.

Back to Table of Contents

Malangu Kabedi-Mbuyi, Resident Representative, Yaoundé, Cameroon

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.

Back to Table of Contents

Tove Strauss, Economist, IMF African Department

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.

Back to Table of Contents

Mario Zejan, Resident Representative, Ouagadougou, Burkina Faso

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.

Back to Table of Contents

Keiko Utsunomiya, External Relations Manager, IMF Regional Office for Asia and the Pacific

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.

Back to Table of Contents

Bulletin Board

If you want to be notified when new documents are published on the IMF website, please sign up for email notification through our website notification system.

Other recent meetings between the IMF and CSOs

  • 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.

Back to Table of Contents

Upcoming Meetings

  • 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.

Back to Table of Contents

Inside the IMF

  • 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.

Back to Table of Contents

Selected speeches

Back to Table of Contents

Selected publications

Back to Table of Contents