Civil Society Newsletter
IMF staff have been working intensely on low-income country (LIC) issues and related policy papers. Guiding these efforts are Managing Director Rodrigo de Rato’s Medium-Term Strategy (MTS), which commits the Fund to deeper and more focused engagement to help low-income countries meet the Millennium Development Goals (see de Rato’s July speech). The first of the LIC policy papers produced by staff is on the application of the Debt Sustainability Framework, published jointly with the World Bank in December. An article gives an overview of the paper, and others that will be published in the coming months, leading up to the April Spring Meetings and the October Annual Meetings.
One major aspect of the MTS, which may not always be on the radar of civil society organizations, is a review of one of the Fund’s core responsibilities: surveillance. Surveillance describes the IMF’s role in encouraging a dialogue among its member countries on the national and international consequences of their economic and financial policies, to promote external stability. An interview with Carlo Cottarelli, Deputy Director in the IMF’s Policy Development and Review Department, gives an overview of the issues that are under discussion in the current review.
The on-going IMF-Civil Society dialogue remains active on many levels, as illustrated by the high-level trade union meetings with the Managing Director’s participation, First Deputy Managing Director John Lipsky’s trip to Mali, various staff outreach efforts described in Letters from the Field, and the list of IMF/CSO meetings in this edition’s
The IMF’s Medium-Term Strategy (MTS) calls for a strengthening of Fund surveillance. Policy Development and Review Department Deputy Director Carlo Cottarelli discusses the push to modernize surveillance over exchange rates and other areas.
Q: The MTS calls for a strengthening of Fund surveillance, and various papers on the subject have recently been prepared by staff for Executive Board discussion. What’s the motivation behind this effort to modernize surveillance?
A: We’d like to move surveillance to a higher level—to the best practice level—taking into account the progress that “best practice” has made in the past 30 years. There are many initiatives under way as part of the MTS. One important one is a review of what we call the foundation of surveillance: the 1977 Executive Board decision on surveillance over exchange rate policies. Like many foundations, this one is pretty old, so the question is to what extent the decision needs to be revised and modernized.
The world was very different 30 years ago. Many countries now have floating exchange rate regimes, and there has been an enormous increase in capital movements. We think it is worth considering how a revision of the decision might reflect these changes, and we have been preparing a series of papers on this issue, one was discussed by the IMF Executive Board in July; another one was just discussed. So this review of the 1977 decision is a key piece of the work that we are doing. It’s complex, and we need to do it carefully, but the payoff could be high.
Q: What else is the Fund doing to bolster its surveillance?
A: We’re also discussing with our membership whether it would be helpful to draw up a list of operational goals—a so called “remit”—that Fund surveillance should try to achieve over the next three years and for which staff and management could be accountable. In addition, we are working on strengthening the methodology for assessing the effectiveness of our surveillance. The idea is, we want to be in a better position to assess whether we are achieving what surveillance is expected to achieve. We want to be able to better monitor progress over time. Our key responsibility, as staff, is to provide candid monitoring of what countries are doing and sound policy advice. This is the output Fund staff is responsible for. There is also a need to assess more systematically whether the overall surveillance framework is able to affect policies. With respect to the conduct of surveillance—the actual practice of surveillance—there are also many initiatives that we are taking.
Q: For example?
A: Well, first, we have the multilateral consultations. I’m not sure everyone realizes the kind of change we have here. The World Economic Outlook (WEO) provides an analytical view of multilateral surveillance, but this is the first time we are actually discussing multilateral policy actions.
Second, we’re paying more attention to exchange rate issues. You can see this emphasis in a variety of papers and staff reports. Related to this, the Consultative Group on Exchange Rate Issues (CGER) work, which has been recently extended to emerging markets, is very important because it generates mutually consistent exchange rate assessments. We’ve also started an innovative series of workshops on exchange rate issues—one that encourages departments to present their best work on exchange rates—which is useful in disseminating best practice.
Third, we been taking steps to ensure greater focus of our surveillance dialogue with member countries, to give priority to the themes that, within our area of expertise, are the most critical in each case. We have also been experimenting with streamlined consultations in selected cases.
Finally, I want to mention financial sector surveillance. This is a key element of the Medium-Term Strategy. The IMF’s Monetary and Capital Markets Department (MCM) has been created, of course, and a staff group is developing proposals for better integration of financial sector work in surveillance. And in general there is much more attention to financial sector issues in staff reports.
Q: What is a “streamlined” consultation?
A: Streamlined consultations are not at all a kind of surveillance “lite.” Streamlined consultations simply reflect the recognition that you can allocate resources differently across countries and still obtain high-quality results; in fact, sometimes looking at too many issues makes our messages less effective. For example, it might not make sense to send a fully staffed mission of six economists to a country each year or to prepare a very long report, if that country isn’t presenting any new issues or if the country simply does not have important vulnerabilities. The streamlined consultation simply acknowledges that some country teams can be streamlined and that some reports can and should be more focused and shorter.
Q: You also coordinated a stocktaking of the Fund’s monitoring of exchange rates. The resulting staff paper has attracted some attention. What are its key points?
A: Based on our assessment, the treatment of exchange rate issues is much better than what people perceive outside. And it is substantially better than what it was, say, two or three years ago. But, yes, we can do even better.
Let me tell you where the progress was exactly. First, in the description of the exchange rate regime—whether a country is floating or pegging or whether it has a managed float. Outside observers sometimes say that the Fund only reports on the de jure (stated) regime—that we don’t comment on what countries are doing de facto (in practice). We found that in almost all of the 30 countries that we examined, the staff report had a pretty accurate description of what were de facto the exchange rate policies.
Second, progress has been made in our assessment of the appropriateness of the regime. Countries can choose their regime, but we can express views on it, and this discussion of the implication of regime choice was present in almost all staff reports.
A third area of progress is the assessment of the consistency of economic policies, including exchange rate policies, with external and macroeconomic stability. That was also present in almost all staff reports. So in these three areas, by and large the quality is pretty good.
But it is fair to say that we did find that in dealing with exchange rate issues, we are now doing better than a few years ago. Indeed, a perception lag may explain why our work is not seen as positively from outside.
Q: What led to this positive change on the exchange rate aspect of surveillance?
A: We are responding to what our membership is saying. In the 2004 Biennial Review of Surveillance, the Executive Board asked us to improve the discussion of exchange rate issues, and they made it a monitorable target for the following years. As a result of this, we assigned more resources to this issue.
The February 2006 edition of the Civil Society Newsletter provided an overview of the Fund's reassessment of its engagement with low-income countries (LICs) and the August 2006 edition featured the Managing Director’s major speech on the topic in the context of the IMF’s Medium-Term Strategy (MTS). The following gives an update on the most recent and upcoming work on LICs.
Applying the Debt Sustainability Framework (DSF) for Low-Income Countries Post Debt Relief
This report, prepared jointly by the staffs of the World Bank and the IMF, was published in December 2006. It proposes strengthening the application of the DSF itself, reinforcing its built-in safeguards, and providing clearer guidance on the design of underlying growth and macroeconomic scenarios. The paper also examines the role of nonconcessional debt in countries that have benefited from debt relief, the rising importance of private external creditors, and ways to integrate better domestic debt in the DSF. The joint paper considers a number of options to increase the effectiveness of the DSF, including strengthening the link between the results of debt sustainability analyses and policy advice from the Fund and the Bank, further outreach to official creditors, and enhanced efforts to help LICs develop their own medium-term debt strategies to balance their development needs with the risk of debt distress.
The Fund’s Role in the Poverty Reduction Strategies (PRS) Process and its Collaboration with Donors
This paper will consider, in light of the MTS, the appropriate level and means of involvement of Fund staff in the PRS process and in collaborating with donors. It will define more clearly the parameters of the Fund's involvement and the limits of its accountability and responsibility, in the PRS process and in the broader context of the Millennium Development Goals (MDGs). It will focus particularly on macro-relevant aspects of the process with the objective of coming up with a set of best practices to guide field work in LICs. The IMF Executive Board is expected to discuss the report in the Spring.
Promoting the Millennium Development Goals with Sound Fiscal Policies in a Context of Aid Scaling Up, Volatility, and Uncertainty
The purpose of the overview paper is to distill key fiscal policy and public financial management issues and lessons, as well as issues for further discussion, drawing on two background papers. The first background paper on macro-fiscal and expenditure policy issues will provide operational guidance on fiscal policy formulation in the context of scaled-up but volatile and uncertain aid flows. The paper addresses three key fiscal policy challenges facing LICs in the context of scaled-up aid. First, LICs will need to ensure that additional spending financed by scaled-up aid helps to achieve the MDGs and maintain macroeconomic stability. Second, the success of aid scaling up will ultimately depend on the ability of recipient countries to efficiently transform spending into outcomes. Third, how can fiscal policy help countries in addressing aid volatility and uncertainty? The other background paper on public financial management (PFM) issues will identify main areas of PFM vulnerability and weakness, i.e., areas that are most likely to put at risk achievement of the objectives of scaled-up aid. The lessons of previous scaling up exercises will be assessed, as will the experience of post-conflict and disaster-affected countries that have received large amounts of aid for reconstruction. It will provide operational guidance on managing these risks via the PFM system, minimum PFM requirements, and the design and sequencing of effective PFM reform strategies. The IMF Executive Board is expected to discuss the report in the Spring.
The Role of the Fund in Managing Aid Inflows and Impact on the Design of Fund-Supported Programs
The paper will identify best practices for policy advice and program design in the context of a scaling up of aid and/or increased aid volatility. In the face of sizable increases in aid, the main challenge for the Fund is to help countries adopt policies that would help them absorb available aid while maintaining macroeconomic stability. The paper will also focus on appropriate policies when aid is volatile or scaling up does not live up to expectations. It will take stock on how the Poverty Reduction and Growth Facility (PRGF) program design has responded to LICs’ evolving needs and examine how to best help countries make effective use of available resources to implement their own development strategies while maintaining macroeconomic stability. The IMF Executive Board is expected to discuss the report after the Spring Meetings.
Fund support to post-conflict countries and fragile states.
Staff are preparing a report that reviews the Fund's staff support to post-conflict countries and fragile states, including under Emergency Post-Conflict Assistance and staff-monitored programs, and considers whether existing Fund instruments offer sufficient policy flexibility and an adequate capacity-building component to deliver IMF support to these countries. The IMF Executive Board is expected to discuss the report later this year.
More than 50 leaders of the international trade union movement visited Washington on December 11–13, 2006 for the biennial high-level meeting with the IMF and World Bank. The meeting focused on issues of common interest to the unions and international financial institutions (IFIs), such as how to manage globalization and enhance employment opportunities so that everyone benefits. Key issues discussed included how to foster the macroeconomic stability needed for job creation, and ongoing work in the areas of debt relief, core labor standards, HIV/AIDS, lending conditionality, and governance.
The discussions were part of a regular biennial meeting initiated in 2002 (see Civil Society newsletter November 2004 and January 2003). The union delegation included representatives and affiliates of the International Trade Union Confederation (ITUC), Global Union Federations, and the Trade Union Advisory Committee to the Organization for Economic Cooperation and Development (OECD). It was headed by Guy Ryder, ITUC General Secretary. IMF and World Bank management, staff, and Executive Directors participated in the meetings, and Fund and Bank Executive Directors chaired the discussions.
During the conference, Peter Fallon of the IMF’s Policy Development and Review Department (PDR) and Kathleen White of the External Relations Department (EXR) addressed the status of the dialogue between unions and IFIs on the policy and the country level. A recent IMF survey examining IMF mission interaction with unions showed a slight decline in the number of interactions since the last survey in 2002. While unions recognized efforts made by Fund staff to consult with them, they criticized the quality of the dialogue and that they felt their recommendations were rarely reflected in Fund policy documents.
During the conference, PDR’s Atish Ghosh spoke on developments in IMF loan conditionality and PDR’s Martine Guerguil gave an update on the implementation and impact of debt relief—both jointly with World Bank colleagues. PDR’s Fallon participated in a panel on the IFI’s approach to employment, labor markets, and poverty reduction, and PDR’s Tessa van der Willigen talked about the IMF’s approach to international financial stability. The unions also met with IMF and World Bank Executive Directors and Alternates.
On the final day, IMF Managing Director Rodrigo de Rato addressed the group, saying that the current state of the global economy presents opportunities not seen in two generations, but also new and complex risks. Developments such as increasing migration and aging populations affect a country’s saving, consumption, and public expenditures, de Rato noted. The IMF’s role in helping countries to better understand those risks is complementary to union efforts to make globalization work for workers, he said. World Bank President Paul Wolfowitz remarked that “jobs, jobs, jobs” were top priorities for the World Bank and the trade union movement. He also welcomed union allies in the fight against corruption in developing countries.
In December, the NGO One World Trust (OWT) released its 2006 Global Accountability Report, which assesses and compares 30 inter-governmental organizations (including the IMF), transnational companies, and NGOs. The findings reveal differences between and within the three sectors on four accountability dimensions: transparency, participation, evaluation, and complaint and responses. Overall, the results for the IMF are relatively good. The Fund scores more than 50 percent on the accountability index on two out of the four dimensions (transparency and evaluation). The World Bank is one of seven organizations to score more than 50 percent on three of the accountability dimensions. None of the organizations scored more than 50 percent on all four dimensions.
Sabina Bhatia of IMF External Relations Department (EXR) liaised with the NGO during the report’s preparation. "This is a very useful report,” she says. “Across the board, organizations are under greater scrutiny by stakeholders and are being held to higher standards than before to be more transparent and open. And this report shows that the Fund is not an outlier compared to other organizations, including the private sector and NGOs, in terms of accountability.” Bhatia found the exchanges with One World Trust valuable. EXR, in cooperation with other departments as well as the Independent Evaluation Office (IEO) and the IMF Ethics Officer, provided input into the report. OWT plans to undertake a study of the same 30 organizations in two years, which the Fund welcomes. “Issues relating to transparency and accountability will continue to be important for the work of the IMF as it modernizes its governance and its functions to respond to new challenges facing member countries in a globalized economy,” says Bhatia.
A summary of how the IMF scored in terms of the four accountability dimensions:
A recent IMF Working Paper entitled "Gender and Its Relevance to Macroeconomic Policy: A Survey," by Janet Stotsky of the African Department (AFR), examines the implications of gender differences in economic behavior for macroeconomic policy. This survey finds that societies that increase women's access to education, health care, employment, and credit, and that narrow differences between men and women in economic opportunities increase the pace of economic development and reduce poverty, although the evidence is not unambiguous. As the author comments, "Discrimination is still pervasive in many developing countries, but differences are narrowing, especially in education.”
Another key finding of the paper—with evidence from many developing countries—is that women tend to devote a larger share of household resources to activities that are necessary for the household and that foster the growth of their children's potential. Some evidence also suggests that women are more oriented toward productive saving and investment behavior, though they are less likely to take financial risks. According to Stotsky, these differences suggest that policies that give women greater control over household decisions can strengthen aggregate economic growth while at the same time moderate macroeconomic instability, a win-win outcome.
Stotsky notes that her study, which she undertook while on study leave from the Fund, was initially motivated by scholarly critiques of Fund- and World Bank-supported structural adjustment programs, which argued that these programs were excessively harsh toward women. It is essential, she stresses, to ensure that programs and conditionality do not impose an excessive burden on women or female-headed households. "Women typically face many more unpaid household commitments than men. It is important to keep this in mind when we propose cutting back on government services or raising their price as austerity measures."
In a related working paper, Stotsky also examines "gender budgeting," which refers to the systematic examination of budget programs and policies for their impact on women. Gender budgeting initiatives have been undertaken in a range of countries in recent years. Australia was the first country to formally incorporate gender budgeting into its budget process by developing the concept of a "women's budget" to address inequalities between women and men. Some European and a few developing countries have made great strides to integrate these considerations into fiscal policies.
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The views are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.
IMF First Deputy Managing Director John Lipsky completed his first IMF visit to sub-Saharan Africa in November, with stays in South Africa and Mali.
Apart from meetings with government officials in Bamako, Lipsky visited several sites outside the capital to examine firsthand some of the challenges confronting the country. On November 8, he visited Fana, a cotton-growing district one hour's drive from Bamako. Cotton is one of Mali’s biggest exports–second only to gold. Lipsky heard local cotton producers’ concerns about the falling cotton prices and complaints about subsidies that wealthy countries give their domestic cotton industries. Later that day Lipsky traveled to the nearby village of Werekela to make a $5,000 donation to the Women’s Association, which works to raise living standards by helping its members to grow vegetables and other crops, and by providing microfinance. In Bamako Lipsky met with elders of the city’s founding families, and on November 9 he traveled to Timbuktu, Mali’s intellectual and spiritual capital, where he visited historic mosques and a manuscript library.
On November 10, he participated in a regional conference in Bamako, on scaling up aid and promoting growth in the West African Economic and Monetary Union (WAEMU). It was co-sponsored by the IMF and the French Development Agency (Agence Française de Développement). The event was attended by officials from throughout the region, as well as representatives from civil society organizations. The conference explored the opportunities—and potential pitfalls—associated with increases in aid flows. Participants also discussed ways to promote faster growth in Mali and across the region. In his opening remarks, Lipsky highlighted the reforms in the IMF’s Medium-Term Strategy that aim to assist low-income countries and outlined the role the Fund can play in helping countries to make the most effective use of increased aid. “The bottom line is that the IMF needs to direct its expertise to those areas where it can best assist developing countries in achieving economic growth,” said Lipsky. “Helping them address the macroeconomic challenges of scaling up is one such area.”
Lipsky expressed gratitude to his hosts and said he valued the many exchanges he had with officials and with members of civil society. “It is extremely important to me to have this opportunity to meet here with so many of you, so that I can deepen my understanding of these changes,” he said. “The direct contacts I have had in the course of my visit have already given me invaluable insights.”
Jonathan Dunn, IMF Resident Representative, Dhaka, Bangladesh
In January, I had the privilege of personally delivering four donated IMF computers and other equipment to a rural CSO, the Shamsuddin-Nahar Trust in Chitoli village of Bagerhat District in southwest Bangladesh. The Trust was established in 2002 to provide free education and health services and to organize youth activities to develop future leaders. Bagerhat District borders the Sundarbans nature reserve, which is considered to be the world’s best preserved mangrove forest, stretching across 10,000 square kilometers of Bangladesh and India. The district itself is a beautiful jumble of tropical and deciduous forests, waterways, and rice paddies. The natural salinity of the water due to Bagerhat’s proximity to the sea has allowed the development of widespread shrimp farming and factories that process frozen shrimp and other seafood for export. This is beginning to transform the economy of what has been one of the poorest regions of Bangladesh.
The Trust runs a school for pre-primary through Grade 5 students in Chitoli and a satellite pre-primary program in another village in that area. A health clinic established by the Trust provides ante- and post-natal medical care, consultation, and prescription medications for women and children throughout 27 of the villages in Bagerhat District. Women and children may visit the clinic in Chitoli, but most contact with them is made during daily visits to the villages by the female medical workers employed by the Trust. The Trust also hosts a tuition-free computer training center open to anyone who seeks basic computer literacy, and it organizes separate workshops on mathematics and the English and Bengali languages each year for primary and secondary students from throughout Bagerhat District.
During my visit to Chitoli, I interacted with students of all ages, teachers, healthcare workers, and mothers and children who use the health clinic. They expressed appreciation for the services provided by the Trust and asked numerous questions about my background and what led me to live and work in Bangladesh. Some of the older students who had just finished a language workshop inquired about the IMF and our work with the government and donors in Bangladesh. I was pleased to see students and adults from Chitoli and surrounding areas making heavy use of the computers we donated. I encourage visitors to Bangladesh to make trips to the rural areas. The resourcefulness and enthusiasm of people in those areas never cease to amaze me. My trip to Chitoli only reinforced this feeling.
Ugo Fasano, IMF Resident Representative, Port-au-Prince, Haiti
Recent developments have provided Haiti with its best chance in several decades to make substantial economic and social progress. Following two years of good performance under the Fund's Emergency Post-Conflict Assistance, the IMF’s Board approved in November 2006 a three-year arrangement for Haiti under the Poverty Reduction and Growth Facility (PRGF) to support the government's economic program and Interim-Poverty Reduction Strategy Papers (I-PRSP). In addition, Haiti can benefit from substantial debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI); an agreement reached with Paris Club creditors to restructure Haiti’s external public debt; and the proposal of the Inter-American Development Bank for canceling the balances of loans from the Fund for Special Operations (FSO). All these debt relief initiatives will substantially increase the resources available to the government in order to reduce poverty. Moreover, the U.S. Congress passed in December 2006 a bill (the HOPE Act) that made Haiti eligible for new trade benefits, with the potential to generate thousands of new jobs in the textile industry.
In parallel with these important developments, I intensified my outreach activities to explain to government officials, parliamentarians, and civil society organizations (CSOs) the role of the Fund in low-income countries and the new Fund-supported program with Haiti. I held discussions with most ministers, including health, education, the environment, and women’s condition, and a group of parliamentarians across political parties. Private sector groups such as the Bankers’ Association and the American-Haitian Chamber of Commerce welcomed me to discuss Haiti’s economic development and the role of the Fund. I gave radio and TV interviews on debt relief, and participated in a “live radio debate” organized by a local CSO, “SOS Journalistes-Haiti,” about the role of various international organizations in Haiti, including the IMF. These outreach activities have been very satisfying to me because they provided an opportunity to spread the recent good news, demonstrate that the Fund cares about improving growth and reducing poverty, and initiate a constructive debate about Haiti’s future development at a time when the PRSP is underway. Meanwhile, I have also continued to inform the public about the IMF Civic Program and the guidelines for requesting grants.
World Social Forum in Nairobi, Kenya