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Civil Society Newsletter
Developments in IMF-CSO Relations
On December 26, an earthquake and tsunami of unimaginable magnitude devastated coastal areas of South Asia, costing the lives of some 250,000 people. In an extraordinary show of generosity, governments and international organizations have already pledged some $4 billion in the form of grants and soft loans, and several donors have indicated that their contributions could rise. IMF Managing Director Rodrigo de Rato issued a statement on the day of the tragedy. He followed that with a statement at the ASEAN Leaders' Special Meeting in Jakarta on January 6, just before traveling to Indonesia's hard-hit Aceh province. He expressed his sympathy and condolences and said that the IMF is prepared to offer all assistance at its disposal. This includes sizable funds under an emergency assistance facility, and advice and technical assistance in assessing the macroeconomic impact and budgetary and balance of payments needs stemming from the disaster. The feature article explains these efforts in detail.
With the international community preparing for the UN Millennium Summit in September, 2005 will be an important test of the international community's commitment to poverty reduction. The overall picture is not encouraging. With just 10 years to go, the evidence suggests that, on current trends, most of the Millennium Development Goals (MDGs) will be missed globally, and by a long way in Africa. Civil Society Organizations (CSOs) have started targeting G-7 countries with their campaigns urging 100% debt relief and increased development assistance for poor countries. The G7 discussions of these important matters likely will come to a head in the next six months. The IMF is preparing several papers and reviews that will contribute to the joint international effort to reduce poverty. An article gives an overview of this upcoming work on low-income countries.
Of great interest to CSOs, especially to those working on the local level-as well as to global CSOs working on transparency issues-is the recent Draft Guide on Resource Revenue Transparency that addresses the challenges associated with the management of revenues from extractive industries such as oil, natural gas, and mining. The guide, summarized in an article, has been posted on the IMF's website in a number of languages and comments are welcome until February 18.
Recent dialogue between the IMF and CSOs involved the diverse social movements and CSOs at the fourth Bridge Initiative Annual Meeting in Paris. The Initiative aims to facilitate dialogue between key players in the globalization debate. In January, IMF staff, for the first time, attended the World Social Forum in Porto Alegre, Brazil. Simonetta Nardin, IMF Senior External Relations Officer, describes her experience in a letter from the field.
The December 26, 2004, South Asian tsunami disaster brought forth an unprecedented global outpouring of humanitarian assistance. At least 250,000 lives were lost, and millions of others were severely affected by the destruction. Governments and international organizations already have pledged some $4 billion in the form of grants and soft loans, and several donors have indicated that their contributions could rise. United Nations Secretary General Kofi Annan announced that $970 million would be available to meet the immediate needs of the relief effort.
In addition, a number of participants have supported debt relief to the affected countries, in the first instance through a moratorium on payments due this year. The G-7 countries agreed to pursue this option through the Paris Club.
IMF Managing Director Rodrigo de Rato attended the international donors conference in Jakarta, Indonesia, on January 6 and also, along with World Bank President James Wolfensohn, visited devastated areas of Aceh province in Sumatra. After the meeting, he said: "The affected countries have widely varying needs and capacities, so it is essential to have a clear understanding of the financing strategies that can be pursued in light of the different offers on the table. It is extremely important that the governments take advantage of the offers of grant aid. While concessional loans and debt relief may be attractive in the short term, grant aid will not have to be repaid, and such offers may not be available after the immediate crisis fades."
The International Monetary Fund is prepared to offer all assistance at its disposal, including sizable funds under an emergency assistance facility. This financing, which could be on the order of $1 billion for the most affected countries, could be made available without an IMF program. Sri Lanka already has received a deferral of its repayments for the remainder of 2005, totaling about $113 million. Taken together with a request for new funding, the Fund could provide Sri Lanka with the equivalent of $250 million of assistance.
The IMF also can provide advice and technical assistance in assessing the macroeconomic impact and budgetary and balance of payments needs stemming from the disaster. The Maldives has already requested such assistance.
Later in January, IMF First Deputy Managing Director Anne Krueger visited Sri Lanka and the Maldives. At the conclusion of her visit to the Maldives, she said in a statement: "The government made clear to me its concern to carry out the recovery effort without undermining the laudable progress it has made in macroeconomic policy in recent years. It will be important to move as quickly as possible to help the homeless and undertake reconstruction. At the same time it will be important to avoid generating bottlenecks that could in fact slow down delivery of rehabilitation and risk macroeconomic instability."
In the weeks following the tsunami IMF staff, their spouses, and Fund retirees donated almost $154,000 for the victims. IMF management matched those contributions dollar-for-dollar, for a total of almost $308,000. The money will be go to the International Federation of Red Cross and Red Crescent. Those organizations' $400 million relief effort will provide emergency and supplemental food aid, water and sanitation, vaccinations and other health aid, tents, blankets, hygiene kits, and kitchen sets, psychosocial assistance, and direct support costs to the affected nations.
The IMF this year will continue to review its policies and its role in low-income countries-from poverty reduction strategies to the design of its facility for poor countries. This work could not be more timely and appropriate. Throughout 2005, the international community will consider progress toward the implementation of the Millennium Development Goals (MDGs) by 2015, an effort that will culminate with the UN Millennium Summit in September. The IMF's work will help review and define the role the Fund is playing in helping poor countries increase growth and reduce poverty-essential aspects in their path to achieving the MDGs.
The following is an overview of upcoming papers and reviews, as well as an update on the Fund's recently established unit carrying out work related to poverty and social impact analysis (PSIA) at the Fund.
Fund Signaling and Donor Coordination in Low-Income Countries
The paper addresses the Fund's role in supporting donor financial assistance to low-income countries, and how it can better coordinate its own support with that of other partners. The paper will draw on the results of a survey of donors/creditors/Multilateral Development Banks and Poverty Reduction and Growth Facility (PRGF)-eligible members to better understand their demands and needs. It will consider two sets of interrelated issues: first, the current situation regarding the impact of Fund signals on donors and recipients, and whether their needs are being met; and second, practical aspects of Fund/donor coordination. The paper will aim to identify mechanisms to strengthen the Fund's instruments and processes in both areas. The paper will be prepared for Board discussion in advance of the Spring Meetings.
Poverty Reduction Strategies Review
This year marks the fifth anniversary of the Poverty Reduction Strategies (PRS) initiative, and World Bank and Fund staff plan to use the 2005 progress report (prepared every year for the Annual Meetings of the institutions) to review progress, challenges, and good practice related to several key issues. In particular, the review will address how to increase the effectiveness of the Poverty Reduction Strategy Papers (PRSPs) as a vehicle for attaining the MDGs. The 2005 review will include the views of staff members and other stakeholders, including country officials, donors, civil society organizations, and other partners. It will focus on five themes identified through discussion with stakeholders and review of literature that is central to the effectiveness of the PRS approach. The themes are:
1. Strengthening the medium-term orientation of the PRS approach;
2. Utilizing the PRS as a mutual accountability framework between countries and donors;
3. Broadening and deepening meaningful participation;
4. Enhancing linkages between the PRS, Medium Term Expenditure Framework, and budgets; and
5. Tailoring the approach to conflict-affected and fragile states.
A concept note will be posted shortly on the World Bank and IMF websites. A number of consultations are planned, including an online discussion forum. More information will be distributed shortly. The review will be included in the progress report, which will be discussed by the Boards of the Fund and the Bank shortly before the Annual Meetings.
Review of PRGF Program Design
This review will focus on three areas that are key to the Fund's efforts to enhance growth and poverty alleviation among its low-income members: (i) lessons for low-income countries and the Fund from the post-war experience of determinants of growth; (ii) monetary and fiscal policy design in countries that have succeeded in their stabilization efforts; and (iii) the macroeconomics of high aid inflows. It is expected that these papers will be considered by the Board shortly after the 2005 Spring Meetings.
The Executive Boards of the IMF and the World Bank have endorsed the key elements of a proposed debt sustainability framework for low-income countries. The objective of the framework is to support low-income countries in their efforts to achieve the MDGs without creating future debt problems, and to keep countries that have received debt relief under the Heavily Indebted Poor Country (HIPC) Initiative on a sustainable track. In guiding future financing decisions, the framework rests on three pillars: (i) an assessment of debt sustainability guided by indicative country-specific debt-burden thresholds related to the quality of policies and institutions; (ii) a standardized forward-looking analysis of the debt and debt-service dynamics under a baseline scenario and in the face of plausible shocks; and (iii) an appropriate borrowing (and lending) strategy that contains the risk of debt distress.
Building on initial Board discussions of the proposed framework in February/March 2004, and further considerations in September 2004, the staffs of the two institutions are preparing a follow-up paper that attempts to resolve outstanding issues on the indicative debt-burden thresholds; the interaction of the framework with the HIPC Initiative; and the modalities for Bank-Fund collaboration in developing a common assessment of sustainability.
The Fund will shortly conduct the first review of its new conditionality guidelines, adopted in 2002. While these guidelines apply to all IMF lending, they are highly relevant to the Fund's work in low-income countries. The guidelines emphasized the importance of, among other things, national ownership of policy programs and of parsimony and clarity in the formulation of conditions. Although the ultimate objective of the new guidelines was to contribute to improved economic outcomes, it is still too early to evaluate whether they have made a difference in this respect. The review will, however, examine whether the Fund's structural conditionality has been streamlined, both in terms of breadth of coverage and numbers of conditions, and if appropriate efforts have been made to promote ownership. The review will also provide some preliminary evidence as to whether these efforts are leading to more consistent implementation of Fund-supported programs, which was expected to be an intermediate step toward better ultimate outcomes.
Poverty and Social Impact Analysis
In July, the Fund formally set up a Poverty and Social Impact Analysis (PSIA) group of five experts within an existing division in the Fiscal Affairs Department. Area departments have now identified ten countries (Bolivia, Djibouti, Ethiopia, Kenya, Mali, Moldova, Senegal, Sri Lanka, Tajikistan, and Uganda) where PSIA support would be most valuable. Work plans have been developed by the group and relevant country teams. The PSIA group has participated in four missions, addressing issues ranging from the liberalization of energy prices to the response to macroeconomic shocks. Several more missions are planned for early 2005. If resources permit, the group will also undertake PSIAs in the IMF's core areas where no such studies are available. However, the small size of the PSIA group limits what can be done in the short run. Robert Gillingham, who leads the team, will be meeting with CSOs in London on February 18 to brief them on the group's work program.
Review of Fund Work on Trade
A report that will be discussed by the Board at the end of February assesses the Fund's priorities in the trade area, takes stock of its work, and reviews the Fund's collaboration and division of labor with other institutions. The report notes that the Fund has been a consistent advocate of open trade regimes. In recent years, it has encouraged developed countries to examine the impact of their trade policies on poorer countries, has pressed for an ambitious Doha Round, and has worked with members to address potential balance of payments or fiscal impacts of liberalization. There has been a decline in the number of trade-related program conditions under Fund-supported programs, but an increase in aspects of trade-related surveillance, management communication, and research. Among other recommendations, the report suggests that the Fund should strengthen its focus on trade in services and on the spillover effects of trade policies in large developing countries. It also notes that there remains considerable scope for the Fund to draw more on the expertise especially of the World Bank in the trade area. Finally, the report also requests the Board's guidance on whether to conduct follow-up work based on case studies that would look more deeply at the design and impact of trade reforms recommended by the Fund.
To address allegations that the IMF is an obstacle to funding for the prevention and treatment of HIV/AIDS in countries with Fund-supported programs, the IMF's Fiscal Affairs Department hosted a half-day workshop on January 19 bringing together many key actors involved in the issue. The meeting was the second held at the IMF in the past six months to discuss how the Fund, donors, and governments can address the challenges of delivering and absorbing HIV/AIDS-related foreign aid.
The workshop brought together official donors, international agencies, policy institutes, and nongovernmental organizations (NGOs), and sought to go beyond the general discussions of the June meeting (see IMF Survey July 12, 2004). Instead, it focused on specific issues related to the scaling-up of donor aid in four countries: Honduras, Kenya, Uganda and Zambia. The countries were chosen on the basis of feedback from the Global Fund to Fight AIDS, Tuberculosis and Malaria. Fund mission chiefs for the four countries engaged in an informed dialogue with the Global Fund's representative and the other participants. The meeting was opened by Deputy Managing Director Agustín Carstens and moderated by Peter Heller, Deputy Director of the IMF's Fiscal Affairs Department.
Although donors are increasingly committing financial resources to the fight against HIV/AIDS, scaling up health spending will require that several specific problems be addressed before conditions on the ground can improve markedly. Most participants expressed concern that the medium-term spending plans of countries are too rigid and prevent a more rapid increase of health spending. However, Fund mission chiefs described in great detail how Fund-supported programs contain no health-related spending ceilings. Rather, they are designed with only broad fiscal deficit ceilings aimed at ensuring macroeconomic stability. The mission chiefs defended the work of the Fund in the four countries against the accusation that the IMF impedes increased spending. (For a discussion of the Fund policies related to spending on HIV/AIDS, see this recent document.)
Nonetheless, all participants acknowledged the magnitude of the problems faced by the effort to fight the epidemic and mitigate its impact. Countries have difficulties absorbing large aid inflows because of severe shortages of health care professionals, poor compensation for health workers, inadequate medical facilities, and an unreliable supply of medicines. Another challenge mentioned was how to weigh the urgency of spending on HIV/AIDS with other crucial health and poverty-related priorities. Participants also said that greater predictability and sustainability of aid flows is essential.
The IMF's policy dialogue with governments typically involves finance ministries and central banks, while many workshop participants pursue their policy dialogue with health ministries. Participants suggested that the dialogue on budget priorities in the health sector should be widened to other stakeholders. They said this would improve transparency about the spending priorities of finance ministries under an IMF program.
Although many participants said they were reassured that the IMF does not become directly involved in a country's health spending decisions, the consensus was that it needs to do more to clarify its role. Although IMF country reports do not discuss health sector issues explicitly, the meeting clearly revealed, and participants were impressed by, the extent to which most mission chiefs take into account the HIV/AIDS issue and their efforts to ensure appropriate fiscal space for increased health spending. Participants suggested that the IMF should work with development partners to clarify how fiscal ceilings are developed, and to reassure the authorities that program ceilings will be flexible in accommodating additional spending when financing is available, particularly on grant terms.
Many of the participants had also attended the June meeting, and they encouraged the Fund to continue this dialogue. They argued that future meetings could be extended to a broader outside audience, in order to provide a better understanding of the extent of the IMF's work on these issues, and the complexity of the issues as they are being addressed at the country level.
To mark World AIDS Day, December 1, 2004, the IMF published The Macroeconomics of HIV/AIDS, a book edited by Markus Haacker, an economist in the IMF's African Department. The volume brings together contributions by experts from many different international organizations and other institutions involved in formulating and implementing policy responses to the epidemic or dealing with its social and economic consequences.
The book was published with two goals. First, it is intended to fill the gap between studies focusing on specific sectors-especially public health and education-and assessments of the broader social and economic consequences of the disease. In contrast with most other macroeconomic studies on the subject, the book emphasizes how HIV/AIDS affects society and the economy overall through its microeconomic impact, and describes the implications for the welfare of individuals and households. Second, by spelling out the fiscal dimension of HIV/AIDS, and linking the response to HIV/AIDS to a macroeconomic framework, the book aims to provide a resource for public policymakers seeking to develop an effective response to the epidemic and to formulate economic policy in countries severely affected by the HIV/AIDS.
The Democratic Republic of the Congo (DRC), the third-largest country in Africa, is making significant progress at both the political and economic fronts to extricate itself from one of the bloodiest wars in African history and decades of economic mismanagement. The DRC has made progress toward breaking the vicious circle of hyperinflation, a declining currency, and collapsing output. This turnaround offers lessons for other countries coping with internal conflict and for the international community in its efforts to provide adequate and timely support to postconflict countries.
The IMF has just published Postconflict Economics in Sub-Saharan Africa-Lessons from the Democratic Republic of the Congo, a book edited by Jean A.P. Clément, Assistant Director in the African Department. The book looks at the lessons and challenges from conflict to reconstruction, providing an analysis of African conflicts, and especially their key economic characteristics. These issues have been at the center of the IMF staff's work on the DRC in recent years. The book also includes an article from World Bank staff on the demilitarization and reintegration of ex-combatants in the DRC.
A December 5-7 meeting of the Bridge Initiative in Paris brought together a diverse group of actors, including high-level representatives from multilateral institutions and global civil society, notably the World Social Forum (WSF). This year the IMF was represented by Klaus Enders, Assistant Director of the IMF Offices in Europe, and Simonetta Nardin, IMF Senior External Relations Officer, who said that the number of participants, larger and more diverse than in previous years, offered a special opportunity to engage, listen, and discuss issues of mutual interest.
It was the fourth of the Bridge Initiative's Annual Meetings, an effort initiated in 2000 by independent media producers in Europe and North America to encourage dialogue among stakeholders with conflicting perspectives on globalization issues. The group has hosted a series of seminars and televised debates between well-known CSOs, business, and IFI representatives. IMF staff have participated in several Bridge Initiative events in Europe and the U.S. (see Civil Society Newsletter February 2004).
While the Paris agenda envisaged five different working groups, participants decided on the first day to concentrate on two issues: the January 2005 WSF in Porto Alegre and the 2005 activities related to the Millennium Development Goals (MDGs). A UNESCO representative addressed what he called the misgivings within the social movements about contact with the Bretton Woods Institutions (BWIs). He told participants that if they want to change the world they have to be both "outside" (i.e. protesting in the streets) as well as "inside" (cooperating wherever possible) these institutions. Whoever wants to influence global governance has to gain influence over these institutions, the speaker said, and this has to be achieved largely by working with national governments to influence the positions they take in the boardroom discussions of the BWIs. At the WSF in Mumbai, India, in 2003, the "Tables of Controversy" offered a space for UN agencies to participate in debates that were usually reserved for CSOs. There were four tables in 2003, and the organizing committee was considering 30 different proposals this year.
The working groups also discussed the MDG-related events in 2005 that will lead up to the UN Millennium Summit in September in New York. In one group the discussion quickly turned to the MDGs themselves. Members of the WSF worried that the MDGs were dividing the movement: While many NGOs (especially in the North) are embracing the MDGs and will spend the year campaigning to achieve them, many in the South consider them an "imposition" of a charity/aid-focused approach that they reject, preferring a human rights-based approach to development.
The meeting ended with the organizers' pledge to organize Tables of Controversy at the 2005 WSF, and they stated their intention to ensure that the World Bank and the Fund would be invited to participate (see letter from the field).
As part of the effort to promote transparency among member countries, the IMF has invited the public to comment on a Draft Guide on Resource Revenue Transparency. The guide addresses the challenges associated with the management of revenues from extractive industries such as oil, natural gas, and mining. It is available on the IMF website in Arabic, Chinese, English, French, Portuguese, Russian, and Spanish. Comments are welcome until February 18, 2005, (email@example.com) and will be reviewed and considered in the preparation of the final version of the Draft Guide.
Stronger government institutions and improved transparency can provide significant benefits to a country. Fiscal transparency can promote more informed public debate. It also helps achieve sounder budget policies. The guide applies the Fiscal Transparency Code and supplements the Manual on Fiscal Transparency, which was published in 2001 as part of the IMF's work on Standards and Codes. Fiscal transparency reports, or fiscal Reports on the Observance of Standards and Codes, have been published for about 70 member countries on the IMF's website. These reports assess country practices against the standards defined in the Fiscal Transparency Code. The draft guide can be used for fiscal transparency assessments by the IMF in natural resource-rich countries and will also be useful in the IMF's policy dialogue in these countries.
Fiscal transparency has become an important issue for CSOs in the past few years. The IMF has engaged in an extensive dialogue with groups that are involved in Publish What You Pay and other campaigns related to extractive industry revenue transparency (see Civil Society Newsletter May 2004). The IMF also supports the Extractive Industries Transparency Initiative (EITI), which was launched by UK Prime Minister Tony Blair at the Johannesburg World Summit of Sustainable Development in September 2002.
Summary of the Draft Guide
The Draft Guide promotes fiscal transparency in four areas:
1) Clarity in the roles and responsibilities of government. For example, governments should establish a clear legal and regulatory framework for the natural resources sector, covering all production stages and including licensing procedures, production sharing contracts, and the fiscal regime (e.g., royalties and other taxes). The relations between governments and state-owned enterprises, the mechanisms to coordinate oil savings funds with the government budget, and resource revenue sharing arrangements between central and local governments should also be clear.
2) Disclosure of resource revenue data and other relevant information. In this area, many resource-rich countries can make quick and highly visible progress. All government resource revenues should be published in the budget and other reports. Governments should also disclose data on debt and other liabilities (e.g., government guarantees) related to resource sector operations; financial assets (e.g., those held in oil savings funds); and information on noncommercial (quasi-fiscal) activities of state-owned enterprises, such as the sale of energy products below cost.
3) Open processes for budget preparation and execution. Governments need to make clear policy statements on the use of revenues from natural resources. Non-resource fiscal balances (i.e., the fiscal balance excluding resource revenues) should be used to monitor fiscal policy performance, in addition to the overall fiscal balance and other indicators. Price and other relevant risks, as well as measures to address them (e.g., hedging policies), should be explained in budget documents. Systems and policies on accounting and internal control and audit should be transparent and applied as elsewhere in the public sector. Domestic and international resource companies should be subject to the same tax administration framework as other companies, and this framework should be clear and cover all aspects related to taxpayers' rights and obligations, revenue administration powers, and dispute resolution processes; and
4) External or independent assurances of integrity. This includes the necessity of companies complying fully with internationally accepted standards for accounting, auditing, and publication of accounts. A national audit office or any other independent national organization should verify and report regularly to Parliament on revenue flows between companies and the government.
"Ça c'est un travail perilleux!" The French official's admonition was the most memorable of a series of comments about the dangers of walking around Porto Alegre prominently displaying an IMF badge. Others were more direct, asking me, only half-jokingly, if I had been attacked - verbally, at a minimum!
Welcome to the World Social Forum (WSF), in Porto Alegre, Brazil where displaying your affiliation to that Fund is considered an occupational hazard. But despite the many warnings about my institutional affiliation, what I saw while walking the five-kilometer length of the Forum, set along the banks of the Guaiba River, was more surprise then anger, disbelief rather then rage. Young activists with Che-emblazoned t-shirts point to my badge and whisper. Others are so confused that they ask: "The IMF? That IMF?! The International Monetary Fund?" One participant takes a picture of me and my badge, "to prove that we are in dialogue," and thanks me for attending. A member of the European Parliament salutes the change: "Two or three years ago you could not have walked around here, and now everybody is happy that you are in Porto Alegre!"
For the first time this year, the Fund attended the World Social Forum. In its fifth year-held in the last week of January as a counter-event to the World Economic Forum in Davos-the WSF this year drew 150,000 representatives who, over five days, attended more than 2,000 events. They pondered everything from the role of religion in modern conflicts to "neoliberal capitalism." Many of these events featured the Fund: from how we block progress in the fight against HIV/AIDS to the calls to retire-at 60.
I was invited, together with the World Bank and the United Nations, to participate in a so-called Table of Controversy organized by the Bridge Initiative (see story above), to discuss the issues related to the Global Call to Action Against Poverty (GCAP), a campaign launched by many civil society organizations around the world. The discussion highlighted the view that the IMF is still seen by many as part of the problem. The issues raised by civil society panelists, Thomas Deve of Zimbabwe's Mwengo (Reflection and Development Centre for NGOs in East and Southern Africa) and Cecilia Lopez Montano of Agenda Colombia, focused on the shortcomings of the international community, and in particular the IMF and the World Bank, in reducing poverty. Many questions from the audience came from African participants who affirmed that Africa is poor because of policies imposed by the Bretton Woods Institutions. Candido Grzybowski of Brazil's Ibase offered reflections about the governance of the UN, the IMF and the Bank, calling for a democratization of the institutions.
While it was difficult to address all these issues in a debate, my World Bank colleague and I tried hard to focus on some commonalities. Sensing a shift among rich countries about the urgency to address poverty, the GCAP has three very pragmatic themes on which it will campaign: more aid; better trade terms; and debt cancellation for poor countries. The Fund is working extensively on many of these issues. For instance, the Fund stands ready to help countries make better use of increased aid flows, if and when they materialize.
Most importantly, the Fund's will to engage, and the openness of CSOs to having the Fund speak at one of the Forum's events, highlights the fact that IFIs and CSOs are all stakeholders in the development discourse. The need for occasions like the discussion in Porto Alegre will hopefully give us a chance to build on our common goals while respecting our differences.
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