Civil Society Newsletter
The highlight of the IMF's agenda of the recent Spring Meetings, held in Washington, DC, in April, was the final report of the multilateral consultation on global imbalances. The International Monetary and Financial Committee (IMFC), the primary policy advisory body for the Fund, discussed and welcomed the progress of the consultations, which had been going on since June 2006.
The Civil Society Policy Forum attracted some 200 civil society organizations (CSOs) from 34 countries. They organized and participated in discussions with Bank and Fund staff as well as government officials on a wide range of issues concerning the Bank and Fund. Africa was at the forefront in many sessions—in particular the meeting between CSOs and African Department Director Abdoulaye
On May 15, the IMF launched its revised Code of Good Practices on Fiscal Transparency.The Code, initially launched in 1998, is a central element in IMF actions to promote transparency and good governance. CSOs participating in a conference call the day of the launch, welcomed the revised Code as tool for citizens to demand accountability from their governments on fiscal issues.
The April 2007 World Economic Outlook, the IMF's flagship economic forecast publication, included a chapter on the impact of labor globalization on compensation and labor's share of income in developed economies, and on policies that can help them adjust to the pressures of a global labor market.
At their gathering during the IMF and World Bank Spring Meetings, the International Monetary and Financial Committee (IMFC ) of the IMF Board of Governors broadly endorsed the Fund's reform agenda, marking progress on surveillance, governance, and Fund income.
The multilateral consultation (MC) on global imbalances was a key feature of the gathering. The Fund and the five MC participants—China, the euro area, Japan, Saudi Arabia and the United States—said that the discussions had contributed to an improved understanding of the issues. The report on the process was welcomed by the membership, and it drew comments at a press conference with UK Chancellor of the Exchequer Gordon Brown and IMF Managing Director Rodrigo de Rato.
"I think from the world economy's point of view, it is a major advance that, on a huge issue that has worried policymakers for many years, we have got a process that has worked, that has ended with a report, that people are happy with the conclusions of the report, and accept that they have mutual responsibilities," said Gordon Brown, who is also the Chair of the IMFC. "This is the first time that this has happened," he added.
De Rato said that this was a welcome process, one that would not have been possible "outside a multilateral institution" like the Fund. "I am really happy that we have moved, I think, in seeing the quality that we can give to a new instrument of global surveillance that can be useful for the issue of global imbalances but also for others, as the reference in the communiqué to financial stability," he said.
On other elements of the IMF's Medium-Term Strategy (MTS), de Rato said that the IMFC communiqué was very clear that "progress was occurring on all fronts." "There is still a lot of work to do," he said. "But I am very encouraged by the engagement of the Governors today on many issues—quotas, the update of surveillance, and the income model of the institution—among others, but certainly also crisis prevention. I look forward to deliver on their mandates by the Annual Meetings in Washington next October."
The IMFC also made the following key points in its communiqué:
The 2007 Spring Meetings attracted strong civil society organization (CSO) participation with over 200 representatives from 34 countries attending. They participated in the Civil Society Policy Forum, which brings together Bank and Fund staff, CSOs, and government officials, in policy dialogue sessions organized by either the Bank or the Fund, by CSOs, or jointly. Featured topics were: the role of the Fund in sub-Saharan Africa; debt sustainability; the World Bank's health, nutrition and population strategy; Bank governance and anti-corruption strategy; climate change; Fund Board accountability; fiscal space and wage bill ceilings; and the IDA-15 replenishment. Fund staff participated in a number of the sessions.
Spring Meetings Briefing and Reception
The Civil Society Policy Forum was officially kicked off with a briefing on the key messages for the Spring Meetings and the agenda for the meetings of the IMFC and Development Committee. Masood Ahmed, IMF External Relations Director, and Marwan Muasher, World Bank Senior Vice President for External Affairs, led this briefing.
A reception for CSOs, hosted by the two heads of the Fund and Bank, followed, allowing for an informal face-to-face exchange. In opening remarks, de Rato stressed the important role of civil society in the development process. He highlighted two components of the IMF's Medium-Term Strategy on which the Fund was making progress—the advances in Fund governance and the Fund's work with low-income countries. He called the Singapore agreement on Fund governance reform a historic decision that acknowledged that low-income countries should also have a stronger voice. The Fund will continue to work with low-income countries, de Rato said, while looking for ways to strengthen engagement.
Sub-Saharan Africa: Outlook and Challenges
The regional economic outlook and challenges for sub-Saharan Africa were the topics of the CSO meeting with Abdoulaye Bio-Tchané, Director of the IMF's African Department (AFR) on April 13. In his remarks, Bio-Tchané stressed the region's strong growth and low inflation rates, but also pointed out the risks. Despite the welcome acceleration, he saw economic growth in many countries still falling short of what is needed to achieve the Millennium Development Goals (MDGs). Increased aid flows would help, he said, but so far the scaling-up of aid promised by traditional donors at the 2005 Gleneagles Summit has not materialized.
Following Bio-Tchané's opening remarks, CSO representatives—including a number from Africa—engaged with Fund officials in a broad-ranging discussion. One representative saw a need to boost agricultural production in Africa. Bio-Tchané agreed that in several African countries, agricultural output needs to be increased in terms of productivity and competitiveness. Another CSO representative asked about the importance of foreign direct investment (FDI) in Africa. Bio-Tchané said that FDI is important for knowledge transfer and for promotion of the private sector, noting that while the business environment has improved in recent years, more work is needed to ensure that Africa attracts private foreign investors outside of the traditional sectors.
Responding to a question why Poverty and Social Impact Analysis (PSIA) was not properly incorporated into the program design for the Poverty Reduction and Growth Facility (PRGF), Patricia Alonso-Gamo of the IMF's Policy Development and Review Department agreed that the Fund should be more proactive on PSIAs, look to other institutions for the information it needs, and explain better what the Fund is doing. She also stressed that it is possible to assess the poverty implications of many measures without necessarily carrying out a full-fledged PSIA, and that work should be done more systematically. Roger Nord, AFR Assistant Director, gave an example of a Fund PSIA in Gabon (on the impact of the removal of fuel subsidies) that led to putting in place special social programs.
Another CSO representative raised the issues of scaling-up of aid, and conditionality in the form of ceilings on the public sector wage bill. Bio-Tchané said that in the context of scaling-up it would be useful if more aid were earmarked for budget support. Raising the issue of public financial management, he said that citizens want to know where resources are going and donors should insist on that. Stressing that the full implementation of the Paris Declaration on Aid Effectiveness is crucial, he pointed out the risk that donors' own budget processes would not allow for long-term planning. Nord noted that in the IMF African Department, streamlined conditionality has meant that there are fewer and fewer programs with wage bill ceilings—but they could be maintained in a few cases, especially where the authorities themselves find them useful to maintain control over the wage bill. Alonso-Gamo said that wage bill ceilings can be a blunt instrument and that the Fund will also be pursuing other alternatives to address the underlying problems, making sure that needs are being accommodated and that priority areas get enough money. There will be less wage bill ceilings, and the Fund will communicate better in cases where they are needed.
One participant questioned how effective aid really is, pointing out that countries such as Chile experienced economic growth without aid. Bio-Tchané said that there is no definite conclusion—Chile and other countries demonstrated that without aid there can be economic transformation and that some countries might be better off without aid. But there are other cases where transformation with aid was successful. Nord said that given that there is a lot of aid coming in, countries need to show that they use it effectively, while at the same time implementing policies that encourage the development of the private sector, which is the long-term engine for growth and employment creation.
Wage Bill Ceilings in Malawi, Mozambique, and Sierra Leone
ActionAid International organized a three-hour session on April 14 on IMF Macroeconomic Policies and their Impact on Education Budgets and Teachers' Wages. A large panel, moderated by Akanksha Marphatia, ActionAid Senior Education Policy Officer, UK, discussed whether the IMF's policy advice and conditionality—including wage bill ceilings—hinder countries from hiring teachers. The recent ActionAid report Confronting the Contradictions looks at three countries (Malawi, Mozambique, and Sierra Leone) where "the IMF has shown itself to be flexible" in regard to wage bill ceilings and explores whether this flexibility is enough to allow countries to hire the required teachers to provide quality primary education. The panel consisted of four ActionAid speakers—Tennyson Williams, Country Director, Sierra Leone; Rachel Moussie, Education Analyst, UK/South Africa; Julita Nsanjama, Education Analyst, Malawi; and Paula Mendonça, Education Analyst, Mozambique—as well as Calvin McDonald, Advisor in the IMF African Department (AFR) and former Malawi Mission Chief, and Bob Prouty, Lead Education Specialist in the World Bank's Human Development Network. Jean Clément, AFR Assistant Director and Mission Chief for Mozambique, and Norbert Toé, IMF Mission Chief for Sierra Leone, were also present.
The four ActionAid speakers said that teachers should be seen as an investment, not "consumption." They acknowledged absorptive capacity constraints, but viewed these as stemming from the lack of investment in education that has been going on for decades. They said that the apparent IMF flexibility has proven insufficient. In the case of Mozambique only 9,000 teachers—instead of the needed 12,000—could be hired and the pupil-teacher ratio is still too high and will not reach the desired—though still insufficient—ratio of 54:1 by 2015. Speakers claimed that IMF-supported programs usually have an inflation target of 5 percent and pointed out that inflation only rose due to external shocks, never because of an increased wage bill. ActionAid advocates short-term borrowing to hire more teachers as an investment with long-term results. The CSO panelists felt that no alternative policy options are being offered to countries. In the case of Mozambique, they said that the IMF was forced to drop the wage bill ceiling. Listening is not enough, they said, analyzing and discussing alternative policy options is crucial.
IMF staff told participants that the IMF African Department will restrict the use of wage bill ceilings in IMF-supported programs in Africa going forward, but also stressed that the budget has to be consistent with available resources. The budget is not made in a vacuum, staff said. It is part of the Medium-Term Fiscal Framework, which again is linked to the Poverty Reduction Strategy Papers (PRSP). PRSPs, which are home-grown documents, are designed through a dialogue between government, representatives of civil society, and the international community. The wage bill is usually set in the annual budget cycle through a bargaining process among different ministries. It is usually coordinated by the Minister of Finance duly taking into account other priority expenditure needs and the available financing including from abroad. For example, the hiring of 9,000 teachers in Mozambique was a result of this internal process and not something imposed by the IMF. In many cases, the government feels more comfortable having a wage bill envelope in the budget, given the competitive demands from all ministries. If more resources are available, the wage bill can always be increased to accommodate hiring additional teachers. Targets are constantly being revised, staff said, but the governments have to make those choices. Staff agreed, however, that wage bill ceilings per se are not necessarily the best way to address the problems in all cases and that what matters is the fiscal sustainability in the medium term.
The IMF's McDonald discussed the specific circumstances in Malawi and explained that there is an adjustment clause in the health sector for additional donor aid flows. The Malawi wage bill ceiling was introduced because of payroll management problems, he said, in particular due to the lack of a reliable civil service database that would record exits, entrances, retirees, etc. Having problems controlling the payroll, wage bill ceilings are a useful tool for the government, a "last line of defense." The IMF is assisting the government to develop such a civil service database. According to McDonald, the real problem in Malawi is the rise of domestic debt (which reached almost 25 percent of GDP in 2004) and resultant high interest rates, which crowd out expenditures. He also noted that the ActionAid report fails to mention what the IMF and World Bank have done for education and health in the context of the HIPC Initiative: the HIPC trigger points included increased spending in those sectors.
Clément said that prudent fiscal policy allowed the government of Mozambique to lift the wage bill ceiling. Inflation remains the worst tax for the poor. It is a vicious cycle and a country could end up (in an inflation spiral) increasing the wage bill without the hiring of more teachers. He agreed that there needs to be more expenditure for education and explained Mozambique's capacity constraints to train the number of teachers it would like to hire. The Ministry of Education has been hiring 10,000 teachers a year in the last couple of years and is trying to increase its training capacity, which is currently around 3,000. The risk is if teachers hired are not fully trained, therefore lowering the overall quality of education. Toé added that in Sierra Leone there is no magic inflation target. While there was a target of 9% inflation in the program for 2007, a recent IMF mission told the government that a 12% target would be more reasonable, given heavy government borrowing from the banking system during the first quarter of 2007.
See also a letter to ActionAid responding to the report.
Other events with IMF participation
Does economic success result only from pursuing self-interest, or do we also need to base our actions on ethical values? On which values should the IMF base its work?
These questions underpinned a full day of discussions at the European University Institute in Florence, Italy, in March, as a distinguished panel examined the relationship between faith and economics. The forum was organized and moderated by James Boughton of the IMF's Policy Development and Review Department and Harold James, the Princeton historian and author of International Monetary Cooperation Since Bretton Woods.
One panelist was former IMF Managing Director Michel Camdessus, who explained that his active interest in these questions had been triggered by discussions with Czech President Václav Havel and with Pope John Paul II in 1991. Throughout the rest of his time at the IMF, he had taken every opportunity to meet with religious leaders of all faiths. Economists, he concluded, had much to learn from people whose life task was to foster human development and human dignity. Without a sense of universal ethics and individual responsibility, economic development was unlikely to flourish. To buttress the point, Camdessus paraphrased a line often attributed to André Malraux, that "the 21st century will be a century of ethics, or it will not be at all."
The other distinguished panelists also brought valuable perspectives on faith and economics: Anwar Ibrahim, the former Finance Minister and Deputy Prime Minister of Malaysia and a noted scholar of Islam; Emma Rothschild, a scholar of the Enlightenment and of the origins of economic science, who holds professorships at both Cambridge and Harvard; and Amartya Sen, the development economist and philosopher who won the Nobel Prize in economics in 1998.
Rothschild reminded the audience that the founders of modern economics, including notably Adam Smith and David Hume, viewed it as rooted in ethics and not just a matter of self-interest. Their faith was humanist rather than deist, but it resulted in a similarly broad view of the values on which economic activity should be based. To believe in the efficacy of laissez-faire and the invisible hand, she noted, requires a powerful confidence in human nature. She discussed the concern that the Enlightenment writers had about inequality of income and wealth within their own (European) countries, and she viewed the modern concern with international inequalities as a natural outgrowth.
Anwar supported Camdessus' concept of responsibility and universal faith as the basis for human dignity and leadership. As an illustration of the dangers of ignoring these relationships, he gave examples of the suspension of habeas corpus rights in some countries that seriously set back efforts in the developing world to campaign for the spread of human rights.
Sen took a somewhat more skeptical view of the public role of values. In particular, he cautioned against trying to convince others to act on the basis of one's own values. Good leadership requires a firm ethical basis for one's own actions, but not necessarily as a basis for one's advice to others.
One key lesson for the IMF that emerged from the forum is that values and ethics are and should be the foundation for economic analysis and policy. A sense of global citizenship and global responsibility, especially toward the alleviation of poverty, is practically a prerequisite for improving the world economy. A second lesson is that a crucial requirement for good leadership is an ability to empathize and to understand other people's cultures and perspectives, while adhering to values that transcend specific cultures and experiences. At the end of the day, no one pretended that applying these lessons was going to be easy, but there was a sense that a start had been made at understanding them.
The global labor force has effectively quadrupled with the integration of China, India and the former Eastern bloc into the world economy. A joint Brookings Institution/IMF forum on April 30, moderated by Susan Collins (Georgetown University and The Brookings Institution), discussed the impact of this globalization on the fortunes of workers.
Florence Jaumotte (IMF Research Department) presented new evidence that labor globalization has contributed to rising labor compensation in both advanced and emerging market countries. However, the share of labor in total income has declined in advanced countries and unskilled labor has not fared as well as skilled labor. Technological change and globalization have contributed to this phenomenon, with the former playing a larger role. Jaumotte said greater attention should be paid to addressing distributional consequences of the globalization of labor through policies that improve the functioning of labor markets, strengthen access to education and training, and ensure adequate social safety nets. Gary Burtless (The Brookings Institution) summarized evidence on the trends in wage equality, noting—as Jaumotte did—that technological change is likely to have played a bigger role in raising inequality than globalization.
Peter Bakvis of International Trade Union Confederation (ITUC) praised Jaumotte's work, which is featured in a chapter of the IMF's April 2007 World Economic Outlook (WEO), as a "useful contribution" to the debate of the effects of labor globalization. He particularly welcomed the policy advice to countries to improve access to education and safety nets.
The forum also discussed the benefits of cross-border migration and the political opposition to it. Simon Johnson, the IMF's Director of Research, noted that the economic benefits of such migration are estimated to be several times higher than the benefits from trade and aid. Devesh Kapur (University of Pennsylvania) discussed the viability of schemes for temporary migration in the face of political opposition to large-scale permanent migration from poorer countries to rich ones. In this context, Michael Kremer (Harvard University) said that the success of female guest worker programs in some countries and suggested that expanding such programs offered a way forward. The presentations by Kapur and Kremer built on work contained in the ninth issue of the Brookings Trade Forum, Global Labor Markets (edited by Susan M. Collins and Carol Graham), Brookings Institution Press.
See also the recent IMF Survey article on the WEO chapter on the globalization of labor.
On May 15, the IMF launched its revised Code of Good Practices on Fiscal Transparency with a conference call for the media and civil society organizations (CSOs). The Code, a central element in IMF actions to promote transparency and good governance, was initially launched in 1998. It has since underpinned assessments of fiscal transparency in 86 countries under the Standards and Codes initiative. Fiscal transparency promotes better-informed public debate about the design and results of fiscal policy, makes governments more accountable for the implementation of fiscal policy, and strengthens credibility and public understanding of economic policies and choices. These are crucial elements in securing economic stability and high-quality growth in an increasingly globalized economic environment.
Richard Hemming, Deputy Director in the IMF's Fiscal Affairs Department, told participants in the conference call that the revised Code is based in part on extensive public consultation with governments, international organizations, civil society, academics, and other people interested in fiscal transparency. He explained that good practices in the Code have been reformulated and added. There is now more emphasis on resource revenue transparency, on the government's contractual arrangements with resource companies, on the legal basis for the private use and sale of government assets, on revenue collection, on the impacts of budget measures, on public consultation on legal and regulatory changes, on long-term public finances, and on the Citizen's Guide to the Budget—one of the helpful suggestions made by CSOs during the consultation process.
Hemming said that the Manual on Fiscal Transparency and the Guide on Resource Revenue Transparency have also been revised: the Manual quite extensively to reflect information that has been complied over recent years on good fiscal transparency practices across the IMF membership, and the Guide mainly to ensure consistency with the revised Code. He also explained how the fiscal transparency Reports on the Observance of Standards and Codes (ROSCs) are used to discuss the links between fiscal transparency, good governance and accountability, the quality and credibility of fiscal policy, and economic performance as part of IMF surveillance. Reforms to increase fiscal transparency in many countries are being supported by IMF technical assistance.
On May, 4 Deputy Managing Director Murilo Portugal concluded his first visit to Africa since he took office in January, meeting with officials in Rwanda and paying his respects to the victims of the genocide at the Kigali Memorial. He had traveled earlier in the week to Tanzania and Burundi, where he discussed the Fund's role in Africa—especially its technical assistance and the new Policy Support Instrument—with the authorities and other stakeholders, including civil society organizations (CSOs). In Burundi in particular, civil society—such as the governance group OLUCOME—has had a very visible role over the past year.
De Rato Attends PNoWB Annual Conference in South Africa
As part of the IMF's ongoing effort to increasingly engage with legislators, IMF Managing Director Rodrigo de Rato participated in this year's Annual Conference of the Parliamentary Network on the World Bank (PNoWB) in Cape Town, South Africa, on March 15-17, held for the first time outside of Europe. More than 200 parliamentarians from some 100 countries attended. The opening event, a roundtable discussion on Africa, involved de Rato, World Bank President Paul Wolfowitz, African Development Bank (AfDB) President Donald Kaberuka, and Trevor Manuel, Finance Minister of South Africa and G20 Chair. It set the tone for the central theme of this year's conference—putting Africa and poverty reduction at the heart of the global agenda.
In his remarks, de Rato said that current growth rates in Africa—although high by historic standards—are not sufficient to have a decisive effect on poverty and help Africa attain the Millennium Development Goal of halving poverty by 2015. Countries need to accelerate growth through more trade, more private sector development, more effective use of public resources, and a deepening of financial sectors. Parliamentarians have a key role to play in these areas, de Rato said, because "there is no substitute for homegrown policies and homegrown decisions."
See also the IMF Survey article on the conference.
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