Social Dimensions of the IMF's Policy Dialogue
A Factsheet


Social Policy Issues in IMF-Supported Programs: Follow-Up on the 1995 World Summit for Social Development




World Summit for Social Development and Beyond
June 2000 Follow-Up
IMF Initiatives in Support of Social Development

Submitted to the U.N. December 6, 2000

Contents

  1. Crisis Prevention
  2. Crisis Management
  3. Social Policies in IMF-Supported Adjustment Programs
  4. Social Policies in All IMF Member Countries
  5. Debt Relief
  6. International Initiatives

At the conclusion of its 24th Special Session in June 2000--World Summit for Social Development, the U.N. General Assembly proposed further initiatives for social development. These initiatives are set out in the outcome document of the World Summit, and in Part III of the document a number of further follow-up actions by inter-governmental bodies and the U.N. system are discussed; an Annex provides an overview of the new proposed initiatives. This report describes how these initiatives have been and are being incorporated in the activities of the IMF. The description is organized by topic area and is cross-referenced to specific paragraphs (numbers given in parenthesis) in the matrix of initiatives in the Annex to Part III of the outcome document.

I.  Crisis Prevention

The outcome document calls on relevant UN agencies and organizations to reduce the negative social and economic impacts of international financial turbulence through, inter alia, consideration of a temporary debt standstill to reduce volatility of short-term capital flows, and provision of technical assistance to strengthen domestic capital markets. (10)

The IMF seeks to reduce the negative social and economic impacts of international financial turbulence through measures to help prevent crises, and if they occur, to assist in their early resolution. To this end, over the past several years the IMF has made many substantial contributions to a reformed and strengthened international financial architecture. The IMF's work has been aimed mainly at improving the functioning of domestic and international financial markets, public resource management, data transparency, and the provision of temporary financial assistance that is well adapted to the needs of all of its diverse members. These efforts are designed to foster the market stability and private sector confidence essential for sustained growth and poverty reduction. For a full report on progress in architecture, see http://www.imf.org/external/np/omd/2000/02/report.htm.

Specifically, the IMF has given high priority in its work to developing, strengthening, and helping countries implement internationally-accepted standards and codes of good practices to strengthen institutions, promote transparency and improve market stability. This work is being done in collaboration with the World Bank and other institutions and fora. For this purpose, the IMF is strengthening its technical assistance for institution-building. The IMF introduced a voluntary pilot project of reports on member countries' progress in implementing selected standards, with a view to identifying weaknesses and needed reforms. The IMF is producing these reports--Reports on the Observance of Standards and Codes (ROSCs)―with inputs from the World Bank and other institutions. To date, the pilot program has involved the preparation of some 80 assessments of individual standards for 24 member countries from a range of developing, emerging market, and industrial economies, and the IMF anticipates producing a similar number of modules over the next six months or so. Financial sector standards are assessed in the context of Financial Sector Assessment Programs, discussed below. For more information on ROSCs, see http://www.imf.org/external/np/rosc/rosc.asp.

Transparency is critical to a stable international financial architecture. Informed decision-making, effective surveillance of economic policies, and sound investment decisions by the private sector all require accurate, timely, and comprehensive economic and financial data. To this end, the IMF has worked with its members to strengthen data provision to the public with the development of the Special Data Dissemination Standards (SDDS) and the General Data Dissemination Standard (GDDS). The SDDS was established in 1996 to guide countries that have, or that might seek, access to international capital markets. To date, 46 countries and one region have subscribed to the SDDS. The GDDS (introduced in 1997) encourages member countries to improve data quality; provides a framework for evaluating needs for data improvement and setting priorities in this respect; and guides member countries in the public dissemination of comprehensive, timely, accessible, and reliable economic, financial and socio-demographic statistics. For more details, see http://dsbb.imf.org/Applications/web/gdds/gddswhatgdds/#return.

Building national capacity is key to international financial stability. Concerning the strengthening of domestic capital markets, the IMF and the World Bank have intensified and enhanced their assessment of countries' financial systems through joint Financial Sector Assessment Programs (FSAPs), on a pilot basis. The FSAPs are intended to identify strengths, vulnerabilities and risks to the financial system; determine how key sources of risks and vulnerabilities are being managed; ascertain the sector's developmental and technical assistance needs; and help prioritize policy responses. After an initial review of experience with the pilot, in March 2000 it was decided to continue the FSAP, and that the coverage should be extended to an additional 24 countries in FY 2001 (May 2000-April 2001). For more details, see http://www.imf.org/external/np/omd/2000/02/report.htm#I.

The IMF in collaboration with the World Bank and donors is heavily engaged in providing technical assistance to countries to strengthen their financial systems. The role of technical assistance in promoting macroeconomic stability and sustainable growth through capacity building and policy reform was given considerable prominence at the International Monetary and Financial Committee and the 2000 Annual Meetings in Prague. The IMF is currently engaged in an exercise to sharpen the focus of its technical assistance program, including, for instance, technical assistance (TA) in support of strengthened public expenditure management (in particular to track the use of debt relief for poverty reduction) and much closer cooperation with other TA providers.

Short-term capital flows can pose risks to international and national financial stability, and hence to poverty reduction and social development. The IMF supports policies that discourage volatile short-term speculative capital movements while not harming longer-term investments underpinned by sound fundamentals; selective distortionary regulation can lead to a reduction in much needed capital inflows to developing countries. The IMF's approach in this area is to promote orderly capital account liberalization and to support carefully managed and sequenced liberalization in order to minimize risks. Also, to encourage the efficient allocation of capital as well as help reduce short-term volatility in capital flows, the IMF is promoting transparency in financial markets and good governance in financial institutions of both creditor and debtor countries.

While crisis prevention is the first line of defense against crises, the IMF has also made further progress in its efforts to ensure the appropriate involvement of the private sector in managing and resolving crises. For this purpose, the IMF has encouraged the establishment of a regular dialogue between member governments and their private creditors, collective action clauses, and contingent lines of credit. Progress has been made in reaching broad agreement on a framework to guide private creditors' involvement in resolving crises. In cases where the member's financing needs are moderate--or where needs are large, but the member has good prospects of regaining market access in the near future--strong adjustment policies with IMF financial support could be expected to catalyze private sector involvement. In other cases, when an early restoration to market access is not foreseen, and a country faces an unsustainable medium-term debt problem, more concerted approaches may be necessary. Countries should make every effort to reach voluntary agreements with their creditors; however, in exceptional circumstances, members may need to initiate a temporary debt standstill.

Finally, in its efforts to promote financial stability, in 1999 the IMF created a new facility aimed at crisis prevention, the Contingent Credit Line (CCL). The CCL is a precautionary line of defense readily available to member countries with strong economic policies, and is designed to address future balance of payments problems that might arise from international financial contagion. The design of the CCL creates further incentives for countries to adopt strong policies, be transparent, adhere to internationally accepted standards, and have a sound financial system. For more details, see http://www.imf.org/external/np/exr/facts/glance.htm.

II.  Crisis Management

Despite preventive efforts, however, crises may occur. IMF policies aim to mitigate their severity. The outcome document calls on relevant UN agencies and organizations to ensure that adjustment programs to address economic crises do not lead to decreasing economic activity, and further to reduce the negative social and economic impacts of international financial turbulence through protection of basic social services such as health and education. (103ter and 10)

IMF-supported programs emphasize the need to stabilize the economy and avoid undue contraction of activity during periods of financial crisis. In order to reduce the negative social and economic impacts of crises, IMF-supported programs are increasingly emphasizing the protection of basic social services, such as basic health and education and the establishment of social safety nets to protect the most vulnerable. In this respect, about three-fourths of low-income countries with financial assistance between 1994 and 1998 incorporated allocations for social safety nets in their programs. During 1985-98, on average, expenditures on education and health care in program countries increased by 0.2 percentage points of GDP and by 2.2 percent per year in real per capita terms. The social impact of recent financial crisis in Asia (Indonesia, Korea, and Thailand) was addressed through accommodating higher outlays on social safety nets, which increased from between 0.5 and 1 percent of GDP in each country before the crisis, to 5.2 percent of GDP in Indonesia (1998/99) and 2 percent of GDP in Korea (1999) and Thailand (1998/99). More specific information on the IMF's commitment to addressing social issues in adjustment programs can be found at http://www.imf.org/external/np/exr/facts/social.htm.

The outcome document calls on relevant UN agencies and organizations to institute systems for assessing and monitoring the social impact of macro-economic policies, particularly in response to financial crises and in the design of reform programs. (6bis)

For analyzing the social impact of adjustment programs on the poor, the IMF relies on the World Bank which has the expertise in this area. In addition, IMF staff are systematically collecting data on government social expenditures, and are monitoring various social indicators in member countries-- particularly the heavily indebted poor countries. Also, the General Data Dissemination System, discussed above, includes a socio-demographic component, for which the design and implementation has benefited from close collaboration with member countries and other international organizations, notably the World Bank. It is envisioned that progress in achieving country's social and development goals will be monitored, at least in part, with the GDDS. World Bank World Development Indicators and UN Human Development Indicators are also cited in IMF Staff Reports.

III.  Social Policies in IMF-Supported Adjustment Programs

The outcome document calls on relevant UN agencies and organizations to promote social policies, including health policies (access to medicine and drug development) and education policies. (80, 83, 84, 84bis) In the same vein, it calls for strengthening of national consultations with civil society in economic policy formulation. (10)

Over the past decade, the IMF has increasingly encouraged governments to integrate social policy issues into reform programs. Between 1985 and 1998, 32 low-income countries that received IMF support made progress in raising social spending on education and health care and in improving social indicators. For the entire group, on average, per capita real spending on education increased by 4.3 percent a year and on health by 4.2 percent a year. Illiteracy rates declined by 2.2 percent a year, primary school enrollment increased by 1 percent a year, infant mortality declined by 1.5 percent a year, and life expectancy increased by 0.2 percent a year. At the same time, access to safe water increased by 4.2 percent a year.

During the IMF-World Bank 1999 Annual Meetings, it was agreed to place poverty reduction as a central goal of adjustment programs in low-income countries. For this purpose, the ESAF was replaced by the Poverty Reduction and Growth Facility (PRGF). IMF-supported programs are based on country-owned Poverty Reduction Strategy Papers (PRSPs) which articulate a country's comprehensive strategy for poverty reduction and integrate macroeconomic, structural, and social policies. The PRSP is developed by the government with broad participation, including civil society and donors. The PRSP process has been widely supported by countries and development partners. Since the launch of this process in September 1999, the IMF Executive Board has considered two full-fledged PRSPs (for Burkina Faso and Uganda), fifteen Interim PRSPs (for Albania, Benin, Bolivia, Cameroon, Chad, Ghana, Honduras, Kenya, Mali, Mauritania, Mozambique, Sao Tome & Principe, Senegal, Tanzania, and Zambia), and has approved PRSP-supported programs in all of these countries. The Interim-PRSP was introduced to avoid excessive delays in the provision of debt relief under the enhanced HIPC Initiative while the full-PRSP is being prepared. All PRSPs to date explicitly target increased enrollment and literacy, with the ultimate goal of achieving "education for all." They also target improved access to health services for disadvantaged groups, and in some cases include amongst their objectives "making generic quality medicine easily affordable." Based on experience with early PRGF country cases and feedback from member countries, the IMF is making changes in several aspects of IMF-supported programs in order to enhance the poverty reduction approach and country ownership. For more information on social policies and PRSPs, see http://www.imf.org/external/pubs/nft/op/191/index.htm, http://www.imf.org/external/np/prsp/prsp.asp, and http://www.imf.org/external/np/exr/facts/social.htm.

IV.  Social Policies in All IMF Member Countries

The outcome document calls on relevant UN agencies and organizations to re-assess macro-economic policies to balance goals of employment generation and poverty reduction with low inflation rates; and further, to develop and implement pro-poor growth strategies. (34, 26)

The IMF's Articles of Agreement establish that the IMF's primary responsibilities include "to contribute . . . to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy." Sustained poverty reduction and high levels of employment would not be possible without sustained non-inflationary economic growth that benefits all people. A consistent macroeconomic and structural reform policy framework to establish the conditions for macroeconomic stability and sustained growth are therefore the central principles that underlie IMF policy advice and IMF-supported programs. Managing Director Horst Köhler's address to the IMF Board of Governors in Prague (September 26, 2000) include his views on the importance of poverty reduction and pro-poor growth and how the IMF can play a more effective role in the future in this area. (http://www.imf.org/external/np/speeches/2000/092600.htm.

The outcome document calls on relevant UN agencies and organizations to both establish guidelines for, and promote policies aimed at, generating domestic revenue for social development, including broad, efficient, and well administered tax systems, and prevention of corruption, bribery, money laundering and illegal transfer of funds. (109, 110)

The IMF promotes efficient tax systems that are broad-based, nondistortionary, and simple to administer. Such tax regimes both reduce corruption and improve collections. For this purpose, the IMF advises countries on the design of tax policy, and provides technical assistance on tax and customs administration to reduce the incidence of tax evasion. As a result, the domestic revenue capacity of a number of low-income countries has improved, which in turn has facilitated increased outlays on critical social services. In addition, the IMF continues to disseminate best practices in the area of tax policy to its membership through training, which is given through the IMF Institute, the Joint Vienna Institute, the Joint Africa Institute, and the Singapore Regional Training Institute. Government officials from around the world are invited to attend. Finally, technical assistance on public expenditure management and standards and codes on fiscal transparency are provided to enhance governance and accountability in the use of public finances. For more information on technical assistance see http://www.imf.org/external/np/exr/facts/tech.htm.

The outcome document calls on relevant UN agencies and organizations to share best practices on social protection systems, especially targeted at the aging and other vulnerable groups. (27ter, 60, 60bis)

The IMF is sharing its expertise on social protection systems in three ways: policy advice, research, and training. The IMF provides policy advice during surveillance of member countries' economic policies, design of adjustment programs and provision of technical assistance. Provision of social safety nets is now a common feature of many Fund-supported programs, typically focusing on a combination of targeted employment and income protection/generation measures and provisions to protect real consumption levels.

Good practices are also being disseminated through ongoing research on social protection systems. IMF research initiatives on poverty-related issues, including the social impact of financial crises, government spending and adjustment programs, and the role of social protection systems have recently been strengthened. In addition, the IMF has participated in joint reports, such as a recent initiative by APEC countries to produce a report on social safety nets in the aftermath of economic crises in Asia and Latin America. The findings of this report have been presented to the APEC leaders in November 2000. Finally, the IMF Institute provides training to government officials on fiscally sustainable good practices in social protection systems. For more information on the IMF Institute see http://www.imf.org/external/np/ins/english/index.htm.

As regards the aging, IMF policy advice has centered on securing the sustainability and financial viability of social insurance programs to ensure that the elderly receive their pensions in a timely manner. In this context, the IMF draws on the experience of a wide range of countries. The IMF also continues to conduct research on social insurance polices appropriate for its diverse membership, taking into account their varying economic and demographic circumstances. For more information on research on social issues at the IMF see http://www.imf.org/external/pubs/cat/listcat.cfm?subject=social and http://www.imf.org/external/np/exr/facts/social.htm.

The outcome document calls on relevant UN agencies and organizations to ensure social dialogue through effective representation of workers' and employers' organizations in the development of social policies (35).

The IMF welcomes the perspectives of representative workers' and employers' organizations in the development of national policies. In many countries, IMF missions and resident representatives meet with labor organizations in order to help missions obtain a clearer understanding of social issues of concern to labor, and likewise to provide an opportunity for IMF staff to explain the nature of IMF policy advice. IMF staff and management also meet frequently with trade union leaders from throughout the world. For poor countries, the IMF and World Bank encourage authorities to develop a PRSP in broad-based dialogue with civil society. Labor workers and employers' organizations are expected to be a part of this dialogue, to help ensure that their views on social issues are accurately voiced.

The outcome document calls on relevant UN agencies and organizations to ensure gender mainstreaming. (72)

The IMF supports member countries' efforts to make gender equality a priority. The overwhelming majority of newly introduced PRSPs explicitly target gender imbalances in primary and secondary education and aim to improve access to maternal and reproductive health services, in addition to women's empowerment projects. Several countries (Benin, Bolivia, Burkina Faso, Honduras, Mozambique, and Uganda) that have reached the decision point under the enhanced HIPC Initiative for debt relief have included such gender-specific objectives as part of their poverty reduction strategy. Also, some countries have incorporated gender-specific targets as part of the trigger for reaching the completion point under the HIPC Initiative (e.g., Mauritania has set targets to increase female primary enrolment rates and Senegal aims to increase the percentage of pregnant women receiving pre-natal care); see also Section V. IMF-supported programs are monitoring the impact of public spending on women by disaggregating social indicators and by analyzing the incidence of public programs. Moreover, the IMF provides equal access for women in its training programs for government officials, where an increasing number of participants have been female.

Relatedly, gender mainstreaming is an integral part of all of the IMF's human resource policies and practices. This has led to some progress in terms of the representation of women in managerial and professional positions. For more information on gender issues, refer to http://www.imf.org/external/np/speeches/2000/060500a.htm.

V.  Debt Relief

The outcome document calls on relevant UN agencies and organizations to endorse the speedy implementation of the Cologne debt-relief initiative and the enhanced HIPC Initiative, and the principle that funds saved should be allocated to social development. (15)

The joint IMF-Bank Initiative for the Heavily Indebted Poor Countries (HIPC Initiative) was established in September 1996 and is designed to provide exceptional assistance to eligible countries following sound economic policies to help them reduce their external debt burden to sustainable levels. In September 1999, the enhanced HIPC Initiative was introduced to provide faster, deeper and broader debt relief and strengthen the links between debt relief, poverty reduction and social policies. In general, all countries requesting HIPC Initiative assistance must have (i) adopted a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process, by the decision point and (ii) have made progress in implementing this strategy for at least one year by the completion point. Particular emphasis is being given to monitoring the use of debt relief for poverty reduction.

The IMF and the World Bank have taken steps to accelerate the implementation of the HIPC Initiative with the aim of helping 20 countries start receiving debt relief under the enhanced HIPC Initiative by end-2000. Combined with traditional debt relief mechanisms outside the HIPC Initiative, countries are expected to see their debt stocks reduced on average by about two-thirds. The debt of these 20 countries to the IMF is projected to be reduced by half, a reduction of over $2 billion (in end-1998 U.S. dollars). By end-November 2000, 13 countries had already started receiving a total of $20 billion in debt relief under the HIPC Initiative. For more information, see http://www.imf.org/external/np/exr/facts/hipc.htm.

VI.  International Initiatives

The outcome document calls on relevant UN agencies and organizations to mobilize new and additional resources for social development at the international level through, inter alia, international cooperation in tax matters, combating the use of tax shelters and tax havens, and prevention of tax avoidance. (111)

The IMF has recently begun to prepare assessments of offshore financial centers (OFCs). These assessments focus on financial supervision, and the vulnerabilities of the OFC, the host country, and the international financial system that can arise from deficiencies in supervision. In the period ahead, the IMF will be trying to mobilize additional technical assistance to help countries implement standards of good practices in the supervision and prudential regulation of financial systems, and is conducting outreach programs to explain the IMF's work on standards to various audiences and solicit feedback. The IMF is not directly involved in international initiatives to tackle the issues of concern regarding the structure of taxation--these are being addressed by other international institutions, such as the OECD.

The outcome document calls on relevant UN agencies and organizations to enhance participation of developing countries and countries with economies in transition in international economic decision-making processes, including ensuring transparency and accountability of the international financial institutions to promote social development goals in their policies and programs. (13)

There has been a dramatic increase in the transparency of IMF operations over recent years. In 1999/2000, PINs were released for about 80 percent of Article IV consultations, and Article IV staff reports on approximately a third of the IMF membership were published under a pilot project. In use of IMF resources (UFR) cases, release of concluding statements by the chairman of the Board and of the documents setting forth the countries' policy intentions has become the norm. The IMF is also publishing regular information on its financial position and transactions. In August 2000, the Executive Board reviewed experience with various transparency initiatives, and took major decisions to further enhance the transparency of the IMF activities and of its members' policies. A general and harmonized policy for publication was adopted, and a broad range of documents are now expected to be published on the IMF website, either on a voluntary basis (e.g., Article IV and UFR staff reports) or a presumed basis (Poverty Reduction Strategy Papers and Interim PRSPs in particular). Details of these recent decisions are available at: http://www.imf.org/external/np/sec/pn/2000/pn0081.htm

As far as the voice of developing and transition economies in economic decision-making is concerned, the IMF recently commissioned an external review of its quota system, upon which voting rights of members are calculated. The IMF's Executive Board agreed on the need to carry forward the work of the external panel with a view to developing quota formulas that more fully reflect members' roles in the world economy. IMF management will adopt a work program to this effect.

The outcome document calls on relevant UN agencies and organizations to improve access to the global trading system for developing countries and countries with economies in transition through, inter alia, furthering the process of accession to the WTO and providing technical assistance (bilaterally and as well as by the WTO, UNCTAD, ITC) to participate in international trade negotiations.

The IMF strongly supports further trade liberalization by both advanced and developing countries to help ensure that poorer countries can benefit from the expanding global trading system. This includes providing greater access for developing countries' exports to advanced countries' markets, especially predictable duty- and quota-free access for least developed countries and those eligible for the enhanced HIPC Initiative. Developing countries need to implement outward-oriented reforms that would permit trade expansion. The IMF and the World Bank, in consultation with the OECD, the WTO, and UNCTAD, are undertaking a market access study focusing on important barriers to developing country exports in industrial country markets as well as those in developing country markets.

The outcome document calls on relevant UN agencies and organizations to strengthen ECOSOC in its coordination of follow-up to the UN conferences and summits by fostering a closer working relationship with the funds and programs and specialized agencies and cooperation with the Bretton Woods Institutions. (118)

The IMF continues to collaborate closely with the U.N., its funds, and programs, and the specialized agencies, including in the context of ECOSOC and the coordination of follow-up to the U.N. conferences and summits. For that purpose, the Fund, amongst other things, maintains a strong presence in New York.

On the occasion of the follow-up to the World Summit for Social Development in Geneva 2000, the IMF, the World Bank, the OECD, and the U.N. produced a joint report on progress toward the international development goals, "A Better World For All," and the IMF contributed a paper on social issues and policies in IMF-supported programs. On gender issues, the IMF participated in the preparations and follow-up to "Women 2000." The IMF collaborates with the U.N. system in the context of post-conflict issues and is currently contributing extensively to the preparatory process for the Financing for Development event, scheduled for the first quarter of 2002. At the field level, the IMF also collaborates closely with the U.N. system, particularly with respect to development frameworks and the nationally-owned poverty reduction strategies, as well as in the context of post-conflict issues.