Social Dimensions of the IMF's Policy Dialogue

IMF Involvement in Social Issues

IMF involvement in social issues has to be seen in the context of the IMF's mandate. This mandate, as laid down in its Articles of Agreement, is clear: (i) to promote international monetary cooperation; (ii) to facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income; (iii) to promote exchange stability and to maintain orderly exchange arrangements among members; (iv) to assist in the establishment of a multilateral payments system; and (v) to give confidence to members by providing temporary financial resources to help them correct balance of payments disequilibria. Given this essentially macroeconomic mandate, the IMF's contribution to social development is mainly indirect, and its role in social policy advice is necessarily limited. Nevertheless, the IMF's involvement in social issues has evolved over time, drawing not only from its own experience but also from that of member countries and of other agencies (see Box 1).

Box 1. Role of the IMF in the World Economy
The IMF--the world's central international monetary institution--has the responsibility for carrying out effective surveillance over its members' exchange rate and macroeconomic policies. Thus, one of the IMF's key tasks is to help countries pursue sound macroeconomic policies aimed at sustained economic growth. It advises members on economic and financial policies and promotes policy coordination among the major industrial countries.

The IMF also provides temporary balance of payments financing to members to help them to correct their external payments difficulties. Financial assistance has been provided to both developing and industrial countries to carry out economic reform and transformation, such as the re-establishment of market economies in the countries of Eastern Europe and the former Soviet Union, and adjustment and structural change in the economies of Africa, Asia, and Latin America. In providing financial support, the IMF pays attention to social aspects of economic adjustment.

During the 1950s and 1960s, when the IMF provided financial assistance mainly to industrial countries, its policy advice focused primarily on macroeconomic policies. With the shift to lending to developing countries since the 1970s and economies in transition since the late 1980s, much greater attention has been given to the complementarity of macroeconomic policies and structural reforms and to the formulation of policies in a medium-term context.2 With this broadening of focus, the interrelationships between economic and social issues have also increasingly been recognized. The experience has shown the need for protecting vulnerable groups during the adjustment period by constructing well-targeted social safety nets and by safeguarding their access to basic public services, such as primary health and education. These measures would also serve to enhance the political sustainability of economic reforms.

The broader context for the IMF's policy advice has called for much closer collaboration than in the past among international agencies, with a delineation of responsibilities according to each agency's mandate and expertise. Much of the analysis and policy and technical advice on social issues is undertaken by international agencies other than the IMF, such as the World Bank, regional development banks, the FAO, the ILO, the UNDP, and UNICEF, as well as by bilateral donors and nongovernmental organizations. The issues are complex, and analysis and action are often hindered by weaknesses of data and administrative structures; given the difficulties, it has been important that the various parties build not only on their own experience but also on that of members and other agencies.

In its policy advice to member countries, the IMF is constrained not only by resource limitations and its general focus on macroeconomic policies but also, at times, by member countries' difficulties in developing domestic political support for improving social spending policies and their targeting. Notwithstanding the IMF's role in advising governments on policy design, the choice of social and economic policies belongs ultimately to the member.

The increasing involvement of the IMF in social matters has been discussed by its Executive Board on several occasions. In 1988, for example, the Board stressed the need to assist member countries to evaluate the implications of IMF-supported adjustment programs for income distribution and poverty, to strengthen the staff's understanding of the channels through which adjustment policies affect the poor, and to draw more extensively on the expertise of the World Bank and UN institutions. At the same time, it reaffirmed its decision not to establish conditions on the use of IMF resources related to income distribution. The joint World Bank-IMF Development Committee, which also has discussed social issues, has encouraged both the World Bank and the IMF to further intensify their efforts, working closely together, to help design and implement well-targeted measures to mitigate the costs of adjustment.

2 The IMF created new facilities that emphasized structural reforms set in a medium-term context: the extended Fund facility in 1974, and two concessional lending facilities--the structural adjustment facility (SAF) in 1986, and the enhanced structural adjustment facility (ESAF) in 1987--for the benefit of low-income countries. The latter facility was extended and enlarged in 1993.