Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey: IMF, World Bank Ready Joint Action Plan
October 19, 2007
- Plan responds to report on how IMF, World Bank could enhance relationship
- Plan expected to improve coordination, communications, incentives
- IMF Board stresses important role for Fund in poverty reduction strategy and working with aid donors
The IMF and the World Bank are set to launch a joint management action plan designed to improve coordination and communication between the two global financial institutions.
Plan aims at effective collaboration in part to help countries meet poverty-reducing Millennium Development Goals (photo: Jose Cendon/AFP)
IMF-WORLD BANK COLLABORATION
According to a paper outlining the plan, discussed informally by the World Bank Board on October 9 and the IMF Executive Board on October 10, the action plan "aims to translate identified good practice approaches to collaboration into standard practices."
The plan is part of the response by the two institutions to the report of a high-level independent committee—established to recommend how the IMF and the World Bank could improve their working relationship—issued last February.
Closer collaboration
The report of the committee, chaired by Pedro Malan, Chairman of the Board of Unibanco and a former Minister of Finance of Brazil, stressed that closer collaboration is critical for the effective and efficient delivery of services to the institutions' member countries—especially given an ever-shifting global economic landscape and emerging pressures from global warming, energy security, and population aging.
The joint action plan is expected to
• improve coordination on country issues—through new procedures for country team coordination, including regular meetings on work programs, agreement on instruments and division of labor, and new systems for requesting and tracking inputs from the other institution;
• enhance communications between the staff of the two institutions working on common thematic issues—including financial sector and fiscal issues, and technical cooperation—through new electronic platforms for the sharing of focal point names, documents, mission schedules, and other information; and
• improve incentives and central support for collaboration on policies, reviews, and other institutional issues—through new procedures for reflecting collaboration in staff and managerial performance reviews; and the replacement of the Joint Implementation Committee by an information and monitoring clearinghouse function. It will be anchored in the Policy Development and Review Department (PDR) in the IMF and the Poverty Reduction and Economic Management Network (PREM) in the World Bank. These departments will also will manage the institutional systems for cross-support.
Regular progress reports
The IMF and the World Bank will prepare periodic progress reports, highlighting emerging examples of good practice as well as problem areas that need further attention. An interim report will be prepared for the two managements in time for the 2008 Annual Meetings, as a basis for taking stock of implementation efforts.
The proposed improvements should lead to better coordination and communications between the two institutions. "Of course, important differences will remain between the two institutions—from their distinctive cultures to more specific organizational and administrative differences—and successful implementation will depend on mutual understanding of and respect for these differences," the paper said. Success will depend critically on sustained attention by the managements of the two institutions, with whom primary responsibility for Bank-Fund collaboration will continue to rest.
History of working together
The Report of the External Review Committee is the latest in a series of efforts to ensure that the two institutions work together as effectively as possible. The IMF and the World Bank have worked together since their creation at the Bretton Woods Conference in 1944, periodically reviewing the effectiveness of their collaboration to identify areas for improvement.
The agreement on a division of labor between the two institutions in the 1989 concordat was a milestone in the process of promoting effective collaboration. The concordat defines the primary responsibilities of the two institutions, as well as areas where responsibilities overlap.
The Malan report emphasized that the costs of insufficient collaboration between the IMF and the Bank were significant and included sometimes conflicting advice, wasted resources, and unmet needs.
Positive picture
The Malan report, however, also noted, many examples of good cooperation, in particular when working on specific joint products, many of which have been developed since the mid-1990s. Important examples include the Heavily Indebted Poor Country (HIPC) Initiative, the Financial Sector Assessment Program (FSAP), and the debt sustainability analyses for low-income countries.
An extensive survey of IMF and World Bank staff, conducted to help the preparation of the joint management action plan, revealed a generally positive picture of collaboration. But the survey also confirmed that collaboration has so far received little institutional support and has largely been driven by individual initiative and relationships. The action plan seeks to provide greater support and make good cooperation more systematic, without adding new bureaucratic layers.
Role in poverty reduction
At the same discussion on October 10, the IMF's Executive Board stressed the continued important role for the Fund in the poverty reduction strategy process and its collaboration with aid donors. Consistent with the call in the Fund's Medium-Term Strategy for deeper but more focused engagement with low-income countries, Directors underscored the importance of effective collaboration with the World Bank and other development partners, based on clearly defined lead roles and responsibilities in supporting countries' development efforts and in helping them meet the Millennium Development Goals.
Directors reiterated that the primary focus of the IMF's work in low-income countries in the context of poverty reduction strategies should be to provide policy advice and technical support on the design of appropriate macroeconomic frameworks and on macroeconomically critical structural reforms. IMF staff should draw on available analysis of the sources of growth and related constraints prepared by the World Bank and other development partners, but not take the lead in microeconomic or sector-specific growth analysis.
Directors stressed that IMF staff also have an important role in helping countries manage the macroeconomic impact of aid inflows and avoid a re-accumulation of unsustainable debt. Most Directors agreed that a key aspect of this work could involve helping countries design relevant alternative macroeconomic scenarios when necessary so as to manage scaled-up external support effectively.
Directors also stressed the importance of sound medium-term debt management strategies, guided by the Debt Sustainability Framework and Debt Sustainability Analyses. The application of the debt framework should be country specific, and the IMF should impress upon creditors as well as borrowers the importance of cooperation and respecting the framework.
Collaboration with donors
Directors agreed that close collaboration with other development partners is essential for effective IMF engagement with its low-income members, and for a successful re-focusing of the Fund's role. Ways must thus be found to deepen this collaboration, with greater emphasis on delineating areas of competencies and the division of labor, based on country-level understandings between the authorities, the IMF, the World Bank, and other development partners on lead responsibilities in supporting priority and growth-critical areas.
With the administrative responsibility for donor programs increasingly shifting to their field representatives, the IMF's resident representatives can play a critical role in donor collaboration, including through cooperation with joint government-donor groups.
Directors agreed that collaboration should be based on frequent and extensive exchange of information. Staff should continue to inform donors of their macroeconomic assessments and key policy concerns, and of the results of missions, while respecting the IMF's policies on the sharing of confidential information.
Assessments by IMF staff of the ability of countries to handle existing aid volumes, or to manage additional aid without endangering macroeconomic stability, would be an important part of this aspect of collaboration.