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Flexible Policies Key to Success in Fragile States

Vendors in Kabul, Afghanistan: true policy ownership, home country leadership by fragile state authorities is key to success, seminar heard (photo: Newscom)

IMF-WORLD BANK ANNUAL MEETINGS

Flexible Policies Key to Success in Fragile States

IMF Survey online

September 24, 2011

  • More flexible IMF policy advice, longer time horizon key to helping fragile states
  • IMF should build deeper understanding of on-the-ground challenges
  • People-centered engagement key to ownership, making difficult policy choices

The IMF can do more to help fragile states recover from war, disasters, and social distress by adopting a more flexible approach to policy advice and lending that reflects the unique challenges these countries face, said experts at a seminar on the sidelines of the IMF–World Bank Annual Meetings.

“Fragile states, by definition, are countries that do not have capable institutions,” said panelist and Afghan Finance Minister, Omar Zakhilwal. IMF support should be designed to take account of these circumstances, and give priority to strengthening institutions and human capacity, he added.

Thomas Doe Nah—head of the Liberian civil society organization, Center for Transparency and Accountability—agreed. The level of fragility and institutional weakness can be so severe that, if not addressed substantially, can undermine a country’s transition from fragility to stability. Participants welcomed the IMF’s efforts to develop a deeper appreciation of the issues.

The idea for a seminar during the Annual Meetings on Fostering Effective Engagement with Fragile States was prompted a recent review of the issue by the IMF, said Antoinette Sayeh, Director of the IMF’s African Department, who moderated the discussion. A dialogue with representatives from fragile states, development partners, and civil society will be an important element of work planned to further strengthen engagement.

In for the long haul

Recovery from fragility and the focus on institution building is “an evolutionary process that goes through different developmental stages and a longer time horizon for IMF engagement is required,” Zakhilwal said.

The importance of a long-range focus—in terms of both the duration of engagement and the nature of policy advice—was a message repeated by several panelists.

Building trust and confidence is an essential part of a successful relationship, particularly if the IMF is to believe in and use a country’s institutions and systems, said Samura Kamara, Sierra Leone’s Minister of Finance and Development. To that end, Sayeh suggested that the IMF had done a good job of supporting institution-building, but could do more.

IMF staff have begun to explore a more flexible approach, tailored to country circumstances according to a review of engagement with fragile states that was published in July. However, panelists identified a number of specific issues that could help the IMF better support the protracted development needs of these member countries.

The need for more flexible lending to fragile states was a point echoed by Sharon White, Director General for Middle East and North Africa in the U.K. Department for International Development. A more balanced approach to risk management by the IMF could include increasing the duration over which fragile states were supported by relatively cheap loans with lighter conditionality, White said.

The IMF could be even more flexible in prioritizing and sequencing its policy recommendations to take account of capacity limitations. Zakhilwal stressed the need for it to be “not just about benchmarks and measures, but the building of institutions,” which takes much longer in fragile states than other countries.

Understanding the issues

Spending more time on the ground, investing more time in understanding the root causes of fragility, and better understanding the unique local challenges are critical factors in providing effective policy advice. “Unless you have a proper, country-specific diagnosis of what the problem is, it is very difficult to have a strong program,” said Kamara.

Spending more time on the ground would also allow IMF staff to become more familiar with what different development partners are doing, added Zakhilwal. In this regard, Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department, noted that, for the IMF’s activities to be effective, they should be consistent with and connected to the activities of other donors, as well as the government’s own plans.

“There may be something that is technically a very good idea and would logically be the next thing you want to focus on. But, if there is no demand for it at that time, it's a waste of energy to focus on doing a lot of work if nothing will really come of it,” Ahmed said. He also underlined the importance of IMF staff working on countries for long enough to be able to make good judgments about what policies will and won’t work.

Wider consultation with stakeholders is also important to ensure that IMF engagement addresses the issues of most immediate concern to fragile states. “The issue of engagement needs to take into consideration historical dynamics. Fragile states have history and our intervention should be more holistic … We have to look at the political dimension, the issue of capacity building—which the IMF has been doing substantially—but we need to go beyond,” Doe Nah said. Participation is fundamental.

People, politics, ownership

“People become very restless because they want to see quick, tangible results,” said Kamara. There is also a need to look beyond basic economic recovery and support inclusive growth. “You need a Fund program that looks at trade, investment, [and] inclusive finance,” he added.

More people-centered engagement can address that restlessness by helping citizens understand the policies being discussed and raise ownership of the end decision. Doe Nah gave the example of a family where the father had lost his job and, although still difficult, the children might be more understanding of why there is less food on the table.

Understanding the political dimension can be particularly helpful where governments have to make hard policy decisions and get them to stick. Ahmed said that wider engagement can help foster better understanding, for example, of the need to tackle food and fuel subsidies in the Middle East.

Summing up the issue, Zakhilwal said that “true ownership and leadership by the home country is the key to success.”