## CHAPTER IX

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### ESAF and the HIPC Initiative: overview
- Eligibility criteria for HIPC assistance:
  - be eligible for concessional assistance from the IMF and World Bank;
  - face an unsustainable debt burden even after traditional debt-relief mechanisms; and
  - establish a track record of reform and sound policies through IMF- and World Bank–supported programs.
- Decision-making stages:
  - decision point: Boards of IDA and the IMF decide eligibility and precommit assistance;
  - completion point: Boards determine that conditions for assistance have been met and disbursement may occur.
- Committee actions:
  - urged rapid completion of financing for ESAF and HIPC commitments and asked the Executive Board to report back at the Committee’s next meeting in October 1998.

### Progress in implementing the HIPC Initiative: country cases and commitments
- Uganda:
  - First country to reach the completion point (completion point reached April 98).
  - Assistance (NPV terms): approximately $350 million.
  - NPV-of-debt-to-exports at completion: 196 percent, within the 192–212 percent target range agreed at the decision point.
  - Saving in nominal debt service: nearly $650 million.
  - IMF’s assistance would lower the present value of its claims on Uganda by $69 million; this would cover 22 percent of Uganda’s annual debt service to the IMF on average over the next nine years.
  - Decision point: April 97; Completion point: April 98.
- Five countries reached decision point during 1997/98:
  - Burkina Faso (Sept. 97), Bolivia (Sept. 97), Guyana (Dec. 97), Côte d’Ivoire (March 98), Mozambique (April 98).
  - Assistance committed at the decision point to these five countries totaled about $2.6 billion (NPV terms).
  - Estimated reduction in nominal debt service for these five countries: some $5.0 billion.
  - Scheduled completion points ranged between Sept. 1998 and March 2001.
- Mali and Guinea-Bissau:
  - Preliminary HIPC documents discussed in March and April 1998; countries indicated as approaching decision points and could qualify for assistance. Final HIPC documents expected after consultation with other creditors.
- Aggregated/tabled figures (as presented):
  - Total assistance provided or committed (selected early cases): 2,950 (NPV figure shown in table).
  - Bilateral: 1,382.
  - Multilateral: 1,567.
  - IMF: 271.
  - World Bank: 5,700 (table formatting indicates cell values).
  - Consolidated nominal reduction indicated as 5,650 (U.S. dollars).

### ESAF resources for commercial debt- and debt-service-reduction operations
- Board discussion conclusions (June–July 1997):
  - Use of ESAF resources for commercial debt- and debt-service-reduction operations could be appropriate in a few cases where IDA Debt-Reduction Facility, donors, and the member might be insufficient and use of the IMF’s General Resources Account would be inappropriate.
  - Use would follow general principles of existing debt-support policy: conditionality, efficient use of IMF resources, and market-based operations.
  - ESAF resources would complement highly concessional resources from IDA and other sources and be provided only in the context of appropriately ambitious ESAF-supported programs.
- Safeguards and limitations:
  - Use of ESAF resources would be strictly limited and decided by the Board case by case.
  - Aggregate ESAF use for such operations would be subject to Board review if projected to exceed a predetermined level.
  - ESAF financing should play a subsidiary, “last resort,” role when other financing options are not available.
  - No strict rules on burden sharing; each case subject to discussion considering bilateral contributions and the country’s own resources.
  - Proposal to incorporate into the ESAF Trust Instrument a provision for a special disbursement exclusively to finance part of a debt-reduction operation when not synchronizable with normal semiannual disbursements.
- Box 10 (ESAF Resources) key timing and needs:
  - Existing ESAF resources are expected to meet demands until about the end of 2000.
  - Resources to fund a self-sustained ESAF with a commitment capacity of about SDR 0.8 billion a year will become available in the year 2005, or perhaps earlier, as reserves are freed.
  - Interim ESAF period of about four years during which financing of an estimated SDR 1.7 billion will need to be mobilized to cover interest subsidies.
  - SDR 1.1 billion is estimated to be needed for special ESAF operations under the HIPC Initiative.

### Review of experience under ESAF-supported arrangements
- Internal evaluation coverage:
  - review of 36 countries using SAF/ESAF financing across 68 multiyear programs during 1986–95.
- Positive outcomes identified:
  - Most countries that undertook reform and adjustment under SAF/ESAF now have economies materially stronger and more market oriented than a decade earlier.
  - Fiscal imbalances reduced; almost all instances of very high inflation eliminated.
  - Liberalization and structural reforms had taken hold; economic growth and living standards improved in many cases.
- Shortcomings and persistent problems:
  - Progress uneven; many countries continued to perform below potential despite multiple ESAF programs.
  - Per capita GDP growth in many ESAF countries remained below the average in developing countries.
  - Indicators of openness remained relatively weak.
  - Inflation not brought down to acceptable levels on a sustained basis in a number of countries.
  - Debt-service burdens remained unmanageably high in several countries.
- Identified policy and institutional weaknesses:
  - Widespread failure to undertake decisive civil service reform and reduce public enterprise burdens contributed to missed fiscal targets.
  - Hesitant reforms in tax administration and banking systems failed to address fundamental operational weaknesses.
  - Significant barriers to international economic integration and weak private sector development due to poor governance, excessive regulation, and weak property rights.
  - Need to develop institutional capacity; future ESAF programs should target these persistent weaknesses.

### Main recommendations from the internal review (Box 11)
- Fiscal policy:
  - Stronger and reoriented fiscal adjustment based on durable cuts in budget outlays, particularly from civil service reform and reduced support for public enterprises, while protecting growth-enhancing expenditures on health and education.
- Inflation:
  - More resolve in reducing inflation to single-digit levels through monetary or exchange rate anchors where appropriate.
- Structural reforms:
  - A more concerted effort to adopt “second-generation” reforms: enhanced trade liberalization, public enterprise reform, bank restructuring, and strengthened property rights.
- Program implementation and monitoring:
  - Steps to reduce policy slippage and encourage sustained policy implementation: more intensive program monitoring in selected cases, greater use of contingency planning in program design, and more proactive technical assistance to build institutional capacity.

### Policies and program design guidance from Directors
- Overall thrust:
  - ESAF objectives of growth and external viability require ambitious, consistently implemented strategies tailored to country capacity and realistic time frames.
  - Need for better coordination with the World Bank.
- Fiscal reform guidance:
  - Fiscal reforms should be durable, based on realistic institutional capacity assessments, and founded on systemic revenue and expenditure structure changes; greater reliance on consumption-based taxes and reductions in trade taxes recommended.
  - Protect high-priority social expenditures (health and education) in planning and execution; integrate social safety nets in programs.
- Inflation guidance:
  - Attach more weight to policies achieving lasting reduction in inflation to single-digit levels within a three-year arrangement; consider nominal anchors (exchange rate peg, money supply ceilings, announced inflation targets) cautiously and case by case.
- Structural measures to stimulate private investment:
  - Trade and investment liberalization, public enterprise reform, sound banking systems, and strengthened property rights. World Bank should continue primary responsibility for many of these areas.
- Public enterprise and banking reform:
  - Public enterprise financial discipline needs enforcement; privatization encouraged by some Directors; better information on public enterprise finances required.
  - Banking system reform requires more complete information on financial status and likely fiscal costs of restructuring at program outset; conditionality should emphasize sound operational practices, drawing on Basle Committee Core Principles for Effective Supervision.

### Sustaining programs and program implementation
- Causes of program interruptions:
  - High frequency of ESAF program interruptions attributed to policy weaknesses and political factors.
- Recommended measures:
  - More active, coordinated technical assistance and contingency planning supported by national authorities.
  - More intensive monitoring: phasing disbursements and program monitoring along lines of Extended Arrangements with quarterly performance criteria and half-yearly reviews in selected cases.
  - Greater use of prior actions and indicators of government commitment to reduce program slippage.
  - Staff requested to propose concrete measures for stronger monitoring.

### External evaluation of SAF/ESAF-supported programs
- External evaluation:
  - Independent panel of experts conducted an external evaluation (work begun spring 1997; study completed January 1998).
  - Evaluators used case-study approach to examine social policies and composition of government spending; developments in external positions; and determinants and influence of national ownership of ESAF-supported programs.
- Board reaction:
  - Board discussion (March 1998) found complementarity between external evaluators’ report and IMF staff review and supported the view that the ESAF was a valuable instrument to assist low-income countries.

### Key numerical snapshots (drawn from chapter text and table entries)
- Uganda:
  - Decision point: April 97; Completion point: April 98.
  - NPV-of-debt-to-exports target at completion point: 192–212 percent.
  - NPV-of-debt-to-exports at completion: 196 percent.
  - Assistance (NPV terms): approximately $350 million.
  - Nominal debt-service saving: nearly $650 million.
  - IMF claim reduction (present value): $69 million (covers 22 percent of Uganda’s annual IMF debt service on average over the next nine years).
- Five countries at decision point (Burkina Faso, Bolivia, Guyana, Côte d’Ivoire, Mozambique):
  - Total assistance committed at decision point: about $2.6 billion (NPV terms).
  - Estimated reduction in nominal debt service: some $5.0 billion.
- Table 8 aggregated totals (as presented):
  - Total assistance provided or committed (selected early cases): 2,950 (NPV figure shown in table).
  - Bilateral: 1,382.
  - Multilateral: 1,567.
  - IMF: 271.
  - World Bank: 5,700.
  - Consolidated nominal reduction indicated as 5,650 (U.S. dollars).
- ESAF resource needs and timing (Box 10):
  - Self-sustained ESAF commitment capacity target: about SDR 0.8 billion a year (available in year 2005 or earlier).
  - Interim financing required: estimated SDR 1.7 billion for interest subsidies.
  - Additional estimated need for special ESAF operations under HIPC: SDR 1.1 billion.

### Box 12 — Social Impact, Ownership, and Program Flexibility (External Evaluators’ Recommendations and Directors’ Views)
- Social impact recommendations:
  - IMF should seek ex ante assessments by the World Bank of the likely impact that ESAF-supported programs would have on the incomes of the poor and of the real projected value of social service provision; these assessments should be updated during program implementation.
  - In program design, explicitly analyze trade-offs between the short run and long run, addressing sequencing, front-loading of structural reforms, and efficiency costs of revenue measures.
  - Increase IMF–World Bank collaboration for joint analysis addressing macroeconomic and microeconomic concerns.
  - The ESAF should have a new role in the poststabilization environment to help reforming governments build reputations and to enable the IMF to play a role in potential ESAF countries that currently reject the facility.
- External viability recommendations:
  - ESAF financing should be provided as budget support, rather than to central banks.
  - Equal or more weight should be given to indicators that relate total debt and debt service to GDP rather than to traditional export-based indicators.
- Ownership and governance recommendations:
  - Countries have primary responsibility for economic reform programs; IMF should make negotiation and conditionality more supportive of country ownership by:
    - ensuring greater flexibility in negotiating frameworks;
    - developing systematic mechanisms for ex post support for country-initiated programs;
    - strengthening resident representative missions in ESAF countries;
    - engaging in regular informal policy dialogue with political leadership;
    - finding ways to improve the IMF’s image.
  - Countries should create economic management teams and hold national conferences to oversee and debate reforms.
- Directors’ assessment and implications for social policy:
  - Economic reforms generally have positive effects on growth and income distribution but entail temporary costs for certain segments of the population, calling for compensatory measures:
    - provision of well-targeted assistance to the more vulnerable groups;
    - allocation of adequate resources for social sectors;
    - further analysis of sequencing of fiscal and other structural reforms.
  - Directors welcomed greater use of World Bank expertise and ongoing review of effects on low-income groups as part of ESAF reviews.
- Fiscal issues and external viability — Directors’ views:
  - Transparency and clarity of deficit breakdowns essential; Directors generally satisfied with staff presentations.
  - Short-term revenue objectives should be pursued with sensitivity to long-term tax system implications.
  - Directors continued to favor traditional export-based indicators but agreed a broad range of indicators is required.
  - Directors did not share the evaluators’ view that the ESAF constituted an inadvertent tax on exports since most ESAF funds were disbursed to central banks.
- National ownership — Directors’ views and recommendations:
  - Concern about perception of loss of control at country level; recommended governments consider national conferences and economic management teams to broaden public support.
  - IMF staff should consider political constraints but not judge political feasibility.
  - Ownership-enhancing measures might prolong negotiations but could be compensated during implementation.
  - IMF should be cautious in providing ESAF support where authorities’ commitment is in question.
- Flexibility in IMF programs:
  - Noted tension between criticism of inflexibility and concern that failing to frontload structural reforms was a defect; sequencing and trade-offs remain central.
- Better public understanding and continued IMF presence:
  - Improved public understanding of reforms important; increase resident representatives’ external relations and collaboration with civil society.
  - IMF often must stay engaged after initial stabilization; IMF signal of policy adequacy helps attract external savings.
  - ESAF not a long-term aid transfer mechanism; disbursements cannot be provided over the long term for programs aimed at little further reform.
  - Interest in greater use of precautionary arrangements in poststabilization phase to catalyze other support.
  - Evaluators’ suggestion for systematic IMF mechanisms for continuing support raised concerns about practicality and equal treatment.
- Coordination with the World Bank:
  - Need to improve IMF–World Bank cooperation in some cases; promote open flow of information rather than more formal coordination rules.

### Box 13 — Interim Committee Statement on Liberalization of Capital Movements
- Rationale for amending the IMF’s Articles:
  - Private capital flows increasingly important; liberalization, if orderly and backed by adequate policies and multilateral surveillance/support, is essential to an efficient international monetary system.
  - IMF uniquely placed to help this process given central role and near universal membership.
  - Committee described proposed new mandate as bold but requiring cautious implementation.
  - Interim Committee statement adopted, Hong Kong SAR, September 21, 1997.
- Preconditions and complementary reforms emphasized:
  - Liberalization must be underpinned by structural measures, especially in monetary and financial sectors, and sound macroeconomic and exchange rate policies.
  - Particular importance: sound financial systems and supervision; sustainable current account positions; prudential regulations; transparency and disclosure; liberalization of financial services.
- Path to liberalization — sequencing and tempo:
  - Phased, comprehensive approach tailored to country circumstances recommended.
  - Asian experience showed need to adapt pace; initial liberalization of medium- and long-term investments advocated by several speakers to avoid bias toward short-term inflows.
  - Appropriate regulatory requirements and controls to discourage volatile short-term inflows; some saw scope for temporary, market-based controls on short-term inflows.
- Institutionalizing liberalization and the IMF’s role:
  - Two main views:
    - advocacy using existing surveillance, conditionality, and technical assistance; or
    - extending IMF jurisdiction to capital movements to apply principles universally through surveillance and adjust progress case by case.
  - Complementarity with WTO, OECD, European Union noted; a well-defined code of conduct would help clarify roles.
- Debates on legal jurisdiction, credibility, and transparency:
  - Proponents: legal jurisdiction would lend commitment, transparency, and conviction to pledges.
  - Opponents: obligations without practical means to implement them could be ineffective and involve IMF beyond its responsibilities.
  - Private sector representatives pressed for greater transparency and specific amendment language.
- Unresolved issues (summarized by Stanley Fischer):
  - “Severe doubts” on capital account liberalization per se and whether advocacy sufficed or legal jurisdiction necessary.
  - Unresolved: how to improve banking supervisory standards internationally; how to determine when an economy is insulated enough to open the capital account; lack of established analysis on what capital controls work.
  - Fischer concluded a capital account amendment would provide context to conduct such analysis.
  - Need for strengthened cooperation with other international organizations if Articles were amended.
- Next steps and institutional decisions:
  - Executive Board (April 1998) agreed the world had changed and IMF faced tensions between existing Articles and realities.
  - Directors provisionally agreed on text of an amendment expressing the purpose of orderly liberalization in general terms.
  - Directors to continue work on policy issues, jurisdiction, and financing.
  - Interim Committee (April 1998) reaffirmed Hong Kong communiqué and asked the Board to aim to submit an appropriate amendment of the Articles “as soon as possible.”

### Box 14 — Capacity Building, Training, and Technical Assistance
- Joint Vienna Institute (JVI):
  - Established by IMF, World Bank, and other institutions to train officials of former centrally planned economies transitioning to market-based systems.
  - Offerings include a comprehensive course in applied market economics and an extensive seminar program covering macroeconomic policy, banking supervision, payment systems, fiscal policy, public expenditure management, value-added taxes, social safety nets, financial sector law, and macroeconomic statistics.
  - Board extended the IMF’s support for the JVI for another five years.
- Capacity building in Africa:
  - Cooperative relationships with regional institutions in Francophone Africa: Central Bank of West African States (COFEB) and Bank of Central African States.
  - Offer yearly regional courses on Financial Programming and Policies or External Sector Policies and periodic lecturing assistance.
  - Emphasis on “capacity building” by training trainers in financial macroeconomics and managerial fields.
  - Cofinanced by UNDP and the European Union.
  - New regional institutes established with Institute assistance in 1997: MEFMI (Zimbabwe) and WAIFEM (Nigeria).
- IMF-Singapore Regional Training Institute (STI):
  - Effective May 4, 1998, STI commenced training for government officials in Asia and the Pacific.
  - In 1998/99, 13 courses and seminars scheduled on macroeconomic adjustment and reform policies, financial programming, transition economy issues, monetary and exchange operations, public finance, banking supervision, and macroeconomic statistics.
  - STI viewed as a precursor to similar regional centers.
- SEACEN and other regional cooperations:
  - Longstanding relations with SEACEN; IMF provided lecturing assistance and coordinated courses since the 1970s and 1980s.
  - Cooperation with AMF (Economic Policy Institute) since 1988; participation in AMF courses on Macroeconomic Management and External Sector Management.
  - Additional cooperation: Center for Latin American Monetary Studies, Islamic Development Bank, and Asian Development Bank (first cooperative training venture in 1995).
- External financing, staffing, and evaluations:
  - Several donors (including the United Kingdom, the European Union, and the Inter-American Development Bank) coordinated technical assistance cofinancing with the IMF.
  - Some developing countries used World Bank credit proceeds to finance IMF-provided technical assistance.
  - Financing statistics:
    - In 1996/97, 30 percent of the IMF’s total technical assistance and training activities were financed from external sources.
    - In 1996/97, two-thirds of the experts that the IMF recruited to serve in its member countries were externally financed.
    - The ratio of internal to external financing is likely to remain fairly stable in the immediate future.
  - Evaluations:
    - During 1997/98, joint evaluations of country technical assistance projects were conducted with the UNDP in China, Haiti, the Pacific, and Yemen.
    - The IMF’s Office of Internal Audit and Inspection is evaluating the IMF’s technical assistance and training operations.

*Source: CHAPTER IX, _file05pdf - CHAPTER IX.*

### CHAPTER IX

### CHAPTER IX

### ESAF and the HIPC Initiative: overview
- To obtain assistance under the HIPC Initiative, a country must:
  - be eligible for concessional assistance from the IMF and World Bank;
  - face an unsustainable debt burden even after traditional debt-relief mechanisms; and
  - establish a track record of reform and sound policies through IMF- and World Bank–supported programs.
- Decision-making stages under the Initiative include a decision point (Boards of IDA and the IMF decide eligibility and precommit assistance) and a completion point (Boards determine that conditions for assistance have been met and disbursement may occur).
- Committee urged rapid completion of financing for ESAF and HIPC commitments and asked the Executive Board to report back at the Committee’s next meeting in October 1998.

### Progress in implementing the HIPC Initiative: country cases and commitments
- Uganda:
  - First country to reach the completion point (completion point reached April 98).
  - Would receive assistance equivalent to approximately $350 million in net present value terms.
  - Reduction in NPV-of-debt-to-exports to 196 percent, within the 192–212 percent target range agreed at the decision point.
  - Saving in nominal debt service would be nearly $650 million.
  - IMF’s assistance would lower the present value of its claims on Uganda by $69 million; this would cover 22 percent of Uganda’s annual debt service to the IMF on average over the next nine years.
- Five countries reached the decision point during 1997/98:
  - Burkina Faso (Sept. 97), Bolivia (Sept. 97), Guyana (Dec. 97), Côte d’Ivoire (March 98), Mozambique (April 98).
  - Assistance committed at the decision point to these five countries totaled about $2.6 billion in net present value terms.
  - Estimated reduction in nominal debt service for these five countries: some $5.0 billion.
  - Scheduled completion points ranged between Sept. 1998 and March 2001.
- Mali and Guinea-Bissau:
  - Preliminary HIPC documents discussed in March and April 1998; countries indicated as approaching decision points and could qualify for assistance. Final HIPC documents expected after consultation with other creditors.

### ESAF resources for commercial debt- and debt-service-reduction operations
- Board discussion (June–July 1997) concluded:
  - Use of ESAF resources for commercial debt- and debt-service-reduction operations could be appropriate in a few cases where IDA Debt-Reduction Facility, donors, and the member might be insufficient and use of the IMF’s General Resources Account would be inappropriate.
  - Use would follow general principles of existing debt-support policy: conditionality, efficient use of IMF resources, and market-based operations.
  - ESAF resources would complement highly concessional resources from IDA and other sources and be provided only in the context of appropriately ambitious ESAF-supported programs.
- Safeguards and limitations:
  - Use of ESAF resources would be strictly limited and decided by the Board case by case.
  - Aggregate ESAF use for such operations would be subject to Board review if projected to exceed a predetermined level.
  - ESAF financing should play a subsidiary, “last resort,” role when other financing options are not available.
  - No strict rules on burden sharing; each case subject to discussion considering bilateral contributions and the country’s own resources.
  - Proposal to incorporate into the ESAF Trust Instrument a provision for a special disbursement exclusively to finance part of a debt-reduction operation when not synchronizable with normal semiannual disbursements.

- Box 10 (ESAF Resources): key resource timing and needs (as presented)
  - Existing ESAF resources are expected to meet demands until about the end of 2000.
  - Resources to fund a self-sustained ESAF with a commitment capacity of about SDR 0.8 billion a year will become available in the year 2005, or perhaps earlier, as reserves are freed.
  - Interim ESAF period of about four years during which financing of an estimated SDR 1.7 billion will need to be mobilized to cover interest subsidies.
  - SDR 1.1 billion is estimated to be needed for special ESAF operations under the HIPC Initiative.

### Review of experience under ESAF-supported arrangements
- Internal evaluation (review of 36 countries using SAF/ESAF financing across 68 multiyear programs during 1986–95):
  - Positive outcomes:
    - Most countries that undertook reform and adjustment under SAF/ESAF now have economies materially stronger and more market oriented than a decade earlier.
    - Fiscal imbalances reduced; almost all instances of very high inflation eliminated.
    - Liberalization and structural reforms had taken hold; economic growth and living standards improved in many cases.
  - Shortcomings and persistent problems:
    - Progress uneven; many countries continued to perform below potential despite multiple ESAF programs.
    - Per capita GDP growth in many ESAF countries remained below the average in developing countries.
    - Indicators of openness remained relatively weak.
    - Inflation not brought down to acceptable levels on a sustained basis in a number of countries.
    - Debt-service burdens remained unmanageably high in several countries.
  - Identified policy and institutional weaknesses:
    - Widespread failure to undertake decisive civil service reform and reduce public enterprise burdens contributed to missed fiscal targets.
    - Hesitant reforms in tax administration and banking systems failed to address fundamental operational weaknesses.
    - Significant barriers to international economic integration and weak private sector development due to poor governance, excessive regulation, and weak property rights.
    - Need to develop institutional capacity; future ESAF programs should target these persistent weaknesses.

- Main recommendations from the internal review (Box 11):
  - Stronger and reoriented fiscal adjustment based on durable cuts in budget outlays, particularly from civil service reform and reduced support for public enterprises, while protecting growth-enhancing expenditures on health and education.
  - More resolve in reducing inflation to single-digit levels through monetary or exchange rate anchors where appropriate.
  - A more concerted effort to adopt “second-generation” reforms: enhanced trade liberalization, public enterprise reform, bank restructuring, and strengthened property rights.
  - Steps to reduce policy slippage and encourage sustained policy implementation: more intensive program monitoring in selected cases, greater use of contingency planning in program design, and more proactive technical assistance to build institutional capacity.

- Policies and program design guidance from Directors:
  - ESAF objectives of growth and external viability require ambitious, consistently implemented strategies tailored to country capacity and realistic time frames.
  - Need for better coordination with the World Bank.
  - Fiscal reforms should be durable, based on realistic institutional capacity assessments, and founded on systemic revenue and expenditure structure changes; greater reliance on consumption-based taxes and reductions in trade taxes recommended.
  - Protect high-priority social expenditures (health and education) in planning and execution; integrate social safety nets in programs.
  - Attach more weight to policies achieving lasting reduction in inflation to single-digit levels within a three-year arrangement; consider nominal anchors (exchange rate peg, money supply ceilings, announced inflation targets) cautiously and case by case.
  - Structural measures to stimulate private investment: trade and investment liberalization, public enterprise reform, sound banking systems, and strengthened property rights. World Bank should continue primary responsibility for many of these areas.
  - Public enterprise financial discipline needs enforcement; privatization encouraged by some Directors; better information on public enterprise finances required.
  - Banking system reform requires more complete information on financial status and likely fiscal costs of restructuring at program outset; conditionality should emphasize sound operational practices, drawing on Basle Committee Core Principles for Effective Supervision.

- Sustaining programs and program implementation:
  - High frequency of ESAF program interruptions attributed to policy weaknesses and political factors.
  - More active, coordinated technical assistance and contingency planning recommended, supported by national authorities.
  - Many Directors favored more intensive monitoring: phasing disbursements and program monitoring along lines of Extended Arrangements with quarterly performance criteria and half-yearly reviews in selected cases.
  - Greater use of prior actions and indicators of government commitment recommended to reduce program slippage.
  - Staff asked to propose concrete measures for stronger monitoring.

- External evaluation of SAF/ESAF-supported programs:
  - Independent panel of experts conducted an external evaluation (work begun spring 1997; study completed January 1998).
  - Evaluators employed case-study approach to examine social policies and composition of government spending; developments in external positions; and determinants and influence of national ownership of ESAF-supported programs.
  - Board discussion (March 1998) found complementarity between external evaluators’ report and IMF staff review and supported the view that the ESAF was a valuable instrument to assist low-income countries.

### Key numerical snapshots (drawn from chapter text and table entries)
- Uganda:
  - Decision point: April 97; Completion point: April 98.
  - NPV-of-debt-to-exports target at completion point: 192–212 percent (target agreed at decision point).
  - NPV-of-debt-to-exports at completion: 196 percent.
  - Assistance (NPV terms): approximately $350 million.
  - Nominal debt-service saving: nearly $650 million.
  - IMF claim reduction (present value): $69 million (covers 22 percent of Uganda’s annual IMF debt service on average over the next nine years).
- Five countries at decision point (Burkina Faso, Bolivia, Guyana, Côte d’Ivoire, Mozambique):
  - Total assistance committed at decision point: about $2.6 billion (NPV terms).
  - Estimated reduction in nominal debt service: some $5.0 billion.
- Table 8 aggregated totals (as presented):
  - Total assistance provided or committed (selected early cases): 2,950 (NPV figure shown in table), bilateral 1,382, multilateral 1,567, IMF 271, World Bank 5,700 (table formatting indicates cell values); consolidated nominal reduction indicated as 5,650 (U.S. dollars).
- ESAF resource needs and timing (Box 10):
  - Self-sustained ESAF commitment capacity target: about SDR 0.8 billion a year (available in year 2005 or earlier).
  - Interim financing required: estimated SDR 1.7 billion for interest subsidies.
  - Additional estimated need for special ESAF operations under HIPC: SDR 1.1 billion.

*Source: CHAPTER IX, _file05pdf - CHAPTER IX.*

### Box 12

### Box 12

### Social Impact — External Evaluators’ Recommendations
- The IMF should seek ex ante assessments by the World Bank of the likely impact that ESAF-supported programs would have on the incomes of the poor and of the real projected value of social service provision. These impact assessments could be taken into account at the program design stage and should be updated during program implementation.
- In program design, the IMF should explicitly analyze trade-offs between the short run and long run. The analysis would address sequencing issues, front-loading of structural reforms, and the efficiency costs of revenue measures.
- In the area of fiscal policy, IMF–World Bank collaboration should be increased to allow for more joint analysis and to address overlaps concerning the macroeconomic concerns of the IMF and the microeconomic concerns of the Bank.
- The ESAF should have a new role in the poststabilization environment to help reforming governments build reputations and to enable the IMF to play a role in potential ESAF countries that currently reject the facility.

### External Viability — External Evaluators’ Recommendations
- ESAF financing should be provided as budget support, rather than to central banks.
- Equal or more weight should be given to indicators that relate total debt and debt service to GDP rather than to the traditional export-based indicators, as the latter are overly sensitive to an economy’s openness.

### Ownership and Governance — External Evaluators’ Recommendations
- Countries have primary responsibility for economic reform programs and should develop and build a consensus behind a program capable of achieving sustainable growth. The IMF should make the negotiation process and conditionality regime more supportive of country ownership.
- Specifically, the IMF should:
  - ensure greater flexibility in the negotiating frameworks (e.g., formulate alternative program paths through negotiation, leaving it to the country to decide, with IMF staff advice, what best suits its circumstances);
  - develop systematic mechanisms for ex post support for country-initiated programs;
  - strengthen resident representative missions in ESAF countries;
  - engage in regular informal policy dialogue with the country’s political leadership; and
  - find ways to improve the IMF’s image.
- Countries should create economic management teams comprising representatives of economic and social sector ministries and political leaders to oversee the reform process and hold national conferences where alternatives and trade-offs can be openly debated.

### Directors’ Assessment and Implications for Social Policy
- Directors agreed that economic reforms, while “generally having positive effects on growth and income distribution,” did entail temporary costs for certain segments of the population, calling for compensatory measures in program design:
  - provision of well-targeted assistance to the more vulnerable groups;
  - allocation of adequate resources for social sectors;
  - further analysis of the sequencing of fiscal and other structural reforms to minimize adverse social impact.
- Directors welcomed proposals to draw more extensively on the expertise and data of the World Bank for refined ex ante assessment of likely impacts on low-income groups and agreed it would be desirable to review effects on those groups on an ongoing basis as part of regular ESAF program reviews.

### Fiscal Issues and External Viability — Directors’ Views
- Transparency and clarity of the breakdown of the deficits were essential; Directors were generally satisfied with staff presentations on fiscal positions.
- Short-term revenue objectives should be pursued with sensitivity to longer-term tax system implications for economic efficiency.
- Directors continued to favor traditional export-based indicators for assessing external viability but agreed that a broad range of indicators is required.
- Directors did not share the evaluators’ view that the ESAF constituted an inadvertent tax on exports since most ESAF funds were disbursed to central banks and endorsed the staff view that macroeconomic effects of ESAF disbursements did not depend on the initial recipient.

### National Ownership — Directors’ Views and Recommendations
- Directors noted concern about a common perception at the country level of “a feeling of loss of control over the policy content and the pace of implementation of reform programs.”
- Governments bear primary obligation to ensure transparency in policymaking and to promote wide public debate of policy issues; Directors recommended governments consider:
  - organizing national conferences and regular meetings with academic, business, and labor groups to allow open debate on trade-offs and policy options and to broaden public support;
  - creating economic management teams to oversee reform efforts.
- IMF staff should consider political constraints faced by national authorities but should not be put in the position of judging political feasibility.
- Some ownership-enhancing measures might prolong initial negotiations, but Directors considered such investment could be compensated during implementation.
- The IMF should be cautious in providing ESAF support where authorities’ commitment to program objectives is in question.

### Flexibility in IMF Programs
- Directors noted an apparent tension in the evaluators’ messages: criticism of perceived inflexibility coexisting with concerns that failing to frontload structural reforms was a serious defect.
- Finding the balance between negotiating flexibility and supporting programs that adequately address economic problems is delicate; sequencing and trade-offs will remain central to Board discussions.
- Member countries often need to take advantage of windows of opportunity without being overly constrained by strict sequencing considerations.
- In some cases, perceived sequencing problems reflected lack of implementation of agreed policy measures.

### Better Public Understanding and Continued IMF Presence
- Improved public understanding in ESAF recipient countries is important; this includes governments publicly explaining the purpose and benefits of economic reform programs.
- Steps to increase resident representatives’ external relations activities and enhance collaboration with national authorities and civil society align with evaluators’ views.
- Directors agreed the IMF must often stay engaged in ESAF-eligible countries after initial stabilization:
  - Several African economies had stabilized and were approaching high rates of growth, but investment rates remained far too low to sustain long-term growth without significant external capital.
  - An IMF signal of policy adequacy is often essential to attract external savings by reducing market uncertainty.
- Directors emphasized that the ESAF is not a long-term aid transfer mechanism; disbursements cannot be provided over the long term, particularly for programs aimed at little further reform.
- Directors expressed interest in more extensive use, in the poststabilization phase, of precautionary arrangements with the IMF (arrangements agreed without intending to draw on IMF resources) to confer IMF approval and catalyze other financial support.
- The World Bank and other donors have a greater role to play in supporting reform efforts of ESAF countries in the poststabilization period.
- Evaluators’ suggestion for more systematic IMF mechanisms to provide continuing support where stabilization had been achieved but formal agreement was delayed raised concerns about practicality and the IMF’s need to avoid arbitrary judgments and unequal treatment.

### Coordination with the World Bank
- Directors took note of the evaluators’ suggestion that IMF–World Bank cooperation could be improved in some country cases and recognized the importance of strengthening this collaboration.
- Some Directors recommended promoting an open and free flow of information between the IMF and the Bank rather than establishing further formal coordination rules.

14 Published as IMF, External Evaluation of the ESAF(1998).

*Published as IMF, External Evaluation of the ESAF(1998).*

### Box 13

### Box 13

### Rationale for amending the IMF’s Articles
- Private capital flows have become much more important to the international monetary system and an increasingly open and liberal system has proved to be highly beneficial to the world economy.
- By facilitating the flow of savings to their most productive uses, capital movements increase investment, growth, and prosperity.
- Provided it is introduced in an orderly manner, and backed both by adequate national policies and a solid multilateral system for surveillance and financial support, the liberalization of capital flows is an essential element of an efficient international monetary system in this age of globalization.
- The IMF’s central role in the international monetary system, and its near universal membership, make it uniquely placed to help this process.
- The Committee sees the IMF’s proposed new mandate as bold in its vision, but requiring cautious implementation.
- Interim Committee statement adopted, Hong Kong SAR, September 21, 1997.

### Preconditions and complementary reforms emphasized
- Liberalization must be underpinned by a broad range of structural measures, especially in the monetary and financial sector, and within the framework of a solid mix of macroeconomic and exchange rate policies.
- Particular importance attached to:
  - establishing an environment conducive to the efficient use of capital and to building sound financial systems solid enough to cope with fluctuations in capital flows;
  - achieving sound and consistent macroeconomic policies, sustainable current account positions, and appropriate exchange rate regimes;
  - having sound and well-supervised domestic financial systems, including improved supervision and prudential regulations covering capital adequacy, lending standards, asset valuation, effective loan recovery mechanisms, and provisions ensuring that insolvent institutions were dealt with promptly;
  - improving transparency through disclosure of accurate financial and economic information, based on internationally recognized standards and practices;
  - liberalizing financial services to allow for greater competition and the transfer of skills, capital, and best practices.

### Path to liberalization — sequencing and tempo
- A phased but comprehensive approach tailored to individual country circumstances maximizes chances of success for both countries and the international monetary system.
- The Asian experience demonstrated the need to adapt the pace of liberalization to the circumstances of individual countries to limit vulnerability to wide fluctuations in capital movements.
- Several speakers advocated a gradual opening of the capital account, emphasizing initial liberalization of medium- and long-term investments to avoid bias toward short-term inflows.
- Appropriate regulatory requirements and controls can help discourage volatile short-term capital inflows; appropriate prudential measures, particularly limiting banks’ external exposures, were seen as necessary.
- Some participants saw scope for introducing controls on short-term inflows in some circumstances, even for well-managed economies; any such controls should be market based, transparent, and temporary.
- Other speakers were wary of controls because they could become permanent substitutes for needed policy adjustment.

### Institutionalizing liberalization and the IMF’s role
- All seminar participants agreed the IMF had an important role to play in promoting the orderly liberalization of capital movements, given its mandate to oversee the international monetary system.
- Two main views on how the IMF should proceed:
  - Advocacy and use of existing surveillance, conditionality, and technical assistance (some argued amendment of Article I could be useful, but extending jurisdiction would be unnecessary and could cause overlap with other treaties).
  - Extending IMF jurisdiction to capital movements so the IMF could apply principles of capital liberalization universally through surveillance and deal with countries on a case-by-case basis, adjusting progress toward full liberalization to individual capacities and reforms.
- Speakers from other international organizations (WTO, OECD, European Union) noted complementarity with the IMF and that a well-defined code of conduct would help clarify respective roles.

### Debates on legal jurisdiction, credibility, and transparency
- Those favoring legal jurisdiction argued it would lend commitment, transparency, and conviction to countries’ pledges to liberalize capital accounts.
- Opponents argued obligations without practical means to implement them would not be more effective than advocacy and could involve the IMF in activities beyond its designated responsibilities.
- Some private sector representatives pressed for greater transparency in the IMF’s deliberations on an amendment and wanted specific language on the proposed amendment before lending support.

### Future considerations and unresolved issues (as summarized by Stanley Fischer)
- “Severe doubts” existed on whether capital account liberalization per se was a good idea and whether advocacy sufficed or legal jurisdiction was necessary.
- Unresolved issues included:
  - how the international system could ensure that banking supervisory standards and the quality of banking systems were improved and what could be done at the international level;
  - how to determine when an economy was sufficiently insulated by preconditions to risk opening the capital account (concern that excessive focus on preconditions might discourage reform or that forcing change could be “pretty risky” given potential large consequences);
  - lack of an established body of analysis on capital controls—what worked and what did not—and the need to examine a “host of questions.”
- Fischer concluded a capital account amendment would provide an appropriate context to conduct such analysis.
- Strengthening cooperation between the IMF and other international organizations would be necessary if the IMF’s Articles were amended to include jurisdiction over capital movements.

### Next steps and institutional decisions
- At an April 1998 discussion following the seminar, the Executive Board agreed the world had changed substantially since the 1940s and that the IMF faced tensions between existing Articles and current realities.
- Directors saw the IMF as uniquely placed to foster prudent, well-considered, and orderly liberalization worldwide, while respecting other organizations’ roles.
- Managing Director reported that Executive Directors “had reaffirmed that the orderly liberalization of capital movements should be one of the IMF’s purposes and had reached provisional agreement on the text of an amendment that would express that purpose in general terms.”
- Directors would continue work on policy issues, jurisdiction, and financing.
- At its April 1998 meeting, the Interim Committee reaffirmed its Hong Kong communiqué (September 21, 1997) view that it was time to add a new chapter to the Bretton Woods agreement by making the liberalization of capital movements one of the IMF’s purposes and extending, as needed, the IMF’s jurisdiction for this purpose; the Committee asked the Board to pursue with determination its work with the aim of submitting an appropriate amendment of the Articles for the Committee’s consideration “as soon as possible.”

*Source: Box 13, _file05pdf - Box 13 (Interim Committee Statement on Liberalization of Capital Movements), Annual Report 1998.*

### Box 14

### Box 14

### Europe — Joint Vienna Institute (JVI)
- The IMF, in collaboration with the World Bank and certain other international institutions, established the Joint Vienna Institute (JVI) to provide training to officials of former centrally planned economies transitioning to market-based systems.
- Offerings:
  - A comprehensive course in applied market economics jointly presented by all sponsoring organizations.
  - An extensive seminar program covering: macroeconomic analysis and policy, banking supervision, payment systems, monetary and exchange operations, fiscal policy, public expenditure management, value-added taxes, social safety nets, financial sector law, and macroeconomic statistics.
- Governance/support:
  - Recently the Board extended the IMF’s support for the JVI for another five years.

### Capacity building in Africa
- Long-standing cooperative relationships with regional training institutions in Francophone Africa:
  - Central Bank of West African States (West African Training Center for Banking Studies—COFEB).
  - Bank of Central African States.
- Institute activities:
  - Offers a yearly regional course on Financial Programming and Policies or External Sector Policies.
  - Provides periodic lecturing assistance to the centers.
  - Emphasis on “capacity building” by training trainers in financial macroeconomics and managerial fields linked to teaching.
- Cofinancing:
  - Regional courses benefit from cofinancing from the United Nations Development Programme and the European Union.
- New regional institutes established with Institute assistance:
  - In 1997 the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) in Zimbabwe was established.
  - In 1997 the West African Institute for Financial and Economic Management (WAIFEM) in Nigeria was established.

### Asia — IMF-Singapore Regional Training Institute (STI)
- Effective May 4, 1998, the STI commenced offering training on policy-related economics to selected government officials, mainly from developing countries in the Asia and the Pacific region.
- In 1998/99, 13 courses and seminars are scheduled on:
  - Macroeconomic adjustment and reform policies, financial programming, the problems of transition economies, monetary and exchange operations, public finance, banking supervision, and macroeconomic statistics.
- The STI is viewed as a precursor to similar regional training centers in other parts of the world.

### SEACEN (South-East Asian Central Banks Research and Training Center)
- Relations developed in the 1970s when the Institute began sending senior staff to assist SEACEN (Kuala Lumpur, Malaysia) in formulating its training program.
- Since the early 1980s the Institute has:
  - Provided lecturing assistance to SEACEN.
  - Coordinated lecturing assistance from other IMF departments.
- In the early 1990s the Institute began conducting joint courses with SEACEN.

### Arab Monetary Fund (AMF) and other regional cooperations
- The Institute has maintained a close relationship with the AMF’s training branch, the Economic Policy Institute (EPI), since its inception in 1988.
  - Regularly provided lecturing assistance for the AMF course on Macroeconomic Management.
  - Participated in the AMF course on External Sector Management, first offered in March 1995.
  - Cooperation includes joint courses and seminars and participation by Institute staff in AMF-sponsored seminars.
- Additional cooperative activities:
  - Lecturing assistance for courses organized by the Center for Latin American Monetary Studies for several years.
  - Cooperation with the Islamic Development Bank on regional training courses since 1994.
  - The first cooperative training venture with the Asian Development Bank was conducted in 1995.

### External financing, staffing, and evaluations
- Coordination and financing:
  - Several donors (including the United Kingdom, the European Union, and the Inter-American Development Bank) agreed to coordinate technical assistance cofinancing arrangements with the IMF.
  - Several developing country members used proceeds from World Bank credits to finance IMF-provided technical assistance.
- Financing statistics:
  - In 1996/97, 30 percent of the IMF’s total technical assistance and training activities were financed from external sources.
  - In 1996/97, two-thirds of the experts that the IMF recruited to serve in its member countries were externally financed.
  - The ratio of internal to external financing is likely to remain fairly stable in the immediate future.
- Evaluations:
  - During 1997/98, joint evaluations of country technical assistance projects were conducted with the UNDP in China, Haiti, the Pacific, and Yemen.
  - The IMF’s Office of Internal Audit and Inspection is currently evaluating the IMF’s technical assistance and training operations.

*IMF Annual Report 1998 — Box 14*

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_Source: https://www.imf.org/-/media/websites/imf/imported-flagship-issues/external/pubs/ft/ar/98/pdf/_file05pdf.pdf_