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Civil Society Newsletter
Fall 2002


In this issue

IMF, World Bank Annual Meetings focus on challenges for global economy

IMF, NGOs discuss resolution of debt crises

NGOs discuss Ecuador's pipeline with IMF, World Bank

IMF issues new conditionality guidelines

CSOs discuss trade policies with IMF, World Bank

Independent Evaluation Office tackles prolonged use of Fund resources

IMF, World Bank discuss HIPC, PRSP progress reports with NGOs

Köhler, Wolfensohn attend discussion with participants to Annual Meetings

IMF opens first African technical assistance center in Tanzania

IMF approves $23 million in emergency credit to Malawi

Stiglitz, Rogoff discuss globalization, IMF role

Bulletin Board

IMF, World Bank Annual Meetings focus on challenges for global economy

The 2002 Annual Meetings of the IMF and World Bank Board of Governors, which consist of ministers and central bank governors from the institutions' 184 member countries, were held in Washington on September 29. It was preceded on September 28 by the usual twice-yearly meetings of Committees of Governors. The meeting of the International Monetary and Financial Committee (IMFC)—the IMF's ministerial steering committee—focused on the challenges currently facing the global economy, the policies needed to address them, the continuing reforms of the IMF and the international financial system more broadly aimed at improved crisis prevention and resolution and progress with poverty reduction and debt reduction. The Development Committee—the joint IMF-World Bank ministerial steering committee on development finance issues—focused particularly on progress in implementing the Monterrey Consensus. The Annual Meeting of Governors discussed the broad range of issues considered by the two committees.

In its communiqué, the IMFC noted the downside risks and uncertainties to the global economic recovery, and called on member countries to be vigilant and ready to change policies as needed to support growth and durable poverty reduction. The IMF would assist these efforts through reforms already underway to strengthen the Fund's ability to evaluate emerging vulnerabilities, minimize the occurrence of economic crises, and quickly resolve crises if they do occur. The IMFC welcomed the Report of the Managing Director to the IMFC on the IMF in a Process of Change and endorsed the Managing Director's plans for continuing reform. Köhler set out major elements of his plans in Address by Horst Köhler to the Board of Governors of the Fund.

The IMFC's endorsement of the IMF's continuing work on the restructuring of unsustainable sovereign debts attracted particular attentions. The Committee encouraged the official community and the private sector to continue working together to develop collective action clauses and promote their inclusion in international sovereign bond issues. And the IMFC also called on the Fund to develop a concrete proposal for a statutory sovereign debt restructuring mechanism, for consideration at its next Meetings in April 2003 (see next section).

The IMFC welcomed the progress made with the poverty reduction strategy, called for pledges of additional financial support for HIPC, and encouraged the Fund and the Bank to continue their collaboration on issues important for poverty reduction.

The Development Committee communiqué encouraged the IMF and World Bank to develop a clear framework for measuring the progress of low-income countries toward the Millennium Development Goals.

The Work Program of the Executive Board reflects this mandate, and also calls for further work on the HIPC initiative and the PRSP and PRGF approaches. Other areas of emphasis in the Work Program include further steps to make the IMF's country surveillance more effective, including reviews of progress in financial sector surveillance, and consideration of ways to strengthen the decision-making role of developing and transition countries in

international financial institutions.

IMF, NGOs discuss resolution of debt crises

The Annual Meetings of the IMF and the World Bank always offer an excellent opportunity for civil society and the staffs of the two institutions to discuss current policy issues. One of the most lively debates at this year's meetings focused on the new approach to debt workouts being worked on by the Fund.

The International Monetary and Financial Committee (IMFC) gave the Fund the mandate to prepare a concrete plan for a statutory Sovereign Debt Restructuring Mechanism (SDRM) by the April 2003 Meetings for consideration by the IMF membership. It would offer a country with extensive indebtedness to private creditors and whose debt servicing burden has become unsustainable a legal framework to negotiate a standstill and a restructuring of its debt.

The IMF's proposal has, of course, been scrutinized by NGOs since it was first proposed by IMF First Deputy Managing Director, Anne Krueger in a speech in November 2001 .

At the Annual Meetings, NGOs discussed the proposal with Jack Boorman, Special Advisor to the Managing Director, who participated in a panel discussion organized by CIDSE/Caritas, the Center of Global Concern, and the New Rules for Global Architecture. Other speakers included University of Vienna Professor Kunibert Raffer; Jubilee Germany Campaign Coordinator Jürgen Kaiser; Mario Cafiero, Member of Parliament (Argentina); and Eric Fine, Emerging Market Desk with Morgan Stanley's. The debate was moderated by Barry Herman of the UN Department of Economic and Social Affairs.

In his opening remarks, Boorman addressed many of the concerns that have been voiced by NGOs. He said that what is needed is a system that produces an orderly resolution of unsustainable debts. This system should be activated in a timely manner, and participants should be able to proceed with reasonable assurance of finding agreement without undue delay. Limiting the kind of disruption and dislocation to economies that has been seen in too many recent cases can help preserve substantial value both for the creditors and for the debtor country and its citizens, Boorman said. In so doing, this would help accomplish one of the specific aims of NGOs that advocated a fair and transparent arbitration mechanism: that is, to help minimize the adverse impact of such operations, such restructuring operations on the poor, not least by minimizing the depth of crises and sustaining effective poverty eradication programs during that process, he added.

He first described the five major elements of the IMF proposal, stressing that, in all of this, there are no new legal powers for the IMF. The SDRM would: (1) provide the debtor with legal protection from disruptive legal action; (2) call for good faith negotiations between debtor and creditors; (3) give seniority to fresh private lending; (4) empower creditors to vote on the terms of a potential debt restructuring agreement; and (5) create a dispute resolution forum that would not transfer new powers to the IMF. The advantage of enacting the SDRM through an amendment to the IMF's Articles of Agreement is that it would ensure uniform application of the measures, and would be immediately applicable, Boorman added.

He also addressed many of the concerns that have been voiced by NGOs. First he underlined that the proposal does not exclude low-income countries. The HIPC Initiative will remain as the main vehicle to deal with the debt of the poorest countries as most of their debt is to official creditors, either multilateral or bilateral. The World Bank's Fifth Dimension Program, from a number of years ago, financed deep discount buybacks of the commercial bank claims on most of these countries, and for all practical purposes it eliminated most of those claims, with the exception of some of the bigger poorer countries that had market debt outstanding. There is virtually no bond indebtedness for those countries. For a few, like Nigeria or Côte d'Ivoire, SDRM could be applicable to the extent they do have private sector claims against them.

Regarding the exclusion of IMF claims, he said that both the official community and the private sector, with few exceptions, accept the Fund's preferred creditor status. The exclusion of IMF claims is what permits the Fund to lend in a time of crisis when other creditors are fleeing and when there is no other source of credit for the country. Without that preferred creditor status, the Fund's capacity to act in such cases would be sharply curtailed, if not eliminated.

Another concern is that official bilateral debts may be given priority over commercial creditors and that the SDRM may exclude Paris Club debt. Boorman said that the issue is not whether to include or exclude bilateral official credits from restructuring. The question is whether to deal with them under the new processes to be developed under the SDRM or to continue to work through the Paris Club, fully coordinated with the process under the SDRM regarding the restructuring of private claims. In this way, official bilateral claims would be dealt with on an equal footing with private sector claims.

He also clarified that the purpose of giving seniority to new private sector credits is not to pay back the IMF but to encourage the provision of new trade credits and other credits that are critical to the ongoing operation of the economy. And while IMF-supported programs will not, legally, be a precondition for a restructuring, he noted that this will, in all likelihood, be the case de facto, because countries are likely to want the Fund involved for its policy advice and for its finance. Private creditors, too, are likely to want the Fund involved to help the country formulate its policies and to monitor the implementation of those policies.

To read more about the IMF's proposal:

Sovereign Debt Restructuring Mechanism (SDRM), A Factsheet

Transcript of a panel discussion on SDRM with First Deputy Managing Director Anne Krueger--IMF Annual Meetings, Program of Seminars, September 27, 2002

IMF SURVEY article on the above panel (see page 297)

IMFC communiqué (see paragraph 11)

Sovereign Debt Restructuring: Where Stands the Debate? Speech by Jack Boorman, Special Advisor to the Managing Director, given at a conference co-sponsored by the CATO Institute and The Economist, New York, October 17, 2002

Crisis Prevention and Resolution: The Role of Sovereign Debt Restructuring, remarks by Anne Krueger at the American Enterprise Institute symposium, October 7, 2002

NGOs discuss Ecuador's pipeline with IMF, World Bank

IMF staff met with environmental NGOs in July and again, together with World Bank staff, in September during the Annual Meetings to discuss issues surrounding the new pipeline that will double Ecuador's oil export capacity. NGOs specifically discussed with the Fund the so-called Fiscal Law that will govern the use of the money from this important new source of revenue.

The law, as it was passed by the Ecuadorian Congress in August 2002, allows for 70 percent of the money to be used to repay the country's debt (both domestic and foreign). Twenty percent will go toward a stabilization fund, while 10 percent will be spent on social programs.

Contrary to some reports, the Fund has never opposed the allocation of the money to health and education—indeed it welcomed it. What it opposed was that the allocation was originally planned as extra-budgetary spending without congressional oversight. The Fund objected to the lack of transparency in the use of these funds under an earlier version of the law.

As the IMF had recommended, this has now been changed; the authorities have to report to Congress on the spending and manage it within budgetary guidelines. Not only will Congress track the spending; civil society will also be able to know where, and how, the money will be spent—something that would have been difficult had the spending remained outside the budget.

In the staff's economic analysis and discussions with the authorities there is also, for the first time, an explicit account of the use of Ecuador's natural resources. This includes the issues involved with the constant drawdown of the country's mineral wealth (oil and gas), and those of biodiversity and environmental capacity (e.g., carbon dioxide capture in Ecuador's forests). These issues are explained in more detail in the Selected Issues paper associated with the IMF's regular Article IV consultation with Ecuador, which will be released if authorized by Ecuador's authorities.

More documents on Ecuador and the IMF

IMF issues new conditionality guidelines

The IMF issued new conditionality guidelines on September 26, 2002, marking the end of a two-year review. The guidelines, which will replace the Interim Guidance Note on conditionality issued in 2000, reflect the drive to streamline, focus, and clarify conditionality so as to enhance the effectiveness of Fund-supported programs.

The guidelines will apply generally to all Fund conditionality and were drafted with the following principles in mind:

  • National ownership of reform programs;
  • Sparing application of conditions, with a focus on those that are critically important to the program's objectives;
  • Tailoring programs to the member's circumstances;
  • Effective coordination with other multilateral institutions; and
  • Clarity in specifying conditions.

Timothy Lane Policy Development and Review Department Division Chief met NGOs at the Annual Meetings to discuss the new guidelines. Asked about a specific example of how the guidelines might affect a country's program, he noted that the Interim Guidance Note, which reflects the essence of the new guidelines, had already had some impact. The extent of privatization-related conditions had been scaled back in former Soviet Union countries, specific agricultural measures had been removed from programs in some African countries, and a sharper focus had been brought to bear on macroeconomic issues in low-income countries, owing also to the Poverty Reduction Strategy process.

He also noted that there would likely be a reduction in the number of conditions (especially structural benchmarks) used to track progress toward broader objectives (e.g., VAT implementation). Lane noted that the new guidelines encouraged staff to be more flexible in considering "second best" policies if they were more likely to be implemented than "first best" policies.

CSOs discuss trade policies with IMF, World Bank

Bretton Woods Institutions urge rich countries to lead by example on trade access

Senior staff from the IMF and the World Bank met with more than 20 CSO representatives from 10 countries at the Annual Meetings to discuss WB/IMF trade policies in light of the release of the paper titled: "Market Access for Developing Country Exports—Selected Issues."

Hans Peter Lankes, Chief of the Trade Policy Division of the Policy Development Review Department presented the paper. He said that research has shown that average tariff rates mask an uneven playing field between developed and developing countries. It is clear that the high import barriers imposed by developed countries in agriculture, combined with the effects of agricultural subsidies, severely limit the market potential for key export crops of many developing countries. Another area of concern is the fact that technical standards (including product, health, and safety standards) and other non-tariff barriers can also effectively close markets to developing countries—and not always for legitimate reasons.

Further, empirical evidence shows that providing unrestricted market access for Least Developed Countries (LDCs) could have significant benefits without imposing undue costs on other suppliers, given the very small share of LDCs in world trade (around 0.5 percent). It should be noted, however, that trade preferences can also have drawbacks as they risk creating vested interests, and should therefore be set firmly within a context of rapid multilateral liberalization. The paper on market access argues that liberalization of imports—especially for agricultural products, textiles, and clothing—can generate large benefits for developing countries in terms of incomes, exports, and employment. It presents estimates that the incomes generated by improving market access for these products would easily surpass the volume of annual overseas development assistance.

In addition to working to open markets in the North, it is also important to look at South-South barriers as developing countries can often confront as many trade barriers imposed by their regional competitors as they face in developed countries. Most model simulations, including those presented in the paper, also underline that countries will ultimately benefit the most from liberalization of their own trade regimes.

In terms of World Bank/IMF advice on trade policies, Lankes said, the Poverty Reduction Strategy Paper is the most appropriate instrument for integrating trade and other policies. Yet trade has not figured very prominently in the PRSPs undertaken so far. Civil society can and should play an important role in ensuring that trade is incorporated into the PRSP process.

Uri Dadush, Director of the International Trade Department at the World Bank, stressed the latest thinking in the Bank, which still views trade liberalization as generally positive in the presence of a supportive policy environment (peace, macro stability, good governance, etc.), with the greatest gains accruing from a country's own trade liberalization (both in the North and the South). However, the Bank also has a much greater appreciation than in the past of country ownership of trade and macro-economic policies. Also much greater emphasis is being placed on the opening of markets and lowering of barriers in developed countries, particularly reducing agricultural subsidies. The World Bank and IMF are undertaking more comprehensive diagnostic studies on trade. It is also important for a country to have a more comprehensive policy approach that goes beyond just lowering tariffs.

Independent Evaluation Office tackles prolonged use of Fund resources

In its debut report, the IMF's Independent Evaluation Office (IEO) says it found that prolonged use of Fund resources (UFR) often stifles homegrown policies in borrowing countries, and weakens both the Fund's credibility and the catalytic effect of its loans.

The report recommended that the Fund adopt an explicit definition of prolonged use of Fund resources, develop an exit strategy for identified prolonged users, and consider a differentiated rate of charge for prolonged use.

The report is the first issued by the IEO since it was set up by the Fund's Executive Board in July 2001 to provide objective and independent evaluation of issues related to the IMF.

The IEO said it found that the increase in prolonged UFR was partly a reflection of the changed role that the international community expects the IMF to perform. The Fund has been left with a mismatch between its core operations—which remain focused on restoring economic sustainability within a relatively short timeframe—and new tasks that have become necessary in support of its core mandate, and which it has been asked to perform by the membership, especially supporting longer-term structural adjustment.

The report recommended that the Fund:

  • Adopt an explicit definition of prolonged UFR as a trigger for the adoption of automatic due diligence procedures;
  • Be more selective in extending financial support, and try harder to judge when countries were ready to implement programs, particularly in prolonged UFR situations;
  • Provide credible alternatives in situations where IMF-supported programs are a precondition for other sources of financing;
  • Develop an explicit exit strategy for identified prolonged users, although without setting rigid limits on the duration of IMF program involvement; and
  • Consider a differentiated rate of charge for prolonged users. While there was no evidence that cost was a factor in prolonged UFR, it would serve as a signal and possible political incentive.

The evaluation treated a country as a prolonged user if it had been under IMF-supported programs for seven or more years in a ten-year period, and included case studies of Pakistan, the Philippines, and Senegal.

The IMF Managing Director has set up a task force to prioritize the recommendations and lay out a strategy to implement them.

The IMF Executive Board, which discussed the report on September 23, said that the report presented a candid, comprehensive, and broad-ranging analysis; it also gave a detailed response to the recommendations made in the report, and said it was looking forward to hear about the task force's strategy early next year.

Meeting with NGOs at the Annual Meetings, IEO Director Montek Singh Ahluwalia stressed the independence of the IEO and emphasized that the report had not been "sanitized" before being made public. He said that it is up to the IMF and its member countries to determine what to do going forward, but offered to help them in their outreach efforts. Asked what will happen with the follow-up task force Ahluwalia said that it will be for the Fund to decide.

He also announced that the second IEO report, on capital account crises, was due in March 2003; another ongoing project is the examination of major features of fiscal-adjustment in IMF-supported programs.

Comments sought for new work program

Please note that the IEO recently published its draft work program for next fiscal year (2003/04) and would like to receive comments by November 20.

The proposed short list includes:

    (1) The PRSP/PRGF experience based on full PRSPs;
    (2) Country case study of Argentina or Turkey programs;
    (3) The role of the IMF in providing Technical Assistance;
    (4) The IMF's surveillance function; and
    (5) The IMF's approach to capital account liberalization.

Comments may include suggestions for topics other than those discussed above. Comments should be sent to or to

    The Independent Evaluation Office
    International Monetary Fund
    700 19th Street, N.W.
    Washington, D.C. 20431.

IMF, World Bank discuss HIPC, PRSP progress reports with NGOs

During the Annual Meetings, NGOs met with IMF and World Bank staff to discuss the progress made with the Poverty Reduction Strategy and the HIPC Initiative. The discussions, based on the progress reports considered by the Boards of the two institutions, drew a large number of representatives from the NGOs attending the Meetings.

Mark Plant and Brian Ames of the IMF's Policy Development and Review Department reiterated the four key issues emerging from their progress report on implementation. They concern the need for: building capacity; opening up policy dialogue; aligning external assistance behind national strategies; and integrating poverty reduction strategies into budgetary priorities and implementation. Ames stressed that governance is also a very important element in this process. He added that the IFIs have a key role to play, particularly in the area of analysis.

Jeni Klugman, Lead Economist at the Bank's Poverty Reduction Group emphasized the need to integrate poverty reduction programs into a country's overall development strategy. She stressed the need for a strong decision-making structure and suggested that donors must be more involved in the process (which is starting to happen).

Ames said that reducing poverty and achieving macroeconomic stability are dual objectives of the PRSPs: without stability, it's impossible to grow. He reminded participants that this view is widely held among the IMF and its development partners. Many of these countries are extremely vulnerable to shocks. He suggested that governments need a broad, dynamic framework, something civil society should be closely involved in formulating. Klugman added that the IFIs are offering technical assistance in many countries. The newly opened East African technical assistance center in Dar es Salaam, Tanzania, is one example of such assistance (see next section).

* * * * *

Masood Ahmed, Deputy Director of the IMF's Policy Development and Review Department and Gobind Nankani, Vice President of the World Bank for Poverty Reduction and Economic Management co-chaired a session on the Heavily Indebted Poor Countries Initiative. After presenting the latest HIPC progress report, Nankani cautioned that financing the HIPC Trust Fund is a serious issue—it is time for pledges to translate into dollars. He stated that a cost analysis of additional debt relief outside HIPC is underway and can be expected shortly.

Ahmed reiterated that the goal of this process is for countries to graduate from HIPC and move on to PRSPs. Financing is a critical issue, but governance, capacity building, and vulnerability to shocks are also important. He challenged the group to come forward with their ideas about what to do beyond HIPC.

Questions focused heavily on the link between debt relief and the Millennium Development Goals (MDGs). Nankani pointed to the enormous amount of work underway on this question. One report by the Zedillo Commission estimates the need for $50 billion, over and above current ODA levels, to fund the MDGs. Ahmed stated that while all agree that countries need more money, it is more difficult to achieve consensus on how to do it. PRSPs are the core of the MDGs, and must be cast in that context, he said explaining that the linkages will be clarified over time as the work proceeds.

In a September 25 letter to Christian Aid, Ahmed said that HIPC is an important part of the international effort to achieve the MDGs, but it can play only a limited role in this regard. Specifically, the reduction in the burden of external debt on HIPCs to more sustainable levels needs to be accompanied by the opening of world markets for developing countries' export and increasing aid-flows. The letter was a reply to the Joint Submission by Christian Aid, Eurodad, CAFOD, and Oxfam to the World Bank and IMF Review of HIPC and Debt Sustainability.

Köhler, Wolfensohn in panel discussion with participants at Annual Meetings

IMF Managing Director Horst Köhler and World Bank President James Wolfensohn participated in a panel discussion with visitors accredited to the Annual Meetings. Other panelists included Roberto Bissio, Co-Director of Third World Network in Uruguay; Robert Hormats, Vice Chairman of Goldman Sachs (International); Jan O. Karlsson, Sweden's Minister for Development Cooperation; and South Africa's Finance Minister and Chairman of the Development Committee Trevor Manuel. The panel was moderated by Alan Murray, Washington Bureau Chief of television network CNBC.

The public included representatives of a large number of NGOs, whose numerous questions provided for a lively and interesting debate. Bissio challenged what he alleged was a Bank/Fund focus on unilateral trade liberalization by poor countries; Wolfensohn replied that both he and Köhler "recognize that an uneasy, one-way bargain does not work. We are talking very much about the issue of trade, about the issue of a two-sided bargain, and maybe we have been slow in learning, but it is the hymnbook that we are singing from now." Köhler remarked that he was not satisfied that "people are now talking more about market access; I want to be sure that the new trade policy discussed in the Doha trade round leads to a reduction on tariffs which enables poor countries to process products. We need to have a better trade policy in the interest of all of them."

Friends of the Earth appealed to Wolfensohn to scrap funding for a mining project in Romania, while other questions from NGOs included the issue of whether the Bretton Woods' institutions should include human rights in their programs.

Full transcript of the discussion

IMF opens first African technical assistance center in Tanzania

The IMF inaugurated its first African Technical Assistance Center (AFRITAC) in Dar Es Salaam on October 24. The center will provide capacity-building assistance to six countries in East Africa. The opening of the second African center, in Côte d'Ivoire, has been delayed because of the recent conflict in the country.

As reported in the previous newsletter, the centers will provide assistance with a team of resident experts, supplemented by short-term specialists, as well as through in-country workshops, professional training, and regional courses. The Centers are part of the IMF's Africa Capacity Building Initiative, which aims to strengthen the capacity of African countries to design and implement their poverty-reducing strategies, as well as to improve the coordination of capacity-building technical assistance in the Poverty Reduction Strategy Paper (PRSP) process. It aims to increase the volume of capacity-building assistance from the IMF to Africa in the Fund's core areas of expertise. The centers are also a contribution by the IMF to the New Partnership for Africa's Development (NEPAD).

IMF approves $23 million in emergency credit to Malawi

In early September, the IMF approved an emergency $23 million loan to Malawi to help the country import food. "Malawi is facing a serious food shortage," IMF Managing

Director Horst Köhler said in a statement. "Our emergency assistance is a step toward helping the nation deal with its current food need." Together with World Bank President James Wolfensohn, Köhler called on donor countries to support Malawi and other countries in Southern Africa facing severe famine.

In the June issue of this newsletter, we reported on the allegations that the IMF had advised Malawi to sell off its grain reserves when it was on the verge of a major grain shortage. We provided extensive background material documenting that the allegations were false.

However, the allegations continue to be made. We would like to state once more that the IMF did not advise Malawi to sell off its grain reserves; nor did it at any time make grain sales a condition of IMF lending. Maize stocks are expensive to maintain, so a study commissioned by the Malawi government recommended in 2000 that grain reserves be reduced to buffer-stock levels. That also was intended to free up funds for health, education, and other social services programs. The Malawi authorities proposed to follow this recommendation, and the IMF agreed with that policy. That is the limit of our involvement. The grain reserves subsequently were completely sold off without the knowledge of any international organization.

An investigation conducted by the Malawi Anti-Corruption Bureau in early August charged that the grain sales involved senior politicians, some of whom never paid for the grain. The case is now in the hands of Malawi's Director of Public Prosecutions.

The IMF is ready and open to discuss its policy advice to Malawi and other low-income countries. We continue to believe that the people of Malawi will be better served if all parties—government, donors, CSOs, IFIs, and media—cooperate together to find constructive solutions to the devastating drought that still grips the region.

To read more about this issue:

Malawi—The Food Crises, the Strategic Grain Reserve, and the IMF, A Factsheet

Malawi: Use of Fund Resources—Request for Emergency Assistance—Staff Report and Press Release on the Executive Board Consideration

Stiglitz, Rogoff discuss globalization, IMF role

In late June, the World Bank Infoshop hosted a "book-launch" discussion of Professor Joseph Stiglitz's new book "Globalization and Its Discontents," featuring the 2001 Nobel prizewinner and former World Bank Chief Economist and the IMF's Economic Counselor Kenneth Rogoff. The off-the-record session featured a restatement by Professor Stiglitz of the main themes of the book, a response by Rogoff to the book's critique of the Fund, and a question-and-answer session. World Bank Publisher Dirk Koehler chaired the session, while World Bank Chief Economist Nicholas Stern made opening remarks that highlighted the close cooperation between the Bank and the Fund, particularly between its research departments.

Stiglitz said that international financial institutions failed to present countries with adequate policy choices and did not take into account that uncertainty was a part of the decision-making process. He highlighted six areas in which the international financial institutions, and in particular the Fund, had failed their member countries by giving bad advice:

  • Capital account liberalization in emerging markets has proven to be a costly mistake;
  • A lack of transparency, accountability, and conditionality is still a problem at the IMF;
  • The Fund's fiscal policy advice to countries in crisis has been excessively stringent;
  • The Fund's approach to bankruptcy and bailouts has been misguided, although he lauded Krueger's SDRM proposal;
  • Raising interest rates to high levels to battle currency crises has been very damaging to the economies concerned; and
  • Countries' political and social contexts have received too little attention in policy advice.

Rogoff delivered a spirited defense of the Fund and its staff. While noting that the Fund staff shared many of Stiglitz's analytical views, he criticized his book as being "long on innuendo and short on footnotes." He questioned Stiglitz's confidence in the correctness of his diagnoses, referring to what appeared to be many errors in the book and the author's failure to take account of the complexity of the issues that are involved in making policy decisions in real time.

Rogoff was particularly critical of Stiglitz's contention that distressed emerging market debtors can somehow get around the need for belt tightening. He emphasized that, while IMF programs frequently allow for government budget deficits, a long-run solution to an underlying balance of payments problem often requires some fiscal correction. Yet the belt tightening under an IMF-supported program is undoubtedly less than would be required in the absence of IMF financing (see also An Institution that Eases Financial Pain). Stiglitz would apparently recommend that a distressed country raise its profile of fiscal deficits. But these would have to be financed by increasing government debt, monetary expansion, or both—and Rogoff contended that the crisis would then be exacerbated through possibly uncontrolled inflation, an unsustainable debt stock, and further loss of confidence.

Rogoff also criticized the book for its discussion of IMF involvement in Russia, noting that Stiglitz neglects the fact that Russia was in the midst of an economic, social, and political crisis when the IMF entered the scene. In fact—and contrary to one of Stiglitz's main criticisms of the Fund—the political and social context received a great deal of attention in the IMF's policy prescriptions (see also Has Russia Been on the Right Path?).

In the short question-and-answer session that followed, issues discussed included lessons learned from financial crises, especially with regard to capital account liberalization, and the challenges of reconciling ownership and conditionality.

See also:

Stiglitz, the IMF and Globalization, a speech by Thomas C. Dawson, Director of the IMF External Relations Department, to the MIT Club of Washington.

Bulletin Board

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Membership News

  • In July, East Timor became the International Monetary Fund's 184th member.

IMF Staff News

Transcripts from Recent Events

  • In keeping with its increased emphasis on national "ownership" of reforms, the IMF has focused, in several initiatives, on helping countries build their capacity to formulate and implement economic policy. While most agree that this is desirable, how to do it is being hotly debated. A September 12 IMF Economic Forum, "Capacity Building: Lessons for Africa", moderated by IMF African Department Director Abdoulaye Bio-Tchané, addressed the issue and discussed how Africa could benefit.
  • A September 17 IMF Economic Forum on Governing the IMF addressed the question on how an institution like the IMF can be governed in a way that is politically legitimate and that will be accepted as politically proper without sacrificing the organization's efficiency and its effectiveness. It was moderated by Jim Boughton, Assistant Director in our Policy Development and Review Department.
  • The October 8 IMF Economic Forum on the topic Is Global Inequality Rising? was moderated by Ratna Sahay, Chief of the Macroeconomic and Structural Adjustment Division in our Research Department. The panel represented the spectrum between defenders of globalization who believe it has brought tremendous reductions in poverty through growth in incomes and wealth, and a narrowing of global income inequality, through others who acknowledge that there have been gains in poverty reduction through growth but argue that growth is not sufficient for adequate poverty reduction, to critics of globalization who allege that it is responsible for increasing poverty and inequality.
  • The IMF's Third Annual Research Conference took place in Washington, D.C., on November 7 and 8. Speakers included scholars from universities and other research institutions as well as young (and not-so-young) researchers in the Fund. This year's conference focused on capital flows and global governance.

Upcoming Events

Selected Speeches

Selection of Publications