Civil Society Newsletter
The IMF And Civil Society Organizations
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Civil Society Newsletter
In this issue
In this issue, the Civil Society Newsletter takes a new step toward providing a newsworthy account of the International Monetary Fund's work from the perspective of interaction with civil society organizations. It is a mark of the importance we attach to the Fund's relations with civil society that we want to offer a clear window onto our activities. The stories in this issue address some of the most important issues facing the world economy, but try to do so in a more concise and approachable style. This approach to the Newsletter is just one part of a broader, ongoing effort to expand the Fund's involvement with civil society.
In this regard, many readers will recall that we sent out a special, single-story edition of the Civil Society Newsletter in March to announce a project aimed at enhancing the interaction of IMF staff with civil society. This project—whose main aim is to devise practical, in-depth guidance to mission leaders and resident representatives for their relationships with civil society organizations—is being assisted by Prof. Jan Aart Scholte of the Centre for Globalisation and Regionalisation at the University of Warwick and a specialist in the relationship of civil society with multilateral institutions, particularly the IMF. The lead feature article in this issue of the Newsletter is an interview with Prof. Scholte. The development of the guide will be a central part of the External Relations Department's work with civil society in the coming months. Prof. Scholte will be seeking input on his draft paper from a range of civil society organizations—especially in the global South—in the coming weeks, and we expect to post a revised version on our website (www.imf.org) for comment later in the year. We look forward to your comments and input as this guide is intended to be updated regularly.
This issue also includes articles on several key aspects of the Fund's work over the past quarter: the April meeting of the International Monetary and Financial Committee; a recently released Research Department study on financial globalization and several important meetings with civil society.
Prof. Jan Aart Scholte of the Centre for Globalisation and Regionalisation at the University of Warwick in Britain is the author of " Civil Society Voices and the International Monetary Fund,". He is preparing a guide for IMF staff concerning their relations with civil society organizations (see special edition of the Quartely Newsletter for Civil Society). Scholte spoke about the project during a March visit to IMF headquarters in Washington to work on the project. Excerpts:
The International Monetary and Finance Committee (IMFC) held its 2003 Spring Meeting at a time of uncertainty about the international economy. The April 12 gathering of the IMFC, which meets twice a year, came as the war in Iraq was beginning to wind down. But the end of fighting left many concerns about the effects of the conflict. The meeting dealt with these issues, as well as with worries about the status of the effort to assist the world's poorest countries and the ongoing campaign to devise better methods to prevent and resolve economic crises.
The IMFC communiqué, issued at the close of the session, reaffirmed the IMF's commitment to close international cooperation to support the global recovery . "It is a mark of the commitment of all that even in these challenging and difficult times we have been able to look beyond the here and now in examining all the long-term issues that the world economy faces," said Gordon Brown, Chairman of the IMFC and U.K. Chancellor of the Exchequer, at a press conference after the meeting.
On postwar Iraq, the IMFC supported a further UN Security Council resolution and reaffirmed the role of the IMF and World Bank in restoring "sustained economic, social, and political development in Iraq." The communiqué said both institutions "stand ready to play their normal role in Iraq's redevelopment at the appropriate time." Asked at the press conference to define "normal," IMF Managing Director Horst Köhler said that the committee viewed its responsibilities in Iraq in the same way as it had approached post-conflict projects in Kosovo, Afghanistan and East Timor and elsewhere. Mr. Köhler said a fact-finding mission could be sent to Iraq when the situation on the ground is safe.
On the global economy, the IMFC called on the advanced economies to undertake policies that would "deliver strong growth in the second half of the year." The communiqué placed additional emphasis on actions by the advanced economies that would "address medium-term fiscal pressures"—especially in the U.S.—and enhance needed structural reforms in Europe and Japan. The communiqué called on emerging market countries to continue developing their resilience to global developments by strengthening macroeconomic stability and pursuing structural reforms.
For the low-income countries, the IMFC said that prospects for stronger economic growth "should be supported by improved economic policies, stronger institutions, progress in resolving regional conflicts, and increased donor resources, including through debt relief under the HIPC Initiative." It said that the IMF continues to play an important role in helping lower-income countries make progress toward meeting the Millennium Development Goals. "The Committee recognizes the urgent need to enhance market access and to increase the level and effectiveness of donor resources for developing countries," the communiqué said. The committee called on the IMF to continue its work on aligning poverty reduction strategy papers (PRSPs), the Poverty Reduction and Growth Facility, and individual country's budgets. "This will be facilitated through more realistic economic projections, systematic analysis of the sources of growth, effective Bank-Fund collaboration, and flexibility in program design, including to accommodate higher aid inflows," the IMFC said. The Committee also looked forward to the analysis of the role of the IMF in low-income countries over the medium term.
On the Heavily Indebted Poor Countries initiative, the IMFC welcomed recent additional progress on debt relief, but also noted the delays that some countries face in reaching the completion point or in overcoming obstacles to participation. The committee said it looked forward to a review of these issues that will be presented at its next meeting in September in Dubai. The IMFC reaffirmed the commitment to full funding of the HIPC initiative, and welcomed the efforts by some countries to provide additional debt relief.
The IMF recently published a research paper discussing the effects of financial globalization on developing countries. The new study, "Effects of Financial Globalization on Developing Countries—Some Empirical Evidence", by Eswar Prasad, Kenneth Rogoff, Shang-Jin Wei, and M. Ayhan Kose contributes to a more nuanced understanding of the role played by international capital flows in promoting development. It also contains some important implications for the policy framework of developing countries.
The study set out to answer the following three questions:
Economic theory states that developing countries can accrue large benefits from financial integration. By opening their economies to capital inflows such as foreign direct investment, portfolio investments, and bank borrowing, countries not only encourage economic growth, they also help stabilize consumption, which is an important measure of economic well-being.
What the study found was that this theory doesn't always hold true in practice. Even though income per capita is higher for developing countries that have more open economies, it is difficult to find strong evidence that suggests this is due to the fact that they have liberalized their capital account. In fact, some of these countries have experienced very costly banking or currency crises, when investors suddenly decided to withdraw their money.
However—and this is important—the study also found that once financial integration crosses a certain threshold, the positive effects of international capital flows (cheaper access to capital, transfer of new technology, development of the banking system) begin to cancel out the negative effects. Furthermore, countries with good economic policies and low corruption stand to gain from financial integration. These countries do a good job at attracting foreign direct investment, which is especially conducive to economic growth. In contrast, countries that are perceived by investors as lacking in transparency and/or as having poor economic policies, tend to rely more on "hot money", such as short-term bank loans, and less on foreign direct investment. This makes them more prone to crisis.
To give an example, financial integration can encourage countries to overspend. Access to world capital markets makes it easier for governments to borrow—often excessively and on a short term basis. The accumulation of short-term debt in foreign currencies makes such countries more vulnerable to external shocks or changes in investor sentiment.
However, such risks offer reason to proceed with liberalization carefully; they are not reasons for turning away from it altogether. The IMF continues to believe that developing countries can reap significant advantages from opening up to the outside world. In this respect, it is important to keep in mind that this study looked at only one aspect of globalization—the role played by international capital flows in the economic development of developing countries. Other aspects of globalization, such as international trade and labor mobility, were not included in the analysis. An overwhelming majority of research papers have found that trade liberalization has a positive effect on economic growth. The financial-liberalization study therefore should not be seen as providing an answer to the broader question of whether globalization is "good" or "bad" for developing countries.
For more information on the IMF and capital account liberalization, please refer to:
Representatives of the IMF and World Bank and the World Council of Churches sought common ground during a meeting in Geneva in February. Structured as a seminar, the session included presentations and debates on growth strategies and civil society's access to policymakers.
One of the goals of the two-day meeting, and others planned to follow over a two-year period, was to find points of common ground. The seminar grew out of an exchange of letters aimed at establishing a high-level dialogue last year between Horst Köhler, managing director of the IMF; James Wolfensohn, president of the World Bank; and the Rev. Dr. Konrad Raiser, general secretary of the WCC.
The discussions were broken down into four sessions covering the evolution of the mandates of the Bretton Woods institutions and their views on development; "the International Concept of Wealth Creation and Social Justice"; privatization; and an assessment of the dialogue experience.
Some criticism from the WCC side was unsparing. During the session on wealth creation and social justice, Pamela Brubaker, a professor of Christian Ethics at California Lutheran University, insisted that the economic policies promoted by the Bretton Woods institutions have widened the gap between the wealthy and the poor. She said she was not persuaded by recent changes in their poverty reduction initiatives. In her view, the international financial institutions are driven by the financial interests of a small elite of corporations and major countries.
But speaking at the same session, Peter Heller, Deputy Director of the IMF Fiscal Affairs Department, responded by describing the way in which the IMF has broadened its concern for poverty reduction and job creation over the last 15 years. In the early 1990's, the Fund sought to ensure that countries adopted policies to prevent adjustment policies from worsening the situation of the poor, Heller said. Now, there is even more emphasis on helping countries create jobs that can bring households out of poverty and supporting policies that help the poor receive vital education and health services, while still fostering growth and macroeconomic stability. Heller emphasized that the poor are the principal beneficiaries of policies to restrain inflation: unlike the rich and middle income groups, they have no way of avoiding a loss in real income. He also noted that the major shareholders of the Fund have strongly supported this change in emphasis.
Brian Ames, an Advisor in the IMF's Policy Development and Review Department, updated the group on the Poverty Reduction Strategy Paper process and its potential for engaging civil society and broadening debate on key issues of poverty. The same session heard a highly critical presentation by Patrick Bond of the University of Witwatersrand on water privatization issues in southern Africa.
The consensus among seminar participants was that the WCC and the Bretton Woods institutions have a common commitment to fighting poverty. But many WCC members say they share the perception that they are excluded from the process of defining development agendas.
They also share an interest in keeping the dialogue going. A second seminar is planned later this year in Washington. Topics will include the participatory process as part of the PRSP; the roles of public and private sectors in the economy; responses to globalization; and governance of the Bretton Woods institutions and member nations. Some participant churches indicated that in the future they plan to approach the dialogue by providing practical suggestions and alternatives to combating poverty, and perhaps bringing a different mix of participants to the event.
As part of a continuing series of meetings with NGOs that focus on the work of the international financial institutions, IMF Managing Director Horst Köhler met in February with Dean Hirsch, President of World Vision International, a faith-based antipoverty and relief organization
During the meeting, Hirsch emphasized that all sides in the IMF/CSO dialogue need to engage constructively and openly as the Fund moves toward a more transparent interaction with various groups.
The meeting—which took place against the background of the publication of the World Vision discussion document "The IMF and Civil Society: Deepening the Dialogue" (available at www.globalempowerment.org)—was a step toward improving relations between the IMF and civil society. Admonished in the past for ignoring its critics, the Fund now faces a different level of scrutiny. Alan Whaites, World Vision's Director for Policy and Advocacy, cautioned Köhler against treating outreach to NGOs as "risk management." He pointed out that some meetings between the IMF and civil society have resulted in both sides "talking past each other," and urged the Fund to be more open to NGO views.
Köhler said that the IMF sometimes serves as a lightning rod for outrage about all that is wrong in the world, and suggested that complaints about lack of access to the Fund sometimes ring hollow. He said that talking to NGOs is now "a way of life" and described the External Relations Department's current effort to assist Fund staff in developing civil society outreach (see interview with Prof. Scholte on page 3).
Hirsch said that in his role as President of the Global Movement for Children, he is responsible for identifying ways to bring the international financial institutions, the UN and other organizations together to help children on issues including education and health. He suggested that through this project he could find opportunities to urge the Fund's regular counterparts to engage more openly. Hirsch also expressed interest in the Fund's work on a review of the role of its resident representatives stationed overseas in member countries.
The challenges facing the seven poorest members of the Commonwealth of Independent States in their long transition toward economic development were the focus of a January 2003 conference in Lucerne, Switzerland.
Officials of the CIS-7 (Armenia, Azerbaijan, Georgia, Kyrgyz Republic, Moldova, Tajikistan, and Uzbekistan) attended the conference along with members of civil society from their own countries, officials of multilateral organizations, donor countries and academics. Lively debates at each of the sessions centered on the role of the international community during the early part of the transition, the importance of country ownership, and the need for improved cooperation in the region.
The CIS-7 representatives said their countries had received valuable financial support and technical assistance from the multilateral financial institutions. But they also said the financing mix was too weighted toward loans, arguing that the loan-grant imbalance occurred in part because the time that it would take to lay the foundation for economic growth had been underestimated. Marat Sultanov, a parliamentarian from the Kyrgyz Republic, said that with only limited grant financing available, the countries had little choice but to borrow in an attempt to prevent living standards falling even more sharply than they did in the early years of the transition. The bottom line, he said, was that the international community had helped build debt as well as government institutions.
The conference papers did not call for fundamentally different approaches to transition. However, several country participants stressed that reforms could only be implemented if they were "owned" by the country. Yegor Gaidar, former Prime Minister of Russia and now director of the Moscow-based Institute for the Economy in Transition, pointed out that Russian tax reforms became reality only after Russian officials themselves took the lead in designing the initiatives.
Looking ahead, there was consensus that, given their location and the small size of their economies, the CIS-7 countries will need to focus on expanding their trade. CIS-7 representatives agreed with this notion and acknowledged that trade is heavily constrained by ad hoc tariffs, transit restrictions, and border closures. But they also said that it is essential to ensure improved access to industrial country markets, especially in the EU.
The conference ended on a relatively positive note. Despite the long road ahead, the recent pickup in growth in most of the countries had resulted in reductions in poverty rates suggesting that the countries were heading in the right direction.
All the papers from the conference are available at the CIS-7 Initiative website, in both English and Russian.
On March 12 I was invited to speak to the Development Cooperation Committee (DCC) of Hanoi, comprised of NGOs and other members of civil society. Vietnam has over 350 international NGOs, who are coordinated in part by the Vietnam NGO Resource Center.
I challenged the participants to "connect the dots" between their efforts on the ground and the macro-policy focus of the IMF. The game is to see in how many dots, or connections, a given NGO activity can be linked with an IMF topic of interest. For example, several NGOs in Vietnam are involved in rural micro-credits and micro-lending to small businesses. While micro-lending is not a routine topic in the policy dialogue of the IMF with the State Bank of Vietnam (SBV), it is on the "radar screen" now because the Asian Development Bank (ADB) in Vietnam is sponsoring a technical assistance project to write supervision manuals for the SBV on micro-lending activities.
Another example: a UNESCO team recently visited Vietnam to study the potential for eco-tourism in Halong Bay (a natural wonder in the north part of the country). The UNESCO representative started off by apologizing for meeting the IMF, which he was sure had no interest in eco-tourism, but was on the schedule of meetings anyway. To the contrary, we "connected the dots" in three steps: one, eco-tourism is not only environmentally important to all of us, but also helps generate tourism generally; two, tourism has many linkages to economic development across sectors, generating growth and poverty reduction; and three, tourism generates foreign exchange earnings for Vietnam, which directly links to the reserves strength of the State Bank of Vietnam.
The bottom line: We are more connected to each other than we realize!
For more information about the IMF in Vietnam, see our website which includes a link to the full presentation to the DCC.
Under the umbrella of the UN family, we participated in monthly meetings of the Youth Initiative organized by various UN agencies. This project aims at establishing the content and the form of the UN Youth Summit scheduled for July 2003. The summit's aims include: empowering young people to gather the skills necessary for participation in public life; equipping them with the skills to work with government; encouraging the voices of young people to be heard at all levels of decision-making; discussing the Millennium Development Goals (MDG) in the framework of new legislation to be enacted by the government; and including the voices of young people in this legislation and policy development.
In order to achieve these goals, the summit will serve not only as a forum for discussion, but also as an organizing device for practical action on a number of issues, including achieving progress toward the MDGs; encouraging reproductive health and healthy lifestyles, family, health and responsible male behavior; and eliminating the worst forms of child labor.
We try to make sure that the relevant budgetary allocations—on health and education, for instance—are being spent as intended and that funding is adequate, given overall constraints. We also try to verify that youth rights are respected in the newly adopted civil and economic codes. More generally, together with other donors, we monitor whether the authorities follow a public and transparent process when accounting for the views of civil society on a wide range of policy issues.
See the IMF Resident Representative office website for more information.
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