IMF Survey: Terms of IMF Lending Seen as More Focused, Better Tailored

IMF News, September 17, 2012

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Canonical URL: IMF Survey: Terms of IMF Lending Seen as More Focused, Better Tailored

Publication date: September 17, 2012
Main conclusion: An internal review finds the IMF has largely learned lessons from previous crises to improve lending conditionality—making it more focused, better tailored, and more flexible.
Scope of review: Focuses on the period 2002-September 2011 and concentrates on programs approved after 2006.

Examined 159 IMF-supported programs.
Of these, 95 programs were for poorer countries, often involving lending at very low interest rates (60 percent of the total).
64 were general lending programs.

IMF-supported programs have been generally better tailored to individual country needs.
Programs adapted flexibly to changing economic circumstances, which helped achieve program objectives and aimed to safeguard social protection and investment during crises.
The IMF improved its analysis, internalizing lessons from previous crisis periods.
- Example: The overshooting current account adjustments seen in some programs of the 1990s have been mostly avoided.
- Emphasis on ample and upfront financing to create room for maneuver, particularly in capital account crisis cases.
New challenges identified, notably in the euro area crisis:
- Complexities due to the size of debt burdens, the systemic nature of the crisis, and the need for coordination across institutions.
- Program design complicated where countries faced high debt burdens, sustained loss of market access, low growth, and competitiveness issues, and where the constraints of a currency union limited policy options.
- “Debt sustainability and competitiveness problems required deep and protracted policy adjustment, combined with large-scale official financing.”

The report urges enhancement of country ownership and transparency of lending programs through:
- More discussion of alternative policy options.
- Greater clarity in written assessments.
- Tapping new avenues to collect external views.
Social aspects of policy measures should be considered in a broader context:
- Reforms often involve near-term costs yielding significant long-term benefits that should not be neglected.
- Recent experience in the Middle East, Northern Africa, and Europe highlighted the need to account for employment issues and inclusive growth strategies.

Further efforts to streamline and focus conditionality, including follow-up to a 2007 IEO report on structural conditionality.
Discontinuation of structural performance criteria and a shift to review-based monitoring of structural reforms as part of the 2008-09 lending reforms.
Reform of the exceptional access policy and introduction of the Flexible Credit Line (FCL) and Precautionary Credit Line (PCL) in 2009-10 to facilitate precautionary finance and tailor conditionality to members’ fundamentals and policies.
New lending framework for low-income countries introduced in 2009:
- Doubled lending access norms.
- Introduced new facilities: the Rapid Credit Facility and the Standby Credit Facility.
- Increased program flexibility.

While conditionality guidelines are broadly appropriate, the review finds implementation and other policies need strengthening.
The paper organizes results and recommendations around six themes:
- Keeping conditionality focused;
- Enhancing risk diagnostics underpinning program design;
- Considering macrosocial issues in IMF-supported programs;
- Enhancing program ownership and transparency;
- Leveraging economic surveillance to increase contingency planning; and
- Improving partnerships with other institutions.

Source: IMF Survey: Terms of IMF Lending Seen as More Focused, Better Tailored (September 17, 2012).