Transcript of a Conference Call with Civil Society Organizations (CSOs) on IMF Facilities Reform
April 15, 2009March 25, 2009
Ms. Bisping: Good morning, everybody. My name is Jenny Bisping. I think most of you know me. I’m with the IMF’s External Relations Department. Welcome to this conference call on Reform of IMF facilities. I am joined this morning by colleagues from our Strategy, Policy, and Review Department. We have Lorenzo Giorgianni and Alison Stuart of the Emerging Markets Division. who will walk you through the decisions taken yesterday by our Executive Board on the Fund’s lending and conditionality framework. Then Christian Mumssen from the Low-Income Country Division will talk about the recent developments on the reform of our low-income country facilities, and then Bhaswar Mukhopadhyay .from the Debt Policy Division can explain the work that has been done on our policy on external debt limits in low-income countries.
We are also joined by Saul Lizondo from the African Department and Vasuki Shastry from the External Relations Department. They might join the discussion afterwards. I’ll turn it over to Lorenzo.
Mr. Giorgianni: Thank you, Jenny. Let me start with short opening remarks. Yesterday, the IMF Executive Board has approved a major set of reforms covering the overall lending and conditionality framework for all our member countries, from the emerging market countries to the developing and low-income countries. As you know, I don’t need to tell you that the tsunami of the global crisis is hitting all shores now, all countries in different ways. The Fund, at this point in time, wants to act swiftly and make sure that we have both adequate resources to help countries, but also adequate instruments to channel these resources to the countries that need them the most.
Let me just briefly say what the Board has approved yesterday: We have, number one, implemented reforms to modernize the framework for conditionality. As you know, this is the conditionality that is attached to IMF lending. It’s something that creates significant stigma in the way in which we relate to our member countries. What we are trying to do two things: Conditionality should be most streamlined and the monitoring of structural measures should be based no longer on formal criteria as the need to grant waivers, if they’re not met, add to stigma. But they will be monitored from now on in a more holistic and forward-looking fashion in the context of the normal reviews that we do of our lending programs. This change applies to all of our facilities and arrangements with all of our members. So basically from May 1st on, the IMF’s Executive Board will not be able to approve any new structural performance criterion in any IMF program, including with low-income country members.
The second set of changes has to do with our wish to enhance our crisis prevention lending by having in place effective credit lines for countries that want to have money on the table, but not necessarily tap it unless it is absolutely needed. We’re doing that in two ways: by introducing a new instrument that is aimed at the very strong performing emerging market countries and low-income countries if they wish to avail themselves and meet the qualification requirements, which is going to be called the Flexible Credit Line (FCL); and by making more flexible, the traditional Stand-by Arrangements (SBA) to be used on a precautionary basis.
The details of the new facility and the ways in which we’re making more flexible Stand-by Arrangements are, along with the details of other reforms, on our website. So I’m not going to go through the specifics here, but I’d be happy to take questions on these particular issues. The overall goal, again, is to make sure the countries come to us early on, when the problems are still tractable with demand in precautionary lending and to minimize therefore the social and economic costs of a crisis and if at all possible avert a full-blown crisis.
The third set of reforms apply to the access levels and terms of our non-concessional lending, so most of these reforms would probably not impact those low-income country members who wish to borrow from the Fund on concessional terms. So we have doubled the non-concessional lending limits to 600% of quota. We have streamlined the financing terms, by lengthening grace periods by about one year for the Stand-by Arrangements and about two, three years for the Extended Fund Facility (EFF), which is an instrument that is expected to be used more broadly by low-income country members that graduate from the Poverty Reduction and Growth Facility (PRGF).
We have simplified also the cost structure of our non-concessional lending, making it cheaper for lower levels of access, but making it a bit more expensive for very large levels of access. So the set of reforms show the willingness of the Fund to adapt its lending modalities to the different strengths and varying needs of the membership. Together with these reforms, we have for our low-income country members additional reforms that my colleagues will speak about, and by the end of this process hopefully we’ll have a new revamped lending toolkit that fully meets the needs of all of our members and would allow them to escape the gravity of the current or any future crisis.
Let me turn it over to Christian.
Mr. Mumssen: Thanks, Lorenzo. So let me elaborate a little bit on what we are doing on the low-income country side in addition to the change of conditionality monitoring that, as Lorenzo said, applies to all members of the Fund. On the low-income country side, we are doing a very comprehensive review of all the financing instruments for low-income countries. This review was started late last year, but it has now become very timely—as we have discussed in a recent paper on the impact of the financial crisis on low-income countries that was issued in early March—as low-income countries are being very severely affected by the global crisis.
This review of the IMF’s low-income country facilities is proceeding in two stages. Just last Friday, we completed the first stage, which was to consult in an umbrella overview paper with our Executive Board on the direction of reform. I think the direction in which we will go is quite clear now. The objective will be to make our lending instruments for low-income countries more flexible, to take into account the increasing diversity of low-income countries that we have experienced over the past few years—with some countries having made very strong progress on macroeconomic management and until recently also on growth, and others still being in a highly fragile situation. And also to make it more flexible to be able to assist them effectively during the current global crisis and also beyond the current global crisis, including if low income -countries are affected for a longer period than perhaps some of the emerging market countries.
Let me touch very briefly on some of the elements of the reform that we envisage. One element is to close gaps in the toolkit that we see right now. One of these gaps relates to the type of flexible short-term financing assistance that is particularly relevant in times of global stress. We have the Exogenous Shocks Facility, which has helped several countries just in the recent few months and the proposal will in effect make this facility even more flexible to be able to use it in a wider variety of circumstances.
The second gap that we will try to address is also to be able to provide to low-income country members precautionary instruments, just as we are doing it for emerging markets, in cases where there’s no immediate financing need, but the risks are growing and countries may benefit from money that is available at their disposal as needed once the precautionary arrangement is approved.
The third gap that we will try to address relates to emergency financing needs, particularly for post-conflict states, but also for others, where in the past we were somewhat constrained—we had quite a number of different facilities, the natural disaster and post conflict facility and more recently, the rapid access of the Exogenous Shocks Facility (ESF). The idea here would be to streamline this and actually expand eligibility, so that also countries in fragile situations (but not necessarily post-conflict) will have access to financing.
Apart from closing gaps, another key aspect will be to try to loosen the current access limits that we have for low-income countries. As you may know, access limits are much tighter for our concessional resources than for the non-concessional resources for emerging markets. They have also declined in economic terms over the past decade: access limits and norms have declined by roughly 50% because trade has grown, GDP has grown and the access limits in terms of quota have stayed the same. Our intention is to allow higher access levels, if needed. And, of course, we would still take a country-by-country approach, but to essentially loosen a little bit the constraints that we have right now on access.
In the second stage of the review that was kicked off with last Friday’s Board meeting, we will also revisit financing terms. One important issue is that for some of the most vulnerable countries financing terms are currently less concessional than for others, in particular because our emergency assistance for post-conflict and natural disasters is based on a repayment period consistent with the emerging markets, so that means a shorter repayment period and one proposal is to make it more concessional. We will also look at other modalities of financing terms. And of course we are implementing the decision on conditionality and we will also look at other aspects of conditionality that are relevant for low-income countries. As you know there have been efforts over the recent couple of years to streamline the structure of conditionality and we will look further into these issues in the low-income country review.
Finally, the review will look at the IMF’s concessional resources, which by now are likely to be insufficient to meet the needs of our member countries partly because of the global crisis, partly because we want to make our tools more flexible, but also partly for structural reasons. So very briefly, the next steps would be to come back relatively quickly with a decision or with proposals to increase access limits. We hope to move very quickly on this and this would happen for the existing facilities, and then to work until probably around the summer recess on a comprehensive new framework for financing low-income countries.
Ms. Bisping: Okay. Bhaswar will talk briefly on the debt paper.
Mr. Mukhopadhyay: Very briefly on the situation with the debt limits paper, the Executive Board met on Monday to discuss a review of the Fund’s policy on debt limits applying mainly to low-income countries. There was a feeling that the changing circumstances in low-income countries and the diversity of the situation that we see there now warranted some greater flexibility in the manner in which the Fund applies the concessionality requirements to new borrowing by low-income countries. The Board was generally supportive that debt vulnerabilities and countries’ own macroeconomic and public financial management capacity were relevant considerations in determining what the concessionality requirements should be for the different countries in Fund-supported programs.
Having said that, though, there were no decisions taken on exactly how this should work. As with the work on the low-income countries facilities review that you just heard about, this discussion was an overview and no changes to the policy have been made right now. However, staff have been asked to get back to the Board with concrete proposals before the Annual Meetings in October and decisions will be taken at that point in time.
Ms. Bisping: Very good. So that was very briefly what has been happening here in the last few days. We have a little over 20 minutes, unfortunately not much longer, for questions and comments. But we can, of course, continue the conversation offline and at another time. Any questions or comments? Let’s see who goes first from you.
Question: This is Nuria from Eurodad. This is a question of clarification on Lorenzo’s input at the beginning. He was speaking on the new framework for structural conditionality. I think you made a main point saying that from now onwards, no more structural performance criteria would be allowed. Did I get that correctly?
Ms. Bisping: Lorenzo had to leave. We have Allison Stuart here who takes over for him.
Ms. Stuart: With effect from May 1, 2009 the IMF Executive Board will no longer approve structural performance criteria. We still would have structural benchmarks, we still would have prior actions and we would still have quantitative performance criteria. But the idea is that over time we would move to a more holistic review-based monitoring. One of the ideas behind this is that previously with structural performance criteria, if a country missed any one structural performance criteria, that would interrupt a program and a waiver would be needed in order to put the program on track.
Now, often countries might miss performance criteria, sometimes for purely temporary reasons or minor slippages, and we felt that this is placing too much weight on individual performance criteria, rather than looking at the program as a whole and whether the objective of the program as a whole is on track. So we felt that one way to improve and modernize our conditionality was to take away the structural performance criteria. So with effect from May the first, what we’re doing is that the Board will no longer approve new structural performance criteria.
That doesn’t mean that for programs that are currently in existence, where there are already structural performance criteria, that those are automatically eliminated, that will not happen. But what we do expect is that on a case-by-case basis, the authorities in discussion with IMF mission staff would over time discuss the conditions and programs and move towards this more holistic review-based monitoring.
Ms. Bisping: I hope that clarified things. Anybody else?
Question: Okay, this is Saul from Zambia. I’m not very clear about the Flexible Credit Line to the extent that you strongly state that this is designed in a flexible way to accommodate the needs of countries that have very strong economic fundamentals and policies, meaning that they’ve already been implementing and have a sustained track record of implementing strong policies and remain committed to implementing such policies. So what will happen to those countries that have weak economic fundamentals and weak institutional capacity frameworks or policy frameworks? I’m sure these are the worst countries that are hit.
And then question two, what is the framework for analyzing the extent to which a country is badly hit by the global economic crisis? Because the framework that the World Bank uses excludes Zambia as one of the worst that were identified as most-hit countries. And at the recent Tanzania conference, I think Zambia was given as an example of one country that is worst hit. So to what extent does the IMF and the Bank reach an agreement in terms of grading which countries are most hit by the global financial crisis? Those are two questions.
Ms. Stuart: I can take the question on the Flexible Credit Line and accessing the Fund’s policies. The FCL is basically an additional facility. All our existing facilities are there and they’re there to help the whole of the membership. What we felt was missing in the IMF toolkit was a crisis prevention instrument for the very strong performing members. If those members qualified for the instrument, then we would not need to have ex-post conditionality on this specific instrument. So that’s how we designed that. It was basically to fill a gap in the toolkit, but it does not take away any of the existing instruments that we have, although we have streamlined those and made them more flexible.
Mr. Mumssen: Also one thing to clarify is that the Flexible Credit Line is a non-concessional facility, so generally not appropriate for most of our low-income countries where we are providing low interest and longer maturity loans. On the way we determine the needs: I do think you’re quite right that a number of countries have been hit severely by the crisis and I do seem to recall that we discussed Zambia in this context more generally. But as you may know in our work directly with countries, we actually make the determination on all financing needs, including those caused by the global financial crisis on a case-by-case basis based on these existing mechanisms of working with the authorities. So, in other words, we are not globally setting a list of vulnerable countries and then providing additional resources to them, but not to others. We’re approaching this on a case-by-case basis and my expectation would be that in all of those low-income countries that have any additional financing needs due to the crisis, there would be discussion and consideration to what extent the Fund could step up. So, there is no list of countries where we are stepping up and another set of countries where we’re not stepping up, we are looking at it on a case by case basis and additional financing needs will be addressed as we have always have been doing it.
Mr. Lizondo: I just wanted to add that in the case of Zambia, we did recently discuss with the authorities the possibilities of augmentation of the current program on the basis of how much Zambia now is suffering from the shocks from the world economy.
Ms. Bisping Okay, somebody else?
Question: Yes, Virginia from Nigeria. (Extremely difficult to understand speaker.)
Ms. Bisping: Virginia, thank you, we can’t discuss Nigeria in detail here at this point. But I’ll ask Mr. Lizondo to just say something about Nigeria and the financial crisis and how the Fund is working with the country.
Mr. Lizondo: It’s clear that Nigeria has been affected by the financial crisis, one of the main impacts is on the price of oil. So that means the perspective revenue from oil exports in Nigeria for the future is going to be much lower than was previously anticipated. That means that the country will have to adjust in some way to these new prices. It’s also going to affect output. It’s already affecting output in the economy as in other economies. Now regarding the involvement of the Fund, with Nigeria that depends on what the authorities want to do and the Fund is ready to discuss with the authorities ways in which the Fund can help.
Ms. Bisping Okay, somebody else?
Question: This is Meja from Afrodad. I have two questions. First of all, I’m grateful that the Fund is indeed looking at ways of helping the poor countries in this crisis. I wanted to ask because the focus seems to be solving the crisis and also preventing it. I don’t know if you’re doing that to allow countries to expand their social expenditure to push on the poor more disregard because I think it seems the priority of most governments is much more to secure the domestic markets than financial. But I think you need some elements to show that we’ll see some efforts going toward poverty expenditure sectors.
I’m also glad you are talking about the issue of post-conflict countries and fragile states. In that regard, I’m not quite clear how we are going to approach countries like Zimbabwe that are now trying very hard to get into the economic reform process, but yet have not been open to coming to the IMF.
Mr. Mumssen: On your question regarding social protection during this crisis, I think this is absolutely critical. What we have done is to think about how best to respond to this global crisis in low-income countries. I think it’s very clear that without additional outside support, there will be very, very difficult choices to be made by policymakers. Essentially, our advice in most countries is to try to preserve as much as possible social spending throughout this crisis, possibly even increase social spending during this crisis and in those countries where we do have a program, we will look at exactly the financing that is required. As I said, the Fund is ready to step up it concessional lending and hopefully that will help together with the World Bank and other donors to fill this financing gap to preserve the most vital expenditures. So I fully agree with you that this will be a priority in the coming couple of years. So let me pass to Saul for the question on Zimbabwe.
Mr. Lizondo: In the case of Zimbabwe, the Fund has just had a mission to Zimbabwe to conduct what we call the Article IV consultation, which is a discussion on economic policies that we have with all our member countries.. So they just concluded that discussion in that context to provide advice to the authorities on how to deal with the crisis. At present as the situation is, the Fund cannot provide financial resources for Zimbabwe because there are still sanctions in the Fund with Zimbabwe, so to start that process, there will be a need to lift those sanctions and also for Zimbabwe to repay arrears to the Fund and other international financial institutions.
Ms. Bisping: Anybody else? I think we have maybe time for a couple more questions.
Question: Nancy Alexander. Yes, could you address whether there was a discussion or decisions with regard to the flexibility of inflation and fiscal targets and also whether there was any discussion of subsidies? What we see sometimes in the loans is that the social expenditures are maintained, but the subsidies are reduced that diminish the welfare of poor people. Thank you.
Ms. Bisping: Neil, why don’t we take you at the same time? Then we have both questions.
Question: Neil Watkins from Jubilee USA. Okay, so two questions both relating to the low-income country side of the discussion, one is a process question. So you outlined that stage one was completed last Friday and that stage two will now begin and go through the summer and that this will include looking at issues of conditionality. I’m wondering whether there will be consultation with civil society? What will that look like? Will there be consultation with other stakeholders, governments on these very critical questions going forward?
The second question is regarding low-income countries. Obviously low-income countries had nothing to do with what caused this global crisis, but are suffering, I think everyone would acknowledge, that I wonder whether for the poorest countries, the IMF will be considering making grants available or whether it will only be in the form of loans or concessional lending.
Mr. Mumssen: Regarding the first question on flexibility of policies, no, this was not discussed at Friday’s Executive Board meeting. I think the focus was very much just on the lending instruments themselves that we have in place. I would say, however, that from a policy perspective, we are definitely looking very, very closely at the types of policies that make sense during the global crisis. So we do think that we have a bias toward some greater flexibility to some degree on how low-income countries are responding to the crisis because as Neil said, it wasn’t a crisis that they caused. Clearly it would be very difficult for most low-income countries to solve it by themselves. Additional financing is needed and it will be important that the policies that are put in place make sense to each country case.
Regarding the conditionality question, I think again, we have a new policy adopted by the Executive Board that applies to all member countries right now, which effectively means that we have no more legal conditions on structural reforms. We will in the second stage of the low-income country review for each lending instrument, discuss aspects related to conditionality and we will definitely in this process, as we are developing these aspects, consult; and I would very much welcome if we could have a separate phone discussion, perhaps a little bit later on this very question: what are the key issues.
Broadly speaking, we would like to continue the effort on streamlining conditionality. Given that countries are now quite diverse and given that we will have more than one lending facility available, one important aspect will be the question of tailoring conditionality, not just to country circumstances as we have been doing it in the past to some extent, but also tailoring it to the type of financing needed, to the type of facility that we are using. I think that will be one of the areas that we will discuss in the second stage of the review. On the question on the financing terms, here the Fund has a unique mandate and a unique role it plays in the context of donor coordination. To some extent there is also the question to what degree the Fund acts as provider of long-term development finance versus short-term support. These are questions where our membership has been somewhat of different views. It is likely that we will revisit financing terms. It is, however, highly unlikely that we’ll be allowed to provide grants. This is not in the mandate of the IMF right now and it would be a very different role we would be playing. Generally speaking one of the differences between the Fund and, e.g., the World Bank and other donors, is that our financing tends to be a little bit more counter-cyclical, which means that there is some benefit of having financing on a revolving basis, so that we can respond to whenever financing needs are large, we can respond quickly. And we can then replenish through the repayment, somewhat the resources to help other members that might have financing needs in the future. So we play a somewhat different role than other providers of finance. I don’t see grants at the moment on the table.
Ms. Bisping: Okay, let’s take one more question and then wrap it up.
Question: I had a question also for clarification with possible new precautionary instruments for low-income countries. A comparison was drawn to the Flexible Credit Line that was introduced yesterday. So where would it be similar and what would be the differences? And also because there was a mention that strong performing LICs could apply for the new facility?
Mr. Mumssen: Let me clarify the new facility that Lorenzo introduced earlier on. As I said before, this is a facility on non-concessional terms. Whereas I have been talking about the facilities that are provided on concessional terms, so that’s just to clarify on the FCL. Regarding the precautionary instrument we are proposing for low-income countries, i.e. precautionary on a concessional basis, what we have in mind here is that we may consider whether there are some low-income countries that still have low incomes and still have development needs that at the same time are very exposed to, e.g., global shocks and where public confidence could play a very important role. This would be particularly the case in those low-income countries that have relatively open capital markets, have access to foreign lending and where the domestic financial sector plays an important role. So it is a possibility that those countries may desire an instrument that installs confidence. Now I should say, however, that on this particular instrument, it is not yet entirely clear whether ultimately we will end up designing such an instrument. We still have discussions to what extent there may be demand and how exactly it would be designed.
Question: I had a question, Andrew from Malawi. Yes, on the additional concessional resources that the Fund has been able to identify, can you just explain briefly whether countries like Malawi, who are already on the Exogenous Shocks Facility, can access additional resources under that program or they can access [inaudible] currently to help them deal with their crisis?
And then, is this review the success of the conference in Tanzania or this is something that was already going on?
Mr. Mumssen: On the question of additional resources: What we did on Friday is to discuss with our Executive Board essentially the need for additional concessional resources and the need to act decisively and ensure that we have sufficient flexibility in our toolkit to deal with the current global crisis. As you said Malawi has an ESF in place and again on individual country cases, we base it country by country. Certainly we will stand ready at any point in time to discuss the financing needs, discuss the appropriate facilities to provide these financing needs.
Regarding the question on the Tanzania conference, I do think this conference was extremely important for the Managing Director to talk directly to all of the policy makers in Africa and exchange views with them. And when he came back to Washington and in advance of our Board meeting, he highlighted the messages that he heard from policy makers in Tanzania. I think that was certainly very, very helpful to heighten the awareness of the importance of how the global crisis is effecting low-income countries and that low-income countries are very much requesting additional support from the Fund: additional financial support, additional flexibility in the provision of this financial support, additional technical assistance, which we’re also stepping up substantially in Africa, and, of course, continued intensified policy dialogue.
Ms. Bisping: All right, I think we will have to stop here.. The papers that were discussed today will be published in the next few days or week. And as you know we can follow up on all these issues. If you have any questions, you can email me. I can pass them on or we can think about a discussion at the Spring Meetings. Some of you will be there, so we’ll continue the dialogue. Thank you.