The IMF and Human Development Image
The IMF and Human Development
A Dialogue with Civil Society

by Michel Camdessus

March 6, 2000
©2000 International Monetary Fund
How to Order this Publication

It is better to wipe the tears from the eyes of a poor man than to receive the smiles of a hundred ministers.—Chinese Proverb


I am often asked whether development is truly a major concern of the IMF, which, after all, is not a development institution. And I have always maintained that one of the central purposes of the IMF is to promote economic development and thereby raise living standards, broaden opportunities and choices, and increase the general welfare among its members. There is no doubt: development is one of the IMF's central concerns. And if the adjustment and reform policies we are mandated to promote were not perceived as a precondition for development, they would lose any chance of being readily implemented.

More than ever in today's highly integrated world, we must look at the development challenge as a large, interconnected puzzle, which includes not only macroeconomic issues, but also other ingredients. To name a few, there are environmental and social concerns, labor standards, health, education, poverty reduction, and ethical concerns--not the least being the fight against corruption.

A critical aspect of addressing these concerns is the need for all countries to pursue the broader objective of what I call high-quality growth. By this I mean growth that is sustainable, so that, for example, it does not crumble in the face of slight external shocks. It means growth that is dynamic, that leads to job creation and poverty reduction, provides equal opportunities for all--including women--and respects the environment and countries' traditional cultures. High-quality growth is concerned with the poor, the weak, and the vulnerable.

Last September, the Development Committee, a joint advisory body of government ministers for the IMF and the World Bank, considered a draft paper on principles and good practices in social policy that can guide national authorities in formulating domestic social policy. Such social principles and practices--equity, equality of opportunity, and participation of all--are essential if the new millennium is truly to mark a new age for countries to develop a surer, firmer foundation for the progress in improving living standards that we seek.

The world's knowledge of the links between economic policy and equity is improving, but it remains limited. We at the IMF are attentive to the research that is going on in academia, other international organizations, and member countries. We have organized two conferences (in 1995 and 1998) to further our understanding on this critical question. And in providing advice to member countries, the IMF--in cooperation with such other institutions as the World Bank, the ILO, and other specialized UN agencies that have the primary responsibility and expertise on social issues--will continue to take every opportunity to move forward on these issues.

This pamphlet provides a limited idea of our dialogue with civil society around the world. But dialogue is not only about exchanging information and explaining the institutional constraints within which we must move. It is much more than that. There is no such thing as a genuine dialogue that does not lead in some way or another to change for the better. This is at the heart of human experience. And it is also true for institutions. This has been the experience of the IMF.

In September 1999, a significant agreement was reached to put poverty reduction at the heart of the reform programs for the poorest countries to be supported by the international community. Already, we have taken steps in this direction by transforming our concessional loan facility--the Enhanced Structural Adjustment Facility (ESAF)--into the Poverty Reduction and Growth Facility, in parallel with new steps for debt reduction, an explicit link with poverty reduction, and a new level of cooperation with the World Bank. However difficult the task, our objective is to create the conditions for the emergence of a world that could be a better place for all--and above all for the poor.

In my interactions with civil society, and in particular, with nongovernmental organizations (NGOs), I am asked many questions related to the IMF's role in development. This pamphlet collects questions I have frequently heard all around the world, most recently in Abuja (Nigeria) when spending a morning in a dialogue with the leaders of the women's association of that country. My responses here should not be viewed as comprehensive, but as an attempt to sincerely formulate the IMF side of the story.
Michel Camdessus
January 2000

The IMF and Human Development:
A Dialogue with Civil Society

1. How are development concerns--and, in particular, poverty reduction--addressed in IMF programs? How does the IMF intend to engineer economic growth and have the poor benefit from its programs?

There is absolutely no doubt that poverty--and inadequate health care and education--not only offend human values, but also represent wasted human potential that is immensely costly to development. But it is clear that the best solution to poverty, and the only lasting solution, is through economic growth--sustainable, equitable growth as a means to improved living standards and a better society, with less poverty, better health, and better education.

Having said that, we must keep two things in mind. First, each country's development priorities are unique. The degree of emphasis that a government chooses to place on the different items of its development agenda varies across countries. Second, the reform programs that the IMF supports are not directed at a specific policy agenda. Rather, they are directed at creating the conditions conducive to the realization of members' development goals and objectives. In other words, our principal aims are to assist in the creation of a policy framework that makes possible sustainable, high-quality growth.

Consequently, it should not surprise you to hear that the IMF's assistance is extended in the context of its concerns for policy--macroeconomic and structural. Economic growth and development can only take place in a stable macroeconomic environment; it is toward the creation of such a stable environment that the IMF focuses its activities, by assisting in the formulation of sound and appropriate policies regarding the budget, the amount of money in circulation, the value of the currency, and the quality of government spending. IMF assistance is provided through a consultation process and through financial and technical assistance in support of economic programs.

In the more than half-century of the IMF's existence, we have learned and shared several valuable lessons about the value for economic growth of price stability, of high saving and investment, and of directing scarce resources to their most productive uses. We have also learned that good economic policies--prudent monetary, fiscal, exchange rate, and trade policies--are truly compatible with a country's meeting its basic needs for health care, education, and social services. Good social policy depends on good economic policy. Let me elaborate:

  • Creating an environment of low inflation and steady growth is of tremendous benefit to the poor--for it is they who are most likely to lose their livelihoods during economic downturns and who are least able to protect the real value of their incomes and savings during periods of high inflation. Reducing inflation--one of the goals of monetary policy--is therefore critical to establishing and maintaining an environment conducive to saving and investment, so crucial for employment creation and a better life. No wonder, for instance, that in the two years following the adoption of the courageous Real Plan in Brazil, more than 10 million people were able to rise above the poverty line.

  • Ensuring that government's demands on the resources available to the economy are kept within reasonable bounds is also critical to establishing a healthy economic environment. This is the role of fiscal policy. But it is not only quantities that warrant our attention; the quality and composition of fiscal spending can have profound and direct effects on poverty alleviation and economic growth. This is why the policy emphasis of IMF-supported programs has increasingly focused on reducing unproductive spending, including military spending; and reallocating spending to activities that are most beneficial to the poor, such as basic health care, primary education, housing, and other critical investment. We are also aware of the need to pay more attention to the efficiency and effectiveness of spending within priority sectors. This means, for example, that primary education should not be underfunded relative to higher education. Public health spending should likewise not be skewed toward large urban hospitals at the expense of rural health programs.

  • For many countries, exchange rate policy also bears directly on social issues. An overvalued exchange rate is likely to have a negative effect on the incomes of the rural poor who depend on agricultural exports. The experience of the 14 countries of the CFA franc zone is striking. Since January 1994, when the overvalued CFA franc was devalued, with appropriate accompanying policies, the economic performance of these countries has been transformed. After many years of stagnation, they have been experiencing healthy growth.

  • Finally, structural reforms are usually needed to create the conditions for economic growth by improving resource allocation and providing incentives for competition and private initiative.

I know that too often people are disappointed by the results of their countries' initial stabilization and reform efforts. They see that the balance of payments is stronger and that inflation has declined, but they don't see that their own living standards and opportunities have increased. And often, they are right. The problem is that many of the obstacles to private sector initiative, job creation, and foreign investment have been left in place. The solution is broader, deeper structural reforms.

These include civil service reform to secure a smaller, but better paid and more efficient, cadre of public servants; labor market reform to remove obstacles to job creation; trade and regulatory reform to level the playing field for private sector activity; and many other reforms that have a distinct and immediate social impact--such as agricultural reform, the enforcement of property rights, mortgage and credit schemes, and land registration. In all these fields, we, in the IMF, rely extensively on the expertise of the World Bank, using their data and findings to better inform our own policy advice.

Another problem that most developing countries have to face is that gains from the policies I have outlined are not apparent immediately. They take time in coming. But building a strong, resilient economy requires putting strong foundations in place: foundations that will withstand economic shocks and be the platform on which development goals are pursued and realized.

Of course, the aim of these reforms is not solely to create an economic climate that is objectively more efficient; it is also to inspire confidence and enhance credibility. Foreign and domestic private investors seek, above all else, consistency, predictability, and clarity about policy. Hence, it is vital that these reforms be carried out in a sustained manner, in an atmosphere of transparency and good governance on the part of both the public and private sectors.

On all these issues, we have learned about the need for partnership--a partnership that goes beyond governments, with whom we are in virtually continuous dialogue. None of us can go it alone--and expect to succeed. We need to collaborate all the way through the process: from design to implementation. The IMF is very much aware--and appreciative--of the value of our partnerships at every level: with other international institutions, with the private sector, and with civil society in all its forms. NGOs, in particular, have shown us the usefulness of their grassroots knowledge and experience.

2. But despite frequent commendations from the IMF of a country's improvements, real standards of living of people continue to fall. Do IMF assessments of growth take human development factors into consideration?

It is a popular misconception that the IMF simply equates economic growth with development. That is certainly not the case. To be sure, one of the key factors differentiating developed from less developed countries is gross domestic product (GDP), or national income, per head of population. Increases in national income matter not only because they raise current living standards but also because resources are generated that can be reinvested for improving health and education, and make it possible for a country to pursue a host of other social objectives.

The correlation between GDP growth and social development, however, is not always as direct or straightforward as might be expected. Certain countries (like Sri Lanka and Costa Rica) that have pursued active pro-poor social policies have managed to achieve improvements in social indicators that are far better than the norm for their national income levels. At the same time, other countries that have failed to address these social concerns have health and education levels well below what would be expected for their national income levels.

Therefore, it is not just the level of GDP or rate of economic growth that is critical for the well-being of people, but also its distribution. This is why the IMF's staff attempts to include in its assessments a whole range of economic and social indicators to capture the conditions of everyday life; these include the poverty ratio (proportion of people below the international poverty line of $1 a day), infant and maternal mortality ratios, life expectancy, access to safe water, access to medical care, and primary-secondary school enrollment rates.

Indeed, the programs we support are designed in part to channel resources into social services, such as health and education and essential infrastructure. It is by the standards of these very human development indicators that the success of any policy is ultimately measured. While the IMF works with member governments to create the appropriate policy framework, the World Bank works with them to monitor and implement specific development policies. The IMF draws on, and collaborates closely with, the World Bank and regional development banks to help our member governments integrate social policies into the macroeconomic framework. The outstanding experience, for instance, of the Inter-American Development Bank (IDB) in promoting a very broad set of good governance reforms is one we are proud to be associated with and support.

But there are no instant or magical solutions. Creating sustainable, poverty-reducing development is a long-term process that involves hard choices and trade-offs, as well as many years of committed and focused policy implementation. We have to acknowledge that no matter how good the benchmarks, and no matter how much consensus has gathered to support them, carrying out the tasks on the development agenda is in the hands of each member government and its population. The countries themselves must make the right policy choices. The IMF, the World Bank, and the regional development banks can only support and assist them.

3. Even if countries manage to generate economic growth with some hard decision making, most of it goes to service the crippling debt burdens they carry, rather than for development. What is the IMF's response to growing demands for reduction, or even write-offs, of developing country debt?

There is no question that today some countries have a level of debt--owed mostly to governments in developed countries and to multilateral institutions--that is too high for them to repay. The consequences of this can be crippling, particularly for the poor. But so can bad economic policies, wasteful spending, and corruption.

In 1996 the IMF and the World Bank jointly proposed a mechanism to provide debt relief to poor countries that demonstrated a willingness to undertake necessary economic reform. This mechanism, which owes a great deal to the NGO community's inspiration, is called the Heavily Indebted Poor Countries Initiative ("the HIPC Initiative"). About 40 countries are considered to be HIPC countries, most of them in sub-Saharan Africa.

Together with traditional debt relief mechanisms, the HIPC Initiative is about giving the poorest countries an opportunity for a fresh start in a timely manner, providing greater opportunity to channel more resources to investment in economic infrastructure and to programs that improve living standards.

Seven debt relief packages have already been approved under the original HIPC framework (for Bolivia, Burkina Faso, Côte d'Ivoire, Guyana, Mali, Mozambique, and Uganda), yielding debt service relief in excess of $6 billion. For these seven countries, total external debt (expressed in present value terms) will fall to $19 billion in 2000 from $31 billion in 1996, with further relief likely after these countries have been assessed under the terms of the enhanced HIPC Initiative. Debt relief packages have also been discussed on a preliminary basis for Ethiopia, Guinea-Bissau, Mauritania, Nicaragua, Tanzania, Honduras, and Guinea. After all HIPC assistance is provided, the stock of debt of the 41 HIPCs is expected to fall to about $68 billion in present value terms, or about two-fifths of the end-1997 stock.

But debt forgiveness--no matter how desirable--is no soft option, no panacea. Simply canceling these countries' debts without any improvements in their economic policies would only increase the risk of a renewed round of reckless borrowing in the future: a problem economists call "moral hazard." Or even worse, it could reduce the government's ability to borrow in the future. The capacity to borrow responsibly is critical to any government's ability to finance the investment needs of its country, and to any country's capacity to grow. Just as no bank would lend again to an individual who has filed for bankruptcy, finance will not flow in a world in which we systematically relieve overindebted governments of their obligations without improvements in their capacity to meet their future debt service obligations.

That is why it is important that debt relief--more generous debt relief--continue to be provided on the basis of a country's record of reform and adoption of sound policies through IMF and World Bank-supported programs over a number of years. Debt relief must go hand in hand with incentives that encourage countries to adopt strong programs of adjustment and reform. Up to late 1999, the IMF contributed to this initiative through the Enhanced Structural Adjustment Facility (ESAF), but our subsidized loan window for the poorest nations has now been reformed and renamed the Poverty Reduction and Growth Facility.

In the past two years, we have seen intense interest and an unprecedented degree of participation and coordination among all parties to make this Initiative work. These partners include debtor governments, creditors, and donors, as well as the important involvement of NGOs, churches, and other groups from civil society. Partnerships with these organizations has been vital in the continuing assessment of the HIPC Initiative.

As a result of this dialogue with governments and civil society, we began an effort to identify ways to strengthen and enhance the HIPC Initiative. There has also been greater recognition that debt relief should do more to free resources from government budgets to pay for essential social needs and to help reduce poverty (see question 7). So in September 1999, the international community agreed to provide more extensive relief to more countries (at least 36 instead of 29), on a quicker path, and at least doubling the relief available to a present value of $27 billion. This will speed up progress in reducing external debt to sustainable levels--the goal is to reduce the debt burdens of these countries by more than one-half--and free up more resources for poverty reduction.

Invariably, differences will remain between the views of important groups from civil society and those of international financial institutions and creditor country governments. And while debt relief for HIPC countries is essential, it is critical to see it as just one of the components of an urgent and indispensable package of policy changes. Furthermore, debt relief, even when accompanied by sound domestic policies, will still need for many years to be accompanied by new official development assistance (ODA), which is far larger than debt relief. Because of the vital importance of such development assistance to most HIPCs, it is crucial that the declining trend of new flows of overseas aid be reversed.

4. This financial assistance with strings attached--"IMF conditionality"--brings hardship and poverty. So why insist upon such measures?

Typically, countries come to the IMF for financial assistance when they have been living beyond their means and have reached a point where they have to adjust to what they can now afford. They would have to adjust--"tighten their belts"--anyway; and they come to the IMF for policy advice and financial support that will ease the adjustment. But the adjustment still typically involves pain--it requires both the scaling down of past levels of expenditure and the concentration of scarce resources on more productive uses. When needed reforms are postponed or implemented in a disorderly fashion, the poor and vulnerable may suffer more. Delayed reforms usually mean that the poor would continue to be hurt by inflation, whether open or repressed; insufficient access to scarce goods (particularly publicly produced goods such as education, health, and infrastructure); lack of credit; and low prices for items they produce.

There are a number of reasons why IMF lending or IMF-supported programs come with policy conditions attached--that is, an explicit agreement on, and then application of, certain macroeconomic and structural policies that the IMF helps design. One is that the IMF is required by its Articles of Agreement to lend "under adequate safeguards," that is, to safeguard the financial resources provided to it by its members, so that they are available to all when needs arise. Another is that international financial support fully serves its purpose only when associated with strong efforts of the recipient countries to correct existing economic problems. And a third is that IMF conditionality is one of the foundations of the credibility of the IMF's lending, which is essential for other international agencies and governments to be persuaded to add their financial support--usually much larger than the assistance the IMF itself is able to provide. This is often referred to as the catalytic role of IMF lending.

The role of conditionality is often misunderstood: it is the inevitable adjustment that may be painful to some elements of society, not conditionality. Blaming the IMF for the pain of adjustment is a bit like blaming a doctor because all the people he visits seem to be sick!

Moreover, the IMF does not impose conditions on countries. Indeed, we work with each country to identify the best things for the country to do to promote the confidence of its own citizens and the rest of the world--quite a challenge--and to recover and to achieve sustainable growth. The IMF is very mindful that the cost of adjustment should not fall disproportionately on the least able and the most vulnerable sections of society, and it provides advice on policies that can prevent this--including advice on the design of social safety nets. But while the IMF provides policy advice, the final say on design and policy content of the adjustment program is that of the government. Experience has shown that when a country "owns" its economic program, when it is the program that the government believes in, and is able and willing to implement, supported by a broad political consensus, the chances of successful reform are enhanced.

And the IMF's advice and "conditionality" in support of countries' adjustment and reform efforts have yielded positive results. A recent IMF study of social spending between 1986 and 1997 (in 31 low-income countries that had programs in place supported by the ESAF) illustrates this:

  • most countries made substantial, measurable progress in raising public social expenditures and improving social indicators;

  • on average, for the entire group of countries, per capita real spending on education and health increased at annual rates of 4.1 percent and 4.6 percent, respectively;

  • on average, illiteracy rates declined by 2.6 percent a year; primary school enrollment increased by 1 percent a year; infant mortality dropped by 1.3 percent a year; and life expectancy increased by 0.5 percent a year. Access to sanitation and safe water improved by 6 percent each a year.

It is also heartening to note that the recent declines in military spending worldwide have been accompanied by increases in social spending in a number of countries. Between 1993 and 1997, military expenditure declined by 0.4 percent of world GDP, while expenditure on health care and education increased by 0.2 percent of GDP. This trend was somewhat more pronounced in the poorest countries. But in many regions, efforts still need to be made to reduce this wasteful spending--which diverts resources from human development--and strengthen productive public spending programs, which can promote both equity and growth.

5. What can be done to reduce to the minimum unproductive expenditure, particularly military spending?

This is for me a question of primary importance. This is why, addressing the UN Economic and Social Council in July 1999, I made the following statement:

". . . We, as human beings, we, as heads of institutions, striving for improving economic conditions around the world, cannot accept the fact that time and again the efforts of so many countries, the efforts of the world community for economic progress are just annihilated by new armed conflicts with all their consequences of human suffering, destruction of property, jobs, and opportunities, not least for women and their children. Indeed after a promising and all too brief a period, Africa's progress has dimmed within the past year, basically because of the resurgence of armed conflict, so much so that fully one-third of the countries of sub-Saharan Africa are affected directly or indirectly. Mr. Chairman, war and military expenditure are the most tragic calamities of Africa and elsewhere. Let me mention on this issue the striking report that the International Committee of the Red Cross has just issued.

"I believe the global community has a sacred duty to address this issue. And I dare to raise this sensitive matter, which is much more of your business as diplomats than mine as the head of a financial institution, because it is not purely political, but is an economic and social issue too. Excessive military expenditure diverts resources from human development. It is tragic that military conflicts in many of the poorest corners of the world are creating new pressures for increased military spending. Accordingly, as you certainly recognize that the sales of military equipment, beyond what can reasonably be justified, severely undermine peace and development, I suggest we revisit again four suggestions that are not that new:

  • Adopting agreements that would restrain sales of military equipment in sensitive regions well in advance of any open belligerence; the register of the UN now involves one hundred countries. It would be important to take steps to involve many more countries and to broaden it to small arms and ammunition. After all, wars in Africa are waged essentially with small weapons and only with conventional arms. Small arms are also those with which so many children now serve as soldiers in frequent violent operations. We must counter such things. The efforts we develop in other fields for transparency and the rule of law can contribute, but greater steps are needed to bring offshore center transactions under internationally agreed standards; and to watch more closely the activities of criminal intermediaries;

  • As we strive to reduce debt frequently accumulated for unproductive purposes, pledging to banish any export credit for military purposes;

  • African nations, indeed poor nations everywhere, to accept the two important recommendations by the Secretary General one year ago to reduce military expenditure to 1.5 percent of GDP and to maintain zero growth of defense budgets for the next decade; and

  • Cooperating to interdict the smuggling of raw materials and natural resources used to finance armed insurgency in many African countries.

". . . And speaking from my own limited experience, for high-quality growth, for employment and work, for poverty eradication, for empowerment and advancement of women, and for education and opportunities for a better life for the children of the world, remember: peace is a must."

6. The hardship caused by adjustment is felt most keenly by the poor and vulnerable sections of society. Do IMF-supported programs include social protection for those who need it most?

We recognize that, in the short term, some measures needed for economic stability may hurt some of society's most vulnerable groups. Adjustment is likely to entail changes in income distribution as some groups gain or lose more than others as a result of policy changes. For example, currency devaluations may hurt the urban poor who consume imported grains, while helping low-income smallholders that produce export crops in rural areas. That is why IMF policy advice and program design increasingly focus on incorporating targeted and cost-effective social safety nets into reform programs to try to ease the burden of adjustment on the poor. Such safety nets can provide a way to insure the poor against the risk of income loss.

Social safety nets can take the form of subsidies directed at particular groups or cash compensation in lieu of subsidies; improved distribution of essential commodities, such as medicine; temporary price controls on some essential commodities; severance pay and retraining for public sector employees who have lost their jobs; and employment through public works programs. In most cases, the IMF staff largely relies on the World Bank to take the lead in the design of social safety nets, which are then incorporated into IMF-supported programs.

We are still in a learning process in this area. In many cases, weak administrative structures and lack of appropriate social policy instruments have made it difficult to implement these safety nets. In addition, we are often constrained by lack of data, which makes it difficult to assess the effectiveness of a social safety net in reaching its intended beneficiaries. That is where the grassroots work of NGOs can be an important source of information.

We have also taken concrete initiatives to address the social content of reform programs. For example, we have improved the collection of data on government social expenditures, and the monitoring of social output indicators in member countries--particularly the heavily indebted and poor countries--with a view to including social spending targets in IMF-supported programs.

In its work in these areas, the IMF staff relies heavily on the expertise of other institutions. These include the World Bank, regional development banks, the United Nations Development Program, the International Labor Organization, the World Health Organization, and other UN agencies. In particular, we look to the World Bank for inputs on social sector policy goals, analysis, reforms, and their budgetary cost, as well as data on social indicators. We are also attentive to what NGOs in the field tell us. And we are constantly looking at what we have done, how effective we have been, and how we can do better.

7. What steps has the IMF taken to reduce poverty and further improve the social content of its programs?

At the September 1999 Annual Meetings of the IMF and the World Bank, a significant agreement was reached to put poverty reduction at the heart of the programs to be supported by the international community in the poorest countries. In this regard, we have transformed our concessional lending facility, the Enhanced Structural Adjustment Facility (ESAF), into the Poverty Reduction and Growth Facility (PRGF). I think this new approach responds directly to the most important of your concerns.

The new focus reflects a recognition that a more comprehensive policy approach is needed to deliver consistent and broad-based inroads into poverty in developing countries. We have long known that durable poverty reduction requires high-quality growth--that is, strong, sustainable, and equitable economic growth. We have also long known that sustained growth requires sound macroeconomic policies, structural policies conducive to private sector activity and the working of markets, and well-designed social safety nets to protect the poor and vulnerable against any transitional fallout from reforms. Promoting and supporting these policies have been, and will remain, the IMF's primary contribution to reducing poverty in the developing world.

But it has become increasingly apparent that much more needs to be done to achieve faster and broader-based poverty reduction. Countries need to adopt policies that more directly enable the poor to benefit from growth, by expanding their economic opportunities. They also need to harness the synergy between growth and poverty reduction. After all, pro-poor policies--such as investing in health, education, rural infrastructure, and private sector development--also boost growth.

Designing these policies requires an understanding of the extent, depth, and locus of poverty. It also requires an understanding of the key factors shaping poverty--including the major constraints on income and employment growth. Naturally, the diagnosis and prescriptions for poverty reduction are likely to differ in many respects from country to country, underscoring the need for a national debate in each country, in which all voices can be heard, not least those of the poor.

To this end, countries seeking to benefit from enhanced debt relief under the initiative for the heavily indebted poor countries (HIPCs), or wishing to draw on concessional lending facilities in the IMF and World Bank, will now be assisted in drawing up a new document called a comprehensive Poverty Reduction Strategy Paper (PRSP). This signifies important changes in the way we do business.

The PRSP will be government-led, and should be produced through an open, participatory process, involving outreach to civil society. It will identify key obstacles to faster growth and poverty reduction, specify realistic and monitorable poverty goals, and set out the macroeconomic, structural, and social policies the country intends to adopt to meet those goals. The needed financing will also be clearly identified. The IMF and the World Bank will work in close collaboration to provide advice to the government drawing up a PRSP.

With these ingredients, a PRSP can fulfill several important functions. First and foremost, it will provide a transparent policy agenda for the country itself, promoting government accountability and serving as a vehicle for a continuing national dialogue on economic and social policies. Second, the PRSP will describe the policy framework for IMF and World Bank lending operations in the country concerned. For the IMF's part, the policy programs we support under our new Poverty Reduction and Growth Facility will draw directly from the PRSP and be fully consistent with it. Third, the PRSP will allow a clear connection to be drawn between debt relief and poverty reduction, thereby playing a central role in the enhanced HIPC Initiative, which in turn, underpins the new poverty strategy.

8. What advantages can small and poor countries--such as those in Africa and Asia--gain from a globalized economy in which they have little chance to be heard?

Let me first say that multilateral institutions, such as the IMF, have, as part of their raison d'être, the obligation to become places where the small and poor nations are given a fair chance to be heard. They must also devote their resources to assist these countries in their efforts to benefit fully from a globalized economy.

It is now commonplace to think of our world as becoming more and more interconnected. We see popular consumer items moved across continents, and financial flows that outstrip the volume of payments related to the physical movement of goods.

The economic integration of the world constantly creates new opportunities for many people, and it has produced dramatic rises in wealth and living standards for much of the world. It is clearly in the interest of developing countries to engage fully with the rest of the world, especially through trade and through attracting foreign direct investment.

Smallness is not necessarily a disadvantage. Today, close to half of the countries in the world have populations of less than 5 million. Many of these are relatively well-to-do in per capita GDP terms. Indeed, small countries are generally more dependent on trade, and thus can gain relatively large benefits from an open trading system. At the same time, globalization offers small and poor countries access to the immense pool of private capital that can supplement official development assistance and domestic savings, and thus accelerate investment and raise growth. This can only help developing countries better exploit their own comparative advantages. Openness to foreign expertise and new management techniques can also help to raise production efficiency.

But what is equally important is that smaller, poorer countries can participate in the global economy as partners, not as dependents on official aid or preferential arrangements. Their relations with other, more developed economies, should be based on mutual advantage, in conformity with the rules of the system of multilateral trade.

At the same time, the international community can make a major contribution. The industrial countries could open their economies to all exports of the poorest countries, not only encouraging existing primary commodity exports, but, more important for long-term growth, creating the potential for new, more diversified, export production. They can also extend more official development assistance, which for some years has been in a dramatically declining trend.

9. Does the IMF have a specific program aimed at women? Has the IMF considered making gender balance and the protection of women's rights integral aspects of IMF conditionality?

We recognize that women are a particularly vulnerable group in most developing countries. While the IMF does not have a specific program aimed at women, within the limitations of the IMF's technical mandate, we take the gender issue very seriously.

In the surveillance of members' economic policy and the design of IMF-supported adjustment programs, we have been paying greater attention to social concerns, including those specific to women; and we are placing increasing emphasis on ensuring that social safety nets protect women, especially those in precarious situations and in times of crisis.

The question of how economic policies affect women and what actually determines whether women are helped or hurt by specific policies is still being researched extensively. One of the major conclusions emerging from such research is that so-called "gender blind" laws and practices may, in fact, be far from gender neutral in their impact. There can be several reasons for this, and situations may vary widely by country, but one significant factor is that, by law or custom, women frequently have fewer options and face greater constraints than men do in responding to changing economic conditions and policies. Such differences may include limits on women's land and other property rights, their access to credit and training, and their freedom to choose an occupation and where to practice it. This is of great concern to me personally.

The solution is thus to bring about legal and institutional changes that expand a woman's opportunity to participate fully in development. However, these changes and the power to make them lie in the hands of governments. While IMF conditionality focuses mainly on broad economic aggregates and major structural reforms, the staff does discuss the composition of budget expenditures with an eye toward promoting adequate levels of social spending. Indeed in some cases, minimum levels of expenditure on health and education are established where sufficient monitoring capacity exists. While in many cases, policies adopted under IMF-supported programs directly benefit women and children, particularly the poor and those from rural areas, much can and must still be accomplished on this front. Again, in these areas, we rely extensively on the expertise of the World Bank.

The international community has made many important pledges in various UN conferences on social issues, including those put forward at the 1995 Fourth World Conference on Women (FWCW) in Beijing. Here allow me to quote a statement I made at the UN Economic and Social council in July 1999:

". . . Remember the seven pledges industrial and developing countries have together adopted on the occasion of these memorable conferences of the 1990s. They include not only a commitment to reduce extreme poverty by half, but also to achieve universal primary education, reduce infant and child mortality by two-thirds, maternal mortality by three-fourths, achieve universal access to reproductive health service, ensure that current trends in the loss of environmental resources are reversed--all of that by the year 2015. And they include this essential precondition for the durable empowerment of women: elimination of gender disparities in primary and secondary education by 2005. Taken together, and steadily implemented, they could lead to a formidable change for the better for all the poorest people of the world.

"Instead of lamenting about (our failure to reach by the year 2000 our pledge of devoting 0.7 percent of industrial countries' GNP to ODA), instead of adopting new pledges, let us implement the existing ones and take precise steps in a North-South partnership, to make sure that we identify, demanding as it may be, the proper track for their implementation and verifying, year after year, that we effectively stay the course. This is one of the suggestions I made to the G-8 Heads of State and governments before their Summit and I was delighted to see that section 28 of their communiqué reflects just this intention when it states:

'We reaffirm our commitment to contribute to the achievement of economic and social development in Africa, Asia, and Latin America. We will review the situation in that regard every year, on the basis of reports by the IFIs and the relevant regional development banks on the alleviation of poverty.'

Let's make the next decade the decade of implemented pledges."

Now it is time to deliver. The international community needs to work together to turn these pledges into real improvements in equity and social justice.

10. What is the relationship between the IMF and NGOs? We are under the impression that the IMF deals only with governments. How will the NGOs participate in IMF-supported programs?

The IMF is accountable, above all, to the governments of its 182 member countries that determine its policies and operations and provide its funding. However, we value our interchanges with civil society (including NGOs, churches, trade unions, business associations, and community and farmers' groups), which have grown considerably in the 1990s. These contacts have enhanced the effectiveness of our programs and contributed to our efforts in many places to encourage democratic governance.

Indeed, international advocacy and local NGOs make a formidable team. At the international level, NGOs can play an influential role in donor policy debates--pushing for sound macroeconomic and structural policies, the opening of industrial country markets to developing countries, a strengthening of bilateral assistance and debt relief for the poorest countries, and providing a guiding moral conscience.

At the grassroots level, they can help mobilize civil society to have a voice in economic policy debates, monitor government programs to ensure they remain on track, help explain the benefits and costs of various policy options, and offer first-hand experience and expertise in providing basic social services--such as primary education and health care--to the poor and disadvantaged.

What steps has the IMF taken toward expanding its dialogue with civil society? We have established various institutional points of contact where civil society can enjoy greater access to the IMF. For instance, one of the primary responsibilities of the IMF's External Relations Department, which was established in 1980, is to foster closer relations with civil society. Within this department, the Public Affairs Division created in 1989 has an important coordinating role in IMF-NGO relations. Outside Washington, we have increased the number of countries where we have a resident representative to almost 70, from about 20 in the early 1980s, and they engage with civil society in the countries concerned. We have further opened up to civil society by greatly increasing dissemination of information about the IMF and its activities, and organizing, every year, several seminars and conferences with labor unions, NGOs, religious leaders, and other groups.

We have also intensified our effort to meet civil society organizations. For instance, IMF operational departments are increasingly briefing interested representatives of civil society on policy developments. Similarly, our mission teams contact civic associations during official visits to member countries; the External Relations Department also conducts information missions to a number of countries. Further, as participation by civil society is going to be an important part of the development of national poverty reduction strategies, we expect that our dialogue with NGOs, community groups, academics, and civil society more broadly, will broaden and deepen further.

The need for policy changes in many countries is so great that the reforms we promote often fall short of what civil society groups fervently hope for. We are also aware that, at times, some of our recommendations meet with spirited opposition from civil groups. Nevertheless, we welcome this dialogue. Indeed, thanks to civil society, the IMF has reshaped several broad policy lines; and the work of NGOs complements our own in devoting more attention to such issues as poverty, environmental degradation, social spending, military expenditures, and corruption.