IMF and Civil Society
Oxfam holds a public forum at Fund Headquarters.
Oxfam Engages the Fund on its Role in Low-Income Countries
September 24, 2007
Views about the IMF's role in low-income countries (LICs) are strong, no matter where one stands in the ongoing debate. One view holds that the presence of the Fund has a beneficial effect on the policy environment in these countries; another asserts that Fund programs limit the options of country governments in meeting the demands of their citizens, thereby reducing ownership of reforms. These different perspectives were very much in evidence at an event organized by Oxfam at IMF Headquarters in late September.
The event was organized by Oxfam International, with a view to reaching not only civil society organizations (CSOs) and the press, but also Fund and Executive Board staff. Indeed, both CSOs and reporters were in the audience. Bernice Romero, Oxfam International's Advocacy and Campaigns Director, who moderated the symposium, observed that the IMF has come under criticism from some quarters for its role in low-income countries. She acknowledged that the IMF has changed some of its policies in response to this criticism. But she questioned if these reforms were really new or went far enough, whether the IMF should even stay engaged in LICs, and how the IMF's governance structure could be changed.
In his opening remarks, First Deputy Managing Director John Lipsky emphasized that the IMF is committed to helping its low-income members implement the policies and establish the institutions that will help take advantage of current supportive external conditions, while at the same time enabling the effective absorption of aid increases. However, Lipsky underscored that "the economic prospects of the low-income countries depend on their successful linkage to the global economy" and that a dynamic private sector and an efficient financial system are key to raising the growth potential of LICs.
Three other speakers added their views to the mix. Jack Jones Zulu of the Southern African Regional Poverty Network, based in South Africa, highlighted his concern about discussions of macroeconomic policy frameworks held behind closed doors. He asserted that there is little space for national governments, as well as other stakeholders, to own these processes. "This lack of participation and alignment of the PRSPs and the PRGFs represents severe limitations to the potential ownership and poverty reduction impact of Fund policies in Africa and elsewhere," he said. He also noted that a lack of fiscal and monetary flexibility could lead to a stifling of development, and criticized what he described as the "pro forma process" of Fund mission consultations with civil society in many LICs.
Domenico Lombardi of the Oxford Institute for Economic Policy also stressed that the Fund should stay engaged in LICs. Despite all sorts of resistance from within and outside the institution, the IMF has now definitely acknowledged that it has a role to play in LICs, Lombardi said, "to the full credit of the institution." However, the how is important. He said that the policy space in LIC economies is not adequately partitioned between traditional macro policies and poverty-reducing policies. There needs to be greater awareness of the social impact of key macro policies: Poverty and Social Impact Analysis (PSIA) has not systematically informed distributional aspects of PRGF program design. Lombardi said that the Fund also needs to broaden its analysis of the traditional macro aspects of aid-absorptive capacity to include sectoral aspects. Lombardi also stressed the need to make more effective use of the PRSP as a basis for the PRGF—rather than the other way around.
IMF Executive Director Abbas Mirakhor underscored that the Fund's role in macroeconomic stability and growth of all its member countries, including LICs, is undeniable. LICs are at a critical stage of the development process. Infrastructure, institutions, and financial development are the three elements that hold the most promise in achieving faster growth, Mirakhor said. He suggested the possible establishment of new Fund-Bank facilities to address and develop these elements, including a joint financial sector facility to help countries graduate smoothly from official to market-based financing.
A wide-ranging and often lively discussion ensued on questions posed by civil society and others: Some questions were raised on the appropriateness of the IMF's focus on growth and whether there was scope for relaxation of inflation targets in LICs, given its alleged negative impact on unemployment. Lipsky argued that strong and sustained growth is associated with macroeconomic stability, not the other way around. High inflation and high volatility of inflation is "detrimental to growth," he added. He also noted that the IMF does its best to take into account the "distributional impact of economic policies." He observed that 6.5 percent average growth in Sub-Saharan Africa is quite an achievement, but it is not enough. "If there is going to be meaningful poverty reduction, still faster growth is necessary," he added.
On issues related to poverty and social impact assessments, Zulu argued that a proper assessment of the likely consequences of different policy actions on the poorest people was necessary. Given the significant role of the Fund and the Bank in low-income economies, "it is only fair that we measure the impact of these policies and put them into public discussion," he said. Lipsky pointed out that the Fund has created a dedicated PSIA unit to conduct its own studies and to help integrate into program design the PSIAs done by others.
A question was also raised over whether the Fund has policy thresholds to limit aid absorption, as noted in the IEO report on Sub-Saharan Africa. Lipsky responded more broadly, suggesting that one can debate criticism that the Fund had been persistently too pessimistic in its assumptions about aid flows. He noted that "we are actually in a different situation," where debt relief and improvements in the macroeconomic performance of LICs has allowed "greater opportunities and greater flexibility in terms of policy prospects. Lipsky added: "We must be doing something right, as the situation on the ground has improved very substantially."
On the role of China, and other emerging markets in Africa, Lipsky noted that debt-relief initiatives have created enormous opportunities. But he cautioned against returning to a situation of excessive indebtedness that could induce policy instability and strains. As a general principle, he added, aid should be on concessional terms.
In responding to a question on governance issues in member countries, Mirakhor made a plea for NGOs to use their energies to push countries' development agendas forward to achieve the MDGs, rather than fixating on the supposed errors of past Fund policies. "If you really want to help the countries, don't waste your energies asking the kinds of questions that you are asking now, but put your energies into trying to get resources for judiciary reform...to setting up courthouses, to getting a good police force going on—all of these are institutions that these countries need," he said. "How to ensure that contracts are reinforced, how to ensure that creditors have rights, how to ensure that investors have rights, how to ensure that you can have a stock market that operates efficiently—all of these are questions you have to be addressing," Mirakhor added.