Public Information Notice No. 05/45

Public Information Notice: IMF Executive Board Discusses Staff Papers on Rebuilding Fiscal Institutions in Post-Conflict Countries

March 29, 2005

On February 14, 2005, the Executive Board of the International Monetary Fund (IMF) held a formal seminar on Fund technical assistance to post-conflict countries in the fiscal and monetary and financial areas. The seminar, which was focused around staff reports entitled "MFD Technical Assistance to Recent Post-Conflict Countries" and "Rebuilding Fiscal Institutions in Post-Conflict Countries," along with their respective background papers, provided an opportunity for a review of the Fund's experiences in providing technical assistance to countries emerging from a conflict and their efforts to rebuild fiscal and financial systems.

Executive Board Assessment

Ms. Anne O. Krueger, First Deputy Managing Director and Acting Chair, made the following remarks at the conclusion of the seminar:

"Executive Directors welcomed this opportunity to discuss the Fund's technical assistance to post-conflict countries in the monetary and fiscal areas. They noted that the Fund has an important role to play in rebuilding key institutions to help restore macroeconomic stability and lay the basis for sustainable growth. In this respect, they considered technical assistance by the Fiscal Affairs Department and the Monetary and Financial Systems Department (MFD) to be at the core of the Fund's mandate. Directors stressed that Fund assistance to post-conflict countries should continue to be guided by its mandate and focused on its areas of expertise.

"Directors noted that the unique characteristics of post-conflict cases pose special challenges to the delivery of technical assistance, and that the security of the staff remains a priority. In this context, the Fund should provide technical assistance to post-conflict countries as quickly as appropriate. In cases where the security situation is not viewed as conducive to fielding a technical assistance mission, alternative modalities of technical assistance should be explored.

"Directors agreed with the thrust of the staff papers. They concurred with the phased approach to providing technical assistance. They emphasized that strong country ownership is crucial for the effective implementation of technical assistance, and supported the idea of providing advice and sequencing reforms in accordance with country priorities. Directors noted that individual country cases demanded a high degree of flexibility and responsiveness to their political, institutional, and capacity constraints. The approach outlined in the papers should be seen as an analytical tool, rather than a rigid formula, that can help guide future advisory missions and other technical assistance providers. At the same time, while agreeing that first-best policies may not be immediately appropriate, Directors emphasized that policies that are not first-best should be phased out, with the support of continued technical assistance, in line with the evolution of institutions and capacity. Directors also called for continuous monitoring of the effectiveness of technical assistance.

"Directors generally were of the opinion that the Fund is uniquely suited to take the lead role in designing an overall strategy for rebuilding fiscal and monetary institutions, and, together with the World Bank, the financial sector, in post-conflict countries owing to the Fund staff's extensive cross-country experience. Designing such a strategy at the very outset facilitates appropriate sequencing of technical assistance and coordination among different technical assistance providers, and allows the Fund to use its limited resources more effectively. The Fund has played an important role in designing such a strategy in several post-conflict countries with favorable results. Directors emphasized, however, that this should be done in consultation with country authorities, other donors, and technical assistance providers.

"Directors noted that the effectiveness of technical assistance can be limited by lack of coordination among external donors, agencies, and national government entities. They also stressed that within the Fund technical assistance should continue to be coordinated across departments. It was pointed out that, in principle, the authorities should take the lead in the coordination of technical assistance, and in this context a coordination mechanism could be useful. However, as local capacity for such coordination can only be built up gradually, Directors thought it appropriate for the Fund, at the request of the government and in consultation with other providers, to take the lead when necessary to coordinate donor technical assistance within the Fund's core areas of responsibility. In this respect, Directors stressed that resident representatives can play a vital role. Directors acknowledged that the staff work involved is resource intensive but should be given due priority in the use of limited Fund resources.

"Directors generally considered that incorporating key technical assistance recommendations as conditionality in Fund-supported programs should continue on a selective basis. They reiterated that conditionality should be limited to only those recommendations that are critical to achieving program goals, and that the phasing of reforms should be realistic, taking into consideration local capacity. In assessing compliance with conditionality, due consideration should be given to factors such as timely provision of technical and financial assistance for implementing technical assistance recommendations. Directors stressed that incorporating technical assistance recommendations as conditionality should not lead to a proliferation of conditionality, which could undermine country ownership. Other Directors, however, questioned the rationale for linking technical assistance with conditionality, given their different objectives.

"Directors noted that weak capacity in post-conflict countries is a major constraint in effectively utilizing donor financial and technical assistance and that financial support for capacity building would be critical. They underlined the crucial need for recruiting and training of local staff. They observed, however, that support for capacity building can take many forms. In some countries, long-term resident advisors may be appropriate. In others, peripatetic advisors may be more helpful.

"Directors pointed out that the phased approach presented in the papers applies not only to traditional post-conflict countries but to other countries as well. In particular, low-income countries with very limited institutional capacity, countries emerging from long periods of isolation, and countries where natural disasters resulted in widespread destruction, will require major support for building institutional capacity. The papers thus provide useful lessons that can benefit such countries. However, the Fund's own potential TA involvement in such cases will be commensurate with resource constraints. The staff will undertake relevant follow-up work on how these countries could benefit from the Fund's experience with post-conflict countries.

"Directors also noted they were looking forward to a more complete discussion of technical assistance issues at the Board meeting on February 18, 2005 to discuss the Independent Evaluation Office's assessment of the Fund's technical assistance."