Front Matter

Front Matter

Boriana Yontcheva, Peter Isard, Leslie Lipschitz, and Alex Mourmouras
Published Date:
April 2006
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    © 2006 International Monetary Fund

    Production: IMF MultiMedia Services Division

    Cover design: Noel Albizo Cover

    photo: Stephen Jaffe

    Cataloging-in-Publication Data

    The macroeconomic management of foreign aid: opportunities and pitfalls/editors, Peter Isard…[et al.] — [Washington, D.C.: International Monetary Fund, 2006].

    p. cm.

    ISBN 1-58906-520-4

    “Presents the papers prepared for the seminar, which was hosted in Maputo by the Government of Mozambique during March 2005” — Pref.

    Includes bibliographical references.

    1. Economic assistance — Congresses. 2. Poverty — Congresses. 3. Fiscal policy — Congresses. 4. Foreign exchange rates — Congresses. I. Isard, Peter. II. International Monetary Fund.

    HC60.M34 2006

    Price: $28.00

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    The following symbols have been used in this book:

    … to indicate that data are not available;

    – between years or months (e.g., 1995–1996 or January–June) to indicate the years or months covered, including the beginning and ending years or months; and

    / between years (e.g., 1996/1997) to indicate a fiscal (financial) year.

    “Billion” means a thousand million.

    Dollars are U.S. dollars.

    Minor discrepancies between constituent figures and totals are due to rounding.


    I am pleased to introduce this volume on The Macroeconomic Management of Foreign Aid: Opportunities and Pitfalls. As I indicated at the United Nations in September 2005, the IMF is a strong supporter of the Monterrey Consensus and is committed to helping countries meet the Millennium Development Goals. The IMF welcomes the recent pledges by the development community to support debt relief and provide a substantial increase in aid flows to low-income countries. Aid provides opportunities, but it also presents pitfalls. We need much more aid, but we also need smarter aid and smarter management of aid.

    The IMF is centrally engaged in promoting policies that help countries achieve macroeconomic stability and high-quality growth—the surest and fastest route for reducing poverty. In support of these objectives, the IMF Institute took the lead in organizing a high-level seminar to raise awareness of the macroeconomic pitfalls and trade-offs that can arise in the wake of large new aid inflows. The seminar brought together senior African policymakers, experts from universities and development think tanks, and representatives of the IMF, World Bank, and aid-donor community. This volume presents the papers prepared for the seminar, which was hosted in Maputo by the Government of Mozambique during March 2005, and was cofinanced by the United Kingdom’s Department for International Development (DFID) and Germany’s Internationale Weiterbildung und Entwicklung gGmbH (InWEnt).

    The Maputo seminar recognized the importance of taking maximum advantage of the exceptional opportunity that a significant increase in aid will provide. This will require careful macroeconomic management by aid recipients and supportive efforts by donors.

    The papers in this volume address a range of relevant issues:

    • The relationship between aid, growth, and poverty reduction.
    • The potential for sizable increases in aid to adversely affect competitiveness, and how to avoid this.
    • Concerns that aid flows that are volatile, unpredictable, and sometimes procyclical exacerbate macroeconomic stabilization difficulties.
    • The impact of higher aid flows on the debt sustainability of recipients.
    • The effect of aid on institutions and the political economy in recipient countries.

    Ultimately, increased aid presents an opportunity to make major strides in reducing poverty. Improvement will require action by both aid donors and recipients. The IMF will play its part in helping countries manage increased aid flows so as to maintain macroeconomic stability, expand productive capacity, and seize the opportunity to raise standards of living.

    I hope that the papers in this volume help in the process of resolving these critical issues. Certainly they open up for debate a number of profound questions that will continue to demand serious attention in the years ahead as we work toward meeting the Millennium Development Goals.

    Rodrigo de Rato

    Managing Director

    International Monetary Fund


    As part of its mandate to enhance the economic policymaking capacity of the Fund’s member countries, the IMF Institute periodically organizes seminars at which high-level officials can discuss key policy issues with leading researchers and thinkers from academia and elsewhere. When well designed, the interactive nature of such events benefits both the policymakers and the subsequent research and thinking of the IMF and of outside experts.

    Planning for the seminar on “Foreign Aid and Macroeconomic Management” began during the spring of 2004. With the international policy commu nity strongly focused on the need for a large scaling-up of foreign aid and particularly concerned to address the plight of sub-Saharan Africa, the IMF Institute saw scope for a constructive discussion of issues relevant to ensuring that substantially more aid results in substantially more growth and less poverty. Although hardly anyone questions the formidable opportunity that a large increase in aid can provide in helping Africa accelerate growth and poverty reduction, it is critical for policymakers and donors to be well aware of the macroeconomic hazards that must be avoided to ensure that aid is used effectively.

    By fall, the African Department of the IMF had agreed to lend its support to the organizing effort; the Government of Mozambique had graciously agreed to host the event and provide logistical support; the United Kingdom’s Department for International Development (DFID) and Germany’s Internationale Weiterbildung und Entwicklung gGmbH (InWEnt) had expressed strong interests in cofinancing; and an impressive group of experts had accepted invitations to give keynote addresses, present papers, or participate as session chairs or panelists.

    In the event, the presentations and general interactions among ministers, central bank governors, and other high-level policymakers, aid donors, and outside experts succeeded remarkably in contributing to a deeper understanding of the key macroeconomic policy challenges associated with foreign aid. The decision to publish this volume reflected both the high quality of the papers prepared for the seminar and the numerous insightful perspectives that were provided during the presentations and general discussions. We have tried to capture many of the valuable perspectives in the overview chapter.

    The organization of the seminar required substantial inputs from many people. Valuable contributions to the seminar program, including suggestions for paper presenters and session chairs, were received from Christopher Adam, Catherine Pattillo, and Arvind Subramanian. The African Department of the IMF provided suggestions for keynote speakers and high-level participants, and Mark Lewis did heavy duty in channeling an ongoing stream of logistical questions to appropriate staff in both the African Department and the offices of the IMF’s resident representatives in Africa. Perry Perone, the IMF’s resident representative in Mozambique, played a key role in liaising with the Mozambican authorities and making the initial arrangements for hotels and other facilities; and two members of his staff in Maputo—Emmy Bosten and Massiquina Calu—put in exhausting efforts over many weeks to ensure that the logistical arrangements worked smoothly. Many Mozambican government officials also devoted considerable time and energy to the organizational efforts. Antonio Laice supervised the government’s team, which included Anabela Chambuca, Felix Massangai, Angelo Nhalidede, Manuel Paulo, Otilia Santos, Amilcar de Sousa, and Isabel Sumar.

    We are also extremely grateful for the support received from others at the IMF Institute. Prior to the seminar, Eugenia Leonard and Olga Penova were extensively involved for several months—with valuable guidance from Nathalie Kerby-Lachnani and significant help from Jennifer Cook, Thomas Bonaker, Marie Therese Culp, and Deanna Kaufmann—in organizing materials, handling the communications with and administrative arrangements for participants, and dealing with the many frustrations of soliciting responses at long-distance from busy high-level officials. Following the seminar, we relied heavily on the careful and dedicated work of Martha Bonilla, who took charge of the editing and production of the book and recruited David Cheney to help with the editing. And Caryl McNeilly provided a very helpful set of reactions to a draft of the overview chapter.

    The views expressed in these papers are those of the authors and do not necessarily represent those of any other institution.

    —Peter Isard, Leslie Lipschitz, Alexandros Mourmouras, Boriana Yontcheva

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