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International Monetary Fund. Independent Evaluation Office

Abstract

This evaluation assesses the IMF’s work on countries in fragile and conflict-affected situations (FCS), addressing both (i) its engagement through surveillance, lending, and capacity development and (ii) the frameworks and procedures for its engagement. It finds that the IMF has provided unique and essential services to FCS to restore macroeconomic stability and rebuild core macroeconomic institutions as prerequisites for state building, playing a role in which no other institution can take its place. In this critical role, it is broadly acknowledged to have had a high impact. While the IMF has provided relatively little direct financing, it has catalyzed donor support through its assessment of a country’s economic policies and prospects. Notwithstanding this positive assessment, the IMF’s overall approach to its FCS work seems to have been conflicted. Not only has it failed consistently to make hard choices necessary to achieve full impact from its engagement in countries where success requires patient and dedicated attention over the long haul, but past efforts have not been sufficiently bold or adequately sustained, and the staff has tended to revert to treating fragile states using IMF-wide norms, rather than as countries needing special attention. The report proposes six recommendations to improve the effectiveness of the IMF’s FCS work: (i) to issue a statement of high-level commitment to FCS work for IMFC endorsement; (ii) to create an effective institutional mechanism with the mandate and authority to coordinate and champion such work; (iii) to develop comprehensive strategies for individual FCS; (iv) to adapt its lending toolkit to deliver more sustained financial support to FCS; (v) to take practical steps to increase the impact of its capacity development support to FCS; and (vi) to take steps to incentivize high-quality and experienced staff to work on individual FCS and find pragmatic ways of increasing field presence in high risk locations.

Mr. Montfort Mlachila, Rene Tapsoba, and Mr. Sampawende J Tapsoba
This paper proposes a new quality of growth index (QGI) for developing countries. The index encompasses both the intrinsic nature and social dimensions of growth, and is computed for over 90 countries for the period 1990-2011. The approach is premised on the fact that not all growth is created equal in terms of social outcomes, and that it does matter how one reaches from one level of income to another for various theoretical and empirical reasons. The paper finds that the quality of growth has been improving in the vast majority of developing countries over the past two decades, although the rate of convergence is relatively slow. At the same time, there are considerable cross-country variations across income levels and regions. Finally, emprirical investigations point to the fact that main factors of the quality of growth are political stability, public pro-poor spending, macroeconomic stability, financial development, institutional quality and external factors such as FDI.
Mr. A. J Hamann and Mr. Alessandro Prati
Many inflation stabilizations succeed only temporarily. Using a sample of 51 episodes of stabilization from inflation levels above 40 percent, we show that most of the failures are explained by bad luck, unfavorable initial conditions, and inadequate political institutions. The evolution of trading partners' demand and U.S. interest rates captures the effect of bad luck. Past inflation affects the outcome in two different ways: a long history of high inflation makes failure more likely, while a high level of inflation prior to stabilization increases the chances of success. Countries with short-lived political institutions, a weak executive authority, and proportional electoral rules also tend to fail. After controlling for all these factors, we find that exchange-rate-based stabilizations are more likely to succeed. These findings are robust across measures of failure (two dichotomous and one continuous), sample selection criteria, and estimation techniques, including Heckman's correction for the endogeneity of the anchor.
International Monetary Fund. Secretary's Department

Abstract

The speeches made by officials attending the IMF–World Bank Annual Meetings are published in this volume, along with the press communiqués issued by the International Monetary and Financial Committee and the Development Committee at the conclusion of the meetings.