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Mr. Juan P Cordoba, Mr. Robert Gillingham, Mr. Sanjeev Gupta, Mr. Ali M. Mansoor, Mr. Christian Schiller, and Marijn Verhoeven

Abstract

This text provides guidance to policymakers on how to design and implement sound price-subsidy reforms. It draws on the experience of price-subsidy reform in 28 countries. The authors discuss economic and political considerations and make several recommendations concerning the speed of reform and social protection mechanisms. They discuss how the social impact of reform can be limited by establishing cost-effective and well-targeted temporary social protection mechanisms, and how governments can reduce the risk of political disruption by distributing the initial burden of reform fairly and by clearly explaining the costs and benefits to the public.

Mrs. Ritha S. Khemani, Mr. Sanjeev Gupta, Mr. Calvin A McDonald, Mr. Louis Dicks-Mireaux, and Marijn Verhoeven

Abstract

The IMF’s mandate is, among other things, “to facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income … of all members as primary objectives of economic policy.”3 To this end, the IMF promotes sound macroeconomic policies, growth-enhancing structural reforms, and good social policies–conditions for high-quality growth. The IMF has paid increasing attention to these considerations in its policy advice.

Mrs. Ritha S. Khemani, Mr. Sanjeev Gupta, Mr. Calvin A McDonald, Mr. Louis Dicks-Mireaux, and Marijn Verhoeven

Abstract

Sound economic policies favor both growth and the poor. The contribution of macroeconomic and structural reforms to long-run economic growth and poverty reduction is now well established. Research has demonstrated that low fiscal deficits and price stability promote economic growth,6 and economic growth is the most significant single element that contributes to poverty reduction.7 Macroeconomic adjustment generally benefits the poor.8 Dismantling product and factor market rigidities helps reduce poverty by increasing not only the supply of essential goods, but also the poor’s access to them.9 In addition, based on cross-country studies, there is increasing evidence that lower inflation also enhances income equality (Milanovic, 1994; Bulír and Gulde, 1995; Sarel, 1997; Bulír, 1998; and Guitán, 1998).

Mrs. Ritha S. Khemani, Mr. Sanjeev Gupta, Mr. Calvin A McDonald, Mr. Louis Dicks-Mireaux, and Marijn Verhoeven

Abstract

In countries where the authorities could foresee that reform measures would have a sizable adverse social impact, the policy mix and sequencing have aimed to take this impact into account within a sustainable macroeconomic framework. For instance, IMF-supported programs have aimed to phase out subsidies for food and other items gradually, rather than at once (e.g., Indonesia, 1998; and Senegal, 1994-95). The adverse impact, however, cannot be totally eliminated even with an appropriate policy mix and sequencing. For instance, a change in relative prices that hurts the poor–such as a devaluation that could adversely effect the urban poor through increasing prices of imported products–may be at the heart of a reform program. A tension may emerge, therefore, between stabilization and social protection objectives.

Marijn Verhoeven, Mr. Sanjeev Gupta, Mr. Gerd Schwartz, Mr. Calvin A McDonald, Željko Bogetic, and Mr. Christian Schiller
This paper presents a preliminary analysis of the likely social impact of the economic crisis and the reform programs in three Asian countries—Indonesia, Korea, and Thailand. The focus is on likely changes in real consumption expenditures arising from higher inflation and increases in unemployment. The current social policy measures adopted in the reform programs should provide significant social safety nets for the poor. However, if the social impact turns out to be larger than projected, it would be worthwhile to assess cost-effective and efficient alternatives for expanding social safety nets. The paper presents some options that could be considered.
International Monetary Fund. Asia and Pacific Dept
This Selected Issues paper analyzes the capital inflows to Indonesia since the global financial crisis. Capital inflows to Indonesia have increased since the crisis. Their average volume increased from 3.25 percent of GDP in 2005–09 to 4.50 percent of GDP in the first quarter of 2010 to the third quarter of 2016. From the global perspective, driven by the liquidity released from the systemic economies’ unconventional monetary policies, a global search for yields has led to large capital inflows to emerging and developing economies (EMDEs), especially portfolio inflows. Although many EMDEs experienced a steady decline in capital inflows during 2013–16, capital inflows to Indonesia increased and reached a peak in late 2014, and then started to decline but remained at relatively high levels from the first quarter of 2015 to the third quarter of 2016.
Mr. Ehtisham Ahmad and Mr. Luc E. Leruth
In the context of continuing adjustments in the economy, the Government of Indonesia proposes to bring energy prices closer to long run marginal cost, while adequately compensating the poor. We focus on the constraints on central government policy objectives towards the poor as decentralization takes effect. However, local governments currently lack credible social protection instruments and their objectives usually do not match those of the center, which imposes constraints on program designs. We discuss the suitability of a number of safety net mechanisms in a decentralized context and draw policy implications.
Mrs. Ritha S. Khemani, Mr. Sanjeev Gupta, Mr. Calvin A McDonald, Mr. Louis Dicks-Mireaux, and Marijn Verhoeven

Abstract

The relationship between public social spending, social indicators, and poverty reduction is complex and dynamic. How much public social spending reduces poverty depends not only on the amount allocated for education and health care, but also on how efficiently these allocations are spent and how well they are targeted to the poor.21 Education and health care indicators are affected not only by government outlays on education and health care but also by private spending, demographic trends, and public spending in other areas such as sanitation and safe water Empirical research on the link between increased aggregate public spending on education and health care and improvements in related social indicators has yielded conflicting evidence.22 Note, also, that today’s illiteracy and infant mortality rates are normally the result of yesterday’s social policies; poverty reduction reflects past increases in spending on primary education, primary school enrollment, and literacy. Finally, some indicators reflect intermediate outputs, not final outcomes. For example, widespread immunization of infants under 12 months against measles does not by itself yield a low infant mortality rate, especially if other variables, such as access to safe water and female education attainment, are relatively poorly developed.23

International Monetary Fund. External Relations Dept.

Economic Adjustment and Reform in Low-Income Countries: Studies by the Staff of the International Monetary Fund. ($26.50)