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International Monetary Fund. External Relations Dept.

With the expected doubling of aid to Africa by 2010, the continent’s policymakers will face a host of macroeconomic challenges. How recipients and their development partners can address these challenges was the focus of a workshop hosted by the IMF and the U.K. Department for International Development (DfID) in Washington April 19-20. African finance ministers, central bank governors and other officials, donors, academics, and representatives from multilateral development institutions took up seven issues that recipients of sharply increased aid are likely to deal with.

International Monetary Fund. External Relations Dept.

Over the next decade, African countries are expected to be the largest beneficiaries of increased donor aid, which is intended to improve their prospects of achieving the Millennium Development Goals. To help these countries assess the macroeconomic implications of increased aid and respond to the associated policy challenges, the IMF has published a study by its African Department: Macroeconomic Challenges of Scaling Up Aid to Africa: A Checklist for Practitioners.

Ms. Mwanza Nkusu
This paper demonstrates that the Dutch disease need not materialize in low-income countries that can draw on their idle productive capacity to satisfy the aid-induced increased demand. Diagnoses on, and prognoses for, the Dutch disease should take into account country-specific circumstances to avoid ill-advised policies. The paper emphasizes that using public resources inefficiently can be more painful than real exchange rate appreciations, which may not necessarily embody the Dutch disease.
International Monetary Fund
We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.
International Monetary Fund. External Relations Dept.

Over the past decade, countries recovering from war and civil unrest have received substantial amounts of postconflict aid designed to address their humanitarian emergencies, rebuild destroyed infrastructure, and restore public services. In a new IMF Working Paper, Dimitri Demekas (Advisor, European I Department); Jimmy McHugh (Resident Representative in Armenia); and Theodora Kosma (Athens University of Economics and Business) examine the impact of postconflict aid on an economy. Demekas talked with the IMF Survey about the new study.

Aleš Bulíř and Mr. Timothy D. Lane

For the latest thinking about the international financial system, monetary policy, economic development, poverty reduction, and other critical issues, subscribe to Finance & Development (F&D). This lively quarterly magazine brings you in-depth analyses of these and other subjects by the IMF’s own staff as well as by prominent international experts. Articles are written for lay readers who want to enrich their understanding of the workings of the global economy and the policies and activities of the IMF.

International Monetary Fund. External Relations Dept.

In July 2005, world leaders meeting in Scotland announced a $50 billion increase in official development assistance to poor countries to help them achieve the Millennium Development Goals (MDGs) by 2015. This prospective surge in aid is focusing policymakers’ and researchers’ attention on the macroeconomic challenges associated with absorbing large aid inflows. How can aid (both official and private flows) be used as efficiently as possible so that it boosts countries’ growth and helps them achieve the MDGs?