Representatives of the official sector, the financial community, and civil society met on September 27 at an Annual Meetings seminar, moderated by Jack Boorman, Counsellor and Special Advisor to the Managing Director, to debate the merits of the IMF proposal to create a sovereign debt restructuring mechanism (SDRM).
During the financial year beginning on May 1, 2006, and ending on April 30, 2007, the Executive Board focused on adapting Fund policies and operations to better meet the evolving needs of the IMF’s member countries, whose number increased to 185 in January 2007, when Montenegro joined. Although many of the IMF’s members experienced another year of strong economic growth and favorable market conditions, the economic and financial environment was not without risk. Large global imbalances persisted, the U.S. economy slowed, prices for oil and nonfuel commodities remained high, and investors continued to show a large appetite for risky assets.
The IMF monitors the international monetary and financial system to ensure that it is functioning smoothly and to identify vulnerabilities that could undermine its stability. To the same end, it oversees economic policies in its 185 member countries, offering members analysis and advice and encouraging them to adopt policies that promote financial and macroeconomic stability and sustained growth. The IMF’s surveillance activities at the global and country levels are complemented by periodic assessments of regional developments, including the economic policies pursued under formal regional arrangements such as monetary unions. This combination of oversight and advice is known as surveillance (Box 2.1).
The IMF provides financial and other kinds of support to its member countries through a variety of instruments, including lending facilities, tailored to their different circumstances (Table 3.1). Review and approval of members’ requests for financial assistance and program support are core responsibilities of the Board, alongside surveillance.
The technical assistance and training offered by the IMF at the request of member countries are intended to help them fulfill the commitments they make when they join the IMF—to pursue policies that foster financial and macroeconomic stability, sustainable economic growth, and orderly exchange rate arrangements, and to provide the IMF with timely, accurate, and high-quality data about their economies. Equally important, technical assistance and training are also vehicles for helping member countries implement the recommendations that come out of the IMF’s Article IV consultations (see Chapter 2). Hence, aligning and integrating capacity building with surveillance and program work have become key objectives of the IMF’s Executive Board, which regularly reviews Fund technical assistance and training.
The Fund’s Medium-Term Strategy (MTS) calls for a number of reforms in the governance and management of the IMF, including adjusting members’ quotas to reflect their role in the world economy more accurately; strengthening communication and transparency; embedding MTS priorities in an output-oriented medium-term budget framework; taking other steps to make the IMF a more cost-effective and efficient institution; and adopting a new income model to place the IMF on a sound financial footing for the long term. Substantial progress was made on all of these fronts during FY2007.
International Monetary Fund. External Relations Dept.
Unsustainability of domestic debt may be as big a threat to sub-Saharan Africa as unsustainability of foreign debt, according to research based on new data. Although domestic debt in most sub-Saharan countries is much smaller than external debt, interest rates are often higher, and the debt must be rolled over frequently—on average four times a year—adding further to the cost of servicing. This means that some countries spend as much money servicing their domestic debt as they do servicing their external debt. Camilla Andersen of the IMF Survey spoke to Jakob Christensen, an Economist in the African Department, about his new Working Paper, “Domestic Debt Markets in Sub-Saharan Africa.”
This study discusses the role of domestic debt markets in sub-Saharan Africa (SSA) based on a new data set covering 27 SSA countries during the 20-year period 1980–2000. The study finds that domestic debt markets in these countries are generally small, highly short term, and often have a narrow investor base. Domestic interest payments present a significant burden to the budget, despite much smaller domestic than foreign indebtedness. The use of domestic debt is also found to have significantly crowded out private sector lending. Finally, the study identifies significant differences among the size, cost, and maturity structure of domestic debt markets in heavily indebted poor countries (HIPCs) and non-HIPCs.
Heightened expectations of a slowdown in the U.S. economy; a downgrading of the long-run earnings potential of the technology, media, and telecom sector; and a deterioration in U.S. credit markets all took their toll on emerging bond and equity markets in the last quarter of 2000. In addition to analyzing the consequences of these developments, the latest issue of Emerging Market Financing, which is published quarterly and forms part of the IMF’s surveillance over international capital markets, also discusses the outlook for emerging market financing this year and the potential risks, notably those that would be engendered if the U.S. economy were to slow sharply. The report also examines episodes of contagion and periods of drought in emerging bond markets—two salient features of emerging markets financing.