© 1995 International Monetary Fund

Cataloging-in-Publication Data

IMF conditionality: experience under stand-by and extended arrangements /

• Susan Schadler … [et al.]. —Washington, D.C.: International Monetary Fund, [1995]

  • 2 v. cm.—(Occasional Paper, ISSN 0251-6365 ; 128–129)

• Contents: pt. 1. Key issues and findings—pt. 2. Background papers.

• ISBN 9781557755001 (pt. 1)

• ISBN 9781557755001 (pt. 2)

• 1. International Monetary Fund. 2. International finance.

3. Structural adjustment (Economic policy)—Developing countries.

I. Schadler, Susan. II. Series: Occasional paper (International Monetary Fund); no. 128–129.

HG3881.5.15814 1995

Price: US$15.00

(US$12.00 to full-time faculty members and students at universities and colleges)

Please send orders to:

International Monetary Fund, Publication Services

700 19th Street, N.W., Washington, D.C. 20431, U.S.A.

Tel: (202) 623-7430 Telefax: (202) 623-7201

Internet: publications@imf.org

View Full Size

• Download Figure
• Download figure as PowerPoint slide

Contents

• Preface

• I. Introduction

  • Scope and Methodology

  • Preview of the Papers

  • Box 1-1. The Arrangements in Brief

• II. Record of Fiscal Adjustment

  • Adam Bennett, Maria Carkovic, and Louis Dicks-Mireaux

  • Coverage of the Accounts

  • Overall and Primary Balances

    • Initial Conditions

    • Program Objectives

    • Outcomes Relative to Target

    • Were Fiscal Adjustments Sustained?

  • Financing the Fiscal Imbalance

    • Initial Conditions

    • Program Objectives

    • Outcomes Relative to Target

    • Financing Through 1992

  • Program Monitoring: The Role of Performance Criteria and Adjusters

  • Fiscal Policies in Programs That Went Off Track

  • Conclusions

  • Bibliography

  • Appendix Tables

• III. Behavior of Nominal and Real Interest Rates

  • Adam Bennett

  • Overview of Developments During IMF Arrangements

    • Market Forces Take Over

    • Developments in Interest Rates

    • Developments in Spreads

  • How Real Interest Rates Were Raised

    • Role of Liberalization

    • More Bills, Less Money

    • Problem of Bad Debts

  • Can Real Interest Rates Be Too High?

    • Governments That Borrow Too Much

    • Quest for Credibility

    • Does Freedom Have a Price?

    • Whose Monetary Policy?

  • Concluding Observations

  • Bibliography

  • Appendix Tables

• IV. Experience with Nominal Anchors

  • Mauro Mecagni

  • Inflation at the Outset of the Arrangements

  • Role of Nominal Anchors

    • What Is a Nominal Anchor?

    • Nominal Anchors in IMF-Supported Programs

    • When Was the Exchange Rate Used as a Nominal Anchor?

  • How Well Did Nominal Anchors Work?

    • Inflation Record

    • Adherence to Fiscal Targets

    • Monetary Conditions

    • Indexing Arrangements

    • Trade-Offs with External Performance

    • Did Nominal Anchors Hurt Growth?

    • Were Nominal Anchors Sustainable?

  • Concluding Observations

  • Bibliography

  • Appendix Tables

  • Box 4-1. Money as a Nominal Anchor: The Philippines

• V. Wage Controls During IMF Arrangements in Central Europe

  • James H.J. Morsink

  • Rationales for Wage Controls in Transition Economies

  • Design of Wage Controls

    • How Were the Costs of Wage Controls Minimized?

    • Designing Wage Controls as Nominal Anchors

  • Role of Wage Controls in Restraining Nominal Wage Growth

  • Evidence on the Distinctive Rationales for Wage Controls

    • Role of Wage Controls in the Decline in Real Wages

    • Microeconomic Evidence on Wage Setting

    • State Sector Employment Growth

  • Magnitude of the Costs of Wage Controls

  • IMF Conditionality on and Monitoring of Wage Controls

  • Conclusion

  • Appendix 5-1: Setting of Wage Norms

  • Appendix 5-2: Definitions of Variables

  • Bibliography

  • Box 5-1. Yugoslavia

  • Box 5-2. Wage Bill Versus Average Wage as a Nominal Anchor

• VI. Private Saving in IMF Arrangements

  • Miguel A. Savastano

  • What Do We Know from the Literature?

  • How Is Private Saving Measured?

  • Private Saving in Recent Arrangements

  • What Explains Changes in Private Saving?

  • Private Saving in Mexico and Tunisia

    • Mexico: Falling Private Saving Amid Large Disinflation and Decisive Reform

    • Tunisia: Rising Private Saving in an Environment of Gradual Adjustment and Reform

  • Concluding Observations

  • Bibliography

  • Appendix Tables

• Tables

• 2-1. Central Bank Losses and Performance Criteria

• 2-2. Fiscal Adjustment: Pre-Program Year

• 2-3. Fiscal Targets: Change from Pre-Program Year

• 2-4. Fiscal Adjustment: Deviation from Targeted Changes

• 2-5. Fiscal Adjustment: Pre-Program Year Through 1992

• 2-6. Financing of the Fiscal Balance: Pre-Program Year

• 2-7. Financing Targets: Change from Pre-Program Year

• 2-8. Financing of the Fiscal Balance: Deviations from Targeted Changes

• 2-9. Financing of the Fiscal Balance: Pre-Program Year Through 1992

• 2-10. Fiscal Financial Performance Criteria

• 2-11. Slippages in Expenditures and Revenues in Programs That Went Off Track

• 2-A1. Coverage of Fiscal Accounts

• 2-A2. Financial Fiscal Performance Criteria and Adjusters

• 2-A3. Eligibility for Purchases

• 3-1. Decontrol of Interest Rates and Introduction of Auctions, 1986–92

• 3-2. Real Interest Rates and Inflation in the Year Preceding Programs

• 3-3. Domestic Financing of the Public Sector and Real Interest Rates

• 3-4. Financing of the Domestic Borrowing Requirement

• 3-5. Central Bank Losses

• 3-6. Real Interest Rates and Growth

• 3-7. Private Capital Inflows and Capital Account Liberalization, 1988–92

• 3-A1. Interest Rate Definitions

• 3-A2. Monetary Control Reforms, 1986-92

• 3-A3. Interest Rates in Central Europe

• 3-A4. Interest Rates in Advanced Reformers with Negative Real Interest Rates at Program Outset

• 3-A5. Interest Rates in Slow Reformers with Negative Real Interest Rates at Program Outset

• 3-A6. Interest Rates in Advanced Reformers with Positive Real Interest Rates at Program Outset

• 3-A7. Interest Rates in Slow Reformers with Positive Real Interest Rates at Program Outset

• 3-A8. Interest Rate Spreads: Definitions

• 4-1. Initial Inflation

• 4-2. Distribution of Countries by Initial Inflation

• 4-3. Nominal Anchors in Countries with IMF Arrangements Approved During 1988–92

• 4-4. Timing of Adoption of Exchange Rate Nominal Anchors

• 4-5. Initial Conditions in Countries with Exchange Rate Anchors

• 4-6. Initial Conditions in Countries Without Nominal Anchors

• 4-7. Inflation Performance in Countries with Exchange Rate Anchors

• 4-8. Inflation Performance in Countries Without Nominal Anchors

• 4-9. Fiscal Performance in Countries with Exchange Rate Anchors

• 4-10. Fiscal Performance in Countries Without Nominal Anchors

• 4-11. Primary Fiscal Balance in Countries with Exchange Rate Anchors

• 4-12. Primary Fiscal Balance in Countries Without Nominal Anchors

• 4-13. Broad Money Growth in Countries with Exchange Rate Anchors

• 4-14. Broad Money Growth in Countries Without Nominal Anchors

• 4-15. Contributions to Broad Money Growth in Countries with Exchange Rate Anchors

• 4-16. Contributions to Broad Money Growth in Countries Without Nominal Anchors

• 4-17. Real Effective Exchange Rate and Export Volume Growth in Countries with Exchange Rate Anchors

• 4-18. Real Effective Exchange Rate and Export Volume Growth in Countries Without Nominal Anchors

• 4-19. External Current Account and Reserves in Countries with Exchange Rate Anchors

• 4-20. External Current Account and Reserves Performance in Countries Without Nominal Anchors

• 4-21. Real GDP Growth in Countries with Exchange Rate Anchors

• 4-22. Real GDP Growth in Countries Without Nominal Anchors

• 4-A1. Summary of Exchange Rate, Wage/Incomes, and Price Control Policy in IMF Arrangements, 1988–92

• 4-A2. Inflation Performance in Annual Programs When Fiscal Targets Were Met, 1988–92

• 4-A3. Fiscal Performance in Annual Programs When Fiscal Targets Were Met, 1988–92

• 4-A4. Real Effective Exchange Rate in Annual Programs When Fiscal Targets Were Met, 1988–92

• 4-A5. Evolution of Exchange Rate Nominal Anchor Policies in Program Countries, 1988–92

• 5-1. Yugoslavia: Performance Criterion on Wages

• 5-2. Design of Wage Controls, 1990-92

• 5-3. Forecast Accuracy in Central Europe

• 5-4. Comparison of Projected and Actual Nominal Wages

• 5-5. Adherence to Wage and Credit Projections

• 5-6. Poland: Performance Criterion on Wages

• 5-7. Hungary: Comparison of Projected and Actual Nominal Wages

• 5-8. Comparison of Projected and Actual Real Wages

• 5-9. Central European Wages in U.S. Dollar Terms

• 5-10. State Sector Employment

• 6-1. Changes in Saving Rates in Recent IMF Arrangements

• 6-2. Saving Rates: Projected and Actual Changes by Program Year

• 6-3. Changes in Private Saving: Cross-Program Regressions

• 6-4. Mexico: Selected Economic Indicators

• 6-5. Tunisia: Selected Economic Indicators

• 6-A1. Saving Rates: Total, Public, and Private—Full Sample

• 6-A2. Saving Rates: Private, Public, and National, Changes by Program Year

• 6-A3. Cumulative Changes in Saving Rates During IMF Involvement

• 6-A4. Saving Rates: Projected and Actual Changes by Program Year

• Charts

• 1-1. Stand-By and Extended Arrangements

• 2-1. Initial Fiscal Positions

• 2-2. Initial Fiscal Deficit and Targeted Change in Overall Balance

• 2-3. Fiscal Outcomes: Overperformers

• 2-4. Fiscal Outcomes: Underperformers

• 2-5. Adjustment Sustained

• 2-6. Adjustment Reversed

• 2-7. Fiscal Performance: Central Europe

• 2-8. Nonbank Versus Bank Financing

• 2-9. Fiscal Accounts: Accumulation of Domestic and External Arrears

• 3-1. Central Europe: Spreads Between Deposit and Lending Rates

• 3-2. Advanced Reformers: Spreads Between Deposit and Lending Rates

• 3-3. Slow Reformers: Spreads Between Deposit and Lending Rates

• 4-1. Inflation Performance When Fiscal Targets Were Met

• 4-2. Real Effective Exchange Rates When Fiscal Targets Were Met

• 5-1. Bulgaria: Inflation, Wages, and Credit

• 5-2. Czechoslovakia: Inflation, Wages, and Credit

• 5-3. Hungary: Inflation, Wages, and Credit

• 5-4. Poland: Inflation, Wages, and Credit

• 5-5. Romania: Inflation, Wages, and Credit

• 6-1. Changes in Saving Rates by Program Years

• 6-2. Cumulative Changes in Saving Rates During IMF Involvement

• 6-3. Mexico and Tunisia: Saving Rates, 1971–92

• 6-4. Mexico and Tunisia: Projected and Actual Changes in Saving Rates

Preface

This is Part II of a two–volume study conducted as part of the IMF’s ongoing process of evaluating its lending facilities. It focuses on IMF-supported programs and macroeconomic performance during 1988–92, reflecting information available through the end of 1993. Part I (Occasional Paper No. 128) provides an overview of the principal issues and findings, and distills the main message for future programs. Part II (Occasional Paper No. 129) presents detailed examinations of selected policy issues in five background papers. The authors are indebted to numerous colleagues throughout the IMF for detailed comments on the papers, to Kirsten Fitchett for research assistance, and to Olivia Carolin for secretarial assistance. They wish to thank J.R. Morrison of the External Relations Department, who edited the manuscripts and coordinated production of the publications. The opinions expressed in the papers are those of the authors and do not necessarily reflect the views of the IMF or of its Executive Directors.