Fewer strings attached
The IMF has revised its guidelines for the conditions it attaches to loans—the first such change in nearly a quarter century. When countries borrow from the IMF to support an economic reform program, they must meet certain conditions to receive loan disbursements. This is known as conditionality. The new guidelines are the culmination of an extensive review of conditionality over the past two years, initiated by IMF Managing Director Horst Köhler. The conclusions of this review, reflecting consultations with country officials and nongovernmental organizations around the world, are already being put into practice, resulting in significant changes in the way the IMF does business.
The IMF’s earlier guidelines, written in 1979, limited conditionality mainly to macroeconomic policies such as monetary expansion, fiscal deficits, and currency exchange controls. But over time, especially in the last decade, conditions were broadened to cover a range of structural issues, such as how taxes are collected, how wages are set, and how crops are marketed. While this broadening partly reflected the nature of the economic problems countries are trying to tackle with the IMF’s help, it also led to concerns that the IMF’s involvement in countries’ domestic decision-making processes had become too pervasive.
The new guidelines recognize that some structural conditionality is needed because macroeconomic problems often have structural roots, but they seek to limit structural conditions to those that are of critical macroeconomic importance for the success of the IMF-funded reform program. For instance, when Indonesia requested IMF financing in 1998, a central problem was the collapse of its corporate sector, so structural reforms to deal with insolvency were an essential element of the program. At the same time, a number of other measures included in the 1998 program, such as those related to international trade and agricultural marketing, although desirable, would not be included under the new guidelines because they were not critical to the program’s objectives. The hope is that this new approach will help strengthen country ownership of urgently needed policy reforms, making it more likely the program is successfully carried out.
“The Center will be successful if it makes itself superfluous.”
—Tanzanian President Benjamin William Mkapa at the opening of the IMF’s regional technical assistance center in Dar es Salaam
Minutes taken out of mothballs
Want to know how the IMF Executive Board responded to the end of the Cold War? Get the inside details from the IMF’s archive. The IMF now allows access to Board minutes after 10 years, instead of 20.
A web for donors’ insights
Twenty-four multilateral and bilateral donor agencies, including the IMF, can now share analysis about the development needs of different countries and regions through a new website. Country analytic work underpins good donor assistance programs. The new website, launched by the World Bank, will help improve the impact and cost-effectiveness of development projects. Through the Country Analytic Work partnership website (www.countryanalyticwork.net/), donor agencies can share insights, good practices, and advice to strengthen policy dialogue, develop and implement country strategies, and carry out sound lending operations. The website will help donor institutions and their clients use development resources more efficiently, avoid duplication, and build up expertise about the development challenges in a particular country or region.
The World Bank and the World Trade Organization are establishing a new fund, called the Standards and Trade Development Facility, in an effort to boost trade opportunities for poor countries. Exports of food products from these countries are often refused entry to industrial countries on the grounds that they do not meet international health and safety standards.
Developing countries will be able to draw on the new fund for grants and financial support for technical assistance projects that will enable them to strengthen and better implement food safety and plant and animal health measures. This will help smooth the path for exports from the developing world to global markets, thereby spurring growth and poverty reduction in poor countries.
According to World Bank research, Africa could gain over $1 billion a year from higher exports of nuts, dried fruits, and other agricultural commodities if it participated in the development and implementation of international standards.