To learn from past experience and to prepare for new challenges, the Fund’s staff has devoted much energy over the years to assessing the impact of the adjustment programs that the IMF supports in its member countries. In a just-published volume, IMF-Supported Programs: Recent Staff Research, a rich sample of contributions sheds new light on what has worked and what has not.
What sets the latest staff research apart from earlier studies is the recognition and consideration of complexity both at the IMF and in the country. The Fund’s alternative approaches to program design, its ability to determine the pace and quality of program implementation, the degree of economic adjustment necessary for the country, and the nature of the domestic political economy all determine the likelihood of program success. From this complexity arise a number of straightforward questions.
- How—and to what extent—does a program’s success depend on its design?
- Why does the quality of implementation vary, and is that quality related to the commitment of country authorities to the policy reform package?
- Do different economic conditions—such as levels of external debt and reserves—influence the willingness and ability of countries, private markets, and the IMF to coordinate to achieve success?
Moreover, where IMF-supported programs are successful, what is the basis for success? Is it the country’s commitment that counts? And does the IMF’s value arise from its policy advice, its lending, its monitoring of country policies, or its “seal of approval”?
On program design, the research underscores the value of the quality of fiscal adjustment and of achieving more accurate program projections. It finds that the accuracy of program projections hinges on better information, especially about initial conditions. Still, the authors argue that if capital account crises are to be better managed and long-term growth is to be fostered, more refined theoretical analytical frameworks are also needed.
As for why countries have had markedly different experiences with program implementation, the research finds that these variations reflect differences in domestic institutions and political constraints. The results are consistent with the call for greater country ownership of IMF-supported programs. The IMF’s governance structure—specifically, how national authorities exercise operational control on the IMF, how the IMF is internally organized and interacts with members and the markets, and how the IMF provides uniform treatment to its member countries—may also exert an important influence on program design and implementation and, ultimately, on their effectiveness.
On program effectiveness, the research looks in particular at the IMF’s role in helping member countries address capital account crises and in catalyzing capital flows. It suggests that if domestic tax-payers—who have borne much of the costs of capital account crises—are to be protected, IMF lending to cushion a crisis should be available mainly on the consideration that sound policies were followed before the crisis, because this will presumably reduce the pursuit of irresponsible policies. In helping countries maintain medium-term access to international capital markets, the IMF may be most effective when a member country faces significant vulnerabilities but is not yet in the midst of a crisis. The research also points to member countries’ use of the IMF to signal their commitment to policy reform.
Much still to do
A richer political economy framework could open new avenues to understanding how IMF programs work. Some would argue that the IMF’s own advice and financing are conditioned by political economy considerations; similarly, the domestic political economy shapes attitudes toward the IMF and, hence, the ability of the authorities to enter into constructive IMF-supported programs. The ongoing debate on the Fund’s governance structure is motivated by a variety of important considerations: whatever the outcome, there will be implications for how the Fund works and its effectiveness.
Ashoka Mody, IMF European Department
Alessandro Rebucci, IMF Research Department
Copies of IMF-Supported Programs: Recent Staff Research, edited by Ashoka Mody and Alessandro Rebucci, are available for $37.50 each from IMF Publication Services; see page 160 for ordering details. The full text is also available on the IMF’s website (www.imf.org).