Review of the 2002 Conditionality Guidelines: Introduction

Tubagus Feridhanusetyawan, Alun Thomas, Tessa Van der Willigen, Uma Ramakrishnan, S. Reichold, Juan Zalduendo, and James Walsh
Published Date:
September 2005
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I. Introduction

1. The Fund reviews its conditionality at regular intervals. These reviews may encompass issues related to the design of Fund-supported programs or to the formal aspects of conditionality. Both sets of issues are fundamental to the effectiveness of the Fund’s financial support, which requires that program design reflect the best possible analysis in its formulation of both objectives and policy content, and that the formulation and application of conditionality be supportive of good program design and of program implementation.

2. The 2004–05 conditionality review has already included discussions of program design.1 These discussions ranged widely, across programs supported by both the General Resources Account (GRA) and the Poverty Reduction and Growth Facility (PRGF), and covered their objectives and outcomes, analytical frameworks, and macroeconomic and structural policies. Directors commended the staff study’s comprehensive analytical treatment of various aspects of program design. At the same time, Directors considered that the study raises new issues and questions which merit further inquiry. Directors stressed that national ownership of policies and the role of alternative policy options should be further reviewed. Several Directors pointed to the frequent granting of waivers of structural conditions as symptomatic of possible systemic flaws in program design. How best to strike a balance between the principle of streamlining and the need for reforms to ensure medium-term growth and viability was also placed on the agenda for the continuation of the conditionality review.

3. With the present paper, the 2004–05 conditionality review expands to include a review of the application of the new Guidelines on Conditionality, adopted in 2002.2 These guidelines were the culmination of a comprehensive and far-reaching review of conditionality that aimed to enhance the effectiveness of Fund-supported programs. They represented the first revision of the Fund’s conditionality guidelines since 1979, and were developed by the Fund after seeking input from civil society and public forums held in several countries. The Executive Board discussed a series of staff papers on conditionality during 2000–02 before finalizing the guidelines.

4. The main focus of the 2000–02 conditionality review was structural conditionality, with the aim of focusing and streamlining it and of enhancing national ownership of policy programs. Thus the new guidelines departed from previous practice primarily in the area of structural conditionality and in emphasizing good processes of program development. Accordingly, and as foreshadowed in the issues paper for the present review (which was discussed at an informal Executive Board seminar in June 2004), these are the prime focus of this paper. The paper complements and draws on both the recent review of program design and the review of IMF-World Bank collaboration held in March 2004.3 It is accompanied by a paper setting out some of the analysis in more detail.4

5. In the main, this paper reviews arrangements approved between 2001 and 2004, and contrasts them with arrangements approved through 2000. End-2000 was chosen as the cutoff date because the key changes in the 2002 conditionality guidelines, relative to previous practice, had been foreshadowed in an “Interim Guidance Note on Streamlining Structural Conditionality” of September 2000.5 In what follows, the shorthand “pre-” and “post-guidelines” refers to this cutoff date of end-2000.

6. This review comes at an early stage of experience with the new guidelines, and further evidence will be needed before definite conclusions can be drawn. The ultimate test of conditionality is whether it contributes to better economic outcomes, including over the medium term, and these cannot yet be gauged. Moreover, although this review draws in part on case studies, no substitute exists for cross-country analysis for identifying broad trends, and at this stage such analysis is hampered by small sample sizes. Because of the preliminary nature of this review, it was based largely on information already available to the staff. The views of the authorities were sought on the case studies of the process of program development, and the review also uses the authorities’ responses to the survey carried out for the review of Bank-Fund collaboration. A future review, at a time when information is available on economic outcomes, will be able to make a more fundamental assessment, and broader consultation with both authorities and civil society would also seem appropriate at that time.

7. This review should thus be seen, not as a definitive assessment, but rather as an interim checkpoint, focusing primarily on ensuring that the broad thrust of the guidelines is being implemented. At this early stage and absent outcomes data, it would be surprising if the review uncovered clear evidence warranting changes to the thrust of the guidelines, and indeed it does not. The staff, therefore, does not recommend any changes to the guidelines at this time. While the guidelines were framed at a relatively high level of generality, more specific guidance to staff, consistent with the guidelines, is provided by a staff statement and an operational guidance note, which were intended to be more amenable to revision as experience accumulated.6 The staff will revisit these supporting documents in light of the Board discussion of the present review.

8. This paper is structured as follows. Chapter II recapitulates the key elements of the guidelines. Chapter III reviews recent experience with conditionality, with a focus on the coverage and numbers of conditions, the clarity with which conditionality is specified, the process by which it is formulated, and finally the record on program implementation. Chapter IV provides an assessment, focusing on four main questions that emerge from the review of experience: Has conditionality been adequately streamlined and focused on critical measures? Have any risks materialized in the process? How should the waiver rate for structural performance criteria be viewed? And has national ownership of policies been fostered, and selectivity been shown in cases where ownership is lacking? Issues for discussion are presented in Chapter V.

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