- Ritha Khemani, Sanjeev Gupta, Calvin McDonald, Louis Dicks-Mireaux, and Marijn Verhoeven
- Published Date:
- January 2000
Directors considered that the IMF’s primary role is to promote macroeconomic stability and structural reforms necessary for achieving sustainable and rapid growth. They underscored the crucial importance of economic growth for poverty alleviation, but also recognized that the IMF must be sensitive to the social implications of its policy advice. In particular. Directors noted that IMF-supported programs have sought to help members address the potential adverse impact on vulnerable groups of their adjustment and reform efforts as well as of exogenous shocks, and that such efforts in turn can make a vital contribution toward sustaining economic reforms and protecting living standards. They also observed that sound macroeconomic policies, coupled with effective social and infrastructure spending, foster faster long-term growth. In light of these considerations. Directors observed that social safely nets and appropriately targeted productive public spending, particularly in the social area, can provide critical support for the success of members’ adjustment and reform programs.
Broader requirements for improving living standards were also discussed, including promoting faster growth and employment creation and better integrating poorer countries into the international economic system. In addition, Directors suggested that the international community should work to improve these countries’ access to industrial country markets, as well as to halt the excessive flow of weapons to developing countries. Directors stressed the importance of good governance, transparency, and accountability for ensuring the effective use of public resources.
Directors discussed the role of the IMF with regard to social policies. Recognizing the need for mutually reinforcing macroeconomic and social policies, they underscored the importance of more closely integrating, with the help of the World Bank, social issues and poverty concerns into IMF supported programs. Directors agreed that greater attention to social issues was necessary in the context of low-income countries, including HIPCs, where structural reforms are particularly critical. With regard to other countries, a variety of views was expressed on the degree and modalities of IMF involvement in social issues. Some speakers attached importance to these issues in countries other than low-income countries, pointing to the recent experience in the Asian crisis countries and elsewhere. However, a number of Directors, while concurring that IMF-supported programs should encompass members’ social policies and poverty reduction efforts, cautioned nevertheless that the IMF should not allow its primary mandate to be diluted. They viewed the World Bank as taking the leading role in developing adequate social safety nets and effective social policies, and the IMF as contributing to poverty reduction mainly through its support of economic policies that provide a conducive environment for sustained growth.
All Directors emphasized that, as regards social issues, the World Bank and other relevant international organizations have the primary mandate and expertise. In this connection, they noted, for example, that the relationship between public social spending, growth, and poverty is complex, and that it is therefore critical to ensure that spending is used productively. Several Directors cautioned that the IMF did not have the panoply of expertise needed to assess the quality of social spending and related issues. Directors, therefore, underscored that the social components of countries’ IMF-supported programs should draw, to the fullest extent possible, on the work of the World Bank and other relevant institutions. Some Directors were of the view that when timely inputs from these institutions on essential social components of IMF-supported programs were not available, IMF staff would necessarily have to provide policy advice to the extent feasible. Many other Directors were skeptical about such IMF involvement, particularly if it were to require additional staff expertise. All Directors suggested that, to facilitate such cooperation, these institutions should be encouraged to provide more timely input. Overall, Directors agreed that more intensive cooperation between the IMF and the Bank is essential, proceeding along the lines of these institutions’ respective responsibilities and comparative advantages, and thus avoiding duplication of efforts. They welcomed therefore the recent enhanced IMF-Bank cooperation, pointing to the Enhanced Structural Adjustment Facility/International Development Association (ESAF/IDA) pilot program and the preparation of the reports for this discussion.
Turning to specific issues in the area of social policies. Directors noted the scope for further improving the quality and implementation of social safety nets, through comprehensive ex ante analyses and monitoring, relying on the expertise of the World Bank and other organizations. Several Directors recommended that the staff should assess, in the course of surveillance, the adequacy of social policy instruments, the performance of social safety nets, and the potential social ramifications of macroeconomic and financial policies. Many others, however, cautioned that this should not detract from the appropriate focus of Article IV surveillance. We will have to come back to this matter on the occasion of the biennial review of surveillance.
Spending on education and health care has increased in real per capita terms and in relation to GDP in most countries with IMF-supported programs during the past decade. While this has been accompanied by an improvement in a broad range of social indicators, Directors noted the diversity in outcomes caused by the differences in the effectiveness of social spending. Although some cautioned that too much emphasis on the absolute amount of social spending could send the wrong message, Directors more generally stressed the importance of efficient and well-targeted spending for ensuring that gains in social indicators are commensurate with spending increases. Further improvements in these areas could be achieved, inter alia, by strengthening a country’s budget formulation and implementation capacity.
The establishment of national quantitative targets for poverty reduction–consistent with the International Development Goals for 2015 to which countries have subscribed–could also prove beneficial, especially if the higher targeted spending is used productively. Directors suggested that, in setting targets, spending needs in priority areas for poverty reduction other than health, education, and social safety nets–such as basic sanitation, rural roads, and access to clean water–should also be taken into account; such priority spending may contribute as much or more to poverty reduction. Some Directors thought that core labor standards had a valuable contribution to make to the achievement of these targets, while other Directors were concerned that this issue is outside the IMF’s main areas of responsibility. We will come back to this issue after further consultations with the World Bank and the ILO.
Directors considered that in countries where social spending is so low as to be a critical area of weakness, structural benchmarks could continue to be used selectively to protect social spending and to promote key institutional reforms. While many Directors thought that such benchmarks should only be used in ESAF-supported programs, some other Directors saw the value in applying performance indicators (performance criteria and structural benchmarks) to a broader range of IMF-supported programs. In establishing such structural benchmarks, IMF staff will rely on inputs from the World Bank and others to ensure, inter alia, the targeting and quality of spending.
Directors noted with concern the widespread poor quality of data on social spending, social indicators, and social protection arrangements, which inhibited the design and implementation of effective social programs. They saw an urgent need for country authorities to identify weaknesses in data and data collection, and to make data improvements in collaboration with the World Bank, other international agencies, and civil society.
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In the context of IMF-supported programs, a point of reference against which program implementation is monitored. Benchmarks are not necessarily quantitative and frequently relate to structural variables and policies.
A holistic approach to development formulated by the World Bank and implemented on a pilot basis since early 1999. The CDF highlights the interdependence of all elements of development–social, structural, human, governance, environmental, economic, and financial–and stresses ownership by the country and partnership with government, civil society, assistance agencies, and the private sector.
Economic policies that members intend to follow as a condition for the use of IMF resources. These are often expressed as performance criteria (e.g., monetary and budgetary targets) or benchmarks, and are intended to ensure that the use of IMF credit is temporary and consistent with the objectives of adjustment programs designed to correct a member’s macroeconomic and structural imbalances, and promote stronger growth and external payments viability.
The central vehicle for World Bank Executive Board review of its assistance strategy for the International Development Association (IDA) and its borrowers. The CAS document describes the strategy based on an assessment of priorities in the country and indicates the level and composition of assistance to be provided based on the strategy and the country’s portfolio performance.
This facility, established by the Executive Board in 1987 and extended and enlarged in February 1994, was the principal means by which the IMF provided financial support, in the form of highly concessional loans, to low-income member countries facing protracted balance of payments problems and loans and grants under the H1PC Initiative. In late 1999, the ESAF was succeeded by the Poverty Reduction and Growth Facility (PRGF).
Program for enhanced World Bank-IMF collaboration in low-income (ESAF/IDA) countries, including a specific focus on social sector issues in six countries–Cameroon, Ethiopia, Nicaragua, Tajikistan, Vietnam, and Zimbabwe.
Initiative designed to provide exceptional assistance to heavily indebted poor countries following sound economic policies to help them reduce their external debt burden to sustainable levels. In the second half of 1999, the Initiative was strengthened to provide deeper and faster debt relief through the Enhanced HIPC Initiative.
Document prepared by a member country describing the policies that it intends to implement in the context of its request for financial support from the IMF.
Macroeconomic indicators such as monetary and budgetary targets that must be met for the member to qualify for phased purchases under Stand-By Arrangements in the upper credit tranches. Extended Fund Facility (EFF). and Enhanced Structural Adjustment Facility Arrangements (ESAF).
Document prepared by a member country in collaboration with the staffs of the IMF and the World Bank and updated annually, which describes the authorities’ economic objectives and macroeconomic and structural policies for a three-year adjustment program supported by resources under the Enhanced Structural Adjustment Facility (ESAF), as well as associated external financing needs and major sources of financing.
The IMF’s successor facility to the Enhanced Structural Adjustment Facility (ESAF). In the PRGF, poverty reduction is a key element of a renewed growth-oriented economic strategy. The cornerstone of the new approach is a nationally owned, comprehensive. Poverty Reduction Strategy Paper (PRSP).
The central document in the new Poverty Reduction and Growth Facility (PRGF), it will identify priorities for public action to achieve the greatest impact on poverty reduction. It will also address the critical and often complex issues related to enhancing good governance and supporting transparency in policymaking. The PRSP will be country driven, being prepared by the authorities with assistance from the World Bank and the IMF. and reflect the outcome of an open, participatory process involving civil society, relevant international institutions, and donors.
The major vehicle for the World Bank to analyze public sector issues, and public expenditure issues in particular, as part of its economic and sector work with its member countries. PERs help countries establish effective and transparent mechanisms to allocate and use available public resources in a manner that promotes economic growth and helps in reducing poverty.
Stand-By Arrangements give member countries the right to draw up to a specified amount of IMF resources during a prescribed period (usually 12-18 months, although they can extend up to three years). The release of drawings is conditional upon meeting performance criteria and the completion of periodic reviews.