See, for instance, the Chairman’s Concluding Remarks on The Modalities of Conditionality—Further Considerations (Executive Board Meeting 02/9). Directors reiterated these requests during discussions of reports of the Independent Evaluation Office (IEO): “Directors looked forward to further work by the staff on the relationship between external financing, adjustment, and sustainability; on the analytical framework for program design; on the trade-offs between macroeconomic and structural policies; and on the parameters for assessing program success.” (Board discussion of the Task Force to Address the Recommendations of the IEO Report on Prolonged Use of Fund Resources, April 2003). The Board also called for a review of program design in the summing up for the IEO report on capital crises (May 2003) and for follow up to the recommendations of the IEO Report on Fiscal Adjustment in IMF-Supported Programs (March 2004).
The period covered by this review is 1995-2003. This timeframe allows for both program and post-program experience to be analyzed. The sample consists of arrangements approved between 1995 and end-2000.
During this period, the Fund’s financial engagement with low-income countries underwent important changes with the shift from the Enhanced Structural Adjustment Facility (ESAF) to the Poverty Reduction and Growth Facility (PRGF) in 1999/2000. The findings in this review for low-income countries pertain principally to ESAF-supported programs.
Other staff papers have examined specific aspects of program design, or the design and outcomes of programs in specific contexts. Some examples are the 2002 paper on IMF-Supported Programs in Capital Account Crises and the 2002 PRGF Review. Some reviews have focused on specific countries or small groups of countries, such as IMF-Supported Programs in Indonesia, Korea, and Thailand—A Preliminary Assessment; and Lessons from the Crisis in Argentina. The last comprehensive review of experience under Stand-By and Extended Arrangements was undertaken in 1994; ESAF arrangements were reviewed in 1997. Several reports of the Independent Evaluation Office (IEO) are also relevant: Evaluation of the Role of the Fund in Recent Capital Account Crises—Report by the Independent Evaluation Office—Volume I (SM/03/171, 5/9/2003); Independent Evaluation Office—Evaluation Report on Fiscal Adjustment in IMF-Supported Programs (SM/03/291, 8/12/2003); Independent Evaluation Office—Evaluation of the Role of the Fund in Argentina, 1991-2001 (SM/04/237, 7/12/2004); IEO Evaluation Report on PRSPs and the PRGF (SM/04/227, 7/7/2004).
With the exception of real GDP growth—which rises during the program period—the behavior of other economic variables among members that had precautionary arrangements is similar to those for arrangements where the member made a purchase; in fact, both are characterized by sharp improvements in the fiscal and current account balances during the program and a corresponding build-up in reserves though, over the longer term, the savings ratio rises more among precautionary programs than among other GRA-supported programs.
Likewise, in many transition economies, beyond the initial stabilization phase, the main priorities are to undertake structural reforms aimed at reducing the size of the public sector and transforming the economy, while maintaining macroeconomic stability and a viable external position (see “Fund-supported Programs: Objectives and Outcomes” (SM/04/404), paragraphs 19-20 and Figure 4). Although the transition and low-income countries obviously differ in many respects, they share the goals of structural transformation of the economy and the promotion of growth. The growth picture of transition economies differs considerably from other Fund-supported programs mainly because of the abrupt transformation in the allocation of productive resources and of the disruption of existing trade linkages. In terms of macroeconomic policies, on average, both the fiscal deficit and the current account improved.
While some findings are specific to members’ experience under their Fund-supported programs, caution is required in making causal interpretations since it is difficult to establish counterfactual outcomes had the member not sought the Fund’s financial support (for a discussion, see “Fund-supported Programs: Objectives and Outcomes,” SM/04/404, Appendix IV).
At the same time, a given improvement in the current account balance undertaken in the context of a Fund-supported program is associated with a smaller output loss than the same current account improvement outside of a Fund-supported program (see Box 5 of “Fund-supported Programs: Objectives and Outcomes,” SM/04/404).
This contrasts with results on macroeconomic performance under ESAF-supported programs in earlier time periods, which found that growth at best recovered from depressed pre-crisis levels; see ESAF Review Overview Paper (1998).
A further complication in many capital account crises were the concomitant banking crises.
In a few cases, programmed tightening could not be pursued because of the need to extend lender of last resort support to the banking sector.
See Box 3 of “Macroeconomic and Structural Policies in Fund-supported Programs: Review of Experience,” SM/04/406. The finding of lower inflation for a given growth of broad money holds particularly for middle-income countries, perhaps because credibility effects are of greater importance in countries with relatively more developed financial markets.
As noted in paragraph 29 and Table 13 of “Macroeconomic and Structural Policies in Fund-supported Programs: Review of Experience,” SM/04/406, this holds both for the current and the one-year lagged impact of monetary policy on output growth. The Independent Evaluation Office Report on PRGF-supported programs draws similar conclusions for programs with low-income countries.
As noted above, these findings for low-income countries pertain primarily to ESAF programs. Preliminary experience under PRGF-supported programs will be examined in forthcoming staff work.
Since, as noted above, in GRA-supported programs, on average, the current account balance improved by more than expected, this leaves open the possibility that a looser fiscal stance would have been appropriate in those cases where the main purpose of fiscal consolidation was external adjustment. On average, however, fiscal adjustment was as likely to fall short of its program target in those cases where the current account improvement was as large as (or greater than) programmed, as it was in cases where the current account improvement was smaller than targeted.
In particular, when fiscal consolidation is not required for the sustainability of the public finances or to underpin macroeconomic stabilization, and capital outflows have a negative impact on aggregate demand, loosening fiscal policy to help support economic activity would be appropriate. For this reason, fiscal targets in several Asian crisis programs were eased successively as it became evident that activity and growth would be significantly weaker than expected. Some of these cases, however, also had to contend with a substantial increase in public debt, associated with financial sector restructuring costs. See Section IV of “Macroeconomic and Structural Policies in Fund-supported Programs: Review of Experience,” SM/04/406, and IMF-Supported Programs in Capital Account Crises (OP 210).