Seminar on conditionality: Speakers argue that ownership, not the number of conditions, is key to success of an IMF program

As part of its conditionality review, the IMF has organized a series of discussions on its proposals, holding seminars in Berlin in June (see IMF Survey, July 2, page 218) and in Tokyo in July (see IMF Survey, July 30, page 249). A third forum—cosponsored by the Commonwealth Secretariat, the World Bank, and the IMF and held in London on July 23-24—covered issues related to conditionality and ownership particularly relevant to low-income countries. The seminar was co-chaired by Winston Cox, Commonwealth Deputy Secretary-General; Masood Ahmed, Deputy Director of the IMF’s Policy Development and Review Department; and Joanne Salop, Vice-President for the World Bank’s Operations Policy and Country Services. It brought together representatives of borrowing and creditor countries, international organizations, nongovernmental organizations (NGOs), and a number of other individuals with relevant expertise and experience.

Abstract

As part of its conditionality review, the IMF has organized a series of discussions on its proposals, holding seminars in Berlin in June (see IMF Survey, July 2, page 218) and in Tokyo in July (see IMF Survey, July 30, page 249). A third forum—cosponsored by the Commonwealth Secretariat, the World Bank, and the IMF and held in London on July 23-24—covered issues related to conditionality and ownership particularly relevant to low-income countries. The seminar was co-chaired by Winston Cox, Commonwealth Deputy Secretary-General; Masood Ahmed, Deputy Director of the IMF’s Policy Development and Review Department; and Joanne Salop, Vice-President for the World Bank’s Operations Policy and Country Services. It brought together representatives of borrowing and creditor countries, international organizations, nongovernmental organizations (NGOs), and a number of other individuals with relevant expertise and experience.

London conference on IMF conditionality

As part of its conditionality review, the IMF has organized a series of discussions on its proposals, holding seminars in Berlin in June (see IMF Survey, July 2, page 218) and in Tokyo in July (see IMF Survey, July 30, page 249). A third forum—cosponsored by the Commonwealth Secretariat, the World Bank, and the IMF and held in London on July 23-24—covered issues related to conditionality and ownership particularly relevant to low-income countries. The seminar was co-chaired by Winston Cox, Commonwealth Deputy Secretary-General; Masood Ahmed, Deputy Director of the IMF’s Policy Development and Review Department; and Joanne Salop, Vice-President for the World Bank’s Operations Policy and Country Services. It brought together representatives of borrowing and creditor countries, international organizations, nongovernmental organizations (NGOs), and a number of other individuals with relevant expertise and experience.

Proposals for increasing ownership

Participants welcomed the review and the participatory process involved. They agreed that changes were clearly needed and that streamlining was a first, positive step. Some speakers argued that the proliferation of conditions, rather than solving any problems, had in many cases made it more difficult for countries to implement programs. Gus O’Donnell, a former U.K. Executive Director of the IMF and the World Bank and now at the U.K. Treasury, said that a long list of conditions also made it impossible to measure the success of a program at the time of its reviews.

Success does not depend on the number of conditions, several speakers noted, but on country ownership, meaning a willingness by countries—civil society as well as governments—to accept responsibility for their policy programs. Indeed, much of the discussion was devoted to this idea. To achieve ownership, country authorities need to have substantial input into the conditions attached to the program. Streamlining and focusing the conditions will not improve ownership if there is a widespread feeling in a country that reforms are externally dictated, argued Tony Killick, a consultant for the U.K. Department for International Development. Wesley Hughes, of the Planning Institute of Jamaica, said that it was only when his country took full responsibility for its own program, designed by the authorities, that people “bought into it, and if they believe in it, they will follow the program.”

Participants offered three concrete proposals for improving national ownership. First, the World Bank and the IMF should be more transparent and accountable in the way they design and implement conditionality. Notably, the institutions should consult thoroughly and systematically with country authorities, and preferably with other stakeholders, to determine the country’s preferences and priorities before attempting to specify conditions. If, as a result of the review, the IMF would simply pass structural conditionality to the Bank, the net effect would not be clear to countries, Killick noted.

Second, the institutions should always ensure that country authorities have a range of options from which to choose.

Both of these proposals were reflected in the poverty reduction strategy paper (PRSP) process, which participants warmly welcomed, but it was argued that they could be implemented more widely. Letters of intent, like PRSPs, should be drafted by the countries rather than by IMF staff. Makhtar Sop Diop, former Minister of Finance of Senegal, argued that letters of intent should be written by the country, even if the wording does not reflect the language usually used by the IMF’s Executive Board. Unfortunately, one speaker observed, the insistence that country papers be called PRSPs, rather than a name that better suits the country’s own needs, is a subtle indicator of the tendency of the IMF and the Bank to retain control of the process.

Third, the institutions should devote more resources to capacity building in developing countries. Former Central Bank of Kenya Governor Micah Cheserem observed that education is expensive, but ignorance is far more expensive, and many lowincome countries need to devote more resources to developing human capital if they are to be able to design their own programs effectively. Cheserem argued that technical assistance is inadequate for this purpose, and several speakers urged the institutions to devote more resources to capacity building.

IMF conditionality

Communication is also important, Cheserem added. The IMF should do a better job of explaining what it does in program countries and should invest more money in increasing its presence on the ground. This comment was echoed by Gray Mgonja, Deputy Permanent Secretary of Tanzania, who spoke about the need to involve “domestic stakeholders.”

During the seminar, it was also suggested that the IMF would do a better job of defining conditionality if it differentiated more clearly and systematically among the programs it supported. David Vines of Oxford University suggested a three-category definition: (1) programs aimed at short-term balance of payments support (requiring primarily macro conditionality), (2) programs designed to resolve financial crises (also requiring financial sector and other quickacting structural reforms), and (3) programs designed to support longer-term development strategies (possibly requiring a more extensive but also more gradual approach to structural reform).

Participants suggested that each category had different implications for conditionality and ownership. Through such differentiation, they noted, the need for structural conditionality could be better defined and countries could have more control over their longer-term policy decisions in noncrisis situations. It was thought that even the coordination and division of labor between the World Bank and the IMF would benefit from the distinction.

Roles of IMF and World Bank

Regarding the relationship between the IMF and the World Bank, many participants thought that collaboration should be made more systematic, and one even suggested that the two institutions should be merged. During the discussions, a strong message also emerged about collaboration among donor countries. Mgonja said that the capacity of the borrowing countries was often overstretched by their having to negotiate with the IMF, the World Bank, a regional development bank, the European Union, and other creditors and donors. It would really help borrowing countries if the donor community had a coordinated strategy for conditionality, he said.

The IMF also needs to take into account the political constraints countries face at different stages of their programs. Indrajit Coomarasawamy, Acting Director of the Economic Affairs Division of the Commonwealth Secretariat, said that programs should factor in electoral cycles, and many speakers agreed that sustained commitment to reform is very unlikely in a weak political environment: paying more attention to budget and election cycles would improve ownership and strengthen implementation. This requires that the IMF know the countries better; the institution came in for some criticism for limiting staff in the field to one resident representative and for not sending staff missions outside capital cities, which hinders acquiring sufficient knowledge of the countries it works with. Hussain argued that, in the IMF, those with the most knowledge of local conditions (resident representatives and area department staff) had the least power in the programs’ decision-making process.

Over the one and a half days of discussions, there was general agreement on the need to streamline and focus conditionality, but participants argued that more than this needs to be done. Reducing the number of conditions would not be enough: it is also important to reduce the amount of detail in conditionality. As Masood Ahmed of the IMF’s Policy Development and Review Department noted, what is important is to distinguish clearly between measures that are critical for the success of a program and measures that are useful for the country but not critical for the program’s success. Participants agreed, adding that the IMF needs to avoid trying to micromanage the economies of borrowing countries.

Several speakers called on the IMF to return to its core activities. They said that there was too much overlap in coverage of structural issues by the World Bank and the IMF, resulting partly from a gradual expansion of the IMF’s mandate into growth and poverty reduction issues. One participant asserted that the “G” in PRGF (Poverty Reduction and Growth Facility) is not in the IMF’s mandate, while another hoped that the only conditionality in poverty reduction programs would be that laid out in the countries’ PRSPs. In the view of many speakers, the Bank is much better equipped to deal with poverty and structural issues, and the burden of proof for inclusion of structural conditions in IMF-supported programs lies with the IMF. However, many admitted that, even in low-income countries, market perception is important and that conditionality increases credibility in the reforms implemented by a country’s authorities. In that view, the IMF should not back away from its insistence on such structural reforms as improving governance and strengthening financial systems.