IMF, World Bank Annual Meetings focus on challenges for global
economy
The 2002 Annual Meetings of the IMF and World Bank Board of Governors,
which consist of ministers and central bank governors from the institutions'
184 member countries, were held in Washington on September 29. It was
preceded on September 28 by the usual twice-yearly meetings of Committees of
Governors. The meeting of the International Monetary and Financial Committee
(IMFC)—the IMF's ministerial steering committee—focused on the challenges
currently facing the global economy, the policies needed to address them,
the continuing reforms of the IMF and the international financial system
more broadly aimed at improved crisis prevention and resolution and progress
with poverty reduction and debt reduction. The Development Committee—the
joint IMF-World Bank ministerial steering committee on development finance
issues—focused particularly on progress in implementing the Monterrey
Consensus. The Annual Meeting of Governors discussed the broad range of
issues considered by the two committees.
In its
communiqué, the IMFC noted the downside risks and uncertainties to the
global economic recovery, and called on member countries to be vigilant and
ready to change policies as needed to support growth and durable poverty
reduction. The IMF would assist these efforts through reforms already
underway to strengthen the Fund's ability to evaluate emerging
vulnerabilities, minimize the occurrence of economic crises, and quickly
resolve crises if they do occur. The IMFC welcomed the
Report of the
Managing Director to the IMFC on the IMF in a Process of Change and
endorsed the Managing Director's plans for continuing reform. Köhler set out
major elements of his plans in
Address by
Horst Köhler to the Board of Governors of the Fund.
The IMFC's endorsement of the IMF's continuing work on the restructuring
of unsustainable sovereign debts attracted particular attentions. The
Committee encouraged the official community and the private sector to
continue working together to develop collective action clauses and promote
their inclusion in international sovereign bond issues. And the IMFC also
called on the Fund to develop a concrete proposal for a statutory sovereign
debt restructuring mechanism, for consideration at its next Meetings in
April 2003 (see next section).
The IMFC welcomed the progress made with the poverty reduction strategy,
called for pledges of additional financial support for HIPC, and encouraged
the Fund and the Bank to continue their collaboration on issues important
for poverty reduction.
The
Development Committee communiqué encouraged the IMF and World Bank to
develop a clear framework for measuring the progress of low-income countries
toward the Millennium Development Goals.
The Work
Program of the Executive Board reflects this mandate, and also calls for
further work on the HIPC initiative and the PRSP and PRGF approaches. Other
areas of emphasis in the Work Program include further steps to make the
IMF's country surveillance more effective, including reviews of progress in
financial sector surveillance, and consideration of ways to strengthen the
decision-making role of developing and transition countries in
international financial institutions.
IMF, NGOs discuss resolution of debt crises
The Annual Meetings of the IMF and the World Bank always offer an
excellent opportunity for civil society and the staffs of the two
institutions to discuss current policy issues. One of the most lively
debates at this year's meetings focused on the new approach to debt workouts
being worked on by the Fund.
The International Monetary and Financial Committee (IMFC) gave the Fund
the mandate
to prepare a concrete plan for a statutory Sovereign Debt Restructuring
Mechanism (SDRM) by the April 2003 Meetings for consideration by the IMF
membership. It would offer a country with extensive indebtedness to private
creditors and whose debt servicing burden has become unsustainable a legal
framework to negotiate a standstill and a restructuring of its debt.
The IMF's proposal has, of course, been scrutinized by NGOs since it was
first proposed by IMF First Deputy Managing Director, Anne Krueger in a
speech
in November 2001 .
At the Annual Meetings, NGOs discussed the proposal with Jack Boorman,
Special Advisor to the Managing Director, who participated in a panel
discussion organized by CIDSE/Caritas, the Center of Global Concern, and the
New Rules for Global Architecture. Other speakers included University of
Vienna Professor Kunibert Raffer; Jubilee Germany Campaign Coordinator
Jürgen Kaiser; Mario Cafiero, Member of Parliament (Argentina); and Eric
Fine, Emerging Market Desk with Morgan Stanley's. The debate was moderated
by Barry Herman of the UN Department of Economic and Social Affairs.
In his opening remarks, Boorman addressed many of the concerns that have
been voiced by NGOs. He said that what is needed is a system that produces
an orderly resolution of unsustainable debts. This system should be
activated in a timely manner, and participants should be able to proceed
with reasonable assurance of finding agreement without undue delay. Limiting
the kind of disruption and dislocation to economies that has been seen in
too many recent cases can help preserve substantial value both for the
creditors and for the debtor country and its citizens, Boorman said. In so
doing, this would help accomplish one of the specific aims of NGOs that
advocated a fair and transparent arbitration mechanism: that is, to help
minimize the adverse impact of such operations, such restructuring
operations on the poor, not least by minimizing the depth of crises and
sustaining effective poverty eradication programs during that process, he
added.
He first described the five major elements of the IMF proposal, stressing
that, in all of this, there are no new legal powers for the IMF. The
SDRM would: (1) provide the debtor with legal protection from disruptive
legal action; (2) call for good faith negotiations between debtor and
creditors; (3) give seniority to fresh private lending; (4) empower
creditors to vote on the terms of a potential debt restructuring agreement;
and (5) create a dispute resolution forum that would not transfer new powers
to the IMF. The advantage of enacting the SDRM through an amendment to the
IMF's Articles of Agreement is that it would ensure uniform application of
the measures, and would be immediately applicable, Boorman added.
He also addressed many of the concerns that have been voiced by NGOs.
First he underlined that the proposal does not exclude low-income
countries. The HIPC Initiative will remain as the main vehicle to deal
with the debt of the poorest countries as most of their debt is to official
creditors, either multilateral or bilateral. The World Bank's Fifth
Dimension Program, from a number of years ago, financed deep discount
buybacks of the commercial bank claims on most of these countries, and for
all practical purposes it eliminated most of those claims, with the
exception of some of the bigger poorer countries that had market debt
outstanding. There is virtually no bond indebtedness for those countries.
For a few, like Nigeria or Côte d'Ivoire, SDRM could be applicable to the
extent they do have private sector claims against them.
Regarding the exclusion of IMF claims, he said that both the
official community and the private sector, with few exceptions, accept the
Fund's preferred creditor status. The exclusion of IMF claims is what
permits the Fund to lend in a time of crisis when other creditors are
fleeing and when there is no other source of credit for the country. Without
that preferred creditor status, the Fund's capacity to act in such cases
would be sharply curtailed, if not eliminated.
Another concern is that official bilateral debts may be given priority
over commercial creditors and that the SDRM may exclude Paris Club debt.
Boorman said that the issue is not whether to include or exclude bilateral
official credits from restructuring. The question is whether to deal with
them under the new processes to be developed under the SDRM or to continue
to work through the Paris Club, fully coordinated with the process under the
SDRM regarding the restructuring of private claims. In this way, official
bilateral claims would be dealt with on an equal footing with private sector
claims.
He also clarified that the purpose of giving seniority to new private
sector credits is not to pay back the IMF but to encourage the provision
of new trade credits and other credits that are critical to the ongoing
operation of the economy. And while IMF-supported programs will not,
legally, be a precondition for a restructuring, he noted that this will, in
all likelihood, be the case de facto, because countries are likely to
want the Fund involved for its policy advice and for its finance. Private
creditors, too, are likely to want the Fund involved to help the country
formulate its policies and to monitor the implementation of those policies.
To read more about the IMF's proposal:
Sovereign
Debt Restructuring Mechanism (SDRM), A Factsheet
Transcript of a panel
discussion on SDRM with First Deputy Managing Director Anne Krueger--IMF
Annual Meetings, Program of Seminars, September 27, 2002
IMF
SURVEY article on the above panel (see page 297)
IMFC
communiqué (see paragraph 11)
Sovereign Debt Restructuring: Where Stands the Debate? Speech by Jack
Boorman, Special Advisor to the Managing Director, given at a conference
co-sponsored by the CATO Institute and The Economist, New York,
October 17, 2002
Crisis
Prevention and Resolution: The Role of Sovereign Debt Restructuring,
remarks by Anne Krueger at the American Enterprise Institute symposium,
October 7, 2002
NGOs discuss Ecuador's pipeline with IMF, World Bank
IMF staff met with environmental NGOs in July and again, together with
World Bank staff, in September during the Annual Meetings to discuss issues
surrounding the new pipeline that will double Ecuador's oil export capacity.
NGOs specifically discussed with the Fund the so-called Fiscal Law that will
govern the use of the money from this important new source of revenue.
The law, as it was passed by the Ecuadorian Congress in August 2002,
allows for 70 percent of the money to be used to repay the country's debt
(both domestic and foreign). Twenty percent will go toward a stabilization
fund, while 10 percent will be spent on social programs.
Contrary to some reports, the Fund has never opposed the allocation of
the money to health and education—indeed it welcomed it. What it opposed
was that the allocation was originally planned as extra-budgetary spending
without congressional oversight. The Fund objected to the lack of
transparency in the use of these funds under an earlier version of the law.
As the IMF had recommended, this has now been changed; the authorities
have to report to Congress on the spending and manage it within budgetary
guidelines. Not only will Congress track the spending; civil society will
also be able to know where, and how, the money will be spent—something that
would have been difficult had the spending remained outside the budget.
In the staff's economic analysis and discussions with the authorities
there is also, for the first time, an explicit account of the use of
Ecuador's natural resources. This includes the issues involved with the
constant drawdown of the country's mineral wealth (oil and gas), and those
of biodiversity and environmental capacity (e.g., carbon dioxide capture in
Ecuador's forests). These issues are explained in more detail in the
Selected Issues paper associated with the IMF's regular Article IV
consultation with Ecuador, which will be released if authorized by Ecuador's
authorities.
More
documents on Ecuador and the IMF
IMF issues new conditionality guidelines
The IMF issued
new conditionality guidelines on September 26, 2002, marking the end of
a two-year review. The guidelines, which will replace the Interim Guidance
Note on conditionality issued in 2000, reflect the drive to streamline,
focus, and clarify conditionality so as to enhance the effectiveness of
Fund-supported programs.
The guidelines will apply generally to all Fund conditionality and were
drafted with the following principles in mind:
- National ownership of reform programs;
- Sparing application of conditions, with a focus on those that are
critically important to the program's objectives;
- Tailoring programs to the member's circumstances;
- Effective coordination with other multilateral institutions; and
- Clarity in specifying conditions.
Timothy Lane Policy Development and Review Department Division Chief met
NGOs at the Annual Meetings to discuss the new guidelines. Asked about a
specific example of how the guidelines might affect a country's program, he
noted that the Interim Guidance Note, which reflects the essence of the new
guidelines, had already had some impact. The extent of privatization-related
conditions had been scaled back in former Soviet Union countries, specific
agricultural measures had been removed from programs in some African
countries, and a sharper focus had been brought to bear on macroeconomic
issues in low-income countries, owing also to the Poverty Reduction Strategy
process.
He also noted that there would likely be a reduction in the number of
conditions (especially structural benchmarks) used to track progress toward
broader objectives (e.g., VAT implementation). Lane noted that the new
guidelines encouraged staff to be more flexible in considering "second best"
policies if they were more likely to be implemented than "first best"
policies.
CSOs discuss trade policies with IMF, World Bank
Bretton Woods Institutions urge rich countries to lead by example on
trade access
Senior staff from the IMF and the World Bank met with more than 20 CSO
representatives from 10 countries at the Annual Meetings to
discuss WB/IMF trade policies in light of the release of the paper
titled: "Market
Access for Developing Country Exports—Selected Issues."
Hans Peter Lankes, Chief of the Trade Policy Division of the Policy
Development Review Department presented the paper. He said that research has
shown that average tariff rates mask an uneven playing field between
developed and developing countries. It is clear that the high import
barriers imposed by developed countries in agriculture, combined with the
effects of agricultural subsidies, severely limit the market potential for
key export crops of many developing countries. Another area of concern is
the fact that technical standards (including product, health, and safety
standards) and other non-tariff barriers can also effectively close markets
to developing countries—and not always for legitimate reasons.
Further, empirical evidence shows that providing unrestricted market
access for Least Developed Countries (LDCs) could have significant benefits
without imposing undue costs on other suppliers, given the very small share
of LDCs in world trade (around 0.5 percent). It should be noted, however,
that trade preferences can also have drawbacks as they risk creating vested
interests, and should therefore be set firmly within a context of rapid
multilateral liberalization. The paper on market access argues that
liberalization of imports—especially for agricultural products, textiles,
and clothing—can generate large benefits for developing countries in terms
of incomes, exports, and employment. It presents estimates that the incomes
generated by improving market access for these products would easily surpass
the volume of annual overseas development assistance.
In addition to working to open markets in the North, it is also important
to look at South-South barriers as developing countries can often confront
as many trade barriers imposed by their regional competitors as they face in
developed countries. Most model simulations, including those presented in
the paper, also underline that countries will ultimately benefit the most
from liberalization of their own trade regimes.
In terms of World Bank/IMF advice on trade policies, Lankes said, the
Poverty Reduction Strategy Paper is the most appropriate instrument for
integrating trade and other policies. Yet trade has not figured very
prominently in the PRSPs undertaken so far. Civil society can and should
play an important role in ensuring that trade is incorporated into the PRSP
process.
Uri Dadush, Director of the International Trade Department at the World
Bank, stressed the latest thinking in the Bank, which still views trade
liberalization as generally positive in the presence of a supportive policy
environment (peace, macro stability, good governance, etc.), with the
greatest gains accruing from a country's own trade liberalization (both in
the North and the South). However, the Bank also has a much greater
appreciation than in the past of country ownership of trade and
macro-economic policies. Also much greater emphasis is being placed on the
opening of markets and lowering of barriers in developed countries,
particularly reducing agricultural subsidies. The World Bank and IMF are
undertaking more comprehensive diagnostic studies on trade. It is also
important for a country to have a more comprehensive policy approach that
goes beyond just lowering tariffs.
Independent Evaluation Office tackles prolonged use of Fund resources
In its debut
report,
the IMF's Independent Evaluation Office (IEO) says it found that prolonged
use of Fund resources (UFR) often stifles homegrown policies in borrowing
countries, and weakens both the Fund's credibility and the catalytic effect
of its loans.
The report recommended that the Fund adopt an explicit definition of
prolonged use of Fund resources, develop an exit strategy for identified
prolonged users, and consider a differentiated rate of charge for prolonged
use.
The report is the first issued by the IEO since it was set up by the
Fund's Executive Board in July 2001 to provide objective and independent
evaluation of issues related to the IMF.
The IEO said it found that the increase in prolonged UFR was partly a
reflection of the changed role that the international community expects the
IMF to perform. The Fund has been left with a mismatch between its core
operations—which remain focused on restoring economic sustainability within
a relatively short timeframe—and new tasks that have become necessary in
support of its core mandate, and which it has been asked to perform by the
membership, especially supporting longer-term structural adjustment.
The report recommended that the Fund:
- Adopt an explicit definition of prolonged UFR as a trigger for the
adoption of automatic due diligence procedures;
- Be more selective in extending financial support, and try harder to
judge when countries were ready to implement programs, particularly in
prolonged UFR situations;
- Provide credible alternatives in situations where IMF-supported
programs are a precondition for other sources of financing;
- Develop an explicit exit strategy for identified prolonged users,
although without setting rigid limits on the duration of IMF program
involvement; and
- Consider a differentiated rate of charge for prolonged users. While
there was no evidence that cost was a factor in prolonged UFR, it would
serve as a signal and possible political incentive.
The evaluation treated a country as a prolonged user if it had been under
IMF-supported programs for seven or more years in a ten-year period, and
included case studies of Pakistan, the Philippines, and Senegal.
The IMF Managing Director has set up a task force to prioritize the
recommendations and lay out a strategy to implement them.
The IMF Executive Board, which discussed the report on September 23, said
that the report presented a candid, comprehensive, and broad-ranging
analysis; it also gave a detailed response to the recommendations made in
the report, and said it was looking forward to hear about the task force's
strategy early next year.
Meeting with NGOs at the Annual Meetings, IEO Director Montek Singh
Ahluwalia stressed the independence of the IEO and emphasized that the
report had not been "sanitized" before being made public. He said that it is
up to the IMF and its member countries to determine what to do going
forward, but offered to help them in their outreach efforts. Asked what will
happen with the follow-up task force Ahluwalia said that it will be for the
Fund to decide.
He also announced that the second IEO report, on capital account crises,
was due in March 2003; another ongoing project is the examination of major
features of fiscal-adjustment in IMF-supported programs.
Comments sought for new work program
Please note that the IEO recently published its
draft work
program for next fiscal year (2003/04) and would like to receive
comments by November 20.
The proposed short list includes:
(1) The PRSP/PRGF experience based on full PRSPs;
(2) Country case study of Argentina or Turkey programs;
(3) The role of the IMF in providing Technical Assistance;
(4) The IMF's surveillance function; and
(5) The IMF's approach to capital account liberalization.
Comments may include suggestions for topics other than those discussed
above. Comments should be sent to ieo@imf.org
or to
The Independent Evaluation Office
International Monetary Fund
700 19th Street, N.W.
Washington, D.C. 20431.
IMF, World Bank discuss HIPC, PRSP progress reports with NGOs
During the Annual Meetings, NGOs met with IMF and World Bank staff to
discuss the progress made with the Poverty Reduction Strategy and the HIPC
Initiative. The discussions, based on the progress reports considered by the
Boards of the two institutions, drew a large number of representatives from
the NGOs attending the Meetings.
Mark Plant and Brian Ames of the IMF's Policy Development and Review
Department reiterated the four key issues emerging from their
progress report on implementation. They concern the need for: building
capacity; opening up policy dialogue; aligning external assistance behind
national strategies; and integrating poverty reduction strategies into
budgetary priorities and implementation. Ames stressed that governance is
also a very important element in this process. He added that the IFIs have a
key role to play, particularly in the area of analysis.
Jeni Klugman, Lead Economist at the Bank's Poverty Reduction Group
emphasized the need to integrate poverty reduction programs into a country's
overall development strategy. She stressed the need for a strong
decision-making structure and suggested that donors must be more involved in
the process (which is starting to happen).
Ames said that reducing poverty and achieving macroeconomic stability are
dual objectives of the PRSPs: without stability, it's impossible to grow. He
reminded participants that this view is widely held among the IMF and its
development partners. Many of these countries are extremely vulnerable to
shocks. He suggested that governments need a broad, dynamic framework,
something civil society should be closely involved in formulating. Klugman
added that the IFIs are offering technical assistance in many countries. The
newly opened East African technical assistance center in Dar es Salaam,
Tanzania, is one example of such assistance (see next section).
* * * * *
Masood Ahmed, Deputy Director of the IMF's Policy Development and Review
Department and Gobind Nankani, Vice President of the World Bank for Poverty
Reduction and Economic Management co-chaired a session on the Heavily
Indebted Poor Countries Initiative. After presenting the latest
HIPC
progress report, Nankani cautioned that financing the HIPC Trust Fund is
a serious issue—it is time for pledges to translate into dollars. He stated
that a cost analysis of additional debt relief outside HIPC is underway and
can be expected shortly.
Ahmed reiterated that the goal of this process is for countries to
graduate from HIPC and move on to PRSPs. Financing is a critical issue, but
governance, capacity building, and vulnerability to shocks are also
important. He challenged the group to come forward with their ideas about
what to do beyond HIPC.
Questions focused heavily on the link between debt relief and the
Millennium Development Goals (MDGs). Nankani pointed to the enormous amount
of work underway on this question. One report by the Zedillo Commission
estimates the need for $50 billion, over and above current ODA levels, to
fund the MDGs. Ahmed stated that while all agree that countries need more
money, it is more difficult to achieve consensus on how to do it. PRSPs are
the core of the MDGs, and must be cast in that context, he said explaining
that the linkages will be clarified over time as the work proceeds.
In a September 25 letter to Christian Aid, Ahmed said that HIPC is an
important part of the international effort to achieve the MDGs, but it can
play only a limited role in this regard. Specifically, the reduction in the
burden of external debt on HIPCs to more sustainable levels needs to be
accompanied by the opening of world markets for developing countries' export
and increasing aid-flows. The letter was a reply to the Joint Submission by
Christian Aid, Eurodad, CAFOD, and Oxfam to the World Bank and IMF Review of
HIPC and Debt Sustainability.
Köhler, Wolfensohn in panel discussion with participants at Annual
Meetings
IMF Managing Director Horst Köhler and World Bank President James
Wolfensohn participated in a
panel
discussion with visitors accredited to the Annual Meetings. Other
panelists included Roberto Bissio, Co-Director of Third World Network in
Uruguay; Robert Hormats, Vice Chairman of Goldman Sachs (International); Jan
O. Karlsson, Sweden's Minister for Development Cooperation; and South
Africa's Finance Minister and Chairman of the Development Committee Trevor
Manuel. The panel was moderated by Alan Murray, Washington Bureau Chief of
television network CNBC.
The public included representatives of a large number of NGOs, whose
numerous questions provided for a lively and interesting debate. Bissio
challenged what he alleged was a Bank/Fund focus on unilateral trade
liberalization by poor countries; Wolfensohn replied that both he and Köhler
"recognize that an uneasy, one-way bargain does not work. We are talking
very much about the issue of trade, about the issue of a two-sided bargain,
and maybe we have been slow in learning, but it is the hymnbook that we are
singing from now." Köhler remarked that he was not satisfied that "people
are now talking more about market access; I want to be sure that the new
trade policy discussed in the Doha trade round leads to a reduction on
tariffs which enables poor countries to process products. We need to have a
better trade policy in the interest of all of them."
Friends of the Earth appealed to Wolfensohn to scrap funding for a mining
project in Romania, while other questions from NGOs included the issue of
whether the Bretton Woods' institutions should include human rights in their
programs.
Full
transcript of the discussion
IMF opens first African technical assistance center in Tanzania
The IMF
inaugurated its first African Technical Assistance Center (AFRITAC) in
Dar Es Salaam on October 24. The center will provide capacity-building
assistance to six countries in East Africa. The opening of the second
African center, in Côte d'Ivoire, has been delayed because of the recent
conflict in the country.
As reported in the previous newsletter, the centers will provide
assistance with a team of resident experts, supplemented by short-term
specialists, as well as through in-country workshops, professional training,
and regional courses. The Centers are part of the IMF's
Africa
Capacity Building Initiative, which aims to strengthen the capacity of
African countries to design and implement their poverty-reducing strategies,
as well as to improve the coordination of capacity-building technical
assistance in the Poverty Reduction Strategy Paper (PRSP) process. It aims
to increase the volume of capacity-building assistance from the IMF to
Africa in the Fund's core areas of expertise. The centers are also a
contribution by the IMF to the New Partnership for Africa's Development (NEPAD).
IMF approves $23 million in emergency credit to Malawi
In early September, the IMF approved an emergency $23 million loan to
Malawi to help the country import food. "Malawi is facing a serious food
shortage," IMF Managing
Director Horst Köhler said in a statement. "Our emergency assistance is a
step toward helping the nation deal with its current food need." Together
with World Bank President James Wolfensohn, Köhler called on donor countries
to support Malawi and other countries in Southern Africa facing severe
famine.
In the June
issue of this newsletter, we reported on the allegations that the IMF
had advised Malawi to sell off its grain reserves when it was on the verge
of a major grain shortage. We provided extensive background material
documenting that the allegations were false.
However, the allegations continue to be made. We would like to state once
more that the IMF did not advise Malawi to sell off its grain reserves; nor
did it at any time make grain sales a condition of IMF lending. Maize stocks
are expensive to maintain, so a study commissioned by the Malawi government
recommended in 2000 that grain reserves be reduced to buffer-stock levels.
That also was intended to free up funds for health, education, and other
social services programs. The Malawi authorities proposed to follow this
recommendation, and the IMF agreed with that policy. That is the limit of
our involvement. The grain reserves subsequently were completely sold off
without the knowledge of any international organization.
An investigation conducted by the Malawi Anti-Corruption Bureau in early
August charged that the grain sales involved senior politicians, some of
whom never paid for the grain. The case is now in the hands of Malawi's
Director of Public Prosecutions.
The IMF is ready and open to discuss its policy advice to Malawi and
other low-income countries. We continue to believe that the people of Malawi
will be better served if all parties—government, donors, CSOs, IFIs, and
media—cooperate together to find constructive solutions to the devastating
drought that still grips the region.
To read more about this issue:
Malawi—The
Food Crises, the Strategic Grain Reserve, and the IMF, A Factsheet
Malawi: Use of Fund Resources—Request for Emergency Assistance—Staff Report
and Press Release on the Executive Board Consideration
Stiglitz, Rogoff discuss globalization, IMF role
In late June, the World Bank Infoshop hosted a "book-launch" discussion
of Professor Joseph Stiglitz's new book "Globalization and Its Discontents,"
featuring the 2001 Nobel prizewinner and former World Bank Chief Economist
and the IMF's Economic Counselor Kenneth Rogoff. The off-the-record session
featured a restatement by Professor Stiglitz of the main themes of the book,
a response
by Rogoff to the book's critique of the Fund, and a question-and-answer
session. World Bank Publisher Dirk Koehler chaired the session, while World
Bank Chief Economist Nicholas Stern made opening remarks that highlighted
the close cooperation between the Bank and the Fund, particularly between
its research departments.
Stiglitz said that international financial institutions failed to present
countries with adequate policy choices and did not take into account that
uncertainty was a part of the decision-making process. He highlighted six
areas in which the international financial institutions, and in particular
the Fund, had failed their member countries by giving bad advice:
- Capital account liberalization in emerging markets has proven to be a
costly mistake;
- A lack of transparency, accountability, and conditionality is still a
problem at the IMF;
- The Fund's fiscal policy advice to countries in crisis has been
excessively stringent;
- The Fund's approach to bankruptcy and bailouts has been misguided,
although he lauded Krueger's SDRM proposal;
- Raising interest rates to high levels to battle currency crises has
been very damaging to the economies concerned; and
- Countries' political and social contexts have received too little
attention in policy advice.
Rogoff delivered a spirited defense of the Fund and its staff. While
noting that the Fund staff shared many of Stiglitz's analytical views, he
criticized his book as being "long on innuendo and short on footnotes." He
questioned Stiglitz's confidence in the correctness of his diagnoses,
referring to what appeared to be many errors in the book and the author's
failure to take account of the complexity of the issues that are involved in
making policy decisions in real time.
Rogoff was particularly critical of Stiglitz's contention that distressed
emerging market debtors can somehow get around the need for belt tightening.
He emphasized that, while IMF programs frequently allow for government
budget deficits, a long-run solution to an underlying balance of payments
problem often requires some fiscal correction. Yet the belt tightening under
an IMF-supported program is undoubtedly less than would be required in the
absence of IMF financing (see also
An Institution
that Eases Financial Pain). Stiglitz would apparently recommend that a
distressed country raise its profile of fiscal deficits. But these would
have to be financed by increasing government debt, monetary expansion, or
both—and Rogoff contended that the crisis would then be exacerbated through
possibly uncontrolled inflation, an unsustainable debt stock, and further
loss of confidence.
Rogoff also criticized the book for its discussion of IMF involvement in
Russia, noting that Stiglitz neglects the fact that Russia was in the midst
of an economic, social, and political crisis when the IMF entered the scene.
In fact—and contrary to one of Stiglitz's main criticisms of the Fund—the
political and social context received a great deal of attention in the IMF's
policy prescriptions (see also
Has Russia Been
on the Right Path?).
In the short question-and-answer session that followed, issues discussed
included lessons learned from financial crises, especially with regard to
capital account liberalization, and the challenges of reconciling ownership
and conditionality.
See also:
Stiglitz, the IMF and Globalization, a speech by Thomas C. Dawson,
Director of the IMF External Relations Department, to the MIT Club of
Washington.
Bulletin Board
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Membership News
- In July, East Timor became the International Monetary Fund's
184th
member.
IMF Staff News
Transcripts from Recent Events
- In keeping with its increased emphasis on national "ownership" of
reforms, the IMF has focused, in several initiatives, on helping countries
build their capacity to formulate and implement economic policy. While
most agree that this is desirable, how to do it is being hotly debated. A
September 12 IMF Economic Forum, "Capacity
Building: Lessons for Africa", moderated by IMF African Department
Director Abdoulaye Bio-Tchané, addressed the issue and discussed how
Africa could benefit.
- A September 17 IMF Economic Forum on
Governing
the IMF addressed the question on how an institution like the IMF can
be governed in a way that is politically legitimate and that will be
accepted as politically proper without sacrificing the organization's
efficiency and its effectiveness. It was moderated by Jim Boughton,
Assistant Director in our Policy Development and Review Department.
- The October 8 IMF Economic Forum on the topic
Is Global
Inequality Rising? was moderated by Ratna Sahay, Chief of the
Macroeconomic and Structural Adjustment Division in our Research
Department. The panel represented the spectrum between defenders of
globalization who believe it has brought tremendous reductions in poverty
through growth in incomes and wealth, and a narrowing of global income
inequality, through others who acknowledge that there have been gains in
poverty reduction through growth but argue that growth is not sufficient
for adequate poverty reduction, to critics of globalization who allege
that it is responsible for increasing poverty and inequality.
- The IMF's
Third Annual Research Conference took place in Washington, D.C., on
November 7 and 8. Speakers included scholars from universities and other
research institutions as well as young (and not-so-young) researchers in
the Fund. This year's conference focused on capital flows and global
governance.
Upcoming Events
Selected Speeches
- The
Role of the IMF in the Global Economy, remarks by Horst Köhler,
Managing Director, at the High-Level Meeting of the United Nations
Economic and Social Council, New York, July 1, 2002
- The
IMF's Role in Asia: Part of the Problem or Part of the Solution?
Remarks by Thomas C. Dawson, Director, External Relations Department,
prepared text for remarks at the Institute of Policy Studies and Singapore
Management University Forum, Singapore, July 10, 2002
-
Investing in Better Globalization, Remarks by Horst Köhler, Managing
Director, at the Council on Foreign Relations, Washington, D.C.,
September 19, 2002
Selection of Publications
-
Strengthening IMF-World Bank Collaboration on Country Programs and
Conditionality—Progress Report, prepared by PDR (IMF) and OPCS and
PREM (World Bank)
-
The
Fund's Transparency Policy—Review of the Experience and Next Steps,
prepared by the Policy Development and Review Department (in consultation
with the External Relations and other Departments)
-
Heavily Indebted Poor Countries (HIPC) Initiative: Status of
Implementation, prepared by IMF and World Bank Staff
-
Market Access for Developing Country Exports—Selected Issues, prepared
by IMF and World Bank Staff
-
Guidelines on Conditionality, prepared by the Legal and Policy
Development and Review Departments (in consultation with other
departments)
-
Poverty Reduction Strategy Papers (PRSPs) Progress in Implementation,
prepared by IMF and World Bank Staff
-
International Financial Integration and Economic Growth, by Hali
Edison, Ross Levine, Luca A. Ricci, Torsten M Slok, Working Paper No.
02/145
-
Poverty in a Wealthy Economy: The Case of Nigeria, by Saji Thomas,
Sudharshan Canagarajah, Working Paper No. 02/114
-
Governance of the IMF: Decision Making, Institutional Oversight,
Transparency, and Accountability, Pamphlet Series No. 53
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