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IFI governance

Background

IMF and World Bank emergency response

26 January 2005

In response to the Indian Ocean tsunami there has been a massive mobilisation of global resources. Beyond calls for debt cancellation of the affected countries (see Comment), this has stirred interest in the role of the IMF and World Bank in responding to emergencies and coordinating with relief efforts.

IMF: meeting foreign exchange needs

IMF assistance in a natural emergency is aimed at meeting immediate foreign exchange financing needs. Since 1962, 34 countries have received more than $2.3 billion in emergency assistance from the IMF. In 1995 the IMF’s policy on emergency assistance was expanded to cover countries in post-conflict situations.

IMF emergency loans are usually quick-disbursing and not based on adherence to performance criteria. The request for assistance is granted when the IMF is satisfied that the member will cooperate with the Fund in finding solutions to its balance of payments difficulties. Emergency assistance is usually limited to 25 per cent of the member’s quota in the IMF and loans usually have to be repaid within 3 to 5 years. Macroeconomic policy advice is a central component of IMF emergency assistance.

IMF emergency assistance related to natural disasters 1995-2004

Country Year Event Amount Per cent of quota
Bangladesh 1998 Floods 138.2 25.0
Dominican Republic 1998 Hurricane 55.9 25.0
Haiti 1998 Hurricane 21.0 25.0
Honduras 1998 Hurricane 65.6 25.0
St Kitts and Nevis 1998 Hurricane 2.3 25.0
Turkey 1999 Earthquake 501.0 37.5
Malawi 2002 Food shortage 23.0 25.0
Grenada 2003 Hurricane 4.0 25.0

World Bank: Long-term recovery and disaster planning

Rather than immediate disaster relief, the Bank sees its primary focus to support “near and longer term recovery and reconstruction” in order to reduce the vulnerability of affected communities. Since 1980 the Bank has financed 550 disaster-related projects worth $40 billion. The Bank’s assistance in disaster response is coordinated by the affected country unit. The World Bank’s hazard management unit provides technical assistance to developing countries to plan for potential natural hazards, instead of confronting them only as a humanitarian emergency when a crisis strikes.

Once rescue and relief efforts are in place, the Bank undertakes a damage assessment to identify needs for reconstruction and recovery. The Bank works with the government to calculate the cost of the losses and of re-building; identify urgent priorities for short-term recovery; and begin a re-building strategy in partnership with the communities and government.

In responding to an emergency, the Bank considers “individual country needs” in terms of local circumstances and the strength of government and financial systems. Assistance is made available in the form of grants, credits and loans. The Bank aims to coordinate with the IMF, the UN and aid agencies to work towards a smooth transition from relief to development support.

Additional emergency recovery loans are provided where re-allocation of funds is insufficient. Incremental country allocations from IDA may also be sought where necessary.

In Lessons from Natural Disasters and Emergency Reconstruction 2005, the Operations Evaluation Department (OED) outlines its key findings and lessons for the future in relation to the Bank’s role in natural disasters. These include:

  • Effective coordination is needed between multilateral donors;
  • Country directors should have sufficient authority to make programming and implementation decisions in the field;
  • Project design should be based on local community participation and capacity for implementation;
  • Survivors should be provided with income earning opportunities;
  • Reconstruction of damaged infrastructure is imperative but insufficient in itself; and
  • Supervision should be intensive and flexible to accommodate rapidly changing post-disaster conditions.