Conditionality reduced but still “indispensable”

News|Bretton Woods Project|5 April 2001|update 22|url
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Discussions on how the IMF uses conditionality have moved forward, and the Fund is seeking external comments before a further Board meeting in June. On March 7 the IMF Board agreed to reduce the use of structural conditionality, applying it only when critical to achieve macroeconomic stability. This will be assessed on a case by case basis and applied "narrowly".

Structural "benchmarks", which have tended to be applied much like conditions, will be used more sparingly and only to monitor policy outcomes. Letters of Intent should make a clearer distinction between a government's overall policy programme and that part which is subject to the Fund's conditionality.

Stressing that conditionality cannot compensate for lack of country ownership of the reform process, the Board advised staff to reduce its financing where support is lacking. Instead, more is to be done to test prior commitment and intent through "prior actions". It argued that while "results-based" conditionality would give greater flexibility to governments to choose their own means to achieve results, back-loading IMF finance could cause implementation problems. A shift to more "prior actions" may be more manageable. To limit the need for conditionality, Directors discussed the role of standards and codes in specifying desired policy outcomes but observed that their voluntary nature would have to be respected.

The streamlined approach will be applied immediately. Since Horst Köhler's "Streamlining Structural Conditionality" guidance note was issued last September, the number of structural conditions in the Poverty Reduction Growth Facility (PRGF) programmes have been reduced on average by about a third. However, in some cases they have increased with the addition of new governance conditionality. The IMF is yet to publish its paper on governance conditionality - a new priority in its Poverty Reduction Growth Facility (PRGF) programmes.

It is assumed that the World Bank and others will take on the structural reforms that the IMF gives up. For low income countries collaboration with the Bank is being coordinated through the Poverty Reduction Strategy Papers (PRSPs).

The IMF is seeking comments on its conditionality papers, posted on the web, and there will be further discussions at the Spring meetings and at a seminar in Washington in May. Comments will be considered by the Board in June and revised conditionality guidelines are expected in the second half of the year.

Papers: www.imf.org

Comment to: conditionality@imf.org

PRGF fact sheet: www.imf.org

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Published: 5 April 2001 , last edited: 27 May 2010

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