IMF mission creep continues in low-income countries

Staff from the Fund's policy development and review (PDR) department outlined plans for an exogenous shocks facility, a policy support instrument (PSI) for non-borrowers, and reviewed the Poverty Reduction and Growth Facility (PRGF), the Fund's lending vehicle for low-income countries.

Shocks facility

PDR staff explained that for countries who already have a PRGF, this would be augmented if a country experienced an exogenous shock such as a rise in oil prices or a sudden fall in the price of an important export commodity. For non-PRGF countries a stand-by window would be created from which countries could draw up to 50 per cent of their quota at concessional rates for one to two years. In discussions of the new facility, the board did not distinguish types of shocks or define what constituted a shock, prefering to leave this to a case-by-case analysis. Details of the facility are to be available by the end of the year. When pressed on the nature of conditions likely to be attached to the new facility, Fund staff replied that for "temporary, one-off shocks, a looser fiscal policy would be allowed than for a long-term programme" and that "macroeconomic conditions are more likely than structural conditionality".

Policy support instrument

A second new instrument for low-income countries, the policy support instrument (PSI), is meant as a signal to donors that countries without a current Fund lending programme are maintaining "high quality policies". The PSI might include "structural reforms in key poverty reduction areas" linked to poverty reduction strategies. Six-monthly reviews would assess progress with reforms, but Fund staff stressed that this would "not be an on/off signal" for other donor support. Countries with a PSI would have "fast-track access to the new shocks facility".

Chief interest in the new instrument comes from Nigeria, where nervous creditors have demanded this in order to pave the way for debt cancellation. A detailed paper on the PSI, including the survey of client countries, will be published in "a few weeks". When pressed on who had demanded the new instrument beyond Nigeria, Fund staff replied only that demand had come from "mature stabilisers". It was admitted however, that even within IMF staff, there are different predictions about the level of demand for the PSI. The 50 years is enough network has raised concerns that the PSI is a "new tool to extend US and G8 control of national economic policies in the global south".

PRGF design review

A paper reviewing PRGF programme design covers monetary and fiscal policy, the macroeconomics of aid, and institutions. Under monetary policy, the Fund found that they were right on inflation (5 to 10 per cent being the appropriate range); and should allow room for greater monetary growth than has previously been allowed. On the macroeconomics of aid, a study of five countries with stable economies and large aid inflows found that central banks were accumulating reserves rather than spending the revenues; to prevent over-saving, the Fund has recommended that donors need to improve coordiation and reduce volatility.

In its examination of the role of institutions in growth, the Fund found that 12 countries had escaped the vicious cycle of declining quality of institutions and stagnant growth. All but one of these (Chile) had done so using manufactured exports. They key to their success, says the Fund, is not letting the exchange rate get over-valued, macroceconomic stability and lowering the barriers to entry. Several NGOs present questioned this re-interpretation of economic history.

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Published: 27 September 2005 , last edited: 27 May 2010

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