Bretton Woods Project
- Provider of Finance Ensuring liquidity
- The Enhanced Structural Adjustment Facility
- Debt and the IMF
- Recycling Resources and the Pace of Adjustment
- The IMFs Seal of Approval and its Catalytic Effects Catalyst of Funds
- Influencing Policy Reform
- The Funds Success in Achieving its Stabilisation and Growth Objectives
- The Funds Model and the Growth Objective
- Usefulness of the Model
- The Usefulness of Fund Performance Criteria
- Adherence to Conditionality and Programme Breakdown
- Conclusions and Recommendations
- Providing Finance
- The Approval Function and Policy Advice
- An Alternative Mechanism
- Government Ownership
- Social and Environmental Impact Assessments
- Independent Monitoring of Programmes
Although it has sought to adapt, the Fund still has particular difficulties in dealing effectively with low income countries. The introduction of ESAF was an important attempt at adaptation but its programmes are still too short term, the scale of support is often too small, and the policy conditions laid down are too blinkered.
The International Monetary Fund (IMF) was established in 1944 to provide resources to governments on a short-term basis to address temporary balance of payments problems. However, since the emergence of widespread debt difficulties, including considerable debts owed to the IMF itself, and systemic balance of payment problems experienced by many developing countries since the late 1970s, the IMF has practically abandoned this role of providing liquidity to both developed and developing countries. Instead it has become half development agency, half loan drawing rescheduling facility, and a downmarket policeman enforcing sound macroeconomic policies on small, poor countries.
This change in focus was precipitated by the development of structural adjustment programmes and was reinforced by the establishment of the Structural Adjustment Facility (SAF) in 1986 and the Enhanced Structural Adjustment Facility (ESAF) in 1987. This paper addresses several UK NGOs concerns about the inadequacies of the ESAF as a funding mechanism for long-term development objectives and the IMFs involvement in designing adjustment strategies. Some form of adjustment is necessary but UK NGOs do not agree with the current adjustment strategy advocated by the IMF nor how it is formulated and applied. The IMFs analysis of the economic problems within the poorest, most indebted countries is overly simplistic and preoccupied with a narrow free market view of economics. Moreover, its programmes have had only limited macroeconomic impact. Yet, within the current system the IMFs role in developing adjustment programmes and providing a seal of approval for these programmes has been essential. This is not an appropriate role for the Fund. It was not established to address structural issues and it does not provide the poorest countries with the necessary long term resources to support structural adjustment, nor does its staff have the required knowledge and skills to develop and assess such long-term structural programmes. It is important to consider the role of the IMF now because the Fund is currently seeking financial support from bilateral donors to replenish ESAF over the period 20002004.
If the IMF is successful the ESAF will become permanent and self-sustaining after this period. Once it becomes self-sustaining the opportunity to influence the IMF through national parliaments will be greatly diminished. UK NGOs are pushing to ensure that ESAF is not refinanced and believe that the IMF should not secure ESAF as a permanent financial mechanism. Whilst it is recognised that developing countries need concessional finance, the ESAF financing mechanism is seriously flawed and is inappropriate for the needs of the poorest, most indebted countries. This paper is split into 3 sections looking at the different roles of the IMF; the first looks at its role as a provider of finance, and whether ESAF is an appropriate mechanism and whether it provides suitable resources to the poorest countries; secondly it looks at its role in approving adjustment programmes and the whether it encourages other donors to lend to adjusting countries; and finally the paper examines whether the Fund is able to offer appropriate policy advice. The paper concludes with several broad recommendations and some more specific recommendations on how current mechanisms can be approved and actions that the Fund should take.
Where, however, BoP problems are of a long-term and more structurally related type, the lending function of the Fund becomes less clear cut since such problems may also be seen as developmental one which requires long-term development finance; provision of this type of finance has conventionally been seen as lying beyond the Funds legitimate role.
The Fund is a monetary institution whose intended role was to provide resources quickly to support countries experiencing shorter balance of payments difficulties, providing a revolving pool of short term credit rather than a permanent source of long-term finance. Although the Fund insists that it remains essentially a monetary and not a development institution, over the last decade it has sought to extend its remit to provide low-cost, medium term balance of payments finance for long-term growth objectives through the Enhanced Structural Adjustment Facility to the poorest, most indebted countries. More recently the Fund has emphasised how its programmes can help to reduce poverty: concern with poverty is at the centre of the IMFs high quality growth strategy.
The changing role of the Fund from providing shorter funds for macroeconomic stabilisation to providing medium term finance for structural adjustment to achieve growth and poverty reduction objectives has blurred the distinction between it and the World Bank.
The Enhanced Structural Adjustment Facility
The increasing overlap between BoP and development finance has made the purpose of Fund lending increasingly unclear and has been reflected in the proliferation of Fund lending facilities.
The ESAF was created to allow the Fund to continue providing finance to poor countries when it became clear that IMF finance on its usual terms was too expensive for these countries to repay. The ESAF, unlike the Funds other finance facilities, aims to achieve not only balance of payments stability but also growth, through mobilization of domestic and external resources, improvements in resource allocation, and the removal of structural impediments.
ESAF is the main instrument through which the Fund provides concessional finance to the poorest countries: 79 out of a total of 181 member countries are eligible to borrow from ESAF and in April 1997, 35 countries were receiving ESAF assistance. Most of the resources available through the ESAF are not provided by the Fund itself but are provided in the form of grants and loans from bilateral donors. ESAF credits are advanced to support a three-year structural adjustment programme outlined in a policy framework paper (PFP) which is designed by the Fund in consultation with the World Bank and the borrower government. Adherence to the programme and programme success is monitored using quarterly benchmark indicators and 6 monthly performance criteria which are outlined in the PFP. Continued access to ESAF money is conditional on observance of the performance criteria. ESAF loans must be repaid within 10 years after a 5 year grace period. Despite the low interest rate (%), the relatively short grace and repayment periods of ESAF loans makes them relatively expensive when compared to other sources of concessional finance, for example, IDA loans are repaid over 3540 years with a 10 year grace period at a similar interest rate.
Despite their desperate need for concessional finance, developing countries have been reluctant to use the ESAF because of the perceived faults in its design, principally the high degree of conditionality attached to ESAF programmes, but also the short repayment period. This is reflected in the fact that countries have been slower to use ESAF funds than anticipated. It was anticipated that the resources in the current ESAF would be exhausted by 1996. However, there countries have been slower to use these funds than expected; adjustment programmes have taken considerable time to develop; and they often brake down before completion. As a result the Fund has extended the current ESAF until at least the end of 2000. Over the last decade, 4.4bn ($7.1bn/SDR 4.9bn) has been disbursed through ESAF through 56 programmes in41 countries. In 1994, the ESAF was replenished with 8.4bn (US$13.5bn/SDR9.3bn), of which 3bn(US$4.93bn/SDR3.4bn) remained at the end of August 1997. # On average, from 19941996, the IMF disbursed funds worth 0.85bn (US$1.36/SDR0.94) per year. The Fund would like the ESAF to be made permanent and it is now looking for further bilateral finance to replenish an interim ESAF between 2000 and 2004, after which it expects to have sufficient resources from its own sources and reflows on past ESAF loans for ESAF to become self-sustaining. The IMF hopes to secure enough resources for the interim ESAF so that it can agree new loans (commitments) worth up to 0.9bn(US$1.45bn/SDR1bn) on average per year. To achieve this the IMF will need to secure up to 3.75bn(US$6bn/SDR4bn) for the Loan Account and a further 1.56bn (US$2.5bn/SDR1.7bn) in grants for the subsidy account Bilateral funds will be sought to replenish the Subsidy and Loan Accounts with the possibility that the IMF will also provide funds from its General Resource Account for the Loan Account
The Fund is determined that it will secure ESAF on a permanent basis. However, in terms of the volume ofresources it will have available to lend to the poorest countries, it is not clear why it should wish to do so. A self-sustaining ESAF would only have sufficient resources for the IMF to agree new loans worth about ********????????********* total per year, with actual disbursement of funds being much less. Thus future loans from ESAF are going to be smaller than they already are. This problem will be compounded by the fact that more countries are becoming eligible for ESAF financing, reducing the share of ESAF resources available to each country and reinforcing the problem that ESAF resources must be recycled quickly. (See below). The Fund is pushing hard to ensure that ESAF is made permanent, but it appears to be less concerned with finding adequate resources so that it can provide ESAF loans on more appropriate terms. (See below).
UK Funds for ESAF
When the ESAF was established in 1987, the UK made a commitment to provide up to 327 million to subsidise loans from the ESAF. To date, 149 million of this money has been used, with 20 million used in the last financial year. In 1994, the ESAF was replenished, and the UK government made an additional one off payment of 50 million 8″%
The IMF is not an aid organisation, it is not a development organisation, it is not into projects or anything of that kind, it is there as a purveyor of macroeconomic advice, balance of payments support with conditionality attached to its aid to try and encourage good macroeconomic government.
The poorest countries desperately need low cost funds for balance of payments support from the IMF, because, unlike developed countries and many richer developing countries, they are unable to borrow from private capital markets and they have insufficient foreign currency to hold large reserves. However, the Fund is no longer able to fulfil its vital role as a source of liquidity for the poorest countries to ease balance of payments crises. Although the IMFs resources are useful because they are not tied to particular uses or the purchase of products from a donor country, the extensive conditions and benchmarks attached to ESAF loans means that these resources are relatively slow to materialise. Unlike resources from the Standby facility which are released quickly on the basis or pre-agreed conditions, it takes a relatively long time to develop an ESAF programme and for funds to be committed to it, and, once agreed, funds may be disbursed slowly and subject to delay or stopped completely if performance targets are not satisfied. While the IMF no longer fulfils its intended role, it has neither the financial resources nor the expertise to take on the role of a development institution.
Debt and the IMF
The strongest case against Fund lending does indeed seem to be that the nature of international financial gaps has changed in a way that reduces the relevance of conventional forms of Fund lending.
The high cost of ESAF loans, in terms of their relatively short repayment periods, has been compounded by the fact that they are not used to directly fund productive investments but are used largely to fund balance of payments deficits, i.e. debt service payments and increasingly consumption imports. This means that the loans do not directly generate funds from which they can be repaid. In theory, countries should be able to adjust their economies rapidly enough so that they can earn sufficient foreign exchange to cover their import needs and to repay their ESAF loans. However, adjustment has been more difficult to achieve than the theory would anticipate, and external circumstances, such as falling terms of trade, have exacerbated the need for adjustment. Countries have not been able to turn around their economies sufficiently to earn the money to repay the Fund and consequently debts to the Fund are growing. Repayments on ESAF loans are expected to amount to
181m (SDR200m) in 1997, rising to 589m (SDR650m) in 2002 and then falling thereafter to 208m (SDR230m) in 2006. Between 1990 and 1995 the IMF, the IMF lend an average of just US$673m per year to the Severely Indebted Low Income Countries (SILICS) much less than the costs to these countries of servicing their debts to the Fund. The results was a net flow of resources from the SILICs to the Fund of more than US$2bn, an average of US$346m per year. In comparison, the World Bank disbursed US$12.7bn (US$2.1bn per annum) to the SILICs, from its soft loan arm, the International Development Association. This allowed a net transfer of resources (net of debt servicing) from the Bank to the SILICs of US$1.9bn per year. Grants (excluding technical assistance ) from bilateral donors totalled US$66bn, giving an average of US$11bn per year. On balance then, it can be seen that the IMF does not provide a significant source of funds to adjusting countries as a whole although for individual countries on specific occasions it has been more significant.
ESAF was created to ease repayment problems to the Fund by allowing the Fund to continue to provide finance to the poorest countries, but on a concessional basis, thereby implicitly refinancing its loans. However the burden of ESAF loans is still too much for the poorest countries. To ease this pressure, the Fund should grant substantial debt relief and/or extend its loans on more favourable terms. Unfortunately the IMF has no plans to lengthen the repayment period of its loans. Moreover, if the ESAF became self-sustaining it would not be possible to do so without seriously reducing the volume of funds that the Fund could lend on a regular basis because of the need to recycle ESAF resources. It appears, therefore, that the ESAF will continue to be an inappropriate source of funds for the poorest countries. While it is clear that adjusting countries require more in the way of concessional finance to support their adjustment efforts, the ESAF is not an appropriate mechanism through which to do so. Rather than refinancing the ESAF, the Fund should provide substantial debt relief for the poorest countries through the Heavily Indebted Poor Country Debt Initiative (HIPC Initiative). The HIPC Initiative has been developed to address the problem of multilateral debt within a framework which includes all debtors and aims to achieve overall debt sustainability. While the Initiative is welcome, because it is attempting to address the problem of multilateral debt, the Fund has used it as a means of ensuring that it maintains its influence in developing countries, by linking its funding for the Initiative to ESAF. Given the limited funds available through ESAF, particularly in the future, the Fund should instead make more of its own resources available to fund the HIPC Initiative, and should press for the Initiative to be extended to all the HIPC countries. If, collective donor action through the Initiative can lead to a reduction in debt burdens to a manageable level, i.e., to a level which countries can repay from their export receipts and normal and sustainable sources of external finance, this would reduce the need for IMF and other donor funding for balance of payments support.
Recycling Resources And The Pace Of Adjustment
The distinguishing feature of a financial program is that it seeks to achieve an orderly adjustment, preferably through the early adoption of corrective policy measures and the provision of appropriate amounts of external finance?
In principle, stabilisation can be achieved either by cutting demand in the economy or by increasing the supply of tradeable products, particularly exports, by loosening supply side constraints to production and changing incentives. Both approaches will create hardship as the economy adjusts, but the supply side approach is more gradual and requires less contraction of the economy, and is therefore less harsh than a purely demand reducing approach. While both should ultimately achieve the same objectives, the demand reducing approach is more suitable for countries undergoing only temporary problems and the supply side approach is more suited to countries whose balance of payments problems are rooted in structural problems and/or long-term changes in the global/regional economy. The poorest countries tend to be less able to adjust quickly because of the inflexible nature of their economies and so a demand reducing approach is less appropriate for them and consequently they have a much greater need for liquidity to allow them to adjust more slowly. Typically a programme will combine these approaches. The availability of external finance (including debt relief) is important because it determines the pace and therefore the nature of adjustment. The less finance is available, the more likely it is that countries will be forced to adjust by contracting their economies, and the more politically and economically difficult adjustment will be to achieve. While the preference is for slower adjustment and more finance, the IMFs own financial considerations compel it to force countries to adjust quickly and so they are required to reduce their economic activity by far more than if adjustment took place over a longer period. The ESAF is a revolving pool of credit, i.e. loans are repaid back into ESAF and these resources are then lent out again. Because the Fund has only a very limited amount of concessional resources available through ESAF, it lends them for short periods of time so that it can recycle them quickly to refinance its previous loans. Consequently, the Fund is preoccupied with the short term repayment capacity and export capacity of the countries it lends to. This reinforces the short term, deflationary nature of its programme, and encourages an export led growth strategy at the expense of considering alternative growth paths, and in some cases to the neglect of domestic needs. For example, some countries are facing food security problems because their prime agricultural land is now used to produce cash crops for export markets. In short, the Fund forces countries to adjust too quickly, at speeds that are technically and politically unfeasible and unsustainable, and without due consideration of perhaps more appropriate growth strategies. Consequently the effectiveness of ESAF programmes is undermined while imposing unduly high social costs on the country’s citizens. The Fund argues that faster adjustment produces better results. Faster adjustment is seen as allowing less scope for adjustment to be derailed by political opposition, and shortening the duration of the transitional negative effects of adjustment by accelerating improvements in economic efficiency and growth. This argument is based on the short, sharp shock philosophy. However this view rests on several questionable assumptions which neglect to consider the political, economic and social constraints to adjustment.
That the transitional costs of the adjustment process are independent of the pace of adjustment; As mentioned above, if stabilisation must occur rapidly due to financial constraints (or ideology), then it is more likely that a country will be forced to take a demand reducing approach and cut consumption over the short term through monetary and fiscal policy, rather than being able to increase production through investment and supply side initiatives, which takes longer and requires more resources. Similarly, a country that adjusts rapidly due to financial constraints and which adopts predominantly demand reducing policies, will have to contract by a larger extent than if adjustment was at a slower pace, by for example devaluing the currency by more than if adjustment proceeded over a longer period of time. Because deflationary policies have a negative impact on society, the short term costs on society are likely to be larger.
That stabilisation and structural adjustment are either complementary or independent;
Stabilisation and structural adjustment are not so much complementary as mutually dependent. Successful structural adjustment requires a stable macroeconomic environment ; and stabilisation is easier when economic structures are sound. However, some potentially serious conflicts may arise in trying to achieve both objectives at the same time. For example, cuts in the volume of imports and removal of import taxes to reduce trade barriers have in some cases seriously reduced government revenues making fiscal balance harder to achieve and potentially leading to expansion of the government deficit. Restraints on government spending and falling revenues have been associated with a halt in government investment which has led to a deterioration in the countrys infrastructure and diminishing private sector investment.
That adjustment programmes are independent so that faster adjustment in one country does not affect adjustment elsewhere; An inherent problem with the IMFs current approach to adjustment is that it deals with countries in isolation and does not take into account the problems of collective adjustment. Nor does it consider that there is a limited amount of development finance and foreign direct investment. IMF programmes are based on the assumption that economic problems arise from shortcomings in the economic policies of individual countries. Consequently the Fund focuses its programmes on reformulating policy at the country level, disregarding the effects on other countries. However, many of the problems faced by the developing countries are related to changes in the global economy which have affected many countries at once. In an increasingly globalised economy it is not appropriate to assume that policy changes in one country will affect the efforts of other countries to adjust. For example, some developing countries conduct a substantial amount of trade with each other, so that, if one country reduces its imports it may impact on the export opportunities of other adjusting countries. If rapid adjustment leads to excessive exchange rate devaluation the likely outcome is to encourage greater export production of primary products which require little investment and few imported inputs. However, if several countries increase their production of these products, and therefore supply to the global market, this is likely to reduce their price considerably for a given level of demand, as happened in the cocoa and coffee markets in the 1980s and early 1990s. This is known as the fallacy of composition. If adjustment could take place more slowly, there would be more opportunity to invest in a more diverse range of processed primary and manufactured exports which would help limit the effect on export prices.
The limited availability of finance means that countries are also competing against each other to attract investment and aid resources. Therefore, the more countries that need to adjust the fewer resources are available for each country. In the case of private sector investment this can be particularly damaging as countries compete against each other to attract it, by for example, cutting wage levels, offering tax incentives, and removing regulatory controls and tariff restrictions, all of which can also depress government revenues.
That there are no political constraints; Political instability is likely to be greater with a faster pace of adjustment. IMF supported stabilisation entails contraction in the domestic economy leading to falling consumption levels, changes in the distribution of income and consumption within the economy, higher unemployment and falling wages particularly in the public sector. These all lead to political pressures as those who lose out from the reforms try to safeguard their livelihoods. Rapid stabilisation requires greater contraction of the economy which reduces consumption, investment and employment further than if production was allowed to increase following a longer term adjustment strategy.
That the short-term costs of adjustment will give way to longer term benefits sufficient to offset them; It is now widely recognised that growth in itself does not necessarily bring benefits to those that most need them. Some of the most consistent and fastest adjusters have actually experienced rising income inequality and worsening conditions of poverty whilst achieving relatively high growth rates, for example poverty in Thailand rose form 20% in 1981 to 26% in 1986, while the country implemented three IMF standby arrangements and two World Bank structural adjustment loans, even though the economy grew by an average of 5% per year. The poor also got poorer: their average income shortfall compared with the poverty line widened from 27% to 35%. The increase in poverty also reversed the trend of the previous 20 years: the incidence of poverty had fallen by nearly two thirds over the previous 19 years.
To try to get round the problem of a lack of finance, the Fund has allowed countries to take out successive loans. Thus a series of short-term credits effectively becomes a long-term source of finance. This is not an optimal way of dealing with long-term problems. The implicit acceptance that countries require repeated programmes because prolonged use of resources is necessary should be made explicit by the Fund. If it is to continue to finance adjustment programmes, the Fund should put more resources into the ESAF and lengthen the grace and repayment periods of ESAF loans. If the Fund insists on continuing to provide only temporary finance then it should stick to dealing only with temporary balance of payments problems.
The absence of strong induced inflows [of private finance] is not actually surprising if they [ESAF programmes] do not have a large economic impact then the markets would be silly to take much notice of the existence of an IMF programmes and I think the banks and others have learnt that IMF programmes often do not make a difference.
The IMF plays a unique role. It is the one institution with the responsibility (given to it by the other creditors)to approve a countrys adjustment programme. When the IMF approves an adjustment programme it provides a seal of approval or seal of good house keeping for borrowing countries. This signals that, in the Funds view, a country is taking the appropriate steps to improve its economy. This approval function is important because it signals the go-ahead to donors and lenders to provide resources in support of adjustment programmes, and reassures lenders (including private capital) that their resources will be appropriately used. Without Fund approval a country cannot expect to receive a significant amount of balance of payments support from other donors. Although other institutions are well placed to do so, only the IMF is currently given the authority to provide approval. Consequently the Funds ideology, and therefore that of its major shareholders the G7 governments predominates. In the light of its limited economic analysis and its focus on stabilisation issues (see below), it is clear that it is not the most appropriate institution to provide policy advice and programme approval. There is no a priori reason why an alternative institution or, preferably, a group of institutions, should not perform this role instead. Because adjusting countries are dealing with long-term structural problems and because donors claim to be concerned with achieving poverty reduction and human development, it would in fact be more appropriate that an organisation such as the UNDP should monitor programmes and offer a seal of approval.
Catalyst Of Funds
For all the talk of catalytic influence, the IMF actually does astonishingly little itself to mobilise finance for most (especially low income) developing countries. The IMF has sometimes been a prominent catalyst for MICs [Middle Income Countries] but rarely more than a policeman/debt collector for LICs [Low Income Countries]
The IMF has used its approval role to justify the continuance of ESAF, arguing that without IMF involvement in their economies through ESAF the worlds poorest countries would be less likely (or even unable) to attract the private capital necessary to sustain their economic development.
The Fund claims that when countries adopt an ESAF programme, it triggers a large volume of finance to be mobilised from other lenders. This catalytic role is essential because the resources that the IMF itself provides are wholly insufficient to enable a country to carry out adjustment successfully. Moreover, while the IMFs approval does catalyse a considerable quantity of additional resources relative to its own lending, this lending is largely from bilateral and other multilateral sources, and no significant private sector finance is mobilised through this mechanism. The IMF is apparently important not because it provides concessional finance, but because its seal of approval reassures donors that their money will be well spent. But there is no a priori reason to suppose that, if another institution or group of institutions adopted this role, the flow of development finance to the poorest countries would be adversely affected. As long as the approving institution is recognised by the bilateral donors, they should not be any less responsive than they would be to approval granted by the IMF. In principle, the Funds approval may be more important for private capital. However, it must be noted that: there is very little external private finance in most ESAF eligible countries; the IMF would still provide advice and assess a county’s economic performance through its Article 4 consultations (providing the results are made publicly available); private investors also receive information on a countrys credit status from private rating agencies and other market sources; and private investors would quickly learn whether or not to trust the decisions of a new approval body.
Moreover, it is not clear, despite the rhetoric of the IMF, that more foreign direct investment (FDI) and portfolio flows are appropriate for the poorest countries. Compared to bilateral and multilateral development finance private finance is associated with potentially large outflows of foreign exchange, as the return on these investments is much higher than for aid finance (or even commercial lending), and therefore it is probably too expensive for the poorest countries. Not only does the Fund do little to catalyse private sector resources for the poorest countries it also does very little to mobilise aid resources. The World Bank and the UNDP have taken the lead in lobbying donors to secure additional finance, and co-ordinating aid from bilateral and other multilateral sources through the Consultative Groups, UNDP Round Tables, the Special Programme of Assistance for Africa and other donor conferences.
IMF policy packages are devised in the context of a simplistic text book view of the world, which does not take into account recent advances in theory, such as with respect to asymmetric information and endogenous growth.
As well as the highly questionable usefulness of the Funds financing role, there has also been frequent criticism of its policy advice. The IMF, through the conditionality it attaches to ESAF loans and its approval function, encourages governments to adopt what it considers to be appropriate macroeconomic policies. However, there has been extensive criticism of the theoretical model upon which its policy advice is based, the actual impacts of these policies, whether conditionality is useful, and how far governments actually implement the conditions laid out in ESAF loan agreements. While it is generally acknowledged that some degree of macroeconomic balance is desirable and that some form of structural adjustment is necessary, much disagreement remains about which policies should be implemented to achieve stabilisation and growthobjectives, what degree of stabilisation in necessary, how distributional factors should be dealt with, and the timing and sequencing of reforms. The analytical core of Fund stabilisation programmes is based on its financial programming model developed in the late 1950s. According to this model, domestic economic mismanagement (i.e. large government deficits, excessive expansion of the money supply and supply side distortions), is the cause of balance of payments difficulties, rising inflation and low output growth. The Funds policies aim to reduce domestic demand in order to narrow the external account deficit and to reduce inflationary pressures. Switching policies are also recommended to alter the balance between production and consumption of tradeable and non-tradeable goods. To achieve these objectives the Fund advocates that governments must reduce their budget deficits by limiting government spending, reforming the tax base and improving collection rates; restrict domestic credit creation particularly for the public sector; raise interest rates; devalue the exchange rate; and free up prices. Criticisms of the model have focused on the overly monetarist approach of the Fund and the appropriateness of its policy prescriptions for countries whose problems are rooted in structural deficiencies(Bird 1990). Others have argued that despite apparent revisions to the model, the core of it remains essentially the same as it did 40 years ago, and that no real effort has been made to adapt it to advances in economic theory (Edwards 1989). The Funds apparent acceptance of the neoliberal paradigm of reducing state intervention, and its preference for encouraging a reduction in government expenditures rather than expanding revenue collection is another area of criticism. The Funds focus on deflationary policies and devaluation have also been criticised for being internally inconsistent, for example due to problems such as the fallacy of composition (see above) and the possibility that stabilisation can lead to cost push inflation and larger government deficits (Woodward 1992).
The Funds Success In Achieving Its Stabilisation And Growth Objectives
Empirical evidence shows that in the majority of countries adopting Fund programmes in the 1980s and 1990s, per capita incomes have been falling, and poverty worsening. The conclusion is that there has been a small negative impact on growth of Fund programmes and little effect on other macrovariables. The Fund is primarily concerned with achieving stabilisation low inflation, current account stability and low government deficits in order to reduce countries dependence on aid finance and their need for debt relief.
Yet it would appear to have difficulty in achieving these aims if not in all then certainly in many of the poorest countries. The IMF has recently completed an internal review of ESAF which compares countries economic positions in 2 time periods five years from 1981 -1985 to the five years from 1991-1995. The review also compares the experience of ESAF borrowers with non-ESAF borrowers.
The report reviews the experience of 36 countries that had borrowed from the SAF and ESAF facilities in support of 68 multi-year programmes approved prior to December 31st, 1994. Preliminary results from the recently published study show that:
inflation rates for the ESAF user group fell from an average of 94.4% to 44.9%, while those in the non-ESAF countries rose from 23.5% to 139.9%; budget balance (including aid grants) improved for the ESAF countries from 9.1% of GDP to 5.6%, and for the non-ESAF group from 6.8% to 4.8%; export volume growth increased from 1.7% to 7.9% for ESAF countries, and from 4.4% to 5.7% for non-ESAF countries; external debt (face value, as % of GNP) rose from 81.9% to 154.2% for ESAF countries, and from 55.7% to 75.6% for non-ESAF countries; the debt service ratio (debt service paid as % of exports of goods and nonfactor services) fell from 27.9% to 25.7% for ESAF countries and from 18.8% to 15.7% for non-ESAF users; real per capita GDP growth improved from 1.1% to 0% for ESAF countries, and from 0.3% to 1% in non-ESAF countries.
In terms of the ESAFs major objectives it is apparent that the last 10 years have not achieved a great deal. Per capita growth has been very poor, not reaching positive figures. Inflation has fallen but remain large. The budget balance appears to have improved but the figures include grants. The ESAF borrowers are also likely to have received the biggest inflow of donor assistance and therefore the improvement does not seem to be very strong. It would be interesting to see whether there was any improvement when grants are not included. The figures for export volumes have increased, as would be expected, but no figures are provided for how much revenue ESAF countries received for their exports. Falling terms of trade, partly attributable to the fallacy of composition effect, would lead one to suspect that revenues will not have improved much, if at all. Looking at the external debt position, the debt/GNP of ESAF countries has nearly doubled and while the debt service ratio has fallen this is based on actual payments rather than debt service due. Since many ESAF countries are forced to accumulate arrears or reschedule payments to bilateral creditors because they have insufficient foreign exchange, it is likely that the total debt service burden increased or at least stayed constant. The comparison with non-ESAF countries appears to be rather meaningless, since this group of countries includes middle income countries such as Argentina, Brazil, Mexico , Indonesia, and Thailand (many of which were implementing Fund supported stabilisation programmes at some point during the periods considered) as well as very low income countries and countries in conflict such as Sudan, Somalia, and Angola.
Other reviews of stabilisation performance have also found that, on the whole, these programmes have had little effect in terms of the macroeconomic changes they are intended to bring about. Frances Stewart (1995), reviewing the empirical evidence from the 1980s on the macroeconomic impacts of IMF and World Bank adjustment programmes shows that, on the whole, there have been balance of payments improvements; there is no clear influence on inflation or growth; and there are negative impacts on investment. However, Stewart does show that programmes have had a significant negative impact on poverty and the income of the poorest sections of society. Killick (1995) also finds little evidence to suggest that Fund programmes have had any significant effects in these areas. On the basis of these findings, and given that IMF programmes appear to have severe negative consequences for the vulnerable groups in society, there seems to be little evidence to suggest that the IMF can set appropriate conditionality to achieve macroeconomic stability let alone growth.
The Funds Model And The Growth Objective
With the short-term funds come policies which require a short-term response, which therefore, as noted above, are much too deflationary, with adverse consequences for growth, employment and poverty. The Fund, in response to its critics in the 1980s, has become increasingly concerned with achieving growth as well as stabilisation objectives, and this is reflected in the design of ESAF programmes which include certain structural conditions such as removing restrictions to investment and trade, privatising state enterprises, and reducing the role of the state. Our prime objective is growth. In my view there is no longer any ambiguity about this. It is towards growth that our programmes and their conditionality are aimed.
Despite this shift in the Funds focus to include more structural, supply side considerations, its economic model has remained largely unchanged and the design of programmes is still based on the primary objective or restoring balance of payments viability. The same calculations and policy prescriptions form the core both of short term stabilisation programmes and of long-term structural programmes, with the structural policies simply added on to the traditional programme. This ad hoc tinkering with its standard programme has led to a proliferation of conditions and performance criteria and an increase in the use of preconditions. But, while Fund programmes now include more intervention on fiscal issues and measures to liberalise trade and reduce government intervention in the economy, essentially the Fund continues to place most emphasis within its programmes on the stabilisation objective and therefore the core of IMF programmes continues to be based upon the restriction of domestic credit creation, reducing budget deficits, and currency devaluation. Growth remains a secondary objective and programme design is not constrained by minimum growth targets. According to Killick (1993), the IMF staff do not design programmes with the growth objective in mind. Rather programmes are designed according to how much external finance is available with growth as a residual outcome. This is reflected in the poor growth performance in the poorest countries. Stewart (1995), reviewing the empirical evidence finds that among the studies covering World Bank programmes only, 3 out of 6 found small positive effects on growth, while 3 evaluations covering IMF programmes showed more negative effects. Stewart concludes that, since demand restricting policies are mainly associated with Fund programmes, this finding is not surprising, confirming the view that they are associated with a loss in output, not just a reallocation of resources and reduced trade deficit. Woodward (1996) reports that only 9 of the 39 sub-Saharan African countries for which data were available had positive per capita growth between 1990 and 1994, while 13 faced negative per capita growth of at least 3% per annum. Of 34 countries for which data were available from 1980, real GNP per capita remained below the 1980 level in 27 countries. Among the countries with substantially negative per capita growth in 1990 *<&- 94 are a number with long records of IMF supported structural adjustment, for example, Kenya, Cote d Ivoire and Malawi. Simply including a number of supply side measures into the standard stabilisation model is not an appropriate method for developing a growth strategy. Particularly since, under the guidance of the IMF, stabilisation is achieved primarily by reducing demand and economic activity rather than through increased production if poverty is to be reduced, programmes need to be designed with sustainable poverty reduction as the primary objective. The focus on demand management problems arises because the IMF must ensure rapid adjustment due to its tight, short term financial constraints. This problem can be eased if the ESAF is replenished with substantially more resources, sufficient to allow the Fund to lend its resources on similar terms to the World Bank. Otherwise, the Fund will continue to design programmes that are short-term in nature because they need to ensure that funds flow back sufficiently quickly. Moreover, it is doubtful whether the Fund should be responsible for approving programmes when its policy decisions repeatedly fail to achieve their intended aims. The Fund has started to take notice of the negative impacts its programmes can have on the poorest members of society. Policy Framework Papers are now required to identify measures that can help cushion the possible adverse effects of certain policies on vulnerable groups. However, as with the growth objective, this concern for poverty issues has merely led to more measures being tacked on to the standard stabilisation package, rather than a more fundamental reformulation programmes. Staff have merely been instructed to identify measures that can help cushion the possible adverse effects of certain policies on vulnerable groups in ways consistent with the programs macroeconomic framework (emphasis added) The Fund justifies this by arguing that its programmes already serve the needs of the poor by establishing the right conditions for growth and reducing inflation, against which, they argue, the poor are less able to protect themselves. To ameliorate some of the most immediate negative consequences of its programmes, the Fund has established, with the support of the World Bank, safety net programmes to address some of the distributional impacts of its programmes. However, they have generally been ineffective, because of the difficulty in ensuring that the benefits reach the most needy and because of delays and shortfalls in financing. Although the Fund talks about the importance of growth for poverty reduction, it has done very little analysis of how growth achieves poverty reduction, or of what pattern of growth is most desirable. It is widely accepted that growth per se does not necessarily lead to poverty reduction, and that what is needed is growth which brings the poorest members of society fully into the economic process. However, the Fund has neither the expertise nor the analysis to integrate these insights into its programmes. Neither does it make any attempt to analyse what impacts its programmes have on poverty, beyond the immediate, direct negative effects.
Usefulness Of The Model
The Funds traditional financial programming model copes poorly with the behaviour of the real economy over time, and makes no contribution to the reorientation of the Fund towards adjustment with growth
The Funds model has been extensively criticised for being overly simplistic and based on weak assumptions, many of which are not satisfied (see Killick 1993, Woodward 1992). Fundamentally, the model and its prescriptions are not suited to the economic circumstances facing developing countries, or to their governments capacity to implement the policies the model requires. The Fund implicitly assumes that economic agents can and will respond to the removal of price distortions, that markets are superior to governments in ensuring efficient resource allocation, and that growth should be private sector led and is facilitated by a liberalised policy environment. It has made little effort to adapt this standard model to the circumstances of individual developing countries, which are more often characterised by limited economic diversification, low levels of industrialisation, a dependence on a narrow export base, immobility of labour and capital resources, and poor government administrative and institutional capacity. Moreover, the model focuses exclusively on the domestic causes of external imbalance such as large government deficits despite evidence that fundamental changes in the external environment such as adverse terms of trade, weather conditions and large increases in oil prices and interest rates have been very significant destabilising forces for developing countries. Also, the model is not adapted in the light of the asymmetry in the adjustment process as between surplus and deficit countries, or the problems of collective adjustment as discussed above. (See Woodward 1992).
The Usefulness Of Fund Performance Criteria
ESAF borrowers must fulfil quarterly benchmarks and half yearly performance criteria that set targets for reducing the fiscal deficit, exchange rate devaluation’s, credit ceilings, balance of payments projections and structural policy conditions, based on the financial programming. The government must implement appropriate policies to achieve these targets. Continuing access to ESAF funds is conditional on the observance of the performance criteria. The performance criteria for ESAF programmes are particularly strict, yet it is doubtful that the Fund is actually able to set appropriate and objective ceilings for these criteria. The values derived from the Funds financial programming model are often manipulated to account for inadequacies in the data, to achieve desirable (even if unrealistic) figures, and in negotiation with government, Fund and World Bank officials. Moreover, they are based on subjective judgements about the behaviour of the variables contained in the model (Killick 1993). Lack of data leads to particularly serious problems for the Fund in setting and assessing benchmarks and performance criteria. Schadler (1993) comments that the IMF also provided technical assistance to help in the development of statistics, especially in the areas of monetary accounts areas where data deficiencies severely impeded the identification of policy problems and the monitoring of programs addressing them. Although there is much massaging of the models figures in the light of data deficiencies, it begs the question of how the Fund is able to set realistic, achievable conditionalities for ESAF borrowers. The Funds insistence on setting strict performance criteria despite its inability to set realistic targets is a major problem for governments, who face a suspension of programme aid flows from several if not all donors if they fail to achieve them. The withdrawal of finance, even if only temporary, is severely disruptive for governments, making the adjustment process all the more difficult, especially if disruption in the programme deters domestic and international investors.
Adherence To Conditionality And Programme Breakdowns
Aside from the controversies surrounding these programmes, there is considerable doubt as to how far borrower governments actually adhere to them when it is politically difficult for them to do so or when they do not accept that the policies are appropriate. Killick (1995), reporting the findings of an unpublished IMF study, shows that conditions that are relatively easy to implement politically, for example on agricultural producer pricing and marketing, tend to be fully implemented; but much slower progress is made in implementing conditions which are more difficult politically to implement, for example privatisation. Killicks analysis of the implementation of ESAF programmes shows that very few programmes are completed to schedule and many need to be extended, and an internal staff review found that 44% of all ESAF benchmark provisions had not been implemented as agreed. He concludes that the proliferation of conditionality has intensified the non-compliance problem, which probably grows exponentially with the increase in the number of conditions. Moreover, it seems likely than non-compliance, in turn, distorts the content of programme measures in favour of those, like devaluation, which are easier to enforce. There is little evidence to suggest that incorporating more conditionality into programmes actually makes them more effective. Evidence presented in an IMF review of ESAF in 1993 (Schadler and others, 1993) shows that higher levels of growth were achieved under the less strict SAF programmes than under ESAF programmes, which included more conditionality. For the 19 countries studied, real GDP growth averaged 2.1% a year prior to the SAF and ESAF periods, rose to 4% during SAF arrangements but then declined to 2.8% during the ESAF arrangements.
The most useful action the IMF can take for the poorest countries is to cancel a substantial volume of the debts owed to it, and to encourage other donors to do likewise, sufficient to eliminate the need for exceptional financing such as ESAF and World Bank adjustment loans. The HIPC Initiative is a useful framework through which this could be achieved, although the current plans for its implementation will fall far short of this objective. Therefore, rather than focusing its efforts on finding the resources to refinance the ESAF, the Fund should examine ways in which it can provide more resources to the HIPC Initiative. This will allow more countries to benefit from the Initiative and provide them with a substantial reduction in their debts. A second best option would be for the Fund to refinance ESAF with sufficient resources to allow it to lend on more appropriate terms and to undertake a fundamental reorientation of its economic policy prescriptions, focusing its policy advice on stabilisation issues in which it has a comparative advantage, and adopting sustainable poverty reduction as its ultimate goal.
The poorest countries have a much greater need for resources from official sources than middle income countries, for a number of reasons. They have much more limited access to private sources of external capital, including direct and portfolio investment. Such sources would probably be inappropriate in most cases if they were available, because of their very high foreign exchange cost. At the same time, low-income economies are generally more vulnerable to external shocks (e.g. export price falls), because of their less diversified productive bases; they are less able to protect themselves against such shocks because of the their serious liquidity constraints and the high opportunity cost of keeping high levels of foreign exchange reserves (rather than using the resources more productively in the economy); and they are generally less able to respond quickly and effectively to shocks because of the more binding political constraints implied by very high levels of poverty, and, in many cases, serious shortcomings in the policy making capacity. Concessional ESAF resources are disbursed too slowly to offer a useful source of liquidity in the short-term.
While the poorest countries can still gain access to standard IMF Standby facilities these resources are too expensive to make borrowing from this source a realistic option. These countries desperately need a source of liquidity which is cheap and has few conditions attached so that it can be disbursed quickly in response to exogenous shocks under preagreed rules. The Fund, rather than moving deeper into structural adjustment finance, should refocus its attention on providing liquid resources of this nature. Its resources must also have long repayment periods otherwise countries economic decisions will continue to be constrained by the need to repay the Fund. Extending repayment periods would both reduce the long-term cost of the loans (because of their low interest rates) and allow the burden of exogenous shocks to spread over the longest time possible. The shift in the focus of the Fund and the World Bank in the 1980s to address structural problems blurred the distinction between the two institutions. However, the Fund has continued to rely on its financial programming model. This model is not appropriate to address the problems of long-term instability caused by external shocks and internal structural problems. If the Fund is to continue to provide resources and policy advice to the poorest countries, then it needs to rethink its stabilisation/adjustment paradigm fundamentally.
Policies need to be developed that can bring about stabilisation within a framework where growth and poverty reduction are at its centre and which is based on raising aggregate supply rather than reducing aggregate demand, and to permit the simultaneous implementation by a large number of countries without counterproductive side effects, for example, on export prices. The World Bank has more experience in designing policies to strengthen the supply side and therefore the Bank, drawing on advice from other multilateral institutions, should be responsible for addressing structural adjustment issues. If the Fund is unwilling to reformulate its policy advice and is unable to extend more resources on highly concessional terms with extended maturities then it should provide finance only to those countries whose balance of payments problems are rooted in temporary shocks and not long-term global changes and domestic structural problems.
The Approval Function And Policy Advice
The IMFs approval function and its policy advice are difficult to separate in reality and the following recommendations are proposed to deal with these two functions of the IMF. It is proposed that bilateral donors should not rely on the IMF to signal when it is appropriate to provide resources to a country. Neither should they rely on any single institution. Instead bilateral donors should seek a range of sources of analysis including independent experts, such as academics, the UNDP an the European Union.
An Alternative Mechanism: A more appropriate mechanism would be to allow the borrowing country to formulate its own programme with policy advice from the World Bank, the IMF, and other international agencies and at their discretion NGOs, on areas where they have a comparative advantage. The borrower government would bring its programme to a consultative group, which could include, for example, specialists from the UNDP and UNICEF, the EU and other regional institutions, as well as representatives from the World Bank and the IMF and interested donors, to negotiate funding for it. The Consultative Group and the government could negotiate changes to the proposal until agreement is reached. This would ensure that no one institutions ideology dominated the design of a programme. Moreover, the programme would more likely be politically, economically, and administratively feasible. It might be that full agreement could not be reached between all donors; but this would not prevent at least part of the programme going ahead if some donors were in agreement with the governments proposals. While such a system would lengthen the time it takes to develop a programme, this is superior to the current situation, where countries accept unrealistic or politically infeasible conditions developed by experts outside the country without sufficient analysis of the long-term impacts, the countrys development needs or the short-term political and administrative difficulties facing the government. More importantly, the borrowing governments commitment to reform should be greater, leading to fewer programme breakdowns and less stop go financing, which can create an unstable economic environment and discourage private sector investment. Through this approach it would also be possible to achieve greater consistency between bilateral and multilateral programmes. For example, donors are working together on Sectoral Investment Programmes (SIPs) which aim to co-ordinate all donor activities within a sector, to try to ensure the optimal use of aid resources and to streamline the many varied budgeting and administrative procedures that donors impose. Bilateral donors also tend to be more concerned with human development and these aspects would be more likely to be given priority if bilateral donors were involved in agreeing adjustment programmes. For example there have been differences between the IMF and other multilateral and bilateral donors over the Funds insistence that Mozambique’s government should focus on reducing inflation at the expense of desperately needed spending on post-war reconstruction of health, education and commercial infrastructure. After pressure from other donors, the Fund has recently agreed a new programme with the government of Mozambique which allows it to use more aid resources and savings from debt relief agreements to finance reconstruction efforts.
African development is likely to be best served when 1) no single foreign source of ideas and finance has disproportionate power, and 2) African indigenous technical capacity is built to the point where genuine policy dialogue, based upon mutual respect, takes place between external donors and African policy makers, and where Africas development programmes are fully and unambiguously locally constructed.
While the IMF devotes considerable time and staff resources to developing and enforcing ESAF programmes, it is doubtful that many of the conditions laid out in its programmes are implemented or, if they are, that they will be sustainable where there is little support for them on the part of the country government. For policies to be implemented effectively and to be sustainable requires government and civil society ownership of the programme, that is the full involvement of all relevant government departments and, where appropriate, academics, the private sector and civil society in the design and implementation of programmes. Ownership and consultation should not merely be a public relations exercise, as it appears to be defined by the IMF, aimed at persuading the public and governments that there is no alternative. The IMF argues that structural adjustment programmes are developed by the borrower governments and it merely facilitates the process. In practice, the IMF, with support from the World Bank, tends to prescribe a standard policy package shaped by the priorities of the Funds major shareholders, which the adjusting government can only negotiate around. Externally imposed conditions are not an effective means of securing structural change in recipient countries, although the Fund and Bank have been successful in impressing upon governments the need to control external and domestic budgets. Change cannot usefully be imposed from outside: really effective and sustained reform requires government and civil society ownership of programmes to ensure effective implementation. Governments must be free to decide on the nature of reforms, their sequencing and timing, how to mitigate distributional impacts, and how to compensate those who assume the burden of reforms. Government owned programmes are likely to achieve superior results precisely because they are developed with an understanding of how the economy operates and tailor-made to local conditions based on local knowledge. In its rhetoric, the Fund does accept the need to include the government in programme preparation. However, it has not taken any significant steps to ensure that this actually occurs in practice. Rather, it argues that governments prefer not to own the programmes because they can blame the IMF for politically difficult policy changes which they privately know to be inescapable. Although this may be the case, such an argument would seem to suggest even greater reason for the Fund to insist that governments formulate their own programmes. The lack of adherence to Fund programmes has resulted in instability and has deterred private investors. With government commitment to its own programme, it can be expected that domestic investors will have more faith in its implementation, and will be more inclined to invest in what they see as a more stable economic policy environment. The area that donors, both multilateral and bilateral, can offer the most needed and most beneficial support to developing country governments is in the development of their capacity to run their economies as they see fit. In the past, donor supported, and particularly multilateral supported, technical assistance has substituted for domestic government capacity. If a government is to implement adjustment strategies successfully, then it must be supported in its efforts to develop its own strategies and to introduce the appropriate bureaucratic systems to achieve them. All too often, donors have forced adjusting governments to neglect these needs in order to fulfil donors requirements for their own financial and bureaucratic needs.
Social And Environmental Impact Assessments
In whatever capacity the Fund continues to lend to developing countries it is essential that it addresses the social and environmental impacts of its programmes. It now makes some effort to consider the social impacts of its programmes, and safety net measures are incorporated into ESAF programmes. But still, too little attention is paid to these impacts, and safety net measures have proved to be ineffective. No systematic analysis is made of the environmental impacts of ESAF programmes, or of how these impact on the poor. Social and Environmental Impact Assessments should be incorporated into every policy framework paper, and routine monitoring of the effects of adjustment on poverty and the environment should be incorporated into the IMFs surveillance activities. At present, the Fund claims that it is unable to monitor poverty properly because of the paucity of data.
If it is to address poverty issues then it must address this problem immediately.
Independent Monitoring Of Programmes
The IMF has just published its own review of ESAF, and an external review commissioned by the Funds Executive Directors is underway. These are both very welcome, although it appears that the internal review has failed to assess the impacts of ESAF programmes on poverty. However, there is no systematic mechanism for ongoing review of the Funds programmes, and staff members claim that there are insufficient resources to review each programme. It is essential that an independent audit department along the lines of the Operations Evaluation Department of the World Bank is established to conduct independent expost assessments of all the Funds programmes. These should examine the impacts on poverty (including the gender impacts), growth, and the environment, as well as the Funds success at achieving its stabilisation objectives. Evaluations should be made publicly available.
Bird, G., 1990, Evaluating the Effects of IMF Supported Adjustment Programmes: an Analytical Commentary on Interpreting the Empirical Evidence, in K. Phylaktis and M. Pradhan (EDS), International Finance and Less Developed Countries, Macmillan, London.
Edwards, 1989, The International Monetary Fund and the Developing Countries: a Critical Evaluation, Carnegie Rochester Conference Series on Public Policy, 31.
Killick, T., 1995, IMF Programmes in Developing Countries, Design and Impact, Overseas
Development Institute and Routledge, London and New York.
Killick, T., 1993, Issues in the Design of IMF Programmes, Working Paper 71, Overseas Development Institute, London.
Schadler, S. and others, 1993, Economic Adjustment in Low Income Countries, Experience Under the Enhanced Structural Adjustment Facility, Occasional Paper 106, IMF, Washington, D. C.
Stewart, F., 1995, Adjustment and Poverty, Options and Choices, Routledge, London and New York.
Woodward, D., 1992, Debt, Adjustment and Poverty in Developing Countries, Volume 1, Pinter
Publishers/Save the Children, London.
Woodward, D., 1996, Globalization and Liberalization: Effects of International Economic Relations on Poverty
Michel Camdessus, quoted in Killick, T., 1992, Continuity and Change in IMF Programme Design, 198292, Working Paper 69, Overseas Development Institute, London.
Graham Bird, 1992, T cop. cit.
Evidence present by the former Chancellor Kenneth Clarke, 1997, Treasury Select Committee Fourth Report, International Monetary Fund, London.
Graham Bird, 1992, IMF Lending: the Analytical Issues, ODI Discussion Paper, Overseas Development Institute, London.
Tony Killick, Overseas Development Institute, Treasury Select Committee Fourth Report, International Monetary Fund, Report, together with the Proceedings of the Committee Minutes of Evidence and Appendices, March 1997.
The IMFs Enhanced Structural Adjustment Facility (ESAF), IMF, Washington, D. C.
Frances Stewart, 1997, Treasury Committee Fourth Report, International Monetary Fund, Report together with the Proceedings of the Committee Minutes of Evidence and Appendices.
K. Helleiner, 1992, Africas Adjustment and External Debt: an Unofficial View, in Patel , I. G., 1992, Policies for African Development IMF, quoted in Martin, M, 1993, Catalyst of Debt Collector? The IMFs Role in Aid and Debt Talks: Time for Change, External Finance for Africa, London.
Quoted in T. Killick, 1992, Continuity and Change in IMF Programme Design, 198292, Working Paper 69, Overseas Development Institute, London.
Green, R. H., 1995, in Promoting Development, Effective Global Institutions for the Twenty-first Century, J. M. Griesgraber and B.G. Gunter (EDS), Pluto Press and Centre of Concern, Connecticut and Washington D. C.
Michel Camdessus, 1992, International Monetary Fund Speeches (92/14), Address the United Nations Economic and Social Council, New York.
IMF, 1991, Annual Report, Washington, D. C.
IMF Concessional Financing Through ESAF, IMF Web page, September 1996.
See Woodward, D., 1992, Debt, Adjustment and Poverty in Developing Countries, Volume 1, Pinter Publishers/Save the Children, London.
A First Look at Financial Programming, Finance and Development, March 1993 (emphasis added).
Graham Bird, 1992, op. cit.
Martin, M., 1993, Catalyst or Debt Collector? The IMFs Role in Aid and Debt Talks: Time for Change, paper prepared for Eurodad Annual Consultation with Southern Partners.
Tony Killick, 1997, Treasury Select Committee Fourth Report, International Monetary Fund, London.
Killick, T., 1993, op. cit.
Frances Stewart, 1997, op. cit.
The ESAF has 3 accounts, the Loan Account, Subsidy Account and Reserve Account. Funds into the Loan account are only given on loan to the IMF by donor governments and must be repaid to them at, or near to, commercial rates. The resources in the Subsidy account are provided by donors as grants and the Fund uses them to subsidise the rate of interest on the loans it makes from the Loan Account. Reflows on past ESAF loans are deposited in the Reserve Account and are used to ensure that if a country defaults on its ESAF loan that the donors to the Loan Account can be repaid.
IMF, 1991, op. cit.
According to the World Banks, Global Development Finance, debts owed to the IMF by the Severely Indebted Low Income Countries have increased from US$ 6.3bn in 1990 to US$ 7.6bn in 1996.
Frances Stewart, 1997, op. cit.
In fact, given that there is no change in the system, the Fund would still probably retain its approval role with or without ESAF. Christian Aid, Oxfam, World Development Movement, World Wide Fund for Nature, Catholic Fund for Overseas Development, Debt Crisis Network, and the Bretton Woods Project.
Helleiner, G, 1996, Notes on ESAF for Washington Consultation, Washington, D. C.
Stabilisation involves reducing imbalances in a country’s balance of payments to a sustainable level, reducing excessive government budget deficits and lowering the rate of inflation.
Structural adjustment refers to policies aimed at removing restrictions and rigidities in the supply side of the economy.
Non-ESAF borrowers includes developing countries as defined in the IMFs World Economic Outlook, i.e., all countries that are not classified as advanced economies or as countries in transition, excluding countries classified as high income developing countries by the World Bank and SAF/ESAF users
IMF, 1997, The ESAF at Ten Years: Economic Adjustment and Reform in Low Income Countries, Summary Report, IMF, Washington, D. C.
Poverty data are taken from World Bank, 1990, World Development Report 1990, Oxford University Press, Oxford; growth is estimated from IMF, 1993, International Financial Statistics, IMF, Washington, D. C.