November 20, 2002
Dr. Montek Ahluwalia
Director, Independent Evaluation Office
International Monetary Fund
700 19th Street NW
Washington DC 20431
Dear Dr. Ahluwalia,
We would like to express our views regarding the Independent Evaluation Office’s (IEO) proposed work program for 2003/2004. We read with great interest the IEO‘s first report on prolonged use of IMF resources, and we look forward to the release of the remaining two reviews from last year’s work plan. We will be monitoring the IMF staff task force that is developing recommendations for implementation of the review’s conclusions and Board action on its recommendations. However, we also urge the IEO to monitor whether and how a Board-agreed implementation plan is adopted in subsequent IMF programs.
Regarding the proposed fiscal year 2003/2004 work program, we strongly endorse the proposal to conduct a review of the PRGF/PRSP experience. Given the large number of countries borrowing under the PRGF, the amount of staff time devoted to these programs, the debates that have arisen around IMF structural adjustment programs, and the lofty aspirations attached to the PRSP, we believe this issue is of paramount importance. As proposed, the IEO should work alongside the World Bank’s Operations Evaluation Department to conduct this review.
As PRSPs and PRGFs deal directly with poverty and social impacts, as well as civil society empowerment and citizen participation, we strongly recommend that the IEO engage consultants for this review that come from social science, development, and NGO sectors. This broad perspective will be necessary to adequately assess how the PRSP has contributed to building ownership, and how PRSPs and PRGFs have alleviated poverty and improved the livelihoods of vulnerable groups. To date, it appears that economists from the Bretton Woods Institutions heavily dominate IEO staffing. To the best of our knowledge, out of nine ‘core’ staff members (i.e, excluding the IEO‘s Director, two consultants, administrative staff and research assistants), four have been employed by the IMF, one by the World Bank, one by both, and one by the African Development Bank. All of them are economists. Precise information about the IEO‘s staff has not been made available on the IEO‘s website, however. This review in particular requires a broader range of expertise and experience to assess the issues and develop recommendations.
We agree broadly with the questions set out in the draft work program for the PRSP/PRGF review. We would like to add further detail to the proposed questions, however. In examining ownership, the review should assess the extent to which countries build ownership around their own internally developed economic program, or the extent to which ownership is built around an economic program presented to countries by the IMF. Furthermore, the review should assess the extent of participation. Have all sectors of civil society been included, such as labor unions, and have all interested groups been able to participate? What has been the role of parliamentarians? Has the PRSP process excluded any groups critical of adjustment programs or the Bank and Fund? The review should also assess whether participation and debate have occurred around all aspects of the PRSP or have some issues, such as core macroeconomic policies, been confined to an elite debate?
We agree that the review should look at the role of the IMF in low-income countries, and believe this will also provide important continuity to the prolonged use review. We would add, however, that an important question to ask is whether the IMF has significant value added in low-income countries that warrants its extended involvement in many of these countries.
In examining the consistency of PRGF operations to objectives set out in the PRSP, it is also important to ask whether PRGF arrangements discuss alternative policy options and whether IMF staff present alternative policy approaches to PRSP discussions. Furthermore, are these policy approaches accompanied by an assessment of the likely poverty and social impacts of these policies? What is the role of such assessments in determining whether PRGFs deliver growth and poverty reduction?
Assessing how program design and negotiation procedures have changed is a critical component of a PRSP/PRGF review and we welcome their inclusion. However, we would like the terms of reference of this review to have further detail. For example, the IEO should look at the role of the Resident Representatives and how that has changed in country as well as within mission teams. The IEO should examine how missions are structured, including time spent in country and accessibility to stakeholders outside government. Has outreach to parliamentarians increased sufficiently? Are IMF Articles of Agreement preventing sufficient outreach beyond the central bank and finance ministry of a government? Is the PRGF negotiation process sufficiently transparent to ensure its accountability to PRSP stakeholders? Are missions more closely coordinated with other bilateral and multilateral donors? Is donor collaboration, including IMF/WB collaboration, transparent so as to ensure appropriate accountability for policy prescriptions?
Recognizing that the depth of a PRSP/PRGF review will likely limit the IEO to two other reviews, we believe that a country case study review of the IMF‘s role in Argentina would be a useful contribution. The case of Argentina has a number of potential lessons to be learned that are critical big picture issues. For example, how the IMF makes decisions about large volume lending programs to market-significant, middle-income countries is crucial not just for Argentina, but also for Brazil, Russia, and others. Argentina has also sparked heated debates about whether and when the IMF should have cut off lending. As noted in the draft work program, defensive lending may have been a factor in continuing to mobilize financing packages. How this contributes to debt expansion and continued private sector involvement would be a crucial component to the debate on debt standstills and sovereign debt restructuring. It would also be important to examine the myriad causes behind Argentina’s debt problems, including whether IMF advice regarding financial and capital account liberalization contributed to increasing dependence on volatile capital inflows and a diminished ability to regulate private capital.
As a third review, we recommend a review of technical assistance (TA) by the IMF. Technical assistance consumes a significant portion of staff hours, yet TA is an area little understood and publicized to the outside world. An IEO review would therefore significantly promote understanding of the Fund’s work, an explicit goal of the IEO. However, we recommend greater clarity in the objectives of such a review. As stated in the draft work program, TA involves advice in the financial sector, reporting standards and codes, central bank operations, and macroeconomic policy formulation, among other areas. We recommend that the review survey the types of TA provided and to which groups of countries, and the proportion of TA time and resources allocated to each area. The focus of the evaluation and cases chosen should seek to take an appropriate cross section of TA areas. In addition, we recommend that additional questions be asked, including: is the IMF‘s TA providing multiple options for countries or a relatively narrow scope of policy advice? How is this advice perceived and implemented by borrowers?
In light of the IEO‘s finite resources, issues regarding surveillance could be taken up in the IMF‘s biennial review of surveillance, and in discussions regarding follow up and implementation of the external review of surveillance, and of the prolonged use of IMF resources study by IEO. We believe the IMF‘s approach and advice on capital account liberalization (CAL) is an important issue, and should be taken up as the soonest possible opportunity. There is an internal and external debate about CAL that has fostered more examination and a slower action plan to liberalize, but beyond a recognition that pace and sequencing are important issues, there is little progress in articulating how CAL does or does not contribute to sustained growth and poverty alleviation. A review of CAL should go beyond process issues such as timing and sequencing. It should also assess the net benefit of types of capital inflows, including impacts on growth and volatility, and how the IMF presents the risks and rewards of liberalization as well as capital controls.
We hope that these comments are useful in adopting the IEO‘s final work program, and we look forward to its implementation.
Sébastien Godinot, Amis de la Terre, France
Nicolas Guihard, Agir Ici, France
Fabien Lefrancois, Bretton Woods Project, UK
Kathleen Selvaggio, Catholic Relief Services, US
James Hug, Center of Concern, US
Damien Millet, Comité pour l’Annulation de la Dette du Tiers-Monde, France
Michel Faucon, CRID, France
Soren Kirk Jensen, European Network on Debt and Development, Belgium
Carol Welch, Friends of the Earth US, US
Simon Burall, The One World Trust, UK
Rick Rowden, RESULTS Educational Fund, US