IMF and World Bank use of conditions under the microscope

10 April 2005

Responding to stinging criticism from civil society and the Commission for Africa, the IMF and the Bank are under pressure for a fundamental rethinking of the use of conditionality. The results of a series of ongoing evaluations will be critical.

In March, the report of the Commission for Africa called on the Bank and Fund to “micro-manage less and reduce the amount of conditions they place on poor countries”. The report’s authors blamed the Bank and Fund for taking “little account” of how their policies would impact on poor people in Africa. The Fund was singled out for applying “analytically unfounded fiscal rules”. The criticism echoed that coming from NGO ActionAid’s analysis of the detrimental impacts of IMF fiscal restraints on spending on HIV/AIDS and education (see Update issues 43, 44).

Evaluation of IMF use of structural conditions

In response to widespread charges that IMF conditionality had become intrusive, confusing and often inappropriate, the Fund first initiated a streamlining exercise in 2000. In September 2002, the board approved a new set of guidelines on conditionality which marked a shift from a test of “relevance” to a stricter one of “criticality for the achievement of programme objectives”. Most civil society observers felt the new guidelines did not go far enough, warning that IMF conditions might simply be moved to Bank agreements, and decrying the failure to address deeper problems concerning the content of IMF policies and the nature of the Fund’s relations with borrowing governments.

analytically unfounded fiscal rules

Just over two years later, the Fund is undertaking an internal assessment of the experience with the 2002 conditionality guidelines, and the IEO has announced an evaluation of structural conditionality. While the former will examine the whole range of Fund conditions, the latter will limit itself to ‘structural conditions’ – those involving changes in policy processes, legislation and institutional reforms.

The IEO has proposed dividing its evaluation into two stages. The first stage will look at programme design while the second will look at whether structural conditionality has been effective. Under programme design, questions to be addressed include:

  • Do negotiations leave enough ‘policy space’ to the authorities?
  • What is the role of other stakeholders in the negotiation process?
  • Has streamlining led to meaningful changes in the interaction between IMF staff and national authorities?
  • What has happened to aggregate conditionality (the combined effect of World Bank and IMF conditions)?

Under the effectiveness of structural conditionality, questions to be addressed include:

  • Have governments complied with structural conditionality?
  • Has compliance led to improved policies, institutions or economic performance?
  • Are outcomes-based conditions more effective than process-based conditions?
  • What is the experience in controversial areas such as privatisation and liberalisation?

The evaluation will follow up on issues left unanswered in last year’s evaluation of the IMF’s lending for PRSPs. That evaluation was inconclusive on whether Fund conditionality had been reduced following streamlining efforts, and highlighted a general failure to explore alternative macro-economic policy options.

The evaluation will rely on statistical analysis of Fund and Bank databases on conditionality, 12 – 14 country case studies and stakeholder surveys. Comments on the draft issues paper can be sent to the IEObefore 1 May.

Bank evaluation

Begrudgingly following the IMF’s lead, the Bank kicked off its review of conditionality July 2004 in Paris at a conference entitled Conditionality Revisited (see Update 40). A consultation process was started in December 2004 and is scheduled to conclude in June. In February, civil society organisations from Europe met with the Bank in Paris to discuss a conditionality issues note.

Participants expressed concern that the issues paper focused too narrowly on adjustment lending, pointing out that conditions may appear in investment loans or as ‘desired policy actions’. Aggregate conditionality of the Fund and the Bank remained a concern, as did the use of conditions in fragile states, and the transformation of policy scorecards such as the Country Policy and Institutional Assessment in to a form of “mega-conditionality” (see at issue). Bank staff present, including Jan Walliser and John Mitchell of Operations Policy and Country Services, indicated that a number of forthcoming papers would be addressing these concerns, including an IMF paper addressing the issue of aggregate conditionality to be released at the spring meetings.

A consultation in Germany in early April focused on the role of conditionality in policy-based lending. A further consultation is planned for the spring meetings of the Bank and Fund which will include CSOs and middle and low-income country governments. Comments received during the consultations and background papers are to form the basis for the policy paper that will be considered by the board at the annual meetings 2005. Send comments on the Bank’s review of conditionality.