In late July – four months later than usual – the UK Treasury published its annual report on its activities at the IMF, A stronger global economy: The UK and the IMF 2004-5. Chancellor Gordon Brown says that the UK’s priorities for the Fund are improving crisis prevention through “stronger and more independent surveillance”; supporting poorest members with “appropriate policy advice, financial support and technical assistance”; and “ensuring high standards of modern governance and management practice”.
Surveillance: fresh perspective needed
The UK has been banging the drum for improved independent surveillance efforts for several years. This year’s report notes some limited progress but the Treasury is “concerned that a truly fresh perspective has not as yet been fully and comprehensively ensured”. Accordingly, there are calls for a clear methodology for assessing the effectiveness of surveillance to be in place by the next biennial surveillance review in 2006, including an “assessment of the accuracy of assessments made by the IMF”.
The report contains anodyne reviews of UK positions on country lending, with the exception of an abstention on the decision to extend financing to Argentina in January 2004. The UK continues to support the development “of a practical operational framework for the restructuring of unsustainable sovereign debts”, indicating that Ann Krueger’s Sovereign Debt Restructuring Mechanism may yet be resurrected from the dead. No mention of working more on source countries to reduce the volatility of financial flows.
Supporting the poorest: promoting the new UK approach on conditionality
Some progressive noises from the Treasury on fiscal space, conditionality and the use of impact assessments. While admonishing the IMF to be “flexible enough to accommodate the extra investment needed in infrastructure, education and tackling disease”, there is little on how flexible is flexible, and what to do if the IMF is found to be inflexible.
On conditionality, the report restates the new UK government position on conditionality: “The use of conditionality on aid is contentious, especially in sensitive policy areas such as privatisation and trade liberalisation. Inappropriate conditionality brings high transaction costs for countries, threatens national ownership of reforms, and has been largely ineffective in leveraging sustained policy reform.” The question IFI watchers have been asking is how the UK will push this new position at the Bank and Fund. The report’s authors say that the UK will work within planned internal and IEO evaluations of conditionality and “in individual country discussions to promote the new approach proposed by the UK”.
The Fund is encouraged to enhance its capacity to conduct poverty and social impact assessment. There are also calls for a Fund review in 2005 of their lending vehicle to low-income countries, the Poverty Reduction and Growth Facility (PRGF), to include an “assessment of how effective PRGF programmes are in reducing poverty and supporting countries’ own poverty reduction strategies.”
More worrying is the UK’s support for a proposed Policy Support Instrument (PSI) – a programme for “a country that does not want or need a full IMF lending programme but that does want IMF engagement as a signal to donors, investors and the financial markets.” If demanded by donors, this new vehicle could become a form of self-imposed conditionality tying countries to Fund recipes which fixate on macroeconomic stability to the exclusion of growth and employment.
Management: more progress please
Despite its failure to take leadership on democratising the selection process for current IMF head Rodrigo de Rato, the UK government claims it would “like to see more progress on the crucial structural issues that play a key role in giving countries an effective voice.” In a future quota increase, “most directors – including the UK – would support a package of measures: a general increase with a relatively large selective element allocated by a new quota formula; ad hoc increases to address the clearest out-of-line cases; and an increase in the basic vote to correct the erosion of voting power of the smallest members.” Details on which quota formula and what cases are considered most “out-of-line” are notably absent.