IEO Evaluation of the IMF and Aid to Sub-Saharan Africa

27 April 2007

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Explainers Conditionality

Speakers

Joanne Salop, Independent Evaluation Office (IEO)

Benedicte Christensen, IMF Africa Department

Mark Plant, IMF PDR

Peter Chowla, Bretton Woods Project, UK

Nuria Molina, Eurodad

Moderator: Jo-Marie Griesgraber, New Rules For Global Finance

Presentations

Joanne Salop:

Went through the highlights of the IEO report

Benedicte:

Important to consider what is the IMF’s mandate
Africa saw significant improvement of its economic performance, especially inflation which has a huge impact on the poor
We agree with the recommendations of report; but communications work is very difficult

Nuria Molina:

We need an open discussion outside the board of these topics
WB-IMF coordination is a serious problem; it can happen but it is not
Progress is needed on many fronts: aid accommodation, inflexible macroeconomic frameworks, over-conservative role in aid mobilisation, and PSIA

Peter Chowla:

Participation is still a central problem
The failures of the IMF at this stage mean we need to rethink the role of the IMF – should it be involved in LICs at all, should it be lending?

Mark Plant:

It is a good report but we also need to step back and think about IMF successes

Process points on participation and consultation

Initially the approach was very open, this meant it was an ad hoc approach
PRGFs are progressing, they are more growth oriented now
The Fund underestimated the complexity of PRSP process, so the flow of information took macro stuff from PRGF into the PRSP
Now the flow is more complicated
HIPC intervened in the middle and complicated things, creating the need for iterim PRSPs which were problematic

On substance of IMF programmes

Macro-stabilisation is the IMF focus, how to narrow current account imbalances
The question is after stabilisation how do you grow? Must then widen the current account imbalance, and fill the gap with donor aid
Growth and poverty reduction are complex – but the Fund can not do it alone, we must improve collaboration

On financing questions, maybe the IMF does not need to provide financing as the PSI shows

Responses and Discussion

Steven (Uganda Development Bank) – dishonesty about the consultation process – this is not real participation.

Quality of date in the PRGF is also an issue – national versus local data are very different
Poverty levels are not going down despite the “improvement”
IMF has been pushing the elimination of public institutions, when the real solution is to strengthen them

Rick Rowden (ActionAid USA) – The question on inflation thresholds for aid spending is key, but the board ducked answering the question of whether it really does support low single-digit inflation

Benedicte – We don’t have an inflation magic number, we decide on a case-by-case basis; countries with high inflation also have low reserves making them subject to exogenous shocks; you must have a minimum level of reserves

Aid is lumpy, so it has to go to reserves first, then you can spend it
There are limits to absorption capacity – you can’t double spending overnight
Dutch Disease is also a factor – countries prefer not to have Dutch disease, these are negotiated programmes reflecting country desires

Mark Plant – Andy Berg’s paper shows that post-stabilisation countries need more flexible inflation targets; spelling out the case-by-case reasoning could be useful; the IMF has a policy paper in progress: “Aid & Macro-economic Programming”

Joanne – we looked at programme design which comes from the IMF, programme outcome is different

Mark (IEO) – we also controlled for reserves when assessing the inflation threshold that determined aid spending, there was no Dutch disease as a factor because all the aid was absorbed

Anne-Marie Ainger (consultant economist) – countries need options because of a lack of knowledge; the IMF staff still use a “rule of thumb” this is what country authorities told us when we did research

Baledzi Gaolathe (Botswanan Minister of Finance) – for poverty reduction we must first grow the cake and then divide it equally; the IMF has a complementary role to play; for absorptive capacity problems – we need cooperation, to create ownership and stick to the Paris declaration;

The World Bank and IMF need to complement each other
Fopreign exchange constraints are a long-term problem for developing countries
PRGF resources should be available long-term, and recyclable
The IMF should go forward with its role in low-income countries

Tennyson Williams (ActionAid Sierra Leone) – people in Sierra Leone don’t know what the IMF is; spending on people is an investment in the country and is necessary for growth; we need human capital – like doctors and nurses – so need to facilitate spending in these sectors

Anne-Marie – need to consider what could cause absorptive capacity to expand

Someone asked how much of African growth was from IMF policies and how much from high commodity prices

Benedicte – We can’t attribute the growth in Africa to IMF policies or commodities – can’t separate it out;

The IMF limits overall spending but we don’t influence the priorities of spending
Internal process for deciding spending allocation are weak – they should be built
Availability of donor financing is not as predictable as it should be

Topics: Conditionality Macroeconomic policy WB/IMF roles
Institutions: Independent Evaluation Office (IEO) International Monetary Fund (IMF)

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IEO Evaluation of the IMF and Aid to Sub-Saharan Africa

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