The IMF: Change we can believe in?

Istanbul, 5 October 2009

5 October 2009 | Minutes


Joseph Stiglitz
Caroline Atkinson
Bhumika Muchhala
Seyat Akbar
Andrew Kumbatira
Moderator: Bernice Romero

Initial presentations

Joseph Stiglitz

  • Unusual year – Fund opening advocating Keynesian economics; lucky we had Strauss-Kahn in place
  • DSK talked about assymetric risks – withdrawing funds too early is worse than doing it too late
  • Difficulties come with IMF programmes and macroeconomic conditionalities
    • New credit facilities are a big change; but other countries programmes look contractionary, though looser than previous IMF programmes
    • Hard to know the counterfactual, still saying “cant print money” though this is what US has been doing
    • Look at the Iceland case
      • IMF programme was unusual with capital controls and large deficits; but now there is pressure to remove controls and reduce deficit over 3 years. Complaint that this is too soon.
      • What about exchange rates? Now that banks are gone, some parts of the economy are doing better; but IMF says reserves needed for ‘confidence’, and this has a high costs (IMF interest) is equal to health care budget
      • Democratic issue of economic sovereignty – worry of secret agreements that shortcut dialogue
    • So lesson is that IFIs must become more transparent and democratic. Governments should not have the right to make things secret.

    Andrew Kumbatira

    • Malawi is a typical Sub-Saharan African country; going through a PRGF last year; took an ESF loan with fast disbursement
    • We were allowed to have an input subsidy programme that created agricultural surplus; though we also had political leadership and other factors – the question is will this be continued in the future.
    • We are on course and we need to strengthen the momentum and makre sure we don’t go backwards.

    Bhumika Muchhala

    • In E Europe IMF programmes contained much austerity and reduction in public spending and public employment, including regressive taxes
    • We acknowledge the better packages compared to past – social safety nets supported
    • Urgent need for countercyclical fiscal policy – to support social sectors and to maintain large employment.
    • Latvia case – budget deficit flexibility is a temporary measure. 2010 targets to tighten though IMF says they are “not set in stone”. Health sector facing drastic cuts.
    • Hungary case – also large austerity and cuts
    • Latvia and Ukraine faced review delays because of insufficient budget cuts; this is concerning when facing massive crisies on BoP, capital outflow.
    • How can the IMF work to maintain spending, allow fiscal boosts, as called for in G20 and being undertaken in developing countries?
    • Recommendation – open up decision making processes to line ministries, parliaments, social sectors, CSOs. Make sure they meet development priorities.

    Seyat Aybar

    • IMF idea: countries depending on foreign capital inflows should not use Keynesian policies. This includes Turkey.
    • Turkey has long history with IMF, been resisting a new deal with IMF since 2008; but mid-term growth programme still contains same IMF-style policies.
    • Turkey has increasing unemployment, falling production, need for foreign capital – Government does not want contractionary policy in this situation
    • Theoretical framework fell short, need analytical framework to understand economic relations among different actors

    Caroline Atkinson

    • IMF has learned a lot from critics, CSOs; we have changed a lot and we can believe in it; but there is lots more to be done; we recognise that we need to engage more broadly
    • IMF was right on fiscal stimulus, staff needed to be convinced; we were also right on gloomy pictures, we caught up earlier than others to recognise reality.
    • More change in the past year in the ways we do business – access, conditionality lower, social spending conditionality (ie income inequality, education, safety nets)
    • We are concerned about premature exit strategy talk – stimulus in rich countries helps whole world (1/3 of impact of stimulus came from coordination)
    • LICs/Africa – one third of new programmes have a floor on social spending particularly the programmes that support the poorest
    • Latvia – before the crisis, deficit was simply unsustainable; IMF allowed a larger deficit than would otherwise have been possible; some of review delay was due to government planned spending cuts in social sectors that we didn’t like because they hurt the poor.
    • Ownership is a key aspect of programmes, makes IMF involvement in spending cuts and taxes are tricky
    • Transparency – I agree we need more transparency; we have pushed web as place to get info out better than before
    • On involving parliament – we have to act quickly when there is a fire;


    Questioner – what about recovery lags in low-income countries, why is the IMF targetting exit strategies in LICs in 2010?

    Questioner – Nigeria has a capacity gap to understand policies, can you not train government officials and CSOs?

    Questioner – we need more details in Malawi, are problems being solved? For how long do we wait to do an evaluation?

    Stiglitz – I am a little worried about deficit fetishism, the nature of the problem depends on what deficit is spent on. Can’t look at just liability side of the balance sheet with asking about the assets
    – anxiety about the speed of exit is clearly a problem in Iceland; must use assets fully, don’t mismanage after the crisis

    Atkinson – we have a debt challenge in many countries, it is about investment and keeping resources employed; but it is different in places where it was unsustainable; there needs to be rebalancing
    – It is a challenge to keep up with what is happening, but IMF is working on it. Some things are automatic – look at the medium term and work backwards to how you get there, then make adjustment
    – We do 1/3 of our work on TA, we can talk about opening that to CSOs

    Kumbatira – we have seen flexibility in the last IMF programme

    Questioner – people on the ground are still feeling the pain; turning to WB for social safety net design is not great; better to turn to the UN/ILO

    Questioner – SDRs, how should they be used? future allocations based on need?

    Stiglitz – yes should make more use of ILO; DSK told IMF not to make any reference to Doing Business report in its internal programmes; meanwhile World Bank still “making all the same mistakes and worse” in producing 2010 doing business

    Caroline – we are engaging more with UN agencies and trade unions, but not sure how practical the joint work can happen because of different schedules
    – Governments must make balance when resources are short
    – Countries will use SDRs in different ways, it is not free money there is interest charges which might go up; problem with targeted allocations is that they take an Amendment to Articles

    Stiglitz – creation of a global reserve system is key, need annual emissions, SDR institutional rigidities need to be resolved; gold sale revenues can pay SDR interest for LICs – there is room for flexibility that hasn’t been utilised
    – we need fundamental system reform,

    Kumbatira – give credit where credit is due, we need to keep going with these reforms

    Muchhala – opening and opportunity for the IMF to make a difference if the policies are changed so that development priorities and concerns can be addressed in a more productive manner; countries need a larger menu of policy options with more creative options.
    – SDRs would be a good method to deal with liquidity gaps

    Aybar – we are at brink of fundamental reform of the ideas since the efficient market hypothesis failed; we need multi-displinary study that take account of historical circumstances

    Atkinson – UK and France announced that they would pledge their SDRs to support IMF lending under concessional loans; we haven’t discussed other parts of financing – IMF is only 2 per cent of external finance for LICs; finance allows options