In the middle of a review of its lending facilities for low-income countries (LICs) and a funding drive for more concessional resources, the IMF is facing criticism from civil society groups over its conditionality and a review of its debt sustainability framework.
In mid April, the IMF launched a five week public consultation process as part of a review of its lending facilities for LICs and its policy on debt limits in Fund programmes. The IMF reformed the concessional LIC facilities in 2009 (see Update 67). Among other questions in the consultation paper, the IMF asked: “Has the 2009 reform of LIC facilities achieved its objectives, and has the Fund thus been able to provide effective assistance to LICs, including during the crisis?”; and “in the context of prolonged global volatility and risk, is there scope for further innovations to enhance the insurance and signalling features of the facilities to protect LICs against spillovers?”
In a response to the consultation, Nicholas Adamtey of the NGO Transparency and Accountability Initiative in Ghana, argued: “the macroeconomic indicators the IMF has been focusing on are too narrow to address the cyclical economic occurrences in developing countries.”
the macroeconomic indicators the IMF has been focusing on are too narrow
A number of other responses to the consultation referenced an April report published by three Norwegian NGOs that examines how the IMF could enhance its focus on growth and poverty reduction in LICs. The report examined all 37 concessional IMF loans since 2009 and presented three in depth case studies from Honduras, Malawi and Sierra Leone. Overall, it concludes that after the change in facilities in 2009 “there is no evidence of a broader ‘enhanced focus on poverty reduction and growth’ in the content” of the programmes. In a section examining the impact of IMF loan conditionality on the health sector, the report finds “the IMF to a limited degree adopted a policy of counter-cyclical measures to combat the global crisis in 2009, but then returned to a path of fiscal conservatism and reduced spending levels from 2010 onwards.”
Analysing the difference between LICs with and without IMF programmes in 2010-11, the report finds that non-IMF-programme countries more frequently increased nominal spending, real spending and expenditure as a percentage of gross domestic product. It also found that the IMF had been showing more flexibility on inflation targets compared to the past. Furthermore, there is a long discussion in the report on protecting social spending, as the IMF has repeatedly claimed that it is now putting floors on anti-poverty spending (see Update 78, 74). The report concludes that it “does look as though the IMF is making greater efforts to safeguard social spending”, but that anti-poverty spending floors “are only having limited overall success”.
The report contains 11 recommendations for both the IMF and donors, including on how donors should “limit funds to the [IMF’s Rapid Credit Facility/Standby Credit Facility], in order to discourage countries from developing a longer-term lending relationship with the IMF.” It also calls for the IMF to have poverty reduction spending floors in all LIC programmes and monitor their attainment by publishing and analysing sector-by-sector spending data. It also proposes that every programme document includes a poverty and social impact analysis of the programme, including a discussion of the impact on both poverty and inequality.
During spring, the Malawi, Ghana, Sierra Leone and Kenya affiliates of NGO ActionAid International released a series of country studies on the impact of the IMF and the financial crisis on their respective countries. ActionAid Sierra Leone’s April report criticised the IMF, saying it “still has its old obsession with tightened monetary policy to target inflation, even in times of crisis, or at the risk to economic growth.” It argued that “The IMF should collaborate with the authorities to determine a moderate level of inflation in Sierra Leone while they grapple with the efficient provision of basic services across the nation.”
More debt crises?
In a late April paper that updated the IMF board on the level of resources available to subsidise concessional lending to LICs, IMF staff indicated that they expected Fund concessional lending to increase by 67 per cent to $3 billion in 2012. While the Fund says it has sufficient grant resources to subsidise the loans, including the extension of the zero interest on the loans until the end of 2012, it is still looking for $2 billion in additional loan resources to enable it to meet expected demand through 2015 (see Update 67).
Those additional loans bring worries on debt sustainability for some countries, especially as the joint World Bank-IMF debt sustainability framework (DSF) was reviewed in February. The DSF, which is used to make debt sustainability analyses (DSAs) of LIC debt levels and warn of impending debt crises, will now examine public sector domestic debt and private sector foreign debt, when in the past it focused mostly on public foreign debt. The review also agreed to lower the thresholds for debt distress on the metric of debt service costs to public sector revenue.
Bolivian NGO Fundación Jubileo, worried that the new indicators on public domestic debt and private foreign debt “still focus on repayment capacity only, and do not take into account social goals or MDGs [millennium development goals].” Noting that “considering a linkage of DSAs with MDGs would have been more useful years ago, and not when there are just two years left”, the group argued that at the least the Bank and Fund should be thinking now about how to link to the sustainable development goals now being proposed (see Update 81).
UK NGO Jubilee Debt Campaign argued that “one major failing of the DSA is that it makes little or no analysis of the source of lending and what the lending is being used for. To enable lenders to be held to more account for their actions, and to allow debate on the quality as well as quantity of lending, there should be far more information on where loans are from, on what terms and for what projects.” The NGO also issued a report in May on The state of debt, making recommendations on how to put “an end to 30 years of crisis.” The report argues for greater debt cancellation, more prevention of debt crises through capital account regulations (see Update 81) and greater mobilisation of domestic revenue in developing countries.
In late April, the United Nations Conference on Trade and Development (UNCTAD) launched a process for countries to endorse its principles on sovereign lending and borrowing, which it had been developing over the last three years (see Update 72). The launch, at the UNCTAD quadriennial conference in Doha, was overshadowed by a battle between rich countries and developing countries over the UNCTAD mandate. At the conference rich countries tried to restrict UNCTAD’s ability to work on debt because they felt it was a duplication of the IMF and World Bank’s work. However the G77 and other developing countries took a stand and secured agreement that UNCTAD will continue to advise countries on debt. By late June UNCTAD had secured endorsement on the principles by 10 countries, including Germany and Brazil. They will also contribute to a thematic debate on debt to be held at the UN in the autumn.