I- etat des lieux et positions en présence / Current

Objective 3: Poverty Reduction

At its annual meetings in September 1999 the IMF announced that poverty reduction was to be a central objective of its lending to the poorest countries. The new approach is to be realised through the Poverty Reduction Strategy Paper (PRSP) and the Poverty Reduction and Growth Facility (PRGF). Whilst many welcome this new focus, so far there has been little evidence to suggest that the IMF is making any significant changes in its policy advice or operational procedures to accommodate this new objective. Some NGOs are concerned that it has simply extended the IMF's influence in national decision making by justifying its involvement in micro-managing public spending and taxation decisions.
Other critics are arguing for the IMF to stop all medium-term lending and are calling for the PRGF to be closed or moved to the World Bank. Many sympathise with this stance, although there is a good case for the IMF to continue providing short-term finance for countries needing to stabilise. This suggests that there is a need to identify those countries that have short-term stabilisation problems and those that are effectively "post stabilisation" but chronically poor with limited capacity. In the latter, the IMF should continue to be responsible for giving advice on macro-economic policies but not loans (the IMF's loans are too short term and therefore too expensive to finance development). Instead, the World Bank should be allowed to provide more budget support lending, with the proviso that it applies appropriate safeguard policies to these loans, for example, social and environmental impact assessments.
Given its new role, it is imperative that the IMF re-examines its Financial Programming Model and policy advice to ensure that it is poverty-focused. This is essential whether it is advising countries in crisis needing to stabilise or those that are "post stabilisation" and are focused on achieving sustainable growth. In particular, the model needs to be unpacked to understand the distributional implications of macro-economic policy. It is not sufficient to simply tack some analysis of pro-poor fiscal spending on the end of the model. Poverty reduction should be central to it. This is imperative if, as the Globalisation White Paper suggests, "the IMF [is] to take greater account of the relationship between stabilisation, structural issues, poverty and growth in programme design".
A more doubtful role is its "seal of approval" function. The PRSP must be endorsed by the IMF before other donors will provide resources to fund it, thus the IMF stands in the gateway to all other finance. However, with the focus on poverty reduction it is less obvious that the IMF should perform this function. Some NGOs are critical that the IMF now has the potential to reject or accept an entire national programme, not just the macro-economic element, yet it does not have the expertise to do so.
Q: What steps is the IMF taking to understand the distributional consequences of its macro-economic policy advice? Is it collaborating with the World Bank to do so?

Q: What steps is the IMF taking to establish procedures with the World Bank to undertake ex-ante social and environmental impact assessments of its policy prescriptions?

Q: Is the IMF taking any steps to reconsider its lending policies to the poorest countries?

Q: What assessment has the IMF made whether countries are pre- or post-stabilisation and what its policy advice should be in each case?
The PRSP process not only requires the IMF to address poverty issues in its policy advice, it signals a new approach to developing programmes. Unfortunately, to date, the IMF has not demonstrated that it is changing its operational procedures to reflect this change.

Criticisms are that:

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  the IMF has demonstrated little flexibility in its policy advice which limits the opportunity for ownership. Whilst there has been some shift in its willingness to consider grants in the budgetary process, the IMF has not demonstrated flexibility in other areas of macro-economic policy;
  

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  the IMF's programmes still assume a three-year cycle, which is inappropriate. Programmes need to take a longer perspective and should work within each country's particular time-frame;
  

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  the timing of staff missions still reflects the IMF's timetable and not that of individual countries. Thus country processes must still bend to accommodate the IMF; and
  

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  IMF staff have not sufficiently supported participatory processes, for example, documents are often not made available in time and insufficient notice is given for meetings.
  

Many NGOs are calling for the IMF to encourage a more participatory approach to macro-economic policy setting by providing alternative menus for macro-economic policies which would allow greater public (including parliamentary) debate.

Many are also concerned that proper guidelines should be developed for staff and the public to enable effective participation. These should make clear what the public can expect to receive for the IMF and by when and how it will input into the process. For example, there should be clear guidelines indicating by when documents should be made available, what minimum time is needed to inform people of meetings and IMF visits, what the purpose of meetings is etc.
Q: Will the IMF develop official guidelines which set out clearly what the IMF's role is in a participatory process and what actions staff are expected to take to facilitate a national level participatory process?

Q: What examples can the Executive Director give, in addition to more flexible budgetary processes, to demonstrate that the IMF is becoming more flexible and poverty reduction focussed in its macro-economic policy advice?

Q: What steps are being taken to reorganise the IMF's operational procedures to allow more flexibility to respond to countries' timetables?

January 2001

Testimony before Banking Oversight Subcommittee, Banking and Financial Services Committee,
US House of Representatives,

of Walden Bello^*1

April 21, 1998

Let me first of all thank the members of the House Banking Committee for inviting me to participate in these crucial hearings on the proposed $14.5 billion replenishment for the International Monetary Fund. I am glad and grateful that a representative of the non-governmental community in Asia is being encouraged to share his views on an issue of paramount importance, before a vote of historic international significance.

Allow me to state at the outset that the IMF's record in the Asian region does not inspire confidence in the institution nor in the possibility that the appropriated funds will be used wisely. I urge you to vote against the Clinton administration's proposal for the following reasons:

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  First, the Fund, by promoting a policy of indiscriminate capital account liberalization among the East Asian economies, has been a central cause of the Asian financial crisis.
  
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  Second, the IMF exhibited a remarkable inability to anticipate and to predict the financial crisis because it has been imprisoned by an economic paradigm that severely underestimates the destabilizing effects of unregulated global capital markets.
  
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  Third, the Fund is imposing stabilization and recovery programs that are worsening instead of alleviating the economic crisis in the region, raising the specter of a decade of stagnation, if not worse.
  
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  Fourth, the IMF is not so much restoring our economies to health as bailing out the big international creditors. By not allowing the latter to face market penalities, the Fund is practising what many in Asia sarcastically term "socialism for the global financial elite."
  
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  Fifth, the Fund is being brazenly used by the Clinton administration as an instrument to promote the bilateral trade and investment objectives of the US, leading to the weakening of the legtimacy of the IMF as a multilateral institution and to a backlash that could hurt America's ties with the region.
  
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  Sixth, the IMF, for its own bureaucratic self-interest, is preventing the Asian countries from developing innovative responses to the Asian financial crisis that would not be dependent on US taxpayers' money.
  
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  Finally, replenishing the Fund would promote the Clinton administration's objective of monopolizing foreign economic policymaking at the expense of Congressùa development that I, though not a US citizen, disapprove of as a partisan of democracy since decentralized, dispersed power provides the best condition for the exercise of democracy.