I- etat des lieux et positions en présence / Current

Objective 1 : Facilitating Private Investment

With aid levels declining and tax receipts and savings in developing countries stagnating, foreign private investment is regarded by the G7 and the IMF as the primary driving force for growth. Thus, the G7 governments are pushing the IMF to focus on enhancing the flow of information from governments to investors and to assist countries to open their capital accounts and liberalise their financial markets to facilitate private investment.
To this end, the IMF's traditional surveillance function has been expanded. In addition to monitoring countries' macro-economic policies, the IMF is now monitoring countries' financial vulnerability and compliance with a host of international codes and data standards (and may enforce them through its conditionality). In addition it has been given the remit to advise countries on financial sector reforms.

The problems are:

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  many of the standards, which have been developed by the industrialised countries, are inappropriate for developing countries given their many different stages of development and differing priorities;
  

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  it is doubtful whether developing countries have the capacity to implement many of the standards nor whether it should be a priority to do so given the pressing need to address poverty issues. The joint IMF and World Bank Financial Stability Assessments have already proven to be very expensive before the standards are even put in place; and
  
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  the IMF is in danger of becoming an international rating agency, yet it is unlikely to perform this function better than private agencies and it certainly shouldn't be funded from the tax payers' money to do so.
  

Although the IMF's articles of agreement have not changed it to give it an official mandate to facilitate Capital Account liberalisation (CAL), the IMF is implicitly supported by the G7 governments to "advise" countries how to do so. For example, the Government's White Paper on globalisation states that "The UK Government favours a more country-specific approach to capital controls, and a gradual approach to the opening up of capital accounts. An important part of this is to work with countries and international institutions to design `road maps' for the opening up of capital accounts".

Whilst CAL brings ample benefits to foreign investors there is no evidence to show that poor people benefit. Indeed, since there is a high risk crisis from which the poor are often least able to recover, it is suspected that they will be relatively worse off. The concern is that the G7's emphasis on foreign private investment as the driving force for economic growth will make the IMF single-minded in its pursuit of CAL even if poverty objectives would suggest not to.
Q: What research is the IMF doing to understand the impacts of Capital Account Liberalisation on poverty reduction?

Q: How will the road maps identified in the Globalisation White Paper take into account poverty reduction considerations?

Q: How will the UK Government take forward its "road map" approach with the IMF?

Q: Does the UK Government agree that the IMF should be encouraged to give developing countries advice about what sort of controls are more market friendly and how to implement them efficiently?

Objective 2: Crisis Management

Whilst developing countries are being forced to make adjustments at the national level to address instability in the global system, the IMF has not been equipped (nor has any other institution) with the finance or debt workout tools to effectively assist countries that are hit by crisis. Whilst the Contingency Credit Line has been reformed to make it more attractive, it will only be accessible to a few "emerging", middle-income countries. There are no financing facilities from which the poorest can borrow to avert a financial/currency crisis (most of the poorest countries are unable to afford non-concessional loans, and those with IMF programmes or debt reduction programmes are not allowed to borrow from these sources).
Yet even if they are not systematically important, relative to their size, some of the poorer countries are receiving large inflows of private investment and have liberalised quite considerably and more are looking to do so. As capital controls have been removed so have mechanisms for monitoring flows and many do not have capacity to regulate financial markets, making them very susceptible to sudden reversals.
Q: What steps are being taken to provide appropriate short-term, concessional resources for the poorest countries faced with currency crises?
Since the IMF does not have sufficient resources to act as an international lender of last resort, it has been suggested that the private sector should contribute to rescue packages. To date this has proved extremely difficult to achieve. The IMF has advocated that countries should agree credit lines with private banks in case of emergencies. However, the recent case of Argentina demonstrates that this approach is not working. Despite having negotiated credit lines with the private sector, when it came to need them the banks were only willing to extend finance at exorbitant cost to the Government. In other cases, such as Jordan, the banks have been unwilling to extend further finance. Insufficient resources for rescue packages means that crisis countries must adjust very rapidly, which can cause severe social and economic dislocation.

The problem is that there are no rules governing the private sector's involvement, which means that the private sector does not have to play ball. Clear rules for private sector involvement should be developed with appropriate mechanisms for enforcement, including a debt standstill procedure.

Q: What examples can the Executive Director give of successful cases of private sector involvement in crisis resolution in the past two years?

Q: What is the UK's position on debt standstills to allow countries time to adjust more slowly to financial crises, with less negative impacts and to spread the burden of adjustment more fairly?

Q: What progress has been made in discussions with the IMF Executive Board on the topic of debt standstills?

Q: What is the Executive Board's agenda and timeline for taking this work forward and when will the staff report on progress?