Is the IMF's role in low-income countries conducive to reducing poverty?
2 October 2007 | Washington, DC
Controversial both inside and outside the institution, the International Monetary Fund's (IMF) strategy in low-income countries was debated at a recent panel that questioned whether or not the IMF should exit low-income countries.
The role of the International Monetary Fund (IMF) in low-income countries (LICs) is a highly controversial issue both inside and outside the institution, as reported in the findings by the external committee on World Bank-IMF collaboration, known as the Malan Committee. The re-evaluation of the IMF’s engagement in low-income countries is one of the key tenets of its Medium-Term Strategy. The Strategy aims to integrate the Fund’s LIC members into the global economy, as well as sustain faster and more stable growth, while reducing poverty. The IMF assists low-income members through lending, policy advice, technical assistance, and capacity building.
At a September 24 panel event organized by Oxfam International on the role of the IMF in LICs, John Lipsky, first deputy managing director at the IMF, revealed that the World Bank and the Fund are developing a joint strategy on LICs which consists of a series of pilot projects. These projects will focus on financial sector development, public financial management, and natural resource management. The joint strategy will be formalized in a Joint Bank-Fund Management Action Plan that will first be reviewed by the executive boards of the World Bank and the IMF, and subsequently unveiled ahead of the World Bank/IMF annual meetings later this month.
CSO critics argue that the Fund needs to show greater flexibility in its economic targets in order to demonstrate a longer-term focus on poverty reduction. Meanwhile, an IMF staff document acknowledges that its strategy for LICs requires more work in the areas of scaling up aid, ensuring debt relief sustainability, and offering more flexible lending facilities as well as customizing its monetary and fiscal targets to individual country circumstances. However, a recent IMF Independent Evaluation Office report on aid in sub-Saharan Africa found that the fiscal and monetary targets of IMF-supported loan programs constrain the ability of borrowing countries to absorb and spend new inflows of foreign aid.
In response to the IEG's claim that the IMF has failed to support alternative aid scaling-up scenarios for LICs, Lipsky stated that while the “Fund does not have a mandate to mobilize aid,” Fund staff are now increasingly “helping member countries develop alternative scaling-up scenarios that can be incorporated in Poverty Reduction Strategies.”
Jack Jones Zulu of the Southern African Regional Poverty Network, argued that the IMF is not serving a useful role in low-income countries, and that low-income national governments need more policy space and less IMF interventions. In the current fiscal year, one third of the IMF's technical assistance is devoted to sub-Saharan Africa, according to Lipsky. AFRODAD, a CSO based in Brussels that works on IMF advocacy, commissioned studies in five countries to research the second generation of Poverty Reduction programs (PRSPs and PRGFs). The findings revealed that the Fund continues to dominate national macroeconomic frameworks, in that policy discussions are exclusively limited to IMF and Ministry of Finance participants. In Southern Africa, CSOs are concerned with the manner of IMF intervention in national governments and economies, such as the Fund's insistence to cut down public spending in order to contain inflation. CSO research demonstrates that completion points attached to debt relief programs work against social policy needs. In Zambia, for example, the IMF’s intervention in “cost-sharing schemes and user fees bordered on policy mischief,” Zulu said. Real development in sub-Saharan Africa is not just about “achieving macroeconomic stability,” but also about “job creation, sustainable livelihoods, debt, and the Millennium Development Goals.”
Abbas Mirakhor, dean of the IMF’s Executive Board, noted that the Poverty-Reduction Strategy of the Fund espouses a "culture of country ownership, a recognition that social spending is a priority, and a focus on debt-relief for sustainable growth." However, Mirakhor admitted that poverty reduction in low-income countries has been “uneven,” in that “seven years after the Millennium Development Goals were established, there has yet to be a single country case where aid has been scaled up” to the needed levels.
Resources
- Transcript of an Oxfam Event on the Role of the Fund in Low-Income Countries, September 24, 2007 (IMF webstie)
- IMF, World Bank to unveil joint strategy for poor countries, Agence French Presse, September 25, 2007 (The Economic Times website)
- The Role of the Fund in Low-Income Countries, Oxfam event speech by John Lipsky, first deputy managing director, IMF, September 24, 2007 (IMF website)
- Should the IMF Exit Low-Income Countries?, panel event organized by Oxfam International, September 24, 2007 (IMF website)
- A Medium-Term Strategy for the IMF: Meeting the Challenge of Globalization, by IMF staff, April 1, 2006 (IMF website)
- The IMF’s Medium-Term (or Reinvention) Strategy, Bank Information Center (BIC website)