IMF playing ‘smokes and screens’ with conditionality?

by Gumisai Mutume

Washington, 30 Apr 2001 (IPS) - International Monetary Fund managing director Horst Kohler says that a meeting of an internal committee of the institution has agreed to continue reviewing loan conditions with the aim of narrowing their application and reducing the burden on poor countries.

“We all agree that the objective is not to weaken conditionality, but to make it more efficient, effective and focussed,” the IMF head told a media briefing at the conclusion of a meeting of the International Monetary and Financial Committee (IMFC) - a body composed of governors of the institution, which met here over the weekend at the annual spring meetings of the IMF and World Bank.

The IMFC endorsement follows proposals by management that loan conditions be limited only to those that are critical to the operation of IMF-supported programmes in poor countries.

Such recommendations reflect a growing realisation both within the IMF and the World Bank that conditions that are too pervasive may galvanise domestic opposition to Washington-led programmes, especially at a time when there is a growing public challenge to their prescriptions for poor countries.

“There was unanimous support for it in the IMFC meeting,” says IMF deputy managing director Stanley Fisher. “That there will be fewer and more streamlined conditions there is no doubt.”

In March, the IMF released a series of internal discussion documents to solicit public debate on conditionality. A major seminar with academics and civil society is expected in May before a major review of the process in June.

Moves to streamline conditionality also come from increasingly vocal concerns from developing countries that the Fund is overstepping its mandate and its core area of expertise and that it is using its financial leverage to promote an extensive policy agenda.

Echoing such concerns, the Group of 24 (G24) noted in a statement that “IMF conditionality has become excessive during the last decades in both magnitude and scope, particularly in areas that lie outside the Fund’s mandate and expertise”.

The Group of 24 represents the interests of the developing countries in negotiations on international monetary matters at the IMF and World Bank.

“Excessively broad and detailed conditionality undermines the national ownership of programmes, which is essential for their successful implementation, and hinders compliance,” especially when combined with additional conditions from regional development institutions and bilateral donors, the G24 said.

For instance, the average number of World Bank conditions per sub-Saharan African country rose from 32 between 1980 and 1983 to 56 by the end of the 1980s, according to independent studies sanctioned by the Bank. Some of the conditions go as far as detailing budgetary allocations and giving dates at which liberalisation actions should be carried out.

Basil Mramba, finance minister of Tanzania, says that conditionality is one of the most important concerns of the poorest countries at this year’s spring meetings, as they increasingly find themselves burdened by requirements they cannot meet. His country had 150 conditions imposed on loans from the two institutions in 1999 alone.

Mramba says it is encouraging that both executives of the Bank and Fund have publicly stated “that they now accept that in the past, these conditionalities were very dogmatic and that now, they will begin to work on a case-by-case basis, looking at the realities in the particular countries”.

However, it is still early days to say which conditions will be cut and there are no indications of what the IMF considers as ‘critical’ conditions.  Furthermore, the Fund is introducing new governance conditionality, which will focus on budget management, anti-corruption and support private property rights.

Requiring low-income countries to prepare elaborate Poverty Reduction Strategy Papers in order to access adjustment lending, introduced in 1999, is also viewed as a new ‘process condition’ which over-stretched, poor countries may not have the money or human resources to carry out.

“It’s all smokes and screens,” says Angela Wood of the London-based Bretton Woods Project, which monitors the institutions’ policies. She says the pronouncements coming out of Washington will not necessarily result in less conditionality.

“The Bank and other lending institutions are expected to co-ordinate better with the IMF to ensure that they pick up those areas that the IMF is stepping away from,” notes Wood. “Thus overall, the breadth and extent of conditionality will not necessarily change.” She says it is likely that the IMF will increasingly resort to what are termed ‘prior actions’. These are up-front conditions that are applied before a country receives IMF assistance, “to demonstrate a commitment to the reform process”.

This is exactly what Peter Kuyembeh, Sierra Leone’s finance minister, would not like to see. He envisions a new relationship where poor countries work in partnership with the Bank, away from what he terms the “difficult past”.

“Our requirements are very huge,” says Kuyembeh. “We would want even greater flexibility, a flexibility which would involve us maybe talking over things with the Bretton Woods institutions, beginning from when they formulate their policies.”

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