IMF's role in Africa questioned

from The Mail and Guardian

Emad Mekay | Washington, United States

An independent review of the International Monetary Fund's (IMF) operations in Africa says the lender's work is confused, vague, lacks transparency and suffers from a large gap between rhetoric and practice.

"The overarching message of the evaluation is that the fund should be clearer and more candid about what it has undertaken to do, and more assiduous, transparent, and accountable in implementing its undertakings," says the report.

The report, issued late on Monday, is aimed at helping the IMF improve its management of the programme under which it gives near-obligatory policy advice in return for loans. It was conducted by the Independent Evaluation Office (IEO), the IMF's own monitor.

The 130-page report examines the IMF's role and performance in the determination and use of aid to 29 low-income countries in sub-Saharan Africa (SSA) that have been under the Poverty Reduction and Growth Facility (PRGF), the IMF's low-interest lending programme for poor countries, between 1999 and 2005.

The report notes that while this period saw improved macroeconomic performance in a number of SSA countries, with higher growth rates and falling inflation, there was almost no change in the share of the population living in poverty.

It comes two weeks after an external review committee that examined cooperation between the IMF and its sister institution, the World Bank, also said that the fund needs to clarify its role in low-income countries.

Role and relevance
Monday's findings are likely to fuel concerns about the IMF's role in poor nations and its relevance on the global economic scene.

"The work in low-income countries, in the face of the growing irrelevance of the fund for middle-income countries -- because these are withdrawing from financial programmes -- was another hope for the fund, and it wanted to position itself as playing a role there," says Aldo Caliari of Centre of Concern, a progressive Catholic group in Washington.

But the two reports suggest that the fund has strayed, at least in part, from its mandate by imposing overly strict economic policies that actually hinder the use of available aid, despite rhetoric that the Washington-based lender is committed to do more on aid mobilisation and poverty reduction.

"The resulting disconnect has reinforced cynicism about, and distrust of, fund activities in SSA and other low-income countries," says the IEO report.

"It was especially large in the early years of the evaluation period, when management communications stressed the two-way linkages between growth and poverty reduction.

"But it remains a concern even today, in the context of external communications on IMF support for alternative scenarios, MDG [Millennium Development Goals] strategies, and the mobilisation of aid that overstate what the fund is doing in the context of PRGFs," adds the report.

Case study
In three out of the five case-study countries -- Burkina Faso, Ghana, Mozambique, Rwanda and Tanzania -- the IMF did not permit domestic financing of aid shortfalls. The report notes that the fund showed "greater flexibility in more recent programmes".

In Tanzania, for example, PRGF programmes began to relax the fiscal policy stance in 2001, allowing for greater expenditure of projected aid as the country saw predictions of more macrostability.

In general, the report finds that the IMF has failed to consult with a broad audience in poor nations, including civil society and local partners.

On the issue of aid, it finds that PRGFs have neither set ambitious aid targets nor identified additional aid opportunities where countries' need was greater than aid inflows.

"IMF staff has done little to analyse additional policy and aid scenarios and to share the findings with the authorities and donors. They have not been proactive in mobilising aid resources, a topic where the board remains divided and fund policy -- and operational guidance to staff -- is unclear," says the report.

It adds that because of those problems, social development targets were often given short shrift.

"Lacking clarity on what they should do on the mobilisation of aid, alternative scenarios, and the application of poverty and social impact analysis, IMF staff focused on macroeconomic stability, in line with the institution's core mandate and their deeply ingrained professional culture," says the report.

More selective and focused
There have been numerous calls in recent years, spearheaded by some United States think tanks, for the fund to be more selective and focused in its engagement with low-income members, and particularly not to add to their debts.

Critics of the IMF have urged it to cooperate more with development-focused institutions and groups, and some have suggested that the fund's PRGF programme should be largely transferred to the World Bank.

In contrast, the US Treasury Department had in the past sought to redefine the IMF's role in PRGF programmes to make it more geared towards balance-of-payments support.

However, debt activists say that the fund's policy prescriptions have led borrowers deeper into debt and made them more vulnerable to shifts in global trade and investment.

Some of the IMF's core recommendations for borrowing nations include tight fiscal management, tax reforms, financial-sector reform, governance reforms, economic liberalisation and privatisation of state-owned enterprises.

In its latest report, the IEO, which was created in August 2001, recommends that IMF management establish transparent mechanisms for monitoring and evaluating the implementation of its policy guidance and that the IMF take several other corrective steps, such as periodically assessing the implications for fund policies and strategies in borrowing nations.