Titel: Aanbieding notitie over IMF-conditionaliteit
De Voorzitter van de Vaste Commissie voor Financiën van de Tweede Kamer der Staten-Generaal,
Plein 2,
2511 CR Den Haag.
Datum
Uw brief (Kenmerk)
Ons kenmerk
8 juni 2001
BFB 2001-00432 M
Onderwerp
Aanbieding notitie over IMF-conditionaliteit
Hierbij bied ik u ter informatie een Nederlandse notitie aan over het stroomlijnen van conditionaliteit in IMF-programmas.
Stroomlijning van conditionaliteit is dit jaar één van de
belangrijkste themas binnen het IMF. Ook in het Algemeen Overleg van
26 april jl. met de Vaste Kamercommissies voor Buitenlandse Zaken en
voor Financiën is het onderwerp conditionaliteit ter sprake gekomen.
Conditionaliteit stond prominent op de agenda van de
voorjaarsvergadering van het IMF en komt ook tijdens de
jaarvergadering eind september aan bod.
Naar aanleiding van de eerste vergadering van de Raad van
Bewindvoerders in maart over conditionaliteit, heeft het IMF via zijn
website maatschappelijke groeperingen, academici en overheden
uitgenodigd om hun visie op het onderwerp te geven. Deze input wordt
gebruikt bij de besprekingen die de Raad van Bewindvoerders dit jaar
houdt. In dit kader heeft Nederland de notitie (Re)focusing IMF
Conditionality ter informatie aan het IMF opgestuurd. Deze notitie
gaat nader in op het Nederlandse standpunt zoals uitgedragen tijdens
de voorjaarsvergadering van het IMF. Deze notitie zal ook op de
website van het IMF worden gepubliceerd.
DE MINISTER VAN FINANCIËN
(RE)FOCUSING IMF CONDITIONALITY
PAPER BY THE NETHERLANDS MINISTRY OF FINANCE AND THE NETHERLANDS
CENTRAL BANK
introduction
The present discussion on the scope of Fund conditionality stems
directly from the criticism the IMF has received with respect to the
way it handled the 1997 Asian crisis. Research into Fund-supported
programs suggests that the Fund has strayed into non-core areas and
indicates that both the number and the level of detail of conditions
have increased over time. The wider scope of conditionality could have
serious consequences: it may jeopardize the effectiveness of
IMF-programs; countries may delay their approach to the Fund; the Fund
may be regarded as being insensitive to cultural and social
differences among countries; the level of detail and intrusiveness of
conditionality is sometimes hard to reconcile with the principle of
ownership; it may result in a lack of responsibility of countries.
Besides this, involvement of the Fund in areas outside its primary
competence could weaken its reputation for professional, non political
advice. Programs too detailed carry the risk of program failure, not
least because of the above mentioned lack of ownership.
Members of the International Monetary and Financial Committee (IMFC) have acknowledged the need for streamlining Fund conditionality1. The Managing Director of the IMF has responded by putting the topic of conditionality high on the agenda. In different speeches he has argued in favor of a more focused IMF2. In September 2000 he issued an Interim Guidance note on Streamlining Structural Conditionality3.
our approach to conditionality
In our understanding, the scope of the Funds conditionality exhibits
two dimensions: breadth (core/non-core) and depth (broad/detailed).
The confrontation of these two dimensions can be represented as
follows:
Depth/breadth
Core
non-core
broad
A
B
detailed
C
D
Most countries applying for IMF programs have more than once faced
non-sustainable balance of payment positions due to external debt
overhangs and/or excesses of absorption over output. Maintaining
aggregate demand on a sustainable path calls for keeping in control
the flows of domestic financing and the rates of monetary and domestic
credit expansion4. We would therefore put criteria with respect to
(among others) the levels of the net international reserves, the net
domestic borrowing of the public sector and the net domestic assets of
the central bank in matrix cell A5. We would put a specific measure
identifying how to reach either of these quantitative targets in cell
C. With respect to other conditionality taken up in IMF programs,
these should in principle be covered by the guidelines and should,
almost naturally, be in line with the Funds mandate. We expect most of
the conditions to fall into cell A.
We are mainly interested in the structural component of the IMFs
conditionality and the level of detail of conditions in stand-by and
extended arrangements6. IMF staff defines structural in a technical
way: everything that is not a quantitative macro-economic performance
criterion7. Goldstein focuses more on the content: structural
conditions are the ones not aiming at the management of aggregate
demand but rather at either improving the efficiency of resources use
and/or increasing the economys productive capacity8. We feel both
definitions fall largely together, taking different perspectives. We
prefer the approach brought forward by Goldstein, because it deals
with the content of conditions.
main messages
1 improving compliance with the guidelines on conditionality
The existing Guidelines on Conditionality were agreed upon by the
Executive Board in 1979. The applicability of the guidelines has been
reaffirmed by the Board several times, most recently in 1994. While
the present guidelines in itself seem adequate and tight, we feel that
the way the Fund (not only staff and management but the Executive
Board as well) interprets and employs the guidelines should be
improved and brought more into line with the spirit in which the
guidelines have originally been written. This could be pursued through
a number of measures. First, the staff could clarify the macroeconomic
relevance for every structural condition (either a performance
criteria or a benchmark) in every Fund program as well as the degree
in which this condition is critical for the success of the program
(see message 4 below). If bringing forward conclusive proof in this
respect appears impossible, that specific condition should be left out
of the arrangement. This seems to correspond perfectly with what the
guidelines say on performance criteria, namely that will
normally be confined to (i) macro-economic variables, and (ii) those
necessary to implement specific provisions of the Articles or policies
adopted under them.... may relate to other variables only in
exceptional cases when they are essential for the effectiveness of the
members program because of their macro-economic impact. Second, a
maximum number of structural conditions could be determined; exceeding
this number would require invoking an exceptional circumstances clause
as well as a separate Board meeting. Moreover, one could even consider
demanding a qualified Board majority for approval of exceeding this
maximum number of structural conditions.
Finally, we would recommend the Fund to undertake a regular (annual or
biennial) review of conditionality, to be discussed in the Board. This
would give the Board a tool to assess conditionality policy on a
permanent basis, analogous to the biennial review of the Funds
surveillance activities. It would also secure persistent commitment to
the guidelines and the spirit in which they have been (re)written.
Although the key to more focussed conditionality seems to lie in stricter enforcement of the existing guidelines, it could additionally be useful to clarify some parts of these guidelines. The messages beneath illustrate the points that could be addressed in the guidelines. Some messages clearly follow the line chosen by Köhler in his Interim Guidance Note, which we largely endorse. Other messages take a different perspective and go into more detail in order to focus the IMF more clearly with respect to conditionality.
2 - the breadth of fund conditionality: the mandate and the core
areas. Conditions in IMF stand-by and extended arrangements should fit
the Funds mandate. However, as the Articles of Agreement of the Fund
are formulated in a rather general terms, a more specific definition
of the Funds mandate is called for. In our view the Funds primary
focus should be on macro-economic and financial stability. Therefore,
conditions should be limited to and directed at solving the current
balance of payments crises (which led the country to apply for
assistance by the IMF) and at minimizing the chances of getting into
another crisis in the near future. More specifically, the guidelines
could explicitly determine that in principle conditions should be
limited to the areas of:
* fiscal policy
* exchange rate policy
* monetary policy
* balance of payments issues (including external debt)
* the financial sector (including banking and capital markets).
Conditions within each of these five core areas may either be of a
quantitative or of a structural nature.
3 - how to decide on the appropriate structural conditions in imf
programs. We feel that the guidance note of the MD represents a useful
starting point in assessing whether a specific structural condition
(detailed or not) should be included in IMF programs. Based on this
note, the following decision diagram can be of help to assess whether
and how structural conditions should be taken up in an IMF supported
program (PC = performance criterion; PA = prior action).
a. is a structural reform macro-relevant? ýnoý no Fund conditionality
þyesþ
take up as a condition in IMF program ý b. is this reform critical for
program success?
þyesþ þnoþ
PC or PA benchmark or indicative target
þ þ
c. does this reform fall within core areas of the Fund?
þyesþ þnoþ
own expertise outside expertise
In order to make this decision tree a useful instrument, an
elaboration on what constitutes macro-relevant and critical is called
for.
4 - macro-relevance - critical. Making decisions on including
structural measures in IMF programs operational, calls for some
definition of macro-relevance and critical, also to be taken up in the
guidelines. In our view a reform measure is macro-relevant if it is
focused at one of the underlying problems which (indirectly) resulted
in the balance of payments problems and/or the economic imbalances. In
addition, a measure is critical for program success if without the
implementation of this measure macro-economic stabilization is not to
be expected within the period during which a member remains to have
access to Fund resources1. It is worth noting that the precise
interpretation of macro-relevance or critical is country specific and
program dependent. This makes the reasons for including (structural)
conditions in IMF programs even more important. The Board should
always be in a position to assess their adequacy, appropriateness and
need. This set-up could make it necessary for staff to inform the
Board in a timely manner (i.e. well before the formal Board meeting).
This equally applies to the level of detail of conditions.
5 - degree of detail of conditions. We feel it is important that
conditions in IMF programs do not exhibit too large a degree of detail
as to endanger ownership and as a result hereof threaten the
effectiveness of programs. As we acknowledge that quantitative
performance criteria inevitably call for some degree of detail,
limiting detail especially applies to structural measures. The
guidelines should determine that the IMF must restrict itself to
setting conditions at levels as macro and aggregate as possible to
reach program objectives and to allow countries to take their own
responsibilities. The onus of proof regarding the necessity of certain
detailed measures lies (again) with IMF staff. If staff is not able to
demonstrate this necessity, it should limit conditionality to a
measure less detailed or refrain from imposing such a condition at
all.
6 - Fund as a scapegoat. In day to day operations, national
authorities may request the Fund to include specific measures in IMF
programs in order to increase their leverage in domestic political
discussion. In some cases however, these measures fall into non-core
areas of the Fund or are unnecessary detailed. Nonetheless, the Fund
has in many cases accepted the role of scapegoat. Taking into account
the importance of ownership, the question is whether the IMF should
refrain from doing so in the future. We take the position that
conditions beyond those that are deemed macro-relevant or critical
(with a clear motivation by staff), should only be taken up by other
(international) organizations or in national country programs. This is
in line with our suggestions above. Member countries must be
encouraged to take their own responsibilities within their own legal
and judiciary systems. The IMF should not try to substitute for
national authorities. If the Fund wants to reflect on issues which
fall outside its conditionality mandate, the annual Article IV
consultation seems the right way of doing so. Technical assistance can
also provide an opportunity to assist members in this respect.
7 - prior actions and performance criteria. Analyses of IMF-supported
programs show remarkable differences with respect to number and form
of conditions in programs. With Goldstein we note that
the number of prior actions differs markedly between countries; the
number of conditions for specific countries increases as time passes;
and in some programs a specific measure (e.g. making privatization of
a state run enterprise possible) is listed as a structural performance
criterion while in other cases the same measure is a prior action.
With respect to the three above mentioned aspects it would be
desirable for the Fund to explain the choices it makes in different
cases. The principle of equal treatment of members (taken up in the
present guidelines) necessitates this. More concrete, staff and
management could explain in every program why they consider a specific
prior action indispensable (building a track record, ensuring a good
program start, some other reason) and motivate why they prefer a prior
action to a performance criterion. This seems perfectly in line with
the Guidelines on Conditionality. They state that ... member may be
expected to adopt some corrective measures ...., but only if necessary
to enable the member to adopt and carry out a program consistent with
the Funds provisions and policies. Although this guideline allows some
room for interpretation, it is formulated in a restrictive way. We
feel that it is important for the Fund to live up to this rule to
ensure that countries will not be unduly discouraged to approach the
Fund.
8 - enhance ownerhip. Limiting both the number and (in both
dimensions) the scope of conditions, is helpful in securing national
ownership for an IMF program. The concept and the importance of
ownership are taken up in the present guideline number 4. We would
recommend to accentuate this guideline by explicitly taking up the
opportunity for program countries to suggest alternatives for measures
proposed by the Fund if they feel that these are more suitable to
their domestic situation. On the other hand, IMF staff should also be
encouraged to suggest different scenarios addressing economic
imbalances. Countries should be offered a real choice with respect to
the measures they prefer to implement. This will also take note of the
fact that no blue print solutions exist and that reforms are highly
country specific. We encourage staff to deal with such alternative
scenarios in staff reports accompanying requests for the use of Fund
resources.
One other relevant consideration, not necessarily to be addressed in
the guidelines, concerns the possible role a national adjustment
program could fulfill in the context of a request for an IMF program.
9 - national adjustment program (nap) and a fund program. We would
recommend national authorities to have in place some kind of national
adjustment program approved by the national legislative forces
whenever it decides to approach the Fund for its financial assistance.
Unlike a PRSP (which is drawn up in the context of a PRGF program),
this NAP should not be endorsed by the Board and the country should
have absolute freedom with respect to its process and content. The
involvement of the IMF in drawing up a NAP should be kept to an
absolute minimum. At most, Article IV results could feed into national
programs or authorities could use the benefits of technical assistance
in setting up these programs. In many cases the Letter of Intent (LOI)
or Memorandum on Economic and Financial Policies (MEFP), in most cases
written by Fund staff, serve the purpose of a national program.
However, a true national program (written by the authorities
themselves and accounted for by them in the national parliament) could
address a lot of issues that the IMF should not be concerned with. We
expect that having in place a national program will strengthen the
position of the member state. It will enable the IMF and other
international organisations to keep their roles of expert advisers
with respect to (structural) measures in line with their mandates. If
a country chooses to include in its program structural measures
relating to the expertise of (among others) the World Bank, ILO or
WTO, these other organisation(s) should monitor their implementation.
If macro-relevant, these conditions could be included in the IMF
program. This may require more intense co-operation between these
institutions and the Fund. It is needless to say that, whether
countries have a national program in place or not, an IMF program
should always fit the quality standards of the Fund.
The Hague / Amsterdam, February 2001