Transcript The IMF`s Role in Low-income Countries and its

Responding to the Global Crisis – The IMF’s Role in
Low-income Countries and its Dialogue with
Parliamentarians
Roger Nord
April 26, 2010
Outline
2
What is the IMF – Basic Overview ?
How have LICs fared during the crisis?
 Hard hit, but better prepared
 “Keynesian” response– a first for LICs
 Debt remains manageable for most
How did the IMF respond?
 Sharply scaled-up and flexible financial support
 Comprehensive facilities reform
 Conditionality, debt policies more flexible
The IMF’s Dialogue with Parliamentarians
3
Mandate:
Some Basics
on the IMF
Founded in 1944 at the
Bretton Woods
Conference in New
Hampshire
•Promote global financial stability
•Exchange Rate Stability (balanced growth of trade)
•Forum for international monetary cooperation
•Temporary financial assistance to members experiencing
balance of payments difficulties
Main Functions:
Surveillance – Lending – Technical
Assistance
Fast Facts:
Goal: Avoid harmful
policies & protectionism of
1930s and rebuild
confidence in multilateral
cooperation
Membership: 186 countries
Executive Board: 24 Directors representing countries or groups
of countries
Staff: approximately 2,360 from 146 countries
Total quotas: US$333 billion
Additional pledged or committed resources: $600 billion
Loans committed: US$191 billion, of which US$121 billion have
not been drawn (FCL)
Surveillance consultations: Concluded in 2008—177 countries
in 2008, of which 155 voluntarily published information
IMF Accountability
4
The IMF is accountable to the governments of its 186 member countries
through the
Board of Governors
One governor from each member country (meets once a year)
International Monetary and Financial Committee
24 governors and advises the Board of Governors (meets twice a year)
Executive Board
24 members conduct day-to-day business of IMF (meets three times a week)
Governance Reforms Key to IMF Legitimacy
5
 April 2008 reforms need to be put in place – ratification still needed in
many countries
 Once implemented, 54 members will receive an increase in their quotas,
including China, India, Brazil and Mexico.
 G-20 called for further improving representation for emerging and
developing countries by January 2011 (at least 5% shift in quotas from
most over to underrepresented countries)
IMF Resources
6
• Main resources – quota subscriptions of member countries
• IMF quotas are based on relative size of a country’s economy
• Quotas determine access to borrowing and voting power. Total IMF quotas:
US$333 billion (as of end-February 2010)
• Lending capacity tripled to about US$750 billion in April 2009
• SDR allocation of about US$250 billion in August 2009, of which US$100
billion to emerging market and developing economies
How Have LICs Fared During
the Crisis?
7
PART II
Global Crisis hit LICs hard
8
 Transmission channels
Exports, remittances, FDI
 Not much through financial markets

 Growth dipped more sharply than in previous crises, but:
From higher pre-crisis level
 Big differences across countries
 Expectation of robust, synchronized recovery in 2010

Crises Past and Present—Growth
9
Real per capita GDP growth,
pre- and post-crisis
5.00
4.00
Percent
3.00
LICs 2009
crisis
2.00
World past 3
crises
1.00
LICs past 3 crises
0.00
T-2
T-1
Crisis (T)
T+1
-1.00
-2.00
World 2009
crisis
T+2
“Keynesian” policy response—a first for LICs
10
 Most LICs went into crisis better prepared:
Sustained macro stability
 Stronger institutions
 Created room for countercyclical policy responses à la Keynes

 IMF supported larger fiscal deficits as part of global fiscal
stimulus
 Two-thirds of African Countries pursued counter-cyclical
policies
 Health and education spending increased in 20 out of of 29
African LICs
Pre-Crisis Position Much Stronger
11
6
5
4
3
1990-99
2000-07
2
1
0
Real GDP (% change)
Fiscal deficit (% of GDP)
Debt and Inflation Down
12
120
100
80
60
1990-99
2000-07
40
20
0
Debt (% of GDP)
Inflation (%)
“Keynesian” fiscal policy response
13
Percent of GDP
Fiscal indicators
32
6
30
4
28
Expenditure
2
Revenue
26
0
24
-2
22
Fiscal Balance
(right axis)
20
2007
2008
2009
2010
2011
-4
-6
How Has the IMF responded?
14
PART III
Sharply Scaled-up Financial Support
15
 2009: IMF concessional assistance at $3.8 billion





(historical: $1bn)
Concessional lending capacity doubled, to $17 bn through
2014/15
Financed partly by gold sales
SDR allocation
Zero interest on all concessional credit
Support of countercyclical programs
IMF financial support sharply higher
16
3000
2500
20
New Financing, excl. arrears-related, SDR mn (left axis)
Number of new PRGF/ESF requests (rights axis)
18
16
14
2000
12
1500
10
8
1000
6
4
500
2
0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
0
17
18
Comprehensive 2009 Reform
19
 Three tailored facilities under Poverty Reduction and
Growth Trust (PRGT) to meet diverse LIC needs:



ECF – medium-term support
SCF – short-term (and precautionary) support
RCF – emergency support
 Access to financing doubled
 Zero interest through end-2011
 Permanently higher concessionality
 More flexible conditionality
Going Forward: Managing Volatility
20
 LICs more exposed to economic shocks, natural disasters




than others
Exposure will grow further with global integration and
climate change
LICs generally under-insured
But cost of holding reserves high
Need (i) policy buffers and (ii) concessional shocks
support
How to re-build policy buffers?
21
 First, do no harm: avoid premature or overly rapid fiscal
tightening
 Then, strengthen fiscal positions: focus on revenue
growth; protect social spending and high-return
investment
 Balance debt-creating capital inflows with developing
local savings and financial sectors
Investing for growth
22
 Massive infrastructure deficit , esp. in Africa key growth





bottleneck
LIC governments rightly keen to scale up public
investment
But quality critical
Can traditional donors deliver finance?
Concessionality versus scale
Realistically, huge investment needs will require
nonconcessional credit
The IMF’s Dialogue with
Parliamentarians
23
PART IV
More Accountability Through Transparency and
Outreach
People/Civil Society
Parliaments
National Governments
IMF
24
IMF Outreach
25
 Public outreach integral part of IMF’s country work, and
the dialogue with legislators plays an important part
 The IMF must speak frequently and clearly to key groups
and stakeholders about the work it does
 Parliamentarians are key interlocutors
Dialogue with Parliamentarians
26
WHY?
• Important role in economic decision-making, incl. budget
process
• Oversight over the Executive for economic and financial
policies
• Public forum for debate
HOW?
• Ongoing two-way dialogue: Bring outside views into the
building – inform parliamentarians of IMF policies and
activities
RESOURCES?
IMF website for legislators (www.imf.org) and interactive
discussion forum
Greater Accountability Through Dialogue
27
 Country level engagement: integral part of country missions;
country-level seminars
 Regional level engagement: regional seminars – in Africa; Europe
at Joint Vienna Institute
 International level engagement: PNoWB, IPU, GOPAC, CPA – joint
event and conferences
QUESTIONS
28