Internal Audit Questions IMF's Role in Africa - IPS (February 2007)

Rethinking Bretton Woods | Mon, Feb 26, 2007

By Aldo Caliari
"WASHINGTON, Mar 13 (IPS) - An independent review of the International Monetary Fund's operations in Africa says the lender's work is
confused, vague, lacks transparency and suffers from a large gap between rhetoric and practice."

WASHINGTON, Mar 13 (IPS) - An independent review of the International  Monetary Fund's 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," said the report.

The report, issued late 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 1999-2005.

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.

Monday's findings are likely to fuel concerns about the IMF's role in poor nations and the Fund's 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," Aldo Caliari of Centre of Concern, a progressive Catholic group in Washington, told IPS.

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 that actually hindered the use of available aid, despite rhetoric that the Washington-based lender was 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," said 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," added the report.

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 noted 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 found 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 found 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 -- are unclear," said the report.

The report said 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," said the report.

There have been numerous calls in recent years, spearheaded by some U.S. 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 U.S. 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, recommended 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.

The IMF says that it will study the issues and the "lessons" raised by the report. "The report's candid assessments and useful recommendations will help management and the Board clarify further the institution's mandate and policies to help SSA achieve growth and reduce poverty," said IMF Managing Director Rodrigo de Rato in a statement posted on the IMF's website.

De Rato said that it was the Fund's policy advice, among other things, that was instrumental in promoting sound macroeconomic policies and in better accommodating the use of aid. (END/2007)