Public Information Notice No. 01/125

Public Information Notice: IMF Reviews Strengthening Country Ownership of Fund-Supported Programs

December 14, 2001

On November 28, 2001, the Executive Board of the International Monetary Fund (IMF) reviewed informally the status of ongoing efforts related to strengthening country ownership of IMF-supported programs.¹

Background

The IMF is currently engaged in a process of reviewing the conditions attached to its financing. One of the aims of this review is to ensure that conditionality in Fund-supported programs is designed and applied in a way that reinforces national ownership and sustained implementation of country economic reforms. To this end, the current review emphasizes the need to focus conditionality on those policies that are critical to achieving the macroeconomic objectives of the programs supported by the Fund and to establish a clearer division of labor with other international institutions, especially the World Bank. The process was initiated by the Managing Director shortly after taking up his position in May 2000, and the Executive Board discussed a series of earlier papers on this topic in March and July 2001 (see Public Information Notice No. 01/28).

The latest staff paper discussed by the Executive Board reviews several different concepts of ownership and discusses the difficulties of assessing whether a particular country does "own" its reform program. It then examines whether conditionality is—or can be made to be—compatible with national ownership and suggests a number of ways that the Fund might adapt its own practices to promote the right kind of ownership.

Executive Board Assessment

Mr. Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, made the following remarks at the conclusion of the Executive Board's discussion:

"The Executive Board had very useful and wide-ranging discussion in an informal meeting aimed at clarifying what the IMF can do to strengthen national ownership of reform agendas for economic policies. There is no disagreement that this topic is of great importance, and that the IMF should take renewed steps to achieve real results to strengthen ownership.

"In Executive Board discussions in March and July 2001, Directors had agreed that conditionality must go hand in hand with ownership for successful implementation of Fund-supported programs. Ownership depends both on the content of the program—agreeing that reforms are needed and that the policies are right—and on the process by which the program is negotiated. This process should encourage the authorities to consider various policy alternatives with a view to ensuring that each Fund-supported program reflects the circumstances and priorities of the country concerned. The Executive Board's latest discussion has helped further clarify how the IMF can build on this concept.

"Ownership remains a difficult concept to define for operational purposes. Ideally, ownership should reflect a shared vision and an active support of program objectives by the authorities and the Fund. It was agreed that ownership is present when the policy-making authorities of the a country willingly assume responsibility for their policies, based on an understanding that the program of policies is achievable and is in the country's own interest. Such a program may be primarily home-grown, or it may reflect the outcome of a process of iteration, dialogue, and negotiation involving both the authorities and the Fund. The issue of the breadth of ownership is also important. It is probably unrealistic to expect all affected groups in a country to benefit directly from reforms or to take ownership of them. At the same time, broader rather than narrower ownership—involving not only the executive branch of government, but also the parliament and other major stakeholders in the country—is generally highly desirable, even if difficult to achieve. Directors also were cognizant of the constraints that may limit the potential for consensus building, including the time available, particularly in crisis situations, and capacity constraints facing a country.

"One theme that emerged from the Executive Board's informal meeting is that the relationship between ownership and conditionality is complex, interactive, and dynamic. While strong conditionality cannot compensate for weak ownership, ownership and conditionality can be complementary and mutually supportive. The IMF's experience suggests that conditionality can promote and strengthen ownership, in particular by demonstrating the authorities' commitment to a course of action. This will require programs, and the conditionality that frames them, to be both well designed and agreed upon through a mutually acceptable, collaborative process. Successful implementation of Fund-supported programs depends on a combination of effective conditionality, domestic ownership, and administrative capacity. Directors agreed that the Fund will need to pay careful attention to each element and the ways they interact. In this regard, early involvement of country authorities in the design of a program, and emphasis on the contribution of surveillance as a platform and foundation for program design, will be important for building and sustaining ownership over the long run. There is general agreement that the Fund should be open to programs that differ from the staff's preferred options, as long as the core objectives of the program are not compromised.

"A key policy dilemma for the Fund is how to respond to requests for financial assistance by members in need whose commitment to reforms may be weak. Because the IMF is a cooperative institution and because ownership is difficult to assess ex ante, it is not easy to withhold financial support from members simply because of doubts about ownership. In such cases, the Fund may need to rely on prior actions and a strengthening of conditionality to assure program implementation, but it has been pointed out that this has often been followed by poor performance. It was recognized that there will inevitably be cases when the IMF must be prepared to delay or interrupt lending when doubts about successful implementation are paramount. At the same time, the point was made that the Fund should also take note of the dynamic, sometimes fragile, and long-term nature of ownership.

"In earlier meetings of the Executive Board during the past year or so, the Board has supported several measures that will indirectly but significantly contribute to a strengthening of national ownership of IMF-supported programs. First, the IMF has begun to streamline its conditionality and focus its conditions more clearly on those policies that are critical to the macroeconomic objectives of programs—a shift that should make conditionality more efficient and transparent, and increase flexibility and domestic control in program design and implementation. Second, the IMF has further strengthened its commitment to transparency by encouraging publication of program documents. Third, the IMF has undertaken external consultations to get a better understanding of the concerns and preferences of officials and other stakeholders in borrowing countries. Fourth, the IMF and the World Bank are taking steps to improve their collaboration and broaden the application of participatory approaches and processes in the country programs which they support.

"Directors broadly supported the action plan set out in the staff paper for further improving interactions with members applying to use Fund resources. This plan has five principal elements:

• The IMF needs to strengthen its capability to analyze issues of political economy, in order to better understand the forces that might block or weaken implementation, develop a more effective dialogue on feasible policy options, and avoid agreeing to programs that have a low probability of success. In doing so, the IMF must be careful to keep in mind that the goal is to increase its sensitivity to the problems and needs of individual countries, and not to get involved in or interfere with domestic politics. This effort will involve several steps, as discussed in the staff paper, and by the Board. Some of the steps can be implemented quickly while others will take more time. These steps could include strengthening the role of resident representatives, recruiting staff with broader social science skills and experience in policy making, and increasing the continuity of staffing on mission teams. It is important to note that more intensive integration of political economy considerations into program design might have implications for resources and training of staff;

• In cases where a country faces long-term structural problems and where the IMF is likely to remain engaged for a considerable period, a country-led process of consensus building is a promising way to strengthen national ownership of effective policies. In general, officials at the highest political level should be engaged in and supportive of these processes from the outset, and the IMF will need to consider ways to establish mission schedules that are flexible enough to allow for consensus building and domestic preparation of programs;

• There was broad support for the idea that IMF technical assistance should be given more of a medium- and longer-term focus aimed at capacity building (including on program design skills). Since ownership depends in part on implementation capacity, this shift could make technical assistance a more effective instrument in helping countries take ownership of economic policies;

• The primary responsibility for communicating policy intentions and program content to the public rests with the authorities themselves, but the IMF can play an important supporting role. Many staff missions are already engaged in communication with the public, and this activity has often proved to be helpful. Generalizing that type of activity could reap dividends, but it would need to be a genuine two-way exchange that respects a country's circumstances; is carried out in coordination with the authorities, and avoids perceptions of the Fund as overly intrusive;

• The IMF has already embarked on a more intensive process of independent ex post evaluation of programs, through the establishment of the Independent Evaluation Office. As the IEO's work unfolds, it should shed light on how ownership or the lack thereof affects success rates.

"The forthcoming Executive Board discussions on conditionality will offer opportunities to discuss how the various modalities (in particular results-based and floating tranche conditionality) can be applied in ways to enhance ownership and strengthen implementation of national economic programs," Mr. Sugisaki stated.