Seminar on IMF Conditionality
Tokyo
July 10, 2001
Background
The International Monetary Fund (IMF) is reviewing and intends to revise its guidelines for the policy conditionality attached to its financial assistance. Conditionality is central to the Fund's financial support and is intended to (i) ensure that the country's efforts to achieve external balance are not destructive of national prosperity or harmful to other countries; (ii) assure the country of the Fund's support if it adheres to an agreed policy program; and (iii) provide safeguards for the Fund by establishing that financing continues only if the policy program remains on track. During the past ten years, the Fund has become increasingly involved in assisting countries such as transition economies and low-income countries with significant structural distortions. As a result, the role of structural conditionality in IMF program has expanded and this may have led in some cases to a weakening of program ownership by the authorities. The importance of national ownership of economic policies does not vitiate the necessity for the IMF to verify that policies being implemented are sufficiently strong and appropriate to warrant continued commitment of Fund resources.
A process of review of Fund conditionality has been initiated, and in September 2001, the Managing Director of the IMF will report on this process to the International Monetary and Financial Committee (IMFC). In September 2000, the Managing Director issued an interim guidance note to the staff, specifying standards that should be satisfied before conditions—especially conditions on structural policies—are set on Fund programs. Based on program experience, several studies on conditionality were prepared by the staff and were discussed by the Executive Board in March 2001. A summary of the Board's discussions were made available to the public along with a request for comments and suggestions. Using these inputs, the Executive Board will refine its guidance to focus and streamline the guidelines and the practice of conditionality so as to increase its effectiveness and promote domestic ownership of policy reforms.
As part of this process, the IMF will host a seminar 1, organized with the assistance of the Ministry of Finance of Japan, on key issues in the formulation of IMF conditionality. Stanley Fischer, First Deputy Managing Director, will head the IMF delegation at the seminar, and Haruhiko Kuroda, Vice Minister for International Affairs, will head that of the Ministry of Finance. The seminar will draw largely on the experience accumulated in the Asia-Pacific region and will gather suggestions about how Fund conditionality could best be focused so as to promote national ownership and support effective policy reforms.
1 Other seminars are being held in Berlin (June 11-12, co-sponsored with the German Foundation for International Development) and London (July 23-24, hosted by the Commonwealth Secretariat). Program and Presentations
10:00 a.m. - 10:30 a.m.
Session 1: Welcome and Introduction
Chairperson: Stanley Fischer (First Deputy Managing Director, IMF)
Speaker: Haruhiko Kuroda (Vice Minister for International Affairs, Ministry of Finance, Japan)
10:30 a.m. - 12:00 a.m.
Session 2: The Role of Conditionality in Fund-supported programs
Conditionality is a key element in any Fund-supported program. It is the link between the approval or the continuation of the Fund’s financing and the implementation of certain specified aspects of the government’s policy. Conditionality is an insurance that the resources provided by the Fund are used effectively to achieve a sustainable balance of payments. It is also a monitoring device allowing the Fund to assess the consistency of the government’s policy with features of the program. Some critics, however, have suggested that the Fund should tailor its conditionality more to meet the needs of each country, or that it should be more flexible to avoid having to refrain from providing financing for a country. Panelists may wish to discuss the role of conditionality and its design in Fund-supported programs in light of regional experience and assess its effectiveness at achieving its objective.
Moderator: Jack Boorman (Director, Policy Development and Review Department, IMF)
Speakers:
Li Ruogu (Assistant Governor, People’s Bank of China)
Shoji Nishimoto (Director, Asian Development Bank)
Amando Tetangco (Deputy Governor, Bangko Sentral ng Pilipinas, Philippines) — Perspectives on the Conditionality in IMF-Supported Economic Programs
Mohamed Ariff (Executive Director, Malaysian Institute of Economic Research)
13:30 a.m. - 15:00 p.m.
Session 3: Structural Conditionality in Fund-supported programs
Over the past ten years, the role of structural issues in Fund-supported programs has expanded as a result of increasing emphasis on achieving sustainable growth, reducing poverty and ensuring the transition of planned to market economies. To some extent, this expansion has been accompanied by an increased collaboration with the World Bank. Despite the importance of these broader goals, there may be legitimate concerns that structural conditionality has become too detailed and too extensive and that the delineation of responsibilities between the Fund and the Bank is not clear . Using regional experiences, panelists may assess the effectiveness of structural conditionality in IMF-supported programs in fostering sustainable growth and may suggest avenues for improvement.
Moderator: Yusuke Horiguchi (Director, Asia and Pacific Department, IMF)
Speakers:
Martin Parkinson ( Executive Director of the Treasury, Australia)
Boediono (Advisor, Coordinating Agency for Poverty Reduction, Indonesia) — The Fund Supported Program In Indonesia: Comparing Its Implementation Under Three Regimes
Haruhiko Kuroda (Vice Minister for International Affairs, Ministry of Finance, Japan)
15:30 p.m. - 17:00 p.m.
Session 4: Conditionality and Program Ownership
The success of IMF supported programs hinges on strong ownership of policies by the authorities. Through an extensive dialogue and interaction with member countries, the Fund tries to use its conditionality to help the authorities build domestic support for reform. There may, however, be cases where the excessive use of conditionality may weaken program ownership. The country’s capacity to implement policy reforms is clearly an important element in a program and if implementation capacity is lacking, the Fund may seek to use more detailed conditionality in planning a sequence of reforms. The panelists may wish to assess the complex relation between conditionality and program ownership at the light of their experience and may suggest ways where the Fund policies and negotiating procedures could be effective at enhancing program ownership.
Moderator: Tarrin Nimmanahaeminda (Former Finance Minister, Thailand)
Speakers:
Hafiz Pasha (Asst. Secretary General, UNDP, former Minister of Finance, Pakistan)
Takatoshi Ito (Professor, Hitotsubashi University, Japan)
Kim Yong Duk (Deputy Minister, Ministry of Finance and Economy, Korea)
Hubert Neiss (Chairman, Asia, Deutsche Bank) — Conditionality and Program Ownership
17:00 p.m. - 17:30 p.m.
Concluding Remarks:
Speaker: Stanley Fischer (First Deputy Managing Director, IMF)