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FINANCE: Internal Audit Questions IMF's Role in Africa
By Emad Mekay
WASHINGTON, Mar 13, 2007 (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 willl 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)
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