Roger Nord

Apr i l 26 , 2010

Responding to the Global Crisis – The IMF’s Role in Low-income Countries and its  Dialogue with

Parliamentarians

Outline2

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

Some Basics on the IMF

Founded in 1944 at the Bretton Woods Conference in New Hampshire

3Mandate:

• 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

Goal: Avoid harmful policies & protectionism of 1930s and rebuild confidence in multilateral cooperation

Main Functions: Surveillance – Lending – Technical Assistance

Fast Facts: 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

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)

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Governance Reforms Key to IMF Legitimacy

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)

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IMF Resources

• 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

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PART I I

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How Have LICs Fared During the Crisis?

Global Crisis hit LICs hard8

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—Growth9

T-2 T-1 Crisis (T) T+1 T+2

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

World past 3 crises

World 2009 crisis

LICs past 3 crises

LICs 2009crisis

Real per capita GDP growth, pre- and post-crisis

Per

cen

t

“Keynesian” policy response—a first for LICs

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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 Stronger11

Real GDP (% change) Fiscal deficit (% of GDP)0

1

2

3

4

5

6

1990-99

2000-07

Debt and Inflation Down12

Debt (% of GDP) Inflation (%)0

20

40

60

80

100

120

1990-99

2000-07

“Keynesian” fiscal policy response13

2007 2008 2009 2010 201120

22

24

26

28

30

32

-6

-4

-2

0

2

4

6

Revenue

Expenditure

Fiscal Balance(right axis)

Fiscal indicators

Per

cen

t o

f G

DP

PART I I I

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How Has the IMF responded?

Sharply Scaled-up Financial Support15

2009: IMF concessional assistance at $3.8 billion (historical: $1bn)

Concessional lending capacity doubled, to $17 bn through 2014/15

Financed partly by gold salesSDR allocation Zero interest on all concessional creditSupport of countercyclical programs

IMF financial support sharply higher16

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

0

500

1000

1500

2000

2500

3000

0

2

4

6

8

10

12

14

16

18

20

New Financing, excl. arrears-related, SDR mn (left axis)

17

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Comprehensive 2009 Reform19

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 doubledZero interest through end-2011Permanently higher concessionalityMore flexible conditionality

Going Forward: Managing Volatility20

LICs more exposed to economic shocks, natural disasters than others

Exposure will grow further with global integration and climate change

LICs generally under-insuredBut cost of holding reserves highNeed (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 growth22

Massive infrastructure deficit , esp. in Africa key growth bottleneck

LIC governments rightly keen to scale up public investment

But quality criticalCan traditional donors deliver finance?Concessionality versus scaleRealistically, huge investment needs will require

nonconcessional credit

PART IV

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The IMF’s Dialogue with Parliamentarians

More Accountability Through Transparency and Outreach

National Governments

IMF

Parliaments

People/Civil Society

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IMF Outreach

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

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Dialogue with Parliamentarians

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

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Greater Accountability Through Dialogue

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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

QUESTIONS28