roger nord april 26, 2010
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Responding to the Global Crisis – The IMF’s Role in Low-income Countries and its Dialogue with Parliamentarians. Roger Nord April 26, 2010. Outline. What is the IMF – Basic Overview ? How have LICs fared during the crisis? Hard hit, but better prepared - PowerPoint PPT PresentationTRANSCRIPT
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
7
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
14
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
18
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