International Monetary Fund VOLUME 32 NUMBER 3 February 17, 2003 In this issue www.imf.org/imfsurvey Interview with Masood Ahmed IMF ponders ways to optimize 33 Ahmed on support for poor countries the IMF and poor countries n preparation for the 2003 IMF–World Bank spring IMF SURVEY: Before we take stock of progress under Imeetings, the IMF Executive Board will review the IMF’s initiatives to assist low-income countries, 33 progress on the IMF’s efforts and plans to help poor IMF consults on can you tell me what lies ahead? SDRM proposal countries further. The IMF Survey talked to Masood AHMED: Apart from improving what we are currently Ahmed, Deputy Director of the IMF’s Policy Develop- 38 doing, we are exploring ways in which our mode of Boorman speech ment and Review Department, about this effort. engagement can best reflect low-income countries’ to banker’s diverse needs, including postconflict recon- association struction, achieving and sustaining macro- 41 economic stability, and attaining robust yet Kenen on SDRM sustainable growth, while concurrently 42 helping them build technical capacity. Politics and fiscal After an initial Executive Board discus- outcomes sion scheduled for late spring, we are plan- 45 ning to get the views of low-income coun- Tseng on China’s tries and other stakeholders about the reform agenda options for structuring our future support to these countries, in line with the IMF’s mandate and comparative advantage. The approach that combines the Poverty and... Reduction Strategy Paper (PRSP) and the Poverty Reduction and Growth Facility Women in Côte d’Ivoire harvest sweet potato leaves for export. Low- (PRGF) is going to be the main mode of 43 income countries must strengthen their export performance to achieve New on the web sustainable development. involvement, (Please turn to the following page) 44 IMF consults widely as it refines Recent publications 46 proposed sovereign debt plan IMF arrangements 47 he IMF’s proposal for a Sovereign Debt Restruc- differed sharply on solutions. What follows is coverage Use of IMF credit T turing Mechanism (SDRM) to improve the way of that conference, along with excerpts from a speech countries’ unsustainable debt is restructured continues by Jack Boorman, Special Advisor to the IMF's Man- 48 Selected IMF rates to generate heated debate as time draws near for its aging Director, and coverage of an IMF training semi- consideration at the spring meetings of the IMF’s nar on the SDRM held on January 6 by Peter Kenen of International Monetary and Financial Committee. Princeton University. In an effort to further spell out the proposal, the IMF hosted a conference on January 22 to exchange views In opening the conference, IMF Managing Direc- with the private sector, emerging markets, nongovern- tor Horst Köhler noted that private capital flows mental organizations, legal experts, and academics. stood to play a vital role in promoting economic Participants generally agreed that something needed to growth and development. But with the rapid and be done about unsustainable sovereign debt and they increasing integration of capital markets, he said, the welcomed the IMF’s consultative approach, but they sheer scale and volatility of (Please turn to page 37) 33 ©International Monetary Fund. Not for Redistribution Masood Ahmed on low-income countries (Continued from front page, top) but we will consider help reduce vulnerabilities to all-too-common swings ways of adapting it to address countries’ specific in commodity prices. In the PRGF programs, there- needs. In some postconflict countries, for example, fore, a clear objective is to support countries’ own we have learned that the move from emergency post- attempts to improve their outward orientation, includ- conflict assistance to a PRGF-supported program ing through greater emphasis on trade issues in PRSPs. may have come too quickly because these countries But, sometimes, what the country can do is not had not built up adequate institutional capacity to enough, and the international community must also deal with the range of measures covered by a PRGF do its part. Consequently, the IMF has been active in arrangement. We might need to consider extending supporting the current efforts at multilateral trade lib- our postconflict support to give these countries more eralization being conducted under the auspices of the time before they move to a PRGF-supported World Trade Organization. In our regular policy dis- program. cussions with industrial country and other developing Historically, A special focus of this work will be to examine country members, we also stress the need to reduce attempts to whether the IMF can better assist these countries to tariffs, quantitative restrictions, and subsidies that may deal with offset the economic impact of exogenous shocks. be hindering poorer countries’ export prospects. financing for Many low-income countries depend heavily on pri- shocks, or to mary commodity exports, which makes them quite IMF SURVEY: The lack of progress under the Heavily stabilize prone to external shocks, and many suffer from nat- Indebted Poor Countries (HIPC) Initiative is some- commodity ural disasters. Is there merit in the IMF’s targeting a what worrying. Only six HIPCs have gone through prices as a greater share of its financial support to help these the process. What can be done to accelerate the pace way of countries offset the impact of these types of shocks? at which countries qualify and receive debt relief? preventing This is a difficult question because, historically, AHMED: First, it is worth noting that, in addition shocks, have attempts to deal with financing for shocks, or to to the 6 countries that have completed the HIPC not been very stabilize commodity prices as a way of preventing process, 20 are receiving immediate relief on debt- successful. —Masood Ahmed shocks, have not been very successful. We will review servicing obligations because they have passed the this experience and recommend how we take this “decision point,” the initial milestone for entering the issue forward. process. As to the reasons for the slower-than-antici- pated progress toward completion points, in about IMF SURVEY: How can the IMF help low-income half the countries, delays have arisen because devel- countries better integrate with the global economy? oping a participatory and comprehensive PRSP has AHMED: Low-income countries must strengthen their taken more time than originally anticipated. Other export performance to truly achieve sustainable devel- countries have gone off track with their PRGF-sup- opment. Diversification of the export base may also ported macroeconomic programs, and, in some cases, as in Madagascar, governments have halted imple- mentation of macroeconomic policies and structural How the IMF assists poor countries reforms for an extended time because of political problems. Despite years of structural adjustment and international sup- Getting to the HIPC completion point is im- port, many low-income countries, particularly in Africa, are portant for many countries because it marks the still struggling to achieve sustainable economic growth. As moment when the country’s stock of debt is irrevoca- these countries’ needs have evolved, so too have the ways in which the IMF supports them. In the late 1980s, the IMF bly reduced. Nevertheless, it is important not to rush began providing concessional financial assistance through to this point but to proceed on the basis of a strong the Enhanced Structural Adjustment Facility (ESAF) to PRSP and program implementation that, together, support structural adjustment programs. provide an effective basis for long-term debt sustain- In 1999, the IMF converted the ESAF into the Poverty ability and for the effective use of additional resources Reduction and Growth Facility (PRGF), which reinforced freed up by debt relief. the focus in these countries on growth and poverty reduction. To ensure country ownership, PRGF programs are set in IMF SURVEY: Last year’s review of HIPC countries the context of national Poverty Reduction Strategy Papers showed that in about 15 out of 25 countries, indicators (PRSPs). The IMF also provides debt relief to heavily indebted of indebtedness at the completion point were likely to poor countries (HIPCs) and offers them technical assistance February 17, 2003 be worse than had been projected at the decision and capacity building. 34 point. What is behind this disappointing outcome? ©International Monetary Fund. Not for Redistribution AHMED: In two-thirds of these cases, the cause was the obstacles to growth and in analyzing trade-offs a lower-than-expected level of exports, driven and priorities. mainly by a larger decline in commodity prices The PRSP also provides the framework for the than expected. Some of the problems, however, IMF’s support to countries through the PRGF. stemmed from higher levels of borrowing than ini- Programs under the PRGF are designed to support tially anticipated. Overall, our current estimate is growth and reduce poverty more directly than under that in about 8 to 10 countries, the debt-to-export the ESAF and, ultimately, to help countries work their indicators at the completion point will be above the way toward reaching the Millennium Development enhanced HIPC Initiative threshold of 150 percent. Goals. This is why the initiative includes an option for topping-up assistance, which has been exercised in IMF SURVEY: How are staff responding to the request Burkina Faso. by the Development Committee to set A more fundamental issue we are looking at now up a framework for monitoring the is how best to approach debt sustainability and bor- policies needed to achieve the rowing strategies for poor countries exiting from Millennium Development Goals? assistance under the HIPC Initiative and for those AHMED: We are working with the World countries that are not HIPC-eligible but are poor Bank in trying to lay out an approach and vulnerable to shocks.