CHAPTER IX The ESAF and the HIPC Initiative

International Monetary Fund
Published Date:
September 1998
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Since the mid-1980s, the IMF has provided concessional financing through the Enhanced Structural Adjustment Facility (ESAF) and its predecessor, the Structural Adjustment Facility (SAF), to respond to the balance of payments difficulties confronting many of the world’s poorest developing countries. In December 1993, the Board enlarged and extended the ESAF to ensure continued concessional support by the IMF for low-income countries, and in September 1996, it approved an overall framework for continuing ESAF operations. As of April 30, 1998, SDR 1.8 billion had been disbursed under the 38 SAF arrangements approved for 37 countries, and SDR 6.4 billion had been disbursed under the 71 ESAF arrangements approved for 48 countries (see also Chapter XII).

Notwithstanding the efforts of the international community to channel external finance and debt relief to developing countries through a wide range of mechanisms, many heavily indebted poor countries (HIPCs) have continued to experience difficulty in meeting their external debt-service obligations. To address the problems of those countries, in September 1996, the IMF and the World Bank approved an Initiative to provide special assistance to HIPCs pursuing sound adjustment and reform programs supported by the IMF and World Bank, but for which traditional debt-relief mechanisms were not adequate to secure a sustainable external debt position over the medium term. For eligible countries, all creditors would provide assistance sufficient to reduce the debt burden to sustainable levels. The IMF’s contribution to the HIPC Initiative is in the form of grants in most cases—with the possibility of escrowed loans in others—that are used to meet part of indebted members’ debt-service obligations to the IMF. World Bank contributions are channeled mainly through the International Development Association (IDA)-administered HIPC Trust Fund (which is also a vehicle for other creditors).

Mobilizing Financing

The Board met twice during the financial year to discuss the status and possible options for the financing of the ESAF and the HIPC Initiative. It reaffirmed the overall framework agreed in September 1996 (see Box 10), including the estimate of total financing needs of SDR 2.8 billion. Pledges of bilateral contributions toward meeting these needs were roughly SDR 1.25 billion at the time of the Board’s November 1997 review of the situation and increased only very slightly during the remainder of the financial year. These pledges were subject to clarification regarding amount, timing, and form of contribution, and some were subject to special conditions. To ensure the full funding of the IMF’s commitments under the HIPC Initiative in the first stage of its implementation, the Board authorized—as a bridge to the full funding of the ESAF and of the HIPC Initiative—the transfer, as needed, of up to SDR 250 million from the ESAF Trust Reserve Account to the Special Disbursement Account to be used in providing Trust grants or Trust loans to the HIPCs. In addition, the Board decided to forgo the reimbursement to the General Resources Account (GRA) of the costs of administering the ESAF Trust in 1997/98 and 1998/99 and to transfer the corresponding amounts from the ESAF Trust Reserve Account to the ESAF-HIPC Trust.

In their November 1997 discussion, Directors stressed the urgency of securing the additional resources required to fully finance the ESAF and the HIPC Initiative, citing the costs of delays in terms of lost investment income. Directors believed that further efforts should be made to secure additional bilateral contributions, but most speakers felt that there would remain a need to supplement such contributions from the IMF’s own resources. Although most Directors, in this context, continued to favor sales of gold of up to 5 million ounces to “optimize the management of the institution’s reserves,” a few remained opposed. Directors agreed that it was important to have broad support for such a decision and that the Board should return to the matter in 1998.

At its meeting in Washington in April 1998, the Interim Committee noted the need to reactivate the efforts by the IMF to secure the full financing of the ESAF and the HIPC Initiative. In view of the current and expected future commitments under the HIPC Initiative, and the significant costs resulting from delay in mobilizing the necessary financial resources, the Committee urged all members to move quickly to complete the financing of these initiatives as soon as possible and asked the Executive Board to report back to it on this issue at the Committee’s next meeting in October 1998.

Box 10ESAF Resources

Given the Board consensus that the ESAF was, and should remain, the centerpiece of the IMF’s support for the poorest countries—including in the context of the H1PC Initiative—Directors agreed in September 1996 on a framework for continuing ESAF operations. Existing ESAF resources are expected to meet demands until about the end of 2000. Resources to fund a self-sustained ESAF, with a commitment capacity of about SDR 0.8 billion a year, will then become available in the year 2005, or perhaps earlier, as reserves previously set aside to provide security for ESAF lenders against the risk of nonpayment by borrowers are freed as lenders are repaid. This will leave an interim ESAF period of about four years during which financing of an estimated SDR 1.7 billion will need to be mobilized to cover interest subsidies. In addition, SDR 1.1 billion is estimated to be needed for special ESAF operations under the HIPC Initiative.

Progress in Implementing the HIPC Initiative

To obtain assistance under the HIPC Initiative, a country must be eligible for concessional assistance from the IMF and World Bank, face an unsustainable debt burden even after the application of traditional debt-relief mechanisms, and establish a track record of reform and sound policies through IMF- and World Bank-supported programs. Stages in the decision-making process under the Initiative are set out in Figure 4; these include a so-called decision point, when the Board of the IDA, which administers funds for the Initiative for the World Bank Group, and the Board of the IMF formally decide on a country’s eligibility and precommit assistance under the Initiative; and a completion point, when the two Boards decide that a country has met the conditions for assistance, allowing that assistance to be disbursed.

Figure 4Initiative for Heavily Indebted Poor Countries

In April 1998, Uganda became the first country to reach the completion point under the HIPC Initiative, as performance under its ESAF- and IDA-supported programs remained strong, and Uganda’s other creditors pledged satisfactory assurances of action, Uganda would receive assistance equivalent to approximately S350 million in net present value terms. This amount would reduce Uganda’s ratio of net present value of debt to exports to 196 percent, well within the 192–212 percent target range agreed at the decision point; the saving in nominal debt service would be nearly $650 million. The IMF’s assistance would lower the present value of its claims on Uganda by $69 million; this would cover 22 percent of Uganda’s annual debt service to the IMF on average over the next nine years.

In addition, during 1997/98, five countries reached the decision point: Burkina Faso (in September 1997), Bolivia (in September 1997), Guyana (in December 1997), Côte d’Ivoire (in March 1998), and Mozambique (in April 1998). The assistance committed to these five countries at the decision point totaled about $2.6 billion in net present value terms, which was estimated to reduce debt service in nominal terms by some $5.0 billion. The five countries were scheduled to reach their completion points under the Initiative at various dates between September 1998 and March 2001 (see Table 8).

Table 8HIPC Initiative: Status of Early Cases1

(In order of expected

decision point within groups)




Export Target

(in percent)
Assistance at Completion Point (millions

of U.S. dollars, present value at completion point)

Reduction in

NPV of

Estimated Total

Nominal Debt-

Service Relief

(millions of

U.S. dollars)


from Other

TotalBilateralMultilateralIMFWorld Bank
Completion point reached UgandaApril 97April 98202347732746916020650Received
Decision point reached and assistance committed by IMF and World Bank
Burkina FasoSept. 97April 20002051152194104414200Being sought
BoliviaSept. 97Sept. 98228448157291295413600Being sought
GuyanaDec. 97Dec. 98107 325391161352725500Being sought
Côte d’lvoireMarch 98March 2001141 3345163182239164800Being sought
MozambiqueApril 98June 992001,442877565105324572,900Being sought
Total assistance provided or committed2,9501,3821,56727157005,650
Preliminary HIPC document issued; targets based on majority view in preliminary discussions at World Bank and IMF Boards; assistance based on preliminary HIPC documents and subject to change
MaliMid-98Dec. 99200196631332065
Debt judged sustainable
BeninJuly 97
SenegalApril 98
Sources: IMF and World Bank Board decisions, completion point documents, final HIPC documents, preliminary HIPC documents, and staff calculations.

Other countries that could reach the decision point within the coming year include Chad, Guinea, Mauritania, Senegal, Togo, and possibly Ethiopia and Vietnam. Not all would be expected to require assistance under the HIPC Initiative.

In percent of net present value (NPV) of debt at completion point, after lull use of traditional debt-relief mechanisms.

Eligible under fiscal/openness criteria; NPV-of-debt-to-export target chosen to meet NPV-of-debt-to-revenue target of 280 percent.

Nonreschedulable debt to non-Paris Club official bilateral creditors and the London Club, which was already subject to a highly concessional restructuring, is excluded from the NPV of debt at the completion point in the calculation of this ratio.

Equivalent to SDR 200 million.

Sources: IMF and World Bank Board decisions, completion point documents, final HIPC documents, preliminary HIPC documents, and staff calculations.

Other countries that could reach the decision point within the coming year include Chad, Guinea, Mauritania, Senegal, Togo, and possibly Ethiopia and Vietnam. Not all would be expected to require assistance under the HIPC Initiative.

In percent of net present value (NPV) of debt at completion point, after lull use of traditional debt-relief mechanisms.

Eligible under fiscal/openness criteria; NPV-of-debt-to-export target chosen to meet NPV-of-debt-to-revenue target of 280 percent.

Nonreschedulable debt to non-Paris Club official bilateral creditors and the London Club, which was already subject to a highly concessional restructuring, is excluded from the NPV of debt at the completion point in the calculation of this ratio.

Equivalent to SDR 200 million.

In March and April 1998, the Boards of the IMF and IDA discussed preliminary HIPC documents for Mali and Guinea-Bissau and indicated that the countries were approaching their decision points and could qualify’ for assistance under the Initiative. Based on the guidance of the Boards, final HIPC documents were expected to be presented to the Boards after consultation with other creditors.

ESAF Resources for Commercial Debt- and Debt-Service-Reduction Operations

In June and July 1997, the Board discussed the use of ESAF resources for commercial debt- and debt-service-reduction operations for members qualifying for assistance under the ESAF. Most Directors agreed to the use of ESAF resources in the few cases where resources available under the IDA Debt-Reduction Facility and from donors and the member might not be sufficient to finance the up-front costs of such operations, and for which the use of the IMF’s General Resources Account would be inappropriate.

Such use of ESAF resources would be guided by the same general principles of the existing policy for supporting debt- and debt-service-reduction operations, including, among other things, conditionality, the efficient use of IMF resources, and market-based operations. In addition, the use of ESAF resources would complement the highly concessional resources available from IDA and other sources and be provided only in the context of appropriately ambitious ESAF-supported programs.

To ensure that the use of ESAF resources for debt-and debt-service-reduction operations would be strictly limited, consideration was given to restricting such assistance to countries that had qualified for assistance under the HIPC Initiative. Several Directors expressed concern about the possible resource implications of the proposal, as the financing of the interim ESAF and IMF participation in the HIPC Initiative had not yet been secured. It was noted, however, that the use of ESAF resources for debt- and debt-service-reduction operations would be decided by the Board in each individual case. In addition, the overall use of ESAF resources for these operations would be subject to Board review if the aggregate resource use for that purpose appeared likely to exceed a predetermined level. Directors expressed the view that ESAF financing for debt- and debt-service-reduction operations should be used in a subsidiary, or “last resort,” role, only if other financing options were not available. And there should be no strict rules on burden sharing; each case should be subject to discussion, considering both the prospects for bilateral contributions and the use of the country’s own resources.

In dealing with the possibility that a debt- and debt-service-reduction operation might materialize at a time that was not well synchronized with the disbursement of ESAF resources, most Directors favored the option of incorporating into the ESAF Trust Instrument a provision for a special disbursement for the sole purpose of financing part of such an operation. This provision was expected to be used only when the disbursement for that operation could not be part of a normal semiannual disbursement.

Review of Experience Under ESAF-Supported Arrangements

In July 1997, the Board discussed a staff study assessing the experience of 36 countries that had availed themselves of SAF and ESAF financing in support of 68 multiyear programs during 1986–95.13 This internal review was complemented by an external evaluation that was discussed by the Board in March 1998 (see below).

Internal Evaluation of the ESAF

Directors, in their review of the internal evaluation (see Box 11), agreed that most countries that had undertaken reform and adjustment programs with the support of the SAF and ESAF now had economies that were materially stronger and more market oriented than a decade earlier. Fiscal imbalances had been reduced, and macroeconomic policies had eliminated almost all instances of very high inflation. Liberalization and structural reforms had taken hold and, in some instances, had gathered momentum in recent years. Furthermore, economic growth and living standards had improved, with progress toward external viability in many countries.

Box 11Strengthening ESAF-Supported Programs

The main recommendations of the internal review of ESAF for the design of future programs called for:

  • stronger and reoriented fiscal adjustment based on durable cuts in budget outlays, particularly from civil service reform and reduced support for public enterprises, while protecting growth-enhancing expenditures on health and education;
  • more resolve in reducing inflation to single-digit levels through the use of monetary or exchange rate anchors where appropriate;
  • a more concerted effort to adopt so-called second-generation reforms, especially enhanced trade liberalization, public enterprise reform, bank restructuring, and strengthened property rights; and
  • steps to reduce policy slippage and encourage more sustained policy implementation, including through more intensive program monitoring in selected cases, greater use of contingency planning in program design, and more proactive technical assistance to build institutional capacity.

At the same time, progress had been uneven, and most countries continued to perform below their potential—in many cases despite multiple ESAF-supported programs. Per capita GDP growth in many ESAF countries remained below the average in developing countries, indicators of openness remained relatively weak, and inflation had not been brought down to acceptable levels on a sustained basis in a number of countries. Moreover, debt-service burdens remained unmanageably high in several countries.

Directors noted that this disappointing performance largely reflected shortcomings in a number of policy areas, both macroeconomic and structural. A wide spread failure to move ahead decisively with civil service reform and reduce the direct and indirect burdens of public enterprises on the state budget had contributed to missed fiscal targets. Hesitant reforms to the administration of tax systems and countries’ banking systems had failed to address fundamental operational weaknesses. Significant barriers to international economic integration had also remained, while the development of the private sector had been held back by problems of poor governance, excessive regulation, and ill-defined or inadequately enforced property rights. Several Directors emphasized the importance of developing institutional capacity while recognizing the difficulties that this entailed. Future ESAF-supported programs should tackle persistent weaknesses in these crucial areas, Directors concluded.

Policies and Program Design.

Directors considered that the mutually reinforcing ESAF objectives of growth and external viability called for ambitious strategies, consistently implemented, but tailored to the situation and implementation capacity of countries, and set over a realistic time frame. Better-coordinated and more effective collaboration with the World Bank would also be important, and Directors asked management and staff to propose concrete suggestions to that end. Most Directors emphasized that bolder strategies, with more decisive fiscal adjustment at their core, were needed to achieve a significant increase in national savings, fiscal reforms should be durable, based on a realistic appraisal of the country’s institutional capacities, and founded on systemic changes to the structure of revenues and expenditures and on policies to strengthen budgetary institutions. Reforms should be sought in the structure and administration of tax systems—including greater reliance on consumption-based taxes and reductions in trade taxes—with a view to raising revenues and putting taxes on a permanently sounder and more rational basis.

Noting that rapid population growth and lack of investment in human capital had contributed to holding back per capita income growth in ESAF countries, Directors agreed that high-priority social expenditures—such as on health and education—should be protected, in both the planning and the execution of state budgets. Many felt that programs should make greater use of core budgets to insulate these expenditures against possible revenue shortfalls. Social safety nets should continue to be integrated in ESAF-supported programs to protect vulnerable groups that might be adversely affected by reforms. Furthermore, countries needed to improve the transparency of the fiscal accounts, in particular to reflect extrabudgetary operations. Although Directors also emphasized that major improvements needed to be sought in the data required to assess the adequacy and efficiency of social spending, they saw that as primarily within the World Bank’s field of expertise.

Directors expressed concern about the persistence of inflation at double-digit rates in many countries—often despite adherence to program targets for credit expansion and the budget deficit—as evidence suggested a close, positive association between low inflation and economic growth. Noting that the restraint of domestic credit growth was typically not adequate to achieve the desired inflation targets, Directors underscored the need for careful, case-by-case analysis of the root cause of persistent inflation and suggested that future programs attach more weight to policies aimed at bringing about a lasting reduction in inflation to single-digit levels within the period of a three-year arrangement. Although several Directors supported greater use of nominal anchors in the form of an exchange rate peg, money supply ceilings, or announced inflation targets, most felt that those should be used cautiously and selected on a case-by-case basis.

Directors endorsed the importance, in ESAF-supported programs, of structural measures to stimulate private investment and entrepreneurship. Such measures included further liberalization of foreign trade and investment, public enterprise reform, the creation of a sound banking system, and legislation to strengthen property rights. Directors felt that the responsibility for helping countries formulate policies in most of these areas should continue to fall primarily to the World Bank. Particular attention was given to the problem of weak financial discipline in the public enterprise sector and the generally poor record of improvement in this area under ESAF-supported programs. Some Directors argued that this problem was unlikely to be addressed satisfactorily without privatization, and they encouraged a further shift in that direction in future programs. It was agreed that greater efforts were needed to enforce budget constraints on those enterprises that remained in the public sector, which would be possible only with adequate information on their financial position. It was noted that the persistent financial problems in the public enterprise sector had continued to impair banks’ portfolios, adding to the difficulties and expense of bank-restructuring programs. More complete information on the financial status of countries’ banking systems and the likely fiscal costs of restructuring was needed at the outset of programs—not only to facilitate reform, but also to help safeguard IMF resources, particularly where the solvency of a country’s financial system was a concern. To promote more comprehensive implementation of banking system reform, Directors also proposed that conditionality in ESAF-supported programs should focus to a greater extent on sound operational practices, drawing on the Basle Committee’s Core Principles for Effective Supervision.

Sustaining Programs.

The high frequency with which ESAF-supported programs had been interrupted because of policy weaknesses was seen by Directors as a cause for concern. A more active and coordinated approach to providing technical assistance could help if supported fully by the national authorities. Given the vulnerability of ESAF countries to external shocks, many Directors supported more consistent contingency planning and allowing more intensive program monitoring where it would aid policy implementation. They noted that the frequency of IMF staff missions and program reviews, the number of resident representatives, and total staff resources per country had all been low in ESAF countries relative to countries making use of Stand-By and Extended Arrangements; yet these countries typically had weaker administrative and institutional capacities. Many Directors favored phasing disbursements and program monitoring along the lines of Extended Arrangements, with quarterly performance criteria and half-yearly reviews in selected cases. Directors asked the staff to offer concrete proposals for stronger monitoring.

Box 12Key Findings of External Evaluators of the ESAF

In reviewing the ESAF, the external evaluators offered the following recommendations:

Social Impact

  • The IMF should seek ex ante assessments by the World Bank of the likely impact that ESAF-supported programs would have on the incomes of the poor and of the real projected value of social service provision. These impact assessments could be taken into account at the program design stage and should be updated during program implementation.
  • In program design, the IMF should explicitly analyze trade-offs between the short run and long run. The analysis would address sequencing issues, front-loading of structural reforms, and the efficiency costs of revenue measures.
  • In the area of fiscal policy, IMF-World Bank collaboration should be increased to allow for more joint analysis and to address overlaps concerning the macroeconomic concerns of the IMF and the micro-economic concerns of the Bank.
  • The ESAF should have a new role in the poststabilization environment to help reforming governments build reputations and to enable the IMF to play a role in potential ESAF countries that currently reject the facility.

External Viability

  • ESAF financing should be provided as budget support, rather than to central banks.
  • Equal or more weight should be given to indicators that relate total debt and debt service to GDP rather than to the traditional export-based indicators, as the latter are overly sensitive to an economy’s openness.

Ownership and Governance

  • Countries have primary responsibility for economic reform programs and should develop and build a consensus behind a program capable of achieving sustainable growth. The IMF should make the negotiation process and conditionality regime more supportive of country ownership.
  • Specifically, the IMF should ensure greater flexibility in the negotiating frameworks (e.g., formulate alternative program paths through negotiation, leaving it to the country to decide, with IMF staff advice, what best suits its circumstances); develop systematic mechanisms for ex post support for country-initiated programs; strengthen resident representative missions in ESAF countries; engage in regular informal policy dialogue with the country’s political leadership; and find ways to improve the IMF’s image.
  • Countries should create economic management teams comprising representatives of economic and social sector ministries and political leaders to oversee the reform process and hold national conferences where alternatives and trade-offs can be openly debated.

Most Directors agreed that more focused technical assistance, contingency planning, and program monitoring, although constructive and worthwhile, were unlikely by themselves to reduce significantly the incidence of program interruptions. The record suggested that many discontinuities or weaknesses in policy implementation were related to political factors. In view of such difficulties, and taking into account administrative limitations, some Directors felt that programs needed to anticipate a slower pace of reform and adjustment than in the past. Many Directors, however, felt that more selectivity was needed in approving arrangements. They favored greater use of prior actions by member countries and indicators of commitment by governments to forge a political consensus for change and aggressively pursue the objectives of the program.

External Evaluation of the ESAF

In the spring of 1997, a panel of outside experts began work on an independent evaluation of SAF/ESAF-supported programs.14 This was the first time that an external evaluation of aspects of the IMF’s work had been commissioned by the Executive Board. The panel—Dr. Kwesi Botchwey, Harvard Institute for International Development and former Finance Minister of Ghana; Professor Paul Collier, Oxford University; Professor Jan Willem Gunning, Free University, Amsterdam; and Professor Koichi Hamada, Yale University—completed its study in January 1998. On the basis of the terms of reference for the study adopted by the Executive Board, the evaluators used a case-study approach to examine social policies and the composition of government spending; developments in countries’ external positions; and the determinants and influence of differing degrees of national ownership of ESAF-supported programs. The Board discussed the external evaluation (Box 12) in March 1998.

Directors saw a high degree of complementarity between the report of the external evaluators and the IMF staff review. All supported the fundamental view underlying the evaluators findings that the ESAF was a valuable instrument to assist low-income countries and that the IMF’s work with this instrument could be improved. Directors agreed with many of the views expressed by the external evaluators and noted that the report provided an opportunity to broaden the debate by offering a different perspective and to promote a better understanding of the IMF’s work.

Implications for Social Policy.

Directors agreed with the external evaluators that economic reforms, while “generally having positive effects on growth and income distribution,” did entail temporary costs for certain segments of the population. This called for appropriate compensatory measures to be built into the design of the program to protect such groups, including the provision of well-targeted assistance to the more vulnerable groups and the allocation of adequate resources for social sectors. In addition, the sequencing of fiscal and other structural reforms should be further analyzed to minimize any adverse social impact. These actions would help policymakers to build a domestic consensus in favor of important but difficult reform measures.

The IMF was already making important efforts to advise countries to protect low-income groups from the impact of adjustment measures and to safeguard social expenditures during fiscal consolidation, Directors observed. They welcomed the proposals by the evaluators to draw more extensively on the expertise and data of the World Bank for a more refined ex ante assessment of the likely impact of adjustment measures on low-income groups. They also agreed that it would be desirable to review the effects of the adjustment measures on those groups on an ongoing basis as part of the regular ESAF program reviews.

Fiscal Issues and External Viability.

Transparency and clarity of the breakdown of the deficits were essential, and Directors were generally satisfied with staff presentations on fiscal positions. Directors agreed that short-term revenue objectives should be pursued with sensitivity to the important longer-term implications of the tax system for economic efficiency.

An assessment of progress toward external viability required a broad range of indicators, and Directors continued to favor traditional export-based indicators. On other external aspects, Directors did not share the view of the evaluators that the ESAF constituted an inadvertent tax on exports since most ESAF funds were disbursed to central banks. They endorsed the staff view that the macroeconomic effects of ESAF disbursements did not depend on the initial recipient of ESAF resources.

National Ownership.

Directors noted with concern the evaluators’ assessment—which they saw as a key contribution of the report—that a common perception at the country level was “a feeling of loss of control over the policy content and the pace of implementation of reform programs.” They agreed it was, first and fore-most, the obligation of national governments to ensure transparency in policymaking and to promote wide public debate of policy issues. They therefore recommended that governments seriously consider the suggestions of the evaluators concerning the organization of national conferences and regular meetings with academic, business, and labor groups to allow open debate on trade-offs and policy options and to broaden public support. Economic management teams were seen as important for overseeing the reform efforts.

Directors agreed with the evaluators that the IMF staff should consider the political constraints faced by the national authorities. IMF staff, however, should not be put in a position of having to judge what was and was not politically feasible. Directors noted that some of the recommended measures to ensure ownership might prolong the initial stages of negotiations but considered that the investment would be compensated for over the period of implementation. Directors also recognized the importance of striking the right balance between ownership and securing a strong program. Unless a government was committed to pursuing the program objectives, the program would have little chance of success and would thus not merit ESAF support. In this connection, Directors agreed that the IMF should be more cautious in providing ESAF support where the authorities’ commitment was in question.

Flexibility in IMF Programs.

On the point of perceived inflexibility by IMF staff, many Directors felt that the evaluators might have inadvertently conveyed an inconsistent message. While criticizing perceived in flexibility, the evaluators noted that “the failure to frontload structural reforms with long gestational lags may well be the most serious defect of structural adjustment as currently designed.” Often this failure reflected the IMF’s willingness to accommodate government resistance to specific reforms.

Finding the proper balance between negotiating flexibility and supporting only programs that adequately addressed economic problems was indeed a delicate matter. These trade-offs and the sequencing of reform issues would continue to be at the center of future Board discussions of ESAF programs. On sequencing reform measures, Directors agreed with the staff that member countries often needed to take advantage of windows of opportunity, without being overly constrained by strict sequencing considerations. Directors also felt that, in several cases, what appeared to be sequencing problems were in reality problems of lack of implementation of agreed policy measures.

Better Public Understanding.

Improved public understanding of the IMF in countries receiving ESAF support was important, including through public explanations of the purpose and benefits of economic reform programs by the governments. The steps being taken to increase resident representatives’ external relations activities and to enhance collaboration with national authorities and civil society conformed with the evaluators’ views.

Continued IMF Presence.

Directors agreed that there were many cases in which the IMF must stay engaged in ESAF-eligible countries after the initial macroeconomic stabilization had been achieved. As the evaluators had suggested. Directors saw a window of opportunity in several African economies that had stabilized and were now approaching high rates of growth as a result of policy reform. Investment rates in these economies, however, remained far too low for these growth rates to continue over the longer term, and significant external capital had to be attracted to supplement only slowly rising domestic saving rates. To attract external savings from public and private sources in an environment perceived by markets to be risky, an IMF signal of policy adequacy was often essential to help reduce uncertainty.

With regard to the scope for ESAF financing in the poststabilization phase, several Directors emphasized that the ESAF was not a long-term aid transfer mechanism, as the evaluators seemed to imply. Therefore, disbursements of ESAF support could not be provided over the long term, particularly for programs that aimed at little, if any, further reform. Directors expressed interest in more extensive use, in the poststabilization phase, of precautionary arrangements with the IMF, under which members agreed to an IMF arrangement but without intending to draw on IMF resources. This could have the advantage of conferring the IMF’s stamp of approval on a country’s reform efforts, to catalyze financial support from other sources. Directors also saw the need for a greater role for the World Bank and other donors in supporting the reform efforts of ESAF countries in the poststabilization period.

The evaluators recommended that the IMF develop more systematic mechanisms for providing continuing support in situations where stabilization had been achieved but where agreement between the government and the IMF was delayed, or, for mainly political reasons, the government was unable to agree on a conventional IMF arrangement. The evaluators favored a move from negotiation to certification. But many Directors were concerned that IMF support for such programs might not be workable. In particular, the absence of ex ante agreement on a framework for policies might mean that any ex post judgment and disbursement of ESAF resources would pose difficulties, as the IMF must avoid arbitrary judgments and unequal treatment of member countries.

Directors took note of the evaluators’ suggestion that World Bank and IMF cooperation could be improved in some country cases and recognized the importance of seeking ways to strengthen this collaboration; these issues had also surfaced in the internal evaluation of the ESAF and on other occasions. Some Directors felt that it might not be useful to establish further formal rules on coordination, recommending that priority be given to promoting an open and free flow of information between the IMF and the Bank.

On March 13, 1998, following soon after the Board’s consideration of the report, the IMF released the study and other documentation to the public at a press conference at IMF headquarters. Three of the four external evaluators, as well as the chairman of the Evaluation Group of IMF Executive Directors, participated in the briefing.

In its April 1998 meeting, the Interim Committee expressed its appreciation for the work of the external evaluators of the ESAF. It also welcomed the intention of the Board to draw operational conclusions from the issues raised by both the internal and external evaluations so as to strengthen the IMF’s ability to foster sustained growth and external viability in poor countries.

13Published as IMF, The ESAF at Ten Tears: Economic Adjustment and Reform in Low-Income Countries, IMF Occasional Paper 156 (1997).
14Published as IMF, External Evaluation of the ESAF (1998), and available on the IMF’s website (

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