There was broad agreement at the Spring Meetings of the IMF and the World Bank to ratchet up efforts to help low-income countries make greater strides in reducing poverty and making progress toward the 2015 Millennium Development Goals (MDGs).
The IMFC agreed on key elements of the way forward for the IMF’s financial engagement with low-income countries. First, the IMF’s Poverty Reduction and Growth Facility (PRGF) should be more strongly aligned with national poverty reduction strategies, underpinned by more extensive analysis. Second, adequate financing of the PRGF should be secured to meet future demands as should financing of other IMF instruments to assist low-income countries, including helping them deal with shocks. Third, work should continue on a policy monitoring arrangement, which would enhance the IMF’s signaling role for countries that do not need or want IMF financing.
The 2005 Global Monitoring Report by the IMF and World Bank (see page 110) emphasized the broad priorities for moving closer to the MDGs: achieving macroeconomic stability, including better expenditure management and composition; and strengthening institutions and policies, removing regulatory constraints, and improving weak infrastructure to invigorate the private sector and encourage a wider range of profitable opportunities.
IMF Managing Director Rodrigo de Rato stressed that a vibrant private sector is essential for the kind of sustained high growth that low-income countries need. “We are more and more advising our low-income members to develop homegrown strategies to reduce poverty, and to include very ambitious and bold reforms that allow their private sectors and international capital to be part of the solution,” he told the press. The Global Monitoring Report further stressed the need to double the amount of official development assistance reaching the poorest countries, dismantle barriers to trade, improve market access, and reach a timely conclusion of the Doha Round.
The general issue is how can we finance the next stage of multilateral debt relief, what are the mechanisms by which we can deal with the debts that are owed to the IMF, the African Development Bank, and the World Bank.
There was much discussion on the way forward on debt relief at the Spring Meetings. The IMFC noted progress under the Heavily Indebted Poor Countries (HIPC) Initiative, but also encouraged countries to take the necessary actions to benefit from the Initiative and urged creditors to participate fully. However, to preserve the potential benefits of debt relief, especially in light of many low-income countries’ ongoing financing needs, it will be critical to help countries avoid excessive borrowing. In this regard, the IMFC noted its support for the joint IMF-World Bank framework to help low-income countries achieve and maintain debt sustainability.
The Group of Seven countries, meanwhile, reiterated their commitment to further debt relief for low-income countries–as much as 100 percent, without reducing the resources available to the poorest countries. “For the relief of poverty, we agreed on the importance of moving further and faster on debt relief, and that there will be more funds needed additional to those that exist at the moment to achieve a lasting exit from debt for the poorest countries,” said IMFC Chair Gordon Brown, U.K. Chancellor of the Exchequer.
Several debt relief proposals are on the table, ranging from total debt cancellation to writing off debt servicing. Initiatives on how to finance further debt relief and development aid also vary from providing grants to establishing special funds to introducing global taxes to using IMF gold reserves. “The general issue is how can we finance the next stage of multilateral debt relief, what are the mechanisms by which we can deal with the debts that are owed to the IMF, the African Development Bank, and the World Bank,” Brown told the press.
However, policymakers did not agree on the way forward and Brown said at the conclusion of the IMFC meeting that he expected the Group of Seven to announce specifics at its summit this July in Gleneagles and to reach a final agreement at the UN Millennial Summit in New York in September. Policymakers concurred in the IMFC communiqué that “possible further debt relief from the IMF should be part of a wider international effort.” De Rato also stressed that a potential decision regarding the use of IMF gold reserves for debt relief should be “part of a much broader approach” as low-income country debt to the IMF is below 20 percent of total debt. In 1999-2000, the IMF used off-market gold transactions to finance its participation in the enhanced HIPC initiative. However, in their statements at the IMFC meeting, many governors voiced opposition to IMF gold sales.