Designing change: IMF-supported programs
| Author | Atish Ghosh |
| Position | IMF Policy Development and Review Department |
| Pages | 169-182 |
Page 169
During 1995-2000, many countries turned to the IMF for its financial support for their policy programs.What were the objectives of these programs? And were they successful? A detailed examination of IMF-supported programs in this period shows important successes, but also significant challenges, both for programs in middle-income countries-especially those dealing with capital account crises-and for programs in low-income countries, where reducing poverty and promoting growth, with external viability, are central objectives.
Page 180
What do IMF-supported programs aim to achieve? How are they formulated? How should their success be judged? And have they been successful? At the behest of the IMF's Executive Board, staff took a detailed look at experience with IMF-supported programs during 1995-2000. The resulting papers suggest two broad challenges for future program design. In low-income countries, the key will be to build on the success to date in achieving macroeconomic stability and higher sustained output growth rates while still maintaining external viability and avoiding future debt-servicing problems.
In middle-income countries, especially during capital account crises, programs need to restore market confidence rapidly to help avoid excessively abrupt-and economically disruptive-adjustment of the current account.
The past 15 years have seen important developments in the challenges facing member countries, and therefore in the objectives of the economic programs for which national authorities have sought the IMF's support. Yet the very responsiveness of the IMF to these evolving needs has inevitably complicated program design and the evaluation of program success. As a first step in this review, staff classified programs by their main purposes.
Despite variations in details, most programs could be placed in one of four broad categories:
* Unsustainable current account deficits. In classic instances of external adjustment, countries having difficulty financing their current account deficit commit to reducing it to a sustainable level, while IMF financing helps the country reconstitute its reserves. This attenuates the necessary adjustment and allows for part of it to come through a positive supply response rather than through demand management alone.
* Capital account crises.When sizable capital outflows force an abrupt external adjustment and, typically, a collapse of the exchange rate and economic activity,monetary and fiscal policies are geared more toward restoring confidence and limiting the adverse effects on activity than to promoting external adjustment (since the withdrawal of private financing is, in effect, achieving this).
* Transition economies and low-income countries. Although there are many differences among them, these programs share a common emphasis on macroeconomic stabilization and structural transformation to enhance economic efficiency and promote sustained growth-while maintaining external viability.
* Policy credibility and public debt sustainability.Where external accounts are largely in balance, programs can nevertheless help lower interest rates and spreads, putting public-debt dynamics on a more sustainable footing by enhancing the credibility of the authorities' policies.
All countries should emerge from their...
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