IMF Moves to Clarify aid Role
| Author | Jan Kees Martijn/James John |
| Position | Policy Development and Review Department Shamsuddin Tareq Fiscal Affairs Department |
| Pages | 161-164 |
Page 161
Under scrutiny from critics and its own official watchdog for its approach to the use of aid in lowincome countries, the IMF is taking steps to clarify its role in advising members in the face of high and volatile aid inflows.
At issue is the need to achieve higher levels of economic growth to reduce grinding poverty in many parts of the world while avoiding destabilizing lurches in the economy triggered by sudden inflows of aid that can highlight economic bottlenecks and cause inflation and exchange rate volatility, which could make the poor even worse off.
The IMF's Executive Board met on July 6 to consider how the 185-member institution can promote the effective and sustainable use of aid, and endorsed a number of recommendations about how to make maximum and best use of such aid.
The discussion was based on two sets of staff papers published on July 19-one on overall program design issues ("Aid Inflows-The Role of the Fund and Operational Issues for Program Design") and the other on fiscal policy issues ("Fiscal Policy Response to Scaled-Up Aid"). The outcome of this discussion Page 162 will be integrated with related work in the Fund, such as last year's update of the debt sustainability framework, to present a comprehensive operational framework for guiding the Fund's role in low-income countries.
The international community has committed to supporting low-income countries in their efforts to meet the Millennium Development Goals (MDGs) by scaling up aid and improving aid delivery.
Although official development assistance to low-income countries fell slightly in 2006 compared with the previous year, aid from "emerging donors" and other private flows, particularly from health funds, are on the rise (see "Where's the Money?" page 164).
External assistance can offer additional resources for countries to pursue development goals, but can also be unpredictable and can create challenges for macroeconomic management, including if aid volumes were to increase sharply.
The IMF plays an important role by assisting countries in creating and maintaining an enabling macroeconomic environment for the effective use of aid. Helping countries design policy frameworks that support sustained growth and poverty reduction while maintaining macroeconomic stability and debt sustainability is an integral part of the Fund's Medium-Term...
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