IMF-supported programs designed to help countries get out of economic difficulty have been generally better tailored to individual country needs. Programs have adapted flexibly to changing economic circumstances, which has helped to achieve program objectives, and have aimed to safeguard social protection and investment during crises.
The IMF had improved its analysis, internalizing lessons from previous crisis periods. For example, the overshooting current account adjustments seen in some programs of the 1990s have been mostly avoided this time around, and, where possible, ample and upfront financing to create room for maneuver was emphasized, particularly in capital account crisis cases.
But the review warned that the IMF faced new challenges, particularly in the current euro area crisis, where the size of the debt burdens, the systemic nature of the crisis, and the need for coordination across institutions made both forecasting and program design more complex.
“Program design has been complicated where countries faced high debt burdens, sustained loss of market access, low growth, and competitiveness issues, and where the constraints of a currency union limited policy options,” the report to the IMF Executive Board said.
“Debt sustainability and competitiveness problems required deep and protracted policy adjustment, combined with large-scale official financing,” it stated.
Wider policy options
The report suggested that the IMF should try to enhance country ownership and transparency of lending programs through more discussion of alternative policy options, greater clarity in written assessments, and by tapping new avenues to collect external views.
The social aspects of policy measures in program design needed to be considered in a broader context, it stated. Reforms often involve near-term costs yielding significant long-term benefits that should not be neglected in the analysis.
Recent experience in the Middle East, Northern Africa, and Europe highlighted the need for analysis to take into account employment issues and inclusive growth strategies.
The latest review of IMF conditionality is part of a process of ongoing, periodic assessments of IMF-supported programs that is undertaken...