Watchdog Evaluates IMF Loan Conditions

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In a study of structural conditionality in IMF-supported programs, the Fund's Independent Evaluation Office (IEO) noted that conditions attached to loans have become more focused, but found that there were still too many of them and that some conditions may not have been tied to the main goals of the program.

In commenting on the report, IMF Managing Director Dominique Strauss-Kahn stated that "while we have been making progress in recent years in streamlining conditionality and focusing it on our core areas of expertise, we will need to ensure parsimony in the selection of conditions in the future, limiting them to measures that are critical to achieve the objectives of the programs we support."

Tom Bernes, head of the IEO, said that "progress has been made in better aligning IMF conditionality to its core areas of responsibility and expertise. The report also provides evidence of higher compliance with conditionality in the IMF's core areas. However, approximately one-third of the conditions remain outside core areas and compliance overall-at about one-half-remains weak.

"We will need to ensure parsimony in the selection of conditions in the future, limiting them to measures that are critical to achieve the objectives of the programs we support."

-Strauss-Kahn

This analysis underscores that achieving the objectives of parsimony and criticality remains an important challenge for the Fund and further progress is necessary."

Following criticism during the Asian crisis in the late 1990s for including too many conditions on its loans, the IMF has been trying to ensure that conditions are linked to key goals in a country's recovery program. This initiative resulted in a comprehensive revision of the Conditionality Guidelines in 2002.

Key IEO findings

The IEO report, which covers Fund-supported programs approved in 1995-2004, arrives at the following conclusions:

* After the streamlining initiative was launched, the composition of structural conditions shifted significantly toward IMF core areas.

* Compliance and effectiveness were higher in the areas of IMF core competency, such as public expenditure management and tax-related issues, and lower in areas such as privatization and reform of the public sector.

* The number of structural conditions in Fund programs remained stable at about 17 per program/year, contrary to expectations when the streamlining initiative was launched. This was so, in...