Roger Nord April 26, 2010

1. Responding to the Global Crisis – The IMF’s Role in Low-income Countries and its  Dialogue with Parliamentarians Roger Nord April 26, 2010

2. Outline What is the IMF – Basic Overview ? How have LICs fared during the crisis? • Hard hit, but better prepared • “Keynesian” response– a first for LICs • Debt remains manageable for most How did the IMF respond? • Sharply scaled-up and flexible financial support • Comprehensive facilities reform • Conditionality, debt policies more flexible The IMF’s Dialogue with Parliamentarians

3. Mandate: • Promote global financial stability • Exchange Rate Stability (balanced growth of trade) • Forum for international monetary cooperation • Temporary financial assistance to members experiencing • balance of payments difficulties Some Basics on the IMF Founded in 1944 at the Bretton Woods Conference in New Hampshire Main Functions: Surveillance – Lending – Technical Assistance Fast Facts: Membership: 186 countries Executive Board: 24 Directors representing countries or groups of countries Staff: approximately 2,360 from 146 countries Total quotas: US$333 billion Additional pledged or committed resources: $600 billion Loans committed: US$191 billion, of which US$121 billion have not been drawn (FCL) Surveillance consultations: Concluded in 2008—177 countries in 2008, of which 155 voluntarily published information Goal: Avoid harmful policies & protectionism of 1930s and rebuild confidence in multilateral cooperation

4. IMF Accountability The IMF is accountable to the governments of its 186 member countries through the Board of Governors One governor from each member country (meets once a year) International Monetary and Financial Committee 24 governors and advises the Board of Governors (meets twice a year) Executive Board 24 members conduct day-to-day business of IMF (meets three times a week)

5. Governance Reforms Key to IMF Legitimacy • April 2008 reforms need to be put in place – ratification still needed in many countries • Once implemented, 54 members will receive an increase in their quotas, including China, India, Brazil and Mexico. • G-20 called for further improving representation for emerging and developing countries by January 2011 (at least 5% shift in quotas from most over to underrepresented countries)

6. IMF Resources • Main resources – quota subscriptions of member countries • IMF quotas are based on relative size of a country’s economy • Quotas determine access to borrowing and voting power. Total IMF quotas: US$333 billion (as of end-February 2010) • Lending capacity tripled to about US$750 billion in April 2009 • SDR allocation of about US$250 billion in August 2009, of which US$100 billion to emerging market and developing economies

7. How Have LICs Fared During the Crisis? Part II

8. Global Crisis hit LICs hard • Transmission channels • Exports, remittances, FDI • Not much through financial markets • Growth dipped more sharply than in previous crises, but: • From higher pre-crisis level • Big differences across countries • Expectation of robust, synchronized recovery in 2010

9. Crises Past and Present—Growth

10. “Keynesian” policy response—a first for LICs • Most LICs went into crisis better prepared: • Sustained macro stability • Stronger institutions • Created room for countercyclical policy responses à la Keynes • IMF supported larger fiscal deficits as part of global fiscal stimulus • Two-thirds of African Countries pursued counter-cyclical policies • Health and education spending increased in 20 out of of 29 African LICs

11. Pre-Crisis Position Much Stronger

12. Debt and Inflation Down

13. “Keynesian” fiscal policy response

14. How Has the IMF responded? Part III

15. Sharply Scaled-up Financial Support • 2009: IMF concessional assistance at $3.8 billion (historical: $1bn) • Concessional lending capacity doubled, to $17 bn through 2014/15 • Financed partly by gold sales • SDR allocation • Zero interest on all concessional credit • Support of countercyclical programs

16. IMF financial support sharply higher

19. Comprehensive 2009 Reform • Three tailored facilities under Poverty Reduction and Growth Trust (PRGT) to meet diverse LIC needs: • ECF – medium-term support • SCF – short-term (and precautionary) support • RCF – emergency support • Access to financing doubled • Zero interest through end-2011 • Permanently higher concessionality • More flexible conditionality

20. Going Forward: Managing Volatility • LICs more exposed to economic shocks, natural disasters than others • Exposure will grow further with global integration and climate change • LICs generally under-insured • But cost of holding reserves high • Need (i) policy buffers and(ii) concessional shocks support

21. How to re-build policy buffers? • First, do no harm: avoid premature or overly rapid fiscal tightening • Then, strengthen fiscal positions: focus on revenue growth; protect social spending and high-return investment • Balance debt-creating capital inflows with developing local savings and financial sectors

22. Investing for growth • Massive infrastructure deficit , esp. in Africa key growth bottleneck • LIC governments rightly keen to scale up public investment • But quality critical • Can traditional donors deliver finance? • Concessionality versus scale • Realistically, huge investment needs will require nonconcessional credit

23. The IMF’s Dialogue with Parliamentarians Part IV

24. More Accountability Through Transparency and Outreach People/Civil Society Parliaments National Governments IMF

25. IMF Outreach • Public outreach integral part of IMF’s country work, and the dialogue with legislators plays an important part • The IMF must speak frequently and clearly to key groups and stakeholders about the work it does • Parliamentarians are key interlocutors

26. Dialogue with Parliamentarians WHY? • Important role in economic decision-making, incl. budget process • Oversight over the Executive for economic and financial policies • Public forum for debate HOW? • Ongoing two-way dialogue: Bring outside views into the building – inform parliamentarians of IMF policies and activities RESOURCES? IMF website for legislators (www.imf.org) and interactive discussion forum

27. Greater Accountability Through Dialogue • Country level engagement: integral part of country missions; country-level seminars • Regional level engagement: regional seminars – in Africa; Europe at Joint Vienna Institute • International level engagement: PNoWB, IPU, GOPAC, CPA – joint event and conferences

28. QUESTIONS