1. Masood Ahmed talked about two main themes. The first was the role of the IMF in low-income countries and how that role might change given the new circumstances faced by many developing countries. The second was the role of low-income countries in the IMF and the current round of reforms to the IMF’s governance.
2. By way of introduction, Mr. Ahmed emphasised that the IMF is focussing more on its core areas of expertise, namely macro-economics and the links between macro-economics and the financial sectors in developing countries. It is also seeking to be more responsive to the needs for developing countries.
3. Mr. Ahmed outlined a number of issues facing low-income countries. These included: dealing with economic shocks such as oil and food price rises; engaging effectively with private (and more volatile) external sources of capital; managing debt obligations to ensure sustainability; and, managing aid inflows, particularly as regards the predictability and volatility of aid.
4. The IMF, noted Mr. Ahmed, can play an important role in providing assistance to low-income countries in relation to the issues outlined above. However, there is a need to improve the provision of technical assistance; to provide it more collaboratively and more regionally. There is also a need – and an enthusiasm on the part of the IMF – to engage more with parliaments and parliamentarians in developing countries.
5. Moving to the topic of the role of low-income countries in the IMF, Mr. Ahmed explained the importance not only of effectiveness, but also of legitimacy so that members feel that their views are adequately represented. One way of enhancing legitimacy is by changing the governance of the IMF.
6. Mr. Ahmed explained that recently-approved governance reforms provide a simpler formula for assigning voting rights and a shift to assigning these rights based on purchasing power parity (PPP) as opposed to a fixed dollar value. In addition, the proportion of basic votes has increased. The result is a shift – of 2.7% – in voting power in favour of developing countries.
7. Mr. Ahmed acknowledged that this ought not to be the end of the reform process, but argued that it was a useful initial step in improving the governance and enhancing the legitimacy of the IMF. The reform had been supported by 175 of 184 members of the IMF. Mr. Ahmed emphasised too that reform depends on political will and the positions taken by currently powerful members.
8. Dr. Lauren Phillips’ comments focussed on the recent IMF governance reform. Her main argument was that, although the reforms that have been approved should favour developing countries, they represent something of a missed opportunity. Developing countries’ voting rights increase by only 2.7% and the proportion of basic votes remains low by historical standards. Nevertheless, Dr. Phillips acknowledged that the reform was probably as good a deal as could have been achieved given current economic and political conditions.
9. Dr. Phillips suggested that the governance reforms would not increase the credibility and legitimacy of the IMF in the eyes of the public (IMF-watchers) and would have a marginal effect on the willingness of middle-income countries to participate in the governance of the IMF and little or no effect on their propensity to borrow. The impact of the reforms on the engagement of low-income countries with the IMF would be negligible.
10. Suggesting that the approved reform constituted a missed opportunity for change, Dr. Phillips outlined possible avenues for further progress. These included: the possibility of someone from a developing country being appointed to chair the International Monetary and Finance Committee or, at a later date, to be the IMF’s Managing Director; consolidation of the EU’s representation on the IMF; and, continued efforts to see how the voice (if not the vote) of low income countries, particularly African countries, might be enhanced.
11. Kato Lambrechts’ comments focussed on the role of the IMF in low income countries. Ms. Lambrechts emphasised that the challenges facing many developing countries have changed. As a result, the sort of advice that the IMF has tended to provide – to combat inflation, to ensure stability, to deal with balance of payments crises, to deal with debt crises – is less relevant.
12. Ms. Lambrechts argued that as a result, the IMF needs to be playing a somewhat different role and needs to be more responsive to the needs of developing countries [rather than taking a one-size fits-all approach to policy advice]. She suggested that the new – supposedly more flexible and responsive – Policy Support Instrument is not much different from the Poverty Reduction and Growth Facility.
13. Ms. Lambrechts also drew attention to what she called the “elephant in the room”; the signalling role played by the IMF. In this role the IMF has become, in effect, a credit rating agency, signalling to aid donors whether or not a country is well-placed to make what the IMF regards as effective use of aid. The IMF is a near-monopoly provider of this signalling function and of macro-economic advice; this is problematic, not least because it leaves the IMF playing a dual confused role of signaller and lender.
14. It would be good, argued Ms. Lambrechts, for there to be some competition, with developing countries able to access different sources of macro-economic advice. It would also be good if debates about macro-economic policy options involved parliament – the key institution for domestic accountability – rather than being discussions between solely the IMF and the executive.
15. In addition to pursuing issues relating to the role of the IMF and the governance of the IMF, questions and discussion covered topics including:
- The role of the IMF as a signaller for other donors and the pros and cons of having one institution or multiple institutions (donors) play that role.
- The possibility and desirability of breaking the IMF’s monopoly on the provision of macro-economic policy advice by providing developing countries with the resources to buy-in the advice and expertise they want.
- The importance of the IMF engaging more with parliaments and parliamentarians in developing countries to help them to understand and make well-informed political decisions about macro-economic policy.
- The possibility of the IMF’s policy advice about capital controls being more nuanced, such that it takes better account of the downside risks of capital account liberalisation.