Evolving approach
Jonathan Katzenellenbogen
Published: 01-NOV-99

The IMF, along with the World Bank, is increasingly shifting its focus in Africa to the reduction of poverty, writes Jonathan Katzenellenbogen

There are signs that the Internation' al Monetary Fund is repositioning itself for a new approach to address Africa's economic problems and pay more attention to poverty alleviation. In evolving a new role, the IMF is taking on aspects of the World Bank's Comprehensive Development Framework. But in contrast to recent statements by World Bank President, James Wolfensohn, and the Bank's chief economist, Joseph Stiglitz, the IMF is still primarily aiming for economic growth.

This is the all-embracing approach that sees growth as part of a virtuous circle that includes good governance, education, health care and institutional development.

The IMF repositioning comes as it prepares to undertake Poverty Reduction Strategy Papers on many African countries. The plan is that these papers be formulated in consultation with civic organisations in borrower countries and with the support of the World Bank. They will form the guide for World Bank and IMF lending and the approaches of donor countries.

But questions remain about whether the IMF, with the empahasis in its analysis on the causes behind balance of payments problems, is sufficiently well equipped to look into poverty reduction.

The repositioning comes with the renaming of its Enhanced Structural Adjustment Facility for which most African countries are eligible. The facility, which has been heavily criticised by non-governmental organisations as a straitjacket which has failed to bring about improvements, is to be renamed the Poverty Reduction and Growth Strategy.

Officials in the IMF Africa department say that the key difference from now on will be that future IMF-supported programmes will take explicit account of the costs of social and poverty reduction programmes from the outset. Ernesto Hernandez-Cata, Associate

Director of the Africa Department, says the more explicit poverty reduction approach is not that different to what the IMF is doing at the moment. He says the IMF has always pushed for the removal of policies that generate benefits to one sector or group at a cost to the economy as a whole. Hernandez-Cata says bribery is often the reason these sorts of policies are kept in place. And their removal is a step forward towards reducing poverty.

The IMF's Africa department says that for some time they have been encouraging governments to reallocate spending into sectors that contribute towards poverty alleviation. But it does recognise that there is a problem in actually ensuring that the money that the finance minister reallocates is used for its intended purpose. This is the area in which the Poverty Reduction Strategy Papers could emerge as a mechanism to ensure the allocation of budgets which are successfully targeted.

Only Uganda and Mozambique have been granted actual debt relief so far and Tanzania is now a candidate. But over the next few years a substantial portion of the debts of others will have been written off. The next step is to ensure that the resources freed from debt service are now reallocated to poverty reduction.

The key question that arises for the IMF is what sort of decisions it will take on the future of a programme if poverty alleviation targets are given second place to an immediate need for economic stabilisation.

The Poverty Strategy Papers may well be an attempt to resolve that issue, which has traditionally been decided upon on the basis that basic economic stabilisation is a necessary, if not sufficient, condition for long-term growth and stability.

The World Bank's Comprehensive Development Framework and what appears to be a new IMF mandate may give these institutions the tools to intervene in a wider array of what are increasingly called the "structural areas".

The new thrust of IMF thinking is laid out in its most recent World Economic Outlook. The chapter Growth in Sub-Saharan Africa: Performance, Impediments, and Policy Requirements, contrasts with the short-shrift normally given the region in the outlook documents. It attributes the poor growth performance to wars, inadequately trained civil servants, lack of institutional development, and corruption.

Its message is that "Sub-Saharan countries clearly need to create an institutional and political environment which increases efficiency and reduces the riskiness of economic activity".

This begs the question of what the IMF can really do on the more political issues and whether a larger role will not be thwarted by borrowers, circum- stances and the G7 countries which control the fund.

However, many of the issues the IMF does raise are essentially the economic reflection of political reality and are to be found generally in fiscal and monetary policies.

As Hernandez-Cata says: "We're not going to become sociologists, strategists and even lawyers, tomorrow". He says the IMF will continue to pursue growth as the fundamental strategy because it is the most direct way to reduce poverty.

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