Abid Aslam

WASHINGTON, Oct 4 2007 (IPS) – When Dominique Strauss-Kahn takes over as head of the International Monetary Fund (IMF) next month, he will confront demands for the agency to more actively support health and education spending in the world s poorest countries.
Strauss-Kahn has pledged to revitalise the fund s development efforts as IMF managing director.

Africa Action and 100-plus other pressure groups, in a letter to the former socialist finance minister from France, demand decisive action within the first 100 days of his five-year term, due to start Nov. 1.

If Mr. Strauss-Khan is serious about IMF reform, these issues must be at the top of his agenda, said Marie Clarke Brill, interim executive director at Washington-based Africa Action.

The letter urges four policy changes. Obstacles to increased spending on health and education must be removed and more expansive fiscal and monetary policy options should be adopted, it says. Additionally, debt cancellation must be immediate and budget and wage bill ceilings that undermine poor countries ability to provide adequate salaries for health and education workers must be rescinded.

The IMF s staff, in a June paper, voiced commitment to the same goals.
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The fund has also been thinking about these issues for some time, agency staff said. This thinking already had culminated in a series of papers pending discussion and further instruction from the agency s executive board, they added. Representatives of shareholding governments sit on the 24-member panel.

Critics have not been assuaged.

The fund commits to some changes, including increased fiscal and monetary flexibility with an overarching purpose of maintaining macroeconomic stability, their Oct. 1 letter acknowledges. However, this response is unsatisfactory; the IMF does not address either the parameters of alternative policies or how stability will be defined.

The groups demands echo a March report by the IMF s own Independent Evaluation Office (IEO) and the findings of a June report from the Centre for Global Development (CGD), a Washington think tank made up of former insiders from international financial and aid institutions.

At issue are the policy conditions under which the fund disburses money from its concessional Poverty Reduction and Growth Facility, formerly the Enhanced Structural Adjustment Facility, to some 29 low-income countries in Africa south of the Sahara Desert.

The IEO, in its March report, noted improving performance in a number of sub-Saharan African countries during the period 1999-2005 and said this was due in part to the advice and actions of the IMF, including on debt relief.

Evaluators nevertheless found weaknesses and attributed these to ambiguity and confusion about IMF policy and practice on aid and poverty reduction and to disunity among the governments that set the fund s policies and oversee its operations.

Differences of views among members of the Executive Board about the IMF s role and policies in low-income countries led to a situation in which fund staff focused on macroeconomic stability, in line with the institution s core mandate and their deeply ingrained professional culture, the IEO said.

As a consequence, African governments took 74 percent of the increase in aid they received during the period and used it to service debt and build up currency reserves when they could have dedicated the extra money to health and education programmes.

Critics contend that was a horrible diversion of charity but from a fund perspective, macroeconomic prudence would enable the poor countries to cope with future fluctuations in revenue including aid, which even anti-poverty activists agree has had a fickle history.

Health outcomes and economic policies are linked in complex ways that go well beyond the IMF competence or mandate, the CGD said in its report, released in June.

Even so, the fund is a lightning rod because health spending is highly sensitive to overall fiscal policies, it added.

Despite some increased flexibility in recent years, the CGD said of IMF-supported fiscal programmes, they have often unduly narrowed the policy space by failing to investigate sufficiently more ambitious, but still potentially feasible, options for higher government spending and aid.

Fund staff members noted, however, that the think tank report found that average increases in health spending as a share of gross domestic product were larger for countries with IMF-supported programmes than in poor countries without such programmes.

Like the IMF s evaluation office, the CGD faulted the fund s overseers.

The IMF board and management have not made sufficiently clear what is expected of IMF staff in exploring the macroeconomic consequences of alternative aid scenarios. As a result, the IMF risks sending confused signals to donors and recipient governments, it said.

Achieving unity and clarity among the fund s disparate members will be Strauss-Kahn s challenge.