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Ireland has been contributing financially to the IMF's programme in low income countries, the Poverty Reduction and Growth Facility (PRGF) since 1999. The decision to support this programme was controversial with serious concerns raised by the public and by politicians across all political parties. Criticism of the IMF centred on the negative social and economic impact of its programmes.[1] The IMF has recently produced a paper reviewing its role in assisting Low Income Countries. As Ireland has been contributing to the PRGF for five years, it is vital that we review the IMF's approach and identify how Ireland can best use its influence to ensure that the IMF places poverty reduction at the heart of its programmes.

IMF Programmes and Poverty Reduction

The IMF was not set up as a development institution. However, over the past two decades, it became deeply involved with low income countries as a result of the debt crisis. When renaming its programme the 'Poverty Reduction and Growth Facility'[2] in l999, the IMF committed to substantial change e.g.

• Flexibility in key targets e.g. growth and inflation targets and in fiscal and monetary policies.
  
  
• Poverty reduction would be a central aim with IMF programmes based on countries' own Poverty Reduction Strategies rather than designed in Washington

Five years on the evidence is that the IMF has failed to substantially reform its approach so as to make poverty reduction a central aim[3]. While social spending has increased, many donors are concerned that IMF programmes are still too restrictive and curtail investment for poverty reduction.[4] Many low income countries which have reached macro economic stability are running fiscal policies which are tighter than those set under the Maastricht stability pact. While high inflation negatively impacts on poor people, there is considerable debate on the minimum level of inflation required both to protect the poor and to promote investment and economic development. Countries like Tanzania have brought inflation down below 5% but the Tanzania Social and Economic Trust[5] point out that the benefits of the macro economic stability achieved at national level is not being felt at community level. The question that arises is: do very poor countries need to run such low inflation/budget deficits - what are the trade-offs between these targets and the flexibility required to secure resources for increased social investment?

Achieving the Millennium Development Goals

While the IMF recognises that its programmes should contribute towards achievement of the MDGs, its recent paper[6] does not outline any major changes in the design of its programmes to ensure this happens. A major omission is any discussion of Poverty and Social Impact Assessments of proposed economic reforms. Although it was agreed back in l998 that impact assessments would be carried out in advance of the introduction of an IMF programme, an IMF review in 2002 found the majority of policies with significant social impacts are neither covered by social impact studies nor are there measures to mitigate these effects.[7]

IMF as a Lender

A further concern is that while on paper, IMF lending may appear concessional, in practice it is expensive for low income countries to borrow from the IMF. This presents governments with a dilemma: they must have a programme with the IMF to receive debt reduction and official aid but borrowing from the IMF can have a serious impact on their debt burden.

Ireland and the IMF's Programme in Low Income Countries

When the government decided to contribute to the IMF's PRGF, it was stated that by joining Ireland would be in a better position to influence programmes. The four Annual Reports on Ireland's Participation in the IMF and World Bank produced since then, however, show no evidence that monitoring the PRGF and pressing for change have been government priorities. The Minister for Finance's speech to last year's IMF/World Bank AGM made no mention of the issue.

Debt and Development Coalition Ireland has always questioned whether the IMF should be deeply involved in low income countries. It is not a development institution. It operates within a short term framework while other multilateral and bilateral donors work within a long term development perspective. It has not taken the necessary steps to poverty proof its programmes. The IMF's recent paper makes clear that the IMF sees a continuing role for itself over the long term. If this is to be the case, it is important that the Irish government press for substantial change to the IMF's approach.

Recommendation

1. That the Joint Committee on Finance and the Public Service make representations to the Minister for Finance before the IMF/World Bank AGM 23/24 September urging him to : press the IMF to produce a strategy and timetable for ensuring that key reforms in PRGF programmes are covered by poverty and social impact analyses.

2. The Joint Committee on Finance and the Public Service should invite the Minister for Finance to report back on his input to the IMF/World Bank AGM on this issue

[1]Oxfam International 'The IMF: Wrong Diagnosis, Wrong Medicine, Oxfam 1999

[2]Formerly known as the Enhanced Structural Adjustment Facility (ESAF)

[3]Eurodad 'Is PRGF Maximising Finance for Poverty Reduction?' May 2003 www.eurodad.org

[4]This issue has been raised regularly, for example, by the EC at its annual meeting with the IMF and World Bank on poverty reduction strategies.

[5]PERSPECTIVES ON THE TANZANIAN EXPERIENCE WITH The Poverty Reduction Strategy Paper - Heavily Indebted Poor Countries Initiative 2001

[6]'Role of the Fund in Low income Member Countries over the Medium Term'

[7]IMF 'Review of the Poverty Reduction and Growth Facility: Issues and Options' Feb 14 2002 para 21

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