IMF reviewing conditionalities

By Our Special Correspondent

NEW DELHI, AUG. 29. On requests from member-countries, the International Monetary Fund (IMF) is currently engaged in a review of the conditionalities and the structured format that it proposes to borrowing countries while sanctioning a loan. The ultimate aim is to make the policy prescriptions more flexible and transparent.

The Fund is, however, firm in its view that some sort of conditionality has to be attached to the lending programme since all borrower-lender relationships have conditionalities attached in order to ensure that the borrower has the ability to pay back the loan.

According to Dr. Moshin Khan, Director of the IMF Institute, Washington, it is also important to have a `country programme' while extending a loan since it is absolutely essential to have a firm commitment from the Government and other authorities that the difficult policy measures designed to correct economic problems would be implemented. What is now being attempted is to provide more flexibility in the conditionalities and the country programme to make it easier for the borrowing countries to achieve the objectives, Dr. Khan, who is in India on a lecture series, said here today.

According to Dr. Khan, the IMF has acknowledged that its structural conditionalities have expanded too much and a major effort is underway to streamline structural conditionality in programmes. This is because the proliferation of structural conditions in IMF-supported programmes during the past two decades probably resulted in leaving limited scope for domestic policy choices.

Consequently, some new initiatives have been thought up including the possibility of introducing flexibility in the timing of structural policy measures and to have conditionalities linked to outcomes rather than policies. Since performance criteria and structural benchmarks in IMF-sponsored programmes have specific dates attached to them, countries often find the rigid time- tables for major structural reforms to be limiting their choices and straining their implementing capacities. Hence, the feeling is that programmes could be more flexible in the timing of structural reforms and one way of achieving this is to link loan disbursement not to any specific date but to make it available upon completion of agreed structural reforms.

The other important consideration is to link disbursements to the achievement of results, instead of putting conditions on policy measures which could bring about the desired results. Under this approach, the policy objectives would be negotiated with the IMF but the policy content of the programme would be left largely to the borrowing Governments.

Dr. Khan also said that the IMF is considering proposals for making its loan conditions (technically called country programmes) more acceptable to the borrowing countries.

One proposal in this regard is to have `home-grown programmes' under which the member country could produce its own policy programme which could be done in cooperation with the IMF. In order to address the problem of lack of expertise and capacity in some countries to draw up such home-grown programmes, the IMF could provide technical assistance and training, the proposal envisages.

On another front, to obviate the criticism that IMF forces pre- determined conditionalities, a proposal under consideration is to provide alternative options to the borrowing countries and the policy measures required to achieve the objectives. The advantage of this option is that it opens up a debate and requires the borrowing Government to get actively engaged in the design of the programme.

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