International Monetary Fund:

Few Changes Evident in Design of New Lending Program for Poor Countries

GAO-01-581: Published: May 8, 2001. Publicly Released: May 8, 2001.

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The effectiveness and appropriateness of the International Monetary Fund's lending programs to poor countries have been widely debated, generally centering on whether the program has improved these countries' economies. In response to some of these concerns and as part of a concerted international effort to reduce poverty, the Fund expanded the goals of its lending program to its poorest members in 1999 to include an explicit focus on poverty reduction. To underscore this focus, the Fund renamed its concessional lending program the Poverty Reduction and Frowth Facility. GAO found that although the design of the facility does not differ significantly from the Fund's previous program, some elements of the new program are emphasized more now than in the past. The one major design change--getting countries to take ownership of their macroeconomic framework--is difficult to achieve for three reasons. First, many recipient governments have limited capacity to independently analyze and effectively negotiate the macroeconomic framework, which reduces the opportunity for country-specific elements to be addressed. Second, it is difficult to effectively engage nongovernmental organizations in a dialogue on these very complex matters. Finally, a national dialogue on the choice of effective policies is hampered by the limited knowledge of all parties about how different policies actually effect elements of the macroeconomic framework. GAO found few changes in the Fund programs of the three countries reviewed that can be clearly attributed to the changes announced in 1999. Nonetheless, the three countries faced several difficulties in developing a nationally owned macroeconomic framework. First, each government has limited capacity to independently analyze macroeconomic issues. Second, while all three governments have begun a dialogue with nongovernmental organizations, many people that GAO spoke with were unsure how to use this dialogue to address the countries' complex macroeconomic policies and targets, other than the composition and level of spending. Finally, GAO did not see evidence of the changes in the three countries' Fund documents that were called for under the new program. If the changes announced by the Fund actually improve the overall effectiveness of a country's development program, the likelihood of earlier graduation from the Fund's program could increase. However, the impact of these changes on economic growth is unknown at this time.

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