allAfrica.com: Africa: More Policy Freedom Or Belt-Tightening? (Page 1 of 3)

Rather than "graduating" from the much-criticized economic reform programmes promoted by the International Monetary Fund (IMF), a number of African countries are opting to sign on to an extended version.

The Fund describes its new Policy Support Instrument (PSI), introduced in 2005, as a "non-financial mechanism." Unlike other IMF programmes, it does not come with any direct financing from the Fund. Instead countries receive IMF advice, monitoring and endorsement of their policies. So far six countries, all of them African, have signed on to the instrument, and more are considering doing so.

Mozambique hopes to hire many more teachers for its overcrowded schools, but the low inflation targets set by the IMF limit public spending and may jeopardize that goal.

Under the PSIs, the IMF helps low-income countries design their economic programmes. If a country manages to meet set standards, the Fund then informs donors, multilateral development banks and private financiers that the country has "strong policies." The targets set in PSIs are derived from earlier IMF and World Bank programmes and reviews are carried out every six months.

Some countries with PSIs, such as Mozambique, are already finding that these conditions make it difficult for them to spend more money to improve education and meet other internationally agreed Millennium Development Goals (MDGs).

"It is basically a standard IMF programme without the loans, but with the standard 'structural adjustment' provisions (privatization, liberalization, spending cuts, etc.), and the usual very low inflation targets," argues Soren Ambrose of the Kenya-based non-governmental organization (NGO) Solidarity Africa Network. If a PSI country fails to attain IMF certification, he adds, the consequences can be serious. "When the IMF cuts a country off, the other official agencies generally follow suit. It is this 'gatekeeper' function, rather than the IMF's loans, that give it its greatest power."

A good IMF report makes it easier for a country to obtain World Bank loans and debt relief or to have its debt restructured at the Paris Club, a group of rich creditor governments. Such "cross-conditionality" can be a powerful instrument. Some poor countries that would otherwise not be eligible for relatively lower-interest loans from international money markets are turning to the PSI to get the IMF endorsement. Therefore, Mr. Ambrose maintains, the PSI potentially "seduces or pressures countries into signing on," instead of permitting them to move away from IMF programmes altogether.

So far Cape Verde, Mozambique, Nigeria, Tanzania, Senegal and Uganda have signed on to PSIs, and Ghana is currently negotiating the terms of one.

IMF seal of approval

In a statement explaining the PSIs, the IMF argues that it is performing a needed service by "signalling" its views on policies to private creditors and donors "who may be interested in reassurance about the countries they are supporting." The IMF had already been playing such a role in low-income countries through its lending programme, the Poverty Reduction and Growth Facility (PRGF). "A number of countries - what we call mature stabilizers - said 'We want to graduate from the PRGF, but we want to have the framework that can signal very strong policies'," explains Patricia Alonso-Gamo of the IMF's Policy Development and Review Department. "They didn't want to have what other countries had at the time: intensified surveillance or fund-monitored programmes. They said 'We want something stronger that is endorsed by the Fund's Executive Board, and we can tell the world we have strong policies.' So it was very much demand-driven."

Earth movers at a Ghana construction site. The government hopes that a new IMF agreement will

make it easier to secure commercial loans for major road and other infrastructure projects.

In efforts to recover from economic crises, most countries in sub-Saharan Africa began implementing IMF- and World Bank-led structural adjustment programmes during the 1980s. Those programmes promoted policies to expand the role of the market and reduce that of the state in economic affairs. They curtailed public spending for education and health care, privatized state-owned enterprises and liberalized trade. "African governments had to cede control over their economic decision-making in order to qualify for World Bank and IMF loans," notes Africa Action, a US-based NGO.

Public discontent mounted over the social impact of these programmes as large numbers of workers lost their jobs and many poor people could not afford the rising costs of health care and education. In response to the protests and criticisms, the IMF and World Bank shifted course. They now require governments to prepare antipoverty programmes in consultation with civil society and other stakeholders in order to receive new loans or debt relief. The IMF renamed its structural adjustment lending facility the PRGF.

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