Presentation by Sanjaya Panth, Deputy Division Chief,

1. Parliament, Governance and Poverty ReductionIstanbul, TurkeyMarch 23-25, 2004Macroeconomic Policy and Poverty Reduction Presentation by Sanjaya Panth, Deputy Division Chief, Policy Development and Review Department, IMF

2. Overview • Objectives of macroeconomic policy • Macroeconomic policies and poverty reduction • How does the IMF fit in ? • Parliaments, Civil Society and the IMF.

3. I. Objectives Of Macroeconomic Policy Macroeconomic stability and sustainability • “full” employment and maximum output at home – “balanced” financial and economic relationship with rest of the world. • domestic price stability and appropriate exchange rate

4. I. Objectives Of Macroeconomic Policy (contd.) Macroeconomic Challenges • Need to take into account where the economy is: recession or boom • Need to overcome permanent shocks: e.g. loss of key export market • Ability to weather temporary shocks: such as temporary fall in price of main export

5. I. Objectives Of Macroeconomic Policy (contd.) The Policy Response • fiscal and monetary policies that work together rather than against each other • Avoidance of excessive deficits (fiscal and external) • Manageable debt

6. II. Macroeconomic Policies And Poverty Reduction • Sustained economic growth requires macroeconomic stability • Growth is a necessary condition for broad and sustained poverty reduction – but is not always sufficient. • Sometimes, the potential tensions between macroeconomic stability and social/poverty reducing policies have to be addressed.

7. II. Macroeconomic Policies and Poverty Reduction (contd.) • Macroeconomic policies also affect poverty directly • Level of incomes and their volatility • Distribution of incomes • Examples: • Inflation hurts the poor on fixed incomes • Tax and expenditure policies can affect income distribution and work to the benefit or detriment of the poor

8. II. Macroeconomic Policies and Poverty Reduction (contd.) A Framework For Policies • Low and steady inflation and minimize economic boom-bust cycles; • Reduce unfinanceable fiscal deficits that ultimately hurt the poor; • Maintain balanced trade & finance with rest of the world and appropriate exchange rate

9. II. Macroeconomic Policies and Poverty Reduction (contd.) A Framework For Policies • Expenditures focused on key social services and basic infrastructure • Monetary and financial sector policies to foster access of the poor to credit • Structural policies to correct distortions in critical sectors

10. III. The IMF’s role • Advice on macroeconomic policies for stability through: • Annual consultations • Financial support to countries during adjustment • Technical assistance • Poverty Reduction and Growth Facility (PRGF) for low-income members

11. III. The IMF’s role (contd.) Fund financial arrangements • Macroeconmic problems are self-correcting but very slowly and very painfully. • Instead of following this course, Fund programs aim to help ease the pain of adjustment • Financial assistance helps “buy time” while conditionality helps ensure that policies are put in place to permanently address the problem

12. III. The IMF’s role (contd.) PRGF Architecture • Reserved for 77 low-income members • Three year arrangements • Interest rate of 0.5 percent • Repayment over ten years with 5-1/2 year grace period

13. III. The IMF’s role (contd.) Goals of PRGF • Integrate goals of poverty reduction and growth more fully into lending to LICs • Enhance government and national ownership by deriving program from the country’s PRSP • Better integrate social and sectoral objectives with macroeconomic policy • Increase emphasis on good governance policies - transparent fiscal management

14. III. The IMF’s role (contd.) Features of PRGF Programs: • Embedded in the overall strategy for growth and poverty reduction – the PRSP • Budgets that include more expenditures directed at helping the poor • Appropriate flexibility in targets • More selective conditionality • Improved public resource management • Social impact analysis

15. IV. Parliaments, Civil Society and the IMF The Role of Parliaments • Importance of budget process and of prioritizing among competing objectives • Parliaments should be instrumental in: • ensuring that the concerns and priorities of their constituents are reflected in the national PRS and in the budget

16. IV. Parliaments, Civil Society and the IMF (contd.) The Role of Parliaments (contd) • Parliaments should be instrumental in: • helping government make hard choices among competing demands • assisting in identifying the impact of measures • comparing actual spending to the planned budget and holding governments accountable for the execution of the budget .

17. IV. Parliaments, Civil Society and the IMF (contd.) • The main counterparts of the IMF are governments • But the IMF has long interacted with legislators and has recently broadened its outreach and dialogue • A recent Working Group of Executive Directors discussed the IMF’s outreach to parliamentarians. Legislators are invited to send comments on the report, which is being made available here

18. IV. Parliaments, Civil Society and the IMF (contd.) • Key venues for IMF parliamentary outreach initiatives include: • Country level • Training • International Fora • Other

19. IV. Parliaments, Civil Society and the IMF (contd.) • The IMF has also increased its outreach to CSOs. The policy is to respond positively to all requests to engage in a constructive dialogue • Groups we regularly see include national and international NGOs, labor unions, faith-based organizations, business associations, economic research institutes, and other think tanks. • A quarterly newsletter to civil society is widely distributed and posted on our website. It is translated into French, Spanish, and Russian.