IMF should follow its modified mandates
Tuesday, 14 August 2007
Qazi Azad
IN an interview with a Dhaka daily last Sunday, Finance Adviser Mirza Azizul Islam talked briefly about the latest proposal of the International Monetary Fund (IMF) for fresh loans under the poverty reduction growth facility (PRGF) and the conditions attached to it. He said, "The IMF has some conditions for the loans and we will consider our benefits. Things will be discussed soon and it's a matter of mutual interests".
As an agency of the United Nations, the IMF is mandated to promote monetary stability and co-operation with member countries. It holds regular meetings with the members "to discuss world's monetary problems and provides specialist advice on their balance-of- payment problems to members needing loans, sometimes making these conditional on at least part of this advice being accepted". The IMF has extended loans to countries with balance-of-payments problems, including extra liquidity as Special Drawing Rights (SDRs) after 1970 and various special facilities, such as the PRGF.
Its other mandate of promoting "international trade through encouraging stable exchange rates and providing additional international liquidity to enable countries to avoid the need for trade restrictions and exchange controls" was significantly squeezed once the World Trade Organisation (WTO) came into being on January 1, 1995, on the strength of the Marrakesh Declaration, signed in April 1994.
The Marrakesh declaration mentions at the outset about the adoption of a stronger and clearer legal framework within the institutional system of the WTO for the conduct of international trade, including a more effective and reliable dispute settlement mechanism. It also mentions about a "resolution to strive for greater global coherence of policies in the fields of trade, money and finance, including co-operation between the WTO, the IMF and the World Bank for that purpose."
The WTO has a trade policy review mechanism, aimed at contributing "to improved adherence of all members to rules, disciplines and commitments made under the multilateral trade agreements and, where applicable, the plurilateral trade agreements, and hence to the smoother functioning of the multilateral trading system, by achieving greater transparency in, and understanding of, the trade policies and practices of members". The review mechanism, in the language of the WTO, "enables the regular collective appreciation and evaluation of the full range of individual members' trade policies and practices and their impact on the functioning of the multilateral trading system. It is not, however, intended to serve as the basis for enforcement of specific obligations under the agreements or for dispute settlement procedures, or to impose new policy commitments on members".
The IMF's mandates, declared intentions of the Marrakesh declaration and the WTO rules, quoted above, contain certain elements that call for proper appreciation by the IMF of its present mandates in the light of the Marrakesh declaration and the WTO rules. These have potentials to occasionally give rise to conflicts of opinions or clashes between some member countries and the IMF owing to their biased interpretation on the part of any of the parties.
As per the normal rule, when two bodies have mandates to operate in the same area of activities or on the same subject or subjects, the mandate of the body, which came into being later, would automatically amend that of the other body to exclude duality and conflicts, resulting from pursuits of opposing objectives by the two bodies. The IMF, which came into being in 1946, may take up for pursuing only those trade issues of members, which are found inconsistent with their obligations and commitments in the review of the WTO's trade policy mechanism.
While its mandates have been clearly defined, the IMF cannot and should not have any individual interest of its own, outside its mandates, separate from the well-being of its members -- other than dealing with deviations by the members from their already made commitments to the WTO on trade matters. There can be, thus, no discussion by it with the government of any member on matters of 'mutual interest.' It can and should holds discussion with a member covering the member's legitimate interest.
Some of the IMF's suggestions to this country, such as the ones for raising the prices of power, fuel oils and gas, are reasonable in view of the huge losses suffered by the state-owned enterprises (SOEs) that deal in them. Even if their system losses are minimised to the extent it is technically feasible, yet these bodies would continue to suffer big losses. The Finance Adviser has been thus unquestionably right while asserting that some of the donors recommendations, such as lowering the losses of the SOEs should have been accepted much before and that the nation would not be able "to go with such huge losses for long".
Had the prices of power, fuel oils and gas been enhanced earlier in stages through proper sequencing, the pressure upon and the scope offered to the players in the economy to adjust through raising their operational efficiency, including productivity and replacement of one set of activities with another, in case of non-viability in a new situation created by higher input prices, could have made the economy more efficient by now. But the enhancement of the prices of power, fuel oils and gas at one stroke or by a high margin now, when prices of essentials have spiralled and inflation is high, will have multifarious adverse effects. The government may defer price adjustments of power, fuel oils and gas considering the market situation and pledge to the IMF to effect it in four or five phases, each after every six months once inflation recedes to the acceptable minimum level. The government may, however, form a safeguard body to function in accordance with the relevant WTO provision to legitimately safeguard the interest of local industries, as pleaded by local business.
Although a caretaker, the government has a nation-wide constituency, which must remain content that its government is restraining itself, as much as possible, from even realistic actions that have potentials to compound the problems of the innocent people. The matters of empathy with and support of the people are essential for the smooth undertaking by the government of critical reforms. Donors, including the IMF, should be told and convinced about it.
IN an interview with a Dhaka daily last Sunday, Finance Adviser Mirza Azizul Islam talked briefly about the latest proposal of the International Monetary Fund (IMF) for fresh loans under the poverty reduction growth facility (PRGF) and the conditions attached to it. He said, "The IMF has some conditions for the loans and we will consider our benefits. Things will be discussed soon and it's a matter of mutual interests".
As an agency of the United Nations, the IMF is mandated to promote monetary stability and co-operation with member countries. It holds regular meetings with the members "to discuss world's monetary problems and provides specialist advice on their balance-of- payment problems to members needing loans, sometimes making these conditional on at least part of this advice being accepted". The IMF has extended loans to countries with balance-of-payments problems, including extra liquidity as Special Drawing Rights (SDRs) after 1970 and various special facilities, such as the PRGF.
Its other mandate of promoting "international trade through encouraging stable exchange rates and providing additional international liquidity to enable countries to avoid the need for trade restrictions and exchange controls" was significantly squeezed once the World Trade Organisation (WTO) came into being on January 1, 1995, on the strength of the Marrakesh Declaration, signed in April 1994.
The Marrakesh declaration mentions at the outset about the adoption of a stronger and clearer legal framework within the institutional system of the WTO for the conduct of international trade, including a more effective and reliable dispute settlement mechanism. It also mentions about a "resolution to strive for greater global coherence of policies in the fields of trade, money and finance, including co-operation between the WTO, the IMF and the World Bank for that purpose."
The WTO has a trade policy review mechanism, aimed at contributing "to improved adherence of all members to rules, disciplines and commitments made under the multilateral trade agreements and, where applicable, the plurilateral trade agreements, and hence to the smoother functioning of the multilateral trading system, by achieving greater transparency in, and understanding of, the trade policies and practices of members". The review mechanism, in the language of the WTO, "enables the regular collective appreciation and evaluation of the full range of individual members' trade policies and practices and their impact on the functioning of the multilateral trading system. It is not, however, intended to serve as the basis for enforcement of specific obligations under the agreements or for dispute settlement procedures, or to impose new policy commitments on members".
The IMF's mandates, declared intentions of the Marrakesh declaration and the WTO rules, quoted above, contain certain elements that call for proper appreciation by the IMF of its present mandates in the light of the Marrakesh declaration and the WTO rules. These have potentials to occasionally give rise to conflicts of opinions or clashes between some member countries and the IMF owing to their biased interpretation on the part of any of the parties.
As per the normal rule, when two bodies have mandates to operate in the same area of activities or on the same subject or subjects, the mandate of the body, which came into being later, would automatically amend that of the other body to exclude duality and conflicts, resulting from pursuits of opposing objectives by the two bodies. The IMF, which came into being in 1946, may take up for pursuing only those trade issues of members, which are found inconsistent with their obligations and commitments in the review of the WTO's trade policy mechanism.
While its mandates have been clearly defined, the IMF cannot and should not have any individual interest of its own, outside its mandates, separate from the well-being of its members -- other than dealing with deviations by the members from their already made commitments to the WTO on trade matters. There can be, thus, no discussion by it with the government of any member on matters of 'mutual interest.' It can and should holds discussion with a member covering the member's legitimate interest.
Some of the IMF's suggestions to this country, such as the ones for raising the prices of power, fuel oils and gas, are reasonable in view of the huge losses suffered by the state-owned enterprises (SOEs) that deal in them. Even if their system losses are minimised to the extent it is technically feasible, yet these bodies would continue to suffer big losses. The Finance Adviser has been thus unquestionably right while asserting that some of the donors recommendations, such as lowering the losses of the SOEs should have been accepted much before and that the nation would not be able "to go with such huge losses for long".
Had the prices of power, fuel oils and gas been enhanced earlier in stages through proper sequencing, the pressure upon and the scope offered to the players in the economy to adjust through raising their operational efficiency, including productivity and replacement of one set of activities with another, in case of non-viability in a new situation created by higher input prices, could have made the economy more efficient by now. But the enhancement of the prices of power, fuel oils and gas at one stroke or by a high margin now, when prices of essentials have spiralled and inflation is high, will have multifarious adverse effects. The government may defer price adjustments of power, fuel oils and gas considering the market situation and pledge to the IMF to effect it in four or five phases, each after every six months once inflation recedes to the acceptable minimum level. The government may, however, form a safeguard body to function in accordance with the relevant WTO provision to legitimately safeguard the interest of local industries, as pleaded by local business.
Although a caretaker, the government has a nation-wide constituency, which must remain content that its government is restraining itself, as much as possible, from even realistic actions that have potentials to compound the problems of the innocent people. The matters of empathy with and support of the people are essential for the smooth undertaking by the government of critical reforms. Donors, including the IMF, should be told and convinced about it.