When it's not easy to wriggle off the PSI hook
Wednesday, 5 September 2007
Shamsul Huq Zahid
An International Monetary Fund (IMF) team, led by its Asia-Pacific region adviser Thomas Rumbough arrived in Dhaka yesterday (Tuesday) on a fortnight-long visit to discuss, among others, a Policy Support Instrument (PSI) deal with Bangladesh in a rather hostile environment.
The Fund describes the PSI as a 'flexible' new policy framework that enables the low-income countries to secure its support and endorsement of their economic policies without borrowing arrangement. However, in case of emergency, a country having an on-track PSI is entitled to get rapid access to the IMF's quick disbursing, exogenous shock facility and high-interest bearing loans meant for quality projects.
The IMF claims that the PSI is 'voluntary and demand driven' and is well-suited to countries graduating from the Poverty Reduction and Growth Facility (PRGF) arrangement. The Bretton Woods institution prefers to call these countries as 'mature stabilizers' since they have made substantial progress towards macro-economic stability and debt sustainability and are well-advanced in structural reforms.
Bangladesh had had a PRGF arrangement with the Fund until last June. Going strictly by the IMF definition, Bangladesh is now a mature stabilizer and is free to accept or ignore the 'voluntary' tool named PSI, the successor to the PRGF. But the ground reality is not that simple.
Bangladesh may not require at the moment any budgetary support from the IMF since it has adequate international reserves. But for carrying out its development activities it desperately needs external assistance from bilateral donors as well as multilateral development banks. But such help would not be forthcoming, particularly from the World Bank, the Asian Development Bank and other western bilateral donors, unless and until the IMF emits the right signal that Bangladesh's economic policies have been discussed with and endorsed by it (IMF). The IMF now says such signal for a country like Bangladesh should come through a PSI deal.
The Bangladesh Bank will, reportedly, engage one of the internationally reputed financial firms to do the country's sovereign-rating to help the foreign investors and donors make decisions on investments and assistance respectively. That would be a valuable piece of work on the part of the central bank, no doubt. But it is unlikely that western donors, investors and financial market operators would make decisions without getting positive signal from the IMF. So, Bangladesh being a 'mature stabilizer' has little choice but to accept the IMF's 'flexible' policy framework called the 'PSI'.
But the PSI, introduced in October 2005, has not found too many takers. Only four African countries, namely, Nigeria, Uganda, Cape Verde and Tanzania have adopted the policy until now. Some other countries, including Bangladesh, are considering following suit. The finance ministry, reportedly, has decided in principle to strike a deal with the IMF on PSI.
The visiting IMF team might seek information from the government about broader macro-economic policies, structural reforms agenda that, according to the Fund, pose critical bottlenecks to private-sector led growth and poverty alleviation.
The private sector here, of late, has been highly critical of the IMF because of, what the business leaders describe, "uncalled for" and "unwarranted interference" in economic management of the country. Until recently, the left-leaning politicians and members of the intelligentsia were particularly vocal against the 'IMF's diktats'. But strong criticism of the IMF role in Bangladesh by the business leaders has added a new dimension to the relations between the Fund and the local private sector.
The businesses first took exception to the IMF's advice to the central bank to hike the lending rate back in 2005 in a bid to reining in soaring inflation. The recent IMF pressure on the government to hike the prices of fuel oils and gas and tariffs at a time when inflation reached almost the double-digit mark and the opposition to the government move to a form a trade 'safeguard body' made the businesses very jittery. The leaders of the country's main trade bodies issued two separate statements recently criticising the 'interference' of international organisations, including the IMF, in the economic management of the country.
There could be lots of debate over the issue whether the multilateral lenders' so-called interference in the country's economic management has produced positive or negative results. But it is a fact that structural reforms are bound to hurt the interests of some people, rightly or wrongly. However, allegations have it that it is the poor who, in most causes, are the victims of the reforms suggested by multilateral donors.
The IMF has been instrumental in authoring the poverty reduction strategies in countries that had adopted its PRGF arrangement and suggesting reforms for mobilising increased revenues for the implementation of the strategies. But how far the interests of the poor and low income people have been protected in the process remains a matter of serious doubt. On this score, critics of the Fund-supported programmes and policies have been citing their negative impact. Poverty alleviation is a lengthy process and one cannot see instant results from programmes taken up for reducing poverty. But pain caused to interests of the poor through the hike of diesel or kerosene or fertiliser prices is felt immediately. Hence, criticism flows instantly.
An International Monetary Fund (IMF) team, led by its Asia-Pacific region adviser Thomas Rumbough arrived in Dhaka yesterday (Tuesday) on a fortnight-long visit to discuss, among others, a Policy Support Instrument (PSI) deal with Bangladesh in a rather hostile environment.
The Fund describes the PSI as a 'flexible' new policy framework that enables the low-income countries to secure its support and endorsement of their economic policies without borrowing arrangement. However, in case of emergency, a country having an on-track PSI is entitled to get rapid access to the IMF's quick disbursing, exogenous shock facility and high-interest bearing loans meant for quality projects.
The IMF claims that the PSI is 'voluntary and demand driven' and is well-suited to countries graduating from the Poverty Reduction and Growth Facility (PRGF) arrangement. The Bretton Woods institution prefers to call these countries as 'mature stabilizers' since they have made substantial progress towards macro-economic stability and debt sustainability and are well-advanced in structural reforms.
Bangladesh had had a PRGF arrangement with the Fund until last June. Going strictly by the IMF definition, Bangladesh is now a mature stabilizer and is free to accept or ignore the 'voluntary' tool named PSI, the successor to the PRGF. But the ground reality is not that simple.
Bangladesh may not require at the moment any budgetary support from the IMF since it has adequate international reserves. But for carrying out its development activities it desperately needs external assistance from bilateral donors as well as multilateral development banks. But such help would not be forthcoming, particularly from the World Bank, the Asian Development Bank and other western bilateral donors, unless and until the IMF emits the right signal that Bangladesh's economic policies have been discussed with and endorsed by it (IMF). The IMF now says such signal for a country like Bangladesh should come through a PSI deal.
The Bangladesh Bank will, reportedly, engage one of the internationally reputed financial firms to do the country's sovereign-rating to help the foreign investors and donors make decisions on investments and assistance respectively. That would be a valuable piece of work on the part of the central bank, no doubt. But it is unlikely that western donors, investors and financial market operators would make decisions without getting positive signal from the IMF. So, Bangladesh being a 'mature stabilizer' has little choice but to accept the IMF's 'flexible' policy framework called the 'PSI'.
But the PSI, introduced in October 2005, has not found too many takers. Only four African countries, namely, Nigeria, Uganda, Cape Verde and Tanzania have adopted the policy until now. Some other countries, including Bangladesh, are considering following suit. The finance ministry, reportedly, has decided in principle to strike a deal with the IMF on PSI.
The visiting IMF team might seek information from the government about broader macro-economic policies, structural reforms agenda that, according to the Fund, pose critical bottlenecks to private-sector led growth and poverty alleviation.
The private sector here, of late, has been highly critical of the IMF because of, what the business leaders describe, "uncalled for" and "unwarranted interference" in economic management of the country. Until recently, the left-leaning politicians and members of the intelligentsia were particularly vocal against the 'IMF's diktats'. But strong criticism of the IMF role in Bangladesh by the business leaders has added a new dimension to the relations between the Fund and the local private sector.
The businesses first took exception to the IMF's advice to the central bank to hike the lending rate back in 2005 in a bid to reining in soaring inflation. The recent IMF pressure on the government to hike the prices of fuel oils and gas and tariffs at a time when inflation reached almost the double-digit mark and the opposition to the government move to a form a trade 'safeguard body' made the businesses very jittery. The leaders of the country's main trade bodies issued two separate statements recently criticising the 'interference' of international organisations, including the IMF, in the economic management of the country.
There could be lots of debate over the issue whether the multilateral lenders' so-called interference in the country's economic management has produced positive or negative results. But it is a fact that structural reforms are bound to hurt the interests of some people, rightly or wrongly. However, allegations have it that it is the poor who, in most causes, are the victims of the reforms suggested by multilateral donors.
The IMF has been instrumental in authoring the poverty reduction strategies in countries that had adopted its PRGF arrangement and suggesting reforms for mobilising increased revenues for the implementation of the strategies. But how far the interests of the poor and low income people have been protected in the process remains a matter of serious doubt. On this score, critics of the Fund-supported programmes and policies have been citing their negative impact. Poverty alleviation is a lengthy process and one cannot see instant results from programmes taken up for reducing poverty. But pain caused to interests of the poor through the hike of diesel or kerosene or fertiliser prices is felt immediately. Hence, criticism flows instantly.