Conditionality

. The large international economic organizations, of which most known are the Fonds international currency (the IMF) and the the World Bank (BM), propose financings - with the Developing country mainly. The loans of the IMF aim at ensuring the stability of the system international currency, whereas those of the BM relate to development projects rather, Microcrédit with the projects of infrastructure.

The loans of the international institutions, even those of development, are not without counterpart. The countries borrowers are put at the bench of the traditional circuits of loan because of their problems of solvency, and thus are almost obliged to pass by these organizations in order to obtain funds. The interest rates suggested by the international economic institutions are in theory relatively low, but the loans are conditional. The governments borrowers create, jointly with the organizations of loan, the economic and financial programs of reform intended to ensure the future solvency of the country. Indeed, the institutions of loan intend to recover the engaged sums, as well as the associated interests.

The conditionality is justified by the fact that the institutions of loan must be sure that the loans will be used effectively, and that the States - which train the international organizations - would refuse to lend if these guarantees did not exist.

The stages of follow-up of a program of conditionalities are as many objectives to be reached and of means to implement. They are negotiated of agreement left and aim at the return to the balance in the budget and the growth. It comprises in general:

- a macroeconomic shutter, which lays down the future general economic policy of the country to return to the growth and to reduce poverty (essential shutter to obtain the “facility for the reduction of poverty and the growth”);

- a more technical shutter which details the reforms planned to leave the country the rut.

These shutters include in general:

Reduction in the public expenditure Increase in the public receipts Improvement of the governorship Installation of policy of growth

In 1999, Alassane Ouattara, DGA of the IMF, defined the three pillars of the development consequence of a plan of adjustment successful as follows:

“All these talks (with Heads of State, ONG, experts…) bring me to the conclusion which the development rests on three pillars: an economic good policy, a legal environment and suitable policy and an equitable social development. ”

An example

In 1997, the objectives of the programme of adjustment of Albania were:

To limit the fall of the GNP in 1997 to 8% and to reach a real growth of the 12% in 1998 To limit inflation to 54% in 1997 and 20 in 1998 To maintain monetary reserves crudes equivalent to 3,5 months of imports in 1998

Why conditionalities?

The conditionalities appeared since 1968 and multiplied in the years 1990. The multiplication of these conditionalities can be allotted on the one hand to the appearance of new facilities of loan, the keeping IMF are role of lender in last spring and on the other hand, with the need for obtaining results over the duration.

In a note of orientation gone back to 2000, the director of the the IMF, in order to answer criticisms of interference in the economic policy of sovereign states, asked that be rationalized the use of the conditionality S in the programs.

In 2002, a directive requires that the conditionalities be built-in with parsimony and only if they have a “decisive” importance in the success of the plan of adjustment.

This directive takes the care to point out “ which it is understood that the documents of program, in particular the letters of intent, will be prepared by the authorities (with the co-operation and the assistance of the services of the IMF) and that they represent the objectives of the action of the public authorities ”.

Criticisms of the conditionality

They aim mainly:

contents of the reform programs. Although, following many criticisms, the vocabulary of the international economic organizations evolved/moved and seems to take into account the social consequences of the imposed reforms, the contents of the programs have a liberal orientation systematically. Privatization of the rare still existing state enterprises, reduction in administrative staff, freezing of the wages, reforms taxation, etc, these measurements is, in any case initially, extremely painful for the populations, and tends to destabilize the constrained governments to implement them.
the legitimacy of the debts previously contracted by the governments. Many States only borrow to have financial capacities to refund their debts, and not to invest directly in the development. However the national debts often have remote origins, and can be contracted by governments considered to be illegitimate.

Feasibility of the policies of conditional adjustments according to OECD

The report of OECD on the political feasibility of the adjustment was published in 1996 to give councils to controlling as regards control of the social movements, of the reactions of the population vis-a-vis the austerity measures.

For the development center (of OECD) it is a handbook aiming at facilitating the adequate policies and social stabilization.

Indeed, the policies of adjustment are often fought by the populations of the country, often obliged to give up current advantages (like subsidies on the price of the flour, of the gasoline or others) against not easily palpable future advantages.

For Christian Morrisson, to succeed of the policies of structural adjustment in the public opinion passes in particular by the good management of price increases (spreading out, communication). It stresses that certain measurements (in particular monetary or of public investment) are less unpopular than others, although their consequences futures do not have only advantages for the country.

He finally recommends not to make also carry the equal effort of way on all the social groups, but touch only some, in order to spare part of the public opinion.

For Eric All Saints' day (president of the Committee for the cancellation of the debt of the third world of Belgium) it is a true handbook of “economic war against the populations”. Its association preaches cancellation without conditions of the debt of the third world, whereas the multilateral creditors prefer a preliminary policy of reform.

Examples of reforms recommended by the IMF and planned into 1997/1998

Examples drawn mainly from an annual report of the IMF, these examples relate to period 1997/1998. They gather the whole of the recommendations which the IMF exerted, not inevitably within the framework of a policy of structural adjustment. One can see that measurements are very diverse and relate to only in certain cases the structure of the economy.

More precisely, the countries quoted low concluded with the IMF one of the four types of following agreements:

the agreements of confirmation, relate at the same time to the macroeconomic policy and the structural policy.

agreements under the widened mechanism of credit

agreements with the title of the facility of structural adjustment reinforced (agreements FASR)

emergency aid, in the event of natural disaster or of conflicts.

List summary reforms quoted in this annual report 97/98:

the reforms recommended by the IMF aims at improving the effectiveness of the tax mode. (ex: Arménie, Argentina, Cameroun, Ivory Coast, Ghana, Pakistan, Senegal)
Increase in the tax S (ex: Albania)
Monetary policy rigorous, i.e. according to the the IMF, the fall of the rate of inflation. (ex: Albania, Arménie, Cape Verde, Estonia, Ghana, Mongolia, Pakistan)
Privatization of the state enterprises for degearing and better governorship, especially in the banking environment (ex: Albania, Azerbaïdjan, Bolivia, Burkina Faso, Cameroun, Latvia, Guinea-Bissau)
Increase in the social securities (ex: Albania)
Reform of the job market to reduce unemployment (ex: Argentina)
Reform of the social services (ex: Argentina, Arménie, Mongolia)
Elimination of the subsidies aiming at influencing the market (ex: Arménie)
Cleansing of the Financial system (ex: Albania, Arménie, Azerbaïdjan, Bolivia, Estonia)
Reorganization of the public office, reduction of manpower (ex: Azerbaïdjan, Bolivia, Cameroun, Senegal, Guinea-Bissau)
Reform of the legal system to create favorable conditions with the investment (ex: Azerbaïdjan, Bolivia, Burkina Faso)
Economic liberalization (ex: Burkina Faso, Cameroun, Cape Verde, Ivory Coast, Ghana, Latvia)
Investment in education (ex: Burkina Faso, Cameroun)
Investment in health (ex: Burkina Faso, Cameroun)
Investment in the infrastructures (ex: Cameroun)
Reduction of the public expenditure except education and health (ex: Ivory Coast)
Reduction of all the public expenditure (ex: Djibouti)
Non-discrimination of the overseas investment (ex: Pakistan)
Of the policies to increase exports and the extraction of natural resources.
Devaluation of the currency. (ex: Mauritania)
Liberalization of the trade, suppression of the restrictions on the importation (ex: Ghana)
Suppression of the State aid and price control.

See too

Structural adjustment

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