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CIAO DATE: 10/5/2006
The Role of the IMF in Well-Performing Low-Income Countries
Steven Radelet
February 2006
Abstract
The IMF began to play a prominent role in low-income countries in the late 1970s and 1980s when many countries faced overvalued exchange rates, growing budget deficits, high inflation, and low reserves. But times have changed, and many low-income countries no longer face these problems and do not need classic IMF programs. This paper explores options for the role of the IMF in well-performing low-income countries that no longer require IMF financing. It argues that in these countries the IMF should use more non-funded programs, and it should play a much less dominant role in overall conditionality. These countries should be able to focus more on achieving high-priority development goals that are outside the expertise of the IMF, such as in health, water, education, private sector development, and agriculture. While playing a less prominent role, the Fund should continue to be engaged in helping countries to maintain an appropriate macroeconomic framework. For some countries, a non-funded program like the new Policy Support Instrument (PSI) would be appropriate, while others could shift further to a program of surveillance and monitoring. In well-performing countries the Fund should provide public ratings on macroeconomic policy, ideally fully incorporated into the World Bank’s CPIA rating system.
