8 Future Challenges for the IMF in Low-Income Countries

hen the IMF was established in 1945, a role for the Fund in low-income countries was not foreseen. Its founding fathers envisioned an organisation to guard and help preserve the newly created international monetary stability in a world of fixed exchange rates and the gold-exchange standard. With the collapse of the Bretton Woods system in 1971, the oil price shocks in the 1970s and the debt crises in the 1980s, however, the Fund’s operations geared increasingly towards emerging economies and low-income countries. Moreover, acknowledging that macroeconomic stability as a prerequisite for sustained economic growth and poverty reduction can only be created over a longer term, the Fund’s involvement in low-income countries became much more long-term than the traditional short-term balance of payments support. In 2003, the IMF started a comprehensive discussion on its role in low-income countries. A first paper was published in July and discussed in the IMF Board in September. A year later, a second paper and dis-cussion followed (IMF, 2004a). Out of these discussions, the consensus emerged that the IMF has an important role to play in low-income countries, and that lending, policy advice and technical assistance should remain the Fund’s main instruments to help low-income countries to achieve the Millennium Development Goals (MDGs). More specifically, we believe that the Fund’s relationship with low