Financier or Facilitator? The Changing Role of the IMF in Low-Income Countries

With the added challenge of trying to meet the Millennium Development Goals, close attention is being paid to the relationship between the IMF and the low-income countries with which the Fund has the majority of its programs. This relationship covers a number of inter-connected issues incorporating both external financing and economic adjustment. For any poor country, conceptually there will be an optimal blend of external financing, short run stabilization and longer term economic reform. The key question is whether and to what extent the IMF helps countries discover and implement this blend. Circumstances may change over time. At a time when aid flows are declining the principal test facing the IMF is whether it can organize additional external financing either directly through its own lending facilities or by catalyzing others to lend. If aid flows are rising and the constraints imposed by external financing are being relaxed, the test is whether the Fund can help ensure that the additional financial resources are used to maximum benefit. This chapter overviews the general issues involved, but it also examines in greater depth the relationship between IMF programs and aid inflows to low-income countries