A new report by the IMF’s Independent Evaluation Office (IEO) on “The IMF and Aid to Sub-Saharan Africa,” examined IMF loan programs to 29 Sub-Saharan African countries between 1999-2005. On page 9 was a finding that has alarmed aid advocates: significant percentages of foreign aid to these countries during these years were not programmed to be spent because of 2 particular IMF policies on currency reserve levels and inflation rates.
The report noted that about 37 percent of all annual aid increases to these countries in these years was diverted into building internationally currency reserve levels (see Figure 2.2, p.9). The report also found that, among countries perceived to already have sufficient currency reserves, only about $3 of every $10 in annual aid increases was programmed to be spent, and up to $7 out of every $10 was redirected and diverted by IMF into either paying down domestic debt, building up international currency reserves, or both (see Figure 2.3 on p. 9, with a further elaboration of this data on pages 42-44). In both cases, having so much of the new aid increases not being spent was certainly not the intention of the donors, or citizens in donor countries.
According to the IEO report, the “main driver” here in decisions to curtail spending of the aid was the IMF’s insistence on very low levels for inflation. Countries who had failed to comply with the IMF’s instance on getting inflation down to 5 percent to 7 percent a year were only allowed to spend 15 percent of their annual aid increases, or just $1.50 of every $10 in annual aid increases by donors. Speaking at a seminar in London on April 2, 2007, the lead author of the report, Joanne Salop, said the IEO report team recommended that since the 5-7 percent threshold was, in fact, the operative policy of the Fund, it should be publicly stated and clarified—but the IMF Executive Board and management rejected the recommendation.
As part of the larger context for the IMF’s tight monetary policies, one of the major overarching findings of the IEO report was that the IMF Executive Board and senior management were never really enthusiastic about the emphasis placed by donors on “poverty reduction” or the new efforts to scale-up aid and spending for the MDGs. Without strong leadership directing any real policy changes in this regard, the IEO report found, the staff simply reverted to prioritizing macroeconomic stability over other goals. The important implication of this finding for aid advocates is that there is a contradiction happening within the leading donor governments between enabling a “scaling up environment” on the one hand while enforcing rigid macroeconomic stability and spending restraint on the other hand.
