TUESDAY 26 OCTCBER 1999

MR STEPHEN PICKFORD and MR ALEX GIBBS

  80. Drawing up this strategy shall you require the government of the debtor country to consult with anyone but itself in setting out the terms of the strategy?
  (Mr Pickford) Yes. One of the important features of the Fund and Bank's approach to those poverty reduction strategies is to ensure that they are defined in a participative way and, indeed, one of the requirements is that when the staff report to the two boards about those poverty reduction strategies we should be told what was the process that the country went through in order to demonstrate that it had been done in a participative way.

  81. And for them not to do so risks that you would not agree the strategy and therefore that debt relief would not follow?
  (Mr Pickford) That is the implication.

  82. You mentioned a moment ago the IMF successful prescription of macro-economic reform. What if the strategy proposed by the government of the debtor country after full consultation inside the country conflicted in some important elements with your prescription overall?
  (Mr Pickford) Hopefully we will not be faced with that situation but I think that is an important aspect of the changes that the Fund is making in terms of reforming the enhanced structural adjustment facility. It is being changed in important ways partly to ensure that it actually takes full account of poverty reduction strategies in designing macro-economic and structural policies. It should also focus on good governance, so for example ensuring that transparency and anti-corruption policies are a central feature of those programmes, and also ensuring that priority is given to reforms that are actually key to the country's social goals. The proof of the pudding will be in the delivery of these new programmes, but they have a substantially different focus to ESAF and the intention is that they will be the Fund's prime instrument for supporting the poverty reduction strategies.

  83. Are you describing to me there requirements that are in guidelines which you are giving out to debtor countries?
  (Mr Pickford) Yes. I am setting out for you the main aspects of the Poverty Reduction and Growth Facility. It will be a requirement that countries have in place some support in this form because essentially debt relief is only part of the solution. Countries will still require Fund support, they will require Bank support, they will require bilateral support through overseas development assistance, for instance. The intention is that the Poverty Reduction and Growth Facility will support the overall strategy for poverty reduction in the countries using it.

  84. Accepting this is new ground for the IMF itself do these guidelines apply to the IMF in deciding whether or not to agree this strategy?
  (Mr Pickford) They apply to the IMF in working out with the countries the programmes, the economic policies which will be a condition for the support under the Poverty Reduction and Growth Facility.

  85. How is the IMF going to judge the success of the enhanced initiative? Are there targets and milestones you are going to be monitoring?
  (Mr Pickford) Certainly the intention is that a crucial feature of these poverty reduction strategies should be measurable and deliverable outcomes and milestones. A priority for the United Kingdom is to try to ensure that these poverty reduction strategies are consistent with what a country might expect to achieve in terms of the 2015 international development targets. I think it is important to see those poverty reduction strategies as part of the global effort towards the international development targets. The intention in setting out these poverty reduction strategies is that there should be these milestones put in place so that we can judge over time whether social outcomes, poverty, access to primary education, access to basic health, clean water and so on are actually being delivered through the process. I think this is a major step forward.

  86. And like the guidelines are these targets and measures available in advance of agreeing the strategies?
  (Mr Pickford) The whole intention by factoring these in as a central part of the poverty reduction strategies is that through a participative process the country should work out what its strategy and its time line for poverty reduction is and the aspects that the country wants to concentrate on.

  87. Everybody is interested in the question of financing especially the gold. Is it right that the outright sale of IMF gold reserves is a dead duck now?
  (Mr Pickford) That is correct. The legislation which is currently before Congress (and harking back to our earlier discussion, gold sales require an 85 per cent majority and therefore the US effectively have a veto on the form of gold sales) proposes a rather complicated set of gold transactions.

  88. It involves a revaluation of the reserves which for historical reasons are valued at a very low figure?
  (Mr Pickford) In summary that is right. Historically gold on the Fund's books is valued at 35 SDRs per ounce which is roughly $50 per ounce. The current gold price as of last week was $310 an ounce. In effect, that scheme does precisely what you say; it revalues some of the gold on the Fund's balance sheet and it allows the revaluation element to earn interest. The interest that it generates will be used to finance a part of the IMF's contribution to debt relief.

  89. This will also need an 85 per cent majority, will it?
  (Mr Pickford) Yes, because of the way in which the deal is structured. Strictly speaking, it is a sale of gold, but then there is a repurchase on the same day at the same price.

  90. So we need American approval because their voting rights are more than 15 per cent?
  (Mr Pickford) Correct.

  91. Where are we on getting a decision from America?
  (Mr Pickford) As I said earlier, both the gold transaction issue and the US Administration's contributions to HIPC are tied up in the overall negotiations on the US Budget Bill which I see from the newspaper today is making slow progress. There is yet another deadline at the end of this week but by past experience that deadline could be extended. We all sincerely hope that Congress will approve these proposals and approve them quickly.

  92. If agreement is not forthcoming for the revaluation scheme is the enhanced initiative dead?
  (Mr Pickford) It is an outcome that I do not particularly want to consider.

  93. But it is a vital component of this whole scheme?
  (Mr Pickford) Indeed it is.

  94. There is no alternative?
  (Mr Pickford) At the moment there is no alternative. If gold revaluation in total were off the agenda then we would have to go back to the drawing board and work out some way of financing the Fund's contribution.

  95. So speeding up debt relief of 36 of the world's poorest countries depends on that revaluation going ahead?
  (Mr Pickford) In part.

  Mr Kidney: Thank you.

  96. Can I come back to two items in your initial menu of things that the Government wants to see. On housekeeping you supplied the Committee with the IMF budget figures which show that expenditure on salaries and personnel expenses have gone up from $345 million dollars in 1997 to $417 million in the current financial year. That is an increase of 20 per cent. How is that justified or is that a successful poverty reduction strategy?
  (Mr Pickford) In part it is a large increase in staff numbers. The Fund has increased enormously in size since 1990/91 partly because there are many more countries as members and partly because the Fund has spent a lot of time on the transition economies which it did not previously provide any support to. Before 1992 the USSR was not a member, I think I am right in saying, so there has been a large increase in the workload and the staff numbers have increased to reflect that. I am sorry I do not have the number of staff to hand and I can certainly send you a note on that, but it is also true that staff salary increases have been quite high and the United Kingdom has opposed those staff increases.

  97. I have told you they are high. What I asked you was whether these increases are justified.
  (Mr Pickford) I think this comes back to the earlier question of whether the Fund as a whole is justified but certainly we have taken a view that there are efficiencies that could be achieved. We also believe that salary increases were too high. We voted against—I am sorry, I should not say that. We were not happy with the proposals for increases in the salaries of the Managing Director, the executive directors and the staff.

  98. So you did vote against them?
  (Mr Pickford) Yes. The Chancellor actually has to vote as Governor of the Fund for the increases for the Managing Director and for the executive directors, which is wholly right; and he opposed the increases.

  99. It is good to have him voting on something transparent. Can I come back to the issue of transparency. From everything you have said this morning what is the reason really why you cannot publish the staff reports on the different countries? You gave Kenya as an example. Why not go on and rank your client countries by their degree of compliance and good governance and so on? Why keep all this secret?
  (Mr Pickford) We are making significant moves in the direction of transparency. Some of us would like it to be faster, that is certainly true, but there has been significant progress. If you concentrate on staff reports for the moment we have indeed started an experiment which I think began in March or April of this year which would allow countries on a voluntary basis to have their Article IV staff reports released. There was a division within the board. Some countries do not want staff reports to be published partly because they view the Article IV surveillance process as an important part of the confidential dialogue between the country (in many cases a borrowing country) and the Fund and they believe that publication of those reports would damage that confidential relationship. I personally think that the benefits outweigh the costs and therefore we were very much in support of going ahead with full publication. The compromise that we arrived at was that we would have an experimental period of up to 18 months where a country on a voluntary basis would be allowed to publish its staff report—the UK is committed to signing up for publishing its Article IV report—and then we would review it. My expectation is that having had a period when a significant number of staff reports have been published—I think the latest number of countries who are signed up for releasing their reports is 45 or 50 out of the 182 members, and I expect that number to grow over the period of the experiment—and I believe that it will be very difficult to go back from that position and say no, you cannot publish your staff reports.

  100. Finally, does not that last answer sum up where we have got to with the IMF, that these reforms are voluntary, patchy, they have been postponed and so on. We have had two years of speeches about new international financial architecture and reform and what has happened, you have changed the name of the interim committee, you have changed the enhanced structural facility into the poverty reduction facility. This is not radical reform is it?
  (Mr Pickford) I believe if you look at the history of the Fund the last few years will be seen as radical reform as compared to what has happened in the past. It is certainly the case that these things take some time to achieve and that is partly because we do try to develop a high degree of consensus for changes that many countries may see as detrimental to their interests. But it is the co-operative nature of the institution which means that we are reluctant to force changes on members if they feel very strongly about that, although there are cases where this does go ahead. I do not think I would decry the moves towards transparency that we have seen. For instance, on the press information notices that we publish at the end of Article IV reports, we have gone from zero in 1995, I think it was, up to 85 per cent now of countries having these press information notices published on their surveillance process on a voluntary basis.

  101. On that more optimistic note, it is perhaps wise to bring the proceedings to a close. Thank you very much.
  (Mr Pickford) Thank you.