Fiscal Issues Are a Growing Concern of the IMF

Date: 2015-10-07; view: 506.

(Interview with the IMF's Fiscal Affairs Department Head)

Interviewer: Fiscal discipline is a vital element of the IMF's macroeconomic policy advice to member countries. How would you describe your department's role in IMF surveillance and policy advice?

Head: Since the early 60s when the department was created, we have been largely involved with technical assistance, with helping countries in Africa and elsewhere create fiscal institutions. Recently, the role of technical assistance has broadened.

Int.: Has it been connected with the movement of the economies in transition to market-oriented systems?

Head: Yes, with regard to economies in transition we had to help to create institutions as well as to reform policies. We have been much involved in setting up tax administrations, treasuries, budget offices, as well as creating and reforming customs policies.

Int.:Your role in trying to make tax systems more efficient and equitable is well known.

Head: Thank you. Besides, we have done a lot to improve public expenditure management systems, in other words, all activities that allow a country to gain better control over its expenditure. Work on social safety nets has also become an important activity of our department. And the first reason for this is the major economic policy changes in the transition economies.

Int.: Oh, it is quite understandable, the changes were accompanied by very high inflation that dramatically reduced the income of some groups, such as pensioners, right?

Head: Also, disposable incomes on the whole fell sharply. So, it was necessary to help these countries reform policies to protect the people. The other reason why we became more active in the safety net area was to provide some sort of targeted protection for particularly vulnerable population groups in countries engaged in major macroeconomic adjustment efforts that were accompanied by large withdrawals of subsidies.

Int.: So, your department has become involved in several new areas. I mean poverty, social safety, income distribution, and others. What is the nature of the work in these areas, and how would you assess its relevance to the IMF's main macroeconomic work and its value to members?

Head: Our interest in poverty and social problems has much to do with strengthening the political sustainability of reforms. When a country undertakes a major reform, the distribution of income often deteriorates in the short run. If it deteriorates too much and large groups become impoverished in the process, they may become supporters of populist policies that would defy the reform. We pay attention to poverty to help sustain reform and achieve macroeconomic stability and thereby to expand economic activity and income.

Int.: What future directions and roles do you envisage for FAD?

Head: FAD has been a demand-driven department to a large extent. The pressures on this department are enormous. I take pride in this department's role as one of the world's main fiscal observatories. We have one of the best concentrations of fiscal economists in the world. We try to anticipate fiscal problems and provide intellectual leadership for their solution. I hope, I've made myself clear, haven't I?
Words you may need:

Ex. 12. Give extensive answers to these discussion questions:

1. What is the international monetary system?

2. When did the system emerge?

3. What institutions does it comprise?

4. What functions does the IMF perform? What powers does it have?

5. What international reserve asset has been created by the IMF? How is the SDR value determined?

6. Under what financing facilities does the IMF offer resources to its members?

7. What is "conditionality" designed to ensure?

8. Is Russia (other former republics of the USSR) an IMF's member?

9. What role does the World Bank play?

10. What organizations help reschedule debts?

In order to get prepared for participation in the class discussion of the questions, write a short essay on: