IMF chief Dominique Strauss-Kahn told Africans on Monday the Fund’s policy advice had not always been right, and promised more streamlined lending practices as economic crisis forces more countries to seek help
Addressing students at the University of Dar Es Salaam, the International Monetary Fund’s managing director said sub-Saharan Africa would be more affected by the slowdown in world growth than by the systemic banking crisis hurting advanced economies, Reuters reports.
He said African exports would suffer from falling global demand, lower prices for oil and commodities, and a fall in the supply of international financing.
The prospect that some African countries may have to go to the IMF for increased or new aid has unnerved many in the region who, rightly or wrongly, say the fiscal and structural medicine that it prescribed did their economies more harm than good.
Strauss-Kahn said the IMF was moving fast to increase financial support to affected countries, step up technical assistance, and streamline its lending conditions.
“It is true to say that, until recently, the idea of the IMF was: ‘When countries ask for resources we should also fix all of the problems in the country’,” he said.
“What I am trying to change now is to focus on the problem the country is facing that day, and not all of the problems in the history of the country.”
If a country faces fiscal imbalances, IMF conditions should not also emphasise the need for land reform, he said.
An IMF conference starting on Tuesday in the Tanzanian capital under the banner “Changes” seeks to reassure policymakers that the Fund wants to help preserve the economic and social gains of the last 10 years.
“I want to have a kind of a partnership with African countries which is … different from what we had in the past,” Strauss-Kahn said. “It will be such pity to see all of this destroyed by the crisis.”
An IMF report last week estimated that 22 developing countries would need at least $25 billion in extra financing this year, and possibly as much as $140 billion if the crisis intensifies.
And on Sunday, the World Bank said all the world’s developing countries would need between $270 billion and $700 billion to deal with the effects of the global economic crisis.
An IMF report to be released on Monday focuses on Africa, warning that risks from the crisis are increasing and will get worse the longer the crisis lasts.
“Risks to the outlook are serious and mostly on the downside,” the report says. “The effects may be more pronounced this time because the tightening of global credit compounds the impact of the slowdown, exacerbating risks for trade finance and other capital flows.”
The IMF says policymakers “must walk a tightrope between not aggravating the shock in aggregate demand on the one hand, while protecting hard won gains in economic fundamentals on the other”.
“Any policy response must also take into account the impact on the poor and seek to incorporate social safety nets,” it says, adding that countries with low debt levels and no financing constraints may have some scope for fiscal easing.
“But it is also clear that countries will depend critically on donors honouring their commitments to aid and even increasing aid, despite new competing demands on their own budgets,” it adds.
Strauss-Kahn said he was concerned that increased aid flows from big donors such as the United States and Europe will become difficult, if not impossible, despite commitments at a summit in 2005 to double aid to Africa by 2010.
Asked why the IMF did not warn rich countries about problems in their economies, Strauss-Kahn acknowledged that its advice tended to be ignored by advanced economies.
“The problem with early warnings is that you don’t need only to warn early but you also need to be listened to,” he said.