Maravi

IMF lifts suspension of assistance to Zimbabwe

COMMENT - What this article does not mention is that the IMF did not support Zimbabwe because of the US veto enshrined in US law:

SEC. 4. SUPPORT FOR DEMOCRATIC TRANSITION AND ECONOMIC RECOVERY.

the Secretary of the Treasury shall instruct the United States executive director to each international financial institution to oppose and vote against--

(1) any extension by the respective institution of any loan, credit, or guarantee to the Government of Zimbabwe; or
(2) any cancellation or reduction of indebtedness owed by the Government of Zimbabwe to the United States or any international financial institution.

SEC. 3. DEFINITIONS.

In this Act:

(1) INTERNATIONAL FINANCIAL INSTITUTIONS- The term `international financial institutions' means the multilateral development banks and the International Monetary Fund.

In other words, the IMF's dealings with Zimbabwe are still legally proscribed through the Zimbabwe Democracy and Economic Recovery Act of 2001 (S.494).



IMF lifts suspension of assistance to Zimbabwe
Written by Kingsley Kaswende in Harare, Zimbabwe
Thursday, May 07, 2009 3:48:35 PM

THE International Monetary Fund (IMF) has lifted the suspension of its technical assistance to Zimbabwe.

This decision was made by the IMF executive board on Monday after it reviewed the case of Zimbabwe based on a report from an IMF team that visited the country in March for Article IV consultations on the state of the economy and government policies.

Under Article IV, the IMF holds bilateral discussions with members, usually every year where an IMF team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. A report is then prepared, which forms the basis for discussion by the executive board.

According to a press release posted to the IMF website on Wednesday evening, the IMF will with immediate effect lift Zimbabwe's suspension from accessing technical assistance, although the subsequent assistance will only be in targeted areas.

"Effective from May 4, 2009, IMF technical assistance can be provided to Zimbabwe in the areas of (i) tax policy and administration; (ii) payments systems; (iii) lender-of-last-resort operations and banking supervision; and (iv) central banking governance and accounting," the statement reads.

It states that the IMF would review this decision at the time of the next review of Zimbabwe's overdue financial obligations to the Poverty Reduction and Growth Facility-Exogenous Shock Facility (PRGF-ESF) Trust, and at subsequent six-monthly reviews as long as Zimbabwe has overdue financial obligations to the PRGF-ESF Trust.

The IMF's decision comes on the back of a significant improvement in Zimbabwe's cooperation on economic policies to address its arrears problems and severe capacity constraints in the IMF's core areas of expertise that represent a major risk to the implementation of the government's macroeconomic stabilization program.

Zimbabwe has been in continuous arrears to the IMF since February 2001 and is the only case of protracted arrears to the PRGF-ESF Trust, which currently amount about US$133 million.

Because of these arrears, Zimbabwe had been suspended from accessing technical assistance; [Not true - see the excerpt from ZDERA listed above - MrK] had been removed from the list of PRGF-ESF-eligible countries; and had been declared a non-cooperation case since 2001.

In March, following the establishment of the inclusive government, an IMF mission led by Vitaliy Karamenko visited Zimbabwe to conduct Article IV consultation discussions.

Following that assessment, the IMF welcomed Zimbabwe's commitment to recovery under The Short-term Emergency Recovery Programme (STERP) along with the elimination of quasi-fiscal activities by the Reserve Bank of Zimbabwe (RBZ), and the implementation of cash budgeting in 2009.

"Making further progress in structural reforms is essential for reviving economic growth and reducing poverty. A number of positive steps that are in line with previous IMF recommendations have already been implemented, including price liberalization, the removal of surrender requirements and most exchange restrictions on current account transactions, the imposition of hard budget constraints on parastatal enterprises, and the elimination of the Grain Marketing Board monopoly. Going forward, strengthening the investment climate, ensuring protection of property rights, and maintaining wages at competitive levels will all be essential for increasing domestic and foreign investment," Karamenko noted in a statement.

At the Monday board meeting, the IMF directors welcomed the efforts by the recently formed government of national unity to seize the historic opportunity to improve prospects for economic growth and poverty reduction by forging the necessary political consensus among all stakeholders for ambitious reforms.

They considered that Zimbabwe was now at a critical juncture following a decade of high inflation, severe economic decline, and rising poverty has culminated in an acute, ongoing humanitarian crisis.

They welcomed STERP, which is based on sound principles of macroeconomic management.

They underscored that following through with the STERP's commitment to establish fiscal discipline, eliminate quasi-fiscal activities, maintain a multi-currency monetary framework, and accelerate structural reforms would be essential for an economic turnaround in a low-inflation environment. However, the directors cautioned that downside risks were significant.

"Potential political instability and limited implementation capacity may undermine reform and stabilization efforts, weakening the prospects for mobilizing donor financial support and attracting private capital inflows," they noted.

The directors underscored the importance of establishing fiscal discipline while ensuring the delivery of essential public services. They were encouraged by the government's intentions to improve tax administration and review the tax regime to increase budget revenues.

They emphasized that the budgeted wage bill needed to be maintained and spending pressures from parastatals to finance nonessential activities should be resisted to leave sufficient resources for critical social needs and infrastructure.

They also called for rapid progress in strengthening the public financial management system.

"Given the sizable unfilled financing gap and the necessity to cover critical humanitarian expenses, Directors encouraged the authorities to intensify their efforts to establish workable budget aid delivery mechanisms in close cooperation with the donor community. Directors noted that Zimbabwe is in debt distress and large financing gaps would persist over the medium term even if policies were improved," the IMF statement reads.

Given the circumstances, the IMF supported the Zimbabwe's decision to anchor inflation expectations by introducing a multi-currency system with the South African rand as the reference currency.

The directors also emphasized that a significant strengthening of governance and transparency, including through an independent audit, at the Reserve Bank of Zimbabwe was urgently needed to enhance the credibility and durability of recent macroeconomic policies.

They concurred that the reintroduction of the Zimbabwe dollar, which was suspended last month, should await the establishment of a credible institutional framework that would underpin central bank operations with a focus on price stability.

They also noted that banking system issues needed to be addressed to improve payment services and access to credit.

They underscored that the payments system, banking supervision, and liquidity management would need to be attuned to the requirements of the multi-currency monetary framework.

Labels: IMF, SANCTIONS, STERP, ZDERA, ZIMBABWE

posted by MrK @ 2:50 PM