Principio de funcionamiento

280.The provision of different types of donor resources for public expenditures is usually accompanied by policy conditions related to macroeconomic and struc- tural policies with the aim of promoting reforms in recipient countries. As a large share of aid resources is channeled through the government budget, a substantial part of conditionality is related to PFM.

281.Very often the donors’ support to the budget is seen as a “carrot” which helps encourage domestic stakeholders to implement the required reforms and ensure concordance with conditions. This implies there are risks for the implementation of these reforms in absence of the “carrot” which are related to the existence of influential counter-reform-minded stakeholders. Therefore, conditionality is usu- ally the most controversial component of donor aid.

282.Among all types of donor conditionality, those imposed by the IMF are the very significant. They usually involve the key issues of monetary and fiscal policies and PFM. A country’s compliance with IMF conditionality signals to other donors (e.g., the EC or Paris Club) that the recipient government is prepared to manage donor resources with a reasonable degree of prudence. Therefore, the resource impact of IMF programs far exceeds the size of their resources as they often act as catalysts for the allocation of much larger funds provided by other donors.

283.During the transition period, almost all countries of the region implemented IMF programs (see Table 6.7). In fact, only Montenegro (during the very short period of its independence) and Turkmenistan never had such a program. 13 out of 18 countries had three or more IMF programs between 1992 and 2008. Nine coun-

tries have IMF programs active as of 31 December 2008. Five smaller countries (Albania, Armenia, Georgia, Kyrgyzstan, and Moldova) spent more than ten years under IMF programs. This may be seen as an indicator of the heavy reliance of these countries on foreign aid (not necessarily of the IMF), for which IMF pro- grams often (but not always) serve as an important pre-condition. Interestingly, Croatia had five arrangements with IMF and for the last three, the government did not draw a penny from the agreed upon credit line; some other countries also demonstrated similar behavior. On the other hand, resource-rich countries (Ka- zakhstan, Russia, Turkmenistan, and Uzbekistan) tended to minimize the use of IMF programs and repaid old IMF loans as soon as possible.

Table 6.7. IMF Programs

All programs in 1992-2008 Latest program Country Num- ber Years under the pro- grams Type Approval date Expiration date Active program as of 31.12.08

Albania 5 14 EFF/PR_GF 01.02.2006 31.01.2009 Yes

Armenia 5 11 PRGF 18.11.2008 17.11.2011 Yes

Azerbaijan 3 8 PRGF 06.07.2001 04.07.2005 No

Belarus 2 1 Stand-by 31.12.2008 31.03.2010 Yes

Bosnia and

Herzegovina 2 5 Stand-by 02.08.2002 29.02.2004 No

Croatia 5 9 Stand-by 04.08.2004 15.11.2006 No

Georgia 5 11 Stand-by 15.09.2008 31.03.2010 Yes

Kazakhstan 4 8 EFF 13.12.1999 19.03.2002 No Kyrgyz Re-

public 6 14 ESF 10.12.2008 09.06.2010 Yes

Macedonia, FYR 5 9 Stand-by 31.08.2005 30.08.2008 No Moldova 5 12 PRGF 05.05.2006 04.05.2009 Yes Montenegro 0 0 … No Russian Fed- eration 4 6 Stand-by 28.07.1999 27.12.2000 No

Serbia 3 5 Stand-by 17.11.2008 16.02.2010 Yes

Tajikistan 4 8 SMP59 _{01.06.2008 31.12.2008 Yes}

Turkmenistan 0 0 … No

Ukraine 6 8 Stand-by 05.11.2008 04.11.2010 Yes

Uzbekistan 1 1 Stand-by 18.12.1995 17.03.1997 No

Source: IMF.

59 _{The Government of Tajikistan has already expressed its intention to have a new PRGF} arrangement after the completion of the Staff-Monitored Program.

284.IMF conditionality consists of (i) quantitative targets and (ii) structural perform- ance criteria and benchmarks. These conditions are always country- and time- specific, but a substantial number of them relate to fiscal policy and PFM. Quanti- tative targets, which are typical for the latest IMF programs in the region, estab- lish ceilings/floors for:

• central/consolidated government budget deficit (ceiling),

• contracting or guaranteeing new non-concessional external debt by gov-

ernment and/or public enterprises (usually zero ceiling),

• external arrears (usually zero ceiling),

• tax revenues (floor).

285.In countries with weaker PFM systems, quantitative targets also impose limita- tions on the domestic arrears of the central government, revenues and/or the ar- rears of off-budget social security funds, the wage bill of the central government and the tax arrears of state-owned enterprises.

286.The structural performance criteria and benchmarks in the recent IMF programs

are diverse but typically deal with tax policy and revenue administration, the quasi-fiscal operations of the government, extra-budgetary funds and the finances of public enterprises. Often, these structural conditions tend to provide a detailed regulation of PFM systems addressing tax structure, tax base definitions and tax rates, utility tariffs etc., going as far as trying to regulate government procurement systems, markets of government securities, the composition of civil servant sala- ries, reduction in public employment and even the introduction of targeted social assistance systems, i.e., areas which are not usually seen as part of the IMF agenda. Obviously, the power of IMF conditionality creates incentives for other donors to press the IMF for the inclusion of issues from their agendas as condi- tions into the IMF programs. Expectedly, however, these attempts at micro- management by the IMF often cause discontent among governments.

287.Conditionalities set by other donors are mostly related to the implementation of structural reforms. These type of conditions also have numerous PFM implica- tions. One area in which many donors are active is the establishment of better linkages between policies and government budgets. The introduction of MTEF, elements of POB, and new budget classifications are often included into the con- ditionalities accompanying loans and grants of the WB, EC and other donors. New modalities of government service delivery promoted by donors have impor- tant implications for the redistribution of responsibilities and resources from cen- tral to local governments; therefore, intergovernmental fiscal relations are another major area of donor PFM-related conditionality.

financing of services replacing traditional input-based methods), which are ad- dressed by donor conditions accompanying structural adjustment and/or invest- ment lending. The introduction of new PFM institutions (treasury, internal and external audit, integrated financial management systems etc.) is also frequently included in aid conditionality. All of these issues are very sensitive for the recipi- ent governments. For them, meeting donor conditions is often associated with substantial domestic political costs. So, non- or partial compliance with the condi- tionalities (for example, imitating the requested reforms), even at the expense of losing part of funds committed by donors (for example, in the case of the Social Sector Structural Adjustment Credit II and the Economic Management Structural Adjustment Credit in Bosnia and Herzegovina or the Consolidated Structural Ad- justment Credit in Kyrgyzstan) is not a rare phenomenon.