Tuesday, June 09, 2015

IMF Engagement With Countries in Post-Conflict and Fragile Situations — Stocktaking

(Pix © Larry Catá Backer 2015)

The International Monetary Fund continues its efforts to develop templates for state building. These templates reflect the premises on which states may be considered legitimate and serve as the basis for judging their operation (through the application of complex and quite pointed accountability measures). This is not to suggest that state building along these lines is "wrong"--rather it suggests the outlines of shared cultures of what constitutes legitimate state behavior and the appropriate methods and operations of legitimate states.

The IMF has recently released the Policy Paper--IMF Engagement with Countries in Post-Conflict and Fragile Situations—Stocktaking. It was prepared by IMF staff and completed on May 6, 2015. It provides a window on the IMF's approach to state building in its normative aspects. I have previously considered the related issues of the evolution of governance standards for determining the extent of an enterprises’ responsibilities to protect human rights in weak governance zones: Corporate Social Responsibility in Weak Governance Zones (2015).

The Executive summary and brief commentary follows. The comments go to the interesting issues projects like this raise with respect to democracy as an applied concept and sovereignty. To that end, I have also included the IMF's description of its state building efforts (capacity building and technical assistance) in three states (at pp. 14). The Policy Paper may be accessed HERE.


This review examines experience in implementing the lessons drawn in the 2011 Board paper on the Fund’s engagement with countries in post-conflict and fragile situations more commonly referred to as fragile states (FS)) and the ensuing 2012 Guidance Note. The focus is on capacity building, Fund facilities and program design, and policy support. The review identifies scope to improve the Fund’s engagement in selected areas.

Capacity building. Resources dedicated to capacity building in FS have risen in recent years. While recognized as high quality by FS authorities, the latter would like to see capacity building tailored more closely to their absorptive capacity, with a stronger focus on training and support through resident advisors. Staff teams generally concur that the Fund’s capacity building approaches could be further strengthened, but also point to budget and security constraints and the need for strong country ownership of the institution-building process.

Proposals: A new pilot approach is proposed for providing support to FS using a capacity building framework (CBF) that would establish goals for institution building, identify immediate and planned TA and training from the Fund and other development partners, and allow for fine-tuning of support, where needed, based on the evolving needs of FS. This proposed CBF will build on the new results based management (RBM) framework due to be rolled out in FY16 which will help strengthen monitoring and reviewing of outcomes of the CBF.  The pilot approach, if successful, could be considered for broader FS usage, as well as application in selected non-FS low-income countries where capacity building is critical.

Fund facilities and program design.  Use of the Rapid Credit Facility (RCF) by fragile states has increased, as envisaged in the 2011 Board paper, substituting in some cases for the use of staff-monitored programs (SMPs). FS authorities highlight inadequate levels of IMF financing as the key shortcoming of the Fund’s existing facilities/instruments, with access under the RCF particularly low. Judged by the number of quantitative targets and structural benchmarks, program design has not changed much in recent years, and is broadly comparable across fragile and non-fragile states. The number of successful programs is also broadly similar for both groups although the number of programs that fail quickly is higher for fragile states. The authorities see room for more emphasis on inclusive growth and protection of social expenditure, with indicative targets on priority social spending missed in about one-third of cases.

Proposals: A forth coming paper will explore options to expand access to concessional financing for the Fund’s poorest and most vulnerable members subject to maintaining the self-sustaining nature of the Poverty Reduction Growth and Trust (PRGT). More substantive changes in facilities will be considered in the next facilities review. Steps are proposed to strengthen program success in protecting priority social spending through more targeted specification of spending floors and adoption of contingency plans to preserve spending from fiscal shocks.

Policy support. FS authorities view the Fund’s policy support as of high quality, but would like to see Fund teams bring greater FS experience, which would help in developing alternative policy solutions appropriate to FS circumstances. Staff welcomed the 2012 staff guidance note and the increased provision of training on FS-related political economy issues. That said, mission chiefs underlined the challenges of recruiting desk economists and resident representatives motivated and skilled for FS assignments.

Proposals: Training on political economy issues will be continued, and knowledge-sharing across teams working on fragile states will be fostered, including through a new intranet-based FS thematic site. The security concerns of staff considering FS assignments are being addressed through new security policies and steps are being taken to ensure that staff working on FS assignments share the same strong career prospects as their peers in non-FS positions.

One of  the most interesting aspects of the report is what the examples the staff offers tells us about the nature of the state building projects undertaken through IMF.  Consider these (Report pp. 14).

Box 2.
IMF Technical Assistance for Fragile States (Prepared by AFR, MCD, and WHD.)

Haiti:  Fund technical assistance (TA) to Haiti has been tailored to the country’s reform agendas, in the context of Fund-supported programs (2006–2010 and 2010–2014). TA support covered tax policy, revenue administration, public financial management, financial sector development and statistics. Fund TA also aimed at strengthening the reliability and accuracy of key program data reported to the Fund. Fund TA has been closely coordinated with other donors’ interventions. Collaboration between TA providers was strengthened following the surge in assistance during the post-earthquake, in view of Haiti’s already limited capacity and given the challenges associated with the aid surge. The effectiveness of Fund TA has been limited by low implementation capacity and stakeholder opposition. For instance, establishing the Treasury Single Account was initially slowed by resistance by key stakeholders; however, the placement of a resident adviser in June 2014 sped up the reforms. Also, the drain of qualified staff towards non government institutions and changes in the Minister of Finance delayed some reforms. Finally, a number of draft laws were not enacted given a difficult political context.

Somalia: The Fund has been actively engaged with the Federal Government of Somalia since its recognition in April 2013. Despite Somalia’s ineligibility to use the Fund’s financial resources on account of its arrears status, the Fund has provided TA in to the areas of: central bank operations; financial governance and accounting; currency reform; fiscal policy and budget preparation; and development of statistical systems. In December 2014, the Fund launched an orientation program for the newly appointed Central Bank of Somalia Board of Directors. Despite a volatile environment in the country, important milestones have been achieved, including the preparation of the first national budget, the development of initial GDP and external sector estimates, and the preparation of central bank balance financial statements. To further develop capacity, in February 2015 the Fund launched a three-year multi-donor Trust Fund for Somalia with financial support from donors.

South Sudan: In 2012, the Fund set up a five-year capacity building program for the country. The program is guided by a Steering Committee comprising the authorities, donors, and IMF staff, operates under a results-based management framework, and is adapted periodically to reflect the evolving situation on the ground (the program was interrupted between December 2013 and September 2014 as a result of the civil conflict).  The Fund coordinates the program with other providers and its main goals are to: develop an integrated macroeconomic framework; set up a fully functional central bank; modernize tax and customs administration; strengthen oil revenue management; and build capacity for the production of basic macroeconomic data. Support is delivered through short-term and long-term advisors, headquarters’ missions, and training. Recent outcomes include foreign reserves management guidelines and strengthened accounting procedures adopted by the central bank, the establishment of a pilot program for customs at the main customs post, and the monthly publication of monetary data in International Financial Statistics.

In each of these contexts, sovereignty becomes a more fluid concept. The process of structural development, the basic processes through which a polity organizes itself is transformed.  In South Sudan, the constitutive polity becomes the transnational community of stakeholders, among which are not just the people, but the people organized into sub-stakeholder communities. In Somalia, the status of which as a state (de jure at least) may be an open question, the Fund attempts state building through the elaboration of a financial structure that is meant to bind the increasingly disparate parts of that territorial amalgamation. Haiti, probably the most structurally developed of the states highlighted, evidence the ways that a polity (or its elites) resists the new model of transnational construction of sovereign organization and operation.

These state building efforts suggest an interesting relationship between international standards, common cultures of appropriate behaviors and operations of states, and their relationship to theories of national self constitution and popular democracy.   Most readers of these materials might find the efforts of the IMF innocuous, and indeed necessary and helpful for the greater benefit of the people living within targeted states.  That suggests, in turn, the deep socialization of a set of premises about state construction, international normative discipline, and the authority of international actors to engage in a precise set of disciplinary techniques that substantially constrain traditional notions of sovereignty and popular democracy (Backer, Larry Catá, God(s) Over Constitutions: International and Religious Transnational Constitutionalism in the 21st Century. Mississippi Law Review, Vol. 27, 2008).  These premises may be sketched out as follows:

1.  The cluster of premises of characteristics that mark "fragile" states as distinct from "strong" states provides the end points of a continuum of states hierarchically arranged (Backer, Larry Catá, Economic Globalization Ascendant: Four Perspectives on the Emerging Ideology of the State in the New Global Order. University of California, Berkeley La Raza Law Journal, Vol. 17, No. 1, 2006). 

2.  Position on the hierarchy determines the extent of the authority of other states and international actors (international organizations, international financial institutions, etc.) to use their power in ordering their relationships with states to correct deviant behaviors in the constitution or operation of a state.

3.  The more fragile the state the more authority of international and foreign states to intervene--as long as the intervention is formally structured to bring the fragile state into conformity with international standards of organization and operation.

4.  Those interventions are undertaken through contractual or quid pro quo relationships--in return for something (loans, aid, technical assistance, etc.) the receiving state agrees to undertake the actions and reforms imposed.  These quid pro quo arrangements are legitimate only when meant to socialize fragile states into  global standards (as understood by the intervening entities) and only to the extent that they represent the application of these international standards.

5.  The internationalization of basic state organization and operation trumps national constitutions, the way that international law is said, in some quarters, to trump national constitutional expression. (Backer, Larry Catá, God(s) Over Constitutions).  At least with respect to those measures that are the subject of the relations between states and intervening entities, the internal democratic mechanisms tend to be related to a subordinated space.  It is possible to construct a principled basis for the subordination of democratic popular expression in these circumstances--these usually involve the suggestion that democratic expression in the circumstances of fragile states is either impossible, implausible or illegitimate precisely because of the  structural weaknesses that produce the authority to intervene (e.g., Democracy Part 28/Ruminations 51: On the Contradiction of Voting, Democracy and Revolution in the U.S. and Egypt); Democracy Part XXVII--The Utility of Voting in the Shadow of the Administrative State).

It is perhaps on this more fundamental level that we might welcome more stocktaking. 

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