SOCIAL DIMENSIONS OF THE IMF'S POLICY DIALOGUE

Summary

The IMF's mandate is to promote international monetary cooperation, balanced growth of international trade, and a stable system of exchange rates; fulfilling this mandate is the IMF's primary contribution to sustainable economic and human development. Since the second half of the 1970s, the importance of social issues for sustainable economic and social development has become increasingly evident. This partly mirrors the changing political and social situation in member countries. The IMF's recognition of the social dimension of structural adjustment has led to greater attention being paid to these issues in the context of surveillance and program design, in close collaboration with other agencies that have important interests and responsibilities in the social area.

Social development requires a strategy of high-quality economic growth, macroeconomic stability, which generates low inflation, and promotion of the agricultural sector, where many of the poor work. A strategy of high-quality growth comprises a comprehensive package of policies encompassing four elements: (i) macroeconomic policies aimed at a stable and sustainable macroeconomic environment; (ii) structural polices aimed at a market-based environment for trade and investment; (iii) sound social policies, including social safety nets to protect the poor during the period of economic reform, cost-effective basic social expenditures, and employment-generating labor market policies; and (iv) good governance through accountable institutions and a transparent legal framework, and participatory development through active involvement of all groups in society. Such a strategy is key to poverty alleviation, employment promotion, and social integration. While this is a complex and difficult agenda for individual governments and for the international community, the growing consensus on these issues could make their attainment more likely than in the past.

Experience with adjustment in many countries has shown the high costs of delayed or disorderly adjustment; in particular, inflation and overvalued exchange rates hit the poor hardest, as their incomes are nominally fixed or depend on export agriculture. Experience with IMF-supported adjustment programs has shown that attention to a proper mix and phasing of policy instruments is essential to minimize possible adverse effects on the poor. Nevertheless, in many cases, adverse effects still remain, and vulnerable groups need to be protected through well-targeted social safety nets, which, largely in collaboration with other agencies, have been incorporated in a growing number of IMF-supported programs. Furthermore, to ensure sustainable per capita income growth and reduce poverty, IMF-supported programs have also increasingly provided for an increase in the level and quality of public expenditure in social services, including primary education and health, as well as for an improvement of the poor's access to these services and administrative capacities.

The IMF's technical assistance in the context of surveillance and IMF-supported programs has helped strengthen policy design and institutional capacity for implementing economic and social policies. In the fiscal area, technical assistance has focused on the design of sustainable social safety nets, improved management of public expenditure (including social programs), and efficiency and greater equity of tax policy and administration.

The IMF is collaborating closely with the World Bank and other UN agencies in the design, implementation, and monitoring of social policies. In the division of labor, IMF advice to member countries focuses on macroeconomic implications, cost-effectiveness, and financial viability of social policy options.

The IMF is continuously seeking to improve policy advice and program design, based on past experience. In the social area, there is in particular a need to help governments to improve the integration of social aspects in their global programs, as well as the composition of their expenditures and revenues; they must also be encouraged to better address structural weaknesses (including the lack of financial institutions) in the rural areas, where most of the poor live; and improve monitoring of social developments.

In several of these areas, there is scope for intensifying the IMF's collaboration with other organizations, particularly regarding advice on the composition of members' public expenditure (with the World Bank) and the monitoring of social policies and social indicators (with the World Bank and UN agencies).

Finally, through policy discussions and technical assistance, the IMF could contribute further to improving governments' capacity to monitor social developments and pursue transparent social policies.

Despite significant progress, social policy implementation has been constrained in many countries by poor data and administrative capacity, weak political commitment, vested interests, and limited foreign assistance. Much remains to be done--including by the IMF in collaboration with others--to improve the design and implementation of social policies and effectively alleviate poverty and promote employment.

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