30 September 2008

XXX, Minister of Finance
IMF Executive Directors

Re: IMF Review of Lending Instruments, Facilities, and Policies

Dear XXXX,

It is time to seriously re-think the role that the IMF should be playing in low-income countries. The Executive Board's plan to review all the Fund's lending instruments and facilities over the next few months presents an opportunity to do so.

The IMF has come under serious criticism both internally and externally about its focus and role in low income countries. The Malan Committee highlighted the inappropriate role the Fund is playing in low-income countries, overstepping its traditional role of addressing short term balance of payment crises to act as a development financier, even though it is not a development institution. The report concluded that "the Fund's financing in low-income countries is an area where it has moved beyond its core responsibilities."

The Independent Evaluation Office (IEO) of the IMF has highlighted problems with both the structural and macroeconomic conditions in PRGF countries. The IEO report released in January 2008 highlighted the lack of progress on reducing conditionality. Despite this, the first annual report on structural conditionality shows that it has increased rather than decreased. The 2007 IEO report demonstrated that PRGF programs largely replicate the conditions attached to the "structural adjustment" lending which has been so heavily criticized.

While the Fund may have a role to play in addressing short-term balance of payments problems, it is clearly not equipped to act as a long-term development lender in low-income countries. Conditionality included in PRGF programs constrains the domestic policy space needed by countries to develop innovative economic policies best suited to create growth and reduce poverty in their specific country contexts. It also undermines the accountability of borrowing governments, who blame IMF conditions for the lack of investment in their social sectors.

The IMF Board should take the necessary steps to insure that the planned review of the PRGF is rigorous and broad. We believe that any comprehensive examination is likely to echo past recommendations for a sharp curtailment or closure, given the IMF's lack of development expertise and apparent inability or disinclination to limit the use of conditionality. We call on you to close the PRGF to new requests. The funds remaining in the PRGF Trust should be shifted to other institutions and other forms of development assistance, implying no net decrease in resources available to low-income countries.

With new resources available to low-income countries from debt relief and scaled-up aid, now is the time to make sure that the international financial architecture meets the serious challenges faced by low-income countries. That calls for new thinking about the IMF's role. The undersigned organisations (and individuals) urge you to use the IMF's facility review to do just that.

Signed: