The IMF is approaching its annual meetings in Madrid on 30 September- 6 October in a positive frame of mind as far as its involvement with countries of the Middle East is concerned.
Four North African countries, as well as Jordan, Turkey and Pakistan, are either in the midst of, or have just completed structural adjustment programmes backed by the IMF. Fund officials say most of these countries have reaped substantial benefits from the reform programmes.
‘This illustrates what our managing director Michel Camdessus likes to call the silent revolution,’ says one senior IMF official. ‘Governments are starting to realise that you cannot make gains if you do not apply rigorous monetary and fiscal policies. The wisdom of prudent financial policies is taking root.’
The two shining examples of this revolutionary enlightenment are Morocco and Tunisia, which have both completed IMF programmes with their macro- economic indicators in robust health.
Neighbouring Algeria is the most recent North African country to sign up to an IMF programme, and fund officials say that positive results are already evident despite the difficult political and security problems. External reserves are over $2,000 million, the economy is growing, the budget deficit is down to 3 per cent from 9 per cent, and thanks to Paris Club rescheduling, the debt/export ratio is down to 29 per cent from 90 per cent, the IMF says.
The IMF is also full of praise for Jordan, which signed an agreement with the fund two days before Algeria did, for holding fast to its economic programme. The executive board decided on 14 September to increase the amount of Jordan’s extended fund facility by SDR 25 million ($36.5 million). This was designed to boost foreign exchange reserves after a temporary drop caused by uncertainty over the status of the Jordanian dinar in the Palestinian self-rule areas.
Another candidate for IMF approval is Pakistan, which signed two agreements with the IMF in February. ‘Pakistan has done spectacularly well, and is being talked about as the next Asian ‘Tiger’,’ says an IMF official. The highlights of the Pakistani programme have been banking reform, the move to exchange rate convertibility, privatisation and trade liberalisation. The programme has already resulted in a strong recovery in foreign exchange reserves and a sharp fall in inflation.
A more mixed verdict is reserved for Turkey, which signed a stand-by arrangement in July, and Egypt, which is one year into the successor to its 1991-93 stand-by programme. The IMF presents Turkey as a prime example of a country that has come to realise the pitfalls of pursuing lax fiscal and monetary policies.
The chief problem as Turkey applies more prudent policies is the failure of privatisation to materialise.
Egypt has successfully carried out macroeconomic reforms that have resulted in a spectacular fall in inflation and a surge in foreign exchange reserves. But IMF officials say they are concerned about slow economic growth, low business confidence and high unemployment.
The fund has argued that Egypt’s policy of maintaining exchange rate stability is hampering efforts to promote exports, and that interest rates, now five percentage points above inflation, are far too high.
However, the general theme the IMF detects in the region is that of real progress being made in tackling problems of indebtedness and poor financial management.