Criteria for Effective Aid for Trade Delivery: the IMF Perspective


1
Criteria for Effective Aid for Trade Delivery
the IMF Perspective

• By Jean-Pierre Chauffour
• IMF Representative
• COMSEC/UNCTAD/SouthCentre
• Meeting on Aid for Trade
• Geneva March 21-22 2006

2
Elements of effectiveness

• Agreeing on aid for trade principles
• Matching aid for trade demand and supply
• Enhancing the Integrated Framework
• Harmonizing aid for trade deliverables (e.g. IMF
  to focus on adjustment lending)

3
Agreeing on aid for trade principles

• First aid for trade rationale
• MFN trade reform is a global public good not
  sufficiently internalized
• Trade policy reforms and investment in trade
  machinery have significant externalities
• Benefits of trade reform not fully captured by
  the country itself leading to under-investment
  in trade reform

4
Agreeing on aid for trade principles

• Second aid for trade funding
• Bilateral donors and multilateral agencies (e.g.
  IMF/World Bank) have already scaled up their
  trade related activities
• OECD DAC/WTO database indicates large increases
  in resources devoted to trade-related capacity
  building and TA since 2002
• G-7 countries have pledged to double aid for
  trade by 2010 to 12 billion a year

5
Agreeing on aid for trade principles

• Third aid for trade mechanisms
• Trade analysis and diagnostics for policy
  formulation
• Technical assistance and capacity building for
  export promotion support services and standards
  
• Project finance for infrastructure and
  supply-side capacities
• Policy lending for microeconomic adjustment
  (worker training social safety nets subsidies)
• Policy lending for macroeconomic adjustment
  (preference erosion fiscal revenue food prices)

6
Agreeing on aid for trade principles

• Fourth aid for trade effectiveness
• Ownership of developing countries over their
  development policies and strategies
• Alignment of aid for trade on developing
  countries national development strategies
• Harmonization of donor aid for trade actions
• Managing aid for trade to give results
• Mutual accountability for aid for trade results

7
Agreeing on aid for trade principles

• And fifth aid for trade delivery
• Remains the responsibility of aid and finance
  ministries and international agencies not the
  WTO process
• Linked to a Doha Round outcome but de-linked from
  the negotiations
• Complements but not a substitute for an
  ambitious Doha Round in terms of MFN
  liberalization aid for trade should NOT become
  aid for non-trade

8
Matching aid for trade demand and supply

• First on the supply side
• Comfortable volume of aid for trade pledges
• Reliable existing bilateral and multilateral
  delivery mechanisms
• Need to identify and fill possible gaps (funding
  and/or mechanisms) including regional or
  cross-country aid for trade

9
Matching aid for trade demand and supply

• Second on the demand side
• Concern about policy coherence and coordination
  among trade finance and other ministries
• E.g. gap between trade ministers insistence on
  assistance needs and limited requests for support
  
• Importance of formulating development priorities
  with respect to aid for trade
• Need to better utilize existing assistance
  mechanisms

10
Enhancing the Integrated Framework

• Elements of an enhanced IF would require
• Predictable multi-year financing with resources
  in the order of 200400 million disbursed over
  an initial 5 year period
• Strengthened in-country structures to move from
  diagnostics to implementation along with improved
  links to donor processes
• Improved monitoring and administration of the IF
  governance structure

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Harmonizing aid for trade deliverables

• For the IMF a first contribution is in the area
  of analytical support and policy dialogue
• To assess macroeconomic adjustment needs (e.g.
  balance of payments and government revenue) of
  vulnerable countries including countries
  negatively affected by the end of textile quotas
  or preference erosion net food- importing
  countries and countries undertaking major
  programs of trade reform

12
Harmonizing aid for trade deliverables

• Second contribution in the area of technical
  assistance
• Fiscal implications of tariff reform
• Technical assistance for customs and tax reform

13
Harmonizing aid for trade deliverables

• Third contribution in the area of financial
  assistance
• Fund financial support augmented by the Trade
  Integration Mechanism (TIM)
• Exogenous Shocks Facility
• Option to use floating tranches to support trade
  reform in IMF-supported programs

14
Harmonizing aid for trade deliverables

• Steps already taken
• A workshop to be held at the end of April for
  officials of Caribbean sugar- and
  banana-producing countries to assess the
  implications of recent changes in EU trade
  policies in these sectors
• Bangladesh and the Dominican Republic are
  receiving assistance under the TIM for a total
  value of up to
• US180 million
• Mauritius will receive assistance under the
  Bank/Fund aid for trade initiative to help adjust
  to preference erosion and to design a broad trade
  liberalization program

15
Harmonizing aid for trade deliverables

• Next steps
• Continue cooperating closely with the Aid for
  Trade Task Force and IF Task Force
• Liaise with the WTO DG on ways to secure
  additional financial resources for aid for trade
• Report on aid for trade initiatives at the
  Bank/Fund Annual Meetings in Singapore in the
  autumn

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By way of conclusion

• Preserving the integrity of the development
  architecture (MDGs/PRSPs)
• Keeping with the principles of aid effectiveness
  (Paris Declaration)
• Building trust between donors (pledges) and
  recipient countries (ownership)
• Managing expectations well so as not to derail
  the Doha Round

17
Thank you

• More information at www.imf.org