Inner City Press: Investigative Reporting from the United Nations

On Tunisia, ICP Asks IMF of Reforms: Banking Law, Energy Subsidies

By Matthew Russell Lee

UNITED NATIONS, September 17 -- On Tunisia, Inner City Press at the International Monetary Fund's embargoed briefing on September 17 asked the IMF:

"In Tunisia, Managing Director Lagarde was quoted that 'It is necessary to really work and to consider that these economic reforms are a priority, decisive.' Can you say if these reforms include ending or limited subsidies and tax increases on, for example, gasoline? What process and timeline does the IMF envision for Tunisia?"

After the embargoed briefing ended, this was provided by IMF:

“These reforms include a sound banking system, a more efficient government and civil service, a fair and efficient tax system, investment-oriented public spending, a business environment more conducive to investor risk taking, and a modern social safety net are key to maintaining growth and creating jobs in Tunisia. On energy subsidy reforms, the decline in international oil prices led to a 1.6 percent of GDP decline in energy subsidies in 2015. What is important next is to make sure that the decline in energy subsidies remains sustainable through the implementation of a new automatic fuel price formula, which is expected by the end of this year.

"The IMF envisions that key reforms in the banking sector—completion of the public bank recapitalization process, and adoption of key laws such as the banking and bankruptcy laws—as well as adoption of a tax package aimed at promoting greater equity, efficiency and simplification— are implemented by the end of 2015, which is when the current arrangement is set to expire.”

Relatedly, amid the refugee crisis, Inner City Press also asked the IMF's spokesperson Gerry Rice on September 17 what does the IMF see as its role in the current refugee crisis, both some countries of arrival, and in the countries people are leaving?

Rice replied, in the televised briefing:

I want to take a question from our colleague [Inner City Press] because he’s asking about another issue that’s very much on our minds I think these days which is -- he’s asking what does the IMF see as its role in the current refugee crisis, both countries of arrival and countries where people are leaving. Well the first thing I’d say is obviously this is a massive humanitarian crisis. The concern first and foremost is for the people effected and the IMF shares that concern. The magnitude of the crisis is indeed extraordinary. As you know European political leaders are working together on the response and we believe managing the crisis will indeed require collective concerted action. On the implications which he was asking about, on the economic cost, on the fiscal dimensions, obviously the crisis is still evolving, so it’s too early for us to estimate specific fiscal impact. It’s going to be case by case in terms of countries, however past international experience with surges in immigration suggest the speed with which immigrants are integrated into the labor force is a crucial factor.

On the European dimension of this crisis there are many factors at play and it’s difficult to make again an economic assessment at this moment but we are working on it and we will be coming back to you in due course on this. I just want to finally mention that Europe is not the only region affected by this issue. Many countries in the Middle East and North Africa, for example, perhaps most notably Jordan and Lebanon have been hosting large numbers of refugees from conflict areas including Iraq and Syria and they have been shouldering heavy burdens in accommodating the refugees basic needs for multiple years now.

The IMF has been involved in this issue in terms of dialogue, in terms of urging the international community and most specifically in our programs where needed and where appropriate. We have been trying to create -- help countries create the fiscal space which is something that we can help them with specifically. Create the fiscal space to accommodate some of these large refugee issues. This was the case for example in Jordan recently.

. We'll have more on this.

Inner City Press asked the IMF, "what is the IMF's response to the argument by the Minority group in Ghana's Parliament for the IMF deal to placed before the legislature for review?" Rice said the IMF leaves that up to the nation concerned, it's a matter of national legislation.

A new International Monetary Fund study, out from embargo on September 15, says that "financial inclusion is mentioned under several of the United Nations Sustainable Development Goals (SDGs)" and that "this year’s post-2015 Development Agenda squarely puts financial inclusion as a key objective for United Nations member countries."

So how will real financial inclusion be addressed during the UN General Assembly ministerial week, from on September 28 with Presidents Obama of the US and Buhari of Nigeria, through Peru on September 29 and India on October 1?

Inner City Press asked the IMF on September 3, and will be asking countries. Of the above named countries, the IMF report ("Financial Inclusion: Can It Meet Multiple Macroeconomic Goals?" by Ratna Sahay, Martin Cihák, Papa N’Diaye, Adolfo Barajas, Srobona Mitra, Annette Kyobe, Yen Nian Mooi, and Seyed Reza Yousefi) states

"Nigeria: The comprehensive Financial Inclusion Strategy in 2012 aims to reduce the exclusion rate from 46 percent of the adult population (in 2010) to 20 percent by 2020. Working across key
stakeholders, the strategy seeks to address five major barriers to financial inclusion: (1) income; (2) physical access; (3) financial literacy; (4) affordability; and (5) eligibility.

"Peru: e-money. The authorities have taken various measures to expand access and usage of financial services. In 2014 the “financial inclusion opportunities map,” an interactive tool, was launched. It promotes an innovative “Peruvian model” based on the 2012 electronic e-money legislation and a new unified mobile payments platform that links various providers of financial services with customers.

"India: the Reserve Bank of India’s long-standing policy on priority sector lending (PSL) requires banks to set aside 40 percent of their assets to priority sectors. Most public sector
banks meet this requirement, but end up with high nonperforming loans and concentrated credit risk. Recently, the Pradhan
Mantri Jan Dhan Yojana [PMPDY], a financial inclusion initiative, was launched with the goal of opening a bank account for every household."

India's seems like a particularly illuminating approach, including to the US, of which the report states

"The United States: the recently completed Financial Sector
Assessment Program (FSAP) (IMF, 2015d) calls for financial inclusion to feature more prominently on the U.S. policy
agenda. The Global Findex survey ranks the United States 27th out of 147 countries in terms of the percentage of adults with a bank account in a formal financial institution, and a 2013 Federal Deposit Insurance Corporation (FDIC) survey finds that 20 percent of U.S. households are 'underbanked' and 8 percent are 'unbanked.' More work is needed."

We, and NCRC, will have more on this.

Back on September 3 when the International Monetary Fund resumed its biweekly embargoed media briefings, Inner City Press submitted four questions. Inner City Press asked:

"Who from the IMF is coming to the UN General Assembly (and SDGs, etc) week in late September, and what is their program? What meeting will they participate in? What do they hope to accomplish?"

IMF Deputy Spokesperson William Murray answered, as fast transcribed by InnerCityPro:

“Matthew, and others, the Managing Director is scheduled to attend the UNGA particularly the SDGs segment in late September. There was a previous meeting in Addis Ababa we participated in at a high level that dealt with the SDGs... The IMF's Executive Board recently endorsed a 50% increase in access to all the funds concessional lending facilities and to maintain a 0% rate for low income countries that struggle with disasters and conflict. The Executive Board of the Fund has endorsed IMF's engagement in sustainable inclusive growth, on which we'll be elaborating in the weeks and months to come.”

One focus should be financial inclusion, on which we'll have more during UNGA week.

In the meanwhile, Murray also said Managing Director Christine Lagarde is about to arrive in Ukraine for "opportunistic" meetings with the authorities, and an IMF mission team will go there on September 22.

On September 3, Inner City Press also submitted questions about Nepal and Grenada, as well as this:

"In Indonesia the Vice Speaker of the House of Representatives Taufik Kurniawan recently said, 'We do not ask for IMF support in crisis;' at the UN in NY on Sept 2, the Vice Chairman of the House of Representatives of Indonesia H. Fadli Zon told Inner City Press much the same thing. What is the IMF's response to these criticisms or resistance to the IMF, from elected representatives of the country where the IMF now plans its 2018 Annual Meetings?"

We hope to receive answers.

Back on July 8 when the International Monetary Fund released reviews and papers about the United States, complete with support of the Dodd Frank Act and mentions of anti money laundering protection Inner City Press asked about the proposal to raise the definition of Systemically Important Financial Institution from $50 billion up to $500 billion and if tight AML strictures are to blame for cutting off remittances to Somalia.

Aditya Narain, IMF mission chief for the Financial Sector Assessment Program and deputy director, Monetary and Capital Markets department, told Inner City Press that the IMF believes such definition should give predictability, but should be based on risk and not necessarily only asset size.

Narain told Inner City Press, "On the first one, our general belief is that supervisory approaches should be risk based, and therefore the materiality and proportionality of institutions should be taken into account for to develop supervisory frameworks. At the same time, we also recognize that it’s important to have some clear rules, regarding a unit, in this case size of institutions, because not only does it set a baseline of expectations, but it also provides a useful framework for people to anchor their expectations on. So that’s why, in a sense we would agree that it’s important to make these approaches risk based and therefore not dependent on size alone. I should add also, that our only political ideology is financial stability, for the purpose of this exercise.

But will this be used FOR the Senator Richard Shelby draft bill?

On remittances, Aditya Narain said it is an important question but one that the IMF is dealing with in other venues; it apparently wasn't raised to the US during this process. Why not?

Narain told Inner City Press, "On the regulatory question, this is an issue which is being discussed in several forums where the IMF has been participating, and this is an issue not just for the US, although it has been most discussed in the context of the US, but the effects of the AML on remittances and the result, the stringent adherence to standards has led to a concern more globally that might be affecting the flow of remittances to those jurisdictions... where such remittances and the channels through which they flow are more important. We have not discussed this... there is work ongoing in the Fund, including in collaboration with other institutions like the World Bank... and we expect to be able to have more information on this in a few months time."

In the embargoed media conference call, two questions in a row went to the Financial Times, which opined that the IMF report takes the side of the Democratic Party. The IMF disagreed. The IMF said, in writing, “As the epicenter of the global financial crisis that began in 2008, the United States passed a major law in 2010, the Dodd-Frank Act, to reform its financial system. Officials need to complete the rulemaking under the law, while parts of reform agenda face legislative proposals to water them down.”

Central Banking asked two questions and Reuters one, on federal insurance regulation. Watch this site.

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