Fiscal Issues Are a Crowing Concern of the IMF

(Interview with the IMF’s Fiscal Affairs Department Head)

 

Interviewer: Fiscal discipline is a vital element of the IMF’s macroeconomic policy advice to member countries. How would you describe your department’s role in IMF surveillance and policy advice?

Head: Since the early 60s when the department was created, we have been largely involved with technical assistance, with helping countries in Africa and elsewhere create fiscal institutions. Recently, the role of technical assistance has broadened.

Int.: Has it been connected with the movement of the economies in transition to market-oriented systems?

Head: Yes, with regard to economies in transition we had to help to create institutions as well as to reform policies. We have been much involved in setting up tax administrations, treasures, budget offices, as well as creating and reforming customs policies.

Int.: Your role in trying to make tax system more efficient and equitable is well known.

Head: Thank you. Besides, we have done a lot to improve public expenditure management systems, in other words, all activities that allow a country to gain better control over its expenditure. Work on social safety nets has also become an important activity of our department. And the first reason for this is the major economic policy changes in the transition economies.

Int.: Oh, it is quite understandable, the changes were accompanied by very high inflation that dramatically reduced the income of some groups, such as pensioners, right?

Head: Also, disposable incomes on the whole fell sharply. So, it was necessary to help these countries reform policies to protect the people. The other reason why we became more active in the safety net area was to provide some sort of targeted protection for particularly vulnerable population groups in countries engaged in major macroeconomic adjustment efforts that were accompanied by large withdrawals of subsidies.

Int.: So, your department has become involved in several new areas. I mean poverty, social safety, income distribution, and others. What is the nature of the work in these areas, and how would you assess its relevance to the IMF’s main macroeconomic work and its value to members?

Head: Our interest in poverty and social problems has much to do with strengthening the political sustainability of reforms. When a country undertakes a major reform, the distribution of income often deteriorates in the short run. If it deteriorates too much and large groups become impoverished in the process, they may become supporters of populist policies that would defy the reform. We pay attention to poverty to help sustain reform and achieve macroeconomic stability and thereby to expand economic activity and income.

Int.: What future directions and roles do you envisage for FAD?

Head: FAD has been a demand-driven department to a large extent. The pressures on this department are enormous. I take pride in this department’s role as one of the world’s main fiscal observation. We have one of the best concentrations of fiscal economists in the world. We try to anticipate fiscal problems and provide intellectual leadership for their solution. I hope I’ve made myself clear, haven’t I?

 

VOCABULARY

Fiscal issues                                              вопросы бюджетно-налоговой политики

Customs policy                                         таможенная политика

Public expenditure management system       система управления государственными расходами

Disposable income                                   располагаемый доход

Targeted protection                                  адресная защита

Relevance                                                 уместность

Impoverished                                           обнищавший

Populist policy                                          популистская политика

To defy                                                     выступать (против)

To envisage                                              предусматривать

To a large extent                                       в значительной степени

Enormous                                                 громадный

To take pride (in)                          гордиться (чем-либо)

I hope, I’ve made myself clear                 Надеюсь, я ясно все объяснил

FAD(fiscal affairs department)                департамент бюджетно-налоговой политики

Exercise 12. Answer the following questions:

 

1. What is a vital element of the IMF’s macroeconomic policy advice to member countries?

2. Has IMF done anything to improve public expenditure management systems?

3. What were the changes in the transition economies accompanied by?

4. Why did disposable incomes on the whole fall sharply?

5. Why was it necessary to help these countries reform policies?

6. What does the IMF’s interest in poverty and social problems have much to do with?

7. What future directions and roles does the IMF envisage for FAD?

 

Exercise 13. Find the Russian equivalents for the following:

 

1. fiscal discipline

__________________________________________________________________________

2. vital element of the policy

__________________________________________________________________________

3. to be involved with technical assistance

__________________________________________________________________________

4. to set up tax administrations

__________________________________________________________________________

5. to improve public expenditure management systems

__________________________________________________________________________

6. to gain control over the expenditure

__________________________________________________________________________

7. disposable incomes

__________________________________________________________________________

8. to undertake a major reform

__________________________________________________________________________

9. to expand economic activity and income

__________________________________________________________________________

10. a demand-driven department

__________________________________________________________________________

11. fiscal observatory

__________________________________________________________________________

12. to anticipate fiscal problems

__________________________________________________________________________

13. to provide intellectual leadership

__________________________________________________________________________

14. to make oneself clear

__________________________________________________________________________

 

Exercise 14. Find the synonyms for the words in italics.

 

1. Fiscal discipline is a vital element of the IMF’s macroeconomic policy.

__________________________________________________________________

2. We have been largely involved with technical assistance…

__________________________________________________________________

3. Recently, the role of technical assistance has broadened.

__________________________________________________________________

4. Your role in trying to make tax system more efficient and equitable is well known.

_______________________________________________________________________________

_______________________________________________________________________________

5. Besides, we have done a lot to improve public expenditure management systems…

________________________________________________________________________________

_______________________________________________________________________________

6. Work on social safety nets has also become an important activity of our department.

____________________________________________________________________________________________________________________________________

_______________________________________________________________________________

7. Your department has become involved in several new areas…

__________________________________________________________________

_______________________________________________________________________________

8. What is the nature of the work in these areas?

__________________________________________________________________

9. Our interest in poverty and social problems has much to do with strengthening the political sustainability of reforms.

______________________________________________________________________________________________________________________________________________________________________

10. We pay attention to poverty to help sustain reform and achieve macroeconomic stability and thereby to expand economic activity and income.

______________________________________________________________________________________________________________________________________________________________________

 

Exercise 15. Translate the sentences into Russian.

 

1. Fiscal discipline is a vital element of the IMF’s macroeconomic policy advice to member countries.

__________________________________________________________________________

__________________________________________________________________________

 

2. Since the early 60s when the department was created, we have been largely involved with technical assistance, with helping countries in Africa and elsewhere create fiscal institutions.

__________________________________________________________________________

__________________________________________________________________________

 

3. With regard to economies in transition we had to help to create institutions as well as to reform policies.

__________________________________________________________________________

__________________________________________________________________________

 

4. We have been much involved in setting up tax administrations, treasures, budget offices, as well as creating and reforming customs policies.

__________________________________________________________________________

__________________________________________________________________________

 

5. Work on social safety nets has also become an important activity of our department.

________________________________________________________________________

 

6. The other reason why we became more active in the safety net area was to provide some sort of targeted protection for particularly vulnerable population groups in countries engaged in major macroeconomic adjustment efforts that were accompanied by large withdrawals of subsidies.

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

__________________________________________________________________________

 

7. When a country undertakes a major reform, the distribution of income often deteriorates in the short run.

__________________________________________________________________________

__________________________________________________________________________

 

8. We pay attention to poverty to help sustain reform and achieve macroeconomic stability and thereby to expand economic activity and income.

__________________________________________________________________________

__________________________________________________________________________

 

9. FAD has been a demand-driven department to a large extent.

________________________________________________________________________

 

10. We try to anticipate fiscal problems and provide intellectual leadership for their solution.

__________________________________________________________________________

__________________________________________________________________________

 

Exercise 16. Read the article below quickly to pick out the main economic indicators. Then study the vocabulary given after it.

Some facts About the SDR

The Special Drawing Right (SDR) is an international reserve asset created by the IMF in October 1969. SDRs first came into operation in 1970 as a sort of reserve currency to supplement national currencies and gold as the medium in which countries hold their reserves. It is a new type of money known as “paper gold” and used as the first international legal tender. The SDR serves as a unit of account for the IMF and a number of other international and regional organizations. It is also used in transactions between governments and central banks. However, the market for SDRs limited because they are not held by individuals or private businesses. In addition, a few countries peg the exchange rates of their currencies to the SDR.

The SDR was initially valued by the IMF in terms of a fixed quantity of gold and was redefined in June 1974 as a basket of 16 currencies. The SDR has changes over time. For many years it was an oddity fully understood only by a few central bankers. In 1981, however, in an attempt to extend its usage beyond the IMF and its accounts (which are denominated in SDRs), it was simplified. It is now based on a weighted average of only five different currencies: the dollar, the Deutschmark, the French franc, the pound sterling and the yen. The basket is revised every five years. The weights in the basket reflect the relative shares of countries in exports of goods and services and the relative shares of the five currencies in official reserve holdings.

Since the adoption of the First Amendment of the IMF’s Articles of Agreement in 1969, the IMF has been authorized to allocate SDRs to member countries. Decisions to allocate (or cancel) SDRs require an 85 per cent majority vote of the Board of Governors and are made for “basic periods”, which, unless otherwise decided, run for five consecutive years. Cumulative allocations to date total SDR 21.4 billion. SDR allocations are distributed in proportion to IMF members’ quota shares. Because of considerable expansion in the IMF’s membership since SDRs were last allocated in 1981, 38 of the IMF’s 181 member countries have never received SDR allocations. Another 37 members have participated in some, but not all allocations.

SDRs are counted as a part of a country’s international reserves, along with official holdings of gold, foreign exchange, and reserve position in the IMF. The share of SDRs in global holdings of nongold reserves has declined from 8.4 per cent at the end of 1972, to 6.5 per cent at the end of 1981, and to 2.3 per cent at the end of 1995.

 

VOCABULARY

Special Drawing Right          специальное право заимствования

Reserve assets                        резервные активы

Legal tender                          законное платежное средство

To revise                           ересматривать

Weight                                   вес

Reserve holdings              езервы

To allocate                             выделять, распределять

Amendment                           поправка, исправление

Consecutive                           последовательный

To date                                  на сегодняшний день

To total                                  составлять, достигать

Reserve position               езервная позиция

 

Exercise 17. Choose the correct explanation without using a glossary.

 

1. “to read over carefully and correct, improve, or update where necessary” is …

a) to revise

b) to reduce

c) to redeem

d) to look

 

2. “to distribute in shares or according to a plan; to allot” is …

a) to allure

b) to allude

c) to allocate

d) to give

 

3. “a change for the better; improvement” is …

a) fault

b) amendment

c) conclusion

d) asset

 

4. “following in order, without interruption; successive” is …

a) consecutive

b) considerable

c) consistent

d) continuing

 

5. “to find the total of; add; to amount (to) as a whole; to sum” is …

a) to count

b) miss

c) to consist of

d) to total

 

6. “anything owned that has exchange value; (in plural) all the entries on a balance sheet showing the entire resources of a person or business, including accounts and notes receivable, cash, inventory, equipment, real estate, etc.” is …

a) asset

b) share

c) holding

d) bond

 

7. “to add to, esp. so as to make up for a lack or deficiency” is …

a) to contemplate

b) to lose

c) to supplement

d) supply

 

8. “at the beginning; at first” means

a) initially

b) lately

c) firstly

d) in the long run

 

9. “enlargement; dilation; the amount, degree of enlargement” is …

a) equation

b) conclusion

c) exaltation

d) expansion

 

10. “to make simpler, less complex, etc; to make easier” is …

a) to simplify

b) to simper

c) complicate

d) to revise

 

Exercise 18. Reread the article of exercise 16 more carefully and complete the sentences given below using information from the article:

 

1. The Special Drawing Right (SDR) is an international reserve asset …

_______________________________________________________________________ .

 

2. The SDR serves as a unit of account for …

_______________________________________________________________________ .

 

3. The SDR has been used at times to denominate financial instruments but …

__________________________________________________________________________

_______________________________________________________________________ .

 

4. …____________ was redefined in June 1974 as a basket of 16 currencies.

 

5. Since 1981, the SDRs basket has consisted of …

__________________________________________________________________________

_______________________________________________________________________ .

 

6. …_______________________________________________the IMF has been authorized to allocate SDRs to member countries.

 

7. Because of considerable expansion in the IMF’s membership since SDRs were last allocated in 1981 …

__________________________________________________________________________

_______________________________________________________________________ .

 

8. SDRs are counted as a part of a country’s international reserves …

__________________________________________________________________________

_______________________________________________________________________ .

9. The share of SDRs in global holdings of nongold reserves has declined …

__________________________________________________________________________

________________________________________________________________________ .

 

Exercise 19. Single out the main facts of the article of exercise 16 and present them in a short review.

 

Exercise 20. Listen and retell the text. Write down 3-5 questions about the text. Underline all parts saying about the Paris Club.

Debt rescheduling is a form of debt reorganization in which debtors and creditors negotiate to defer payments of a principal and interest falling due in a specified interval for payment on a new schedule.

Some countries find it almost impossible to service their external debts. Recently, rescheduling external debts has become a widely accepted practice. Debt rescheduling occurs at the Paris Club for government and private debt owed to official creditors and the London Club for debt owed to commercial creditors.

The Paris Club is an informal forum where countries experiencing difficulties in paying the debts to governments and private institutions meet with their creditors to restructure these debts. The name might be quite misleading because in reality the Paris Club is not a club, nor is it a formal international organization. It has no offices, no secretariat, and above all, no charter. The Paris Club is an ad hoc institution with no legal status.

In part, the Paris Club’s confidentiality policy has prevented it from becoming known to a wider public. Creditors refrain from releasing any information pertaining to their assessment of a given debtor’s economic and financial situation or to the scope of debt relief granted. The onset of the international debt crisis in the early 1980s, however, brought public attention to the Paris Club and to its contribution to resolving the balance-of-payments disequilibria experienced by a growing number of developing countries and by some Central and Eastern European countries.

Over the years, the Paris Club has become a key instrument in implementing the international debt strategy. This strategy rests on two main pillars: internal reform and structural adjustment, supplemented by external financial assistance in the form of fresh money and debt relief. Despite the public’s recent discovery of the Paris Club, this forum has existed since 1956, when Argentina agreed to meet in Paris with official creditors to find a mutually acceptable basis for rescheduling payments due on officially supported export credits. In the late 1950s and 1960s, Brazil, Chile, and Turkey sought similar Paris Club reschedulings. Since 1980, 54 countries have rescheduled the total of 186 debt agreements.

 

Exercise 21. Translate the article into English. Pay attention to the use of tenses.

 

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