A high-ranking committee on Tuesday called on the International Monetary Fund and the World Bank to improve their collaboration and recommended the IMF start withdrawing from long-term lending in poor countries.
The six-member committee, led by former Brazilian Finance Minister Pedro Malan, was appointed to assess the working relationship between the 61-year-old sister institutions: the bank, whose mission is to alleviate poverty, and the fund, which oversees global financial stability.
The report urged a stronger culture of collaboration and trust between the Washington-based agencies, noting there was currently no dialogue between them as each chart their futures.
"While the bank and fund have separate mandates, they are inherently linked," the report said. It did not recommend revising a 1989 bank-fund pact on collaboration, adding, "The time has come to move on".
It said better cooperation was especially critical given the shifting global economic landscape and emerging pressures from global warming, energy security and population aging.
"The mileage to be gained by having the two institutions working together could be significant ... and would make a difference," Malan told a news briefing.
The report highlighted tension between the IMF and World Bank over so-called fiscal space -- the scope of a government to increase spending to enhance growth or reduce poverty, while maintaining economic stability and debt sustainability.
The report said such tensions was "an indication of shortcoming in collaboration, for short-term macroeconomic stability and longer-term growth should not be seen as competing objectives: they are complementary."
The committee found that the IMF's work in poor countries had gone beyond its core responsibilities.
It said IMF lending to poor countries was already sharply lower, which provided an opening to begin withdrawing from long-term lending.
This, however, did not mean that the IMF should pull out of poor countries but, rather, should refocus efforts and resources on areas of expertise, such as macroeconomic assessments and policy advice, the report emphasized.
"The fund needs to clarify its role in low-income countries and in doing so it should reassess how it can work more cooperatively with the bank," Malan said.
DEFINING A ROLE
IMF Managing Director Rodrigo Rato said the fund was already reviewing its role in low-income nations under a medium-term strategy launched in 2005 to modernize the fund.
"We agree we should be careful in focusing on our mandate, and it is not our mandate to provide development financing," Rato told reporters.
He said IMF assistance to poor countries should be considered on a case-by-case basis, with some countries requiring IMF loans as a signal to donors or investors of a commitment to sound economic policies.
World Bank President Paul Wolfowitz said it would be a mistake if the IMF stopped working in poor countries.
He said cooperation between the fund and bank had improved since tensions over the handling of the Asian financial crisis, which led to efforts to improve collaboration in the financial sector.
"These institutions are going to have a very important role in many different ways in the future and our ability to adapt to changing circumstances (will depend) on our ability to work together," Wolfowitz said.
The report also recommended the organizations strengthen cooperation on crisis management, promote staff exchanges, show more flexibility in mobilizing resources to member countries, and coordinate on technical cooperation and avoid distortions.
It said weak coordination not only wasted precious donor resources but could lead to conflicting, confusing and poor advice to member countries.