There is growing evidence that institutions influence a country’s ability to accumulate capital and improve productivity, and hence its level of income and development in the long run. But it is also true that institutions are persistently conditioned by such factors as history, geography, and culture. They do change, but not very rapidly, and in ways that are still not fully understood. Yet, when and how institutions change is a question of crucial importance for countries seeking to improve their development prospects.
Strategies for changing institutions were the focus of a pre-conference held at IMF headquarters in Washington on July 6–7, 2005. Hosted by the IMF’s Research Department and cosponsored by the United Kingdom’s Department for International Development (DFID), the pre-conference was attended by economists from the IMF, World Bank, academia, and think-tanks, as well as by participants from nongovernmental organizations. The event served as a lead-up to a final conference on related issues to be held in Washington on December 1–2, 2005. The aim was to draw on lessons from the experiences of low-income countries, particularly in Africa but also in South Asia and Latin America, in order to determine the optimal role of the Fund in these countries.
Ben Olken of Harvard University and the National Bureau of Economic Research presented a paper based on the monitoring of corruption in Indonesia. The main finding was that centralized monitoring of projects in the form of audits tended to reduce corruption, whereas grassroots monitoring of such projects changed the nature of corruption without altering its overall level.
Sarah Wykes of Global Witness made a presentation on managing oil revenues in Brazzaville, Republic of Congo’ that described the extent to which transparency initiatives, including those undertaken with the help of the Fund, had been effective. She also outlined additional steps that needed to be taken.
Daniel Kaufman of the World Bank presented some new data that he and his colleagues had compiled on disaggregated indicators of political institutions, including those relating to transparency. Kaufman viewed as strong the evidence that better political institutions were robustly correlated with a country’s economic performance.
In his paper on Uganda, Jonathan di John of the London School of Economics argued that President Yoweri Museveni had followed a highly heterodox and gradual reform strategy that took into account the fragile nature of domestic institutions and the country’s latent social conflict. In comments on the paper, Jim Adams of the World Bank suggested that the reform package was actually quite orthodox, based on securing macroeconomic stabilization and opening up the economy. The discussion that followed focused on the prospects for political succession and economic reform in the period ahead.
A number of other case studies were also presented. Esther Duflo of the Massachusetts Institute of Technology (MIT) examined rent seeking at the local government level in the Indian state of West Bengal; Dean Yang of the University of Michigan looked at corruption in customs services in the Philippines; Rachel Glennerster of the IMF and the MIT Poverty Action Lab discussed transparency in Sierra Leone; and Michael Kremer of Harvard University reviewed experiences with the contracting out of health services.
Details of the pre-conference and the papers presented there are available at www.imf.org/external/np/res/seminars/2005/weak/index.htm.