Annex 2

IMF Staff Work on the Environment

(February 1995)

1. Background

The Fund's focus in the environment area is on the relationship between the macroeconomy and environment, reflecting its primary mandate of promoting macroeconomic stability. Macroeconomic stabilization often leads to adjustment of prices to market levels and a reduction of high or variable inflation, which, in turn, encourages the conservation of natural and environmental assets. The benefits of stabilization policies for the environment may not, however, be realized if property rights are poorly defined or there are failures in markets for natural or environmental resources. Consequently, it may be important to introduce structural measures along with stabilization policies.

The Executive Board decided in early 1991 that the Fund should assign a number of staff to do exploratory work in the environment area in light of the potential interrelationships between the macroeconomy and the environment (deteriorating environmental conditions can also affect the sustainability of macroeconomic balances). The staff assigned to this task were asked to examine the impact of macroeconomic policy on the environment and vice versa, and to enhance the staff's awareness of environmental issues, consistent with the Fund's main objective of securing domestic and external financial stability in a sustainable manner.

2. Past Work

Past Fund work on environmental issues has concentrated primarily on four areas:

1. Examining the effects of macroeconomic policy on the environment by reviewing the research carried out by specialized environmental institutions, including the World Bank. The results of this work are summarized in various papers presented by the staff. (See attached list of references).

2. Increasing staff awareness of relevant environmental issues and staff understanding of the interactions between the environment and the macroeconomy. This work is summarized in an Executive Board paper that was issued in late 1993 (IMF 1993b). A countryspecific environmental information database, drawn from the World Bank, national authorities and other sources, has been developed and is available inhouse.

3. Engaging in a dialogue with nongovernmental organizations (NGOs). In May 1993, the Fund hosted a seminar, attended by over 20 NGOs from around the world, that explored the links between macroeconomic policy and the environment (IMF 1993a).

4. Exchanging views on the macroeconomy/environment interactions with national governments. Staff regularly report on environment issues that have been discussed during the course of Fund missions.

3. Ongoing Work

The Fund's work on the environment continues in the following areas:

1. The links between the macroeconomy and the environment continue to be examined. Much of the Fund's understanding of these links in the past was based on general principles. Further efforts in this area are now being directed to reflect the importance of countryspecific circumstances. A second seminar on macroeconomics and the environment is scheduled for May 1995.

2. The staff has expressed its readiness to integrate the financial and fiscal implications of National Environmental Action Plans (NEAPs) and Sustainable Development Strategies (SDS) into policy discussions. An exercise in examining the macroeconomic implications of a country's NEAP and SDS has been commenced.

3. Fund staff continue to liaise with the NGO community to discuss environmental issues of relevance to the Fund, such as the implications of stabilization and adjustment programs for the environment.

4. Collaboration with other International Organizations

The World Bank, along with the United Nations and other multilateral institutions, have primary responsibility in the area of the environment. The Fund draws on the environmental expertise of these organizations whenever needed.

The Fund continues to participate in multilateral forums, including the United Nations Commission for Sustainable Development (charged with monitoring the implementation of agreements reached at the Earth Summit), the Interagency Task Force on Environment Statistics (charged with developing integrated environment and economic accounts), and the GATT/WTO (charged with discussions on trade and the environment).

References: International Monetary Fund

Clark, Peter (1994), "Sustainable Economic Growth: An Essential Precondition for Environmental Protection", paper presented at the Conference on Structural Adjustment in the North ¾ Strategies for the Sustainable World Economy, held in Germany, November 11-13, 1994.

Clements, Benedict (1995), "Public Expenditure Policy and the Environment: A Review and Synthesis", paper presented at the Workshop on Economic Instruments for Sustainable Development, held in Prague, January 13, 1995.

Development Committee (1992a), "The Interaction of Environment and Development Policies," prepared by staff of the World Bank in consultation with staff of the International Monetary Fund (Washington: The World Bank).

(1992 b), "Outcome of the United Nations Conference on Environment and Development", prepared by staff of the World Bank in consultation with staff of the International Monetary Fund (Washington: The World Bank).

Gandhi, Ved P. (1992), "macroeconomic Adjustment and the Environment: A Personal View," paper presented at International Round Table on Structural Adjustment and the Environment, German Foundation for International Development, held in Berlin, Germany, November 10-13, 1992.

Gandhi, Ved P., and David C.L. Nellor (1991), "Financing Instruments and Conditions for environmental Protection in Developing Countries," paper presented at Malente Symposium IX of the Drager Foundation, held in Timmendorfer Strand, Germany, November 18-20, 1991.

Gupta, Sanjeev, Kenneth Miranda, and Ian Parry (1993), "Public Expenditure Policy and the Environment," IMF Working Paper WP/93/27, International Monetary Fund (Washington).

Herber, Bernard (1993), "International Environmental Taxation in the Absence of Sovereignty," IMF Working Paper WP92/104, International Monetary Fund (Washington).

International Monetary Fund (1990), Fiscal Affairs Department, "The Fund and Environmental Issues," SM990/219 (Washington: International Monetary Fund).

(1992 a), "United Nations Conference on Environment and Development", SM/92/147 (Washington: International Monetary Fund).<R><R>(1993a), "Seminar Explores Links Between Macro Policy and the Environment", IMF Survey, International Monetary Fund (Washington), Vol. 22, no. 2.

(1993b), "The Fund and the Environment", SM/93/251 (Washington: International Monetary Fund).

(1994), "Annex III: Trade and the Environment" in "Comprehensive Trade Paper," SM/94/192 Supplement 3 (Washington: International Monetary Fund).

Levin, Jonathan (1990), "The Economy and the Environment: Revising the National Accounts," IMF Survey, International Monetary Fund (Washington), Vol 19, No. 2.

(1991), "Valuation and Treatment of Depletable Resources in the National Accounts," IMF Working Paper WP/91/73, International Monetary Fund (Washington).

(1993), "An Analytical Framework of Environmental Issues," IMF Working Paper WP/93/53, International Monetary Fund (Washington).

McMorran, Ronald T., and David C.L. Nellor (1994), "Tax Policy and the Environment: Theory and Practice," IMF Working Paper WP/94/106, International Monetary Fund (Washington).

Miranda, Kenneth, and Timothy Muzondo (1991), "Public Policy and the Environment," Finance and Development, International Monetary Fund (Washington), Vol. 28, No. 2, pp. 25-27.

Miranda, Kenneth M., and A. Lans Bovenberg (1990), "Public Policy and the Environment: A Survey of the Literature," IMF Working Paper WP/90/56, International Monetary Fund (Washington).

Muzondo, Timothy R. (1992), "Environmental and macroeconomic effects of Military Conversion," paper presented at the UN Conference on Conversion¾ Opportunity for Development and Environment, held in Dussoldorf, Germany.

(1993), "Alternative Forms of Mineral Taxation, Market Failure, and the Environment," Staff Papers, International Monetary Fund (Washington), Vol. 40, No. 1, pp. 152-77.

Nellor, David C.L. (1992a), "Structural Adjustment and Sustainable Development in the Philippines: A Comment" (mimeograph, Washington: International Monetary Fund).

(1992b), "The United Nations Conference on Environment and Development" (mimeograph, Washington: International Monetary Fund).

(1992d), "Comments on Country Case Studies in Structural Adjustment and the Environment," ed. by David Reed (mimeograph, Washington: International Monetary Fund).

(1992e), "A Survey of Carbon Taxes and Global Warming" (mimeograph, Washington: International Monetary Fund).

(1993), "Economic Adjustment policies and the Environment," Fiscal Affairs Department Working Paper FAD/93/2, International Monetary Fund (Washington).

(1994), "Energy Taxes and macroeconomic Policy," IMF Paper on Policy Analysis and Assessment PPAA/94/24, International Monetary Fund (Washington).

Nellor, David C.L., and Emil M. Sunley (1994), "Fiscal Regimes for Natural Resource Producing Developing Countries," IMF Paper on Policy Analysis and Assessment PPAA/94/24, International Monetary Fund (Washington).

Sorsa, Piritta (1995), "Environmental Protectionism, NorthSouth Trade, and the Uruguay Round," IMF Working Paper WP/95/6, International Monetary Fund (Washington).

Summers, Victoria P. (1994), "Tax Treatment of Pollution Control in the European and Central Asian Economies in Transition," paper presented at the Conference of the American Council for Capital Formation on US Environmental Policies: Are We Barking up the Wrong Tree?, held in Washington, D.C., on November 16, 1994.