Mr. Taha Al-Fouseeil
Dept. of Economics
Sana’a University

Out of the July 1944 Bretton Woods agreement emerged two international institutions: the International Monetary Fund (IMF) and the World Bank for Construction and Development, known in short as the World Bank. As the main concern of the IMF focused on achieving stability in the international monetary system, exchange rates, and balance of payments of member states, the World Bank took interest in constructing and developing regions of member states and in encouraging foreign investments as well as maintaining balanced growth.

As a consequence to unfavorable domestic and international economic developments prevailing since the 1970s, the economic situation of developing countries - internally as well as externally - has been deteriorating. Such situation has set the pace for the IMF to step in to offer credit facilities, while at the same time extending the span of its conditionality on countries willing to draw from these facilities.

In the meantime, relations between the IMF and the World Bank were enhanced starting 1974, whereby the latter initiated “Program Lending” aiming at reducing foreign exchange shortage, or to finance imports of capital goods and manufacturing inputs. However, the World Bank’s support to member states’ balance of payments is not unconditional. Countries should implement financial and economic policies, and development programs that are acceptable from the Bank’s viewpoint. This role represents a clear interference in IMF’s area through determining pricing and financial policies of credit recipients.

Thus, World Bank’s earlier initiation of Program Lending, and then of “Structural Adjustment Lending” in 1980, led to enhancing cooperation with the IMF, and narrowing distance between their areas of interest and functions. Therefore, it became quite necessary to coordinate reform programs between the World Bank and the IMF, creating a situation of reciprocal (cross) conditionality. This implies that benefiting from either institution’s resources requires the implementation of the other institution’s conditions. Nonetheless, conditionality has been more apparent in World Bank’s lending.

Within this context, the principal of reciprocal conditionality is more apparent in the case of Yemen. Experts from both institutions have been working together, since the declaration of the Republic of Yemen in May 1990, to convince the Yemeni Government of the necessity and urgency of adopting an economic reform program that would resolve economic imbalances.

However, and because of conflicting circumstances that prevailed in the country during the first half of the 1990s, it was not until the beginning of 1995 when the Government adopted such reform program. A joint mission from the IMF and the World Bank proposed a general framework for economic reform, which was later crystallized in a final form before being approved by the Government in March 1995.

To confirm this reciprocal conditionality, the World Bank has requested the Yemeni government to undertake several prior-measures during the implementation of the Economic Stabilization Program, which are supported by IMF’s funds and approved by its executive council. Moreover, and following the Government’s implementation of the financial and monetary measures of March 1995 and of January 1996, and the IMF’s approval of the content of the economic reform program which falls within the frame of the Stand By Arrangement (SBA) facility, the World Bank’s executive council in turn approved the contents of the Structural Adjustment Program within an Economic Recovery Program. Similarly, the Enhanced Structural Adjustment Facility (ESAF) incorporates policies and measures that secure the continuity of the process of economic stabilization, from the IMF’s viewpoint. At the same time, the program undertakes extensive structural reforms required by the World Bank in all economic, monetary, legislative, and administrative aspects. These reforms were arranged in a ten component matrix to be implemented according to a set time frame.