Annual Meetings 2003
2003 Annual Meetings: News Releases, Speeches, Committee Papers, Documents and Background Information
Statements Given on the Occasion of the IMFC Meeting
September 21, 2003
Documents Related to the September 21, 2003 IMFC Meeting
Statement by Ian Kinniburgh,
Director, Development Policy and Planning Office,
Department of Economic and Social Affairs, United Nations
International Monetary and Financial Committee
Dubai, 21 September 2003
Recent development progress
In the United Nations Millennium Declaration, Heads of State and Government resolved to create "an environment—at the national and global levels alike—which is conducive to development and to the elimination of poverty". As part of the Declaration, they established a series of clear, time-bound, development targets that have come to be known as the Millennium Development Goals (MDGs).
The mediocre growth of the world economy for the past two years has already impeded progress towards the MDGs. Global growth has slipped since the Millennium Declaration was adopted, with developing countries bearing the brunt of the slowdown. Following an average increase of 2.8 per cent per annum in the 1990s, the increase in per capita output in the developing world in 2001-2003 is estimated to be only by 1.6 per cent annually, with Latin America suffering an average decline of almost 1 per cent a year during this period. Sub-Saharan Africa, the region where attaining the MDGs presents the greatest challenge, achieved annual average per capita growth of only 0.7 per cent in these three years.
The present acceleration in global economic growth is therefore particularly welcome for the contribution it will make to reducing global poverty. It should also facilitate the implementation of existing commitments for increased development cooperation and provide new opportunities to achieve the goals set out in the Millennium Declaration. An additional effort is required to compensate for the lacklustre start and opportunities lost during the recent years of slow growth.
World economic situation and prospects
The anticipated but long-awaited cyclical recovery of the world economy appears to be under way, bolstered by a number of factors: a continuation, and in some cases strengthening, of accommodative macroeconomic policies; a reduction in the earlier uncertainties associated with the prospect of conflict in Iraq and with the emergence of Severe Acute Respiratory Syndrome (SARS); some recovery in consumer and business confidence; a rally in equity markets; a narrowing of risk premia in capital markets, including those for external financing of many developing and transition economies; a decline in energy prices from their high levels prior to the invasion of Iraq; a moderation in the depreciation of the United States dollar vis-à-vis a number of other currencies; and some recovery in international trade in goods and services, including international tourism.
As a result, real demand has been reviving. Consumer spending has picked up in a growing number of countries and business investment—the widespread decline of which was a feature of the global downturn—has also risen in some countries, although hesitantly. However, employment has not yet begun to increase and an improvement in labour markets will be necessary to solidify and to sustain the recovery in the developed countries. More encouragingly, the earlier risk of global deflation seems to have abated. On the other hand, the large fluctuations in the exchange rates among major currencies in the first half of 2003 once again revealed an inherent weakness in the international monetary system.
An interim forecast by the UN Department of Economic and Social Affairs (DESA) is in general agreement with the projections in the IMF's World Economic Outlook. According to UN estimates, the growth of Gross World Product (GWP) in 2003 will be slightly more than the 2 per cent achieved in 2002 and accelerate to over 3 per cent in 2004.1 World trade, having declined in 2001 and increased by less than 2 per cent in 2002, is expected to grow by about 4 per cent in 2003 and above 7 per cent in 2004.
The UN's forecasts of growth in most of the major economies and regions are also broadly in line with those of the IMF. An acceleration is expected in almost all major regions, in some cases fractionally more than forecast previously, but the recovery remains unbalanced. The United States is leading the upturn, with GDP forecast to grow around 4 per cent in coming quarters. Japan is expected to grow by nearly 2 per cent in 2003, one full percentage point higher than previously forecast, whereas Western Europe has been weaker than expected—its growth is forecast to be less than 1 per cent in 2003, but to improve somewhat in 2004.
The improvement in Japan has provided a further stimulus to developing countries in Asia whereas weak European demand for Africa's exports has had a dampening effect on that region's growth. While the situation in Latin America and the Caribbean is improving, it is largely because some of the large economies are gradually emerging from stagnation or recession. Economic activity in West Asia has been disrupted by the war in Iraq and growth is expected to be modest in both 2003 and 2004. Improved growth in Central and Eastern Europe is being hampered by the faltering recovery in Western Europe but growth in the Commonwealth of Independent States remains strong,
Despite the improved outlook, the world economy is still subject to a number of downside risks. On the geopolitical front, some earlier major tensions have been substantially reduced, but not eliminated, and others remain. In the economic arena, the recovery is likely to cause international trade imbalances to widen further, at least in the short-term, possibly giving rise to major disruptions in foreign exchange markets. The worsening fiscal deficits in many economies also create risks, with the ballooning government deficit in the United States threatening to raise interest rates as time progresses. Private sector debt has reached a high level in a number of countries and real estate prices may have risen excessively in a number of cases; the risks posed by these developments should diminish if growth is sustained, but would rise if interest rates increase.
All these risks threaten not only countries individually but the world economy as a whole, with the developing countries again standing to lose substantially if the present forward momentum of the world economy is lost. Even though a global recovery is already under way, 2003 will be the third consecutive year in which growth in developing countries as an aggregate has been less than required to have a meaningful developmental impact. Moreover, the recovery is unlikely to yield substantial benefits to many developing countries before the second half of 2004. The Asia region, and very notably China and India, is a marked exception, but growth in Africa and Latin America remains well below that required to achieve the MDGs. In addressing the immediate risks, policy makers should not neglect the longer-term agenda they have adopted to accelerate progress in the developing countries and economies in transition. Both individual countries and the international community should seize the opportunity offered by the anticipated period of improved growth to address longer-term development needs and structural challenges, including the further reform of the global trade and finance systems.
Net transfer of resources from developing countries
One factor contributing to the slow growth in developing countries in the past few years has been the increase in the net outflow of financial resources from developing countries. Since the mid-1990s, capital outflows, repatriation of profits, debt amortization and interest payments from developing countries have exceeded their receipts of foreign direct investment, new credit and other capital inflows. This negative transfer, calculated on the basis of IMF data, was almost $200 billion in 2002.
Reversing this situation requires the continuation or adoption of sound domestic policies in developing and transition economies. Above all, however, it requires a solid and supportive recovery in the developed economies as well as, as agreed in the Monterrey Consensus, increased international financial cooperation. The increase in ODA flows in 2002 is encouraging, but it is important that ODA keeps rising, since there is increasing evidence that, under appropriate conditions, it can be very effective in accelerating development.
Heavily Indebted Poor Countries (HIPC) initiative
Despite continued progress, only eight countries had reached completion point under the enhanced Heavily Indebted Poor Countries (HIPC) initiative by mid-2003, compared with a target of 19. In addition, steep declines in commodity prices have undercut some of the HIPC progress in recent years, creating a need for additional debt relief to keep debt-to-export ratios below the threshold of 150 per cent. There is a continuing need to accelerate and widen this initiative, building on the lessons learned from experience to date.
International trade for development
The failure to make tangible progress at the WTO Ministerial meeting in Cancun is a setback not only to the global trading system but, above all, to global development and the attainment of the MDGs. Increased international trade is the single most effective global tool for advancing development and the multilateral approach is the most effective means of using of this tool. The Doha negotiations must be revitalized as expeditiously as possible. However, future success requires that they be recognized not as just another round of negotiations on mutual concessions but rather as a universal effort to ensure that the impediments to development in the present international trading arrangements are removed.
Implementation of the Monterrey Consensus
As part of the follow-up to the Monterrey Consensus, the United Nations General Assembly will hold a High-level Dialogue on Financing for Development on 29-30 October 2003. The Secretary-General's report for this meeting, entitled the "Implementation of and follow-up to commitments and agreements made at the International Conference on Financing for Development" (document A/58/216)2, was prepared in close consultation and collaboration with the Bretton Woods institutions and other major institutional stakeholders. The report presents recommendations on policies and processes and identifies issues for further reflection in order to advance the Monterrey Consensus.
The outcomes of the Annual Meetings of the IMF and the World Bank will also be inputs for the High-level Dialogue. The participation in the Dialogue of members of the IMFC, as well as the Ministers of each Fund constituency, would contribute to building on the progress achieved in Monterrey.
Enhancing Voice and Participation of Developing and Transition Countries
The Monterrey Consensus stresses the need to broaden and strengthen the participation of developing countries and countries with economies in transition in international economic decision-making and norm-setting and it encourages the Bretton Woods institutions to continue to enhance the participation of these countries in their decision-making.
This issue was one of those addressed in the meeting of the United Nations Economic and Social Council with the Bretton Woods institutions and the World Trade Organization on the Follow-up to the International Conference on Financing for Development held on 14 April 2003. Several participants welcomed the discussions in the Bretton Woods institutions on increasing the voice of the developing countries. Others were of the view that not enough had been achieved to enhance the participation of developing countries in international economic bodies—including the Bretton Woods institutions—and various proposals were put forward. In his Summary of the meeting, the President of the Council highlighted the key importance of the participation issue and recommended that the High-level Dialogue of the General Assembly referred to above should address, inter alia, the issue of "strengthened participation of developing countries in decision-making processes on economic policies".
1The aggregation of GWP is based on exchange-rate conversions of the gross domestic product of individual economies. Even if the individual country forecasts were identical with those of the IMF, this methodology would produce lower global growth rates than the purchasing power parity conversions used by the IMF.
2Available on the Internet at www.un.org/esa/ffd.