Speech

Address by Michel Camdessus

July 6, 1995

At this time when we are celebrating the 50th Anniversary of the United Nations, the issue chosen for special consideration by ECOSOC is the development of Africa. This is entirely fitting, since it is there that the problems are the most urgent, there that our failures are the most evident, and there that the doubts about the adequacy of our resources relative to our responsibilities are the most justified. In an effort to provide some answers to these urgent questions, let me share with you some elements of the IMF's thinking on:

• the constraints currently placed by the international environment on Africa's development;

• the potential for progress that needs to be recognized; and

• the task before us all, meaning both African countries and their partners in the international community.

I. Constraints currently placed by the international environment on Africa's development

Africa's external environment is the world. When I spoke at last year's ECOSOC meeting about the evolution of the IMF's role as it approaches the 21st century, I suggested that our efforts would have to become better tailored to an increasingly globalized world economy. If there was any doubt on that point then, there can certainly be no doubt now. After all we have experienced in the past year--the Mexican crisis, the large swings of exchange rates among the major currencies, and the spillover effects of these developments--we can see more clearly than ever before that the size of globalized financial markets gives them a more and more decisive influence on global economic prospects. They have the capacity, if market discipline is challenged, to call into question the policies of any country, great or small.

In spite of all its risks, but also with all its potential for enhancing economic efficiency, this international integration of financial markets is not only irreversible, but it can only broaden and intensify in the future. Let us not make the mistake of believing that the answer to financial crises lies in reversing this globalization through exchange controls and less open markets. Indeed, especially in the case of Africa, let us be clear that the task now before us is to ensure that these countries gain more and more from the opportunities afforded by the closer integration into the world economy that such a globalized world can offer them. If they fail to take advantage of these opportunities, the risk of their marginalization will only be increased.

But let me consider here a question that is of considerable topical interest: how can financial market disruptions of the kind we have been seeing be prevented and cured? The answer lies partly in strong economic policies at the national level and partly in strong international cooperation at the global level, where the responsibilities of the IMF are well known. These issues have been central to our work in the first six months of this year, and I am pleased to observe that the Halifax Summit ratified our conclusions, with regard to both the strengthening of our surveillance and the increased financial resources that will be needed for us to be able to deal with new crises. But I will say no more about these issues now, even though they are high on your list of questions, and return to the question of Africa, a continent which, more than any other, needs at the global level a strategy and the means to combat crises effectively.

Globalization is indeed an important aspect of Africa's external environment. But what about the current economic situation and prospects? As we know, the performance of the global economy has been generally favorable in the past year; and in spite of the adverse effects of the financial market disturbances to which I have referred, the outlook remains positive. Following the slowdown of the early 1990s, the growth of world output last year, at 3.7 percent, was the strongest for six years and exceeded most expectations. And, even though uncertainties have increased with the slowing of growth in a number of industrial countries in recent months, world growth seems likely to remain in the 3 1/2 to 4 percent range in 1995 and 1996.

There are, of course, many immense problems still to be tackled, but the performance and outlook for the global economy provide a relatively auspicious backdrop to Africa's external environment. Let us not be mistaken, however: apart from the risks posed by globalization itself, there are other challenges facing Africa in the period ahead. Unfavorable movements in commodity prices cannot be ruled out. While the conclusion of the Uruguay Round should benefit the developing countries in the medium term, some of these countries may be adversely affected by possible increases in food import prices and reductions in preference margins. Lastly, persistent pressures on aid budgets in most industrial countries seem likely to mean continuing stagnation in ODA flows, even though Africa's proportion of the total is still rising at present.

II. Potential for Progress

So, Mr. Chairman, Africa's external economic environment is surely no less demanding than in the past; we must acknowledge this if we are to be realistic. But it must be emphasized just as forcefully that Africa's potential for success has become clearer in recent years. I say this for three reasons. First, there is now wider and stronger agreement on what needs to be done. I see this in my contacts with Africa's leaders and policymakers; and it was apparent in a broader context at the Social Summit in Copenhagen and its Program of Action. There is broad agreement on the objective of "high-quality growth"; there is broad agreement that no country can achieve high-quality growth if it becomes marginalized from the mainstream of international trade and financial flows; and there is broad agreement on the strategy needed to achieve such growth. The ingredients of the strategy are well known: in a nutshell--sound and stable macroeconomic policies; the elimination of unproductive public spending and the strengthening of investment in human capital, especially in health and education; the removal of structural constraints on growth and job creation; the maintenance of a realistic exchange rate; the liberalization of trade and investment regimes; the provision of cost-effective social safety nets; and, last but not least, good governance. I hasten to add that this consensus on the strategy and its ingredients should not cause us to lose sight of the effort that is required of each country concerned, and of each and every one of us! We can readily assess the scale of the efforts required from the experience of the most successful African countries. Indeed, the very success of these countries--the fact that their success is exemplary--is another reason why we must recognize Africa's potential for progress.

Allow me to refer to a recent IMF study of Sub-Saharan Africa that compares the performance over 1980-94 of two groups of countries: a group of "strong adjusters" and another group of "slow adjusters."

The "strong adjusters" steadfastly implemented appropriate economic policies and a broad range of structural reforms. The other group failed, or declined, to implement adequate economic programs.¹

The contrast in outcomes is enlightening. The "strong adjusters" were able to raise their average annual growth in real GDP from 1 1/2 percent during 1980-85 to 4 percent during 1986-94; the other group, in contrast, experienced a decline in growth from 2 1/2 percent to 1 1/2 percent between the same periods. The "strong adjusters" have seen rising per capita incomes in recent years, while the other group have seen steepening declines in living standards. In fact, 12 countries in Sub-Saharan Africa implementing growth-oriented adjustment programs achieved annual real GDP growth in excess of 4 percent in the past decade.² Ghana, which I have just visited, has seen per capita income growth of over 2 percent a year for more than a decade, and has just entered into a new arrangement with the IMF aimed specifically at continuing and solidifying this effort over the next three years. The successes of this group of countries are a strong basis indeed for hope.

My third source of encouragement is that a range of broader developments have enhanced prospects for growth in Africa. First of all, there is South Africa's closer integration into the regional and world economy, which should boost trade and growth throughout southern Africa and beyond. Then there is the very courageous parity adjustment made by the CFA franc countries, now beginning to bear fruit; if strong policies are maintained, these countries could see growth of 5 percent a year or more in the period ahead. Furthermore, the implementation by the Paris Club of the Naples Terms (reducing debt by two thirds) is now providing the poorest African countries with greater amounts of essential assistance: only a few days ago, it was the turn of Senegal and Mauritania. Finally, there is the trend on which the Secretary-General's report places particular emphasis, namely that a number of countries are striving to establish and consolidate genuine democracy, maintain an environment of peace, and reduce military spending. Mr. Chairman, allow an economist to be modest for a moment and to acknowledge that the key to lasting success in the economic sphere, the key to development, is outside the scope of economics: it is peace and democracy. These provide the most essential requirements for sustainable development, and are at the very heart of this potential for progress on which we must now build.

III. The effort required

Let us therefore now consider the task before us. First and foremost, there is the task for the African countries themselves. The very diversity of their individual situations and of their progress to date implies the need for a diversity of strategies, which each country should devise for itself, with our support. But despite such diversity, there are five key challenges that must be addressed in virtually all countries:

• first, to reduce fiscal imbalances in most countries. Intensified efforts are required to improve tax collection and to cut back unproductive government spending in order to finance the needed expansion of economic and social infrastructure, and to reduce the public sector's pre-emption of scarce national saving to the detriment of the productive sector, the only source of job creation in the long term;
  
  
• second, stronger efforts to boost private sector saving, as well as domestic and foreign private investment. This requires the establishment of a stable macroeconomic environment, the restructuring of public enterprises, and all the structural reforms needed to create an attractive climate for business expansion;
  
  
• third, the liberalization of exchange and trade regimes must be accelerated in order to foster closer integration into the world economy and to boost confidence for investment. I welcome the fact that in the last 2 1/2 years eight African countries have accepted the obligations of current account convertibility under the Fund's Articles. I also salute the initiatives being pursued toward regional integration; I see this as a sign that, rather than looking inward, Africa is making progress toward the multilateral liberalization of trade. It has everything to gain from intensifying these efforts;
  
  
• fourth, and turning to matters less directly related to the responsibilities of the IMF: adopt a more responsible approach to population growth. Africa--the poorest continent--has the fastest population growth in the world. At present growth rates, the African population would double in less than 25 years. Leaving aside the very legitimate controversies surrounding this issue, it is clear that in order to hasten the improvement in the living standards of the poorest, national policy agendas must include the priorities agreed at the Cairo Conference last September: notably improvements in education, health care, and employment opportunities for girls, all in the context of active policies of poverty alleviation;
  
  
• finally, there must be improvements everywhere in governance. Governments must be accountable and participatory, laws must be transparent, nonessential regulations eliminated, and the competence and impartiality of the legal system ensured. In all these areas, there has clearly been progress in Africa; there is widespread recognition of the need to fight corruption, but doing so is a difficult task, requiring courage and perseverance. But progress must continue: it will profoundly strengthen the development process.
  
  

Let me turn finally to the role of the international community--the role of the IMF, the importance of collaboration among the institutions that form the UN family, and the continuing need for bilateral support. As regards the Fund itself, I can touch on only a few current issues, and I ask you to excuse me for not speaking at greater length about its contribution, for example, to capacity building--which has been so important in the experience of the Asian countries--through the extensive technical assistance it provides for African countries in its areas of expertise and the training it provides for many government officials. I do wish to talk briefly about the future of the financial instrument of the Fund that is most important for Africa--the so-called enhanced structural adjustment facility, our concessional window for low-income countries. The resources supporting the ESAF were enlarged early last year, in a gratifying display of international solidarity among developing as well as industrial countries. This revitalization of the facility has made it possible to provide substantial financial support for growth-oriented structural adjustment programs in Africa, and this support has formed an essential part of the net transfers from multilateral organizations to African countries. But the new ESAF will expire within the next few years. It is essential for Africa that such a window--which allows us to hold down to 0.5 percent the interest rate on our loans--remain available for as long as we have to confront such deeply rooted problems, which is to say for a long time yet. I will do everything possible to ensure that this facility becomes permanent. I must say that I feel encouraged to pursue such efforts, since not only has the Interim Committee asked us to examine the options for the continued financing of such operations, but also the G-7 leaders in Halifax provided their endorsement. This is good news indeed for Africa. The ESAF is a key instrument, especially to help make the debt problems of the heavily indebted poor countries manageable. The Fund is also analyzing options to deal with the special problems of countries for which the debt service burden to multilaterals is likely to remain too high for too long. It goes without saying, however, that in all the difficult cases I am referring to here, the success of our initiatives will depend on the strength of the catalytic effect of our financing, which is to say on the ability of our programs to convince other bilateral and multilateral donors that they will indeed produce deep structural adjustment and that they deserve support. This means that only strong programs stand a chance today. Our programs must therefore remain strong, and they will.

It is on the basis of the strength of our programs and the commitment of country authorities to their structural adjustment efforts that we have been developing close collaboration with the World Bank, especially in the formulation of policy framework papers, better known as PFPs. Our cooperation with other international organizations is also being strengthened. Let me mention a few areas where this strengthening of collaboration is occurring with other members of the UN family:

• on employment policies, we are in the process of strengthening our contacts with the ILO, including in the context of policy advice at the country level;

• to help make social programs supported by UN agencies consistent with sustainable budgetary frameworks, we are seeking to coordinate our policy advice more closely with such UN efforts as the Country Strategy Notes and the UNDP technical assistance programs;

• and finally, in the case of countries that are emerging from situations of conflict, and where the Fund is helping governments through technical assistance and policy advice to put in place coherent frameworks of macroeconomic policies, collaboration with the UN is of course especially important and must be strengthened further.

But even with our strongest individual efforts and most effective collaboration, Africa will continue to rely also on bilateral support. Above all, it will need the industrial countries to provide access to markets for its exports. Any tendency toward protection in the industrial countries would threaten the much-needed diversification of the export base of African economies. African countries will also continue to need debt relief as long as poor countries are prevented by their debt burdens from achieving their growth potential. But we must go beyond that, and today say forcefully that bilateral support at higher levels than we are seeing currently is more essential than ever. And I make this observation at a time when the talk is mainly about cutting back on such support. We must do our utmost--developing countries and multilateral organizations alike--to ensure that official aid is used ever more efficiently. But it would be a mistake to believe that even relentless efforts to improve efficiency would be enough, or that they would relieve donor countries--whatever their budget constraints--from their duty to maintain their efforts to increase aid as a proportion of their GNP. The international commitments they have made to this effect within the framework of the United Nations are more warranted than ever--now that we have a better grasp of what needs to be done for faster, sustainable growth; now that the success of many is an encouragement to strive even harder; and now, finally, that the globalization of the world economy is enhancing the chances of success of those countries with high-quality programs that can be adequately financed, but also increasing the risks of marginalization for the others.

Mr. Chairman, I have outlined briefly what in my view may be the reasons and conditions for hope regarding economic and social progress in Africa--progress that would respect Africa's diversity, and that would at the same time be in the interest of industrial countries, which need to be fully aware of the importance of Africa's development for the prosperity of the whole world. It was important that ECOSOC put this issue on its agenda. You may be sure that the IMF will spare no effort to work toward the fulfillment of the UN's New Agenda and to help ensure that the last decade of this century marks a decisive turning point, at last, in the economic history of Africa. Let me assure you, Mr. Chairman, that as I say this, I have particularly in mind those countries which, even as we meet, are prevented by war, conflicts or disorders of all kinds from participating in the process of growth that we want to support. Let them know that we ardently await the day when we shall be able to undertake with them the actions that are bringing success elsewhere, because peace, democracy, and development walk hand in hand.

1. World Economic Outlook, May 1995 (Washington, D.C.: IMF, 1995), Annex II.

2. P. Dhonte, Three Propositions on Economic Growth, PPAA/95/9, IMF, 1995.