France and the IMF
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Integrating Africa More Fully into the Global EconomyStatement by Michel Camdessus
Managing Director of the International Monetary Fund
Bordeaux, France, May 13, 1996
First, allow me to say how delighted I am to be here with you today to participate in this Euro-African Convention, not only because it gives me an opportunity to pay a visit to Bordeaux, which is close to my roots, but also because Afro-pessimism is not in vogue here, despite the fact that in many quarters "globalization"—the dominant trend of the latter part of the 20th century—is viewed as a further reason to be doubtful about Africa's future.
It is true that globalization has raised the stakes for all countries, especially those in Africa. Thanks to globalization, and the rapid increase in capital and investment inflows, access to new technologies, and expanding export markets that it has brought, the prospects for faster economic growth worldwide have never been brighter. At the same time, however, countries that are not in a position to open up their economies, attract investment, or participate in world trade, and thereby join in the globalization process, run the risk of marginalization. Is that to be the fate of Africa? I don't think so. In speaking to you this morning, I would like to share a statement of fact and a personal conviction with you.
I. Statement of Fact: Africa Is on the Move
As a matter of fact, Africa's re-emergence is a source of some embarrassment to the pundits:
So, by way of contrast, let me tell you how we view things from our global vantage point at the IMF, where, as everybody knows, we are hardly given to cheerleading on such matters.
First, allow me to elaborate on the facts.
We see, with our own eyes, that a number of African countries have achieved exemplary results; thus, the region as a whole is expected to record real GDP growth of about 5 percent on average in 1995 and 1996. We think that there is good reason to believe that this level of growth will continue for the next three years.
Moreover, it is encouraging that this growth is widespread. By way of illustration, I would point out that in 1991, only 20 out of 46 countries in sub-Saharan Africa were recording positive per capita growth. There are twice as many such countries today.
The contrast is particularly striking in the case of the franc zone countries, which since the early 1980s had been sinking deeper and deeper into poverty in per capita terms, and which, over the period 1986-1993, had to endure seven lean years that were especially painful. In 1991, for example, their per capita GDP growth was negative, i.e., -2 percent. The corresponding figure for 1996 will be positive, i.e., approximately 2.4 percent.
Still, the question remains as to what kind of recovery this will be.
Lasting recovery or passing phenomenon?
Given the importance of this question, we at the IMF have taken considerable pains to find some answers.
I shall spare you the details of our country-by-country, year-by-year analysis. Suffice it to say that we have concluded that this improved growth performance is closely related to the improvement in macroeconomic policies and that the terms of trade impact has been close to zero.
Allow me to pay tribute to the broadly successful policies accompanying the devaluation of the CFA franc, as well as to the recent announcement that the CFA franc countries have moved to convertibility of current transactions under Article VIII.
As you know, most of the countries of sub-Saharan Africa are successfully implementing policies predicated on the same principles, with IMF and World Bank support. They are doing so, I might add, not because they have acquiesced to some neo-liberal ideology, but rather, out of a keen sense of pragmatism.
These countries have come to realize that they all possess their own distinctive advantages; however, they also appreciate that if their economies are to function successfully, economic agents, be they local or foreign firms, will need a better climate of economic security within which to operate.
Economic security: What does this imply?
First, it will entail re-establishing the macroeconomic equilibrium, beginning with restoring and maintaining financial stability, and in particular, a reasonable degree of price stability. To do this, budget deficits must be brought down to levels that can be financed in a noninflationary way, without crowding out the private sector and while keeping the debt burden within manageable limits.
Needless to say, this will require determined efforts to mobilize domestic resources—which exist to a greater extent than generally believed—so that more resources can be devoted to health, education, agriculture, social safety nets, and basic infrastructure.
These efforts must be combined with the difficult task of reducing unproductive expenditure. Care must also be taken to ensure that all prices prevailing within the economy, particularly the key prices—the exchange rate and interest rates—are free from controls and are market-determined.
All of these efforts should be pursued against a backdrop of gradual yet resolute trade liberalization, for international experience makes clear that an overly cautious approach comes at the cost of economic growth.
To improve resource allocation and unleash productive energies, these improvements in the macroeconomic fundamentals must be matched by structural reforms, especially in key areas, such as: the labor market, trade policy, the financial system, agriculture, and other sectors of the real economy.
Decision-makers know that economic policy must be consistent and result in a critical mass of reforms if economic agents are to be convinced that progress is irreversible and that the country is actually integrating itself into the world economy.
In some countries, however, there is not yet the degree of consensus needed to achieve this critical mass of reform. In such cases, success depends on the ability of national leaders to broaden the national dialogue to encompass these issues and to rally public opinion behind them.
However, it is clear that in a number of cases we still have a long way to go and that in spite of the commendable results achieved thus far, progress is still far too slow to reduce poverty in a significant way.
How then do we negotiate the transition from recovery to development?
II. From Recovery to Development
Moving from economic recovery to genuine development is a great challenge, perhaps the greatest challenge in a generation.
Meeting this challenge requires that all apply themselves promptly to the pivotal task of building a new kind of partnership, and do so without shying away from any of the serious reappraisals that the globalization process may suggest.
One of the most important signs of a successful transition to development is the emergence of a virtuous circle, which is what occurs when the restoration of macroeconomic balance is reflected in a recovery in domestic saving, positive flows of private foreign capital, and by extension, significant and sustainable increases in rates of investment.
An upturn in foreign investment will provide the litmus test of the success of the strategy, even if its role in the overall process is not the most important. In the event, we know that so far only half of the developing countries are receiving direct investment, and for some of them, the amounts involved are still too small.
What, then, are the prerequisites for the new partnership that I spoke of earlier—the new partnership whereby as many African countries as possible will be integrated into the world economy, and thereby given a chance to achieve high-quality growth?
As it happens, the main obligations incumbent upon the three major players in this partnership—the African countries, the international community, and private investors—are already well known.
The role of the African governments
The African governments, of course, play the key role. Given the need to establish an environment of satisfactory economic security, these governments must preserve their hard-won gains from macroeconomic stability and structural adjustment, and establish an institutional framework that inspires the confidence of savers and investors and guarantees the physical security of individuals and the legal security of transactions.
This is a formidable task. The state has a major role to play in establishing confidence in its institutions, and I pay tribute to those among you who have dedicated themselves so energetically to this task.
Experience has shown that governments can foster and maintain this confidence not only by taking a tough stand against corruption, but also by concentrating on carrying out those core functions that they are best equipped to carry out, including:
At this point, I would like to share with you the comments of the two African Presidents who told me, using much the same words: "The cabinet minister with the greatest impact on economic development is not the Planning Minister or the Minister of Economy, but rather, the Minister of Justice."
Mr. President, if there is one thing I am convinced of, it is this:
The outcome of this competition will be determined by the effectiveness of efforts to achieve sound management in public affairs—or "good governance," as it is sometimes called—that special kind of peaceful, participatory democracy referred to by Prime Minister Duncan and long exemplified by Botswana.
Let us assume, and it is a realistic assumption, that the African governments are successful in these essential efforts. It is then, I am convinced, that the other two public and private groups in the partnership will come forward and do their part.
The industrial country governments and international institutions
Much has already been said about the "development assistance crisis" and so-called "donor fatigue." Nevertheless, experience shows that when African countries demonstrate that they are serious about achieving economic adjustment and reform, donors and lenders—with France among the leaders, as Mr. Godfrain himself will explain to you shortly—work hard to support these countries in a constructive and trusting partnership with the major international financial institutions, such as the IMF and World Bank.
Allow me to take this opportunity to pay tribute to these cooperative efforts, which have my warmest approval. Moreover, I have no doubt that France will continue to recognize that there is no contradiction whatsoever between fighting poverty here in this country and fighting poverty in Africa.
We in France need to redouble our efforts to convince European public opinion that the answer to a number of our greatest problems—migration, environmental protection, security, to say nothing of our individual and collective quest for a meaningful future—involves reinforcing our solidarity vis-a-vis the poorest countries.
The international community must therefore continue to lend active support to countries engaged in serious reform efforts, including through grants or loans on concessional terms, and should assist such countries in reducing their external debt to sustainable levels.
Just as importantly, the rest of the world must also do more to open its markets to the products in which developing countries, including the countries of sub-Saharan Africa, have, or are likely to develop, comparative advantage. I am thinking in particular of agricultural commodities or basic manufactures.
Finally, we know that, in their quest for economic development, too many African countries have suffered bloodshed and civil war on a catastrophic scale. It is essential that the international community do everything in its power to help the African countries avoid such conflicts and to facilitate reconciliation and rapid reconstruction.
To play its appointed role within the new partnership, the IMF is currently engaged in a full-scale review of its panoply of instruments. In particular, the IMF is endeavoring to assure the long-term future of ESAF, the instrument that we use in making structural adjustment loans to the poorest countries at extremely low interest (0.5 percent), even if this should require using a small fraction of the IMF's gold holdings—a question that is still subject to some controversy.
To anyone who has witnessed the considerable impact of such operations in the franc zone countries, such efforts will no doubt appear essential.
The IMF has also expanded the scope of its emergency assistance procedures to include "post-conflict" situations, so that it can respond with greater speed and efficiency when the need arises.
At the same time, the IMF is working with the World Bank to develop a strategy to resolve the external debt problems of a limited number of heavily indebted low- income countries which, without such assistance, would be extremely hard-pressed to bring their debt burden down to manageable levels.
But Africa also needs to be able to count on an additional contribution, perhaps the most important one of all; I am referring to the contribution that you yourselves provide—you, Africa's partners in the private sector.
By availing yourselves of profitable investment opportunities in Africa, participating in joint ventures with local firms, and trading with African countries, you are making a contribution to development on the African continent that will seal its credibility.
The partnership I have just described must be based on mutual interest, predicated wherever possible on a medium- or long-term approach. I believe that such an approach will encourage you to focus less on achieving short-term financial gain, tax breaks, or carving out exemptions from general investment regulations, and lead you instead to place consistently greater emphasis on guarantees of permanency, stability, transparency, and a more secure framework for conducting your business.
In so doing, you will also help craft a national consensus in favor of sound financial policies, regulatory transparency, trade liberalization, regional integration—a framework often necessary for your business—and last but not least, the strict application of the rule of law.
In closing, I firmly believe that your active involvement in Africa will help to establish and maintain a virtuous circle in which market liberalization will catalyze growth and investment, which in turn will unleash a fresh wave of liberalization, saving, investment, and economic expansion.
I think you will agree with me that, along with freedom from civil strife,
herein lies the key to Africa's lasting prosperity.
IMF EXTERNAL RELATIONS DEPARTMENT