Implementing the Monterrey Consensus, Speech by Horst Köhler, Managing Director, IMF
June 30, 2003
Implementing the Monterrey Consensus
Managing Director of the International Monetary Fund
At the High-Level Segment of the United Nations Economic and Social Council
Geneva, June 30, 20031
As Prepared for Delivery
Secretary-General, Ambassador Rosenthal, Ladies and Gentlemen:
1. The world economy continues to face uncertainty. In the United States, economic policies have been appropriately supportive. There are recent signs of a firming in activity, and a broadening of the recovery in the second half of this year is expected. In Europe and Japan, although a pick up is still expected, there are as yet few signs of an imminent recovery, and policies need to remain supportive. Overall, the balance of risks has improved somewhat, and a return of global growth to about 4 percent in 2004 remains the most likely development. But the current slow pace of growth in the advanced economies presents a particular problem for emerging market and developing countries, whose prospects depend critically on growing international trade and a healthy world economy. Emerging Asia continues to be the bright spot in the global economy, but depends heavily on economic growth in the advanced economies, especially in the United States. And while SARS appears to be receding, its economic impact cannot be fully assessed yet. Latin America is emerging from its deepest recession in two decades. Recent developments are encouraging, led by the strong agenda articulated by President Lula in Brazil. And while growth in low-income countries, including in Africa, has been relatively robust, it remains well below levels needed to advance significantly toward the Millennium Development Goals.
2. Restoring confidence and growth to the world economy requires vigorous efforts by all countries to address their own weaknesses, as well as global economic risks. At the Evian Summit, the leaders of the G8 voiced the political will to work together with emerging market and developing countries to address the world's problems. This is encouraging. But, of course, we need to see action. In the advanced economies, the primary task is to raise medium-term growth potential. In Europe, I welcome the strong efforts in several countries, including Germany, to introduce much-needed structural reforms. In Japan, the process of bank and corporate restructuring is underway, but needs to be accelerated. And in the United States, the priority must be to reestablish a sound medium-term fiscal framework. Meanwhile, emerging market and developing countries must stay the course, by strengthening economic policies and institutions to take full advantage of the opportunities of the global market place. And in a world of growing economic and political interdependence, restoring confidence also requires the credible demonstration of international cooperation. I believe that implementing the Monterrey Consensus and making decisive progress in the Doha Trade Round should lie at the heart of this cooperation.
3. The two-pillar development partnership launched in Monterrey last year marks an historic step in our fight against poverty. There is now widespread agreement that successful poverty alleviation requires both sound national policies and good governance as well as more effective assistance by the international community. In Africa, the New Partnership for African Development (NEPAD) formulated by the African leaders themselves rests on the same foundation. This is the right approach, and the IMF is fully engaged and supportive.
4. Sustained implementation of good policies in low-income countries is bearing fruit. In Africa, in particular, strong performers, including Benin, The Gambia, Mozambique, Tanzania, Senegal, and Uganda, have seen real growth averaging 5 percent or more over the past five years, compared to less than 1 percent for sub-Saharan Africa as a whole — and negative growth in the preceding decade. At the same time, inflation has fallen well into the single digits and external imbalances have diminished. The better economic performance has also been reflected in stronger public finances. And while progress under the HIPC Initiative has been slower than many — including myself — would like to see, it is proving to be helpful in a growing number of countries. In the 26 countries that have reached the decision point, external debt has been cut by two-thirds in net present value terms. At the same time, debt relief has freed up resources for social spending: on average, debt service has fallen from about 30 percent of government revenue in 1998 to 15 percent in 2002, while social spending now amounts to four times as much as debt service outlays.
5. But more will be needed to make decisive progress in poverty alleviation. The sober reality is that maintaining even the current relatively good performance will not suffice to halve poverty by 2015, as envisaged in the Millennium Declaration. Indeed, NEPAD itself aims at raising growth to 7 percent per year. This will require structural reforms to boost competitiveness and more — and more productive — investment. The private sector must play a key role in this process. And to create an environment that attracts private investment, macroeconomic stabilization must be complemented by policies to strengthen governance and build institutions. The importance of establishing a culture of credibility cannot be overemphasized. In some countries — such as Tanzania and Uganda — there is encouraging progress. They are reforming the legal and regulatory frameworks, and strengthening and diversifying their financial sectors to ensure better access to credit for small and medium-sized enterprises. But in many other countries, particularly those ravaged by persistent wars and unrest, sustained growth and poverty alleviation remain distant prospects.
6. Sound domestic policies in developing countries need to be matched by more support from the international community. Advanced economies must live up to their pledges, and the long-standing target of 0.7 percent of GDP remains for me a concrete test of their credibility. We must also look for innovative ways to provide the resources that are needed. I consider Chancellor Gordon Brown's proposal to accelerate financing for development through an International Financing Facility a creative way to leverage scarce public resources and tap the vast potential of international capital markets for development. The proposal was discussed in Evian, and I hope that it receives the careful consideration and further work that it deserves.
7. A critical contribution to poverty alleviation lies in strengthening international trade by improving market access for developing country exports and reducing trade-distorting subsidies in the advanced economies. This is why a successful conclusion of the Doha Trade Round, within its allotted time frame by end-2004, is so important. I welcome the agreement among EU ministers last week on the first reforms to the EU's Common Agricultural Policy, which I hope will serve to restart the delayed agricultural trade discussions. The details of the EU's proposed reform remain to be fully assessed, but the decision to begin to decouple financial support from production levels in some areas is a step in the right direction. But there is no doubt in my mind that a genuine development round must also have broad-based improvements in market access conditions for agricultural products, as well as a significant reduction in trade-distorting subsidies, at its core. Progress on access to all advanced economy markets needs to be a key priority. Delays have also affected the public health provisions in the intellectual property agreement. In this area of key importance to global public health, all parties need to display the commitment to move these discussions forward, around the sensible proposals that are on the table. In September, the World Trade Organization will hold its Ministerial Meeting in Cancún. I repeat here what I said in Evian: Cancún is an opportunity for all to show decisive leadership. Leadership to restore confidence and growth to the world economy and make decisive progress in our fight against poverty.
8. The IMF is fully committed to helping implement the Monterrey Consensus and assist its members alleviate poverty. The key operational vehicle in this process is the Poverty Reduction Strategy Paper — the PRSP. The PRSP process emphasizes participation and ownership, involving the country itself, bilateral and multilateral donors, NGOs, and civil society, in a transparent dialogue. In this effort, the Fund will continue to concentrate on its areas of competence: establishing a framework for sound macroeconomic policies and institutions. To this end, we have reduced our conditionality by focusing it on those areas that are central to achieving the macroeconomic objectives of the program. And we are working hard to ensure a better alignment between the PRSP, the national budget framework, and our own low-income lending facility, the PRGF.
9. Capacity building through technical assistance and training is a critical ingredient of sustainable development and growth. At the IMF, we are providing ongoing assistance and training to member countries seeking to strengthen their institutions and human resources to manage their economic and financial policies. And in recent years, we have reinforced our efforts by expanding our regional technical assistance centers, located in the Pacific, the Caribbean, and now in East and West Africa. The objective of these centers is to help strengthen the capacity of low-income countries to design and implement their development strategies, and their activity is being closely coordinated with other regional initiatives.
10. Over the medium-term, the IMF will further tailor its assistance to the evolving challenges facing low-income countries. Increasingly, as macroeconomic stabilization takes hold, the priority is to boost growth. The IMF will work with other institutions, particularly the World Bank, to assist its members to develop and strengthen sources of growth — domestically and through increased regional and international economic integration. In this process, a critical role must fall to private sector development, including by promoting domestic and foreign investment and by building strong and diversified domestic financial sectors. More immediately, many low-income countries remain vulnerable to exogenous shocks, and the IMF is examining its financial and non-financial instruments with the aim of improving its ability to help its members deal better with shocks should they occur. But a pre-requisite to macroeconomic stability and growth is political stability. Where countries continue to be dogged by civil strife, solutions lie in the realm of politics not economics. And once the political will is found, the IMF will continue, and indeed reinforce the financial and technical assistance it provides to countries emerging from conflict so that they can establish the economic and financial foundations for growth.
Ladies and Gentlemen,
11. The Monterrey Consensus is our framework for the development partnership. And in the PRSP process, we have an operational vehicle. We are beyond the debating stage: what is needed now, is implementation. The IMF stands ready to do its part. Working together, with all partners fulfilling their commitments, we can make decisive progress toward the goals set out in the Millennium Declaration.
1 Delivered by Reinhard Münzberg, Special Representative of the IMF to the United Nations.