Thailand and the IMF
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As Prepared for DeliveryStrengthening Growth Through Regional and Global Economic Cooperation
Managing Director of the International Monetary Fund
APEC Working Luncheon Remarks
September 4, 2003
1. In my remarks this morning I noted that a world recovery appears to be underway, but it remains tentative and uneven. The primary responsibility for restoring healthy world growth rests with the advanced economies, but all countries can play a part in this effort. I would like now to shift the focus from the short-term policy requirements to steps needed to reinforce the underpinnings for strong growth over the medium term.
2. International economic cooperation is, in my view, essential for durable growth of the world economy. Over the past few decades globalization has, on balance, brought tremendous benefits to the world, but also greater interdependence. Greater interdependence, in turn, calls for closer international cooperation to ensure that economic and financial integration is ever more inclusive and works for the benefit of all. There is little doubt that globalization, properly managed—a "better globalization", if you will—can be a powerful engine for sustained world growth and poverty reduction, on the strength of faster diffusion of knowledge, better division of labor, and improved allocation of capital.
3. Cooperative efforts are indeed pursued in many fora, both at the global and the regional level. Global initiatives bring, by design, shared benefits. Regional initiatives enhance self-reliance and prospects for the participating countries. But, indirectly, regional initiatives can yield global benefits too, provided that an outward-looking orientation is maintained. At this juncture, boosting confidence and restoring the global economy to sustained growth requires stronger cooperation especially in two areas: international trade, and the promotion of international financial stability.
4. A cooperative strategy for strong medium-term growth must continue to have trade liberalization as a central element. Open trade regimes promote efficiency and growth. Countries with strong export sectors are able to recover more quickly from adverse shocks. And the importance of trade for poverty reduction is beyond dispute.
5. To reap the benefits of trade integration globally, a successful conclusion of the Doha Round on schedule, by end-2004, is critically important. Gains to world income from successful multilateral liberalization of trade in goods alone have been estimated between 250 and 700 billion dollars, one third of which would accrue to developing countries. With three-fourths of the world's poor depending on agriculture for their livelihood, a broad-based improvement in market access for agricultural products, and a significant reduction in trade-distorting subsidies, are key to ensuring that the Doha Round is truly a development round. Failure to open up trade in agriculture will push the achievement of the Millennium Development Goals sadly out of reach—and severely test the credibility of the industrial countries' commitment to reducing poverty. The September Ministerial meeting in Cancún, therefore, must succeed. And this will require the willingness by all countries to stand up to vested interests for their mutual benefit.
6. Regional trade agreements can also contribute to strengthening the underpinnings of sustained growth. Examples of the immediate benefits from lowering trade barriers within a region abound on both sides of the Pacific. Mexico's export share in GDP has doubled to 27 percent since the North America Free Trade Agreement took effect twelve years ago. And intra-Asian trade has risen steadily from about 24 percent of total trade in the early 1980s to 40 percent in 2002, not least as a result of the ASEAN Free Trade Area and other bilateral agreements. APEC continues to work toward stronger regional trade ties among its members on the way to achieve the Bogor Goals of free trade and investment in the Asia-Pacific region. A proposal for a Free Trade Area of the Americas is on the table. And efforts are underway to build stronger trade linkages among Asian countries to capitalize on the opportunities opened up by China's accession to the WTO and its transformation into a dynamic market-economy.
7. Yet, in my view, regional or bilateral preference schemes are no substitute for a multilateral approach—and, if they become the overriding focus of trade policy, they risk undermining the fabric of the system. It is well worth reminding ourselves that the tremendous expansion in global trade and prosperity in the second half of the 20th century was only possible in the context of a multilateral framework of reciprocity and rules. The IMF will continue to fully support the WTO to ensure that this multilateral framework remains the centerpiece of global trade policy. And regionalism should be a building block—not a stumbling block—toward broader trade integration.
8. Longer-term growth prospects can also be boosted by improving the international and domestic financial systems. Integration into international capital markets has brought great benefits, but the volatility of capital flows has caused problems for recipient countries. The answer is not insulation from international markets, but policies and institutions—at the national and international level—to better cope with the risks. Countries themselves must build "shock absorbers" through macroeconomic policies that provide room for maneuver in difficult times. They must also address lingering weaknesses in the corporate and financial sectors through appropriate legal and regulatory frameworks, and foster a healthy investment climate that helps attract stable longer-term financing.
9. As a complement to national efforts to strengthen the domestic financial markets, many regional initiatives are underway to promote greater financial stability:
· Under APEC auspices, initiatives are being launched to strengthen corporate governance, support freer and more stable capital flows, and develop securitization and credit-guarantee markets.
· The ASEAN Roadmap for financial integration charts an encouraging path in the areas of capital market development, capital account liberalization, financial services liberalization, and currency cooperation among member countries. I endorse the thoughtful approach to promote cross-border collaboration with respect for the diversity of member countries.
· I also welcome initiatives under way to spur the development of regional bond markets in Asia. The further development of these markets has the potential to reduce the exposure of countries in the region to maturity and exchange rate mismatches, and to the risks of sudden stops in access to capital markets. Bond market development may also contribute to improved corporate governance and transparency, which will help reduce the risks of financial crises. The launch of the Asian Bond Fund provides an opportunity for participating countries to create the institutional and regulatory framework needed for regional financial integration. I believe that the Fund, through its broad international experience and the technical expertise of its International Capital Market department, could play a useful role in helping efforts to strengthen market infrastructure and develop deeper and broader capital markets for Asia.
· Finally, the Chiang Mai network of bilateral swap agreements among Asian central banks provides a useful international safety net. But, in my opinion, equally important is that it introduces a further avenue for regional surveillance by peer countries. This commitment to international solidarity and regional self-help exemplifies well the collaborative policies needed in a globalized world.
10. As a global institution entrusted with the oversight of the international financial system, the IMF too has reinforced its efforts to enhance international financial stability. Strengthening crisis prevention remains center stage. Bilateral and multilateral surveillance has become stronger. We are paying much closer attention to the soundness of financial systems and developments in international capital markets, which were at the root of most of the recent financial crises. With the objective of cementing a public-private partnership, we now maintain a regular dialogue with the private financial sector. Also, there has been a sea change in transparency among Fund member countries and at the IMF itself, which is providing markets with better and more timely information. And we are working hard, in close cooperation with both the public and private sectors, to develop and disseminate international standards and codes in the financial area. These efforts are bearing fruit.
11. But I believe that it would be unrealistic to think that a dynamic market economy can be fully sheltered from periods of turbulence and adjustment. Therefore we must also improve our ability to manage and resolve crises should they occur. Providing more predictability about the IMF's lending in crisis situations is one way to encourage market-based solutions, and to that end we have clarified the criteria for exceptional access to IMF resources. We have also actively participated in a debate on how to handle cases of unsustainable sovereign debt, which are among the most difficult issues that our members—and financial markets—have to deal with. This debate continues, but I am personally encouraged by the recent increase in the use of collective action clauses in sovereign bond contracts, which will ensure better coordination of diffuse and diverse groups of creditors should a debt restructuring become inevitable.
12. The international community has established other venues as well to improve the global financial system for the common good. The founding of the Group of 20 (the G-20) represents a recognition by the international community that solutions to global financial pressures had to reach well beyond the G-7 club of advanced economies. And the Financial Stability Forum has been established to identify regulatory and supervisory gaps in the international financial system, bringing for the first time financial regulators directly into the surveillance process.
13. Looking ahead, we must think about better ways to deal with excessive volatility in capital flows. Promoting long-term liberalization of these flows remains important for international financial integration and growth. But ensuring careful sequencing, particularly in relation to the development of well-regulated and well-managed financial sectors, is a critical ingredient to success. Other issues that need to be tackled are the lack of disclosure and transparency on derivative transactions—especially credit derivatives—and the leverage of hedge funds, the potential pro-cyclicality of regulations, the harmonization of accounting and auditing standards, and the role of rating agencies. Our semi-annual Global Financial Stability Report will examine these and other issues, as part of our ongoing effort to identify possible risks to the international financial system at an early stage. Although such questions loom large, the resilience of global financial markets in the face of significant shocks in recent years underlines the progress that has been made—regionally and globally—toward a stronger financial architecture.
Ladies and gentlemen,
14. There is much that the international community can do to lay the foundation for durable growth. Trade liberalization and actions to strengthen the architecture of the international financial system are both key. Regional initiatives can also play an important part, but they must be outward-looking and complementary to multilateral efforts. APEC—whose members are joined by the common belief that free and open trade and investment will bring prosperity to the region—is making a valuable contribution to this process.
IMF EXTERNAL RELATIONS DEPARTMENT