Remarks by Anne O. Krueger, Acting Managing Director, International Monetary Fund
April 8, 2004Remarks at the Opening Session of the Ministerial Conference on Financing for Development
by Anne O. Krueger, Acting Managing Director
International Monetary Fund
Paris, France, April 8, 2004
I am delighted to be here this morning. I congratulate both the British and French governments for recognizing the importance of reducing poverty and, in particular, the need to take the issue of development finance forward. I should also like to thank our French hosts—not least Minister Sarkozy, with his many newly-acquired responsibilities—for their generosity and their efficiency.
When they were first set out in the Millennium Declaration, the Millennium Development Goals represented an enormous challenge, to industrial and developing countries alike. They still do. But it is not a challenge that the world can afford to walk away from. There is a fundamental issue of human dignity: none of our fellow men and women should have to live or die in poverty. But there is, I think, also an issue of self-interest—none of us, rich or poor, benefits from having a significant minority of the global population living in deprivation. It fosters resentment and it means many people in desperate need who would otherwise be able to lead more fulfilling lives, and in doing so contributing to global economic welfare.
Successful achievement of the MDGs requires three things: the adoption of, and sustained commitment to sound macroeconomic policies in low income countries; the provision of more aid resources from the donor countries; and the full and co-coordinated support of the international community.
The Monterrey Consensus established a framework of mutual responsibility for making progress towards the MDGs. We all agree that more resources are needed. Some countries that have worked hard to implement the right macroeconomic policies have no prospect of reaching the MDGs without additional aid. But some countries would see fewer benefits from higher aid flows until they have put in place the sound policies that are essential for growth and poverty reduction.
The Fund is not directly involved in the provision of development aid. But we are fully committed to growth, and the poverty reduction that growth brings, and we are determined to do all we can to further progress towards the MDGs. I want this morning to outline briefly where I think we can do most to help.
In an important sense, poverty reduction lies at the heart of the Fund's purpose. The IMF was established 60 years ago in order to foster financial stability: but that was seen as a means to the objective of economic growth through not least the expansion of trade.
The founders of the Bretton Woods institutions were far-sighted individuals. They rightly recognized that the best way of raising living standards and reducing poverty is through sustained economic growth. But they could not have envisaged quite how spectacular the achievements within the postwar multilateral framework would be. Growth rates in the industrial world in the 1950s and 1960s, impressive though they appeared, were soon surpassed by many developing countries.
The MDGs should be seen in this context. We need to consolidate the benefits realized thus far, and to spread them more widely—so that everybody enjoys the minimum living standards that other people already have.
Sustainable economic growth
In many countries, policy reforms, and the sustainable macroeconomic growth that these reforms have brought, already provide the right framework for the achievement of the MDGs. For those countries the framework is in place, and they need—and could greatly benefit from—more resources. With its focus on finding ways to provide those extra aid resources, this conference has an important role to play in maintaining the momentum as 2015 approaches. In other countries, though, the goals offer a much greater challenge. More resources alone will not do the job.
The Fund's principal contribution is to support countries in creating the macroeconomic conditions that will not only result in higher rates of growth and poverty alleviation but also enable the optimal utilization of aid flows and increase the capacity to absorb larger flows. This in turn should encourage larger flows and so further increase the likelihood of meeting the MDGs.
MDGs are a long term goal and they underline the importance of creating the right macroeconomic framework—one that brings stability, fosters sustainable growth that in turn raises living standards and reduces poverty. Only sustained growth over a long period can offer low income countries a realistic prospect of attaining the MDGs.
Go back to that postwar expansion: the countries that made most headway in improving living standards and reducing poverty were the same ones that achieved high levels of growth over a sustained period. Postwar Europe, Japan and, later, countries like Korea, all saw their economies transformed. Latterly, China and India have made great strides in reducing poverty as they have enjoyed rapid growth.
The right policy framework
At a practical level, there are several ways in which the Fund supports low income countries in constructing the appropriate macroeconomic framework. Our surveillance work and the provision of technical assistance are important—as they are for our wider membership. But the centerpiece of our work in this area is the work on Poverty Reduction Strategy Papers (PRSPs) carried out jointly with the World Bank. In essence, PRSPs lay out a country's macroeconomic, structural and social policies and programs over a three year or longer horizon. The aim is to promote broad-based growth and reduce poverty, and to identify associated external financing needs and major sources of financing. Bank and Fund staff then prepare joint assessments of the PRSP and take a view on whether the strategy warrants support through concessional assistance from the two institutions.
We often speak about policy ownership these days. The development of PRSPs helps achieve that sense of national ownership. They are prepared following a wide-ranging consultation process within each country, and so enable countries to focus on poverty reduction in a way that reflects a broad consensus among what we term `civil society'.
The link between PRSPs and the MDGs is clear. PRSPs enable the Fund to work with governments to assess what needs to be done to meet the goals.
Remedying potential shortfalls is inevitably a two-step process. Macroeconomic and structural reforms must come first. Without the appropriate policy framework, more aid will have only a limited impact. And countries need to increase their absorptive capacity if the extra resources are not to be wasted. The Fund can help its low income members to implement the right policy mix, and so fulfill their side of the Monterrey bargain.
The role of the donors
As low income countries put sound policies in place, though, they need to be assured that donor countries will play their part. It was agreed at Monterrey that more development aid was vital for the attainment of the MDGs. The commitment made by the donors was clear. Policy reform, and increases in absorptive capacity, should trigger higher aid flows. But at a time of budgetary pressure in so many donor countries, extra aid resources are difficult to find.
So the initiatives launched by the British and French governments are welcome signs that donors are seeking to take their responsibilities seriously. The proposal for an International Finance Facility that was put forward by Gordon Brown last year offers a constructive suggestion for a way forward. I hope this conference will explore the proposal in an equally constructive way. The initiative taken by President Chirac, in launching the Landau group discussions on raising new aid revenues, is also an important signal that donor countries are looking for ways to deliver on their commitments.
The international community
I have outlined some of the practical ways we in the Fund can help countries develop sound economic policies. Final responsibility for the adoption of those policies lies with the countries themselves. Those that have set out to create a stable macroeconomic framework have, I think, already seen the benefits start to flow. Inflation is down and growth is beginning to pick up in many parts of Africa, for example.
The international community must foster these developments, in part by encouraging the right response from donors. The Fund is committed to work with the Bank and other development partners to improve donor co-ordination.
But the focus on aid should not distract attention from the importance of trade liberalization. Let me remind you what I said about the Fund's mission—to promote growth through the expansion of trade. Trade liberalization was an important driving force in the rapid growth from which so many countries have benefited in the past six decades. No country has enjoyed rapid growth over a long period without opening up its economy. We cannot afford to let macroeconomic reform programs in low income countries be squandered because of continuing trade protection.
The Doha round is therefore vital to the eventual success of the MDGs. And I am not talking here just of industrial country protection. Clearly we want to see the rich countries follow through on their commitments to full trade liberalization. But let us not forget that something like two thirds of the gains from a successful Doha outcome would flow to developing countries-and much of that would be the result of trade liberalization in those countries themselves. The Fund's Executive Board last week approved a new policy aimed at providing IMF help to the small number of countries that might face short-term balance of payments problems as they adjust to trade liberalization in the Doha round context.
Reducing global poverty is one of the most important challenges we face today. We must not lose sight of what successful realization of the MDGs would mean. Nor must we assume there is a simple solution to the problems we face. We can only achieve the MDGs if we approach the problems on a broad front. More aid is vital. So too is macroeconomic and structural reform without which more aid will achieve little. And trade liberalization must be part of the macroeconomic package if we are to expect it to deliver lasting success.
There is a role for all of us here, and if we are to succeed, we must all play our part.