Address by Mr. Agustín Carstens, Deputy Managing Director, International Monetary Fund
June 27, 2005
Deputy Managing Director, International Monetary Fund
At the High-Level Dialogue on Financing for Development
United Nations, New York, June 27, 2005
1. Mr. President, ladies and gentlemen—We are meeting at a time when increased effort is needed by development partners to secure the commitments made at Monterrey three years ago. This meeting marks an important milestone on the way toward the MDGs in 2015, as the international community prepares for the U.N. World Summit in September. As stressed by Secretary-General Annan, implementation of existing commitments is the key issue that must be confronted. We must therefore carefully examine what has been achieved, what remains to be done, and how each partner can most effectively contribute to that effort.
A Positive Global Outlook
2. Indeed, the current global environment provides an extremely positive backdrop against which to consider issues of poverty reduction. The global expansion remains broadly on track, with global growth in 2004 reaching 5.1 percent, the highest annual rate in nearly 30 years. Strong growth was recorded in not only industrial countries, but also developing economies. This performance has been underpinned by supportive macroeconomic policies and benign financial market conditions.
3. In 2005, global economic growth is expected to moderate somewhat to 4.3 percent, due to a narrowing of output gaps, some withdrawal of accommodative macroeconomic policies, and higher oil prices. After falling to unusually low levels in mid-2003, inflation has picked up somewhat in all regions, reflecting a combination of stronger growth and higher international commodity prices. However, the risk of a further increase in inflation appears moderate in most countries, given ongoing monetary tightening in some industrial countries and reasonably well-anchored inflationary expectations. And although risks persist in the global economic outlook—including the possibility of higher oil prices and continued build-up of global current account imbalances—the outlook for 2005 remains generally positive.
4. In sub-Saharan Africa, in particular, growth last year was at an 8-year high. The outlook continues to be strong, supported by improved macroeconomic policies, lower external debt burdens, and progress with structural reforms. The efforts by countries and regional groupings such as NEPAD to improve economic performance are to be applauded. Yet, despite these important advances, based on current trends, most countries will fall short of meeting the MDGs.
Achieving the MDGs—The Role of the IMF
5. The IMF remains fully engaged in efforts to help low-income countries increase growth, reduce poverty, and achieve the MDGs. Our position as an international financial institution with near universal membership enables us to contribute to building both pillars of the Monterrey Consensus. On the one hand, we assist low-income member countries to establish macroeconomic and financial stability, and to build institutions that will generate sustained growth and poverty reduction. On the other, we are strong advocates for more and effective international support for low-income countries, and can help in coordinating that support.
6. The key priorities of the IMF in supporting country efforts to reach the MDGs are set out in our latest Global Monitoring Report, which is prepared in collaboration with the World Bank. Additionally we are at present reviewing the various elements of our low-income country work. The aim is to devise a comprehensive strategy for the IMF's role in helping low-income countries reach the MDGs. From this vantage point, I would like to highlight the key roles which the IMF can play in that effort, following the six-chapter outline of the Monterrey Consensus itself.
7. First—Mobilizing domestic financial resources for development. We continue to believe that home-grown poverty reduction strategies should lie at the heart of development plans for low-income countries. In support of these poverty reduction strategies, the IMF has been helping countries design frameworks that maintain macroeconomic stability and facilitate faster growth. Our policy advice and support for building sound institutions help strengthen government capacity to mobilize domestic revenue and improve budgetary management. We are also undertaking, jointly with the World Bank, an in-depth review of the poverty reduction strategy initiative. The feedback obtained from developing countries, donors, and other multilateral institutions will be invaluable in helping to make the PRS process more effective.
8. Second—Mobilizing international resources for development: foreign direct investment and other private flows. Stable and sustained growth are key ingredients for effective poverty reduction. Increasingly, this also means harnessing the benefits of foreign direct investment and private capital. Developing countries will need to create environments that are friendly to investment and business activity, including through the strengthening of institutions and governance. The IMF can help in these efforts. We will continue to assist countries to strengthen financial sectors and adapt prudential and regulatory frameworks, so they can benefit more from private capital flows. And for economies that seek access to international capital markets, we can provide advice on the proper sequencing of preparatory measures. These include the building up of financial sectors and other steps to reduce vulnerability to shocks, and the avoidance of inappropriate regulatory and other controls which could yield counter-productive results.
9. Third—International trade as an engine for development. An ambitious and timely conclusion of the WTO Doha Round remains one of the most important contributions that will bolster medium-term global growth, including for low-income countries. Without more opportunities for trade, low-income countries will not be able to achieve the kind of sustained and rapid growth that will lead to meaningful poverty reduction. The IMF's institutional mandate includes the objectives of promoting open economies and facilitating trade, and we are firmly behind creating more trade opportunities for developing countries. At the same time, we are mindful of the potential adjustment costs faced by some developing countries, as well as the broader need for appropriate complementary policies, as a result of trade opening. For that reason, we have significantly strengthened our activities in support of trade adjustment. Last year, we established a new Trade Integration Mechanism, under which special financing is available to address balance of payments pressures resulting from multilateral trade reforms. We have also sharpened our surveillance of countries with potential trade-related vulnerabilities, and we continue to provide technical assistance in this area. Moreover, we continue to call on developed countries to open their markets to the exports of developing countries and to eliminate distortionary trade subsidies.
10. Fourth—Increasing international financial and technical cooperation for development. There can be no doubt that low-income countries need more aid. We therefore repeat the call for developed countries to raise aid levels to the 0.7 percent of gross national income target set over three decades ago. The various pledges that have been made so far this year to raise aid levels are to be welcomed. We also see a possible role for some of the alternative mechanisms that have been proposed to increase aid volumes. The IMF fully supports the ongoing efforts to enhance overall aid effectiveness, and to reduce transaction costs by simplifying and harmonizing donor procedures and requirements for aid delivery. We also encourage donors to align their support more fully with country-led poverty reduction strategies, consistent with the principle of full country ownership of the development effort.
11. As aid flows rise, the IMF will continue to provide assistance and advice to build up the capacities of aid-receiving countries to absorb and use these resources effectively. At the same time, IMF financing will remain available to our members, with special consideration being given to the needs of low-income countries. This includes financing at concessional rates, and a possible new facility to provide funds for adjustments to economic shocks. And for countries which do not borrow from the IMF, we will continue to support their economic programs through policy advice, technical assistance, and backing for capacity building. For example, the IMF could act in a "signaling capacity", by reviewing and indicating to donors and private capital markets the strength of individual country programs. On this specific issue, our Executive Board will shortly hold discussions to explore ways to strengthen this role.
12. Fifth—External debt. The IMF is at the forefront of efforts to help countries achieve debt sustainability. The principal consideration in this connection remains how to help countries achieve medium- to long-term debt sustainability, with due regard to shorter-term objectives and goals. We provide a large amount of assistance to countries in the formulation and implementation of fiscal policy, as well as in public expenditure management. Debt relief through the Heavily Indebted Poor Countries (HIPC) process has already significantly reduced the debts of 27 countries.
13. Moving ahead, the Group of Eight's proposal from earlier this month concerning debt relief for HIPCs is to be welcomed, for it will go a long way towards helping these countries to achieve a sustainable external debt position. We are working with our membership to examine the details and implementation of that proposal, with our Executive Board having met most recently on this matter last week. That meeting served to clarify the status of current IMF operations with low-income countries in light of the G-8 proposal, and to identify issues that will need to be addressed and analyzed. With these matters in mind, we are now in the process of assessing the G-8 proposal's implications for our institution. Our Executive Board intends to consider these issues again in the context of various other proposals related to the IMF's role in low-income countries before their August recess. Lastly, a key issue in external debt management concerns debt workouts and restructuring. Here, we will continue to facilitate the orderly resolution of external debt problems between countries and creditors.
14. Sixth—Addressing systemic issues: Enhancing the coherence and consistency of the international monetary, financial and trading systems in support of development. The IMF fulfills a critical role in this respect, for a central element of our mandate is the promotion and maintenance of economic and financial stability, both in individual countries and at the international level. Through our surveillance operations, we monitor economic and financial conditions in countries, regions, and the world as a whole, seeking in particular to identify and facilitate the resolution of risks and threats to stability. For instance, the IMF has repeatedly pointed to the need to address current global imbalances, so as to reinforce the basis for more balanced and sustainable global growth.
15. With increased trade and financial linkages among nations, and strong connections between economic performance, poverty, and security issues, international cooperation to address economic risks and threats is now more important than ever. IMF surveillance provides the foundation for international cooperation in this area. To meet the needs of today's evolving global economy, we are constantly reviewing our approach to surveillance. Among our current priorities is to ensure that country-level economic analysis is fully-informed by regional and global perspectives. Surveillance being an important part of crisis prevention, systematically important countries—especially middle-income and emerging market economies—will continue to deserve special attention in our monitoring activities. Addressing risks in these economies is a key aspect of maintaining global stability. Closer scrutiny of the health of financial systems would also be warranted, given the critical part played by effective financial sectors in sustaining growth.
16. Concerning the role of developing countries in the international economic system, the IMF is examining issues surrounding the voice and participation of our member countries, particularly as they pertain to low-income and emerging market economies. It is hoped that consensus will be reached among our shareholders on this issue as soon as possible.
17. This is a brief outline of how we think the IMF can contribute to this important endeavor. The discussion over the next two days will no doubt provide more insight on this and other related issues, and we look forward to your views and feedback. I should also mention that we are currently undertaking a review of the medium-term strategic direction of the IMF. That review will touch on all the areas I mentioned earlier, and will provide greater focus to the IMF's role in low-income countries and the Monterrey Consensus.