Remarks by Murilo Portugal, Deputy Managing Director, International Monetary FundPlenary of the Follow-up and Review Conference on the Financing For Development
December 1, 2008
We are meeting at a time of enormous stress and great uncertainty in the world economy. The most serious financial crisis in generations has tipped many of the advanced economies into recession.
As the credit squeeze spreads and trade flows slow, developing countries face serious setbacks, through no fault of their own.
For the low-income countries in particular, recent gains in poverty reduction and improvements in living standards are now in jeopardy.
Their economies were already weakened by the cumulative effects of the food and fuel price surges, and now they face a second blow from the global recession. The recent declines in food and fuel prices will mitigate the pressures for some countries, but will create new problems for others (e.g. net exporters of oil/metals).
While the financial crisis originated in the advanced countries, and the responsibility for addressing it rests mainly with them, all countries-rich and poor alike-share a common interest in seeing a prompt return to global stability and growth.
This will require policy responses on four broad fronts.
Tackling the Financial Crisis
The first and most immediate task is to stabilize financial markets.
After an uncertain start, strong and coordinated actions are now underway on this front, and some positive signs are emerging, at least in advanced country financial markets.
The credit freeze has begun to thaw, and there is increasing confidence that the authorities in the major financial centers will take whatever steps are necessary to prevent systemic collapse.
But substantial risks remain, and continued efforts will be needed to rebuild capital and restore liquidity in the financial system.
At the same time, some emerging market countries need assistance to manage financial contagion.
We have provided substantial support rapidly and with tightly focused conditions. We also stand ready to provide liquidity support under a new Short-Term Liquidity Facility.
The second pressing challenge is to counter the downward spiral in global demand.
This will require concerted fiscal stimulus and further monetary easing.
Not all countries are in a position to provide such stimulus. But those that are should act promptly and boldly, within bounds that will allow fiscal sustainability to be maintained over the medium term.
In this context, protectionist pressures should be strenuously resisted.
Reforming the Global Financial Architecture
The third imperative is to launch reform of the international financial system, to address the weaknesses exposed by the current crisis.
This will be an important factor in restoring confidence in global financial markets.
Elements of consensus on a strengthened system have begun to emerge from discussions in recent weeks, including in particular at the November 15 G-20 Summit.
Key components will include:
• Strengthening transparency, accountability, and risk management in the financial system;
• Broadening the scope of financial regulation;
• Reinforcing international cooperation among national and regional regulators; and
• Reform of the Bretton Woods institutions so that they can more adequately reflect changing economic weights in the world economy.
The Fund, in exercising its surveillance mandate over the global financial system, will play a central role in the reformed international architecture.
Financing for Development in the New Global Context
Finally, the onset of the global recession has made the need to follow up on aid commitments to developing countries even more important, and more urgent, than when we met in Accra less than three months ago.
Low-income countries face the prospect of declining private capital flows, as well as shrinking export markets. But they are also the most exposed to volatile commodity prices and deteriorating terms of trade.
For the majority whose finances have been weakened by the high cost of food and fuel imports over the past two years, there is almost no margin for fiscal maneuver to address the impending downturn without additional donor support.
And above all, of course, we need to see accelerated progress in reducing poverty and improving the living conditions of millions. There is no realistic prospect of this so long as delivery of aid continues to fall so far short of the commitments that have been made by the donor community.
For their part, low-income countries have a responsibility to continue improving their policies to lift people out of poverty, including by making the management of aid and other budgetary resources more effective and transparent.
The Fund has increased its financial support to 15 low-income countries this year alone, and we have reformed our exogenous shocks facility to make it quicker and easier to use.
But only the donor community can provide resources on the scale, and the highly concessional terms, that low-income countries need.
In sum, international coordination is now more important than ever-we must commit ourselves here to reinforced and effective multilateralism.
We must reaffirm commitments made at Monterrey: to increase the volume of ODA, make aid more predictable and transparent, and provide it in ways that support national goals and institutions.
And we need systemic reforms based on more participatory and inclusive processes, reflective of the evolving global realities. The Quota and Voice reforms will increase the voice of dynamic emerging markets, enhance the participation of low-income members, and create a more flexible quota and voice system for the future.
Let me close with a specific reference to Africa, which is home to many of the most vulnerable economies, but where we have also seen progress in recent years. It is essential that we help Africa to cope with the financial crisis and slowdown, and to benefit further from integration into the global economy. To this end, the Fund and the Government of Tanzania will co-host a major conference in Dar-es-Salaam next March on this topic, bringing together policymakers from Africa, the private sector, civil society and private foundations. We look forward to the active participation of many of you here today.