Globalization and the Poor Countries: Viewpoint of the IMF

An op-ed
By Flemming Larsen
Director, Office in Europe
International Monetary Fund

Le Figaro
January 1, 2001

Français

There is a striking contrast in the global economy. Living standards and the quality of life are steadily on the rise in the industrial countries as well as in a number of emerging economies. But both are stagnating in a number of the poorest countries, in particular in Africa. Some African countries are even regresssing. The income gap between the rich and the poor has never been so great. Reversing this trend is imperative.

The IMF has analyzed the reasons behind the failure of the many countries that have not taken advantage of the last half-century's prosperity. These reasons are complex: economic mistakes, institutional shortcomings, political instability, chronic civil disturbances or armed conflict. And we must also take into account external factors such as sudden changes in the terms of trade, the recent flare-up of petroleum prices, or the paucity of foreign capital.

Nor is the ineffectiveness of the financial assistance provided by the wealthy countries, especially during the Cold War, alien to this situation. External assistance surely did play a key role in increasing life expectancy, benefiting the poorest as well as others. But all too often, the generous add proffered year after year on highly concessional terms was not enough to put these countries on the path of sustainable growth. Why not?

There are three possible explanations: (1) the absence of associated measures essential to the viability of public and private investment projects; (2) the tendency of donor countries to favor projects more in keeping with their own exporters' interests than with the needs of the countries receiving aid; and (3) the propensity of recipient countries to give precedence to military spending or wasteful projects and, all too often as well, shortcomings in public administration or corruption.

The poorest countries are frequently described as being left behind by globalization. They receive little investment or private capital from abroad. They appear to be unable to withstand the ever more intense competition on export markets. But in those very same countries, it is rare that globalization is rejected.

The most outspoken critics tend instead to come from the most advanced countries, and dub themselves defenders of the poor countries' interests. But one need only listen to the slogans of the demonstrators in Seattle, Washington, or more recently Prague, to see that in reality they are voicing the (unjustified) fear of competition from the low wages prevailing in the least developed countries.

Can low incomes of unskilled workers and high unemployment rates be explained by competition from imports from the poor countries? Most economists maintain instead that technical progress and differences in education are much more at the root of the income gaps and unemployment problems in the industrial countries.

While the NGOs do remain skeptical about the capacity of poor countries to take advantage of globalization, many of them also recognize that international trade and integration into the global economy are crucial to sustainable growth.

There is a solid consensus among our 182 member countries that the IMF should continue to assist the poorest countries, in cooperation with the World Bank and other donors and lenders. This constitutes a rejection of the argument that the IMF should focus its attention on crisis resolution and financial stabilization in middle- or high-income countries that are fully integrated into the global financial system, and should disengage from the poorest economies.

Our institution is, in fact, universal. Its mission is to serve all its member countries. The poorest countries have just as great a need for macroeconomic stability as those better off. The mandate of the IMF is to advise its members on each of these issues. Moreover, it has a crucial role to play in the new "enhanced" international initiative for the heavily indebted poor countries.

The aim of this initiative is to ease the debt burden of countries applying reform programs to combat poverty. The IMF has long stressed that debt has risen to intolerable levels. We therefore place great hope in the "enhanced" initiative introduced in 1999. Debt service relief for the first twenty beneficiaries is expected to substantially exceed US$30 billion. But this is not enough. Additional reforms—be they institutional or economic—are urgently needed.

In turn, the industrial countries have to make greater efforts to completely open their markets to developing country exports. A 50 percent reduction in the trade barriers throughout the world would generate gains for everyone exceeding US$100 billion per year.

Moreover, the advanced economies should find the wait to support farm incomes without recourse to export subsidies, which hamper the introduction of profitable agriculture in many developing countries. These reforms, which have been put off for too long, would ultimately have considerable beneficial effects.

Finally, the industrial countries should improve their official development assistance (ODA) in terms of quality and volume. The level of ODA is currently well below the target of 0.7 percent of GNP which the international community had agreed upon. The gap between promises made and the effective level of ODA is on the order of US$100 billion per year.

We must act to ensure that globalization benefits all, and particularly the poorest. This is exactly what the IMF is endeavoring to contribute.