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South Africa and the IMF
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Africa Has a Fighting Chance
My visit this week brought home to me just how far South Africa has come since the end of apartheid and international isolation a decade ago.
The depiction of strife at such places as the Hector Pietersen Memorial in Soweto contrasts starkly with the vibrant democracy and increasingly prosperous country that will host the World Cup in 2010.
In making the peaceful transition to democratic rule, the government deserves credit for carrying out the right kind of policies—such as prudently managing the budget, keeping inflation firmly under control using modern monetary policy, and opening up to international trade. Initiatives that encourage greater economic opportunities for the black population will help sustain these sound policies.
By more than doubling the average rate of economic growth in the past 10 years, South Africa has made progress in cutting poverty and improving the lives of its people. Over 1.5 million new homes have been built, many more people have access to clean water and electricity, and 1.5 million more children go to school.
South Africa thus demonstrates how a country can succeed in using good economic policy to serve its goals of greater equity and prosperity. This task often calls for difficult choices and always for staying the course. South Africa has—with popular support—stayed the course and its hard work is now paying off.
The country now faces the challenges of an economy in transition. Growth is too low and will need to increase for there to be a significant fall in poverty and in unemployment. Faster growth calls for strengthening your country's ability to attract investment by continuing efforts to improve productivity and competitiveness. It also means pushing ahead with labour market flexibility. Privatisation and further trade liberalisation have important roles to play too.
A further, tragic, challenge, but one that the government is tackling head-on, is to mitigate the terrible cost of the HIV/Aids epidemic, which has taken such a devastating human toll. The government's treatment programme is unprecedented in scope and deserves the support of all South Africans and the international community.
These national issues, as well as the challenges of economic development and the role of the IMF, were at the heart of my meetings with President Thabo Mbeki and his economic policy team during my first visit to South Africa as the newly appointed head of the fund. I came to hear the views of the country's leaders on how to build on South Africa's economic achievements. But I also came to talk about how the IMF can best help its members in Africa.
What I heard in South Africa was appreciation for the IMF's policy advice based on our experience of working with countries throughout the world. South Africa, thanks to its strong economy, has no need to borrow from the IMF, so the fund's role here, as in most of our members, is working with the government to strengthen the framework of stability and develop the regulatory environment best suited to markets.
Being a member of the IMF is a two-way street. For example, it means South Africa can bring the views of Africa to bear in discussions in a global forum dealing with global economic issues. And South Africa provides experts to support the IMF's technical assistance programmes in other African countries.
The most urgent issue is reducing—and perhaps one day ending—poverty, which remains so pervasive. As far as Africa is concerned, I am in the camp of the cautious optimists: I believe that Africa can make substantive progress in cutting poverty. My optimism has been strengthened by meetings with African leaders because I sense a deeper commitment at the highest levels to economic reform, good governance and closer integration into the world economy.
And the facts bear out this impression. Supported by the global recovery, we expect economic growth in sub-Saharan Africa to rise to over 4.5% in 2004 and above 5% next year. But there are telling variations in performance: those countries that have pursued sound macro-economic and governance policies are growing much faster than those unwilling to undertake reform or those affected by conflict. And, throughout Africa, growth needs to rise further and in a sustained way to make real progress in bringing down poverty.
This week, I was also in one of Africa's poorest countries, Burkina Faso, where I had the honour of speaking at the Extraordinary Summit of the African Union.
I told Africa's leaders that we share their commitment to meeting the challenges of growth and poverty reduction, in which macro-economic policy plays a prominent role. Our common frame of reference is the internationally agreed Millennium Development Goals, and, in the African setting, the New Partnership for Africa's Development (Nepad), in which South Africa plays such a prominent role.
Meeting the ambitious Millennium Development Goals calls for a sustained international effort. On the part of poor countries, this means carrying out policies that experience has shown will promote growth and, in turn, reduce poverty. On the part of the rich, it means opening markets to products from poor countries and increasing aid flows—in particular, in the form of grants that are both more predictable and less bound up by red tape.
The IMF has a role, too, in making African development a priority for the 21st century. Our contribution is through advice aimed at increasing opportunities and reducing risks and, where needed, through low-cost loans and debt relief, so we can help our African members carry out their home-grown strategies to promote growth and reduce poverty.
We at the fund, and I as its head, will live up to the responsibility.
IMF EXTERNAL RELATIONS DEPARTMENT