2001 Spring Meetings
Speech by Mr. Laurent Fabius, Minister of Economy, Finance and
IMFC - Washington - Sunday, April 29, 2001
Our meeting this spring is once again marked by uncertainty in the global economy. In the
recent past, we confronted some severe financial crises. In Prague last September, we were going
through a severe oil shock. For the last few months, concerns have mounted as the US economy
slowed, financial markets dropped, and high technology activities lost ground. This instability,
should it persist, could jeopardize the confidence in the future, without which economic growth
cannot be achieved. In any case it fuels criticisms against globalization.
For my part, I am convinced that globalization is a factor for growth and that trade is a motor
for development. This conviction doesn't derive from an idealized vision of the global
community : it assumes that we will permanently be facing up to the risks of instability,
conflict, and ruptures which are intrinsic to the development of a market economy. Security is a
precondition for trade and growth and, consequently, for democracy and justice as well.
For us Europeans, these thoughts are particularly relevant as we face the reconstruction of
the Balkans : allow me, on this subject, to join my Swedish colleague, Bosse Ringholm, in
welcoming the membership of the Federal Republic of Yugoslavia in the IMF.
There is no doubt that assuring the security of all the actors in international economic life
constitutes a fundamental global public good. The International Monetary and Financial
Committee (IMFC), fulfills front line responsibilities in this regard, whose political character
France has long emphasized. I would like to concentrate today on the priority actions to be
undertaken on growth, development, and international regulation.
1. Creating a macroeconomic framework favorable to growth.
We share, I am sure, a common concern about today's world economic outlook. A correction
of the US economy was expected, and in certain ways necessary, to temper excesses in the
previous period of economic expansion. But this correction is decidedly more pronounced than
was forecast. Despite some encouraging signals, the Japanese economy doesn't yet seem ready to
emerge from its lethargy ; and, the impact, particularly on Asia and Latin America, of this
continuing downtrend must not be underestimated.
The rise in global uncertainties makes good coordination among economic policies more
necessary than ever. I am thinking particularly of current account imbalances in the major
economic zones, and their possible consequences for exchange rate adjustments. This
coordination is at the heart of the Fund's mission. It behooves this Committee to enable it.
For the first time in a long while, Europe has once again become the leading zone of growth
and stability. The euro protects us from global turbulence to a certain extent, and helps in
implementing reform. We are determined to pursue a well-balanced policy mix, combining
support for growth with price stability. Unemployment has continued to decrease. Job creation,
which remains strong, has continued to bolster consumer and investor confidence. We are also
committed to pursuing the structural reforms begun after the Lisbon summit, whose progress was
recently reviewed in Stockholm. These reforms will permit citizens and businesses of the zone to
take full advantage of the widening of the Euro-market. Opening to competition is progressing
steadily and the Lamfalussy report has served as an accelerator to the integration of capital
France's perspective remains currently favorable : we have one of the lowest inflation
rates in the zone (approximately 1.5 percent). Unemployment has dropped by more than a million
persons in the last four years. Employment, consumption, and investment remain dynamic. Our
growth forecast has been corrected slightly downward, but we are staying the course on
strengthening public finances.
Thus, confidence, but confidence with vigilance. Vigilance will remain the order of the day in
Europe. We have had the distinct feeling, over the last several weeks, that the balance of risk has
altered, influenced by the global slowdown. Inflationary pressures are under control. Our central
financial objective is to balance public finances in the next three years: it would be paradoxical to
see this compromised by a growth slowdown. Our monetary stance will have to take these
elements into account.
2. Taking action for development, promoting a better distribution of global
Development will be the one of the central issues of the years to come. We must make an
unblinking assessment of the last decades. Many objectives were not reached. There was an
excessive level of volontarism, often leading nowhere. But lucidity should not lead to pessimism.
First, because on the human level we don't have the right. But also, because, everywhere in the
world, renewed energy is surging. New ideas are spreading throughout civil society. Leaders,
elected by their people, are taking on public responsibilities, ready to respond to the challenges
they face. Development can from now on be built on a solid foundation of democracy.
I have just gotten back from the CFA Franc Zone meeting in Abidjan, where, with my fellow
Finance Ministers from Africa, we have had extensive discussions on these issues. I also had an
opportunity recently to meet in Paris with representatives of civil society and NGO's to hear their
proposals and thoughts on development. From these discussions, three priorities emerge :
the fight against inequality and for poverty reduction; good management of global public
goods ; successful integration of international trade.
Poverty reduction is the absolute priority . In the last 25 years, wealth in industrialized
countries grew by 70%, as against 6% in the least developed countries. In Africa, one child in
seven dies before the age of five. Strong economic growth, respectful of social cohesion and
directly benefiting the poorest, is necessary. But the international community can and should go
much farther. First of all, in structural adjustment programs in crisis countries, social
expenditures—especially for health and education—must be ring-fenced, to protect
them from being jettisoned. A poor country cannot renounce social progress because it lacks the
capacity to reimburse loans. In addition, for the highly indebted poor countries, development
banks, and IDA in particular, should be able to provide grant funding for the basic social sectors.
We must also assure the accelerated implementation of the debt initiative, in particular the
earmarking of the funds thus freed up to poverty reduction measures. France, which contributes
up to 10 billion euros bilaterally, will provide technical assistance to countries which have not yet
reached the famous decision point. This, in turn, will save time in getting these new resources
used sooner in the fight against poverty.
Health is a fundamental public good. In helping others, we help ourselves. For the fight
against the great pandemics, in particular HIV/AIDS, I proposed last year in Prague that the
international community devote $10 billion to assure access for all to therapy and to disseminate
the means for prevention. The UN Secretary General recently defined an amount in the same
order of magnitude. It is time for action, for mobilization of all partners—the World Bank,
UNAIDS, the World Health Organization, the NGO's. In France, we are soon to propose to
Parliament a special fiscal incentive program to encourage companies to do research on diseases
most seriously affecting poor countries.
The environment, in particular access to water, is the heritage of all humanity, and must not
be left to speculators, but managed like a family trust—one in which all the members are
equal. The economy and technology should be put at the service of future generations, rather than
left free to function, impervious to air, water, the ecosystem. We will fully support, within the
European Union, further pursuit of the Kyoto process. The Global Development Fund should be a
lynchpin for sustainable development. We have also decided to make water a strategic framework
for French official development assistance.
Strengthening trade integration is an essential objective in any strategy of sustainable
development. The European Union recently embarked on a major intiative
« Everything but Arms ». I welcome this solution to build on the efforts
begun in the Conventions of Lomé and Cotonou. We hope that other industrialized
countries will follow the same path. The IMF could also do some additional thinking on its role in
the macroeconomic management of opening the markets of developing countries. Even if opening
markets has indiscutable benefits in the medium term, in the short term the record is more
uneven . The necessary adjustments are often delicate and costly. They must be well
identified, and if necessary, handled with the help of the international financial community. This is
why I highly encourage the IMF, whose vocation is to assure macroeconomic stability, to take up
this question and to design well-adapted instruments, including a specific one to compensate for
the temporary shocks which can accompany market opening.
3. Building a more secure world.
In terms of finance, much has been done since the 1997-98 crises, but much is still to be done.
Growing financial integration is also a factor of instability, as we are being reminded by the
Argentine and Turkish difficulties. The framework for preventing and resolving crises, which is
more legitimate than ever, must thus be adapted and strengthened.
Market forces are vectors of economic efficiency, but by themselves cannot assure economic
security. The « spirit of Bretton Woods » must prevail in the definition
of the responsabilities of the IMF. The occasionally evoked concept of a « more
modest » IMF, or a leaner one, as attractive as it sounds, seems out of phase with the
requirements of globalization with a human face. An ambitious and active IMF is required to
assure global growth, promote social cohesion, guarantee that monetary and financial channels
function well, requires an ambitions and active IMF. Through financial support and its
conditionalities, the IMF must remain pivotal to the international monetary and financial
The Asian crisis has reopened the debates on the conditionalities associated with Fund
interventions ; and, it seems that limiting Fund intervention to the macro-economic domain
would be a serious step backward. The IMF can and must contribute to creating the basis for
sound economies, which need appropriate institutional, legal and prudential frameworks. Proper
monetary and fiscal policy mix is not in itself sufficient, as was clear in the Asian crisis, and Fund
intervention must be broader-scoped. Of course, conditionalities should not be finicky and
bureaucratic exercises. They should rather rest on a few principles for implementing crucial
reforms. I count on the Independent Evaluation Office, now operational following the
nomination of its Director, to give us an assessment of this essential issue.
In terms of cooperation, we are in favor of strong multilaterialism, the best guarantee of
solidarity and effectiveness. Certain recent proposals go in the wrong direction : a
quasi-religious confidence in market dogma ; reticence on private sector
involvement ; and weakening the IMF by limiting its capacity to provide finance and its
conditionalities. These proposals, if adopted, would reduce our capacity to prevent and manage
new crises, thus opening the door to inequality and clientelism. The idea of intervening in crises
solely on a bilateral basis, carries with it a risk of splintering the multilateral system and must be
vigorously rejected. Certainly, IMF interventions can and should be buttressed by regional
stability zones, but firmly anchored in the multilateral system. The ASEAN+3 framework is an
example. Well-integrated into the multilateral system, these regional links can facilitate
international integration and reduce the risk of crisis.
The framework for private sector involvement in resolving financial crisis, approved last year,
should be wholly and fully applied without hesitation. Our Swedish Colleague, B. Ringholm,
speaking in the name of the Presidency of the European Community, reminded us of the principal
areas in which the IMF must make progress. I stress three : defining upstream the
hypotheses on sources of private financing; tracking in real time participation of private creditors;
in the case of insufficient participation , designing a credible and public stratefgy. On all these
points, which have been previously agreed to, it is time to pass to action.
For a more secure world, economic actors must be more accountable, especially in the social
sphere. I wholeheartedly support the ongoing work on this subject, particularly in the OECD. The
guiding principles for multilateral enterprises provide a good example : they are all the
more effective for having been made global. In the same vein, the convention against the bribery
of foreign public officials in international commercial transactions is a good tool. In order
to assure its effectiveness, it must be fully applied and implemented by all the signatories.
Establishing and applying economic and financial—but also social and
environmental—rules and norms is particularly necessary to a well-functioning market
economy. This should lead to a genuine rule of law. This is sometimes difficult, especially in
developing countries. These countries should be associated in the preparatory work, and helped
throughout the process, so that they can take ownership. As for the industrialized countries, they
should direct their efforts at systemic weaknesses: hedge funds, harmful tax competition, money
laundering, offshore centers. Effectiveness goes hand in hand with increased ethical practice in
economic and financial life. The action of the international financial institutions in these areas
should be further pursued and deepened.
The legitimacy of international financial institutions calls for heightened transparency and the
Governors' genuine partricipation in framing policy objectives. Proposals from civil society must
be considered, and transparency must be the rule. In the case of the IMF, France has long
advocated that the definition of objectives be entrusted to the IMFC. We have made some
progress, particularly with new Independent Evaluation Office. But we must go farther to
articulate a common political vision and to explain it to our constituencies. I have two specific
First, the structural adjustment programs shouldn't leave social programs open to being
jettisoned, but on the contrary, be consistent with our strategy of action against poverty. Success
in protecting the most vulnerable will be key for eventual success in maintaining public support
and, eventually, for the legitimacy of the Fund itself. Concretely, the Fund must be sure that
reductions in public spending do not impinge on the social sectors, by primarily targetting
improductive expenditures. Keeping the most vulnerable populations in mind should be an
automatic reflex for the Fund. Multilateral development banks should play a critical role constant
vigilance over social aims. Crises do not justify relaxing these objectives. On the contrary, priority
social expenditures should be protected : vital investments in the future—such as
health or education—must not be sacrificed on the altar of emergency. The fight against
poverty must be engaged in every developing country. France and Europe have demonstrated that
international economic integration can be compatible with strong social identity : this is our
conception of the crucial role of human capital in a virtuous circle of growth. I therefore propose
that for each adjustment program, the IMF and the World Bank present an analysis of the social
sector support mechanisms which will accompany the program and how they will be
Further, all cannot profit from financial globalization unless developing countries have rapid
access, and in good conditions, to international private capital, particularly foreign
direct investment. We know that opening to stable investments can bring great
benefits : growth, know-how, technologies, etc. As a member of the European Union,
France has been advocating that investment be included in WTO negotiations. But, above and
beyond that, we must seek progressive integration into the international financial sphere for all
developing countries, following serious institutional preparation, tailored to each country in its
timeframe and modalities. Opening to the world, in commerce or in currency, has its rules. This is
also true of financial opening. Thus, public, multilateral and national authorities must frame the
issues and, regulate and accompany the process of opening—which can have long
term benefits but without precautions, can also produce short term adverse effects. I therefore
encourage the Managing Director of the IMF, who has himself put the subject at the heart of his
priorities for the institution, to better explore this question : we have to find the right
balance between financial openness and financial regulation.
* * *
The 21st century can open a period of growth and prosperity without precedent because a
new technological revolution is in process, because the means to educate and help our human
capital to flourish and prosper is within our reach, because everywhere the demands of
democracy are at work. We also know the threats to be avoided : financial instability, social
inequality, endemic diseases, threats to the environment. International economic integration can
provide strong motivation to move forward, but on the condition that we create economic
security for all actors. We will live up to this responsibility if we act to bolster the now fragile
balance in economic conditions ; if we work towards a more cohesive development
which opens new horizons to the less developed countries ; if we are able to create rules
necessary for sustainable development ; if we can put the international financial institutions
at the service of this strategy. It is my conviction that we can meet these objectives.