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2001 IMFC Statements
2001 Spring Meetings Home

Speech by Mr. Laurent Fabius, Minister of Economy, Finance and Industry

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 markets.

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 growth.

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 system.

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 proposals :

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 monitored.

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.

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Dear Colleagues,

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.