Working for a Better Globalization -- Remarks by Horst Köhler, Managing Director, IMF
IMF News, January 28, 2002
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- Published: January 28, 2002
Overview and context
- Delivered at the Conference on Humanizing the Global Economy, Washington, DC, January 28, 2002.
- Emphasizes that globalization is ongoing, rooted in human aspirations and political choices for openness and democracy.
- Warns against reversing globalization; calls instead to work for "a better globalization" that is more inclusive and balances risks and benefits.
Benefits and challenges of globalization
- Positive outcomes highlighted:
- "Global per capita income has more than tripled."
- Major improvements in literacy and life expectancy over the past 50 years.
- Developing nations that include "Brazil, Chile, China, India, Korea, and Mexico" doubled their share in world trade and raised per capita incomes; these countries are cited as demonstrating the advantages of integration.
- Half of the world's population lives in developing nations that benefited from integration.
- Challenges and disparities:
- "Nearly three billion people who are trying to survive on less than $2 a day" remain marginalized.
- "The disparities between the world's richest and poorest nations are wider than ever."
- Global downturn after 2001 deepened risks and made life more difficult for vulnerable countries.
Principles for shaping globalization
- Trust that all countries' voices will be heard and interests recognized.
- Trust that countries will live up to responsibilities and consider cross-border effects.
- Respect for national and local responsibilities, religions, cultures, and traditions; build global action on inclusion, broad participation, and local initiative.
- A global economy requires global ethics: respect for human rights, personal and social responsibility, sharing with those who have less, and protection of the vulnerable.
Role and reform of Bretton Woods institutions (IMF and World Bank)
- Institutional roles:
- World Bank: "long-term investment projects, institution-building, and assistance in dealing with social, environmental, and poverty issues."
- IMF: "functioning of the international monetary system, and on promoting sound macroeconomic policies as a precondition for sustained growth."
- IMF priorities and actions:
- Support countries in taking advantage of private capital flows while minimizing volatility and crisis risk.
- Increased openness and transparency compared to the past; promotion of transparency in member countries.
- Led a "conceptual sea-change" using standards and codes plus annual surveillance to create a level playing field.
- Joint IMF-World Bank Financial Sector Assessment Program (FSAP) central to strengthening domestic financial sectors, combating money laundering, and thwarting financing of terrorism.
- Steps to streamline IMF conditionality to allow national ownership of reform programs; conditionality remains essential but should not be lecturing or dominating.
- IMF seeks to "listen and learn" and values religious and civil society organizations.
Lessons from crises and the Argentine experience
- 2001 was "a very difficult year"; the global economy weakened and September 11 deepened risks.
- Argentina:
- IMF augmented financial support "twice in less than 12 months."
- Political disunity in Argentina undermined implementation of chosen strategy.
- IMF stands ready for dialogue, technical assistance, and financial support "within our mandate."
- Lessons for IMF:
- Concentrate more on crisis prevention and generate preemptive policy action.
- Establish better ground rules for roles of IMF and private sector in crises; suggested a "Sovereign Debt Restructuring Mechanism" akin to a Chapter 11 for countries with unsustainable debt.
- Reform and structural change must be broad, well grounded, and socially equitable.
- Countries opening to the global economy need domestic institutional capacity and generally should adhere to a flexible exchange rate regime.
- Need for enhanced cooperation with the World Bank and regional development banks on institution-building and social protection.
Poverty reduction, debt relief, aid, and trade
- Support for UN Millennium Development Goals for 2015; goals described as "ambitious" but achievable.
- Emphasis on "self help" by poor countries: establishing peace, rule of law, good governance, investment in human capital and infrastructure, policies that encourage private initiative and integration into the global marketplace.
- Poverty Reduction Strategy Papers (PRSP):
- IMF and World Bank promoted a country-led process.
- International Conference on Poverty Reduction Strategies assessed two years of PRSP experience; PRSP seen as promising but with tensions and administrative burdens.
- Executive Board review of PRSP process and the IMF's Poverty Reduction and Growth Facility scheduled for March (year implied by context).
- Calls for deeper analysis of root causes of poverty and increased technical assistance to build institutional capacities.
- Debt relief:
- Enhanced HIPC Initiative has "already provided $36 billion of debt relief to 24 poor countries."
- Debt relief is valuable but "no panacea"; institutional foundations for borrowing and lending safely are necessary.
- Official development assistance (ODA):
- UN target: "0.7 percent of GNP" for ODA.
- Current average in OECD countries: "0.22 percent of GNP."
- Shortfall: "over $100 billion a year in aid flows."
- United States ODA: "0.10 percent of GNP."
- Meeting the UN target within the next decade could generate, "in the first year alone," enough new resources to meet the estimated "$10 billion annual requirement for a new global effort at HIV/AIDS prevention and treatment."
- Trade liberalization:
- Described as "the best form of help for self-help"; advocates opening markets and phasing out trade-distorting subsidies where developing countries have comparative advantage.
- Examples of subsidies harming developing-country producers:
- United States: "price support payments for cotton cost more than $2 billion a year"; subsidized US production has taken "over 30 percent of world cotton exports."
- European Union: governments spend "over $2 billion a year to buy up excess domestic sugar production," leading to dumping on world markets.
- Japan: agricultural subsidies lead to rice prices "8 times as high as the world market price."
- Calls on the United States, Japan, and the European Union to phase out unsustainable subsidies.
Policy recommendations and calls to action
- For governments and international community:
- Do not attempt to reverse globalization; instead work to make it more inclusive and equitable.
- Restore the momentum of global growth—industrial economies should do everything in their power to that end.
- Increase aid to meet the UN target of "0.7 percent of GNP."
- Phase out trade-distorting subsidies in agriculture, processed foods, textiles and clothing, and light manufactures.
- Support comprehensive and coherent plans in crisis countries and cooperate closely with affected countries.
- Strengthen crisis prevention, clarify IMF and private sector roles, and consider a Sovereign Debt Restructuring Mechanism.
- Promote institution-building, social protection, and flexible exchange rate regimes where appropriate.
- For civil society and faith-based organizations:
- Continue advocacy and dialogue, press for increased aid, better access to trade, and more rapid structural change in advanced economies.
- Help mobilize support for poverty reduction, debt relief, and effective use of resources.
- For the IMF and World Bank:
- Continue transparency, standards and codes, FSAP work, and streamlined conditionality that allows national ownership.
- Enhance technical assistance to build institutional capacity in developing countries.
Source: Working for a Better Globalization — Remarks by Horst Köhler, Managing Director, IMF (January 28, 2002).