Address to European Development Days, Speech by Dominique Strauss-Kahn, Managing Director, IMF

December 6, 2010

By Dominique Strauss-Kahn, Managing Director,
International Monetary Fund
Brussels, December 6, 2010

As Prepared for Delivery

Good afternoon. I am delighted to take part in this important forum on cooperation in international development. In my brief remarks today, I’d like to touch on two topics: the challenges facing low-income countries, and how the advanced economies and international organizations can best support them.
The good news is that low-income countries have weathered the global financial crisis much better than we might have expected, judging by the experience of past crises. Growth stayed positive in two-thirds of low-income countries, thanks in part to a robust countercyclical policy response. Economic growth in the low-income countries of Sub-Saharan Africa held up especially well, averaging 4½ percent in 2009, second only to the Asian emerging market economies. And in countries with an IMF-sponsored program, nearly all (about 90 percent) increased real spending—compared to only two-thirds of non-program countries.

A major reason for the resilience of the LICs was that they faced the global downturn from a position of relative strength. Before the crisis, we saw strong growth and macroeconomic stability in most low-income countries—driven mainly by good homegrown policies, and helped by a supportive international environment and debt relief. This was translating into falling poverty and improving social indicators. Because of this position of relative strength, many LICs were able to implement counter-cyclical policies—hence positioning them for a much more rapid recovery than after past crises.

But unfortunately there is also news that is not so good. Coming on top the food and fuel crisis, the global financial crisis has slowed down poverty reduction efforts in LICs. The World Bank estimates that about 70 million fewer people will be raised out of poverty by 2020 than would otherwise have been the case. And many millions more will suffer the consequences of prolonged unemployment and underemployment.

Looking forward, how best to make up this lost ground? Everything hinges on the restoration of global growth. This is mainly the task of the advanced and major emerging economies, given that the recovery in the LICs is projected to follow the rest of the world closely. International cooperation holds the key to achieving a better outcome for the global economy. Based on our analysis, we find that such cooperation could boost global GDP by over $1 trillion over five years, create 30 million additional jobs, and lift a further 33 million people out of poverty.

What must the developing countries do? Here too the principal objective is to restore strong growth—and to make it more resilient to future shocks. Rebuilding necessary “policy buffers” can be done in a way that still allows for space to invest in growth-enhancing infrastructure and strengthen social safety nets. A key priority in this connection is to strengthen domestic revenues. Increasing domestic savings and developing local financial markets would also help make these economies more “shock resilient” and foster private sector activity.

For the advanced economies, the rallying cry remains “aid and trade”. Despite the tough fiscal conditions in these countries, every effort should be made to meet aid pledges, including those made to Africa at Gleneagles. Advanced countries should also redouble their efforts to help fragile states, including with greater financial and technical assistance. Advanced economies can also support trade, by dismantling the walls that still block exports from the poorer countries. This holds out great potential to unleash a wave of productivity and growth in these economies

Four our part, the IMF is committed to supporting our low-income country members. Our efforts focus on three major areas: policy advice, technical assistance, and financial support.
In the area of policy advice, the Fund is in the process of strengthening all aspects of our surveillance, combining rigor with evenhandedness. In particular, we are placing more emphasis on the multilateral dimension and on the financial sector. In the coming year, we will be beefing up our monitoring of vulnerabilities faced by low-income countries, including through analysis of spillovers from the world’s largest economies to LICs. We will also be looking more closely at the opportunities and challenges arising from the growing role of the BRICs in the economic development of poorer countries.
Turning to financing, there have been major developments since the crisis. Our concessional lending has quadrupled—with zero interest rates through the end of 2011. We made our lending programs more flexible, streamlined policy conditions, supported countercyclical fiscal policies, introduced a more flexible approach to debt, and advocated the protection of social spending. In the coming period, we will be considering how Fund engagement should be tailored to meet the unique challenges of fragile states, including through technical assistance and our revamped lending facilities for developing countries.
Capacity building is one of the IMF’s core activities—and three-quarters of IMF technical assistance (or TA) goes to low-income and lower-middle income countries. Our efforts in this area focus on our core expertise: macroeconomic policies and management, the exchange rate system, financial sector stability, legislative frameworks, and economic and financial statistics. Financial support from donors not only scales up our TA, but also improves its relevance, effectiveness and sustainability.
The European Union is becoming an increasingly important partner in Fund TA. In January 2009, the IMF and the EC signed a framework agreement that has enabled us to work together in this area. To date, the EU is contributing to our regional technical assistance centers in Central America and the Middle East, and to several bilateral projects, including supporting reconstruction efforts in Haiti. Looking forward, we hope to work with the EU on our technical assistance centers in Africa, the Caribbean and the Pacific regions, as well as on our trust funds on tax policy and administration and managing natural resource wealth.
Let me conclude with a few words on economic governance.
Just last month, our members approved an historic package of quota and governance reforms that will create a more representative, and hence more legitimate IMF. The package entails a shift of over 6 percent in quota shares to the dynamic emerging market and developing countries, while protecting the voting shares of the poorest members. After the reform, the largest emerging economies—Brazil, China, India, and Russia—will be among our top ten shareholders. There will also be some reshuffling of representation at our Executive Board, to better reflect today’s global economic realities. This is a momentous change—and would not have been possible without the support of our European members.
We look forward to a continued fruitful collaboration between the IMF and Europe in the interest of our low-income country members—and in support of a healthy global economy.
Thank you for your kind attention.


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