The IMF and the World Economy, by Mr. Eduardo Aninat, Deputy Managing Director, International Monetary Fund

January 1, 2001

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The IMF and the World Economy

An Article By
Mr. Eduardo Aninat
Deputy Managing Director
International Monetary Fund

Anuario El País
January 1, 2001

Español

In the early days of the new millennium, the global economic landscape looks markedly changed from even just a decade ago. It is being shaped by accelerating globalization, one of the chief topics of debate in international circles. Globalization, of course, is not just a recent phenomenon. But what is different about the current epoch is the enormous impact that the revolution in information technology is having on the way we do business and the way we invest in people.

For the IMF and other international agencies, this changed environment demands that we adapt swiftly and nimbly if we are to harness the enormous benefits of globalization. These come in the form of sharing knowledge and technology, boosting efficiency, and raising living standards. But at stake is our ability to usher in not only higher living standards, but also a more stable world economy and a more secure peace-because a healthy and growing world economy is truly our best hope for peace.

A big part of the challenge for the IMF and the rest of the international community is how to capture these benefits for all people while minimizing the drawbacks. We must find a way to protect economies against volatile capital flows and social havoc-as brought home to us by the spate of financial crises in recent years, especially in Asia, Latin America, and Russia. We must also find a way to ensure that all people benefit, not just some privileged countries and individuals. For the reality is that there is a large, and growing gap between rich and poor, not just among countries but also within countries.

Economically, politically, and ethically, such huge gaps between rich and poor are unacceptable! Individual countries will prosper over time only if prosperity is broadly shared. Moreover, in an increasingly interconnected and interdependent world, we are bound together by ties of common interest and humanity that stretch far beyond local, or even national boundaries.

So what can the IMF do to help make the global economy a safer place for all countries to flourish? The institution's vision-as spelled out by Managing Director Horst Köhler at the September 2000 Annual Meetings of the IMF and World Bank, where our shareholders mapped out our future path-emphasizes four key areas. It is based on the universally accepted premise that we need lasting growth and a stable international monetary system to make everyone better off.

First, the IMF should promote lasting, non-inflationary growth for all. Economic growth is by far the best way to reduce poverty, and it is a vital source of funds for carefully designed spending on health and education-which is more needed than ever in a "knowledge economy."

The recipe for achieving lasting, healthy growth depends, of course, on the special circumstances of each country. But all countries need to pursue sound, market-friendly, and equitable economic policies, and to rethink and reshape their institutions if called for by the ever-changing demands of the international marketplace. Industrial countries can help themselves, as well as the poor countries, by opening up their markets to exports of developing countries. And all countries that suffer from problems of poor governance, corruption, and civil and armed conflicts need to tackle them energetically to improve the human condition for their citizens.

Now is the time to concentrate on these tasks, for the economic outlook is positive. Global growth this year, at an annual 4 ¾ percent, is the highest in more than a decade, and although some slowing is very likely in 2001, growth seems likely to still hold in the 3 ¾ to 4 percent range. Moreover, inflation remains generally under control, and impressive gains have been achieved in this area in the developing world.

Second, the IMF should naturally be the center of competence for the stability of the international financial system. That is why we are forcefully strengthening our work on capital markets and banking systems. We are also undertaking a number of initiatives aimed at improving many other institutions, markets, and practices that governments, businesses, and individuals use when they carry out economic and financial activities. One major goal is to render financial crises less frequent, less severe. The IMF is also rethinking the way it goes about its own business to strengthen its monitoring ("surveillance") of national economies and the global monetary system.

Third, the IMF should work closely with the other international institutions set up to protect global public goods. Each institution needs to concentrate better on its areas of responsibility and expertise to be more efficient and accountable. For the IMF, this means a more intensive focus on its core areas of responsibility: providing advice on monetary, budget, and exchange rate policies, along with financial sector issues. And we are working more closely with the World Bank and other agencies in diverse areas-in developing internationally recognized standards and codes of good practice in policymaking, strengthening financial systems, reducing poverty, and providing debt relief. In fact, during the year 2000, we approved debt relief for about 20 of the world's poorest, most heavily indebted countries.

Fourth, the IMF should be an open and learning institution, continuously adapting to the evolving needs of the membership in order to perform better. In a rapidly changing world, this is a must. It means not only being open to proposals from its 182 member governments, but also-in our culture of openness and transparency-increasingly reaching out to groups ranging from nongovernmental organizations and civil society generally to the private financial sector.

With the widespread convergence of minds on the interconnections between democracy and open market forces, and with the return of relative stability to the global financial markets after the crises of 1997-99, countries all over the world now have a better opportunity to craft economic and social policies that are mutually reinforcing. Ultimately, the fate of each country rests mainly in its own hands. But the IMF will always continue to do its part, as part of the global economic policy workforce, to ensure that all countries have access to the opportunities of the global trade and financial systems.





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