## Working for a Better Globalization -- Remarks by Horst Köhler, Managing Director, IMF

_IMF News, January 28, 2002_

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## Bibliographic details
- Published: January 28, 2002

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### 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).*

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## References

- [Argentina and the IMF](http://www.imf.org/external/country/ARG/index.htm)
- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [Poverty Reduction Strategy Papers -- A Factsheet](https://www.imf.org/en/about)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [Horst Köhler](https://www.imf.org/external/np/omd/bios/hk.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/sp012802_