Speech

99/20 Chairman of the Executive Board and
Managing Director of the International Monetary Fund
at the Closing Joint Session of the Annual Meetings
Washington, D.C., September 30, 1999

Mr. Chairman, Governors, Ladies and Gentlemen,

Let me first express my congratulations to Jim Wolfensohn on his reappointment to the Presidency of the World Bank Group, and my pleasure at the prospect of continuing to work with him and his colleagues during his second term. Especially so, in view of the stronger ties that are now being developed in key areas of Bank and Fund operations.

These have been a truly productive few days; indeed some, including the Chairman of the Interim Committee, have referred to the historic nature of the decisions that have been reached. You have conveyed a striking unity in your assessment of the current economic prospects, and of the priorities for economic policy in terms of what needs to be done to strengthen the present recovery. You have offered overwhelming endorsement for our efforts to deal with the crisis of the past two years and for the work that we have been doing with the World Bank and others to strengthen the international monetary and financial system. And above all, the enhancement of the HIPC Initiative, the launching of our Poverty Reduction and Growth Facility, and all that goes with these steps, have created a strong new impetus to the war on poverty. For the staff and management of the IMF the fact that 91 countries, including 58 developing countries, have contributed their money to financing the Fund's share in the HIPC Initiative, is the clearest possible vote of confidence.

In our discussions I have detected three key themes. The first is determination to avoid complacency. Certainly the atmosphere surrounding these meetings could hardly be more different than one year ago. Many Governors have sounded a note of relief, perhaps even of surprise, that the recovery has become evident so soon. But, almost unanimously, Governors have sounded a cautionary note, no-one more clearly than the Governor for Canada in saying that "We will be making a grave error if we let the return of relative calm in financial markets and the improvement in world growth prospects lead us to believe that further reforms are not necessary." Equally in your assessment of the work that has been done in the area of the financial architecture, I have heard notes of satisfaction, but even more forcefully, the recognition that a tremendous task lies ahead of us.

If more stable global conditions prevail, it has allowed renewed attention to be paid to the huge variety of challenges that confront so many members.

• We were reminded of the tremendous challenges of development around the world. The Governor for Madagascar spoke of the challenge for all Africa of "financing development and poverty reduction in the face of declining resource flows, the high instability of Africa's export earnings, the debt burden, Africa's marginal role in the international financial system, the threat of the HIV/AIDS epidemic, and weak human and institutional capacity".

• We have been reminded of the vulnerability of countries at all levels of development to the natural disasters of the past year: hurricanes in Central America and the Caribbean, and the recent devastating earthquakes in Turkey, Greece, and Taiwan Province of China.

• We have also been reminded of the consequences of military conflicts in many parts of the world, including many that are too often overlooked by the global community. But foremost on the minds of many Governors, was the sad situation in East Timor. You can be sure that the Fund is ready to do its part to assist in the urgent, demanding task of reconstruction.

The urgency of the second theme is captured in recurring key words: action and implementation. There is a desire for further progress on what has been initiated, so as to minimize the effects of the lingering risks that we all discern in our current situation. The immediate agenda consists of the two broad areas that have dominated our discussions: the global financial architecture and poverty reduction.

With respect to international monetary and financial reform, I perceived a degree of impatience for advancing reforms that are pending: issues of exchange rate regimes; involving the private sector in preventing and resolving crises; and the liberalization of capital movements. These will be high on the agenda of the Executive Board in the coming months. While your comments continue to reflect a diversity of views, there is no question about the determination to carry forward the debate as quickly as possible.

Increasingly the international institutions and national agencies will be caught up in the implementation of what has already been agreed. Governors have also supported our work in the area of transparency and standards and have warmly welcomed the work the Fund has been doing in the area of financial sector assessments in close collaboration with the World Bank. But as we proceed, we must also heed the note of caution, in this experimental area, as to how far the Fund should itself become engaged in the details of implementation. And one of the most severe constraints may be human resources. Many countries will need technical assistance for many years from many sources--the international standard-setting agencies and the bilateral countries--but there is a risk that these sources may become too stretched to meet the demand in some critical areas. Providing technical assistance in a coordinated and efficient manner will be one of the key issues in the coming months and years.

All of these issues have a bearing on the role of the Fund's surveillance, the review of which will be completed by the Executive Board in the months ahead. Rest assured that the Fund's energies will be primarily and energetically focussed on the macroeconomic policies and balance of payments issues that are our traditional mandate. But as so many Governors have pointed out, we live in an era of rapid, often volatile, capital movements and where balance of payments crises may be triggered by factors outside the traditional boundaries of surveillance. Therefore we must try to avoid the effectiveness of early warning signals being eroded by too narrow a focus in our surveillance.

These meetings have resulted in a clear mandate for the Fund to integrate the objectives of poverty reduction and growth more fully into its operations. We will do so through our participation in the enhanced HIPC Initiative, through an ESAF transformed into a Poverty Reduction and Growth Facility, and through a closer link between debt relief and poverty reduction. We will also continue to consider how better to include a social dimension in our policy dialogue with our wider membership. The incidence of poverty extends far beyond the poorest countries. Although we have concentrated at these meetings on the poorest people in the poorest, most debt-ridden countries, the need extends to poor people in all countries. As the Governor for Japan reminded us with reference to East Asia, "Those who had received the smallest fruits of economic growth are now being left behind." The Chairman spoke of his own country Nepal, poor, but not a participant in the HIPC initiative, yet where the incidence of poverty is pervasive. Our policy dialogue and advice will be attentive to such cases and will continue to be based on the basic premise that the best route out of poverty is strong, sustainable high-quality growth.

All our work in this area hinges critically on our partnership with the World Bank. As the Governor for the Netherlands reminded us, "Better quality and depth of the Bank's poverty analysis should help the Fund to adequately sequence and fine-tune macro-economic stabilization policies." The challenge that faces both our institutions is how to implement, across a wide range of countries, at ground-level, the broad principles that have been agreed between us over the past few weeks and months. And the agenda Jim Wolfensohn mapped out at the opening session points to the enormity of the task that awaits. I am sure that the seven pledges will provide this work with invaluable guideposts.

As we consider the issues that should be high on our agenda for the year ahead, let me reassert the importance for development and for sustainable growth of an open, competitive trading system. To this end I warmly welcome President Clinton's call yesterday for a new trade round, to be launched later this year, that would focus strongly on products of interest to the developing countries. Let us work as hard as possible to complete this round expeditiously.

Finally--I can be very brief--the third theme arises from the expectation that, this time, the international community and national governments will deliver what has been promised. I need not elaborate. In one word: we have an obligation to deliver.

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The Governor for Norway, in his remarks, reminded us "Closing the gap between the haves and have-nots within developing countries as well as between countries is a question of mindsets, morals and ethics. It is very much a question of solidarity." I believe these meetings have given substance and full recognition to the social pillar as an integral part of the new global architecture. Specifically we have firmly established poverty as a permanent, pressingly urgent matter on the agenda of the international financial community, no longer an issue to be consigned to an afterthought in communiqués or policy papers. We have brought these concerns to the heart of our operations. And equally we have recognized that poverty and social justice are key ingredients of the framework for national policy formulation framework.

As the meetings draw to a close, I would like to thank you, Mr. Chairman, for your role in chairing these exciting meetings. I would also like to welcome the Governor for South Africa, as he takes on the mantle of Chairman of the Board of Governors through our next meeting in Prague. I look forward to those meetings, not least because they will bring into the spotlight the achievements of the transition countries, which, as a group, has received less international attention than other, more troubled, regions in the recent past. I am also particularly pleased that the United Arab Emirates has graciously offered to host the 2003 Annual Meetings.

Thank you.