Opening Remarks by Anne O. Krueger, First Deputy Managing Director, International Monetary Fund

IMF News, October 4, 2004

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Remarks delivered at the Lunch for African Governors of the IMF on Monday, October 4, 2004.
Two focal themes: current achievements in Africa; Africa's future economic potential illustrated by a detailed case study (Korea).

A strong global recovery provided the backdrop for the 2004 meetings.
Growth in a number of African countries has been encouraging.
Inflation has continued to fall in many cases.
Outside assistance is important, but most productive when it accompanies home-grown reforms and sound macroeconomic policies.

Initial conditions in late 1950s Korea (as presented):
- Dependent on foreign aid transfers amounting to more than 10% of GDP.
- Exports were 3% of GDP, 88% of which were primary commodities.
- Highest density of people on arable land; highest rate of inflation in the world.
External shock and policy response:
- A decision by the United States to scale down financial assistance acted as a catalyst for radical policy action.
Long-run outcomes (exact figures preserved):
- Between 1960 and 2000, real GDP per capita, expressed in 1995 dollars, grew tenfold.
- By 2000, Korea's per capita GDP was almost three times that of Brazil and almost three and a half times that of Mexico (relative to 1960 positions).
- Export-led growth: exports growing on average by more than 30% a year over three decades or more.
- Exports rose from less than 8% of GDP to 37% over the four decades from 1960.
- Infant mortality dropped from 127 deaths per 1000 children under 5 to just 5 in the forty years to 1960.
- Life expectancy rose from 54 years to almost 74 years.
- Real wages rose by 8% a year on average between 1964 and 1994.
- Unemployment rate fell from 25% to around 3%.
- In 1961, Korea ranked 60th on a per capita income scale (at a time when there were far fewer countries in the world).
- Korea was among the countries most affected by the Asian financial crises of 1997-98; GDP returned to pre-crisis levels within a couple of years.

Clear objective to transform into a modern industrial economy and to sustain a reform program.
Sound macroeconomic policies: fiscal reform, reduced government budget deficits, relaxed interest rate ceilings, and a change to a crawling peg exchange rate regime.
- Example: a major fiscal reform in 1964 greatly reduced the government's budget deficit.
Trade and exchange rate policies:
- Large but necessary devaluation in 1960.
- Export incentives adjusted to maintain relative constancy in real returns to exporters; incentives uniformly applied across all exports.
- Conversion of almost all quantitative restrictions on imports to tariffs, with sizeable subsequent tariff reductions.
- Shift to an outward orientation with strong incentives for exporters; recognition of the importance of foreign trade.
Structural and institutional measures:
- Liberalization of the economy and financial sector over time.
- Access for exporters to international markets for inputs at world prices.
- Government efforts to remove bottlenecks and tackle poor infrastructure.
- Tax policy reform and improved tax collection; public spending brought under control.
Adaptive policymaking:
- Continuous adaptation to new problems that arise with growth; anticipation of bottlenecks and potential crisis points (though weaknesses in the financial sector were not anticipated before the 1997-98 crisis).

Trade liberalization combined with sound macroeconomic policies is a vital spur to economic growth.
- Includes an appropriate exchange rate and tariff reduction.
Multilateral trade liberalization brings the greatest benefits (reference to the Doha round); unilateral liberalization also yields substantial rewards.
Liberalizing trade among developing countries generates many benefits for developing economies.
Governments should be bold and commit to reforms rather than merely paying lip service to trade liberalization.
Emphasize making the economic "cake" bigger (sustained growth) rather than redistributive strategies that do not expand overall output.
Vision, commitment, and a clear understanding of self-interest are essential to realize economic potential.

Africa is portrayed as a continent of economic opportunity, rich in natural and human resources, and already making progress in adopting sound policies.
Korea's experience is presented as an encouraging example that demonstrates how sustained, outward-oriented reforms can dramatically raise living standards and reduce poverty.

Opening Remarks by Anne O. Krueger, First Deputy Managing Director, International Monetary Fund (October 4, 2004).