## Opening Remarks by Anne O. Krueger, First Deputy Managing Director, International Monetary Fund _IMF News, October 4, 2004_ ## Source details **Canonical URL:** [Opening Remarks by Anne O. Krueger, First Deputy Managing Director, International Monetary Fund](https://www.imf.org/en/news/articles/2015/09/28/04/53/sp100404) ## Other formats - [Markdown version](/en/news/articles/2015/09/28/04/53/sp100404/index.md) - [Structured JSON version](/en/news/articles/2015/09/28/04/53/sp100404/index.json) - [Bundle manifest](/en/news/articles/2015/09/28/04/53/sp100404/bundle-manifest.json) ## Bibliographic details - Published: October 4, 2004 --- ### Context and purpose - 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). ### Assessment of recent African performance - 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. ### Korea case study: trajectory from extreme poverty to rapid industrialization - 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. ### Key policy actions and reforms attributed to Korea's success - 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). ### Lessons and policy recommendations for African countries - 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. ### Conclusion - 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).* --- ## References - [Brazil and the IMF](http://www.imf.org/external/country/BRA/index.htm) - [Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm) - [Mexico and the IMF](http://www.imf.org/external/country/MEX/index.htm) - [Speeches](https://www.imf.org/en/news/searchnews) - [Anne O. Krueger](https://www.imf.org/external/np/omd/bios/ak.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/sp100404_