2002 Annual Meetings of the IMF and the World Bank Group
September 28, 2002
Documents Related to September 28, 2002 IMFC Meeting
Statement by Mr. Juan Somavia
Director-General of the International Labour Office
International Monetary and Financial Committee
Washington D.C., September 28, 2002
1. The World Economic Outlook rightly paints a gloomy picture on the state of the global economy. Recovery in the industrialized countries is beset by significant downside risks while much of Latin America, over and above the catastrophe in Argentina, is facing significantly lower growth. Famine is erupting again in East Africa and the prices of primary commodities important to sub-Saharan Africa remain weak. Apart from the Republic of Korea, growth in the countries affected by the Asian financial crisis remains well below pre-crisis levels and unemployment remains higher. Globally, growth in trade has stalled while financing conditions for emerging economies has deteriorated. Overall, the world economy is performing well below potential, implying lost ground in terms of poverty reduction and employment creation.
2. Against this backdrop there would appear to be a need for a greater sense of urgency than the largely conventional policy discussion that is contained in the report. Firm concerted action is required to restore higher and more stable growth in the world economy and this should be posed explicitly as an integrated package. This would include continued easing of monetary policy in most industrialised countries and the scope for fiscal stimulus should be exploited to the fullest extent possible. Reinforcing the regulation of the corporate sector in the wake of recent accounting and auditing scandals should also be a priority. The repeated calls in past WEOs for decisive action to overcome the decade longstagnation in Japan needs to be followed through. The danger of an abrupt adjustment in balance of payments and exchange rate adjustments among the U.S., Europe and Japan needs to be reduced through a greater effort at policy coordination. Measures to stimulate domestic demand in several emerging Asian economies also need to be adopted. Equally important would be to undertake new initiatives to overcome lingering problems of global economic governance such as the prevention and resolution of financial crises, increasing market access for developing countries in the world trading system, and an increase in ODA directed at achieving the Millennium Development Goals.
3. More generally, there needs to be a fundamental reform of the present model of unequal globalization. While there have been achievements, for too many people and too many countries the present policy prescriptions are simply not working. Viable alternatives are available and they can be applied with due care to preserving macroeconomic stability. We need to concentrate on creating opportunities for decent work and income in rural areas and large cities. The single most important thing that can legitimate globalization worldwide is ensuring sustainable livelihoods through full employment. This requires a global economy that will generate higher and more stable economic growth. In addition, we need to increase the rate of productive investment in the global economy in order to generate the hundreds of millions of additional decent jobs that are necessary to halve poverty by 2015. To achieve this we need an enhanced level of coherence within the multilateral system, including constant vigilance over the social impact of economic policies. At the same time we must place policy options on a sound footing by promoting social dialogue among workers and employers and civil dialogue with representative voices of society.
4. The discussion on external imbalances raises interesting issues. We agree with the observation that private actors now play a major role in causing imbalances. However, this is not followed through with discussion of what this implies for policy, especially for the global financial architecture. We also feel that the discussion of possible adjustment paths focuses too much on structural reforms in surplus countries. Increasing final demand is an important option to be considered, especially since this will ease the process of structural reform.
5. The issue of reducing subsidies in the industrialised countries is usefully highlighted in Chapter II. It lends further support for the strong case that there should be significant progress on this front in the Doha agenda. We fully endorse the view that `given their wealth and the small size of their agricultural sectors, industrial countries are clearly best placed to take the lead in this area.' It should be noted in this context that while it is true that the reduction of protection for agriculture in the developing countries is also required, this has to be handled with caution in view of the importance of agriculture for the welfare of the poor. The report also usefully emphasises the fact that the dynamic gains will be substantially higher than the static gains that are usually cited. This reinforces the importance of rapid progress on this issue for achieving a more equitable sharing of the benefits of globalization. It should also be noted that since much of the gains from the reduction of subsidies will accrue to the industrialised countries themselves, this should make it possible to increase the volume of aid to the poorest countries. Moreover, since there are reasons to believe that industrial country subsidies undermined agricultural growth in many poor countries, liberalization combined with increased aid should stimulate agricultural growth in poor countries in the medium term.
6. With respect to the progress report on the PRSP process, we are pleased to see the significant increase in the number of countries that have adopted the framework. Nevertheless, there is still significant room for improvement. We note in particular that the report concedes that "policy dialogue needs to be deepened on several levels, including the design of macroeconomic frameworks underpinning PRSPs, the development of alternative scenarios and policy reform actions, the extension of participatory processes to include private sector representatives and linking to representative bodies, especially parliaments". We would emphasize the importance of this deepening of the participatory processes for policy dialogue, and of meeting the challenge of institutionalizing the many participatory processes that the PRSPs have stimulated. The ILO has considerable knowledge and experience in the development of institutions for social dialogue. Such institutions can be a good foundation for building the wider participatory arrangements that are aimed for in the PRSP process and the ILO would be pleased to share this knowledge and experience on social dialogue. We also consider it important that steps be taken to harmonise the PRSP process with the new initiatives that are being taken with respect to achieving the Millennium Development Goals. In addition, the introduction of Poverty and Social Impact Analysis into more countries would be highly desirable. We also support the proposed research in the Bank and the Fund designed to improve understanding on the sources of growth and of the poverty and social impacts of key policy reforms.
7. On the HIPC initiative, a major new issue is that of how to deal with the fact that "the outlook for many HIPCs has deteriorated with the global economic slowdown and the fall in commodity prices." Additional financing is clearly required and action on this should not be unduly delayed by the need to choose between competing proposals on the mechanisms through which this should be done. There is added urgency to act in view of the strong international commitment to attaining the Millennium Development Goals.
8. The papers on "Development Effectiveness and Scaling Up" and on "Better Measuring, Monitoring and Managing for Development Results" are very useful. We fully support the need for an enhanced focus on developmental outcomes and results rather than on inputs. A major benefit from this would be the synergies that can be reaped from a more comprehensive approach to policy that takes into account all the multiple influences on development outcomes. We are also pleased to note the emphasis on capacity building in order to increase the absorptive capacity for additional aid, and also support the proposal to reexamine the World Bank's policy on the financing of recurring costs in investment loans. Flexibility to finance recurrent costs will certainly facilitate the scaling up of development assistance. The idea of reducing the leakage of benefits through the introduction of participatory public expenditure reviews is a good one.
9. The Progress Report on implementing the Monterrey Consensus provides a very useful overview of the current status of global commitments. The range of issues addressed in the report shows how vast the challenge of meeting the Millennium Development goals is, Simultaneous progress is required on a wide front of interrelated issues and this requires, above all, real progress in strengthening coherence and partnership within the multilateral system. It is true, as the report notes, that both the Bank and the Fund `have stepped up their presence and engagement with the UN.' But there remains considerable scope for doing more, both in terms of policy dialogue among all stakeholders and of concrete cooperative action at the global and national level. As the report rightly notes, `although much is underway, there is no room for complacency as the risks of not attaining the Millennium Development Goals are considerable.' For its part, the ILO has engaged actively in several key parts of the Millennium Development Goals Agenda is committed to working closely with the Bank and the Fund and all other partners in meeting the difficult challenges ahead.