Speech

96/6 Remarks by Michel Camdessus
Managing Director of the International Monetary Fund
at the Roundtable of Heads of Agencies
Ninth United Nations Conference on Trade and Development
Midrand, South Africa, April 27, 1996

---

Question presented by H.E. Dr. Fernando Naranjo, Minister of Foreign Affairs, Costa Rica: The welfare of human beings is the ultimate objective of economic policies. During the last years the majority of developing countries have implemented severe programs of structural adjustment. What does the International Monetary Fund intend to do in order to guarantee that these structural adjustment processes effectively benefit all human beings?

Mr. Minister, your question is relatively easy to answer. The Fund and the World Bank have just held the ministerial-level Interim and Development Committees meetings. On the Fund side, progress was made towards agreeing to a self-sustaining Enhanced Structural Adjustment Facility (ESAF), which could include the proposal to sell a small amount of the Fund's gold holdings. The two institutions also made progress towards addressing the problem of the highly indebted poor countries. Our conclusions are well known, and can be read in the respective communiques. Therefore, let us turn away from instrumentalities, and look at some other issues.

Let us ask ourselves why is it that, in the world of today, where so many developing countries are succeeding and thereby fueling world economic expansion, that some countries succeed where others fail. I have asked the leaders of many of the successful countries the same simple question. I have posed them this question because it is my job to transmit success stories from one country to another.

Let me tell you what their response was.

First, these countries have discovered the necessity of getting the economic fundamentals right, beginning with restoring and maintaining financial stability, including relatively stable prices. Indeed this has become an orthodoxy. They have understood that to achieve this, fiscal deficits have to be reduced to the point that they can be financed in a noninflationary way, do not crowd-out private sector activity, and remain consistent with a sustainable debt situation. They know that this requires a major effort to mobilize domestic resources--and to ensure that domestic and foreign resources are used effectively--so that there will be room in the budget for essential expenditure on health and education; agriculture; basic infrastructure; and appropriate social safety nets. Moreover, they know that prices-from the exchange rate to interest rates to the prices of individual goods and services-must be in line with market fundamentals.

Second, they have understood the need for key structural reforms--in the labor market, on trade policy, in the financial sector, agriculture, and other productive sectors of the economy--in order to improve resource allocation and expand the productive capacity of the economy. They have also understood the need to formulate policies within a medium-term strategy, and that protectionism is a no-win game.

These successful adjusters have also discovered the benefits of establishing an institutional framework in which both domestic and foreign entrepreneurs have confidence to invest. In particular, they have found that when governments concentrate on doing a few things well, notably: ensuring law and order, providing reliable public services, establishing a simple, transparent regulatory system that is equitably enforced, and providing an independent and professional judiciary, confidence improves dramatically.

Moreover, they have found that in order to make a decisive difference in the domestic economic climate, policies must achieve a critical mass of reform. They know that this is the only way to convince economic agents that reform is irreversible, and that the country is truly integrating into the world economy. And for that they seek regional integration, compatible with the World Trade Organization, and avail themselves--with no reluctance whatsoever--of the support of our institution. And I am proud to report that today the IMF can list 76 countries with programs of this kind in place supported by our financing or being actively negotiated.

Finally, these countries have understood that successful adjustment requires a domestic consensus in favor of reform--a consensus that requires domestic leadership and must be forged from within.

When these ingredients of success are in place, economies become more dynamic; they also become more resilient and better able to withstand external shocks. Moreover, as Costa Rica, Morocco, Peru, Tunisia, Uganda, Vietnam, and other successful developing countries of the world can attest, when these elements are in place, the world responds. And not just with official project loans and balance of payments support--important as these are--but with a far larger pool of resources and a potentially more powerful kind of support: private non-debt creating capital inflows.

Can this success be replicated in other countries around the world?

I believe that it can--especially if piecemeal approaches to reform are replaced with bold and comprehensive structural adjustment programs; if stop-go adjustment gives way to sustained policy reform; and if the commitment to reform is founded on a strong domestic consensus on the need for: openness; stable financial policies; sound, market-oriented structural policies; and good governance.

Certainly, this is not an easy process--especially since, in many cases, it requires new thinking about the role of government and the need for domestic consensus; changes in the legal system and other domestic institutions; and a new approach to the many other factors that go into creating the kind of environment in which people have confidence to save and invest for the future. Although there is still some way to go, it is encouraging to see that more and more countries are establishing the preconditions for successful structural adjustment--and thus, for sustained, high-quality growth in today's global economy.

This is how to attain better living standards for everyone. This is the challenge that each of our institutions must face in serving its global membership. I am certain that UNCTAD will do this, with renewed efficiency under the leadership of Rubens Ricupero. Rubens has demonstrated, through the outstanding success of the Brazilian stabilization experience, that hyperinflation--the plague on the poorest--can be defeated; he has demonstrated that the hardest, but also the most indispensable, structural reforms can be put in place and can reverse the process of marginalization through increased economic efficiency; he has done all this-and here I quote someone-- "thanks to the support of the poor, support gained through national dialogue and frankness in the dialogue." My dear Rubens, forgive me for quoting from a letter that you sent to me a few months ago, before you were offered these new responsibilities. I know that it was not for publication, but is better than a long speech.