Speech

98/13

Original: French

Address by Michel Camdessus
Managing Director of the International Monetary Fund
at the Summit of Heads of State and Government of the
Organization of African Unity
Ouagadougou, Burkina Faso, June 9, 1998

Thank you for giving me the honor of speaking with you on the occasion of this Summit of the OAU. I am all the more conscious of this honor because this meeting is taking place at this particular point in time. Despite all the tragedies besetting it, Africa is moving forward. Economic growth has resumed in most of the continent, and your countries are reaping the fruits of implementing sound economic policies.

With many of you, we have already started thinking about a new generation of reforms that will enable you to accelerate progress and growth, and more quickly win the war against poverty. But now the strength and magnitude of the Asian crisis seems to have called everything into question. The IMF is working to contain this fire and put it out, and to help the countries concerned to emerge stronger from the ordeal. I thus felt that the best I could do—in responding to the concerns that this crisis has raised in your minds—would be to share with you my thoughts, while they are still fresh. Once again, it is a question of globalization, of the opportunities and risks for the emerging countries and for your countries, as well. It is also a question of what actions will be required of Africa’s development partners, bearing in mind the progress that has been achieved in recent years.

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Africa’s Recent Progress

After two decades of lost opportunities, Africa’s economic performance has improved and the outlook has brightened. Together with President Mugabe we can speak of a "Renaissance of Africa." Real GDP for the region as a whole is growing at an annual rate of 4–5 percent, and per capita incomes are on the rise. African countries—especially those pursuing programs supported by the IMF, the World Bank and the African Development Bank—are increasingly partaking in the economic recovery. In the early 1990s, fewer than 20 enjoyed growth rates of 3 percent or more. But by 1997, the number of countries had doubled to about 40. Inflation has also come down sharply—with the average rate falling from a peak of close to 36 percent in 1994 to about 10 percent in 1997. Fiscal deficits have been cut by half in the past five years and external current account deficits, after widening slightly in the mid–1990s, were down to 2.5 percent of GDP in 1997. All this constitutes a remarkable reversal of the trend: from a constant drift toward poverty toward continuous positive per capita growth rates.

These improvements do not warrant euphoria, but they should encourage us to look to the future with optimism. We can be confident, because they are attributable not to luck but to better economic and financial policies in Africa—that is, to your own rigorous efforts and the many initiatives to promote good governance, develop human resources, ensure respect for human rights, and democratize political regimes.

The New Environment

Yet, despite this progress on so many fronts, Africa’s growth performance still lags behind that of many developing countries. Thus, it is essential to build on these gains and to make endemic poverty retreat. How can we do this in such an unpredictable international context? It is here that we must interpret correctly the messages coming to us from Asia. We should read them not as a sign to reject globalization, but rather to reject the mistakes that were made.

Globalization offers access to a larger volume of financial savings, a wider range of goods and services at lower costs, new export markets, and new technologies. That is the positive side! Such opportunities can lead the way to higher productivity, faster growth and development, higher living standards, and lower poverty. And with market integration proceeding rapidly, Africa must open up and compete if it is to take advantage of the benefits of this process. But globalization also poses two important risks. First, for countries that are slow to integrate into the world marketplace, the risk of marginalization. Second, when investors—domestic or foreign—abruptly lose confidence, the risk of capital flows drying up or reversing, thereby precipitating a crisis. That is the negative side!

So what exactly happened in Asia? Certainly, the "Asian miracle" underscores the fact that high savings, investing in human and physical capital, and liberalizing the economy pay off in terms of growth. But the key lesson of recent events is that pursuing these policies alone is not enough. Good economic governance must be maintained at all times. Yet in all of these countries, there were lapses. The soundness of the banking system in particular is something that must be monitored all the time. But in some countries, it only appeared to be happening. Finally, great care must be taken to ensure that the government conducts its affairs in an irreproachable and transparent manner and that all forms of corruption, favoritism, nepotism, and, if I may use the expression, "cronyism" are shunned. Yet over time, in Asia, these tainted practices overpowered systems that were otherwise remarkably successful.

But let us not blame the Asian countries. These blemishes exist everywhere, and these countries’ problems would not have reached such proportions if the financial institutions of certain industrial countries had not been irresponsible as well. But the lesson remains: it is now clear that all reform programs should promote transparency and accountability in government and corporate affairs. Indeed, the golden rule for a globalized world, Mr. Chairman, is transparency. It is also to strengthen banking systems; to level the playing field for the public and private sectors; to liberalize capital flows in a prudent and properly sequenced way; to eliminate unproductive government spending; and to combat all forms of bad management and favoritism. These are the harsh lessons that the Asian experience suggests.

It is in this new world environment that Africa must now frame its economic policies and accelerate its growth. But it cannot do it alone. And it is against this backdrop that Africa, the industrial countries, and the multilateral institutions must join forces in a world partnership that, so far, is taking shape all too slowly. So what should our agenda be?

An Agenda for Africa

Let me begin with what you need to do. You need to prepare your own strategy. May I suggest to you some elements of that strategy that would enable you to maximize the benefits of globalization while avoiding its perils. I am merely suggesting priorities that you have often discussed—and that are already reflected in the actions that many of you have taken.

• First, consolidating macroeconomic stability. Africa must now redouble efforts to reduce inflation to sustained low rates and ensure the viability of the external position. At the same time, fiscal efforts should focus increasingly on the quality and composition of public expenditures. In this way, saving will be promoted and high-quality growth encouraged. In your budgets, spending on health, education, agriculture, welfare, and basic infrastructure will override unproductive outlays, including military spending—in this area, I fully support the guidelines proposed in April 1998 by the Secretary-General of the United Nations.

• Second, ensuring economic security—removing the sense of uncertainty that still too often plagues investor decision-making in Africa. The direction and implementation of economic policies must be beyond question, as must competence, integrity, and judicial independence. Moreover, the transparency, predictability, and impartiality of the regulatory and legal systems must be guaranteed. This goes well beyond the respect of private property rights and the enforcement of commercial contracts. It also involves the elimination of arbitrariness, special privileges, and ad-hoc exemptions, even when these are intended, mistakenly or shortsightedly, to encourage investment.

• Third, strengthening the financial sector in order to better mobilize savings and deepen financial intermediation. Critical elements should include an independent central bank aiming at price stability, with autonomy and transparency in the conduct of monetary policy; sound banking practices; prudential supervision free of government intervention; and a well-functioning payments system.

• Fourth, speeding up trade liberalization to boost the efficiency and competitiveness of domestic producers. This should include the elimination of nontariff barriers and monopolies, and a major reduction in import and export duties, both of which raise the costs of doing business and hamper Africa’s integration into the international economy. Moreover, trade liberalization and a more transparent trade regime play an essential role in enhancing the investment climate.

• Fifth, at the regional level, fostering efficient forms of economic cooperation and integration. To be convinced of the usefulness of such multilateral liberalization, we need only remember that there are more than 20 countries in Africa with fewer than 10 million inhabitants, and 15 countries that are landlocked—yet a major share of Africa’s foreign trade is with the rest of the world. In this connection, Mr. Chairman, what could I possibly add to what you stated so well yesterday?

• Sixth, ushering in an era of good governance. National authorities should spare no efforts to tackle corruption and inefficiency, and to enhance the accountability of all public administrators.

• Seventh, continuing the broad, frontal attack on structural problems, while keeping a central focus. Strengthen everything that might encourage private investment and the entrepreneurial spirit at all levels in order to create the closely knit network of small and medium-sized enterprises that will create tomorrow’s jobs and opportunities.

Seven priorities for Africa’s development—all of which you have been talking about for some time, and some of which are in place in some of your countries. But if the world and your countries could see you adopt all seven of them together, then this image of a lagging Africa, an Africa that is ambivalent about development, an Africa that is, in the words of President Compaoré, a "champion of the negative indicators"—this image will at last be replaced by the one you want to create: an Africa that is actively catching up, open, enterprising, at peace, and sure of its destiny.

An Agenda for the Industrial Countries

How about the more advanced economies? What can they do to help Africa?

• First, the largest industrial countries have a particular responsibility to promote world economic growth and stability through the excellence of their own economic policies, and by cooperating to minimize potential sources of instability in the global economy.

• Second, industrial countries should do more to open their markets to products in which African countries have, or are likely to develop, a comparative advantage—including processed agricultural products, mineral products, and manufactures such as clothing and footwear. They also need to phase out subsidies on their agricultural exports more quickly than currently planned.

• Third, donor countries must strengthen their bilateral assistance to countries that have demonstrated a commitment to reform—particularly in areas where a bold approach to reform might involve important, albeit transitional, immediate costs but durable longer-term gains, such as comprehensive trade, civil service, and parastatal reform. A first, essential step would be reversing the declining trend in official development assistance; I deplore the profound and distressing silence that currently surrounds this issue. And here, this bears repeating: there are essential tasks for which the private capital inflows made possible by globalization will never be able to replace official development assistance, particularly in grant form. At a time when Africa’s orderly integration into the global economy is such a high-stakes issue, not only for Africa but for the world, it would make precious little sense to refer to "donor fatigue."

• Fourth, industrial—and developing countries—need to strengthen efforts on combating corruption. A key step would be ratifying the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

• Fifth, industrial and other economically more advanced countries must ensure that the multilateral institutions have the necessary resources to promote and support adjustment efforts and, in general, fulfill their increasingly complex tasks. Let us discuss these tasks for a moment, particularly the reforms that the IMF wishes to undertake to serve Africa better.

An Agenda for the Multilateral Institutions

Exactly how can the multilateral institutions help Africa? Here, I would like to discuss what the IMF plans to do. We are now focusing our efforts on five key initiatives.

• First, the IMF is taking steps to put the ESAF—its facility for loans at an interest rate of 0.5 percent—on a permanent footing so that we can continue to support your reform efforts over the long term. This involves securing the necessary resources to ensure that the ESAF, which was begun as a temporary facility some 10 years ago, will be self-sustaining by 2005, and thus remain available in perpetuity. In Africa today, 22 countries, out of a total of 40 ESAF-eligible ones, are pursuing ESAF-supported reform programs—with a total commitment of financial assistance of about $3.6 billion.

  Moreover, we want the ESAF to serve you better. We have reflected on our successes and failures. I, myself, consulted a number of you. Then we asked a group of experts headed by Dr. Botchwey, the former Finance Minister of Ghana, to assist us in identifying reforms that would ensure that each of our new programs can trigger more rapid and socially oriented growth that no longer stops at today’s ceiling of 5-6 percent, which is far from negligible, but that can reach and surpass the 7 percent level. This will be achieved not with less reform and adjustment but with better reforms and more rigorous adjustment. Which is why we want to help governments take ownership of programs that they can truly call their own and firmly stay the course on reforms. For that reason, we wish to strengthen our collaboration with the World Bank to improve the quality of the assistance that our two institutions can provide. Together, we shall take a fresh look at ways to accelerate public enterprise and financial sector reforms; improve the assessment of medium-term investment needs and capacity to absorb external financing within your countries; and identify potential adverse social consequences of reforms, to be in a position to coordinate with you appropriate, rapid, and effective responses to the problems involved.

  Finally, we must assist those countries that are furthest along in the reform process to succeed to the fullest, eventually to be able to forgo our financing as they will have gained access to international markets on favorable terms. We are looking into precautionary arrangements that would clearly indicate to financial markets that the Fund endorses and closely monitors their economic policy. This should be of considerable help to private investors in proceeding with favorable investment decisions.

• Second, together with the World Bank, we have been moving swiftly to implement the debt initiative for the heavily indebted poor countries. Just in the 18 months since the launching of the HIPC Initiative, commitments to provide assistance under the Initiative of about $6 billion have been made to six countries: Bolivia, Burkina Faso, Côte d’Ivoire, Guyana, Mozambique, and Uganda. Also, preliminary discussions are under way for Mali and Guinea-Bissau, and over the coming year, we hope to consider a number of others, including Mauritania and Ethiopia—assuming that these countries persevere in their adjustment and reform efforts.

  The HIPC Initiative may strike many as timid. It does have its limitations, for it calls for a very broad consensus on the part of creditor countries, which may not in fact share the same assessments of the situation or the same priorities. The HIPC is, nonetheless, an opportunity for Africa, and Africa must seize this opportunity to expeditiously reach a sustainable external debt position. So I call on all eligible countries to take the needed policy measures with all possible speed so that they can take advantage of the debt initiative. The list of beneficiaries could be much longer, as we all hope it will be by 2000.

  We are also weighing changes that would allow for a more flexible response to the exceptional needs of the post-conflict countries. And we welcome calls issued in many recent fora, such as the G-8 Birmingham Summit, that the creditor countries—the ones that may not already have done so—forgive aid-related bilateral debt or take comparable action. We also welcome calls that new bilateral assistance be provided in the form of grants to these countries, and that export credit agencies lend only to finance expenditures that are productive.

  But, as you well know, debt is only one of the impediments to sustainable development. The countries that wish to solve this problem in the absence of an appropriate policy framework cannot hope to achieve much. That is precisely why we have stressed all along that debt relief under the HIPC Initiative be linked to programs that can act as a catalyst for high-quality growth and help position countries to tap international capital markets in due course.

• Third, over the years, the IMF has provided assistance to countries that have experienced political turmoil, civil unrest, or international armed conflict—and since 1995, we have had a special policy to provide emergency post-conflict assistance. Rwanda is the first African country to benefit from this new policy, with two loans of about $20 million approved in 1997 in support of the government’s economic program. The Republic of Congo may be next in line, and we are also having discussions with Angola.

• Fourth, the IMF stands ready to continue to provide—and intensify—our training and technical assistance for capacity building and institutional reform in Africa. Perhaps one of the most encouraging signs is the recent Initiative of the African Governors of the Bank and the Fund to ensure that capacity building is henceforth an integral part of Africa’s development agenda. In this context, the IMF Institute has been expanding its training activities for African officials and supporting regional training and research institutions. It is our intention to extend the reach of our training by the establishment of an IMF regional institute in Africa, jointly with training partners in the region.

• Fifth, we are particularly mindful of Africa’s situation as we consider how best to help shape a new financial architecture so that the global economy will be less prone to financial crises. As more and more countries in Africa tap the international capital markets, as I trust they will, we would like them to face as favorable and secure an environment as possible. To this end, we will be pursuing approaches that include improving the availability and transparency of information, and developing and disseminating new standards and best practices, which should help to promote greater overall stability. Africa, its Executive Directors, Governors, and Ministers must play an active part in these efforts. It is essential that Africa’s voice be heard as these efforts unfold.

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Well, as you can see, this is an ambitious agenda for all of us. I could propose no less, Mr. Chairman, in response to your desire for this summit to help Africa face the challenges of the twenty-first century. Indeed, it is an agenda well worth pursuing as the spirit of hope and progress sweeps across Africa. Moreover, I am confident that as broader-based progress gathers momentum, the image of the new, emerging Africa will soon take hold. And we, at the IMF, will do our part to help make that a reality.