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Africa: A Continent on the Move - Address by Michel Camdessus
June 9, 1998
Original: French
Address by Michel Camdessus
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.
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.
An Agenda for the Industrial Countries
How about the more advanced economies? What can they do to help Africa?
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.
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.
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.
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