Speech

Address by Horst Köhler
Managing Director, International Monetary Fund
St. Michael, Barbados
November 5, 2001

Distinguished Ladies and Gentlemen:

I am pleased to be on the beautiful island of Barbados, to help inaugurate the Caribbean Regional Technical Assistance Center. I believe that CARTAC represents an excellent model of international cooperation and creativity in meeting the needs of this region. Our success in making CARTAC operational is based on a strong partnership among multilateral institutions (the World Bank, the IDB, and the UNDP) and bilateral donors (Canada, the EU, the United Kingdom, and the United States), as well as the Caribbean Development Bank and CARICOM, and I would really like to express my appreciation to all of you. The Government of Barbados also deserves special thanks for agreeing to host CARTAC and for the hard work that has gone into preparing this inaugural ceremony.

Mr. Chairman, now more than ever there is a need for international cooperation to pursue our common values and make the world a better place for all of its people. We have all been shocked and saddened by the terrible events of September 11. This was not only an attack on the United States, but on all civilization. I would like to extend my sympathy to the Caribbean community for the significant loss of life of Caribbean nationals at the World Trade Center. And I also wish to express my condolences to the people of Belize for the devastation caused by Hurricane Iris, which resulted in loss of life and left many homeless.

Even before the events of September 11, economic growth had started to slow markedly throughout the world, and tourism and export revenues were declining in the Caribbean. In the aftermath of the attacks, the global economic situation has become still more difficult, and the risks and uncertainties have increased. There are still good reasons to believe that the current deterioration of economic conditions may be relatively short-lived, with an upturn beginning in the first half of 2002. But we should also be prepared for the possibility of a deeper and longer downturn in world economic activity.

Exactly one month ago, in my statement on the world economic situation and the IMF's response, I underscored the importance of a coordinated international effort to deal with the new risks and uncertainties. I stressed that the IMF stands ready to help its member countries, through its policy advice and its financial support. And I urged members seeking assistance to approach the Fund at an early stage.

So far, there has been only a limited response by countries in the Caribbean to the Fund, but I was pleased to learn that CARICOM members have come together to consider the policy responses that are required to deal with the new challenges to the region. The IMF has begun fielding missions to the members of the Organization of Eastern Caribbean States in response to their recent request-and we remain prepared to provide advice and assistance to the other countries in the region, in close cooperation with the World Bank and the donor community.

Caribbean nations should be proud of the record of economic and social progress in this region over the past decade. A commitment to sound, market-based economic policies and greater openness to foreign trade and investment has enabled many countries to take advantage of the opportunities of the global economy, and this has provided an example to encourage others along the same path. But it is also clear that globalization can bring risks and political strains. Events of the past two months underscore the need for international cooperation to guide and manage the process of globalization, and for institutions that organize that cooperation. At the same time, we need to recognize that international cooperation will command broad support only if is based firmly on respect for national-and even local-political and cultural traditions.

These principles are guiding the process of reform that is now underway at the IMF. In the reform process, we are focusing and prioritizing all of our work on the IMF's core macroeconomic and financial areas of responsibility, while cooperating with other international institutions and donors to draw on their complementary areas of expertise. We are building up our capacity to help member countries take advantage of the opportunities in global capital markets, while containing the associated risks. We are working to safeguard the stability of the international financial system. We remain actively engaged in the fight against world poverty. For this purpose, we are determined to make the best use of our poverty reduction and growth facility and to work with our membership to make these poverty reduction strategies a success. In the process, I am trying to overcome the perception of the IMF as a closed institution and to seek true country ownership of adjustment programs.

From my personal experience, it is often not a lack of political will that impedes implementation of reforms but lack of capacity. Therefore, the Fund is now giving high priority to capacity-building technical assistance, in cooperation and coordination with others.

CARTAC provides an example of the application of the principles of country ownership, prioritization, and an effective division of labor to the provision of technical assistance.

· Caribbean governments will have a strong voice in formulating technical assistance plans, to ensure that these reflect national realities and maximize the local commitment to implementing the recommendations.

· Regional authorities will also play an important role in guiding CARTAC's overall policies, through their participation in its steering committee.

· There will be strict prioritization in the choice of projects, with a focus on core priority areas (budgets, tax administration, statistics, and the financial sector).

· CARTAC will maximize use of qualified expertise from the Caribbean region.

· There will be close cooperation with other technical assistance providers to avoid duplication and overlap, and to make use of complementary inputs which the Fund cannot provide.

· In this connection, Canada deserves special mention for the assistance and support during CARTAC's design phase and for contributing more than 50 percent of the funding.

I am confident that CARTAC will play a key role in building up technical capacity for developing and implementing appropriate policies and structural reforms.

The Caribbean is also benefiting from other important initiatives that the IMF has taken in recent years.

· In our work with poor countries, we have introduced mechanisms to develop home-grown poverty reduction strategies through a broad participatory process (the PRGF and the PRSP process). We have also enhanced our debt-reduction initiative (HIPC) to provide faster, broader, and deeper debt relief to heavily-indebted poor countries. Guyana and Haiti are both PRGF-eligible countries, and Guyana will also be eligible for additional debt relief under the enhanced HIPC Initiative that will bring the total debt reduction to more than US$1 billion. Regional creditors, in particular Trinidad and Tobago, the CARICOM multilateral Clearing Facility, and the Caribbean Development Bank, have contributed significantly to this effort.

· Caribbean nations in general have a well-justified reputation for democracy and good governance, and they have consolidated that reputation by participating actively in the IMF's transparency initiatives. Most Caribbean countries allow publication of their Fund Article IV consultation reports, and we expect that many who are committed to increasing the quality and transparency of their economic statistics will now turn to CARTAC to help them in that effort.

· In addition, over the coming year a number of countries in the region will benefit from comprehensive reviews of their financial sectors under the Financial Sector Assessment Program (FSAP)-our joint initiative with the World Bank.

Last year, the IMF began preparing assessments of offshore financial centers in response to the concern about possible risks to the stability and integrity of the international financial system. OFCs in general have welcomed the IMF's voluntary and cooperative approach. To date, we have sent 36 missions to OFCs-mainly to assist countries in performing self-assessments-and we expect to complete 9 Fund assessments by the end of this year.

Our work on offshore financial centers and anti-money laundering is now being reexamined in the wake of the September 11 attacks, as part of the international cooperation to eliminate the financing of terrorism. The Fund has established an Internal Task Force to examine urgently how we can contribute to these worldwide efforts, and we will be taking up the initial recommendations later this month. I was pleased to learn that at their recent summit in Nassau, Caribbean leaders pledged to redouble their efforts against money laundering by not permitting their banking sectors to be used in support of illegal activities. We want to continue working closely with you.

The Fund staff has visited most OFCs in this region, and we recognize that in many jurisdictions a serious effort is being made to raise supervisory standards to international levels. Equally, and let me be frank, in many jurisdictions we have found supervisory standards in the offshore sector to be far below where they should be. With assistance from CARTAC and others, improvements can be made in many areas, including legislation, staffing, prudential supervision, and exit policy.

The Caribbean countries need to have access to wider markets, in order to achieve high rates of growth on a sustained basis. The prompt initiation of a new "development round" of multilateral trade negotiations at next week's WTO meetings in Doha-one which addresses the issues of greatest importance to developing countries-is critical for the global economy and the Caribbean region. Regional arrangements can also help countries to integrate successfully into the global trading system, and the IMF strongly supports the ongoing efforts to deepen the process of economic cooperation and integration through the Caribbean Single Market and Economy. Of course, as the experience of the European Union has shown, successful trade and monetary integration needs to build on strong convergence of national economic policies and performance. We hope that the technical assistance provided by CARTAC in tax and expenditure policies, in strengthening statistical systems, and in reinforcing bank supervision and regulation procedures in accordance with international standards, will help to underpin a process of regional and global integration for the Caribbean.

In closing, I would like to thank the Caribbean countries for inviting the IMF to participate with you in this new cooperative venture. CARTAC is an excellent example of the type of benefits that we can achieve when we work together. I look forward to building on this experience in our future partnerships, to respond to the current global economic situation and advance the achievement of your longer term goals-sustained economic growth, the elimination of poverty, and the realization of the full potential of the people of the Caribbean region.