Towards a Better Globalization, Speech by Sérgio Pereira Leite, Assistant Director, IMF Office in Europe
October 7, 2002
Speech
For us at the IMF, globalization is an opportunity for increasing world prosperity and eliminating poverty. We recognize, however, that globalization—by itself—does not ensure benefits for all. Irrespective of the virtues of the market, no invisible hand will alone resolve this challenge. Policymakers must be prepared to manage globalization.
I would like to raise two issues in my intervention: what the IMF is doing to meet the challenges of globalization and what Europe could do to bring about a better globalization process, particularly in Africa.
What is the IMF doing to meet the challenges of globalization?
The IMF is focusing on its core mandate and working to foster a sound macroeconomic environment in its member countries. Experience shows that macroeconomic stability is not only pro-poor, but also helps countries benefit from the opportunities generated by greater world integration. Policies that are often associated with the IMF, such as low inflation rates, prudent debt management, and low balance of payment deficits, all help countries become more resilient to external shocks. The IMF is actively pursuing the implementation of country-led poverty reduction and growth strategies in low-income countries. These strategies make poverty reduction and faster growth explicit objectives of macroeconomic programs. These programs emphasize open policy formulation, participatory processes, and improved monitoring and accountability. They recognize the need for social safety nets to cushion vulnerable groups affected by reforms, and favor education and training programs to help ensure that all can take advantage of globalization rather than feeling victimized by it.
Second, the IMF is hard at work to prevent financial crises. When crises occur, the IMF seeks to respond swiftly and effectively, and to resolve them fairly, sharing the cost equitably among those involved. It is helping member countries address weaknesses in their financial sectors through the Financial Sector Assessment Program. It is exploring the use of sovereign debt restructuring mechanisms and contractual action clauses to ensure the rapid and equitable solution of balance of payment crises. The IMF is also encouraging increased supervision and transparency of financial and corporate sectors as a means to reduce money laundering and fraud. Through its work on standards and codes, the IMF is drawing on proven successes to develop best practices that can benefit us all.
Third, the IMF is intensifying its capacity building activities to strengthen institutional performance in low-income countries. It has opened regional technical assistance centers in the Pacific and the Caribbean and plans to establish five such centers in Africa, starting with Tanzania and Cote d'Ivoire.
Africa, Europe, and the Doha Development Agenda
Europe with its historical and economic ties to Africa has a particular responsibility in ensuring that Africa benefits from globalization. Europe has already shown its commitment to maintaining, and even improving, trade preferences to least-developed countries. The Everything-but-Arms Initiative—which entered into force in March 2001—is a significant step forward in that direction. It offers duty and quota-free entry to Europe for most goods originating in African countries. However, problems remain. Key agricultural products, such as bananas, rice, and sugar are subject to transition arrangements. Experience shows that African countries are often unable to use these preferential schemes fully. The reason might be restrictive rules of origin or safeguard provisions. These provisions should be reexamined to ensure that they play a legitimate role and are not used simply to stifle competition.
The Doha Development Round is an opportunity for Europe to show its support for Africa. But, it will not be easy. Many of the areas of particular interest to Africa will be contentious: agriculture, textiles, clothing and sugar are a few examples. Europe will have to resist the temptation of misusing environmental, labor and sanitary concerns as a means to keep African products out of the European market. In short, Europe would have to act responsibly when pursuing its own interests in the forthcoming trade negotiations. It must ensure that the Doha Round also brings welfare gains to the poor, particularly in Africa.
Europe should also contribute to strengthening Africa's capacity to trade. In particular, technical assistance and training is needed to enhance the ability of African exporters to comply with administrative and regulatory obstacles under preferential schemes. It should urgently consider a substantial elimination of both export and production incentives to its farmers, so as to allow the rationalization of agricultural production across countries. In the long run, such efforts would be good for Africa as well as Europe.
Finally, although European countries have made a generous contribution to economic development through their assistance programs, more is needed and the effectiveness of the existing aid programs must be kept under constant review. Too many aid schemes failed because of unclear objectives, inappropriate allocations, and inept implementation. A strong focus on poverty elimination and country ownership should raise the effectiveness of these programs.
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To sum up, globalization delivers its benefits in part by redirecting resources from low to high productivity uses. In abstract, this sounds fine. In practice, this is no easy process. Nevertheless, the international community cannot permit large areas of the developing world to remain cut off from the world economy. It is not only immoral, but it is also against our self-interest. Former President Bill Clinton got it absolutely right when he said: "Everything from the strength of our economy, to the safety of our cities, to the health of our people depends not only on events within our border, but half a world away."1 This thought should encourage Europe to show leadership and vision in steering us toward a better-managed globalization process.
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