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Remarks by Agustín Carstens, Deputy Managing Director, International Monetary Fund
February 15, 2004
Thank you very much for the opportunity to appear before you this afternoon for the Fifth Annual Conference of the Parliamentary Network on the World Bank, and thank you also to our host, the French Senate.
The IMF has long worked with legislators in meetings at the IMF or in country capitals, but more recently it has broadened its outreach and dialogue with parliamentarians. Why this expanded effort? In part, it is an aspect of increased openness and transparency of the IMF. But it also reflects the increased attention being paid to national ownership of policy programs—not least by the IMF. In low-income countries, in particular, parliamentarians, as representatives of the people, can play a key role in formulating poverty-reduction strategies. And in all countries—including industrial countries—parliamentarians have a critical role to play in approving and monitoring national budgets, and formulating and approving legislation on economic reforms. You also play a major part in ensuring that the voices of the people are heard in the major policy debates, and in helping forge consensus on issues where there are different views.
Let me first begin with the global economic outlook before talking to you a bit about the IMF and our priorities in the period ahead.
2. The Global Economic Outlook
Prospects for global economic growth have improved. The world economy has turned the corner. The recovery that began late last year in the United States is now strengthening and Europe is showing positive signs of growth. The pace of economic activity in Japan has exceeded expectations, while growth in the emerging market economies is picking up. And, although the United States continues to play a major role, other regions, most notably, emerging Asia—and specifically China—are contributing to the upturn.
The global economy has withstood significant shocks during the past year, making the turnaround a welcome development. In part, this reflects previous achievements—for instance, room in some countries for fiscal policy maneuver, increased monetary policy credibility, generally more flexible exchange rates, and enhanced resiliency of financial markets arising from crisis prevention efforts taken in the wake of the Asian crisis. The IMF has emphasized proactive policy responsiveness and a cooperative strategy. And in many cases, IMF program support, surveillance, and technical assistance played a role in these achievements.
Significant risks to the improved global economic outlook should not, however, be ignored. Public debt levels, in particular, remain high in many parts of the world. And demographic shifts in the advanced economies are beginning to define new fiscal challenges.
The key to achieving strong and sustained economic growth is structural reform—in all IMF member countries. As always, it will be the IMF's task to warn its members that this is not the time to be complacent and that it is in good, not bad times, that difficult decisions must be made. This advice does not always make us popular.
3. Strengthening IMF Surveillance and Crisis Prevention
A central task of the IMF is to monitor regularly economic developments and policies of member countries, and to provide policy advice. This is called surveillance, and is a key part of the IMF's mandate to promote sustained economic growth and financial stability to prevent crises. A unique duty of the IMF is the evenhandedness of surveillance: all countries, rich or poor, large or small, have their economic policies scrutinized, discussed, and assessed. It is also important to remember that it is Fund members—your countries—that exercise surveillance over one another's policies. And surveillance provides an opportunity for developing countries to comment on industrial countries' policies, and their impact on the global economy.
Gains in transparency have played an important role in enhancing the impact of the Fund's advice. A large portion of our country reports (75%) and most policy papers are published. Transparency is an important force in promoting accountability. We have developed a Code of Good Practices in Fiscal Transparency, which is playing a valuable role in spreading good budgetary practices and thus strengthening oversight by legislators.
Another aspect of our support is the extensive technical assistance to our member countries aimed at strengthening their institutional capacity and building fiscal and monetary institutions that meet international best practices. Africa is the chief beneficiary of this assistance.
In addition, responding to the request made by African leaders, the IMF has launched the Africa Capacity-Building Initiative to help train government employees and thus improve capacity in the different government organizations to enable countries to design and implement their own development strategies. The two existing African Technical Assistance Centers (AFRITACs) are a key part of this strategy and after an independent evaluation of these two centres in the coming months, the Fund will consider opening three additional centres.
4. Enhancing the Crisis Resolution Framework
Even in the face of the best policy advice, crises will occur, and the Fund will continue to play a key role in their resolution. We have developed a clearer policy on the conditions under which we would be willing to provide exceptional access to IMF resources to support a country's economic program in a crisis, as well as a more comprehensive framework for making judgments on debt sustainability.
5. The Fight Against Poverty: The IMF and Low-Income Countries
We received strong support in Dubai from the International Monetary and Financial Committee (IMFC) for the Fund's role in low-income countries, which, in close collaboration with the World Bank, aims to help achieve the high and sustained growth needed to reduce poverty and make decisive progress towards the Millennium Development Goals (MDGs). Our work ahead aims to enhance the Fund's contribution within the two-pillar approach of mutual responsibility agreed at Monterrey together with the country-driven PRSP process and the enhanced HIPC Initiative. Under this two-pillar approach, low-income countries will pursue the fight against poverty through sound economic policies and good governance, while the international community will match these efforts through the provision of better and stronger support.
There are encouraging signs that sustained implementation of good policies in low-income countries within this framework is beginning to bear fruit, but more needs to be done. In many low-income countries, output and per capita income growth have increased markedly since the mid-1990s. And countries receiving concessional assistance from the IMF (under the Poverty Reduction and Growth Facility) have seen marked improvement in their macroeconomic performance. While progress in promoting good policies, and the associated improvements in outcomes, is heartening, it does not yet provide a sufficient basis for achieving the sustained high growth necessary for rapid progress towards the MDGs, and many countries remain vulnerable to external shocks. Both low-income countries and the international community need to increase their efforts.
The guiding principles for the IMF's work with low-income countries are to:
Experience has shown that, although trade liberalization is not without cost, the net benefits are considerable. The short-term hardships experienced by some can be addressed with properly designed social safety nets, measures to promote labor skills and mobility, and policies that will allow exports to expand. Many of the economies that are growing successfully today have done so through determined focus on trade. This includes countries like China and Vietnam, which have opened up decisively, and in Africa, countries such as Uganda and Mozambique. In recent years, the services sector has provided new opportunities and some developing countries—such as India, Ghana, and the Philippines—have benefited enormously from trade in this sector.
Trade holds the key to durable poverty alleviation. The IMF is playing an increasingly active role in supporting trade liberalization in all countries, rich and poor. We are pushing the developed countries to allow greater access for developing country exports, including the reduction of trade-distorting subsidies in agriculture. As parliamentarians, you play a key role in encouraging your own governments to liberalize trade.
The Fund will continue to push for multilateral solutions to trade barriers in the global economy. We cannot allow the recent setback in the Doha Round to let the trading system lapse into bilateralism—that will ultimately be destructive to the global economy. Our preliminary research indicates that the cost of implementing the Doha Round will likely not be large, as the tariff and non-tariff barriers will be eliminated gradually; however, the IMF stands ready to provide financial assistance to countries that implement these reforms and suffer balance of payments shortfalls as a result.
6. Conclusion
The IMF has become a more open institution. In addition to telling the world more about what it is doing, the IMF has been listening to what others think of what we are doing. We are building an institution that shows willingness to learn from experience and to take into account outside views in developing our policies. We therefore cherish this opportunity to have a dialogue with parliamentarians such as yourselves.
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