Speech

Remarks by Agustín Carstens
Deputy Managing Director, International Monetary Fund
at the Opening of the High-Level Segment of the Economic and Social Council (ECOSOC)
New York
June 28, 2004

Mr. President, Excellencies, Mr. Secretary-General, Madame President, distinguished guests and colleagues, ladies and gentlemen:

Our focus today is on resource mobilization, notably with regard to the realization of the Millennium Development Goals (MDGs). The challenges—of achieving the goals and of mobilizing the resources—are daunting. The first World Bank-IMF Global Monitoring Report, presented to the Development Committee in April, concluded that, on current trends, most developing countries will fail to meet most of the MDGs. While the first MDG of halving the global rate of income poverty between 1990 and 2015 may be achieved at the global level, this largely reflects progress in the world's two most populous countries, China and India. In other countries and with regard to the human development goals, progress is more uneven. Africa, in particular, is likely to fall well short.

Preventing these shortfalls will require vigorous efforts by all parties—both donor and recipient countries, as well as the UN agencies, trade institutions, and the international financial organizations, and, of course, good policies in developing countries.

It is fortunate that the economic backdrop for intensified efforts is favorable. Performance in most regions points to stronger global growth going forward. The Fund's projections indicate an accelerating recovery in the world economy, although there are some risks to the outlook, and countries throughout the world still need to take significant policy measures to make the recovery durable.

In industrial countries, the recovery is projected to be strongest in the United States, led by robust productivity growth. Japanese GDP growth continues to exceed expectations, given rising external demand and domestic consumption. The recovery is progressing in the euro area as well, although at a slower and more uneven pace.

In emerging markets and developing countries, the outlook is also favorable. Higher GDP growth in Latin America is underpinned by stronger domestic demand, higher commodity prices and an improving global economic environment. In emerging Asia, GDP is rising at the highest rate since the 1997 crisis.

Most heartening, perhaps, is the performance of some of the poorest countries. GDP growth in sub-Saharan Africa (excluding South Africa) jumped to 4.4 percent in 2003. It is expected to grow even faster in 2004, reflecting improving macroeconomic fundamentals, higher commodity prices, better weather conditions, and rising oil and gas production in several countries.

Clearly, such a favorable economic setting provides an excellent opportunity to lay the groundwork for durable global growth and enhanced support for the MDGs. In April, the International Monetary and Financial Committee called on all countries and regions to play their part to sustain the global recovery. This call remains pertinent. Necessary steps must include an orderly resolution of lingering fiscal and external imbalances. We must ensure a timely, successful, pro-development outcome to the Doha Round of trade negotiations. And aid commitments must be increased. World Bank analysis indicates that an additional $30 billion per year can be used effectively by developing countries to make progress towards achieving the MDGs.

Yet, I fear that—so far—we are not taking decisive enough steps in these directions. One of our goals today should be to decide how we can work together to make the best use of this favorable economic setting.

The IMF is fully committed to the Monterrey Consensus and to helping our member countries raise economic growth and reduce poverty. In our work with low-income members, we continue to focus on our areas of competence and expertise—establishing a framework for sound macroeconomic policies and institutions. At the same time, we are looking carefully at a wide range of our activities, with a view to how we can best help to implement the strategy outlined in Monterrey. We are striving to improve our tools of surveillance and policy advice, technical assistance, and financial support, to ensure that they can be well-tailored to address the growth, employment, and poverty-reduction objectives of individual countries.

The key operational framework for this effort is the Poverty Reduction Strategy Paper (PRSP) approach. The PRSPs are prepared by member countries through a participatory process involving domestic stakeholders and external development partners. PRSPs provide a framework for governments to assess what needs to be done to meet the MDGs. They provide a basis for identifying appropriate policies, assessing external financing needs, as well as monitoring and evaluating progress.

The focus of the international community in these countries should be to help them effectively implement their homegrown strategies. For the Fund, central to this effort is an appropriate alignment between the PRSP, the national budget framework, and our low-income lending facility, the Poverty Reduction and Growth Facility (PRGF). Let me elaborate briefly on some of our efforts in this regard.

First, the Fund is working to ensure the macroeconomic design of PRGF-supported programs is in fact appropriate for sustained high levels of growth and poverty reduction. While the Fund will remain focused on the importance of policies to maintain low inflation and stable currencies, we are aware that these alone will not get the results developing countries seek. Thus, we are actively engaged in other activities. For example, we are helping many low-income countries to strengthen their fiscal and budgetary institutions so that public funds are not wasted and go to activities that will help the economy grow and will help poor people. We have focused the conditions on our loans on those areas that are critical for achieving the macroeconomic objectives of the program. We are also working to improve our collaboration on country programs and conditionality with the World Bank and other donors. We are incorporating poverty and social impact assessments of reform measures into the design of the programs we support. And staff reports for most developing countries will now report on the progress being made toward the various MDG targets.

Second, we are helping countries to absorb most effectively the higher inflows of aid. For this, countries must develop adequate capacity to administer additional financing. But increased aid flows also present a number of macroeconomic challenges. For example, macroeconomic stability must be maintained in the face of increased economic activity associated with higher spending. And government spending plans must take account of the potential volatility and unpredictability of aid. These challenges must be met because—as we agreed in Monterrey—in addition to good policies increased external resources are absolutely critical to the achievement of the MDGs.

Third, we are encouraging countries to adopt the trade policies that are in their best interests. We are aiming at a fuller consideration of trade policies in PRSPs, including through the Integrated Framework for Trade-Related Technical Assistance. We have introduced a new financing policy, the Trade Integration Mechanism (TIM), to assist member countries in meeting any balance of payments shortfalls that might result from multilateral trade liberalization.

Many of our efforts involve helping countries to build technical capacity and strengthen institutions. To do this, we are continuing to reinforce our technical assistance and training programs, including through our regional technical assistance centers in the Pacific, the Caribbean, in East and West Africa and, soon, in the Middle East. We are also working to improve prioritization of technical assistance (TA) projects and to improve coordination with other TA providers.

Debt-relief is yet another critical component of our assistance to low-income countries. Thirteen countries eligible for the IMF-World Bank Heavily Indebted Poor Country (HIPC) Debt Relief Initiative have now had a permanent write-off of a substantial proportion of their debt to multilateral institutions as well as bilateral creditors. Fourteen more countries are receiving interim debt relief. The Initiative has already led to higher government spending for poverty-reduction. As a share of GDP, such spending in HIPCs has increased from 6.4 percent in 1999 to 7.9 percent in 2003. In the fall, the IMF's Executive Board will consider options for dealing with the end-2004 sunset clause of the enhanced HIPC Initiative, including topping up and PRGF/HIPC financing issues.

Long-term debt sustainability will be an important challenge in the period ahead. IMF and World Bank staff have developed a debt sustainability framework for low-income countries, which combines two main elements. The first is a template for analyzing debt dynamics under baseline assumptions and in the face of plausible shocks. And the second is the development of indicative thresholds for debt-burden indicators that depend on the quality of the country's policies and institutions. Fund staff are working in close consultation with Bank staff to make this framework operational.

I believe the IMF has come a long way in refining its role in low-income countries. But we can make this role even more effective. The Fund will now be devoting more resources to work on low-income countries—Africa, in particular. We will examine closely the forthcoming recommendations of the IMF's Independent Evaluation Office on the PRSP/PRGF. An internal review of PRGF-supported program design is also underway. We need to continue to improve our understanding of how macroeconomic frameworks can support sustained growth and poverty reduction and set the stage for reaching the MDGs.

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The MDGs require an approach that includes actions on a broad front. More aid is vital. So too is macroeconomic and structural reform without which more aid will achieve little. And trade liberalization must be part of the macroeconomic package if we are to expect it to deliver lasting success. For that reason, successful conclusion of negotiations on the Doha Development Round is key for all countries, and this requires in particular the reduction of trade-distorting subsidies in agriculture.

The Fund is committed to make a contribution to the common effort of the international community to move forward on all these fronts. We will continue to focus our support on the areas within our core mandate—encouraging and supporting sound macroeconomic policies and institutions. At the same time we seek to ensure that our engagement complements that of others in their areas of expertise. There is no question that agencies need to cooperate in a pragmatic fashion on promoting growth, investment, and employment. I believe firmly that this cooperation must be rooted within the specific-country context, and must reflect each country's characteristics and socio-economic situation. ECOSOC is providing a useful platform for this cooperation and I would like to thank in particular the Secretary General and Ambassador Rasi for their efforts.

Thank you.