Two themes dominated the discussions at the seminar. How do macroeconomic policies and the environment interact? How important is it that the Fund staff become aware of this interaction and take it into account in dealing with member countries?
To a remarkable extent, the work of the IMF is still guided by its original mandate, as spelled out in the Articles of Agreement. In 1944, the founding fathers charged the IMF with, among other things, facilitating “the expansion and balanced growth of international trade and to contribute thereby … to the development of productive resources” and helping member countries with temporary balance of payments problems so that they do not have to adjust by “resorting to measures destructive of national or international prosperity.” These goals are pursued primarily through balance of payments assistance and what has come to be called surveillance.
David Pearce, Cielito Habito, Andrew Steer, and Ved P. Gandhi
Vito Tanzi: This panel discussion is the most informal part of the seminar. Certain questions were given to individual speakers, in the hope that they would spend a few minutes and give answers. The four speakers are David Pearce, Cielito Habito, Andrew Steer, and Ved Gandhi, and we will go in that order.
Let me conclude the seminar with two observations that are highly relevant to our discussions of the past two days and then with a few remarks on the future direction of Fund work in the environment area.
It is a great pleasure for me to welcome you to the IMF Seminar on Macroeconomics and the Environment. Most of you are from Washington, but some guests have come from as far away as Canada, England, India, Norway, and the Philippines. As we received your responses to the invitations, we also received a number of expressions of curiosity—even surprise—that the IMF would be holding an academic seminar on environmental issues. To some extent the curiosity is understandable. We are a monetary institution, not an environmental one. Our basic mandate, as spelled out in Article I of the IMF Articles of Agreement, is to promote international monetary cooperation and exchange rate stability and to help member countries solve their balance of payments problems. Moreover, the timeframe for our work—whether surveillance or programs—is typically short term, while environmental problems, unlike exchange-rate and balance of payments crises, tend to be long term.
The International Monetary Fund is a monetary institution charged with the responsibility of promoting international financial and exchange stability through the adoption of sound macroeconomic policies in its member countries (see Annex 1, and IMF, 1993). It is not an environmental institution and is not concerned with the environment per se. Fund work on the environment is therefore related to its primary mandate of helping member countries achieve economic stability through reform of macroeconomic policies.
It is by now widely agreed that links between the environment and the economy are too important to be ignored. This holds true for all countries, industrial and developing. And yet there is persistent asymmetry in the way governments treat environmental costs and benefits as compared with more tangible market-based realities. This asymmetry is illustrated by the widespread focus on the economic costs in terms of reduced GDP growth rate from stricter environmental requirements, coupled with equally widespread ignorance about the benefits from environmental improvements and costs imposed on society by increased pollution and resource degradation.
Standard texts in economic development have little or nothing to say about the natural or non-built environment. A well-known review of the state of development economics, for example, contains neither an essay on nor mention of the environment-development link (Ranis and Schultz, 1988). The same is true of more recent surveys (e.g., Balasubramanian and Lall, 1991). Those texts that have taken the environment on board provide a welcome relief to the general picture, but even here the analysis tends to be confined to descriptive issues (e.g., Hogendorn, 1992). In contrast, officially sponsored documentation on the environment-development interface, such as that from the World Bank, the United Nations, or Organization for Economic Cooperation and Development, has increased dramatically in recent years (Pearce and Warford, 1993; Eröcal, 1991; Bartelmus, 1986; Pearce, Whittington, and Georgiou, 1994), not to mention the ever-growing number of texts specifically on economics and the environment. All this suggests that, despite the efforts of those who have sought to uncover the environment-development-environment interactions, much of this work has still to filter down to those who effectively provide introductions to development planning, and, perhaps more seriously, to those who define the cutting edge of development economics.
The compartmentalization of human activities and a corresponding neglect of ecological and socioeconomic interdependence have been blamed for policy failures in both environment and development (WCED, 1987). There can be hardly any doubt about the existence of interdependence between issues and policies of population, poverty, environment, and economic performance and growth. The Brundtland Commission (WCED, 1987) and the discussions and publications in the wake of the Earth Summit (UNEP, 1992; Bartelmus, 1994a; Brown and others, annual) give ample evidence of these interrelations as well as cross-boundary impacts of regional activities. The papers by Hansen and Gandhi and McMorran in this volume elaborate on the effects of macroeconomic and mesoeconomic policies on the environment. The reverse, how the environment affects the economy through the erosion of natural capital and its impact on human capital, is described in the Pearce and Hamilton paper.
The environment is generally accepted as an area of government and popular concern, and it is of great importance to have information on the environment properly reflected in statistics. While environmental statistics cover a broad range of topics and issues, this paper concentrates on economic aspects of environmental statistics. As economic activities, such as production and consumption, impact on the environment and the environment impacts on economic activities, it is important to link information on the environment with information on the economy.