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London address: Köhler says crucial test for poverty reduction is in opening access to markets for poor countries

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2001
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We are united today by our belief that widespread poverty in the midst of global prosperity is both unsustainable and morally unacceptable. We agree that world poverty is the paramount challenge of the twenty-first century. It is right that United Nations (UN) conferences have established concrete goals for the year 2015 in education, health, environmental sustainability, and poverty reduction. Collectively, their aim is to break the cycle of world poverty in this generation. The IMF is committed to playing an active role in this effort, reflecting its specific mandate and expertise.

Sub-Saharan Africa trip

One of the strongest impressions I took away from the joint discussions that World Bank President Jim Wolfensohn and I had last week with 22 heads of state in sub-Saharan Africa was that that these leaders increasingly recognize their own responsibility to address homegrown causes of poverty.

• First and foremost, there is an awareness in Africa that any effort to reduce poverty must start with—and build upon—peace, democracy, and good governance at home. Lack of respect for the rule of law, armed conflict, mismanagement, and corruption are fundamental obstacles to growth and development.

• Second, there is a recognition that the prospects for rapid growth—which is indispensable for reducing poverty—will depend on the ability of these countries to unlock the creative energies of their people. In support of this process, African leaders know that there is no alternative to integration into the global economy. This approach requires investment in human capital and infrastructure, as well as the right economic policies and institutions. It requires, especially, an economic climate that encourages private sector investment.

• Third, there is an increasing awareness among African leaders that stronger regional cooperation and integration are indispensable to increase the competitiveness of their economies.

I am encouraged by the indications that there is an emerging collective leadership in Africa. In particular, the concept of a “Millennium Africa Renaissance Program” that is being developed by Presidents Thabo Mbeki, Olusegun Obasanjo, and Abdelaziz Bouteflika is emerging as a distinctly African vision and work program for the future of Africa. It is aimed at achieving sustained economic growth of at least 7 percent a year, at doubling Africa’s share in world exports in the next five years, and at accelerating the achievement of the international development goals. Jim Wolfensohn and I have clearly expressed our commitment to support this African vision and work plan.(See also page 70.)

Role of industrial countries

I see the crucial test for the credibility of international support for poverty reduction in the issue of opening markets for poor countries and in the delivery on the promise of higher levels of official development assistance. Increased access to markets is still the best way for poor countries to share in world prosperity. The major industrial countries have a duty to take the lead in jump-starting a new round of multilateral trade negotiations under the World Trade Organization. And to give special assistance to those with the greatest need, rich countries should give the world’s poorest countries free access to their markets. To be meaningful, free access should cover the products that matter most to poor countries.

In addition, more than 30 years ago, the UN adopted the Pearson Commission recommendation that the major donors should provide at least 0.7 percent of GNP in official development assistance. While many Organization for Economic Cooperation and Development (OECD) countries have used this target ever since as a point of reference, in practice bilateral aid flows from OECD countries fall short of this target by about $100 billion a year.

The UN will be holding a conference on Financing for Development in the spring of 2002 [see IMF Survey, February 19, page 53]. In anticipation of this event, I would gladly join in a campaign to mobilize public support for action by all OECD governments and parliaments to reach the 0.7 percent of GNP target within this decade.

I see the crucial test for the credibility of international support for poverty reduction in the issue of opening markets for poor countries and in the delivery on the promise of higher levels of official development assistance.

—Köhler

The fight against poverty requires courage, commitment, and prolonged effort. That is why it will succeed.

—Köhler

Role of the IMF

At last year’s Annual Meetings in Prague, the IMF’s 182 member countries stressed that now, more than ever, globalization requires cooperation, and it requires institutions that organize this cooperation. I want to reemphasize: the IMF intends to be a part of the workforce to make globalization work for the benefit of all.

To do this more effectively, the IMF is adapting to the lessons of experience and changes in the global environment. We have learned that program countries cannot solve everything at the same time. We are streamlining the IMF’s conditionality to help pave the way for greater national ownership and sustained implementation. And the IMF has to refocus. This means that it should concentrate on macroeconomic stability and on the financial sector, which are essential for sustained growth. And it must help countries take advantage of the opportunities of global markets. Recent events make it clearer than ever that the IMF must work harder to find answers to the risks of disruptive volatility in international capital flows.

Within this new focus, the IMF must be part of an integrated concept of the international community for dealing with globalization. This should be a concept that recognizes that the social dimension cannot be separated from the economic dimension. And our concept must also respond to the fact that all humanity shares one world. This means that the poor must be full partners and participants, but also that poverty is an issue for everyone. Operating within that concept, a refocused IMF must be aware of issues outside its core areas of responsibility and work in a complementary fashion with the organizations primarily responsible for those issues.

Debt relief and poverty

Clearly, debt relief is an important part of a comprehensive concept to reduce poverty. The IMF and the World Bank have been spearheading the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, which brought debt relief to 22 poor countries during the past year. I also welcome the decisions by the United Kingdom and other countries to forgive 100 percent of bilateral claims in the context of the HIPC Initiative. But I would caution against viewing debt relief as a panacea. Credit is an indispensable element for economic development. That is why, in the longer run, it will be crucial for poor countries to win the trust of private investors in their ability and willingness to repay what they borrow. And that is why they need to make good use of the breathing space that is being provided now from their debt-service obligations to make decisive progress in their efforts to reduce poverty.

The fight against poverty requires courage, commitment, and prolonged effort. That is why it will succeed only if it is based on a poverty reduction strategy designed by the country itself, rather than one that is imposed from outside. This is the philosophy behind the poverty reduction strategy paper process, which the IMF and the World Bank helped to initiate just over a year ago. During the first two years of Poverty Reduction and Growth Facility operations, spending on education and health is expected to rise by about 1 percent of GDP. We know that this is still far from satisfactory. But the issue is firmly on the agenda of the international institutions. Still, let me be clear: the needs are enormous and, even in the best of circumstances, resources and implementation capacities will be constrained. Countries will not be able to avoid making hard choices.

Our discussions with African leaders have confirmed for me that lack of capacity, rather than lack of political will, is often the main obstacle to programs for growth and poverty reduction. It is clear that we need to give a higher priority to capacity building. We need more resources for technical assistance, and we need to make existing technical assistance more efficient.

Conclusion

It would be a tragedy if we left this meeting and went back to business as usual. I think it is crucial to establish a cooperative mechanism for monitoring progress and coordinating our activities to meet the international development goals for 2015. This means that we need to allocate responsibility for actions to meet these goals at the country, regional, and global level and agree on ways to monitor performance. We would also need a monitoring process for the delivery of international support in areas such as market access, aid, debt relief, capacity-building, and control of arms trade. Out of these elements could come a framework for accountability in the effort to achieve the international development goals. The appropriate forum for an overall assessment would, of course, be the UN. The IMF would be prepared to participate actively in a concrete, constructive, and transparent monitoring process.

In this and other ways, we need to really focus on the role our organizations can best play in the fight against poverty and keep that thought at the forefront of our activities throughout the year.

Photo Credits: Padraic Hughes, for the IMF, pages 69-70; Mike Palazzotto for AFP page 73; Denio Zara, Pedro Marquez, and Michael Spilotro for the IMF, pages 75, 79, 83-84; and Stephanie Pilick for AFP, page 80.

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