One of Köhler’s main messages to his hosts was the crucial role that stronger regional economic integration can play in expanding opportunities. In Algeria, he called upon all the countries of the Maghreb “to enhance economic integration in order to enlarge your markets, increase the region’s attractiveness for investment, and accelerate growth.” This, he said, would also position the region to enhance the collective benefits that the area could draw from its Association Agreements with the European Union.
While acknowledging that the Arab Maghreb Union, formed in 1989 by Algeria, Libya, Mauritania, Morocco, and Tunisia, has to date made slow progress, Köhler indicated to reporters in Tunis that, with the encouragement of the Maghreb’s leaders, he and the IMF would pursue the question of regional economic integration. He urged the Union’s leadership to “sit together and define a policy for better cooperation and better growth and job creation for their people.”
For its part, the IMF has already taken a first step in this direction. In early 2002, it sent a fact-finding mission, at the invitation of the countries of the Maghreb, to identify obstacles to trade within the region and to suggest possible solutions. The mission highlighted the considerable scope for greater integration, pointing out that only about 1 percent of Algeria’s total trade currently takes place with its Maghreb neighbors. Even for Tunisia, the most integrated of the area’s economies, that total is still under 6 percent. IMF staff will be working with the Maghreb countries to create forums for greater coordination and for experience-sharing on trade and customs reform among the three countries.
Over the past decade, all of the countries of the Maghreb have made progress in achieving macro-economic stability and strengthening growth. The IMF has been a partner in these efforts, providing policy advice, technical assistance, and financial support, including through its Poverty Reduction and Growth Facility.
But the region’s policymakers face continued challenges if they wish to see their countries keep pace with an increasingly competitive global economy and if they hope to fulfill the aspirations of their youthful populations. Clearly, the pace of sustainable growth must quicken to bring about lasting improvements in social indicators—notably greater reductions in the region’s high levels of unemployment—and structural reforms must be stepped up.
Mauritania. One of Africa’s largest countries in terms of land area and also one of its most sparsely populated, Mauritania is in the process of opening up its economy and integrating it into the global economy. In Nouakchott, where he met with President Maaouiya Ould Sid Ahmed Taya, Köhler praised the strong progress the country has made under the latest of a series of IMF-supported policy programs over the past decade. He joined with President Taya in calling on advanced economies to move more quickly to open their markets and phase out trade-distorting subsidies.
Mauritania has recorded low inflation and robust economic growth, which has brought with it, most importantly, progress in reducing poverty. President Taya has made fighting poverty Mauritania’s top priority, and the country’s efforts have been strengthened by progress in the implementation of policies set out in its poverty reduction strategy paper, which established medium-term goals and described the steps that will be taken to achieve these. Mauritania has recently received $1.1 billion in debt relief under the Heavily Indebted Poor Countries Initiative.
Photo credits: Denio Zara, Padraic Hughes, Pedro Marquez, and Michael Spilotro for the IMF; Mauritania’s Government News Agency, pages 342^3; Sergio Moraes for Reuters, page 343; Dylan Martinez for Reuters, page 348; and Beawiharta for Reuters, pages 351-52.
Major challenges remain, however, if the country is to boost growth and reduce poverty further. Key among important additional measures are continued efforts to improve public expenditure management (in part, to better target social and poverty-reducing expenditure) and improved operation of the foreign exchange market—an essential step if the business environment is going to play its crucial role in enhancing growth and reducing poverty.
Algeria. In discussions with President Abdelaziz Bouteflika, Köhler highlighted Algeria’s success in restoring financial and monetary stability under difficult conditions. The country was moving in the right direction, he said, citing, in particular, the progress made in modernizing the economy with financial support from the IMF.
This progress should not distract attention, however, from the significant work that remains to be done. The sustained economic expansion needed to generate employment, reduce poverty, and raise general standards of living requires further structural reforms. Köhler underscored that Algeria’s current strong fiscal and monetary position affords a window of opportunity to both pursue these reforms and expand the country’s social safety net.
At the core of the needed reforms is a revitalization of the enterprise sector. Improved productivity and profitability, he said, are essential for faster economic growth. Among a number of critical steps to be taken, Köhler singled out the importance of developing a better regulatory environment, in a climate of greater transparency and accountability, to encourage private sector development. He noted, too, that restructuring and privatizing viable public enterprises, while treating employees fairly, would enable these enterprises to grow again, make profits, and export while relieving the treasury of the cost of supporting these enterprises.
Banking sector reform should complement these ambitious but vital measures. Given the key role that a modern financial system plays in financing productive investment, Algeria cannot afford to neglect the health and well-being of its banks. In this regard, Köhler welcomed Algeria’s decision to request a systemwide analysis under the IMF’s Financial Sector Assessment Program. This assessment will provide the country with the information it needs to further modernize its banking sector and ensure that Algeria’s banks play an effective role in the economy, including through increased lending to small and medium-size enterprises.
Tunisia. In a meeting with President Zine el–Abidine Ben Ali, Köhler congratulated him on the country’s sustained economic growth and remarkable improvement in social conditions. Tunisia, he said, has benefited from its smooth integration into the global economy. It has succeeded in opening its economy and achieving export-led growth while maintaining macroeconomic stability. These outward-oriented policies have also been underpinned by a long-term strategy that has been notable for its successful investment in education and its effectiveness in developing infrastructure and institutions. This track record, Köhler emphasized, reflects the importance of national ownership of policies for ensuring the success of reform efforts.
But faced with stiff competition internationally and a fourth year of drought at home, Tunisia cannot afford complacency, Köhler cautioned. To preserve its achievements and make further progress, Tunisia must embark on a number of additional reforms, notably a further privatization of external trade, liberalization of the telecom sector, and a strengthening of its financial sector.
For additional information on the Managing Director’s trip, please see IMF News Briefs Nos. 02/104 (October 9), 02/105 (October 17), 02/106 (October 17), and 02/108 (October 23). The full text of these is available on the IMF’s website (http://www.imf.org).