Governors, the global economy has passed through a great ordeal. For a time, we faced the threat of the most extensive and the harshest crisis since our institutions were established. Its human cost has been immense, and we may need a few more years to heal all the wounds. Now, the storm is abating, even though some risks remain. Several countries that were in the depths of crisis—Korea, Thailand, the Philippines, Brazil, and others—are advancing in their recovery. Above all, the recovery comes from the intense effort, the wisdom, and, most emphatically, the sense of cooperation of all concerned.
A major lesson of this crisis is that, in the new world of globalization, cooperation is a must. A second lesson is that we always run the risk, when economic prospects have improved, of moving too slowly to implement the reforms that are needed. There is still an urgent need for action. So I shall largely confine my remarks to the two domains where I see a pressing need to move quickly to implementation: reform of the international monetary and financial system and the offensive to eradicate poverty and humanize globalization.
Russia and Indonesia make progress
Before proceeding, let me say a few words about IMF programs with two of our largest members—Russia and Indonesia. In Russia, the economy is recovering, and the program that began in July this year is on track. We look forward, as the program moves ahead, to Russia’s advance in both structural reforms and improved governance. We should not lose sight of the real progress that has been achieved during seven years of endless efforts to assist Russia in its journey toward a market economy. Nor should we ignore the fundamental decision, on which Russia has not wavered, to seek to develop a modern market economy and integrate itself into the international community.
In troubled Indonesia, the government turned the economy around after taking office last year. Economic stability in turn helped make possible the freest elections in Indonesia’s history. Now, these achievements are threatened. But, we stand ready to resume our assistance as soon as the shadows hanging over the program are lifted. We expect to continue working with the next government of Indonesia to help the country achieve its great potential, while we look forward to contributing, when the day comes, to the rebuilding and sustainable development of East Timor.
Monetary and financial reform
First, in the area of architecture, work is in progress. Sunday’s communique of the Interim Committee contains an impressive catalog of steps. They focus on prevention; transparency; financial sector stability; and the definition of global standards to underpin stable, fair, efficient, and transparent markets. An important step forward is the Committee’s adoption of the Code of Good Practices on Transparency in Monetary and Financial Policies. New facilities have been created: the Contingent Credit Lines and the Y2K facility. The foundations of a safer, more robust, more adaptable architecture are there. But progress is slower in other areas where full consensus has yet to emerge.
First, on the scope and focus of surveillance, several aspects are unquestionable:
its central role in the work of the IMF;
its priority in allocating our human and budgetary resources, since only the IMF has this mandate;
its growing importance in a new environment where early detection of emerging problems is of the essence; and
its primary focus on matters that are the traditional mandate of the IMF—monetary stability, balance of payments sustainability, and growth-oriented economic policies.
But major destabilizing factors can emerge anywhere. These risks call for robust banking and financial systems; sound, transparent, and participatory governance; arm’s-length relationships among governments, banks, and enterprises; and supportive social policies. How, and to what extent, do we integrate these concerns into our surveillance and how do we interact with the many other agencies? How can we avoid further stretching an already overloaded staff? And, last, how can we proceed with the monitoring and implementation of standards, particularly where they lie outside our traditional mandate?
We must clarify these issues. A significant part of our response will rely on the arrangements we will set up with other agencies to share the task of disseminating and monitoring standards that lie outside the IMF’s main areas of expertise.
Next, we have the problem of private sector involvement in crisis prevention and resolution. The volatility of private capital flows can and must be diminished by promoting a mature relationship between creditors and their sovereign clients and between the financial community and the official sector. The involvement of the private sector is a matter of practical necessity, since the private sector will be increasingly important for financing the emerging market and developing countries. But, crises may arise that would benefit from closer cooperation. We must try, drawing on the lessons of the cases that have arisen recently, to distill a set of principles that could help to resolve crises at less cost than in the past. That being done, it will remain important to have—for the protection of both creditors and debtors—a way of ensuring that countries are given time, in extreme circumstances, to seek orderly resolution with their creditors. One avenue consists in designing a mechanism that will permit a temporary stay of litigation through an appropriate amendment or interpretation of the IMF’s Article VIII(2b).
Third, we have the debate on the relative merits of all-out liberalization of capital movements and the illusory virtues of exchange controls. Consensus is achievable on the way to proceed with the orderly liberalization of capital movements. We have two core messages: in the long term, liberal arrangements for capital movements are beneficial to global economic development, and liberalization should be orderly and tailored to individual countries’ situations.
Fourth, the question of exchange rate regimes. We know quite well that many of the problems of the so-called casino economy are related to the nature of exchange rate regimes and to the shortcomings of international cooperation in this field. We have witnessed the effect of deficiencies in exchange systems or exchange rate management in triggering or amplifying crises and their key role in transmitting domestically generated crises. And we know well the role played by the volatility of exchange rates in what seems, at times, the sheer irrationality of market developments. For the time being, today’s diversity of exchange rate regimes will continue, but the greater mobility of capital has made the maintenance of fixed exchange rates more demanding. In considering how to improve exchange stability, we can be encouraged by
the widespread recognition of the essential role of the soundness of economic fundamentals, and
the remarkable success of the introduction of the euro with its potential to become a strong player in an orderly multipolar system.
7 pledges on sustainable development
• Reducing extreme poverty
The proportion of people living in extreme poverty in developing countries should be reduced by at least one-half by 2015.
• Universal primary education
There should be universal primary education in all countries by 2015.
Progress toward gender equality and the empowerment of women should be demonstrated by eliminating gender disparity in primary and secondary education by 2005.
• Infant and child mortality
The death rates for infants and children under the age of 5 years should be reduced in each developing country by two-thirds of the 1990 level by 2015.
• Maternal mortality
The rate of maternal mortality should be reduced by three-fourths between 1990 and 2015.
• Reproductive health
Access should be available through the primary health-care system to reproductive health services for all individuals of appropriate ages, by no later than 2015.
There should be a current national strategy for sustainable development, in the process of implementation, in every country by 2005, so as to ensure that current trends in the loss of environmental resources are effectively reversed at both global and national levels by 2015.
Sound finances clearly involve sophisticated instruments, standards, and smoothly working markets, but, ultimately, finances and markets are about people and for people. And it is the hard, demanding task of the IMF, even if it is not a development institution, to try to help governments to be responsive to the cries of the poor. I believe that we must keep in our minds and hearts the heartbreaking message of the two teenagers from Guinea, found dead in the landing gear bay of an airliner. They said, “we suffer enormously in Africa. Help us. We lack rights as children. We have war and illness, we lack food.... We want to study, and we ask you to help us to study so we can be like you” This is a message from those in absolute poverty. It tells us that the extent of poverty still present at the end of a century of affluence is intolerable. So it is time to respond.
But this is not new for you: social policies are central elements of government budgets, of donors’ aid programs, and of international communiques. Nor are these issues new to the IMF; for many years, IMF-supported programs have explicitly incorporated social policies. During the past decade, in most countries implementing IMF-supported programs, education and health care have significantly increased in real per capita terms. At the same time, there have been improvements in important social indices. But the voices of the poor around the world are telling us in no uncertain terms that this is not enough.
There are two dimensions in the war against poverty: one national, the other international. The first will remain predominant. Poor countries themselves need to generate high-quality growth. We can learn from the positive experiences of many African countries that, assisted by IMF-supported programs, have begun to reverse the sad cycle of declining per capita growth, high inflation, and external imbalances. We know the ingredients: a stable macroeconomic environment; an open, efficient market economy; a framework that fosters private investment; and transparency, financial sector soundness, robust economic institutions, and good governance—in particular, respect for the rule of law and an independent judicial system that recognizes property rights, enforces contracts, and protects basic citizens’ rights.
A vital interrelationship exists between growth and social development. Strong social policies that address poverty at its roots lay the foundation for sustained economic growth. This is why we must aim to eradicate poverty. For that, an international contribution is indispensable.
A central element will be the transformation of the Enhanced Structural Adjustment Facility (ESAF) into the Poverty Reduction and Growth Facility, to incorporate the lessons of more than 10 years of experience, a new level of cooperation with the World Bank, new steps for debt reduction, and an explicit link with poverty reduction. A key feature will be the formulation by countries of their own comprehensive growth-oriented policies designed to reduce poverty. We look forward to the continued deepening of cooperation with the World Bank and the regional development banks to implement these changes and to tap their expertise. Equally, we believe this approach will foster more fruitful contacts with donors, official agencies, and civil society.
With the integration of social objectives at the heart of our programs; the deeper, faster, and broader debt relief provided by the new initiative for Heavily Indebted Poor Countries (HIPCs); the strong link established between debt relief and increased human development expenditure; and the adoption of the key principles of the new facility, the IMF is now well equipped to give a new impulse to the fight against poverty.
But, there is a price to pay for debt reduction. And for the IMF it is high. It has implied that we engage in exhaustive negotiations to convince countries to contribute to this effort. For their contributions, I thank all of them—more than 90 countries, of whom the large majority are developing or transition countries, including several who have used ESAF resources themselves. We have accepted that the IMF should almost triple from 5 million ounces to as much as 14 million ounces the stock of gold we will utilize to generate, through off-market transactions, the earnings needed to complete our contribution.
For this strategy of poverty eradication to be credible, one important element is to boost trade as well as aid. The industrial countries must make a bolder effort to open their economies to all the exports of the poorest countries. At the same time, the trend decline in official development assistance must be reversed.
In conference after conference, we—industrial, developing, and transition countries, and international agencies—have pledged to promote human development. In the Copenhagen Declaration, we pledged to reduce by half the level of extreme poverty by 2015. In other international gatherings, we have pledged to realize at least six other challenging targets in the next 15 years (see box, page 310).
Finally, we cannot forget the repeated demands for the alleviation of postconflict situations; in many countries, good policies have not survived the resurgence of armed conflict. We will continue to respond to these tragic situations, but we must be more proactive. That is why initiatives for peace are essential.
As we look back at the past two years, we take pride in having worked with you and learned with you; we were saddened, as you were, at the difficulties facing your people and have rejoiced when your policies with our support have begun to show positive results. All these efforts have bought us time, not for celebration, but for action to move the world economy from its present recovery to a path of high-quality sustainable growth and through that, through all our techniques and thoughts, to full humanization. It is time for action.