Growth is slowing throughout the world. This may be uncomfortable for the advanced economies, but it will be a hardship for many emerging markets and developing countries and a setback in the fight against world poverty. The advanced economies, in particular, have a responsibility to strengthen the prospects for sustainable growth in their own countries, and thereby to restore momentum in the global economy. Emerging market and developing countries, for their part, should stay the course of structural reform and sound macroeconomic policies.
The slowdown in world economic activity has made it clearer than ever that nations are interconnected. Prosperity in the advanced economies cannot be sustained in the presence of widespread poverty. Integration into the global economy has brought unprecedented gains in income and improvements in human well-being for most of the world, but too many have been left behind, in particular, almost all of sub-Saharan Africa. Success in the fight against poverty is the key to stability and peace in the twenty-first century. And nowhere are the battle lines clearer than in Africa.
New African Initiative
Today, we are presented with a window of opportunity. African leaders have been working together on strategies to accelerate economic growth and development and lead the continent out of poverty. These strategies have now been consolidated into a single New African Initiative, which is anchored in the fundamental principles of African ownership, leadership, and accountability in eliminating the homegrown obstacles to sustained growth.
The New African Initiative focuses on four core elements: (1) a clear awareness that peace, democracy, and good governance are preconditions for reducing poverty; (2) action plans to develop health care and educational systems, infrastructure, and agriculture; (3) reliance on the private sector and on economic integration at the regional and global levels; and (4) concrete steps to develop more productive partnerships between Africa and its bilateral, multilateral, and private sector development partners. I see these elements together as forming the basis for a comprehensive approach to fighting poverty in Africa. The IMF stands ready to provide strong support for this African vision and work program.
I am gratified that the New African Initiative recognizes the PRSP [poverty reduction strategy paper] process as a core vehicle for building continent-wide priorities into national poverty reduction programs and coordinating international support. In my view, PRSPs—with their emphasis on country ownership, broad participation, and dealing with the economic and social fundamentals—should continue to be the guiding framework for our partnership with African countries. The PRSP process is still a work in progress, but there are signs that it will bear fruit. Growth performance is holding up and even improving in a number of countries, despite the difficult global environment. Spending on health and education is expected to rise by about 1 percent of GDP this year. And in response to calls by African countries and the donor community, the IMF and the World Bank have begun preparing social impact analyses for eventual integration into national poverty reduction strategies. [World Bank President] Jim Wolfensohn and I are committed to working with our partners in Africa and the donor community to realize the full potential of the PRSP.
African leaders have underscored the severe demands that this process is placing on their limited administrative capacities. The IMF, the World Bank, and other donors will need to provide increased and better-coordinated technical assistance to support poverty reduction strategies in Africa. Toward the end of this year, the IMF and the World Bank will review the PRSP process, drawing on the views of their membership, other international institutions, donors, and civil society. I am sure this will identify additional areas for improvement.
Respect for country ownership and priorities also underlies our effort to streamline the IMF’s conditionality. Conditionality remains essential but needs to focus on the measures that are critical to the macroeconomic objectives of country programs and leave real scope for countries to make choices consistent with their political and cultural traditions. I am pleased that African leaders have chosen to make good governance a central element of the New African Initiative, because it is essential for attracting private investment and making efficient use of scarce public resources.
Trade and regional cooperation
It is time to provide African nations with free access to the markets of industrial countries, in particular in those areas that matter most to poor countries, such as agricultural products, textiles, and clothing. These areas should also be an important focus for a new round of multilateral trade negotiations in the context of the WTO [World Trade Organization]. Developing countries also need to remove their own impediments to trade. In Africa, this should be part of a concept for regional economic cooperation and integration, as a vehicle for improving competitiveness and attractiveness to investors. The IMF has been a major supporter of regional trade and financial integration and is encouraging the harmonization and simplification of complex and overlapping subregional trade arrangements. We will continue providing advice and technical assistance on tax, customs, and trade practices. We will also provide assistance in developing regional surveillance and the harmonization and convergence of macroeconomic policies to help underpin deeper regional integration—the ultimate aim of the new African Union.
Official development assistance
Implementation of the target for the industrial countries to provide 0.7 percent of GNP in official development assistance should be seen as an investment in peace and prosperity throughout the world. An increase by 0.1 percent from today’s average level of 0.24 percent of GNP would amount to over $10 billion—the magnitude identified as needed to begin a comprehensive program of HIV/AIDS prevention and treatment. Moreover, there should be scope to direct increased aid more to the poorest nations—only one-fifth of total official development assistance flows now go to the least developed countries.
Debt relief is also an integral part of a comprehensive concept for poverty reduction. The IMF and the World Bank have spearheaded an effort under the enhanced HIPC [Heavily Indebted Poor Countries] Initiative that has already provided $25 billion of debt relief to 19 countries in Africa, cutting their ratios of debt service to exports by about one-half. We are doing our utmost to extend the benefits of this initiative to the remaining eligible countries. In the process, we will strengthen our efforts to meet the special needs of countries emerging from conflict, including interest subsidies on the IMF’s emergency postconflict assistance. I also welcome the decisions of donor countries to forgive 100 percent of their bilateral claims in the context of the HIPC Initiative. But debt relief is not a panacea. Credit is also indispensable for economic development, and, in the longer run, it will be crucial for poor countries to win the trust of investors in their ability and willingness to repay what they borrow. That is why the IMF will continue working closely with the World Bank and other partners in helping African countries create sound domestic financial sectors and, eventually, integrate into international financial markets.
The IMF is cooperating actively in preparations for the Conference on Financing for Development. I am confident that it can make a real difference for poverty reduction in Africa, and in the world, by concentrating in two areas: identifying gaps in the institutional framework to fight world poverty while making the most of existing mechanisms; and helping build a wider public constituency, especially in the advanced economies, for necessary actions on trade and aid.