1 Opening Remarks

Laura Wallace
Published Date:
January 1999
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Motomichi Ikawa

It is a great pleasure for me to welcome all of you to the Seminar on Adjusting to the Challenges of Globalization in Africa, organized jointly by the Government of Japan and the IMF. I am delighted to see many familiar faces and new participants from Africa, Asia, North America, and Europe. May I also take this opportunity to express our appreciation to the three external evaluators of the IMF’s Enhanced Structural Adjustment Facility, who have kindly accepted our invitation.

This is the fourth in a series of seminars on policies for growth in Africa since 1994. The three previous seminars have sought to draw lessons from the development experiences of East Asian countries and examined how those could best be adapted to Africa’s development.

But given the current situation in Asia, we could ask whether it is still possible to draw lessons from Asia. The answer is yes—one can learn from both a success and a failure.

We believe it is quite significant when weighing the most appropriate development strategy for Africa to take into account the results of studies and analyses of East Asia’s development experience. But there has been a tendency on the part of casual observers to conclude that some of the basic policies behind Asia’s past high economic growth—primarily, an active role of government in the area of industry and finance—were misdirected. We do not share this view. We believe that an active role for government is indispensable for creating an environment conducive to private capital flows. Indeed, for there to be sustainable growth and poverty reduction, central and local governments must play appropriate roles.

So then, what lessons can African countries draw from the recent currency crisis in Asia? First, the Asian crisis occurred in countries where relatively sound macroeconomic management, including a tight fiscal policy, had been in place. The direct causes of the crisis—and those contributing to the currency turmoil—include rigid foreign exchange rate systems, excessive foreign short-term borrowing in the private sector, and fragile and poorly supervised financial systems. In this respect, it is now widely recognized that too much reliance on short-term foreign capital without adequate supervision, transparency of data, and deep financial markets can undermine the stability of the economy.

Second, and more important, the crisis has highlighted risks that are common to emerging market countries with open economies that have achieved high economic growth through capital inflows. It is becoming increasingly clear, however, that the dangers stem from poorly sequenced and unbalanced liberalization of capital—not capital liberalization itself. In this context, policy sequencing is vital. For without sound development of the financial sector prior to liberalization of capital transactions, risk management and monitoring may not work properly.

In the Group of Seven (G-7) process leading up to the Birmingham Summit in May 1998, as in other forums, serious discussions are taking place on the issue of crisis prevention and crisis management. Which areas are being identified for developing countries to focus on? The key ones are enhanced transparency and data dissemination, sound preparations for global capital flows, and stronger national financial systems—all areas that African countries will need to address vigorously if they hope to benefit from globalization by achieving high economic growth through increased trade and investment. In this connection, Japan places particular emphasis on greater transparency, including of the policymaking process within the IMF, and better monitoring of short-term capital flows.

Agenda for Africa

So where does this leave Africa? The Asian economic crisis has not distracted the attention of the major industrial countries from Africa. In the Birmingham Summit, Africa’s problems will receive needed critical attention, an outgrowth of the 1997 Denver Summit’s call for continued support of the democratic and economic reform efforts by African countries. A G-7 Working Group has reaffirmed the commitment to a partnership with sub-Saharan Africa and endorsed the following orientations in seven areas.

  • On mobilizing resources, the group looks forward to a full and speedy implementation of the Debt Initiative for the Heavily Indebted Poor Countries (HIPC) and to replenishments of both the African Development Fund of the African Development Bank and the International Development Association (IDA) of the World Bank. It is encouraging to observe that there is support for a speedy extension of debt relief to more countries and, at the same time, a recognition of the need for an adequate replenishment of soft loans. As there is no guarantee that such a favorable environment will continue for the coming decade, African countries are encouraged to seize these opportunities to lay the groundwork for sustainable growth.
  • On financial sector development, the group highlights the need for vigorous efforts to build open, transparent, and robust financial systems, including nonbank financial and micro-finance institutions. In Africa, excessive government intervention in state-run financial institutions is often the cause of the accumulation of nonperforming debts.
  • On trade, while urging the international financial institutions to place a greater emphasis on trade reforms in economic programs, the group commits itself to ensuring liberal access to its own markets for African countries. Here, I should note that the emphasis is on avoiding protectionism on both sides, the developing and industrial countries.
  • On investment, the group encourages a more innovative use of multilateral and bilateral investment guarantees to improve the investment climate.
  • On governance, the group calls for international financial institutions to intensify their efforts in the design and implementation of economic reform programs.
  • On capacity building, the group welcomes efforts by African countries to increase the proportion of budgets directed to social expenditures.
  • On regional integration, the group urges international financial institutions to place greater emphasis on regional perspectives, in particular on developing regional assistance strategies. It is well known that national economies in sub-Saharan African countries are small and do not allow for economies of scale. So it is quite significant that a regional focus is becoming a key consideration in a number of domains, such as trade, investment, financial sector development, and modalities of assistance.

While the G-7 Working Group deals with these seven areas, I must admit that some important ones are missing; these include population growth and agricultural development, areas that might be quite interesting if some speakers would touch on them from time to time.

Finally, I would like to mention Japan’s financial support of Africa. With regard to multilateral assistance, above all, Japan is the largest donor to the 11th replenishment of IDA, with a total of approximately $22 billion contributed over three years beginning in 1997. Japan is also the largest donor to the African Development Fund. On the HIPC Initiative, Japan has taken the lead by contributing approximately $37 million to the IMF’s ESAF/HIPC Trust Fund in support of these initiatives, following the contribution of $10 million to the HIPC Trust Fund in the World Bank. In terms of bilateral assistance, as of 1995, Japan was the second-largest donor to the entire region and was the largest donor to 6 out of 47 African countries.

I would also like to call your attention to the Second Tokyo International Conference on African Development to be held in Japan in October 1998. This conference is organized jointly by Japan, the United Nations, and the Global Coalition for Africa. We hope that many of you will be able to take part in this conference. Just holding this conference is, in my view, a manifestation of Japan’s commitment to Africa.

Seminar Topics

As for our seminar here today, after a few decades of stagnation, per capita incomes in African countries have started to pick up in recent years. To consolidate and spread this trend throughout the African continent, apart from the need to make the most efficient use of overseas development assistance, it is essential to promote private investment. With that in mind, we have structured the seminar around three sessions, each of which will afford plenty of opportunities for discussions.

Session I will focus on improving the environment for private investment and activities. Session II will deal with strengthening the contribution of government. And Session III will consider reform priorities for Africa in a globalized world.

I hope that after this two-day seminar, all participants will be able to share a common view that opportunities are ripe for African countries in the coming century, and agree on a common modality to achieve this goal.

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