Reinventing the IMF - Renewing the Commitment to Poor Countries
By Paul
Some highlights from a major speech by IMF Managing Director at Center for Global Development today;
“Earlier this year, I set out a road map for implementing the International Monetary Fund's Medium-Term Strategy. This afternoon I want to talk about a particular aspect of the strategy: the Fund's relationship with low-income countries…The Medium-Term Strategy is based on the premise that the Fund needs to adapt to help all of its members deal with the challenges of 21st century globalization. The strategy covers all areas of the Fund's activities, including the way we conduct surveillance of individual members' economies and of the global economy; our instruments for preventing and dealing with crises in emerging markets; and the Fund's own governance. The measures proposed in the strategy are important not only for systemically important countries and emerging markets, but also for low-income countries. Tackling global imbalances will reduce the risk of chaotic exchange rate movements, abrupt shifts in financial markets, and crippling protectionism. Avoiding crises in emerging markets will help keep down the cost of low-income countries' borrowing and maintain demand for their exports. And low-income countries as well as clearly underrepresented emerging markets have reason to be concerned about their voice and representation in the Fund.
Telling countries to avoid debt is likely to be most effective if we can offer them alternative sources of finance. As the Irish playwright George Bernard Shaw wrote, "I can't talk religion to a man with bodily hunger in his eyes." It is therefore important that the international community address the urgent needs of low-income countries by offering sufficient grants and highly concessional loans to enable them to finance development without relying on expensive debt. This leads me to the second part of the Gleneagles compact: a significant increase in aid.
The Fund has also been a consistent advocate of the effective use of aid. Better outcomes from increases in aid flows will depend not only on the amount of the support, but on its effective use. This depends partly on macroeconomic policies, and one of the Fund's responsibilities is to help countries manage their macroeconomic policies in ways that maximize their capacity to absorb aid and debt relief.The Fund is also strongly committed to making sure that countries have the fiscal space they need to expand social programs, especially in health and education. I want to remove any misconceptions about our views on this. I have repeatedly heard concerns expressed, especially by NGOs, about budgetary ceilings limiting social sector outlays.
The first concerns trade. Most of the discussion of trade policy in recent months has focused on the WTO negotiations on the Doha Round. This is appropriate: increased trade, bolstered by multilateral agreements, has been a cornerstone of growth in the global economy for many years, and is fundamental to the prospects of low-income countries….
Before concluding, I would like to also say a few words about a policy area where it is particularly important that the Fund cooperate with donors and low-income country governments. This is governance. Paul Wolfowitz made a speech focusing on this issue earlier today, and I very much agree with his comments. Governance was a key element of the Monterrey compact and it is an area where the Fund has a well-defined and important role to play. When governance issues are macroeconomically relevant and threaten the success of a program, we set conditions to address them. We also promote good governance through broader initiatives. For example, we promote transparency through the General Data Dissemination System, a framework to develop national statistical systems to which over 90 countries have subscribed. In some countries we are developing action plans to improve the transparency of Public Expenditure Management systems. We also support the Extractive Industries Transparency Initiative and give advice on transparent use of revenues from natural resources. Underlying this work is the belief that more public accountability and more transparency can raise the quality of public expenditure, cut corruption, and reduce poverty..”
Related;
IMF to Propose Greater Representation for Developing Countries- see the event online