Speech

Africa: A Window of Opportunity - Address by Mr. Alassane D. Ouattara

May 12, 1999

French

I am honored to join you in your reflections on Africa at this critical juncture both for Africa and the international financial system. What I would like to do at the outset of this seminar is to touch on three questions: How can the international community help Africa catch up with the rest of the world? What can we do to make the world economy a more conducive setting for sustainable, high-quality growth in Africa and elsewhere? And what should Africa’s priorities be as it continues to tackle the difficult structural reforms? First, though, a few remarks on the overall economic backdrop.

A brighter world economic backdrop

There are many indications that the financial crisis of the past two years seems over, and the risk of global recession has receded. The IMF is looking for world growth of around 2.3 percent this year, a bit lower than last year. This is slower than the strong global growth of the mid-1990s, to be sure. But with sound policies, and with a little luck, growth could rise above 3 percent next year and reach 4-4 1/4 percent early in the new millennium.

On the plus side, Asian economies are showing stronger signs of a nascent recovery; spillovers from Brazil’s financial crisis to markets elsewhere in Latin America have generally been moderate, thanks in part to the region’s strong reform efforts over the past decade; investor sentiment toward the emerging markets has broadly improved; and the U.S. economy continues to be remarkably robust.

But there are also challenges and downside risks. Can the United States achieve the soft landing it needs? How soon can Japan expect to see the long-awaited and expected recovery? Can Europe breathe new vigor into its flagging economic expansion? Can the turnaround in the emerging markets be sustained? And will the uncertainties in Russia be satisfactorily resolved? If the answer to these questions is no, global growth could disappoint. Policies, as always, will be the key. And the message remains that there is no room for complacency.

How does Africa fit into this picture? After two decades of stagnation, Africa’s economic profile has improved markedly in the past four years and the outlook is promising. Average real growth in sub-Saharan Africa—excluding Nigeria and South Africa, owing to the relatively large size of their economies—has risen from about 1 percent during 1992-94 to about 5 percent during 1995-98. Real incomes have also risen, with 40 out of 47 African countries now showing increases in their annual per capita incomes. Inflation has been lowered markedly, and internal and external imbalances have been greatly reduced. The IMF is projecting slower growth of about 3-3.5 percent this year, due to the sluggish global growth picture and weak commodity prices, but picking back up to 5 percent in 2000.

What gives encouragement is that in most African countries, substantial progress is being made in freeing the private sector from cumbersome government controls on prices, marketing, international trade, investments, and foreign exchange. As a result, economies are becoming more efficient, access to markets is more open, and the groundwork has been laid for better integration into the world economy.

While Africa has escaped the worst of the recent financial contagion, because it has not yet fully integrated into the global economy, it has also reaped few of the benefits of globalization, such as the chance to quicken the pace of investment, job creation, and growth. This matters because Africa needs growth rates of at least 6-7 percent just to keep up with the expected increase in its labor force. But a growth rate of 8-10 percent would be even more appropriate if Africa hopes to make a dent in poverty over the long run. To grow at this rate, however, Africa will have to become a better—more peaceful—place to save and invest, first and foremost for Africans, but also for foreign investors. And it will need a helping hand from the international community.

How the IMF can help Africa

So what is the IMF doing to help Africa? Let me mention three initiatives. First, under the Heavily Indebted Poor Countries Initiative (HIPC), we are trying to find a way to provide more debt relief to a broader range of HIPC countries. There is an array of options being debated—with renewed enthusiasm—and I am confident that over the coming months we will agree on how best to strengthen the initiative. But an excessive debt burden, as you well know, is only one of the impediments to sustainable development. That is why more generous debt relief must go hand-in-hand with incentives that encourage countries to adopt strong programs of adjustment and reform; lead to greater investments in education and health; reduce poverty; and promise a clear exit from unsustainable debt burdens. This is precisely what we are trying to achieve under the ESAF, our concessional loan facility —namely, sustainable development with a focus on poverty reduction.

Who will pay for this debt relief? And this assumes that the extra help will not come at the expense of official development assistance, which has fallen steadily to a historic low of about 0.22 percent of GNP, well below the United Nations target of 0.7 percent—a trend that is deplorable and must be reversed!

The IMF’s management and staff have been working very hard to secure the full financing of the ESAF and HIPC Initiatives, including through bilateral pledges and contributions from the Fund’s own resources. We have made much progress and will continue to press our members, particularly the industrial countries, for their support. As for the Fund, member countries have indicated a willingness for us to play our part through the sale of some gold. And here, let me assure you, after a decision has been made, we will not proceed in a way that could introduce disorderly developments into the gold market.

Second, in recent years, there has been an increase in the number of countries around the world experiencing political turmoil, civil unrest, or armed conflict. This is an alarming trend, destroying human and physical wealth, and burdening future generations with huge costs of reconstruction. The IMF is involved in some way in almost every post-conflict country. We stand ready, at as early a stage as possible, to provide policy advice and technical assistance, and when appropriate, financial assistance—of course, working closely with the World Bank and donors.

Since 1995, we have had a special policy to provide emergency post-conflict assistance—the Republic of Congo, Rwanda, and Sierra Leone were the first African countries to benefit. Last month, the IMF’s Executive Board agreed on steps to improve the terms of post-conflict assistance to our poorest members, and that, in some cases, there could also be greater access to Fund resources over a longer period of time. Recognizing the special difficulties faced by the few post-conflict countries with large protracted arrears to the Fund, the Board also agreed that these countries’ special circumstances could be taken into account in the implementation of the Fund’s arrears strategy. We also expect that many of the poor post-conflict nations will eventually be able to avail themselves of the HIPC Initiative.

But even all this is not enough. We want to do more. As the international community reaches out to help refugees in Europe, we must also reach out to assist countries with refugee problems in other parts of the world, including in Africa. Ultimately, however, the only real solution is peace. The international community and regional groupings must work even harder to make this a reality, but Africa, too, must say "enough."

Third, the IMF also stands ready to continue to provide—and intensify—training and technical assistance for capacity building and institutional reform in Africa. With this in mind, the IMF Institute has been expanding its training activities for African officials and supporting regional training and research institutions, such as the Macroeconomic and Financial Management Institute in Harare, and the South African Reserve Bank for the members of the Southern African Development Community (SADC). Moreover, in late April, the IMF, the African Development Bank (AfDB), and the World Bank announced the establishment of a regional training institute to be located at the AfDB’s headquarters in Abidjan.

Making the global financial system safer

All of these initiatives, however, will come to little if the global financial system is not strengthened. That is why financial leaders have been debating the causes of the recent crises and possible remedies in a variety of fora. Some remedies are ready for implementation. Others need further study. All of them essentially focus on two themes: preventing crises by devising new "rules of the road" to help governments and businesses navigate the global marketplace; and when crises do arise—and they will—ensuring that contagion is contained and the human costs limited. Not surprisingly, the words transparency, good governance, openness, and accountability echo throughout. So where do we stand on the key proposals?

• On transparency and standards, much progress has been made. The IMF has strengthened its data dissemination standards, especially on international reserves and external debt; it is encouraging members to adhere to the code of good practices on fiscal transparency that was adopted last year; it is working with other agencies to finalize a similar code for transparency in monetary and financial policies; and we have moved swiftly to increase the IMF’s own transparency—just look at our website (www.imf.org) and judge for yourself.

  Why is this important? Transparency can enhance economic performance in a variety of ways. It encourages a more widespread discussion and analysis of policies by the public. It enhances the accountability of policymakers and the credibility of policies, thus contributing to good governance. And it facilitates the orderly and efficient functioning of financial markets.

• On financial sector strengthening, the incorporation of the Basle Core Principles into the regulatory framework for the banking system is being encouraged by the IMF, the World Bank, and other agencies, and we are actively helping countries to improve supervision and reinforce their financial institutions.

• On capital account liberalization, it is striking that few countries have responded to the recent crises by imposing capital controls: the consensus seems to be that more open capital markets should be the norm. But the Asian crisis brought home the need to liberalize in an orderly, properly sequenced manner, carefully married to a strengthening of domestic financial systems.

• On involving the private sector in forestalling and resolving crises, no doubt the most complex area, considerable headway has been made but many contentious issues remain. We need to find a way to stop creditors from rushing for the exits when crisis strikes; and even trickier, to encourage them to act in a way that permits a more orderly process of adjustment for the country involved.

• On IMF financial assistance, our Executive Board in April approved the establishment of Contingent Credit Lines—essentially precautionary financing for countries whose economies are basically sound and well-managed, but whose access to capital markets may be threatened by the potential effects of contagion. This may be a fundamental change in the way the Fund operates, in the interest of a more stable international financial system and for the benefit of all.

Although the reform agenda largely focuses on financial issues, social issues are also front and center. Indeed, the Asian crisis underscored the need for social safety nets—which must be erected before a crisis has struck—to help the vulnerable and the poor. Over the past decade, the IMF has taken an increasingly active stance on social policies, expenditures, and safety nets. We will continue to work closely with the African Development Bank, the World Bank, and other UN agencies in these areas.

How Africa can help itself

So what should Africa’s priorities be as it steps up its efforts to integrate itself into the global marketplace? Broadly speaking, the same priorities that the industrial countries and emerging market nations share: macroeconomic stability and structural reform. And the keywords are the same: transparency, good governance, openness, and accountability. For only in this manner can countries reap the benefits of globalization while minimizing the risks.

Here, I would like to congratulate Mauritius, particularly for its prudent fiscal and monetary management, flexible exchange rate policy, and open external current and capital accounts—all of which have certainly contributed to the country’s sustained high rate of growth and social indicators, which are among the best in Africa.

Now let me briefly mention five key policy priorities for Africa. First is consolidating macroeconomic stability. This implies consistency in implementing sound fiscal and monetary policies.

Second is ensuring economic security. This means removing the sense of uncertainty that still too often plagues investor decision-making. The direction and implementation of economic policies must be beyond question, as must competence and integrity. The transparency, predictability, and impartiality of the regulatory and legal systems must also be guaranteed. More than ever before, Africans—like citizens the world over—are demanding accountability and honesty from their leaders. Indeed, good governance, both public and corporate, is vital, and national authorities should spare no effort in tackling corruption and inefficiency. As democracy spreads—with its checks and balances, and changeovers of political power—leaders will be able to build consensus behind their policies, and civil society will be able to flourish.

I am encouraged by the growing number of African countries that are willing to release their Letters of Intent and Policy Framework Papers for IMF-supported programs, along with background papers for the regular Article IV consultations. Hopefully, this will inspire others to follow.

Third is strengthening the financial sector. This is needed to better mobilize savings and enhance financial intermediation. African countries will have to move decisively to deepen and broaden their relatively weak financial markets, ensure the independence and full accountability of central banks, strengthen banking supervision agencies, open their banking sectors to healthy international competition, and establish well-functioning payments systems.

Fourth is speeding up trade liberalization. This will boost the efficiency and competitiveness of domestic producers, along with enabling African countries to benefit more from the liberalization of other countries’ trade barriers and the growth of world trade. At this stage, African countries still have relatively restrictive trade policies. They need to simplify and lower tariffs—binding them at the lowest rates in the upcoming WTO trade round—as well as remove nontariff barriers. Moreover, industrial countries could help enormously by opening up markets where African nations have the greatest comparative advantage, such as agricultural products and textiles. We also support the bold proposal of former-WTO Director-General Ruggiero that industrial countries should grant across-the-board, duty-free access for the exports of the least developed countries.

Fifth is deepening regional integration. There is a need to simplify the complex and often overlapping existing network of regional arrangements. This would allow African countries to better overcome the disadvantages of their relatively small—and in some cases, landlocked—economies, permit them to realize economies of scale, and enhance their ability to trade on a global basis. However, regional integration should not come at the cost of further overall trade liberalization.

For much of the crisis-ridden past two years, we have been waiting for the light at the end of the tunnel. As far as I can tell, that light seems to be not only beginning to shine, but it holds the potential to shine brightly. It is the light of hope and new opportunities. It is the light of lessons learned and wisdom gained. It is the light of courage to take the tough decisions. It is the light that beckons Africa to seize the moment and fully integrate itself into the world economy, so that its richest resource—its people—can prosper and flourish in the new millennium.