Speech

A Global Partnership for African Economic Development -- Address by IMF Managing Director Horst Köhler

July 16, 2001

As delivered

1. Mr. Secretary General, Ambassador Belinga-Eboutou, today's meeting is taking place in a difficult economic environment. Growth is slowing throughout the world. This may be uncomfortable for the advanced economies, but it will be a further source of hardship for many emerging markets and developing countries, and a real setback in the fight against world poverty. Of course the business cycle is not dead, and some correction was even necessary to counteract excessive exuberance. But now the advanced economies, in particular, have a responsibility to be proactive in strengthening 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.

2. The slowdown in world economic activity has made it clearer than ever that nations are interconnected. And this serves as a warning that 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 the rising tide of prosperity has left far too many behind, in particular, almost all of sub-Saharan Africa. And for everyone, talk about economic stability and poverty reduction should ring hollow in the absence of a strategy to fight the HIV/AIDS pandemic, reflecting last month's UN Special Session in New York.

3. All of these developments underscore the need for an integrated concept for answering critical questions about globalization. This concept must respond to the fact that all humanity shares one world, and lay the foundation for more broadly shared prosperity. Above all, success in the fight against poverty is key to stability and peace in the 21^st Century. And nowhere are the battle lines clearer than in Africa.

4. During my first year at the IMF, I traveled twice to Africa for discussions with heads of state, the private sector, and civil society, and met often with African leaders in Washington. I was left in no doubt that it is a continent of extraordinary diversity—with huge problems, but also enormous potential. In particular, I have been struck by the resolve of African people, and especially African women, to work hard and persevere in the face of many obstacles. We cannot let them down. I strongly oppose cynicism and pessimism about Africa. And I know that there is a way forward.

5. Today, we are presented with a true window of opportunity. African leaders have been working together on strategies to accelerate economic growth and development, and lead the continent out of widespread poverty. I am very pleased that these approaches—the MAP and the OMEGA plan—have now been consolidated into a single New African Initiative. This initiative is firmly anchored in the fundamental principles of African ownership, leadership, and accountability in eliminating home-grown obstacles to sustained growth, and I think this is the most important factor in this initiative.

6. The New African Initiative focuses on four core elements.

• First and foremost, there is a clear awareness that peace, democracy, and good governance are preconditions for investment, growth, and the reduction of poverty.
  
• Second, the initiative calls for action plans to develop health care and educational systems, infrastructure, and agriculture.
  
• Third, it rightly relies on the private sector and on economic integration at the regional and global levels.
  
• And fourth, it identifies 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. I think it is especially significant that the New African Initiative outlines a concrete organizational structure to facilitate its implementation. My advice is to move forward ambitiously with the implementation of this initiative, but to beware of bureaucracy and institutional infighting—because in the end, this has to pay off for the people, not for the organizations and institutions. I can assure you that the IMF stands ready with its expertise and resources to cooperate actively in the process and provide strong support for this African vision and work program.

7. I am gratified that the New African Initiative recognizes the PRSP process as a core vehicle for building continent-wide priorities into national poverty reduction programs and coordinating international support. This allows us to build on the experience we have already gained together. Indeed, in my view, Poverty Reduction Strategy Papers—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—only in the past few months have we received the first five "full PRSPs"—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 World Bank have begun preparing careful social impact analyses, for eventual integration into national poverty reduction strategies. 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.

8. To be sure, African leaders have underscored the severe demands that this process is placing on their limited administrative capacities. There is no question that the IMF, World Bank, and other donors will need to provide increased and better-coordinated technical assistance to support poverty reduction strategies in Africa. The IMF is planning a well-targeted extra effort at capacity building in the Fund's core areas of responsibility, and will be in touch with major donors in the coming weeks to discuss ways in which they could support this effort. I believe that focusing the Fund's assistance more sharply on its areas of expertise is essential, and I am pleased that the World Bank, UNDP and African Development Bank have been working in the same direction. Our efforts, therefore, will be complementary. And as the New African Initiative moves forward, the IMF will be prepared to provide input and assistance to the bodies that are eventually established for monitoring its implementation.

9. Toward the end of this year, the IMF and World Bank will conduct an in-depth review of 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. Not least, the PRSP process is a natural way to strengthen donor coordination, and the efforts in this direction that have already been taken by some donors are much appreciated. Donors who are truly serious about country ownership and aid effectiveness should also be willing to do more to ensure that their assistance truly serves African interests—not least by untying aid—and resist the temptation to micro-manage from the perspective of their own societies.

10. Respect for country ownership and priorities also underlies our effort to streamline the IMF's conditionality. Conditionality remains essential, not least to safeguard the revolving character of Fund resources. But we need to focus it on the measures that are really 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. The Fund stands ready to discuss the costs and benefits of government interventions and controls, and to work with national authorities to identify ways to reduce the risks of mismanagement and corruption. We will also continue helping African countries to improve transparency and accountability in macroeconomic and financial policies, and in economic statistics, through our extensive work on internationally-agreed standards and codes of good practice.

11. The IMF and World Bank are using the PRSP process, as well as their financial and technical assistance, to help African countries to put in place the necessary conditions for a dynamic private sector—sound institutions, a predictable legal and economic environment, and a level playing field. In addition, we are strongly supporting investors' councils as means of constructive dialogue between African leaders and top executives of local and international companies. This will give businessmen a stronger voice and an opportunity to identify investment opportunities, key obstacles to private investment, and options for removing them.

12. More than anything else, Africa needs better opportunities for trade, the best help for self-help. It is time, finally, 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. I agree with the Secretary-General that protectionism is an obstacle in the fight against poverty, and that the new round should be launched as soon as possible. Equally important, developing countries need to remove their own impediments to trade. In Africa, this should also 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—for example in the West African Economic and Monetary Union (WAEMU) and the Customs Union for Eastern and Southern Africa (COMESA)—and is encouraging the harmonization and simplification of complex and overlapping sub-regional 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 a process of deeper regional integration—the ultimate aim of the new African Union.

13. Implementation of the target for the industrial countries to provide 0.7 percent of GNP in official development assistance (ODA) should be seen as an investment in peace and prosperity throughout the world. With a commitment to meet this target during the present decade, from today's average level of 0.24 percent of GNP, the increase in the first year alone would amount to over US$10 billion—the magnitude Kofi Annan has 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—it is alarming that only one fifth of total ODA flows now go to the least developed countries.

14. Debt relief also forms an integral part of a comprehensive concept for poverty reduction. The IMF and World Bank have spearheaded an effort under the enhanced HIPC Initiative that has already provided $25 billion of debt relief to 19 countries in Africa, cutting their debt service-to-exports ratio by about one half.¹ HIPC debt relief provides annual budgetary savings for these countries varying between 1 and 2½ percent of GDP, allowing significant increases in pro-poor spending. I do think it is in the interest of HIPCs themselves to track effectively the use of the resources released by this initiative, to demonstrate to their people—and to the donor community—that they are being put to good use for poverty reduction. 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 post-conflict assistance. I also welcome the decisions by G-7 and other donor countries to provide further relief by forgiving 100 percent of their bilateral claims in the context of the HIPC initiative. But we also need to be clear that debt relief is not a panacea. Credit is and will remain an indispensable element for economic development, and that is why, 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 to create sound domestic financial sectors and, eventually, integrate into international financial markets.

15. Mr. Chairman, the IMF is cooperating actively in preparations for the Conference on Financing for Development, and we look forward to its success. The Secretary-General's report to the Preparatory Committee and the Zedillo report are good inputs toward a productive outcome. And I am confident that the FfD Conference can make a real difference for poverty reduction in Africa, and in the world as a whole, by concentrating in two areas. The first is to identify gaps in the institutional framework to fight world poverty, while making the most of existing mechanisms. And the second is to help build a wider public constituency, especially in the advanced economies, for necessary actions on trade and aid.

16. I also remain convinced of the need for a concrete, constructive, and transparent system for monitoring progress and coordinating our activities toward the achievement of the International Development Goals. Jim Wolfensohn and I are already discussing a general approach along these lines with Kofi Annan. But time is passing, and we need to make faster progress. The PRSP process is gathering important momentum, and should be used as the basis for monitoring poverty-reduction efforts by individual poor countries. The OECD is working on a monitoring process for the delivery of support by the major industrial countries—in areas such as market access, aid, debt relief, and capacity-building. Beyond this, there is still a need for an overall framework and allocation of responsibility, as well as mechanisms to monitor other dimensions of international support, such as the control of arms trade and narcotics trafficking. And of course, the United Nations is a natural forum for an overall assessment.

17. In closing, I do not want to underestimate the magnitude of the challenge we all face in promoting sustained development and poverty reduction in Africa. But the emerging African vision and work program provide an opportunity for a decisive step forward. We cannot afford to miss this chance. The IMF is part of the UN family. And we are committed—based on our mandate and expertise—to working closely with all of you to make this vision a reality.