Speech

Promoting Freer Trade: The IMF's Perspective -- Remarks by Michel Camdessus

December 9, 1996

It is a great pleasure to address this first Ministerial Conference of the World Trade Organization. I would like to take this opportunity to congratulate the WTO and its members on this milestone in their efforts to promote freer trade and uphold the multilateral trading system.

The international community has a historic opportunity here. What can we do to help make the most of this opportunity? I think that each of our institutions and each of your countries has a critical role to play.

The roles of the IMF and the WTO are complementary. As stated in the IMF Articles of Agreement, one of the primary purposes of the Fund is "to facilitate the expansion and balanced growth of international trade." We do this in several ways.

First, through our surveillance over members' economic policies and our assistance in the design of Fund-supported programs, we promote the sound macroeconomic policies, appropriate and stable exchange rates, and structural reforms that must underpin trade liberalization.

Second, in keeping with our mandate "to assist in the establishment of a multilateral system of payments in respect of current transactions," we have encouraged our members to eliminate restrictions on all current account transactions. To date, 134 of our 181 members have done so, while over 50 countries have also taken the further step of eliminating restrictions on capital transactions. Careful progress in this direction is attracting increased attention in our policy dialogues.

And third, we encourage countries to adopt outward-oriented policies—that is, policies that do not discriminate between production for the domestic market and for export, or between purchases of domestic and foreign goods. Moreover, programs we support frequently include measures to increase the outward orientation of the economy in keeping with members' obligations to the WTO.

But as we all know, reforming economies and dismantling protection is a painful process with, at times, at least in the short and medium term, harsh social consequences. This is why the enhanced and sound competition we want to promote through trade liberalization can only be beneficial if accompanied by appropriate social policies at home and credible instruments of multilateral solidarity. Time is too short for me to expand on this here, but let me mention that the IMF has adapted its financing instruments to support members' adjustment and reform needs. In particular, the Extended Fund Facility, and the Enhanced Structural Adjustment Facility for low-income members, have allowed the IMF to support medium-term programs with greater emphasis on structural adjustment, including trade liberalization. At present, there are 62 Fund arrangements in place, of which 32 are ESAF programs. Support for the poorest, who are particularly vulnerable to the risk of marginalization, must be made permanently available and effective. This is why we are currently working to finalize ESAF's future financing, so that the IMF will have concessional resources available on a permanent basis to support the reform efforts of our poorest members. Special ESAF operations will also be the vehicle for the IMF's contribution to the joint initiative with the World Bank to reduce the debt burden of heavily indebted poor countries whose reform efforts cold not otherwise be expected to result in a sustainable debt position.

Meanwhile, what has been the IMF's experience with trade liberalization? In our work with 181 member countries, we repeatedly see that opening economies to external trade helps get domestic prices "right," so that market signals improve domestic resource allocation, increase efficiency, and create conditions under which domestic firms can compete successfully in foreign markets. We also see that countries that open their markets tend to attract additional resources and grow more rapidly. This creates a virtuous circle of trade, investment, and growth that greatly facilitates achieving other development policy objectives, such as the reduction of poverty and the development of human resources. Countries such as Chile and a number of ASEAN countries have followed this approach, and their level of development is now considerably higher than other countries that began in similar circumstances but pursued more inward-looking policies. More recently, countries such as Bolivia, Peru, the Philippines, Poland, and Uganda have made trade liberalization an important part of their adjustment and reform strategies, and these policies are paying off in lower inflation, higher investment, and stronger growth.

But there is the other side of the coin. Just as developing countries and countries in transition must adopt outward-oriented policies—both for the sake of their own economic development and integration into the global economy and for the greater prosperity of the global economy—so must industrial countries. And not just to provide greater market access to developing and transition countries, although this is essential, but also to increase their own efficiency so that they, too, can take advantage of new trade opportunities in the global economy. In many cases, this process could be greatly facilitated if industrial countries accelerated their own structural reforms, especially in labor markets. More than ever in globalized markets, each country, but especially the main trading nations, has an inescapable responsibility to ensure global prosperity through the openness of its economy.

Of course, it is never easy to make such adjustments in any country. All countries face temptations to try to preserve the status quo by maintaining existing barriers or creating new ones—always said to be just temporary. Yet we all know that protectionism is self-defeating. And while it is important to provide a social safety net for the most vulnerable segments of the population, attempts to preserve an uncompetitive sector or enterprise are in the long run doomed to failure—and in the meantime, impose unjustified costs on the taxpayer and the consumer. Let me briefly recall that the IMF's success in promoting the liberalization of the world's payments system is in no small part due to the emphasis it placed from the outset on liberalization on a multilateral and nondiscriminatory basis. Perhaps it is now time for the international community to renew its pledge to ambitious trade liberalization on a nondiscriminatory basis that brings all countries into the liberalization process.

This brings me back to the first Ministerial Conference. Considerable progress has been made on trade liberalization, but there is still much more to be done in such areas as agriculture, textiles, and services. In fact, with the globalization of the world economy, trade has become more complex, and trade liberalization, more challenging. We are fortunate to have the forum and machinery established under the WTO to help move the process forward. The IMF, for its part, will join in this task through its surveillance and support of members' adjustment and reform efforts. I am pleased to note that our joint efforts can now proceed in the legal framework of the Cooperation Agreement that Director General Ruggiero and I will sign here in Singapore. In addition, I understand that the World Bank's Executive Board has approved the WTO/World Bank Cooperation Agreement. Thus, the stage is set for the WTO, the Fund, and the World Bank to work together toward the implementation of our complementary objectives. I have no doubt that our member countries will encourage our efforts and play their full part in helping to achieve these fundamental objectives for the common good of mankind.