Speech

Address by Michel Camdessus

July 9, 1996

President Biya, Presidents, your Excellencies, ladies and gentlemen.

I would like to thank you for giving me the honor of speaking to you today, as well as for providing me with this opportunity to express my gratitude to all of the African Heads of State for having unanimously re-elected me to another term as Managing Director of the IMF. I am deeply honored by your confidence; moreover, it instills in me the duty to continue striving alongside all of you for progress and development in African countries. I am all the more pleased to join your discussions because a major theme of this year's agenda—Africa's recent accomplishments and the challenges still to be overcome to ensure sustained growth and development throughout the continent—is fully in keeping with the reflection that your repeated expression of confidence prompts me to undertake in order to define the joint action that we should take in the years ahead.

The reason why I have accepted this new term is because there is still so much work to be done, and because I firmly believe in Africa, its future, and the ultimate success of our joint efforts.

Africa's recent progress

Let me tell you why I believe that success is possible. The situation in Africa has improved. Of course, I have no intention of overlooking the poverty and all the deficiencies that we still face. And of course, I am well aware that this does not apply to the countries ravaged by war, fratricidal conflicts, and serious political upheavals. Nevertheless, it is clear that an economic recovery began in 1994. Real GDP growth in sub-Saharan Africa is expected to average roughly 5 percent in 1996-97, compared with only 1 percent in 1991-93. And at last, real per capita GDP growth will be clearly positive for the first time in many years.

This turnaround in economic performance is particularly striking in the case of the CFA franc zone countries, which since the early 1980s had been sinking deeper and deeper into poverty. In 1991-93, for example, average per capita GDP in the CFA countries fell by about 2 percent per year. In 1996, however, the movement has been in the opposite direction, and average per capita GDP is expected to rise by 2 percent.

It is also encouraging that this growth has become increasingly widespread. Just five years ago, it was a privilege shared by few, as only 20 countries enjoyed positive per capita GDP growth. In 1996, that number has doubled.

The "Afro-pessimists" will tell you that this recovery will be short-lived—that it is readily explained by an uptick in the terms of trade due to shifts in commodity prices. How wrong they are. According to the most rigorous studies, Africa's stronger growth is explained not by higher commodity prices, but by the fact that an increasing number of countries have undertaken courageous adjustment and structural reform programs. This is the key to Africa's progress. What did these programs involve? Reducing public sector deficits to a level such that they could be financed without fanning inflation or building up excessive levels of debt; maintaining monetary stability, while establishing and maintaining realistic exchange rates and liberalizing prices; mobilizing domestic savings and pursuing steady trade liberalization; and freeing the productive energies of the economies through comprehensive structural reform. Finally, as Melles Zenawi, your outgoing Chairman, told me yesterday evening, these programs have been successful because governments have made them their own. They have done so not because such programs are a condition for international support, but because they know that they are good for their people.

In embarking on this path, more and more of your countries have become part of the "silent revolution"—the change in economic thinking and approach that has transformed so many countries in every region of the world from inward-looking, heavily regulated, undercapitalized countries into stable, outward-looking ones that are rightfully proud of their dynamism and growth. What has prompted these countries to take this route? The clear recognition that "alternative strategies" based on indebtedness, government deficits, excessive protectionism and interventionism are futile; a strong desire to get their economies moving again for the good of their own people; and a keen sense of pragmatism regarding what it takes to achieve this.

Yet despite the progress that has been made, the pace of economic recovery is still far too slow to reduce poverty in a significant way. How then do we negotiate the transition from recovery to development and a lasting increase in the standard of living throughout the region?

This is the major question. I have discussed it all over the world and with many of you, in particular. And although, after 10 years of service, I believe I know at least part of the answer, I have not found it in treatises on economic theory. Rather, I have found it in interactions with you, aimed at ferreting out and publicizing the solutions that work, and understanding why failures occur so that they can be avoided in future. And today, it is precisely the conclusions gained from these interactions and reflections that I will present to you. They involve measures that you would be likely to take on your own initiative, because they are in the clear interest of your countries. However, it is also clear that your burden will be lighter and your success more rapid if you can count on the support of the rest of the world. Moreover, it is in the best interest of the rest of the world to support you—over and above any consideration of human solidarity, as essential as that is. This common interest creates a vast ground on which a new partnership can be launched. I note that you yourself have said the same, Mr. Chairman, and the same words were adopted by the G-7 Summit in Lyons in which I had the honor of participating.

As I said in Lyons and will stress again today, what is needed now is a new tripartite partnership among the poorest countries, most of which are located in Africa, the more economically advanced countries, and the multilateral institutions. The aim of this partnership is clear: to enable all developing countries to integrate themselves into the world economy, to escape marginalization, and to benefit from the opportunities of globalization, while avoiding its risks. However, this partnership can only succeed if each of the three partners accepts all of the duties and obligations that such a partnership implies.

The agenda for Africa

To each his due.

Let me begin with the responsibilities of developing countries. Africa's responsibility is to ensure that its successes become widespread. What are the components of this strategy for your own success? I shall mention four.

First, it is clear that fiscal adjustment and the elimination of inflationary deficits are not enough; the quality of expenditure is every bit as important. Unproductive outlays, and especially military spending, must be reduced so that more resources can be devoted to essential investments in health, education, agriculture, social safety nets, and basic infrastructure. Do you know what has been the experience in IMF programs, which have sometimes been criticized for not paying attention to social concerns? Military spending has dropped off sharply, and social spending has risen by even greater proportions.

Second, it must be recognized that structural adjustment is no instant cure that will get the patient back on his feet in short order, enabling him to revert to the bad habits that caused his problem in the first place. Rather, in this constantly changing world it is a permanent discipline. Agricultural sector reforms, trade liberalization, public enterprise restructuring and privatization, and financial sector reforms must add up to a critical mass of reform that lightens the heavy load of domestic regulation and promotes greater competition, efficiency, and transparency. This perseverance in structural adjustment is vital if the economy is to react quickly and more effectively to the new trends and opportunities arising in the world economy.

Third—and here we come to the very heart of your responsibilities as heads of state—there is no sustainable development without sound, responsible management of public affairs. This is a universal truth. This means first and foremost that governments must demonstrate that they have no tolerance for corruption in any form, and that they manage public funds frugally.

Beyond this, governments must fulfill those tasks that they are best equipped to carry out, notably: maintaining public safety, protecting property rights, providing reliable public services, establishing a simple and transparent regulatory framework that is equitably enforced, and guaranteeing the professionalism and independence of the judiciary.

At the same time, "good governance" must also aim at spreading the benefits of growth more widely—by establishing well-targeted social safety nets to combat poverty and marginalization and by pursuing policies that promote greater equality and income distribution.

Fourth, the conduct of economic policy must be firm and steadfast, if economic agents are to be convinced that progress is irreversible and that the country is indeed integrating itself into the world economy. Governments can help foster this confidence by demonstrating greater transparency, for example, through the timely publication of reliable economic and financial data and Policy Framework Papers—the documents developed jointly with the World Bank and the IMF that set out national policy objectives and the measures to be taken to achieve them.

In this connection, I would add that national leaders must take the initiative to broaden the dialogue within their countries, so that the public understands and supports the adopted policy framework. Indeed, the credibility of economic policy hinges on there being a sufficient domestic consensus in favor of reform so that private investors will have reasonable confidence that the essential policy conditions for economic stability and growth will endure. On this subject, Presidents, allow me to share with you the conviction I have acquired during the 10 years I have spent in your service. The countries that will win the development race in the 21st century are not those that are the richest in raw materials, but rather those that are perceived as having managed public affairs and assured economic security for domestic and foreign enterprises most effectively.¹

The agenda for Africa's partners

All that I have described requires an enormous effort on the part of African countries. What should their partners—the industrial nations, other countries in a strong economic position, and the multilateral institutions, including the IMF, World Bank, African Development Bank, the United Nations and the OAU—do to encourage these countries to continue on this path toward sustainable development? Here again, the responsibilities are immense.

First, the largest industrial countries have a special responsibility to promote world economic growth and stability by pursuing sound economic policies in their own countries, by adjusting the structures of their economies, and by cooperating among themselves to minimize potential sources of instability in the international economy—whether in the foreign exchange markets, or the banking sector, or wherever else problems could arise.

Second, industrial countries—and indeed the rest of the world—must open their markets to products in which developing countries, including those in Africa, have, or are likely to develop, a comparative advantage. I am thinking in particular of agricultural commodities, mineral products, and basic manufactures.

Third, donor countries must strengthen their bilateral assistance to countries that have demonstrated a commitment to reform. This implies several things. To begin with, it means reversing the declining trend in Official Development Assistance (ODA). As important as private investment is for sustained growth, countries still need a minimum amount of public investment in physical and human capital in order for private investment to take root, and bilateral assistance is an essential source of financing for such investment. As I said in Lyons, industrial countries must make a major effort to help increase its flow. For social and human investments, grants are the appropriate financing formula. The industrial countries must first arrest the decline of ODA and then restore its upward trend. The lamentable experience of the two last years, when ODA has fallen at a time when there have been "peace dividends," must be offset. At the same time, bilateral aid needs to be provided more rapidly, to be better coordinated, and more closely related to individual country needs. And bilateral assistance needs to be provided within the framework of a comprehensive program of macroeconomic stabilization and structural reform.

Fourth, industrial and other economically more advanced countries must ensure that the multilateral institutions have the necessary resources to provide this framework for adjustment and otherwise to fulfill their respective roles.

So, four points for industrial countries, just as you saw for developing countries. But what about the multilateral institutions? Let's start with the IMF!

There are currently 31 of your countries with IMF programs in effect or under negotiation. Our ability to continue promoting and supporting sound policies in Africa depends in large part on the continuation of ESAF, the Fund's main tool for assisting our poorer members. As you may know, we have been working hard to ensure the long-term future of ESAF, even if this should require using a small fraction of the IMF's gold holdings. In Lyons, I was encouraged by the G-7's commitment to continue ESAF as the centerpiece of the IMF's support for the poorest countries, and its invitation to consider ways of "optimizing its reserve management in order to facilitate the financing of ESAF." I am hopeful that agreement will be reached on how to finance ESAF beyond the year 2000 by the time of the Bank-Fund Annual Meetings in October.

At the same time, we are continuing to work with the World Bank to finalize a framework for action to resolve the external debt problems of the heavily indebted low-income countries (HIPCs). The objective is to reduce these countries' external debt burden to sustainable levels through a concerted effort on the part of all major creditors to provide debt relief beyond currently available mechanisms. It has been agreed in principle that the Fund will contribute to this initiative via ESAF, and our Executive Board has recently discussed the modalities of such a contribution.

We are now working with our colleagues from the World Bank to flesh out key elements of the current proposal, which will be presented to both our Boards in early September. We are also consulting with the other multilateral institutions concerned, as well as bilateral creditors and donors, regarding their possible contributions to this initiative. In Lyons, G-7 leaders supported this approach and called for Paris Club creditors to provide debt relief beyond the existing Naples terms for the world's poorest countries. I welcome these promising Lyons terms, which could become a centerpiece of this new partnership.

But IMF assistance is only a small, albeit essential, portion of the necessary external assistance to Africa. In particular, there is a tremendous need to increase the volume of investment in human capital and social infrastructure—in keeping, of course, with countries' absorptive capacity. This will require not just bilateral assistance, but adequate financing for IDA, the World Bank, the African Development Bank, and the African Development Fund.

I might mention that there is also considerable scope for collaboration among international institutions, as well as with bilateral donors and creditors. One good example is the UN Special Initiative on Africa, launched under the leadership of Secretary-General Boutros-Ghali, through which a number of multilateral institutions, including the IMF, are seeking to help African countries become full participants in the global economy. The IMF is contributing to this effort by helping to establish the macroeconomic framework required to underpin the implementation of the social and sectoral programs carried out by other members of the UN system over the life of the Initiative.

Finally, we know that, in their quest for economic development, too many African countries have suffered from civil war on a catastrophic scale, and a few are still in the grips of serious conflicts. Thus, it is essential that the international community do everything in its power to help avoid such conflicts and to facilitate reconciliation and rapid reconstruction. I would like to commend the OAU for its efforts in this area. The IMF, for its part, has expanded the scope of its emergency assistance procedures to include "post-conflict" situations, so that it can respond with greater speed and efficiency when the need arises.

The OAU has a remarkable opportunity this year to help support the transition from economic recovery to sustained growth and development by providing the key elements of an African response to the Lyons Summit's offer of a new partnership for development. To begin with, the OAU can encourage its member countries to strengthen macroeconomic policies, embrace more comprehensive structural reforms, and improve "governance" in the knowledge that stronger economic performance on the part of individual OAU members will ultimately improve the economic prospects of the region as a whole.

And once these fundamentals are in place, other initiatives are more likely to bear fruit. I am thinking in particular of the OAU's longstanding interest in encouraging regional integration. Indeed, OAU members could spur regional economic activity and attract more foreign capital by increasing the linkages among their economies. The list of promising initiatives currently underway or in preparation in various parts of the continent is too lengthy to mention here. In addition, many small African countries could benefit from regional solutions to the provision of public services, which could be more cost effective and provide better service than national programs. Likewise, the harmonization of domestic policies—such as common tax and tariff systems, common business codes, and regulatory frameworks—would facilitate cross-border transactions, create larger areas of stable economic conditions, and gradually establish a framework within which regional free trade could develop—consistent with comparative advantage and without increased outward protection.

If this OAU Summit were to define a strong joint African strategy so as to seize development opportunities in a context of globalization, then it would indeed provide a welcome response to the offer of a new partnership made in Lyons.

Mr. President, on behalf of the OAU, you have offered a new partnership to the world. You got an early "yes" from the G-7. Today, it is my honor and privilege to give you the "yes" of the International Monetary Fund, and I am sure that I do so on behalf of all the other multilateral institutions. Let us all—bilateral donors and creditors, multilateral institutions and the countries of Africa—make this partnership a new, decisive opportunity for Africa.

1. This first part of the speech was delivered in French.