Press Release No. 03/111

Press Release: IMF Managing Director Horst Köhler Visits Four African Countries and Addresses the African Union Heads of State Meeting in Maputo

July 11, 2003

International Monetary Fund (IMF) Managing Director Horst Köhler attended in Maputo on July 10-11 the second African Union (AU) Heads of State meeting at the invitation of President Joaquim Chissano of Mozambique.

Mr. Köhler's participation in the AU Heads of State meeting concluded a four-country visit in Africa that included Ethiopia (July 6), Kenya (July 7-8), Madagascar (July 9), and Mozambique (July 8-11). During the visit Mr. Köhler held discussions with Prime Minister Meles of Ethiopia, President Kibaki of Kenya, President Ravalomanana of Madagascar, President Chissano of Mozambique, as well as governments, parliamentarians, and civil society. Each of these leaders expressed a strong desire for the IMF to remain closely engaged in supporting their economic-reform and poverty-reduction programs.

With regard to his bilateral discussions, Mr. Köhler said:

"In Mozambique, I commended President Chissano on the progress made in improving Mozambique's economic and social conditions. The implementation of sound macroeconomic policies and an ambitious structural reform agenda under Fund-supported adjustment programs has enabled Mozambique to enjoy a sustained period of strong growth while inflation has been significantly reduced. The country's international reserves are now at healthy levels and the external debt position is sustainable. Significant advances have also been made in delivering, in consultation with civil society, the government's poverty-reduction objectives in the areas of health and education. Nevertheless, more remains to be done, and it was agreed that the financial system needed to be strengthened, the regulatory framework streamlined, the public sector restructured, and the judicial system improved. These reforms, which are also supported by the donor community, will be essential to diversify the economy and achieve a significant reduction in poverty.

"In Ethiopia, I met Prime Minister Meles and his economic team. I welcomed the decisive actions the government has taken to deal with the immediate effects of the drought. The international community has provided critical assistance in this undertaking, and the government has decided to adopt a comprehensive program to ensure food security in the future. Great strides have been made in tackling poverty in one of the poorest countries in the world, but we agreed that many challenges remained. The government was implementing a poverty-reduction strategy, but its success required accelerating the pace of structural reform, particularly in the financial sector, and improving the investment climate as a basis for job and income creation. For our part, the Fund will continue to provide financial support for Ethiopia's poverty-reduction efforts and, together with rest of the international community, remains committed to providing substantial debt relief so that Ethiopia can achieve a sustainable external debt position as quickly as possible.

"In Kenya, I discussed with President Kibaki and senior government officials, as well as opposition leaders, the formidable challenges facing the country. I expressed strong support for the decisive way that these challenges were being addressed in the context of a broad-based consultative process. In particular, there was agreement that fiscal prudence was needed and that government spending should continue to be restructured in favor of important social and economic sectors. I also congratulated President Kibaki on the strong measures his government was taking to address corruption. These actions should be supported by reforms in the areas of finance, trade, and privatization. I am hopeful that discussions on Fund financial support for Kenya's development strategy can be concluded in the near future.

"In Madagascar, I had extremely fruitful discussions with President Ravalomanana and his economic team. I expressed the Fund's continued support for Madagascar's growth and poverty-reduction strategies. Following the crisis last year, which has had severe consequences for the economy and the more vulnerable, the government was now working with vigor in putting the economy back onto a sustainable growth path. Critical to this effort was the government's commitment to improve transparency and governance at all levels of public administration. This would significantly enhance the environment for private sector activity and increase the resources available for the government's development and anti-poverty programs."

In concluding his trip Mr. Köhler said:

"The African continent has made considerable progress over the last ten years in restoring macroeconomic stability, which is a necessary condition for sustainable growth and poverty reduction. But even maintaining this relatively good performance will not suffice to halve poverty by 2015, as envisaged in the Millennium Declaration. Africa has the potential for achieving higher growth - as much as 7 percent per year. This is an ambitious goal that will require strong efforts on all sides; in particular, creating the domestic conditions for growth through sound policies and ensuring that the international environment is supportive of Africa's integration into the world economy.

"The IMF strongly supports NEPAD, with which Africa assumes responsibility for its own transformation, renewal and development. What is needed now is decisive implementation of this initiative. The country-driven and participatory Poverty Reduction Strategy (PRSP) approach has become widely accepted as the operational framework at the country level. Country programs supported by the Fund's concessional lending facility, the Poverty Reduction and Growth Facility (PRGF), are derived from countries' PRSP and we are working to ensure a better alignment of the PRSP and PRGF. We are also providing technical assistance, which aims at increasing the capacity of member country governments. Africa is already the largest recipient of technical assistance from the IMF. But we will further intensify our efforts. The regional capacity building centers that we recently established in Dar es Salaam and Bamako (AFRITACs) are a first step in this undertaking.

"I believe that to ensure the success of NEPAD, there is a need to better define the prioritization of reforms that countries undertake. Macroeconomic stability and good governance must underpin any development strategy. Beyond that, countries should concentrate on enacting reforms that will raise living standards in rural areas, where there is the greatest concentration of poverty. These must be buttressed by efforts to modernize and diversify the rest of the economy, in particular to reduce the hurdles countries face in developing value-added processing industries as part of their export base. African governments must also undertake reforms to improve the investment climate: in public administration, legal and judicial systems, and - more generally - enforce the rule of law. Greater use of land titles as collateral for bank financing would boost private sector activity and job creation in many African countries. Government also plays an important direct investment role, especially in providing the necessary infrastructure for private investment and development. African countries must also make better use of the regional cooperation frameworks that exist, such as by aggressively reducing significant tariff and non-tariff barriers between countries.

"The international community must help those African governments that are undertaking sound policies in the pursuit of sustained growth and poverty reduction. I continue to urge the developed countries to live up to their long-standing commitment of providing 0.7 percent of GNP for development assistance, and this assistance should be given as far as possible on grant terms. But the real hope for sustained growth in Africa lies not in aid, but in trade. Developed countries must, together, significantly reduce trade-distorting subsidies and improve market access for developing country exports. In September, the World Trade Organization will hold its Ministerial Meeting in Cancún, which will be the occasion for the advanced economies to match their words with deeds. This will also be an opportunity for Africa to seize the initiative and articulate a common position, based on a well-prepared negotiating strategy."