Speech

Breaking the Cycle of World Poverty -- Remarks by Horst Köhler

February 26, 2001

I would like, first, to thank Gordon Brown and Clare Short for their initiative in organizing this conference. Of course child poverty is only one dimension of the broader problem of world poverty. But it challenges us at a fundamental level. The ways we nurture and equip the children of the world will shape the world of tomorrow.

We are united today by our belief that widespread poverty in the midst of global prosperity is both unsustainable and morally unacceptable. We agree that world poverty is the paramount challenge of the 21st Century. It is right that United Nations conferences have established concrete goals for the year 2015, in the areas of education, health, environmental sustainability, and poverty reduction. Collectively, their aim is to break the cycle of world poverty in this generation. The IMF is committed to playing an active role in this effort, reflecting its specific mandate and expertise. We are part of the UN family. And while the international development goals are ambitious, I believe that it will be possible to achieve them if there is a concerted effort by poor countries, developed countries, and the international institutions.

The UK White Paper on International Development outlines a practical and comprehensive approach to reducing world poverty. I welcome this clear commitment by a major shareholder of the IMF to take responsibility and show leadership in breaking the cycle of world poverty. And I appreciate, especially, that the White Paper is clear that this needs to rest on two pillars: action by poor countries to help themselves, and strong support from the international community.

Indeed, one of the strongest impressions I took away from the joint discussions that Jim Wolfensohn and I had last week with 22 heads of state in sub-Saharan Africa, was that that these leaders increasingly recognize their own responsibility to address home-grown causes of poverty.

• First and foremost, there is an awareness in Africa that any effort to reduce poverty must start with—and build upon—peace, democracy, and good governance at home. Lack of respect for the rule of law, armed conflict, mismanagement, and corruption are fundamental obstacles to growth and development. And these are, especially, the enemies of the poor and powerless.

• Second, there is a recognition that the prospects for rapid growth—which is indispensable for reducing poverty—will depend on the ability of these countries to unlock the creative energies of their people. In support of this process, African leaders know that there is no alternative to integration into the global economy. This approach requires investment in human capital and infrastructure, as well as the right economic policies and institutions. It requires, especially, an economic climate that encourages private sector investment.

• Third, there is an increasing awareness among African leaders that stronger regional cooperation and integration is indispensable to increase the competitiveness of their economies. And this can also provide important mechanisms for resolving regional disputes and sharing the cost of large infrastructure investments.

I am encouraged by the indications that there is an emerging, collective leadership in Africa. In particular, the concept of a "Millennium African Renaissance Program" that is being developed by Presidents Mbeki, Obasanjo, and Bouteflika is emerging as a distinctly African vision and work program for the future of Africa. It is aimed at achieving sustained economic growth of at least 7 percent a year, at doubling Africa's share in world exports in the next five years, and at accelerating the achievement of the international development goals. Jim Wolfensohn and I have clearly expressed our commitment to support this African vision and work plan.

I see the crucial test for the credibility of international support for poverty reduction in the issue of opening markets for poor countries, and in the delivery of the promise of higher levels of official development assistance. Increased access to markets is still the best way for poor countries to share in world prosperity. Trade restrictions are a direct blow to their efforts to help themselves. The major industrial countries have a duty to take the lead in jump-starting a new round of multilateral trade negotiations under the WTO. And to give special assistance to those with the greatest need, rich countries should give the world's poorest countries free access to their markets. To be meaningful, free access should cover the products that matter most to poor countries. Agricultural exports are crucial for them. And free access must also provide better opportunities for exports of manufactured goods, as poor countries begin to diversify and develop their economies.

In addition, more than 30 years ago, United Nations adopted the proposal of the Pearson Commission, that the major donors should provide at least 0.7 percent of GNP in official development assistance. While the OECD and many of its members have used this target ever since as a point of reference, in practice bilateral aid flows from OECD countries fall short of this target by about $100 billion a year. Only Denmark, the Netherlands, Norway, and Sweden have met the target and, for most countries, bilateral aid flows have been declining over the past decade. The proposal in the White Paper, for a phased increase in UK development assistance from 0.26 percent of GNP to 0.33 percent over the next two years, is to be applauded. But it should be only a start.

The United Nations will be holding a conference on Financing for Development in the spring of 2002. In anticipation of this event, I would gladly join in a campaign to mobilize public support for action by all OECD governments and parliaments to reach the 0.7 percent of GNP target within this decade. This would mean increasing development assistance of OECD members by about .05 percent of GNP annually over the next 10 years—or by roughly $10 billion a year at today's prices. At the Financing for Development conference, the first $10 billion increase should be dedicated to urgent health care requirements—including a comprehensive program of AIDS prevention and treatment—and to improving access to information and communications technology. These are the areas that African leaders have identified as priorities for immediate action. If developing countries can demonstrate that additional aid will be well spent, I am sure that citizens in advanced countries will agree that it is needed.

This brings me to the role of the IMF in the fight against world poverty. At last year's Annual Meetings in Prague, the IMF's 183 member countries stressed that now, more than ever, globalization requires cooperation, and it requires institutions that organize this cooperation. I want to re-emphasize: the IMF intends to be a part of the workforce to make globalization work for the benefit of all.

To do this more effectively, the IMF is adapting to the lessons of experience and changes in the global environment. We have learned that program countries cannot solve everything at the same time. We are streamlining the IMF's conditionality, to help pave the way for greater national ownership and sustained implementation. And the IMF has to refocus. This means that it should concentrate on macroeconomic stability and on the financial sector, which are essential for sustained growth. The IMF will help countries to build sound financial systems and to promote international financial stability as a global public good. And it must help countries to take advantage of the opportunities of global markets. But recent events make it clearer than ever that the IMF must work harder to find answers to the risks of disruptive volatility in international capital flows.

Within this new focus, the IMF must be part of an integrated concept of the international community for dealing with globalization. This should be a concept that recognizes that the social dimension cannot be separated from the economic dimension. It must welcome the diversity of nations and give them scope to pursue their national interests and responsibilities—while preserving their cultural identities. And our concept must also respond to the fact that all humanity shares one world. This means that the poor must be full partners and participants, but also that poverty is an issue for everyone. Operating within that concept, a refocused IMF must be aware of issues outside its core areas of responsibility, and work in a complementary fashion with the organizations primarily responsible for those issues. In this regard, I greatly appreciate the spirit of close partnership I have experienced during these past months in working with Jim Wolfensohn and his colleagues at the World Bank.

Clearly, debt relief is an important part of a comprehensive concept to reduce poverty. The IMF and World Bank have been spearheading the enhanced HIPC Initiative, which brought debt relief to 22 poor countries during the past year. These 22 countries now stand to receive about $34 billion of debt relief, which will help to reduce their debt to one-third of what it was at the start of the process. I also welcome the decisions by the United Kingdom and a number of other countries to forgive 100 percent of bilateral claims in the context of the HIPC Initiative. But I would caution against viewing debt relief as a panacea. Credit is an indispensable element for economic development. That is why, in the longer run, it will be crucial for poor countries to win the trust of private investors in their ability and willingness to repay what they borrow. And that is why they need to make good use of the breathing space that is being provided now from their debt service obligations, to make decisive progress in their efforts to reduce poverty.

The fight against poverty requires courage, commitment, and prolonged effort. That is why it will succeed only if it is based on a poverty reduction strategy designed by the country itself, rather than one that is imposed from outside. This is the philosophy behind the PRSP process, which the IMF and World Bank helped to initiate just over a year ago. The PRSP process is a way for a country to draw on the best available knowledge in the design of its poverty reduction strategy—by involving the private sector, civil society, and the poor themselves, as well as interested donors. While the track record is very short, the PRSP process has already brought positive results. Poverty reduction strategies are targeting improvements in access to education, health care, and basic infrastructure. During the first two years of PRGF operations, spending on education and health is expected to rise by about 1 percent of GDP. We know that this is still far from satisfactory. But the issue is firmly on the agenda of the international institutions. Still, let me be clear: the needs are enormous and, even in the best of circumstances, resources and implementation capacities will be constrained. Countries will not be able to avoid making hard choices.

Our discussions with African leaders have confirmed for me that lack of capacity, rather than lack of political will, is often the main obstacle to programs for growth and poverty reduction. It is clear that we need to give a higher priority to capacity-building. We need more resources for technical assistance, and we need to make existing technical assistance more efficient. What I heard during our joint visit will certainly also help the IMF and World Bank to prioritize and coordinate their own activities. We want, for instance, to concentrate even more on improving public expenditure management and financial sector reform. And we want to make an extra effort to rebuild essential capacities for macroeconomic management in countries where these have been depleted by armed conflict and AIDS.

As they grapple with issues of governance and conflict, poor countries deserve respect and a sense of true partnership with the international community. They welcome even-handed assistance in ending regional conflicts. They want serious, concrete international action to control narcotics trafficking, the sale of "conflict diamonds," and arms trade—especially small arms. And they have rightly emphasized that wealthy countries, which are concerned with these issues and eager to fight corruption, would do well to look to the activities of their own nationals. I think it is clear that the arms-producing countries can and must do much more to control arms trade.

Finally, ladies and gentlemen, I would like to reflect on the results of this conference. Gordon Brown and Clare Short have brought together institutions and people who are deeply committed to reducing world poverty. It would be a tragedy if we left this meeting and went back to business as usual. I think it is crucial to establish a cooperative mechanism for monitoring progress and coordinating our activities to meet the international development goals for 2015. This means that we need to allocate responsibility for actions to meet these goals at the country and regional level, and at a global level, and agree on ways to monitor performance. I believe that the PRSP process is gathering important momentum, and can be used as the basis for monitoring progress within individual countries. We would also need a monitoring process for the delivery of international support—in areas such as market access, aid, debt relief, capacity-building, and control of arms trade. Out of these elements could come a framework for accountability in the effort to achieve the international development goals. The appropriate forum for an overall assessment would of course be the United Nations. The IMF would be prepared to participate actively in a concrete, constructive, and transparent monitoring process.

In this and other ways, we need to really focus on the role our organizations can best play in the fight against poverty, and keep that thought at the forefront of our activities throughout the year. In the words of Dean Hirsch, the President of World Vision, we—poor countries, donor countries, international organizations, and civil society—must continually ask the question, "How does what we are doing affect the poor?" And if we do not like the answer, we should change what we are doing. I am confident that in this way, we can and will win the fight against world poverty, and build a better future for today's children.