Speech

East AFRITAC Inauguration Ceremony, Keynote Speech by Eduardo Aninat, Deputy Managing Director, IMF

October 24, 2002

Your Excellency President Mkapa, Honorable Ministers, Ladies and Gentlemen:

1. This is an important day for Africa, the International Monetary Fund, the international community, and for all who truly care about Africa and her future. After so many months of relentless work by so many of you, we have finally arrived here, at the beautiful city of Dar es Salaam, for the opening day of the IMF's first regional capacity-building center in Africa, the East AFRITAC. I am honored to be here and proud of what has already been accomplished. Moreover, on behalf of the entire management of the IMF, I would like to express my sincere appreciation for all that has been accomplished in such a short time. I would also like to thank you, Your Excellency President Mkapa, and, through you, government and the people of Tanzania for agreeing to host this center, and for organizing this opening ceremony.

2. Indeed, the very fact that we can celebrate today the opening of the first AFRITAC is a tribute to a very close collaboration of many partners. First of all, that of the governments of the participating East AFRITAC countries: Tanzania, which hosts the center; Kenya, which provides facilities for the center's training activities; Eritrea; Ethiopia; Rwanda; and Uganda. The officials of these countries have worked very closely with Fund staff, donor partners, the African Development Bank, the African Capacity Building Foundation, NEPAD, and the World Bank. Since the IMF Executive Board's approval of this project in May 2002, the countries have prepared their own needs assessment plans, and discussed and prioritized them with partners at meetings in Nairobi, Paris, and recently in Washington D.C. Just yesterday, the steering committee, which is the center's guiding body, met for the first time, finalized the main rules of its operation, and laid out the work plan for the center.

3. On the occasion of this joyous day, I would like to share with you my thoughts on three issues:

• First, why is capacity building particularly important in Africa?



• Second, what can the IMF offer under its new Africa Capacity-Building Initiative?



• Third, what would make the AFRITAC centers truly work? In other words, what can we consider as the "factors of success," and what is the responsibility of the respective partners in this respect?

Strong domestic institutions are needed more than ever

4. Let me start with the first question: why is capacity building important, particularly in Africa? My answer is that strong domestic institutions are needed more than ever. I am deeply convinced that strong domestic human and institutional capacity is both a precondition to economic development and an "insurance policy" in cases of external shocks. First, as argued by the school of institutionalists, strong institutions are crucial in lengthening the economic agents' planning horizon and, therefore, the development of markets. In other words, without solid institutions, the future is less predictable and long-term planning therefore is very difficult. In countries where political instability is recurrent, or even in countries with political stability but short election cycles, strong institutions help governments resist steering off the path of good economic policies for the sake of short-term gains. The resulting more predictable policies help the development of smoothly functioning markets. Economists would say that strong institutions help solve the policymaker's time inconsistency problem.

5. Recent experiences, for example in Latin America, my home continent, have also taught us that strong institutions can be critical for a country to weather external shocks. It appears that Chile and Mexico have been able to withstand or at least limit the spillover of the Argentine crisis and Brazil's difficulties in no small measure thanks to their strong and independent institutions. They help guide policymakers toward adopting appropriate policies and contribute to maintaining private sector confidence—two key policy elements when facing external shocks.

6. Turning to Africa, I would highlight that here, strong domestic institutions are needed not simply to consistently implement good economic policies, but first of all, for countries to be able to design their own, homegrown, good economic policies. If the countries' policy frameworks are drawn up by others—and we have seen this happen often in the past—even the best of plans can fail if they are not internalized domestically. Therefore, domestic capacity building is an indispensable element for the formulation and implementation of a coherent government program, and, as a consequence, for the successful development of the country.

What can the IMF offer under its Africa Capacity Building Initiative?

7. I would like now to turn to the second question: What can the IMF offer to assist countries in their capacity-building endeavors. First, I would like to stress that our philosophy is to provide capacity-building assistance to develop the needed domestic stock of know-how, and not to substitute for the lack of local expertise. This is very important—we are breaking away from any residue of gap-filling technical assistance, as the latter has proved insufficient for the longer term, and may have created perverse incentives for both recipients and providers of technical assistance. We are convinced that there is a critical role for the IMF to play in developing such know-how and in supporting knowledge networking in areas where we have comparative advantages: the design of macroeconomic policies, financial sector development and strengthening, fiscal revenue policy and administration, expenditure management, public debt management, and macroeconomic statistics.

8. The IMF's capacity-building initiative consists of two main elements: first, we are increasing our support for, and are deepening our collaboration and coordination with, already existing capacity building institutions and activities in Africa; and second, we are setting up regional capacity-building centers, the AFRITACs. Let me first speak about our deepening collaboration with existing capacity-building activities. As part of this initiative, we have joined the World Bank's Partnership for Capacity Building in Africa (PACT) and its Africa-led implementing agency, the African Capacity Building Foundation (ACBF). It was my distinct honor to sign the Memorandum of Understanding with Dr. Sako, the ACBF's Executive Secretary last month in Washington, in the presence of Dr. Botchwey, Chairman of the ACBF. We are also strengthening our support for NEPAD; in fact we consider this initiative to be a major component of our support for the capacity-building and good economic governance program of NEPAD.

9. This enhanced collaboration with in-field efforts is built on the premise that there are already ongoing capacity-building efforts in a number of areas, which have started to show results. Indeed, we can take the good example of Tanzania, the host of the first AFRITAC center. Here, strengthening public expenditure management has long been a focus of the government's reform program: the capacity of the accountant general's office was built up; a computerized integrated financial management system was created with on-line linkages to most spending ministries; a quarterly budget execution report is being published by the central government; local governments will soon begin to do the same; and annual expenditure review consultations are being held with stakeholder groups. Capacity building in all these aspects of expenditure management has clearly enhanced the effectiveness of government actions in the overall poverty reduction strategy.

10. Turning to other countries in the region, good progress has been made in Kenya in the monetary sector, for example. The Kenya School of Monetary Studies provides practically-oriented training to meet the human capacity requirements for sound economic management and stability in the financial sector. We are grateful that the Government and the Central Bank of Kenya have offered this excellent facility for the training courses of the East AFRITAC. Other countries such as Uganda and Ethiopia also have made important advances. In Uganda, the government has emphasized capacity building in public service management at both the central and local government levels, including, inter alia, budget preparation in the context of the Medium-Term Expenditure Framework (MTEF). Moreover, both in Uganda and Tanzania, the authorities have been discussing with development partners a comprehensive capacity-building program within the PRSP framework. In Ethiopia, the authorities have set up a separate ministry on capacity building, signaling their clear policy focus on such reforms. These experiences can be usefully shared within the membership of the East AFRITAC through the use of local experts. This would be particularly valuable for the post-conflict members of this group, Rwanda and Eritrea, for which capacity building, in their circumstances, poses added challenges.

What can make the AFRITAC work?

11. I would like now to turn to the second component of the initiative, the setting up of the AFRITACs. Initially, we are opening two centers, which will provide assistance to some 16 sub-Saharan African countries. The East AFRITAC, which we are opening today, will serve Eritrea, Ethiopia, Kenya, Rwanda, Tanzania, and Uganda, and the West AFRITAC will serve some ten West African French-speaking countries. With the two centers we are aiming to increase the volume of technical assistance to the African continent, while squarely refocusing such assistance on capacity building. The main objective is to help African governments to address their capacity-building needs with an instrument that locates assistance in the vicinity of those needs, providing for a flexible and effective tool for capacity building. Resident experts, whose skills reflect the demand identified by the centers' member countries, will be in a unique position to support the capacity-building component of the PRSP process, to provide hands-on assistance promptly, and to monitor more effectively ongoing technical assistance projects. These experts' work will be complemented and supported by short-term experts and missions from IMF headquarters, as needed.

12. Let me now elaborate on the third question: what can make an AFRITAC work? I can see six important factors of success. They are all mutually reinforcing and interdependent, and each of them is critical to achieve the center's objectives. Let me discuss these factors briefly.

• First, country ownership. I have already mentioned that I see this as very critical. Capacity-building efforts in the past did not always yield the desired impact, in part because of the lack of country ownership. I would like to recall that our initiative has been called into existence in response to urgent calls by African leaders themselves, including by Your Excellency President Mkapa, to the IMF to help strengthen the capacity of their governments. This call was reiterated by the New Partnership for Africa (NEPAD). In responding to these calls and in formulating the AFRITAC initiative, we have emphasized the ensuring of country ownership. Partner countries have been involved in the project design from the very start. We have listened to, and worked very closely with, country officials in mapping out the work priorities of the centers. Some of our country partners have called this the new IMF. Moreover, the center's governance structure is designed to foster full ownership. The center's guiding body, the steering committee, includes all member countries, along with selected donor partners. Finally, the center's projects will identify a person in the participating Afreican country who will be part of the project and who will also be held accountable for its outcome.



• Second, mutual accountability. I would like to emphasize that when talking about accountability, I mean not only that of the participating African countries, but also that of capacity-building providers, including the IMF. The countries will be responsible for the outcomes of their received assistance through a well-designed monitoring and feedback process, and the peer review process embedded in the working of the steering committee. It is our hope that, under the peer review, the member countries will monitor the implementation of all projects and decide on the future allocation of resources, taking account of past country performance. This peer pressure is what NEPAD considers to be a main "enforcement" mechanism of good policies in Africa—an idea with which we agree. The IMF will be responsible for providing the high-quality technical advice that our member countries are accustomed to, and for ensuring a close follow-up on all our capacity-building projects.



• Third, establishing well-defined, time-bound capacity-building targets for the center's projects. Monitorability and accountability require the determination of clear deliverables. Each project will have targets to be achieved within a defined time frame. This work is well advanced already, and I understand that a good discussion took place on this issue during yesterday's steering committee meeting. Nevertheless, further progress in this area is still needed before the center's work program can be finalized at the next steering committee meeting.



• Fourth, effective donor coordination. We have heard from the East AFRITAC countries that the demand for the services of the center is large and, in fact, exceeds the supply. Nevertheless, it will be critical to coordinate our efforts with ongoing activities in the field, so as to avoid duplication and a waste of scarce resources, and to enhance the effectiveness of not only our own technical assistance, but also that of the other providers. In the donor-rich but often fragmented support environment of Africa, much of the success of the centers will hinge on effective donor coordination. The Poverty Reduction Strategy Paper (PRSP) —related framework provides the natural context for this work. All donor partners, without exception, including the IMF, have an obligation to operate within the institutional framework of the country PRSPs and to follow the rules of comparative advantage when it comes to the question of which donor should provide what assistance. There are things that the IMF does best, I believe, and in those areas it is we who would need to assist the countries. There are things that other partners, bilateral and multilateral, can do better than us, and the IMF must not wander into those fields. I know we all agree on this principle, but we also know that in practice, not enough has been done by us, and donor partners, in this regard. We all must work on this, and it is our strong hope that the center's coordinator and resident experts will work closely with our country representatives, the ACBF focal points, the African Development Bank, the World Bank, and donors in the field, to obtain the highest value added as a result of a coordinated effort.



• Fifth, capacity building is part of an overall reform process. Capacity building can be sustained only if it is part of an overall reform process. I would emphasize in particular civil service reform. Without such a reform, the trained personnel would eventually leave the civil service, and the investment in building capacity would be lost for the government, and often even for the country when national officials decide to go abroad for good. Retaining the well-trained is a precondition to achieving the ultimate objective of establishing durable institutions and strong capacity that I referred to earlier. More specifically, our ultimate success will be that, over the long term, African countries will be doing their own institution building, training their own people.



• Sixth, creation of an external environment that rewards reforms. Capacity building—and I am speaking from my experience as Minister of Finance of Chile—is not a friction-free, easy process. Some players always have vested interests in a weak and ill-functioning government. While this battle between reformers and those opposing reforms can be won by domestic players only, the international community can provide the right external incentives for reforms. I can point to a unique historic example in the Eastern European transition countries. It can be recalled that those countries were provided with a specific "reward" for reforms if they pursued reforms and modified their institutions, eventually they could be admitted to the European Union. This has created an encompassing political consensus within countries for institution building along the lines of the EU requirements, thereby enabling countries to rise above the narrow interest of differing political forces. And indeed, in a historic wink of the eye, in 12-13 years, many of these countries are already at the door of the EU. This "reward mechanism" may have been unique, but the international community can think of other appropriate incentive mechanisms for Africa. For starters, there is a need to remove the disincentives for reforms, as represented by the industrialized countries' subsidies to the production of goods that hamper directly or indirectly the growth potential of many African economies. Here, the IMF has consistently called for an opening up of the markets of industrial countries, and for the elimination of price-dumping subsidization policies in these countries.

Conclusion

13. Your Excellency President Mkapa, ladies and gentlemen. I started out saying that today was an important day for Africa. I would like to correct myself and say that today can be a glorious day for Africa, if we, working together, can make this initiative and the East AFRITAC succeed. If the center is successful, we plan to ultimately establish five centers to cover all of sub-Saharan Africa, with the help of the international community. This center, my African friends, is your vision, whose goals you determine yourselves. It is under your guidance and your ultimate responsibility. Our responsibility, together with that of donor partners, is to help and assist you to achieve those goals. On behalf of the IMF, I am pledging here our continued commitment to, and support for, the success of this project.

Thank you.