Speech

Building Shared Prosperity in the Americas, Speech by Horst Köhler, Managing Director of the IMF

January 12, 2004

Your Excellencies, Ladies and Gentlemen:

1. Allow me first to wish you and your people a happy New Year. I thank President Fox for inviting me to address you today. I am honored and privileged to join you here in the beautiful mountain city of Monterrey, and I look forward particularly to listening to you and your vision for the Americas in the 21^st century.

2. On the threshold of 2004, the world economy has decisively turned the corner. We know that there are still risks. But I am confident that with the right policies the global economy is poised for a return to robust and sustained growth. And with the economy of the United States leading the recovery, this hemisphere is again a locomotive for the world.

3. Therefore, this Summit comes at a timely moment. Much has been achieved, not least in building stable democracies throughout the region. Reforms are beginning to pay off. But more is still needed to achieve broadly shared prosperity. Widespread poverty stands in sharp contrast with the enormous potential of the hemisphere. Now is the time to seize the opportunities of the global recovery and pave the way for sustained growth and rising living standards for all. This requires ambition and perseverance in all parts of the hemisphere to consolidate and extend reforms. And evidence in this region, and world-wide, tells us that the pursuit of market-oriented policies, fostering competition and innovation, remains the best path toward economic and social progress. But experience also teaches us that markets alone are no panacea. I agree, therefore, with President Fox when he said "Let us reject ... the false dilemmas that led us to choosing between the market and the state. We need more market and a better state." ¹

4. There is surely no single blueprint for success. Every country reaches its potential in its own way. But I see three critical elements for the foundation of lasting economic and social progress in the hemisphere:

• First, successful market-based economies have institutions that protect property rights, uphold the rule of law, combat corruption, and promote social stability. Sound institutions are a reflection of shared values and cohesion in society. Moreover, there remains ample scope for reinforcing domestic financial intermediation between savers and investors, benefiting especially small and medium-sized businesses and low-income households.



• Second, sound long-term management of public finances is indispensable for sustained growth, job creation, and social progress. And indeed, I am concerned that persistent high levels of public debt in the region can still imperil what has been achieved. Fiscal discipline is needed not only for macroeconomic stability, but also to preserve space for essential public investment, especially on education, infrastructure, and social safety nets. I am aware that there are pressing needs, which must be tackled. And the IMF is committed to be a partner in this effort. But I also have to say: there are no magic formulas, and governments will have to make tough choices.



• And third, the single most important engine for growth in the region lies in further strengthening trade. I encourage the hemisphere to seize the initiative and lead by example. There still remains significant scope for reaping economic gains by eliminating barriers to trade in the region. And such progress should help pave the way for a successful conclusion of the Doha Round, which is still the most important vehicle for sound and sustained global growth and poverty reduction.

5. The IMF is committed to assist countries in the region build a better future for their people. Indeed, the IMF is also your institution - and evenhandedness in its policies is my guiding principle. Our financial support to the region stands at unprecedented levels and is providing vital assistance to many of our emerging market members faced with severe external difficulties. The Monterrey Consensus, reached in this city two years ago, provides a framework for partnership to assist especially our poorer members. Together, we are intensifying our work to strengthen financial sectors and meet international best practices in monetary and fiscal policies. And, in close collaboration with financial supervisors world-wide, we are helping members implement effective policies to combat money-laundering and the financing of terrorism. In my view, the resilience of the global economy to a series of unprecedented shocks in recent years shows that the work of the past few years is beginning to pay off.

6. I do not pretend that the IMF has all the answers to the complex questions countries face. We are continuing to work hard to strengthen the stability of the international financial system. Crisis prevention is our number one priority. We must therefore further improve our instruments to provide early support to countries that pursue strong policies but may face unexpected economic shocks. We must deepen our cooperation with other fora to reduce volatility in global financial markets. And, in close collaboration with our partners at the World Bank and the Inter-American Development Bank, we must strive to ensure that we respond to the priority needs of this region in a coordinated way. I look forward to your valuable input as we tackle these challenges. Of course, even with the best policies, future shocks and crises cannot be excluded. It is therefore my conviction that a strong IMF safety net is in the best interest of both the region and of global financial stability.

7. I am fundamentally optimistic. The current supportive global economic environment provides an opportunity to make decisive progress. With the right policies now, and with strong international cooperation, the challenges facing the region and the world can be overcome. Rest assured that in this effort you have a reliable partner in the IMF.