Speech

Remarks by Rodrigo de Rato, Managing Director, IMF

October 25, 2004

Your Excellency Minister Siniora, Excellencies, Ladies and Gentlemen:

1. This is an important day for the International Monetary Fund, as we meet in Beirut, to inaugurate the IMF's Middle East Technical Assistance Center, or METAC as it will be known. I am honored to be here and proud of what has already been accomplished in making this center a reality in such a short time. I would like to thank you, Minister Siniora, as well as the Government and the people of Lebanon for agreeing to host this center, and for all the assistance and support you have provided to make this possible.

2. Lebanon has come a long way to re-establish itself as a thriving economy, and also as an important regional hub. This is not to understate the economic and financial challenges facing the country. In fact, this visit has also given us an opportunity to continue our constructive dialogue with the Lebanese authorities on how best to meet those challenges and how to build on what has been achieved so far.

3. The very fact that we can celebrate today the opening of the METAC is a tribute to a very close collaboration of many partners, in particular, the collaboration and support of the governments of the region that will be benefiting from METAC: Lebanon, which hosts the center; Afghanistan; Egypt; Iraq; Jordan; Libya; Sudan; Syria; West Bank and Gaza; and Yemen. These officials have worked very closely with IMF staff in making this inauguration possible. Let me also extend my warm thanks to the donors that have given generously to make the establishment of the METAC possible. It is especially noteworthy that the major share of donor financing for METAC is being provided by countries in the region.

4. On this occasion, let me share with you my thoughts on three issues:

· First, why is capacity building, which is the primary focus of METAC, important in the Middle East?

· Second, how will the IMF, and METAC in particular, contribute to capacity building?

· Third, how does technical assistance fit within the broader role of the IMF in the region?

5. Let me start with the first question: why focus on institutional capacity building? The answer is rather simple. We in the Fund are convinced, and the experience of our membership has left no doubt, that strong domestic institutional capacity is a precondition for economic and social development and for sound public policy making. The IMF is an advocate of markets and of private sector participation. But we also know that for markets to function efficiently, and for the private sector to develop and thrive, effective institutions are essential. They are also essential for ensuring that economic policies and reforms are "home grown" and have true domestic ownership. These are not only our conclusions. We are listening to the region as well. And what we hear from the region's officials, and from its civil society organizations and academics, is the same call for more effective institutions. This common perspective provides a strong motivation for the Fund to contribute to institutional capacity building in its areas of expertise.

6. Let me now turn to the second question: What can the IMF, and METAC in particular, offer to assist countries in terms of technical assistance and capacity building? The IMF has been providing technical assistance to all of the METAC members, depending on their needs. In some cases this was done in the immediate aftermath of conflict. For instance, in Afghanistan, the IMF has assisted with the establishment of financial institutions and laws, which can support a stable national currency, the development of a modern commercial banking system, and an efficient and equitable tax code. In Iraq, IMF staff has contributed—sometimes at great personal risk—to the establishment of the new Iraqi dinar, the rebuilding of the technical capacity at the Central Bank and the Ministry of Finance, and the development of new banking laws. IMF technical assistance involvement in Libya, Sudan, and Syria is relatively recent and has focused on helping to reform and modernize institutions, legal frameworks, and statistical systems. In the case of Egypt, Jordan, Lebanon, Yemen, and West Bank and Gaza, the IMF has been involved for some time. But there, too, selective technical assistance will remain important to consolidate progress achieved and assist governments in further improving their policy-making and institutional capacity.

7. With the opening of METAC, our involvement in providing technical assistance to the region will deepen. The services provided by METAC will not replace other forms of assistance but will be additional to those provided from IMF headquarters. However, establishing a technical assistance center within the region offers a number of important benefits. These include: first, more flexibility in responding rapidly to emerging needs; second, closer coordination with other technical assistance providers and regional organizations; third, enhanced country ownership and accountability through country participation in the decision-making process; fourth, more efficient and sustained assistance for regional integration initiatives; and fifth, more focused subject-specific training for local officials.

8. Let me underline that our motivation is to provide capacity building assistance to develop and add to the domestic stock of know-how, and not to replace local expertise. This is very important. Experience has shown that "gap-filling" technical assistance does not work in the long run as it creates wrong incentives for both recipients and providers of assistance. In our view, the key role of IMF technical assistance is to transfer knowledge and experience that helps build local capacity. METAC should thus help countries in the region strengthen their own ability to design and implement economic policies, promote financial sector stability, modernize and reform fiscal institutions, and improve the quality of statistics.

9. Let me turn to the last question. How does technical assistance fit into the broader role of the IMF in the region? Clearly, one of the main challenges facing the region today is to move to a higher growth path. For many years the economic performance of the region has fallen significantly below its potential. This gap must be bridged if the region is to grow at levels sufficient to meet the needs of a rapidly expanding labor force and to achieve real and sustained improvements in the standards of living.

10. While the economic policy agenda may differ from one country to another, we see four main priorities in the region:

· first, refocusing the role of the public sector and improving its efficiency;

· second, enhancing public sector transparency and accountability;

· third, strengthening institutions; and

· fourth, increasing regional cooperation as well as integration into the global economy.

11. The IMF has been supporting these objectives through its policy dialogue with all the countries of the region. In some instances, IMF credit has also been provided in support of domestic reforms and policy adjustments. Technical assistance is the third window of IMF support to member countries.

12. It is clear that the benefits from technical assistance do not happen overnight and often require a relatively long period of engagement. This is why, through METAC, the IMF is today making a long-term commitment of resources and expertise to the region.

13. We all recognize of course that that there are many non-economic factors that affect growth and job creation. The significance of the security environment for investment and private sector participation cannot be overlooked. Unfortunately, for some countries in the region, conflict and security concerns have stood in the way to better economic performance. However, as I am sure you would agree, this should not be a reason to hold back on good policies or on necessary reforms. In fact, it may be a reason to press on even more with such reforms. It goes without saying that policy reforms should take appropriately into account the specific circumstances of individual countries. In our policy advice we strive to do that.

14. Let me add one more thought. If the protracted conflicts and difficult security problems have led to a sense of exasperation among many in this region, it is quite understandable. But I would only tell those who have lost hope to take a look at this city, indeed to this very spot where we are gathered today, and to compare it to the way it was just a little over a decade ago. Lebanon's success in reemerging from those difficult times is truly uplifting. It shows that, with collective goodwill and hard work, things can be turned around. We hope it will not be long before we see this region well on its way to a sustained path of peace, security and economic prosperity. We stand ready to do our part.