Speech

2005 Special High-Level Meeting of the ECOSOC with the Bretton Woods Institutions, the WTO and UNCTAD, Address by Mr. Agustín Carstens, Deputy Managing Director, IMF

April 18, 2005

Excellencies, Secretary-General, President of ECOSOC, distinguished colleagues and guests,

The Chairman of the International Monetary and Financial Committee, Mr. Gordon Brown, Chancellor of the Exchequer of the United Kingdom, has asked me to convey to you the highlights of the IMFC's deliberations in Washington on April 16.

The Committee welcomed the continuing global economic expansion, which is underpinned by supportive macroeconomic policies, improving corporate balance sheets, and benign financial market conditions. While returning to a more sustainable pace, global growth will likely remain robust in 2005. However, widening imbalances across regions and the continued rise in oil prices and oil market volatility have increased risks. The potential for a sharper-than-expected rise in long-term interest rates from their very low levels and for increased exchange rate volatility also calls for vigilance.

All countries have a shared responsibility to take advantage of the current favorable economic conditions to address key risks and vulnerabilities. Concrete actions are needed by all to implement the agreed policy response in a timely and effective manner. This includes fiscal consolidation to increase national savings in the United States; greater exchange rate flexibility as appropriate, supported by continued financial sector reform, in emerging Asia; further structural reforms to boost growth and domestic demand in Europe; and further structural reforms, including fiscal consolidation, in Japan.

Conditions in the oil market will remain tight in the medium term, reflecting strong global demand, low excess capacity, and supply concerns even after investments in some countries. Efforts should be made to remove disincentives to investment in oil production and refining capacity, and to promote energy sustainability and efficiency. Closer dialogue between oil exporters and importers, and further efforts to improve oil market data and transparency are also encouraged.

Poverty reduction must remain at the top of the international agenda. The Committee welcomed the strong growth performance across developing countries, particularly in sub- Saharan Africa, but noted with concern that most of them are at risk of falling well short of the Millennium Development Goals (MDGs). With improved macroeconomic stability in most countries, the key challenge remains to press ahead with reforms to strengthen the investment environment and foster private sector-led growth. The global community, in turn, needs to support these reform efforts through meeting commitments to increased and better coordinated financial and technical assistance, further debt relief, policies to improve remittance flows, and improved market access for developing countries. The Committee emphasized that successful and ambitious multilateral trade liberalization is central to sustained global growth and economic development.

As this year's Global Monitoring Report stresses, bold actions are urgently needed by the developing countries and their partners to realize the MDGs. The U.N. Summit in September 2005 will mark an important milestone to review progress and lay out actions going forward.

The IMF has a critical role to play. Work is underway to refine the operational aspects of the Poverty Reduction Strategy (PRS) approach, improve the design of programs supported under the IMF's Poverty Reduction and Growth Facility (PRGF), and enhance PRGF-PRS alignment. This will be underpinned by more extensive analyses of the sources of and obstacles to growth, and of the linkages between growth and poverty reduction. The Committee looks forward to further work to ensure adequate financing of the PRGF to meet future demands as assessed by the IMF, and other IMF instruments to assist low-income countries, including to help members deal with shocks. It also looks forward to further work on a policy monitoring arrangement to enhance the IMF's signaling role for countries that do not need or want IMF financing.

The Committee supported work by the IMF and World Bank on aid effectiveness and financing modalities. It welcomed the joint IMF and World Bank note outlining progress that has been made on innovative sources of development financing, such as the International Finance Facility (IFF) and its pilot—the IFF for immunization—global taxes which could also refinance the IFF, the Millennium Challenge Account, and other financing measures.

The Committee noted the progress in providing debt relief under the HIPC Initiative. It encouraged countries to take the necessary actions to benefit from the Initiative, and urged full creditor participation. It supported the joint IMF-World Bank framework to assist low-income countries' efforts to achieve and maintain debt sustainability while pursuing their development objectives.

The Committee welcomed the IMF's work and the preliminary discussion of key issues regarding proposals for further multilateral debt relief and its financing options, and called for further discussion with shareholders and examination of these issues, including the possible use of the IMF's resources. It noted that any possible further debt relief from the IMF should be part of a wider international effort.

Regarding the IMF's strategic direction, the Committee stressed the following priorities:

• Surveillance is a central task of the IMF and its effectiveness and impact should be enhanced. Work on financial sector issues and international capital markets should be further strengthened to reduce vulnerabilities and promote financial stability.

• The IMF's lending function is a central pillar of its mandate. There should be further reflection on how the needs of members could be met through IMF arrangements, and whether new instruments or revisions to existing facilities are required.

• The IMF has a critical role to play in helping low-income countries in their efforts to reduce poverty and achieve strong, sustainable growth through sound policies and institutions for macroeconomic stability.

• The IMF's effectiveness and credibility as a cooperative institution must be safeguarded and further enhanced. Adequate voice and participation by all members should be assured, and the distribution of quotas should reflect developments in the world economy.

These were the main issues at the IMFC's deliberations last Saturday. In closing, I wish to express our gratitude for having been invited to today's session of ECOSOC, given the importance of this high-level dialogue in coordinating efforts to assist countries to achieve the MDGs.