1. On the World Economic Outlook, we note with relief that 'there are increasing signs that the global slowdown has begun to bottom out....and that forward indicators appear consistent with a recovery by mid-2002' (p.1). We also share the concern over serious remaining downside risks and support, as a minimum requirement, the main message that `the stance of policies should remain relatively supportive for the time being'. A premature withdrawal of stimulus based on an over-optimistic assessment of strength of the recovery would clearly be unwise. This is especially so in view of the serious social consequences the downturn has been having on many parts of the developing world. It will be recalled that I drew attention to this in my statement to the last meeting of the IMFC. As the Report itself notes unemployment is still rising in several Asian countries, the recovery prospects of Latin America and the Caribbean remain weaker than that of other developing regions, and, as discussed in Appendix 1.1 the current projected recovery is unlikely to lead to a significant firming of commodity prices over the next two years. The latter means that serious problems will remain for many low-income primary commodity producers.

2. In view of the serious social repercussions of a deep global recession we would have appreciated seeing a more focussed discussion of the lessons learned from the present near miss of such an eventuality. While the placing of the current downturn in a historical context (Chapter III) is highly informative, it does not sufficiently draw out policy lessons. Indeed what is missing is a global view of what actions need to be taken to reduce the risk of severe downturns in the future and to counteract their effects when they do occur. The discussion in chapter 1 focuses only on the need to correct major imbalances in the U.S. and between it and the other major economic blocks. Important as this is for the global economy, we should not overlook other elements that are important for the welfare of the majority of the world's population living in developing countries. Here again I recall a key point made in my last statement to this Committee that "it is no longer acceptable to have double standards in terms of economic policy prescriptions". I noted then that "the biggest danger in the current context would be to apply expansionary policies in the North and more austerity and restrictive structural adjustment in the South." Finding ways to remove this asymmetry in terms of responses to global recessions is a major policy challenge to be addressed by the international community.

3. It is also relevant to note that the risks of financial crises in emerging market economies do not appear to have diminished in spite of the commitment to introduce a new international financial architecture in the aftermath of the Asian Crisis. The current crises in Turkey and Argentina are cases in point. The report notes with satisfaction that in contrast to the Asian crisis the contagion effects of the Argentinian crises have been contained. But one of the explanations advanced for this- the fact that `gross international capital flows were already at low levels' when the crisis occurred- is hardly a source for relief. It is also relevant to note in this connection that the social cost of the Argentinian crisis has been very high, pointing to the lack of any real progress on the issue of how to minimise the social costs of financial crises in developing countries. This is in spite of it having been raised prominently in the wake of the Asian Crisis.

4. Similarly, the issue of the scope for developing countries to deploy counter-cyclical macroeconomic policies is addressed only tangentially in the report. Box 3.4 on `economic fluctuations in developing countries' only briefly notes the fact that `macroeconomic policies in many developing countries are often procyclical i.e. they tend to amplify macroeconomic disturbances'. Yet the use of counter-cyclical policy is central to their ability to counteract the effects of global downturns originating in the major economies as well as of financial crises. In this connection, it is most welcome to see an acknowledgement of the link between institutions and macroeconomic stability. Box 3.4 notes that `policymaking in developing countries occurs in an environment of weak institutions of conflict management, which are a source of volatility and which limit the ability to deal with the adverse consequences of macroeconomic fluctuations. As such, stronger institutions are necessary not just for growth but also for dampening fluctuations'. This is very much in line with what the ILO has long been advocating on the importance of building strong institutions for social dialogue based on full respect for Fundamental Principles and Rights at Work.

5. The discussion of `Debt crises: What's different about Latin America?' in Chapter II does usefully identify several domestic policy changes that are needed to avoid being locked into pro-cyclical macroeconomic policies. But this ignores one important international dimension of the issue. While it is true that maintaining sound macroeconomic fundamentals is a requisite condition, this ignores the continuing constraints created by international financial markets on the deployment of counter-cyclical policies even when the basic capacity to do so is present. In the case of Latin America the adoption of exchange rate pegs and defending them has often occurred because of the need to reassure international financial markets. Finding ways to loosen these constraints in the context of ongoing efforts to reform the international financial system is thus an obvious priority. Restoring the capacity of developing countries to deploy counter-cyclical macroeconomic policies will make a significant contribution to their ability to stabilize levels of employment. This is important for achieving steady progress in raising living standards and reducing poverty.

6. We note with interest the discussion on `Monetary policy in a low inflation era' contained in Chapter II. We endorse the key conclusion that `the danger of getting into a deflationary spiral increases markedly as inflation targets are lowered below 2 percent and that there is a case for becoming more proactive with regards to sharp falls in activity.' It is important to recall in this connection that a deflationary spiral would have adverse effects not only on the level of activity but also on employment. It could be argued that one of the consequences of the fact that `policy in the 1980s and 1990s became more responsive to changes in inflation and less responsive to output gaps' is that it also became less responsive to the problem of high unemployment. This is a matter of concern and the issue of how to restore greater priority to the reduction of unemployment in the current macroeconomic policy agenda deserves serious attention.

7. Turning now to the agenda item on the Fund's role in low-income countries, we welcome the priority the Managing Director's report gives to effective implementation the outcome of the United Nations Conference on Financing for Development. We too fully subscribe to the Monterrey Consensus and see its implementation as an important step towards attaining the Millennium Development Goals. Our policy advice and technical assistance activities are contributing to improving policies, institutions and governance in our member States. In this connection, we have been actively engaged with the Bank and the Fund in the PRSP process and this is reported upon in my statement to the Development Committee. Our main contribution has been to position the goal of Decent Work as an essential component of poverty reduction strategies. This involves a recognition that maximising the rate of productive employment creation is a key instrument for lifting people out of poverty. The extension and strengthening of social protection is also important for reducing poverty and coping with the adverse social impact of economic reform and globalization. At the same time, respect for fundamental labour rights and the strengthening of social dialogue are essential for achieving improved and more participatory governance.

8. We also welcome the emphasis given in the Managing Director's report to the need to improve the global economic environment for low-income countries. An increase in the volume and effectiveness of ODA and significantly improved market access are indispensable if these countries are to harness the benefits of globalization for poverty reduction. Similarly, in the light of my earlier comments on the need to restore the capacity of developing countries to adopt counter-cyclical policies when necessary, we welcome the Managing Director's statement that in the current uncertain environment `concessional financing support by the donor community and IFIs, particularly for countries pursuing good policies, will provide an important safety cushion.' In the same vein we also endorse the idea that `consideration might be given to mobilizing additional loan and subsidy resources' to meet the increased demand for PRGF resources. We also note with satisfaction the progress that has been made in, inter alia, aligning the macroeconomic frameworks in PRGF-supported programmes with the PRSP process and the commitment to build on this progress. In this connection we attach particular importance to `broader and deeper discussion and analysis of macroeconomic frameworks and structural policies', dialogue with civil society (especially with the social partners), and the systematic use of poverty and social impact analysis in policy formulation and evaluation.

9. More broadly, there is a growing consensus that globalization's opportunities must be shared and used much more effectively, so that globalization becomes an instrument to tackle the growing problems of poverty, insecurity, inequity and exclusion. In response to this challenge, and to strengthen global capacity to promote social objectives alongside economic ones, the ILO launched the World Commission on the Social Dimension of Globalization in February this year. The 25-member World Commission is co-chaired by Finland's President Tarja Halonen and Tanzanian President Benjamin Mkapa, and brings together a select and balanced group of eminent people from different regions and walks of life, including public policy, business, civil society, trade unions and academia. According to the Chairpersons, the Commission provides "a space to move from confrontation to dialogue, to review the facts and the perceptions; and an opportunity to seek a consensus for action on globalization. In articulating a realizable vision, the Commission is expected to examine how to increase the effectiveness of existing policies and institutions, and seek out and evaluate new perspectives, new means and new mechanisms. The World Commission is expected to make a valuable contribution by identifying policies for globalization which promote open economies and development with social justice. While increasing opportunities for all, such policies need to benefit the poor and excluded, promote social coherence, and reduce uncertainty and insecurity. The work of the Commission will be rooted in the Millennium Development Goals, and take into account the outcomes of the major global conferences, in particular the Financing for Development Summit held in Monterrey last month, as well as the forthcoming World Summit for Sustainable Development and the World Summit on the Information Society.

10. The Monterrey Consensus explicitly recognized (para. 64) that "To strengthen the effectiveness of the global economic system's support for development, we encourage the following actions:

• Support the International Labour Organization and encourage its on-going work on the social dimension of globalization".

The ILO has invited the Bank and the Fund, together with other organizations of the UN system, to participate actively in the work of the World Commission, and has received a widespread positive response. It plans to carry forward this endeavour in an open and cooperative spirit which offers support to the goals of the multilateral system as a whole.