UK STATEMENT TO THE IMFC
Introduction
We meet here in Dubai at a time when there are clear
signs that economic activity is strengthening in some major economies
and more broadly indicators point to the prospect of a steady
and strengthening recovery going forward.
When we met last April, it was a time of particular
political and economic uncertainty and tension. Since then, the
major uncertainties have clearly lessened. Nevertheless risks
remain - in industrial, emerging market and developing countries
- and it is important that policymakers stand ready to take the
necessary policy actions. This underscores the importance of continued
international cooperation and multilateral progress.
While prospects have improved in some major economies,
all countries have an interest in seeing more balanced growth
going forward. So we must address the lack of sustainable, robust
productivity growth in every continent of the developed
world. Structural reform is vital in this respect. And we must
secure a speedy resumption of the Doha Round.
Economic stability
For rich and poor countries alike, stability is the
precondition for global prosperity and growth, and all major countries
- Japan, America and Europe - will be asked this weekend what
contribution their continent can make, not just to restore growth
now, but to create the conditions for sustained long-term prosperity.
With proactive monetary and fiscal policies, growth
in some major economies is now strengthening. The UK is on track
for stronger growth with low inflation.
But because we must sustain growth, it is important
that we focus also on structural reform. The G7 have agreed an
Agenda for Growth, and it is now vital that we implement reforms
to overcome the barriers to higher productivity, employment and
growth.
In the United States, actions to strengthen corporate
governance and
demonstrate that fiscal policy is sustainable over
the medium term are important. Japan must step up its financial
sector reform. And, accompanied by stability oriented fiscal and
monetary policy, Europe must push ahead with the necessary structural
reforms that have held back the continent for too long - embracing
flexibility for labour markets, liberalisation in capital and
product markets, and tax competition in place of tax harmonisation
- in short a new growth agenda. With financial market conditions
looking more favourable, now is the time also to focus on structural
reform and improved debt management in emerging markets.
More broadly, it is important that we use this period
to identify problems early, address vulnerabilities, and provide
candid advice on policy reforms going forward. Effective international
surveillance and multilateral cooperation are essential tools
for achieving this, strengthening crisis prevention, and so promoting
stability and sustainable global growth.
This meeting in Dubai offers a window of opportunity.
It is essential that we address the long term challenges facing
the international financial community.
- promoting the conditions for stability and
growth, and strengthening the mechanisms for crisis prevention
and crisis resolution;
- calling for urgent resumption of the trade
talks as soon as possible to secure concrete progress with multilateral
trade liberalisation and deliver on the commitments made at Doha;
- creating the right domestic conditions for
investment and stability;
- confronting the global war against poverty
and addressing the urgent challenge of achieving the Millennium
Development Goals, including the need to double aid through the
International Finance Facility.
Crisis prevention and resolution
I believe that, just as we set down a new rules-based
system in the UK, for a new monetary and fiscal regime, we should,
in pursuit of the objectives of stability, development and prosperity,
establish a new rules based system of governance for the international
financial community.
This new system should be founded on clear procedures,
with all countries, rich and poor, pursuing agreed codes and standards
for monetary and fiscal transparency, and for corporate governance.
That is why we have put in place the system of internationally
agreed codes and standards. Almost half of the Fund membership
has now completed a ROSC and over 70 percent of those have been
published. We strongly welcome this. But we must continue to
do more to enable all countries to participate, providing the
necessary technical assistance. On transparency, we strongly
support the steps agreed by the Board to enhance further the publication
of Article IV reports and programme documents.
Effective and persuasive surveillance is essential
for all member countries. We welcome the Fund's considerable
progress on reforms to strengthen surveillance. Yet significant
challenges remain, and we will need to monitor carefully their
implementation and impact.
More broadly, I believe there is a strong case for
further institutional reforms to ensure that the IMF is as credible
and independent from political influence in its surveillance of
economies as an independent central bank is in the operation of
monetary policy. We must implement reforms to ensure:
- greater independence - ensuring that the Fund
applies objective, rigorous and consistent standards of surveillance
to all member countries; and that surveillance is, and is seen
to be, independent of decisions about programme lending and the
use of IMF resources;
- greater accountability - with the IMFC or
the Board having a formal responsibility to set an annual surveillance
remit, with the IMF management and staff reporting back each year
on their performance and effectiveness against the remit.
It is important to ensure that surveillance impacts
effectively on decisions made by programme and non-programme countries
alike. In this respect, we continue to believe in the importance
of the objectives underlying the Contingent Credit Line - to
provide incentives for countries to put in place strong policies
and to support those members with strong policy frameworks from
the impact of external shocks. It is important to find an effective
way to achieve these objectives in the context of the Fund's review
of the CCL.
On crisis resolution, we very much welcome the widespread
introduction of Collective Action Clauses, and encourage their
further use. We support the ongoing work by issuing countries
and their creditors towards developing a code of good conduct.
We encourage the Fund to continue to strengthen its analysis of
debt sustainability and balance sheet vulnerabilities. And we
welcome the ongoing work by the IMF on issues relating to debt
restructuring raised during the work on the Sovereign Debt Restructuring
Mechanism, including aggregation and inter creditor equity.
Under this new framework we can move from letting
crises happen and then intervening, to a new paradigm: systems
that in themselves diminish the likelihood of crises; earlier
awareness as difficulties arise; and more measured and orderly
responses when crises have to be resolved.
Trade
The international community must make urgent progress
on trade and development. We must reaffirm this weekend our full
political commitment to a multilateral approach to trade liberalisation,
and to making substantial and concrete progress. A speedy resumption
of the Doha Round is vital for global growth and our development
objectives. It should focus on the core issues of importance to
developing countries for open and fair markets, especially in
agriculture.
This will be critical for demonstrating the international
community's continued commitment to multilateral co-operation,
supporting higher growth and financial stability, and enabling
developing countries to participate on fair terms in the world
economy and make progress towards the Millennium Development Goals.
There is clear evidence supporting the link between
developing countries' own trade policies and their economic growth.
In the last forty years those developing countries that have managed
to be more open and trade more in the world economy have seen
faster growth rates than those that remained closed. But any liberalisation
has to be appropriately sequenced and integrated into countries'
poverty reduction strategies. We welcome the IMF's initiative
to provide assistance to countries to help them address the transitional
impact of trade reforms.
And, as developing countries have continued to argue
so strongly, an agreement on agriculture is central to any progress
on trade. Three quarters of the world's poor live in rural areas
and an end to agriculture protectionism in the developed world
could be worth as much as $100 billion a year to developing countries.
And if we were to halve protectionism more widely in agriculture
and in industrial goods and services we would increase the world's
yearly income by nearly $400 billion dollars: a boost to growth
of 1.4 per cent. Developing countries would gain the
most in terms of GDP growth - an estimated $150 billion a year
- but all countries and regions stand to benefit.
Creating the conditions for productive investment
To ensure growth and development we must take steps
to promote domestic and foreign investment - and find better ways
for public and private sectors to work together in raising the
level and quality of investment.
Because investment will flow to those countries that
are the most stable, and ever more rapidly away from those that
where the environment for business is volatile and uncertain,
there is an even greater premium than before on governments running
a successful monetary and fiscal regime to achieve high and stable
levels of growth and employment over the long term. This is true
for all countries, industrialised and developing.
In seeking more favourable environments in which
private sector investment can be more productive in developing
countries, country-owned poverty reduction strategies have correctly
focussed on creating the right domestic conditions for investment,
including good governance and sound legal processes that deter
corruption; improved infrastructure; and an educated and healthy
workforce. We support the creation of investment forums bringing
public and private sectors together to examine the barriers to
investment and how to secure higher levels. Most importantly,
investment forums are helping to break down the assumption that
private sector development should be led solely by business or
directed by the state - instead recognising that public and private
sectors must work together in partnership to secure economic growth
and poverty reduction.
Achieving the Millennium Development Goals
Stability, trade and investment are all vital but
there cannot be a solution to the problems that developing countries
face without a fourth reform: a substantial transfer of additional
resources from the richest to the poorest countries, in the form
of investment for development, that builds new capacity to compete
and addresses the long term causes of poverty.
In 2000 for the first time the world community signed
up to the historic shared task of meeting the Millennium Development
Goals by 2015 - including to eradicate extreme poverty, achieve
universal primary education and radically reduce child poverty.
Then at Monterrey in 2002 the international community
agreed a new compact for development that, in return for developing
countries pursuing corruption free policies for stability and
growth and creating favourable environments for trade and investment;
developed countries should be prepared to increase vitally needed
funds to achieve the Millennium Development Goals. And the additional
$16 billion dollars a year of extra funding agreed represented
the first increase in official development assistance for twenty
years. For its part, the UK will increase its aid budget to nearly
£4.9 billion by 2006 - a near doubling in real terms.
Our aid is increasingly provided in support of poverty
reduction strategies, which are leading to improvements in the
policies of developing countries and in the focus of donor support.
We welcome the Fund's ongoing efforts to align the PRGF behind
the PRSP and in support of the MDGs, early work on a long-term
role for the Fund in low-income countries, and we look forward
to their continuing work on ensuring that there is adequate financing
for PRGF arrangements.
At the same time we must also do more to make better
use of existing resources, including the European Union aid budget.
Reordering priorities, untying aid and pooling funds internationally
could all release additional funds for the poorest countries.
We must work to achieve the rapid and full implementation
of the HIPC Initiative to provide a robust exit from unsustainable
debt. Of the 38 countries which stand to benefit from HIPC debt
relief, there are now 27 - 23 from Africa and 4 from Latin America
- which already benefit from debt relief which will rise to over
$70 billion in total. For these 27 countries the UK is providing
100 percent bilateral debt relief, and this offer is open to all
HIPC countries as they become eligible for relief under the Enhanced
HIPC initiative. And now we must move into the next stage - a
plan for post conflict and conflict countries so that the full
$100 billion committed in Cologne in 1999 can be written off.
We urge the IMF and the World Bank to continue to
intensify their efforts to secure full participation of all creditors
in the initiative, and to reaffirm the objective of ensuring debt
sustainability for countries reaching completion point. We must
also work together to review the methodology for calculating the
amount of "topping up" debt relief available - which
could provide an additional $1 billion of extra debt relief, with
pledges to the HIPC Trust Fund to meet the extra costs of AFDB
and other non World Bank multilaterals. For our part the UK pledges
to contribute our share of these costs.
But debt relief and the aid already pledged will
not be enough on their own if we are to meet the Millennium Development
Goals.
In particular urgent action is needed on health and
education. Every year more than 10 million children die of preventable
diseases - 30,000 a day, and more than 500,000 women die in pregnancy
and childbirth. The tragedy of HIV/AIDS, is not only a human one,
its impact on social and economic development in sub-Saharan Africa
in particular is already reversing progress that has been made
in the past. So, in Dubai we must follow up the recent agreement
on access to life saving medicines, with the proper financing
of health care delivery systems. The UK is committed to predictable,
multi-year funding for the Global Fund to fight AIDS, Tuberculosis
and Malaria.
And we know that education for all is central in
order to promote a virtuous circle of debt reduction, poverty
alleviation and economic development. The UK Government is committed
to making the World Bank Fast Track Initiative work. But an estimated
$10 billion more each year is needed if we are to reach our goal
of primary education for all. And health, including the battle
against HIV/AIDS requires at least $15 billion extra and probably
$30 billion.
We welcome the recent Bank paper on Supporting Sound
Policies with Adequate and Appropriate Financing. The Bank estimates
that a near doubling of the additional commitments made at Monterrey
could be used immediately, and effectively to make progress on
the MDGs, some $30 billion annually. But they have also made
clear that even this is an under-estimate of the resources required,
with substantially more likely to be needed in the short-medium
term, with a current estimate of at least $50 billion annually.
Our vision is clear. No country genuinely committed
to economic development, poverty reduction and to the genuine
good governance standards should be denied the chance to make
progress because of lack of investment. The scale of resources
required to meet this challenge cannot be met by either poor countries
or by traditional aid. We need new means to deliver higher levels
of support to finance health, but also education and anti poverty
programmes.
Hence, the proposal for an International Finance
Facility. On the basis of long-term, binding donor commitments
from the richest countries, some of which have already been made,
the Facility would leverage in additional money from the international
capital markets to raise the amount of development aid for the
years to 2015 from $50 billion a year to $100 billion per year.
The Facility would provide a temporary framework
seeking to raise additional funds for development in the years
leading up to 2015. In providing an immediate, critical mass of
predictable, untied and effective aid, predominantly in grant
form, the Facility would allow the poorest countries to invest
in their priorities, and would provide the catalyst for growth-driving
private investment. Further, this virtuous circle of investment
for future success, as opposed to compensation for past failures,
is fundamental to delivering sustainable debt relief; and to enable
developing countries to build the economic capacity necessary
to benefit from the trade reform critical to future world economic
development and stability.
Just as the richest countries must fulfil their moral
and political responsibility, developing countries must demonstrate
a commitment to poverty reduction strategies, addressing political
and economic stability and creating an enabling environment for
human, physical and social investment. Anti-corruption and pro-stability
policies must go hand in hand with country-owned poverty reduction
strategies.
Building on the valuable discussions we have had
so far in the international community, we call on the IMF and
the World Bank to carry out further work on the case for more
aid, aid effectiveness and absorption issues, as well as on the
details of the Facility. It is also important to widen and deepen
our discussions, and we will want to consult closely with developing
and emerging market countries over the coming months. The IMFC
should return to this issue in the light of this further work.
Conclusion
So here in Dubai, we call for the whole international
community to confront the global war against poverty. This is
a window of opportunity when the richest countries must redeem
their promises to the poorest countries and work together to build
a virtuous circle of debt relief, poverty reduction, trade and
economic development.
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