We can all be happy that the doomsday scenarios some predicted after the terrorist attacks of September 11 did not materialize. Thanks in particular to the decisive interest rate cuts and tax reductions in the United States and the supportive policy response in Europe, a recovery of the world economy now appears to be under way. And I think it was also important for confidence that the membership of the IMF came together last November in Ottawa to define a collaborative approach to strengthen the global economy.
To be sure, there are still questions about the strength and durability of the recovery. These relate especially to corporate earnings and investment in the United States, fragilities in financial markets, and regional political tensions. But on the whole, I am confident that the world economy will gain strength in the second half of this year. What is required now is vigilance and a shift from short-term considerations to tackling decisively the underlying economic and financial imbalances in the global economy. This calls for strong leadership of the advanced industrial countries, by taking action to strengthen the prospects for sustained growth in their own economies and through leading by example in the effort to make globalization work for the benefit of all.
The Enron collapse and, even more, the WorldCom scandal have made it clearer than ever that there is a need to give as much attention to risks and vulnerabilities arising in the advanced countries, as we do to problems in emerging markets and developing countries. I therefore welcome the broad discussion and legislative activities that are under way in the United States in the aftermath of these revelations. But I also think that the international community as a whole should review issues related to accounting, disclosure, and corporate governance.
In Monterrey, I made it clear that the IMF will play an active part in the effort to achieve the Millennium Development Goals. In my talks with leaders, businesspeople, and civil society in low-income countries, I have been struck by the willingness to take responsibility for tackling the homegrown causes of poverty. It is particularly encouraging that African leaders have made good governance, sound policies, and increased trade and investment the cornerstones of the New Partnership for Africa’s Development(NEPAD). Our global outreach and review has shown that the poverty reduction strategy paper (PRSP) process is broadly accepted as a practical way to put this approach into action. Most important, the PRSP process is country led and designed to take on board the views of all parts of society. PRSPs recognize both social realities and the need for hard economic choices. And perhaps equally important, they provide a natural basis for coordination of activities by external donors and other development partners. I therefore trust that donors and civil society will continue to support this process and help to realize its full potential.
We have to recognize that slow progress in the reforms needed to fight poverty often reflects a lack of institutional capacity, rather than a lack of political will. As part of our support for NEPAD, we plan to establish five African Regional Technical Assistance Centers, and I already signed agreements to establish the first such centers in Tanzania and Côte d’Ivoire later this year. [World Bank President] Jim Wolfensohn and I have also been helping African countries—beginning with Ghana—to establish Investment Advisory Councils, to identify practical ways to improve the investment climate and create new economic opportunities.
Today, 26 countries are receiving debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative, with a total value of over $40 billion, and we are working hard to help other eligible countries qualify for HIPC assistance. The resulting reduction in debt-service payments is already permitting recipient countries to raise poverty related expenditure, on average, from about 6 percent to 9 percent of GDP. The bulk of this spending will go to much needed health care (particularly HIV-AIDS treatment and prevention), education, and basic infrastructure such as rural roads. We will continue to take advantage of the possibility of topping up HIPC relief in cases—like Burkina Faso—where exogenous factors have caused fundamental changes in a country’s underlying economic circumstances.
While it is crucial not to neglect any element of comprehensive support for poverty reduction, trade is clearly the best form of help for self-help—not only because it paves the way for greater self-sufficiency but also because it is a win-win proposition for developed and developing countries alike. Real progress in cutting agricultural subsidies in advanced economies and reducing tariffs for processed goods should be a benchmark for a successful conclusion of the Doha Round. But I would also stress that the evident case for market opening in the industrial countries would become even more credible if developing nations demonstrate their ambition to reduce the barriers to trade among themselves, which are often even higher than those with industrial countries.