The past half-century has seen not only intensifying globalization but also historically spectacular growth. This relationship validates the vision of the founders of the post-World War II economic system built around the IMF, the World Bank, and what eventually became the World Trade Organization (WTO). But many of the world’s poorest countries—many of them in Africa—have not seemed to benefit. Globalization seems to have passed them by.
Even so, there is no point in asking whether we should be for or against globalization. Globalization is here to stay: the reality is that we already live in a global economy—where flows of trade, capital, and knowledge across national borders are not only large but are also increasing every year. Countries unwilling to engage with other nations risk falling farther behind the rest of the world in terms of both income and human development. That way lies the very real threat of marginalization.
Rather, the right set of issues to raise is how best to take advantage of the opportunities presented by the growth and growing openness of the world economy; how best to live with the unavoidable difficulties that globalization may bring; and how to modify the system to make it operate better.
Economic policies for a globalized world
What should policymakers, especially African policymakers, do to reap the benefits of economic globalization? Let me mention two priorities. First, trade liberalization helps open economies up to competition and deepens their integration into the world economy. Some African countries have made major progress in liberalizing trade over the past several years. For example, in recent years there has been important progress in adopting a common trade policy and a relatively open customs union in CEMAC [Economic and Monetary Community of Central Africa]. Such progress could now be strengthened and extended to other parts of sub-Saharan Africa. In light of the small size of many African economies, the impulse toward regional integration is extremely important. But regional integration will help increase long-term growth only where it is truly trade increasing and not an attempt to erect new protectionist blocs.
Progress on trade liberalization in Africa should be matched by the opening of advanced country markets to the exports of African producers. The IMF will continue to make this case vigorously whenever and wherever it can.
Second, let me talk about the importance of effective social spending. Globalization delivers its economic benefits in part by promoting change, and the rise and fall of different industries, and economic activities. The process is not a painless one. Economists talk in the abstract about labor moving from low-productivity to high-productivity uses. But it is individuals and families who have to do the moving. If they feel threatened and unable to cope with the process of change, they will resist it, and the economic benefits will be lost.
The answer is to invest in the human capital of the poor—increasing their access to health care, education, and economic opportunity—as well as to provide a cushion during the process of adjustment, in the form of efficient social safety nets. In the past, the IMF perhaps paid too little attention to this need, but I believe we have now given it the right priority in the programs we support through our Poverty Reduction and Growth Facility (PRGF), in partnership with the World Bank.
In this rapidly changing world economy, investment in education takes on special significance. The new technologies are knowledge and skill intensive, and there is a need to train people to work with those technologies. But the training cannot be too narrow, for adaptability to change is another key to success in the modern world.
The HIV/AIDS pandemic is exacting a heavy toll in human lives. It is not only a humanitarian tragedy on an extraordinary scale but also a potentially massive economic disaster for the continent. All the more reason, then, to seek to reduce the incidence of HIV/ AIDS through public health policies that have worked in several African countries.
As important as the amount of money spent is the way it is spent. This underlines the importance of good expenditure management, so that povertyreduction priorities are addressed within a well-run overall budget.
There are useful lessons here for the beneficiaries of the Heavily Indebted Poor Countries (HIPC) Initiative. Twenty-two countries—18 of them in sub-Saharan Africa—are already at the point at which they are beginning to receive debt relief under the initiative. On average, it is reducing their debt-service obligations by half. It is essential that these resources be used effectively for poverty reduction, both for its own sake and also because waste will play into the hands of those who argue that aid flows are squandered and should be reduced.
Role of industrial countries
The international community has a responsibility to provide an external environment that will allow Africa to fulfill its potential. The industrial countries bear a particular responsibility in four areas:
- guaranteeing African exporters unfettered and tariff-free access to their markets, especially for agricultural products;
- supporting countries that are trying to boost growth and tackle poverty by increasing aid flows and guaranteeing them over longer periods;
- doing more to help Africa bring peace to its war-torn regions. In addition to direct efforts to resolve and prevent conflict, this means restraining arms sales and countering the smuggling of raw materials and natural resources to finance wars; and
- helping the continent fight the spread of the HIV/AIDS pandemic.
The IMF, the World Bank, and later the WTO were set up as part of an implicit bargain: that countries that elected to play by the rules of the international system would be helped both by the basic progrowth design of the system and by loans and other assistance when in special need. That is one of the reasons why the IMF’s Managing Director, Horst Köhler, reaffirmed the role of the IMF in its poorest member countries through the PRGF shortly after he took office last May. That is also why we in the IMF have been so intensively engaged in seeking to improve the ability of the IMF and the international economic system to prevent massive crises of the types seen in the last decade, and to mitigate them when they occur.
The issue of the representation of developing countries in the international institutions has been raised. With regard to the IMF, given that the Executive Board prefers to work by consensus, the quality of the representation and the number of voices, as well as the share of votes, are important. With regard to the quality of African representation, the Executive Directors from sub-Saharan Africa are first-rate representatives of their constituencies. However, their constituencies have many members, and consideration could be given to providing each of them with extra resources to deal with the exceptionally heavy workload.
Promoting growth and reducing poverty are best achieved by embracing the global economy, improving policies, and strengthening institutions. This will be a difficult task, but one that can be accomplished, provided that policymakers in Africa and the international community alike are ready to do their part.
That is what the IMF believes. But some ask whether Africa is different. Pessimists claim that the continent is predestined to endure low growth, in part because it is tropical and suffers from systemic diseases such as malaria; because the quality of its soil is poor; and because many of its countries are landlocked.
We do not share this pessimism. The success of countries around the world that have managed to make serious inroads into poverty—in Asia and else-where—suggests that others, including African countries, can do likewise. In recent years, we have seen more and more countries adopting prudent, market-based economic policies and seeking integration into the world economy, all of which is conducive to growth and poverty reduction. Many of them have done so with advice and support from the IMF and World Bank. This strategy is beginning to show encouraging results; and we in the IMF, working closely with our colleagues in the World Bank, are committed to doing everything we can to help you strengthen and deepen these results.