Meeting in Dubai, United Arab Emirates, on September 20-24, the world’s top economic policymakers and financial leaders agreed to step up efforts to secure a stronger global recovery, resume stalled trade talks, accelerate efforts to achieve the UN Millennium Development Goals, and reconstruct Iraq. The IMF-World Bank Annual Meetings, held for the first time in the Middle East, attracted representatives from all 184 member countries of the two institutions, plus thousands of others—including banking executives, representatives of civil society organizations, academics, and journalists—for events on the sidelines.
Gordon Brown, the U.K. Chancellor of the Exchequer and Chair of the IMF’s ministerial steering committee—the International Monetary and Financial Committee (IMFC)—hailed the meetings as a success, telling reporters “we were determined to show that economic change round the world need not impoverish millions of people but can enrich even the poorest communities” (see IMFC press briefing, page 274). His sentiments were echoed by IMF Managing Director Horst Köhler, who told the ministers in his closing remarks that “these meetings have underscored that the multilateral spirit of cooperation is intact and strong.” After the recent breakdown of global trade talks in Cancún, he said, this reassertion of multilateralism is “the most important outcome of this meeting”
For the economic policymakers, the top agenda item was the need to secure the nascent strengthening of the global economic recovery. Köhler told delegates in his opening address that the “increasing signs of a recovery in a number of regions are a welcome indication that the world economy may have turned the corner” (see page 268). The IMF is forecasting global growth at 3.2 percent in 2003, rising to 4.1 percent in 2004, just a little bit above normal. IMF Economic Counsellor Kenneth Rogoff told reporters before the IMFC meeting that immediate geopolitical uncertainties have receded, aftershocks from the bursting of the equity price bubble are dissipating, and the massive policy stimulus put in place after the downturn is starting to bear fruit (see World Economic Outlook, page 295).
However, Köhler cautioned that “nurturing the recovery will require vigilance and decisive economic policy management” He cited two key risks: large global current account imbalances and persistent high levels of public debt in many countries. He insisted that countries now need to strengthen the foundations of domestic growth and allow “more flexibility in exchange rates where appropriate”.
This remark came on the heels of a Group of Seven call for “more flexibility in exchange rates☠for major countries or economic areas to promote smooth and widespread adjustments in the international financial system, based on market mechanisms” (see Group of Seven communiqué, page 278)—a call that the markets interpreted as a new willingness to see the dollar decline. There was also some confusion, however, as U.S. Treasury Secretary John Snow was reported initially to have referred to this Group of Seven statement as a “milestone change,” but subsequently to have said that the U.S. strong-dollar policy was unchanged, while other participants, such as officials from the United Kingdom and Japan, were reported to have said that nothing had changed.
As for surveillance, Köhler told ministers that he was encouraged by the IMFC’s endorsement of the IMF’s framework for surveillance, which had been developed in recent years to help prevent financial crises and promote stability and sustained global growth. “I believe our work has contributed to the remarkable resilience of the international financial system in the face of unprecedented shocks during the past three years” Going forward, he said, the IMFC is asking the IMF to step up its surveillance of systemically important countries and spillovers from capital markets.
Casting a shadow over the meetings and the global economic outlook, however, was the collapse of trade negotiations at the World Trade Organization ministerial meeting in Cancún, Mexico, a week earlier. Cancún should serve as a “wake-up call” for the international community, Köhler said. “We all know that trade is the most powerful force for global growth and poverty alleviation. And this force works best when applied in a multilateral, rules-based context. What is needed now is political will on all sides to overcome the impasse and return to the negotiating table as soon as possible. More than ever, success will depend on the leadership of the major industrial countries—and agriculture remains the key to unlocking decisive progress. And I reiterate the IMF’s commitment to work on ways to provide targeted financial support to countries to cushion possible temporary adverse effects from implementing their commitments under the Doha Round”
The IMFC and joint IMF-World Bank Development Committee took the unusual step of asking the Bretton Woods institutions to prepare a report on what is at stake for the global economy in the Doha Round and to send it to heads of state and trade and finance ministers with a letter urging a return to the negotiating table. But the Group of 24 developing countries made it clear that they believed the rich countries were to blame for the Cancún breakdown, citing their unwillingness “to remove barriers to agricultural imports and subsidies to their farm producers” (see Group of 24 communiqué, page 280). Fuad Siniora, Lebanon’s Minister of Finance and Chair of the Group of 24, told reporters that “the developing countries are feeling that they are being discriminated against, that they are not being given a chance to develop their countries, and that the terms of trade are not in their favor.” He worried that if the issue were not tackled, countries would resort to destructive, beggar-thy-neighbor policies, erecting even more walls against trade, to the detriment of all parties.
Reaching the Millennium Development Goals
On the poverty-reduction front, the Development Committee called upon the World Bank, working with the IMF, “to examine the merits of various policy options, such as an international financing facility, to mobilize the substantial additional resources that are needed over the medium term and can be effectively used to achieve development results and scale up progress toward the Millennium Development Goals”—which include halving the 1990 poverty rate by 2015 (see Development Committee communiqué, page 275). In relation to donor countries’ incomes, which are at their highest levels ever, official development assistance is at an all-time low—down to 0.22 percent of their GNP from 0.5 percent in the early 1960s.
World Bank President James Wolfensohn told the delegates that “too few control too much, and too many have too little to hope for. Too much turmoil, too many wars. Too much suffering.” He called for a new global equilibrium, a new balance in the relationship between rich and poor nations which is essential not just for poverty reduction but for security and peace. After all, he said, in a world of 6 billion people, 1 billion own 80 percent of global GDP, while another billion survive on less than a dollar a day; rich countries spend $56 billion a year on development assistance, while they spend $300 billion on agricultural subsidies and $600 billion for defense; and poor countries spend $200 billion on defense—more than what they spend on education.
The Group of 24 urged rich countries to provide “a substantial, timely, and predictable amount of additional official development assistance” in the short and medium terms, especially in sub-Saharan Africa, to meet the Millennium Development Goals—on top of respecting long-standing commitments to open up markets. Burkina Faso’s Budget and Finance Minister, Jean Baptiste Compaore, told reporters that for countries like Burkina Faso, where over 40 percent of the population depends on cotton, if cotton is threatened, “then the very objectives that we are all trying to achieve under the Millennium Goals are going to be jeopardized”(see African finance ministers’ press conference, page 288).
As for Iraq, the financial leaders reaffirmed their support for a multilateral effort to reconstruct and redevelop the war-torn country, following appeals by Köhler and Wolfensohn to end the bickering and let global lenders get on with their job. The next step is a donors conference in Madrid October 23-24, during which the multilateral institutions, led by the World Bank, are expected to present a comprehensive needs assessment. Ministers from the U.S.-backed Governing Council attended the Annual Meetings as “special invitees.” They announced a program of market-based economic reforms and said that the country needed about $70 billion for reconstruction. Köhler told reporters at the closing press conference that a critical element of any reform program will be its “ownership” by the Iraqi people.