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Globalization
and International Cooperation
| Much
of the recent strength of the global economy has been
due to gains from free trade in goods and services. Market-driven
specialization, supported by the global deployment of
investment, has boosted productivity, raised living standards
around the world, and lifted millions of people out of
poverty. As the process has unfolded, the position of
many emerging markets, especially here in Asia, has changed
dramatically-and for the better.
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"Strength
of the global economy has been due to gains from free
trade in goods and services." |
Article
by
Dr.
Zia-Ur-Rehman |
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Some have become major sources of demand as well
as supply in the world economy. These changes have been made
possible not only by new technologies but also by increased
reliance on market forces, and by governments and central banks
managing their economies with a more medium-term perspective.
But if we are to continue to reap these benefits, we must confront
the challenges of globalization. We must work together to reduce
the risks from large and persistent payments imbalances. We
must work together to reduce the risks of capital account crises.
And as Chairman Bernanke has stressed, we must work together
to make sure that the benefits of global economic integration
are more widely shared, especially with the citizens of low-income
countries. The Significance of IMF Reform The Fund is committed
to help our members meet these challenges. This is the vision
that is at the heart of the Medium-Term Strategy. Over the past
year, we have begun a comprehensive process of reform, to better
meet the needs of all our members. I have already talked about
our progress on reform of quotas and voice. Let me now talk
about two other areas: reforms of surveillance, and measures
to strengthen crisis prevention, especially in emerging markets.
First, surveillance. This work-monitoring the global economy,
advising individual members on their economies and assessing
their policies-is perhaps the greatest single service that the
Fund provides. To improve this service, we are sharpening our
focus on exchange rates and intensifying our work on capital
and financial markets. One of the lessons we all learned from
the Asian crisis is that nasty surprises in the financial sector
can lead to even nastier surprises in the real economy. Effective
financial sector surveillance is critical if we are to avoid
such surprises in the future. Another important step towards
improving surveillance is a new tool: Multilateral Consultations.
The first of these focuses on narrowing current account imbalances
while maintaining robust global growth. The consultation has
begun, and we are making progress. I hope the consultation will
produce a common understanding on policies designed to produce
actions in several countries together, and also on the role
the Fund can play as a forum for implementing the common approach.
A second key area of our reform program is centered on crisis
prevention, especially for emerging markets. At the moment,
times are good in financial markets. But financial crises have
not disappeared from the face of the earth. And the time to
prepare for them is now. The best defense against financial
and economic crisis is good policies at home. Emerging markets
all over the world-in Eastern Europe, in Latin America, and
here in Asia-know this very well. Many have acted to reduce
their vulnerability. Some could go further-by reducing public
debt, strengthening financial systems and enhancing the flexibility
of their economies. The international community, through the
Fund, should also be prepared. We should ask ourselves whether
we need new instruments to make sure that the financial support
we provide is sufficiently predictable, flexible and substantial
to enable us to meet the challenges our members could face.
With your help, we will be working on this important issue over
the coming months. Let me now say a few words about the position
of low-income countries. Many countries are making progress:
growth in Africa over the last two years is the highest it has
been in a decade, and average inflation is the lowest in a quarter
of a century. But many low-income countries have yet to achieve
integration into the global economy. Doing so is critical for
their future prosperity. And a look at the conditions in which
many people in low-income countries live shows that there is
still a very long way to go. The Fund is fully committed to
helping low-income countries meet the Millennium Development
Goals. We will be most effective if we focus on what we do best,
and on tasks where we can make the greatest contribution. In
doing so, we will work in partnership with the World Bank and
other development agencies. The Fund and the Bank both took
an important step in the past year, in implementing the Multilateral
Debt Relief Initiative. In the Fund's case, this wiped out debt
owed to us by 22 poor countries. Now we need to help countries
reap the benefits of higher debt relief and higher aid. One
critical task is to avoid a new buildup of unsustainable debt.
I believe that creditors share with debtors not only a responsibility
but also an interest in this. The Fund can help both creditors
and debtors by assessing debt sustainability. But the Fund's
assessments will be most useful if all creditors provide information
on lending, and make it available to the Fund and the Bank,
and I call on them to do so. This is an area where we must not
allow history to repeat itself.For their part, low-income countries
must continue to implement good policies and structural reforms.
Donors must turn the promise of higher aid into a reality, and
make their aid more predictable, and less subject to an array
of different conditions.
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